Eight groups representing the banking and financial services industry are asking newly appointed Housing Secretary Shaun Donovan to scrap the Bush administration’s changes to rules governing loan disclosures and the provision of settlement services like title insurance.

The Department of Housing and Urban Development has said that changes to the Real Estate Settlement Procedures Act, or RESPA, will help consumers shop around for the best deal. That, plus increased competition, could produce savings of about $700 per loan, or $8.35 billion a year, HUD said in publishing the final RESPA rules in November (see story).

But the real estate industry remains opposed to the changes, saying HUD has overestimated the benefits for consumers and underestimated the havoc they could wreak on the industry.

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 repeated past calls for HUD to withdraw the RESPA rule change and coordinate with the Federal Reserve Board’s ongoing efforts to update Truth in Lending Act (TILA) disclosures.

Disclosures under both RESPA and TILA are provided simultaneously to the consumer at application and at closing, the groups said, and should be complementary.

"The fact remains that consumers today confront a daunting array of disclosures that are disparate, uncoordinated, confusing and, consequently, too often ignored," the banking industry groups said. The incoming Obama administration "has a unique opportunity to assure its new RESPA requirements do not exacerbate the problem and are an important part of the solution," the groups said in urging HUD to withdraw or suspend the new RESPA rule.

The letter notes that more than 240 House lawmakers made a similar request in August, asking HUD to withdraw its proposed RESPA rule changes and limit itself to working with the Federal Reserve on simplified disclosure forms.

Lawsuits pending

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, saying it singles out their members unfairly.

Mortgage brokers are opposed to a new standardized Good Faith Estimate (GFE) form, which requires the disclosure of yield-spread premiums paid by lenders when borrowers take out loans that carry higher interest rates than they might otherwise qualify for.

Critics say yield-spread premiums can serve as an incentive for mortgage brokers to place clients in higher-cost loans. To prevent mortgage brokers from pocketing the premiums without the knowledge of borrowers, the new GFE requires that the rebates be credited against borrowers’ closing costs.

NAMB filed suit in December (see story), claiming that bank loan officers charge consumers similar fees that aren’t disclosed to consumers, and that the new GFE will bias consumers against mortgage brokers. Loan originators don’t have to use the new standardized GFE and HUD-1 settlement statement until Jan. 1, 2010, but could choose to adopt it this year during a 12-month transition period.

Home builders filed suit in December to block implementation of another provision of the new RESPA rule that was set to take effect last month (see story).

Beginning Jan. 16, HUD was set to block builders from offering consumers incentives that regulators said amounted to a "required use" of builders’ affiliated mortgage and title insurance companies.

Under RESPA, affiliated businesses are exempt from the law’s "required use" provision if they offer a combination of settlement services at a total price lower than the sum of the market price of the individual services. The discount cannot be recouped by charging higher fees elsewhere in the settlement process.

HUD alleged home builders were offsetting the cost of incentives such as home upgrades by charging higher interest rates for mortgages, increasing home prices, or inflating closing costs.

In an attempt to address the issue, HUD narrowed the definition of "required use" so that only settlement services providers such as title insurers — and not home builders — could qualify for the required-use exemption.

After NAHB filed suit on Dec. 22, HUD agreed to push back implementation of that aspect of the RESPA rule change until April 16 in order to put together a legal response to that and other issues raised in the lawsuit (see story).

***

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