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Published: November 2008

Key deficiencies in RESPA weaken consumer protections

Coalition: Mortgage

In a letter to the U.S. Department of Housing and Urban Development (HUD) and the Office of Management and Budget (OMB), Consumer Action and its coalition partners point out key deficiencies in the proposed Real Estate Settlement Procedures Act (RESPA) rule.

Below is a summarized excerpt from the letter:

The RESPA Rule has not, to our knowledge, adequately addressed three critical issues that we hope HUD will address in its final rulemaking.

1. HUD must address abusive yield-spread premiums substantively.

Yield-spread premiums (YSPs)—or payments from lenders to brokers in exchange for the broker selling the borrower a loan with a higher interest rate than the borrower qualifies for— were one of the key drivers of the foreclosure crisis. Only when all the costs are rolled into the interest rate can YSPs function as envisioned by HUD, as a trade-off between the interest rate and the closing costs.

2. HUD should coordinate with the Federal Reserve to develop one integrated disclosure form that includes the annual percentage rate.

Consumers should be able to shop for a loan by reviewing all cost components on a single document. This is especially important since settlement costs and the cost of credit are entirely interdependent; disclosing them separately makes it easier for originators to manipulate the distribution of costs between these two “buckets” and make loans that are in fact excessively expensive appear affordable.

3. HUD should require that the GFE be binding for at least 30 days and that the interest rate be locked for at least 10 days.

Consumers must have early and binding disclosures in order to have a true opportunity to shop among loan options. As such, the GFE should be binding for at least 30 days instead of 10. Moreover, HUD absolutely must require an interest rate lock in order for the GFE to be effective.

Lead Organization

Center for Responsible Lending

Other Organizations

NAACP | National Association of Consumer Advocates | National Consumer Law Center (on behalf of its low-income clients) | National Community Reinvestment Coalition National Council of La Raza | National Fair Housing Alliance | U.S. PIRG

More Information

Real Estate Settlement Procedures Act

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