RESPA changes fuel confusion

Want to see some confusion?

Try keeping up with all of the rules and regulations surrounding the Real Estate Settlement Procedures Act (RESPA). It's like trying to figure out the plot to"Lost." And believe me, I tried unraveling that TV series a long time ago, only to give up in frustration. I don't even think the writers know where it's going.

But I digress.

A new survey by QuestSoft, a California-based provider of mortgage compliance software and services for lenders, reveals that 74 percent of lenders think compliance issues surrounding changes to the Real Estate Settlement Procedures Act pose the greatest concern in 2009.

Specifically, they cited adjustments to fee accuracy rules in RESPA as a major concern for lending practices.

To halt kickbacks that typically boost the cost of settlement services, RESPA now requires lenders to supply complete disclosures to consumers during several stages of the transaction process. One the disclosures says the lenders have to provide borrowers with a Good Faith Estimate within three days of receiving an application.

That sounds reasonable. But now H.R. 1728 is muddying the waters. Approved by the House and recently sent to the Senate Committee on Banking, Housing, and Urban Affairs, this measure would supercede the current RESPA changes and force a rewrite to better complement the Federal Reserve’s Truth in Lending Act.

No wonder lenders are so confused!

I spoke recently to QuestSoft President Leonard Ryan and he said all of these new rules -and the potential overhaul that might occur with existing mandates - makes for a pretty confusing mess.

"The whole entire process of disclosure is inherently confusing to people," Ryan said. "All kinds of different paper gets dumped on consumers and they have a tendency to be overwhelmed by it. It's almost like a homeowners association sending you their CC&Rs."

Ryan said they ought to combine of all of those compliance mandates into one document that lenders and everyone else could understand.

"If you could put the Truth in Lending, the Good Faith Estimate and all of the other disclosures together it would make a lot more sense," he said. "But then you still have states going into what's right or what's wrong, and before long you get a tall stack of paper."

All of these issues certainly add to the confusion. But in California, things get doubly confusing because the Natural Hazard Disclosure Statement - the report that lets you know if the home you're buying is in an earthquake zone, high-fire area or is subject to other concerns - isn't even listed on HUD1, a document provided by the U.S. Department of Housing and Urban Development.

A legal action last year determined that NHDs in California are a settlement service as part of the escrow process and are subject to RESPA. But they're not listed, despite that the fact that scores of other settlement sevices are, including the loan origination fee, loan discount fee, appraisal fee, credit report, lender's inspection fee and the mortgage insurance application fee.

HUD isn't enforcing NHDs because the agency isn't making lenders, title companies, realty firms and buyers aware that Natural Hazard Disclosure Statements are required.

Lenders, Ryan said, need "easy-to-use programs and tools" to keep up with and comply with constantly changing regulations. I agree. And in California, they could start by making sure that everyone knows about NHDs.

So the next time you try to decipher the plot to "Lost" just remember - it's probably not as complicated or confusing as RESPA and HUD's enforcement of RESPA issues!