House majority opposes RESPA reform proposal

More than 240 of members of the House of Representatives have signed a letter urging federal regulators to withdraw their proposed changes to the Real Estate Settlement Procedures Act (RESPA) and work with the Federal Reserve on simplified disclosure forms instead.

The Department of Housing and Urban Development maintains its proposed changes to RESPA would save consumers $8.35 billion a year by helping them shop for the best deal on a loan, title insurance and other settlement services.

HUD says it's trying to protect consumers from overcharges and to promote competition between mortgage lenders and settlement services providers. But the real estate industry has steadfastly opposed HUD’s proposed changes to RESPA, saying they would lead to industry consolidation that would ultimately harm consumers.

The Fed has also urged HUD to work with it to develop a single form that complies with both RESPA and the Truth In Lending Act (TILA), to protect consumers from "information overload."

In commenting on HUD's proposed RESPA rule changes in June, Fed officials said they were concerned that the proposed TILA and RESPA forms are "duplicative and in some instances inconsistent," and urged HUD "to coordinate its proposal with the (Fed) to ensure that consumers receive information on loan terms and settlement costs on a single form at the same time."

Reps. Ruben Hinojosa, D-Texas, and Judy Biggert, R-Ill., and 240 of their House colleagues made similar arguments in an Aug. 7 letter to Housing Secretary Steve Preston, urging him to work with the Fed on simplified mortgage and settlement cost disclosure forms.

"To expedite this process, we also ask that you discard the hundreds of pages of HUD's current proposed RESPA rule that have not previously been the subject of public comment and cover a number of subjects beyond disclosures," the letter said – an allusion to incentives HUD proposes to create for packaging settlement services such as title insurance with loans.

The letter, which also warned of the impact of the rule changes on small businesses, was signed by 128 Democrats, 113 Republicans, and Texas independent Ron Paul, according to a copy posted on the Web site of the American Land Title Association.

Hinojosa and Biggert led the charge against proposed RESPA rule changes in 2004, drafting a letter that asked the Office of Management and Budget to reject a plan that encouraged the packaging of loans and settlement services. That letter was signed by 226 lawmakers, and HUD ultimately withdrew its proposal.

HUD's latest proposed changes to RESPA, unveiled in March, would provide less explicit incentives for packaging. HUD also proposes a new "Good Faith Estimate" that would require loan originators to credit yield spread premiums against borrower's closing costs. The premiums are rebates paid by lenders when borrowers take out loans with higher interest rates than they might otherwise qualify for.

The National Association of Mortgage Brokers and other critics of HUD's proposed treatment of yield spread premiums maintain that banks charge similar fees that aren't disclosed on the GFE, and that HUD's solution won't help consumers pick the best loan. NAMB and other groups convinced the Fed to back down from a plan to require disclosure of yield spread premiums as part of TILA loan disclosures, although the Fed has said it will continue to study the issue (see story).

In the past, HUD has said consumer testing demonstrates its proposed disclosure forms will enable consumers to pick the best loan offer and settlement services package.

HUD spokesman Jerry Brown said today that the department would "consider everything the members (of Congress) have asked us to consider." Any comment from HUD on the letter would be made to those who signed it first, Brown said.

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