A federal appeals court judge threw out the National Association of Mortgage Brokers’ challenge to loan disclosures and other changes to the Real Estate Settlement Procedures Act (RESPA) put in place last year by the Department of Housing and Urban Development (HUD).

Barring intervention by Congress, the revised RESPA procedures require mortgage brokers to disclose yield spread premiums – rebates paid by lenders when borrowers take loans at higher interest rates than they might qualify for – and credit them against the borrowers’ closing costs. The new disclosure requirement will take effect Jan. 1.

Often borrowers choose these higher-cost loans because they want to roll closing costs into the loan. The NAMB sued HUD in December 2008, saying the new policy put mortgage brokers at a competitive disadvantage compared to direct lenders, which may receive similar incentives but don’t have to disclose them.

In dismissing the suit, U.S. District Judge James Robertson called HUD’s rationale for the new rules reasoned and compelling. Robertson said the premiums lenders get are different and come after the loan is closed.

Direct lenders cannot be expected to disclose what they do not know, Robertson wrote in his decision.

Source: Inman News, Matt Carter