These are comments to Docket No. FR-5180-P-01. The Docket refers to
Department of Housing and Urban Development's Real Estate Settlement
Procedures Act (RESPA) Proposed Rule to Simplify and Improve the Process
of Obtaining Mortgages and Reduce Consumer Settlement Costs.

**Summary of this commenter's comments on the proposed regulation.**

This commenter believes that the proposed regulation is unnecessary,
burdensome, duplicative, unfair, and counter-productive. It
unnecessarily lengthens and complicates the home mortgage process by
adding duplicative and confusing forms and processes. It singles out
those lenders who are aggressively examined by federal agencies, and who
are already following the existing laws and regulations, and are already
providing meaningful disclosures to consumers. It adds to their burden,
frustrates them with unnecessary paperwork and delays, and it
complicates the process. It singles out those lenders who are offering
lower closing costs, and disadvantages them with smaller tolerances for
errors and other changes in fees that are outside their control. It adds
additional risk of inadvertent noncompliance to lenders, who are already
bogged down by the paperwork of Regulation Z, RESPA, Flood Insurance,
and other consumer compliance laws and regulations. The proposal does
not identify those lender types who generated the consumer complaints.
If it did, it would show that the lenders who are not regularly
examined, and those who are less vigorously examined, are probably the
ones who caused the complaints. It would show that the complaints came
from lenders who are not complying with the current regulation. It would
further show that lenders who are regularly examined, and those who are
vigorously examined did not generate the consumer complaints. It would
show that these lenders are complying with the current regulation. This
would prove that the current laws and regulations governing home
mortgage lending already provide adequate information and protection to
borrowers. The answer to the problem of consumer complaints about the
home mortgage process is to focus on the under regulated lenders. HUD
should review the complaints it has and sort them by type of lender. It
should focus its efforts on bringing the types of lenders who generate
the highest level of consumer complaints under required compliance with
the existing laws and regulations. That would eliminate or reduce to a
manageable level, the complaints cited by HUD without disadvantaging
lenders already in compliance. In the end, the additional cost of the
new proposed regulation will be passed on to the consumers to whom the
regulation is intended to protect. The proposed regulation should be
withdrawn. The following comments give specific information and examples
to better explain this view of the proposed regulation.

**The proposal will not accomplish its stated goal.**

The proposal lists one of RESPA's purposes: "elimination of practices
that tend to unnecessarily increase the costs of settlement services."
This commenter believes that the proposal will not eliminate, but
instead encourage the increase of costs of settlement services due to
the following 7 reasons:

1\. This proposal adds additional forms and procedures to the process
and makes the process more complicated and time consuming for the
lender. It adds a form and adds a reconcilement process requirement for
the lender to try to avoid noncompliance. It further forces the lender
to keep track of multiple applications and multiple required Good Faith
Estimate forms. It forces the lender to keep track of different
tolerances for different fees. The more complicated the process, the
fewer lenders will be willing to enter into this line of business or
remain in this line of business. This will reduce the number of lenders,
and thereby reduce competition. With less competition, the remaining
lenders will find it easier to increase their charges and thereby add to
the cost of settlement services.

2\. The additional time requirement to read and study the proposed
regulations, comment on the proposed regulations, read and study the
final regulations, attend industry meetings about the new regulation,
discover all areas that need changing, make high level management
decisions about how to deal with and implement the changes required by
the regulation, develop new forms, rewrite lender policy, establish new
lender procedures, purchase the new computer software and/or reprogram
computer software, retrain lending staff on the requirements of the
regulation, retrain lending staff on the changes to the software, change
checklists, change document storage requirements, retrain compliance
personnel, retrain bank auditors, review for and deal with new issues of
noncompliance including implementing monitoring of multiple applications
and multiple GFE forms for the same loan, and implement employee
procedures to avoid inadvertently being out of compliance, and the
direct costs of being sanctioned or fined for inadvertently being out of
compliance, will add to the cost of taking applications and closing home
mortgage loans. Basic economic principles will dictate that this cost
will be passed down to the borrower.

3\. This proposal requires the lender to "Guarantee" the settlement
costs beyond those within the control of the lender. Basic economic
principles dictate that the additional "Risk" the lender will bear for
this "Guarantee" of fees and costs outside its control will add cost to
the loan application and closing functions. This additional cost will
need to be compensated in the form of higher closing costs or a higher
interest rate to the borrower.

4\. This proposal requires the lender to take multiple applications and
give multiple GFE forms on the same loan. Every time the borrower makes
a change, the lender needs to continuously monitor this and hand out
multiple GFE forms. This requires ongoing lender work that requires
additional lender time and needs to be compensated.

5\. This proposal will encourage lenders to increase the costs on the
Good Faith Estimate above the normal cost so as to make sure the lender
doesn't have to either absorb those increases charged by other entities
or else be found in violation of the regulation. The proposed regulation
complains about "junk fees". This proposed regulation encourages "junk
fees."

6\. The lenders who increase the settlement costs will benefit by
receiving a larger tolerance. This is because 10% of a larger settlement
cost total, results in a larger tolerance. This is a direct incentive
for lenders to increase settlement costs.

7\. This proposal will discourage the more highly regulated lenders from
either entering this line of business or else staying in this line of
business because of the difficulty with compliance and the additional
risk of being out of compliance. The unregulated and under regulated
lenders apparently ignore the current RESPA regulations and other laws
affecting home lending. This could be the reason why HUD has received so
many complaints. If these lenders ignore the current regulations, they
will also ignore the new proposed regulations. If they are not concerned
about the complicated new compliance requirements, they will remain in
the business while the lenders concerned about compliance exit. This
will compound the problem this proposed regulation intends to fix. This
commenter also believes that these are the same lenders who charge the
higher settlement costs. They will persist in charging higher settlement
costs and add to the cost of settlement, while HUD and the other federal
regulators add additional regulations to frustrate and discourage
lenders concerned about compliance.

**The proposal is blatantly unfair.**

This Proposal effectively changes the nature of the "Good Faith
Estimate". If the proposal is adopted, the Good Faith Estimate form
should be renamed, because it will no longer be an estimate. It should
be renamed the "Good Faith Guarantee".

This commenter agrees that the lender should not increase the fees or
costs that directly benefit the lender, during the application and
settlement process, absent the "unforeseeable circumstances" addressed
by the proposal. This commenter doesn't agree that the lender should
bear the risk and cost of guaranteeing that other parties do not
increase their fees or costs during the process. This is generally
beyond the control of the lender, and therefore the lender should not
bear that risk. This commenter has had experience with home mortgage
closings and settlement. With those loan settlements, most of the
settlement charges were exactly the same on the HUD-1 as on the GFE. The
abstract updating is usually the only item that is a few dollars
different. This is because the abstracter charges to certify each
document and there is no way to reasonably estimate how much work is
needed on the abstract. This is reasonable and fair because it costs
more to receive more work. In this commenter's experience, it was rare
that other fees were higher on the HUD-1 than the GFE. When they were,
they would fall under fees caused by changes made by the borrower or
"unforeseeable circumstances". The current regulation is already working
and providing the borrower with adequate information and protection. The
complaints cited by HUD must be from lenders who are not following the
current RESPA regulation. Those lenders should be examined for
compliance with RESPA, and required to comply with the current
regulation. It is unfair to burden other lenders who are currently in
compliance with the regulation, by adding to their workload and risk.

Most laws and regulations have some degree of "fairness" to all parties.
The proposed regulation singles out "lenders" and requires them to
"guarantee" that settlement costs are not increased during the process.
Even though other parties change their fees, the lender is the only one
required to give the guarantee. Then the lender has to guarantee for
other parties involved. This is unfair. The proposed GFE form appears to
require the lender to even guarantee that the state and local
governments do not increase the filing fee or the mortgage registration
tax. There appears to be no 10% tolerance allowed on these. What the
state and local governments do is totally outside the lender's control.
It is not reasonable to expect a lender to guarantee what the state and
local governments do. HUD should request comments on the fairness of
requiring lenders to guarantee that state and local government fees do
not increase. The attorneys might increase the form preparation fees or
title opinion charge. This again is outside the lender's control. The
abstractor might increase the abstracting fees. The appraiser might
increase the appraisal fee. Any of the other required inspectors might
increase their fees. None of these entities are held to the same strict
standard as the lender. None of them are penalized for changing their
fees and costs. The lender not only has to guarantee the lender's own
fees, but also those of all the other parties involved. The lender bears
the responsibility alone. The proposal is blatantly unfair. It would be
more reasonable to bring these other settlement service providers under
the regulation and make them guarantee their own fees.

Another example of the unfairness of the proposed regulation is using
the percentage basis to allow a 10% tolerance to the total settlement
charges. With this system, the lender who shows higher settlement costs
gets a larger tolerance. This works contrary to the stated purpose of
this proposal. There is no incentive to lower settlement costs, when
charging higher settlement costs gives the lender a larger tolerance and
could also keep a lender from being held in non-compliance. This is
unfair to both the lender and the borrower.

Another example of unfairness is how this purposed regulation targets
those lenders who are more highly regulated. This commenter believes
that Small Community Banks, who are held to strict standards by their
federal regulators, are not the ones who created the complaints that led
to this proposal. Yet, the heavily regulated Small Community Banks will
bear the brunt of the new regulation, while those who did the things to
generate the complaints, slip by unexamined and under regulated as
usual. The existing RESPA regulation is more than enough to keep all
lenders from doing any of the things that generated the complaints. HUD
should sort the complaints by type of entity against whom they were
lodged. There should be a disclosure to the public, by HUD, as to which
types of entities caused the complaints. Those types of entities should
be examined and should be required to comply with the current RESPA
regulation. Then HUD should determine how much the consumer complaints
are reduced. This will encourage those lenders who don't comply with the
current regulation to either comply or exit the business. Fewer
complaints will be filed and those lenders who already comply with the
current regulation will not be further burdened and disadvantaged. Only
then should HUD propose additional regulation. What is happening is that
with each new law or regulation, those lenders who already obey the
regulations get more and more frustrated with the piles of paperwork and
at some point exit the lending business altogether. Those lenders who
ignore the regulations thrive and expand. This is how government over
regulation and selective enforcement contributes to the problem.

Lenders already examined by federal regulators like the FDIC should not
be further burdened by more regulations. The proposal makes the
following statement: "HUD believes that a lack of enforcement authority
and of clear remedies for violations of critical sections of RESPA
negatively impacts consumers and diminishes the effectiveness of the
statute." This commenter agrees that this is probably true for some
types of lender entities. This is not true for banks examined by the
Federal Deposit Insurance Corporation, FDIC. It appears that some lender
types are slipping through the regulatory enforcement of the RESPA
regulation. This commenter believes that HUD would do better service to
the home lending industry by concentrating efforts of getting all the
various lender types under the existing regulation, examining them, and
requiring compliance, rather than further burdening those lenders who
already comply with the current RESPA, with additional regulations.

**The proposal will slow up the borrowing process.**

The proposal states that "HUD intends to seek statutory modifications
that would include the following provisions:" "(2) requiring delivery of
the HUD-1 to the borrower 3 days prior to closing;"

This commenter believes the proposal will unreasonably slow down the
borrowing process for borrowers who already have the information,
because they have already received a Good Faith Estimate. If the
borrower is dealing with a reputable lender who already follows the
current regulation, he or she should not need to see the HUD-1 more than
one day ahead of closing. That is the purpose of the Good Faith
Estimate. The current system works for customers of lenders who follow
the rules. The current system doesn't work for customers of lenders who
don't follow the rules. Changing the rules will not change the outcome
for those customers. Vigorously examining those lenders who generate the
consumer complaints under the existing laws and regulations will change
the outcome. The proposed regulation will only slow down the process and
cause new consumer and lender complaints, including new complaints about
all the duplicate paperwork, and delay in settlement. HUD should not
give up on the current function and timing of the GFE and HUD-1. HUD
could better work to require all lenders to use the existing forms
properly.

**The proposal does not provide for a long enough transition period.**

The proposed regulation will take longer to implement than the proposed
transition period. Lenders rely on compliance companies who write
software to supply computer software to help the lenders comply with
these mortgage lending regulations. Those companies need time to figure
out what the laws require and then make and test the changes before
sending the updated software out to lenders. Lenders need additional
time to read and study the final regulations, attend industry meetings
about the new regulation, discover all areas that need changing, make
high level management decisions about how to deal with this change,
develop new forms, rewrite lender policy, establish new lender
procedures, purchase the new computer software and/or reprogram computer
software, retrain lending staff on the requirements of the regulation,
retrain lending staff on the changes to the software, change checklists,
change document storage requirements, retrain compliance personnel,
retrain bank auditors, review for new issues of noncompliance, including
implementing monitoring of multiple applications and multiple GFE forms
for the same loan, and implement employee procedures to avoid
inadvertently being out of compliance. A 24 month transition period
should be allowed instead of the proposed 12 month period.

**The proposal is confusing and unworkable.**

The proposal contains a paragraph: "The RESPA regulations do not require
that the GFE clearly identify the total charges of major providers of
settlement services, including lenders and brokers (loan originators),
title agents and insurers (title charges), and other third party
settlement services providers. Without the simplification provided by
presenting totals for major items, it is difficult for borrowers to know
how much they are paying for major items, including origination and
title related charges, or how they can compare loans and select among
service providers to get the best value."

The paragraph in the proposal begins talking about "major providers" and
ends with talking about "major items". There is no clear transition
between the two and they are discussed together as if they are one and
the same thing. They are not the same. This section of the proposal is
unclear as to whether it tries to discover and then require disclosure
of: (1) how much is going to whom or (2) how much is going for what
purpose. These are two very different things. Sometimes one vendor
provides two or more unrelated items. Sometimes two or more related
items are provided by multiple vendors. HUD should decide which issue it
is trying to address here. The proposal is extremely confusing about
this issue. It will be difficult for the lender to try to display both
of these very separate issues at the same time. This is going to be more
confusing to the borrower. HUD should decide which issue it wants
disclosed and clarify that to the lenders who may be required to comply
with the proposed regulation.

The proposal requires multiple applications with separate time tables
and individual compliance requirements. All this extra work is excessive
and unneeded and confusing and unworkable.

**The proposal should better explain the term "unforeseeable
circumstances".**

The proposal contains 2 separate areas that qualify as unforeseeable
circumstances. Number (1) aims more at emergencies and disasters and is
less problematic. Number (2) lists those that could not be reasonably
foreseen at the time of the GFE application, that are particular to the
transaction and that result in increased costs such as a change in the
property purchase price, boundary disputes, or environmental problems
that were not described to the loan originator in the GFE application;
the need for a second appraisal; and flood insurance. This commenter
believes this definition to be troublesome and a potential cause of
needless compliance examination disagreements, and litigation.

This commenter believes that HUD should improve the definition and
broaden it to include other situations that frequently or even
occasionally occur in real estate settlement. This will help avoid
lender-examiner disagreement that will unnecessarily delay and
complicate the examination process for those lenders who are actually
held to this standard.

Occasionally a property will have multiple legal descriptions and/or
multiple abstracts that need updating. The cost of the extra abstracting
and title opinions is unforeseeable at the time of the GFE, and should
not be born by the lender. This is especially true when HUD; (1) limits
the information about the property provided to the lender at the time of
the first application to the address of the property, and (2) requires
the Good Faith Estimate to be provided in such a short time. It is
unrealistic to believe that the Lender could come to knowledge of the
type and number of legal descriptions and/or multiple abstracts in such
a short time and with such limited information. The additional cost of
the extra abstracting and/or title opinions could easily push the
closing costs above the 10% tolerance. It will also single out and
penalize those lenders who have the lower closing costs because their
tolerance will not be as much. It will encourage lenders to estimate
higher closing costs on the Good Faith Estimate form for all loans
because of the unknown nature of the title situation. This is contrary
to the stated purpose of this regulation. There is a clear need to
improve the definition.

There are other situations that are unforeseeable to the lender at the
time of the GFE, but are not listed in the proposal, and therefore will
be cited by examiners against lenders (like banks) who are actively
examined by federal regulators. The title of the property may be held in
"Abstract" or "Torrens". These two ways to hold title have differing
costs and could easily push the cost beyond the 10% tolerance. Again,
this fact would be unforeseeable to the lender at the time of the GFE.
The definition does not discuss this issue and therefore it is
reasonable to believe that the examiners of the federal regulators will
cite this as a violation. This issue shows another clear need to improve
the definition.

There are likely many other situations that should fall within this
definition, but are not listed in the definition. The industry will be
aware of them but may not be aware of this issue that is conveniently
tucked into a long and wordy proposal. Because of the importance of this
one issue, HUD should separately request comments on this one extremely
important issue. In this way, HUD could review a number of actual
examples of unforeseeable situations and include them in the list of
costs to better define the term "unforeseeable circumstances". This will
make the regulation more understandable and less controversial. It will
also eliminate wasted time and money litigating this issue. This
unnecessary litigation cost will be passed on to the borrower in one way
or another.

**The proposal suggests that a 14 business day period to correct
tolerances, might be abused, but it doesn't explain how this might
happen.**

This commenter believes that the period for the lender to correct
errors, would be better than not having the opportunity to make the
corrections.

The proposal suggests that the 14 business day period after closing to
find and correct charges that exceed the tolerance might be abused. This
commenter has thought about this issue and cannot think of a situation
in which a lender finding an error and then repaying that amount to a
borrower might be abusing this 14 day period. If anything, it would
encourage payments to the borrower. This would be a benefit to the
borrower, not an abuse.

**The proposal is unclear as to if a small increase in a fee that does
not violate the tolerance will require a new GFE and/or early HUD-1.**

The proposal should better explain by examples, what a lender is
supposed to do if (for example) a invoice for the abstracting costs, by
a third party abstractor, arrives on the day of closing, and is in an
amount \$5.00 more than the abstractor had told the lender on the phone.
Assume the lender had reported the earlier amount to the borrower on the
HUD-1 the lender sent out. Assume it is still within the 10% tolerance.
It should explain if the lender is required to give a new GFE on the
closing date, when the lender discovers the change. It should also
explain what the lender is supposed to do if the new invoice appears on
closing day after the three days since the HUD-1 was sent to the
borrower and all parties show up to close the transaction. It should
explain what the lender is to do if the borrower has the extra \$5.00 in
hand and tells the lender that he wants to continue with settlement on
that date. With the current cost of fuel, it may have cost the borrower
\$16.00 for fuel to drive to the closing and the borrower may have taken
a day off work to do it. Should the lender hand the borrower a new HUD-1
and send all parties home for three days to wait out the regulatory
period? This commenter believes that this new regulation does not work
in real life situations and should be thought out, better explained, or
withdrawn altogether.

**The new form, the "Addendum", will slow and complicate the settlement
process and add unneeded paperwork.**

The proposal creates a new form, the "Addendum" that will add more
unneeded paperwork to the process of settlement and will restate amounts
that have already been stated on both the GFE and the HUD-1. This is
going to further confuse the borrower, by restating the same fees and
charges a third time. We do not need another form added to the already
paper intensive process of home mortgage settlement.

In any case, the "Addendum" should not be required if there are no
changes between the GFE and HUD-1. The lender should not be required to
include amounts on the "Addendum" that did not change from the GFE to
the HUD-1. It is unnecessary, burdensome, and confusing to recite the
same unchanged amounts a third time.

**The proposal appears to encourage lenders to require specific lender
mandated service providers.**

The proposal appears to require more work of lenders who allow the
borrower to shop for settlement service providers than those lenders who
mandate specific providers. Lenders who allow the borrower to shop
around have to compile a list of providers for the borrower to use to
shop around. The lender who requires the borrower to use a provider
selected by the lender doesn't have to compile the list or keep it
current. This proposal appears to make it easier for lenders who do not
allow borrowers to shop for services. Is it HUD's intent to encourage
lenders to mandate service providers? It seems as if it is. The proposal
should not require any lender to provide a list of settlement service
providers. This should not become the lender's job. This is a burdensome
and cumbersome requirement that appears to discourage lenders from
allowing borrowers to shop around for settlement service providers. This
adds an unreasonable requirement and makes it more likely for the lender
to unknowingly fall out of compliance. It further allows the lender to
pick and choose which service providers are on the list. The regulation
should allow but not require the lender to construct such a list.

**The proposal unnecessarily duplicates Early Z disclosures.**

The sample Good Faith Estimate form, as proposed, appears to require
lenders to provide the same information about the interest rate and loan
terms as already required by the Early Z disclosure. This duplication is
unnecessary and troublesome. It is also troublesome that it does not do
so in a format that complies with the Early Z requirement, for example,
the required FED box. This causes duplicate disclosure requirements that
will be both burdensome to the lender and confusing to the borrower. HUD
should not try to duplicate disclosures already required by Truth In
Lending and Regulation Z.

**If HUD wants more lenders to Escrow for borrowers, it should simplify
the regulation.**

It appears that HUD is of the opinion that it is better for the lender
to escrow for the borrower, at least with the higher priced mortgages
that some lenders are offering. It should be noted that some borrowers
are both capable and insistent on paying their own hazard insurance and
real estate taxes. Some borrowers have income that arrives at the proper
times to make those payments. The reason more lenders do not want to
escrow for borrowers is that the calculations for the escrow accounts
and the disclosure requirement are complicated, excessive, and
burdensome. It seems the regulatory community is concerned about an
extra \$5.00 or \$10.00 in a customer's escrow account. It's still the
borrower's money! Yet the regulatory community wants to make a big issue
about this and cite violations when lenders don't fine tune the escrow
account amount to a strict formula. This commenter doesn't believe that
the borrower is really concerned if there is an extra \$5.00 or \$10.00
in the account. Allow lenders a simple formula that will provide some
margin for the lender and give the lender a safe harbor. This will
encourage lenders to escrow for home loan borrowers, without the
headaches and worry about the current strict and unforgiving
regulations. Allow lenders who are willing to escrow for borrowers at
the borrower's request, to do so without the concern of being in
violation of some strict formula. This commenter believes that most
borrowers would rather have a little extra in the account in case the
real estate taxes and hazard insurance premiums go up. Simplify the
process, the formulas, the safe harbor, and the disclosures, so that
more lenders will be willing to escrow for home loan borrowers. Do not
require lenders to escrow.

**In summary:**

This commenter believes that the proposed regulation is unnecessary,
burdensome, duplicative, unfair, and counter-productive. It
unnecessarily lengthens and complicates the home mortgage process by
adding duplicative and confusing forms and processes. It singles out
those lenders who are aggressively examined by federal agencies, and who
are already following the existing laws and regulations, and are already
providing meaningful disclosures to consumers. It adds to their burden,
frustrates them with unnecessary paperwork and delays, and it
complicates the process. It singles out those lenders who are offering
lower closing costs, and disadvantages them with smaller tolerances for
errors and other changes in fees that are outside their control. It adds
additional risk of inadvertent noncompliance to lenders, who are already
bogged down by the paperwork of Regulation Z, RESPA, Flood Insurance,
and other consumer compliance laws and regulations. The proposal does
not identify those lender types who generated the consumer complaints.
If it did, it would show that the lenders who are not regularly
examined, and those who are less vigorously examined, are probably the
ones who caused the complaints. It would show that the complaints came
from lenders who are not complying with the current regulation. It would
further show that lenders who are regularly examined, and those who are
vigorously examined did not generate the consumer complaints. It would
show that these lenders are complying with the current regulation. This
would prove that the current laws and regulations governing home
mortgage lending already provide adequate information and protection to
borrowers. The answer to the problem of consumer complaints about the
home mortgage process is to focus on the under regulated lenders. HUD
should review the complaints it has and sort them by type of lender. It
should focus its efforts on bringing the types of lenders who generate
the highest level of consumer complaints under required compliance with
the existing laws and regulations. That would eliminate or reduce to a
manageable level, the complaints cited by HUD without disadvantaging
lenders already in compliance. In the end, the additional cost of the
new proposed regulation will be passed on to the consumers to whom the
regulation is intended to protect. The proposed regulation should be
withdrawn.

Commenter:

Lonnie E. Clark, President

State Bank of Chandler

342 Main Avenue, P.O. Box 128

Chandler, MN 56122-0128