ALTA® Thanks Congress for Opposing HUD issuance of the RESPA Rule
April 19, 2004
James R. Maher, EVP, Ann vom Eigen, Legislative and Regulatory Counsel
Background: In July 2002, HUD proposed regulations revising the Real Estate Settlement Procedures Act (RESPA) to alter marketing and pricing of mortgages and real estate settlement services. HUD sent a “final” rule to the Office of Management and Budget in December 2003, and withdrew it in March 2004. ALTA and virtually all the real estate industry interest groups, consumer interest groups, and most lender groups opposed issuance of the RESPA rule.
The HUD rule proposed scrapping existing rules and forms for the disclosure of settlement cost estimates by lenders and substituted two new regimes. Under a “Revised Good Faith Estimate with a Tolerance” regime, lenders would have provided binding estimates only for major categories of lender and settlement charges, with a requirement that the final charges for those categories not exceed the estimates (or exceed them only by limited tolerances). Under the second regime, our particular concern, lenders could have provided consumers with an abbreviated disclosure, and would obtain an exemption from the current antikickback provisions of Section 8 of REPSA, for a “guaranteed package” consisting of a loan and all settlement services as described below. Our concerns are highlighted below.
State Law Prohibiting Kickbacks and Preserving Jobs Should be Maintained: State anti-tying, anti-affiliation, rate setting, and mini RESPA laws, which protect consumers, should not be pre-empted. Many states have statutes such as title plant laws and anti-kickback statutes that are designed to ensure the quality of the title product and limit payment of referral fees.
HUD Had Exceeded Its Statutory Authority: In 1975 Congress repealed RESPA provisions requiring lenders to provide precise estimates of closing costs and penalties for such failures. ALTA believes HUD should not implement changes without Congressional amendments.
Consumers Should Be Allowed To Choose Services That Protect Their Interests : HUD’s packaging proposal was based on the premise that the needs of the lender will always also serve consumer’s interests. Under HUD’s “blind” packaging proposal, a consumer could purchase a lender package including a lender “packaging” fee. They might also (a) pay for a package that would not include the services they need, (b) pay twice for certain services, or (c) be forced to use a provider selected by the lender rather than their own choice.
Small Business Real Estate Settlement Service Providers Should Not be Penalized : Widespread adoption of HUD packaging would mean that settlement service providers would effectively have access to consumers only through lenders. Competing for access through large lenders would affect settlement services businesses’ ability to attract capital, make needed investments, and provide services needed by consumers on a timely basis.
If Packaging Is Authorized, Separate Loan And Settlement Packages Should Be Provided: ALTA believes that alternative packaging options should be authorized. Lenders would be able to package loan and loan-related services at a guaranteed price. Title companies, real estate brokers, and mortgage lenders would offer a guaranteed settlement service package of title and closing-related charges, recording fees, transfer taxes and government charges – without a Section 8 exemption. Savings in the guaranteed settlement package would go to the consumer.