The Trusted Adviser November 2008 | Volume 1 - Number 6

The New RESPA Rule - A Victory for Lawyers and Consumers

2-3-2020 EDITOR'S NOTE: Some links have been removed because the content is either no longer applicable or available.

After 16 years of ill-conceived attempts to revise the Real Estate Settlement Procedures Act (RESPA), on November 12, 2008, the Department of Housing and Urban Development (HUD) finally issued the RESPA reform rule. It is with great satisfaction and relief that we can report it is rule that we can all live with.

The RESPA reform rule contained significant modifications from the proposed rule HUD released earlier this year. Gone are the two provisions that would have done great harm to the real estate bar, the clients they serve, and small settlement service providers. What remains is a rule that provides improved disclosure in the form of a new Good Faith Estimate and a revised HUD-1 Settlement Statement. The new forms will be required for all transactions conducted on or after January 1, 2010.

When released earlier this year, the proposed rule contained two provisions that would have had dire consequences for ATG members and the clients they serve. (ATG reported on this information several times during 2008, including an ATG Call to Action, on July 31.) HUD had proposed that closers read a "closing script" explaining the closing process and the documents involved. That provision would have required non-lawyer closers to engage in the unauthorized practice of law and would have, by HUD's own estimates, added 45 minutes to each closing. Additionally, the proposed rule would have allowed for the negotiation of volume discounts between settlement service providers. These volume discounts would have given large banks and national title companies a strong competitive advantage and the opportunity to monopolize the distribution of title and settlement services.

As has been our history, ATG and it members "circled the wagons." ATG staff met with key members of Congress, submitted testimony to the House Financial Services Committee, and reached out to the membership for grassroots support. The membership responded by flooding Congress and HUD with letters and comment papers. HUD received more than 12,000 comments! Once again, the ATG membership played a key role in influencing HUD's decision-making process. Illinois Congresswoman Judy Biggert (R-Il-13th) spearheaded an effort to gain bipartisan opposition to the offending provisions of the rule. Biggert's efforts secured more than 240 signatures from members of Congress on a letter to the HUD Secretary Steve Preston expressing their concern. Additionally, Don Manzullo (R-Il-16th), voiced strong opposition to the offending provisions and articulated that opposition in his comments at a House Financial Services Committee Hearing in October.

While we are pleased with the resulting final rule, it isn't perfect.

For the first time ever, HUD will require that lenders and mortgage brokers provide consumers with a standard Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs. This is a positive step. However, the new standard GFE provides that if a borrower chooses lender-recommended title insurance, it allows for a 10% tolerance from the estimated cost. There is no articulated limit on the cost of those services if the borrower purchases from another provider. We have some concern that this provision will discourage shopping in "buyer pay" jurisdictions. Additionally, the new HUD-1 Settlement Statement for the first time will require that the agent's portion of the premium is listed separately from the underwriter's. (This can be found in section 1100 - Title Charges on the new form.) This makes title insurance the only insurance product we know of where agents are required to disclose their split of the premium.

Please click the links below to read HUD's publications on the new rule:

HUD Press Release Announcing the New Rule (includes Fact Sheet on HUD's final RESPA Rule)

This is the third time HUD has submitted a proposed rule in the last 16 years. ATG has been there every step of the way and the membership has always been right by our side. Many of the changes implemented were suggestions articulated by ATG and its members. We can all take pride in the impact we have had in Washington and in Springfield. We thank you for your ongoing support and involvement. Please contact me with any comments, questions, or concerns.
 

 

THE TRUSTED ADVISER is published by Attorneys’ Title Guaranty Fund, Inc., P.O. Box 9136, Champaign, IL 61826-9136. Inquiries may be made directly to Mary Beth McCarthy, Corporate Communications Manager. ATG®, ATG® plus logo, are marks of Attorneys’ Title Guaranty Fund, Inc. and are registered in the U.S. Patent and Trademark Office. The contents of the The Trusted Adviser © Attorneys' Title Guaranty Fund, Inc.

[Last update: 11-17-08]