The National Association of Mortgage Brokers will fight what the Department of Housing and Urban Development calls its "definitive position" on disclosure of mortgage broker fees under the Real Estate Settlement Procedures Act.
In a letter sent Aug. 27 to HUD general counsel Frank Keating, the NAMB expressed disappointment at the direction HUD is taking on the disclosure issue and informed Keating that the organization was considering its options, including litigation. It claimed that HUD did not follow proper procedures before issuing its ruling and should publish it in proposed form and get comments from the public before beginning to enforce it. The NAMB also said that any disclosure rules should not be retroactive.
"They can't enforce this in the short run without shutting down the real estate market," said Michael J. Hoogendyk, executive director of the Scottsdale, Ariz.-based NAMB.
The Keating letter was a detailed restatement of a letter he sent in March to federal bank and thrift regulators asserting that broker fees must be disclosed. The regulators later informed the institutions they direct about the HUD letter (see The Mortgage Marketplace, March 16, page 2).
Mortgage broker fees must be disclosed on the so-called "good-faith estimate" and HUD settlement statement, Keating wrote in an Aug. 14 interpretive letter aimed at ending a long-standing dispute with mortgage brokers.
The decisions represent "the department's definitive position regarding the disclosure of mortgage broker charges and fees for first mortgage transactions covered by the Real Estate Settlement Procedures Act," Keating wrote to Lawrence E. Platt of Brownstein, Zeidman & Lore in Washington and Robert P. Chamness of McKenna & Fitting's San Francisco office. Platt represents the NAMB and Chamness represents some financial institutions that persuaded Keating to write to the regulators.
"Unless a future rule supplants the general principles set forth in this letter, this letter shall stand as the department's opinion on the disclosure of mortgage broker fees and charges," Keating wrote.
"In other words, irrespective of how the loan is originated and funded, mortgage broker compensation must be disclosed," Chamness said. Because HUD is the primary agency for interpretations of RESPA, the letter also has implications for all insured institutions. It must be used in determining compliance with all applicable rules and laws by banking agency examiners.
"In order to facilitate uniform interpretation and enforcement, copies of the letter were forwarded to the other federal regulatory agencies with an interest in this area," Keating said.
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, failure to disclose "may well raise an inference that a Section 8 violation is being concealed."
Keating explained that the rule applies to all retail and wholesale methods of loan origination, including wholesale loans originated by brokers, "correspondent lending" programs, and "table funding" programs.
Chamness said the interpretation means wholesale "table funding" programs are covered by the regulation. "Such transactions, and all compensation (including service release premiums and yield spread premiums) paid to brokers in connection with the origination of such loans (whether paid out of settlement funds or outside of closing) must be disclosed."
The basis for Keating's letter is language in Respa requiring disclosure of all fees paid by borrowers.
"Disclosure to the consumer is a sine qua non to a free market determination of the reasonable fair market value of any settlement service," he said. "The fees of third-party settlement service providers (attorneys, title companies, mortgage insurance companies, hazard insurance companies, appraisers, termite inspectors and any other provider of settlement services) are routinely disclosed and are most frequently funded at or about the settlement of the loan.