 | Daily Real Estate News | May 16, 2008 |
Does RESPA Proposal Go Too Far?
The intentions are honorable: to simplify the real estate closing process and make it more transparent.
But the federal government’s latest attempt to reform the real estate settlement process tries to do too much at a time when settlement service providers can least afford to implement drastic changes, said experts on the Real Estate Settlement Procedures Act (RESPA) who spoke at the 2008 NAR Midyear Legislative Meetings & Trade Expo.
The U.S. Department of Housing and Urban Development set off a firestorm of controversy last month when it issued its sweeping proposal, which would expand the Good Faith Estimate to four pages, allow lenders to use an average cost of pricing for settlement services, and require settlement agents to recite a 45-minute closing script to each borrower.
The rule would also require the settlement agent to stop the closing if a certain category of settlement costs comes in at more than 10 percent above the estimated costs of the Good Faith Estimate.
Closing Script Misguided
Some critics say the closing script, in particular, is misguided and shows that HUD is unfamiliar with how closings take place in different parts of the country. In much of the West, for example, closings are typically done without the principals meeting in person, making the recitation of a script problematic.
The requirement also raises concerns in some states about whether the settlement officer’s recitation of the script amounts to the unauthorized practice of law. A number of practical questions arise as well, including the time involved in reciting the script and answering questions.
For settlement providers, which typically concentrate their closings at the end of the month, the additional time could reduce the number of closings per day. This reduction could cut business in half for smaller providers.
Too Much Flexibility for Good Faith Estimate
Some critcs don't agree with the government's idea of allowing lenders to provide an average price for their services on the Good Faith Estimate when other types of service providers aren’t given that flexibility. Then there's the unanswered question of whether a closing must be halted for even small deviations from cost estimates.
Panelists also said it would take millions of dollars and thousands of hours to convert their computer systems and office procedures to the new system, an unneeded burden during today’s challenging real estate market.
Still Time to Comment on Rules
HUD extended the comment period on the rule until mid-June at the request of more than 100 U.S. House lawmakers. These members of Congress sought the extension after NAR and other industry groups called HUD’s original 30-day comment period inadequate for such a sweeping rule change.
Discussing the rule before several hundred REALTORSŪ were Phillip Schulman, a Washington attorney with Kirkpatrick & Lockhart Preston Gates Ellis LLP, noted for his RESPA expertise; Ed Miller, director of government affairs for the American Land Title Association; and Ken Markison of the Mortgage Bankers Association.
— By Robert Freedman for REALTORŪ magazine online
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