The U.S. Real Estate Market on Life Support: Unplugging the RESPA-Rator

On January 1, 2010, the U.S. Department of Housing and Urban Development (HUD) responded to the real estate lending crisis with revised regulations for the Real Estate Settlement Procedures Act (RESPA). The new regulations require heightened disclosures from lenders to homebuyers and encourage competition among lenders. This Note argues that HUD’s attempts to solve irresponsible lending with further RESPA regulations are misguided. The author contends that the new rules will provide homebuyers with a false sense of security about their mortgages and lenders, without actually protecting them from predatory practices. Instead, this Note suggests a novel solution: lawyers should play a more prominent role in real estate transactions in order to protect consumers.This Note first traces the growth of the title insurance industry in the United States and shows how this industry pushed lawyers out of residential real estate transactions in many states. The author then explains the original RESPA of 1974, through which Congress responded to a rising tide of anticompetitive practices in the real estate industry by requiring disclosures to borrowers and promoting competition, among other provisions. This Note then details the new RESPA rule, which requires lenders to itemize and guarantee certain real estate settlement costs. The author evaluates the new rule and predicts its consequences, concluding that it will not serve HUD’s avowed goals to end price gouging and spur competition, and instead will create a façade of transparency for consumers. The author recommends instead that lawyers occupy a larger role in residential real estate transactions because they can act to inform and protect homebuyers. The Note concludes by suggesting that federal regulators encourage, or at least do not discourage, homebuyers to seek legal representation for their real estate transactions.

The full text of this Note is available to download as a PDF.