Know Your RESPA

Not a lot of people like dealing with acronyms, as they find them confusing, but if you are in real estate this is one that you need to know – RESPA – The Real Estate Settlement Procedures Act.

The regulations that accompany RESPA actually represent one of the biggest shifts in the real estate industry since the Real Estate Settlement Procedures Act came into being. What do the new regulations mean? In most instances, they mean you will need to redefine your sales and marketing strategies. It may seem a bit confusing since you’ve likely been doing just fine prior to this new wrinkle being introduced.

Here’s a bit of history about the RESPA, which has a significant impact on everyone involved in real estate transactions. It came into being with the stated goal of standardizing the buying of residential real estate and the reforms in it, among other things, raised the bar for making disclosures to consumers and also streamlined loan processes.

What the RESPA was intended to accomplish is to provide consumers with the benefits of cost savings and better, more transparent disclosure of things such as settlement fees, loan terms and costs. You can well imagine how pleased buyers were to have this new legislation working “for” them and making their ultimate purchase less confusing financially.

Let’s deal with the “less financially confusing” part now. The US Department of Housing and Urban Development (or HUD for those who want another acronym to learn) figures that the more information about the loan application process a consumer has – all the way through settlement – the more informed consumers are; thus, they make smarter purchases. That makes sense if you stop to think about it, but also be aware that HUD has another objective and that is ensuring there is a competitive market for settlement service providers.

So what do we have in the final analysis? The RESPA rules and regulations now include changes to two previous forms (HUD-1 and the Good Faith Estimate document) and the term “required use” has finally been spelled out so people understand what it actually means.

The most interesting change, however, is one that deals with the yield spread premiums lenders pay for loans, and the fact it must be stated as a credit to the borrower upon closing. These reforms have been a long time coming and are a refreshing change to the industry, not to mention a benefit for consumers.

Deborah Barron is a Sacramento business lawyer, Sacramento employment lawyer, and Sacramento winery lawyer in California. To learn more, visit