July 1, 2009 The Honorable Timothy Geithner Secretary U.S. Department of Treasury 1500 Pennsylvania Avenue, NW Washington, D.C. 20220 The Honorable Ben Bernanke Chairman Federal Reserve Board of Governors 20th Street and Constitution Ave. NW Washington, DC 20551 The Honorable Shaun Donovan Secretary U.S. Department of Housing and Urban Development 451 Seventh Street, S.W. Washington, D.C. 20410 Gentlemen: The undersigned organizations representing the real estate finance industry applaud the Obama administration’s proposal to develop and test a single, integrated federal mortgage disclosure that “provides consumers with the simplicity they deserve and reduces regulatory burden on providers.” We find it especially noteworthy that the administration’s report urges that the development of a new consumer product regulator should not delay or affect current efforts to achieve a single federal disclosure under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA). Regrettably, however, no such effort is underway, as the Department of Housing and Urban Development (HUD) and the Federal Reserve Board (Board) continue to pursue piecemeal, uncoordinated reform. Considering the need for meaningful and long-overdue improvement in mortgage disclosures, and the direction of the report, the undersigned strongly urge that HUD withdraw its final RESPA rule and that the Board and HUD commence a joint rulemaking to produce a single federal disclosure. Today, only a unified rulemaking can achieve a single federal disclosure for TILA and RESPA. Absent these serious and coordinated efforts to combine and modernize these disclosures, consumers will be perplexed and ill-served by these disclosures. RESPA, which is HUD’s responsibility, provides borrowers information on the settlement charges for single-family residential real estate transactions, while TILA, which is the Board’s responsibility, provides borrowers information on the costs and terms of credit transactions for such properties. For a consumer to fully understand the costs of a transaction, both RESPA and TILA disclosures are essential. Moreover, because these disclosures are interrelated and provided at the same times in the mortgage process, at minimum, it is essential that both sets of disclosures complement each other to avoid confusion and potential harm. A far better approach, as the administration has endorsed, is for the RESPA and TILA forms to be merged so consumers receive one set of disclosures at each stage of the mortgage transaction, from the beginning to the end. Notwithstanding the obvious need for coordination, HUD’s and the Board’s reform efforts have operated in isolation and there is evidence that their respective disclosures will not be harmonious.
Industry Letter on Disclosures Page 2 of 2 Under HUD’s recently finalized rules, for example, requirements for disclosure of the loan’s interest rate differ from the Board’s requirements that the APR be disclosed. The RESPA rule becomes effective January 1, 2010. Although numerous implementation questions have been submitted to HUD, they have not yet been addressed. Unless the rule is suspended very soon, lenders and other settlement service providers will incur enormous systems costs that will ultimately be borne by borrowers. Separately, the Board has announced that it will shortly issue its rule to reform its TILA disclosure requirements for both mortgages and home equity loans. Since it is anticipated that the Board’s new disclosures will not be effective for several months after the RESPA disclosures become effective, other system updates will be required resulting in additional costs that also will be borne by borrowers. In addition, after HUD issued its proposed rule last year, Congress enacted the Mortgage Disclosure Improvement Act (MDIA), altering the timing requirements for TILA disclosures and mandating that the Board issue implementing regulations. These changes, scheduled to go into effect on July 30, require consideration by HUD and the Board to determine whether revisions to both sets of rules are needed, so RESPA and TILA disclosures can continue to be provided together. Considering these facts, earlier this year, the House of Representatives passed H.R. 1728, which at Section 106 would require HUD to suspend implementation of the disclosure provisions of its RESPA rule and work with the Board to jointly reform disclosures under RESPA and TILA to achieve compatibility between the forms required under both laws. If H.R. 1728 or the administration’s proposal become law and a combined disclosure is achieved, these separate proposals will become obsolete and the compliance costs will have been wasted. Even if there is neither a suspension of the RESPA rule nor enactment of a new law, successive systems changes to comply with one agency’s rules, and then another’s, will themselves increase costs unnecessarily at a time when neither the industry nor borrowers can afford them. In short, we believe development of a simple, single RESPA/TILA disclosure is achievable, and that such an effort can be undertaken and completed far sooner than broader legislative efforts to reform regulation of the financial industry. HUD and the Board, acting quickly and together, can serve the best interests of consumers and the industry and avoid unnecessary costs, unnecessary confusion and unneeded regulatory conflict. We respectfully request an opportunity to meet with each of you at your earliest convenience to discuss this critical matter and further detail our profound concerns. Sincerely, American Bankers Association American Escrow Association American Financial Services Association Consumer Bankers Association Consumer Mortgage Coalition Housing Policy Council of the Financial Services Roundtable Independent Community Bankers of America Mortgage Bankers Association National Association of Mortgage Brokers Real Estate Services Providers Council