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MERRIFIELD, Va. – Hearings on the Department of Housing and Urban Development’s proposal to reform the Real Estate Settlement Procedures Act and simplify the home buying process continued in the House Financial Servicing Housing Subcommittee last week, but credit unions and trades say it’s the wrong reform for the right cause. Lou Jennings, vice president of Navy FCU’s mortgage department, described HUD’s proposed changes to RESPA as “a bad and unrealistic program wrapped around a well-intentioned effort.” HUD’s proposed RESPA reform rule includes provisions designed to revise and simplify the settlement process. It features tolerances on final settlement costs and a new method for reporting wholesale lender payments in broker transactions. In its proposal, HUD wrote that, “The current Good Faith Estimate 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.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.” “There’s no doubt when it comes to the residential loan settlement that there are abuses,” Jennings said, adding that mortgage brokers are the worst culprits. “If you read HUD’s proposal carefully, it’s obvious the agency is focusing on mortgage brokers without actually mentioning them by name. It’s clear who HUD’s going after,” he said. He estimates that mortgage brokers account for about 70% of mortgage transactions. Jennings stressed that he applauds HUD for its well-intentioned efforts. “I agree that their intentions are good, but I disagree with their proposed regulation. I have legitimate concerns that if you bundle services like the RESPA reform proposes, then you run the risk of having big lenders adding in junk fees into the one bundled fee. “Consumers deserve to see the details,” said Jennings. NAFCU agrees that “it’s not the objectives of HUD’s proposed RESPA reform that we have a problem with, but the means of addressing the issues. If HUD is looking to save money for the borrower, there are better ways to do this. To save the borrower money by shifting 100 percent of the risk to the lender may not be the answer to the problem,” said Eric Envall, NAFCU’s Regulatory Compliance Counsel. Envall stressed that “this isn’t a lender versus borrower situation,” and he added that the reform proposal “swings the pendulum too far and doesn’t give the lender enough flexibility.” Lenders, he said would have to guarantee rates that are market driven. In its comment letter to HUD, NAFCU stated that “these proposed changes overall will provide additional burdens and interest rate risk for credit unions that outweigh any attempts to simplify the process for borrowers.” NAFCU further stated that, “The proposed rule would be detrimental to borrowers because the costs for inaccurate Good Faith Estimates (GFEs), multiple GFEs, and higher processing costs would be passed on to borrowers in the form of higher fees and interest rates.” Envall noted that there are sometimes legitimate and reasonable costs above the 10% tolerance level included in the RESPA reform, that happen. “This is too much a square peg, round hole situation,” he said. As an alternative, Jennings offered that RESPA reform should include provisions that require lenders to guarantee loan fees but allow for tolerances in fees that lenders have control over. He also suggested HUD do away with the 30-day guarantee period it proposes in the RESPA reform. [email protected]

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