HUD says no RESPA reprieve

Lenders want more time, clarification of new disclosure rules

Federal regulators say they won’t be swayed by a last-ditch effort by industry groups representing lenders to postpone Jan. 1 implementation of standardized mortgage loan disclosure forms and procedures that are intended to help consumers comparison shop.

The Department of Housing and Urban Development put forward the proposed changes to the Real Estate Settlement Procedures Act (RESPA) in March 2008 and issued a final rule in November after a public comment period that was extended at the industry’s request.

The final rule, which has withstood a legal challenge by the National Association of Mortgage Brokers, includes a new standardized good faith estimate (GFE) and HUD-1 settlement statement, which restrict changes to estimated loan origination and settlement services charges (see story).

All told, the industry will have had 14 months to prepare for the rule changes by the time they take effect next year, Federal Housing Commissioner David Stevens said Thursday in a letter to industry groups denying a request for a reprieve.

Industry groups, citing the potential for "widespread consumer confusion, crippling market dysfunction, and a strong possibility of an imminent litigation morass," this week wrote Stevens and Housing Secretary Shaun Donovan to ask for an extension of a transition period, currently in effect, during which compliance with the new RESPA rules is optional.

Since publication of the final rule last fall, lenders, mortgage brokers and settlement services providers have spent "tens of thousands" of man-hours to prepare for implementation of the new rules, industry groups said in a lengthy letter to the Department of Housing and Urban Development (HUD).

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The rule change has "far-reaching implications," the groups said, which make "enormous changes to business practices, systems, processes, and … the very infrastructure of consumer mortgage lending."

HUD’s attempts to nail down details of how the RESPA rule changes will be applied, through a series of responses to "Frequently Asked Questions" ("New RESPA Rule FAQs") HUD began publishing in August, have only complicated the process of complying with them, industry groups said.

The interpretation of the final rule in the FAQs could, for instance, discourage lenders from working with mortgage brokers or helping consumers shop for settlement services like title insurance, the groups said — thwarting regulators’ stated intention of promoting competition.

Lenders may also decide they will no longer issue preapproval letters to borrowers, the groups claimed, because it is unclear if they can deliver a GFE, charge an application fee, and process an application before they are given a property address.

Stevens told the industry groups that HUD "is acutely aware of the procedural concerns, timing constraints and ancillary costs attributable to the implementation of these new regulatory requirements and the issues they raise for you members." …CONTINUED

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