Federal regulators propose to withdraw a RESPA rule change that would bar homebuilders from offering consumers incentives that require them to use the builders’ affiliated mortgage and title insurance companies.
It’s unclear whether the change — which the National Association of Home Builders has gone to court to block — will actually be scrapped, and if so, whether regulators will go back to the drawing board and launch a public process to rewrite it.
About all that’s certain is that the Department of Housing and Urban Development is now promising that restrictions on homebuilder incentives originally slated to to take effect in January won’t be implemented until mid-summer — if ever.
At issue is a provision of the Real Estate Settlement Procedures Act, or RESPA, that allows real estate brokers, builders, title insurers and others to split profits generated by joint ventures known as affiliated businesses. Consumers must be informed about the relationships between the companies and cannot be required to use any particular provider.
Affiliated businesses are allowed to offer a combination of settlement services at a discount without being considered a "required use," as long as the discount is not made up by higher costs elsewhere in the settlement process.
HUD claims homebuilders often make up for incentives they offer for using their affiliated businesses by charging a higher interest rate, increasing a home’s price, or inflating closing costs.
In an attempt to stop the alleged overcharges, HUD narrowed RESPA’s "required use" provision to stipulate that only affiliated businesses formed by settlement services providers — not homebuilders — qualify.
The new rule, part of a broader set of revisions to RESPA, was originally set to take effect Jan. 16. But HUD pushed back implementation of the rule to April 16 after it was sued by NAHB. At the time, HUD said it needed more time to mount a legal defense (see story).
Now, HUD proposes withdrawing the aspect of the RESPA rule change challenged by homebuilders, an announcement which triggers a 30-day public comment period. A HUD spokesman said that if the required use provision is withdrawn, the department may or may not launch a new rulemaking process to draft a new one. …CONTINUED
In a Federal Register notice, HUD officials say they are seeking comment on their proposal to withdraw the new required use provision, and commence a new rulemaking process in which regulators would "similarly strive to ensure consumers are protected from certain practices by affiliated business arrangements."
Since issuing the final RESPA rule in November, HUD officials have decided to "reevaluate the scope and operation of the required use provision. This issue is one of importance in the RESPA context, and HUD, regulated industries, consumers and the public generally would be better served by new rulemaking."
While that may sound like HUD has already decided to rewrite the required use provision if it’s withdrawn, HUD spokesman Brian Sullivan told Inman News that a new rulemaking process "is not a foregone conclusion."
At this point, HUD is seeking comment on its proposal to withdraw of the portion of the rule being challenged — and whether that action, if taken, should be followed by a new rulemaking process. No decision has been made about whether withdrawal of the rule would be followed by the drafting of a new required-use provision, Sullivan said.
Just as homebuilders sued to stop implementation of the required-use provision, a consumer group could sue HUD to stop it from withdrawing the rule change, which was finalized as part of broader RESPA changes after an extended public comment period and much debate.
If HUD faced no obstacles to withdrawing the required-use definition and proceeded with a new rulemaking process, Sullivan would not speculate on how long that process might take.
For now, HUD will only say that it will delay implementation of the required use definition until July 16, while it seeks comments on its proposal to withdraw it.
In a joint motion filed Friday in the U.S. District Court for the Eastern District of Virginia, HUD and NAHB said that if HUD elects to retain the required-use provision, homebuilders would still have "full opportunity to litigate the merits of their challenge" and obtain an injunction before the change goes into effect.
HUD says it remains committed to other RESPA changes being phased in this year, including new standardized disclosure forms HUD says will encourage comparison shopping (see story).
The National Association of Mortgage Brokers has filed suit over the new standardized Good Faith Estimate loan originators must begin using by the end of the year. NAMB objects to a requirement that yield-spread premiums paid by lenders when borrowers take out loans with higher interest rates be credited to borrowers on the GFE (see story).
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