Florida Association of Mortgage Brokers Participated in Reform of Real Estate Settlement Procedures Act at HUD/SBA Round Table in Chicago, Illinois

Business Wire, August 9, 2005

TALLAHASSEE, Fla. -- The Florida Association of Mortgage Brokers (FAMB) was recently invited to participate in the process of reforming the Real Estate Settlement Procedures Act (RESPA). Kelly Guldi, a member of FAMB's Executive Committee, participated in a round table discussion in Chicago, Illinois on Thursday, August 4, 2005 jointly hosted by the Small Business Administration (SBA) and the US Department of Housing and Urban Development (HUD).

FAMB applauds HUD Secretary Alfonso Jackson for holding these roundtable discussions and opening dialogue with industry and consumer groups alike. On June 27, when HUD Secretary Alphonso Jackson announced the plan to hold a series of 6 round table discussions with industry participants, consumer groups and regulators, he stated, "Simplifying and improving the way consumers buy and refinance homes in this country will drive our campaign along the road to reform." HUD's attempt at RESPA reform is well intentioned, the idea of "simplicity, clarity, transparency and greater certainty of cost" are worthwhile goals, says FAMB President Steven Schneider. He goes on to say, "While the intent of reform is clear, the consequences of RESPA reform are far from simple, clear and transparent."

FAMB believes the following five principles should be considered by legislators and regulators before enacting changes to existing laws and rules affecting home loan consumers:

--Will this action save the consumer money?

--Are additional disclosures actually necessary?

--Does this action duplicate an existing rule?

--Are all mortgage professionals treated alike?

--Will this adversely affect mortgage availability?

The discussion and tone of the recent Chicago round table was similar to the previous three sessions (two in Washington, D.C. on July 14 and 28; and 1 in Los Angeles on July 21). The overwhelming majority of participants in the discussion including both industry and consumer groups oppose packaging in any form. The HUD rule proposed in 2002 and revised in 2004 allows lenders or other entities to disclose closing costs as a package or bundle, rather than as an itemization of costs and services. Further, it granted a "safe harbor" or exemption from Section 8 of RESPA, the part that prohibits kick-backs and un-earned fees.

FAMB does not believe that packaging will save consumers' money since large lenders who negotiate volume discounts are unlikely to pass those savings on to the consumer. Additionally, by allowing lenders to withhold from consumers information that they are currently required to disclose, the proposed rule actually works against the legislative intent of RESPA, which was originally written in 1974 to provide consumers with full disclosure of costs in the settlement process.

The original intent of RESPA would be further impeded by granting to lenders an exemption from the anti-kick-back provision of Section 8. Any measure that permits unearned fees or kick-backs cannot be good for the consumer and can only increase the cost of home loans. FAMB opposes packaging in any form.

A second area of discussion in the round tables has centered around the disclosure of yield spread premiums (YSP's). Also known as par plus or service release premiums, these are payments made to banks, lenders, mortgage bankers, mortgage brokers and other originators when they sell or transfer a loan to another lender or to Fannie Mae or Freddie Mac. Current practice requires that premiums paid at closing be disclosed on the settlement statement while those paid after closing are not. The proposed rule would require at closing premiums to be re-structured as credits to the borrower for closing costs rather than as payment directly to the originator.

The concept of disclosing YSP's as a credit to the borrower was tested by the Federal Trade Commission (FTC) after the release of the initial rule in a study called: "The Effect of Mortgage Broker Compensation: A Controllable Experiment." The study found that the disclosure proposed by HUD was "likely to confuse consumers, cause a significant proportion to choose loans that are MORE expensive than the available alternatives" (emphasis added). FAMB is for full disclosure in every mortgage transaction. FAMB also urges complete and independent consumer testing before implementing any new mortgage regulation.

HUD's effort at reforming the mortgage process, while laudable, must take into account the five principals outlined above prior to issuing a final rule. Additionally, any changes should consider the important role of mortgage brokers in the home loan process. According to the 2005 study by Wholesale Access released in July 2005, mortgage brokers account for 68% of 2004 origination activity. Over two thirds of mortgage loans are obtained through mortgage brokers. Further, according to the J.D. Powers and Associates 2005 Home Mortgage Study, "those customers who used a broker tend to be substantially more satisfied with the broker personnel compared with those who interfaced directly with the lender's personnel." Finally, in April 2005 Kenneth Harney wrote in the Washington Post: "According to a team of researchers headed by Georgetown University's Gregory Elliehausen, home mortgage applicants with less-than-perfect credit pay lower financing costs when they obtain their mortgages through brokers rather than from loan officers directly employed by lenders. The same pattern holds true for African American, Hispanic and low-income borrowers."