ALTA® MEMORANDUM: OCC Issues Preemption Letter On Massachusetts Law On Bank Sales Of Insurance
|March 22, 2002|
From: James R. Maher, EVP / Ann vom Eigen, Legislative and Regulatory Counsel
ALTA OPPOSES HUD's PROPOSED RESPA REGULATIONS
ALTA Supports Revisions to RESPA Empowering Consumer Choice
On July 29, HUD issued proposed revisions to its Real Estate Settlement `Procedures Act (RESPA) regulations that would fundamentally alter the way in which mortgages and real estate settlement services are marketed and priced. Comments are due October 28, 2002. The proposal would scrap the existing rules and forms for the disclosure of settlement cost estimates by lenders that have been in place for almost 30 years and substitute two radically new regimes. Under a "Revised Good Faith Estimate with a Tolerance" regime, lenders would provide 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, lenders could provide consumers with an abbreviated disclosure, and would be given an exemption from the antikickback provisions of Section 8 of REPSA, for a "guaranteed package" consisting of a loan and all settlement services.
ALTA supports settlement services legislation or regulations that promote consumer choice and empowerment, require meaningful disclosure, and that would enhance consumer ability to shop effectively for settlement services. HUD's current packaging proposal does not achieve these goals, in fact exceeds HUD's current statutory authority, and would have many adverse effects.
ALTA asks members of Congress to contact HUD to express their concern about the potential adverse effects of the proposal on consumers, the mortgage settlement process, and small businesses.
HUD Has Exceeded Its Statutory Authority And The Rule Should Not Be Implemented: The HUD proposals would make radical changes in a critical " and currently healthy " sector of the American economy affecting hundreds of thousands of business and millions of transactions. HUD's proposals would dramatically change the service delivery system for real estate settlement services to effectively require that settlement service providers market to consumers through lenders. In 1975 Congress repealed RESPA provisions requiring lenders to provide precise estimates of closing costs and penalties for such failures. ALTA believes that HUD should not implement far-reaching changes without Congressional approval and amendments.
Consumers Should Be Allowed To Choose Services That Protect Their Interests: HUD's packaging proposal is based on the faulty premise that whatever settlement services and providers will meet the needs of the lender will always also serve the interests of consumers. Under HUD's current "blind" packaging proposal, a consumer could purchase a lender package including a lender "packaging" fee and (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, and beholden to, the lender rather than a provider of their own choosing.
Small Business Real Estate Settlement Service Providers Should Not be Penalized: Widespread adoption of the HUD packaging regime would mean that settlement service providers would effectively have access to the consumer market only through lenders. Competition for market access through lenders is likely to adversely affect the ability of the settlement services industry to attract capital, to continue to make needed investments, and to provide services needed by consumers on a timely basis. The HUD packaging proposal will have a particularly adverse effect on small businesses that make up a majority of title services providers.
If Packaging Is Authorized, Separate Loan And Settlement Packages Should Be Provided: ALTA believes that consumers would benefit and harm to small businesses resulting from HUD's proposed rule could be avoided if alternative packaging options were authorized. Under such an alternative regime, lenders would offer at a guaranteed price a package of a loan and loan-related services--services need by the lender for its loan underwriting and yield-adjustment purposes. Title companies, real estate brokers, mortgage lenders and others would offer a guaranteed settlement service package of non-lender-related settlement services, such as title and closing-related charges, recording fees, transfer taxes and other government charges "without an exemption from Section 8. Any savings achieved in the guaranteed settlement package would be passed directly to the consumer. Such an approach would also require statutory authorization.