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May 2009 - Volume 12, Issue 4 - Page 5

MBA, Trade Groups Reiterate Call for HUD to Suspend RESPA Final Rules

Sorohan, Mike

The Mortgage Bankers Association and a number of industry trade groups, in response to HUD's announcement this week that it would go forward with Real Estate Settlement Procedures Act final rules, called again on HUD to suspend its plan and coordinate mortgage disclosure efforts with the Federal Reserve.

HUD Secretary Shaun Donovan this week announced that HUD would move forward with implementation of RESPA-required disclosures that lenders and mortgage brokers provide to consumers: a standard Good Faith Estimate that clearly discloses key loan terms and closing costs; and a new HUD-1 Settlement Statement that clearly compares consumers' final and estimated costs.

However, HUD made a key concession to the real estate finance industry, agreeing to withdraw a "required use" definition. HUD acknowledged that it had received more than 1,200 comment letters, mostly critical of the required use definition (http://www.hud.gov/content/releases/respa-withdrawal.pdf.)

Despite the concession, MBA and the trade groups continued to press HUD withdraw its RESPA rule (which provides borrower information on settlement charges) and coordinate efforts with the Fed, which holds jurisdiction over the Truth in Lending Act (which provides borrowers with information on costs and terms of the credit transaction). MBA asserts that HUD and the Fed should work on a complementary rule, rather than issue separate final rules that would muddle the mortgage process.

The letter noted that the House last week passed H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act, which would require HUD to suspend implementation of the RESPA final rules and compel HUD to work with the Fed to jointly reform disclosures under RESPA and TILA to achieve compatibility between the forms required under both laws.

“We maintain that the best course of action to increase transparency for consumers is for HUD to join the [Fed] and undertake a joint rulemaking as the legislation directs,” t he letter said. “Better disclosures would greatly improve consumer understanding. However, since both sets of disclosures are provided to the consumer at application and at closing, it is also essential that both sets of disclosures complement each other to avoid confusion and potential harm.”

Merging RESPA and TILA forms would provide consumers with one set of logical disclosures at each stage of the mortgage transaction, from the beginning to the end, the letter said. MBA and the trade groups noted, however, that HUD and the Fed's reform efforts have operated independently to date, with evidence that disclosures would not be harmonious. For example, HUD’s requirements for disclosure of the loan’s interest rate differ from the Fed's requirements that the annual percentage rate be disclosed. The letter argued that the Fed will soon announce its proposed rule to reform TILA disclosure requirement that, at minimum, would not become effective until after HUD's RESPA disclosures would go into effect.

“Considering the effective date of the RESPA rule, lenders and other settlement service providers still must incur enormous costs to make systems changes for the new RESPA disclosures, unless the rule is suspended very soon,” the letter said. “If the legislation suspending the rule is later enacted, these costs may prove unnecessary. Even if there is neither a suspension nor enactment of a new law, successive systems changes to comply with one agency’s rules, and then another, will unnecessarily increase costs at a time when neither the industry nor borrowers can afford them.”

“Consumers today confront a daunting array of disclosures that are disparate, uncoordinated, confusing and, consequently, too often ignored,” the letter said. “Given your stated interest in improving the mortgage process, we respectfully urge yet again that this once-in-a-generation opportunity to truly reform RESPA and TILA disclosures for consumers not be missed. Suspension of the RESPA rule and marshaling of both HUD’s and the Board’s efforts together are essential steps to achieving this important goal.”

Joining MBA in the letter: the American Bankers Association; the American Escrow Association; the American Financial Services Association; the Consumer Bankers Association; the Consumer Mortgage Coalition; the Housing Policy Council; and the National Association of Mortgage Brokers.