Magazine article Mortgage Banking

HUD Files RESPA Reform Rule at Eleventh Hour

Magazine article Mortgage Banking

HUD Files RESPA Reform Rule at Eleventh Hour

Article excerpt

The Bush administration in November finally delivered on its anticipated parting gift to the industry of a long-awaited revision to the Real Estate Settlement Procedures Act (RESPA).

Some six years in the making, the Mortgage Bankers Association (MBA) commended the Department of Housing and Urban Development's (HUD's) attempt to reform the nearly 35-year-old RESPA by improving disclosure of loan terms and closing costs consumers pay when they buy or refinance their home.

"The rule's new estimate and settlement forms an important step toward developing more consumer friendly forms that will help borrowers better understand the loan they are getting and the fees they are paying, while making it much easier for a borrower to shop and compare the different loans they are offered," said MBA Chairman David G. Kittle, CMB.

Citing the backdrop of the housing crisis and global credit crunch, HUD Secretary Steve Preston explained HUD's desire to make mortgages more understandable for borrowers and the process more transparent for all involved in a home loan transaction.

"Consumers need and deserve to know what they're getting themselves into before they sign on the dotted line," said Preston. "After carefully considering the concerns of consumers and the different businesses in the housing sector, we have developed an approach that empowers the average family to shop for the most appropriate loan to meet their needs."

HUD's final RESPA rule was expected to be published in the Federal Register on Nov. 14 and will take effect after the 60-day comment period, but Preston said the mortgage industry has a "full year" to implement the rule as the new, standardized GFE and revised HUD-1 will not be required until Jan. 1, 2010.

MBA Chief Operating Officer John A. Courson noted, however, that MBA appreciates that HUD provided one year for implementation of these changes.

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"MBA looks forward to working with the new administration, HUD, the Fed, Congress, consumer organizations and other stakeholders to improve disclosures so that borrowers have the best and simplest tools to navigate the home financing process," said Courson.

HUD's proposal is the Bush administration's second major attempt to reform RESPA. Preston told attendees of MBA's Annual Convention & Expo in San Francisco in October that HUD's goal was to complete RESPA by the end of the calendar year, before the new administration takes office on Jan. 20 (see Mortgage Banking, April 2008, p. 8).

"We are committed to striking a balance between the needs of consumers and industry concerns. With so many families in trouble with their mortgages because they did not understand the fine print, now is the time to act," said Preston. "I firmly believe this will be a significant step forward for restoring trust and transparency in the settlement process."

In comments submitted to HUD in response to the proposed rule in March, MBA strongly recommended that HUD update the RESPA rule in tandem with the Federal Reserve's ongoing efforts to enhance consumer disclosures required by the Truth in Lending Act (TILA), according to MBA's Courson.

"We are disappointed that HUD did not coordinate more closely with the Federal Reserve as the Fed implements its own improvements under TILA," said Courson. "As we have said many times, these two efforts ought to be undertaken together to ensure that the new guidelines and disclosures actually make the loan process simpler and more transparent for borrowers. …

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