National Association of REALTORS® Believes Proposal to Reform RESPA Falls Short
September 18th, 2008
If we have learned anything from the current mortgage crisis, it is that consumers too often do not understand the terms of the transaction until it is too late. That is why REALTORS® support efforts to reform the Real Estate Settlement Procedures Act and make the process less confusing.
As NAR testified in Congress this week, we believe that HUD’s current proposal to reform RESPA falls short of this stated goal.
For example, expanding the Good Faith Estimate (GFE) from two pages to four pages is not simplification in our view. It should mirror the HUD-1 so that consumers can understand whether the terms and expenses that were disclosed to them upon loan application are the same ones outlined at closing.
The new GFE also does not include all closing costs – another factor that will prevent understanding and inhibit shopping. NAR and our partners at the Center for Responsible Lending and the American Land Title Association recommend that HUD develop a one-page summary GFE, for shopping purposes, and a full GFE that includes all closing costs, to help reduce confusion.
We also recommend that RESPA disclosure forms and Truth-In-Lending rules be revised jointly, as called for by Congress twelve years ago.
The benefits and costs of the proposed “closing script” should also be closely evaluated. In my experience, the information included in the closing script comes too late to be truly useful to the buyer. Such disclosures could be better achieved by providing a clearer Good Faith Estimate at the beginning of the process.
Finally, REALTORS® recommend that HUD consider potential anti-competitive consequences of the new Good Faith Estimate. The HUD GFE requires a price guarantee only for “lender provided” packages of settlement services. As a result, we believe consumers will be less likely to shop for providers outside such lender packages, because those providers would not be required by HUD to guarantee their prices.
We anticipate the largest financial institutions will use their market clout and promises of high volume business to force down prices so they present the lowest cost package of services and – capture market share. While we support the goal of lower costs, REALTORS® and many others believe that any reduction in prices will only be temporary. In the long run, closing costs will rise and service quality may diminish as smaller lenders and local settlement firms are pushed out of the market.
As we in the real estate industry consider how we can do more to help guide consumers through this complicated process, we ask HUD to help ensure that the proper disclosures are in place from the beginning, so that we all can understand exactly what the terms are and what are clients are paying for. — Richard F. Gaylord, 2008 President, National Association of REALTORS®
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