Rep. LaFalce Introduces RESPA Amendments On Mark-Ups, Unearned Fees, Revisions To HUD-1 Form And Enforcement Provisions
May 28, 2002
On May 23, 2002, Rep. John J. LaFalce (D.N.Y.), the ranking minority member of the House Committee on Financial Services, introduced H.R. 4818, the "Mortgage Loan Consumer Protection Act," which would make extensive changes to the Real Estate Settlement Procedures Act of 1974, as amended (RESPA). Click here for a copy of the bill and Mr. LaFalce?s explanatory statement from the Federal Register. In a related press release, Mr. LaFalce reported that the bill has the support of a number of consumer groups, including Consumers Union, Consumer Federation of America, the National Consumer Law Center, and the National Association of Consumer Advocates.
H.R. 4818 would:
- eliminate the current statutory exclusion for certain charges (e.g., title examination, title insurance, notarization of deeds, appraisal fees, pest and flood hazard inspection) from the definition of "finance charge" under the Truth-in-Lending Act ;
- require HUD to reformat the HUD-1 Settlement Statement and Good Faith Estimate (GFE) by listing all charges under one of three types of groupings, with a total amount shown for each grouping:
- Closing Costs ? all non-interest charges "that the consumer is required to pay as a condition for receiving the loan;" fees paid to the lender would be grouped under a subcategory entitled "Total Lender Fees";
- Prepaid Items ? prepaid interest, amounts deposited into escrow accounts for real estate taxes and insurance, and other prepaid items; and
- All Other Costs Paid At Closing ? all other items other than Closing Costs and Prepaid Items;
- require lenders to make the completed HUD-1 Settlement Statement available to the borrower at least two days before settlement ;
- amend § 8(b) to make clear that the current language of § 8(b) prohibits "markups of the cost of services performed or goods provided by another settlement service provider" and "fees charged or collected by one settlement service provider where no, nominal, or duplicative work is done" (so-called "junk fees");
- require that the Special Information Booklet be expanded to include an explanation on the cost efficiency of refinancing a mortgage loan, and an explanation of mortgage broker fees;
- impose additional obligations and prohibitions on lenders in their handling of escrow accounts for taxes and insurance; and
- Impose civil liability for violations of several provisions for which no liability currently exists (§ 4 ? the HUD-1 Settlement Statement; § 5 ? Good Faith Estimate; §6 ? Loan Servicing Disclosure Requirements; and § 10 ? Escrow Accounts), including liability for actual damages, liability for additional damages up to $2,000 as determined by the court, and attorney?s fees, and provide for a three-year statute of limitations for such actions.
In a floor statement accompanying introduction of the bill, Rep. LaFalce indicated that, while his bill dealt with mark-ups and "junk fees," he did not agree with the language in HUD?s Policy Statement 2001-1 that RESPA § 8(b) applies to unearned fees where substantive services are rendered but the fee may be in excess of the reasonable value of the services rendered. Echoing the views expressed in the White Paper submitted earlier this year to HUD by ALTA and a coalition of other settlement service providers, Rep. LaFalce stated that:
- A concern has been raised that such an open-ended application could potentially subject every settlement charge for every loan to a subjective determination of whether such charge is excessive. The RESPA statute is not intended to be applied so broadly. Similarly, it is not the intent of Section 4 of my bill to subject charges where substantive services are provided by a single service provider to a test of merely whether they are excessive (provided there is no violation of 8(a) kickback or referral fee prohibitions).