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HUD committed to RESPA changes
Housing Secretary Shaun Donovan says he remains committed to implementing new standardized loan-disclosure forms and settlement procedures proposed last year by the Bush administration, although HUD is stepping back from a proposal to ban certain incentives offered by homebuilders.
Meanwhile, the prospects of legislation that would force HUD to delay by one year implementation of changes to the Real Estate Settlement Procedures Act (RESPA) -- currently scheduled to take effect Jan. 1 -- remain uncertain, despite a lopsided House vote last week.
Donovan said Monday the Department of Housing and Urban Development remains committed to implementing the changes to RESPA, restating previous claims by HUD that they will save consumers an average of $700 per loan by helping them shop for the best deal.
"This administration is committed to providing consumers with clear and transparent information when they make the biggest purchase of their lives," Donovan said in a press release. "We will implement the new RESPA rules as part of broader reforms to the mortgage process."
The RESPA rule changes include incentives for loan originators to package settlement services like title insurance with loans, with transparent pricing that's intended to encourage comparison shopping. Consumer advocates say homebuyers often pay too much for such services because they don't shop around.
During a transition period this year, lenders can begin using the new standardized forms and take advantage of incentives for packaging settlement services with loans, but are not required to do so until the end of the year.
Industry critics accuse HUD of overestimating the benefits of the RESPA rule changes for consumers, and underestimating the drawbacks and costs, such as accelerated industry consolidation.
The National Association of Mortgage Brokers and the National Association of Home Builders (NAHB) last year filed separate lawsuits to block implementation of aspects of the RESPA rule changes (see story).
Mortgage brokers object to HUD's plan to require that yield-spread premiums -- rebates paid by lenders when borrowers take out loans with higher interest rates than they might otherwise qualify for -- be credited against their closing costs on a new standardized Good Faith Estimate, or GFE.
Homebuilders were opposed to changes to RESPA's "required use" provision, which would have barred them from offering consumers incentives that required them to use homebuilders' affiliated mortgage and title insurance companies.
That aspect of the RESPA rule changes was originally set to take effect Jan. 16, but HUD pushed back implementation after it was sued by NAHB, and said it was considering withdrawing the change (see story).
Donovan said after reviewing more than 1,200 public comments that HUD will propose a new "required use" definition "to help consumers shop effectively and safely for homes and mortgages, free from the influence of disingenuous discounts and incentives that steer consumers to the use of affiliated businesses."
In the meantime, HUD's existing "required use" definition will remain in effect, allowing homebuilders to continue offering incentives that are tied to the use of their affiliated businesses.
But some real estate industry groups remain hopeful that Congress will scuttle the RESPA rule changes altogether.
The House has approved a bill that's primarily targeted at curbing abusive and predatory lending with an amendment that would also delay implementation of RESPA rule changes for one year.
HR 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009, is intended to take away incentives for mortgage brokers to put borrowers in risky loans, and require lenders to retain some exposure to risk, rather than passing it all on to secondary-market investors.
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