Mortgage Bankers Want Out Of RESPA

May 17, 2002

MBA Proposes Liability Relief For ?Guaranteed Closing Cost? On Packaged Settlement Services

Marcie Geffner
Inman News Features

Washington, D.C. ? Should lenders be relieved from liability exposure under the Real Estate Settlement Procedures Act if real estate services are bundled and sold in a package? That idea was presented during a "friendly discussion" held here yesterday morning during a meeting of the National Association of Realtors? Business Issues Committee chaired by California Realtor Jim Hamilton.

Rod Alba, director of residential finance/regulatory affairs for the Mortgage Bankers Association of America, outlined the group?s "dream RESPA reform package."

The group?s approach would streamline the home-buying process, simplify disclosures, create clarity for consumers and decrease legal and compliance risks for lenders by replacing existing mortgage-related disclosures with four documents?a mortgage information booklet, an application disclosure, a commitment disclosure and a simplified settlement statement?and a "guaranteed closing cost" statement provided by the loan originator, Alba said.

The only disclosures required in such instances would be those under the Home Ownership Equity Protection Act, right of rescission, notice of transfer of servicing and initial and annual escrow accounting, Alba said.

The MBA also is pushing for elimination of "anti-referral fee and anti-fee splitting provisions under Sec. 8 of RESPA vis-à-vis services included in the closing package," according to a handout Alba distributed to the NAR committee members. The effect of this proposal would be to relieve lenders of RESPA liability risks whenever loan origination and related services were bundled into a package by the lenders or other third-party providers. Consumers would be able to pursue civil remedies, but existing criminal penalties for lenders? misdeeds would be removed from the law books.

"Anyone offering these packages would be exempt from (RESPA) Sec. 8 liability, which means referral fees and kickback rules as they exist today. Most importantly, we would be exempt from the anti-fee-splitting, up-charging, reasonableness and a whole slew of other horribles that can come under RESPA when you are facing a class-action attorney. All of those items would drop out because the consumer is given one price and the incentive to shop around," Alba said.

Jim Maher, EVP of the American Land Title Association, then took the floor in opposition to the MBA?s approach.

Maher said home buyers and sellers have a "discrete and separate interest" in the issue of bundling closing services.

"Whatever system is adopted should preserve consumers? choice, not just by a differentiated package of what someone else decides is necessary to close the transaction, but also by enabling the consumer to make decisions about what services are in the package," he said.

Maher also expressed concerns about the impact on the quality of services that consumers would receive. He said the MBA approach "encourages the dumbing down of the process and the services and the cramming down of margins on those services to the point where the quality of those services (may be called into question)."

Maher also said the popularity of the Internet and its ability to empower consumers makes now exactly the wrong time for a wholesale reform of RESPA.

"It is ironic that when we are on the cusp of that reality (of consumers shopping for services on the Internet and making their own choices), we are considering a Federal regulatory scheme that would dispense with giving consumers? individual choices and replace that with a single choice," he said.

Hamilton said RESPA was put in place to protect consumers and brokerages have learned to work within its regulations. He also said Realtors would be unlikely to get into the business of real estate services packages because they?d face the prohibitive task of having to develop separate packages to meet the requirements of multiple lending institutions. He questioned whether MBA?s approach would result in real cost-savings for home buyers and sellers and whether they would be in a position to shop around if packagers charged up-front application fees prior to issuing the guaranteed price on the package.

Committee members then discussed a number of other concerns, including the prospect of liability exposure for providing the initial mortgage brochure, the issue of which costs would be included in the guarantee and the possibility that lenders might later adjust the interest rates and points on the loan to compensate themselves for under-pricing a settlement services package.

The word in Washington is that the U.S. Department of Housing and Urban Development is putting the finishing touches on new RESPA-related regulations that could appear for comment in August. Both NAR and ALTA have taken the position that HUD lacks the necessary legal authority to implement some of the sweeping changes along these lines that may be in the proposal.

Copyright: Inman News Service

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