Office of the Ombudsman
Concerns about RESPA
I am pleased to present the latest in our series of online reports to the financial services industry addressing issues and concerns raised to the FDIC Office of the Ombudsman (OO). This report covers the period July 1, 2010, through December 31, 2010.
During the second half of 2010, 446 industry representatives contacted the OO requesting assistance. In addition, OO staff discussed banking matters with 152 financial industry representatives through outreach visits, telephone calls, and industry-sponsored conferences. The major areas of concern continued to be the struggling economy and its impact on borrowers and the Deposit Insurance Fund. A significant volume of inquiries and comments also related to changes in regulations. In addition, the OO spoke to 1,643 members of the public about the FDIC and banking matters.
We welcome suggestions and concerns about the FDIC in its supervisory role. The OO summarizes these comments for FDIC senior management review - without attribution - to eliminate the possibility of reprisal. In addition to regional ombudsmen, OO specialists in Washington, DC, provide assistance, regardless of your location.
During the second half of 2010, the OO received a considerable increase in inquiries from bankers concerned about the Department of Housing and Urban Development’s (HUD) amendment of Regulation X (24 CFR 3500.6), which implements the Real Estate Settlement Procedures Act (RESPA). In general, bankers were concerned that the amended regulation creates too great a liability and financial cost for community banks. RESPA is a consumer protection statute that ensures that borrowers receive pertinent and timely disclosures regarding the nature and costs of the real estate settlement process. The mortgage crisis and increases in foreclosures highlighted the need for more understandable and meaningful disclosures. Many borrowers did not understand that their mortgages could result in large payment increases, and some also paid higher loan origination costs because they were not aware of other options available to them. Thus, HUD amended Regulation X to help consumers shop for the lowest-cost mortgage and avoid costly and potentially harmful loan offers.
The new Good Faith Estimate (GFE) is the focal point of RESPA reform, allowing consumers to shop and compare prices for origination and third-party settlement fees. Provisions also place limitations on the use of escrow accounts. According to HUD, "for the first time in more than 30 years, HUD is updating mortgage rules to help consumers shop for the lowest cost mortgage, avoid costly and potentially harmful loan offers, and save an average of $700." The new GFE form addresses five key consumer questions:
- What is the loan term?
- Is the interest rate fixed or can it change?
- Are there prepayment penalties?
- Is there a balloon payment?
- What are the total closing costs?
To address banker concerns and frequently asked questions from the industry, HUD developed "New RESPA Rule FAQs" as well as a settlement cost booklet for consumers. Links to both are provided below. Questions or suggestions regarding RESPA or requests for copies of HUD public guidance documents should be directed to the Director, Office of Consumer and Regulatory Affairs, Department of Housing and Urban Development, 451 7th Street, SW, Washington, DC 20410-8000.
Link to HUD’s "New RESPA Rule FAQs": http://www.hud.gov/offices/hsg/rmra/res/resparulefaqs422010.pdf
Link to HUD's settlement cost booklet: http://www.hud.gov/offices/hsg/rmra/res/settlement-cost-booklet03252010.cfm