Crucial housing issues headed for hearings
Congress eyes RESPA changes, revisits home-buyer aid
By Inman News, Thursday, September 11, 2008.Two congressional hearings are scheduled Tuesday on issues that could have a big impact on housing markets: a proposal to overhaul rules governing settlement procedures and legislation that would allow the continued use of seller-funded down-payment assistance on FHA-backed loans.
RESPA changes
Real estate industry trade groups are all but unanimous in their opposition to the Department of Housing and Urban Development's proposed changes to the Real Estate Settlement Procedures Act, or RESPA.
HUD says its proposed changes to RESPA, unveiled in March, would save consumers $8.35 billion a year by helping them comparison-shop for a loan, title insurance and other settlement services. Industry groups say the changes will prove costly to implement and won't help consumers as claimed.
At a May hearing before the House Committee on Small Business, the National Association of Realtors argued that HUD's proposal to provide incentives for lenders to package settlement services like title insurance, appraisals and inspections would favor large lenders at the expense of small, locally based settlement service providers (see Inman News story).
In an Aug. 7 letter, 243 members of the House urged HUD to withdraw its RESPA rule changes and work with the Federal Reserve on simplified disclosure forms instead. HUD responded that while it's willing to modify its proposal, it won't withdraw it altogether (see story).
"Many of the current difficulties, including the high rate of foreclosures, have been caused in part by consumers not fully understanding their loan terms and costs," HUD said in defense of the proposed changes. "The Department believes that a rule is needed to help consumers avoid such difficulties in the future."
The latest hearing on HUD's proposed RESPA changes will be held Tuesday, Sept. 16, by the House Subcommittee on Oversight and Investigations, a subcommittee of the House Financial Services Committee.
Subcommittee chairman Rep. Mel Watt, D-N.C., issued a press release saying the hearing will build on the House Small Business Committee's hearing in May and also "examine the impacts of HUD's proposed RESPA reforms on consumers and other stakeholders in the mortgage settlement process."
Seller-funded gifts
Also scheduled for Tuesday is a markup session of HR 6694, a bill that would allow the Federal Housing Administration to continue to allow the use of seller-funded down-payment assistance on FHA-backed loans.
HUD maintains such assistance -- often provided by home builders through nonprofit groups -- artificially inflates home prices and increases the risk of default. A sweeping housing bill signed into law July 30, HR 3221 would end the practice on Oct. 1.
HR 6694 seeks to address criticism of seller-funded gifts by tying its use to borrowers' credit scores. The bill, introduced the day after the passage of 3221, has been referred to the House Financial Services Committee that's chaired by Rep. Barney Frank, D-Mass.
At a hearing on foreclosures in Stockton, Calif., last weekend, Frank said HR 6694 has HUD's support because it would also allow the department to implement risk-based pricing on FHA insurance premiums -- a practice that would otherwise be suspended for at least a year by HR 3221 (see story).
HUD has not confirmed that it will support HR 6694, which could be amended in Tuesday's markup session before the bill is reported to the House for a vote.
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Submitted by Bruce Hahn on September 11, 2008 - 12:23pm.
American Homeowners Grassroots Alliance
Real estate industry trade groups may be all but unanimous in their opposition to the proposed changes to RESPA, but consumer organizations ARE unanimous in their support for it.
Submitted by Matt Carter on September 11, 2008 - 1:52pm.
Bruce, it will be interesting to see what consumer groups testify at next week's hearing, but I'm not sure it's fair to say they are unanimous in their support. At the hearing in May, the Center for Responsible Lending was the only consumer group to testify, and they had several reservations about HUD's proposal. Like industry groups, CRL urged HUD to coordinate with the Federal Reserve Board in drafting disclosures that can be used to satisfy both RESPA and Truth in Lending Act (TILA) requirements -- or which are at least not radically different. In her testimony before the Committee on Small Business, the CRL's Julia Gordon was also critical of HUD's proposed handling of yield spread premiums. HUD would require that loan originators credit these rebates -- sometimes paid by lenders on high interest rate loans -- to borrowers. But YSPs would not be identified as such on HUD's proposed GFE. Like the Fed, CRL thinks HUD should put the APR on the GFE, while HUD has chosen to emphasize settlement costs. CRL supported HUD's packaging incentives with some caveats. Gordon said HUD must be sure volume-based discounts are passed along to consumers, and said average cost pricing should only be employed when originators are paying an average price. Originators should not be allowed to charge consumers an average cost while paying the third party settlement provider a different amount for each loan applicant, Gordon said. (That would presumably make average cost pricing less useful to the industry, because some providers would like to be free of keeping track of exactly how much is spent on each loan for courier service, for example, and just charge borrowers an average of what they spend on all loans. All in all, consumers would supposedly benefit because the savings from the reduced paperwork would be passed along to them). CRL is also questioning the closing script, which the industry has complained will add about an hour to the closing process, but for different reasons. CRL says it will be hard to prove after the fact that the script -- an oral presentation of the loan terms -- was read in its entirety and contained accurate information even if it's signed by the borrower, and that the borrower's signature could be used against them in court as evidence they understood their loan, even if they didn't.Submitted by Matt Carter on September 11, 2008 - 3:23pm.
WSJ: HUD has "deep reservations" about HR 6694 in its current form.
http://online.wsj.com/article/SB122110189547222495.html?mod=googlenews_w...
Submitted by Dennis Pease on September 11, 2008 - 9:28pm.
Quoted from above: "Many of the current difficulties, including the high rate of foreclosures, have been caused in part by consumers not fully understanding their loan terms and costs" HUD said in defense of the proposed changes.
It's funny how HUD lays blame on others for the high rate of foreclosures. Granted that statement is true, but HUD is also very much responsible for the high foreclosure rates.
You don't hear them discussing the fact that they required lenders to make loans to under qualified buyers. In fact not only were under qualified buyers given mortgages but even people that should never have been considered for a loan. That was "Fair Housing" 3 years ago.
Dennis Pease
RE/MAX Integrity
Eugene Oregon Real Estate
Submitted by Matt Carter on September 15, 2008 - 7:59am.
The witness list for RESPA hearing has been published.
Six industry groups will provide testimony(NAR, MBA, NAMB, ALTA, NAHB and RESPRO), and two consumer groups (CRL, NCRC).
http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr091608.shtml