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Federal Register
/Vol. 67, No. 145/Monday, July 29, 2002/Proposed Rules
1
The term ‘‘lender’’ is used throughout thisdocument to mean any person who is the ‘‘realsource of funds’’ for a federally related mortgageloan.
2
Except as specifically described in footnote 17,the term ‘‘mortgage broker’’ is used throughout thedocument to mean a person (not an employee of alender) who table funds or acts an intermediary ina federally related mortgage loan. Mortgage brokersthat are the ‘‘real source of funds’’ for a federallyrelated loan are not regarded as brokers in suchtransactions.
3
The term ‘‘par interest rate’’ is used throughoutthis document to mean the interest rate at whichthere is not payment made by the lender to the borrower or from the borrower to the lender.
4
The terms ‘‘consumer’’ and ‘‘borrower’’ are usedinterchangeably throughout the document.
5
The term ‘‘loan originator’’ is used throughoutthis document to refer to lenders and mortgage brokers.
DEPARTMENT OF HOUSING ANDURBAN DEVELOPMENT24 CFR Part 3500
[Docket No. FR–4727–P–01]RIN 2502–AH85
Real Estate Settlement Procedures Act(RESPA); Simplifying and Improvingthe Process of Obtaining Mortgages ToReduce Settlement Costs toConsumers
AGENCY
:
Office of the AssistantSecretary for Housing-Federal HousingCommissioner, HUD.
ACTION
:
Proposed rule.
SUMMARY
:
The Department of Housingand Urban Development is issuing thisproposed rule under the Real EstateSettlement Procedures Act (RESPA), tosimplify and improve the process of obtaining home mortgages and reducesettlement costs for consumers. Thecurrent disclosure requirements underRESPA have not been substantiallyrevised in decades. The currentdisclosures were comprehensivelyreviewed as recently as 1998 by HUDand the Board of Governors of theFederal Reserve System, but theproblems identified then remain.Nevertheless, since 1998, there have been continuing changes in themarketplace, new products, and greateraccessibility of mortgage information viathe Internet, all of which are reducingsettlement costs and, if properlyaddressed by Government, could resultin greater price reductions forconsumers. First, to simplify andimprove the mortgage loan process, thisproposal would address the issue of loan originator compensation,specifically the problem of lenderpayments to mortgage brokers, byfundamentally changing the way inwhich these payments in brokeredmortgage transactions are recorded andreported to consumers. Second, it wouldsignificantly improve HUD’s Good FaithEstimate (GFE) settlement costdisclosure and HUD’s related RESPAregulations to make the GFE firmer andmore usable, to facilitate shopping formortgages, to make mortgagetransactions more transparent, and toprevent unexpected charges toconsumers at settlement. Finally, therule would promote competition byremoving regulatory barriers to allowguaranteed packages of settlementservices and mortgages to be madeavailable to consumers, to simplifyshopping by consumers and furtherreduce settlement costs. The proposedrule also includes proposed, revisedforms and solicits comments onadditional changes including changes toHUD’s settlement disclosure form anddisclosure requirements.
DATES
:
Comment Due Date: Deadline forcomments on this proposed rule,including comments on the proposedinformation collection requirements:October 28, 2002.
ADDRESSES
:
Interested persons areinvited to submit comments regardingthis proposed rule to the Rules DocketClerk, Office of General Counsel, Room10276, Department of Housing andUrban Development, 451 Seventh Street,SW., Washington, DC 20410–0500.Communications should refer to theabove docket number and title.Facsimile (FAX) comments are notacceptable. A copy of eachcommunication submitted will beavailable for public inspection andcopying between 7:30 a.m. and 5:30p.m. weekdays at the above address.HUD also invites interested persons tosubmit comments on the proposedinformation collection requirements of this proposed rule. Comments shouldrefer to the above docket number andtitle, and should be sent to the Office of Information and Regulatory Affairs,Office of Management and Budget,Attention: Desk Officer for HUD,Washington, DC 20503.
FOR FURTHER INFORMATION CONTACT
:
Ivy Jackson, Acting Director, Interstate LandSales and RESPA Division, Room 9146,U.S. Department of Housing and UrbanDevelopment, 451 Seventh Street, SW.,Washington, DC 20410; telephone (202)708–0502 (this is not a toll-free number)or for legal questions Kenneth A.Markison, Assistant General Counsel forGSE/RESPA, or Steven J. Sacks orTeresa L. Baker (Senior RESPAAttorneys); Room 9262, telephone (202)708–3137. Persons with hearing orspeech impairments may access thisnumber via TTY by calling the toll-freeFederal Information Relay Service at(800) 877–8339. The address for theabove listed persons is: Department of Housing and Urban Development, 451Seventh Street, SW., Washington, DC20410.
SUPPLEMENTARY INFORMATION
:
I. Introduction
The American mortgage financesystem is justifiably the envy of theworld. It has offered unparalleledfinancing opportunities under virtuallyall economic conditions to a very widerange of borrowers that, in no smallpart, have led to the highesthomeownership rate in the Nation’shistory. At the same time, however, theprocess of financing or refinancing ahome, which is regulated under RESPA,12 U.S.C. 2601
et seq.
, remains toocomplicated, too costly, and too opaquefor many borrowers. The monies neededto close on a home are a significantimpediment to homeownership, andsettlement costs are a significantcomponent of these costs. In light of theAdministration’s commitment to reacheven higher levels of homeownership,the RESPA regulatory scheme deservesparticular scrutiny and necessaryreform.The current disclosure requirementsunder RESPA have not beensubstantively revised in decades.Although the RESPA disclosures werecomprehensively reviewed as recentlyas 1998 by both HUD and the Board of Governors of the Federal ReserveSystem, the problems identified in thatreview remain largely unaddressed.Recent judicial developmentsregarding lender
1
payments to mortgage brokers
2
(yield spread premiums andother named payments based on borrowers’ transactions) haveheightened the importance of increasing borrower awareness regarding howmortgage brokers are paid and how borrowers can benefit from paymentsmade by lenders based on mortgagesexceeding par interest rate.
3
Some borrowers
4
understand, agree to, andproperly use higher interest rates tolower up front settlement costs. Othersreport, however, that they paidsubstantial origination costs in up frontfees for mortgages and then learned thatthey were charged interest rates higherthan those they qualified for merely tosupport an additional payment to theirmortgage broker.Under the current rules, many borrowers are provided estimatedsettlement cost information on a GFEonly after paying a significant feerequired by a loan originator,
5
whichprevents the borrower from shoppingamong additional originators using the
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