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Under RESPA, new rules require lenders to provide specific information on all costs associated with an FHA mortgage, conventional loan or other home loan products.

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What Is RESPA and How Does It Affect My FHA Loan?

May 14, 2009

In early May, Housing and Urban Development Secretary Shaun Donovan announced mortgage reforms that would save home loan applicants time and money. The Real Estate Settlement Procedures Act, or RESPA for short, isn't scheduled to take effect until January 1, 2010, but the effect it will have on FHA borrowers and conventional loan applicants could be dramatic.

Under RESPA, new rules require lenders to provide specific information on all costs associated with an FHA mortgage, conventional loan or other home loan products. These rules--the first new guidelines in three decades according to the Department of Housing and Urban Development--will give borrowers specific details about how much they must pay, when it is due, and how much they actually paid at closing versus the estimated amount given previously.

RESPA forces lenders to give FHA mortgage applicants and other borrowers something called a Good Faith Estimate. Starting in 2010, when you apply for a VA loan, FHA mortgage, FHA refinancing or homeowner bailout program, the Good Faith Estimate gives specific details on all loan terms, closing costs and related fees. These rules give borrowers concrete information to budget for closing costs or even back out of a housing purchase if they aren't willing to pay the costs of the loan as specified in the estimate.

The other perk for FHA loan applicants and conventional borrowers is called the HUD-1 Settlement Statement. This document lists the estimated costs side-by-side with the actual amount of money paid when the deal was closed. This gives borrowers documentation for their records, plus ammunition to use if needed to file a legitimate complaint about unfair lending practices. Requiring the lender and closing agent to provide clear, concise information to the borrower is a deterrent against fraud, predatory lending and deliberately confusing paperwork.

When Housing and Urban Development Secretary Shaun Donovan announced these changes under RESPA, he said the Good Faith Estimate and the HUD-1 Settlement Statement were only part of a broader move to reform the mortgage process. While FHA loans and their lenders are held to higher standards (and less risky in principle), these laws provide the means for all borrowers to apply for home loans with more confidence whether they are FHA home loans or conventional mortgages. The requirements under the Real Estate Settlement Procedures Act take effect on the first day of January, 2010.

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