Congress enacted the Real Estate Settlement Procedures Act (RESPA) back in 1974 in order to address problems in the real estate settlement process. It seems that Congress felt that they could legislate fair business practices and reduce fees and costs to home buyers through enlightenment about the settlement process and the associated costs that go with buying a home.
RESPA’s mission is to provide consumers with information relevant to the mortgage transaction and the various costs that will occur. The hopes in founding RESPA was that many of the various kick-backs and referral fees, once identified and disclosed, would be reduced.
The irony is that the opposite seems to have occurred. Real estate companies have created “related businesses” and are now in the business of providing loans and conducting their own real estate closings. Mortgage companies now are selling real estate. National referral companies have been formed in real estate, mortgage, and escrow businesses that solely make their income through legal “kick backs” as defined under RESPA.
Referral fees are far more prominent today than they were in the 1970’s, prior to RESPA. For example, how do you think companies like “Lending Tree” make money? They get referral fees from the lenders to which they send borrowers. Makes you wonder how they save you money …. Thank you RESPA!
Reforming Real Estate With RESPA Reform
New RESPA rules were updated in November 2008, most of which go into effect during January of 2010. In order to help clarify these changes, the Department of Housing and Urban Development (HUD) published a New RESPA Rule FAQs. The FAQs are organized by subject, cover multiple topics ranging from questions concerning effective dates, to filling out the new Good Faith Estimate (GFE) and escrow settlement (HUD-1) forms.
While I am certain that the intent of everybody involved in RESPA reform, from our politicians to our federal workers, is pure and well-meaning, I do not feel that we will see any real changes from these new initiatives. There are already too many documents involved in a real estate settlement and most home buyers and home sellers are fatigued.
Once this paper-overload fatigue sets in, the consumer will sign anything to be done with the process. This is why TRUST in your settlement company (law firm) and TRUST in your real estate company are so important.
Rely On Your REALTOR®, Not On RESPA
It is not enough that you know your real estate agent, make sure that she or he is a full-time professional working for a top real estate company. It is more common for people to be harmed through neglect and ignorance than it is for crooked business practices to affect the home buyer and/or home seller. Full-time professional REALTORS® stay current on relevant issues that could affect your pocket book in a real estate settlement.
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"The irony is that the opposite seems to have occurred." That sums up what happens when the federal government gets involved in issues. Good post.