WASHINGTON – Emphasizing CUNA's support for changes in the Good Faith Estimates form and the goal of simplifying and improving the home mortgage process for consumers, CUNA's Consumer Protection Subcommittee said the changes included in HUDs' proposed rules to the Real Estate Settlement Procedures Act (RESPA) do just the opposite of what they're intended to accomplish. In their current form, said CUNA Assistant General Counsel Jeff Bloch, "they're problematic. Rather than simplifying the process and enhancing competition among lenders to help consumers shop for the best mortgage product and services, the proposed changes do the opposite." In its proposal, HUD wrote that, "today's settlement process is plagued with problems that limit both consumer shopping and competition among settlement service providers, with the result that consumers pay high prices for originating and closing a mortgage. The current Good Faith Estimate (GFE) format contains a long list of individual changes that can be overwhelming, often confuses consumers, and seems to provide little useful information for consumer shopping. By requiring a long listing on the GFE of each estimated settlement charge, the current disclosure fails to highlight the major costs and may lead to a proliferation of charges. All too often, consumers are surprised at closing when the expenses on their HUD-1 are greater than those quoted on the GFE given to them at the beginning of the mortgage process." HUD's proposed RESPA rule includes provisions for a revised and simplified GFE with tolerances on final settlement costs and a new method for reporting wholesale lender payments in broker transaction. Instead of the consumer being faced with the current GFE which HUD stated "contains a long list of individual charges that encourages fee proliferation and junk fees, and can often overwhelm and confuse consumers," the proposed simplified GFE would require loan originators to adhere to amounts reported on the GFE for major cost categories, and on additional cost categories give estimates subject to a 10% upper limit. The agency argues that, "the imposition of zero and 10 percent tolerances on fees will require lenders to make arrangements with third party settlement service providers, in order for the originator to come up with estimates that can be delivered within the tolerances." "This will reduce the all too frequent problem of borrowers being surprised by additional costs at settlement," HUD wrote. HUD's proposal also included provisions for a guaranteed cost approach or "bundling" of settlement services and mortgage loans. Under this approach, a lender would offer a lump-sum price for settlement costs and would be held to that figure from the time the package is agreed to, through settlement. The "Guaranteed Mortgage Package Agreement" would replace the GFE and would include all origination and other settlement services necessary to close a mortgage. HUD states that the guaranteed mortgage package "will improve and increase borrower shopping for mortgages.and remove regulatory barriers that are today preventing market competition from reducing settlement prices." After studying HUD's proposed changes and reviewing comment letters it received from credit unions, Bloch said that CUNA's Consumer Protection Subcommittee opines that while some areas of the current GFE should be amended, in general HUD should continue to use the existing form. "In some instances the 10% tolerance may be acceptable, but there are other charges such as hazard insurance where the lender doesn't have any control over the tolerance level. So setting an upper limit for all cases would be too restrictive," said Bloch. As for HUD's recommendation for bundling settlement services into a Guaranteed Mortgage Package Agreement, Bloch said this provision favors large lenders who have large transaction volumes and can negotiate set rates and fees for settlement costs. "Small lenders like credit unions don't have the transaction volume that allows them to cut deals. If credit unions are cut out of being able to negotiate Guaranteed Mortgage Package Agreements, then consumers won't really be able to do comparative shopping for the best mortgage deals," said Bloch. He added that this provision, were it to be approved, would especially hurt the underserved and impede CUs' ability to offer them an alternative to predatory lending. "The large banks don't want to lend to the underserved, so these consumers would really be hurt," said Bloch. Bloch further noted that the proposed revised Good Faith Estimate form could show consumers lower costs than what lenders get in the market. He said the form should break out all the costs. In addition he said the revised Good Faith Estimate form would be longer – three pages – and be more complicated than the current form that includes all the necessary information on one page. Lastly, Block said the GFE proposal could actually slow the mortgage process down rather than quicken it, because the proposal would not allow lenders to collect certain fees upfront as they can now. "It's reasonable for the lender to expect when a borrower comes in that it will be able to collect credit and appraisal report fees from them. That gets the mortgage application ball rolling. But under the proposed rules, the borrower would have to return to the lender, and that will slow the mortgage process down," said Bloch. "The HUD proposal is supposed to be designed to enhance competition and simplify the mortgage process for consumers, but it does just the opposite," said Bloch. "HUD should go back to the drawing board if it wants to simplify RESPA any further." Bloch said the subcommittee senses HUD "wants to go forward" with the Guaranteed Mortgage Package, and if that's the case then CUNA would prefer the agency do it on a pilot basis. CUNA is asking all credit unions to submit their comments on the proposed revisions to CUNA by the Oct. 23 deadline. -

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