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Empire Justice Comments on Proposed Changes to the Real Estate Procedures Act

June 12, 2008


Attn: Rules Docket Clerk
Office of General Counsel
Room 10276
Department of Housing and Urban Development
451 Seventh Street SW
Washington, DC 20410-0500


Re: Docket No. FR-5180-P-01, Proposed Changes to RESPA Regulation

Dear Madam/Sir:

I am writing on behalf of Empire Justice Center to commend HUD for its efforts to simplify and improve the process of obtaining mortgages and to reduce settlement costs to consumers through proposed changes to the Real Estate Procedures Act (RESPA), and to offer our suggestions to improve the proposed changes.

Empire Justice is a non-profit legal services organization in New York with offices in Albany, Rochester, White Plains and on Long Island. Empire Justice provides support and training to legal services offices statewide, undertakes policy research and analysis, and engages in legislative and administrative advocacy. We also represent low-income individuals, as well as classes of New Yorkers, in a range of poverty law areas including consumer law. Advocates in our Consumer, Housing and Community Development unit have been working on the subprime mortgage lending issue for over a decade including representing individual homeowners trapped in predatory loans, training and consulting with local housing counselors, working with lenders to provide good loan products in traditionally underserved areas and advocating for state and federal policy changes for better lending and homeownership. In our representation of homeowners, our advocates have reviewed hundreds of loan packages and disclosures provided to consumers.

Empire Justice applauds HUD for requiring that the Good Faith Estimate (GFE) be provided early and at a uniform time in the mortgage shopping process. For this improvement to effective, consumers must be given enough time to shop and originators must accurately and completely disclose all the relevant costs. We are concerned that some originators give GFEs that low-ball the costs, while others provide GFEs that disclose the costs within such a wide range that there is no meaningful disclosure. The form of the GFE varies widely across originators; so a consumer cannot be sure that the same fees will appear in the same places on different forms from different lenders. This limits the ability of the consumer to do a true price comparison and obtain the most affordable mortgage with the most reasonable closing costs.

HUD's movement to standardization has the promise to improve the mortgage marketplace. The standardization of the GFE will greatly reduce bait and switch tactics that have trapped so many borrowers into inappropriate loans. While the simplified, standardized GFE and the tradeoff table do a good job of aggregating most of that key information and increasing transparency to the consumer, Empire Justice Center offers the following suggestions to strengthen its proposed regulatory changes.

DO NOT ALLOW CHARGING OF FEES FOR PROVISION OF GFE – Empire Justice Center urges HUD to revise its proposal allowing industry to charge a fee for provision of the GFE. Charging a fee when providing a GFE will hinder consumer shopping.

REQUIRE THAT THE ANNUAL PERCENTAGE RATE (APR) BE DISCLOSED ON THE GFE – The APR is a central and critical piece of information allowing the borrower, in one number, to compare interest rate and fee costs among various loan offers. The APR is therefore invaluable for the consumer’s shopping efforts. HUD reasons that the TILA disclosure for purchase transactions provided at the same time as the GFE requires APR disclosure. The interest rate disclosure on one document and the APR on another is more likely to confuse the consumer rather than clarify things. Moreover, this TILA disclosure is provided only for purchase transactions, not for refinance and other types of loans. Refinance lending is usually of much greater volume in the marketplace than home purchase lending, so omitting the APR from the GFE results in omitting the APR from disclosure documents used by consumers during the shopping phase for most loans. Shouldn’t lenders in “good faith” provide the most meaningful number for comparison shopping? That number is the APR.

INCREASE THE TIME PERIOD FOR GUARANTEEING ESTIMATES FOR SETTLEMENT COSTS – HUD is proposing that the estimate for charges associated for settlement services would be effective for 10 business days from the provision of the GFE. When HUD last proposed RESPA changes in 2002, HUD established a 30 day period. Empire Justice urges HUD to adjust upward the number of days that lenders would honor estimates of service charges. Two weeks, which roughly corresponds to 10 business days, is not enough time for shopping among different mortgage originators.

REQUIRE PROVISION OF NAME AND CONTACT INFORMATION FOR ALL SERVICE PROVIDERS – HUD proposes to remove the current requirement that the lender provide the name and contact information for any service provider that the lender requires the borrower to use, while at the same time requiring lenders to list names of companies offering settlement services for which lenders allow consumers to select on their own. Borrowers shop on the basis of cost, as well as on the identity and reputation of service providers.  Therefore, Empire Justice Center would like to see this information provided for all service providers, whether they are lender required or can be selected by the consumer.

TIMELY NOTICE OF UNFORESEEABLE CIRCUMSTANCES – Empire Justice Center agrees with HUD that there could be unforeseeable circumstances that affect the costs associated with a loan. Consumers need to be made aware of these circumstances in a timely manner. Therefore, if a lender encounters an unforeseen circumstance that allows the lender to exceed the tolerances on the GFE, the lender must be required to inform a borrower within three days and provide a new GFE. Also, if the unforeseen circumstance results in a lender rejecting the borrower’s loan application or making another loan available, the lender must inform the borrower within one business day.

PROHIBIT RATHER THAN SIMPLY DISCLOSE YIELD SPREAD PREMIUMS (YSPS) – YSPs (or lender-paid broker payments) contribute to the widespread disparities in the pricing of home mortgage loans between whites, African Americans and Latinos and loans in minority communities. These disparities exist at every income and credit level and increase as income and credit levels increase. In other words, the wealthiest and most credit worthy African Americans and Latinos are, compared to their white counterparts, the most likely to end up with a subprime loan. The origination channel—whether or not a loan is brokered—accounts for most of the difference in pricing. [1]

Lender-paid broker payments rarely reduce upfront costs. In most cases, according to studies HUD cites, lender-paid broker payments actually increase upfront costs. [2] YSPs incent brokers to sell unsophisticated, often minority, consumers higher cost products and potentially riskier products with no real benefit to the consumer. Lenders may also condition payments to brokers on other features of the loan. For example, lender-paid broker compensation is sometimes pegged to a prepayment penalty being included in the loan, the product sold (fixed rate versus variable rate, for example), or the size of the margin or the initial rate for an adjustable rate mortgage. Occasionally, lenders will even pay brokers additional money for originating a no-doc loan. In all of these cases, the lender pays more as the loan becomes more profitable to the lender, without regard to the benefit or the cost to the borrower, or even the additional risk the higher cost loan creates for the ultimate holder. How will these back-door lender-paid broker payments be included in the GFE?

If HUD will not prohibit YSPs outright, then we urge HUD to adopt the recommendation of the National Community Reinvestment Coalition (NCRC). NCRC recommends that HUD adopt the limitations regarding YSPs that are established in S. 2452, which prohibits YSPs on high-cost, subprime, and non-traditional mortgages and permits YSPs on prime loans, but only if the mortgage broker receives no other compensation, the loan does not include discount points or origination points, the loan does not have a prepayment penalty, and that there are no closing costs except for government fees and escrows. At the very least, HUD should adopt S. 2452’s limits on YSPs in prime loans as the standard for all loans.

IMPROVE ABILITY TO MAKE COMPARISONS BETWEEN THE GFE AND HUD-1 AT CLOSING - Empire Justice is pleased that HUD is proposing an addendum to the HUD-1, which is a closing script to be read by the settlement agent to the borrower, comparing the loan terms and settlement charges on the HUD-1 with the GFE, indicating if the GFE tolerances have been met, and explaining the loan terms on the mortgage note. We are concerned that, in many closings, this script may become “pro forma,” and quickly read through at the end of closing. Therefore, we urge that it become an integral part of the closing, and that changes clearly connecting the numbers in the GFE to those in the HUD-1, as proposed by commenter Tom Cusack of the Oregon Housing Blog, [3] be adopted. Empire Justice Center thanks HUD for its proposed changes to RESPA. We hope that our suggestions will further improve the ability of consumers to obtain mortgage loans that are affordable for the life of the loan.


Barbara van Kerkhove, Ph.D.
Researcher/Policy Analyst

End Notes:

[1] See Robert B. Avery, Kenneth P. Brevoort & Glenn B. Canner, The 2006 HMDA Data, Fed. Reserve Bull. A73, A96 (2007), available at (pricing disparities between whites and minorities highest for broker originated loans); Robert B. Avery, Kenneth P. Brevoort, & Glenn B. Canner, Higher Priced Home Lending and the 2005 HMDA Data, Fed. Reserve Bull. A123, A157-58 (2006), available at  (same); Robert B. Avery & Glenn B. Canner, New Information Reported under HMDA and Its Application in Fair Lending Enforcement, Fed. Reserve Bulletin 344, 380, 394 (Summer 2005 (same); cf. Marsha J. Courchane, The Pricing of Home Mortgage Loans to Minority Borrowers: How Much of the APR Differential Can We Explain?, 29 J. Real Est. Res. 399, 400 (2007) ([M]uch of the explanation for why minority borrowers tend to have higher APRs than non-minority borrowers is because minority borrowers  disproportionately take out subprime loans.”); William Apgar, Amal Bendimerad & Ren S. Essene, Joint Ctr. for Housing Studies, Harvard Univ., Mortgage Market Channels and Fair Lending: An Analysis of the HMDA Data 27, 37
(2007), available at   (white borrowers 50% more likely than African American borrowers to get a loan from a CRA-regulated entity within its CRA assessment area; failure to get a loan from a regulated institution within its catchment area increases the cost of the loan).
[2] U.S. Dep’t of Housing and Urban Dev., Office of Pol’y Dev.& Research, RESPA Regulatory Impact Analysis and Initial Regulatory Flexibility Analysis: Proposed Rule to Improve the Process of Obtaining Mortgages and Reduce Consumer Costs 2-25 - 2-48 (2008).
[3] As found at:

For more information, please contact:

Barbara van Kerkhove

Empire Justice Center
Telesca Center for Justice
One West Main Street, Suite 200
Rochester, NY  14614

(585) 454-4060
(585) 454-2518