GRASSROOTS ACTION ALERT – RESPA REFORM
Contact your Congressmen today!

January 8, 2004

Current Status of RESPA Reform:

As many of you know, HUD Secretary Mel Martinez resigned on December 14, 2003 to run for the Senate in Florida.  Dallas, Texas native, Alphonso Jackson (currently the Deputy Secretary) has been named the new Secretary.  Confirmation hearings are expected in late January or early February of 2004.

Just two days into the tenure of Mr. Jackson, on December 16, 2003, HUD sent a final rule on RESPA to the Office of Management and Budget (OMB). By sending a final rule to OMB, HUD ignored the pleas of every major real estate group, including the realtors, homebuilders, mortgage bankers, mortgage brokers and the title industry all of which urged that the rule be re-published. 

All major regulations need to be cleared by OMB. However, this is not the end of the process.  There has been some speculation that this was done without the approval of the new acting Secretary.  Congressman Don Manzullo (Chairman of the House Small Business Committee) has expressed his deep concern about this action and has spoken to the new Secretary designate on two occasions in the last two weeks.

OMB has a number of options.  It can return the rule to HUD for further clarifications and questions, which would certainly slow the process. Or, it can simply approve the rule. If it does the latter, HUD would have the green light to publish a final rule in the Federal Register with an effective date. Alternatively, the new HUD Secretary could call the rule back or he could re-publish the rule and open it up for a new round of comments.  No one has seen the final rule.

Our mission is to either stop the rule entirely or seek its re-publication so we can influence the final proposal by working with the new Secretary.  If HUD were to finalize the rule, it will become the object of extensive litigation.

What You Can Do

We urge you to act today by contacting your Congressmen. Ask them to contact HUD and express their concerns that HUD has ignored the entire real estate industry and pursued a final rule.  If you do not know who represents you in Congress, click here to find your representative or senator. Since the House and Senate are still in holiday recess, now would be a great time to reach them while they are in their districts. We would ask them to tell HUD to, at the very least, re-publish a proposed rule and work with the real estate community and the title industry to develop a RESPA rule that has broad support in the industry, including small businesses.      

Talking Points

• HUD’s own analysis of the Rule says it could cost small businesses $3 to $6 billion.

• HUD’s proposal will allow lenders to package loans and settlement services in one “Guaranteed Mortgage Package” (GMP). Title agents do not make loans, and therefore, can’t offer guaranteed packages. Our industry will be at the mercy of a few large lenders offering such packages.

• The GMP proposal will allow kickbacks and referral fees in order for one’s services to become part of the package – this is directly contrary to the intent behind the RESPA law the specifically bars such kickbacks and referral fees.

• HUD can only theorize that prices will be reduced for consumers by allowing large lenders to package settlement services with loans.  With just a few large lenders preparing the packages, prices are not likely to be reduced for consumers, and instead the profits will grow for the large lenders at the expense of small settlement service providers.

• The proposed rule will not result in a paperwork reduction in the real estate settlement process under this proposed rule.

• The proposal will likely pre-empt state law.  Further, the proposal will contradict the Gramm-Leach-Bliley banking reform Act of 1999 by imposing federal pre-emption on insurance products that are governed by state law.  

• The entire real estate industry opposed publishing this rule.  On December 8, 2003, the National Association of Realtors, the National Association of Homebuilders, the National Association of Mortgage Brokers, the Mortgage Bankers Association of America and the American Land Title Association, wrote to the President requesting that “he reconsider publication of this rule.”  The letter further stated, “If done improperly, a final RESPA rule could impose significant harm to consumers, industry participants and the housing markets.”

• Recommended Action: HUD should either stop this proposal now or, at the very least, re-publish the proposed rule to allow the real estate industry to comment on HUD’s version of a final rule. 

Contact Mindy Carr at mindy@tlta.com if you have questions or need additional information.