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.”