May 19, 2008
Office of General Counsel
Department of Housing and Urban Development
451 Seventh St., SW., Room 10276
Washington, D.C. 20410-0001
Re: Real Estate Settlement Procedures Act (RESPA):
Proposed Rule to Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs, 08-01015 [FR-5180-P-01; RIN2502-AI61]
To Our Friends at HUD:
I know that sounds cheesy, but I want to express in the strongest possible terms how very much I appreciate the obvious hard work that went into this proposal. I appreciate the lengths to which you tried to balance the impact on our collective industry with the overriding need to create new regulatory consumer protection.
A fully informed consumer, having in hand reliable data in user-friendly form, is empowered to make choices that serve his own self-interest and general welfare. I trust the ability of a fully informed consumer to make his own choice. I trust the mechanics of a fair and free marketplace, which is the likely outcome of such full disclosure. To this end, I support the jewel of this proposal; the Uniform Good Faith Estimate tied to HUD-1 enhanced by the addition of the Closing Script.
I have experimented with the forms using real life transactions and found them easy to use and explain. I’ve had members of my staff use the first part of the Closing Script in real closings. [We did not think it fair to use the GFE/HUD comparison, as those rules are not in effect.] Without exception consumers said they found the information easy to understand and helpful. That part of the script took no more than two minutes to read verbatim. We created Word documents and so the completion was quick. Our software includes the flexibility to use merge fields with Word and so if we had desired, even without programmer assistance, we could have made the job even easier.
The script was prepared at the same time as the HUD-1 form. The closers said the script simply replaced similar verbiage they might have used when reviewing the Note and so it added no time to the closing itself. The hardest part seemed to be really reading it verbatim. I insisted that no one ad lib and so we practiced by reading it to one another a couple of times so that it wasn’t awkward at the closing table.
As a manager, I like the script as a training tool and as a safe procedure. I know that the correct words are being used to describe the mortgage terms.
There are some who object to the Closing Script as somehow crossing the line into the unauthorized practice of law. I just don’t see it. The script is meant to be prepared by the Settlement Agent with information provided by the Lender. This is no different than the HUD-1 form that is prepared by the Settlement Agent with information provided by the Lender. The script is designed to be read verbatim which means the reader is not advising or offering an opinion. The script is part of the HUD-1 and unless reading the HUD-1 could be construed as the unauthorized practice of law, I just don’t buy that argument.
There are many who would like the public to believe that notaries who are not employees of the Settlement Agent do not explain documents at a signing. Though there are some who religiously limit their role to obtaining signatures, most offer some explanation. Consumers deserve an explanation that is correct and easy to understand. Frankly, they deserve at least a small explanation and in those cases in which a notary is not saying anything, reading a mandatory script containing reliable information is preferable. So, acknowledging that customs do vary from state to state and region to region, I cannot see any problem having the person who is obtaining the signatures and is sitting in front of the borrower read the script.
Infact, the Mortgage Bankers Association has been working hard with the American Land Title Association to create Uniform Closing Instructions [UCI]. The UCI contain a definition for the party who obtains the signatures and creates certain duties for that individual including the monitoring and reporting of mortgage fraud. The person in the current draft is known as the Closing Employee.
I am encouraged that both the UCI and this RESPA reform proposal create a duty for the closer to the consumer and to the mortgage lender. Afterall, the closer is typically an extension of the title insurance transaction and in that role, with the proposed insured interests being both that of the mortgage lender and the consumer, it makes sense that there exists some sort of fiduciary duties.
The proposed rule is weak in its guidance as to what the parties should do if there is a problem with the terms when the script is read. Do we close or not? Is the consumer given the choice and if they choose to close, what, if any, are the remedies? It seems to me that the burden is on the lender to comply and that it is in their power to review all terms and make corrections prior to the closing. In this case, then the reading of the script is merely the final safety net and NOT the preferred time for lenders to talk with their borrowers. With that in mind, the objections of some, that the burden of the script should rest on the shoulders of the lender and not the closer seems to ignore the reality that mortgage lenders today already carefully monitor the APR and high cost loan calculations and make last minute adjustments to avoid closing a loan that is out of compliance. Why? Because they fear the remedies.
GOOD FAITH ESTIMATE
I have suggestions for improving the Good Faith Estimate [GFE] but first I must say that I applaud the manner in which you have handled the discount versus yield spread and the impact on rate from the perspective of the consumer. I believe consumers will understand the seesaw effect on the rate and make their choices easily. I am pleased that you underplay the matter in the loan origination fee section and focus the attention of the consumer on the bottom line.
I do suggest that you add a summary section for cash to close. This final summary is missing and unless you define its form, the uniformity you hope to give the consumer will be lost. A summary would encapsulate what we might normally see on page one of the HUD-1. Something like sale price less mortgage less hand money less seller assist, etc. equals cash to close.
On the issue of seller assists, if it’s within HUD’s power to instruct, I would suggest that mortgage lenders use a flat credit for a seller assist rather than move buyer fees to the seller side of the HUD-1. I think having buyer fees on the seller side of the HUD-1 under this new system would be too confusing.
I would strongly prefer that the settlement costs in the shopping chart be adjusted so that they do not include estimated escrows, hazard insurance, transfer taxes and recording fees. These items are unique to the property and the date of closing and not the loan originator. It has been my experience that unscrupulous loan originators will lowball escrows to make a GFE more attractive. Perhaps you could call those costs “comparable costs” or something like that.
Finally, on the GFE, recording fees are a moving target that most settlement agents have a hard time figuring even with documents in hand. Setting any kind of tolerance is simply creating a predictable failure on virtually every GFE. There may be some places in this great country wherein a loan originator easily predicts the recording costs but they have to be few and far between.
VOLUME DISCOUNT AND AVERAGE COST PRICING
I will limit my comments on this subject by saying that I laud your intentions as I believe you are hoping for some cost savings for consumers, however, these provisions of the rule are ripe with multiple configurations of unintended consequences. It’s just too obscure. Too much can be read into these parameters and the possibility for harm far outweighs any conceivable benefit for the consuming public. With as much intensity as I can express within this format, I implore you to just strike the ideas, please.
As a final note, I must say that should you successfully implement refined versions of the proposed GFE and HUD-1 enhanced by the Closing Script, honest professionals can and will adapt and eventually find them ordinary and comfortable. Predators and those who depend upon obscure and unreliable disclosure to make their credit kill, will be forced to shape up or ship out and you will therefore, whether you planned to or not, help us restore the public trust.
The Closing Specialists
204 West Main Street
Ligonier, PA 15658