This week ICBA submitted testimony to the House Financial Services Subcommittee on Housing and Community Opportunity opposing the Department of Housing and Urban Development's (HUD) proposed Real Estate Settlement Procedures Act (RESPA) rule. ICBA believes that the proposed rule will be detrimental to consumers, small loan originators and settlement service providers, disrupting the nations current mortgage finance system. ICBA urged the subcommittee to encourage HUD to reconsider the rule's adoption.
HUD has presented this rule as an attempt to simplify the process of shopping for mortgage loans and lower mortgage costs, a goal ICBA supports. However, ICBA believes HUD's proposal will hurt consumers, smaller lenders and smaller settlement service providers. HUD proposes a Guaranteed Mortgage Package (GMP) that would dramatically alter the manner in which mortgages are offered.
As an alternative to the Good Faith Estimate, consumers shopping for a mortgage could be offered a GMP that consists of a package of standardized settlement services and a mortgage loan with a guaranteed interest rate. Consumers would no longer be able to shop for services in their loan package, nor would they have the option of selecting individual settlement services and mortgage products, as they do now.
ICBA is very concerned about the ability of smaller banks and service providers to compete against larger market participants that have the ability to negotiate reduced costs for the components of the package. HUD's proposed requirement to guarantee that the interest rate could only change in parallel to an index is unworkable and does not reflect the realities of the mortgage industry and how interest rates fluctuate.
Another change proposed by the HUD rule is a modification of the current Good Faith Estimate (GFE) to require firmer and more precise cost estimates. Lenders would have to absorb nearly all increases in settlement costs, from the time the original cost quote is given to the closing date. ICBA is very concerned that community banks will not have sufficient mortgage volume to absorb variances without raising the cost of all mortgages.
ICBA's testimony and comment letter to HUD are available at www.icba.org.