The U.S. Department of Housing and Urban Development (HUD) has agreed to delay by 90 days the implementation of a final rule affecting the required use provision in the Real Estate Settlement Procedures Act (RESPA). That rule change was to go into effect on Jan. 16, but in all likelihood would have been delayed anyway by the U.S. District Court in eastern Virginia, which had ordered a hearing on Friday to weigh arguments for and against its granting a preliminary injunction postponing the enactment of HUD's RESPA revisions. The NAHB, which filed a lawsuit against HUD on Christmas Eve, had requested that hearing.

Brian Sullivan, a HUD spokesman, told BUILDER this morning that the department had acted on the advice of the U.S. Attorney's Office, which is representing HUD in this case, to agree to the delay so that it would have enough time to assemble the administrative records and other data it needs to mount its defense against the NAHB and co-plaintiffs, which include 13 large builders and their affiliated lenders and title companies.

"This is a court that likes to handle injunctions right away," says Sullivan. "And the court probably would have put a lot of pressure on the defendants to delay by saying that 'RESPA's been around for more than 30 years, what's another 90 days?' "

On Nov. 17, HUD published amendments to RESPAthat included a final rule that would eliminate an exception that allows builders to offer home buyers incentives—such as a price discount or guaranteed interest rate—if the buyers use a preferred title agency, mortgage company, or affiliated service provider. That exception has been on the books for 16 years.

NAHB spokeswoman Donna Reichle says that, on advice of counsel, the trade group isn't commenting on pending litigation against HUD. Therefore, BUILDER could not ascertain at press time if the NAHB had accepted HUD's agreement or whether that agreement made the preliminary injunction hearing moot.

However, HUD's agreement to delay certainly won't put an end to the NAHB's complaint about a final rule on required use its lawsuit calls "capricious" and contrary to existing law. The trade group insists that home buyers benefit from builder-lender affiliations, which make on-time closings more likely and "give buyers more choice in loan products and lower costs." Preventing closing delays is critical to builders at a time when many are struggling with cash flow and maintaining asset levels upon which their loans with banks are gauged. The NAHB contends that the rule change would prevent builders from purchasing forward commitments from affiliated lenders "that ensure their customers will have competitive financing." In addition, the NAHB says that dismantling these mortgage and title affiliations will lead to job losses (the implication being that some of these affiliated companies would cease to exist without their connections to builders), disruptions to builders' business models, and reductions in buyers at a time when the housing industry continues having difficulty selling houses.

HUD, on the other hand, wants to "delink," in Sullivan's words, all builder incentives tied to the use of an affiliated lender or service provider. It also contends that its final rule would bring greater transparency to the mortgage lending process. "HUD believes that some businesses have used ... the exception to steer consumers to affiliated settlement providers that may not provide the best mortgage products or settlement services for those consumers," Sullivan states.

In an e-mail to BUILDER yesterday, Sullivan provided three documented examples:

•A buyer was offered a $22,000 discount on the price of a home for using a builder's affiliated lender whose interest rate was a half percentage point higher than the market rate;

•A buyer was required to put up more earnest money and would lose a $2,000 "closing incentive" if it didn't use a builder's affiliated lender; and

•A builder offered a buyer a $3,000 incentive on the purchase price and a $6,000 discount toward closing costs if that buyer used an affiliated lender that charged an interest rate 1 percentage point higher than the market rate, as well as additional fees.

In its complaint, the NAHB challenges HUD's conclusions about the impact on buyers of builder-lender affiliations because, it claims, the government has failed to provide substantiating data and has chosen to ignore other consumer surveys that produce opposite findings. The NAHB also questions why HUD is in such a rush to change a 16-year-old rule, and points to a notification sent last August to HUD secretary Steve Preston by 244 members of Congress who considered the comment period for this rule change "not sufficient," and requested that HUD withdraw its proposal.

Sullivan scoffs at suggestions that there's been a "rush to regulate." And he says HUD agreed to the delay in the rule implementation in order to collect data that would support HUD's intended "vigorous defense" of its final rule.

HUD must also contend with a separate suit, filed by the Mortgage Brokers Association, that is trying to block a rule that, as of Jan. 1, 2010, would require lenders and mortgage broker to provide buyers with a "good faith estimate" that discloses loan terms and closing costs. HUD says this rule could save buyers up to $700 per closing. Mortgage brokers feel discriminated against because the rule doesn't apply to banks. TheWashington Post weighed in this morning on the side of HUD, stating that the government "properly drew a distinction between giving consumers more information about all the factors that have gone into their transactions, as opposed to requiring projections about what banks might get in a future resale of their loans. The new rule constitutes a modest but necessary step toward a more transparent housing market."

John Caulfield is senior editor at BUILDER magazine.

Learn more about markets featured in this article: Washington, DC.