A study funded by the National Association of Realtors claims proposed changes to loan disclosures could add more than $400 to the cost of obtaining a mortgage, wiping out much of the cost savings regulators say consumers would realize.
The Department of Housing and Urban Development (HUD) proposes changes to the Real Estate Settlement Procedures Act, or RESPA, including a new good faith estimate form and incentives that would encourage the packaging of settlement services (such as title insurance) with loans.
HUD claims the moves will save consumers about $8.35 billion a year, or more than $700 per loan, by improving their ability to comparison shop and increasing competition and cost efficiency among lenders and settlement services providers.
Although industry opposition to HUD’s RESPA reform plan has been less intense than a 2002 proposal with more concrete incentives for packaging, critics were able to get HUD to extend the public comment period by 30 days. The window for public comments closes Thursday, with HUD expected to issue a final rule later this year for adoption in 2009.
Large lenders have been supportive of some of the proposed changes, but groups representing mortgage brokers, title insurers and Realtors have voiced opposition to packaging incentives, saying they will ultimately lead to more industry consolidation and less competition (see Inman News story).
The new NAR-funded study, by economist Ann Schnare, takes a similar tack, claiming that the cost of preparing the revised good faith estimate (GFE) will add as much as $413 to the cost of obtaining a loan, compared with HUD’s claim of $181.
Large lenders and brokers would have an advantage, Schnare said, because they are "in a better position to negotiate rates and to extract pricing concessions from third-party settlement service providers. While this may be good for consumers in the short term, the increased concentration that would inevitably result could eventually produce the opposite effect."
Schnare maintains that the cost will be higher largely because HUD underestimated the number of GFEs that will have to be prepared. While HUD estimates lenders will have to prepare an average of 1.7 GFEs for every loan that’s funded, Schnare says 2.7 to 3.4 is a more realistic estimate.
HUD has either "seriously underestimated the number of GFEs that will be issued under its new regulations or the regulations will not produce the amount of shopping behavior that the department would like to achieve," Schnare said in her study, entitled "The Estimated Costs of HUD’s Proposed RESPA Regulations."
Instead of $44.50, the cost of processing and tracking applications will rise to $79 to $89 per loan, Schnare estimates. The cost of locking interest rates — which would not be required, but which Schnare thinks lenders would do to be consistent with the goal of encouraging loan shopping — would add another $272 to the cost of a $200,000 loan, the study claimed. Additional underwriting costs including additional credit reports would add an additional $52 per loan, Schnare estimates.
Schnare claims that HUD could achieve most, if not all of its stated objectives by simplifying and standardizing the GFE, and "should seriously question whether its desire to provide greater certainty in closing costs is worth these additional costs."
Commenting on the report in the RESPA reform group in the Inman Community section, title insurance agent Dave Wirsching said he agreed with its gist.
"This consumer savings is a fantasy," said Wirsching, co-owner of North American Land Transfer in Blue Bell, Penn. and author of the blog Clearing Title. "If lenders are going to have greater costs, they will pass them on to the consumer. Does anyone expect them to accept less profit? They will squeeze their vendors to death, and then once the smaller lenders are gone, they’ll raise prices. It’s capitalism 101."
Title agent Diane Cipa, general manager of Ligonier, Penn.-based The Closing Specialists and author of the blog Radical Title Talk, took the opposite view.
Cipa said she believes HUD’s proposed changes to RESPA will create a competitive marketplace that will "unseat the positions of many providers."
The winners, Cipa said in commenting on the report, will be those that can effectively manage costs, marketing and pricing.
"NAR is only interested because they have a vested interest in protecting their members who have created affiliations and referral networks," Cipa said.
For more information on HUD’s RESPA reform proposal, including a link for submitting public comments, visit the RESPA reform group in the Inman Community section.
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