Transaction Types Regulated by RESPA
By using the lenders for their regulation, Congress was able to bypass a myriad of state laws and differing statutes relating to real estate transactions across the country. Lenders must abide by RESPA, and this effectively allows the control of the settlement process through them. The basic coverage of RESPA is "any federally related mortgage loan."
As most residential loans end up federally related in some way through federal loan guarantees and mortgage funding consolidation, RESPA covers the vast majority of real estate transactions. I'm talking primarily about loan guarantees from Fannie Mae and Freddie Mac. Specifically, the coverage triggers include:
- most loans secured by a lien (first or subordinate position) on residential property;
- home purchase loans;
- lender approved assumptions;
- refinance loans;
- loans for property improvement;
- HELOC, home equity lines of credit; and
- reverse mortgages.
Installment sales contracts, or land contracts, would also be covered if the seller taking back part of the loan is also funded by another loan on that property that is covered by RESPA.
The key here is loans guaranteed by Fannie Mae, Freddie Mac, USDA, VA, FHA, and other government entities. It isn't the type of loan as much as the fact that the federal government is involved. As for types of loans that your clients may apply for that will be RESPA involved:
This is a mortgage that meets requirements for normal underwriting and isn't considered a Jumbo mortgage in excess of a certain maximum that has more stringent requirements for guarantees. These are normally issued by banks and mortgage lenders.
The Federal Housing Administration guarantees mortgage loans and also directly issues mortgages. After the crash in 2006 forward, FHA loans have become more popular because of down payment requirements as low as 3.5%. Other loans, particularly conventional loans, are requiring around 20% down payments. Here's what FHA says on their website:
The mission of the Office of Housing is to:
Contribute to building and preserving healthy neighborhoods and communities
Maintain and expand homeownership, rental housing, and healthcare opportunities
Stabilize credit markets in times of economic disruption
Operate with a high degree of public and fiscal accountability
Recognize and value its customers, staff, constituents, and partners
The Veterans Administration also guarantees loans, some with low or no down payments for veterans. They are a bit more restrictive, particularly related to property condition and inspections. The following is the VA's guarantee mission:
"VA helps Servicemembers, Veterans, and eligible surviving spouses become homeowners. As part of our mission to serve you, we provide a home loan guaranty benefit and other housing-related programs to help you buy, build, repair, retain, or adapt a home for your own personal occupancy.
VA Home Loans are provided by private lenders, such as banks and mortgage companies. VA guarantees a portion of the loan, enabling the lender to provide you with more favorable terms."
The United States Department of Agriculture is often overlooked as a loan guarantor, but they have a program to guarantee mortgages in "rural" areas around the country. Some borrowers can actually get into a home borrowing up to 110% of the appraised value of the home.
Fannie Mae and Freddie Mac
These are quasi-government entities that were bailed out by taxpayers after the housing crash. They're now profitable again and securing mortgages around the country. They are by far the major entities guaranteeing residential mortgages.
Fannie and Freddie Foreclosures
These entities end up with repossessed homes in their inventory and advertise them for sale on their websites with special financing available. It's a good way to get a home at a bargain with favorable financing, but they're generally in need of significant repairs.
While there are many critics who placed some blame for the housing and mortgage crash on these guarantees and easy credit, others are adamant that there would be a whole lot fewer home buyers without these programs.