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



                                                   S. Hrg. 102-000 deg.

REAL ESTATE SETTLEMENT PROCEDURE ACT REGULATIONS: WORKING BEHIND CLOSED 
             DOORS TO HURT SMALL BUSINESSES AND CONSUMERS

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

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                    WASHINGTON, DC, JANUARY 6, 2004

                               __________

                           Serial No. 108-48

                               __________

         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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                            WASHINGTON : 2003
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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           ENI FALEOMAVAEGA, American Samoa
SAM GRAVES, Missouri                 DONNA CHRISTENSEN, Virgin Islands
EDWARD SCHROCK, Virginia             DANNY DAVIS, Illinois
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               BRAD MILLER, North Carolina
STEVE KING, Iowa                     [VACANCY]
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
Graham, Dr. John, Administrator, OIRA, Office of Management and 
  Budget.........................................................     3
Savitts, Mr. Mark, President, The Mortgage Center for the 
  National Association of Mortgage Brokers on behalf of Mr. Neill 
  Fendly.........................................................     8
Friedlander, Mr. Stanley, President and CEO, Continental Title 
  Agency Corporation.............................................    10
McDonald, Mr. Walter, Owner, McDonald Real Estate................    12
Menzies, Sr., Mr. R. Michael, President and CEO, Easton Bancorp, 
  Inc............................................................    14
Lowrie, Ms. Regina, President and CEO, Gateway Funding 
  Diversified Mortgage Corporation...............................    17

                                Appendix

Opening statements:
    Manzullo, Hon. Donald A......................................    31
Prepared statements:
    Graham, Dr. John, Administrator, OIRA, Office of Management 
      and Budget.................................................    34
    Savitts, Mr. Mark, President, The Mortgage Center for the 
      National Association of Mortgage Brokers on behalf of Mr. 
      Neill Fendly...............................................    37
    Friedlander, Mr. Stanley, President and CEO, Continental 
      Title Agency Corporation...................................    54
    McDonald, Mr. Walter, Owner, McDonald Real Estate............    60
    Menzies, Sr., Mr. R. Michael, President and CEO, Easton 
      Bancorp, Inc...............................................    65
    Lowrie, Ms. Regina, President and CEO, Gateway Funding 
      Diversified Mortgage Corporation...........................    83

                                 (iii)

 
REAL ESTATE SETTLEMENT PROCEDURE ACT REGULATIONS: WORKING BEHIND CLOSED 
              DOORS TO HURT SMALL BUSINESSES AND CONSUMERS

                              ----------                              


                        TUESDAY, JANUARY 6, 2004

                  House of Representatives,
                               Committee on Small Business,
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
2360, Rayburn House Office Building, Hon. Donald A. Manzullo 
[chair of the Committee] presiding.
    Present: Representatives Manzullo and Bordallo.
    Chairman Manzullo. This hearing will come to order. 
Secretary Jackson is not here. I presume that he will be coming 
during the course of the testimony and we would start with--
yes, sir?
    Mr. Weicher. Mr. Chairman, I am here on behalf of the 
Department of Housing and Urban Development as Acting Secretary 
Alphonso Jackson's designee as the person most familiar with 
the procedures and processes that the Department has followed 
in developing the rule.
    Chairman Manzullo. I appreciate your coming. However, it 
was Secretary Jackson that I wanted to testify. We will take 
your testimony and make that part of the record.
    I would like the folks here with OIRA and HUD to stay 
through the entire hearing if possible--not Dr. Graham--but to 
stay through the entire hearing, if possible, so you can listen 
to the testimony of the small business people who will be 
testifying today. I ask that as a matter of courtesy and also 
as a matter of input.
    This is the committee's second hearing on the Department of 
Housing and Urban Development's plan to modify regulations 
governing the real estate settlement process. I remain as 
concerned today about the process and procedures used to 
develop the final rule that was submitted to the Office of 
Information and Regulatory Affairs on December 16 between 
sessions of Congress of this past year for review as I was at 
the time of the committee's hearing in March of 2003. Nothing 
in the interim has given me any assurance that the Department 
has adequately addressed the concerns of small businesses.
    Those invited to testify today, besides Secretary Jackson 
and Dr. Graham, represent those groups that are impacted by the 
Regulatory Flexibility Act, jurisdiction of which is held by 
the Small Business Committee.
    On March 19, 2002, the President stated that ``Every agency 
is required to analyze the impact of new regulations on small 
businesses before issuing them. That is an important law. The 
problem is, it is too often being ignored. The law is on the 
books; the regulators do not care that the law is on the books. 
From this day forward, they will care that the law is on the 
books. We want to enforce the law.'' that is the statement of 
the President of the United States.
    Let me read that once more. On March 19, 2002, the 
President stated, ``Every agency is required to analyze the 
impact of new regulations on small businesses before issuing 
them. That is an important law. The problem is, it is often 
being ignored. The law is on the books; the regulators do not 
care that the law is on the books. From this day forward, they 
will care that the law is on the books. We want to enforce the 
law.'' .
    The President was talking about the Regulatory Flexibility 
Act, or the RFA. The statement was categorical and applied to 
all agencies. There was no exception to the Department of 
Housing and Urban Development or for regulations that are 
supposedly consumer-friendly.
    Compliance with the RFA is not just another procedural 
barrier that agencies must hurdle prior to issuing a 
regulation. Instead, it provides the focal point around which 
rational rule-making must be conducted. This especially is true 
in the residential real estate industry, an industry consisting 
of hundreds of thousands of mainly small businesses. Without a 
proper analysis, HUD cannot assess whether the rule that it 
finalizes will be rational.
    Since the hearing before this Committee in March of 2003, I 
sent two letters to the Department requesting a delay in 
finalizing any revised regulations until the Committee and 
affected industry have had the opportunity to review the final 
regulatory flexibility analysis. My requests were based on the 
fact that the Department's initial regulatory flexibility 
analysis was so flawed that this Committee could not be certain 
that any changes made by the Department would provide adequate 
compliance under the RFA. The Department provided no 
substantive response to this Committee.
    This is the Committee that has jurisdiction over the 
Regulatory Flexibility Act. Such a cavalier attitude is simply 
unacceptable when the viability of thousands of small 
businesses is at stake. This is further demonstrated by the 
confirmed Deputy Secretary's, now Acting Secretary's, 
unwillingness to explain in person before this Committee why he 
sent the rule forward.
    The Department of Housing and Urban Development is rushing 
to judgment. The marketplace has already responded. Hundreds of 
companies are offering packages of settlement services making 
full disclosures under Section 8. The Committee, consumer 
groups, the small businesses represented on the second panel 
today, and the largest lenders have all expressed concerns 
about a final rule that is substantially similar to the 
proposed rule.
    In fact, I have a letter here from the Consumer Federation 
of America, Consumers Union, International Union, UAW, National 
Association of Consumer Advocates, the National Community 
Reinvestment Coalition, the National Consumer Law Center, U.S. 
Public Interest Research Groups, and the bottom of it says, 
``Because of these concerns,'' and they are all laid out 
seriatim in a very nicely worded letter dated December 3, 15 
days before the decision was made to send the final rule to 
OMB, stating, ``While--in summary, while we strongly appreciate 
HUD's positive efforts, we nonetheless have several 
overreaching concerns about the proposed rule. Because of these 
concerns, we believe that it may be necessary for HUD to issue 
new proposed RESPA rules before any final regulatory action is 
taken.'' .
    That is the same relief requested by the Office of Advocacy 
of the Small Business Administration. That is the same relief 
requested by the Chairman of the House Committee on Financial 
Services. He wanted a new proposed rule. That is the same 
relief requested by everybody, everybody concerned.
    Everybody in America wants a new proposed rule, except HUD. 
They continue in their stubborn, obstinate ways to do things in 
their own way, with their own timing, ignoring and fulfilling 
the prophecy of President Bush that these agencies simply do 
not care about complying with the Regulatory Flexibility Act.
    This is the Small Business Committee. We have jurisdiction 
over RFA. It is also in many cases the Committee of last 
resort, where the little people in this country come because 
they have no other forum.
    [Chairman Manzullo's statement may be found in the 
appendix.]
    Chairman Manzullo. So, we will leave the chair there with 
the nameplate inviting Secretary Jackson at any time to join 
us. I know he is in town. I know he is available. He is a fine 
man. I have talked to him three or four times on the telephone. 
Any time he wants to join us, even into the second panel, he 
will be welcome to come.
    I am thrilled that Dr. Graham from OIRA, OMB, has consented 
to come to today's hearing. He is an outstanding public 
servant. Whenever our office calls, whenever any office on 
Capitol Hill calls, we get an immediate response, a substantive 
letter, acting totally within compliance of the law by a man 
who has done an outstanding job in public service to this 
country, who has done more in helping small businesses with the 
memorandum of understanding executed between OIRA and the 
Office of Advocacy to give the small businesses still another 
opportunity to have input into the regulatory scheme of this 
country.
    I called him 2 weeks ago and requested that he stop by. I 
believe it was the same afternoon, or the afternoon right after 
that, he stopped by the office, chatted for an hour, and, of 
course, under the rules, everything involved in that chat will 
be up on the Internet, and that is the way it should be, 
because of his openness and his respect for this body.
    So, Dr. Graham, thank you for coming. We look forward to 
your testimony.

STATEMENT OF THE HONORABLE JOHN GRAHAM, Ph.D., OIRA, OFFICE OF 
                     MANAGEMENT AND BUDGET

    Mr. Graham. Thank you, Mr. Chairman. I am delighted to have 
the opportunity to be here this morning to discuss the Real 
Estate Settlement Procedures Act rule-making.
    We have a draft--as you indicated, a draft final rule from 
the Department of Housing and Urban Development. It was 
submitted, as you indicated, to OMB on December 16, 2003. My 
testimony will be fairly brief and to the point because I am 
not permitted to discuss the substance of the rule or the 
status of our internal deliberations. I will just take a few 
moments to describe the nature of the process at OMB and then 
take whatever questions I can.
    Under Executive Order 12866 we have a maximum of a 90-day 
review period for a rule of this sort. On rare occasions it 
would be extended longer than that at the request of the 
agency.
    You might be interested to know something about how the OMB 
review process generally works. You mentioned at the outset, 
Mr. Chairman, that several of the OIRA staff are here today. 
They include the desk officer and the budget official who have 
responsibility for review of this package. They will examine 
the draft rule itself, the preamble to the draft rule, the 
regulatory impact analysis, the overall economic impact 
analysis for the rule, the regulatory flexibility analysis and 
the overall impact of the rule on small business, which I know 
is of deep concern to this Committee and you, Mr. Chairman.
    They will also have access to the extensive public comments 
that were made in HUD's process on this rule, and they will 
have the benefit of reviews of other Federal agencies that have 
an interest in this rule-making.
    As is laid out in Executive Order 12866, we have a process 
whereby interested members of the public can register their 
views with OMB on this particular rule-making. We have tried to 
adopt an open-door policy toward these meetings with outside 
parties. Any time we have a meeting with a member of the public 
interested in a particular rule-making, we are obliged to 
invite the affected agencies to attend, and I am delighted you 
have invited in this case the affected agency to attend this 
particular hearing.
    These meetings with outside parties are logged, as you 
indicated, on OMB's Web site. You can learn the names of the 
individuals, their organizational affiliation, the date of the 
meeting and the topic of the meeting. We don't take minutes of 
those meetings in order to encourage candid discussion, but any 
written materials, data, and legal arguments that are laid out, 
are placed in the agency's docket and in OMB's docket, for 
public view.
    In our discussion, as you mentioned we had a couple of 
weeks ago, you correctly indicated that OMB has a strong 
interest in this rule-making. As you know, we reviewed the 
draft package back in the spring and summer of 2002. In a 
concluding review of that package, before it went out for 
public comment, we issued a post-review letter laying out OMB's 
expectations on additional progress in developing the analytic 
support for this rule-making that we expected to be 
accomplished between the proposal and the final stage. That 
letter is publicly available on OMB's Web site.
    In particular, that letter requested improvements in both 
the regulatory impact analysis and the regulatory flexibility 
analysis. My staff will be looking diligently at this package 
to see what progress HUD has made on these analytic issues and 
improvements in the rule itself, and we are certainly very open 
to the comments of members of this Committee and you as the 
Chairman. We will be staying through the hearing to listen to 
the comments of the witnesses to make sure that all of the 
appropriate issues are addressed before final decisions are 
made on the rule-making.
    Thank you very much, Mr. Chairman. I am delighted to be 
here.
    [Dr. Graham's statement may be found in the appendix.]
    [Additional material submitted for the record is retained 
in the Full Committee files]
    Chairman Manzullo. Thank you, Dr. Graham. In reference to 
that August 6 letter, Dr. Graham, on page 2, where you discuss 
economic analysis, did you just want to read that short 
paragraph there or do you want me to read it and you comment on 
it?
    Mr. Graham. Page 2, ``Economic Analysis: HUD conducted an 
extensive analysis of the economic impacts of the proposal to 
inform policy decisions at the proposed rule stage. HUD should 
continue to make improvements to the analysis in order to 
inform final decisions. In doing so, HUD should analyze the 
various options under consideration and base its analysis on 
the most reasonable assumptions and data that meet HUD's new 
information quality standards, explaining the basis for several 
key assumptions rather than presenting them as illustrative 
statements. Furthermore, we would urge the Department to 
analyze more than one option so that HUD policy officials will 
be better able to select the option that maximizes net benefits 
as required by Executive Order 12866. My staff would be happy 
to work with you on the final economic analysis.'' .
    Chairman Manzullo. Could you embellish on that, the best 
you can? This is talking about the old rule.
    Mr. Graham. This was the proposal issued in 2002.
    [August 6, 2002 letter can be found in the appendix]
    Chairman Manzullo. That is correct, not the one that is 
under consideration now.
    Mr. Graham. Right. Well, maybe I could start by just 
providing a little context for the nature of a post-review 
letter. This type of letter was not commonly used under 
previous administrations, so let me give you some sense of 
context for it.
    We basically have three options at OMB when we review a 
package like this. We can say the package is fine as it is and 
just simply approve it and let it go; or we can return the 
package to the agency and say, you have made some effort here 
but we don't think the effort is adequate. We think you ought 
to go to work on this some more and reconsider some of the 
issues.
    This is really an intermediate kind of response. We did in 
fact allow the proposal to go forward for public comment. We 
felt the agency had done sufficient work to justify the public 
comment process, but we wanted to signal in a public and in an 
explicit way that we were expecting improvements in the 
analytic support of this package, and that is what this letter 
is designed to accomplish.
    Chairman Manzullo. The analysis, would it be both to the 
economic impact on small businesses under the RFA and also 
based upon giving some studies or anecdotal evidence that 
packaging in fact saves the consumers money? Was it to both of 
those?
    Mr. Graham. As I am just reading the material here, it is 
framed in a fairly general way. I don't think it gets into the 
specifics that you mentioned in your question.
    Chairman Manzullo. Okay. Both of those specifics are 
included in the RFA?
    Mr. Graham. Correct.
    Chairman Manzullo. Okay.
    Doctor, would it be fair to ask you a question as to how 
long you expect the rule to take?
    Mr. Graham. It would be fair as long as you don't expect a 
precise answer. As you know, this is a very substantial rule-
making with major economic impacts on a variety of sectors. The 
package itself, which I have seen, is a fairly sizable read; 
and we have it out to several agencies for review, as required.
    It did not arrive until the 16th of December, and we have 
tried to have a few days for members of staff to have some time 
with family around the holidays and the New Year. So I have a 
feeling that it will be a little longer before we complete this 
review, but I can't give you a precise estimate.
    Chairman Manzullo. That is fair enough.
    Under the rules, Members of Congress and affected parties 
are prohibited from examining this rule; is that correct?
    Mr. Graham. Yes. The materials that I mentioned are part of 
the deliberative process in the executive branch at this stage. 
But once we conclude our review and the rule is published, if 
it is published, then those materials will be placed in the 
public record so people can see all those materials.
    Chairman Manzullo. So the disadvantage that Members of 
Congress like myself would have, and also affected industries, 
is that if OMB proceeds immediately to publish the rule, it 
will be too late for us to examine the RFA.
    Mr. Graham. Well, just a little technical correction for 
the record. OMB won't be publishing it. We would be taking the 
package and providing it back to HUD with whatever response we 
had judged to be appropriate, and then HUD would make decisions 
based upon the OMB action.
    Chairman Manzullo. I think you answered this question in 
your testimony, but I believe you have stated that you have 
three options that you could do with the package presented to 
you.
    Mr. Graham. The proposed package.
    Chairman Manzullo. Could you explain those options once 
again?
    Mr. Graham. One is we could have--if we felt that the 
underlying analytic foundation of the package was too weak, we 
simply could have returned it to the agency for 
reconsideration. In this case they would have had to come back 
either with an additional proposed package or they could have 
decided, well, we will do something different. That is, in the 
term of art, a return for reconsideration.
    A second option is, we could have said the package meets 
the requirements of the executive order; go ahead and publish 
it for comment.
    The third option, which we have tried to use on various 
occasions in this administration, is to allow the package to go 
forward for comment, but to highlight in an explicit and a 
public way some areas where we would like to see improvements 
in the package; and that is the decision that the professionals 
at OMB made on this particular package.
    Chairman Manzullo. Okay.
    Mr. Graham. Of course, a letter of this sort provides a 
vehicle not only for HUD, but all of the interested members of 
the public to focus on areas of concern. It increases the 
likelihood that additional data and argument and analysis would 
be generated in these various areas.
    Chairman Manzullo. So at this point you have an option. You 
could still send if back to HUD and say, we need more 
information, or you could proceed to final rule, allow them to 
proceed to final rule?
    Mr. Graham. That is right.
    Chairman Manzullo. The Congresswoman from Guam?
    Ms. Bordallo. I have no questions.
    Chairman Manzullo. Thank you.
    Dr. Graham, thank you very much for your testimony. You are 
excused.
    Mr. Graham. Thank you, Mr. Chairman.
    Chairman Manzullo. I would like that letter of August 6, 
2002, to be made part of the record. We have a copy of it here, 
Doctor. You can keep that if you like.
    [The August 6, 2002 letter may be found in the appendix]
    Chairman Manzullo. If we could have our staff arrange for 
the second panel, I would like to still keep a spot open for 
Secretary Jackson as a matter of courtesy to be involved in 
these proceedings. Why don't you go ahead and set up the 
nameplates and have the rest of the witnesses take their places 
at the table?
    Chairman Manzullo. Okay, we are going to start the second 
panel with Marc Savit, who will be the first witness at the 
hearing. Neill Fendly could not make the hearing for family 
reasons.
    Marc is the incoming Legislative and Government Affairs 
Chair for the Association. He is currently the Eastern Regional 
Vice Chair. He is the President of the Mortgage Center in 
Martinsburg, West Virginia, speaking on behalf of himself, his 
industry, and the National Association of Mortgage Brokers.
    We are going to set a clock that is going to be 7 or 8 
minutes, give or take 5 minutes on either side, whatever you 
want to do, just as a point of reference. We don't have to 
worry about the tyranny of the voting bells, so we have plenty 
of time to conduct this hearing. Go ahead and set that.
    The complete written statements will be made part of the 
record. Any group or individual that wishes to supplement this 
record, you can do so. Here is the rule: It cannot exceed two 
pages in single-spaced elite type; no attachments; and use a 
reasonable margin, because I want to make sure we don't have a 
huge package that we have to have printed up.
    Marc, we look forward to your testimony.

   STATEMENT OF MARC SAVITT, ON BEHALF OF NEILL FENDLY, THE 
   MORTGAGE CENTER FOR THE NATIONAL ASSOCIATION OF MORTGAGE 
                            BROKERS

    Mr. Savitt. Chairman Manzullo, members, thank you for 
inviting the National Association of Mortgage Brokers to 
testify on HUD's proposed RESPA rule.
    Chairman Manzullo. Could you pull that mike up just a 
little bit and talk into it a little more directly?
    Thank you.
    Mr. Savitt. I am Marc Savitt, the current Eastern Regional 
Vice Chair for the National Association of Mortgage Brokers. I 
am also a full-time mortgage broker. As mentioned, 
unfortunately, Neill Fendly, who was scheduled to testify, will 
not be able to attend today.
    Chairman Manzullo, I want to thank you for your leadership 
on this issue and this Committee for their interest in this 
issue as demonstrated by the hearing you held last March.
    When NAMB testified at that hearing, we focused mainly on 
the proposal's disproportionate impact on small business, 
especially mortgage brokers, the negative impact on consumers, 
and we touched on HUD's failure to comply with the Regulatory 
Flexibility Act.
    My testimony today focuses specifically on the regulatory 
process HUD used or failed to use in issuing their proposal and 
the lack of general fairness to an industry that contributes to 
over one-fifth of the U.S. economy.
    As you know, HUD's proposal, which causes great concern for 
mortgage brokers, was issued in July of 2002 and is in the 
final rule stages. Unfortunately, for purposes of this hearing, 
NAMB cannot comment on the specifics of the final rule which is 
currently under review by the OMB. We do not know if 
significant changes have been made to the final rule sent to 
OMB; and as we and other interested parties were not afforded 
an opportunity to comment publicly on the final rule, instead 
of blindly guessing the contents of the final rule, NAMB can 
only comment on the facts.
    We do know this so far. We know that HUD has received over 
40,000 comment letters expressing grave concerns about the 
proposal. We know that NFIB, SBA, the FTC, the Congressional 
Hispanic Caucus, several Members of Congress and others wrote 
letters to HUD raising serious concerns about the rule; and 
finally, we know the proposal was the subject of five 
congressional hearings.
    As a result of this, of these hearings and letters, many 
Members of Congress and interested parties requested that HUD 
issue a revised proposal. Given the significant number of 
concerns about the proposal which were raised and documented, 
NAMB is disappointed that we were not given an opportunity to 
review and comment on subsequent changes to the controversial 
proposal. HUD's decision to move to a final rule without public 
comment may call into the question the integrity of the process 
and may ultimately serve to harm consumers.
    Today, mortgage brokers originate more than two out of 
three residential mortgage loans. If HUD's final rule mirrors 
its proposal, mortgage brokers may lose their ability to assist 
in expanding the record number of American homeowners.
    Today, I would like to focus on the facts, the procedure 
HUD used or did not use in issuing the proposed RESPA rule. 
HUD's request for comments on the RESPA proposal, issued on 
July 29 of 2002, includes 30 specific questions that would have 
been more appropriate as part of an advanced notice of proposed 
rule-making.
    HUD has demonstrated on a few occasions its preference to 
pose questions to the public as part of an advanced notice. 
Asking 30 questions clearly indicates that HUD was 
investigating and conducting their research on the key 
components of a proposal that was in the early stages.
    In the interest of consistency and in the interest of 
individuals, a fact affected by the proposal, NAMB believes HUD 
should have issued an advance notice as a first step in the 
RESPA rule-making process.
    In addition, NAMB believes HUD did not comply with the 
Regulatory Flexibility Act, the Paperwork Reduction Act and 
Executive Order 12866 in developing their proposal. HUD's 
economic analysis, required under these laws, has major 
inconsistencies and inaccuracies which require further 
examination.
    HUD's analysis does not provide a clear picture of the 
potential impact on the market, that is functioning 
effectively, nor does if accurately reflect the proposal's 
impact on small business. In fact, HUD's economic analysis is 
flawed, incomplete and inaccurate. Our testimony reflects in 
more detail these inaccuracies, but I will list just a few 
today.
    For example, HUD significantly underreported the regulatory 
burden of its proposal to OMB. HUD's Paperwork Reduction Act 
submission to OMB states that annual responses for good faith 
estimates is 11 million. HUD's analysis states that if the rule 
were applied in the year 2002, it would impact 19.7 million 
applications. Thus, HUD's submission to OMB is inaccurate and 
unreliable as it underestimates the paperwork burden by at 
least 8.7 million good-faith estimates, or 44 percent.
    As stated in HUD's OMB submission, the proposal would 
increase the burden on the industry by 2.5 million burden 
hours, which is equal to 289 years. HUD concedes this, but 
suggests it is a one-time transition cost for the industry, and 
yet calls this ``burden deregulation.'' .
    HUD's analysis states originators and closing agents will 
have to expend some minimal effort in explaining to consumers 
the difference between the streamlined good-faith estimate and 
the more detailed HUD-1. However, this cost is not included in 
the OMB submission and the cost is not minimal. This 
demonstrates that HUD's analysis is inaccurate and unreliable 
as it did not even consider this effort.
    HUD claims that the proposal will lower closing costs for 
consumers by $700. However, HUD has not documented this savings 
nor explained the basis for the assumptions of the savings. HUD 
also did not provide documentation of how this alleged savings 
would be passed on to the consumer.
    HUD's initial regulatory flexibility analysis, as required 
under the RFA, readily states that the small business community 
may lose anywhere from 3.5 to 5.9 billion annually. However, 
HUD does not break down the costs in its analysis for each 
segment of the industry as required by RFA.
    NAMB is very concerned that we don't know the contents of 
the final rule currently under review by the OMB. We can only 
hope it will not be substantially similar to the proposed rule. 
We believe HUD should have completed a more expansive and 
realistic review of the economic impact their proposal would 
have on small businesses by issuing a revised proposal, not a 
final rule. We can only hope the interests of home buyers and 
the small business industry that serves those home buyers will 
be protected by the final rule.
    We appreciate the opportunity to share our concerns with 
you today. We hope the small business community will be 
protected against the extinction of small business in the 
mortgage industry as a result of HUD's proposal.
    Thank you very much.
    [Mr. Savitt's tesimony may be found in the appendix]
    Chairman Manzullo. Thank you for your testimony.
    The next witness will be Stanley Friedlander, President and 
CEO of Continental Title Agency Corporation out of Cleveland, 
Ohio, on behalf of his company, and the American Land Title 
Association.
    Mr. Friedlander, we appreciate your traveling from 
Cleveland to be with us this morning.
    Mr. Friedlander. Thank you, Mr. Chairman.
    Chairman Manzullo. I am not going to set a clock, because 
it is not necessary, and I noticed that it made Marc a little 
bit nervous.

 STATEMENT OF STANLEY B. FRIEDLANDER, CONTINENTAL TITLE AGENCY 
      CORPORATION FOR THE AMERICAN LAND TITLE ASSOCIATION

    Mr. Friedlander. My remarks are very short.
    Mr. Chairman, my name is Stanley Friedlander, and I am the 
immediate Past President of the American Land Title Association 
and I am President of the Continental Title Agency of 
Cleveland, Ohio. Also with me today is Hank Shulruff, the 
Senior Vice President of Attorneys Title Guaranty Fund, Inc., 
of Chicago, Illinois.
    Mr. Chairman, on behalf of the ALTA and its members, I 
thank you for holding this hearing. ALTA appreciates the 
opportunity to appear before the Committee to discuss the 
process by which HUD has undertaken revision of the Real Estate 
Settlement Procedures Act. Your leadership in examining the 
efforts of the proposed rule on small business has focused the 
rule-making process, and we hope the administration has heard 
your concerns.
    ALTA filed comments on the proposed regulations, including 
comments on the effects on small business, in October of 2002. 
ALTA has consistently emphasized that the proposed regulations 
would radically alter the way business is done. We are 
particularly disappointed that HUD did not repropose the rule, 
given current economic conditions and marketplace developments.
    Housing is currently the healthiest sector in the economy. 
It should not be put in jeopardy at the present time. Dramatic 
changes in the business relationships and service delivery 
system on the real estate industry would occur if the rule were 
imposed as proposed.
    Further, the marketplace has evolved to address the needs 
that HUD has cited as justification for its rule. For example, 
a Google search performed yesterday yielded 747,000 instances 
where guaranteed closing costs are offered. We have enclosed 
the first pages of that search.
    Mr. Friedlander. Further, ALTA member companies have 
developed guaranteed closing packages that are already offered 
in the marketplace. A specific example of the package program 
is also included.
    Mr. Friedlander. If a final rule is substantially similar 
to the proposed rule, ALTA has been directed by its board to 
institute litigation challenging the regulation. This would be 
particularly likely if, for example, a final rule contains an 
exemption to Section 8, the anti-kickback provision of RESPA. 
We specifically suggested in our original October 2002 comment 
that the agency repropose will rule.
    The notice and comment rule-making process has resulted in 
essentially a monologue with HUD and numerous affected parties. 
HUD has received diametrically opposed advice from different 
groups and has felt unable to share any of its thinking. This 
lack of a give-and-take cannot result in the best possible 
rule. HUD has few professional staff who have actually worked 
in the real estate settlement services industry. Therefore, HUD 
should take advantage of the enormous expertise in the private 
sector and engage in a dialogue. Only then should they 
repropose a rule.
    I would now like to review for the record our major 
concerns.
    First, we believe that HUD has exceeded its statutory 
authority.
    Second, the proposed rule will have a particularly onerous 
effect on small business settlement service providers. ALTA has 
developed an alternative two-package approach that attempts to 
ameliorate the above-mentioned effect on small businesses and 
guarantees the savings be passed on directly to the consumer.
    Third, HUD's original proposal is not in the best interest 
of consumers. Consumers are concerned about the bottom line, 
but they need to be informed about what their package includes.
    We did meet with HUD and OMB officials several times to 
express our concerns and explain our proposal. We hope that 
other Members of Congress follow the chairman's lead and 
realize the potential implications of this rule.
    We would be happy to respond to questions.
    [Mr. Friedlander's statement may be found in the appendix]
    Chairman Manzullo. You said there were 747,000. You 
meant--.
    Mr. Friedlander.--747,000 responses to the one-hit question 
of guaranteed closing costs.
    Chairman Manzullo. I just want to let you correct your 
testimony. You said 747,000. That is what happens when you come 
to Washington, numbers get zeros added on to them.
    Mr. Friedlander. The number is 747,000. The Google search 
performed yesterday, we had 747,000 hits where there are 
instances of guaranteed closing costs being offered.
    Chairman Manzullo. Across the Nation, what was reported on 
Google?
    Mr. Friedlander. The item that was put into the Google 
search was guaranteed closing costs. The result was 747,000 
hits on that question.
    Chairman Manzullo. Okay. I stand corrected.
    Our next witness is Walter McDonald, Owner/Broker, Walter 
McDonald Real Estate, who came all the way from Riverside, 
California, and is the incoming President of the National 
Association of Realtors.
    Thank you for making this trip all the way from California. 
We look forward to your testimony.

  STATEMENT OF WALTER T. McDONALD, WALTER MCDONALD REAL ESTATE

    Mr. McDonald. Good morning, Mr. Chairman, and members of 
the Committee. As was stated, my name is Walt McDonald, and I 
am the 2004 President of the National Association of Realtors. 
NAR is the largest trade association, representing almost 1 
million members, who are individually involved in all aspects 
of the residential and commercial real estate industry.
    First, let me say what has already been said time and time 
again, but I feel it is important to restate it here today: NAR 
supports efforts to improve RESPA and the home mortgage 
transaction experience for consumers. We admire former 
Secretary Martinez, his dedication to this initiative, and 
appreciate and support the stated goals of reform as set forth 
by the Department to simplify and improve the process of 
obtaining a home mortgage, and second, to reduce settlement 
costs for consumers.
    However, as we have stated before and continue to believe, 
there are serious flaws with HUD's proposal, and unless 
significantly altered, it will not produce those desired 
results. In fact, it is possible that such a rule could create 
more of a problem than it intends to resolve.
    The impact on small businesses will be especially damaging, 
since most real estate settlement service providers, such as 
real estate brokers, are precluded from offering packages. 
Further, given the obvious controversy and the lack of support 
from the industry, consumer groups and Congress, we feel it is 
important, now more than ever, that this rule not be finalized 
in its current form.
    As you know, even those earlier supporters of HUD's 
proposal have expressed what we in the real estate business 
call ``buyer's remorse'' due to the uncertainty associated with 
the impact of this initiative, and we are now at this time, 
when all major players and consumers groups no longer support 
this rule.
    It is our hope that OMB sends this rule back to HUD for 
additional analysis and review and instructs them, instead, to 
issue a revised proposal that provides for additional public 
comment. Otherwise, the changes contemplated by HUD will 
drastically change the real estate mortgage finance system.
    Until there are assurances that these changes will result 
in benefit that far outweigh any potential negative 
consequences, a final rule should not be promulgated. There is 
too much at stake to rush quickly to judgment on issuing a 
change of such a magnitude that this rule contains.
    HUD said it best, I think, in the supplementary information 
section of its July 28, 2002, proposed rule. They said the 
American mortgage finance system is justifiably the envy of the 
world. It has offered unparalleled financing opportunities 
under virtually all economic conditions to a very wide range of 
borrowers that, in no small part, have led to the highest 
homeownership rate in the Nation's history. I am confident the 
entire mortgage finance and settlement service industry would 
agree with HUD on that statement.
    It is curious that despite this characterization of the 
current marketplace, HUD feels compelled to make such a radical 
change right now. Absent a real need for change, policymakers 
should not do anything to jeopardize the system that, despite 
its flaws, is still working well for most Americans.
    We are here today because HUD chose to ignore the ever-
growing opposition to its proposal and request for additional 
review. Needless to say, we are disappointed in HUD's decision 
to send their final rule to OMB in its final form, especially 
given our most recent submission to HUD, asking that they 
consider an alternative to the single-package guaranteed 
mortgage package.
    When it became apparent that HUD was not going to back away 
from their GMP rule, our members looked for a viable 
alternative in an effort to minimize any potential harm to the 
industry and to consumers. As a result, in August of 2003, we 
submitted to Secretary Martinez a proposal that would replace 
the single-package GMP with a two-package disclosure system. We 
believe this proposal, while not perfect and certainly 
deserving additional analysis, better meets the goals of the 
GMP, without placing nonlenders at a disadvantage or harming 
the consumers.
    A strictly defined two-package approach to reform can offer 
benefits to consumers by creating a business environment where 
anyone can package, thereby attracting the greatest number of 
competitors, and full disclosure is made to the borrower.
    Many of the problems associated with the single GMP can be 
improved by a two-package system. By creating an environment 
that does not limit the players, consumers will have an 
additional choice in the marketplace and this competition 
possibly will lower costs. In addition, all services in both 
packages will be itemized and disclosed to the consumers, thus 
forcing packagers to compete not only on price, but on service 
as well.
    We remain convinced that the kind of changes contemplated 
by HUD to the mortgage disclosure system require additional 
study, specifically, the need for alternative approaches to the 
GMP and its impact on the consumer, as well as on the industry.
    Eventually the alternative proposal submitted by NAR 
requires additional scrutiny and debate as well. Unless there 
is real opportunity for providers other than lenders to offer 
packaged settlement services to consumers, the negative 
consequences of HUD's GMP initiative will far outweigh any 
potential benefit to the consumers.
    Consumers and industry groups alike have raised many 
issues, both old and new, in the last year and a half. Comments 
submitted to HUD in 2002 may no longer reflect the current 
thinking of some of the industry. Even the marketplace has 
changed, and as was commented earlier, several lenders are 
currently offering guaranteed package services.
    For these reasons, it is important, now more than ever, to 
revisit the HUD proposal and craft a new proposed rule based on 
these changes, seeking additional public comment.
    I thank you, Mr. Chairman, for the opportunity to present 
these views of the National Association of Realtors, and I look 
forward to questions.
    Chairman Manzullo. Thank you very much for your testimony.
    [Mr. McDonald's statement may be found in the appendix]
    Chairman Manzullo. Our next witness is R. Michael Menzies, 
is that correct--.
    Mr. Menzies. Yes, sir.
    Chairman Manzullo.--President and CEO of Easton Bancorp 
from Easton, Maryland. On behalf of his bank over there and the 
Independent Community Bankers, we look forward to your 
testimony.

 STATEMENT OF R. MICHAEL S. MENZIES, SR., EASTON BANCORP, INC. 
        FOR THE INDEPENDENT COMMUNITY BANKERS OF AMERICA

    Mr. Menzies. Thank you very much, Mr. Chairman. I wanted to 
thank the members of this panel for submitting most of my 
testimony already.
    Chairman Manzullo. That is okay. You can invite us over 
there for shrimp. There is a big issue going on.
    Mr. Menzies. As you know, Mr. Chairman, Easton, Maryland, 
is the goose capital of the world, so at this time of the year 
we are pretty much into the Canadian geese.
    Chairman Manzullo. I won't touch that one.
    Mr. Menzies. Mr. Chairman, and Committee members, thank 
you. It is an honor to represent the ICBA, Independent 
Community Bankers of America today, and our 4,600 members, and 
comment on the RESPA rule.
    As you noted, Mr. Chairman, I am President and CEO of 
Easton Bank and Trust, a community bank in Easton, Maryland. 
Last year, we originated about $24 million in secondary market 
loans, and we hold about a $20 million portfolio of residential 
loans in the bank's portfolio. I am also honored to serve on 
ICBA Mortgage Corporation's board. The Mortgage Corporation is 
a company that helps small community banks or community banks 
access the secondary market.
    We very much appreciate your calling this hearing during 
recess, and we share your concerns and the concerns of the 
panelists.
    Chairman Manzullo. If I could interrupt you, the reason we 
called this hearing during recess is that HUD submitted the 
rule during the recess. That was the reason.
    We had sent them two letters. One in July anticipated an 
August surprise, that during the 5-week break where we could 
spend time with our families and constituents, they would 
submit a rule at that point. And then we sent another letter at 
the end of November anticipating a December surprise, that HUD 
would end up sending a rule over to OMB. So that is the reason 
why we are having this hearing between sessions.
    Please proceed.
    Mr. Menzies. Very good. Thank you, sir.
    As the other members of the panel have suggested, we will 
present testimony relative to the rule that has been submitted 
to OMB, because nobody knows what the final package is. If HUD 
significantly changed its proposal, the public should have 
another opportunity to comment on it before it is published as 
a final rule. It is likely to have a dramatic effect on the 
mortgage industry and how consumers seek mortgages and what 
they receive for their money.
    HUD received, as was noted, tens of thousands of letters 
commenting on its proposal with divergent views from consumers 
and various industry segments, and the economic analysis has 
truly been criticized. The public and the industry should have 
an opportunity for additional comment to ensure the rule 
doesn't cause harm to consumers and small businesses and harm 
to a well-functioning mortgage market. If my memory serves me 
correctly, we cranked out over $3 trillion in mortgages last 
year. I am not sure we are dealing with a failed system.
    We urge Congress to address our concerns about the rule 
during its 60-day review period.
    A key component of the proposed rule is the introduction of 
the guaranteed mortgage package, GMP, which establishes a 
package of standardized settlement services and a mortgage loan 
with a guaranteed interest rate.
    ICBA absolutely supports simplifying mortgage loan 
processing and giving borrowers more choice and lower costs. 
Unfortunately, we think the HUD proposal will not accomplish 
this goal, but instead deter customers from shopping for 
services that are stuck in a package. The mortgage loan process 
will become more confusing, reduce consumer choice and decrease 
consumer options for mortgage products, in my opinion, sir.
    The guaranteed mortgage bundling looks very much to me like 
the HMO solution to health care. Providers will be asked to 
deliver mortgage solutions based on how cheap they can make the 
solution. Sometimes the cheapest appraisal or the cheapest 
title policy or the cheapest house inspection or termite 
certificate doesn't serve the consumer well. Borrowers deserve 
better disclosure in their mortgage package.
    If free market aggregate pricing is the standard for 
settlement services, then where can the service providers 
expect to go with respect to their services? Obviously, they 
will be price-driven, not service-driven. They will seek to 
transfer costs and service and value out of their equation. The 
likely unintended consequences will be the payment for inferior 
services and support.
    Let me advance also the notion of what happens when the 
lowest cost bidder is delivering the highest volume of 
appraisals and title policies for $3 trillion of mortgage loans 
that the GSEs issue, and how does that impact the GSEs and the 
integrity of the paper that they are issuing?
    With regard to the good-faith estimate, the proposed rule 
calls for a more precise cost estimate than what is currently 
required. We believe the firmness of the cost estimate proposed 
by HUD does not adequately reflect the variances that 
legitimately occur in the industry. This will result in loan 
originators increasing the price of loans to all borrowers to 
guard against uncontrollable cost increases. In my lifetime in 
business, uncertainty has always carried a cost which far 
exceeds certainty.
    You have asked for comments about HUD's process and 
procedures in developing the rule. Based on what we have seen, 
we fear that HUD's proposal overlooks the adverse impact of the 
rule on small business and small lenders.
    In its economic analysis accompanying the proposed rule, 
HUD simply states that it is difficult to reach a firm 
conclusion about the magnitude of the impact on small lenders, 
but acknowledges that a significant portion of the cost 
transfers related to the guaranteed closing cost package would 
be to their detriment.
    HUD provides only a limited analysis of the effects on 
small business in general, yet HUD makes the unsupported 
assumption that these institutions are charging high prices for 
their services. Let me assure you, sir, in the little town of 
Easton, Maryland, we can lose a mortgage loan for $25 on an 
appraisal or a title policy or even a bug inspection. We have 
over 50 providers in our little town that can deliver to you a 
title solution, if you need it, in our community of 12,000 
people. I don't know where the free market is failing to 
compete.
    In conclusion, sir, and members of the Committee, ICBA 
places a very high value on the importance of homeownership. 
Our current mortgage finance system has enabled a record number 
of Americans to realize that dream, and we fully support the 
administration's goal to further increase minority ownership by 
5.5 million families.
    It is a simple fact that the lower the cost of obtaining 
the mortgage, the more affordable the house becomes, but we 
must be sure that the RESPA changes truly reflect the realities 
of the industry so as not to cause a serious disruption of the 
mortgage finance process and increase the cost of 
homeownership.
    We strongly oppose the proposed rule because of the damage 
it will do to consumers, the mortgage finance system and the 
small loan originators and small settlement service providers 
that participate in it.
    The rule will create an environment where the largest 
originators and settlement service providers drive out the 
smallest. The larger market participants have greater ability 
to negotiate volume discounts for services within the package 
than do smaller participants. The result will be less 
competition, less consumer choice and higher mortgage costs.
    Mr. Chairman, we thank you for looking after the little 
guy.
    [Mr. Menzies' statement may be found in the appendix]
    Chairman Manzullo. Just a short question. How many members 
are there in your organization?
    Mr. Menzies. About 4,600 community banks.
    Chairman Manzullo. These are little banks?
    Mr. Menzies. Yes, sir. I think we probably have a few 
billion-dollar-or-so banks within our organization. I believe 
our average size would be in the area of a couple of hundred 
million. But we have community banks that are as small as $10 
million.
    Chairman Manzullo. How many employees do you have at your 
bank?
    Mr. Menzies. Forty-six full-time equivalent at Easton Bank 
& Trust.
    Chairman Manzullo. Thank you.
    Our next witness is Regina Lowrie, Vice Chairwoman, 
Mortgage Bankers Association. She comes to us from Fort 
Washington, Pennsylvania, speaking on behalf of Gateway Funding 
Diversified Mortgage Corporation, and on behalf of the Mortgage 
Brokers Association. We look forward to your testimony.
    Ms. Lowrie. Mr. Chairman, that is the Mortgage Bankers 
Association.
    Chairman Manzullo. I will correct that for the record.

    STATEMENT OF REGINA LOWRIE, GATEWAY FUNDING DIVERSIFIED 
   MORTGAGE CORPORATION FOR THE MORTGAGE BROKERS ASSOCIATION

    Ms. Lowrie. Good morning, Mr. Chairman, and members of 
Committee. Thank you for inviting the Mortgage Bankers 
Association to discuss HUD's proposed changes to the RESPA 
regulations.
    As you know, and as has been said here today, HUD is 
proposing the most fundamental legal reforms that the mortgage 
finance industry has ever seen. MBA has long supported 
reforming the laws dealing with the mortgage process and our 
position has not changed. We believe, however, there are 
fundamental issues at stake, and we stand firm in our appeal 
that HUD should repropose this rule to allow for more industry 
and consumer input. We commend you and your Committee for your 
attention to this matter, and we believe that mortgage reform 
is a process that deserves full congressional attention.
    MBA has always held that RESPA is a crucial consumer 
protection statute in the area of mortgage lending. Although we 
believe that we should simplify the mortgage laws, we have at 
all times supported the necessity of protections afforded by 
RESPA.
    MBA believes in RESPA's core objectives of ensuring that 
consumers are well informed and protected against improper 
steering and illegal referral fees. We fear that the regulatory 
changes recently finalized by HUD and now under review by OMB 
will largely dismantle the very important protections provided 
by Section 8 of RESPA. We understand that the rule submitted by 
HUD to OMB may contain exemptions from Section 8 that are so 
broad that they create massive loopholes which, in effect, 
legalize referral fee and kickback payments.
    In addition, we think it is important to stress the immense 
impact that this rule-making will have on our industry. In a 
single stroke, HUD is altering the entire RESPA disclosure 
system. HUD is revising the good-faith estimate, the main 
shopping disclosure for consumers now under RESPA, and 
replacing it with a radically different form and new rules 
pertaining to liabilities.
    This is not a small undertaking. By restructuring the good-
faith estimate, HUD will alter every other RESPA disclosure 
that follows. The proposed rules then add a most dire penalty, 
in effect, a new right of recession for RESPA, for even 
technical deviations from the disclosed numbers.
    The proposed rule shifts the market risk to lenders, and 
the infusion of new regulatory risk can only increase costs to 
consumers, something which HUD's own economic analysis fails to 
contemplate. The regulations now being reviewed by OMB will 
force every single lender and broker in America in one single 
swoop to completely revamp their entire upfront disclosure 
systems. No exceptions, small entities included, timing rules, 
legal rules, and physical form requirements will all be 
altered. Unlike the packaging portion of the proposal, the 
proposed amendments to the GFE are not optional. Every single 
lender will have to comply. The changes required by these new 
rules will alone cost our industry millions upon millions of 
dollars to implement.
    Mr. Chairman, HUD's intentions are laudable, but the 
effects of this rule may be debilitating to consumers and to 
our industry. No one wins by finalizing a rule that eliminates 
consumer protections; no one benefits by having a rule that 
severely hampers lending operations; and no one benefits with a 
rule that raises legal doubt and regulatory risk.
    We believe that we can achieve our objectives through a 
very careful balancing of interests. It is critical that we not 
lose sight of the consumer. We must ensure that any new 
regulatory system maintains strong protections for mortgage 
shoppers and will stimulate consumer choice and market 
competition.
    MBA reiterates its request to HUD to repropose the rule. 
The mortgage lending industry continues to serve as the basic 
pillar of our still very delicate economy. HUD's far-reaching 
proposals must avoid actions that impair the normal operations 
of this important sector of the economy.
    Thank you for allowing us to testify here today. I welcome 
your questions.
    Chairman Manzullo. Thank you for your testimony and all the 
excellent testimony.
    [Ms. Lowrie's statement may be found in the appendix]
    Chairman Manzullo. The name of this hearing is Real Estate 
Settlement Procedure Act Regulations: Working Behind Closed 
Doors to Hurt Small Businesses and Consumers. There is this 
secrecy that has been taking place.
    I got into this because, in my life prior to Congress, I 
practiced law in a town of 3,500 people in Oregon, Illinois, 
and was involved in several hundred, if not as many as 1,000, 
real estate closings, representing the consumer.
    Chairman Manzullo. And that was commercial real estate, 
residential, agriculture. And when this issue first came on my 
radar screen--it was about a year and a half ago when Secretary 
Martinez, former Secretary Martinez, testified before the 
Committee on Financial Services, of which I am also a member--
and at that time I took a look at this and I said, this does 
not make sense because there is obviously a small business 
component to this. And Congressman Mel Watt from North 
Carolina--who graduated from law school in 1970, same year I 
did, practiced law for 22 years, as I did, and was involved in 
several hundred real estate closings before his being elected 
to Congress in the 103rd Congress, we got elected together--
expressed the same concern, that the process of going about 
the--measuring the impact on the affected parties--has been 
flawed.
    Now, I do not know when there has been such a major change 
in real estate law. Perhaps when Jefferson tried to do away 
with primogeniture in the State of Virginia; he got a special 
exemption with regard to planning his estate. And in some 
cases, trying to do away with forced succession under the 
States in this country that adopted the Code Napoleon.
    I do not know of anything that is as breathtaking in its 
approach to an industry that is not broken; I mean, you have 
all suggested sending this back.
    My suggestion is to ``deep six'' this thing. How many man 
hours at HUD have been involved in this regulation? How many 
millions of dollars in taxpayers' money have been used to pay 
all these people at HUD to fix a problem that does not exist?
    What better use of taxpayers' money could there be than to 
have it--than to propose a final rule, as to which every single 
group at this point is opposed, and that is because of the 
secrecy of it. All we know about it, as Dr. Graham testified, 
it is about this high.
    Now, if you knew the size of the last one, if it was like 
this, then you know it is even more pervasive. If the last one 
was like this, then it is even less pervasive if they used 
lesser type. But as I examined this and examined the testimony 
of each of you prior to you coming here, I am just astonished 
that--and, Mr. Friedlander, you can help me on this.
    In your written testimony, you attached a copy of a 
document that American Title had put out?
    Mr. Friedlander. First American.
    Chairman Manzullo. First of all, explain what First 
American is.
    Mr. Friedlander. Well, First American Title is one of the 
largest title insurance companies in the United States. I am an 
agent for First American.
    Chairman Manzullo. Independent agent.
    Mr. Friedlander. Independent agent, and I am an agent for 
First American. This release is a first step in order to try to 
deliver to the marketplace a product that seems to be in 
demand.
    It is not easy, and as was pointed out, the cost to 
implement this program is extremely high because of the 
computerization and the different ways settlements are done 
throughout the country. Not only throughout the country, but 
when you go outside the Beltway, things are a lot different.
    And even in Ohio, in Ohio where I am from, business is done 
different in the central, in the north, and in the south. There 
are three different places where closings take place and you 
have to be adaptable to all three in order to do business in 
the entire State. So the idea of trying to propose a packaging 
system that would cover the whole country is an awesome task, 
and First American has made the first steps in this pilot 
program to provide this service, and I think it is going to 
catch on.
    Chairman Manzullo. Well, this would be a service to bring 
together, let's see, credit reporting, flood zone 
determination, property evaluation, title insurance and closing 
services.
    It would not offer a fixed closing rate; is that correct? 
Fixed interest rate?
    Mr. Friedlander. That is correct. Only a lender can offer a 
lender's rate, and this was one of our big concerns about the 
original proposal that HUD presented, is that it is strictly a 
lender product, because when you have to have a guaranteed 
interest rate, only a lender can do that. And that is why we 
were early in our two-package proposal, where you could have a 
lender package and then a consumer package, and one of the 
items that HUD did was a secret package, so that the consumer 
does not know what he is getting in the lender package, so he 
could be paying double for an appraisal, or he could not get 
what he thinks--.
    Chairman Manzullo. Or the lender could be getting a 
kickback.
    Mr. Friedlander. The other aspect is the section 8 
exemption. If there is an exemption to section 8, indeed the 
kickbacks will occur. We feel that we will be squeezed on our 
price and the price savings will not go to the consumer but 
will go to the packager.
    In our proposal, there would be a total disclosure of what 
is in the package and any savings in price would go directly to 
the consumer, so there would be no kickbacks, no section 8.
    Chairman Manzullo. Okay.
    Now, Mr. McDonald, you testified--or whoever on the panel--
that there are already some companies that are offering 
packages; is that correct?
    Mr. McDonald. Yes. Yes, sir, that is very true today. It 
has been true for some period of time but probably more so 
today. There are people that are offering packages without 
giving away the consumer protection that is provided in section 
8.
    Chairman Manzullo. So in other words, the last proposed 
regulation--of course, we do not know what the new one does--
would allow kickbacks, secrecy, and the ability to not outline 
or determine exactly what those services are; is that correct?
    Mr. McDonald. It is one of our major arguments against the 
original proposal, that the thrust of their desire was to 
create more clarity in the transaction and to reduce cost, but 
yet their proposal says that you can allow a package to take 
place without disclosing what is in the package or who is 
providing it, what level of quality is involved in the package. 
So there is--.
    Chairman Manzullo. And also kickbacks?
    Mr. McDonald. Yes. Well, there is far less clarity to the 
transaction, and then when you talk about cost savings, you 
have to understand that the packager puts the package together 
but does not tell what the cost of the individual components 
are or if there is a reduction in cost who gets that reduction 
in cost.
    Our belief is that in all probability, that cost would not 
be passed on to the consumer, so we think the proposal is 
flawed in both objectives that it is trying to accomplish.
    Chairman Manzullo. Is not the original purpose--or was not 
the original purpose of RESPA to stop kickbacks and to stop 
lack of disclosure?
    Mr. McDonald. Yes, sir.
    Chairman Manzullo. Anybody else want to comment on the--
yes?
    Ms. Lowrie. Mr. Chairman, I think you bring up an excellent 
point, and that is one of the reasons why MBA is asking for HUD 
to repropose the rule.
    I think that is one of the initial disparities between the 
initial proposed rule that came out in July of 2002 and what is 
found if you read in detail in the economic analysis, the fact 
that there is really no definition.
    Anyone can package, and there is really no definition 
within that economic analysis on what services need to be 
performed in order to constitute a package. And then if you 
layer on top of that the safe harbor and the section 8 
exemption, it opens the door to go back to where we were in 
1974.
    Chairman Manzullo. How does this protect the consumer? 
Anybody?
    Mr. Menzies. I do not see any way it protects the consumer. 
I think the most important point is for us not to rush the 
thing through, and where is the compelling need to get this 
thing done when there is question as to who stands to benefit? 
Why not just, as you so eloquently put it, ``deep six'' it and/
or bring it up for further analysis someday when there can be a 
real understanding of who really benefits from this. At best, 
it is suspicious.
    Chairman Manzullo. Anybody else want to comment?
    In fact, there is a term that the industry has used for 
this section 8. It is called the black box. Does somebody want 
to comment on that?
    Mr. McDonald. Well, I believe we are the guilty party 
there, Mr. Chairman.
    We identified the original proposal as it being flawed in 
the service section of the proposal, would allow what we call 
the black box. It contained some services but did not identify 
what those services were or what the cost to those services was 
or who is providing them or the level or quality of service 
that would be contained in the package. And the requirement and 
the reason that original proposal--one of the things that 
bothered us so much was that it would reduce the amount of 
people that could provide those packages, because you had to 
have an interest rate guarantee, and only major lenders are 
able to provide that interest rate guarantee.
    Without that interest rate guarantee, you really do not 
have much of a guarantee at all, and only--so you would reduce 
the number of people that could provide the packages, 
containing a black box of services that the consumer would not 
know what they were, so the whole purpose was to clarify and 
make the transaction more transparent and reduce costs, and we 
believe that it fails in both of those objectives.
    Ms. Lowrie. Mr. Chairman?
    Chairman Manzullo. Yes.
    Ms. Lowrie. To your point, does this benefit the consumer, 
I think that HUD's intentions were good in looking to simplify 
the mortgage process and create better disclosures for the 
consumer, but I think when you listen to all of the testimony 
here today, it does not really achieve that, the proposed rule 
as it was put out.
    There are so many moving parts within that rule that it 
really must come back for reproposal and give the industry and 
the consumer groups an opportunity to evaluate all of those 
various components.
    Chairman Manzullo. Well, let me ask you a question. Why 
would you want to send it back when the system is not 
broken?Why would you want to give these bureaucrats more work 
and more time to do more mischief? So we could have more 
hearings that cost the taxpayers dollars?
    Is there a problem now with real estate services vis-a-vis 
the consumer?
    Ms. Lowrie. I think, Mr. Chairman, if you were to talk to 
any number of consumers, especially over the last 2 years--and 
we have seen tremendous volumes and tremendous increases in 
home ownership--that the process is a very difficult, 
convoluted process. There is a lot of disclosure and 
itemization of--.
    Chairman Manzullo. The proper process.
    Ms. Lowrie. The present process, and I think improving--
going through mortgage reform and improving that process for 
consumers, to make it simpler for them to understand.
    You know, we say so many times in our industry, in the real 
estate finance industry, that we kill so many trees that there 
is an opportunity for us to look at simplifying the process.
    Chairman Manzullo. Let me stop you right there and go to 
Mr. Menzies.
    In your written testimony, Mr. Menzies, you stated that at 
least the only rule that we know about would require community 
banks to post on an hourly basis the fluctuating interest rate 
for mortgages.
    Do you recall that part of your written testimony?
    Mr. Menzies. Sure.
    Chairman Manzullo. Okay. Would you segue from what Mrs. 
Lowrie testified in that, in what an impossibility that is for 
small banks?
    Mr. Menzies. Well, I believe that there is not a problem, 
if you will, that must be corrected. I believe, as Regina 
states, there is an opportunity to seek not only simplification 
but reeducation.
    I think the market is working well. We have a secondary 
market operation and we have rates available whenever you call, 
and you can get a quote from us or from at least 50 or 60 other 
mortgage lenders or mortgage brokers in our little tiny market. 
And, as a matter of fact, all of those mortgage lenders will 
monitor the secondary market and call you any day you want, to 
say that the 30-year fixed has hit 5-7/8 and whatever, and they 
are doing that right now to compete to win the business. So I 
personally do not perceive that there is a problem.
    I do think there is an opportunity for simplification which 
should reduce costs, and I think there is always an opportunity 
for enhanced education.
    Chairman Manzullo. But do you need government to help you 
simplify this system?
    Mr. Menzies. Absolutely not.
    Chairman Manzullo. Anybody want to answer that?
    Mr. Friedlander. Well, Mr. Chairman, as I mentioned in my 
testimony, this is taking place.
    Chairman Manzullo. In the free market system?
    Mr. Friedlander. In the free market. And we certainly got 
some guidance from HUD that this packaging is something that we 
have to take serious and look at.
    One of the issues, of course, with RESPA has been 
enforcement, and there have--HUD now has started a stronger 
enforcement of the rules, which is good.
    In the past, there had been an inadequate number of people 
working on the enforcement part. So if we have the trend now in 
the free market to packaging and we have enforcement of the 
RESPA rules, I think that the market will take care of itself 
and not to fix problems that aren't broken.
    Chairman Manzullo. Mr. Savitt, with the mortgage brokers, 
would you--and then Mr. Menzies, you can join in, and anybody 
else--would you walk us through a typical real estate situation 
where you get a call from the buyer and then walk us through 
that real estate process?
    Mr. Savitt. You are talking about the origination process?
    Chairman Manzullo. Yes.
    Mr. Savitt. Usually what consumers will do is they will 
shop on the telephone before they come into your office.
    Chairman Manzullo. You find that going on, people shopping 
for rates, Mr. Menzies?
    Mr. Menzies. We find they come in with their Google search.
    Chairman Manzullo. Okay.
    Mr. Menzies. And about 8,000 pages of rates.
    Chairman Manzullo. Ms. Lowrie, same thing?
    Ms. Lowrie. Yes.
    Chairman Manzullo. Go ahead.
    Mr. Savitt. They do first shop on the telephone, and then 
after that they will want to know what the payment is based 
upon, what their loan amount has to be, how much they have to 
put down based on upon what their closing costs are.
    We are a small company, only four people, a family-owned 
business, and we always estimate our closing costs in a worst-
case situation because we do not know what will happen at the 
end. And, of course, things usually do change.
    Chairman Manzullo. And that could be the danger in the 
guaranteed package where you will always overestimate the cost; 
is that correct? Do you all agree with that?
    Mr. Savitt. Correct.
    Chairman Manzullo. Go ahead.
    Mr. Savitt. Even if someone tells us that they would be 
closing the last day of the month, which would reduce their 
closing costs because of the daily interest figure, we still 
estimate in a worst-case situation. You never know what can 
happen.
    You can have a situation where a termite report will come 
back bad. There may be situations which will require additional 
time to close the loan. You do not want to have any surprises 
for the consumer so, of course, you always disclose in a worst-
case situation--or should.
    The consumer will then come into the office. We find that 
consumers are educated together. They have notes with them. 
They have questions that they asked. They want to know on 
specific closing costs, you know, what this might be for, and 
they are very savvy today.
    We will take a loan application, we can explain the 
complete process to them. We explain our role to them as a 
mortgage broker, that we are not actually making the loan, that 
we are originating the loan, we are processing the loan.We are 
working with a wholesale lender who will fund the loan and who 
they will ultimately be making their payments to.
    We also set up the--with the closing agent, whether it is 
an attorney or a title company, who will be doing the real 
estate closing. We work with the termite people, the 
appraisers, the credit bureaus.
    Chairman Manzullo. So you help bring together these people?
    Mr. Savitt. Right. We do the entire process. We get the 
loan ready for closing. We submit the final package to the 
ultimate lender who will sign off on those conditions that will 
come back from Fannie Mae or Freddie Mac. And once the 
conditions are signed off, we receive closing instructions from 
the lender, which will go to the attorney's office. The loan is 
then closed and assigned at the closing table to the 
appropriate lender.
    Mr. Menzies. Mr. Chairman, I am not sure what happens to 
the integrity of this process when it is bundled. When a 
candidate comes in to borrow money, we walk them through the 
process and explain it as best we can what mortgage borrowing 
is all about, what they need to do to qualify. We give them a 
list of the appraisers who are on our approved appraisal list, 
maybe 20 or 30 of them. We give them a list.
    Chairman Manzullo. Certified. Certified appraisers.
    Mr. Menzies. Yes, sir; those who qualified for Freddie Mac 
and Fannie Mae appraisals, and we make sure they understand 
that it is important that they understand what is in the 
appraisal. We make sure that they understand the meaning of 
title insurance and that their relationship is with the title 
company, and when it comes to title insurance we are not giving 
them the title insurance, we are not guaranteeing their title.
    We as a lender are expecting those professionals to do 
their job, to research the title, to determine if there are any 
encumbrances or flaws or problems with the title, and to insure 
them against that.
    As is the case with the appraiser, we are expecting a 
certified, independent, credentialed individual to issue value, 
based upon studying the value of the property.
    Chairman Manzullo. Does that appear to be a problem with 
the consumer--.
    Mr. Menzies. No.
    Chairman Manzullo.--on picking the appraiser of their 
choice?
    Mr. Menzies. No.
    Chairman Manzullo. Has anybody ever complained to you that 
it is problematic, in making the largest purchase of their 
life, that they have to make half a dozen phone calls to 
different people?
    Mr. Menzies. No, it is not a problem. There is plenty of 
choice at present to pick an appraiser, to find a title 
company, to have a relationship with those two, and to have a 
meeting with those businesses, but the independence is of 
value.
    I would argue that having an independent appraiser and an 
independent title company and an independent bank, not all 
wrapped together in one bundle, carries with it some value to 
the consumer.
    Chairman Manzullo. So your concern is that if you allow the 
bundling as HUD has obstensibly proposed, that this would 
hinder the independence of the people involved in the closing 
process and work to the detriment of the consumer?
    Mr. Menzies. When the top 50 lenders of the Nation who 
generate some huge percentage of that $3 trillion worth of 
paper, send a letter to 1,000 title companies and say if you 
want to play in the game this is what your price is going to 
be, and if you do not honor this price you are not in the game, 
I do not think that will be in the best interest of the 
consumer.
    Chairman Manzullo. And that is exactly what is going to 
happen.
    Mr. Menzies. Exactly right. Same will happen on the 
appraisal side. The next will be the real estate industry, so 
that we can get a chunk out of their fees, so--.
    Chairman Manzullo. Well, Mr. McDonald, with regard to the 
realtors, my concern, obviously, is I do not believe HUD has 
jurisdiction or authority. I do not believe they have the 
authority to get involved in RESPA in the first place.
    When I was practicing law back in 1974 when this thing came 
along, and us small-town lawyers, we looked at each other and 
said, this thing is a joke, because our own closing statements 
had more disclosures and nobody understood APR.
    They still do not understand why you can lock in at 6.0 and 
then you find out it is 6.1734976, and you have a long 
explanation like that. But is there any concern on the part of 
the realtors that the bundling could end up with the large 
lenders determining real estate commissions?
    Mr. McDonald. Well, Mr. Chairman, we have a lot of concern 
about the whole proposal. But specifically to your question, 
the realtor community is looked to as the advisor through the 
real estate transaction, from the picking of the property 
through the mortgage process to the final closing; and 
oftentimes the buyer, because it is a very complex transaction, 
the buyer has to have help in deciding a lot of issues, and it 
comes down to oftentimes they do not know the local market. 
They may be coming in from out of town or they may be a local 
person, but they do not know who provides that.
    Chairman Manzullo. And you can make recommendations.
    Mr. McDonald. Yes.
    Chairman Manzullo. And you are getting no kickback on that?
    Mr. McDonald. Usually we do not receive kickbacks in 
violation of the RESPA, but we do make recommendations, based 
on the quality, as well as the price, and sometimes the lowest 
price is not always the best deal. And if we have to go to a 
package provider who will not tell us who is providing that 
service or the level of service they are receiving included in 
that price--because there are different levels of service that 
can be called the same thing--if we do not know and they are 
not disclosing all of those things, then we have no ability to 
advise that purchaser or that seller on whether or not that is 
a good package and a good price.
    Chairman Manzullo. Are people coming to realtors, are 
consumers coming to realtors, and asking about price at 
closing, et cetera, even before they sign a listing agreement?
    Mr. McDonald. Well, I think consumers are much more 
knowledgeable today and they come into a transaction oftentimes 
price conscious, but that is not--I do not think that is their 
single motivation.
    Chairman Manzullo. They want to buy or sell a house in this 
case.
    Mr. McDonald. Yes, and then they rely on the individual 
advisors that they hire to advise them on the--not only on the 
price structure, but the quality of the service that they are 
going to be receiving for the money that they are going to be 
paying.
    Chairman Manzullo. Mr. Friedlander, are consumers calling 
title companies and shopping for closing prices?
    Mr. Friedlander. It is amazing what is happening today 
where I am getting consumers calling me and asking about our 
fees and charges. They understand about reissue rates on title 
policies.
    The title service is not a commodity. It is a complicated 
process where we have to make sure the documents are correct, 
the legal description is correct, the names are correct, the 
documents are executed properly, we get the proper payoffs on 
the outstanding loans, we do the proper prorations of the 
taxes, according to the contract. This is not something that 
you can just give to a clerk and say close the transaction. You 
need sophisticated, highly paid experts, in order to do this 
process properly.
    We consider ourselves guardians of the public record, and 
we make sure that the documents that we put to record are 
proper and correct and carefully done. And if we are forced 
through price squeezing to reduce the service, the record is 
not going to be the quality that we have gotten used to, and I 
fear that in the distant future we will pay dearly for that.
    Chairman Manzullo. I remember the--when I was involved in 
one real estate closing, there is some national newspaper that 
thinks I have some type of an interest; I mean, you know, I 
have never had an interest in anything, except representing my 
clients, and that was--the last closing was in 1992, so for the 
record, I have no interest in any real estate company, any 
title company, or anything like that. But one of the things 
that I noticed was the hearing that we had last time in March 
with Dr. Weicher, who--who thought it of no significance that a 
buyer's attorney be present at the real estate closing, and 
that is what sparked what were some considerable fireworks.
    Mr. Friedlander. Once again, we have an issue of different 
parts of the country, everything is different. In some parts of 
the country the attorneys are present at every closing. In 
other parts of the country they are not.
    Chairman Manzullo. They just review the documents.
    Mr. Friedlander. Right. They do an escrow closing where 
everything is done in the mail, and a table closing where 
everything takes place at the table at that one time. So again, 
in order to try to have a national program where one size fits 
all is a very, very difficult undertaking.
    Chairman Manzullo. You had mentioned in your testimony, Mr. 
Friedlander, that American Land Title Association will bring a 
lawsuit challenging what RESPA is doing here.
    Mr. Friedlander. Our board voted unanimously that we feel 
that HUD has gone way beyond the bounds of rulemaking and has 
gone into legislation, and that legislation should be referred 
to Congress.
    Chairman Manzullo. I appreciate that. You understand what 
is going on.
    Comment?
    Mr. Friedlander. And that is why we will absolutely--our 
board has approved bringing--.
    Chairman Manzullo. No, there are some Federal district 
courts, including the Federal District Court for--the Middle 
District Court for Florida has held that if HUD does not comply 
with RESPA, according to the--HUD does not comply with the 
Regulatory Flexibility Act, then all these regulations are null 
and void and they have to start all over again. I mean, why is 
HUD bringing a lawsuit here by proceeding to file a rule in 
between sessions of Congress, with no accountability to the 
parties, in total secrecy, inviting a lawsuit that could cost 
the U.S. taxpayers millions of dollars to defend across the 
Nation?
    Can anybody answer that question for me?
    Mr. Menzies. We were kind of hoping you were going to 
answer that question, Mr. Chairman.
    Ms. Bordallo. Thank you very much, Mr. Chairman.
    This is a very interesting hearing. It seems everyone is 
opposed to the RESPA proposal by HUD, and public input, Mr. 
Chairman, is a very sensitive issue with me, and I am very 
curious and I must commend you, too, on your theme. I like your 
theme: Working behind closed doors to hurt small businesses and 
consumers.
    I am curious and maybe you can educate me. When you change 
a process, public input should always be adhered to. I cannot 
imagine everybody being so solidly against a proposal, and as 
the Chairman said, you do not fix something that isn't broken.
    What my question is, is did any of you--and I am sure you 
did write letters of opposition and suggestions that you had--
were any of them at all taken into account? And if so--of 
course, you haven't really seen the proposal, I guess it is all 
so secretive--but were any of these suggestions part of the 
final proposal?
    Mr. McDonald. No.
    Ms. Lowrie. I might try and take a stab at that for you.
    At this point, we haven't seen the final rule so it is very 
difficult to say, but I can venture to say I can speak for the 
Mortgage Bankers Association. We submitted over 60 pages of 
comments on areas of the proposed rule that we felt would not 
work within the industry.
    Elaborated, had numerous face-to-face meetings with HUD 
and, more recently, meetings with OMB, and in a lot of those 
discussions and discussions with the other trade associations, 
the Mortgage Bankers Association even went so far as to do an 
industry letter with--the American Land Title Association, the 
Mortgage Bankers Association, the National Association of Home 
Builders, the National Association of Mortgage Brokers, and the 
National Association of Realtors sent an industry letter asking 
for a reproposal of the rule to Secretary Martinez prior to his 
resignation.
    That letter was sent on December 8, so I think all of the 
industry participants have really tried.
    Ms. Bordallo. So, anybody else? You all sent in letters and 
suggestions?
    Mr. Savitt. There were also 40,000 letters sent to HUD, 
public comments, regarding the proposed rule, and to my 
understanding, it is the largest amount of comments they ever 
received on any issue, so they do have the public comments.
    Mr. Friedlander. These comments were not just Mimeographed, 
me, too; me, too; these were well-thought-out comments, and we 
have read them and some of them are excellent and thoughtful. 
So it was not just paper killing trees. It was very good 
reaction. And again it has been a one-way communication. We 
have been talking to them and we are not getting any feedback 
back from them or any kind of dialogue.
    Ms. Bordallo. And no one has seen the proposal or has any 
idea what is included?
    Mr. Savitt. No.
    Ms. Bordallo. Well, Mr. Chairman, I find this to be 
unbelievable, that there should be so much--40,000 letters and 
all of the various companies here today testifying against the 
proposal, and we are going forward with this, and now it is in 
the hands of OMB and they are looking at it.
    So I would suggest, Mr. Chairman, in knowing how strong you 
are in your commitments, that we make it very loud and clear 
that this should not go forward. And, incidentally, just for 
the record--oh, I am sorry.
    Mr. McDonald. Well, I would just add to the comments that 
have already been made to your question that we submitted a 
number of suggestions from our organization, one of which was 
to not--to drop the idea of the guaranteed package and look at 
the good faith estimate. We talked about--because there were 
some problems with the good faith estimate that we thought 
could be addressed, but the attempt by HUD to address those was 
also flawed, and so that did not go very far.
    And I think the best answer to your question is that, 
regardless--we may not agree on everything in opposition to the 
proposal, but one thing I think that is certain is that every 
segment of the industry, every major segment of the industry 
has said that this proposal is flawed and should not be moved 
forward as a final proposal and that, at the very least, it 
needs to be reissued and another look taken at it. But 
everybody agrees that it is a flawed proposal, and when you 
have a whole industry saying you are moving in the wrong 
direction, you are going to negatively impact our industry, why 
in the world would you want to move ahead with that type of 
proposal?
    Ms. Bordallo. Well, I certainly agree with that statement. 
And I, just for the record, Mr. Chairman, I want to say that I 
represent the territory of Guam. People here commented about 
small businesses, and we are really small out there, and we are 
a long way off, but I have received numerous letters from our 
real estate association on Guam, and my response is to oppose 
the HUD proposal. So I just want you to know that I am on your 
radar screen.
    Thank you, Mr. Chairman. Thank you.
    Chairman Manzullo. Thank you.
    Just briefly, I am looking at the Federal Register and I 
read the entire proposed regulation. Pretty boring, but--but it 
is also shocking, because I can see where Dr. Graham is coming 
from with his very analytical and trained mind in finances.
    When you take a look at--there is some stab in the dark 
that this bundling would save $700. There is no substantiation 
at all in there, and it presumes that in the present system the 
consumer is being gouged to the extent of 700 bucks. It is just 
a figure that is taken out of nowhere. And I think it is also 
extremely shocking, I guess it takes the trained eyes of a 
person who practiced real estate law for 22 years to discover 
this, but, on page 49144--again, this is the last proposal, it 
says ``Packages/guaranteed cost. Under the packaging or 
guaranteed cost approach envisioned in the report, the lender 
or other packager would set a lump sum price for settlement 
costs and would be held to that figure from the time the 
package is agreed to for settlement.'' that being, you are 
going to pick the highest one to give yourself the best 
cushion, and if for some reason you come in a little low, you 
just squeeze some of the providers.
    But listen to this. ``most charges for services that the 
borrower currently pays as settlement for origination, title 
work and insurance, credit report, appraisal, document review, 
inspection, up-front mortgage insurance, pest inspection, and 
flood review would be included in the package.'' .
    Notice that term, ``document review.'' .
    Who is reviewing the document and on behalf of whom? This 
is a lawyer that the lender has hired. That lawyer's fiduciary 
obligation is to the lender and not to the consumer.
    This will invite mischief, untold mischief, because when 
you buy the package, you buy everything in that package. They 
are not going to give you a list to pick and choose. They are 
going to pick your attorney, and you know what they are going 
to do? They are going to pick a yes man, because he wants to 
make sure everything is okay on behalf of the lender.
    What things come up at a real estate closing that you do 
not envision where a purchaser is protected by an attorney who 
may choose to be protected or may close in escrow or preview 
the documents in advance? That comes with years of training, 
specialization.
    I had one closing where this guy was buying an island.
    No, not yours.
    It was in the Midwest. It was in the middle--there was no 
access, and everybody missed it, including the title company. 
It was just one of those things, and I caught it, and title 
company was grateful.
    It was one of those crazy things, where it just showed that 
the more parties of adverse interests that are present at a 
real estate closing, the more protected is the consumer.
    Who protects the consumer at a real estate closing when the 
blacktop driveway has not been put in on a new construction?
    Who is going to be there to suggest that $2,750 be placed 
into an escrow account?
    Well, if you take a look at all the parties involved there, 
this person could close without that blacktop going in; I mean, 
this is much more complicated.
    Ms. Bordallo. Yes.
    Chairman Manzullo. And we are dealing with the most 
complicated transaction. And you know what? It should be 
complicated, because it involves the largest purchase that any 
consumer will ever make.
    Well, listen, you guys have--that is the Midwest. You 
witnesses have been exemplary.
    I want to thank the folks from HUD and OIRA and the staff 
folks who came here and sat through the hearing as a courtesy 
to these witnesses who have come from a long way, many of them, 
especially Mr. McDonald and Mr. Friedlander, to be present with 
us.
    Suggestion from this Chairman is that OIRA will send it 
back to RESPA and say forget it--I am sorry, send it back to 
HUD, and say just forget it; you have not made your case that 
there is a problem sufficient enough to warrant this type of 
government intrusion and intervention.
    Again, thank you for your participation, and this hearing 
is adjourned.
    [Whereupon, at 11:45 a.m., the committee was adjourned.]

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