RESPA - Limiting Fees (sometimes). Tracy Lee Parker wrote a blog about RESPA (Real
Estate Settlement Practices
Act) helping bring down closing costs, and that gave me an idea for this quick explanation of what RESPA does and doesn't limit in the loan process. The limits are on the plus side of the situation. Any of these items can drop in price and that is fine.
First off, one must understand that there are actually three categories of closing expenses from RESPA's viewpoint.
First are those which can drop but cannot go up after they are disclosed to the client. These include: Lender's
- Origination Charge;
- Points for Specific Interest Rate Chosen;
- Adjusted Origination Charges, and Transfer Taxes.
If the amounts actually would have gone up, the lender has to adjust their amounts to bring them back in line.
Next are the amounts that can deviate from the disclosed amount by up to 10% (in this case, if the change exceeds 10% more - the lender has to make the difference available to the borrower):
These are required services that the lender chooses (or the borrower chooses to use company identified by lender) - like Title services, and Title Insurance; and government recording fees. The 10% differential is on the sum of all this category - so if one goes up and another down -- they could still be within the 10% limitation.
The third group is one that most people do not seem to know about. These are the closing costs which do not have a cap on them. No matter how high the cost goes (above the disclosed amounts) the borrower is still responsible for paying all of them. These items include things the borrower can shop for (Like Title Services, etc.) but they choose to use a company that was not listed by the lender. This group of costs also include: initial escrow deposit, daily interest charges, and homeowner's insurance.
As Tracy pointed out, this information is summarized and compared for the borrower as part of the HUD-1 documentation at the very first of the closing process, so the borrower will know exactly where they stand.
If you are working with a good loan officer and lender, they will probably not even be off by 5% in the second category, and they will not have any problems with meeting the first one. Regarding the initial escrow deposit and daily interest charges, I know that we normally come in lower on those as well.
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