A federal district judge in Washington gave a de facto victory to the mortgage banking industry Nov. 19 by prodding HUD to move quickly to revise its Respa regulations, primarily the controversial provisions allowing establishment of computerized loan origination systems.

The mortgage bankers, acting under the guise of the so-called "Coalition to Retain Independent Services in Settlements." filed suit last December in reaction to a Bush administration decision to allow establishment of CLOs in a regulation clarifying the intent of Respa that was issued only days before the November 1992 election.

The mortgage bankers were upset because they thought they had been given assurances by Bush administration officials that the new regulation, which went into effect in early November 1992, would not sanction establishment of CLOs. CLOs are computerized loan origination system provided by banks and other lenders to Realtors, thus allowing them to bypass mortgage brokers in securing loans for their customers.

The mortgage bankers were given little hope for overturning the provision because federal law requires before overturning a regulation that a party prove that a regulatory agency acted arbitrarily and capriciously and did not follow appropriate procedures in adopting a regulation--an extremely tough test.

The mortgage bankers quickly won a sympathetic ear from the incoming Clinton administration. HUD in June announced that it would review the controversial regulation and in August held a public hearing on the issue. The agency has received more than 1.500 comments on the regulation and is reviewing them.

The latest ruling from Judge Charles R. Richey gives the agency a June 1, 1994, deadline to fish or cut bait--that is, check the political winds and determine how it will deal with mortgage bankers' concerns that allowing Realtors to use CLOs could over time put mortgage banks out of business, a belief that commercial banks and other lenders as well as the real estate industry believe is overstated.

HUD asked the court that the suit be declared moot because the agency is dealing with the issue. However Richey declined to let the administration off the hook that easily.

He instead decided to leave the case in legal limbo for seven months and added a stinger to the government by establishing a lower test than "arbitrary and capricious" for the mortgage bankers to overcome in getting the regulation overturned if HUD can't make up its mind about which industry to anger in revising its Respa rule.

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