The U.S. Department of Housing and Urban Development on Friday unvieled a broad proposal to reform the Real Estate Settlement and Procedures Act, including provisions that would expand HUD’s enforcement authority under the Act. Chief among the proposals are changes to the so-called Good Faith Estimate that lenders provide to borrowers prior to mortgage closing; HUD wants a standard GFE for both brokers and lenders that discloses key elements of the loan and seeks to limit the junk fees often associated with many brokered loans. The proposed GFE would consolidate closing costs into major categories to prevent junk fees, and display total estimated settlement charges prominently on the first page, so a borrower can more easily compare loan offers. In addition, HUD’s new proposed rule would specify the charges that can — and cannot — change at settlement; for those fees that can change, HUD wants to limit the amount of allowable changes.

In particular, HUD is proposing that any yield spread premium tied to a deal be disclosed in the GFE directly. “It is HUD’s belief that these payments are directly dependent on the interest rates that consumers agree to and therefore ought to be disclosed,” the agency said in a press statement. HUD said it had tested the disclosure and found that it did not bias consumers against brokers. The reform proposal would also modify the HUD-1 settlement statement, aligning it with the format of the GFE and requiring that it be delivered to consumers three days prior to closing. “I want to applaud Secretary Jackson and the staff at HUD for the time and thoughtfulness they put into what is a very comprehensive and well intentioned proposed rule,” said Kieran Quinn, chairman of the Mortgage Bankers Association. “MBA has been saying for a long time that the loan origination and closing processes can be daunting and confusing for many consumers and that providing more clarity and transparency would serve consumers well.” Quinn warned, however, about the need to coordinate reform of RESPA with revisions now being considered to the Truth in Lending Act at the Federal Reserve. “We would caution that this proposed rule, in combination with Federal Reserve’s ongoing efforts to revise disclosures under the Truth in Lending Act, has the potential to add significant paperwork to the loan origination process,” he said. HUD’s move to bolster its regulatory authority via RESPA comes as banking regulators have been grappling with how to manage a mortgage-led financial crisis that many think threatens the country’s economic and financial stability. “A lack of enforcement authority and clear remedies for violations of critical sections of RESPA negatively impact consumers and diminish the effectiveness of the statute,” the agency said. HUD said it wants the authority to impose penalties associated with borrower disclosures; title insurance; kickbacks, referral fees and unearned fees; and the use of escrow accounts. For more information, visit http://www.hud.gov.