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The Department of Housing and Urban Development has posted a new settlement on its website, alleging violations of the Real Estate Settlement Procedures Act of 1974. 

The settlement is between HUD, Grand Texas Home, Inc., its owners and officers, and Grand Title Company.

As its core allegations under the settlement, HUD generally states:

• Grand Title did not operate as a bona fide independent title agency,
• Grand Homes failed to provide consumers with the required ABA disclosures, and
• Grand Homes required consumers to use its affiliate, Grand Title.

The defendants agreed to pay HUD $200,000.

Certain language from the settlement is of particular note.  For example, the agreement expressly permits Grand Homes to select the title insurer so long as Grand Homes “pays the title costs.”  While this language appears in the pertinent regulatory provisions, certain persons at HUD sometimes argue that payment of the title costs is not sufficient, because the costs generally are baked into the home prices.

The agreement also sets forth a laundry list of items that HUD presumably views as undermining the bona fides of a affiliated title company.

For a complete copy of the settlement agreement, click here.

Tags: Consumer Protection, HUD & FHA, Mortgage Banking - General, RESPA, Regulations by the Editor
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After delay and anticipation, the Department of Housing and Urban Development officially published the new final rule under the Real Estate Settlement Procedures Act of 1974.

The Summary to the new rule states:

This final rule amends HUD’s regulations to further RESPA’s purposes by requiring more timely and effective disclosures related to mortgage settlement costs for federally related mortgage loans to consumers.  The changes made by this final rule are designed to protect consumers from unnecessarily high settlement costs by taking steps to: improve and standardize the Good Faith Estimate (GFE) form to make it easier to use for shopping among settlement service providers; ensure that page 1 of the GFE provides a clear summary of the loan terms and total settlement charges so that borrowers will be able to use the GFE to identify a particular loan product and comparison shop among loan originators; provide more accurate estimates of costs of settlement services shown on the GFE; improve disclosure of yield spread premiums (YSPs) to help borrowers understand how YSPs can affect borrowers’ settlement charges; facilitate comparison of the GFE and the HUD-1/HUD-1A Settlement Statements; ensure that at settlement borrowers are aware of final costs as they relate to their particular mortgage loan and settlement transaction; clarify HUD-1 instructions; expressly state that RESPA permits the listing of an average charge on the HUD-1; and strengthen the prohibition against requiring the use of affiliated businesses.

This final rule follows a March 14, 2008, proposed rule and makes changes in response to public comment and further consideration of certain issues by HUD.  In addition, this rule provides for an appropriate transition period.  Compliance with the new requirements pertaining to the GFE and settlement statements is not required until January 1, 2010. However, certain provisions are to be implemented upon the effective date of the final rule.

HUD notes the rule is a “major rule” under the Congressional Review Act, 5 U.S.C. Chapter 8, therefore having a 60-day delayed effective date and being submitted to Congress for review.

The rule is effective January 16, 2009. 

To obtain a copy of the rule, please click here.

Tags: Consumer Protection, HUD & FHA, Mortgage Banking - General, RESPA, Regulations by the Editor
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Yesterday, Mortgage Law Blog reported that the Department of Housing and Urban Development had sent the new RESPA rule to the Federal Register for printing. 

Readers bombarded the site with requests for a link to the Final Rule.  Here it is, but MLB reminds everyone that until published the rule is not the final rule.

Tags: HUD & FHA, Mortgage Banking - General, RESPA, Regulations by the Editor
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The Department of Housing and Urban Development has sent to the Federal Register for publication on November 14 the revised regulations under the Real Estate Settlement Procedures Act of 1974.

The new rule, which consists of nearly 300 pages of double-spaced text, includes a revised Good Faith Estimate and HUD-1.

HUD’s original proposal had included a so-called closing script, which had been sharply criticized by a number of industry participants.  The agency discarded this proposed change.

The proposed rule’s change to the definition of “required use” had also been the focus of substantial criticism.  HUD rejected this criticism, and includes language that would prevent companies from providing an incentive to consumers for using an affiliate.  This language appears to be targeted at homebuilder affiliates.

Considering the significant opposition to the rule, and the nature of the rule in its final form, there is a good chance the rule will be challenged.

For a copy of the HUD press release, please click here.

Tags: Consumer Protection, HUD & FHA, Mortgage Banking - General, RESPA, Regulations by the Editor
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California has enacted SB 133, a law further restricting title insurers from providing rebates in exchange for referrals.  The law primarily addresses “title marketing representatives” and appears to be aimed at rebates to real estate agents and brokers.

The preamble to the bill provides in part:

This bill would prohibit a person from being employed as a title
marketing representative unless he or she holds a valid certificate
of registration as a title marketing representative issued by the
commissioner for a 3-year period. This bill would exempt specified
activities from its scope. Violation of these provisions would be a
misdemeanor, pursuant to provisions of existing law.

The California Department of Insurance issued a press release regarding the new law stating in part:

SB 133 is the culmination of several years of effort by the Department of Insurance to address the growing problem of title marketing representatives using illegal rebates. While such practices are illegal, the Department of Insurance currently has no enforcement authority over the individuals who are using them. Enticing agents and brokers to promote a specific title insurer may result in persons paying higher title insurance costs.

The bill clearly identifies the marketing activities that are illegal for title marketing representatives to use for title insurance business inducement purposes. Additionally, it provides the Department of Insurance regulatory oversight of title marketing representatives by establishing a process for registering them and disciplining those who fail to abide by the law.

Mortgage Law Blog readers will recall that the California DOI, along with a number of other states’ regulators, have aggressively pursued title insurers over the past several years, often alleging illegal kickbacks under state insurance laws and the Real Estate Settlement Procedures Act of 1974. 

Title insurers and others in recent years have paid many millions of dollars to various state regulators and the Department of Housing and Urban Development to settle illegal kickback allegations in the title reinsurance area.

To access the text of the new law, please click here.

To read the California DOI’s press release, click here.

Tags: Consumer Protection, HUD & FHA, Legislation, RESPA, Regulations, State Enforcement, Title Insurance by the Editor
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The struggle between the Executive and Legislative branches regarding the Real Estate Settlement Procedures Act of 1974 has recently become heated.

As previously noted on Mortgage Law Blog, the House Financial Services Committee held hearings earlier this week on the Department of Housing and Urban Development’s proposed RESPA reform rules.  The Secretary of HUD, Steve Preston, was invited to give comments but he declined.  A number of attendees at the hearing were reportedly highly critical of the proposed rule and HUD.

In response, Mr. Preston was highly critical of the hearings when speaking in Washington.  The end of Mr. Preston’s prepared remarks included the following:

Let me make one more comment about the path forward before I take questions. Yesterday there was a hearing on the Hill where we heard numerous legislators assail proposed reforms to the Real Estate Settlement Procedures Act (RESPA). The unnecessary complexity of mortgages has significantly contributed to our housing crisis. We must do something to make mortgages more understandable and the process more transparent. That’s why we have been seeking new regulations to require all mortgage lenders and brokers to clearly display an estimate of all settlement services, fees, and charges. They must not be hidden in the fine print. Borrowers would know their closing costs, interest rate and monthly payment amount. They would know whether or not the rate or principle balance would increase over time. They would know if there are prepayment penalties or any balloon payments. The rule would require a clear statement that would itemize closing costs and lock in certain charges at settlement. This would offer greater transparency and certainty, allowing Americans to shop and compare.

We have gone through a lengthy public comment period. We are committed to striking a balance between the needs of consumers and those in business of homeownership. But, I believe it is absolutely reprehensible that so many people in Congress today are fighting to stall progress, especially when they know so many families are in trouble because they didn’t understand the terms of their mortgage. Our goal is to get RESPA completed by the end of this year and then provide the industry with a full year to implement that the rule. I firmly believe this will be a big step forward for restoring trust and transparency between the industry and the homeowner.

To see Mr. Preston’s full remarks, please click here.  A large number of members of Congress have asked HUD and the Office of Management and Budget to delay implementation of any final rule. 

Stay tuned . . .

Tags: Consumer Protection, HUD & FHA, Mortgage Banking - General, RESPA, Regulations by the Editor
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The Chairman-Elect of the Mortgage Bankers Association, David G. Kittle, testified yesterday on RESPA Reform before the House Financial Services Committee.

The hearing was entitled “HUD’s Proposed Real Estate Settlement Procedures Act Reform.”  Mr. Kittle reiterated MBA’s general support for RESPA reform, but encouraged the Department of Housing and Urban Development to work closely with the Board of Governors of the Federal Reserve to truly improve consumer disclosures that would allow borrowers to better shop and understand their loan.  Mr. Kittle noted a number of weaknesses in the proposed rule by the HUD.

In his prepared remarks, Mr. Kittle highlighted the following:

• MBA and he have long been committed to improving the mortgage process for both industry and consumers.
• Reforms should give consumers the information they need to effectively shop for loans, inform themselves about the true cost of closing on a mortgage and protect themselves from unscrupulous actors .  These needs require a comprehensive approach to the loan application and closing process, involving both HUD’s RESPA forms and the Truth in Lending Act forms from the Federal Reserve.
• HUD’s proposed RESPA reforms do not even come close to achieving simplification.  Accordingly, HUD’s final rule should be delayed and officials at HUD should work with the Federal Reserve on a joint and comprehensive effort to simplify and improve forms and disclosures.

Mr. Kittle further detailed a number of problems with the proposed HUD rule, including that HUD:

1. took what should be a one page form and made it four pages;
2. would require a 45 minute script be read to the consumer, stretching an already long closing process, with no benefit to the borrower; and
3. continues to have a series of forms where lines don’t match and consumers cannot discern what happens from one part of the process to the next.

For a copy of Mr. Kittle’s prepared comments, please click here.

Tags: Consumer Protection, Federal Reserve, HUD & FHA, Industry Involvement, Mortgage Banking - General, RESPA, Regulations by the Editor
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Mortgage Law Blog reminds readers that the Mortgage Bankers Association will hold its annual Regulatory Compliance Conference September 14 - 16, 2008. 

The conference will be held at the JW Marriott in Washington, DC.

The MBA’s website describes the conference as the “the premier forum for you to attain the most comprehensive, up-to-date information on significant regulatory and compliance issues facing the mortgage banking industry at the federal and state levels.”

The conference includes “an in-depth discussion of the Housing and Economic Recovery Act of 2008, the most sweeping real estate finance and housing legislation in a generation. Attendees of this conference learn about the contents of this law, how its provisions will be implemented and what changes your business needs to make to comply with the new regulations.”

Speakers will cover a variety of topics, including:

• Home Owners Equity Protection Act/Truth in lending Act
• Real Estate Settlement Procedures Act
• Anti-predatory lending requirements
• Home Mortgage Disclosure Act/Fair lending
• Fair Credit Reporting Act/Fair and Accurate Credit Transactions Act
• Federal Housing Administration loans
• Mortgage fraud against lenders
• Servicing
• Secondary market issues

There will also be legislative and litigation updates. 

The final day will include a visit to Capitol Hill to meet with legislators.

To learn more, visit the conference website here.

Tags: Association Activities, Conferences & Events, Consumer Protection, Economic Stimulus, FACT Act, FCRA, FHA Insurance, Fair Lending, Foreclosure, Fraud, HUD & FHA, High Cost Loans, Industry Involvement, Legislation, Loan Servicing, Lobbying, Mortgage Banking - General, RESPA, Regulations, State Regulation, Unfair or Deceptive Acts by the Editor
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Mortgage Law Blog reminds readers that the deadline for submission of comments on the Department of Housing and Urban Development’s proposed revisions to regulations under the Real Estate Settlement Procedures Act of 1974 is:

June 12, 2008.

HUD’s summary of the proposal states:

This proposed rule presents HUD’s proposal to simplify and improve the disclosure requirements for mortgage settlement costs under the Real Estate Settlement Procedures Act of 1974 (RESPA), to protect consumers from unnecessarily high settlement costs. This proposed rule takes into consideration: discussions during HUD’s RESPA Reform Roundtables held in July and August 2005; public comments in response to HUD’s July 29, 2002, proposed rule that addressed RESPA reform; and comments received and views expressed through congressional hearings; meetings with affected parties; and consultation with other federal agencies, including the Small Business Administration Office of Advocacy.

HUD’s objective in proposing these revisions is to protect consumers from unnecessarily high settlement costs by taking steps to: Improve and standardize the Good Faith Estimate (GFE) form, to make it easier to use for shopping among settlement service providers; ensure that page one of the GFE provides a clear summary of the loan terms and total settlement charges so that borrowers will be able to use the GFE to comparison shop among loan originators for a mortgage loan; provide more accurate estimates of costs of settlement services shown on the GFE; improve disclosure of yield spread premiums to help borrowers understand how they can affect their settlement charges; facilitate comparison of the GFE and the HUD-1/HUD-1A Settlement Statements (HUD-1 settlement statement or HUD-1); ensure that at settlement borrowers are made aware of final loan terms and settlement costs, by reading and providing a copy of a “closing script” to borrowers; clarify HUD-1 instructions; clarify HUD’s current regulations concerning discounts; and expressly state when RESPA permits certain pricing mechanisms that benefit consumers, including average cost pricing and discounts, including volume based discounts.

A copy of the proposal can be found here. 

Mortgage Law Blog encourages interested parties to weigh in on the proposed rules.   There may not be another opportunity to affect the language of the rules for a long time. 

After receiving public comments, HUD is required by the Administrative Procedures Act to review the comments and decide what (if any) changes to make to the RESPA regulations.

Tags: Consumer Protection, HUD & FHA, Mortgage Banking - General, RESPA, Regulations by the Editor
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Inman News reports that Steve Preston, Administrator of the Small Business Administration, testified before the Senate Committee on Banking, Housing and Urban Affairs that many of the objections the SBA had with HUD’s prior RESPA Reform effort have been addressed.

Inman notes that the 2002 Reform effort occurred before Mr. Preston assumed his position at the SBA.  The SBA’s chief counsel of advocacy said at the time, however, that the then proposed changes would adversely affect “mortgage brokers, mortgage lenders, Realtors, appraisers, pest inspectors and settlement services providers.”  The comment also indicated HUD’s initial analysis did not adequately take into consideration comments by small businesses affected, or develop less burdensome alternatives.

In March 2004, a number of members of Congress sent a letter to HUD with similar complaints.  HUD later withdrew the proposed rule.  The SBA’s counsel then commended HUD’s decision to withdraw.

Inman quotes Preston as testifying:

“I don’t know that I’ve got a detailed enough notion to understand exactly what that reform should look like,” Preston said at Thursday’s hearing. “But I do think it’s important for individuals when they come to a closing process to understand what they’re getting into, and for there to be clarity in that, and I’m hopeful that that can be done in a way that’s not overly burdensome to the industry.”

For a copy of the full Inman article, click here.

Tags: Consumer Protection, HUD & FHA, Mortgage Banking - General, RESPA, Regulations by the Editor
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