The best the outgoing Bush administration will do for opponents of the controversial regulations Issued under the Real Estate Settlement Procedures Act is to delay until January aggressive enforcement of the rules published earlier this month by the Department of Housing and Urban Development The regulations are scheduled to take effect Dec. 2.
'Those groups asking for a delay in the effective date have not shown us anything new or anything we overlooked,' said Alfred A. DelliBovl, deputy secretary of HUD. 'But that doesn't mean we'll have the Respa police out at every crossroad at 12:01 a.m. on Dec. 3,' added DelliBovi, who is leaving HUD to become president of the Federal Home Loan Bank of New York.
As a practical matter, however, lenders will be under severe pressure to meet the Dec. 2 deadline since they would be reluctant to take the legal risk of violating the new regulations even if they won't be immediately visited by the Respa enforcement personnel.
Even though opponents did not succeed in getting a delay. the fight may not be over. 'If the regulations stand. we will begin immediately to educate the new administration and the new Congress about the issues.' said Stephen B. Ashley. president-elect of the Mortgage Bankers Association and chairman and chief executive officer of the Sibley Mortgage Corp., Rochester. N.Y. He previously sewed as chairman of the MBA's legislative committee.
But DelliBovi was skeptical that a new president or Congress would willingly take up a controversy that an outgoing administration has settled.
The MBA. the Savings and Community Bankers of America and the American Bankers Association have formally requested a delay of as much as six months in the effective date. The National Association of Realtors. whose members are the big winners under the regulations. oppose any delay.
The most controversial portion of the regulations permits real estate brokers to accept unlimited fees from lenders for bringing business to them. though they must establish that they performed actual services. Referral fees are prohibited by Respa.
Moreover. the regulations permit a real estate brokerage to pay fees to employees who direct borrowers to a brokerage's a~Hates that offer related services such as title insurance and appraisals. The affiliate relationships must be disclosed.
Mortgage lenders and brokers believe the regulations will encourage conflicts of interest. The brokers also oppose a provision of the regulations that requires that their fees be separately disclosed to borrowers.
An analysis prepared by the Washington law firm of Brownstein Zeidman and Lore. which represents the NationalAssociation of Mortgage Brokers. said the regulation 'provides a number of business opportunities. particularly for entities considering diversifying into related fields. For example. the requirements governing controlled business arrangements have been clarified. The final regulation permits ... an affiliated provider to offer discounts on packages of services without such discounts being construed as an impermissible 'required use' of the provider.'
While the regulation makes it clear that payments can only be made in real estate brokers for services actually performed. it 'sheds no light on how to calculate reasonable value.' the analysis said. It noted that HUD General Counsel Francis Keating has said publicly that the test is based on whether total fees paid by the borrower are reasonable for the geographic area.
The use of computerized loan origination systems was another controversial aspect of the regulations. 'One of the most significant and surprising changes [from the proposed regulations] is in this area.' the MBA said in a written analysis. 'Although MBA believed it had a solution arranged with HUD for proper regulatory treatment of CLOs. HUD has eliminated all of the safeguards that would have allowed CLOs to exist without the danger of abuse.
'Under the final rule. real estate brokers may collect a fee from borrowers.with no limit on the amount. for access to a CLO. There is no requirement that more than one lender be accessible through the CLO.'
The Realtors. of course. defended the regulations and discounted the possibility of abuse. In a statement issued by Dorcas T. Heftant. who last week finished her term as president. the NAR said: 'Opponents of HUD's position have erroneously charged that real estate brokers tend to refer buyers only to lenders who pay the best fees, regardless of quality of product or service. Nothing could be further from the truth. HUD's regulation opens the door for consumers to a wider range of mortgage possibilities. The more options provided. the sooner a buyer can obtain financing that best suits his needs and the sooner a transaction can be cleared.
'Return business is the livelihood of real estate brokers. Sales commissions are worth a lot more to real estate brokers than collecting nominal fees for mortgage referrals or CLO operations. No real estate broker will risk losing a future listing by trying to convince a buyer to use a particular lender on a CLO system. The broker wants that buyer to come back as a seller. And the key to getting the customer hack is the provision of up-todate. efficient service."