 | Daily Real Estate News | June 6, 2008 |
NAR Report: RESPA Proposal Too Costly
The U.S. Department of Housing and Urban Development has significantly underestimated the financial impact that its proposed RESPA reforms would have on consumers and real estate businesses, says a report released this week by the NATIONAL ASSOCIATION OF REALTORSŪ.
NAR says it appreciates HUD’s attempts to reform the settlement process. After all, the association has been advocating for RESPA reform that will make the closing process less confusing and less expensive for borrowers.
However, NAR is concerned that the cost analysis HUD is using to justify its proposal is misleading. “HUD is ignoring several key factors in its analysis that … could likely add an average of more than $400 to a borrower’s closing costs if implemented,” said housing economist Ann Schnare, who conducted the report for NAR.
RESPA is the principle federal law governing the real estate settlement process. Virtually all mortgage-related matters at closing follow rules laid out by RESPA. NAR has been advocating for RESPA reform that will make the closing process less confusing and less expensive for borrowers.
“We want to see reform to the Good Faith Estimate that simplifies the closing process, allows borrowers the opportunity to shop around for the best mortgage for their situation, and ensures that [borrowers] fully understand the terms of their chosen mortgage,” said NAR President Dick Gaylord.
NAR: Key Factors Weren't Considered
HUD’s analysis uses a set of simple calculations that attempt to quantify the relative costs of the revised Good Faith Estimate and the addition of a lengthy “closing script” to the settlement process. But Schnare’s report brings attention to several key considerations that HUD does not address in its calculations that could produce compliance costs four times higher than those derived by HUD.
“My report demonstrates that HUD is ignoring several key factors in its analysis that could have a major financial impact on consumers and could likely add an average of more than $400 to a borrower’s closing costs if implemented,” said Schnare.
Good Faith Estimates Add Up
HUD estimates that the compliance costs associated with the revised Good Faith Estimates would be about $45 per originated loan, but Schnare concludes that HUD greatly underestimates the number of Good Faith Estimates that would be issued.
For example, if the average consumer obtained just two Good Faith Estimates before applying for a loan, HUD’s estimated Good Faith Estimate cost would rise by 60 to 100 percent, depending on the fallout that occurs after a loan application has been made.
“After accounting for additional hedging and underwriting costs, and applying more realistic assumptions regarding the expected number of Good Faith Estimates, projected costs could well exceed $300 per loan,” Schnare said.
Closing Scripts Would Be Twice as Costly
NAR’s report estimates that the cost of the closing script would probably be about twice the amount estimated by HUD, and those costs would most likely be passed on to the home buyer.
“In the end, a proposal that is supposed to save consumers could wind up costing more per transaction, and reform that is supposed to make the transaction safer and easier to understand for consumers could end up more confusing and more complicated,” Gaylord said.
To learn more about this issue, visit REALTOR.org/RESPA.
— NAR
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