HUD Could Learn from FACTA
It is old news that HUD wants to make major changes to the real estate settlement process. More than a year ago, HUD proposed changes to RESPA's Good Faith Estimate that would turn the settlement process upside down.
HUD's goal was to provide better information for consumers. HUD wanted consumers to have accurate information that would not change from application to settlement. HUD wanted consumers to have information on what different settlement service providers do - especially what mortgage brokers do to earn their money.
The goals are laudable, but HUD's method design was seriously flawed. Instead of providing information to consumers in time to plan their home-buying and refinancing, HUD's information would only reach consumers when they begin the credit application process. The information would be available in shopping mode - consumers would have to collect GFEs one by one from each creditor. To provide price protection for consumers, HUD locked in the lenders, which may force many of the smaller and more flexible lenders out of the business.Who benefits from this redesign? That appears to be a question that HUD never stopped to ask. Not only did HUD fail to ask itself this key question. HUD failed to look around and consider all of the available options. With 21st Century technologies, there are many alternative delivery methods for GFEs and for the information contained in GFEs.
HUD could take a lesson from the recently enacted Fair and Accurate Credit Transactions Act of 2003. FACTA contains a section on providing information to consumers about identity theft. It directs the Federal Trade Commission to use all communication tools available - web sites included - to provide consumers with information about prevention and correction of identity theft.
FACTA is a recognition on the part of Congress that communications from federal agencies may be a very effective method of getting vital information to consumers. It lays the groundwork for guiding consumers to using federal web sites as an important resource. It makes the FTC's website the place to start.
Why can't HUD do the same thing? If a GFE is a useful conduit for information about shopping for homes, using mortgage brokers, and shopping for credit, imagine how much more useful the same information would be if the consumer could get it sooner. Imagine what HUD could do if they put this information and advice on the Internet.
The possibilities boggle the mind. All those disclosures that creditors and other settlement service providers generate one at a time could simply be posted in cyber-space. All a consumer would have to do is log on to HUD's website - and perhaps do a little surfing as well.
Wouldn't it be most useful to the consumer to have this information before they start shopping for credit? In fact, wouldn't it be beneficial for the consumer to know that they can shop for a mortgage without a mortgage broker (and save several thousand dollars)?If HUD really wants to help consumers and keep costs down in the mortgage market, they should take a page from FACTA. HUD could provide a fabulous home and home credit shopping guide, complete with information about the process, questions to ask at each step, and guidance on how to evaluate the information.
Does this seem too easy? Is it possible that an approach that doesn't add to creditor burden could be the most effective approach? Congress seems to think so. We think HUD ought to give it a try - before they do something drastic and foolish with the GFE.
Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 8, No. 14, 1/04
First published on 01/01/2004