'Required use' consumer protections backed by CUNA

WASHINGTON (9/3/10)--The Credit Union National Association (CUNA) supports efforts by the U.S. Department of Housing and Urban Development (HUD) to ensure consumers are protected as they enter into real estate settlements.

CUNA, in a comment letter to HUD on an advance notice of proposed rulemaking (ANPR), encouraged the agency to continue to seek ways to revise the exceptions to the current prohibitions on the "required use" of affiliated settlement service providers for residential mortgage transactions under the Real Estate Settlement Procedures Act (RESPA).

The HUD ANPR aims to address situations in which some homebuyers commit to using a homebuilder's affiliated mortgage lender in exchange for construction discounts or discounted upgrades without sufficient opportunity to review the transaction or comparison shop among other lenders.

CUNA believes increased scrutiny in this area is important because often, in practice, consumers aren't given adequate time to shop for mortgage loans and settlement services, either from credit unions or other financial service providers, many of whom may be able to provide loans and services at a competitive rate and cost, even taking into account the benefits being provided by the homebuilder.

CUNA recommended that consumer disclosures regarding the practice be beefed up, especially those given to first-time homebuyers, a group that may be more likely to rely on a homebuilder for objective advice.

Under RESPA rules, referrals to affiliated settlement service providers are generally prohibited on the basis that the referrers' return on investment in the affiliate would be considered a kickback or otherwise "a thing of value" in exchange for the referral, which is prohibited under Section 8 of RESPA.

However, RESPA does allow such a referral if the following conditions are met, which has allowed these referrals to become a common industry practice:

  • The referral is accompanied by a disclosure of the affiliation and estimated charges by the provider to which the consumer is referred;

  • The consumer is not specifically "required to use" a particular settlement service provider; and

  • The arrangement does not otherwise involve prohibited compensation.

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