[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



                                                   S. Hrg. 102-000 deg.
 
        RESPA REFORM AND THE ECONOMIC EFFECTS ON SMALL BUSINESS

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                     WASHINGTON, DC, MARCH 11, 2003

                               __________

                            Serial No. 108-3

                               __________

         Printed for the use of the Committee on Small Business


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house


                                 ______

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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania      FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina           DONNA CHRISTENSEN, Virgin Islands
SAM GRAVES, Missouri                 DANNY DAVIS, Illinois
EDWARD SCHROCK, Virginia             CHARLES GONZALEZ, Texas
TODD AKIN, Missouri                  GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia  ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania           ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado           MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona                DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania            JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire           MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado               LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana               ENI FALEOMAVAEGA, American Samoa
STEVE KING, Iowa                     BRAD MILLER, North Carolina
THADDEUS McCOTTER, Michigan

         J. Matthew Szymanski, Chief of Staff and Chief Counsel

                     Phil Eskeland, Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Martinez, Mel, Secretary, Department of Housing and Urban 
  Development....................................................     1
Kosin, Gregory M., American Land Title Association...............    34
Hummel, Alan Eugene, Appraisal Institute.........................    36
Birnbaum, Peter J., National Association of Bar-Related Title 
  Insurers.......................................................    38
Acosta, Gary E., National Association of Hispanic Real Estate 
  Professionals..................................................    40
Fendly, Neill, National Association of Mortgage Brokers..........    42
Whatley, Catherine, National Association of Realtors.............    44
Clemans, Terry W., National Credit Reporting Association.........    46

                                Appendix

Opening statements:
    Manzullo, Hon. Donald A......................................    56
    Velazquez, Hon. Nydia........................................    59
Prepared statements:
    Martinez, Secretary Mel......................................    61
    Kosin, Gregory M.............................................    65
    Hummel, Alan Eugene..........................................    74
    Birnbaum, Peter J............................................    86
    Acosta, Gary E...............................................    92
    Fendly, Neill................................................    95
    Whatley, Catherine...........................................   147
    Clemans, Terry W.............................................   154
    Colorado Mortgage Lenders....................................   169
    Cherry Creek Mortgage Company................................   177

                                 (iii)


   HEARING ON RESPA REFORM AND THE ECONOMIC EFFECTS ON SMALL BUSINESS

                              ----------                              


                        TUESDAY, MARCH 11, 2003

                  House of Representatives,
                        Committee on Small Business
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 3:00 p.m. in Room 
2172, Rayburn House Office Building, Hon. Donald Manzullo 
presiding.
     Present: Representatives Velazquez, Davis, Chabot, Udall, 
Sanchez, Majette, Bordallo, Capito, Christensen, Musgrave, 
Bradley, Bartlett, Shuster, Beauprez
    Chairman Manzullo. Okay. If the panel could take a seat. We 
are honored today to have Secretary Martinez, the Department 
Housing and Urban Development; accompanied by John Weicher, 
Assistant Secretary for Housing; and John Kennedy, Associate 
General Counsel, is going to be with us also. Because of the 
Secretary's time, we are going to waive opening statements, 
move immediately to his testimony. Then we will go into 
questions from the members of the panel. Mr. Secretary, at a 
certain time--I think it is 3:40, whatever it is--you have to 
leave, and if at that time you are still on the panel, just 
excuse yourself and leave, and then the two gentlemen with you 
would be available for answers on this panel and also available 
just in case we have some technical questions that have to be 
answered from the second panel.
    So, without further ado, Mr. Secretary, I want to thank you 
for coming here. Personally, I want to thank you for the swift 
action of your team on which you accomplished, with the 
Rockford Housing Authority. As soon as we found out there was a 
problem there, literally within hours your office had that 
problem resolved, and as a result of that, 70 people are 
getting back to work very happy with the efficiency of your 
office. So we look forward to your testimony.

STATEMENT OF THE HONORABLE MEL MARTINEZ, SECRETARY, DEPARTMENT 
OF HOUSING AND URBAN DEVELOPMENT; ACCOMPANIED BY THE HONORABLE 
     JOHN C. WEICHER, ASSISTANT SECRETARY FOR HOUSING/FHA 
        COMMISSIONER, AND JOHN KENNEDY, GENERAL COUNSEL

    Mr. Martinez. Thank you, Mr. Chairman, and it is a pleasure 
to be here with you and Ranking Member Velazquez and other 
members of the Committee. I want to thank you for the 
opportunity to join you this afternoon to discuss a major 
initiative of our administration, which is an unprecedented 
effort to better protect consumers and increase home ownership 
by making the home-financing process more transparent, simpler, 
and less costly.
    Mr. Chairman, there may be fuller comments, which I would 
like to submit for the record, and I will try to abbreviate 
them just so that we can get to the questions I know the panel 
would like to ask.
    The emphasis Americans place on home ownership sets us 
apart from many other nations in the world. In this country, 
home ownership provides financial security for families and 
stability for children. It creates community stakeholders who 
have a vested interest in what happens in their neighborhood. 
It generates economic strength that fuels the entire nation.
    The Bush administration is committed to helping more 
families achieve the American dream of home ownership. However, 
the mortgage-finance process and the cost of closing remain 
major impediments to home ownership. Every day, Americans enter 
into mortgage loans, the largest financial transaction most 
families will undertake, without the clear and useful 
information they receive with most any other major purchase. 
The uncertainty hurts consumers and could also be a problem 
that would allow those who would prey on the weakest in our 
society to make them victims of predatory lending.
    Therefore, we are streamlining and improving the mortgage-
finance process. Our intent is to establish better and timelier 
disclosure for consumers so that they have an opportunity to 
shop for the best loan, to simplify the mortgage-origination 
process itself, and to eliminate the confusion and uncertainty, 
and ultimately to lower the settlement costs for home buyers. 
At the same time, the department is committed to issuing a 
final rule, fully mindful of the impact that it may have on 
small businesses.
    Beginning last year, we undertook a major reform of RESPA's 
regulatory requirements. From day number one, our efforts have 
been focused on fixing a process that absolutely no one will 
deny is broken. To do this, we reached out to consumer groups 
as well as small businesses and other representatives within 
the affected industry to solicit their concerns about the RESPA 
regulation and their suggestions for reform. Their 
recommendations helped to shape the direction of our work. 
During the months we spent drafting our reform proposals, we 
continued to meet with consumer advocates, industry groups, 
small businesses, and other interested parties to ensure that, 
to the best of our ability, their concerns were addressed in 
our draft proposal.
    We were methodical and deliberate in our planning, and we 
took our time to get it right. Nine months after first publicly 
announcing our intention to reform RESPA's regulatory 
requirements, and well over a year after our internal work had 
begun, HUD published a reform proposal for public comment. 
Within the rule itself, we solicited additional input from the 
consumer advocates, industry groups, small businesses, and 
other interested parties we had been communicating with 
throughout the process.
    The rule asked 30 specific questions to help us gauge the 
impact of our proposal on these various stakeholders. We felt 
it was critical to know whether the approaches that we proposed 
were the right ones and what alternatives might work better.
    H.U.D. received nearly 43,000 comments in response, and 
although many of them were form letters, we also found some 
very, very thoughtful comments. It has been 18 weeks since the 
comment period closed, on October 28, 2002, and we have since 
that time been carefully studying the written comments. Many 
came from mortgage brokers and title agents. Also, there were 
many detailed letters from trade associations for these 
industries.
    As you can imagine, reviewing and cataloguing the comments 
has been a lengthy process due to the sheer volume that we 
received. Many of those comments have come from small 
businesses, and I want to take this opportunity at this hearing 
to emphasize my commitment to ensuring the fullest 
consideration of the regulatory impacts on small businesses in 
our RESPA rulemaking.
    We regard this administration's RESPA reform and small 
business objectives as necessary and complementary. For RESPA 
reform to work, small businesses must continue to serve a 
pivotal role in an efficient and effective settlement process.
    Real estate settlement services are provided by many 
different businesses--mortgage lenders, mortgage brokers, 
realtors, real estate professionals, title insurers, title and 
settlement agents, pest inspectors, appraisers, credit bureaus, 
and others. Included in each of these industries are businesses 
ranging from the very large to the very small, and many our 
sole proprietors.
    The reason that small businesses perform the function they 
do in real estate settlement transactions is that these 
transactions are by their nature local. All housing markets are 
local. The local realtor, appraiser, settlement agent, home 
inspector, pest inspector, and mortgage broker or mortgage 
banker is ordinarily required to complete the transaction, and 
we do not expect this to change. At the time the rule was 
issued, the department issued its initial regulatory 
flexibility analysis, in accordance with the Small Business 
Regulatory Enforcement Fairness Act, along with its economic 
analysis of the rule. In it, the department analyzed the 
impacts of the proposal on small businesses as well as 
alternatives to the proposal. This analysis recognized the 
market impacts of packaging, particularly as they relate to 
small businesses. The analysis also indicated that packaging 
would not change the fact that locally provided, third-party 
services will be in demand but, rather, how their services will 
be sold.
    A number of comments addressed matters that were discussed 
in the initial regulatory flexibility analysis and proposed 
alternatives for our consideration. In the final rule, we will 
prepare a final regulatory flexibility analysis, including a 
summary of the issues raised in the public comments, a summary 
assessment of these issues, and a statement of any changes made 
in the proposed rule as a result of these comments.
    Let me stress that throughout this entire process we have 
been guided by the knowledge that the goal of RESPA is to 
ensure that settlement costs for consumers are reduced. Because 
they ensure greater transparency, our proposed reforms will 
make it more difficult for unscrupulous lenders to abuse 
consumers.
    Efforts HUD has undertaken in the past two years to target 
abusive lending practices include at least 15 new rules focused 
on, among other priorities, weeding out unscrupulous 
appraisers, ending the practice of quick resale or 
``flipping,'' and helping us to identify problem loans and 
lenders early on. We intend to do even more to address 
predatory lending while preserving a source of credit to those 
with less-than-perfect credit histories.
    H.U.D. is committed to creating a home-buying and mortgage-
finance process that protects consumers by being grounded in 
transparency and simplicity. By reforming the rules governing 
the purchase and financing of a home, we will create new 
opportunities for first-time home buyers, keep the American 
dream of home ownership alive for more families, and inspire 
greater public confidence in the mortgage-lending industry.
    Mr. Chairman, there are many issues about this rule which 
we look forward to discussing with the Committee in fuller 
detail. We know that there are suggestions that perhaps would 
include dealing with issues such as fee payments, which we 
believe are important to ensure a continuing confidence of the 
public in the process, that need to be dealt with, and we look 
forward to working with you and continuing to hear suggestions. 
What has been an open-door policy continues to be, and we look 
forward to hearing from any remaining industry groups and any 
comment they may make so that we can incorporate their views 
into our final rulemaking.
    We thank you for holding this hearing so that we can 
attempt to address the issues that may be on the minds of the 
members of the Committee.
    [Mr. Martinez's statement may be found in the appendix.]
    Chairman Manzullo. Thank you, Mr. Secretary. We appreciate 
your being here. My concern, as I read your testimony last 
night, and, again, you talked about abusive lending rules, is 
the fact that we all agree that there may be needs from time to 
time to tighten up the reporting requirements, tighten up 
enforcement, et cetera, and yet the conclusion is that the only 
way to do that is to enter into this risky area, untried, 
untested, of a massive contract bundling whereby the lender 
comes in with a guaranteed interest rate as part of the 
package, which means that only the people that can guarantee 
the interest rate, which are the mortgage lenders, will be the 
players.
    They will be the equivalent of the HMO. They will determine 
exactly who becomes a player with them. Section 8 will be 
waived. Hidden fees again will be allowed, so that for people 
to become a player, they actually have to give money back to 
the giant mortgage lender, which means that there is no 
guarantee that there will be any savings passed on to the 
consumer, and you can end up simply with the bank making more 
money, and the smaller service providers making a lot less 
because they have to pay their fee to the mortgage lender to be 
part of it.
    So what I do not understand is how can you make the quantum 
jump from the laudable purpose of ending abusive lending 
problems to going to his whole new area that will allow the 
contract bundling as being the cure for the problem?
    Mr. Martinez. Well, if I might try to answer your question, 
Mr. Chairman, I think that there are a number of reasons why a 
reform of the RESPA rule was timely. One of them, and perhaps 
not the most salient, is the issue of predatory lending, but I 
think that there are other issues that really arise, the cost 
to the consumer, for one, and the clarity and understanding of 
what the consumer is to expect at the closing table, I think, 
is also another.
    I believe that the rule should also include a prohibition 
against the kinds of abusive fees that you were referring to, 
but I think, beyond that, Mr. Chairman, the rule does not 
require that services be bundled and packaged. It deregulates 
the field so that it can take place.
    Chairman Manzullo. But that is what is going to happen.
    Mr. Martinez. We already are encouraged by the fact that 
mortgage brokers already seem to be approaching the field and 
trying to put packages together themselves.
    I also believe, Mr. Chairman, it is important to point out 
that currently there are some big players that already are 
packaging, and they do so within the confines of their 
businesses. So, in other words, if we do not change the current 
existing rules, those that are today packaging and succeeding 
at it will continue to do it but will only be able to do it 
within the confines of their corporate structure. It will then 
leave out the local, small player because they will not be able 
to participate.
    Chairman Manzullo. Do you really think that these 10 giant 
lenders are going to be dealing with the little guys by the 
time they are done with this entire shakeup of the mortgage 
industry?
    Mr. Martinez. Yes, sir. I believe they will. First of all, 
I do not think it will only be the 10, but I think that it will 
be to their advantage, financially and otherwise, to be dealing 
with the local providers of these services.
    Chairman Manzullo. But what we are seeing now is we are 
talking to some community banks, and they are not getting 
mortgages because some real estate firms have entered into 
contractual relationships with other banks.
    Mr. Martinez. But, see, that is the problem now.
    Chairman Manzullo. And I think we are going in the wrong 
direction on this.
    Mr. Martinez. No. That is the problem now because these 
packages cannot share fees or otherwise enter into 
relationships with people outside their company.
    Chairman Manzullo. But why would a package be the answer to 
the lack of enforceability?
    Mr. Martinez. No, no, no. It is not a lack of 
enforceability. Today, a package provider can do so so long as 
they do not share fees with people outside their company. So 
they then would be encouraged to continue to do what they are 
doing but will not be able to then contract with a local 
provider who may provide the title insurance or whatever, so 
they create title insurance companies that are captive. Then 
they create all of the wherewithal to provide the services but 
only within the confines of their firm.
    What we are doing here in deregulating the environment is 
allow packaging if it will happen. I do not think there is any 
certainty that packaging will have to occur. I think there is 
an equal opportunity for there to be those who will continue to 
provide services in the traditional way.
    Chairman Manzullo. But why is it that this is being driven 
by the 10 largest lenders in the country and being fought tooth 
and nail by all of the small business people that are players 
in real estate? This is one of the reasons we are having the 
hearing today. This is the Small Business Committee, as you 
know, and this is our great concern, is that whenever Mr. Big 
gets involved, Mr. Big is going to look out, the same way the 
HMOs do it. They will go to a doctor, and say, ``You are our 
doctor. This is what you are going to get paid.'' But does the 
price ever go down? No.
    Mr. Martinez. I believe, sir, first of all--I ought to 
assure you that I am equally concerned about what happens to 
the small businesses in the transaction, but I believe that 
what we are doing is allowing the continuation of these people 
to continue to do business in a closer semblance to what they 
are doing today than we would if we did not allow for the 
option of packaging for those who might elect to do it.
    The bottom line is that I believe that the closing and 
settlement services today, and the reason for RESPA existing in 
the first place is to provide an avenue for consumers to be 
well informed in the closing process and, wherever possible, to 
lower the cost to the consumer so that more and more people can 
avail themselves of that opportunity to own a home.
    So I believe that to suggest that only a few small, large 
businesses will survive in this environment, Mr. Chairman, 
would suggest that the marketplace just simply will not 
operate.
    Chairman Manzullo. Then what happens if I am right, and you 
are wrong? Then we have an oligopoly.
    Mr. Martinez. But then, see, what prompted regulation in 
the first place is when you have oligopolies or other things 
that are noncompetitive, government simply feels it must step 
in. What we are suggesting here is to deregulate, to allow the 
marketplace to set the tone of what they will and will not do, 
and I believe the rules of the marketplace are far more 
effective than government regulation imposing the inability for 
there to be competition. So it is as a result of that 
competition that fees will be lowered and that the consumer 
will receive and perceive a benefit.
    You know, tolerances in the good-faith estimate, 
unquestionably, are the kinds of things that when people go to 
the closing table today, oftentimes receive a surprise when 
they get there of how much, in fact, the check they need to 
write will be for. So we will make less tolerances in the good-
faith estimate.
    Chairman Manzullo. My time has expired. That problem could 
be taken care of by simple regulation. Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman. Mr. Secretary, 
please help me out. You know, I am a member of the Financial 
Services Committee, and I guess that we both attended the same 
hearing where you testified on the budget on the RESPA rule. At 
that hearing, the gentleman from Missouri, Mr. Clay, asked you 
if this proposed rule will help combat predatory lending. You 
say no. Today, you are saying, yes, it will do it.
    Mr. Martinez. No. What I am saying to you very clearly is, 
and I hope I am being consistent in this, is that the purpose 
for us deriving this rule is not as an attack on the 
possibility of predatory lending. We do a whole host of things 
to attack predatory lending, but I believe that if you have 
mortgage broker abuse, as was evident in the yield-spread-
premium problems that we have been facing and continue to face, 
that it is easy for someone not to understand the current 
process and also fall prey to that issue.
    So to the extent that the consumer has better clarity, it 
does not eliminate the need for continued enforcement and maybe 
even further legislation on the issue of predatory lending, but 
it darned sure helps the consumer, when they sit at the 
settlement table, to better understand the process, to better 
understand what they are signing and what they are paying for 
because when you have a package set of services, there is one 
fee, they know at the front end what they are going to pay for 
their interest rate, and they know at the front end what they 
are going to pay for their closing costs, and it is not going 
to change. So they go to the table knowing what they are going 
to get. Today, that can vary greatly.
    So the purpose for doing this is to modernize, is to 
improve the process by which consumers buy a home, and also to 
lower the cost for consumers, first and foremost.
    Ms. Velazquez. And we could achieve that, but at the same 
time we have to comply with statutes that we pass here in 
Congress, and one of those is the Regulatory Flexibility Act. 
Our task here is to protect small businesses, but, of course, 
it cannot be at the expense of consumers either, and you will 
not find a more pro-consumer member of Congress than this one 
that you have in front of you, but I am glad to hear that you 
at least mentioned small business in your testimony, but you do 
not provide specifics. In your ongoing analysis of the effects 
on small business, which specific part of the rule are you 
taking take into consideration?
    Mr. Martinez. Ms. Velazquez, let me say, first of all, and 
I want to ask Mr. Weicher perhaps to chime in on this answer, I 
know your concern not only for consumers. If you think what is 
good for consumers is a good thing, then you are going to like 
this RESPA reform because it is good for consumers. The AARP 
solidly supports it. Other consumer groups very much support 
it. The bottom line is that this is good for consumers.
    You are also interested in home ownership by minorities. I 
know you are. This is a way that when you can lower the cost at 
settlement by $700, that is like allowing how many more people 
now to buy a home that otherwise would not be able to get it. 
So the specifics of it, I am happy to try to answer, and that 
is why we have the technical people here with me so that we can 
do that, and I will be glad for Mr. Weicher to try to answer 
your specific question.
    Mr. Weicher. Yes, Ms. Velazquez. With respect to where in 
the economic analysis we discuss each part of the rule, you 
will find that chapter three of the analysis discusses the 
good-faith estimate and the issues related to that concerning 
regulatory burden and impact. And chapter four addresses 
packaging.
    Ms. Velazquez. Do you do that by industry? Are you putting 
all of them together, land title insurance, realtors, and 
mortgage brokers?
    Mr. Weicher. No. We have separate calculations for mortgage 
brokers and some specificity because of the yield-spread-
premium issue because that is the biggest of the settlement 
services, and we also have discussion of other settlement-
service providers as well. There is a discussion of each of the 
major service providers in each chapter.
    Ms. Velazquez. But you have to provide economic analysis 
for every industry.
    Mr. Weicher. We have provided economic analysis for the 
settlement-services industries. We think we have met the 
requirements of the Small Business Regulatory Enforcement 
Fairness Act with respect to that, and we will continue to do 
so.
    Ms. Velazquez. Hold it right there. The Office of Advocacy 
has indicated that they believe HUD needs to submit a revised 
economic analysis, an initial regulatory flexibility analysis 
that takes take into consideration the comments you have 
received from small businesses and does an industry-by-industry 
analysis of the economic impact of this rule. Will you commit 
to submitting such a revised analysis?
    Mr. Weicher. We will have a final regulatory flexibility 
analysis as part of the final rule, and we will incorporate the 
comments that we have received----.
    Ms. Velazquez. Isn't that too late, sir?
    Mr. Weicher. It is our understanding that that is the I 
requirement of the Small Business Regulatory Enforcement 
Fairness Act, and that is what we are expecting to do.
    Ms. Velazquez. I am aware that you met, Mr. Secretary, 
several times with industry representatives prior to proposing 
this rule, and what really concerns me is that despite these 
meetings, we sit here today, and virtually every sector of the 
industry opposes your rule. So clearly you did not take into 
consideration their concerns. Perhaps this situation will be 
aided by going out into the field and listening to the 
firsthand accounts of the business owners who believe that they 
will be driven out of the market by this rule.
    Mr. Martinez. Ranking Member Velazquez, let me say that we 
have carefully listened to members of the industry, varied 
members of the industry. We are in the process of continuing to 
listen, and as we have listened, we have modified what will 
ultimately be the final rule. We have made considerable 
adjustments to the disclosure for mortgage brokers, for 
instance. There are very helpful suggestions that we have 
received on that. There have been suggestions on how the good-
faith estimate might better serve the interests of consumers. 
We have looked at that as well. There have been those who have 
suggested that perhaps a two-package system might be a better 
way to look at it. We are also considering that very carefully.
    I do not believe that in good faith anyone who may oppose 
the rule, and, by the way, I think there is a number of people 
who are very supportive of the rule, some that are supportive 
of parts of it and do not like other parts of it, but one thing 
I think we do have fairly unanimous support is from a group you 
consider important as well, which is consumers, and I think 
that is a very good thing. And also I think the FTC, when they 
looked at our plan, has commented that in response to our 
proposal that they believe that it will promote competition and 
that it will lower the cost of settlement services for 
consumers.
    These are all good things, but I do not believe in good 
faith. Anyone could suggest that we have not been attentive and 
had an open door to anyone who cared to comment on the rule, 
and we have been very, very studious about listening. I have 
insisted on that. We are continuing to do that, and we will try 
to incorporate many of the helpful suggestions we have received 
as we go to final rule.
    Chairman Manzullo. Thank you, Mr. Secretary. Mr. Shuster. I 
would like everybody to have a shot. If you could just give us 
your best question, and then we can move as rapidly to the 
other members as possible.
    Mr. Shuster. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary, for being here today. My question, I guess, echoes 
what the chairman and the Ranking Member were talking about. My 
concerns are the costs to small business in this country. If we 
are not concerned with small business, we are almost robbing 
Peter to pay Paul. Driving small business people out of the 
market is not something I want to see because they are the very 
people working for them that are utilizing this and buying the 
homes.
    So are you confident in your estimates because there is 
some concern out there in the various industries that you have 
underestimated the costs to small business?
    Mr. Martinez. Mr. Shuster, I believe that we have tried to 
equitably look at the problem. I think we have also allowed for 
the fact that most of us--I know I believe in the marketplace. 
I believe that when government regulates, government ought to 
regulate to prevent a harm or to do something that ought to 
maintain the opportunity for competitiveness. What this does, 
this is deregulating. We have a regulation now that is freezing 
in place any evolution of the marketplace. We believe that this 
is not only good for consumers, but, frankly, as in other 
business setting, as in any other arrangement, those that will 
adjust and will adapt to the changed environment will do well. 
Those that will remain rooted in the ways of the past perhaps 
will not do as well.
    So there is no way we can guarantee that everybody is going 
to do well in this scheme, but I think those that are on top of 
it, who adjust to it, who come up with creative solutions that 
are ultimately good for the consumer because the consumer is 
ultimately going to determine where they go. There may be some 
who want to offer traditional packages or traditional services 
without packaging, and if the consumer finds that more 
appealing, they will do that. In addition to that, the option 
of including in the package individual, itemized services can 
also be there, and if the consumer finds that more attractive, 
they will gravitate to those.
    So I do not think we need to fear the marketplace because I 
think ultimately that is what makes America work. That is how 
small businesses prosper.
    Mr. Shuster. And I agree with you, and I do not fear the 
market. I just want to make sure that when we move forward with 
this rulemaking that we are not underestimating the cost to 
small business because it seems that every time government acts 
for the good of business, it seems to pile on regulations and 
paper that is unnecessary.
    Mr. Martinez. This is in the vein of deregulation. This is 
in the vein of less paper work, and so, in that context, I 
believe we are very much on the side of small business as it 
relates to those issues.
    Mr. Shuster. Thank you.
    Mr. Martinez. Thank you, sir.
    Chairman Manzullo. Dr. Christian-Christensen, your best 
question.
    Mrs. Christensen. My best question? Okay. I am concerned 
with whether HUD has the statutory authority to move forward 
with these revisions, specifically, I guess, with regard to the 
packaging and the rewriting of Section 8, which then seems to 
weaken RESPA with respect to referral fees or kickbacks and 
also the GFP. Are you certain that you have the authority to 
move ahead with these revisions? I am not so sure.
    Mr. Martinez. We have very, very certain opinions from our 
general counsel's office that we do have the legal authority to 
proceed in this light. Mr. Kennedy is here from our general 
counsel's office, and I will let him briefly continue the 
response.
    Mr. Kennedy. Are you referring to the reg flex statutory 
authority or the more general authority to provide for 
exemptions for the packaging?
    Mrs. Christensen. The more general authority to provide for 
revisions--specifically, I think in rewriting Section 8, I do 
not know that you have the authority to do that or on the issue 
of the good-faith estimate requiring up-front pricing.
    Mr. Kennedy. Okay. On the good-faith estimate, when we 
looked at the language surrounding the good-faith estimate, 
what we realized is that in the regulations up to this point 
there was no context, there was no definition of what that 
meant, so what we were doing in this rule was giving a 
definition to good faith. Certainly, we think we have the legal 
authority, but, in addition to that, by talking to the industry 
groups, all of the industry groups, it became clear to us that 
people in business know what their costs are. So, for example, 
if you are the person that is providing the good-faith 
estimate, and you know what your costs are in your business, 
then a good-faith estimate from you, which is what you would 
get from probably any business, is your cost.
    Now, in the good-faith estimate, there are costs that are 
not in your control, that are not your settlement services, but 
in putting out your good-faith estimate, you, as a prudent 
business person, are going to go to the marketplace and find 
out what those services are. In the proposed rule, we 
recommended 10 percent. That was the proposal for the third-
party settlement services that you would include in the good-
faith estimate.
    Chairman Manzullo. Mr. Beauprez.
    Mr. Beauprez. Thank you, Mr. Chairman. Let me start off by 
just echoing your comments. I think you said it very well. Mr. 
Secretary, thank you very much for being here today.
    As you may remember, I am one of those small guys. I was a 
community banker until a couple of months ago when I got this 
job, and our bank actually did originate mortgages as a broker, 
and I also served not only as a community banker for 12 years; 
I served as president and chairman of our state community bank 
trade association and served on the National Association of 
Independent Community Bankers of America. That is an 
organization that represents 5,000 community banks around the 
country, Mr. Chairman, and I would be remiss if I did not point 
out very briefly that at the end of their testimony recently 
to, I think, the Financial Services Committee, after 
summarizing this rule, they said, ``Accordingly, we strongly 
urge the Committee to encourage HUD to reconsider the proposed 
rule,'' and it goes on.
    Mr. Secretary, I applaud the effort very much. I very 
sincerely applaud the effort, but having not only been on both 
sides of that table, I recently did three refinances, so I have 
been on the other side of the closing desk as well, I would 
hasten to point out--I would actually challenge--I know a 
little bit about that business--I have closed loans myself--I 
would challenge almost anyone to sit down at the closing of a 
mortgage loan and feel that they fully understand the multitude 
of forms that they have been given, either in the application 
process or at the closing process.
    So I would ask you, echoing the chairman's comments and 
others, I do not really believe that this is in the best 
interest of the marketplace, and I respect your intent, but, in 
reading this, I really question whether or not it levels the 
playing field. Five thousand community banks that are very much 
involved in dealing with their communities are clearly opposed 
to it in spite of the 10 banks or so that seem to favor it. I 
think one can lead to their own conclusion as to why that might 
be.
    Chairman Manzullo. Okay. Conclude your question.
    Mr. Beauprez. Where are we cutting regulation? Where are we 
truly simplifying process? I wrote down 15 new rules to do so, 
but I do not see correspondence of cutting back and making it 
simpler other than for those banks that can vertically 
integrate and control the entire process.
    Mr. Martinez. First of all, we will allow for the first 
time a clear disclosure of mortgage broker fees, which will be 
disclosed to the consumer. They will know they are paying the 
mortgage broker and how much.
    Mr. Beauprez. To the broker but not the mortgage banker. 
That is where the disparity exists.
    Mr. Martinez. Well, to the broker who is involved in that 
part of the process. The banker does not charge a direct fee.
    Mr. Beauprez. The mortgage banker can make as much as they 
want, and the customer never knows the difference.
    Mr. Martinez. Sir, the problem is that at the settlement 
table we can only deal with those fees that are paid at that 
time, and the broker fee----.
    Mr. Beauprez. That is the inequity that chases the little 
guy out of the marketplace.
    Chairman Manzullo. Let us take one more question from Ms. 
Majette.
    Mr. Weicher. Mr. Chairman, may I just respond?
    Chairman Manzullo. I tell you what. Why don't you respond 
to that after the Secretary leaves?
    Mr. Weicher. All right.
    Chairman Manzullo. Would that be okay?
    Mr. Weicher. Sure.
    Chairman Manzullo. Can we take one more question, Bill?
    Mr. Martinez. Yes, sir.
    Chairman Manzullo. Let us do it in two minutes, Ms. 
Majette, and then he has to be out of here.
    Ms. Majette. Good afternoon. Thank you, Mr. Chairman, and 
thank you for being here, Mr. Secretary. I, like my colleague 
across the aisle, have some experience in this area. When I was 
a practicing attorney, part of what I did was closing real 
estate. I did closings of sales of real estate, and my small 
business was a contractor for the Resolution Trust Corporation, 
and during that period of time, we literally closed, I would 
say, thousands of loans for homeowners and the purchasers, and 
I can tell you from my own experience, not including the other 
experiences that I know of the many realtors that I am aware 
of, that the settlement statement is not the easiest thing to 
read. But it is not that difficult to inform the person before 
they come to closing as to what exactly the costs are going to 
be if there is some variance from what was stated in the good-
faith estimate as it currently works.
    Sometimes you will have situations in which there is going 
to need to be a variance, a significant variance, depending on 
title-research issues, lots of different things that can impact 
the amount that is listed on the good-faith estimate and what 
somebody may have to bring to the closing table. But I cannot 
remember any time when we were not table to deliver that 
information and have the realtor inform someone that they would 
need to bring a certain amount before they showed up at the 
closing table.
    The changes that are being proposed I do not think will 
really address that issue, and that issue being that the 
consumer needs to know what the expenses are in a clear way, 
and I would ask the question, how really effective do you think 
this is going to be in terms of the everyday experiences of 
purchasers, and is it really that much of a problem that people 
are not getting the information before they show up to closing 
because that has not been my experience and has not been the 
experience of so many of the other realtors that I know?
    Mr. Martinez. I believe that what you describe is usually 
not the exception but the rule, that there is additional fees 
or additional charges or additional monies that the person must 
bring. The problem which you describe is while they may have 
found out about it, they may have found out about it three days 
before closing, they will know how much they need to bring on 
the day of closing. It will not be just a complete and total 
surprise, hopefully, particularly with credible folks at the 
table, as you, I am sure, were when you were doing the 
business.
    The problem is that at the time they have options, at the 
time they can shop for services, they do not know what the 
total fees are going to be, and that is a fundamental flaw in 
the system now that we are attempting to correct, is to give 
the consumer that early opportunity to be fully aware of what 
they are getting into and what they are going to be paying so 
that they can then have an opportunity to be prepared to shop 
for services elsewhere.
    What we are doing now is opening the opportunity for a 
consumer to be so well informed early enough in the process to 
shop for the best and cheapest services available. That, I 
believe, is good for consumers. It may also alter how 
businesses have to do business, but I believe, at the end of 
the day, if the goal of RESPA is to improve the playing field 
and the cost towards the consumer, that the change to RESPA 
does exactly that.
    Chairman Manzullo. Wait just a second. We have gotten a 
high sign from your people, Mr. Secretary, that you have to 
leave. You fit us in the middle of a horrible schedule, and I 
want to thank you for spending 40 minutes with us, and----.
    Mr. Martinez. You really have the great technical people 
here who know a lot of the answers.
    Chairman Manzullo. You have done a good job yourself, too, 
Mr. Secretary.
    Ms. Velazquez. Mr. Chairman, can I just make a comment 
here, please? As you can see, there are more questions than 
answers here, and a lot of us continue to have some concerns 
and questions. Would you commit yourself to come back to this 
Committee once you finalize the rule?
    Mr. Martinez. The gentlemen that I am leaving behind are 
the people who are technically involved in this day to day and 
have answers to all of the technical issues that are involved 
in the rule. At the call of the chair, I would be very happy to 
consider any invitation the Committee might issue, but I do not 
want to leave you with the impression that we are not willing 
to answer questions. We have been, Ms. Velazquez, very, very 
engaged with everyone in this industry, and I think you would 
be hard pressed to find someone who could tell you that the HUD 
door was closed to them, that they could not come in and tell 
us what they thought, what their concerns were, and that they 
did not have a receptive ear. At some point, we may agree to 
disagree with some people, but we have been receptive, and we 
have been listening.
    Chairman Manzullo. Mr. Secretary, again, thank you for 
coming, and you are excused.
    Mr. Martinez. Thank you.
    Chairman Manzullo. Thank you so much.
    Let us continue with the questions. Mr. Bartlett, I want to 
go back to the five-minute clock, and then I will make sure 
that those that got--have an opportunity to talk to Mr. Weicher 
and Mr. Kennedy. Mr. Bartlett?
    Mr. Bartlett. Thank you. You all----.
    Chairman Manzullo. Before you do that, if I can interrupt 
you. You had wanted to make a comment, Mr. Weicher, and I cut 
you off. Did you want to finish that thought?
    Mr. Weicher. If I may, thank you.
    Chairman Manzullo. Then we will recognize you, Mr. 
Bartlett.
    Mr. Weicher. Thank you, Mr. Chairman. This is with respect 
to Mr. Beauprez's question and the discussion we were having 
with respect to the big guys and the little guys in mortgage 
origination. About 60 percent of the loans in America are now 
being originated by mortgage brokers. Ten years ago, it was a 
much smaller percentage. The mortgage brokers, the small guys, 
have been taking market share away from the lenders, from the 
bigger guys, and that is fine. That is the way the market has 
worked out. The brokers have been more flexible. They have been 
able to operate with lower capital requirements, and they have 
provided a service that home buyers and other participants in 
the settlement-services market have been willing to accept. We 
do not believe that anything we are doing is going to interfere 
with that process by which small firms have been an 
increasingly important part of the market.
    May I also say, with respect to the 15 rules, we are doing 
a number of rules, 15 rules, concerning predatory lending in 
FHA loans? As FHA commissioner, I have responsibility for that 
area, and we at HUD only have responsibility for predatory 
lending issues, deceptive and misleading practices in the real 
estate market insofar as it concerns FHA mortgages. The 
predatory lending issues in general are the responsibility of 
the financial regulators: the Federal Reserve, the Federal 
Deposit Insurance Corporation, the Office of the Comptroller of 
the Currency, the Office of Thrift Supervision, and so forth.
    Mr. Beauprez. Sir, may I?
    Chairman Manzullo. Let us go to Mr. Bartlett.
    Mr. Bartlett. Thank you. You have a proposed rule that you 
have circulated. You have gone through a comment period. You 
have gotten a lot of comments. Your appearance here today 
reflects the reality that a number of those comments have been 
concerns by the small business community. You now take these 
comments, and you make changes, or you do not make changes in 
your proposed rule, and then you will publish a final rule.
    There has to be a certain pride of authorship here, and my 
question is, whose counsel do you seek to make sure that you 
have really fairly evaluated the concerns of small business so 
that at the end of the day your rule will reflect a reasonable 
consideration of those concerns?
    Mr. Weicher. Mr. Bartlett, we have been meeting, Mr. 
Kennedy and I have been meeting, along with our colleagues, 
with industry groups and consumer groups and everyone who said 
they wanted to meet with us, going back to before we issued a 
clarification on our policy statement on yield-spread premiums 
back in October of 2001. We have been meeting with groups that 
are concerned about this issue, the issues relating to RESPA, 
for very close to two years, and we continue to do that. We 
have meetings on the schedule, one or another meeting, almost 
daily with organizations that want to meet with us on this 
issue.
    We seek the counsel of anyone who is concerned about this 
issue, and we take the counsel that we receive very seriously. 
We are working to incorporate the suggestions of the groups 
that we have met with, given our purpose of making RESPA 
consumer friendly so consumers know what they are paying for a 
loan, for the settlement services, and are able to shop 
effectively for the best deal for their standpoint.
    I do not think any of us have pride of authorship in 
anything. I think, by the end of the day, no one will have a 
clue who wrote any particular sentence in the final rule, 
whatever it says.
    Mr. Bartlett. That is the department. It would not be human 
nature if you did not have some pride of authorship.
    My question really was not who you seek counsel with as you 
look at whether or not you are going to change the rule, but 
whose counsel do you seek at the end of the day that the final 
rule you come up with has, in fact, addressed the legitimate 
concerns of the small business community? There needs to be an 
honest broker somewhere here. There has to be someone whose 
counsel you value that you seek before you come out with this 
rule so that you will be sure that you have, in fact, addressed 
the legitimate needs of the small business community. Whose 
counsel do you seek to do this? It cannot be your own counsel. 
You cannot have a conversation with yourselves and say that you 
sought counsel.
    Mr. Weicher. Any final rule, as we write it, will be 
reviewed by the Office of Management and Budget's Office of 
Information and Regulatory Affairs, who have up to 90 days to 
review the comment, to ask for clarification. They constitute a 
review process, an informed review process, on behalf of the 
president and on behalf of the Executive Office of the 
President, and there is a give and take as to what the final 
rule will be, based on the conversations we have with them and 
the issues we raise with them.
    Mr. Bartlett. Is the Office of Advocacy at the table during 
this final deliberation?
    Mr. Weicher. The Office of Advocacy is part of the 
government, and the Office of Advocacy can be consulted by OMB 
and has been consulted by us.
    Mr. Bartlett. Are they? Are they sought by you?
    Mr. Weicher. Our staffs have been meeting with staffs of 
the Office of Advocacy.
    Mr. Bartlett. At the end of the day, will the Office of 
Advocacy be at the table when you are seeking counsel as to 
whether the rule you have finally come out with meets the needs 
and concerns of the small business community?
    Mr. Weicher. We will be meeting with them straight through 
the process.
    Mr. Bartlett. Including at the end of the day, at the final 
table.
    Mr. Weicher. OMB sets the final table. That, I cannot speak 
to, sir.
    Mr. Bartlett. Thank you. Thank you, Mr. Chairman.
    Mr. Kennedy. If I could just add to that for a second, 
Congressman Bartlett, this whole RESPA debate, I want to assure 
you that it is not something that came up suddenly, we looked 
at it, and put out a rule. This particular discussion has been 
going on at HUD. Dr. Weicher, in a previous life, was at HUD 
when he was starting this analysis of RESPA. There was a HUD 
treasury report. There was a HUD Federal Reserve Bank report. 
There was a private-industry group; they met for, I think, 18 
months to discuss options for improving RESPA, and at that 
table were all of the same groups, including the groups that 
you represent. They have been at the table for this very long 
discussion of ways that everyone is looking forward to improve 
the settlement process and make it cheaper, wherever possible.
    I can assure you, this is not something that came up 
suddenly and is being pushed by any particular group. It is 
being pushed by the Secretary, and he is seeking the advice and 
counsel of all of the groups that you are concerned about.
    Chairman Manzullo. Thank you. Congresswoman Bordallo.
    Ms. Bordallo. Thank you, Mr. Chairman, and Mr. Secretary is 
gone now, but the gentlemen before us. You stated that this 
rule would streamline and reduce the burdens on small business, 
yet your economic analysis says that this will increase burden 
hours by 2.5 million on small businesses. Can you explain that? 
That does not sound like streamlining to me.
    Mr. Weicher. There are several matters that give you that 
final figure. There will be a certain amount of transition, 
getting used to the new rule. There will be what we consider a 
one-time cost for the individuals who are in the industry to 
understand what is being done. We calculate that, and that is 
part of what we expect to see. We expect it to be, certainly, a 
one-time change. There will be that in any instance.
    Beyond that, we are reducing regulatory burden in the 
revised good-faith estimate compared to the current good-faith 
estimate on everyone in the loan-origination process other than 
the lender, who provides the good-faith estimate. For the 
lender, there will be additional regulatory burden because 
there will be the need to put together that good-faith estimate 
and to do the paper work associated with it. Other settlement 
services providers, small businesses, by and large, will not 
have the regulatory burden that they now have under the current 
good-faith estimate.
    With respect to packaging, there is no regulatory burden. 
That is a voluntary decision by individual firms as to whether 
to put a package together and whether to participate in the 
package. We are imposing no burden on anyone. But if you add up 
the burdens that will fall on the lender in the transition, 
then there is some burden. There is an unavoidable burden in 
any regulatory change of any sort or any legislation that 
Congress passes that will fall on those who effectively have to 
get used to doing things differently.
    Ms. Bordallo. So what you are saying, then, that the 
estimate is a one-time only.
    Mr. Weicher. A good part of it is a one-time only estimate. 
There will be a continuing burden in preparing a good-faith 
estimate for the lender who assumes the responsibility for 
putting it together.
    Ms. Bordallo. Do you have any estimates on those figures?
    Mr. Weicher. Those are the figures I quoted to you.
    Ms. Bordallo. For the future.
    Mr. Weicher. Yes. The figure you quoted includes both the 
one-time cost and the ongoing cost.
    Ms. Bordallo. What about the continuing?
    Mr. Weicher. And the continuing. It includes both the one-
time cost and the continuing cost.
    Ms. Bordallo. Thank you. Thank you, Mr. Chairman.
    Chairman Manzullo. Mr. Bradley?
    Mr. Bradley. Thank you very much, Mr. Chairman, and thank 
you to the gentlemen who are here. This certainly appears to be 
a very significant proposal that you have put forward, and it 
would appear that there are groups all over the place on this 
proposal with a lot of opposition and perhaps some in support 
of it.
    My question goes to your data collection, your research, 
your analysis. Given the fact that there has been so many 
questions raised by this proposal, is it appropriate for you to 
go back and conduct additional research and data analysis 
before going final with this rule and taking into account some 
of the positions of the various small business interests, and 
will you make that before this rule becomes final?
    Mr. Weicher. Mr. Bradley, we have received the comments of 
many entities and the suggestions from many entities--small 
businesses, consumer groups, and others--as to issues that we 
should be looking at. We are doing that in the process of 
preparing the final rule, as we are required to do, and we will 
look at the issues that they raise with us, do whatever 
additional analysis we need to do in order to establish the 
facts of the impact on small business and consumers and the 
economic impact as well as the regulatory flexibility analysis, 
and that will be part of the final rule, which is the statutory 
requirement and procedure.
    Mr. Bradley. And potentially you will alter, then, some of 
the provisions of the rule that seem to be attracting the most 
scrutiny. Is that what I am hearing you say?
    Mr. Weicher. Mr. Bradley, as I understand it, we are not 
really in a position to discuss specific changes that we 
contemplate in public. As Mr. Kennedy would point out, there 
are concerns about the Administrative Procedures Act. I can 
tell you this. I have been involved in a number of regulatory 
matters at HUD, a number of regulations at HUD. I have never 
seen a final regulation which was identical to the proposed 
regulation, unless we literally got zero comments.
    Mr. Bradley. Thank you.
    Chairman Manzullo. Mr. Davis.
    Mr. Davis. Gentlemen, I have been speaking with people in 
the industry who suggest that this rule will actually force 
some small businesses in the industry out of business. If that 
is the case, then this reduces the competition. If competition 
is reduced, how does that benefit the person seeking a loan?
    Mr. Weicher. We do not think that the rule is forcing 
anyone out of business at all. We think the rule is providing 
information to consumers to enable them to make informed 
choices as to what loan and what service providers are the best 
from their standpoint. That has been a driving motivation in 
preparing the rule.
    We also think that clarity, simplicity, the opportunity to 
shop for a loan expands the overall market, makes home 
ownership possible for more families who now cannot get through 
the process of originating a loan, cannot really understand 
exactly what they are doing and drop out. We think that this 
rule will contribute to the goal of increasing home ownership 
in America and to the president's specific goal of increasing 
minority home ownership in America by five and a half million 
more households by the end of the decade.
    Mr. Davis. Given that nonlenders cannot guarantee interest 
rates, it would appear to put them at the mercy of lenders. 
Would you agree with that, first of all?
    Mr. Weicher. No, Mr. Davis, I would not. I think you need 
all of the services to have a loan. To have a transaction, you 
have to have a loan, you have to have a broker, you have to 
have title insurance, you have to have an appraisal, and you 
have to have pest inspection. All of them are necessary to put 
a loan together. You do not have a package, and the package has 
to be a guarantee of a loan, you do not have a package without 
all of the services that are required for the package. If you 
do not have all of the services in the package, then, as I 
understand it, you are violating a contract which you are 
making when you sign the guaranteed mortgage package.
    I think all of the services that are necessary will be 
included in a package, or you do not have a guaranteed mortgage 
package, and all of those services continue to be needed for 
the benefit of either the lender or the consumer or both going 
forward.
    Mr. Davis. Thank you very much, Mr. Chairman. I have no 
further questions.
    Chairman Manzullo. Ms. Musgrave.
    Ms. Musgrave. Thank you, Mr. Chairman. I would certainly 
like to reiterate what many of my colleagues have said, 
specifically that this will harm small bank competition and 
effectively limit choice in the number of quality of loans that 
will ultimately harm consumers.
    Many concerns have been voiced to you today, but there is 
one that has not been voiced. I am wondering about enforcement. 
I represent the State of Colorado, the Fourth District in 
Colorado, and it is my understanding that we have one HUD 
officer for the State of Colorado, and as if that were not bad 
enough, that individual has responsibility for four other 
states. Can you tell me how this proposed rule will help us in 
the area of enforcement?
    Mr. Weicher. Enforcement is a separate matter, Ms. 
Musgrave. As Assistant Secretary for Housing, I have the 
responsibility for the enforcement staff. There is an Office of 
Regulatory Affairs, which reports to me and which investigates 
RESPA complaints. We then work with the Office of General 
Counsel and perhaps with the inspector general and perhaps with 
the Justice Department on investigating complaints.
    We are now in the process of substantially expanding our 
enforcement staff. We are literally tripling the number of 
people who are devoted to RESPA enforcement within the 
department. I cannot tell you how many more----.
    Ms. Musgrave. So will this be a new day with enforcement, 
then, as you pile more regulations on top of the others?
    Mr. Weicher. With respect, Ms. Musgrave, we do not believe 
we are piling new regulations on. The guaranteed mortgage 
package is not a requirement of anyone. It is an option, and 
the good-faith estimate is a requirement that consumers be 
given information early enough so that they can make an 
informed decision. Violations of RESPA will be enforced as 
effectively as we can. The biggest violation we hear of now, 
the biggest complaint we hear of now, is, quoting a typical 
complaint, ``I came to close, and at closing I suddenly had to 
have $700 more, and I do not know why, and I do not know what 
it was for, and my choice was either to pay the $700 or risk 
losing the house.''
    Ms. Musgrave. I think that when you harm small business, 
and I know you have heard many concerns from my colleagues on 
both sides of the aisle today about their concerns about that, 
you ultimately will harm the consumer. I am hoping that you 
will delay these rule changes and get more input.
    Mr. Chairman, in order that I not rehash what has been 
said, I have two letters that I would like to submit today from 
Colorado Mortgage Lenders Association and then from Former 
United States Senator Bill Armstrong from the Cherry Creek 
Mortgage Company, and I would say to you that these proposed 
changes will probably benefit folks like these, but they are 
saying that we have to level the playing field, not do 
something that will even make the problem worse than it is now. 
Thank you, Mr. Chairman.
    Chairman Manzullo. The letters will be admitted without 
objection. Mr. Chabot?
    Mr. Chabot. Thank you, Mr. Chairman, and we thank the folks 
on the panel for being here this afternoon. I apologize for 
being a little bit late, but I had to handle two bills on the 
floor.
    Before I address the proposed RESPA reform, I want to make 
sure that HUD is aware of a critical problem that many of my 
constituents back in Cincinnati are having with the local 
housing authority. Specifically, the Cincinnati Metropolitan 
Housing Agency, CMHA, has been unresponsive, amid vigorous 
community opposition, to the proposed demolition of English 
Woods, which is a public-housing community in my district.
    The demolition is opposed by the residents who live there. 
It is opposed by the surrounding neighborhoods. It is opposed 
by the City of Cincinnati and the Cincinnati City Council. It 
is opposed by their congressman, me, and despite the fact that 
CMHA does not have a workable plan for funding for 
redevelopment of this particular site, they have really taken a 
very confrontational approach, hoping, I believe, that once the 
demolition is completed, the city or us, the federal 
government, will be forced to provide money for some type of 
redevelopment effort.
    I am sure you would agree that these heavy-handed tactics 
are inappropriate, that housing authorities have a 
responsibility to work in partnership with the local community, 
which CMHA has not done in this particular instance. CMHA has 
filed a demolition application to you all, to HUD, and I urge 
you not to issue a permit until CMHA addresses these concerns. 
If you would convey that to the Secretary, I would certainly 
appreciate it.
    Mr. Weicher. Mr. Chabot, if I may respond to that, that 
decision lies within the Office of Public and Indian Housing as 
opposed to the Office of Housing or the Office of General 
Counsel. I will bring that back to my colleague, Assistant 
Secretary Michael Lieu.
    It happens that I was part of a group of senior HUD 
officials who met with a delegation from National People's 
Action last week, including a resident of English Woods, who 
described to us her concerns and the concerns of the residents, 
which are very similar to the concerns that you stated. Again, 
it is not the part of HUD for which I am responsible, for which 
Mr. Kennedy is responsible. It has been called to our 
attention, and I will carry your concerns back to my colleagues 
as well.
    Mr. Chabot. I appreciate that very much, and I thank you.
    I would also like to state my strong support for your 
efforts to provide more clarity and greater disclosure to the 
home-buying process. Encouraging greater transparency will give 
consumers the ability to make more informed choices. While I 
recognize that HUD's goal in formulating this rule was to 
simplify the mortgage-financing process, ultimately leading to 
increased home ownership and, hopefully, saving consumers 
money, I am concerned, as many of my colleagues are, and many 
have expressed it already, as my staff informs me this 
afternoon, that some of the elements of this proposal may 
actually cause even greater confusion among consumers and lead 
them to make poor decisions.
    I also have reservations about the rule's potentially 
negative impact on competition and on small businesses. This 
has, again, been mentioned already this afternoon on more than 
one occasion.
    I would like to ask you a question, and I know, as I say, 
it has already been touched on, but regarding the enhanced 
good-faith estimate and the disadvantage mortgage brokers would 
face when it comes to zero-point loans, under the proposed 
rule, a mortgage broker and a mortgage lender might charge a 
consumer the same rate and closing costs for a mortgage loan, 
but if both receive indirect compensation, only the mortgage 
broker must show this as direct compensation. This means that 
for the very same loan a lender can advertise and show his 
customer a zero-point loan. The mortgage broker cannot. While 
this is a clear competitive disadvantage for small mortgage 
brokers, it also puts consumers at a disadvantage, making it 
very difficult for home buyers to accurately compare their 
options.
    Will HUD address this discrepancy before finalizing the 
rule?
    Mr. Weicher. The issue you are raising is an old one in 
RESPA. It is the problem of what we refer to as the ``secondary 
market exemption.'' A lender cannot know at closing what the 
lender will be paid in the secondary market for the loan, and 
that is the equivalent of the yield-spread premium that the 
broker charges the consumer, because, as the Secretary was 
saying, we cannot address what payment a secondary market, 
either the GSEs or anyone else in the secondary market, will 
make for a given loan. The lender does not know what that will 
be when the lender is at the closing table. The lender may not, 
in fact, sell the loan into the secondary market. There may be 
no subsequent payment, and one simply does not know that.
    What we are doing in our rule, what we are trying to very 
hard to do in our rule, is make sure that you, the consumer, 
know which loan is cheaper for you when you go to the closing 
table, which one is going to be the best deal from your 
standpoint, and we have heard a number of concerns raised about 
the enhanced good-faith estimate that we issued as part of our 
rule with ``proposed'' all over it so no one took it as final, 
and we have been thoroughly testing options, alternatives to 
that, some of them suggested by the folks who have commented on 
the rule, to make as sure as we can that you know which is the 
best loan for you so that if a broker is offering you a cheaper 
loan than the lender is offering you, you know that.
    Chairman Manzullo. Mr. Weicher, that was not the question.
    Mr. Weicher. I am sorry. I thought it was.
    Chairman Manzullo. The question was not for the consumer; 
the question was that the mortgage broker would be at a 
disadvantage because the kickbacks are being shown to him but 
not to the mortgage lender. That is the issue right there, and 
you have not answered the question.
    Mr. Weicher. I understood the first part of the question to 
be about the secondary market exemption.
    Chairman Manzullo. It was not from the consumer. Am I 
right, Mr. Chabot?
    Mr. Chabot. We are interested in both, but I think, yes, 
what the chairman has indicated was the basis of the question, 
really.
    Chairman Manzullo. The form shows a kickback, a waiver of 
Section 8, passing through to the mortgage broker but not to 
the mortgage banker. The question is, would that be a 
disadvantage to the mortgage broker?
    Mr. Weicher. Mr. Chairman, it is not a kickback under 
Section 8. The Secretary, in the clarification of the policy 
statement concerning yield-spread premiums, and that is what we 
are talking about here, the yield-spread premium is a 
legitimate way to provide for part of the cost of origination 
and closing for the consumer, so the consumer who does not have 
all of the cash for the up-front closing but can take a little 
bit higher mortgage rate is able to get a loan with less up-
front cash and a somewhat higher mortgage rate with the yield-
spread premium. It is the converse of points, with which we 
have all been familiar for a long period of time.
    It is not a violation of Section 8, and it is not a 
kickback. It is a payment for the services that are provided by 
the mortgage broker as part of the loan origination, and the 
department stated that in 1999 and stated it again in 2001.
    Chairman Manzullo. Mr. Beauprez, you had a follow-up.
    Mr. Beauprez. One last one, Mr. Chairman, and thank you 
very much.
    Mr. Weicher, I will confess to being a little bit confused. 
I have no doubt at all of the intent of the agency and what you 
are trying to accomplish. I was pleased to hear your reference, 
I think, earlier that 60 percent now of mortgages are 
originated by brokers, most of those probably small brokers, 
many of them community banks, credit unions that are out there 
providing service. If that is a good thing, and I submit that 
it is a good thing--I agree that it is a good thing--I am going 
to assume that they got that by being able to compete, and 
being able to compete both on price as well as based on 
service. That is a good thing, too, I think.
    If this is designed to provide further competition and 
further clarity in the market, transparency in the market, 
certainly lower costs for consumers, then why is it that, as I 
cited earlier, the independent community bankers, who are the 
small guys out there providing them, getting part of that 60 
percent, why aren't they in favor of it? Why aren't, as my 
colleague from Colorado cited earlier, why aren't folks like 
the Colorado mortgage lenders, 310 companies across Colorado, 
excited by this? They state, quite clearly: ``This approach 
will result in higher costs, additional disclosures, would 
confuse rather than clarify information for consumers, and 
unintended consequences which will ultimately limit competition 
and consumer choice.''
    My question is, are the people on the street that are 
actually doing this for a living, that have clawed and 
scratched and worked hard to get some of that market share, are 
they confused that this is really a good thing for them, and 
they just do not get it?
    Mr. Weicher. I think, Mr. Beauprez, there certainly has 
been confusion as to what is in the proposed rule. We believe 
that the proposed rule will make it possible for consumers to 
know up front what it is they are going to have to pay at 
closing and to know that in time to shop effectively for an 
alternative and to see if the price they are being quoted by 
the first originator they talk to is better than the price 
quoted by the second or the third and so on, in the same way 
that we shop for any other major purchase where we want to be 
sure that we are getting the best price for what it is that we 
want.
    We do not believe we are imposing regulatory burdens other 
than, as I said earlier, other than the good-faith estimate 
requires the lender to be responsible for putting that form 
together, and there will be regulatory burden there. We think, 
otherwise, there will not be regulatory burdens on small 
businesses.
    Ms. Velazquez. So what is it?
    Mr. Beauprez. I think what I am hearing is that the folks 
on the street that are doing it are wrong and that the agency 
is right, and I know that that is your intent, sir, and I 
respect that.
    Mr. Weicher. If I may just say so, we have read the 
comments of anyone who submitted comments to us, and we are 
trying to take them seriously into account. It is not our 
intention to raise the cost of settlement for anyone, and we 
believe that, in fact, we are effectively lowering the cost of 
settlement for consumers and making it possible for more people 
to become home owners, and we are providing a level playing 
field which will let small firms continue to play at least the 
role they are playing now.
    Chairman Manzullo. Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman. It seems to me, 
sir, that you do not get it. You answered to the gentleman that 
this does not represent a burden for small businesses, but yet, 
on the last page of your statement for the Paperwork Reduction 
Act, you state that the programmatic changes you are mandating 
at HUD will increase the burden on small businesses by 2.5 
million hours. However, two pages before that, you state that 
the collection of this information does not impact small 
businesses. So what is it?
    Chairman Manzullo. Mr. Weicher, could you bring the mike a 
little bit closer to you?
    Mr. Weicher. I am sorry, Mr. Chairman. I was looking to see 
if I had brought the analysis with me so I could see what Ms. 
Velazquez is referring to. Can you tell me what pages you are 
referring to, Ms. Velazquez?
    Chairman Manzullo. Here it is.
    Ms. Velazquez. She is going to show it to you.
    [Pause.]
    Mr. Weicher. I see what you are referring to here, Ms. 
Velazquez. We are proposing, in the good-faith estimate and the 
guaranteed mortgage package, that consumers know that, besides 
the loan they are being offered, they have the option of paying 
points and receiving a lower interest rate and what that option 
is likely to consist of or to have a yield-spread premium paid 
on their behalf and accept a higher interest rate so that they 
know that, besides this loan, there is an alternative with 
lower up-front costs and a higher rate, an alternative with 
higher up-front costs and a lower rate, and it is to provide 
that information that there is an additional burden required--
--.
    Ms. Velazquez. With all due respect, sir, my question is 
not about consumers. My question is about the burden on small 
businesses.
    Mr. Weicher. The burden is in order to explain to consumers 
their loan, how this loan compares to alternatives they could 
choose, which would have a higher interest rate and lower up-
front costs or a lower interest rate and higher up-front costs, 
something which has been strongly endorsed by all of the 
consumer groups who have commented on the proposal. The burden 
here is a burden on the lender, who prepares the good-faith 
estimate----.
    Chairman Manzullo. If I could interrupt just a second, Mr. 
Weicher. This is the Small Business Committee. Time after time 
after time again, a question has been asked by a Member on the 
impact to small business. You have flipped it on its head and 
come back with the same canned answer on helping the consumer. 
I appreciate that you are here, but I want you to be very 
specific and answer these questions because we are concerned 
about small businesses.
    Ms. Velazquez, would you like to ask your question again, 
or would you like to----.
    Ms. Velazquez. No. Can we both agree that 2.5 million hours 
does impact small businesses?
    Mr. Weicher. That burden falls on the lender. It does not 
fall on small business in general. It actually falls on 
lenders, some of whom will be small, others of whom will be 
large, and this is, of course, the concern that the chairman 
raised earlier, that we will have more larger lenders. The 
burden of responding, the burden of providing the information 
to the consumer, will fall on the lender, and in return for 
that, the consumer will be able to make an informed choice.
    Ms. Velazquez. Sir, you are so much concerned about 
consumers, and you are telling me that all kinds of consumer 
groups are in support of this rule. Can you please answer to 
me, is the Consumer Federation on record supporting this or the 
Consumer Union or the National Consumer Law Center?
    Mr. Weicher. Yes.
    Ms. Velazquez. Are they on record supporting this?
    Mr. Weicher. The National Consumer Law Center is on record 
supporting us.
    Ms. Velazquez. Consumer Federation?
    Mr. Weicher. I cannot remember at the moment if they----.
    Ms. Velazquez. And Consumer Union?
    Mr. Weicher. The American Association of Retired Persons is 
a strong supporter. They submitted a long response to each of 
our 30 questions, and they are the largest organization 
representing consumers in the country, and I am informed that 
the Consumer Federation of America also has responded in 
support of what we are doing.
    Ms. Velazquez. Were your staff at the banking hearing last 
week where the person representing the National Consumer Law 
Center said that they were not on record supporting this?
    Mr. Weicher. We had staff at that hearing, and the National 
Consumer Law Center has supported the rule and the comment. I 
did not read the statement. If this was Margot Sanders, I did 
not read a statement that she presented there, but they have 
supported the rule.
    Ms. Velazquez. I would ask that you read or your staff the 
hearing, the record on the hearing that took place last week 
because any of the groups that you are mentioned were not in 
support of this rule at that hearing. Thank you, Mr. Chairman.
    Chairman Manzullo. I have some questions. Why do not you go 
ahead, Dr. Christensen?
    Mrs. Christensen. Thank you, Mr. Chairman. I think there is 
general agreement that some reform is necessary, but, for 
example, the uncertainties and some of the lack of clarity in 
the good-faith-estimate part have recently been cleared up 
through the courts. Won't this new rule essentially change what 
the courts have done to clear up this issue and thus place an 
additional economic burden, as well as perhaps some legal 
burdens, on small businesses?
    Mr. Weicher. We see this rule as continuing the policy 
clarification that we issued on yield-spread premiums 
indicating that yield-spread premiums were acceptable so long 
as they were for actual goods or services, so long as they bore 
a reasonable relationship to the cost of the goods or services, 
which had been the subject of intense litigation over a number 
of years.
    Since that clarification was issued, a number of courts 
have given deference to the statement that we issued, the 
clarification that we issued, and have said that the particular 
class-action suits in front of them, they did not accept them 
and did not side for the plaintiff.
    We see ourselves as clarifying further how the yield-spread 
premium fits into the entire cost of settlement on the loan. We 
do not see ourselves as doing anything inconsistent with what 
we did in the fall of 2001.
    Mrs. Christensen. I did not have a chance to really look 
through the case, but I was asking about the good-faith 
estimate----
    Mr. Weicher. Right.
    Mrs. Christensen [continuing]. That was recently settled.
    Mr. Weicher. There have been a number of cases.
    Mrs. Christensen. It was recently clarified within the 
courts, and it is my understanding that what you are doing 
would effectively change what the courts did and create some of 
that uncertainty again and then continue to place an additional 
economic burden on small businesses, and within that lack of 
clarity again put them in a situation where they would be 
facing suits from borrowers in an attempt to further clarify 
this issue.
    Mr. Weicher. No. All of the court decisions of which I am 
aware have given deference to the statement we issued in 
October of 2001, and we are certainly not reversing the 
statement that we issued in October of 2001. I do not know if 
Mr. Kennedy is aware of any other case.
    Mr. Kennedy. No. In addition, I think that the good-faith 
estimate that we are proposing, the general terms of that, will 
actually reduce the likelihood of litigation because the 
disclosure would be clear to the consumer at the time that they 
are given that good-faith estimate. There is not going to be 
any later surprise. So I think, if anything, it is going to 
reduce the likelihood of any litigation, which I think is 
probably something that we would all want.
    Quite frankly, the lending industry and the brokers were 
very happy with the yield-spread-premium policy statement 
because they were under the gun. There were over 150 lawsuits, 
many class-action lawsuits, filed against lenders for this very 
problem. There were folks, including consumers, who wanted HUD 
to state that yield-spread premiums were, per se, illegal and 
permit those lawsuits to go on. The Secretary, quite frankly, 
analyzed the yield-spread premium and realized that it was 
something that was good for the consumer and a useful tool in 
the lending business and for brokers to use. The Secretary 
preserved it, and this will probably prevent further 
litigation, in my opinion.
    Mrs. Christensen. I may have a follow-up question in 
writing to the Secretary.
    Chairman Manzullo. Congresswoman Majette?
    Ms. Majette. Thank you, Mr. Chairman. I have another 
concern regarding small businesses and the possibility that 
they would be foreclosed from competition under the RESPA 
reform, the rules that are being proposed. Now, again, in my 
experience and, I know, in my district, there are many lending 
institutions that will keep lists of approved appraisers and 
other service providers, and it is very difficult, particularly 
for women and minority businesses, to get onto those lists.
    In the rule, as it is proposed, as I understand, there 
would not be a requirement that you package or bundle the 
services as part of the statement that would be given, but if 
the largest national lenders are going to be likely to 
negotiate volume discounts with the larger providers, where is 
that going to leave the small business owner, the women 
business owners, the minority business owners, those people who 
are not already on those lists and may again have problems 
getting onto those lists, particularly in areas where there is 
not a lot of competition already? I want to hear what the plans 
are, what you are planning to do to address this issue, to make 
sure that there is that kind of inclusion for the smaller 
business owners, for women and minority businesses in the 
bundling of these services.
    Mr. Weicher. Two things, I think, are relevant here, Ms. 
Majette. First of all, a consumer has the option of asking that 
a settlement-service provider of his or her own choosing be 
used by the lender instead of any provider in the bundle so 
that if you know of any settlement-service provider--a woman 
appraiser, a minority pest-inspection firm--you can ask that 
they be part of your loan package instead of the provider that 
is in the package that is being offered. A lender who turns 
that down is likely to need a pretty good reason for possibly 
passing up a loan.
    Ms. Majette. Well, what if the reason is cost? If the 
lender has negotiated with provider X to do an appraisal at 
$250 for the appraisal, and another small business owner, 
another appraiser, might do it for $275, that is going to mean 
that if the person who is seeking the loan is going to have to 
ask for somebody else to do that, it is going to cost them more 
money, but the only reason that they are actually getting this 
cheaper deal is because of the ability of the lender to have 
negotiated with someone who could afford to negotiate.
    My concern is that we will end up with loss leaders and 
that small business owners will not be able to compete, nor 
will they be able to have the inroads that already established 
businesses or larger businesses already have. And I just do not 
want us to be in a situation where we are going overboard and 
having a negative impact on these providers who are doing a 
good job, who can do a good job, but cannot compete at the 
level of the big-time owners. Some small businesses cannot 
compete at the same level as a large ReMax operation. That does 
not mean they cannot do any better; it is just that they are 
not on that same level, and I am looking for what you have in 
place to protect those other business owners.
    Mr. Weicher. Most settlement services in most markets are 
provided by small businesses. Most of the providers of any 
settlement service are small. We know that. We reported that in 
our economic analysis. Those small businesses are going to 
remain in place because if they are able to operate in the 
present market, and they are, they will be able to operate in 
the market as it evolves with the option of packaging and with 
the enhanced good-faith estimate.
    Ultimately, a large lender, a large anybody else, has to 
come back to the local firm, which is providing the service 
locally and knows the local market, and they have been doing 
that for decades, and they will continue to do that.
    Ms. Majette. But it's going to help those that are already 
established, and we need to be forward-thinking and look at 
those businesses that are just beginning or trying to get a 
foothold or want to get a foothold, and are going to be 
foreclosing that, or certainly impeded in their ability to do 
that if they can't get into this part of the market.
    And the other question I have, if I may continue, Mr. 
Chairman, is with respect to--to follow up on the gentlewoman 
from New York--this whole issue about the 2.5 million hours, I 
do not know if you would agree with me that time is money, but 
I think most business people would. Someone is going to have to 
bear the cost of this 2.5 million hours. Somebody has the 
burden of that, and at a minimum wage 2.5 million hours is 
still a lot of money.
    I do not know what--I really do not understand how that is 
going to be dealt with. You are saying that it is going to be a 
benefit to the consumer, the lender is going to take that on. 
Well, I cannot imagine that any lender is going to do that for 
free and not pass that cost on in some form or fashion to the 
borrower.
    Can you enlighten me on that?
    Mr. Weicher. Any specific cost will certainly be borne 
ultimately by the consumer, and that is why we remain concerned 
about the cost to the consumer of what we are proposing. This 
is only one aspect of what we are proposing to do in the rule.
    We also believe that by making clear what the cost of the 
settlement package is, either through the good faith estimate 
or through the guaranteed mortgage passage, that will enable 
consumers to shop effectively. That will enable consumers to 
find the least cost service loan for their purposes. That will 
enable consumers to avoid the surprise cost at settlement when 
they cannot do anything about it except grit their teeth and 
pay it because they do not want to lose their home.
    And there will be substantial savings to consumers from 
these other features of the proposed rule, and those savings 
will enable more families to buy homes and to get started on 
middle class status in America.
    Ms. Majette. Thank you.
    Chairman Manzullo. This is the beginning of my sixth term, 
and I want to be very frank with you. I have never seen such a 
worse piece of scholarship going in that is going to be a 
Regulatory Flexibility Act that impacts small businesses by 
$5.5 billion, and I want to take you through this thing and 
show you how poorly done this is.
    I'm going to ask you this question. If HUD amended the 
Regulatory Flexibility Act to allow judicial review of the 
Regulatory Flexibility Act, if your regulations go into effect, 
there will be a lawsuit, and if possible, I would join in on it 
as a plaintiff, and I think every member of the Small Business 
Committee would.
    If this is overturned by judge, and you are wrong because 
HUD is so bullheaded it would not issue a supplemental 
Regulatory Flexibility Act as requested by the Office of 
Advocacy of the Small Business Administration, how can you 
justify the tremendous amount of attorney's fees, the 
tremendous amount of lost hours in HUD simply because you are 
not listening to Congress in issuing an amended RFA. You are 
asking for a lawsuit. You will get a lawsuit.
    If you are wrong, you have cost the taxpayers hundreds of 
millions of dollars in going through this flawed RFA and going 
through every type of information that you have gotten, and 
that is why we are upset, because of the inflexibility of a 
bureaucratic regime where you sit there, and members of my 
staff have been to over 1,000 real estate closings, and 
attorney down here has been through hundreds, if not thousands, 
a community banker down here know what on the Banking 
Committee, same background, over 22 years of practice in law, 
over 1,000 real estate closings, and we have asked you for one 
thing continuously, and that is an amended brief.
    What are you afraid of? Is it the truth? But I am not done 
yet because I want to show you want you did, and why it is 
fatally flawed, fatally flawed. I am turning to page 75. No, 
Effect on Small Retailers and Brokers, page 73, under C. It is 
the last sentence in the--I guess that first paragraph.
    ``If this market for packages of third party services were 
competitive, and there is no reason to believe it would not be, 
then the small originators would not be at a disadvantage 
relative to the large originators.''
    No backup, no data, no research. In fact, the research, let 
me show you what your research shows. Go to page 45, and this 
is appalling. It is absolutely appalling that an agency of your 
size could not take the time, in fact, I think your entire 
study was only 85 pages on a $8 billion thing. Look on page 43.
    This is supposed to be your analysis of the estimated 
magnitude of effects. Starting on page 43, the second full 
paragraph that deals with real estate brokers, one sentence, 
the real estate brokers; the definition of small real estate 
brokers, today's revenue or $6 million. We have information on 
title service fees, just one sentence on title service fees. 
Small real estate appraisers, there is one sentence there.
    Now you go down to the next one, the sample of FHA loans 
applicable to us has an average price of appraisal of $289. If 
the firm did nothing but appraisal, they would do so many per 
year or 17 per workday.
    That is the complete--then you have a paragraph on 
appraisal. Come down to title services, about another three 
lines on title services. You have one sentence on law firms. 
Law firms range in size from one lawyer to several hundred. 
Many settlement companies have one office, but there are firms 
with multiple offices with a few exceeding 10 offices. It seems 
some of these firms are small, but some are--this is your 
analysis of the impact. This is your total analysis. You have 
done nothing on this. You have got no documents on it. You have 
guessed at it. You said, well, we hope it introduces some type 
of competition on it.
    Let me turn to page--I will probably get excited now when I 
see this. Here it is on small services agents, page 75, part of 
the package, third paragraph down starts with, ``There is 
competition under packaging drives down prices. It is the less 
efficient who will be driven out of the market, not necessarily 
small business.''
    Come on. How can you look at a small business person in the 
eye and say the less efficient will be out of businesses, but 
not necessarily small businesses. Who do think gets smoked out 
there? The little guys or the big guys? Why do you think we are 
upset up here, and you make the statement that demonstrates, 
``The small advisement appraisal despite the fact that it is 
the originator rather than the individual borrower. The 
relatively large, relatively small who does the selection,'' it 
sounds like Darwinism. ``As noted above, there is no reason to 
believe that small firms cannot survive and pass inspection 
surveying in the settlement agent industry, but under packaging 
those third party service provides, both large and small, who 
are currently charging high prices for their settlement 
services, would experience reductions in the prices of their 
services.''
    So you made a statement of fact that the people, the 
surveyors, the settlement people are charging high prices. 
Where do you come up with that? You have no statements to 
document this.
    Mr. Weicher. We have--in the passage which you cited on 
page 43, we are discussing the way in which we define small.
    Chairman Manzullo. Are discussing. Go ahead.
    Mr. Weicher. We are discussing at that point the way in 
which we are defining what is a small business. That is not the 
only part of the analysis.
    Chairman Manzullo. Where is the other analysis that gives 
the----.
    Mr. Weicher. Well, let me direct you to Table 1-1, and the 
material before and after it at pages 5 and 6, for instance, 
where we discuss----.
    Chairman Manzullo. Let me find that. Hang on.
    Mr. Weicher. We discuss that, what it is that--the size 
distribution of mortgage bankers and correspondence and loan 
brokers. We are looking at the size distribution of businesses 
at these points. We are then going on to discuss the impact on 
businesses of different sizes according to the industry.
    Chairman Manzullo. No, the size----.
    Mr. Weicher. There is no compliance burden on the 
industries which are discussed on page 43. Those are not the 
people who are affected by the good faith estimates. Those 
entities are not affected by the packaging. There is no 
regulatory burden on those entities here, and we are in fact 
addressing what it is, what their size is, how you define a 
small appraiser versus a larger appraiser, and providing that 
to look at the----.
    Chairman Manzullo. But where in this does it state if this 
package passes, this is impact upon title service people? Where 
is it in there, and then what type of proof do you have to show 
that? What substantive evidence?
    Mr. Weicher. We have provided evidence.
    Chairman Manzullo. Where?
    Mr. Weicher. Throughout----.
    Chairman Manzullo. Where?
    Mr. Weicher. Throughout this 97-page----.
    Chairman Manzullo. I want to know where it is.
    Mr. Weicher. Throughout this 97-page rule.
    Chairman Manzullo. Where? I want to know where it is.
    Mr. Weicher. I will have to----.
    Chairman Manzullo. No, I want you to do it now. You have 
got a whole staff here, and that is what this is all about. I 
want to know where it is. Your staff can help. They are sitting 
right behind you. That is what the small business people want 
to know for a long period of time. Where is it? It is not here.
    Mr. Weicher. Mr. Chairman, I cannot go through a 97-page--
--.
    Chairman Manzullo. You have how many people here from your 
staff?
    Mr. Weicher. I do not----.
    Chairman Manzullo. It is only 97 pages with $6 billion.
    Mr. Weicher. I do not think that we can go through a 97-
page rule and point--and pull out--97-page analysis and----
    Chairman Manzullo. Because it is not there.
    Mr. Weicher [continuing]. Pull out specific points.
    Chairman Manzullo. Well, then answer me off the cuff.
    Mr. Weicher. I will be happy to----
    Chairman Manzullo. No, no, no, I want the answer now.
    Mr. Weicher [continuing]. Add it to the record.
    Chairman Manzullo. No, nothing in writing. I want the 
answer now. This is accountability time for the small 
businesses. They have been waiting for this day for a long 
time, and I want the answer now.
    You have to tell me where in this report you go through 
each of these small businesses and show us the impact, the 
economic impact and the alternatives to the rest of redesign 
that are ordered to be done by the--by the Regulatory 
Flexibility Act. It must be in here.
    Mr. Weicher. Mr. Chairman, as I said earlier, Chapter 3 of 
this report is devoted to the effect of----
    Chairman Manzullo. Then show me where it is.
    Mr. Weicher [continuing]. The changes. It is a good faith 
estimate.
    Chairman Manzullo. Show me where it is.
    Mr. Weicher. It is Chapter 3.
    Chairman Manzullo. Show it to me.
    Mr. Weicher. Chapter 3.
    Chairman Manzullo. What page it?
    Mr. Weicher. The page number--I will have to look up the 
page number on which chapter----
    Chairman Manzullo. Somebody help Mr. Weicher.
    Mr. Weicher [continuing]. Because we do not--Chapter 3 
begins on page 19, and continues through--continues through 
page 58. Chapter 4, discussing guaranteed packages, ----
    Chairman Manzullo. Show me in Chapter 3.
    Mr. Weicher [continuing]. Begins on page 59.
    Chairman Manzullo. This is a very simple question. I want 
to know the impact on the small business, the financial impact 
on the small businesses, and I want you to point it to me 
because this is the first question I will be asking you in a 
lawsuit. Pretend this is a deposition. I am trying to work with 
HUD and avoid these lawsuits from coming, but you have got to 
help me to defend this document.
    Mr. Weicher. Mr. Chairman, to find the specific passage 
that you are looking for in a 40-page chapter----
    Chairman Manzullo. You do not know.
    Mr. Weicher [continuing]. Is not something I can do off the 
top of my head without going through and spending time----.
    Chairman Manzullo. Did you prepare for this hearing, Mr. 
Weicher?
    Mr. Weicher. Yes, and I read----.
    Chairman Manzullo. Did you not know what this is all about? 
I discussed it with the staff in the office.
    Mr. Weicher. Yes, and I read the economic impact analysis.
    Chairman Manzullo. How many staffers do you have behind 
you?
    Mr. Weicher. I would have to turn around and look.
    Chairman Manzullo. Go ahead and look.
    Mr. Weicher. We have--we probably have----.
    Chairman Manzullo. How many from here are from HUD? Stand 
up.
    Mr. Weicher. One from my office, Mr. Chairman.
    Chairman Manzullo. How many here from HUD? Would you stand 
up, please? Everybody from HUD, please stand up.
    All right. One by one, I want you to identify who you are 
and what you do in the HUD office. Starting over here on the 
far left.
    [Audience identifies themselves.]
    Chairman Manzullo. The Office of General Counsel, that is 
the law firm portion; is that correct? We have all these 
lawyers. I have got a very simple question, and no one knows 
the answer to this question.
    Mr. Weicher. Mr. Chairman, I reread the rule, the economic 
analysis and the rule over the weekend. I cannot reproduce off 
the top of my head a specific page in a 97-page rule.
    Chairman Manzullo. That is because it is not in here.
    Mr. Weicher. Because I have not committed the 97-page 
analysis to memory.
    Chairman Manzullo. You do not have to commit it to memory. 
I am looking at it right here. It just not in here.
    Anybody else from HUD know the answer to this question? I 
am not going to move until they have answered. I am serious. I 
want this question answered. Here is the issue again.
    As to all the small businesses impacted by the proposed RFA 
rule, where in the regulatory flexibility analysis does it show 
the financial impact on small businesses and where is the 
evidence that substantiates it?
    Mr. Weicher. Mr. Chairman, I would have to direct your 
attention to Section 10 of the analysis, which begins on page 
53 and continues to page 55, summary of benefits of costs, 
transfers and efficiency gain. This summarizes what has 
appeared in the previous 33 pages of this chapter, and contains 
the information that was----.
    Chairman Manzullo. This is a summary and lumps the service 
providers today. That is not the answer to my question.
    Mr. Weicher. The pervious--this is a summary. The previous 
33 pages go into the information for individual services and 
individual service providers----
    Chairman Manzullo. Then show us.
    Mr. Weicher [continuing]. In individual categories.
    Chairman Manzullo. Show us.
    Mr. Weicher. There is no one single----
    Chairman Manzullo. It is not in here.
    Mr. Weicher [continuing]. Number per--there are numbers for 
individual activities and individuals kinds of costs that may 
arise. And then at the end of this section we report the 
summary, this 3.3 billion in transfers----
    Chairman Manzullo. Just show me the section that deals with 
the----
    Mr. Weicher [continuing]. From firms to borrowers, ----
    Chairman Manzullo [continuing]. Appraisers.
    Mr. Weicher [continuing]. Originators contribute 4.5 
billion of this and settlements, third-party settlement 
services providers----
    Chairman Manzullo. This is a summary.
    Mr. Weicher [continuing]. Provide 1.8----.
    Chairman Manzullo. I want to know the evidence.
    Mr. Weicher. The evidence appears earlier in the----.
    Chairman Manzullo. Where? Show me the evidence. You must 
defend your document.
    Mr. Weicher. We discuss the market and economic--Mr. 
Chairman, I have now got it out of order as you moved back and 
forth through it. The market and economic analysis and economic 
impacts start on page 30, and continues from there, let me see 
if I can--see if I can get page 31.
    I now have it out of order, Mr. Chairman, and I will have 
to put it back in order to answer the question that you are 
asking. If you will bear with me, I will proceed to try to get 
the pages which I misplaced unless someone has an extra copy.
    Beginning on page 30, market and economic impact, we 
describe the way in which this affects loan originators. We 
start with a discussion of origination fees, the role of the 
yield spread premium, and the role of points. We discuss the 
alternatives that we have considered. Beginning on page 34, we 
discuss the estimated magnitude of yield spread premiums which 
would affect----.
    Chairman Manzullo. You use hypotheticals here, but no 
substantive evidence.
    Mr. Weicher. We have--we have used the latest evidence that 
we have in each case to provide the information. On the bottom 
of page 34 we present analysis from David Olson, who testified 
in front of Senator Sarbanes in January of 2002, the estimate 
from his research that 60 percent of loans originated by 
brokers. We believe that half of these--HUD uses a somewhat 
different definition of broker than other people in the 
industry. It does not matter except that this is the basis upon 
which----.
    Chairman Manzullo. Could you point to where it shows the 
impact on community banks?
    Mr. Weicher. I am trying----.
    Chairman Manzullo. And also on lawyers.
    Mr. Weicher. I have started by taking the biggest of the 
magnitudes, which is the magnitude on yield spread premium, 
which we estimate at three and three-quarter billion dollars to 
consumers because the yield spread premiums will go to help 
consumers to bring down their up-front cash requirement. That 
is by far the biggest of the costs that is----.
    Chairman Manzullo. But there are other people besides 
mortgage brokers that are involved. There is a lot of empirical 
evidence, based upon the myriad of law suits on the yield 
spread premium----.
    Mr. Weicher. And then----.
    Chairman Manzullo. And then you can sit here and speculate 
as to whether or not the consumer will be the beneficiary of 
this--of this packaging.
    But I mean, for example, on attorneys, attorneys at 
settlement, did you show me here where you talk about that?
    Mr. Weicher. We have looked at the major contributors to 
the----.
    Chairman Manzullo. You do not think that a lawyer is a 
major contributor of the settlement?
    Mr. Weicher. In cost.
    Chairman Manzullo. You do not----.
    Mr. Weicher. The origination fee and the yield spread 
premium----
    Chairman Manzullo. But that is the whole point. These are 
small business people.
    Mr. Weicher [continuing]. And title insurance as well 
provided generally speaking by the small businesses. These are 
the largest single components of cost. Of the 1.8 billion, 
which is the estimate of the change in the cost of third party 
settlement service providers----
    Chairman Manzullo. So what you have told me----.
    Mr. Weicher [continuing]. Over 1 billion of that represents 
title insurance.
    Chairman Manzullo. Mr. Weicher.
    Mr. Weicher. Yes, sir.
    Chairman Manzullo. Would you agree that an attorney, a sole 
practitioner in a partnership is a small business person?
    Mr. Weicher. I would think so unless he were an extremely--
well, he would certainly be by size, and I would imagine he 
would be by dollar volume of billings.
    Chairman Manzullo. All right. And you mention lawyers in 
this report but once, and that is on page 43 where you say, 
``Law firms rank in size from one lawyer to several hundred.'' 
And you say, ``Settlements are conducted by independent 
settlement companies or lawyers.''
    What economic analysis did you do to show the impact on the 
small business lawyers that are involved in real estate 
closings?
    Mr. Weicher. We provided the--the evidence that we had been 
looking at the data that we had from the Small Business 
Administration.
    Chairman Manzullo. Well, you do not have----.
    Mr. Weicher. And we had from the Census Bureau----.
    Chairman Manzullo. It is not there.
    Mr. Weicher. To look at the--to look at individual service 
providers.
    Chairman Manzullo. Mr. Weicher, it is not there. The only 
place you mention a law firm.
    Mr. Weicher. We are----.
    Chairman Manzullo. These are small--these are small people. 
They are small business people, and they deserve something more 
than two sentences in an 88-page report on a $5.5 billion smack 
to the industry.
    Where in here do you state what impact this would have on 
small law firms?
    Mr. Weicher. We have identified in here the bigger impact 
on--the big impact----.
    Chairman Manzullo. No, no, this----
    Mr. Weicher. The large impact----.
    Chairman Manzullo [continuing]. Is the Small Business 
Committee.
    Mr. Weicher. That is right. The large, the largest impact 
by industry, an impact----.
    Chairman Manzullo. No, you do not have that authority and 
you do not have that largess under the Regulatory Flexibility 
Act. Your job is to discuss the impact on any small business. 
You cannot pick and choose which businesses you are going to do 
research on.
    Mr. Weicher. We have reported in here on the largest cost 
components borne by small business.
    Chairman Manzullo. That does not answer my question.
    Mr. Weicher. And we do not----.
    Chairman Manzullo. Why did you leave out the lawyers?
    Mr. Weicher. And we are only required to provide industry 
detail in the final regulatory flexibility analysis and----
    Chairman Manzullo. No, no, then it is too late.
    Mr. Weicher [continuing]. We will do that.
    Chairman Manzullo. Mr. Weicher, it is too late for 
scholarship to come up with a document at the time that the 
final rules are issued.
    Do you not see what we are trying to do here? I mean, the 
purpose of this Committee is to resolve an impasse that has 
gone on with the small business people who continue to get 
smoked.
    Now, I do not know to whom you have been talking, but I do 
know this. When I practiced law, when Mel Watt practiced law, 
when Ms. Majette practiced law, we were there at that closing. 
We are little guys, small business people, bringing together at 
many times a very complicated real estate closing, and you do 
not every have that small business segment mentioned as having 
an economic impact in terms of quantifying the economic loss to 
them.
    Mr. Weicher. What was your average price per settlement or 
the average price of lawyers as you know it now?
    Chairman Manzullo. Back then it was anywhere from $100 to 
$300.
    Mr. Weicher. In settlement which run several thousand 
dollars at the time.
    Chairman Manzullo. No, no, see, you still do not get it. I 
do not care if it was 10 cents. What you do not understand, Mr. 
Weicher, is it is your obligation to come up with an analysis 
under the Regulatory Flexibility Act to determine the economic 
impact on small businesses. You do not have the authority to 
say this person is insignificant and that one is insignificant.
    The pest control people, was there an analysis done on the 
impact on them?
    Mr. Weicher. We reported on all of the small business 
categories on which we have had information, and we will report 
in the final regulatory flexibility analysis on all other small 
business categories on which we can find information.
    Chairman Manzullo. We are going to go in the second panel. 
My question has not been answered, but I thank you for your 
time, and you have agreed to sit in the audience in case there 
is a question that has to be answered by the next panel. Thank 
you.
    If we could get the next panel up quickly.
    [Whereupon, a short recess was taken.]
    Chairman Manzullo. Mr. Kosin, you have to catch a plane. We 
are going to have you go first. We are going to run the five-
minute clock, and I am sorry for the prolonged questioning of 
the first panel, but I am sure that you guys have wanted to ask 
those questions for a long time.
    Mr. Kosin, I look forward to your testimony. Does anybody 
else have to catch a plane?
    Okay, Mr. Kosin, please.

STATEMENT OF GREGORY M. KOSIN, SECRETARY, H.B. WILKINSON TITLE 
  COMPANY, INC., GALENA, ILLINOIS, AND GREATER ILLINOIS TITLE 
    COMPANY ON BEHALF OF THE AMERICAN LAND TITLE ASSOCIATION

    Mr. Kosin. Thank you very much, Mr. Chairman. My name is 
Gregory M. Kosin. I am the Chief Executive and Secretary of 
H.B. Wilkinson Title Company based in Galena, Illinois. I am 
also Chairman of the Government Affairs Committee of the 
American Land Title Association, and serve as an abstractor and 
title agent representative on ALTA's board of governors.
    I appreciate the opportunity to appear today on behalf of 
the ALTA, which represents over 1,750 title insurance agents, 
most of which are small businesses.
    First, I would like to thank Mr. Chairman for holding this 
hearing on the effects of the proposed HUD rule on small 
businesses.
    Title agents and settlement service providers traditionally 
thrive as small businesses. This is due in part to the local 
nature of our business, serving the needs of local customers in 
local real estate transactions.
    In addition, we are also a highly service-oriented business 
which meets the needs of local customers at a competitive 
price.
    A recent ALTA survey found that 51 percent of title 
insurance agents and abstractors in the country had less than 
$500,000 in gross revenue, and 72 percent had less than $1 
million. Sixty-eight percent had 10 or fewer employees, and 42 
percent had less than five employees. These are truly small 
businesses.
    But these individuals and companies have demonstrated that 
they can effectively compete for the consumer's business. 
However, we expect that the real estate services marketplace 
would change drastically if the proposed RESPA rule were 
implemented as drafted.
    Specifically, the guaranteed mortgage packaging proposal 
would limit consumer access to and choice of settlement service 
providers. It would result in the nationalization of the real 
estate services delivery system, eliminate many small 
businesses, and prevent the formation of small settlement 
service providers.
    In fact, because these changes would have a pronounced 
effect on the industry, the ALTA board has agreed to explore 
litigation should HUD come out with a final rule similar to the 
proposed rule.
    The ALTA believes that HUD lacks the necessary statutory 
authority to propose these sweeping changes. I will submit for 
inclusion in the record of this hearing an analysis of HUD's 
lack of statutory authorization.
    The elimination of the Section 8 anti-kickback exemption 
will provide substantial incentives for packaging. Therefore, 
the market will move in that direction rather than towards the 
revised good faith estimate regime.
    Second, because the agreement must include a loan at a 
guaranteed interest rate only lenders will be able to 
effectively package.
    In the last five years the top 10 mortgage originators have 
doubled their market share from 25 percent to over 50 percent 
by favoring large national providers who will be able to 
negotiate and dictate prices for a settlement package. The HUD 
packaging proposal will lead to a concentration of service 
providers.
    Third, under the package the lender will decide which 
attorney or title company will be part of the package. The 
consumer will have to accept that selection if he or she wants 
the loan. Small local attorneys and title companies, such as 
H.B. Wilkinson Title, will inevitably find that they cannot 
gain access to major national lenders to gain entry into the 
package.
    I have already experienced being locked out of a large 
national lender that operates in northern Illinois by refusing 
to answer my phone calls or to meet face to face. The effect on 
these providers will be particular severe in rural areas of the 
country.
    H.U.D. believes that mortgage lenders will forego the 
opportunity to pick up substantial packaging fees and will pass 
alleged savings on to consumers. On the contrary, we believe 
this may simply shift revenue from settlement service providers 
to major lenders. We believe that this regime is a means to a 
new revenue source for major lenders, not a streamlining of the 
system as others lead you to believe.
    Further, HUD estimates that packaging will have economic 
benefits because time will be saved. This time will be saved 
because consumers will not shop for settlement services, and 
lenders and settlement service providers will not have to 
answer questions about the services or prices.
    We believe that the result is bad when savings are achieved 
at the expense of consumers' knowledge and understanding. By 
HUD's own admission, they estimate that small businesses will 
lose somewhere between 3.5 and 5.9 billion dollars in annual 
revenue if these proposals are implemented.
    In this environment, the local attorneys, small 
abstractors, and title agencies will not be able to maintain 
service. HUD's economic analysis concludes that lower prices 
will drive out less efficient firms. However, many counties in 
this country, particularly in rural areas, have only one or 
maybe two providers. Packaging will eliminate some of those and 
consumers may not have access to any of these services.
    The bottom line is that consumers will effectively have 
fewer choices in their selection of providers of legal and 
title-related services for their real estate transaction. Under 
HUD's approach, the consumer selects the lender and must 
accepted whatever service provides are in that lender's 
package.
    This is a particular problem with regard to services such 
as those provided by attorneys and title companies which are 
provided not only for the benefit of the purchaser, but also 
for the benefit of the seller of real estate.
    It is particularly ironic at this time that the 
administration is proposing that federal agencies reduce the 
adverse impact on small business resulting from the bundling or 
packaging of federal contracts. HUD's packaging proposal is 
completely out of step with OMB's unbundling approach to 
government contracts.
    The loss of small businesses will eliminate local companies 
that support the community, provide jobs and pay taxes.
    We thank you for holding this hearing and addressing this 
most important issue.
    [Mr. Kosin's statement may be found in the appendix.]
    Chairman Manzullo. Mr. Kosin, what time does your plane 
leave?
    Mr. Kosin. At 6:53.
    Chairman Manzullo. Oh, 6:53, okay. Anytime that you want to 
leave, out the door.
    Mr. Kosin. Okay, I appreciate that, Mr. Chairman.
    Chairman Manzullo. Our next witness is Alan Hummel, Chief 
Executive Officer of the Iowa Residential Appraisal Companies 
from West Des Moines, Iowa. Mr. Hummel.

STATEMENT OF ALAN EUGENE HUMMEL, SRA, CHIEF EXECUTIVE OFFICER, 
  IOWA RESIDENTIAL APPRAISAL COMPANY, WEST DES MOINES, IOWA; 
 PRESIDENT, APPRAISAL INSTITUTE; AMERICAN SOCIETY OF APPRAISERS

    Mr. Hummel. Thank you, Mr. Chairman, Representative 
Christensen. I truly thank you for the questions and comments 
that you had earlier today. I think you have done a wonderful 
job of putting the stark reality and to the concerns of the 
small business person, such as my profession.
    I am an active real estate appraiser and am pleased to 
appear before the Committee on behalf of the Appraisal 
Institute and the American Society of Appraisers.
    The HUD's rule works against its own good intentions of 
providing reliable economical real estate services. This rule 
reflects a misunderstanding of the appraisal function, and it 
overlooks recent history.
    The proposed RESPA rule could destroy a decade of progress 
by inadvertently allowing the old menace of lenders controlling 
appraisals out of the box. It threatens objectivity. HUD 
proposed packaging the services unwittingly provides cover for 
reviving undue lender influence.
    Contrary to HUD's assumption that appraisals constitute 
high priced services, cost have remained constant for 10 years, 
even decreasing in some cases. Residential fees range from 200 
to 325 dollars for typical assignments. This is certainly not 
exorbitant for an authoritative evaluation of the largest 
financial investment most Americans will ever make. Yet cost is 
HUD's justification for putting appraisals in the RESPA bundle.
    A conflict concern is that HUD's guaranteed price bundling 
of services will deprive appraiser from the residential 
markets. It will drive them from the residential markets.
    A shortage of qualified appraisers could become a 
disastrous bottleneck in the mortgage industry. For those 
appraisers remaining in mortgage work, HUD's 10 percent 
tolerance rule would be stifling. For some transactions, a 
simple valuation by a computer may be adequate, more complex is 
a full appraisal, exploring not only the general market 
characteristics but the property's specific features. A 
physical inspection is often essential to a valid appraisal. 
The one size fits all structure in the 10 percent tolerance 
does not reflect the diversity of appraisal demands.
    Our next concern is EPSEL, that the package and arrangement 
proposal render appraisal firms, commonly small one-to-two-
person businesses subject to client pressures from the biggest 
players in the mortgage finance industry. Because appraisers 
are objective parties, the uniform standard response to abusive 
pressure of big lenders who push for unsupported values to 
facilitate mortgage transactions.
    The proposed rule would encourage large lenders to seek out 
appraisers likely to deliver the desired evaluation, those who 
would not take the moral high ground, compromise themselves 
would find themselves effected brow-lifted by the large 
packages as uncooperative or hard to work with.
    If this scenario seems far-fetched, I assure you it has 
happened before. I believe government should not provide 
incentives for less consumer projection.
    Ninety-seven percent of appraisal firms are small 
businesses. We rely upon our good reputations in our 
communities. The present premium of integrity is at risk when 
these and other small businesses are smothered together in 
large packages.
    The new entity had envisioned the packages as especially 
troubling in its potential to contrive junk fees and short cuts 
hidden from consumers. The RESPA rule can be brought closer to 
its goal of industry integrity and consumer protection. We 
offer HUD the following suggestion.
    Keep the contract appraisal feel under the good faith 
estimate and out of the guaranteed mortgage package so 
consumers know the type of evaluation and the fees charged. 
Make certain that lenders pay for all third party services 
without regard to loan status. Concealing what consumers are 
buying, the present HUD packaging concept is a classic pig in a 
poke.
    After a decade of the uniform standards of enhancing our 
professional skills, emphasizing our EPSEL duties, and 
controlling or reducing our cost to consumers, American 
appraisers reject a return to the insider mortgage dealings. As 
small business people we are committed to our communities. We 
urge HUD to amend its rule and open the poke so consumers can 
see what the value they get for their money.
    Thank you.
    [Mr. Hummel's statement may be found in the appendix.]
    Chairman Manzullo. Thank you.
    Our next witness is Peter Birnbaum, President of Attorney's 
Title Guaranty Funds out of Chicago, on behalf of the National 
Association of Bar-Related Title insurance. Mr. Birnbaum.

  STATEMENT OF PETER J. BIRNBAUM, PRESIDENT, ATTORNEY'S TITLE 
   GUARANTY FUND, INC., CHICAGO, ILLINOIS, ON BEHALF OF THE 
       NATIONAL ASSOCIATION OF BAR-RELATED TITLE INSURERS

    Mr. Birnbaum. Mr. Chairman, you are absolutely right, this 
Committee asked questions today that I have been dying to 
answer.
    Chairman Manzullo. Mr. Birnbaum, could you pull the 
microphone closer to you?
    Mr. Birnbaum. Yes. Can you hear me now, Mr. Chairman?
    Chairman Manzullo. Thank you.
    Mr. Birnbaum. You are absolutely right, you asked questions 
today, every member of this Committee, that I have been dying 
to ask for the last couple of years, and the comments that were 
made today I found myself saying ``Me too.''
    I represent a constituency that you, Mr. Chairman, make 
note that HUD does short shrift with the regs, and that is the 
small law firms. I represent 20,000 law firms nationwide, and 
these are virtually all small firms. We are doing closing of 
mom and pop bungalows for the average citizen.
    We are opposed to the packaging provisions in these 
regulations, and we believe that packaging at a minimum is 
going to raise consumer prices and it is going to also 
eliminate competition and those hardest hit will be the small 
business owners.
    I agree that RESPA is far from perfect, but it is 
nevertheless, I think, the cornerstone of consumer protection 
in the U.S. housing industry. Despite its flaws, I think we can 
agree that it was the intent of Congress when you enacted it in 
1974 to accomplish four things.
    One is to give consumer protection to people for the 
largest financial transaction in their lives; two, to outlaw 
kickbacks you found specifically that when there are kickbacks 
the cost gets passed onto the consumers; three, to make the 
transaction transparent to the consumer, to disclose costs; and 
finally, to encourage shopping as a way of increasing 
competition.
    The proposed rule and despite what I have heard today, some 
of which was encouraging, but the proposed rule as I read it 
totally, totally contradicts the goals of Congress when you 
established RESPA in 1974.
    The way I read this rule I see at least three six things 
that are contradictory:
    One, the rule now says that kickbacks are okay, they are 
good, but only if you are a bank. For everybody else it remains 
a federal crime.
    Two, where they are being transparent, some of the cost can 
now be hidden from the consumer.
    Three, that the consumer is not going to shop, will let the 
bank do it for them.
    Four, that small businesses may benefit or they might not 
benefit or who the heck knows. And I think you did an excellent 
job of ferreting that out.
    Five, and this is important, that the regulation by 
implication is going to preempt state law.
    And the finally, despite the sanctioned kickbacks and less 
competition, and this is what really gets me, that somehow that 
at the end of the day the consumer is going to save money.
    That proposed rule defies logic. I have been in this 
business for 22 years, and I can tell you that if the rule is 
implemented a couple of things are going to happen.
    One, banks, particularly big banks, are going to come to 
monopolize this business. The small business provider is going 
to be gone. There was a great question earlier about the 250 to 
275. Forget about it. It is going to be the person that can 
provide the biggest kickbacks. Prices, because of that, are 
going to skyrocket. You are going to have kickbacks, fewer 
competition, and in my State of Illinois, and you know this 
very well, Mr. Chairman, the seller pays for the title costs. 
The seller pays for the closing costs. Those costs are going to 
be shifted to the buyers. The price is going to go through the 
roof.
    Finally, the federalization that is proposed in this rule 
is going to do great violence to the way that we do business in 
this country, and it is ironic when you enacted RESPA in 1972 
it originally had a preemption provision. You came back a year 
later and said this needs to be revisited and in the words of 
the conference committee, a national framework for closing is 
``unworkable.''
    We urge Congress to take control of this Trojan horse, and 
I will give you a couple of reasons why.
    One, HUD does not have statutory authority to do this. Look 
at the Section 8 exemption. It gives exemption from prosecution 
to a class of people. Signing up for that, you know, where do 
you get off, where does a regulator get off even an exception 
from criminal prosecution to a class of folks?
    Two, there is absolutely no evidence to support that this 
is going to lower cost.
    Three, I heard this at the Housing Committee meeting that I 
testified last week that is this going to make closings easier; 
if not, you are still going to have the 400 pages of paper. It 
does not address that at all.
    And then finally, and most important to this Committee, 
small businesses will be devastated. Those same kind of lenders 
that you talked about, Mr. Chairman, they are going to control 
this process, and guys like us are going to be out of this 
business.
    Mr. Chairman, and to the rest of the Committee, I thank you 
for this opportunity to participate in this process.
    [Mr. Birnbaum's statement may be found in the appendix.]
    Chairman Manzullo. Thank you.
    Our next witness is Gary Acosta, President, SDF Realty, San 
Diego; CEO and Chairman-elect of the National Association of 
Hispanic Real Estate Professionals. Mr. Acosta.

STATEMENT OF GARY E. ACOSTA, PRESIDENT, SDF REALTY, SAN DIEGO, 
  CALIFORNIA; CEO AND CHAIRMAN-ELECT, NATIONAL ASSOCIATION OF 
              HISPANIC REAL ESTATE PROFESSIONALS.

    Mr. Acosta. Chairman Manzullo, Congressman Christensen, I 
am Gary Acosta, the President of SDF Reality in San Diego, 
California, and the CEO and Chairman-elect of the National 
Association of Hispanic Real Estate Professionals, or NAHREP.
    The NAHREP is a nonprofit trade associations dedicated to 
increasing the Hispanic home ownership rate. NAHREP is the 
nation's fastest growing real estate trade organization and is 
a partner in President Bush's Blue Print for the American 
Dream, Minority Home Ownership Initiative.
    We appreciate the opportunity to address the Committee 
today on the views and plans of action of the Department of 
Housing and Urban Development on the proposed amendment to the 
regulations implementing RESPA.
    The NAHREP has over 10,000 members in 43 states. Our 
members come from all segments of the housing industry, 
including but not limited to real estate agents and mortgage 
professionals. NAHREP provides professional education, industry 
representation, publications, and technology solutions for 
those real estate professionals primarily dedicated to serving 
Hispanic consumers and home buyers.
    Today, the home ownership rate in the United States stands 
at about 38 percent. However, for Hispanic Americans it is 
about 47 percent. This disparity is driven by a number of 
factors, including the lack of competitive mortgage financing 
in those markets.
    In addition, NAHREP estimates that approximately 80 percent 
of Hispanic home buyers are first time home buyers, double the 
percentage of the overall market. Particularly for the first 
time home buyer--the purchase of a home is both a complicated 
and emotional experience, which create a more labor-intensive 
real estate process for the professionals.
    According to a recent study produced by Pepperdine 
University and the La Jolla Institute, up to 65 percent of 
Hispanic home buyers prefer to communicate in Spanish, a skill 
possessed by a small percentage of real estate professionals.
    Additionally, many Hispanic consumers have thin credit 
files, little money for down payment, and multiple source of 
income. In order to serve this market effectively, mortgage and 
real estate professionals must have specialized skills and have 
a keen understanding of this market. Accordingly, NAHREP 
professionals increases awareness, reduces cost and simplifies 
the process of buying a home.
    In this regard, NAHREP applauds Secretary Martinez, 
President Bush and President Bush for their demonstrated 
commitment to make home ownership attainable for more Hispanic, 
minorities and other underserved Americans, and particularly we 
strongly support Secretary Martinez's efforts to simplify and 
improve the process of obtaining home mortgages and to reduce 
the costs for future home buyers.
    A recent NAHREP member survey indicated that 80 percent of 
our members who are real estate agents regularly use the 
services of a mortgage brokers to arrange financing for their 
clients. Latinos are more likely to use mortgage brokers and 
other small business professionals because they tend to live 
and work in the communities they serve, and have strong 
language skills and cultural understanding.
    Today's mortgage industry is increasingly a formula-driven, 
high volume, low margin business, and larger players generally 
lack the flexibility and the diverse personnel necessary to 
adequately serve home buyers that don't always fit the box.
    For this reason, NAHREP believes that the growth in 
Hispanic home ownership will depend on Hispanic-owned small 
businesses in those communities.
    The NAHREP believes that consumers should have access to 
the best mortgage rate possible and be given maximum choice of 
mortgage product and services. We also believe that this 
outcome for the consumer could not be possible without real 
competition in the mortgage market.
    However, the proposed rule in connection with the enhanced 
good faith estimate results in a different treatment of 
compensation in loans originated by lenders and those 
originated by mortgage brokers.
    In effect, a mortgage loan originated by a mortgage broker 
who now would have additional disclosure requirements may look 
more expensive to the consumer than an identical loan 
originated through a direct lender.
    Disclosure of compensation of a mortgage banker or an 
national bank is not required under this proposed rule. In some 
cases the consumer could select a more expensive loan product 
by assuming the loan with no origination fee is always the 
better deal.
    Additionally, NAHREP believes that because interest rates 
change several times daily the proposed rule may cause 
consumers to focus too much on the compensation of the loan 
originator rather than the ultimate interest rate and terms. 
The different disclosure requirements between brokers and 
bankers could bias consumers against small business which may 
affect their long-term viability.
    In addition to working to increase the Hispanic home 
ownership rate, NAHREP uses education and advocacy to preserve 
and create more business opportunities for Hispanic Americans. 
As more Latinos strive for home ownership, the housing industry 
will need more Latino real estate agents and mortgage 
professionals to serve them. Today Latinos have in general 
limited access to start-up capital. Aspiring entrepreneurs have 
few opportunities equal to mortgage and real estate that have 
the potential for success with a relatively modest barrier for 
entry.
    Fourteen years ago my wife and I started our own business 
as a mortgage broker with only $5,000 from our personal 
savings. Today, our company has helped several hundred families 
achieve the goal of home ownership. Our company employs 14 
people, including eight other Latinos.
    Chairman Manzullo. How are you doing on time? We are out.
    Mr. Acosta. Okay, let me just wrap up by saying the housing 
sector has been one of the few bright spots in our economy, and 
Hispanic home buyers have fueled the strength of the housing 
industry. Over the next two decade nearly 80 percent of all new 
home buyers will be minorities and/or immigrants. NAHREP 
strongly advocates that consumers must have access to the best 
mortgage rate possible, and stands ready to support Secretary 
Martinez's efforts to improve the process and reduce the cost 
of mortgage finance.
    I look forward to working with the Committee and HUD to 
ensure that the proposed rule encourages more minority-owned 
small businesses to enter the mortgage market and thereby help 
to increase home ownership opportunities, particularly for 
minority families.
    Thank you, sir.
    [Mr. Acosta's statement may be found in the appendix.]
    Chairman Manzullo. Thank you.
    The next witness is Neill Fendly, Government Affairs Chair 
and Past President, National Association of Mortgage Brokers.

 STATEMENT OF NEILL FENDLY, GOVERNMENT AFFAIRS CHAIR AND PAST 
      PRESIDENT, NATIONAL ASSOCIATION OF MORTGAGE BROKERS

    Mr. Fendly. Chairman Manzullo, Ranking Member Velazquez, 
Members of the Committee, thank you for inviting me to testify 
on an issue that is of vital importance to the small business 
mortgage community, and specifically mortgage brokers.
    Mortgage brokers are typically small businesses who operate 
in the communities in which they live, often in areas where 
traditional mortgage lenders may not have branch offices. 
Today, mortgage brokers originate more than 60 percent of all 
residential mortgages. They are also the key to minority home 
ownership as illustrated in the recent study which stated that 
mortgage brokers reach more minorities than lenders.
    Our members are not just upset and frustrated about the 
impact that HUD's proposed rule to reform RESPA, RESPA will 
have on their business, or the ability to put people in homes, 
they are terrified, they fear the extinction of their careers, 
their industry and their livelihood. HUD's proposal creates an 
unlevel playing field in the marketplace for mortgage brokers, 
will limit consumers' choice, and access to credit, and will be 
unworkable in the real world.
    The HUD's proposed rule will significantly reduce small 
business revenues while substantially increasing the regulatory 
burden on small business.
    My testimony today focuses on the proposed rule's 
disproportionate impact on small business, especially mortgage 
brokers, its impact on consumers, and HUD's failure to comply 
with the Regulatory Flexibility Act.
    The NAMB has serious concerns about the proposed rule's 
recharacterization of a yield spread premium as a lender 
payment to the borrower for a higher interest rate, creates 
unintended consequence, and can further confuse the consumer. 
In fact, the Federal Trade Commission stated that HUD's 
approach to the disclosure of broker compensation could confuse 
consumers and lead them to misinterpret the overall profit of 
the transaction.
    The rule creates an unlevel playing field by requiring that 
mortgage brokers include the yield spread premium in the 
calculation of net loan origination charge but not requiring 
the same of all originators which, as the FTC noted, may 
inadvertently burden consumers and competition. NAMB agrees.
    The proposed rule also creates packaging which requires an 
originator, third party settlement services, a mortgage and 
closing costs for a set price. This will devastate small 
business since they do not have the bargaining power to enter 
into volume-based discounts with third party service providers 
as the larger entities.
    The NAMB does not believe that HUD has sufficiently 
complied with the Regulatory Flexibility Act when promulgating 
the proposed rule for two reasons:
    One, HUD's initial regulatory flexibility analysis did not 
contain a sufficient comparative analysis of alternatives to 
the proposed rule that would minimize the impact on small 
entities.
    And two, the analysis does not accurately describe the 
projected reporting and recordkeeping requirements and other 
compliance requirements of the proposed rule, including an 
accurate estimate of the classes of small entities which would 
be subject to this requirement.
    Although HUD's economic analysis states that over 55 
percent, approximately 3.5 billion of the 6.3 billion dollars 
will be transferred to consumers will come from small 
businesses, HUD does not specifically explain how much of that 
comes from the mortgage broker industry.
    In fact, the SBA, Office of Advocacy explained in their 
comment letter that HUD's analysis would be improved by a 
revised initial analysis under the Regulatory Flexibility Act 
which clearly defines the impact on small entities instead of 
merely citing the overall cost to small business.
    The National Federation of Independent Business said the 
specifics of the impact on small business were missing from the 
initial regulatory flexibility analysis.
    Since HUD did not actually specifically compute the cost of 
compliance per small business, HUD could not and did not 
sufficiently analyze regulatory alternatives as required by act 
that would minimize the burden on small business.
    Their failure to accurately analyze the economic impact on 
small business can also be illustrated through their own 
reported inconsistencies.
    For example, HUD's Paperwork Reduction Act submissions to 
OMB state, ``The annual responses for good faith estimate is 11 
million.'' However, HUD's analysis states that the rule would 
apply to the 20002, it would impact 19.7 million applications. 
This is significant because the submission to OMB 
underestimates the paperwork burden by at least 8.7 million 
GFEs. This in inconsistency that could cost small business 
millions.
    Inconsistencies like this led to NAMB's commission of an 
independent economic study on the underlying assumptions of 
HUD's economic analysis, and the effect that the proposed rule 
would have on small business.
    The study anticipates that small originator brokers and 
small third party service providers will lose more than 60 
percent of the revenue arising from a loss of market share, and 
lower revenue services and reduce prices.
    Further, the study states that this revenue that will be 
lost by small business will likely go to larger businesses, not 
to consumers.
    As stated in HUD's own estimation, the program being 
changed mandated by the proposed by the proposed rule would 
increase the burden on industry by 2.5 million hours. That's 
289 years. This is a huge burden.
    We believe HUD must undergo a more expansive and realistic 
review of the economic impact that their proposal will have on 
small business.
    We have recently resumed our dialogue with HUD and are 
hopeful that we can come to a resolution that will not 
adversely impact small business. We believe this is due in 
large part to the efforts of the Committee, Mr. Chairman, and 
we thank you.
    We appreciate the opportunity to share our concerns with 
you today, and we hope the Small Business Committee will 
protect against the extinction of small businesses in the 
mortgage industry as a result of HUD's proposed rule. Thank 
you.
    [Mr. Fendly's statement may be found in the appendix.]
    Chairman Manzullo. Thank you for your testimony.
    Our next witness is Catherine--is it Whatley?
    Ms. Whatley. Yes, sir.
    Chairman Manzullo. Who is President of National Association 
of Realtors, Jacksonville, Florida, representing a family firm 
established by her grandfather in 1907.
    Ms. Whatley. Yes, sir.
    Chairman Manzullo. We look forward to your testimony.

STATEMENT OF CATHERINE WHATLEY, PRESIDENT, NATIONAL ASSOCIATION 
               OF REALTORS, JACKSONVILLE, FLORIDA

    Ms. Whatley. Thank you, Mr. Chairman and members of the 
Committee. I am Cathy Whatley. I am the President of the 
National Association of Realtors.
    I thank you for holding these hearings, and I appreciate 
the opportunity to be here with you to be able to share our 
views on HUD's RESPA reform proposal.
    While our membership is large, 880,000 members, the typical 
real estate brokerage is small, operating just single office 
serving a local market. Sixty-seven percent of real estate 
brokerage have a sales force of five or fewer agents, including 
my own company. It is from this perspective that I present our 
views.
    The Secretary's goal for reform is to simply the home 
buying process and to reduce cost to borrowers. These are 
worthy goals and ones which we support. But we do not believe 
this proposal achieves them.
    The NAR recommends HUD take an incremental approach to 
reform by improving the good faith estimate so that can become 
a better shopping tool if redesigned and some enforcement 
mechanisms are provided.
    We believe the guaranteed mortgage package will hurt small 
business for a number of reasons. It has the potential to 
create the following four environments.
    First, packaging will be limited exclusively to lenders. 
The requirements of the packaging make it impossible for anyone 
other than a lender to package. The proposal requires the 
packages to also guarantee an interest rate. Only a lender can 
do this.
    Further, by granting a Section 8 safe harbor, lenders are 
placed in preferred position to control essentially the entire 
settlement service industry. The largest lenders will determine 
the winners and losers in the new world of packaging.
    Second, a lender is not required to disclose the services 
in the package, thus creating a black box. Today's services 
required to close the transaction are fully disclosed to the 
borrower. To move to a process where the borrower is assumed to 
only be interested in a lump sum price of the package and not 
the individual services is flawed. Despite claims to the 
contrary, consumers want to know what they are getting for 
their money. If they don't know what services are in a lender 
package, they won't be able to comparison shop.
    Third, the consumer's choice of service providers will be 
limited. A positive real estate transaction experience is 
dependent on a health, competitive environment for settlement 
services. Today, a real estate agent has unlimited choices of 
services to recommend to their client. These choices in the 
marketplace help to ensure a smooth transaction for the home 
buyer, the goal of everyone of your realtor members.
    To enact rules that could result in the removal of these 
choices could directly impact the quality of service a real 
estate professional can provide to their clients. This in turn 
will hurt the consumer who relies on the expert advice of their 
agent to guide them through this process.
    And four, the cost of the transaction may actually 
increase. Section 8, the anti-kickback provision of RESPA 
prohibits lenders from charging the borrower more than the 
actual cost of the third party settlement service. Granting 
lenders an exemption from this provision will permit lenders to 
charge whatever they want for these services. As a result, the 
cost of the transaction could and probably will increase.
    Before HUD removes the most significant consumer protection 
provision in RESPA, they should more fully understand the 
consequences to the industry as well as the consumer.
    Mr. Chairman, this proposal is not without merit. The goals 
are admirable, but the proposal is extremely complex. The 
unintended consequences of this proposal could be devastating 
to all market participants involved in the home buying process.
    We commended you, Mr. Chairman, for calling on HUD to 
conduct additional survey studies, and I agree, we feel it is 
imperative for HUD to conduct more due diligence, to undertake 
additional research and analysis. And because of the probable 
multiple proposed changes, we also recommend that HUD issue a 
new proposed rule that reflects the research analysis as well 
as the comments by all affected parties. The potential 
consequences to the industry and the consumers are too great 
not to take this approach.
    I thank you on behalf of the National Association of 
Realtors for the opportunity to testify.
    [Ms. Whatley's statement may be found in the appendix.]
    Chairman Manzullo. Thank you for your testimony.
    Our next and last witness is Terry Clemans, Executive 
Director of the National Credit Reporting Association from 
Bloomingdale, Illinois.
    Mr. Clemans, we look forward to your testimony.

  STATEMENT OF TERRY W. CLEMANS, EXECUTIVE DIRECTOR, NATIONAL 
      CREDIT REPORTING ASSOCIATION, BLOOMINGDALE, ILLINOIS

    Mr. Clemans. Thank you. Good afternoon, Mr. Chairman, 
Ranking Member Velazquez, and distinguished members of the 
Committee.
    I am Terry Clemans, Executive Director of the National 
Credit Reporting Association, and I would like to thank you for 
inviting me to today's hearing.
    The NCRA is a nonprofit trade association that represents 
the consumer reporting industry and specifically mortgage 
credit reporting agencies. There are approximately 300 
businesses in the United States who specialize in mortgage 
credit reporting. This is a reduction of approximately 1500 
companies just 10 years ago.
    The NCRA's more than 125 members provide in excess of 15 
million credit reports for year to the mortgage industry and 
specialize in the preparation of the three bureau merged and 
residential mortgage credit reports as required by HUD, Fannie 
Mae and Freddie Mac for mortgage underwriting.
    Our typical member is a classic small business with 
approximately eight employees and about $1 million in annual 
revenue. Our members are highly specialized agents in the 
credit reporting industry, with the responsibility to ensure 
the accuracy of credit reports used for the most critical 
purchase in the average consumer's financial life, the purchase 
of a home.
    While we commend Secretary Martinez in HUD for addressing 
problematic issues regarding the current mortgage settlement 
solutions process, and we see how some aspects of the RESPA 
reform would be beneficial to consumers, we also have grave 
concerns regarding HUD's proposed RESPA reform in two specific 
areas.
    First, HUD's lack of adherence to the Regulatory 
Flexibility Act and how this rule, if enacted, could eliminate 
approximately 90 percent of the small businesses in the 
mortgage credit reporting industry.
    We urge this Committee to request HUD to further evaluate 
this possibility with a new economic analysis addressing our 
industry's specific issues and all small businesses.
    Second, that the guaranteed mortgage package, or GMP, as it 
relates specifically to the credit reporting industry brings an 
enormous potential risk with this plan to more than one-third 
of the nation's consumers due to the unique impact only the 
credit report has on the loan.
    The NCRA conditionally supports the pursuit of a GMP type 
concept as a means to bring greater efficiencies to the 
consumer in the acquisition of settlement services only with 
precautions.
    However, when we support that, these precautions are 
specifically for settlement services needed to close a loan and 
not to prequalify or approve a loan. Therefore, with this 
support we require the additional investigation.
    The credit report is required as a first step in the 
process of loan prequalification and then approval with far too 
great of an impact on the consumer not found in any other 
service in the mortgage process.
    All of these services may not even be needed until after 
the credit report has been secured and evaluated. The 
enticement for the cheapest possible solution to the credit 
reporting services may at first glance seem attractive. 
However, it is as full of pitfalls as the original problem HUD 
is trying to fix.
    The ability to pass along some of the lenders' unrelated 
operational cost provides the opportunity for more uses to the 
system in several ways. Further, giving the lender the ability 
to decide whether or not to include credit as part of the GMP 
does not provide consumers with the protection they deserve to 
make sure the proper type of credit services required for their 
personal circumstances are obtained.
    Additionally, further reduction in the number of credit 
reporting companies could prove very harmful in the long term 
for the competitive balance of the entire credit reporting 
industry. The three major credit repositories, each being the 
central facility to the rest of the industry's ability to exist 
with their role as both a wholesale supplier and a retail 
competitor, have a monopolistic advantage over everyone.
    The safe harbor provisions would empower them with the 
ability to use some questionable business practices to 
virtually eliminate all competition except that of companies 
that could provide credit reports as lost leaders for other 
services such as that owned by title companies or even mortgage 
lenders directly.
    Two of the largest non-credit repository mortgage credit 
companies currently in existence in the industry are producing 
the volume of reports similar to that of our 125 members 
combined are already positioned for this change.
    Considering the credit report, depending on the type 
needed, is already one of the lowest cost services in the 
mortgage process, and that is also the only service with a 
direct impact on the price of the most expensive part of the 
mortgage process, the interest rate changed on the actual loan. 
Should it be encouraged to be completed on a shoe string 
budget?
    It seems far too risky to allow the credit report to be 
included in the GMP with the potential risk for access to the 
full spectrum of services available without regard to the 
impact on the consumer.
    This is especially true when considering 38 percent of the 
mortgage applications reviewed in the 2002 Consumer Federation 
of American MCR study were found to be at high risk with credit 
report problems due to the extreme circumstances in their 
credit files.
    Statistics revealed in the Federal Reserve presentation in 
May of 2002, based their own study of credit report data seems 
to collaborate several of the CFA MCR findings.
    Thus, the proposed statements associated with the credit 
report as part of the GMP could cost a significant portion of 
the population, many of whom are in the position to least 
afford it, more and higher interest charges in a matter of days 
or weeks than could ever be saved by the proposal. HUD's quest 
to save a few dollars from one of the least expensive items in 
the entire mortgage process could for some keep the American 
dream of home ownership only a dream.
    Thank you.
    [Mr. Clemans' statement may be found in the appendix.]
    Chairman Manzullo. Thank you very much.
    I've just got a couple of questions, but I want to address 
this statement to Mr. Weicher and Mr. Kennedy. The reason I get 
so passionate about small businesses is the area that I 
represent, Rockford, Illinois, in 1981 led the nation in 
unemployment at 24.9 percent. We could lose the entire town 
because of the collapse of the manufacturing sector in this 
country, and the desperation that you see expressed through 
this Chairman is what my constituents are feeling because of 
depression that this country presently is in.
    And our goal and my goal as a member of Congress and as 
Chairman of the Small Business Committee is to try to keep open 
as many businesses as possible, and that is the reason I get 
upset, at times I get angry, but if I have to do that to save 
the businesses in this country I'll continue to do that, and 
that is the purpose of this Committee.
    To each of the members here, do you feel that the 
regulatory flexibility analysis done by HUD thoroughly examined 
your profession; did a substantive economic impact as to what 
would happen to your profession in the event that the RESPA 
final rules are passed?
    Let's start down here. Mr. Hummel?
    Mr. Hummel. In the appraisal profession, it did not, sir.
    Chairman Manzullo. Mr. Kosin.
    Mr. Kosin. It didn't specifically address the title 
insurance industry, title agents or abstractors, and to look at 
the study that was being discussed and that you were 
questioning the people from HUD on, by their own admission, it 
having a multi-billion dollar impact on small business to me is 
credible that they would not do a better job of doing their 
homework.
    Chairman Manzullo. Mr. Birnbaum.
    Mr. Birnbaum. One sentence, page 43, and the truth is if 
this rule were to be implemented the vast majority of my 
constituency would be out of business.
    Chairman Manzullo. Mr. Acosta.
    Mr. Acosta. Yes. Our organization is made up of the entire 
spectrum of small business professionals, so I would say that 
there elements that were not adequately address.
    Chairman Manzullo. Mr. Fendly.
    Mr. Fendly. Absolutely not. They have some numbers in there 
but there is no documentation, no empirical data, and in fact 
several times in the proposed rule HUD acknowledges that they 
are completely unleveling the playing field for mortgage 
brokers.
    Chairman Manzullo. Ms. Clemans.
    Mr. Clemans. Mr. Chairman, that is one of the most 
disturbing parts in regards to the credit reporting industry. 
We are only mentioned as a line item as part of the settlement 
services industry. Since we operate in a monopolistic 
environment, we find it very disturbing that we do not even get 
a sentence as some of the industries.
    Chairman Manzullo. Ms. Whatley.
    Ms. Whatley. Mr. Chairman, certainly as real estate 
professionals we are the ones who are most intimately connected 
with the consumer. And there is a lot of ongoing dialogue that 
will have to take place relative to these particular proposed 
modification, and I do not think those were all adequately 
address.
    Chairman Manzullo. Now, did all of you address your concern 
as to the lack of evidence with regards to your profession? Did 
you discuss that with HUD? Mr. Hummel?
    Mr. Hummel. Mr. Chairman, we have had one-way conversations 
with HUD. Since the actual proposed rules, we have additionally 
expressed our concern, but we have not had the opportunity to 
have--sit down and have a two-way conversation with HUD.
    Chairman Manzullo. Did you request those?
    Mr. Hummel. It would have been in our writing, yes; that we 
made ourselves available to address our concerns personally 
with them.
    Chairman Manzullo. Mr. Kosin, the same question.
    Mr. Kosin. We have had a meeting with HUD but these 
concerns were not specifically addressed by them.
    Chairman Manzullo. Mr. Birnbaum?
    Mr. Birnbaum. We had two meetings and this issue was not 
addressed.
    Chairman Manzullo. Did the issue of--did you ask why the 
attorneys were not involved in it?
    Mr. Birnbaum. Right.
    Chairman Manzullo. What was your response?
    Mr. Birnbaum. Well, the thing that I got--that we tried to 
point out is that we felt that the regulation, the proposed 
regulation has got a bias that, based upon practices in other 
states where lawyers are not involved, and we cited the fact 
that in 20 some states lawyers are actively involved in 
conducting closings for clients, and that that reality is not 
addressed in the regulations.
    And to date we have not received----.
    Chairman Manzullo. To whom did you express that?
    Mr. Birnbaum. To the HUD staff.
    Chairman Manzullo. So you got no response?
    Mr. Birnbaum. No response to date.
    Chairman Manzullo. Mr. Acosta.
    Mr. Acosta. Yes, I have to say that HUD has had an open 
door policy with our organization, and we have had access 
because of Secretary Martinez's office, and we have expressed 
our concern with respect to small business.
    We did not address the specific issue with regards to the 
research, but they seem to be receptive to our input, and 
suggested that they would look further into our concerns.
    Chairman Manzullo. Did they ever offer to make an amendment 
so that the regulatory flexibility analysis would have been 
correct?
    Mr. Acosta. Not specifically, but they gave me the distinct 
impression that it was still a work in progress.
    Chairman Manzullo. It is a work in progress all right.
    Mr. Fendly.
    Mr. Fendly. We have had two meetings with HUD. We have not 
discussed that particular issues. Both meetings were last fall. 
However, it is well documented in our comment letter, and HUD 
very well knows who the mortgage brokers feel about this issue.
    Chairman Manzullo. Mr. Clemans.
    Mr. Clemans. We also have had two meetings with HUD, 
although we got the feeling that a lot of this was pretty much 
decided as they were very late meetings prior to the proposed 
rule coming out. They were both this spring.
    Chairman Manzullo. Ms. Whatley.
    Ms. Whatley. Mr. Chairman, I will say that HUD always has 
an open door, and we have a great opportunity for dialogue 
between HUD and the National Association of Realtors.
    We have commented to them several times that we encouraged 
further research and analysis, understanding that once HUD 
proposed its rule they are somewhat distance to be able to 
communicate back to us what--you know, where they are thinking 
they are going. I think that hampers the dialogue, which is why 
we certainly would recommend a second proposed rule after they 
have gathered all this because it is very difficult to engage 
in a dialogue to know what they may be changing or what they 
may be doing in research and analysis without having a way----.
    Chairman Manzullo. You will not know until the final 
regulations are issued.
    Ms. Whatley. That is correct, unless they issue a second 
proposed rule.
    Chairman Manzullo. That is all the industries are asking 
for, is that not correct? To get some half decent research here 
with some substantive evidence.
    Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Mr. Acosta, I am interested in your comments regarding 
how--what hurts the Latino businessmen would also hurt the 
Latino consumers. Would you please expand on how this rule will 
hurt your business in particular, and what special services you 
provide as a Latino to Latino consumers?
    Mr. Acosta. Well, the barriers to home ownership with 
respect to the Latino community I think are fairly clear from 
our standpoint.
    One, there is just a general lack of information about the 
home buying process that is out there; two, Latino consumers 
tend to have a limited amount of resources for a down payment. 
Language barriers is significant. Latinos also tend to have 
thin credit files. We are not big consumers of credit, 
especially immigrants, so having no credit is a much better 
issue than say bad credit, and the income documentation. Those 
are really the five primary areas.
    So if you are--when you are talking about how to best serve 
that segment of the market, you need a professional that is 
very acclimated, very fluent in both the language and the 
culture, and understands those unique dynamics. And we have 
found that some of the larger lenders just do not have the 
mobility, the flexibility, and the personnel to best serve our 
industry.
    So it has been small business professionals that have done 
the heavy lifting, at least from our analysis, in our 
communities throughout the country.
    Ms. Velazquez. So do you think that in issuing this rule 
they way they are proposing it will take into consideration 
what, exactly what you are explaining here?
    Mr. Acosta. Well, we have a concerns that that has not been 
adequately addressed. We do believe that, especially with 
regards to the mortgage process, that small business 
professionals can be at a handicap. And I do have a challenge, 
understanding what the consumer benefit is when we are looking 
at two identical loan products, same rate, same terms, only one 
is coming from a broker, one is coming from a mortgage banker, 
and there is two entirely different disclosures, which I think 
would be very confusing to the consumer, and I also think may 
be bias the consumer against the broker which could challenge 
their viability, and the less brokers that are in business from 
our view the worse it is for the Latino community.
    Ms. Velazquez. Mr. Birnbaum.
    Mr. Birnbaum. Yes, if I could also response. In my home 
town of Chicago, and I think your home town of New York City, 
the Hispanic borrowers are often represented by Spanish-
speaking lawyers.
    My belief is that that brings real value to this process, 
and specifically it is true that Hispanic borrowers are among a 
group that is most vulnerable to predatory lending. So if 
lawyers are there to counsel them and protect them, there is a 
real benefit.
    My fear is that under the proposed rule if the lawyer is 
eliminated, who is going to represent the borrower? Is it going 
to be the mega-bank? I would think not.
    Ms. Velazquez. Thank you.
    Mr. Fendly, as you are aware there is widespread concern 
that it is unfair and unrealistic to expect lenders and brokers 
to guarantee interest rates for 30 days when the consumer is 
not locked in with the lender. This causes the business to 
hedge many more loans than they will actually make.
    Do you believe these concerns are valid.
    Mr. Fendly. Absolutely. It is a very--mortgage interest 
rates are very, very volatile. They can change several times a 
day. The ultimate cost is going to be on the high side, not the 
low side, so you are going to get increased cost. The hedging 
is going to go up. There is absolutely no index that exists out 
there. HUD is well aware of this; that you can track an 
interest rate.
    Ms. Velazquez. So how do you think these concerns could be 
most easily mitigated within the rulemaking process?
    Mr. Fendly. Actually, to be perfectly frank, I think it 
needs to be eliminated, that whole section concerning the 
index. This is simply not workable. It is not realistic. If a 
customer wants to shop, they are going to have to shop within a 
relatively compressed period of time to compare apples to 
apples. If they are more conservative, lock the loan, lock the 
rate. That is the way it should be addressed.
    Ms. Velazquez. Thank you.
    Thank you, Mr. Chairman.
    Mr. Bartlett. Thank you very much.
    In a former life, I was a home builder and a land 
developer, and so I have sat at the settlement table many, many 
times. I was so busy with the land development and the home 
building that I had too little time to look into what went on 
in preparation for settlement, and I just had a lawyer that I 
trusted, and I asked him is it okay for me to sign here, and he 
would tell me yes, and I would sign there.
    I understand that what is happening now is that a rule has 
been promulgated, that the period for comments has ended, and 
HUD is now looking at those comments, and they are going to 
modify the rule a little or much, depending upon what they 
think they need to do.
    I would note that the law requires them to look at the 
concerns of small business. The law does not require them to, 
and I do not know how the law could do that, to have a final 
rule which really addresses the concerns of small business. so 
let me ask you the question that I asked the Secretary's 
people.
    At the end of the day they are going to come out with a 
rule, and it will be a fait accompli, and it may or may not 
address your needs. And I asked them with whom would they seek 
counsel to know if the changes they have made in the rule meets 
the concerns, addresses the concerns that the small business 
community has.
    You know, it is very nice that the law requires them to 
look at your concerns, but I do not know how a law could be 
written that requires them to really address your concerns. 
They need to consider them. If they consider them and they are 
not going to change the bill, I think they will change the 
bill, but I am not sure they will change it so that it 
addresses the real concerns that you have.
    Which honest broker, which mediator, how should rulemaking 
like this be addressed so that you can--I asked them, for 
instance, would the Office of Advocacy of the Small Business 
Administration be at the table when the final rule was written. 
They hedged, and I gathered the answer to my question was no, 
that they were not going to be there.
    I would like some entity there that could just yell and 
scream you are not meeting the needs of small business if in 
fact the final rule does not meet the needs of small business. 
Who should that be and how could we do it?
    Yes, well, let us just go down the line. Who being at the 
table would make you comfortable that your needs are going to 
be addressed?
    Mr. Kosin. ALTA feels very strongly that HUD does not have 
the statutory authority in which to make these sweeping 
changes. We feel that market-driven change is ideal, and we see 
some entity, some companies from large and small reacting to 
the changing market dynamics by going into some type of 
packaging of services and offering one-stop shopping.
    So it would seem to me that I do not know if there any one 
entity out there that is going to give us the guiding light to 
the answer to your question, Mr. Vice Chairman.
    I believe that market-driven change and changes that are 
taking place within the market today are sufficient for 
continuing the tremendous real estate transfer practice that we 
have in this country.
    Mr. Birnbaum. I think that this is a statutory process, and 
I believe it's well within Congress's jurisdiction to address 
this issue.
    When it comes to RESPA, it is not unprecedented for 
Congress to put together a working group with HUD to study and 
to try to reach consensus. So I would love to see the ball stay 
with Congress where I believe it should have initiated and I 
believe that at the end of the day would be a better process.
    Mr. Bartlett. So you would feel reasonably comfortable if 
we had a seat at the table, if Congress in its oversight could 
have had a seat and the table when the final rule was written?
    Mr. Birnbaum. Absolutely.
    Mr. Bartlett. Thank you. Thank you for that confidence. Not 
every American shares the confidence.
    [Laughter.]
    Mr. Bartlett. Thank you.
    Yes, sir?
    Mr. Acosta. I would concur with that, Mr. Chairman. I am 
very comfortable with Congress serving in that capacity and the 
idea of setting up a consortium of professionals that might--
--.
    Mr. Bartlett. Would you move closer to the microphone? They 
are having trouble hearing you.
    Mr. Acosta. I am sorry about that.
    Yes, I concur. I do feel comfortable with Congress serving 
in that capacity, and I also support the idea of potentially 
putting together a consortium maybe selected by Congress who 
might be able to work with HUD in this effort as well.
    Mr. Bartlett. When do they anticipate publishing their 
final rule? Do you know how long a window we have? End of 
spring, early summer. Okay. Okay. Summer does not begin until 
June 22, right? So if their summer begins at the same time ours 
does, why we have that long a time at least.
    Yes, sir?
    Mr. Fendly. I would also agree with the two gentlemen to my 
right. In fact, it is obvious that several members of this 
Committee have a real strong grasp of the marketplace and how 
it operates, and how it works out there in the real world, and 
clearly HUD does not. So I would be very comfortable with the 
congressional.
    Mr. Bartlett. Gee, it be nice if every committee had this 
kind of confidence from the public. Thank you.
    Mr. Fendly. I am going to continue that sentiment. We feel 
Congress was very wise in the initial RESPA ruling. Yes, it 
does have some problems that need to be addressed, but it is 
also old and it has been attempted to be addressed through 
these HUD proposals, and when we see proposals that come out 
that seem to be 180-degree turn from the initial incentive of 
RESPA, we really much question that.
    And as was previously pointed out, this Committee has a 
great grasp of the issues that pertain to this problem, and we 
would feel very comfortable that Congress handle this.
    Mr. Bartlett. Thank you.
    Ms. Whatley. Mr. Vice Chairman, I would say that certainly 
in an absence of research and analysis that potentially that 
Congress might ask for a GAO study to do further analysis on 
this prior to submittal of the final rule. Whether there is 
anything that needs to be concluded and done following that, I 
think first you have to start with the research. That is what 
you have been talking about most of the afternoon. And so I 
think you really do have to have that substantive underlying 
research and analysis in order to be able to determine what are 
the impacts.
    Mr. Bartlett. Thank you.
    Let me ask you if you might do something to help us, if you 
were sitting up here when the Secretary and his people were 
answering our questions, what questions would you like to have 
had asked that were not asked? If you could please communicate 
that those questions to our staff, I am sure our Chairman will 
keep the record open for additional questions that the 
Secretary and his people will answer. So we would be very 
pleased to get your suggestions for questions that were not 
asked that you would like to have seen asked.
    Do either of my colleagues have any questions or comments 
before we thank our panel and excuse them.
    Mrs. Christensen. No, I do not think so. I think you have 
asked most of the questions, and being the last person here to 
be following up with questions, I think I will give you break. 
You have been extremely patient, and we thank you for your 
patience and for your very thoughtful testimony and your 
suggestions that you have already made, and I think in 
answering some of the questions that have been asked, you have 
added further clarification to some of your recommendations.
    I think the reality that RESPA need some reform to better 
meet the purpose for which it was enacted and that the current 
revision does not quite hit it, and in terms of improving the 
process for getting mortgages and reducing the cost to 
consumers, it does hurt small business, I think I heard one of 
the panelists say. If this provision takes place, perhaps as 
many as 90 percent of businesses involved in this process could 
be put out of business, and of course it us unlikely to help 
consumers and it is likely to hurt consumers.
    I support the recommendations that I have heard for a 
supplemental IRFA. I do wonder though if anyone had a thought 
that maybe expanding the authority of the Office of Advocacy to 
do more than just make a recommendation might be helpful as 
well. And if I could get an answer perhaps from one or two of 
the panelists to that question, I would not have anything 
further to ask if anyone wanted to answer.
    The Office of Advocacy has recommended that we have a 
supplemental IRFA, but because of EPA or OSHA they have a 
little stronger authority, and many of you have recommended 
that Congress, you feel comfortable with Congress having more 
role in the final outcome on this, but would the Office of 
Advocacy as well, would that also be of assistance in making 
the rule such as this be more open to the advice of the 
businesses involved, and enforcement on the part of advocacy, 
the Office of Advocacy would make you more comfortable in this 
process?
    Mr. Birnbaum. Actually speaking for my group, I am not 
familiar enough with the Office of Advocacy to express an 
opinion.
    Mr. Bartlett. Excuse me. I do not know how many of you are 
familiar with the Office of Advocacy. There is a joke that you 
can tell at public meetings that always gets a response, and 
that is, I am from the government and I am here to help you. 
Almost nobody thinks that somebody from the government is 
really there to help them.
    But the Office of Advocacy, even under the prior 
administration, was headed by a person that when he said ``us'' 
he was talking about the small business community. And when he 
said ``them'' he was talking about government. This is an 
office that too few of us small businesses knows that it is 
available. They have a lot of lobbying leverage, and I think 
you are suggesting it is a good one, that they maybe could have 
a veto kind of a responsibility. If what was finally 
promulgated they did not think met the needs of small business, 
they could yell foul, and that would result in a second 
consideration of this. I think that is the kind of thing you 
are pointing at.
    Mrs. Christensen. Exactly, Mr. Chairman.
    Mr. Bartlett. Yes. Well, I think that is a good idea. That 
is something that needs to law, of course, and it is something 
that we might very well consider.
    Are you okay?
    Ms. Velazquez. Yes, I am fine.
    Mr. Bartlett. Okay, thank you.
    I would note that many of you have come from considerable 
distances to be with us today. Thank you very much for honoring 
us with your presence. Thank you for your testimony, and know 
that we value your testimony. Thank you very much and this 
meeting will be in adjourned.
    [Whereupon, at 6:00 p.m., the Committee was adjourned.]

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