Francis Keating, general counsel of the Department of Housing and Urban Development, says he expects to publish final regulations soon that would negate the fee disclosure lawsuit filed last week against HUD by the National Association of Mortgage Brokers.
That suit, filed Oct. 21 in the U.S. District Court for the District of Columbia, asserts that HUD did not follow the proper procedures when Keating ruled in an Aug. 14 interpretive letter that mortgage broker fees must be separately disclosed in the good-faith estimate and the HUD settlement statement, both given to mortgage borrowers.
Keating said HUD will fight the suit if it comes to trial but that he expects final regulations to be published soon under the Real Estate Settlement Procedures Act, which will include broker fee disclosure. Those regulations will be issued under the process the NAMB charges was not followed prior to the Aug. 14 interpretive letter. The regulations were sent to the Office of Management and Budget last year, where they have been held up because OMB believes they would be an undue burden on the industry. If a Democratic administration is returned to power in the coming election, it is widely anticipated in the real estate finance industry that the regulations will be published.
"We want to emphasize that the position were taken requiring full disclosure of mortgage broker fees is the long-standing position of HUD," Keating said. "I think our position is sound and that the public is served by disclosure."
Even if the court suit is made moot by publication of the regulations. NAMB plans to seek redress in Congress. "Regardless of what happens, it is our intent to go to Congress and seek changes in the law." said Michael J. Hoogendyk. executive director of the Scottsdale, Ariz.based NAMB. "The regulations HUD is trying to enforce are archaic in light of today's realities." He said it is almost impossible to differentiate between the activities of the mortgage broker and the lender.
The NAMB complaint charged that the Keating letter "was issued without statutory or regulatory authority. and without the observance of procedures required by law..." Even if the letter was issued with legal authority. NAMB said. it seeks relief on the ground HUD did not follow rulemaking procedures, including public notice and comment.
"This action is brought to enjoin the enforcement of. set aside, and declare invalid [the Keating letter]. which would have a substantial impact upon mortgage broker and wholesale lending industries by creating new duties and procedures, imposing obligations and liabilities. and changing an existing policy concerning the treatment under Respa of mortgage broker fees and certain forms of loan funding." the complaint said.
"If allowed to stand, [HUD's] new rule will have an immediate and severe impact on the competitive and financial position of [NAMB] and its members, and will subject them to administrative and civil penalties, including the forced suspensions and/or terminations of their business, thereby causing them irreparable harm."
"If allowed to standc the rule will also harm the public. whose sources of housing financing would be severely limited, and would also impede and frustrate the purposes of Respa and national housing acts, whose purposes include attracting private resources and capital for low- and moderate-income home buyers."
Mortgage brokers, who swelled in numbers during the last refinancing splurge in the mid-1980s, have complained that separate disclosure of their fees gives other lenders, such as thrifts and banks, an unfair advantage because those lenders' origination costs can be covered in the interest rate or by charging points. The mortgage brokers believe that borrowers may look at the separate broker's fee and infer that it is an additional charge they wouldn't face at a bank or thrift.
Keating, in letters last February to bank and thrift regulators and in the Aug. 14 interpretive letter, did not buy that argument. In the most recent letter, Keating said that. as a general rule, mortgage broker fees, however denominated, whether paid for directly or indirectly by the borrower or the lender, must be disclosed to the borrower. Moreover, he said, failure to disclose "may well raise an inference that a Section 8 violation is being concealed."