When providing a mortgage, and lender must follow rules and requirements to provide transparency to the borrow to protect them from hidden, unfair or fraudulent fees and practices. This includes kickbacks and referral fees to / from anyone in the real estate service industry, including but not limited to lawyers, appraisers, brokers and agents, anyone involved in facilitating the mortgage, and title companies.
Lenders must provide a Good Faith Estimate of Settlement Costs (GFE). This is a document that outlines the costs that the borrower could potentially pay. Borrowers can collect and compare these documents to determine the lender they most want to work with to obtain the mortgage. A HUD-1 settlement statement is required to be able to disclose to the borrower all fees, costs and related charges owed at settlement. Real estate lawyers are integral in advance of the closing date to make sure that there are no errors, ommissions or hidden issues with the 1A document itself.
Lenders must also follow established procedures for accounting for money held in escrow, and are not be allowed to proceed with foreclosure if the borrower has submitted an application for loss mitigation options.
The rules and regulations in the Real Estate Settlement Procedures Actm (RESP) were ammended in 2010 to streamline disclosure language used in the mortgage servicing industry, updated escrow provisions, and allowing lenders to use a fee described as an “average charge” as a line item in the statement. Additional ammendments were made in 2013 and 2014 to the loss mitigation procedures, resolution requests, and notice requirements.