Mortgage Loans - secret methods that drive up the cost of your home purchase or refinance (3)

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The coming legislation?

The Washington Post stated in an article titled Mortgage Brokers Likely to Disclose Fees Under New U.S. Guidelines (Oct 13, 2001) that "An estimated 150 class-action suits are now pending in federal courts around the country pitting groups of borrowers against lenders who paid yield-spread fees to brokers". If plaintiffs, numbering 30,000 in one lawsuit alone, are victorious, the the potential settlement cost is quoted by the Post to be $135 million. Naturally, as such costs could put a good percentage lenders out of business, many are asking for better clarification by Housing and Urban Development (HUD) as protection.

HUD is in the process of recommending new legislation governing the home-buying process. In a press release issued on October 15, 2001, HUD's Housing Secretary Mel Martinez stated some of the key goals of the new legislation:

• Full, upfront disclosure of all costs associated with obtaining a home loan in understandable terms prior to the payment of non-refundable fees. Full disclosure would be a description of the specific services to be performed by the broker, a statement of whether the broker is acting as an agent for the borrower, and the amount of the total compensation to the broker, including any yield spread premium paid by a lender. In addition, HUD believes that the broker should explain the various loan options. The borrower should be informed that he or she may pay higher upfront costs for a mortgage with a lower interest rate, or conversely pay a higher interest rate in return for lower upfront costs. In the latter case, the broker may be receiving a yield spread premium.

• Clarification of Yield Spread Premiums - payments made by lenders for loans with higher interest rates. HUD's statement of policy says that yield spread premiums are legal if the broker actually performs services for the homebuyer, and if the total compensation the broker receives is reasonably related to the total value of the services the broker performs. Disclosure is especially important when borrowers may be paying yield spread premiums. Borrowers should know as early as possible what their settlement costs will be, so that they can shop for the best option.

• Clarification of current HUD policy that states that consumer payments are not legal if they are overcharges, or if no service is provided. HUD is restating and clarifying its policy that excessive and unreasonable fees are illegal under RESPA because they are unreasonable and not a payment for a bona fide service.

  The new policy will make clear that it is illegal for a settlement service provider to mark-up fees when it is making a payment to another settlement service provider, unless it provides additional value to the homebuyer in the process, or when a provider does no work for the fee and charges an unreasonable amount.

• Expansion of RESPA enforcement. Last year, HUD fielded more than 900 RESPA-related complaints, approximately one-third involving kickbacks and other questionable payments.
  

Currently, these measure are not enforceable by law, and are just guidelines. You can do your part and lobby your local government representative.