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Wednesday, January 12, 2005

HUD Seeks More Accountability

Hello all.... we found this great article... we hope you enjoy...

- jenny, intern

by Lew Sichelman

The Department of Housing and Urban Development is considering a rule intended to protect unsuspecting borrowers from erroneously thinking they are dealing with lenders that are somehow connected to Uncle Sam.

Many direct mail solicitors often use such terms as "national" and "federal" in their names to imply a government relationship in hopes of making people believe their often too-good-to-be-true offers are on the up and up.

But under the regulation being consideration by HUD -- but not yet printed in the Federal Register -- non-federally supervised lenders would be banned from using those and such other terms as "United States," "reserve," "deposit insurance" and other words and phrases that would make someone think there is a government connection.

HUD has the authority to propose the rule under a federal criminal statute which prohibits false advertising or misuse of names indicating federal agency involvement.

Also on the department's radar screen for 2005 is a rule that would allow the Federal Housing Administration to keep better tabs on lenders who originate and service government-insured mortgages.

The regulation would authorize HUD to establish a loan officer registry and a servicing approval agreement for FHA-approved lenders.

As currently envisioned, the clearinghouse would limit registration of a loan officer to one FHA-approved lender at a time and give the government the ability to monitor a loan officer and his movement from one company or location to another. The rule would provide for sanctions against loan officers for poor performance.

Often in the lending business, loan officers who are accused or found guilty of illegal or abusive tactics in one state simply pack up their bags, move to another state and go to work for someone else. Demand for experienced agents is such that other than making a few cursory inquiries, lenders rarely check the backgrounds of potential new hires.

In an apparent effort to make lenders liable for loan officers' misdeeds, the rule also would clarify that a loan officer must be an employee of a lender. In many shops, loan officers are paid commissions rather than salaries and, like similarly paid real estate agents, are considered independent contractors.

This particular rule also would create a servicing agreement that would require FHA approval.

The Department believes that the agreement would enhance its authority to supervise the servicing of FHA-insured mortgages and to take action against lenders and companies which administer loans on behalf on lenders who fail to perform required servicing functions such as working to keep late-paying borrowers in their homes.

More long term, HUD also hopes to restart its effort to improve the process for obtaining mortgages by rewriting the Real Estate Settlement Procedures Act, or RESPA. If that sounds rather familiar, it should -- HUD has been calling for new consumer protections for what seems like eons.

Characterized as "economically significant," the pending rule would establish a new framework for borrower disclosures under RESPA that would, among other things:

Address the issue of mortgage broker compensation. HUD wants to specifically address the issue of lender payments to mortgage brokers by fundamentally changing the way in which their compensation is recorded and reported to borrowers.

Significantly improve the good-faith estimate of closing costs and fees that borrowers are required to receive within three days of applying for a mortgage. In this regard, the government wants to amend the rules to make the GFE firmer and more usable, thereby making it easier for consumers to shop around for mortgages and avoid unexpected charges or changes at settlement.

Remove regulatory barriers to allow lenders to provide guaranteed, one-price packages of settlement services.
For what it's worth, the exact wording of the changes HUD has in mind for RESPA are identical to descriptions put forth in previous regulatory agendas.

Published: January 12, 2005

Lew Sichelman has been covering real estate from his home base in the Nation's Capital for more than 30 years. He writes a weekly consumer column that is distributed to newspapers throughout the country by United Media. He also is a regular contributor to numerous shelter magazines and housing and housing finance industry publications.

Copyright © 2005 Realty Times®. All Rights Reserved.

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