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For more information contact:
Steve Cook
202.383.1014 scook@realtors.org
NAR Urges Further Review of HUD's
RESPA Proposal
WASHINGTON
(October 31, 2002) – 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.
The National
Association of Realtors®
, "The Voice for Real Estate," is
America's largest trade association, representing more than 840,000
members involved in all aspects of the residential and commercial
real estate industries.
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