August 25, 2005

 

RESPA Reform – TLTA Representing YOU!

On July 28, I attended a meeting on RESPA reform held by the Department of Housing and Urban Development (HUD) at their office in Washington DC.  This meeting was the second of four to be held in DC. TLTA was invited to this meeting because of our high profile response and lobbying effort against the 2002 HUD RESPA reform proposal.  Only two persons were allowed in the meeting room for each invitee and Jim Hyland, TLTA’s DC lobbyist accompanied me as TLTA’s other representative.  Fifty-four other participants attended the meeting representing a broad cross section of participants in a residential loan transaction as well as consumer groups, all with diverse views. 

Staff members of HUD began the meeting by reviewing their 2002 proposal for RESPA reform which was previously withdrawn from consideration and also the terms of their 2004 proposal which had never been publicly disclosed. The three main topics of reform in both proposals were the Good Faith Estimate (GFE), disclosure of the mortgage broker’s fee called Yield Spread Premium (YSP), and packaging of loan and settlement services (MPO/SSP.)

HUD’s stated goals for reform were: simplicity, clarity, transparency, and greater certainty of costs. The Secretary of HUD, Alphonso Jackson, from Dallas, Texas, stated that there is great need to reform RESPA since the rule is thirty years old, consumers are constantly frustrated with the complexity of a residential loan closing and surprised by unexpected costs. While Jackson emphasized he was not in a rush to draft a new proposal, he and his staff indicated they hope to draft a proposal for release this fall, maybe even as early as September. 

Click here to read TLTA’s written position and discussion of the major reform issues.

Click here to read ALTA’s Eleven Principles for RESPA Reform which TLTA strongly supports. 

At the meeting we made limited comments on the GFE and YSP issues because they are predominately lender issues. However, we firmly expressed the dangers and problems of the mortgage packaging proposal for the consumer, as well as the title industry and the other service providers involved in a residential transaction. 

Although HUD staff repeatedly said that neither the 2002 or 2004 proposals were “on the table” and were only offered to stimulate discussion, the 2004 proposal was at the center of all packaging discussions. The 2004 proposal creates a Mortgage Package Offer (MPO) which a lender can use instead of a GFE. In the MPO the lender guarantees to the borrower a loan at a certain interest rate, with a certain monthly payment, and a fixed cost for all settlement services necessary to get the loan. This fixed cost for the settlement services would be a bundled or packaged price called a Settlement Services Package (SSP) and would include title insurance. Anyone is allowed to be the packager of an SSP, but since the SSP is a necessary part of the MPO which can only be prepared by a lender, the general feeling is that only the lenders will be putting together the SSP.

To stimulate cost savings for the consumer through packaging of services, HUD proposes to give an exemption to Section 8(a) of the current RESPA rule, or what HUD calls a “safe harbor” from Section 8(a) enforcement. Section 8(a) is the core provision in RESPA which prohibits kickback and referral fees in the residential transaction. This proposed safe harbor from Section 8(a) would essentially reverse that position and specifically allow “volume discounting” or “average cost pricing” by providers of services being included in the package. HUD believes that increasing competition among service providers will drive down costs for consumers. The SSP would provide a single charge for all settlement services included in the package, thus simplifying the consumer’s ability to “shop” for the best loan deal. The packaging idea sounds reasonable until you try to put it into practical application in the market and then the trouble begins with devastating results. I encourage you to read TLTA’s position paper noted above for information on the severe problems with packaging.

I also attended another HUD meeting on the same subject, co-hosted by the Small Business Administration (SBA) in Fort Worth, Texas, on August 11. This was the last of three such meetings specifically held to assess the impact of the proposed RESPA changes on small business. The other two were held in Los Angeles and Chicago. Celia Flowers, Chair of TLTA’s Federal Issues Committee and attorney and owner of several small title companies in east Texas also attended representing TLTA.  At this meeting all attendees found fault with and strongly objected to the MPO/SSP proposal.  The message to HUD and SBA was very clear: that packaging, mandated at the federal level with a Section 8(a) exemption, will wipe out small businesses in not only the title industry but all other supporting vendors in residential transactions.

For more information or to make your own comments directly to HUD on RESPA reform go to: http://www.hud.gov/respareform/   

Hopefully, HUD will focus their reform efforts on improving the GFE and disclosure of the YSP and not move forward with the MPO/SSP packaging proposal.  Whatever ends up in the forthcoming proposal for RESPA reform, TLTA will be there to address the concerns of the Texas title industry.

I am optimistic that HUD will work through these complex issues and draft reforms that will not fundamentally change the way we do business in Texas, but I am realistic in knowing that much difficult and time consuming work lies ahead before reaching that goal.

Sincerely,