The Bush administration’s nominee to be the next Secretary of Housing — Steve Preston, the head of the Small Business Administration — is distancing himself from the SBA’s past criticism of proposed changes to the Real Estate Settlement Procedures Act, or RESPA.

The Bush administration’s nominee to be the next Secretary of Housing — Steve Preston, the head of the Small Business Administration — is distancing himself from the SBA’s past criticism of proposed changes to the Real Estate Settlement Procedures Act, or RESPA.

At a hearing before members of the Senate Banking Committee, Preston said some of the issues the Small Business Administration’s Office of Advocacy had raised about the impacts of RESPA reform are now being addressed by the Department of Housing and Urban Development — which he will take charge of if confirmed by the Senate.

Responding to questioning by Sen. Wayne Allard, R-Colo., Preston said that while he does not yet have "a detailed enough notion to understand exactly what (RESPA) reform should look like," many of the issues previously raised by the Small Business Administration have been addressed in HUD’s most recent RESPA reform proposal.

In 2002 — before Preston took the top job at the Small Business Administration — the SBA’s Office of Advocacy lent its voice to real estate industry groups opposing HUD’s plan to simplify loan disclosures and allow lenders to package settlement services with loans.

HUD maintained that consumers would save money if simplified disclosures encouraged them to shop around, and lenders competed for their business by negotiating with settlement service providers such as title insurers to reduce costs.

Many in the real estate industry — including groups representing Realtors, title insurers and settlement service providers — objected to the plan, saying it would give lenders too much control in the provision of settlement services, and lead to reduced competition.

In an Oct. 28, 2002, letter to HUD, Thomas Sullivan, SBA’s chief counsel for advocacy, said the proposed changes to RESPA would affect mortgage brokers, mortgage lenders, Realtors, appraisers, pest inspectors and settlement services providers. Sullivan said HUD’s initial analysis of the rule changes did not take into consideration comments by small businesses that would be affected, or develop alternatives that would be less burdensome for small businesses.

"The purpose of packaging is to increase competition among settlement service providers and lower the cost of settlement services for the consumer," Sullivan wrote. SBA’s Office of Advocacy urged HUD "to give full consideration to suggestions from the small business community concerning the packaging aspect of the proposal."

In March 2004, 226 members of Congress drafted a similar letter, complaining that HUD issued a final rule without an opportunity for additional public comment. HUD eventually withdrew its RESPA reform plan (see story)

Two months later, Sullivan wrote Housing Secretary Alphonso Jackson to "commend your leadership" in withdrawing the rule from review.

"While we applaud the Department of Housing and Urban Development’s (HUD) efforts to simplify, improve and lower the costs of obtaining home mortgages, we strongly support HUD’s decision to reexamine the RESPA rule, meet with industry groups, and seek public comment on a new proposed rule," Sullivan wrote.

It would be nearly four years before HUD came forward with a new RESPA reform proposal, which is also meeting with strong opposition from many in the industry. While the emphasis of the new proposal is on improving loan disclosures, HUD is again proposing incentives that would allow lenders to package settlement services with loans.

HUD says the changes could save consumers $8.35 billion a year, but some industry groups say the rule changes won’t be effective because they will increase the industry’s costs and could restrict competition (see story).

After receiving a letter from Reps. Ruben Hinojosa, D-Texas, Judy Biggert, R-Ill., and 146 other members of Congress, HUD extended public comment on its latest proposal by 30 days, to June 12 (see story).

"I don’t know that I’ve got a detailed enough notion to understand exactly what that reform should look like," Preston said at Thursday’s hearing. "But I do think it’s important for individuals when they come to a closing process to understand what they’re getting into, and for there to be clarity in that, and I’m hopeful that that can be done in a way that’s not overly burdensome to the industry."

Senate Banking Committee Chairman Sen. Chris Dodd told Preston that he had "some concerns" that Preston did "not have a background in housing or housing finance. While you possess other skills of great importance, I do believe that a working knowledge and background in housing is valuable, especially for the Secretary of HUD, a position of incredible importance, even in normal times."

But Dodd said after meeting with Preston, "I am hopeful that you have what it takes to begin to address the major challenges at HUD and in the larger housing market."

Referring to allegations of corruption and cronyism that forced Jackson to resign (see story), Dodd said they have "not only demoralized the staff at HUD, but it has cast a rather large shadow over the entire agency."

Dodd said that if confirmed, Preston will be in office for only a short time.

"I urge that your first order of business be to begin to clean up and restore confidence in HUD among employees and the American public," Dodd said.

Preston, 47, is a former executive at The ServiceMaster Co., which is the parent company of home warranty company American Home Shield, a settlement services provider that is regulated by HUD through its enforcement of RESPA.

Nominated by President Bush last month to succeed Jackson (see story), Preston’s tenure as housing secretary is expected to end soon after the next president takes the oath of office Jan. 20.

***

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