Small Business Administration: Office of Advocacy - Letter dated 10/28/02 - Department... Page 4 of 4 Cc: Dr. John D. Graham, Administrator, Office of Information and Regulatory Affairs ENDNOTES 1. Pub. L. No. 96-354, 94 Stat. 1164 (1980) (codified at 5 U.S.C. § 601 et seq.) amended by Subtitle II of the Contract with America Advancement Act, Pub. L. No. 104-121, 110 Stat. 857 (1996). 5 U.S.C. § 612(a). 2. Congress established the Office of Advocacy of under Pub. L. No. 94-305 to represent the views of small business before Federal agencies and Congress 3.67 Fed. Reg. 49134 (July 29, 2002). 4. On October 9, 2002, the Office of Advocacy held a roundtable on this rule. Mortgage brokers, mortgage lenders. realtors, appraisers, and third party service providers participated in the roundtable. In addition, on October 25, 2002, Advocacy met with minority members of the real estate community in Baltimore, Maryland to discuss the impact of this rule on their businesses. 5. 5 U.S.C § 603. 6. 5 U.S.C. § 607. 7. Advocacy reviewed the summary of HUD's analysis published as an appendix to the proposed rule and the complete Economic Analysis and Initial Regulatory Flexibility Analysis for RESPA Proposed Rule to Simplify and Improve the Process of Obtaining Mortgages to Reduce Settlement Costs to Consumers, prepared by HUD's Office of Policy Development and Research and accessible on HUD's Website. 8. 13 C.F.R. § 121. 9. 15 U.S.C. § 632. Section 601 also provides that an agency can use an alternate definition if the agency obtains prior approval from Advocacy to use another standard (and publishes the standard for public comment) or the statute on which a rule is based provides a different definition of small business, then an agency may use that definition without consulting with the Office of Advocacy. 5 U.S.C. § 601 (3). 10. This information was obtained from http://www.sba.gov/size/sizetable 2002.html. Attachmenty Supporting Statement for Paperwork Reduction Act Submissions Real Estate Settlement Procedures Act Disclosures OMB Control No. 2502-0265 A. Justification 1. The Department is proposing a rule to simplify and improve the process of obtaining a home mortgage. The proposed rule will affect the current information collection, which consists of third party disclosures needed to inform homebuyers about the settlement process. Currently, certain disclosures are required by the Real Estate Settlement Procedures Act (RESPA) of 1974 amended by Section 461 of the Housing and Urban-Rural Recovery Act of 1983 (HURRA), and other various amendments. The statute is found at 12 U.S.C. 2601 et seq. and the implementing regulations at 24 CFR 3500. Required disclosures include: the Good Faith Estimate, Special Information Booklet, RESPA-Section 6 Model Disclosure and Acknowledgement of Probable Transfer of Loen Servicing, and the HUD-1 Settlement Statement. Other disclosures may be required under certain circumstances and include: the initial Escrow Account Statement, Annual Escrow Account Statement, Aniard Business Disclosure, and Escrow Account Disbursement Disclosure. The proposed rule would require a new format for the Good Faith Estimate. The rule would require a new disclosure, the "Guaranteed Mortgage Package Agreement,” in lieu of the Good Faith Estimate, to be eligible for certain exemptions from Section 8 of RESPA. This exeruption would exclude the requirement to give an Affiliated Business Disclosure in certain circumstances. Further explanations of RESPA, including statutory and regulatory documentation, is available through HUD's web page at http://www.hud.gov/offices/hsg/sth/res/respa_bm.cfm Amendments to Regulation X, Real Estate Settlernent Procedures Act; Withdrawal of Employer-Employce and Computer Loan Origination Systezas (CLOS) Exemptions Federal Register Vol. 61 No.222 Nov. 15, 1996 Amendments to Real Estate Settlement Procedures Act, Exemption for Employer Payments to Employees Who Make Like-Provider Referrals and Other Proposed Rule Federal Register Vol. 62 No. 90 May 9, 1997 Amendments to Real Estate Settlement Procedures Act Regulation (Regulation X); Escrow Accounting Procedures Final Rule 3 Federal Register Vol. 63 No. 13 Jan. 21, 1998 Real Estate Settlement Procedures Act (RESPA); Regarding Lender Payments to Mortgage Brokers® Statement of Policy 1999-1 Federal Register Mar. 1, 1999 HUD-1/HUD-IA - Uniform Settlement Statement. Buyers and sellers receive a statement of actual charges and disbursements pursuant to the settlement (see Section 4(a) of RESPA). · Affiliated Business Arrangement Disclosure (formerly Controlled Business Arrangement). This disclosure is required when a settlement service provider rufers a borrower to an affiliated provider. Section 461 of the Housing and Urban-Rural Recovery Act of 1983 added an exemption under Section & of RESPA for affiliated business arrangements (AfBAs) as long as certain requirements were met. The implementing regulations at 24 CFR 3500.15, require that a disclosure be given when a settlement service provider refers a borrower to another settlement service provider, when an ABA exists. Proposed revisions to these regulations were published in the Federal Register on June 7, 1996 and August 12, 1996. The Department published final regulations on November 15, 1996 (effective January 14, 1997), which implement Section 2103c of the Act. The proposed rule exempts this requirement under certain circumstances. Special Information Booklet. Homebuyers receive this disclosure regarding the nature and costs of real estate settlement services (see Section 5(d) of RESPA). • Good Faith Estimate (GFE). Lenders must give borrowers an estimate of the settlement costs that the borrower is likely to incur in connection with settlement (see Section 5 (c) of RESPA). The proposed rule requires a new format for the GFE that would make shopping easier. It also would require that the estimate be firmer by establishing a tolerance in variance on the HUD-1, from what was estimated on the GFE. Guaranteed Mortgage Package Agreement (GMPA). The proposed rule would require this disclosure in lieu of the GFE when a Guaranteed Mortgage Package, including a guaranteed settlement service cost and an interest rate guarantee is offered consumers. · Escrow Disclosures. An initial escrow account statement is provided to borrowers at the settlement of a Federally related mortgage loan, and an annual statement is provided to borrowers showing the previous year's activities in the escrow account. The lender may ask the borrower to voluntarily contribute additional funds if the charge will substantially rise in the second year, a disclosure must be signed by the borrower. Section 924 of the Cranston Gonzalez Affordable Housing Act of 1990 (P. L. 101-625, approved November 28, 1990), amended Section 10 of the Real Estate Settlement Procedures Act of 1974 (RESPA, U.S.C. 2609 (c)). Regulations allowing voluntary collection of additional funds were published January 21, 1998, FR-3236. Servicing Disclosures. Lender must give the borrower a disclosure at application that the servicing of the mortgage 2. These third party disclosures are required by statute and regulations. Settlement providers make these disclosures to homebuyers, and in some cases sellers; pursuant to transactions involving Federally related mortgages. Disclosures are not submitted to the Federal Government. OMB 83-1 10/95 3. These third party disclosures may be submitted to consumers electronically. Additionally, many disclosures are computer generated. The HUD-1 and HUD-1A are available on the RESPA web site and private companies offer software programs which generate HUD-18. Exempt for the HUD-1 and HUD-1A, settlement providers are free to develop forms that are tailored to their individual procedures and needs. Lenders/brokers may use a competer generated program to estimate costs reported on the GFE for specific settlement services. Approximately 20,000 lenders generate an estimated 11 million loan applications which would require a GFE. It is estimated that at least 50% of the GFEs are now generated by computer. Many servicers are using integrated computer systems for billing, recordkeeping, and generating escrow statements. Software manufacturers continue to market improved versions of these systems. 4. The only disclosure containing partial duplication is the annual escrow account statement. To reduce duplication. servicers may adapt HUD-required information to comply with IRS reporting requirements regarding escrow account items, such as taxes. Furthermore, the rule allows servicers to report a "short year" in the first manual statement so that HUD-required ammual statements can be issued coincident with IRS forms. In open-end lines of credit, the GFE and HUD-1 are not required when certain truth-in-leading disclosures are given. s. The collection of this information does not impact small businesses. 6. This information is not submitted to the Federal Government. These third-party disclosures are required by statute, 12 U.S.C. 2601 el seg, and regulations. The burdens on respondents are the minimum necessary to comply with the statute, and to assist borrowers in comparison shopping for loans and tracking escrow funds. 7. Information is not reported to HUD. Respondents are required to keep records (HUD-1, HUD-1A, CSTOW disclosures) for five years. Information may be requested from providers as part of an investigation. There is a three-year statute of limitations for the Secretary to bring an action under Sections 6, 8 and 9. RESPA does not provide for a statute of limitations for escrow disclosures. The Inspector General recommended a five year record retention to limit the paperwork burden. 8. The Department is soliciting comments in regard to the information collection. The Department's Office of Policy Development and Research estimates that approximately 11 million loans are originated each year. The Department is taking this opportunity to request additional burden hours to take into consideration this increase over the previous estimate in 2502-0265. 9. There are no payments or gifts to respondents. 10. There are no assurances of confidentiality provided to respondents. 11. There is no information of a sensitive nature being requested. 12. Estimated Number of Respondents, Responses and Burden Hours Per Annum 12,202,400 S237 423K *Cost of initial escrow is included in the annual escrow cost of $20.00, which also includes staff time, mailing cost, and equipment. Explanation of Barden: Good Faith Estimate, Gustaufeed Mortgage Package Agreemem. Special Information Booklet It is estimated it will take 20 minutes to complete and explain the new GFE to borrowers, or to complete and explain the GMPA to borrowers. The burden hours for these disclosure are increased due to the new formats for disclosure and to take in consideration the increased estimate of 11 million transactions rather than the previous estimate of 5 million. HUD-L/HUD-1A • Approximately 11 million loans close per year. The Department estimates that the HUD-1 can be filled-in in a minimum of 15 minutes. There are software programs available to settlement agents which provide un interactive form, thus allowing the form to be easily completed. Initial Escrow Account Statement • Approximately 11 million loans close per year, 78 percent of which carry escrow accounts requiring an initial statement (according to a HUD study), 11 million losas x .78 = 8,580,000 responses. Escrow Disbursement Statement • The Department estimates that !,000,000 borrowers will voluntarily contribute additional escrow funds into accounts due to anticipated increases the second year. Servicers may collect additional funds as long as borrowers agree to do so through a disclosure. The Department estimates this disclosure will (1,000,000 x .083) result in 83,000 burden hours. Amual Escrow Account Statement Thirty-one million mortgages carry escrow accounts. It is estimated that 15 percent of these mortgages change servicers each year requiring a new annual escrow account statement. Thirty-one million escrowed mortgages plus 4.65 million (15 percent of 31 million) change servicers each year equals to approximately 35 million responses. Actual responses per respondent will vary according to the number of escrowed mortgages serviced by sach respondent. Initial Servicing Discloare • Approximately 1 million loans are closed per year which require a disclosure, 11 million loans x .033 = 363,000 burden hours. Servicing/Transfer Disclosures • The transferor and transferee may send this disclosure jointly. About 50 million transfers of servicing rights are affected every year, according to a knowledgeable official at the Mortgage Bankers Association. We estimate that approximately 10% of the 50 million transfers receive a single disclosure. Affiliated Business Arrangement Disclosure A settlement service provider must provide the AfBA disclosure when a borrower is referred to an affiliated provider. The Regulatory Impact Analysis estimated that 4.5% of all home sales transactions will involve an affiliated relationship (1999 sales transactions 2,400,000 x .045 108,000). An additional 10% of all loan applications will require a AfBA disclosure (2.4 million x.10-240,000). 13. There are no additional costs to respondents. Although the GMPA is a new disclosure and the format for the GFE are changed, according to private companies who provide document packages to lenders and other settlement providers, updates to state and federal regulations are provided at no additional cost. OMB 83-1 |