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The Changing Face of RESPA

newsCome January 1, 2010, the new and improved Real Estate Settlement Procedures Act of 1974 (RESPA) will be fully en force. Considering this is the first sweeping change in the home buying process since 1974, it is worthy of our full attention. The new RESPA means more than new forms-it means major changes in the way real estate closings happen.

The key motive of RESPA’s new rules is to make sure consumers understand loan costs and binding parameters before singing the closing statements.

With mountains of paperwork at the closing table, there is little chance that borrowers are going to spend the many hours necessary to wade through the documents. What’s more, borrowers, especially would-be first-time homeowners, may be intimidated by the process and miss the opportunity to seek competing settlement services that could save them money.

As a real estate broker, here’s what you need to know: the new rules may impact your ability to refer business to title companies, inspectors and others you typically work with as part of the sales process. RESPA wants to make it easier for borrowers to shop for the lowest-cost, most convenient closing services by mandating borrowers receive a written list of settlement service providers. That comprehensive list includes closers, appraisers, real estate brokers, title examiners, attorneys, underwriters, pest inspectors, mortgage insurers, loan processors and other settlement service providers.

Since borrowers will receive a laundry list of competing settlement service providers, they may be inclined to shop around for the best price, even if it only means saving a couple of hundred dollars.

This is the crux of the matter as it relates to real estate practices and comes in the wake of industry abuses. Some in the real estate industry have received kickbacks for referring consumers to mortgage brokers, appraisers and other professionals along the road to homeownership. In some cases, those referrals may not have been in the best interest of the homeowner based on price or serviced provided. In other cases, the real estate agency owned the title firm or the appraisal firm at non-competitive prices.

As we move into 2010, be aware of how you might violate RESPA to avoid any issues. The chief concern is giving the appearance of kickbacks, whether in the form of money, ownership interest, marketing help or other arrangements. There is a fine line between collaboration and violation of RESPA and it can be a complicated issue.

The good news is, HUD announced that that it will be lenient in the first 120 days of enforcement of the new RESPA regulations going into effect January 1, 2010 so long as good faith efforts are made to comply. Still, in order to avoid any confusion, you should consult with an attorney about full compliance with the rules.

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  • http://BuilderCoupon.com John Pohly

    I wonder if this will affect the new home builders, many of which have their own in-house or preferred mortgage companies and title companies??

  • Doug Osgood

    “RESPA wants to make it easier for borrowers to shop for the lowest-cost, most convenient ”
    You make no reference to quality, competence and integrity. How will the buyer determine these important characteristics and will they take the time to go through the process?

  • http://www.bemovedbymichelle.com Michelle Gordon

    Our broker advised us long ago not to “refer” just one person for a job. So I have a list to hand out if asked. but, I agree with Doug, cheeper is not always better. There is a list of interview questions you should ask when looking for a service provider – weighing out everything to make a decission. I hope that they will some how make this clear.

  • http://www.theleirers.com Nancy Leirer

    How many should we include on our list. Is three enough? Should we copy the telephone book? I agree the choice is the client’s. Our job is to educate, empower and enable them to make good decisions during the real estate transaction. They come to us for our advice and guidance through a very intimindating process. We all know cheaper is not necessarily better. I am afraid a long laundry list will delay the process and have us working with providers we don’t know and systems that are as new to us as our client.

  • http://www.janetjohnsonhomes.com Janet Johnson

    So much for one-stop shopping! As most of our competitors also have ownership in title companies and mortgage companies, it will be interesting to see how this shakes out. I wonder how one gets a “comprehensive list” that will be useable? If you go to the website for the Wisconsin Reg & Licensing, I don’t believe there is a breakdown by location. Will a 3-choice list be considered “comprehensive”? Can’t wait to find out the details.

  • http://www.FrankKenny.com Frank Kenny

    Suggestion…always refer at least 4. That is 3 actual providers and then a reference to the phone book. This way you are covered and not setting yourself up for a problem.

  • http://www.amandaBrealty.com Amanda Beauchamp

    I am curious as how this will affect production builders as well as far as them using their preferred lender to offer incentives like point buy downs, covering closts costs and other perks.

  • Julie Lane, VP of Legal and Compliance

    John-Yes, RESPA affects all relationships that involve settlement service providers included on HUD-1 statements, such as mortgage and title.

    Doug-Absolutely you are correct that quality, competence and integrity are of great importance. It is also in the buyers best interest to do their due diligence as well. We provide many tips and guides for home buyers, including the HUD Home Buying Guide here: http://www.kw.com/kw/MortgageInformation.html

    To ensure you are in compliance with RESPA on all aspects, your best bet is to consult with a local attorney. Also, HUD recently began an outreach campaign for RESPA to help ease the transition. Here is a link to the press release and webcasts they will be offering: http://portal.hud.gov/portal/page/portal/HUD/press/press_releases_media_advisories/2009/HUDNo.09-218.

    Thanks for your comments,

    Julie

  • http://karenmcknight.com Karen McKnight

    I wonder how the new RESPA laws will affect our Keller Williams Market Centers where some of the owners are in joint ventures with mortgage companies.

    In the past Keller Williams was definitely safe because the profit from the Mortgage company goes into the profit sharing pool and then is distributed through our system to all agents who qualify for profit sharing by referring agents to Keller Williams.

    I imagine the Profit Pool aspect will still be within RESPA guidelines. What I wonder about is the complications of one person, or several people, being in ownership of both the market center and the mortgage company.

  • http://www.vapres.com Debbie Smith

    I wonder if this new regulation also will apply to the Banks that force consumers to use their services to send an offer (you must be pre-qualified with such and such bank ); or use their pre selected attorneys, and title companies. I am willing to bet that the regulation will not apply to banks. So this is just going to be more regulations for the Real Estate Professionals.

  • http://HomeSearchCa.com Dr. Ralph Muncaster

    Is it permissible in California, to give a non licensed person a monetary finders fee–say $500 upon closing–for a lead they provided. A recent attorney said okay, but I wanted another opinion.

  • http://www.augustalistingexpert.com/blog Joe Loomer

    A prominent local attorney and a lender briefed the RESPA changes (on GFEs and HUDs) at our market center this week.

    Between the GFE/HUD changes, the HVCC, and the TILA, it’s funny that HUD thinks this is going to make things easier and save Buyers money. They really just need to put down the crack pipe.

    An attorney (or title company) previously charging $700 (including abstract and fees) for a 45 minute closing now has to budget for at least an hour and fifteen minutes per transaction. That cost is certainly going to be passed on to the consumer, as will the lender’s increased time in ensuring they meet all the new guidlines.

    With an expected 1st or 2nd Quarter increase in FHA downpayment requirements and decrease in allowable seller contributions – it is nowhere near time to put our dog-eared “Shift” books up on the shelf.

    Navy Chief, Navy Pride

  • Dwight Zaudtke

    Somethings never change,the few bad apples in the industry always spoil it for the majority. Instead of new HUD and RESPA requirements, Why not have tougher requirements for lisensure in Real Estate,Title,Mortgage,Builders,Inspectors,Appraisors and other related real estate providers.

  • http://kw.com Susan Hubek

    There is always backlash when bad actors show up however, we are all focused on offering our clients the best and easiest process we can. We chose top mortgage and title people based on their track record and feel we are serving our clients in their best interest. I wish I had a dollar for every mortgage loan that didn’t close on time or at all which our in-house mortgage company then rescued and got to closing. It’s typical that any “government” protection will always cost more and take more time. In light of how bribery is working to pass unpopular and unnecessary programs today I think “they” need to look at their crooked practices and leave us alone. THEY caused this mortgage debacle, remember?

  • kimb

    New here, but wanted to comment on the respa stuff.
    Along with the List we will now have to provide, it may be a good idea to have a few questions in mind to give to your clients to ask of the people on the list. If we are going to empower the people, they should probably get a few questions answered by the people on the “list”.
    I think by doing this the client will either like the company they are asking the questions of or not like them and move on. and don’t forget to get the clients feedback so you can keep a log. here in Tx customer service is still KING.
    Just a thought

  • http://www.thsb.com Lisa

    I understand the provider list but do we have to calculate a charge for each provider listed or are we listing just the settlement charge for the closing?

  • http://mortgagenewsman.com/?p=846 Siobhan Morphew

    Thank you. Really useful entry.

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