RESPA & Regulation X: Definition & Overview

Instructor: Ian Lord

Ian has an MBA and is a real estate investor, former health professions educator, and Air Force veteran.

Home buyers and anyone seeking real estate financing for residential property are provided with a number of benefits under RESPA and Regulation X. In this lesson we will look at the required disclosures and consumer protections in these laws.

RESPA and Regulation X

Randy is about to finalize his new home purchase through a process called settlement. The settlement process requires the borrower to shop for and select settlement providers and required services. RESPA and Regulation X comprise the laws that dictate what disclosures must be made to Randy as well as consumer protection rules that affect lenders.

The Real Estate Settlement Procedures Act of 1974 (RESPA) was passed by Congress with the intent of helping borrowers better shop for settlement services. The Act also intended to eliminate the kickbacks and referral fees exchanged between real estate brokers and settlement companies that increase the costs of borrowing. Regulation X is the exact text of the law in Title 12 of the US Code that implements the intent of RESPA. The regulation was originally written by the US Department of Housing and Urban Development (HUD) but is currently issued by the Bureau of Consumer Financial Protection.

Who does RESPA and Regulation X apply to? These laws apply to real estate transactions involving residential property with between and one and four units on the lot. This covers not only purchases, but also refinancing, home equity lines of credit, loan assumptions, and loans taken out to renovate a property. Violations of the law can result in civil lawsuits or penalties imposed by HUD.


Various parties in the real estate transaction have to make specific disclosures to Randy regarding settlement before, during, and after the closing date.

Before Settlement

When Randy applies for a loan, the lender must provide a number of documents. Since this is a purchase, the lender must make available information regarding different settlement services. A Good Faith Estimate (GFE) breaks down the different costs involved in the settlement and gives close approximations of what the final costs will be. This form must be sent to the borrower within three days of the application. Finally, the lending company must state whether it intends to service the loan and collect the mortgage payments or transfer servicing to a different company.

The settlement company must inform Randy if it has a business relationship with his real estate agent or whoever else referred them with an Affiliated Business Arrangement Disclosure. This document details any existing financial relationship between the referrer and the settlement company. At least three days before closing, the settlement company will provide Randy and the seller with a Closing Disclosure document. This shows all expenses of the transaction, details which party pays for each item, and compares the actual expenses to those listed on the Good Faith Estimate.

During and After Settlement

At the time of settlement or within the next 45 days, the lender will also provide Randy with an Initial Escrow Statement if the loan requires an escrow account. Each month Randy will pay as part of his mortgage payment an additional amount beyond the loan principal and interest to cover the property taxes, homeowner's insurance, and any other charges paid through the escrow account. The statement includes the amounts expected to be paid over the next 12 months, along with the required amount of money that must be in the account to act as a cushion.

Each year the loan servicer must send Randy an Annual Escrow Statement. This form documents all payments made into and out of the escrow account over the previous year. The form also lets Randy know if there is a surplus or lack of funds in the account. The lender will identify any changes in the next loan payments because of a surplus or deficit in the account, or present other solutions. For example, Randy might be able to write a check to correct a deficit or the escrow account may pay back Randy the excess in the account.

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