[Federal Register Volume 75, Number 226 (Wednesday, November 24, 2010)]
[Notices]
[Pages 71724-71726]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-29663]


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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5459-N-01]


Real Estate Settlement Procedures Act (RESPA): Solicitation of 
Information on Changes in Warehouse Lending and Other Loan Funding 
Mechanisms

AGENCY: Office of General Counsel, HUD.

ACTION: Notice.

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SUMMARY: HUD is considering issuing guidance under RESPA to address 
possible changes in warehouse lending and other financing mechanisms 
used to fund federally related mortgage loans that have occurred since 
HUD issued regulations specifically related to this area in 1992 and 
1994. In order to assist HUD in determining whether such guidance is 
needed and to formulate such guidance, HUD is seeking information on 
how funding mechanisms have evolved in recent years, and especially on 
how warehouse lending currently operates within residential real estate 
mortgage transactions.
    HUD welcomes input from warehouse lenders, retail lenders, mortgage 
bankers, wholesale lenders, correspondent lenders, mortgage brokers, 
and others in the mortgage lending industry, as well as from federal, 
state, and local consumer protection and enforcement agencies; consumer 
groups; and other members of the public. Based on information received 
in response to this solicitation, HUD will decide what, if any, 
additional guidance is needed on the scope of RESPA as applied to 
current mortgage funding practices.

DATES: Comment Due Date: December 27, 2010.

ADDRESSES: Interested persons are invited to submit comments regarding 
this notice to the Regulations Division, Office of General Counsel, 451 
7th Street, SW., Room 10276, Department of Housing and Urban 
Development, Washington, DC 20410-0500. There are two methods for 
submitting public comments. All submissions must refer to the above 
docket number and title.
    1. Submission of Comments by Mail. Comments may be submitted by 
mail to the Regulations Division, Office of General Counsel, Department 
of Housing and Urban Development, 451 7th Street, SW., Room 10276, 
Washington, DC 20410-0500.
    2. Electronic Submission of Comments. Interested persons may submit 
comments electronically through the Federal eRulemaking Portal at 
http://www.regulations.gov. HUD strongly encourages commenters to 
submit comments electronically. Electronic submission of comments 
allows the commenter maximum time to prepare and submit a comment, 
ensures timely receipt by HUD, and enables HUD to make them immediately 
available to the public. Comments submitted electronically through the 
http://www.regulations.gov Web site can be viewed by other commenters 
and interested members of the public. Commenters should follow the 
instructions provided on that site to submit comments electronically.

    Note:  To receive consideration as public comments, comments 
must be submitted through one of the two methods specified above. 
Again, all submissions must refer to the docket number and title of 
the rule.

    No Facsimile Comments. Facsimile (FAX) comments are not acceptable.
    Public Inspection of Public Comments. All properly submitted 
comments and communications submitted to HUD will be available for 
public inspection and copying between 8 a.m. and 5 p.m. weekdays at the 
above address. Due to security measures at the HUD Headquarters 
building, an advance appointment to review the public comments must be 
scheduled by calling the Regulations Division at 202-708-3055 (this is 
not a toll-free number). Individuals with speech or hearing impairments 
may access this number through TTY by calling the toll-free Federal 
Information Relay Service at 800-877-8339. Copies of all comments 
submitted are available for inspection and downloading at http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: For legal questions, contact Paul S. 
Ceja, Assistant General Counsel for RESPA/SAFE, telephone number 202-
708-3137; or Peter S. Race, Assistant General Counsel for Program 
Compliance, telephone number 202-708-2350; Department of Housing and 
Urban Development, 451 7th Street, SW., Room 9262, Washington, DC 
20410. For other questions, contact Barton Shapiro, Director, or Mary 
Jo Sullivan, Deputy Director, Office of RESPA and Interstate Land 
Sales, Office of Housing, Department of Housing and Urban Development, 
451 7th Street, SW., Room 9158, Washington, DC 20410; telephone number 
202-708-0502. These telephone numbers are not toll-free. Persons with 
hearing or speech impairments may access these numbers via TTY by 
calling the toll-free Federal Information Relay Service at 1-800-877-
8339.

SUPPLEMENTARY INFORMATION:

I. Background

    Due to the length of time since the issuance of regulations on the 
treatment and coverage of warehouse lending under RESPA (12 U.S.C. 
2601-2617), HUD is reviewing the need to provide additional guidance in 
this area pursuant to its authority under section 19 of RESPA (12 
U.S.C. 2617).
    The requirements and prohibitions under RESPA apply to credit 
transactions that involve federally related mortgage loans. These 
mortgage loans include most purchase loans, assumptions, refinances, 
property improvement loans, and home equity lines of credit that are 
secured by liens placed on one- to four-family residential properties. 
The purposes of RESPA are, generally, to help consumers become better 
shoppers for settlement services and to eliminate kickbacks and 
referral fees that unnecessarily increase the costs of certain 
settlement services.
    To achieve its purposes, RESPA requires, in part, that borrowers 
receive disclosures at various times in the transaction. These 
disclosures explain the borrower's loan, detail the costs associated 
with settlement, summarize servicing and escrow account practices, and 
describe affiliated business relationships among settlement service 
providers. In January 2010, major revisions to the Good Faith Estimate 
(``GFE'') and uniform settlement statement (``HUD-1/1A'') disclosure 
forms mandated in HUD's RESPA regulations (24 CFR part 3500) took 
effect.
    RESPA also prohibits certain practices that increase the cost of 
settlement services. For example, section 8 of RESPA prohibits a person 
from giving or accepting anything of value for referrals of business 
incident to or part of a settlement service provided in a covered 
transaction. RESPA also prohibits a person from giving or accepting any 
part of a charge other than for services actually performed.

[[Page 71725]]

II. Scope of RESPA Coverage

    In order to effectively and efficiently accomplish the consumer 
protection purposes of RESPA, it is important for HUD to ensure that 
RESPA's requirements and prohibitions are applied appropriately in all 
covered home mortgage transactions. A consumer needs reliable 
information about the terms of his or her mortgage transaction, which 
can include understanding any competing interests of other persons who 
are involved in the transaction. While settlement service providers are 
expected to profit from the services they provide with regard to the 
transaction, Congress was clear in its intent in passing RESPA that 
consumers be ``provided with greater and more timely information on the 
nature and costs of the settlement process and * * * protected from 
unnecessarily high settlement charges.'' 12 U.S.C. 2601(a).
    HUD's commitment to protect homebuyers and to ensure that consumers 
are provided with greater and timelier information on the nature and 
costs of the settlement process was clearly demonstrated in the 
rulemaking that led to the recent revisions to the GFE and HUD-1/1A 
disclosures and related requirements. However, HUD also seeks to avoid 
economic inefficiencies and burdens on other participants in the 
mortgage process that could harm consumers through increased settlement 
costs, as well as to recognize technological and business arrangement 
innovations that could reduce settlement costs for consumers.
    For example, HUD has been reviewing industry practices in the 
funding of residential mortgage loans, and the evolution of those 
practices since HUD issued its major revision of the basic RESPA 
regulations in 1992 (57 FR 49600, November 2, 1992) (``1992 rule''). In 
the 1992 rule, HUD codified a regulatory exemption from the RESPA 
requirements for transactions in the secondary market.\1\ Subsequently, 
in a 1993 proposed rule \2\ and 1994 final rule,\3\ HUD discussed and 
revised the secondary market exemption, and added a new definition of 
``table funding''.\4\ Since 1992, HUD's regulations have provided some 
type of exemption from RESPA for bona fide transfers of the mortgage 
loan obligation in the secondary market. In the 1992 rule, HUD stated 
that ``[i]n determining what constitutes a bona fide transfer, HUD 
would consider the real source of the funding and the real interest of 
the settlement lender.'' (See 57 FR at 49609; ``settlement lender'' 
later changed to ``funding lender'' as clarification in February 10, 
1994 final rule. See 59 FR at 6509). In the 1992 rule, HUD also 
referenced ``table funding'' in clarifying how the exemption would 
apply to mortgage broker transactions.
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    \1\ The 1992 rule noted an exemption for ``bona fide secondary 
market transactions'' (57 FR at 49605); codified the exemption in 24 
CFR 3500.5(b)(3) (57 FR at 49609); and added Appendix B, 
Illustration 5, as an example of a transaction in the secondary 
market (57 FR at 49618).
    \2\ 58 FR 28478 (May 13, 1993).
    \3\ 59 FR 6506 (February 10, 1994).
    \4\ See, 24 CFR 3500.5(b)(7) (``Secondary market 
transactions''); and 3500.2 (definition of ``Table funding'').
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    HUD has continued to review mortgage loan funding practices and is 
considering issuing guidance to address changes in the operation of 
warehouse lending since HUD's RESPA regulations relevant to this area 
were promulgated and revised over 15 years ago. To assist HUD in 
determining both whether updated guidance would be helpful and the 
scope of such guidance, HUD is seeking information on the current state 
of warehouse lending and how it currently operates within residential 
real estate mortgage transactions. HUD particularly seeks input from 
the mortgage lending industry, including specifically warehouse 
lenders, retail lenders, mortgage bankers, wholesale lenders, 
correspondent lenders, and mortgage brokers, and from federal, state, 
and local consumer protection and enforcement agencies; consumer 
groups; and other members of the public.

III. Suggested Topics for Comment

    HUD encourages commenters to provide any relevant information 
describing and discussing the structures and operation of warehouse 
lending and other mechanisms currently used to fund mortgage loans. HUD 
suggests the following specific questions for which answers could 
provide HUD with helpful information as it assesses the need for and 
extent of any further guidance in this area:
    (1) What are the general characteristics of warehouse lending in 
the context of mortgage loan financing? Specifically:
    (a) How does a warehouse lender provide funding to loan originators 
(e.g., through a line of credit; by funding individual loans; any other 
method)? If funding is provided through a line of credit, what 
characteristics indicate a bona fide warehouse line of credit?
    With regard to each type of funding provided, what criteria does 
the warehouse lender use to determine that it will provide funding to a 
loan originator?
    (b) What mechanisms are used by the warehouse lender to assure 
repayment of the funding provided to the loan originator? For example, 
what security is taken or other evidence of the debt obligation is 
accepted, and what kinds of agreements are made concerning liability 
for repayment?
    (c) Does ownership of a mortgage loan that is originated by a loan 
originator who is funded by the warehouse lender ever transfer to the 
warehouse lender? If ownership does transfer, how does the transfer 
occur (e.g., through purchase or assignment), and for typically what 
period of time? Additionally, how is the transfer of ownership 
accomplished (e.g., does physical possession change)?
    (d) If ownership of loans is transferred to the warehouse lender, 
are the loan originators ever obligated to repurchase the loan under a 
repurchase agreement? If so, how often is a repurchase agreement used 
in such transactions?
    Is the obligation to repurchase a loan subject to such an agreement 
absolute or conditional? If conditional, please describe the typical 
conditions that apply.
    What repurchase agreement terms are necessary to ensure that the 
arrangement between the warehouse lender and loan originator is truly 
only a financing mechanism for the loan originator's business? 
Specifically, what agreement terms are necessary to conclude that the 
arrangement is a mechanism for financing a loan originator, as 
distinguished from a method of funding an individual loan (e.g., the 
lack of conditions on the loan originator's obligation to repurchase 
the loan)? Are there factors beyond the repurchase agreement between 
the parties that HUD should consider in determining the real interests 
of the parties with regard to each loan transaction? If so, please 
identify any such factors.
    (e) To what extent is the warehouse lender involved in the loan-
level credit approval decision with respect to each mortgage loan 
application?
    What level of scrutiny do warehouse lenders engage in with regard 
to individual loan files on originated loans?
    When does this review take place in the transaction (e.g., before a 
funding commitment; after a funding commitment but before settlement)?
    Does the warehouse lender establish underwriting criteria that must 
be accepted by the loan originator? Do the criteria vary based on 
fluctuations in the market? Do the criteria change at the discretion of 
the warehouse lender?
    Do warehouse lenders approve the funding of individual loans before 
settlement?

[[Page 71726]]

    Does the size or creditworthiness of the loan originator influence 
the level of scrutiny of individual loans?
    (f) How has warehouse lending evolved since HUD issued its 
regulations on table funding and secondary market transactions in 1994?
    (2) What particular characteristics distinguish warehouse lending 
from retail lending? What is the role of warehouse lending within the 
primary mortgage market versus the secondary market?
    (3) What distinguishes the funding of a mortgage loan from a sale 
of the mortgage loan in the secondary market? For example, what 
characteristics indicate a bona fide transfer of the loan obligation, 
such that the transaction would be a secondary market transaction that 
is not covered by HUD's RESPA regulations?
    What are the basic mechanics for the sale of a loan by a warehouse 
lender into the secondary market? Specifically, what are the mechanics 
for identifying, locating, and transferring mortgages to secondary 
market participants, and what are the respective roles of each of the 
parties involved in these activities?
    Do warehouse lenders sell directly to the secondary market? Do 
warehouse lenders utilize loan originators in the sale of loans into 
the secondary market? If so, how?
    Do warehouse lenders participate in purchasing loans in the 
secondary market? If so, do warehouse lenders purchase loans from loan 
originators with whom they have a warehouse lending relationship? Do 
the criteria for purchase from a loan originator within the warehouse 
lending relationship differ from the criteria for purchase from a loan 
originator without this relationship?
    Is there a need to clarify the secondary market exemption as set 
forth in 24 CFR 3500.5(b)(7)? If so, how should the exemption be 
clarified?
    (4) What role does a warehouse lender play in a table funded 
transaction?
    Does a warehouse lender fund loans at settlement contemporaneously 
with assignment of the loans to the warehouse lender by the loan 
originator, or contemporaneously with receiving some other evidence of 
a debt obligation from the loan originator?
    (5) What, if any, characteristics distinguish a table funded 
transaction completed by a mortgage broker from a loan made by a 
mortgage banker who has an advance commitment to sell the loan after 
settlement?
    (6) Does a warehouse lender fund mortgage loans within the meaning 
of ``settlement service'' as that term is defined in section 2 of RESPA 
and 24 CFR 3500.2?
    (7) What factors determine who is identified as the payee on the 
mortgage loan note?
    (8) Have concerns about protection under bankruptcy laws influenced 
changes in how warehouse lenders operate in relation to loan 
originators? If so, what concerns, and what changes have resulted?
    (9) What do warehouse lenders regard as being their obligations for 
providing the disclosures required under RESPA? For example, in a 
mortgage loan transaction that involves a warehouse lender, what is the 
warehouse lender's obligation with regard to providing a good faith 
estimate disclosure to the borrower?
    (10) Do consumers or others have concerns with regard to mortgage 
industry participants' current interpretation of HUD's secondary market 
exemption, including the impact that such interpretations may have on 
consumers regarding coverage of RESPA disclosures and Section 8 
protections against kickbacks and referral fees?

    Authority:  12 U.S.C. 2601-2617; 42 U.S.C. 3535(d).

    Dated: November 16, 2010.
Helen R. Kanovsky,
General Counsel.
[FR Doc. 2010-29663 Filed 11-23-10; 8:45 am]
BILLING CODE 4210-67-P