WASHINGTON – Credit unions and others have until Oct. 28 to submit comments on pending Real Estate Settlement Procedures Act revisions. The proposed rules, as well as a news release and other information, can be found on the U.S. Department of Housing and Urban Development website, www.hud.gov. Under HUD Highlights on the home page, click onto RESPA Proposed Rule and Economic Analysis. Comments can be submitted to the U.S. Department of Housing and Urban Development, Room 10276, 451 7th St. SW., Washington, D.C. 20410. Changes are needed, according to HUD, to curb what the agency sees as widespread abuses by lenders who charge "marked up" fees at mortgage settlements. Some examples: $65 for a credit report that cost $15 or less; $450 for an appraisal that actually cost $20. "We see it every day," HUD spokesperson Brian Sullivan emphasized. "It has been a longstanding position of the department that upcharging – that is, charging people where there is no service associated – violates Section 8 of RESPA." He urges credit unions to review the proposed rules and respond before Oct. 28, testifying to their own problems or offering opinions on the pending regulatory reform, which covers 42 pages. "If people care to comment, we'd love to hear from them," Sullivan says. In addition to proposing new regulations, lawyers from HUD and the U.S. Department of Justice have filed friend of the court briefs in three federal appellate courts hearing class action lawsuits by homeowners alleging they were charged unearned fees. So far two of the courts have rejected the government's arguments. That means lenders in the eight states covered by those courts can charge pretty much whatever fees they want. Government lawyers are continuing to pursue cases in other jurisdictions. Washington observers say DOJ and HUD hope to win at least one appellate case, forcing lenders to turn to the U.S. Supreme Court for a decision that would apply nationwide. At the same time, HUD is pursuing regulatory remedies. According to Sullivan, people told HUD Secretary Mel Martinez to keep far away from the whole issue. They warned him it was a third rail of HUD secretaries – touch it and die. The agency's proposed changes to RESPA would: * Change the way lender payments to brokers are recorded and reported to consumers; * Revise HUD's Good Faith Estimate settlement cost disclosure; * Allow guaranteed packages or "bundling" of settlement services and mortgage loans. "It's really quite a revolutionary regulatory reform," Sullivan declares. He specifically cites what HUD calls a Homebuyer Bill of Rights declaring that homebuyers have a right: * To receive settlement cost information early in the process, allowing them to shop for the mortgage product and settlement services that best meet their needs; * To have disclosed costs be as firm as possible to avoid surprises at settlement; * To benefit from new products, competition and technological innovations that could lower settlement costs; * To simplified disclosure and access to better borrower education; * To know they are protected through vigorous RESPA enforcement and a level playing field for all industry players. "Clearly there are people out there taking advantage of the process as it is now, which is obtuse in the extreme. There are people who intentionally take advantage of people's inability to navigate through the process. I think everybody in and out of the industry – the lending community, brokers, everybody – understands that is not right," Sullivan says. "We're not so much through this reform making a comment about the industry as much as we are the process. When RESPA became law in 1974, it was a much different world. The process of buying and refinancing a home today has moved well beyond what RESPA is. RESPA is not as relevant today as it needs to be." A HUD news release underscores that point. "In 1974, RESPA was passed into law to keep settlement costs down by targeting illegal unearned fees, splits of fees, referral fees and kickbacks," the release states. "Over the years, however, RESPA rules have impeded the offering of guaranteed packages of settlement services and mortgages that would lower costs and enable consumers to more easily shop for mortgages. The proposal would remove regulatory barriers to allow guaranteed loan packages that will provide more choices for consumers shopping for their mortgages." Sullivan suggests mortgage reform is especially important today. Lower mortgage interest rates have prompted a surge of home purchases and refinancing. HUD sees upfront expenses, specifically the down payment and settlement costs, as the single greatest barrier to home ownership. CUNA's Consumer Protection Subcommittee will discuss the RESPA proposal at its October 9 meeting. Jeff Bloch, assistant general counsel at CUNA, says, "One thing we're going to look at is the provision for packaging of mortgages. A possible concern there would be larger financial institutions could have an edge because they have the ability to work with settlement providers and come up with low-cost packages. He added that, "The subcommittee will discuss whether this could be a competitive issue to smaller financial institutions such as credit unions who may not have the volume relationships with settlement providers to get the pricing rate the larger institutions can." In general, Bloch emphasizes, credit unions support the idea of full disclosure outlined in the rules, and changes in the good faith estimates form. "If they improve disclosure, that's great," he says. "As for the form itself which will be developed by HUD, if it's only a question of taking the form HUD provides and filling it out to provide better disclosure, that should be a good thing." NAFCU spokesman John Zimmerman said NAFCU does expect to submit comments on the proposed RESPA revision. At this point, he explained, NAFCU is awaiting feedback from the membership before drafting a response to HUD. -

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