MBA Urges HUD to Coordinate RESPA Reform with Fed

MBA (6/12/2008 ) Kemp, Carolyn; Sorohan, Mike
The Mortgage Bankers Association, in comments filed yesterday with HUD, said while it supports reform of the Real Estate Settlement Procedures Act, HUD’s recently proposed rule could potentially complicate further the mortgage process for borrowers.
In the 86-page document, MBA President and CEO Jonathan Kempner also urged HUD to coordinate its RESPA reform efforts with the Federal Reserve, which has issued its own proposed changes to Regulation Z implementing the Truth In Lending Act.

"MBA applauds HUD's RESPA reform efforts and believes RESPA reform has the potential to greatly improve disclosures to consumers concerning their closing costs," Kempner said. "Recent events demonstrate that borrowers also need additional clarity about the terms and cost of credit, which falls under the Fed's responsibility under TILA. For that reason, we strongly believe that HUD should link its efforts with the Board of Governors of the Federal Reserve so that both agencies work together in a careful, coordinated and comprehensive manner to truly simplify and improve the mortgage process for consumers."

Specifically, MBA's comments call on HUD and the Fed to work together to produce a combined TILA and Good Faith Estimate (GFE) form and implement it simultaneously to replace current RESPA and TILA disclosures provided to borrowers at the time of application. MBA and its members have developed a proposed combined form, as well as a comparable revised HUD-1, which MBA included with its comment letter.

HUD’s proposed RESPA rules, issued March 15, would establish a four-page standard Good Faith Estimate form; impose tolerances to limit increases in GFE estimates at closing: revise requirements for disclosure of mortgage broker fees as "the charge or credit for the interest rate chosen;” make changes to the HUD-1 to facilitate comparison between GFE and HUD-1 charges; establish a new script to be read to borrowers at settlement concerning final loan terms and settlement costs; revise regulations to permit certain average-cost pricing and volume discounts; clarify “required use” requirements to restrict disincentives to use of non-affiliates; and make technical amendments.

But the Fed also requested comments on its far-reaching proposal to amend Regulation Z, its Truth in Lending Act regulations. Changes to TILA independently of HUD’s efforts to change RESPA would have "important implications” for HUD’s proposal, MBA said.

Should HUD decide to move forward to finalize the rule without coordinating with the Fed, MBA proposed that HUD do the following:

• Pare back its proposal and forms to address only closing cost issues (consistent with its statutory authority);

• Make the form given at the time of loan application and the HUD-1 more consistent so borrowers can easily compare their costs;

• More clearly disclose both lender fees and mortgage broker fees on the GFE and HUD-1;

• Revise the tolerances contained in the proposal with bright line safe harbors to reduce surprise charges at settlement;

• Eliminate the "closing script," which HUD says would add 45 minutes to each closing;

• Allow lenders and brokers to use "average cost pricing;"and

• Also allow "volume discounts" without the restrictions proposed so borrowers can realize the maximum benefit of such arrangements.

MBA also said it would support complementary statutory changes that would “truly simplify and improve the mortgage process.”