House Passes RESPA Clarification

On Wednesday, the U.S. House of Representatives passed HR 2446, The RESPA Home Warranty Clarification Act, which would officially remove home warranties from the settlement services restricted under the Real Estate Settlement Procedures Act (RESPA). If the legislation is signed into law, real estate professionals could market home warranties more easily to consumers once again.

The bill’s supporters say it restores Congress’ original intentions when it passed RESPA in 1974 to provide consumers with cost disclosures for real estate settlement services. Because home warranties are not required for mortgage settlement, they were not considered to be covered under the legislation.

In 1992, the U.S. Department of Housing and Urban Development (HUD) contradicted decades of this definition of home warranties. HUD was again silent on the subject until it issued an informal letter that called the practice into question in 2008, and then compounded the problem with an interpretive rule issued in 2010. The confusion spawned legal battles and has severely limited real estate professionals’ involvement in the home warranty business. Throughout, the National Association of REALTORS® has advocated for a clearer treatment of home warranties under the law and is working to get the legislation taken up in the Senate.

The bill, introduced last year by Reps. Judy Biggert (R-Ill.) and William “Lacy” Clay (D-Mo.) has bipartisan support and 40 co-sponsors.

“This legislation will help small businesses. It will help real estate professionals. Most importantly, it will help homeowners by clarifying the law on the sale of home warranties,” said Rep. David Scott (D-Ga.) on the House floor. “It’s very simple, but it’s very important so that our real estate industry and home mortgage industry can move more smoothly.”

In late March, the House Financial Services Committee passed HR 2446 out of committee with an amendment designed to increase transparency. The amendment requires brokers who recommend home warranties to disclose that they may be receiving compensation for the recommendation, and that the home buyer is not required to purchase a home warranty at all, much less one from the recommended company.

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