RESPA - HUD's Response to the Mortgage Crisis

SUB-PRIME TOXIC LOANS
"Buyouts, bailouts, and bankruptcies! The second half of 2008 will certainly be enshrined in the annals of financial history...," states David M. Taube, CEO of Kalorama Wealth Strategies, LLC of kaloramawealth.com. Mr. Taube goes on to say, "...with the U.S. Treasury, Federal Reserve, Securities and Exchange Commission, and Congress taking unprecedented actions to address the disarray in financial markets, and beginning to ultimately address an obsolete regulatory framework which is insufficient to address modern-day financial instruments and markets."

What Mr. Taube was speaking to in 2008 is what is being experienced in 2010. Buyouts for the most part are over and we are into the bailouts and bankruptcy phase. Most experts refer to sub-prime loans in the form of adjustable rate mortgages, comprising 80% of the sub-prime mortgage market in 2006, as a major factor in the real estate market decline. Sub-prime loans are considered risk loans. After 2006 refinancing was progressively more difficult bringing about mortgage delinquencies. Securities lost value and banks lost money; a lot of money.
Then the federal government began to take action to help rebuild the economy and the banking and real estate industries became a primary focus. Effective January, 2010 the first new Real Estate Settlement Act (RESPA) rule revision in 30 years is a perfect example of government acting, as previously quoted, "to address an obsolete regulatory framework." The stock market crash of 2008 dismantled the banking and mortgage industries and reeked havoc in real estate and affiliated industries across the country.

RESPA LOAN LOOP HOLES AND CONSUMER COMPLAINTS
The most recent changes by the Department of Housing and Urban Development (HUD) in RESPA is a step in assuring home buyers will be informed buyers. The new rules provide for buyers being given information to encourage them to shop loan services and options. It also requires mortgage lenders to disclose all fees and payments associated with loan closings.
One other reason HUD gives for changes being made to RESPA is said to be consumer complaint reports to HUD of realtor kickbacks. Indeed, complaints may have been present and surely were present when the decision by HUD to take action was made. Consumer complaints are common at all times. However, most reports CLEARLY indicate, and the content of the RESPA rule shows, the present mortgage and real estate industry problems are primarily a response to the 2008 stock market crash.

THE NEW RESPA RULE
The National Association of Realtors published information stating, "HUD is requiring that loan originators provide borrowers with a standard Good Faith Estimate (GFE) clearly disclosing key loan terms and closing costs. It also requires mortgage lenders provide borrowers with a new HUD-1 settlement statement. New RESPA regulations were published November 17, 2008 and took full effect on January 1, 2010. The "New RESPA Rule FAQs" were comprised from industry questions and are posted to facilitate implementation of these new requirements."
Now before buyers go to the loan closing for their property borrowers will have provided them a completed GFE giving buyers the exact information of the total loan costs incurred and disclosing what the costs are for. Previously borrowers could and did experience going to the loan closing only to find the closing costs were much higher than anticipated. The GFE requires lenders to bear all costs off by more than 10% of the GFE. Borrowers are responsible for only 10% of the additional charges.

THE NEW RESPA RULE & REALTORS
The Good Faith Estimate requirement will work for realtors not against them. Realtors both work hard to make a profit and are trained in providing accurate loan information about all fees and costs incurred as part of the job. Under the new RESPA rule real estate brokers and agents are FINALLY given due regard as having the right to charge for their services using a flat fee, a percentage of the sales price, or a combination of these methods. Those fees and charges are not regulated under or in the RESPA rule. However, under the new rule "all charges by real estate brokers and agents must be disclosed as dollar amounts on Line 700 of the HUD-1 form."
Real estate brokers, real estate agents, realtors, and National Association of Realtor Realtors know how to build brand and practice professionalism in a manner to give clear information regarding the fees and services realtors provide and the costs for those services. Realtors are and have long been legally mandated by federal and state laws to disclose all fees and monies to do with real estate transactions and/or advertising.
Breaking down fees into a fee-per-service schedule much like those provided by phone or cell service is a good option often utilized already in the real estate profession. This approach to business has enabled many professional businesses to give the public confidence they are getting only those services they pay for, want, or need without inflated fees or kickbacks.
The 2008 stock market crash brought about the stunning realization of the responsibilities inherent in a global market economy. The banking, mortgage, real estate and associated industries did not cause the economic crash. There should have been economic advisors watching over and directing economic policy to implement federal regulations to prevent the stock market crash.
Many people are still painfully aware and able to remember the stock market crash of 1928 as historians aptly recorded for posterity the awful conditions resulting from ignorance and greed. Certainly they have done the same for the 2008 crash. Hopefully another 50 years from now such information will guide our economy away from another stock market crash and into a solid industrial, technological, and economic future for families and our country.

**Disclaimer** This information is deemed reliable but not guaranteed. Verification of the information is the responsibility of the reading public.