Origination News Feature Story

Second RESPA Letter Eyed

By Brad Finkelstein

KISSIMMEE, FL-A second "Dear Colleague" letter is making its way through Congress, National Association of Mortgage Brokers president Marc Savitt reported to attendees at the Florida Association of Mortgage Brokers annual convention here.

Over a dozen housing industry groups are lobbying lawmakers to sign a letter that directs the Department of Housing and Urban Development to withdraw the Real Estate Settlement Procedures Act proposal and work with the Federal Reserve Board in developing "more simplified mortgage and real estate settlement cost disclosure forms."

Reps. Ruben Hinojosa, D-Texas, and Judy Biggert, R-Ill., are leading the effort to get the new housing secretary, Steven Preston, to abandon HUD's proposed RESPA rule and undertake a joint rulemaking effort with the Fed.

In a "Dear Colleague" letter to House members, the two House Financial Services Committee members argue that the RESPA rule fails to improve and simplify disclosures of mortgage terms and settlement costs.

"We are profoundly concerned that HUD's proposed RESPA rule will hinder rather than help the recovery of the housing market," Reps. Hinojosa and Biggert say in urging their fellow congressmen to sign the letter to HUD.

In the letter, the trade groups also have seized upon a comment letter by Federal Reserve Board staff urging HUD to scale back its RESPA proposal and coordinate its efforts the Federal Reserve. Fed staffers are working on Truth in Lending Act disclosures that will be handed to mortgage applicants at about the same time they receive the GFE from the lender. Fed staff has encountered problems designing disclosures that help consumers understand the way mortgage brokers are compensated.

Industry groups at press time were working to get at least 140 congressmen to sign the letter before Congress leaves for its August recess. A similar letter was one of the keys to derailing the Department of Housing and Urban Development's Real Estate Settlement Procedures Act reform effort four years ago.

Regarding the current proposal, Mr. Savitt declared, "That dog has been resurrected." HUD conducted roundtables and got a consensus, but in proposing the new rule, ignored that consensus. Right now, said Mr. Savitt, the mortgage business is going through some tough times. But mortgage brokers have endured and will survive the turmoil. He also called on mortgage brokers to speak with their local media and get the other side of the story out there. Particularly, the message needs to get out that right now is the best time to buy a home, especially for first-time homebuyers.

The mortgage broker industry has long-sought licensing of all originators, no matter who they work for, and "that dream is almost a reality," said Joe Falk, a past president of both NAMB and FAMB. He referred to the housing bill, which at the time of his speech was being considered in conference committee by both houses of Congress.

In his presentation, Mr. Falk also spoke about the recently released Federal Reserve Board rule. He termed it as "groundbreaking rule making" for the subprime industry.

To show how detailed the rule is, he explained it went 400 pages and held up a large loose-leaf binder which he said contained the rule. For the first time there is a regulatory definition of what is a subprime loan.

The Fed board, a group he described as previously been "sleepy," has switched to "one of great activism," he said, and in coming months will be issuing new rules on Regulation Z.

Also speaking before the group was Rep. Tom Feeney, R-Fla., who declared the best housing program is a strong economy and job growth. Commenting on what is happening in the nation's capital, he said, "There is no situation so bad that Congress can't make it worse."

He called the housing bill a bailout of Fannie Mae and Freddie Mac and declared both organizations too big.

There need to be 100 secondary market companies competing for the business. Furthermore, there is a potential threat to taxpayers by opening the Fed's discount window and allowing it to purchase equity stakes in both companies. But having said that, Mr. Feeney added, Fannie Mae and Freddie Mac are too big to fail and there is too much at stake.

As for the RESPA reform proposal, Mr. Feeney said disclosures need to intelligible and easy to understand. Compound disclosures cause the reader to overload, "so nothing matters at that point." -Brian Collins contributed to this report.