National Real Estate Practice Exam

What is a key requirement of lenders under RESPA related to closing costs?

1. They must provide a closing cost breakdown on the closing day

2. They must disclose any changes in loan interest rates

3. They must prepare a HUD statement detailing costs prior to closing

4. They must charge a flat fee for their services

The correct answer is: They must prepare a HUD statement detailing costs prior to closing

The correct response highlights that a key requirement of lenders under the Real Estate Settlement Procedures Act (RESPA) is to prepare a HUD statement detailing costs prior to closing. This HUD-1 Settlement Statement is designed to ensure transparency in the closing process by itemizing all the costs involved in a real estate transaction. This disclosure allows borrowers to understand exactly what they are paying for, helping them to compare the costs associated with different lenders and settlements. In addition to this, the HUD-1 statement must be provided to the borrower at least one day before the closing. This advance notice is crucial as it allows the borrower to review the closing costs and ask questions or address any discrepancies before finalizing the transaction. This reinforces the consumer protection goals underlying RESPA, aimed at eliminating abusive practices in the real estate settlement process. Other options focus on different aspects of the closing process but do not fulfill the core requirement under RESPA related to the disclosure of closing costs. While providing a breakdown on the closing day or disclosing changes in loan interest rates are certainly important practices, they do not specifically address the mandated disclosure of a comprehensive cost statement prior to closing. Likewise, charging a flat fee is not a stipulation under RESPA; lenders have the discretion to set their fees