Under mounting political pressure from the mortgage banking industry, the Department of Housing and Urban Development will conduct a hearing Aug. 6 on a provision of its Respa regulations that permits computerized loan origination services.
The HUD decision was announced July 1 at a hearing convened by the House Small Business Committee on the rule published by the agency in November 1992 to clarify Respa, the Real Estate Settlement and Procedures Act.
The hearing will cover the exemption for employer/employee referral fees, the appropriateness of buyers making referral payments under CLO systems and the provisions relating to pre-emption of certain state laws. Another area to be covered will be whether the provisions calling for disclosure of controlled business arrangements adequately protect consumers.
The Mortgage Bankers Association of America's president said bankers worry that language in the final Respa rule permitting CLOs "will undermine competition by squeezing out smaller, independent companies that have not developed computerized loan arrangements with real estate brokers and agents."
Particularly controversial were the provisions detailing controlled business relationships. While fully within the agency's authority to interpret the law, the final rule was substantively different than the proposal on which public comment had been received when the rule was published for comment in 1988. Mortgage bankers also groused about referrals to providers of settlement services.
"The proliferation of mortgage referral fee programs are undermining the integrity of the mortgage lending process and adding the cost to housing," said MBA's president, Herbert B. Tasker, chairman of All Pacific Mortgage Co., Concord, Calif., in written testimony. "People are paying too much for their homes when unnecessary referral fees are built into closing costs or are added to the lifelong cost of a mortgage."
Tasker said that additional costs incurred through use of CLO systems that allow borrowers to pay fees to real estate brokers are passed on to the home buyer.
"Real estate agents have traditionally helped buyers to obtain financing as one of the services to the seller," he said. "Home buyers should not have to pay added fees to a real estate agent for help in finding a loan."
The MBA is not opposed to CLO systems as long as certain consumer safeguards are built in, Tasker said. Among them:
* Borrowers must be offered a choice of loan programs on a computer screen in which multiple lenders list their products represented.
* Borrowers must receive adequate disclosure.
* Fees must be related to the value and the cost of the service provided, not at closing when they can be hidden in closing costs.
The MBA filed suit Dec. 1 against the U. S. government on the legality of the new Respa rule. The suit is pending in the U.S. District Court for the District of Columbia.
MBA's complaint said that by allowing fees in connection with a CLO system as well as for the referral of business to an affiliate of a controlled business arrangement, the regulations were anti-competitive and discriminatory against small mortgage lenders.
The HUD decision to hold the Aug. 6 hearing was announced by Rep. John J. LaFalce, D-N.Y., chairman of the small business panel. It takes place at 9 a.m. at the National Capitol Regional Office of the General Services Administration, Seventh and D St. NW.