Is RESPA reform back on the front burner?Greg Frost RESPA reform, regulatory compliance, consumer protection According to a recent report in a mortgage trade publication, U.S. Department of Housing and Urban Development Secretary Alfonso Jackson claimed that HUD would take yet another stab at RESPA reform this year. Jackson vowed that though he had reconvened the same committee to tackle RESPA reform, HUD would be more aggressive in seeking industry input this time around, in the hope of reaching a consensus during the drafting process for this legislation. The last HUD effort for RESPA reform was derailed very late in the game by a groundswell of congressional opposition stimulated by the mobilization of a grassroots outcry from the mortgage industry, organized by the National Association of Mortgage Brokers and other interested parties. We all remember the big pink postcards and the printed telephone scripts listing the Washington, D.C. phone numbers for our congressional leaders. The effort was an obvious success, from the mortgage brokers' perspective ... or was it? Did NAMB and its constituency merely dodge a bullet? To answer these questions, we must first ask ourselves, "What is wrong with the current system?" Exactly who is out there asking HUD for a simplification of RESPA? Is the consumer really that confused? If so, where are the consumer letters to HUD clamoring for new protection? What is it about a residential mortgage loan transaction that makes it any more revered than an automobile loan, a loan for a boat or an RV (either of which could be considered a second home), or financing for a big screen television? The fact is that Americans enter into thousands of business transactions every day that constitute some type of lending process and they do it with their eyes wide open Who is RESPA trying to protect, and from whom? Who in our industry is so inclined to abuse the consumer? Is the consumer incapable of comparing a Good Faith Estimate, looking to the bottom line and determining the most advantageous terms? How can HUD hope to legislate and regulate the inability of a very few (among the millions of annual mortgage acquirers) to make a good business decision without unfairly choking a phenomenally contributive industry? I grew up professionally in the savings and loan business, which was regulated by the Federal Savings and Loan Insurance Corporation (FSLIC). We were regulated on both the savings deposit side and the residential mortgage loan side. The authority for all of this regulation was rooted in the fact that the FSLIC insured the depositors' savings accounts and by virtue of underwriting this risk, had the charter, granted to it by Congress, to regulate how we conducted our businesses. The FSLIC insurance was the carrot for S&L company investors to agree to accept those regulations. Not all decided to take a bite off that carrot because (as older readers might recall) there were uninsured S&L companies doing business at that time as well. They were usually state-chartered and regulated businesses that did not have to follow FSLIC regulations. They differentiated themselves in their respective marketplaces with more innovative marketing, paid slightly higher interest rates on deposits, made more aggressive loans, and participated in joint ventures with local developers and builders long before the advent of the insured S&L "service corporations." But where is the FSLIC now? Where are the S&L companies that once originated 80 percent of all mortgages? They are goneabolished in 1989 with the advent of the Financial Institutions Reform Recovery and Enforcement Act (FIRREA). Many professionals maintain that an overly aggressive legislative and regulatory agenda in response to the sins of a few, brought down an entire industry; that the setting of new regulations to produce a current appraisal of land holdings in a historically unprecedented declining market (stagflation of the late 1970s and early 1980s) caused a paper insolvency among the mutually chartered S&L companies, which forced them to sell stock and acquire debt in an environment of double-digit interest rates. Many concluded that this action taken by the regulators contributed greatly to the sinking of an industry that was as American as apple pie and the flag. Mortgage brokers and bankers currently enjoy an environment where they cumulatively participate in more than 80 percent of all mortgage originations. We find ourselves in much the same place as the S&L industry was in the late 1970s. However, our industry does not enjoy the same prestige that the S&Ls did. Our industry cannot line up staid, old school community leaders among our boards of directors to carry our banner to Washington, D.C. We are an emerging industry, still flexing our wings and learning our way. Our leadership is comprised of many small businesspersons, entrepreneurs and producing owner/managers. How can we hope to muster more resources and thus fare better and last longer than those venerable S&L institutions of the past? We should start by asking this question of our congressional representatives: Where is the call for RESPA reform coming from? Who is clamoring for new laws and more consumer protection? Furthermore, whom do we need to protect the consumers from? How many abuses have been recorded, compared to the millions of successful mortgage transactions made in the last five years, and what are the infractions? Are the violations emblematic of an industry requiring a regulatory overhaul, or are they ills common to every industry, no more no less? And are these problems that have merely been amplified because of the preponderance of transactions that have been conducted in this most recent time of low interest rates and heightened borrower opportunity? Is HUD hell-bent on saving the consumer from us, or attempting to save consumers from themselves? Can the latter really ever be achieved without fail? Let's go deeper on this subject with another question: Why aren't builders restricted from literally forcing their homebuyers to do business with their designated mortgage company with "all or nothing" incentives that add up to thousands and thousands of closing cost dollars? What is the difference between this practice and that of a real estate agent referring one of their clients to their "in-house" lender? RESPA, that's the difference. Whether they are in the mortgage business or not, builders are not subject to RESPA regulations. What is that all about? In my market, new home sales account for 30 percent of the entire home sale market. Many of the builders have their own in-house mortgage companies or are participating in an affiliated business arrangement (ABA). They regularly hold their homebuyers hostage to their chosen mortgage company by refusing to pay the normal portion or, in some cases, any of their closing costs unless the buyer obtains financing from the builder's "partner" mortgage provider. Who decided that the managers of these "in-house" builder mortgage companies are any less in need of legislation and regulation than the rest of the retail mortgage lenders? If RESPA is supposed to level the playing field for all loan professionals, how did this chunk of the action slip under the fence? Do we need to protect the consumer from one group of mortgage providers, but not from them all? Who is RESPA really trying to protect? Well, at least we can all breathe easier knowing that there are no more S&L associations taking advantage of people any longer. Funny, I was always proud to have been noted as the youngest CEO/president in the history of the S&L industry. I guess that is one record that won't ever be broken. Thank you for that, FSLIC! I am currently recognized as the mortgage industry's first billion-dollar originator. I certainly hope that I will be able to stand among active members of this industry and reminisce about this achievement in the years to come. Readers of The Mortgage Press are invited to visit www.loantoolbox.com/go/respa to download an info-marketing piece on this topic. Please distribute this to your associates and real estate partners, and encourage them to provide feedback to HUD and their legislators about this regulation that directly affects the mortgage industry. The views expressed in this piece are solely those of the author and do not necessarily reflect those of The Mortgage Press Ltd., the National Association of Mortgage Brokers or NAMBs state affiliates. Greg Frost is the owner of Frost Mortgage in Albuquerque, N.M. and vice president of new product development for LoanToolbox.com. He may be reached at (505) 292-7200 or e-mail [email protected].