Origination News Feature Story

Opposing a Revived Rule

By Brian Collins

WASHINGTON-Once the shock of HUD's decision to move ahead and implement a RESPA rule wore off, industry groups began pushing back and tried to get Congress to block it.

Seven industry groups approached Senate leaders for help just a few days after Department of Housing and Urban Development secretary Shaun Donovan stated his support for the RESPA regulation the Bush administration issued shortly after the November election.

The group urged the Senate to attach an amendment to a housing bill that would require HUD to withdraw the Real Estate Settlement Procedures Act rule and work with the Federal Reserve Board on complementary mortgage disclosures. The House has passed a similar provision. But the last-minute lobbying effort fell flat in the Senate.

The American Financial Services Association and other groups are planning to try again. "We are going to keep pushing," said AFSA executive vice president Bill Himpler.

Separately, the National Association of Mortgage Brokers has sued HUD to block implementation of the rule, which requires disclosure of the amount of the broker's fee at the time of application and cannot be increased at closing.

Industry groups also have appealed to the HUD secretary to reconsider his decision to implement the RESPA rule by Jan. 1, 2010. But Secretary Donovan appears to be standing firm after deciding the improved good-faith estimate disclosure and redesigned HUD-1 settlement sheet are too important to put off. It took HUD eight years to finalize this rule and it represents the first update of RESPA regulations in 30 years. Under the new rule, lenders must provide consumers with a standardized GFE within three days of signing a mortgage application. Origination fees and other charges by lenders, such as underwriting and processing fees, cannot increase before closing. It also revamps the HUD-1 settlement sheet so consumers can easily compare the actual origination fees and settlement services costs with the GFE before going to closing.

In issuing the RESPA rule, HUD dropped a "required use" definition that the National Association of Home Builders had challenged in court. The definition banned builders from offering homebuyers discounts or upgrades that are linked to the use of the builder's affiliated mortgage or title companies.

"We will propose a clearer and stronger 'required use' definition," the HUD secretary said.

Implementation of the new disclosures and HUD-1 settlement sheet is making lenders uncomfortable because they know the FRB is working new mortgage disclosures in updating its Truth in Lending Act regulations. The Fed is expected to issue a proposal for public comment in the fall. If HUD goes ahead with the Jan. 1 implementation date, lenders face the prospect of revamping their mortgage disclosures again when the TILA changes come out. That is one reason a House-passed bill (H.R. 1728) directs HUD to withdraw the RESPA rule and work with the Fed on RESPA and TILA disclosure that consumers will be able to understand.

Rep. Judy Biggert, R-Ill., said HUD is "ignoring" congressional intent in moving ahead with its "flawed" RESPA rule. "HUD must suspend this rule and work with the Federal Reserve to create disclosures that work for consumers," she said. Consumer Mortgage Coalition executive director Anne Canfield said the industry supports clears disclosures. An industry task force has even developed a one-page form that combines TILA and RESPA disclosures. But she warned the "HUD forms are incomprehensible and they are going to lead to massive confusion."

Even with the uncertainties surrounding these developments, RESPA attorney Phillip Schulman said, "Settlement service providers would be wise to prepare for the implementation of the GFE and the HUD-1 settlement on Jan. 1, 2010," given that it takes several months to implement technology and training.