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HUD Urges RESPA “Restraint” For FHA Lenders

by Peter G. Miller
November 18th, 2009

In a delay that will cost borrowers big money, HUD has told lenders that “that for the first four months of 2010, the staff of the Mortgagee Review Board (MRB) will exercise restraint in enforcing new regulatory requirements under the Real Estate Settlement Procedures Act (RESPA), due to take full effect on January 1. The MRB instructed its staff to exercise such restraint in considering an action against FHA-approved lenders who have demonstrated that they are making a good faith effort to comply with RESPA’s new requirements.”

In case you’re worried about FHA mortgage lenders being somehow unable to meet the new RESPA requirements, HUD notes that the new rules actually “became effective on January 16, 2009, but provided a one-year transition period for the mortgage industry to incorporate these changes.”

In other words, lenders had a year to plan for the transition to a new Good Faith Estimate form and the equally new HUD-1 closing form.

In fact, lenders have far more than a year to modernize. HUD has been working on the new forms for 14 years — no kidding — and the lending industry has been part of the process at every turn. The last, and final opportunity, to delay the reforms took place this year when the lending industry went to court to try and block the new HUD paperwork. The industry lost and now HUD has rewarded their efforts by stalling the process with a four-month delay.

$700 Savings

Now you may wonder, why on earth do I care? The answer is that HUD says borrowers can save an average of $700 on closing expenses with the new forms. However, if the changes are not enforced — and “restraint” is not the same as “enforcement” — then a lot of people will not be saving $700.

At a time when the nation has an unemployment rate of 10.2 percent, there is surely no shortage of computer programmers and other professionals who can take simple forms and automate them. Indeed, if lenders have no one in-house to do such work, then one might simply want to spend $129 to buy the HUD-1 software plus $99 for the Good Faith Estimate package.

It can’t be that hard to find this stuff. With a 60-second search online (“new hud-1″) I was able to instantly locate a number of vendors. Indeed, it may well be that even cheaper packages are available somewhere.

The bottom line is this: In a period of four months there may well be 1.2 million existing home settlements as well as additional closings for new homes and when properties are refinanced. That means large numbers of people potentially face substantially higher settlement costs because, allegedly, lenders cannot gear up for the minimal changes that they have known about for at least a year.

Let’s see: $700 x 1.2 million = $840,000,000 in potential extra charges for existing home sales alone. Not a bad day’s work for Washington lobbyists.

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