State Laws Complicate the Bundling of Closing Services

By Fernandez, Tommy | American Banker, March 24, 2003 | Go to article overview

State Laws Complicate the Bundling of Closing Services


Fernandez, Tommy, American Banker


Differing state lending laws would make it hard, and in some states nearly impossible, to offer consumers the guaranteed settlement service packages envisioned in the federal government's proposed regulatory reforms, lenders and lawyers say.

The Department of Housing and Urban Development's plan to overhaul enforcement of the Real Estate Settlement Procedures Act would not preempt the patchwork of state laws that complicate bundling for the few lenders already doing it. The department has said it plans to publish the proposal this spring, but there is a growing consensus that it will be delayed.

Paul H. Schieber, the chairman of the consumer financial services and retail banking group of the Philadelphia law firm Blank Rome LLP, said some states restrict how much business a lender can refer to "affiliated" firms -- those with which it has some kind of business relationship. For example, "a title agency can get only X% of its business from one source," Mr. Schieber said.

One lender already offering bundled closing services is ABN Amro Mortgage Group of Ann Arbor, Mich. Cultivating relationships with title and appraisal firms has been its main way to control settlement costs for OneFee, the bundled product it has offered for the past two years. But in at least one state the unit of the Dutch ABN Amro Holding NV cannot offer the product, said Garth Graham, its first vice president for customer acquisition and relationship management.

Mr. Schieber said some states also restrict what kinds of fees can be collected before closing. Others have strict definitions for certain fees, making it difficult for a packager charging a single fee for all services to, for instance, substitute automated valuations for appraisals.

Many states also have set ranges, called "filed rates," for certain fees, Mr. Schieber said. For example, in these states title insurers must be paid a particular amount, and no less. Lenders that "package all of these services with a mortgage product ... won't be able to discount some services, and thus will have to heavily discount other services," he said.

Also, a number of states have disclosure laws that might conflict with bundling, Mr. Schieber said. "Certain states require that all fees be itemized. …

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