HUD Announces 'Homebuyer Bill Of Rights'
June 27, 2002
Part Of Bush Administration Effort To Expand Homeownership Opportunities -- HUD to Reform Real Estate Settlement Procedures Act
WASHINGTON - Individuals and families who want to buy or refinance a home will find the process significantly easier under a proposal announced today by Housing and Urban Development Secretary Mel Martinez. Speaking at the National Press Club today, Martinez likened the reform measure to a "homebuyer bill of rights" that would require greater disclosure, allow consumers more choice, limit excessive settlement fees and encourage innovation and competition in the marketplace.
The proposal would reform the regulatory requirements under the Real Estate Settlement Procedures Act (RESPA) that govern settlement fees paid by homebuyers. Late last year, Martinez issued a policy statement that clarified HUD's position on fees paid by lenders to mortgage brokers in the purchasing and refinancing of a home.
"Americans spend approximately $50 billion each year on settlement costs without knowing exactly what they are paying for or having the opportunity to shop effectively for the best mortgage to suit their needs," said Martinez. "The Bush Administration believes it is time to take the confusion and uncertainty out of the home buying process by making loan shopping and settlement less frustrating and more understandable and ultimately, less costly."
The proposed "homebuyer bill of rights" is founded on a set of consumer-driven principles that would guide the settlement process. These principles mandate that homebuyers have the right:
- To receive settlement cost information early in the process, allowing them to shop for the mortgage product and settlement services that best meet their needs;
- To have the disclosed costs be as firm as possible, thereby avoiding surprises at settlement;
- To benefit from new products, competition and technological innovations that could lower settlement costs;
- To have access to better borrower education and simplified disclosure; and,
- To know they are protected through vigorous RESPA enforcement and a level playing field for all industry providers.
To meet these principles, HUD would reform the home buying process by:
- Changing the way lender payments to brokers are recorded and reported to consumers;
- Significantly improving HUD's Good Faith Estimate settlement cost disclosure; and,
- Removing regulatory barriers to allow market forces and increased competition to promote greater choice for consumers by allowing guaranteed packages or "bundling" of settlement services and mortgage loans.
In addition, Martinez discussed HUD's continuing effort to empower homebuyers through greater consumer education and RESPA enforcement. "We also plan to develop legislative proposals that would further protect consumers in the home buying process," Martinez said.
Mortgage Broker and Lender Fees
Under current rules, many borrowers do not understand the role of the mortgage broker and what fees the broker charges. HUD's proposal creates a more "transparent" settlement process to facilitate consumers' understanding of the true costs of their mortgage. The rule would fundamentally change the way lender payments to mortgage brokers - yield spread premiums - are recorded and reported to consumers.
Martinez wants brokers to inform consumers about what they charge and how lender payments can help lower settlement costs. These payments now will be clearly disclosed so consumers can make the best financing choice.
More Choice Through Enhanced Disclosure
The proposal will promote greater choice for the homebuyer in shopping for lower-cost mortgages and settlement services. It will significantly improve HUD's Good Faith Estimate (GFE) settlement cost disclosure to make it firmer and more useful so consumers can use it to shop for the best deals. The current GFE allows a listing of charges that falls short of informing consumers what their big-ticket settlement charges are and who gets them. The current rules also do not ensure that the GFE is reliable.
Removing Regulatory Barriers
In 1974, RESPA was passed into law to keep settlement costs down by targeting illegal unearned fees, splits of fees, referral fees and kickbacks. Over the years, however, RESPA rules have impeded the offering of guaranteed packages of settlement services and mortgages that could lower costs and enable consumers to more easily shop for mortgages. The proposal would remove regulatory barriers to allow guaranteed mortgage loan packages that will provide more choices for consumers shopping for their mortgages.
The Office of Management and Budget (OMB) is completing its review of HUD's proposal. After the proposal is approved by OMB and provided to Congress for prepublication review for 15 days, the proposal will be published in the Federal Register and made available for public comment for 90 days.
Source: Deptartment of Housing and Urban Development
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