Bundle Up
By: GLVAR, 9/26/2002
Bundle Up By: William Thorne Fair Housing Compliance Administrator
The United States Department of Housing and Urban Development (HUD) has published proposed new rules that will substantially revamp the Real Estate Settlement and Procedures Act (RESPA). RESPA came about in the late '60s in an effort to give the consumer more information on the costs of purchasing a home. Real Estate lenders were confronted with the requirement to give an "estimate" of the costs of borrowing and the closing agent was, in certain cases, required to use a new form, the Uniform Settlement Statement (HUD Form I). RESPA also required that those involved in the transaction, real estate broker, mortgage company and escrow agent, be separate entities. They could not share compensation. That was the 1960's. Fast forward to the year 2002.
The changes, in general, that are proposed by HUD, are being referred to as the "Homebuyer Bill of Rights." The Secretary of HUD, Mel Martinez stated that the Bill of Rights concepts are founded on "a set of consumer-driven principles that would guide the settlement process." These principles mandate that homebuyers have the right:
-To receive settlement cost information early in the process. It allows the consumer to shop for mortgage products and settlement services that best meet their needs;
-To have the disclosed costs be as firm as possible, thereby avoiding surprises at settlement;
-To benefit from new products, competition and technological innovations that could lower settlement costs
-To have access to better borrower education and simplified disclosure.

HUD would reform the home buying process by changing the way lender payments to brokers are recorded and reported to consumers, significantly improving HUD's Good Faith Estimate settlement cost disclosure, removing regulatory barriers to allow market forces and increased competition to promote greater choice for consumers by allowing guaranteed packages or "bundling" of settlement services and mortgage loans including appraisal charges.

The other issue of major concern to some brokers is the charging of "transaction fees" as part of the closing. There has been some concern that RESPA would strictly prohibit such charges. A letter to the National Association of REALTORS® however, seems to clarify this position. According to NAR;

"Martinez states that HUD's October 2001 Policy Statement was drafted primarily to respond to a court ruling regarding the mark-up of a third party charge by a loan originator and that HUD's concern was directed at payments made by consumers for services in connection with a mortgage loan, not "payments by the sellers or purchasers of property for residential real estate under a contract with a real estate agent or broker…." "This is good news for real estate brokers whose pricing structures include administrative or transaction fees. The secretary's letter suggests that real estate brokers and agents should feel confident that the vast majority of disclosed transaction fees are legal under the Real Estate Settlement Procedures Act (RESPA)," said Edwards. "It's clear that the Department's focus is on fees charged for third party services that are incurred as part of the mortgage loan process such as recording fees and fees for credit reports."

To summarize, HUD is trying to streamline RESPA to make it what it was suppose to be - a consumer friendly rule. To allow the consumer to have more and clearer disclosures as to how much the real estate transaction is REALLY going to cost and who is getting paid.

Bundle up and stay tuned for more updates as they become available.

HUD No. 02-069, June 26, 2002
HUD Clarifies Purpose of RESPA Statement of Policy on Unearned Fees, National Association of REALTORS®, July 22, 2002

9/26/2002
Category: Department Articles

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