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President Elect Barak Obama has selected Shaun Donovan to be the next United States’ Secretary of Housing and Urban Development. Donovan, who was the head of the New York Department of Housing Preservation and Development, is viewed by many in the industry as someone who possesses a significant amount of experience in the housing field.

Donovan was Managing Director for Prudential Mortgage Capital Co’s Lending and Affordable Housing Investments Division prior to his position with New York City. Real Estate Industry groups (the National Association of Realtors Mortgage Bankers Association, and others) have lauded Donovan’s selection once his name became public.

Donovan will inherit a lot of controversial regulations including RESPA Reform and will have to address other areas including the Federal Housing Administration’s (FHA) lending issues.

If the Senate confirms Donovan he will replace Steve Preston.
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The United State Department of Housing and Urban Development (HUD) released their 341 page final RESPA rule today.

I will provide more analysis on this rule later but I wouldn’t get too excited or upset about it yet as this rule appears to have more legal and congressional authority issues than you can imagine.

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The United States Housing and Urban Development’s RESPA Department unleashed their new HUD-1 Settlement Statement today. The new HUD-1 doesn’t change too much in format on the 1st page but its the 2nd and 3rd page that does.

Sections 100, 200, 400, & 500 don’t have any changes from the previous HUD-1.

Sections 300 & 600 do break down “Gross amount due” and “Less amounts paid”. I don’t foresee these two sections as controversial.

Section 700 of the HUD was not modified or changed.

Sections 800, 900, and 1000 will be discussed later in conjunction with the GFE and the 3rd page of the new HUD-1. Its clear from page 3 of the new settlement statement that HUD has enacted price controls of no more than a 10% deviation. This will be extremely controversial and will likely cause most of the trade associations to file suit against HUD for overstepping its congressional authority by enacting price controls.
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Federal Housing Commissioner/Assistant Secretary for HUD Brian Montgomery, Deputy Assistant Secretary for Regulation Gary Cunningham, and Director of RESPA Ivy Jackson will appear before the U.S. House Financial Services Committee today, November 12, 2008 at 2:00 PM EST to discuss HUD’s new final RESPA rule.

The actual rule is still not available to the public but Housing and Urban Development (HUD) expects the rule to be published in the Federal Register in the coming days.
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RESPANEWS.COM is reporting that The Office of Management and Budget (OMB) has concluded its review of the proposed RESPA REFORM rule that The United States Housing and Urban Development (HUD) has been pushing for.

The proposed 2008 RESPA Reform rule seeks to give HUD the authority to impose civil money penalties for violations of certain RESPA sections such as Section 4 (HUD-1); Section 5 (Good Faith Estimate “GFE” and Special Information Booklet); Section 6 (Servicing); Section 8 (Referral Fee and Fee Spliting prohibitions); Section 9 (Required Use); and Section 10 (Escrow Accounts).

The public proposal gives HUD and State Regulators authority to enforce injunctive and equitable relief , expands the statute of limitations for government and private actions against those who violate RESPA, and requires the delivery of the HUD-1 Settlement Statement to the borrower at least three days prior to closing.

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The Denver Post reports that First American Residential Group Inc. terminated a $600,000.00 a year marketing agreement contract with Re/Max International Inc. after Colorado regulators questioned the legitimacy of their arrangement. Erin Toll, the director of the Colorado Division of Real Estate has asked the United States Department of Housing and Urban Development’s (HUD) RESPA Division to help them in their investigation of these types of marketing agreement relationships to determine whether they are legal or illegal.

First American paid Re/Max $2.4 million dollars over the course of 4 years under this “secretive” marketing agreement. Re/Max sued First American because First American refused to pay $693,000.00 under the terms of the marketing agreement contract.

Be extremely careful in the use of Marketing Agreements as HUD has quietly taken the position that all Marketing Agreements may be illegal.
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According to Kenneth R. Harney in his Washington Post article, Lawsuit Takes Aim at Junk Fees Administrative Brokerage Commission (ABC) fees have been charged by real estate brokerages across the United States and a RESPA class action lawsuit seeks to do away with this practice. Although HUD’s RESPA division has not given guidance yet on whether they believe this practice is illegal or legal the general rule of thumb is that if a real estate brokerage does charge an ABC fee then they better document the services that were performed to demonstrate the fee they charged was legitimately earned.

If a brokerage just charges a $400.00 ABC fee on the borrower and admits they didn’t perform any services to justify that amount then they could find themselves in deep trouble. The rule of thumb on ABC fees is that if one is charged by a real estate brokerage then the brokerage better account for what services were performed. An example of this would be the real estate brokerage charges an ABC to the borrower and the fee goes towards something like storage of documents and electronic scanning. There are several other examples of how to charge an ABC legitimately but if you don’t do any of these functions then you could be held to be violating Section 8(b) under RESPA–the dangerous unearned fee provision.

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The RESPA Affiliated Business Arrangement (AfBA) Disclosure form is required whenever a settlement service provider involved in a RESPA covered transaction refers the consumer to a provider with whom the referring party has an ownership or other beneficial interest.

The referring party must provide the AfBA disclosure to the consumer at or prior to the time of referral. The affiliated business arrangement disclosure must describe the business arrangement that exists between the two providers and give the borrower an estimate of the second provider’s charges.

Except in cases where a lender refers a borrower to an attorney, credit reporting agency or real estate appraiser to represent the lender’s interest in the transaction, the referring party may not require the consumer to use the particular provider being referred.
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