Don’t look now, but the federal government is introducing big changes in a few days for anyone who is finalizing purchase of a house. The Real Estate Settlement Procedures Act (RESPA), which governs disclosure rules on home closings, becomes official on Monday.
These new rules will have a major impact on banks, lenders and real estate and title companies — many of whom are not ready for the changes — and on consumers who will have more time to review and understand the fees they are charged when then they apply for a real estate loan.
While the rules start on Saturday, enforcement won’t begin until Monday.
Real estate sales contracts signed before Saturday will be grandfathered in.
Originally set to take effect in August, the official start date was extended to Oct. 3 as a result of the delay in notifying service providers of the coming changes by the U.S. Department of Housing and Urban Development (HUD). There continues to be a mad scramble in the industry to get up to speed, as many lenders are still sending notifications to title companies to be added to their approved providers to verify that they are certified in best practices. A rough estimate is that about a quarter of service providers aren’t yet ready to follow the new procedures.
Banks and lenders are worried about the stiff fines that will be assessed for violation of the new rules, from $5,000 for unintentional mistakes to up to $1 million for flagrant, willful violations.
RESPA is aimed at helping consumers understand the voluminous pile of paperwork they must sign at home settlement. It also requires that buyers receive disclosures at various times in the real estate transaction.
The Oct. 3 changes represent a new integrated disclosure rule enforced by the Consumer Financial Protection Bureau (CFPB). Interest rate and closing costs — everything the home buyer should expect to pay at settlement — will be broken down into a new format that is easier for the consumer to understand.