September 19,
2002
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James R. Maher, EVP Ann vom Eigen,
Legislative and Regulatory Counsel |
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ALTA OPPOSES HUD’s PROPOSED RESPA REGULATIONS
ALTA Supports Revisions to RESPA Empowering Consumer Choice
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On July 29, HUD issued proposed revisions [pdf] 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 In 1975 Congress repealed RESPA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.
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