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Real Estate · Financing

What is RESPA and what does it require?

Correct answer

The Real Estate Settlement Procedures Act; requires lenders to provide Loan Estimate and Closing Disclosure forms, prohibits kickbacks for referrals, and regulates escrow accounts

  1. A A federal law about toxic substances; requires testing of properties
  2. B The Real Estate Settlement Procedures Act; requires lenders to provide Loan Estimate and Closing Disclosure forms, prohibits kickbacks for referrals, and regulates escrow accounts
  3. C A state-by-state agency licensing standard
  4. D A federal property tax provision

Why this is the answer

RESPA (Real Estate Settlement Procedures Act, 1974) is a federal consumer protection law that regulates residential mortgage transactions. Key requirements: (1) lenders must provide a Loan Estimate within 3 business days of application, summarizing loan terms and estimated closing costs; (2) lenders must provide a Closing Disclosure at least 3 business days before closing, detailing the actual final terms; (3) kickbacks for referrals between settlement service providers are prohibited; (4) escrow accounts for taxes and insurance are regulated. RESPA is enforced by the Consumer Financial Protection Bureau (CFPB). Violations can result in significant penalties. The 3-day disclosure rule is intended to give borrowers time to review final terms before they are committed.
Source: Real Estate Principles, RESPA

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