RESPA Reform Update

1
RESPA Reform Update
Presented to Mortgage Bankers Association
Legal Issues and Regulatory Compliance
Conference Donald H. Blanchard Executive Vice
President Deputy General Counsel Countrywide
Financial Corporation May 1, 2006
2
RESPA Reform Update

• HUD Roundtables began in June, 2005
• 7 total
• 4 in Washington
• 3 in Chicago, Fort Worth and Los Angeles with
  Small Business Administration SBA
• MBA or its members attended most roundtables
• At each roundtable HUD revealed the 2004
  withdrawn rule which included
• A tightened GFE with tolerances
• In GFE YSP disclosed as a credit to the borrower
• A MPO or packaging exemption that permitted a
  Section 8 exemption for a Guaranteed Mortgage
  package
• A Settlement Services Package or SSP at the
  option of the packager

3
RESPA Reform Update

• At the roundtables
• Little support for a broad Section 8 exemption
• Third party providers, title representatives,
  mortgage brokers and some lenders strongly
  opposed it
• But there was support for a tighter GFE
• With tolerances
• Possibly accompanied by some regulatory relief
  (average cost pricing and volume discounts) that
  under current law may violate RESPA
• Make GFE form more comparable to the HUD-1
• Some groups produced proposed forms

4
RESPA Reform Update

• MBA Efforts
• Established RESPA at Ready group in early 2005 to
  prepare for the roundtables
• There were still many concerns from the prior
  reform effort about any sweeping changes or
  packaging reforms
• The group focused on a more narrow set of changes
  and developed an enhanced GFE approach
• It includes some of the ideas from the
  roundtables
• GFE with tolerances
• Would be accompanied by some regulatory relief
  (average cost pricing and volume discounts)
• Will make GFE form more comparable to the HUD-1
• Just recently completed the forms, which are
  available in the program materials.

5
RESPA Reform Update

• MBA GFE Would
• Include Rate and Points
• Advise borrower that offer is subject to final
  underwriting and would change if the borrower
  requested a different product
• Costs are grouped into seven categories with less
  itemization of each cost
• Lender Origination Costs Broker Origination
  Costs Third Party Charges and Title, disclosed
  as lump sums for each category without sub-item
  prices disclosed
• With tolerances
• Reserves, Escrows, Recording and other charges
  with sub-items disclosed when known
• Good faith estimates, no tolerances

6
RESPA Reform Update

• MBA GFE Would (continued)
• Categories of fees, rather than itemizing each
  sub-charge, will make the GFE more useful to
  consumers. It will help to eliminate junk fees
  and should force market competitors to present
  their best price in each category, thereby
  facilitating competition and lower costs.
• To be accompanied by some regulatory relief,
  including average cost pricing and volume
  discounts. In order to comply with any new
  tolerances, lenders will need better pricing
  certainty. Average pricing and volume discounts
  would allow such certainty.
• Revise the HUD-1 form to rearrange some figures,
  include subtotals and match the GFE form.

7
RESPA Reform Update

• These proposals would require
• A reasonable implementation period of one year
  for these changes to go into effect
• Revision of the HUD Special Information Booklet
  to explain the new forms, the revised rules and
  the mortgage loan settlement process in light of
  these changes.
• Consultation with the Federal Reserve to assure
  that the Boards guidance concerning the Truth in
  Lending Act is complementary to HUDs actions
  and
• Necessary preemption of state laws to assure that
  RESPA reform will offer consumers the superior
  benefits intended.
• Note Elimination of full packaging would reduce
  the impact upon title providers, leaving state
  law to control their operations.

8
RESPA Reform Update

• Other Regulatory Relief Possible
• In addition to the provisions above including a
  Limited Section 8 Exemption for Average Cost
  Pricing, HUDs rules could
• Establish a new overall 10 tolerance for third
  party and title costs.
• Offer a limited Section 8 Exemption for volume
  discounts to obtain services that are subject to
  the tolerances that would provide
• As long as the prices in such cost categories of
  a GFE are the same at settlement and reflect a
  settlement service providers negotiated marginal
  cost for its service, no discount and thus no
  thing of value would be found, even if the cost
  represented a discount from standard prices, and
  even if the reason for the discount was to induce
  the delivery of more business.

9
RESPA Reform Update

• Conclusion
• Sweeping RESPA reforms have been too
  controversial and difficult to even predict the
  final outcome or real impacts.
• The industry seems to be unwilling to simply
  take a chance on major changes at this time.
• Limited GFE and HUD-1 disclosure changes will
  allow HUD to improve the initial loan disclosure
  process. More accurate GFE disclosures have been
  the 1 consumer complaint for years.
• Hopefully, more targeted reform will allow a
  consensus of the various participants in the
  mortgage, real estate and settlement industries.
• Comments about these MBA proposals should be
  relayed to Ken Markison, Esq., the MBAs Senior
  Director and Regulatory Counsel for Government
  Affairs.