HUD-1 RESPA Reform Comments Due Tomorrow - May 13, 2008

The Housing & Urban Development (HUD) proposed RESPA reforms proposed in March of 2008 will cease accepting comments from industry professionals tomorrow, May 13, 2008. The proposed reforms are designed to increase transparency in the closing process and help consumers shop for title insurance and save on closing costs.

A copy of the proposed HUD reforms is available at myClosingSPACE.com. If you have the time please take a minute to look at the proposed changes and file your comment with HUD. These reforms would make the closing process more consumer friendly and we encourage consumers and real estate professionals to take advantage of this opportunity to help craft the changes to make them more consumer friendly.

HUD-1 RESPA Reform Discussion

So, HUD has been soliciting feedback and ideas on RESPA reform and they delivered a document with some ideas that are being discussed. They are looking for comments and opinions on some of the ideas they are floating. If you care to offer an opinion or comment on these suggestions you have until May, 13 2008 to let your opinions known. According to HUD the overall objective is to make the shopping of loans and all the components to the closing easy for consumers. Here at myClosingSPACE we have found 4 important points that affect title insurance and we feel are important to achieving their goal and how we have already implemented some of the initiatives.

5 Important RESPA Reform Ideas

1. Grouping of Fees: Currently mortgage brokers, bankers, lenders, as well as settlement companies and Title companies charge a variety of fees. They want to group them in ways to make it easier and clearer for someone to shop around. They even changed the look of the settlement statement used at the closings, form HUD-1. At myClosingSPACE.com we group all fees and charges in an easy to read format and since we charge a flat fee these fees are consistent for all consumers.
2. Guarantee of Fees on GFE for 10 Days After it is Given: Since the consumer will have to shop around, the GFE needs to be guaranteed for a certain period of time. Obviously the rate is subject to change until locked, but the charges are suppose to remain the same. We guarantee all of our quotes. So when you get your quote from myClosingSPACE you can be assured that when it comes time to close you will pay the quoted closing costs.
3. Bundling of Settlement Services: Along with the bundling of settlement services HUD also want to allow for the reduction in fees based on work done and volume discounting. Currently the federal government due to RESPA sees the lowering of fees to a particular client, such as Wells Fargo, against the law, it is a kick back in order to get business sent their way. The government wants to change the rule and allow these types of discount in the name of saving the consumer money. Currently we charge a flat fee for all settlement work we do, regardless if it costs us more. We eat the fee in order to guarantee our quotes. We understand things change, we just do not want the consumer to feel it.
4. Closing Script: Script to be read at time of closing that illustrates all the points of the new loan such as rate, ARM adjustment periods. Because of all the mortgage fraud what you are paying for as well as the loan terms need to be told to the client. Currently prior to the closing we tell the consumer and all parties exactly what our charges are as well as the taxes and other escrow items that will be held at closing.

myClosingSPACE is Ahead of the Curve

As you can see myClosingSPACE has already implemented these consumer friendly initiatives (long before they were proposed). Our business model has always been focused on the consumer and we hope that HUD and RESPA can move the rest of the industry forward to become more consumer focused and transparent.

More Title Company Rip Offs

Will the Title Industry ever clean up?

Here we go again. It seems like I could this every day. Heck, maybe I will start a daily wrap up of title companies facing fines and prosecutions for ripping off consumers. Until then I want to discuss a few more recent news items that highlight the huge problems in the title insurance industry.

Today's perp walk highlights two different issues.

Missouri Guaranty Title Co.

The first instance is simply theft. A MO title company owner just decided to steal escrow funds and use them for their own benefit. On Friday December 7th, the Missouri Department of Insurance, Financial Institutions and Professional Registration filed a complaint before the Administrative Hearing Commission, alleging that Guaranty Title Co. and its owners had violated state laws. In this case the title company is charged with illegally disbursing money from Escrow Funds.

The sad fact is that this business seems to attract those willing to pillage from their "customers". Is it because of the lax enforcement and oversight from governmental agencies AND the Underwriters? I am sure both are contributing factors. The underwriters are happy to overlook problems until it affects their bottom line. Some are even involved in setting up illegal ABA's that offer kickbacks in return for business referrals. This is bad for business and all the honest title companies should be outraged. This behavior needs to be eradicated.

Reiner, Reiner & Bendett in Connecticut

The second situation is from Connecticut and again highlights the huge problems with ABA's. Connecticut Attorney General Announces Settlement in Title Insurance Kickback Scheme. In this case some of the consumers who overpaid will actually receive a $200 payment sometime in 2008. While this is a step in the right direction it still does nothing to fix the problem. As long as the powers that be do little to curb these business practices they will continue.

The vast majority of perpetrators are never caught. And the fact is it is more profitable to continue to run these illegal schemes and pay the fines. The amount of business generated is enough to cover the fines. I know I sound like a broken record but until something is done to actually impact their bottom line illegal ABA's will continue to chug along while title companies that focus on consumers will struggle. There needs to be a sea change in the enforcement and penalties levied against these schemes before the industry is able to change. Until that happens consumers will continue to be overcharged and our industry will be looked upon with disdain and mistrust.

Kevin Harney breaks it down

Kevin Harney wrote another scathing article about the malfeasance prominent in the title industry and you can find it here. Kevin's article discusses the latest crack down against illegal kickback schemes and continues the call to clean up the industry. IMO the last line in his article is the most important "Bottom line: Before agreeing to direct your title and settlement business to an affiliate of your realty agent, mortgage lender or builder, shop the market for potentially lower fees from independent, non-affiliated competitors."


Nail, meet head.

If more consumers get this message they will exercise their right to shop for and choose their own title insurance. In this market the buyer holds all the power. Make sure you are getting the best price on title insurance. If you are told that you have to use their recommended title company tell them you will find a new representative. This is your right. Nobody can tell you who to use for title and closing and if they really want your business they will respect your decision. After all, when you buy a car you are not required to use an insurance company recommended by the dealer. Title insurance is no different and anyone who tells you that you don't get to choose is lying and probably has ulterior motives.

Another Round of Title Insurance Company Violations

First American has reached a $5 million settlement in Florida for paying kickbacks for business referrals. The U.S. Department of Housing and Urban Development and Florida insurance and banking regulators alleged that First American created title companies and set up sham affiliated business arrangements with real estate professionals to secure more business for First American. You can read more about this settlement here.

I would say it is amazing that this type of thing is still happening but sadly it does not surprise me. It seems like we read about sham ABA's and kickbacks every couple of weeks. This is bad for everyone in the title industry and all real estate professionals. From the consumers' point of view it reinforces the belief that everyone in the real estate industry is shady. That is not really true but until the upstanding title and real estate professionals take a stand the reputation will stand.

It seems obvious that the fines that the offending companies are being forced to pay do not impact their business. If that were the case they would cease using these methods. It would appear that the fines are considered another cost of doing business and that the additional revenue that comes from these arrangements more than makes up for the fines levied against the offenders.

Short of federal and state governments making the fines more punitive it is up to us in the industry to stand up and make changes from within. If we actually take away the ability of these companies to pay for referrals (with costs passed on to the consumer) they would stop. After all, if there nobody was willing to enter these illegal partnerships the perpetrators would be forced to change their methods.

By all means fight for change in the way RESPA violations are treated. Work to make the fines punitive enough that they can no longer be ignored. In the mean time make sure you only do business with companies that offer better service to your clients instead of the one that is paying you the most. The consumer is the most important person in a real estate transaction and we should all work together to provide them with the best service at the lowest price possible.

Diane Hits Another One Out of The Park

Another great post by Diane Cipa over at the Radical Title Talk Blog. This post is about the need for change in the title industry and she hits the nail on the head with this, "I have one piece of advice for lawmakers and regulators. Create simple laws. Choose your side. Make it black or white, but don't pretend there is a shade of gray that will solve anything." And she is 100% correct. If there is any way the law can be "interpreted" it is left open for the shadesters to jump in and create their sham arrangements, which will cost the consumers more and more.

If those at the top actually care about change and protecting consumers they will get rid of the gray areas and state emphatically that paying for business is illegal. Setting up sham ABA's to steer business is illegal. And anything besides honesty and truthfulness towards consumers is illegal. And strong sanctions and punitive fines will go along with the new laws not the current piddly fines that are simply a cost of doing business to many title companies. Put some teeth into the law and make sure that those who are cheating the system (and consumers) pay a strong enough price to deter others from doing the same thing in the future.

Let's clean up this mess once and for all.

Closing Costs and Documents

Understanding all of the paperwork and fees in the real estate closing process can be a daunitng task. Today's post offers a complete breakdown of the paperwork and fees in real estate closings. I am doing this because we want consumers to be fully informed about what to expect when they close on their home. I also want consumers to be aware if they are being overcharged or being charged "junk fees". Please review the checklist of paperwork and fees below to help steer you through the closing process maze.

Fees Imposed by the Lender

• Administrative Fee - Covers underwriting and document preparation. Some lenders bulk the two together as an "administrative fee".
• Appraisal Fee - A fee charged by a professional appraiser to determine if the home bing purchased is actually worth the price.
• Credit Report - Charges by the lender to determine a home buyer's credit worthiness. (Sometimes charged by the broker.)
• Flood Certification Fee - The lender will require a flood certificate to see if the house is in a flood zone.
• Funding/Wiring Fee - The price for wiring the loan money to whoever is conducting the closing.
• Hazard Insurance - Also known as homeowners insurance. Lenders will require that you have a hazard insurance policy in effect at settlement. This policy protects against physical damage to the house by fire, wind, vandalism, and other causes.
• Interest - Lenders require you pay the interest due on your mortgage from the closing date to through the first day of the following month.
• Loan Discount - Refers to the points you pay to buy down your interest rat
• Underwriting Fee - A fee charged by lenders to determine the risk of doing business with a potential home buyer.

Fees Imposed by the Broker

• Application Fee - Covers the initial cost of processing your loan application.
• Document Preparation Fee - The cost of preparing documents related to the mortgage and closing.
• Loan Origination Fee - % of your purchase price, an "up front" point as compensation to the broker.
• Mortgage Broker Fee - Typically between !% and 5% of the loan amount. This is the broker's commission.

Fees Imposed by the Title Agent & Settlement Attorneys

• Abstract or Title Search - The fee charged to send an investigator to the courthouse to research the history of the property being purchased.
• Attorney's Fee - If an attorney performs the closing, this fee will be charged.
• Courier Fee - Imposed when a courier service is required to transport documents.
• Notary Fee - Title Agents must get certain paperwork notarized. This fee covers the notary charges.
• Release of Lien (Satisfaction) - A fee charged for getting the county to change the records from a previous homeowner to the new purcvhaser.
• Title Administrative Fee - Sometimes the document preparation and courier fees are grouped together as a "Title Administrative Fee".
• Title Examination - The fee title agents charge to analyze the results of a title search.
• Title Insurance - The total cost of title insurance (fees determined by state).
• Title Insurance Binder - A fee that promises to provide title coverage once the sale is finalized.

Fees Imposed by the Government

• Recording Fees - This is what the county clerk charges to record your purchase of the property.
• Tax Stamps - A tax when a property changes hands. The fee is based on the purchase price.

Real Estate Closing Paperwork

• Good Faith Estimate - Estimate of charges you are likely to incur at your loan closing. This document must be given to the borrower within three days after submitting a mortgage loan application,
• HUD-1 or Settlement Statement - The Real Estate Settlement Procedures Act (RESPA) requires the lender to give you a copy of the HUD-1 prior to going to closing if you request it. This is the final statement of closing costs and will show you all of the fees you are expected to pay at your loan closing.
• Monthly Payment Letter - This document reveals the break down of your monthly payment into principal, interest, taxes, insurance, and any other monthly escrows.
• Mortgage - This document puts a lien on the house as security for the loan.
• Name Affidavit - This document is certifying that you are who you say you are.
• Note - Legal document that obligates the borrower to repay the mortgage at a specified interest rate for a specified period of time.
• Proration Agreement - These describe how you and the seller are dividing up the costs of the house for the month in which it is being bought.
• Title Document Preparation - The cost for preparing all of the paperwork.
• Truth in Lending Statement (TIL) (Regulation Z) - This paper will disclose the interest rate, annual percentage rate, amount financed, and the total cost of the loan over it's life. These are important numbers to check and double check before signing.
• Warranty Deed - This document should include the names of the buyer, the seller, and a description of the property. Often this deed also guarantees that the seller has the right to sell the property. With the signatures of the seller and buyer, this piece of paper transfers the title of the property.
  

Is RESPA Obsolete?

U.S. HUD Representative Mark D. Shroder examines the efficacy of the disclosure strategy of the Real Estate Settlement Procedures Act (RESPA) in a recent article. The PDF of the Article is available here. One of the biggest problems with RESPA is not necessarily the regulations themselves but the limited enforcement and insignificant penalties for offenders. The article used a small number of FHA loans so it is not really fully representative but IMO it offers some good insight on some of the problems with RESPA enforcement.
My opinion after reading the article is that RESPA may not be obsolete but the way it is enforced is. The government needs to implement a stronger enforcement strategy that actually seeks out offenders and has the ability to levy heavy fines or even jail time for offenders. Right now the fines have not been raised since 1974 and are like pocket change to the big title insurers. RESPA needs teeth and with the recent release of the GAO Report on Title Insurance it is the perfect time to revisit the issue.