The Real Estate Settlement Procedures Act (RESPA) Final Rule, issued Nov. 17 by the Department of Housing and Urban Development, disadvantages small businesses, according to a lawsuit filed by the National Association of Mortgage Brokers (NAMB). On Nov. 10, HUD announced it would now require lenders and mortgage brokers to provide consumers with a standard three-page Good Faith Estimate (GFE) that discloses key loan terms and closing costs. HUD estimates its new regulation — one that has been hotly contested on both sides — will save consumers about $700 at the closing table. Changes in the housing market and increases in home foreclosures demanded HUD action, secretary Steve Preston said in announcing the revised regulatory requirements of the RESPA. “Consumers need and deserve to know what they’re getting themselves into before they sign on the dotted line,” Preston said. “After carefully considering the concerns of consumers and the different businesses in the housing sector, we have developed an approach that empowers the average family to shop for the most appropriate loan to meet their needs.” That’s well and good for consumers, but what about for the businesses of the brokers? NAMB’s argument is that HUD has overlooked the rights of mortgage bankers and brokers in helping the consumer at the closing table. The lawsuit against HUD states that the Final Rule is “arbitrary and capricious,” contrary to the intent of Congress, and fails to offer any rational reasons for its rejection of alternative approaches. NAMB says the Final Rule discriminates against mortgage brokers with the required broker-only disclosure of yield spread premium (YSP), placing them at a permanent disadvantage in the marketplace. “HUD has failed to examine properly the Final Rule’s impact on small businesses,” NAMB president Marc Savitt said. “It will put small business mortgage professionals at a significant competitive disadvantage, impeding competition in the mortgage industry and ultimately hurting consumers. What we are looking for is a level playing field for consumers.” The NAMB has disregarded numerous federal and private sector studies providing evidence that different origination channels disclosing differently confuses consumers, and will often times cause them to choose a more expensive mortgage product. Consumer studies conducted by HUD failed to test both the consumer understanding of loan terms and comparative shopping when originator compensation was not disclosed, and disclosures in transactions involving competing originators, according to the NAMB. “Flawed testing methodology prevented HUD from adequately assessing consumer understanding of provisions in the originally Proposed Rule,” says Savitt, “Consequently, issuing the Final Rule on flawed and inaccurate conclusions. Reform of RESPA is necessary to accomplish a simplified mortgage process. But implementing provisions harmful to small businesses and consumers in doing so, is not the answer.” Write to Diana Golobay at [email protected].

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