Fre= quently Asked Questions About RESPA as provided by:

Presented as a pu= blic service by Randy Templeman

RESPA stands for "Real Estate Settlement Procedur= es Act." This is the law th= at says that you should be given certain information when you are purchasing a home. The Department of Housi= ng and Urban Development (HUD) enforces only what is covered under the RESPA law. = Here are some questions and answers= that will help you to understand the law and your rights.

Applying For A Loan And Before The Settlement =

Question: I made an application for a loan, b= ut I did not get a Settlement Costs Booklet or a Good Faith Estimate. What should I do?

Answer: = You should contact the lender or mortgage broker and ask for them. The lender or mortgage broker is re= quired by RESPA to send these documents out within three days of receiving the application. The lender is only required to give you a booklet if you are purchasing a home. If the len= der denies your application within three days, it is not required to give you t= hese documents.

About the Good Faith Estimate

Question: Should I expect the Good Faith Esti= mate to list the exact charges that I will pay at settlement?

Answer: = No. The Good Faith Estimate is only an estimate or range of charges. For example, the lender may not know the costs for a settlement agent that you choose, or the exact amount that will be collected for an escrow account for taxes and insurance.

Question: What rights do I have if the charge= s I must pay at settlement are higher than those listed on the Good Faith Estim= ate?

Answer: = RESPA does not give a consumer the right to sue in this circumstance. The best protection is to let the l= ender and settlement agent know that you will want to see the HUD-1 Settlement Statement one day in advance. You should question any amount that you do not understand.

Question: A builder is offering to pay my clo= sing costs or give me an upgrade package only if I agree to use his mortgage company. Is this legal under = RESPA?

Answer: = Yes. While a builder cannot require you to use a mortgage company with whom he is affiliated, a builder is allowed to offer you a discount if you use a speci= fic company. Under RESPA, the builder cannot charge you more for the home if yo= u do not use his affiliated mortgage company.

Question: Is there a standard Good Faith Est= imate form?

Answer: = No. However, for the first time ever, = HUD is proposing that mortgage lenders and brokers provide consumers with a standa= rd Good Faith Estimate. You can = view a copy by clicki= ng here.

Section 10: = Escrow Accounts

Section 10 of the Real Estate Settlement Procedures Act (RESPA) limits the amount of money a lender may require the borrower to hol= d in an escrow account for payment of taxes, insurance, etc. RESPA also requires the lender to p= rovide initial and annual escrow account statements. The newest escrow account regulations became effective in October 1997.

What is covered under RESPA <= /p>
Question: Does RESPA require borrowers to ma= intain an escrow account?

Answer: = No. It is the lender's decision whether the borrower must maintain an escrow accou= nt for the purpose of paying taxes and other items. The HUD regulations only l= imit the maximum amount that a lender can require a borrower to maintain in an account.

What RESPA does NOT cover and who can help

The following questions are frequently asked by consum= ers about the loan process, but the issues are not covered under RESPA. For more information regarding these issues, contact the agency that administers the governing law. <= /p>
Question: I a= pplied for a loan at 7 1/2 percent, but when I got to settlement the lender charge= d me 8 percent. Is this a RESPA violation?

Answer: = No. However, the Truth-in Lending Act (TILA) requires that you get a disclosure concerning the interest rate. TILA is administered by the Board of Governors of the Federal Reserve System

Question: I asked my lender for a copy of the= real estate appraisal but the lender has not sent it. Is this covered under RESPA? <= /o:p>

Answer: = No. Under the Equal Credit Opportunity Act (ECOA) the mortgage broker or lender must tell you how and when you can ask for a copy of your appraisal. ECOA is administered by the Board of Governors of the Federal Reserve System.

Question: My lender says the home I am buying= is located in a flood zone and I must purchase flood insurance. What can I do if I don't believe th= is information is correct?

Answer: = The National Flood Insurance Reform Act of 1994 provides for lenders to purchase flood insurance on behalf of borrowers/owners of properties in a special fl= ood hazard area. It is administer= ed by the Federal Emergency Management Agency (FEMA). If you disagree with the lender abo= ut whether the property is located in a special flood hazard area, you may mak= e a request to the FEMA Mapping Assistance Center to determine whether the prop= erty is located in such an area. T= he toll free number for requesting FEMA re-determination is 1-877-336-2627.

About Escrow Account Cushions

Question: Does RESPA require lenders to maint= ain a cushion?

Answer: = No. The RESPA statute and regulations d= o not require the lender to maintain a cushion. However, since 1976 the RESPA sta= tute has allowed lenders to maintain a cushion equal to one-sixth of the total amount of items paid out of the account, or approximately two months of esc= row payments. If state law or mor= tgage documents allow for a lesser amount, the lesser amount prevails.

The new accounting method generally requires borrowers= to maintain lesser amount in the account than the single-item method predomina= tely used by lenders. However, many lenders have recently increased the escrow account cushion to the maximum allowed by law.

The recent regulations require lenders to reduce the s= ize of the cushion in some accounts. Unfortunately, to avoid customer disapproval, some lenders may be giving their customers the impression that the HUD regulations require them to make this increase. This is a false impression. The lender, not HUD, has chosen to increase the cushion.

Question: Can HUD require lenders to pay inte= rest on escrow accounts?

Answer: = No. In 1992 and 1993, legislation was introduced in Congress that would have required lenders to pay interest on escrow account balances, but it never passed. Some states do require interest to = be paid on escrow account funds, but many do not.

Variations in Escrow Accounts and Payments

Question: My escrow account payments went up, rather than down. Why?

Answer: = There could be a couple of reasons why your servicer is charging more for your es= crow account. First, your bills ma= y have gone up and the account changed to reflect that. Or, the servicer has changed the am= ount of cushion to the maximum amount allowed by RESPA. Check your statement from the servi= cer. You may also want to check your loan documents to figure out what is the appropriate cushion. If the mortgage loan documents are silent on the amount of the cushion or pre-accrual practices, then the RESPA "two month" limits apply, unless state law provides for a lower amount.

Disbursement Date

Question: What is the disbursement date for p= aying escrow account items?

Answer: = The disbursement date means the date on which the lender actually pays an escrow item from the escrow account. However, the lender must pay the it= ems in a timely manner, that is, on or before the deadline to avoid a penalty. This is required as long as the borrower's payment is not more than 30 days overdue. Borrowers should review their annual escrow statement to make certain the lender did not make late payments and charge any penalties to the borrower's account.

Dealing with Your Lender or Insurance Company: Taxes, Insurance, RESPA and Escrow=

Question: I got a notice from the county that= my lender did not pay my taxes on time and the county is assessing a penalty. = Do I have to pay this bill?

Answer: = Send the bill to the lender. The lender should pay the penalty for failing to pay the taxes on time as long you were current in your mortgage payments. <= /span>If the lender refuses, you may wish to follow the guidelines for filing a complaint.

Question: Are lenders required to pay taxes o= n an annual basis if a discount is offered to the consumer?

Answer: = No. The Department published a new rule= in the Federal Register in January 1998. The rule clarifies what a lender sh= ould do when a taxing jurisdiction offers a choice of payment on an installment basis or an annual basis. If = there is a discount to the consumer when disbursing on an annual basis or there i= s an additional charge for disbursing on an installment basis, the lender may disburse on an annual basis. = Otherwise, the lender should disburse tax payments on an installment basis. The borrower and the lender may mut= ually agree to another disbursement basis or date. The Department encourages lenders to follow the preference of the borrower.

Question: What steps should I take if the len= der does not pay my hazard insurance on time or at all and my insurance is canceled?

Answer: = Lenders are required by Section 6 to make escrow account disbursements on time. If a lender fails to do so, a borro= wer may bring a private law suit under this Section. Therefore, if you incur any damages= due to the lender's negligence, you may wish to consult an attorney.

You should also contact your lender immediately and se= nd a copy of the bill. Some lender= s list a special address and/or FAX number for insurance and tax bills. Keep checking with the insurance co= mpany to make certain the bill is paid. You may wish to pay the insurance company directly to avoid cancellation of your policy and then seek a refund from your lender. Keep copies of all your corresponde= nce and payments. If you incur any damages due to the lender's negligence, you may wish to consult an attorney= .

Question: I got a notice that my hazard insur= ance has been canceled. My lender force-placed hazard insurance with a different company and it costs a lot m= ore. Can a lender do this?

Answer: = As long as your mortgage payment is not more than 30 days late, Section 6 of RESPA requires the lender to make escrow payments, for taxes, insurance, etc., in= a timely manner. You should wri= te to your lender and complain. If = your lender does not refund the difference or otherwise resolve your complaint satisfactorily, you may wish to file a complaint with HUD or the Consumer Protection Office of your State Attorney General’s Office. You may also wish to consult an att= orney.

Question: My loan was transferred to a new le= nder. I made my loan payment on time, but= to the old lender. Can I be char= ged a late fee?

Answer: = No. For 60 days, neither lender may cha= rge a late fee as long as you make your payment on time to the previous lender or= to the new lender. Your lender m= ust send you a notification 15 days before your payment is due to the new lende= r. Both lenders must provide you with certain information about the loan transfer, including: when the payment is= due to the new lender, the new lender's address, toll-free telephone numbers, etc.

Question: What steps should I take if I think= the lender is requiring too much money in my escrow account?

Answer: = First, figure out the maximum amount RESPA allows to be required in your escrow account from the example. If = you still believe your lender is requiring too much money, you should contact y= our lender for an explanation.

Section 6 of RESPA provides that borrowers may make a "qualified written request" to the lender concerning the servicin= g of their loan account. The reque= st should not be included with the monthly mortgage payment. The lender must acknowledge the com= plaint within 20 business days and must resolve the complaint within 60 business d= ays by correcting the account or giving a statement of the reasons for its position. If you do not get a satisfactory answer from the lender, you may wish to file a complaint with = HUD. You should continue to make y= our mortgage payment during this time.

Consumer Tips: Do's

Do ask lenders what fees they charge, as well as the interest rate and points, when shopping for a loan.

Do ask the builder whether you are required to use a c= ertain provider in order to get a special concession.

Do compare the costs of different settlement service providers before agreeing to use one to whom you were referred. =

Do ask to see the HUD-1 Settlement Statement a day bef= ore settlement, and compare the charges with those listed on the Good Faith Estimate.

Do question the lender and settlement agent about any = charges you do not understand.

Keep making your mortgage payment on time, even if you= have sent a complaint to your lender.

Do forward any tax or insurance bills you receive, immediately to your lender. (= If the lender is supposed to pay the bill).

Do check your annual escrow account statement for mist= akes.

Do make a "qualified written request" when a= sking your lender for information or making a complaint.

Do read the FAQs about Escrow Accounts carefully before filing an escrow complaint with a banking or government regulator.