Origination Views

Looking Back on the RESPA Rule

By Christopher Cruise

Mr. Cruise, a Silver Spring, Md.-based senior national mortgage trainer for The Mortgage Training Center and a member of the National Association of Responsible Loan Officers, has written an op-ed asking the National Association of Mortgage Brokers to rethink the way it represents the industry in Washington in light of the Department of Housing and Urban Development's efforts to move forward with a Real Estate Settlement Procedures Act rule. (Please note that this was written prior to the NAMB and National Association of Home Builders' respective decisions to legally challenge the rule as detailed in our January 2009 issue.)

HUD has made a dramatic change in the way YSP is disclosed on the now three-page GFE, has imposed almost impossible-to-meet tolerances on disclosures of closing costs and prepaids, and uses the new GFE to strongly encourage borrowers to shop around.

It's tough to see how it could have been worse for mortgage brokers.

The rule should cause NAMB to reassess the way it represents mortgage brokers on Capitol Hill.

Even a quick read of the final rule shows NAMB has not done enough to show the good that YSP can do. I have covered hearings at which House and Senate members hold up HUD-1s full of outrageous junk fees and high origination fees that were not disclosed on the GFE and NAMB has done virtually nothing to counter it. To be fair to the association, it is fighting a losing battle on YSPs. I can't imagine what anyone could do to save it.

HUD contends that the disclosure does not confuse consumers. It says consumer testing on the new GFE found that the consumer chose the lowest-cost loan 90% of the time, regardless of whether the loan was being made by a lender or arranged by a broker. NAMB believes that testing was flawed, and appears to have a good case.

The NAMB complained that HUD "after all these years ... has still come up short on helping consumers understand the mortgage (loans) for which they are applying," and the American Bankers Association agrees, opining that the disclosure of YSP "provides no help ... to the consumer in understanding how brokers are paid."

Lenders are not required to separately disclose on the GFE any credit or charge for the rate chosen, in line with current rules that require mortgage brokers to disclose YSP while not requiring lenders to do so - another loss for the NAMB, which complained that forcing brokers to disclose YSP while allowing lenders to evade the disclosure makes "distinctions among mortgage originators with no basis for doing so and in disregard of market realities." As with much of what NAMB said, HUD paid it no mind.

Put simply, HUD doesn't trust mortgage brokers to make disclosures on the GFE that resemble the final costs on the HUD-1. Mortgage professionals with pride in the way they do business have always strived to ensure that the GFE and HUD-1 match as closely as possible. I always worked hard to make the HUD-1 bottom line come within $100 of the GFE's bottom line. But HUD has clearly had it with consumer complaints about the wide variances between what was disclosed on the GFE and what showed up on the HUD-1.

To be fair, the association has faced strong headwinds in Washington this year. Mortgage brokers aren't the most popular group on the Hill, to say the least, and it is doubtful even the most-skilled lobbyist could change the way the wind was blowing. But the association has in many cases made things worse, including initially refusing to acknowledge - in the face of incontrovertible evidence - that any mortgage broker did anything wrong in the origination of any loan. That kind of stubbornness deeply hurt the association with House and Senate members and their staffs.

I am a longtime member of the NAMB, often frustrated by the association's approach to federal legislation. I have been frustrated that the same faces are in charge of, or are members of, the same committees year after year after year, keeping out new ideas and new blood.

NAMB submitted a well-written and well-researched 61-page comment letter to HUD in mid-June. From all appearances, HUD completely ignored the letter in crafting its final rule.

So, why didn't the NAMB have any effect on the final rule? In the past, the NAMB could claim that it had power and influence on the Hill. It still has some left, but it is much less than it had when the mortgage crisis began; that is partially a function of the overall antagonism toward mortgage brokers and partially attributable to NAMB's reaction to the antagonism. If anyone doubts that NAMB's power has dissipated, one need only look at the final RESPA rule.