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Real Estate Settlement Procedures Act: What is it? Real estate license exam questions.
Dec 11, 2024
In this video, we'll dive into the Real Estate Settlement Procedures Act (RESPA) and explore its purpose in protecting consumers during the home buying process.
We'll cover the key provisions of RESPA, including disclosure requirements and prohibitions against kickbacks and referral fees.
Join us to learn more about RESPA and how it impacts real estate professionals and consumers alike.
Here are the chapters for this video. Feel free to jump around accordingly:
0:00 Introduction
0:21 What is the Real Estate Settlement Procedures Act?
1:13 Components of RESPA
1:40 How RESPA is Applied
2:35 What Loans Does RESPA Cover and NOT Cover?
3:03 Prohibited Acts Under RESPA
3:30 Who Enforces RESPA?
3:50 RESPA Penalties
4:12 Avoiding RESPA Penalties
4:56 Problems With RESPA
5:31 RESPA Amendments
7:17 What Do You Need to Know for the Exam?
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0:00
the real estate settlement procedures
0:01
act or respa protects home buyers by
0:03
requiring lenders to disclose terms of
0:05
the real estate settlement process a
0:07
real estate agent who violates this act
0:09
can faces severe penalties this makes
0:11
respa a crucial part of the real estate
0:13
exam so students must understand it
0:16
hello everybody it's Zach here from real
0:17
estatelicensewizard.com today we're
0:19
talking about the real estate settlement
0:20
procedures act let's get started so what
0:22
is the real estate settlement procedures
0:24
act well respa requires that lenders and
0:26
mortgage brokers provide home buyers
0:28
with disclosures regarding the real
0:31
estate settlement process this act also
0:33
known as regulation X protects home
0:35
buyers from predatory lending agreements
0:38
now before we understand how respo works
0:40
we must understand what a settlement
0:42
service is a real estate settlement
0:44
service helps home buyers with the
0:46
closing process after purchasing a home
0:48
these organizations generally provide
0:51
title insurance or offer Escrow Services
0:53
so why was respa passed before respa
0:56
there were a few laws regulating these
0:57
types of services but nothing
0:58
substantial the this meant that lenders
1:01
could get away with abusive behaviors
1:02
including Dalling out predatory lending
1:05
terms that's why respo was passed in
1:07
1974 to protect borrowers from these
1:10
practices and support a fair housing
1:12
market now there are two components of
1:14
respa one to provide borrowers with
1:17
timely mortgage disclosures and two to
1:19
prevent predatory lending practices
1:21
under respa home buyers must be made
1:23
fully aware of mortgage loan terms
1:26
before entering into the settlement
1:28
respa also provides that lending
1:31
companies cannot engage in illegal
1:33
lending practices now under respa
1:35
borrowers must submit the following loan
1:37
terms to be considered for a mortgage
1:39
loan these are the six pieces of
1:41
information for respa name income social
1:43
security number property address and
1:45
estimate of the property's value and
1:47
loan amount so how does respa protect
1:49
home buyers well respa protects home
1:51
buyers from unjust practices and
1:52
surprise fees and mortgage loans under
1:54
arrest spot lenders have to be upfront
1:56
about the cost of their real estate
1:58
settlement Services they must disclose a
2:00
good faith and estimate of how much the
2:02
borrower will pay this allows consumers
2:05
to make informed decisions and shop for
2:07
the best deal respa also prohibits
2:09
mortgage and real estate companies from
2:11
adding Kickbacks and referral fees to
2:13
the cost of a real estate settlement
2:15
service this saves home buyers money by
2:18
ensuring they only have to pay for the
2:19
cost of the actual work being done
2:21
finally respa allows home buyers to seek
2:24
help if a mortgage company overcharges
2:26
or takes advantage of them if a lender
2:29
includes hidden fees in a home loan home
2:31
buyers are protected under federal law
2:33
and will not have to pay these charges
2:34
so what loans does respite cover well
2:37
the real estate settlement procedure act
2:39
covers all federally related mortgage
2:41
loans for one to four Family Properties
2:44
and I will put a list on the screen of
2:47
what these loans include so Home Loans
2:49
Home Improvement loans refinances equity
2:51
lines of credit reverse mortgages and
2:53
even lender approved assumptions now
2:55
there are loans that respite does not
2:57
cover and I'll put those in the screen
2:58
as well so extension of credit to the
3:00
government loans for businesses loans
3:02
for commercial purposes and obviously
3:04
loans for agricultural purposes so let's
3:07
do some examples of predatory lending
3:09
tactics that Force home buyers to pay
3:11
more that were prohibited by respa so
3:15
one offering Kickbacks and referral fees
3:17
two requiring large escrow account
3:20
balances three inflating costs of
3:22
services four bribing in exchange for
3:25
referrals five not disclosing good faith
3:27
estimated settlement costs and then six
3:29
demanding title insurance so who
3:31
enforces this law well it's the Consumer
3:34
Financial Protection Bureau it's
3:36
important to note that home buyers
3:38
obviously must bring up the claim no
3:40
matter then one year after a violation
3:42
or potential violation has occurred
3:44
otherwise the cfpd will be powerless to
3:47
seek retribution for the borrower so
3:49
what are the penalties for violating
3:51
respa well it's going to depend on the
3:53
severity for example creditors and real
3:55
estate brokers who accidentally violated
3:57
respa may have to pay only like 100
3:59
bucks however more serious offenses can
4:01
result into fines of like ten thousand
4:03
dollars or even a year in prison in
4:06
private settlements violators may even
4:07
be fined an amount equal to three times
4:09
as much as the charge paid for the
4:12
service so how do parties avoid
4:13
violating a respa well for lenders they
4:16
need to ensure that they properly
4:18
disclose the terms of all real estate
4:20
settlement procedures they should avoid
4:22
sneaking in Hidden fees or offering
4:24
gifts to agents in exchange for
4:26
referrals real estate agents must also
4:28
be careful to avoid violating this act
4:30
the best way to follow a respa is to
4:33
never accept fees Kickbacks or other
4:34
items of value from Real Estate
4:36
Settlement Services while referral fees
4:39
are legal in some states their use is
4:41
not exactly recommended as it can lead
4:43
to severe legal risks a real estate
4:45
agent can still help their clients by
4:47
cross-promoting other businesses but
4:50
they shouldn't financially benefit from
4:51
doing so now there are some problems
4:53
with respa some credits say that respa
4:56
fails to eliminate all predatory lending
4:58
practices and it might not even be
4:59
strong enough for example lenders can
5:01
still legally provide captive Insurance
5:04
to the title companies they work with
5:05
many argue this is an example of a
5:07
kickback as it incentivizes real estate
5:09
agents to work with specific businesses
5:11
respa is supposed to prohibit this
5:13
Behavior but currently there's really
5:15
nothing in place to regulate this
5:17
particular practice ultimately critics
5:19
of respect call for amendments that will
5:20
ban the Sloop hole and end Kickbacks in
5:22
real estate once and for all now
5:24
obviously respa was Amendment since 1974
5:27
many amendments have been made to
5:29
improve and empower the law in 1990
5:31
there was something called the national
5:32
affordable housing act which required
5:35
that lenders provide disclosures
5:36
regarding the sale sign or transfer of
5:38
mortgage servicing this allowed home
5:41
buyers to clearly understand the
5:43
mortgage loan terms before greeting the
5:44
settlement there was also an amendment
5:46
in 1992 this one essentially made sure
5:50
that respa would cover subordinate lien
5:53
loans a subordinate lien loan or a
5:55
subprime mortgage is a loan against the
5:57
property with a low priority status
5:58
previous to 9 1992 subprime mortgages
6:01
were actually not covered under respa
6:03
and then there was 1996 where there was
6:06
the economic growth and Regulatory
6:08
paperwork reduction act which this just
6:10
clarified specific definitions and
6:13
reducing Mortgage Services provision
6:15
disclosures this helped streamline respa
6:18
and the real estate settlement process
6:19
for mortgage companies and borrowers
6:22
there was also a 2008 respa reform rule
6:25
that occurred this amendment required
6:28
that mortgage companies provide good
6:29
faith estimate form to give borrowers an
6:32
idea of settlement costs it also removed
6:34
outdated provisions and simplified the
6:37
real estate settlement process then of
6:39
course there was the 2010 Dodd-Frank
6:41
Wall Street reform and consumer
6:43
protection act which I believe I have
6:44
talked about a few times on this channel
6:46
but these laws essentially empowered the
6:48
Consumer Financial Protection Bureau to
6:50
actually enforce respa so under this
6:52
amendment lenders and real estate agents
6:54
who would violate the law would be
6:56
actually investigated and then there
6:58
were a couple more amendments in 2013
7:00
and 2014 and essentially those just
7:03
added Provisions for escrow payments
7:06
Force placed Insurance General servicing
7:08
and loss mitigation and you know what
7:10
guys I assume that there's going to be
7:12
even more amendments because this is
7:14
such a fast moving industry which is
7:16
another reason why you need to be
7:17
informed so what do you need to know for
7:19
the real estate exam well the real
7:20
estate settlement procedures act
7:21
requires lenders to disclose the costs
7:23
of the real estate settlement procedure
7:25
process for federally related mortgage
7:27
loans this act is essential for lenders
7:30
and real estate agents to follow and
7:31
understand now you do not need to be
7:33
aware of all those amendments that we
7:34
went over you do need to understand the
7:36
context of respa and how it's evolved
7:38
throughout the years and obviously what
7:40
its current form is so that's why I kind
7:42
of explain that you also need to be
7:44
aware of Kickbacks and its relationship
7:46
to respa because obviously that relates
7:48
to real estate professionals today so be
7:51
aware of those things and you'll be good
7:52
to go come exam day for more videos on
7:54
Fair Housing Fair lending and all that
7:55
good stuff click here and click here to
7:57
subscribe thank you guys so much for
7:58
watching until next time see yeah bye
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