Housing Secretary Shaun Donovan says he remains committed to implementing new standardized loan-disclosure forms and settlement procedures proposed last year by the Bush administration, although HUD is stepping back from a proposal to ban certain incentives offered by homebuilders.
Meanwhile, the prospects of legislation that would force HUD to delay by one year implementation of changes to the Real Estate Settlement Procedures Act (RESPA) — currently scheduled to take effect Jan. 1 — remain uncertain, despite a lopsided House vote last week.
Donovan said Monday the Department of Housing and Urban Development remains committed to implementing the changes to RESPA, restating previous claims by HUD that they will save consumers an average of $700 per loan by helping them shop for the best deal.
"This administration is committed to providing consumers with clear and transparent information when they make the biggest purchase of their lives," Donovan said in a press release. "We will implement the new RESPA rules as part of broader reforms to the mortgage process."
The RESPA rule changes include incentives for loan originators to package settlement services like title insurance with loans, with transparent pricing that’s intended to encourage comparison shopping. Consumer advocates say homebuyers often pay too much for such services because they don’t shop around.
During a transition period this year, lenders can begin using the new standardized forms and take advantage of incentives for packaging settlement services with loans, but are not required to do so until the end of the year.
Industry critics accuse HUD of overestimating the benefits of the RESPA rule changes for consumers, and underestimating the drawbacks and costs, such as accelerated industry consolidation.
The National Association of Mortgage Brokers and the National Association of Home Builders (NAHB) last year filed separate lawsuits to block implementation of aspects of the RESPA rule changes (see story).
Mortgage brokers object to HUD’s plan to require that yield-spread premiums — rebates paid by lenders when borrowers take out loans with higher interest rates than they might otherwise qualify for — be credited against closing costs on a new standardized Good Faith Estimate, or GFE.
Homebuilders were opposed to changes to RESPA’s "required use" provision, which would have barred them from offering consumers incentives that required them to use homebuilders’ affiliated mortgage and title insurance companies.
That aspect of the RESPA rule changes was originally set to take effect Jan. 16, but HUD pushed back implementation after it was sued by NAHB, and said it was considering withdrawing the change (see story).
Donovan said after reviewing more than 1,200 public comments that HUD will propose a new "required use" definition "to help consumers shop effectively and safely for homes and mortgages, free from the influence of disingenuous discounts and incentives that steer consumers to the use of affiliated businesses."
In the meantime, HUD’s existing "required use" definition will remain in effect, allowing homebuilders to continue offering incentives that are tied to the use of their affiliated businesses.
But some real estate industry groups remain hopeful that Congress will scuttle the RESPA rule changes altogether.
The House has approved a bill that’s primarily targeted at curbing abusive and predatory lending with an amendment that would also delay implementation of RESPA rule changes for one year.
HR 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009, is intended to take away incentives for mortgage brokers to put borrowers in risky loans, and require lenders to retain some exposure to risk, rather than passing it all on to secondary-market investors. …CONTINUED
As amended by the House Financial Services Committee on April 29, HR 1728 would also suspend implementation of the REPSA rule changes scheduled to take effect Jan. 1, including mandatory use of a new standardized GFE and HUD-1 settlement statement forms.
Industry critics have complained that HUD’s new standardized loan disclosure forms are incompatible with a separate set of disclosures provided to borrowers under the Truth in Lending Act (TILA).
Groups including the Mortgage Bankers Association, the American Escrow Association, the American Bankers Association and the American Financial Services Association wrote Donovan on Feb. 9 asking HUD to withdraw the RESPA rule change and coordinate with the Federal Reserve Board, which was in the process of updating TILA disclosures.
The amendment to HR 1728 — introduced by Reps. Ruben Hinojosa, D-Texas, and Judy Biggert, R-Ill. — would delay implementation of the RESPA rule changes for one year, and give HUD and the Federal Reserve one year to implement compatible loan disclosures that meet both RESPA and TILA requirements (see story).
The Hinojosa-Biggert amendment was incorporated in the version of HR 1728 approved May 7 in a 300-114 House vote. Although 60 Republicans voted with 240 Democrats in support of the bill, three Democrats crossed the aisle and voted with the 111 Republicans who were opposed to it.
The bill’s prospects remain uncertain, however, as the lending industry is opposed to some of its provisions (see story) and no companion legislation has been introduced in the Senate.
HR 1728 would require loan originators to determine a borrower’s ability to repay a loan, and only refinance mortgages when there is a "net tangible benefit" to the consumer. Loan originators would be barred from collecting yield-spread premiums or other compensation that can serve as incentives to steer borrowers into high-cost loans.
The bill would also lower the trigger for loans to be considered "high cost" and subject to the more stringent requirements of the Home Ownership and Equity Protection Act (HOEPA). Lenders say loans subject to HOEPA are difficult or impossible to securitize and sell to secondary-market investors.
To encourage responsible lending, the bill would also create a limited "safe harbor" from lawsuits for "qualified mortgages" — prime, fully documented, 30-year fixed-rate mortgages. Those loans would be exempt from some of the bill’s requirements.
Lenders would be required to retain at least 5 percent of the risk associated with "nonqualified" mortgages, which industry critics say would make it difficult for many independent lenders to operate.
The Mortgage Bankers Association is opposed to the bill, saying Congress should replace the current "patchwork" of state laws governing their conduct with national standards for mortgage lending that preempt state regulations.
After the bill’s passage, Congressional Quarterly reported that its prospects remain "murky." The Senate failed to act on a similar bill, HR 3915, passed by the House in 2007, and so far has not introduced a companion bill to HR 1728.
The House and Senate have been at odds over the issue of granting "cram down" powers to bankruptcy judges that would allow them to reduce the principal on the mortgage of a troubled borrower’s primary residence.
In a 91-5 vote on May 6, the Senate passed S 896, legislation aimed at encouraging loan modifications and refinancings by expanding the Federal Housing Administration’s Hope for Homeowners refinance program and creating a legal "safe harbor" for loan servicers who modify loans.
The House version of the bill, HR 1106, approved March 5 in a 234-191 vote, would also have allowed bankruptcy judges to modify mortgages to keep homeowners out of foreclosure. Differences between HR 1106 and S 896 must now be ironed out in a conference committee (see story).
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