A key component of the proposed rule was the introduction of a "guaranteed mortgage package" of settlement services and a loan with a guaranteed interest rate that would provide a safe harbor from the RESPA Section 8 prohibition on kickbacks and referral fees. Mortgage providers that did not offer such a package would have been required to provide a Good Faith Estimate that permitted little or no variance in settlement costs at closing from those on the original estimate.
The proposal also contained a new mortgage broker compensation disclosure that a recent Federal Trade Commission study found more likely to confuse borrowers, causing them to choose more expensive loans, and creating consumer bias against broker loans even when they are most economical.
Despite controversy and criticism of its original proposal, HUD sent a final rule to OMB refusing to seek additional public comment on any changes it may have made, a move that made even supporters of the original proposal nervous.
"I believe that it would be prudent for HUD to reexamine the RESPA rule before it is made final," wrote HUD Acting Secretary Alphonso Jackson notifying OMB that it was withdrawing the proposal. "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."
ICBA View. While ICBA has supported simplifying the mortgage loan process and better enabling consumers to shop for the best mortgage for their situation, it warned HUD when the proposal was first issued that elements of the proposal would further confuse consumers, enable dishonest brokers and lenders to hide unnecessary fees and overall increase mortgage costs. ICBA told HUD the rule would dramatically reduce the options and service of mortgage shoppers as small loan originators and small settlement-service providers were forced to exit the market.
ICBA also expressed its concerns in testimony before the House Committee on Small Business in January. Committee Chairman Don Manzullo (R-IL) had staunchly opposed the rule because of advantages it would give to the largest players to the detriment of small providers and consumers.
A bipartisan effort, spearheaded by Congressman Rubén Hinojosa (D-TX) and Congresswoman Judy Biggert (R-IL), led to a letter to OMB signed by 226 members of Congress asking OMB to send the rule back to HUD so it could be redrafted and the public could be given an additional opportunity to comment. Sen. Wayne Allard (R-CO), chairman of the housing subcommittee of the Senate Banking Committee, withheld support for Acting Secretary Jackson's nomination as HUD secretary because of opposition to the proposal.
Even though HUD has said it will repropose the rule, the controversy over the proposal and the difficulty of obtaining a consensus on RESPA changes may lead instead to its demise.