A company that markets title insurance and other settlement services to consumers over the Internet says proposed changes to federal regulations will discourage comparison shopping.
The Department of Housing and Urban Development claims its proposed changes to the Real Estate Settlement Procedures Act (RESPA) will help consumers save $8.35 billion a year by spurring competition and helping consumers find the best deal on a loan and settlement services.
But ClosingCorp Inc. — a San Diego-based company that operates the Web sites TitleWizard.com and Closing.com — maintains that HUD’s proposed RESPA rule change will encourage consumers to choose settlement services recommended by lenders and discourage them from shopping on their own.
In an effort to prevent last-minute increases in fees charged for settlement services at the closing table, HUD proposes placing tolerances on fee increases. Under HUD’s proposed RESPA rule changes, the sum total of the increases in fees provided by a lender or a company recommended by the lender cannot exceed 10 percent.
But no such tolerances would be placed on fees when consumers select their own settlement services, which ClosingCorp’s Web sites are designed to help them do.
ClosingCorp argues that the rule change will force lenders to establish relationships with third-party settlement service providers in an attempt to control the costs and avoid exceeding the tolerances.
"If a lender can create a team of preferred settlement service providers, it can guarantee to its customers that the price of the preferred vendors’ settlement services will never increase by more than 10 percent at closing," ClosingCorp said in its comments on the proposed rule change.
HUD has also proposed other incentives to encourage lenders to package settlement services with loans, such as allowing them to pass on volume discounts to consumers and use average cost pricing.
ClosingCorp argues that a borrower who shops for his or her own settlement services "may be faced with unrestricted increases in settlement fees. It should be no surprise that a borrower, when faced with these two options, will decline to shop for his own settlement service providers and select the vendors recommended by the lender."
HUD’s proposed good faith estimate (GFE) doesn’t make it clear that consumers can shop for their own title insurance, ClosingCorp maintains, and the form may even end up "frightening consumers into selecting the lender’s recommended providers as the only way to control costs."
Page 3 of HUD’s proposed GFE warns that "charges can change if you select your own provider and do not use the companies your lender suggests."
ClosingCorp said HUD could address the issue by better explaining what services consumers are free to shop for, and by including "direct references to Internet sites, such as Closing.com and other Web sites that provide information, quotes, and the ability to make inquiries or initiate contact with closing service vendors," in the instructions accompanying the GFE.
"If HUD is reluctant to make direct ‘consumer-help’ references on the face of the new GFE, we ask (HUD) to follow the lead of the California Department of Insurance and create a Web site devoted to reference materials and direct links to, among others, Closing.com," the company said.
ClosingCorp developed its TitleWizard.com Web site in a partnership with the California Land Title Association, at a time when the California Department of Insurance was considering a plan to roll back title insurance rates by $1 billion a year. The site, which went live in October 2007, allows users to enter information about a property and locate title companies in their area, compare policy details and get quotes based on their specific transaction (see story).
"As a result of the TitleWizard’s launch, the California Department of Insurance postponed a plan to roll back title insurance rates and has stopped supporting its own title insurance rate survey," ClosingCorp noted in its comments to HUD. "The California Department of Insurance now refers consumers through a link on its Web site to the TitleWizard."
ClosingCorp filed its comments on HUD’s proposed RESPA rule change in May, publicizing them in a press release this week. The press release notes that the company’s new Web site, Closing.com, is now in Beta testing.
With more than 250,000 vendors offering services in 12 categories, Closing.com "is the largest one-stop-shop for real estate closing services on the Web," ClosingCorp claims.
HUD, which received more than 12,000 comments on the RESPA rule changes it proposed in March, maintains it is now prohibited from responding to criticism of its plan, having reviewed public comments and submitted a final rule to the Office of Management and Budget on Aug. 21 for a 90-day review.
A majority of the House of Representatives and industry groups including the National Association of Realtors and the American Land Title Association have urged HUD to withdraw its proposed rule changes and instead work with the Federal Reserve to create simplified loan disclosures that would satisfy the requirements of both RESPA and the Truth in Lending Act, or TILA.
Secretary of Housing Steve Preston said last week that HUD’s final RESPA rule attempts to strike a balance between consumers and the real estate industry, and that the department intends to push through changes that would be implemented next year (see story).
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