HUD Announces 120-Day Moratorium on New RESPA Rule Subject to Good Faith Efforts to Comply

HUD announced today that it will follow a resolution of its Mortgage Review Board to show restraint during the first 120 days of 2010 with respect to enforcement of the new RESPA rule scheduled to go into effect on January 1, 2010 — so long as good faith efforts are being made to comply with the new rule. In addition, in separate letters, HUD requested regulators of federal depository institutions and the FTC to show similar restraint in any enforcement activities relating to the new rule and made the same request of relevant state agencies.

The RESPA rule that will go into effect on January 1, 2010 prescribes new good faith estimate (“GFE”) and HUD-1 Settlement Statement forms as well as rules for completion of these new forms. The RESPA rule is designed to increase the quality of disclosures of settlement service costs, to stop surprises at the closing table, and to encourage consumers to shop for settlement services. However, as the time to implement the rule draws near and many questions abound, HUD has issued about 200 responses to frequently asked questions (FAQs), and lenders and title companies continue feverish efforts to test out new software and computer systems designed to aid implementation of the new rule’s procedures.

Accordingly, HUD’s announcement will be welcome news for a large segment of the industry concerned with the approaching implementation deadline. Nevertheless, it should be clear that HUD did not delay the effective date of the rule or the obligation to comply.

Rather, the key is a “good faith effort to comply” with the new requirements. In evaluating this effort, HUD said it would look “as applicable” to see whether a company had followed existing rules and FAQs and had made a sufficient investment in technology, training, and quality control. Accordingly, lenders and closing agents would be well advised to consider these points and to try to ensure that their investments and compliance efforts are readily apparent.

One analogous parameter to consider is section 8(d)(3) of RESPA, 12 U.S.C. 2607(d)(3). It provides that no person shall be liable for violating the affiliated business disclosure procedures of section 8 of RESPA if the violation was not intentional “and resulted from a bona fide error notwithstanding maintenance of procedures that are reasonably adapted to avoid such error.” From a training and quality control perspective, being able to make a similar showing of an attempt to comply with the new rule may be prudent.

To track the latest developments on this issue, check in regularly with Foley’s Consumer Financial Services Litigation blog, The CFSL Bulletin. 

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