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Mortgage Brokers Sue HUD

YSP aspect of new RESPA rule at issue

December 19, 2008

By MortgageDaily.com staff

Mortgage brokers are suing the U.S. Department of Housing and Urban Development over new yield-spread premium disclosure requirements under the Real Estate Settlement Procedures Act.

The National Association of Mortgage Brokers issued a press release today indicating it filed the lawsuit against HUD over its Final RESPA Rule released last month. Baker & Hostetler LLP and the Federal Policy Group have provided support to the trade group in the lawsuit.

At issue is the competitive disadvantage that the rule puts mortgage brokers in.

"The final rule discriminates against mortgage brokers with the required broker-only disclosure of yield-spread premium, placing them at a permanent disadvantage in the marketplace," the announcement said. "HUD has disregarded numerous federal and private sector studies providing evidence that different origination channels disclosing differently confuses consumers, and will often times cause them to choose a more expensive mortgage product."

The broker group cited consumer studies conducted by HUD that failed to analyze consumers' understanding of loan terms when no originator compensation was disclosed and when originators were competing, according to the announcement.

NAMB claims the final rule is "arbitrary and capricious" -- which is contrary to the intent of Congress. In addition, HUD failed to adequately explain why it rejected alternatives.

"The Final Rule is in violation of law, finalized on a flawed consumer testing methodology, and will have a detrimental impact on small businesses consequently having a negative affect on consumers," NAMB stated.

In a departmental statement to MortgageDaily.com, HUD said it was mystified why an attempt would be made to block the transparency of the new rule.

"In this housing market, the nation is crying out for reasonable regulation to help families shop for and save money on the largest purchase of their lives," the statement said. "This rule is that reasonable regulation and it helps consumers to avoid getting into trouble in the first place."

Revised RESPA Rules Released
The U.S. Department of Housing and Urban Development released its first revision to the Real Estate Settlement Procedures Act in 30 years. The new form requires disclosure of yield spread premiums paid to mortgage brokers.

RESPA Rule White Paper

Analysis of HUD's new rule under the Real Estate Settlement
Procedures Act prepared by Weiner Brodsky Sidman Kider PC.

Yield Spread Premiums
Yield spread premium issues, studies and lawsuits. Mortgage wholesaler YSPs paid to mortgage brokers.

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