Despite HUD’s RESPA Paper, Questions Remain

The US Department of Housing and Urban Development (HUD) on Thursday published a question-and-answer paper aimed at clarifying the Real Estate Settlement Procedures Act (RESPA) rule slated to take effect Jan. 1, 2010. The new RESPA rules are geared toward greater transparency in the origination process for borrowers. They provide for use of the Good Faith Estimate (GFE) for borrowers to both shop around mortgages and enter the homeownership process with as great an understanding of the interest rates and settlement costs as possible. “If we learned anything from the current crisis it’s that it is hard for borrowers to make responsible decisions if they don’t have all the necessary information,” said commissioner David Stevens. “I believe these changes will take away much of the uncertainty borrowers have about the accuracy of disclosures.” Responses to the frequently asked questions (FAQs) document are mixed among industry sources, with the American Land Title Association (ALTA) issuing a statement Friday in support of the HUD guidance. “We’re pleased to see the answers and to see that HUD is providing clarification on questions from not only the title industry but also the lending and settlement communities,” says Mary Schuster, an ALTA member. But others say the questions fail to properly address all the concerns in the industry. Phillip Schulman, of K&L Gates — a law firm that practices in advising on private equity, hedge fund and consumer mortgage finance — says it seems “the FAQs merely restate the requirements and instructions in the final rule, rather than provide practical tips and answers for implementation.” For example, he notes the FAQs provide guidance on the completion of the “Escrow account information” by stating that a originator should check the box for “No” if the lender does not require an escrow account, and should check the box for “Yes” if the lender does require an escrow account. The answer seems clear, but Schulman says there is much more to it. “Such a response,” he writes in industry commentary, “assumes that the presence of an escrow account is a mere ‘yes’ or ‘no’ answer, and HUD does not drill down to answer the more pressing question:  how does a lender complete the GFE when the answer is ‘Yes, but only until you have paid the loan down to 80%’ or ‘no, unless you fail to pay your real estate taxes?’” Write to Diana Golobay.