RUTH DILLINGHAM
‘Delighted’ by decision
The real estate and mortgage industry scored its first victory in the Real Estate Settlement Procedures Act debate last week when U.S. Department of Housing and Urban Development Acting Secretary Alphonso Jackson announced his decision to withdraw HUD’s proposed changes to RESPA.
Jackson told members of the mortgage industry that HUD would review public, industry and congressional comments before resubmitting the rule to the White House Office of Management and Budget.
The changes, first proposed almost two years ago, sparked opposition from groups across the real estate industry. The original proposal gathered 45,000 comments from consumer groups, congressional members and mortgage and real estate associations, including the Massachusetts Mortgage Bankers Association, the Massachusetts Mortgage Association and the Massachusetts Association of Realtors, during the public comment period in 2002.
HUD’s proposal to reform RESPA suggested one lender-led, federally regulated fixed-fee package of interest rates and settlement charges for each homebuying transaction. HUD’s rationale for the reform is that such a change would streamline the homebuying finance system and benefit consumers.
But opponents of HUD’s proposed reform say bundling fees could create more confusion, more lawsuits and a more unpredictable closing processes – the exact thing HUD’s reforms are aiming to stamp out.
Critics said bundling services and prices would make it difficult for consumers to understand exactly what they are paying for, eliminating transparency from the process.
HUD’s initial one-package plan to combine loan origination and settlement service fees together has been criticized by real estate brokers, homebuilders, small mortgage brokers and title companies, many of whom claim the plan would prevent them from offering packages that compete with packages offered by large mortgage lenders.
“I’m relieved and thrilled” that these proposals did not go through, said Dan McMorrow, president of Bayside Home Mortgage in South Boston. “I would love to reduce paperwork and reduce the amount of disclosures, and I love the one-fee closing idea Â… but the biggest problem I had was that the level playing field just wasn’t there. [HUD’s] proposals further made it difficult for a mortgage broker to do business. This was not well thought out and I hope this is dead in the water.”
HUD also was considering a two-package plan that would separate loan-related fees from settlement fees, thereby allowing greater competition and transparency.
The HUD proposal would have mandated “clear disclosure of mortgage broker fees” and would call for lenders to provide borrowers with a more clear and simple “good-faith estimate” of costs, free or for a nominal fee, so that consumers could better understand the charges and use the information to shop for loans. The newly proposed good-faith estimate would limit lenders’ ability to raise their charges at the last minute.
But accompanying such consumer protections were the changes that many in the mortgage business felt would skew competitive balance in the industry. In addition, opponents of the reform proposal said that free-market forces will bring about many changes on their own without a regulatory mandate.
“Now, we are going to see the capitalistic society in which we live respond to the consumers who are interested in one-fee shopping with some version of a one-fee product and I’m delighted to see that it’s something we are letting individual lenders craft for themselves, rather than let federal legislation rule it,” said Ruth Dillingham, vice president and special counsel for the Lenders Division of First American Title Insurance Co. and chairwoman of the Massachusetts Mortgage Bankers Association. “Now, we watch whether or not [HUD] Acting Secretary Jackson gets confirmed as secretary of HUD.”
Critics of HUD’s proposal said the changes would have made the already complicated procedure of mortgage lending and homebuying even more complicated, and while simplifications need to be made, many mortgage professionals say HUD’s proposals were not the best answer.
“Obviously, I’m happy to see the rule was withdrawn by HUD, and that said, I think that the thought process of trying to improve and lower closing costs and simplify the [mortgage] process is one that the whole industry wants,” said Dean Caso, president of HomeVest Mortgage in Needham. “[HUD’s] plan wasn’t workable and didn’t achieve those goals, but a plan that does will emerge. There is no question that the process is complicated and it should be simplified. I think that all the industry groups will work together and hopefully draft a rule or a change that is workable for everyone and makes the process more simplified.”
In identifying what that process might be, Caso said it is likely that local mortgage associations and the national Mortgage Bankers Association of America will weigh in on the issue and provide suggested solutions.
MBAA spokesmen said the group remains supportive of the basic goals of RESPA reform – simplifying the mortgage transaction process while reducing costs for consumers. But the group said it agrees with the decision to withdraw the proposed rule and further review it.
“HUD’s announcement to withdraw the RESPA rule is a win for consumers and the housing industry, which has been a pillar of the U.S. economy,” said Kurt Pfotenhauer, MBAA’s senior vice president of government affairs, in a statement.
‘Critical and Necessary’
Judy Moore, president of the Massachusetts Association of Realtors, said HUD’s proposals were “seriously flawed” and could make the homebuying processes more difficult and confusing to the consumer.
“While we support the premise of simplifying real estate settlements underlying HUD’s reform efforts, we remain convinced that any changes – either the original proposed rule or a modified proposal – advanced by HUD require further thorough and comprehensive analysis by all affected participants before promulgation and implementation,” said Moore. “This is critical and necessary.”
When HUD announced its original proposed rule many industry organizations came forward with significant questions and concerns mainly stating that HUD’s proposal did not accurately reflect the mortgage industry’s view.
At the press conference announcing the decision to table the reform plan last Monday, Jackson said HUD remains committed to revising RESPA after seeking more input from Congress, as well as consumer and industry groups, and said HUD will propose a revised rule in the future, although he would not give a timetable for the new proposals.
Until then, members of the mortgage industry say they are going about business as usual and are not worried about other RESPA proposals affecting the mortgage business, at least for this year.
Kevin Cuff, executive director of the MMBA, said that 2004 being an election year will likely push back any possible reforms to RESPA.
“In a political election year, the [Bush] administration may have felt that with so many questions and concerns over the proposal and with stakes set very high, it is probably best for all parties concerned to go back to the drawing board and attempt to enact the right reform,” said Cuff. “I would venture to assume that no such changes will be forthcoming until following November’s election.”
Jackson said HUD received a large number of comments, complaints and concerns about the rule from many sectors including Congress, industry groups, consumer advocates and other federal government agencies (specifically, the Federal Trade Commission, Small Business Administration and Federal Deposit Insurance Corp.), and pledged that his agency would meet with those groups to hear their views and take comments into account before it proposed a revised RESPA rule.
More than 225 members of Congress earlier this month signed a letter to the Office of Management and Budget urging the White House to reject HUD’s proposal.
According to Caso, “When 225 members of Congress stand up and oppose the rule, you know it’s not a good thing.”
