How to Strengthen the Mortgage Origination Process

The National Association of REALTORS® offered recommendations to Congress about a number of issues affecting the mortgage origination process and the real estate and housing finance industry’s ability to facilitate home sales.

Testifying yesterday before the House Financial Service Committee’s Subcommittee on Insurance, Housing and Community Opportunity, NAR spokesperson Steve Brown identified several proposed regulations and existing rules that have exacerbated problems within the fragile real estate market and urged Congress and the administration to consider modifying the rules to help consumers purchase homes and the economy recover.

“As the leading advocate for home ownership, NAR believes that the pendulum has swung too far and now fewer qualified people are able to get a loan,” said Brown. “Congress and the administration need to reexamine the impact of many well-meaning laws and regulations that have come out of the financial and mortgage crisis to ensure that the still-fragile housing recovery stays on track and the long-term value of home ownership in America is protected.”

Brown said the treatment of home warranties under the Real Estate Settlement Procedures Act (RESPA), which prevents kickbacks for referrals among settlement service providers, is one of the issues facing real estate firms, home warranty companies and consumers. Since home warranties are not a requirement for a mortgage origination or home sale, NAR believes that including the optional insurance product as a settlement service stretches the meaning of RESPA. Brown urged the subcommittee to pass H.R. 2446, the RESPA Home Warranty Clarification Act of 2011 introduced by Reps. Judy Biggert (R-Ill.) and Lacy Clay (D-Mo.), that would clarify that home warranties are not subject to RESPA and would provide for appropriate consumer disclosure.

Another area of concern to the industry is the definition of points and fees in the Qualified Mortgage provision of the Dodd-Frank Act, which limits the total points and fees collected by lenders and their affiliates — such as title companies — to 3 percent of the loan amount. This limits many affiliated companies from offering full services to their clients to avoid violating the cap. NAR recommends that Congress restore an exemption for affiliates duly constituted under RESPA, so that consumers can fully benefit from greater competition between affiliated and unaffiliated mortgage lenders.

Brown also reiterated the importance of the Federal Housing Administration to the nation’s real estate recovery and called upon the panel to make permanent the current loan limits that are set to expire Sept. 30, 2011. Allowing the loan limits to revert to previous limits would result in a significant decline in loan limits in 669 counties and 42 states and would dramatically impact liquidity across the country.

NAR has expressed strong support for H.R. 1754, the “Preserving Equal Access to Mortgage Finance Programs Act,” introduced by Reps. Gary Miller (R-Calif.) and Brad Sherman (D-Calif.), that would make the current loan limits for FHA and the government-sponsored enterprises permanent. NAR also advocates keeping the FHA down payment at 3.5 percent and loosening restrictions on condominium purchases.

“With housing markets struggling to recover, the last thing we need to do is to put an avoidable stumbling block in the path of a much needed housing recovery,” said Brown. “Without a housing recovery, the nation’s economy as a whole will struggle to recover its balance.”