FRONT LINES: Washington Report
RESPA withdrawal opens door
A decision by the U.S. Department ofHousing and Urban Development to withdraw its draft final rule for reforming settlement procedures marks a new day for efforts to improve the federal Real Estate Settlement Procedures Act, NATIONAL ASSOCIATION OF REALTORS® President Walt McDonald says.
“We applaud the leadership of President George W. Bush and HUD Secretary Alphonso Jackson in determining that consumers are best served by our taking more time in crafting RESPA improvements,” McDonald says.
RESPA is the 1974 law governing loan settlement services. In its reform proposal, HUD had given settlement providers an incentive to package loans with a guaranteed fee and rate: It exempted them from RESPA’s prohibition on kickbacks to other settlement providers.
NAR and other industry groups called on HUD to step back from the new rule until the impact on consumers and the industry could be studied. Industry concern centered on the competitive advantage the rule would give national lenders as the only package providers able to offer a guaranteed interest rate. It was also unclear whether the incentive would ultimately benefit consumers.
In withdrawing the rule in March, Jackson said more review was needed. “I plan to revise the rule, if necessary, and to re-propose the rule, requesting additional comments, after I have had an opportunity to brief members of Congress and to meet with affected consumer and industry groups,” he said in a March 22 letter to the Office of Management and Budget, which had been reviewing the rule.
As that process goes forward, NAR will seek to play a role. “We look forward to continuing to work with Alphonso Jackson and the administration on RESPA reform,” McDonald said in a March 22 statement, which also thanked Congress for holding hearings on the issue.
Downpayment help nears
States and localities are set to make homeownership assistance available this summer under the new federal American Dream Downpayment Initiative, an NAR-backed program enacted into law last year.
The U.S. Department of Housing and Urban Development in March published an interim rule outlining procedures for allocating more than $150 million in downpayment assistance funds to state and local jurisdictions that participate in HUD’s HOME Investment Partnerships Program.
The program will make an average of $5,000 in downpayment and closing cost assistance available to first-time homebuyers earning up to 80 percent of the area’s median income.
The amount of funds available to participating state and local governments is based on need, as measured by the number of low-income renter households in the area. Individual jurisdictions can establish the terms of the assistance, which can include interest-bearing or non-interest-bearing loans or advances, deferred-payment loans, interest subsidies, and grants.
The program takes effect April 29. Funds will be available in some areas immediately and throughout participating jurisdictions by June. More information.
Ginnie Mae to retain prepayment policy
The government agency that guarantees securities backed by FHA mortgage loans has responded to an NAR request saying it won’t stop requiring borrowers to pay a month’s worth of interest no matter when during the month the loan is paid off.
FHA borrowers who prepay their loan lose some $500 million a year in excess interest payments to Ginnie Mae because of the policy, NAR data show. Ginnie Mae, which passes the excess interest payments along to investors of its securities, has said that FHA would have to charge higher interest rates if the payments were eliminated.
The policy, which NAR has opposed for many years, came under renewed scrutiny last summer when NAR’s 2003 Federal Housing Policy Committee Chair John Anderson, ABR®, CRS®, of Crystal, Minn., raised the issue with Ginnie Mae President Ronald Rosenfeld.
“No other loans that I know of in the consumer arena, including VA loans, which are also securitized under Ginnie Mae, are handled in such a manner,” said Anderson in a follow-up letter to Rosenfeld in January.
Anderson said in the letter that VA loans are issued at interest rates comparable to FHA, even without the payments to investors.
REALTORS®’ drive to change the policy could make some headway in Congress. U.S. Rep. Bob Ney, R-Ohio, in late March, has asked Ginnie Mae to explain its policy, NAR analysts say.
