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].
