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How Does RESPA Affect My FHA Loan?
In May 2009, Housing and Urban Development Secretary Shaun Donovan announced mortgage reforms intended to save home loan applicants time and money. The reforms, called the Real Estate Settlement Procedures Act (RESPA) becomes effective January 1, 2010, providing dramatic new transparency in the loan process for FHA borrowers and conventional loan applicants.
Under RESPA, lenders must provide specific information about the expenses borrowers must pay on their FHA mortgages, conventional loans or refinancing deals. These rules are the first new regulations in 30 years to help borrowers understand how much they must pay, when it is due, and how much the loan costs were at closing time compared to estimates given at the beginning of the process.
RESPA guidelines require lenders to provide FHA mortgage applicants and conventional loan borrowers with a "Good Faith Estimate". These estimates become mandatory in 2010 when you apply for a VA loan, FHA mortgage, FHA refinancing or homeowner bailout program. Under the new RESPA rules, Good Faith Estimates list all the details on loan terms, closing costs and related fees. RESPA helps borrowers get concrete information to budget for closing costs. RESPA also helps FHA loan applicants be informed borrowers--who wouldn't back out of a housing purchase if they aren't willing to pay the costs of the loan as specified in the estimate?
Another plus for FHA loan applicants and conventional borrowers is RESPA's 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. Not only does the HUD-1 Settlement Statement give you something to keep for your records should you need it later, you can also use this document if you must file a legitimate complaint about unfair lending practices. Requiring the lender and closing agent to provide this information to the borrower is a deterrent against predatory lending and loan fraud. It also helps deter those who try to issue loans with excessive, confusing paperwork.
The Good Faith Estimate and the HUD-1 Settlement Statement are part of a bigger campaign to reform the mortgage process. It's true that FHA loans and their lenders are held to higher standards, making them less of a risk for the average buyer, RESPA means all borrowers may apply for home loans with more confidence whether they are FHA home loans or conventional mortgages. The new requirements under the Real Estate Settlement Procedures Act begin on the first day of January, 2010.
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