HUD to Delay Contested Provision of Final RESPA Rule

Posted By DIANA GOLOBAY
January 8, 2009 12:08 pm

The U.S. Department of Housing and Urban Development will be delaying implementation of the "required use" provision of the final Real Estate Settlement and Procedures Act (RESPA) rule, which was to take effect on Jan. 16 and will prevent home builders from offering incentives or discounts to buyers that use specific settlement services providers, like brokers or lenders. American Banker [1] broke the story Wednesday after unnamed sources leaked the information, according to HUD spokesman Brian Sullivan. The delay comes after  the National Association of Home Builders (NAHB) filed a petition for a preliminary injunction against the rule in late December.

"We could have argued the preliminary injunction," Sullivan told HousingWire. "What we've done is, instead of contesting a preliminary injunction, we decided that we would simply agree to delay the implementation of the new ‘required use' provision for 90 days while we could produce the administrative record and get our legal ducks in a row to mount a vigorous defense of our position on the merits of the case."

The delay of the "required use" provision, originally slated to take effect Jan. 16, doesn't necessarily mean the rule will not go into effect - or even that HUD is reconsidering its relevance - but is tied to the NAHB lawsuit and will give HUD some time to form a case for reforming the "required use" definition, according to Sullivan. "Builders are not settlement service providers - a very important legal distinction that makes them unique," he said. "They're feeling singled out because they are not settlement service providers."

The RESPA has always established that it's a violation of law for a settlement service provider to require the use of an affiliate, according to Sullivan. Such a practice "puts the consumer in an impossible situation and is tantamount to required use," he said. Borrowers were urged into expensive loans provided by brokers and lenders with higher rates simply because they didn't understand the fine print. "We were getting complaints from consumers who, after they got their house and their new granite counter tops or their new framed-in sun room - or whatever the incentive was - and they started to do the arithmetic saw that the loan they were put in was appreciatively more expensive than they could otherwise qualify for and so it wasn't a true discount," Sullivan said.

Other provisions within the final RESPA rule - like the new good faith estimate - will still go into effect at the scheduled date of Jan. 1, 2010, according to Sullivan. "We're trying to allow time for the industry to ramp up, train its staff and incorporate those forms into their working models and business practices," he said.

This marks the second lawsuit filed against HUD since the announcement of the final RESPA rule. The first came from the National Association of Mortgage Brokers (NAMB), "which challenged the yield spread premium disclosure requirement," according to Sullivan. "Brokers are saying we're creating a situation that's too transparent, and we just don't think that's possible," he said. "We're mystified why anyone would stand in the way of transparency, especially in today's marketplace."

Write to Diana Golobay at [2] diana.golobay@housingwire.com.