The Real Estate Settlement Procedures Act, enacted in 1974, has had only a few amendments since then. HUD is responsible for enforcement and oversight of RESPA. RESPA pertains to all settlement service providers which include Real Estate and Mortgage practitioners, title insurance companies, appraisers, etc.
You may recall an attempt to rewrite RESPA in 2002 by Mel Martinez, the Secretary of HUD at that time. The rewrite did not successfully pass after Martinez resigned, returned to Florida, ran for office, and is now US Senator Mel Martinez. HUD was then headed by Alphonso Jackson, the former Director of the Dallas Housing Authority. Jackson resigned recently under pressure put to the Whitehouse by Democrats who felt that allegations of Jackson’s behavior stood in the way of FHA programs needed immediately to rescue people facing foreclosures.
The latest RESPA rewrite has made its way to the Federal Registry for public and industry comment and will expire on May 13, 2008. HUD says the revised RESPA rule will improve and standardize the Good Faith Estimate (GFE) form. HUD believes the new GFE will help a consumer to do price shopping and understand how yield spread premiums (YSP) can affect their closing costs.
The proposed new GFE will be four pages and the new HUD-1 settlement statement will be three pages. The amended HUD-1 includes a “closing script” that the closing agent will have to read to the borrowers at closing. The dialogue includes how the GFE and the HUD 1 compare to each other. It remains to be seen how a 4 page GFE and a 3 page HUD-1 settlement statement will simplify the process for the consumer which is one of the goals of this RESPA rewrite!
HUD believes that the new GFE will encourage consumer price shopping and the increase in competition will lead to large reduction of closing costs. Clearly, it is the intent and spirit of the federal consumer protection statutes, such as RESPA and TILA, the Truth in Lending Act, to encourage consumers to do price shopping when presented their GFE and APR disclosure for that matter.
The new RESPA rule sets a standard that the final HUD-1 Settlement Statement, the sum of actual expenses at closing, cannot be more than 10% greater than the Good Faith Estimate given to the borrower within 3 days of their completed mortgage loan application, barring any unforeseen circumstances. HUD maintains that those mortgage lending entities that would suffer revenue losses under the new rule are those that overcharged uninformed borrowers and benefited from the system’s limitation on competition.
HUD also is proposing that the HUD-1 Settlement Statement of actual costs is provided at least 2 days prior to closing. This appears to be a requirement rather than the current language in RESPA which says 1 day before closing, “if requested”. Home Equity legislation in Texas “requires” that it be provided one day before the closing for home equity related loans.
Formal comment surely will include the National Association of Realtors, NAR, the National Association of Mortgage Brokers, NAMB as well as other related settlement service providers. NAMB is poised to attack any provisions in the RESPA rewrite which discriminate against small businesses and that which doesn’t provide a level playing field among settlement service providers. Small business drives our economy, providing 80% of our country’s employment.
It is generally known that there is some strong real estate industry opposition to a few of the provisions and that there is not enough time for the new RESPA rewrite to be enacted in 2008.
More to follow. | 
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