NAR Urges Further Review of HUD's RESPA Proposal
November 1, 2002
WASHINGTON – The Department of Housing and Urban Development's proposal to reform the Real Estate Settlement Procedures Act (RESPA) includes improved consumer disclosure requirements, but its provisions for the packaging of real estate settlement services would have such dramatic impacts on consumers and providers that they merit further study and analysis before being implemented, the National Association of Realtors® said in comments filed this week.
The proposal includes two new options for disclosing mortgage costs:,an enhanced Good Faith Estimate (GFE) and a Guaranteed Mortgage Package (GMP) with a provision for relief from kickbacks under Section 8. Of the two, NAR contended that the HUD Secretary's goals of reform can be achieved by improving the GFE disclosure, which will provide consumers more information about mortgages than they receive under current law. While there is much room for improvement, with congressional input, it is a concept that NAR said it can support.
As for the GMP, NAR said there is not enough evidence of consumer and industry benefit to move forward with this more radical approach to reform at this time. There are inherent risks in this proposal and until more is known about the likely impacts, HUD should postpone advancing this kind of significant regulatory change.
"HUD's GMP piece of the proposal could increase concentration, reduce transparency, discourage innovation, reduce the quality of services provided, and ultimately lead to higher closing costs. Small and medium size settlement services providers as well as consumers, could be at risk. While HUD argues the impact on small business is not its concern, we maintain they are essential to the viability and the long-term health of the housing market," said NAR President Martin Edwards, Jr., a partner in Colliers Wilkinson & Snowden Inc., Memphis, Tenn., in NAR's comment letter.
The packaging proposal also favors lenders over other players in the marketplace since only lenders can offer a guaranteed interest rate. Real estate brokers will only be able to offer packages if they form a relationship with a lender.
NAR questioned the proposed $10.3 billion that HUD claims the regulation would save borrowers on the grounds that the agency's economic impact analysis failed to adequately take into account downside risks and the impact of industry concentration that the proposal would cause.
"Any regulation that moves an industry toward a more concentrated market structure should be viewed with considerable caution. An increased concentration of powers into the hands of a smaller number of large lenders and service providers could lead to higher closing costs—the exact opposite of HUD's stated goals for reform," the comment letter stated.
- The GMP proposal would create additional problems for consumers and the real estate industry, NAR argued, including:
- The GMP will reduce transparency in the transaction. Borrowers will shop for a loan based on an interest rate and a "black box" of settlement costs;
- The proposal assumes volume discounts secured by the lender from third party settlement providers will result in lower costs to the consumer; however, under the GMP, these discounts do not have to be passed on to the consumer; and
- Packaging could limit the cost savings to consumers that could otherwise be realized through technological gains.
The real issue in the RESPA debate is Section 8 and whether the problems identified in the mortgage process can be addressed without removing this very important consumer protection. By providing a Section 8 exemption to the GMP, HUD has created a powerful regulatory incentive that could move the industry to packaging with or without efficiency gains. Most importantly, the kinds of changes being proposed by HUD should be more fully debated in Congress before HUD moves forward with either approach to reform, NAR concluded.
Source: The National Association of Realtors