RESPA Reform Proposal Finally Hits the Streets
The Department of Housing and Urban Development (HUD) issued its long–awaited proposed rule to simplify the Real Estate Settlement Procedures Act (RESPA) on March 14, 2008 (Federal Register, March 14, 2008). The most dramatic changes affect the Good Faith Estimate (GFE), as well as the settlement process, disclosure of yield spread premiums, and volume discounts and average-cost pricing of settlement costs in certain circumstances.
HUD initially released a proposed rule on RESPA reform in 2002, but withdrew it after much industry criticism. After hosting several round table discussions to solicit feedback from the industry, HUD conducted numerous consumer studies to gauge whether consumers could properly identify loan terms using various types of disclosures. The results of those discussions and studies have influenced this new proposed rule.
The rule significantly departs from the previous RESPA regulation in permitting lenders to offer average–cost pricing and negotiated discounts on third–party services (as long as the borrower is not charged more than the discounted price of the service). HUD’s intention is to allow lenders to negotiate discounts on settlement services, while ensuring that those discounts are passed on to borrowers. Though this provides greater leeway to lenders, it has strengthened regulations prohibiting the “required use” of affiliates.
The more dramatic changes in the proposed rule include the new “closing script” and required forms and disclosures. The “closing script” is a document prepared by the settlement agent and read at closing to help the borrower understand the loan. It explains the loan terms and costs, and features a chart comparing the charges (which are subject to tolerances contained on the GFE) with the corresponding charges on the HUD-1 Settlement Statement. The chart also discloses the tolerances and illustrates whether the actual closing costs fall within those tolerances or not.
HUD’s proposal also changes the GFE by mandating that loan terms be conspicuously displayed on the front page and by establishing tolerances by which actual settlement charges may, or may not, deviate from the charges quoted in the GFE. Proposed changes to the HUD–1 Settlement Statement would alter some of the current HUD–1 numbers and include cross–reference to specific lines of the GFE. The intended result is to enable borrowers to compare the GFE with their actual settlement costs.
Click here to read the full text of the proposed rule. The proposal provides greater detail of the proposed changes, as well as greater description of the testing conducted prior to drafting. The comment period on the proposed rules is open until June 12, 2008. We will continue to monitor any developments in RESPA and any associated regulations as they occur.
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Turning Losses Into Profit Through Fraud Recovery Efforts
Generating revenue by recovering monetary losses from fraudulent loans is an effective way to grow your profit margin—especially in today’s soft mortgage market. Every dollar recovered ultimately goes to your bottom line and helps offset any shortfall in established loan loss reserves.
Taking a proactive stance in recovering losses also creates awareness among other fraud perpetrators, showing your eagerness to pursue losses, regardless of amount. To enhance your success, it’s important to pursue recovery opportunities as soon as possible—even if an actual loss hasn’t yet been fully determined from a monetary standpoint or even if an investor hasn’t issued a repurchase demand.
Litigation is sometimes worth the effort, as in cases to recover large losses tied to the most complex fraud schemes. On the other hand, there are disadvantages to litigation—lenders often assume losses (small and large) that aren’t worth the effort to recover.
There are other options. Monetary losses can be quickly recovered in out of court settlements. Most people perpetrating fraud are typically eager to reach a settlement, especially in cases that present compelling evidence implicating fraud. In most circumstances, settlement is often the more cost– and time–effective way of recovery.
Because laying the groundwork for settlement can be complex, turning to an outside anti-fraud expert for help often makes the most sense—especially when you don’t have the time or resources to invest full–time employees in your fraud recovery efforts. Outside recovery experts are usually compensated based upon the success of their recovery efforts, so there’s little initial investment.
Using their specific knowledge and experience of recovery efforts, an anti–fraud expert will analyze the loss recovery file to determine if fraud was the contributing factor. If so, the expert would investigate to determine who is responsible for the fraud, if that person could be a source of recovery, and work towards negotiating a settlement.
If you have any questions or interest regarding fraud loss recovery programs and how it can help improve your profitability, contact Dennis Outlaw, Senior Mortgage Fraud Consultant, Wolters Kluwer Financial Services. He can be reached via email at dennis.outlaw@wolterskluwer.com.
Click here to download a brief overview of our Mortgage Fraud service offerings.
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Wednesday, June 4, 2008, 2 P.M. – 2:30 P.M. EST
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Download Free Podcast: Developing Best Practices Approaches to Loan Modification
Produced by National Mortgage News, this new podcast is designed to help mortgage loan servicers develop effective loan modification programs using best practice approaches. Click here to download the podcast.
Reminders
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