RESPA changes will hurt consumers

The more I look over the HUD RESPA changes that start January 1, the worse they seem.

HUD has simplified the Good Faith Estimate by making it 3 pages rather than 1 page. That is the logic of government.

The stated goals are to increase transparency, to increase accuracy, and to encourage shopping.

I think the accomplished facts are to increase banker advantage by enabling bankers to hid their premium income. Bankers have always been able to hid their premium income. Brokers have always disclosed their premium income. HUD now will require brokers to add the premium income to the upfront charges, creating the false perception that brokers are charging more upfront.

It is an advantage that the regulators are giving to banks. It amounts to an anti small business policy.

But even for bankers, as well as closing agents, it is astounding that HUD would impose such a poorly conceived encumberance as these new RESPA requirements. At a time when lenders, brokers, and others in the housing industry are struggling to get through the down turn, HUD decides it is best to add further cost and burdens of new software, new forms, and new training.

You would think that HUD is intent on further restricting the housing market.

At any rate, one of the more consumer unfriendly, and more poorly thought out, aspects of the RESPA reform is the requirement that any Good Faith Estimate is fully binding on the loan originator. For the consumer this means that application, including credit, will probably be required before the application can receive an estimate of costs.

From HUD's FAQ - "An application includes information the loan originator requires the borrower to submit in anticipation of a credit decision. If a loan originator issues a GFE, the loan originator is presumed to have received all six pieces of information."

We will have to wait and see how this strict binding requirement impacts consumer ability to shop for terms, but I think it will limit them. And I think with the additional disclosure requirements placed on brokers, over that required of bankers, the consumer will be steered to larger bank lenders out of confusion rather than based on a fair and accurate understanding of the costs and terms.

The exact opposite of the stated goals of HUD.

For more on RESPA reform, please look at my article in November's Scotsman Guide.

FHA, VA, Rural Development, Conventional, Jumbo,
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