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HUD unveils new RESPA reform plan

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WASHINGTON (3/17/08)--The Department of Housing and Urban Development (HUD) has released a new Real Estate Settlement Procedures Act (RESPA) overhaul plan to simplify and improve the disclosure requirements for mortgage settlement costs under the law. HUD has worked for years to develop its proposal. The new proposal, which appeared in the March 14 Federal Register is the result of public comment on a 2002 plan, HUD RESPA Reform Roundtables in 2004, congressional hearings, consultation with other federal agencies, and more. HUD says its objective in proposing the revisions is to protect consumers from unnecessarily high settlement costs. The plan includes steps to:
* Improve and standardize the Good Faith Estimate (GFE) form, to make it easier to use for shopping among settlement service providers; * Ensure that page one of the GFE provides a clear summary of the loan terms and total settlement charges so that borrowers will be able to use the GFE to comparison shop among loan originators for a mortgage loan; * Facilitate the borrowers' ability to compare the GFE they get at loan application with the HUD-1/Settlement statement that they get at closing; * Provide more accurate estimates of costs of settlement services shown on the GFE; * Improve disclosure of yield spread premiums to help borrowers understand how they can affect their settlement charges; * Ensure that at settlement borrowers are made aware of final loan terms and settlement costs, by reading and providing a copy of a ``closing script'' to borrowers; * Clarify HUD's current regulations concerning discounts; and expressly state when RESPA permits certain pricing mechanisms that benefit consumers, including average cost pricing and discounts, including volume based discounts.
Comments are due May 13. This RESPA plan does not include an earlier proposal that would have permitted lenders to offer guaranteed mortgage packages, which would give a guaranteed lump sum price for settlement costs, along with a guaranteed rate. The Credit Union National Association (CUNA) participated extensively in the development proves of the HUD proposal and opposed the guaranteed mortgage packages. CUNA submitted two extensive comment letters, in 2002 and then in 2005, and participated in the Reform Roundtables, by HUD’s invitation. However, another major concern CUNA noted with the earlier proposal is that it expands the GFE from one to four pages, which CUNA argued is inconsistent with HUD's goal of simplifying the RESPA disclosures. The GFE in the new proposal is also four pages, so CUNA continues to question whether element of the new plan represents any improvement. HUD has also indicated It intends to seek legislative changes to RESPA to complement these regulatory changes, which includes strengthening certain statutory disclosure requirements and improving remedies for violations.

CU push on state data security laws noted

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WASHINGTON (3/17/08)—There is a great divide between the proactive credit union stance and the bankers’ sideline approach to pushing state legislatures for laws to hold merchants accountable if they fail to protect the personal financial information of consumers. An article in the March 14 American Banker noted that bankers are fearful that if they push to put the burden of data breaches on lax merchants, then retail groups might retaliate by pressing on the state level for laws to limit credit card interchange fees. “So credit unions, which mainly serve individuals, have been leading the charge to hold merchants liable if they do not comply with standards that require such things as data encryption,” the article said. “If they fail to safeguard data, then they should bear some of the costs incurred because of that failure,” Chris Johnson, vice president of state governmental affairs at the Credit Union National Association, told the paper. Also noted in the article:
* In Michigan, credit union officials and bankers are “working more closely.” Michigan CU League CEO David Adams said a merchant liability bill introduced there has a “high likelihood of passing” before a Dec. 31 adjournment of the state legislature. * Justin Hupfer, vice president of governmental affairs for the Iowa CU League, said his group is willing to give merchants a chance to voluntarily bolster their security standards and would be willing to table their merchant liability bill. However, Hupfer added, if the merchants don’t make any real progress, the credit unions would push again for codification of standards. * In Wisconsin, credit unions plan to work with retail and banking groups to draft a 2009 version of their bill that would address some of those groups’ concerns, according to Thomas Liebe, vice president of governmental affairs at the Wisconsin CU League. * Also, in Minnesota, which was the first to adopt a merchant liability law when it passed the Plastic Card Security Act in May 2007, Mara Humphrey said the law in her state could cover merchants in other states. Humphrey, who is vice president of governmental affairs for the Minnesota CU League, said the law applies to any merchant doing business in the state. “Our intention was to make the language broad enough so that anyone who does business here would be impacted by this law,” Humphrey said.

Government responds in Community First UBIT case

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WASHINGTON (3/17/08)—The federal government filed its response last week in a case in which a state-chartered credit union challenged the Internal Revenue Service’s determinations that certain insurance products offered to members fall outside the credit union's main mission and are subject to unrelated business income tax (UBIT). Community First CU vs. the United States of America was filed by the Appleton, Wisc. credit union on Jan. 15. The credit union is seeking a refund of about $54,000 in taxes paid in 2006 on income from several insurance products. The government response appeared not to refute the underlying details submitted by Community First in its pleadings, but, as expected, denied that Community First is entitled to the tax refund it seeks. The U.S. Attorney’s “answer to complaint” requested that the court deny the relief sought by Community First and asked that the complaint be dismissed. The document further requested the court grant “further relief” to the defendant as the court “deems proper and just, including the costs of this action.” The Credit Union National Association (CUNA), along with the rest of the credit union industry’s UBIT Steering Committee, strongly backs the credit union's action and challenges recent opinions issued by the IRS stating that several insurance and investment products are subject to UBIT. The Steering Committee is comprised of CUNA, CUNA Mutual Group, the National Association of State Credit Union Supervisors, and the American Association of Credit Union Leagues. CUNA strongly believes the activities are consistent with state-chartered credit unions' tax exempt purposes and, therefore, not subject to UBIT. Notably, Community First CEO Cathie Tierney received a standing ovation from her peers at a Wisconsin Credit Union League's annual Governmental Affairs Conference just 10 days after the credit union filed its lawsuit. Credit unions’ support of her action was displayed on an even larger scale when Tierney received an ovation by thousands of credit union representatives attending CUNA’s Governmental Affairs Conference here earlier this month. Tierney, at the time the suit was filed with the U.S. District Court for the Eastern District of Wisconsin Green Bay Division, called the decision to sue the IRS "daunting," but said it was made because her credit union believes "unequivocally that these products are integral to our services to members." Use the resource link below to access a free CUNA Webinar on key issues surrounding UBIT for credit unions.