WASHINGTON – It was touted as being an instrument to make homebuying simpler and more transparent for consumers, but mortgage industry players said the U.S. Department of Housing and Urban Development's proposed Real Estate Settlement Procedures Act reform rule was anything but that. Credit unions, trade associations, consumer groups – in fact virtually all players involved in mortgage lending – breathed a sigh of relief on March 22 after HUD announced its decision to withdraw its proposed RESPA reform Final Rule from review by the Office of Management and Budget. In a letter to OMB's Dr. John Graham, administrator for Office of Information and Regulatory Affairs, Acting HUD Secretary Alphonso Johnson informed OMB that HUD's decision was "due to the significant number of questions raised about the draft final RESPA rule." Specifically he cited concerns that were expressed "from a number of members of Congress, on a bipartisan basis" about not receiving the benefit of a full briefing of the HUD's proposed RESPA rule before the federal agency sent it to OMB. Jackson noted that he heard similar concerns from key members of a number of consumer and industry groups. "Based upon the concerns noted above, I believe that it would be prudent for HUD to reexamine the RESPA rule before it is made final," the Acting Secretary wrote. He also made it clear that he intends to revise the rule "if necessary" and to re-introduce it, "requesting additional comments, after I have had an opportunity to brief members of Congress and to meet with affected consumer and industry groups. After the rule has had a complete vetting, I will send it back to OMB for review," but Jackson gave no indication of a specific target date or time frame that HUD wants to hit for reintroducing a new revised rule. Thumbs Up Elated. Very pleased. Those were some of the words and phrases used by CU mortgage experts and trade association representatives reacting to the news about HUD's decision. "It's absolutely appropriate that the rule be pulled at this time," said CUNA Mutual Mortgage SVP/COO Dan Rotert. "HUD made a wise decision." Gwen Baker, director of regulatory affairs for NAFCU, and Jeffrey Bloch, assistant general counsel for CUNA, echoed Rotert's reaction. Both said they were very pleased with the turn of events. "CUNA always believed RESPA should be streamlined and simplified. Our concern was how they went about it," said Bloch. "CUNA would support RESPA reform, but the controversy was about the details that HUD proposed." Baker concurred and added that while NAFCU supports efforts to reform RESPA, "our main concern was that there was so much uncertainty over how the reforms would play out in the market and affect credit unions. Those concerns outweighed the benefits of any reform." HUD's proposed RESPA rule included provisions for a revised and simplified Good Faith Estimate with tolerances on final settlement costs and a new method for reporting wholesale lender payments in broker transactions. The proposed GFE would have required 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. This provision was designed, HUD stated, "to reduce the all too frequent problem of borrowers being surprised by additional costs." The proposal also included provisions for a guaranteed cost approach or "bundling" of settlement services and mortgage loans that would allow a lender to offer a lump-sum price for settlement costs and be held to that figure from the time the figure was agreed to, through settlement of the loan. The bundled "Guaranteed Mortgage Package Agreement" would replace the GFE and would include all origination and other settlement services necessary to close a mortgage. The guaranteed mortgage package, said HUD, would "improve and increase borrower shopping for mortgages.and remove regulatory barriers that are today preventing market competition from reducing settlement prices." While the objectives of the proposal weren't disputed, both CUNA and NAFCU elaborated on their concerns in their respective October 2002 comment letters that focused on the Guaranteed Mortgage Package component in the proposed rule, and the proposed changes to the Good Faith Estimate form. In CUNA's comment letter, Bloch described the proposal as "unduly burdensome for lenders with very few corresponding benefits for consumers." Among CUNA's concerns were: * HUD's proposed GMPs would put small lenders – including credit unions – at a distinct competitive disadvantage compared to large financial institutions; * instead of simplifying the mortgage process, GMPs would result in significant, additional confusion; * referring to GMPs as a "guarantee" is a misnomer and could mislead borrowers since under certain circumstances, the interest rate and certain charges may change; * changes to the GFE would result in additional confusion since the form would increase from one to three pages and include duplicative information that's already required in the Truth in Lending Act (TILA); * the proposal would have held lenders to a limit of 10% threshold for estimates on costs of services "that are not under the lender's control" Bloch also offered that the GFE proposal could actually slow the mortgage process down instead of quickening it as it was intended, because it wouldn't have allowed lenders to collect certain fees upfront as they currently can. In NAFCU's comment letter, President/CEO Fred Becker also made the association's position clear 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." He elaborated, explaining that the proposed rule, if made final, "would have a serious negative impact on the mortgage industry because it would require lenders to guarantee fees from third party service providers and guarantee rates that are market driven." The proposal would also be detrimental for borrowers, stated Becker, "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." In addition, "lenders' inability to sell some mortgage loans on the secondary market would reduce the availability of funds for the purpose of mortgage lending and drive interest rates higher." The Allard Factor While not minimizing the importance of the feedback HUD received back on its proposal – the agency received a record number of 40,000 comments in opposition to the proposed rule – Rotert said another influencing factor was the recent "vocal stand" taken by Colorado Republican Sen. Wayne Allard, a member of the Subcommittee on Financial Institutions for the Senate Banking Committee to Jackson at the first round of the acting secretary's confirmation hearings. Allard grilled Jackson on the amount of support HUD had received on the pending RESPA rule, to which Jackson admitted that HUD had not received much support, if any, from Congress or the real estate industry. Responding to Jackson's statement, Allard said,"I for one find this situation incredible. In taking on RESPA reform, HUD managed to come up with a proposal that was unanimously opposed by the industry and consumer groups.What I can't factor is the arrogance of an agency that is blatantly ignoring clear Congressional direction," said Allard. Calling HUD a "troubled agency that merits careful scrutiny and has an extremely high threshold of accountability," Allard went on to say that, "As evidence to the responses to my questions, there is no room for ambiguity in congressional opinion of the direction of which HUD is headed. So why does HUD persist? Do you believe that HUD is not accountable to Congress or do you somehow believe HUD has judgment that is superior to Congress?" ".At the very minimum, HUD must have leadership that clearly understands the constitutional framework at which it is charged with implementing the laws written by Congress – not in implementing its own version," said Allard. "HUD has demeaned the Congress as an instruction that belittles the constitutional process. As a result of the concerns I have raised here today and the answers I have received on those concerns, I will be unable to support the nomination at this time. I would hope that HUD would listen more closely to what Congress and American people have to say as far as RESPA is concerned." Rotert opined that he didn't think "there's any precedent" to what's happened with HUD's RESPA proposal. "The whole situation has been a firestorm. When HUD said it was going to reform RESPA, nobody would have argued with that task. The opposition stems from the approach HUD is taking," said Rotert, adding that the fact that Allard, a Republican, took a no-holds-barred stance against Jackson and HUD's proposal, both of which were being pushed by President Bush, "it's a blow to the Administration." Rotert wouldn't venture to guess why HUD had persisted with the proposal "in the face of overwhelming opposition from the entire mortgage industry." "Their insistence on issuing the rule defied logic," he said. "What always concerned me about the initiative wasn't that HUD wants to reform RESPA, but I had significant issues with the way they wanted to change a rule that's been standing for many years." He added that, "Even if everyone was in agreement with what HUD wanted to do, there was a short implementation period, 90 days. They took a shotgun approach. For something of this magnitude, 90 days would be far too short for everyone involved with the mortgage process. I'm not sure this could be accomplished in 30 years. HUD's intention to create a more simplified process for the consumer was good, but the reform fell apart primarily in the way the rule was written and what it could mean for the competitive balance in the mortgage industry. There was a lot of ambiguity." NAFCU's Baker agrees that the changes HUD recommended were "very drastic," and she added that "maybe they shouldn't be looking at overhauling the entire regulation. The mortgage market is very strong now, and we'd be concerned with any rule coming out that could negatively affect the market." Rotert for one doesn't think HUD will issue any new rule in 2004. "If they do it in 2004, they'll get 10 times the comments they got before. The 40,000 comments they received is an indication of how mobilized the industry is to combat the rule. HUD has already heightened the sensitivity to RESPA reform. "The hard part about RESPA reform is they're never going to make everyone happy," Rotert continued. "They've already taken one crack at it and the industry's revolted. If they think they had a battle on their hands this time around, they'll have more problems if they try to reintroduce it this year." Looking ahead, Rotert opined that if President Bush holds the White House after November's election, 2005 will be consumed with the reviewing process, "so the earliest we're likely to see anything on RESPA reform would be 2006." If Bush loses the election? Rotert doesn't see anything happening with RESPA reform then. "I don't know why a new administration would want to take on a fireball," he said. But regardless of if or when RESPA is reformed, "whether we have a regulatory burden forcing the issue or not, competitive elements will force us to change the way we do business," he said. -

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