Once again (the last failed attempt was in 2002) HUD is proposing to reform the Real Estate Settlement Procedures Act (RESPA) in order to protect consumers from unnecessarily high settlement costs.
Over the next few days I will outline some background and impacts of HUD’s proposed regulations to reform RESPA. The proposed regulations can be accessed at http://www.alta.org/images/PDF/08-03-14_HUDProposedRESPA.pdf
RESPA was enacted over 30 years ago to make consumers more knowledgeable about closing procedures and aware of closing costs in their residential mortgage loan transactions. But, today consumers are still not very knowledgeable and still generally not able to effectively negotiate favorable closing costs.
So here’s what HUD provides as principles behind the proposed reforms:
- Borrowers need loan terms and settlement cost information early enough so they can shop for the most suitable mortgage product and settlement services.
- Cost disclosures need to be as firm as possible to avoid surprises at settlement.
- The mortgage loan settlement process can be improved with simplification of disclosures and better information.
- If consumers are able to shop for loan services, pricing competition will increase leading to lower prices with less need for regulatory enforcement.
- Borrowers need an understandable disclosure of key final loan terms at closing.
- HUD will vigorously enforce RESPA to protect borrowers and ensure that honest settlement service providers can compete on a level playing field.
Later this week we will look at some of the specifics of the reforms.