The Real Estate Settlement Procedures Act (RESPA) is a United States federal law, originally passed in 1974, that governs how mortgage lenders and settlement service providers disclose the costs of closing a home loan. Its central aims are to give borrowers clear, comparable estimates of settlement costs ahead of closing and to stop practices, such as undisclosed referral fees between real estate professionals, that inflated those costs without the borrower's knowledge or meaningful ability to shop around.
RESPA is enforced primarily by the Consumer Financial Protection Bureau in the United States and applies to most residential mortgage loans, including purchase loans, refinances and home equity lines of credit secured by a borrower's home. It works alongside the Truth in Lending Act, with the two laws' disclosure requirements combined since 2015 into a single integrated mortgage disclosure form used at application and again at closing, a reform intended to reduce confusion from borrowers previously receiving separate, overlapping paperwork from each law.
RESPA in plain terms
Before RESPA, a buyer could be quietly steered toward an expensive title company or insurer because someone involved in the deal was secretly being paid a kickback for the referral, with the extra cost passed on to the borrower without their knowledge. RESPA requires the real costs to be written down and shared with the borrower early in the process, and makes those hidden kickbacks illegal, regardless of how the arrangement is structured.
Key requirements
- Lenders must give borrowers a loan estimate of closing costs shortly after application, typically within three business days, and a closing disclosure before settlement.
- Referral fees and kickbacks between settlement service providers, such as lenders, title companies and real estate agents, for business referrals are prohibited, regardless of whether the fee is disclosed.
- Lenders are restricted in how much they can require borrowers to keep in an escrow account for property taxes and insurance, generally capped at a cushion of roughly two months' payments above what is strictly needed.
- Servicers transferring a loan to another company must provide advance notice to the borrower under RESPA's servicing transfer rules.
Enforcement and criticism
Violations can lead to civil penalties, and the law has been amended several times, notably by the Dodd-Frank Act, which shifted RESPA rulemaking and enforcement to the newly created Consumer Financial Protection Bureau rather than the Department of Housing and Urban Development, which had administered it previously. Critics have argued that the integrated disclosure forms, while clearer than the originals, still leave many borrowers overwhelmed by the sheer volume of paperwork presented at closing, raising questions about how much genuine comparison shopping the disclosures actually enable in practice.
RESPA and affiliated business arrangements
RESPA permits so-called affiliated business arrangements, where a real estate agent or lender refers business to a related title or insurance company they have an ownership stake in, provided the relationship and any required use is clearly disclosed and the borrower is not forced to use that affiliated provider. This carve-out has long been debated, since critics argue it allows some of the same cost inflation RESPA was designed to prevent, simply dressed in disclosed rather than hidden form.
RESPA's role in the broader closing process
RESPA disclosures work alongside other required paperwork at closing, including the HUD-1 statement historically used to itemize settlement charges, now largely replaced by the closing disclosure form for most loan types. Borrowers comparing the loan estimate they received at application against the final closing disclosure can catch unexpected fee increases before signing, since RESPA generally limits how much certain categories of fee are allowed to change between those two documents without a valid reason. Mortgage brokers and lenders involved in third-party origination of a loan remain subject to the same RESPA referral-fee restrictions as a lender originating directly through its own branch network, since the law is concerned with the nature of the referral rather than which type of company happens to be involved in making it.