McLean VA – July 30, 2009 – The National Association of Mortgage Brokers (NAMB) today expressed its disappointment with the United States District Court’s decision on its lawsuit against the Department of Housing and Urban Development (HUD) over the controversial Real Estate Settlement and Procedures Act (RESPA) final rule issued in November of 2008.  District Court Judge Robertson ruled in favor of HUD, stating that the agency in fact did not violate the Administrative Procedures Act (APA) before issuing the RESPA final rule, and that NAMB did not demonstrate that HUD acted in an “arbitrary and capricious” manner.  

“District Judge Robertson’s decision effectively guarantees that the consumer will continue to be confused during the loan selection process,” said NAMB President Jim Pair, CMC.  “NAMB’s legal challenge against the RESPA final rule was an attempt to ensure all loan originator competitors uniformly provide information to consumers for them to proficiently shop for a loan.”  

Two studies conducted by the Federal Trade Commission (FTC) in 2004 and 2007, and a Federal Reserve Board (FRB) study conducted in 2008 underscore the flawed and harmful position HUD has taken to only require certain origination channels to disclose indirect compensation.  All three studies conclude that inconsistent disclosures confuse consumers, and in many cases cause them to choose a more expensive loan.

The FRB has acknowledged that indirect compensation, known as “overages” or “service release premiums,” which is paid to lenders, continues to go undisclosed to consumers.  The FRB recently issued a proposed rule to make changes to Regulation Z under the Truth in Lending Act (TILA), and would require this type of indirect compensation be included in new disclosures to consumers during the mortgage transaction process. NAMB also applauds the FRB’s request to work jointly with HUD on developing a one-page disclosure form combining TILA and RESPA to protect consumers, prevent further confusion, and simplify the mortgage process.

“Mortgage brokers have been disclosing indirect compensation since 1992,” said Pair.  “The Federal Reserve deserves great credit for recognizing that all origination channels receive indirect compensation and as such requiring that all competitors be treated the same regarding its disclosure to consumers.”

To assist small businesses and other entities, the Federal Trade Commission staff will redouble its efforts to educate them about compliance with the “Red Flags” Rule and ease compliance by providing additional resources and guidance to clarify whether businesses are covered by the Rule and what they must do to comply. To give creditors and financial institutions more time to review this guidance and develop and implement written Identity Theft Prevention Programs, the FTC will further delay enforcement of the Rule until November 1, 2009.

The Red Flags Rule is an anti-fraud regulation, requiring “creditors” and “financial institutions” with covered accounts to implement programs to identify, detect, and respond to the warning signs, or “red flags,” that could indicate identity theft. The financial regulatory agencies, including the FTC, developed the Rule, which was mandated by the Fair and Accurate Credit Transactions Act of 2003 (FACTA). FACTA’s definition of “creditor” includes any entity that regularly extends or renews credit – or arranges for others to do so – and includes all entities that regularly permit deferred payments for goods or services. Accepting credit cards as a form of payment does not, by itself, make an entity a creditor. “Financial institutions” include entities that offer accounts that enable consumers to write checks or make payments to third parties through other means, such as other negotiable instruments or telephone transfers.

The FTC’s Red Flags Web site, http://ftc.gov/redflagsrule, offers resources to help entities determine if they are covered and, if they are, how to comply with the Rule. It includes an online compliance template that enables companies to design their own Identity Theft Prevention Program through an easy-to-do form, as well as articles directed to specific businesses and industries, guidance manuals, and Frequently Asked Questions to help companies navigate the Rule.

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After the Federal Reserve Board announced proposed amendments to Regulation Z (Truth in Lending Act), industry discussions swarmed around elimination of broker and lender compensation and the creation of combined TILA and RESPA disclosures.

The amendments to Regulation Z come as the Fed is attempting to thwart legislation creating the Consumer Financial Protection Agency, which would strip the central bank of its consumer protection role. Senate Banking Committee Chairman Christopher Dodd, D-Conn., has criticized the Fed for not doing more sooner to curtail risky lending practices.

During testimony before the Senate Banking Committee on July 22, Fed Chairman Ben Bernanke said the Fed wasn’t aggressive enough in preventing consumer abuses and that it should have consumer protection added to its mandate.

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After 3 months of being delayed, the “Identity Theft Red Flags and Address Discrepancies” Final Rule will take effect this Saturday, August 1, 2009.  If you aren’t already compliant, NAMB can help!  Please see below for the best way to comply with the Red Flags Rule.
NAMB Summary – Red Flags Rule

 The Red Flags Rule requires companies to:

1) Develop a written program to detect and respond to potential ID theft.

Red Flag Rule detection programs should be appropriate to your company.  They can be complex customized solutions or simplistic templates, but must be complete in scope and adhered to by your company.  Detection of identity theft can be accomplished through 3^rd-party solutions.

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