Joint Report to Congress

Real Estate Settlement Procedures Act

The Department of Housing and Urban Development (HUD) and the Board of Governors of the Federal Reserve System issued a Joint Report on July 17, 1998 to Congress proposing consumer protections which would help borrowers save millions of dollars. The Report recommends changes to the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA) which would reduce settlement costs, eliminate predatory lending abuses, and strengthen enforcement provisions.

Specifically, HUD recommends:

• Developing new educational booklets to cover refinancings and property improvement loans; and requiring all educational booklets be distributed by whomever has first contact with the consumer-- lender, broker, real estate agent or builder.
• Combining and simplifying RESPA and TILA disclosures that are provided to consumers; and requiring information about the loan originator's role and any requirements for escrow accounts and private mortgage insurance.
• Providing consumers with the opportunity to shop effectively by requiring accurate loan and settlement costs information (by limiting cost increases above Good Faith Estimate tolerances or by guaranteeing a price for a package of services) and by advocating that this information be given earlier in the loan process.
• Requiring that consumers receive a copy of the settlement statement with all final loan and settlement costs three days prior to closing and establishing new and simplified remedies to protect consumers against inaccurate disclosures and the failure to provide disclosures.
• Promoting better loan servicing practices by providing penalties for servicers who fail to make timely payments out of the escrow account, prohibiting servicers from receiving any portion or rebate from force-placed insurance and requiring servicers to return escrow funds after loan payoff within a specified time frame.
• Prohibiting loan flipping, advance collection of credit insurance premiums, balloon payments and other abusive practices for certain types of loans and establishing a federal "unfair and deceptive acts and practices" standard to provide a remedy in transactions that are unfair or unconscionable.
• Requiring certain minimum standards for procedures creditors must follow in home foreclosures, including a written notice of the consumer's legal rights, an explanation of the foreclosure process and the availability of third-party credit counseling.