DEAN CASO
Mixed review
Making good on his promise to reform, Department of Housing and Urban Development Secretary Mel Martinez recently released proposed changes to Real Estate Settlement Procedures Act regulations.
The comment period will begin after the proposed amendments are published in the Federal Register, which was expected to occur within days at Banker & Tradesman’s press deadline. This will mark the first substantial change in the 30-year-old regulations in “decades,” according to HUD.
Many in the mortgage lending industry contacted by B&T were reticent about commenting on the newly released document because they had not yet had time to digest the more than 100 pages of text.
“The purpose of it is to try to make the process more clear in terms of describing what the charges are to the consumer,” said Dean Caso, president of Newton-based Homevest Mortgage. “In some instances it does and in some I think it makes it actually more confusing,” he said.
There are three main points of change in the reform, said Caroline M. Gilroy-Brown of the law firm Partridge Snow & Hahn in Boston.
The first revolves around how mortgage broker compensation would be disclosed to borrowers in regard to yield spread premiums, which are currently reflected as payments from the lender to the mortgage broker.
Under the proposed amendment, the process would have to be disclosed on the good faith estimate as payments from the lender to the borrower, “because the idea of the yield spread premium is that that is a financing tool that could be used to reduce the rate by paying an additional amount in connection with the closing,” said Gilroy-Brown.
The good faith estimate would be totally revamped and would include disclosure of additional information that is not currently required. “It would require totaling of groups of services by categories. For example, loan origination services would be shown as one grouping and that would include any origination fees paid to a mortgage broker and a lender,” she said. This separation would allow a borrower to clearly see how compensation is being paid to the mortgage broker and the lender so that consumers may more easily comparison shop. According to a HUD document, it would also “inform the borrower that mortgage brokers and other loan originators do not offer loans from all funding sources and cannot guarantee the lowest price or best terms available in the market.”
‘System Changes’
The confusion imparted on the forms as well as “high” estimated settlement cost fees prevent buyers from shopping around, according to a document released by HUD.
HUD made no bones about its opinion of the current situation, writing, “The monies needed to close on a home are a significant impediment to homeownership and settlement costs are a significant component of these costs.”
Other changes revolve around making the good faith estimate much more firm so there are no surprises at closing when the last of the fees may be added on.
Finally, under the section of RESPA that prohibits kickbacks on unearned fees, there would be a safe harbor created for Guaranteed Mortgage Package transactions. A mortgage broker or lender could offer a package settlement cost and service at a guaranteed price and rate. These packagers could negotiate discounts or lower fees in advance and be able to give one lump sum price to the borrower, enabling them to more easily comparison shop with sound information.
The changes are sure to bring added costs to mortgage companies within the state, local mortgage industry watchers say. Just how much cost is anyone’s guess at this point, as the comment period has not begun and it is difficult to speculate what the final rule will be.
“There certainly will be a cost because the format of the good faith estimate is going to be completely changed,” said Gilroy-Brown. “There’s going to have to be system changes as well as staff education on how to complete it properly as well as complete training as to what the rule – if it becomes a rule – would require,” she said.
Whenever there is a regulatory change of this magnitude there will be costs associated with it, especially considering that the form that’s being changed is used in every transaction subject to RESPA, she said.
“In a nutshell, there are parts of it that do make it clearer for the borrower and I think that’s the purpose of the whole thing – to make the charges more clear and make the borrower able to understand more readily what they’re being charged,” said Caso.
“On the other hand, there are some components of it that may add too many things to the good faith estimate that make it too confusing for the general lay person to understand,” he said.
The comment period will last for 90 days once the amendment is posted in the Federal Register.
