Seven weeks into its latest reform efforts, the Department of Housing and Urban Development (HUD) is hearing consensus on at least one issue -- revising the Good Faith Estimate (GFE) -- but faces a contentious and sometimes angry industry over packaging, YSPs and the safe harbor provisions.
But HUD has not backed down during the seven weeks in insisting that reform is necessary. That point was challenged at the Aug. 14 roundtable in Fort Worth, Texas, when Marc Savitt of the National Association of Mortgage Brokers asked, “Is doing nothing an option?”
HUD’s Gary Cunningham was quick to respond. “We are pretty committed to at least doing a proposed rule to address the issues…consumers do not like to be surprised with greater-than-anticipated closing costs.”
Cunningham also squelched rumors that a rule was already written, and emphasized that the roundtables themselves were a serious effort to gain a better understanding of the issues and to seek consensus where possible.
“No rule has been written, and there is no secret drawer with a rule already drafted,” Cunningham insisted.
While the idea of a “secret drawer” then became a humorous, if minor, motif of the remaining roundtables, HUD spokesperson Brian Sullivan was equally eager to lend his voice in legitimizing the process. “At the risk of repeating myself, there is no rule, there is no rule, there is no rule,” Sullivan told The Legal Description. “You either believe in this process or you don’t. We are really listening. People are truly making an impression on us. You have to believe the Secretary when he says before we put pen to paper we want input.”
HUD will have plenty of fodder to work with following the 28 hours of testimony they have heard during the seven roundtables, and the common ground they have found there seems to lie largely with the GFE issue.
NAMB leads the way
While much of the conversation at the roundtables could be characterized as critical rather than proactive, the one exception may have been NAMB’s admirable effort to show up at the third of the four Washington, D.C. roundtables with the first counter proposal that seemed to resonate with many at the table ¯ a GFE form that mirrored the HUD-1.
It wasn’t the first time HUD had heard such a proposal. At the Chicago roundtable, Terry Bivins, president of the Illinois Association of Mortgage Brokers, agreed that work needed to be done on the GFE but suggested the new four-page form was not an improvement.
“The new form is more confusing than the existing GFE,” Bivins said. “If you take the existing GFE and make it look more like the HUD-1 with modifications to make it a one-page document, then consumers can go to lenders A, B, and C and compare.”
Bivins was seconded in his proposal by George Griffin representing the National Association of Realtors. “If you look at this strictly from a policy perspective, Secretary Jackson said he wants RESPA to work better,” Griffin noted. “Then the GFE is the answer. Straight, clean and everyone can agree with it.”
NAMB appears to have done just that, arranging its form to mirror the HUD-1 Settlement Statement so that consumers can compare costs on the form line by line, instead of having to disseminate the information provided on HUD’s proposed GFE and guess at how the fees translated into the HUD-1 received at closing.
NAMB also recommended that if the settlement costs at closing are 10 percent higher than those on the original proposed GFE, or if there is a change to the initially proposed interest rate, that there be a mandatory re-disclosure of those changes before the consumers reach the closing table. Then, if the mandatory re-disclosure does not occur, NAMB recommends that the consumers be given the right to pursue a private legal cause of action on those grounds.
NAMB also addressed the issue closest to the hearts of brokers, the yield spread premium (YSP), by removing it entirely from the proposed GFE.
“Eliminating the YSP disclosure will reduce consumer confusion and help consumers better understand the associated costs of obtaining a mortgage. NAMB proposes a simpler, one-page GFE form that eliminates unnecessary YSP disclosure, puts the shopping chart in the HUD Settlement Guide Pamphlet and deletes the confusing ‘teeter-totter’ comparisons from the form,” NAMB emphasized in its accompanying explanation.
The YSP issue was raised at each of the roundtables as brokers from around the country sought to explain to HUD that the inclusion of the YSP on the GFE form confuses consumers into selecting higher-priced loans because the lenders commissions are largely hidden from view, creating an unlevel playing field. NAMB cited the 2004 Federal Trade Commission study on the subject.
HUD is in the process of consumer-testing its own forms and will continue to test each of its proposals in the marketplace as revisions are made or a final rule issued.
But the GFE and YSPs were by no means the only topics of discussion. Packaging took a barrage of hits from every angle.
Packaging filleted
“The thing that bothers me about the packaging proposal is that it looks to me like an effort to set up a paradigm to essentially put a structure in place for the market to change,” said Griffin. “I have some real reservations about whether that is the role that HUD should be in.”
Griffin expressed concern that the packaging regime would circumvent the RESPA statute and the disclosure requirements that are currently written into it. “We don’t need to have ways for people to take advantage of it and get out from under the requirement in the statute. I can’t see how that works without damaging the statute, making consumers feel bilked, and making HUD look very bad.”
Alan Hummel of the Iowa Residential Appraisal Company and the Appraisal Institute asked the HUD representatives, “What possible benefit is there for the consumer to allow kickbacks to occur?” which he felt was an inevitable consequence of the Section 8 safe harbor provision.
“It isn’t that we are promoting kickbacks or allowing them. What we’re trying to do is have packages that compete with each other for bottom line price that include all services lenders require to close a loan,” said Gary Cunningham, deputy assistant secretary of regulatory affairs and manufactured housing, who moderated the SBA sessions on behalf of HUD.
The plan was that providers would squeeze the fat out of the process and lower the prices for the consumers. But this idea has long troubled service providers across industry lines.
Hummel told HUD that there were simply not enough safeguards written into the Mortgage Package Offers or the Settlement Services Packages.
“The only word that comes to mind is ludicrous,” Hummel said. “This is as murky as it gets. The appraisal fee in the MPO could be an AVM, a drive by or a full appraisal, and the consumer will still get charged the highest price.”
Monica Gonzales of the National Community Reinvestment Coalition also expressed concern. “There is a problem with packaging in that you don’t know the quality of the services you’re getting.” Her point was echoed by Janis Bowdler of the National Council of La Raza who said, “It is very much in the borrowers’ interest if the quality of the services they are getting is somehow below par.”
Packaging was most universally panned at the Small Business Administration-sponsored roundtables in Los Angeles, Fort Worth and Chicago, where the businesses most likely to be squeezed out in such a marketplace took to the podium.
Bruce Liesman, president of the Texas Land Title Association, asked, “How can a party shop for services if they don’t know who is going to provide the services or what services are included?” He added that a “Section 8 exemption crosses the line and that kills small businesses.”
Jose Menendez, a state legislator from San Antonio and national director for emerging domestic real estate markets at Stewart Title Co., commented on marketplace effects of packaging, saying, “Packaging will be anti-competitive for small title companies. In Texas, two-thirds of all title agents are small businesses.”
David Griege, representing the National Alliance of Independent Mortgage Bankers, said, “Packaging is a system that picks winners and losers. But even though it would benefit us with our 65 member companies, we think it is wrong and we are stepping away from it. We don’t think HUD should adopt such a system, because eventually, after the winners and losers are chosen, the price is going back up.”
There was one other area of consensus that emerged from the roundtables, and that was that enforcement, not Section 8 safe harbor, was the only clear path to protecting the consumer.
Tightening the noose
Bivins suggested, and he was seconded by many participants, that the bigger issue is enforcement of current statutes as well as stricter laws for the various segments in the process.
Bernard R. "Robin" Baker of Premier Title Company said he was also in favor of going after the violators rather than trying to redirect the marketplace.
“There are a certain number of people who are chronic violators. What I would like to suggest is rather than burden the industry with new rules, let’s identify violators and go after them like a junkyard dog. The rest of us are trying to be decent, ethical guys.”
Laurie Souders, Gooding and Company Mortgage Inc. (Miami, Fla.) reminded, “You can’t legislate morality or honesty. In Florida, the seller picks the title company and I see the simultaneous issue at $385 when the filed rate is $25. We need to make sure the buyer knows he has a choice of title companies. Rules are good, but nobody is enforcing them.”
Cunningham responded, “We do investigate affiliated business arrangements and kickbacks; we have 60 to 70 cases of Section 8 enforcements going on. Everybody at HUD feels enforcement is critical, but we do not have direct enforcement authority to punish a bad GFE.”
But many of the participants felt that packaging was going to lead to less transparency and increasing opportunity for fraud. At the Los Angeles roundtable, attendees characterized packaging as an “incubator for fraud” and noted that in an effort to provide services at the lowest price, marginal work would go unchecked.
“If we are going to hide those people that are less than professional in a clumping of services that nobody gets to see, then the consumer is going to get hurt,” said Ginny Ferguson of Heritage Valley Mortgage Inc.
Pen to paper
With the roundtables completed, HUD will now have to take pen to paper to draft its next recommendation for reform. With the cacophony of voices still echoing in their ears, it will be a challenge to come up with any proposal that answers all the concerns, including simplifying the process for the consumer, while creating competition through packaging without losing transparency and quality of service.
For an in-depth report on each of the seven roundtables, go to http://www.thelegaldescription.com/.
Questions? Syndie Eardly at eardly@thelegaldescription.com. |
