Alert June 15, 2010

HUD Issues Advance Notice of Proposed Rulemaking on RESPA’s “Required Use” Prohibition

HUD issued an Advance Notice of Proposed Rulemaking seeking public comment on complaints that homebuilders are offering homebuyers discounts and upgrades in exchange for agreeing to use the homebuilder’s affiliated mortgage lender without giving the homebuyers adequate time to research the contract or to seek other loan offers. According to HUD, comments provided may be used in a future revision or clarification of the Real Estate Settlement Procedure Act’s “required use” rule, which prohibits the required use of affiliated settlement service providers. In particular, HUD seeks comments on (1) how to arrange the rule so that it prohibits only those affiliate arrangements that harm consumers, (2) the effects of forward loan commitments purchased by homebuilders from mortgage lenders, (3) how the pricing and appraisal value of a home is affected when a homebuyer receives incentives from a homebuilder, (4) state and local enforcement agencies’ experiences with affiliate arrangements, (5) the benefits of the “one-stop shopping” option that affiliate arrangements provide to homebuyers, and (6) the distinction between providing a homebuyer with an incentive to use a particular mortgage lender and providing a disincentive against using any other mortgage lender. Comments are due by September 1, 2010. Click here for the notice.