After reviewing more than 1,200 public comments, the Department of Housing and Urban Development has rescinded a rule change that would have restricted builders’ abilities to forge preferred partnerships with lenders.
HUD Secretary Shaun Donovan announced Monday the withdrawal of a “required use” definition change to the Real Estate Settlement Procedures Act (RESPA). It would have prevented home builders from offering buyers incentives or discounts if they used the builders’ preferred lender. The purpose of the new definition was to protect home buyers from being steered through “disingenuous discounts and incentives” toward higher cost mortgage services by affiliated businesses, according to a HUD statement.
The final rule, issued in November, was supposed to go into effect Jan. 16. But it was opposed by mortgage and building trade groups and companies. The National Association of Home Builders also challenged the rule in a lawsuit. HUD then postponed the effective date to July 16 and requested comments until April 9 on whether to withdraw the rule.
The rule had the potential of preventing reverse mortgage lenders and brokers from partnering with builders. On the other hand, the current rule has reportedly impacted buyers who had difficulty using reverse mortgages because the builders’ affiliated lenders didn’t offer the loans.
HUD will place other RESPA rule changes into effect Jan. 1, 2010. Lenders and mortgage brokers will have to provide consumers with a standard “Good Faith Estimate” that clearly discloses key loan terms and closing costs. HUD estimates this will save consumers nearly $700 by promoting comparison shopping.
“We will implement the new RESPA rules as part of broader reforms to the mortgage process,” Donovan said in the statement. “And after further consultation with the public, stakeholders and Congress we will propose a clearer and more effective ‘required use’ definition that truly protects borrowers from those who force them to use affiliated businesses.”
Final rule withdrawal notice
