The American Land Title Association may sue the U.S. Department of Housing and Urban Development to block implementation of a proposal that would enable lenders to offer guaranteed-price packages of mortgage and settlement services with an exemption from certain restrictions in the Real Estate Settlement Procedures Act.

So said Stanley Friedlander, president of ALTA and Continental Title Agency Corp., in his testimony this morning at a House Small Business Committee hearing about the RESPA proposal HUD submitted to the White House Office of Management and Budget for its review late last month.

“If the (submitted) rule is substantially similar to the proposed rule, ALTA has been directed by its board to institute litigation challenging the regulation. This would be particularly likely if, for example, a final rule contains an exemption to Sec. 8, the anti-kickback provision of RESPA,” Friedlander told the committee.

The hearing, “Real Estate Settlement Procedure Act Regulations: Working Behind Closed Doors to Hurt Small Businesses and Consumers,” was an opportunity for real estate trade associations to express their dissatisfaction with HUD’s proposal.

Realty brokers, mortgage brokers, home builders and title companies believe combining loan origination and settlement service fees into one guaranteed-price package sum would prevent them from offering packages that compete with lender packages. ALTA, the National Association of Realtors and others support an alternative two-package approach that would permit settlement services providers as well as lenders to sell packages of real estate services.

Rep. Donald Manzullo (R-Ill.), chair of the House Small Business Committee and a former attorney who is familiar with real estate closings, seemed sympathetic to the industry groups’ complaints about HUD’s proposal as it was circulated for public comment early last year.

“My suggestion is to deep six this thing,” he said during a discussion of settlement procedures that followed the formal testimony.

He also questioned whether HUD was “inviting a lawsuit” by “acting in secrecy” between Congressional sessions.

The committee invited HUD Acting Secretary Alphonso Jackson to testify at the hearing, but no one from the agency participated. Congress is in recess.

Friedlander charged that HUD had exceeded its statutory authority and that the proposed rule would have a “particularly onerous effect” on small-business settlement service providers.

Michael Menzies, CEO of Easton Bancorp., testified on behalf of Independent Community Bankers, a trade group of 4,600 small banking institutions. He said that HUD’s proposal was based on the “unsupported assumption that small providers charge high prices for their services” and that it would inflict significant uncalculated costs on such companies.

Marc Savitt, president of Mortgage Center in Martinsburg, W. Va., testified that HUD’s rule-making procedure violated a federal paperwork reduction act and would create a huge amount of additional work for mortgage brokers. He characterized HUD’s economic analysis as “flawed, incomplete and inaccurate.” Savitt is a government affairs spokesperson on behalf of the National Association of Mortgage Brokers.

Real estate broker Walt McDonald, president of the National Association of Realtors, also testified against HUD’s proposal and in support of the two-package approach preferred by settlement services companies. He said NAR was “disappointed” at HUD’s decision to submit the proposal to OMB.

The sticking point at the hearing was that no one seemed to know whether the proposal HUD submitted to OMB was identical to the original version or had been altered to address the industry groups’ concerns.

John Graham, an OMB administrator, opened the Congressional hearing with testimony about the agency’s rule-review process and its options with respect to HUD’s proposal. But he said he couldn’t discuss the substance of the proposal OMB received. Staffers at OMB and other federal agencies are reading the “sizable” document, which OMB has 90 days to review.


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