Bill would scuttle RESPA changes

Predatory lending legislation amended in committee

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A sweeping bill aimed at curbing predatory lending, which passed a congressional committee Wednesday in a 49-21 vote, has been amended to suspend implementation of new standardized loan disclosure forms and settlement procedures proposed last year by the Bush administration.

The real estate and lending industries have opposed the changes to the Real Estate Settlement Procedures Act, or RESPA, which the Department of Housing and Urban Development has said would save consumers billions of dollars (see story).

Industry critics said HUD overestimated the benefits for consumers and underestimated the problems they could create for the industry, including accelerated consolidation. The National Association of Mortgage Brokers and the National Association of Home Builders have both filed suit to block implementation of the new RESPA rule (see story).

Under the Bush administration, HUD maintained that the new loan disclosures, along with new incentives for lenders to package settlement services like title insurance with mortgage loans, could save consumers $8.35 billion a year by helping them shop around for the best deal.

A HUD spokesman said today the department had no comment on an amendment to HR 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009, which would suspend implementation of key aspects of the rule.

The amendment, one of several to HR 1728 approved by the House Financial Services Committee Wednesday, was introduced by Reps. Ruben Hinojosa, D-Texas, and Judy Biggert, R-Ill., who organized congressional opposition against a previous attempt at RESPA rule changes in 2004. A full House vote is expected on the bill next week.

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One problem critics have with HUD’s new loan disclosure forms is that they are incompatible with a separate set of disclosures provided to borrowers under the Truth in Lending Act (TILA). Mortgage brokers also object to HUD’s Good Faith Estimate because it would require them to credit yield-spread premiums — rebates paid by lenders when borrowers take out loans at higher interest rates than they might otherwise qualify for — against a borrower’s closing costs.

In a Feb. 9 letter to Donovan, groups including the Mortgage Bankers Association, the American Escrow Association, the American Bankers Association, and the American Financial Services Association asked HUD to withdraw the RESPA rule change and coordinate with the Federal Reserve Board’s ongoing efforts to update TILA disclosures (see story).

The Hinojosa-Biggert amendment would suspend implementation of "any provisions of the rule" establishing and implementing new standardized loan disclosure forms, and give HUD and the Federal Reserve one year to implement compatible disclosures that meet both RESPA and TILA requirements. If HUD and the Fed can’t agree on compatible disclosures, they could resume the process of implementing separate disclosures.

Loan originators currently have the option to use HUD’s standardized GFE and HUD-1 settlement statement during a one-year transition period. Unless Congress rules otherwise, they would be required to use them beginning Jan. 1.

HR 1728, which addresses loan origination, securitization and servicing, was debated by the committee last week. Although the bill is aimed at curbing predatory lending, some industry critics say it could further constrict borrowing by homebuyers and homeowners (see story).

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