Regulators Are Wary of Proposed RESPA Rule
It is bad enough getting sandbagged by industry groups, but now the Department of Housing and Urban Development is being pressed by fellow regulatory agencies to reconsider its Real Estate Settlement Procedures Act proposal.
HUD has redesigned the good-faith estimate in the RESPA proposal to provide consumers with concise and understandable disclosures about the loan terms and settlement costs, including the mortgage broker's compensation. The RESPA rule also covers the treatment of escrow accounts held by servicers for the payment of taxes and insurance, but this aspect of the rule has not sparked much controversy during the current round of RESPA debate.
But comments filed by the staff of the Federal Reserve Board, Federal Trade Commission and Small Business Administration are urging HUD to scale back the proposal and conduct more consumer testing.
The Fed staffers note that they are working on a Truth in Lending Act disclosure that will also be handed to mortgage applicants at about the same time they receive the GFE estimate from the lender.
"We believe the inconsistencies and other differences between proposed GFE and TILA disclosure are likely to confuse consumers and undermine consumers' ability to make informed shopping decisions and avoid unnecessarily high settlement costs," Fed consumer affairs director Sandra Braunstein says in a comment letter.
She urged HUD staff to coordinate their efforts with the Fed so the agencies don't produce duplicative and inconsistent forms that confuse consumers.
FTC staff warned HUD that the disclosure of mortgage broker compensation in the GFE "appears to be misleading" and more consumer testing is needed to demonstrate the benefits of this disclosure.
"FTC also suggests that HUD consider and possibly test whether other disclosures (such as one that clarifies the role of all mortgage originators) would be more beneficial to consumers," FTC staff said.
Meanwhile, the SBA Office of Advocacy wants HUD to reconsider its GFE until it develops a disclosure that is not "prejudicial" to brokers or does not create "additional confusion."
The Fed consumer affairs director also raised concerns the GFE would "contribute to consumer confusion" about the way brokers are compensated.
HUD officials declined to comment about the Fed staff letter.
Several industry groups have urged to withdraw the RESPA proposal or scale it back. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/