Small businesses 'loud and clear' on RESPA reform

July 22, 2005

Second HUD meeting on improving home-buying process

By Janis Mara
Inman News

Small business owners sounded off "loud and clear" about real estate settlement packages at Thursday's roundtable discussion on how to improve the home-buying process led by the Department of Housing and Urban Development, a department spokesman said.

"Spirited debate is not only useful, it's pivotal," HUD spokesman Brian Sullivan said of the roundtable. The Los Angeles meeting was co-hosted by the Small Business Administration and sought business input on reform of the Real Estate Settlement Procedures Act, known as RESPA, which regulates the mortgage-closing process.

The meeting was the second of a series of six roundtables planned by HUD to collect input from consumers and industry professionals on how to simplify the home-buying process. The first was held last week.

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>>More Both last week's and this week's forums included spirited discussion of HUD's new proposed Mortgage Package Offer and revised Good Faith Estimate forms. These and other reforms were formulated in 2004 but not shared with the industry at the time.

A number of small business owners, including appraisers, community bankers, mortgage brokers and escrow agencies, voiced their concerns about HUD's proposed Mortgage Package Offer at Thursday's meeting, Sullivan said.

Under HUD's new proposed Mortgage Package Offer, loan officers would give consumers an offer for a mortgage loan. The offer would include a guaranteed price for a loan package that includes most of the settlement services needed to get the loan, such as escrow services, as well as an interest rate and guaranteed points.

In the past, consumers have complained about being told they would pay a certain price at closing and then having a different, higher price presented to them when the actual closing took place. By including a guaranteed price in the Mortgage Package Offer, HUD aims to make sure this doesn't happen.

"There was near-universal apprehension about the prospect of any packaging that the smaller businesses, such as escrow agencies, feel would disadvantage them relative to larger business," Sullivan said.

"Lots of escrow people were concerned that larger mortgage lenders and title companies would squeeze them to lower their price in the package without passing the saving along to the consumer," Sullivan said.

"Their concern is that the consumer would see none of this and they would be pressed to do business almost below cost to get into a package," the spokesman said.

HUD has said that the mortgage package offer and other forms are being tested by consumers and that the forms are not necessarily going to be included in the final HUD rule.

HUD's original 2002 proposal would have changed the disclosure requirements for mortgage broker fees, including the yield spread premiums, simplified the good faith estimate form and permitted the sale of guaranteed-price bundled packages of mortgages and mortgage-related services.

These original proposals netted an unprecedented 45,000 comments during the public comment portion in 2002. Many of those came from within the real estate industry in opposition to the changes.

The 2004 proposed rule, formulated in response to the firestorm of comments, has been a mystery ever since. Jackson withdrew the agency's proposal from the White House Office of Management and Budget in March 2004. Last week's and this week's meetings comprised a first look at the new proposed rules for the industry.

"These are small Mom-and-Pop businesses and RESPA reform to them is very much different than it would be for the larger corporate or trade association concerns. It was good for us to hear it and good for them to say it," said Sullivan of yesterday's meeting.

Copyright 2005 Inman News

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