Advantage: Giants

In one sense, the new home mortgage disclosure rules that took effect this month could give large lenders a major advantage over small ones.

Under the Real Estate Settlement Procedures Act rule, lenders are now being held to the good-faith estimates of closing costs they present to mortgage applicants.

Fees for third-party services like title insurance, appraisals, credit reports or flood certifications cannot be more than 10% higher at closing when the lender picks the provider.

The Department of Housing and Urban Development, which crafted the rule, has estimated that borrowers will save an average of $700 in origination costs because the strengthened good-faith estimate will help them to compare offers and shop for the best price.

Tim Anderson, the president of SigniaDocs, a Jacksonville, Fla., provider of document preparation and quality control, said one problem is that while lenders prepare the estimates, title companies prepare the settlement statement presented at the closing table, known as the HUD-1.

The two parties have no way of exchanging information to make sure the numbers match, he said. Yet it is the lenders that now are ultimately on the hook if the costs in the HUD-1 turn out to be much higher than in the estimate.

"It's going to be a train wreck," Anderson said. "We just don't know how bad it's going to be."

Large lenders that drive a lot of business to the title companies will be able to make them eat the difference, he said.

Small banks and credit unions do not have the same bargaining power.

"It will definitely favor the large-volume lenders," Anderson said.

Then Again …

In another sense, many bank-owned lenders of various sizes may have a disadvantage under the new Respa rule — albeit a temporary one.

HUD has given Federal Housing Administration lenders a four-month grace period from enforcement actions if they violate the rule.

It recommended that federal and state regulators cut their charges the same slack.

But the Federal Deposit Insurance Corp. has not been so accommodating.

In late December the agency said it expected banks under its jurisdiction to comply with the Respa rule by the Jan. 1 effective date and that it would begin enforcing the regulation immediately.

The Consumer Mortgage Coalition, an industry group, sent the FDIC a letter a week later, asking the agency to reconsider.

"We were told by HUD that they sent a letter to all the regulators about the four-month reprieve," said Anne Canfield, the coalition's executive director. "HUD is continuing to make changes to the requirements. That is why HUD gave a four-month reprieve. We're simply asking FDIC to take note of that and understand that it's an unusual situation. There's quite a few unanswered questions and a lot of details yet to be worked out."

David Barr, a spokesman for the FDIC, said it would respond to the coalition's letter directly and not through the media.

The trade group represents eight large national lenders, which generally answer to other federal banking agencies; FDIC-supervised institutions are typically community banks. But Canfield said the other federal bank regulators have not said, one way or the other, if they will follow HUD's advice on the four-month reprieve.

She said she's hoping to set up a meeting with the FDIC to discuss the matter further.

"The lenders are certainly trying to implement the Respa requirements as best they can," Canfield said, adding that some of her members have spent 150,000 man-hours already to implement procedural changes to follow the new rules.

The undertaking is "huge," she said.

Unintended Effects?

SigniaDocs' Anderson said he agrees with other observers that lenders will overestimate fees in the good-faith estimate to avoid running afoul of the new rule.

Such an outcome, he said, "goes against the whole intent of the law."

If a lender estimates a $400 charge for title services and the ultimate price is $380, then the lender will simply pocket the $20 difference and not pass that savings on to the consumer, he said.

Quotable …

"We are very much aware that ResCap has been a major drain — I call it a millstone, which I gather is an English term, not an American one — but very much a millstone around the company's neck. …

"We are not in a tearing hurry to do anything. We're not going to do anything crazy in terms of giving value away."

Michael Carpenter, the chief executive of GMAC Inc., on a conference call Tuesday. GMAC has indicated it may sell the ailing unit Residential Capital LLC.

"Sometimes I think they just lost my file."

Kevin Jarrett, a real estate agent, explaining in a story published Sunday in The New York Times why he has kept his Cape Coral, Fla., home even though he has not made a mortgage payment in roughly two years.

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