The Gift that Just Keeps on Giving or All Together Now, If I Had a Hammer…

by Francine D'Elia Wirsching on January 3, 2010

The lending and title insurance industries have been diligently preparing for RESPA Reform. Seminars, webinars, out with the old, in with the new, suit up your’re in! I am not sure if it was the Department of Housing and Urban Development or some obscure federal agency with extra bodies who came up with the new regulations, but in speaking with colleagues, including lenders, none of us can fathom that anyone involved had significant mortgage and real estate closing experience.

As we approach the implementation of Reform, the ugly head of fear and intimidation has surfaced just as I had predicted. I shared my concerns with a representative of HUD who was a speaker at the PLTA/NJLTA annual convention this past June and she quickly dismissed what I had to say.

Six months have passed since the convention in Williamsburg when RESPA Reform was in its infancy. Our FAQs on that day had to do with what time is lunch, what’s for lunch, and where is the pool. Today, FAQs represent an ever increasing number of pages to be digested by only the brave and resulting in a mind-numbing headache for all who take on the challenge.

Am I psychic or what?

But, back to my prediction. For a national bank and a regional bank both with lending operations, RESPA Reform is a tool used to force loan officers to abandon their long standing relationships with title insurance professionals in favor of the in-house title insurance agency (ABA). Both institutions have informed its loan officers that he or she can only refer the consumer to the affiliated title insurance agent and cannot suggest or refer an “outside” agent to the consumer. In addition, the regional lender goes as far as to say that all loan applications must be submitted to the affiliated title agency so that the agency can provide fees for the GFE. And, if the consumer selects the affiliate and there is a tolerance violation, the loan officer will not be responsible for the value of the tolerance, the affiliate absorbs any cost. If the loan officer refers the consumer to an outside title insurance agent, then the loan officer is on the hook for any tolerance violation including misquoting lender fees and transfer tax. I am wondering if this stick-up tactic is equal to offering an incentive in exchange for business.

The consumer can no longer rely on the mortgage professional to refer him to the most knowledgeable and experienced settlement services provider. And to further underline how the consumer is not winning, with or without RESPA Reform, the loophole still exists that currently allows a real estate broker to pay a bonus to its real estate office managers based on the amount of business the individual real estate agents refer to the affiliated title insurance agency. No pressure there. And, the regional bank I previously mentioned pays its loan officers for each transaction referred to the affiliated title insurance agency. “Legal” kickbacks? Clearly what is legal is not always ethical.

Happy Holidays from HUD

So what can we expect from RESPA Reform in a market with declining real estate sales and loan originations? Unethical real estate brokers and mortgage lenders received a super-sized present from HUD wrapped in RESPA Reform wrapping paper. The shiny new hammer is just another tool to exert pressure over their employees to force the consumer to the affiliated businesses.

It is the opinion of some that one of HUDs goals in implementing Reform is to reign in the ABAs. I am sorry to say, if this is the case, its efforts are having the complete opposite effect.

Time will tell if the consumer will ever benefit from the reforms intended to protect them and offer them more choices.

Tell us what you are hearing and experiencing.

Happy New Year!

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