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HUD's delivery of Final RESPA Regulation to office of management and budget draws fire at house Committee on small Business hearing

The Department of Housing and Urban Development last month submitted what it called a final version of its RESPA reform regulation to the Office of Management and Budget. This version of the regulation is not yet available to the public, so it is not known in what respects the final version differs from the proposed regulation that was submitted for public comment (and as to which HUD received nearly 43,000 comment letters) during the summer of 2002. HUD's delivery of the regulation to the OMB without making it available to the public for additional comments has caused great concern in the lending community. As a result, Rep. Donald A. Manzullo (R-IL), the chairman of the House Committee on Small Business, held a hearing of that Committee on January 6, 2004, and stated at that time that the proposed regulation is likely to put thousands of small real estate settlement companies out of business. He added that HUD had not responded to two letters submitted to it by the Committee, inquiring why HUD had not completed a more comprehensive study of the economic impact of the proposed regulation on small businesses, as required by the Regulatory Flexibility Act.

Representatives of the National Association of Mortgage Brokers, the Mortgage Bankers Association, the National Association of Realtors, the Independent Community Bankers of America and the American Land Title Association addressed the Committee at the hearing. All opposed the proposed regulation, although for different (and not necessarily consistent) reasons. Current HUD Secretary nominee Jackson was invited to appear at the hearing, but did not do so. The prepared statements of the speakers may be found on the Committee's website at www.House.gov.

In conversations last week with Committee on Small Business staff members, we were informed that support for the proposed regulation is clearly dwindling, and that Rep. Manzullo is, as indicated by his statement, extremely concerned that the proposed regulation will destroy thousands of American small businesses in the real estate industry. The staff members also indicated that HUD had failed to properly comply with the Regulatory Flexibility Act, and that the Committee was strongly urging HUD to prepare a more thorough analysis of the impact of the proposed regulation on small businesses, as required by the Regulatory Flexibility Act, and request additional comments on the regulation before finalizing it. It was also the view of staff members that if HUD fails to comply with the Regulatory Flexibility Act, there will likely be lawsuits filed that will attempt to prevent the effectiveness of the regulation, and that members of Congress would be likely to introduce legislation under the Congressional Review Act to overturn the regulation.