In an April 6 letter to Alphonso Jackson, secretary of the Dept. of Housing and Urban Development, seven consumer groups made three primary recommendations for the changes HUD should include in the new RESPA rule.  Their suggestions touched on each of the major issues at stake in the reform process:  mortgage broker compensation, improvements to the GFE and the proposed Section 8 exemption. 

The groups signing the letter included ACORN, the Center for Responsible Lending, the Consumer Federation of America, Consumer Action, the National Association of Consumer Advocates, the National Community Reinvestment Coalition and the National Consumer Law Center.  Each of these groups was represented at HUD’s RESPA roundtables last year. 

In their letter, the consumer groups stated their belief that HUD should:

• Require that a mortgage broker: (a) reach written agreement with each client early in the financing process on the total amount of the broker’s compensation, and (b) provide the consumer with choices regarding how he or she will pay that fee at closing.

• Require loan originators to provide an early and firm GFE that both itemizes fees and draws attention to important summary information, including an APR alongside the note rate, and loan features such as adjustable rates, prepayment penalties and balloon payments.

• Maintain all Section 8 anti-kickback rules, without exemptions.

Out with the YSP, in with the broker contract 

In elaborating on the first point, the groups laid out a wholesale attack on the broker’s yield spread premium (YSP).  Calling it “exactly the type of kickback that Congress sought to forbid when it enacted RESPA thirty years ago,” they asked HUD to “curb abusive yield spread premiums” and “amend its substantive regulations on yield spread premiums,” saying that  provisions on disclosure would be “insufficient.” 

Further, “HUD must also reverse its stated prohibition, articulated in its 2001 Policy Statement, against enforcing violations of Section 8 through class actions.”  Read more…..