[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
HUD'S PROPOSED RESPA RULE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
----------
SEPTEMBER 16, 2008
----------
Printed for the use of the Committee on Financial Services
Serial No. 110-138
HUD'S PROPOSED RESPA RULE
HUD'S PROPOSED RESPA RULE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 16, 2008
__________
Printed for the use of the Committee on Financial Services
Serial No. 110-138
U.S. GOVERNMENT PRINTING OFFICE
45-622 PDF WASHINGTON DC: 2008
---------------------------------------------------------------------
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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California DEBORAH PRYCE, Ohio
CAROLYN B. MALONEY, New York MICHAEL N. CASTLE, Delaware
LUIS V. GUTIERREZ, Illinois PETER T. KING, New York
NYDIA M. VELAZQUEZ, New York EDWARD R. ROYCE, California
MELVIN L. WATT, North Carolina FRANK D. LUCAS, Oklahoma
GARY L. ACKERMAN, New York RON PAUL, Texas
BRAD SHERMAN, California STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas WALTER B. JONES, Jr., North
MICHAEL E. CAPUANO, Massachusetts Carolina
RUBEN HINOJOSA, Texas JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York GARY G. MILLER, California
JOE BACA, California SHELLEY MOORE CAPITO, West
STEPHEN F. LYNCH, Massachusetts Virginia
BRAD MILLER, North Carolina TOM FEENEY, Florida
DAVID SCOTT, Georgia JEB HENSARLING, Texas
AL GREEN, Texas SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin, JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota TOM PRICE, Georgia
RON KLEIN, Florida GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio JOHN CAMPBELL, California
ED PERLMUTTER, Colorado ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana PETER J. ROSKAM, Illinois
BILL FOSTER, Illinois KENNY MARCHANT, Texas
ANDRE CARSON, Indiana THADDEUS G. McCOTTER, Michigan
JACKIE SPEIER, California KEVIN McCARTHY, California
DON CAZAYOUX, Louisiana DEAN HELLER, Nevada
TRAVIS CHILDERS, Mississippi
Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Oversight and Investigations
MELVIN L. WATT, North Carolina, Chairman
LUIS V. GUTIERREZ, Illinois GARY G. MILLER, California
MAXINE WATERS, California PATRICK T. McHENRY, North Carolina
STEPHEN F. LYNCH, Massachusetts EDWARD R. ROYCE, California
EMANUEL CLEAVER, Missouri RON PAUL, Texas
MICHAEL E. CAPUANO, Massachusetts STEVEN C. LaTOURETTE, Ohio
AL GREEN, Texas J. GRESHAM BARRETT, South Carolina
RON KLEIN, Florida MICHELE BACHMANN, Minnesota
TIM MAHONEY, Florida PETER J. ROSKAM, Illinois
ED PERLMUTTER, Colorado KEVIN McCARTHY, California
JACKIE SPEIER, California
C O N T E N T S
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Page
Hearing held on:
September 16, 2008........................................... 1
Appendix:
September 16, 2008........................................... 43
WITNESSES
Tuesday, September 16, 2008
Borne, Rebecca, Policy Counsel, Center for Responsible Lending... 16
Kermott, Gary, President, American Land Title Association (ALTA). 17
Kittle, David, President, Mortgage Bankers Association (MBA)..... 11
Lindsey, T. Anthony, Chief Executive Officer, GlobeCrossing, LLC,
on behalf of the National Association of Realtors (NAR)........ 13
Saunders, Margot, Counsel, National Consumer Law Center (NCLC)... 14
Savitt, Marc S., President, National Association of Mortgage
Brokers (NAMB)................................................. 9
Stevens, David H., President, Affiliated Businesses, Long and
Foster Companies, on behalf of Real Estate Services Providers
Council (RESPRO)............................................... 21
Still, Debra, President and Chief Operating Officer, Pulte
Mortgage LLC, on behalf of the National Association of
Homebuilders (NAHB)............................................ 19
APPENDIX
Prepared statements:
Watt, Hon. Melvin L.......................................... 44
Bachmann, Hon. Michele....................................... 48
Borne, Rebecca............................................... 49
Kermott, Gary................................................ 66
Kittle, David................................................ 94
Lindsey, T. Anthony.......................................... 203
Saunders, Margot............................................. 233
Savitt, Marc S............................................... 259
Stevens, David H............................................. 277
Still, Debra................................................. 285
Additional Material Submitted for the Record
Proposed HUD rule, dated March 14, 2008.......................... 296
Proposed Good Faith Estimate (GFE)............................... 329
Existing Good Faith Estimate (GFE)............................... 333
Letter from Chairman Frank to HUD Secretary Preston, dated June
12, 2008....................................................... 336
Comment letter from the Board of Governors of the Federal Reserve
System to HUD, dated June 13, 2008............................. 338
Letter from Representatives Hinojosa and Biggert to HUD Secretary
Preston, signed by Members of Congress, dated August 7, 2008... 343
Undated response letter from HUD to Representative Biggert....... 363
Written statement of the Independent Community Bankers of America 365
Written statement of the National Credit Reporting Association,
Inc............................................................ 378
Letter from Representatives Hinojosa and Biggert to the Office of
Management and Budget, dated September 16, 2008................ 387
Letter from HUD to Hon. Melvin L. Watt, dated September 12, 2008. 389
Responses to questions submitted by Hon. Melvin L. Watt to
Rebecca Borne.................................................. 390
Responses to questions submitted by Hon. Melvin L. Watt to Gary
Kermott........................................................ 402
Responses to questions submitted by Hon. Melvin L. Watt to David
Kittle......................................................... 404
Responses to questions submitted by Hon. Melvin L. Watt to T.
Anthony Lindsey................................................ 411
Responses to questions submitted by Hon. Melvin L. Watt to Margot
Saunders....................................................... 414
Responses to questions submitted by Hon. Melvin L. Watt to Marc
S. Savitt...................................................... 428
Responses to questions submitted by Hon. Melvin L. Watt to David
H. Stevens..................................................... 439
Responses to questions submitted by Hon. Melvin L. Watt to Debra
Still.......................................................... 443
HUD'S PROPOSED RESPA RULE
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Tuesday, September 16, 2008
U.S. House of Representatives,
Subcommittee on Oversight
and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 9:08 a.m., in
room 2128, Rayburn House Office Building, Hon. Melvin Watt
[chairman of the subcommittee] presiding.
Members present: Representatives Watt, Lynch, Cleaver,
Green, Klein, Perlmutter; Miller and Royce.
Also present: Representatives Hinojosa, Manzullo, and
Biggert.
Chairman Watt. This hearing of the Subcommittee on
Oversight and Investigations of the Financial Services
Committee will come to order. Without objection, all members'
opening statements will be made a part of the record.
We will recognize as many members as wish to give an
opening statement, within limits, for up to 5 minutes each, and
I will recognize myself for a brief opening statement, just to
set the stage.
Let me first welcome all of the witnesses; thank you for
being here. As I explained to you before we got into formal
session, these hearings normally start at 10 a.m., but there is
a full Financial Services Committee markup this afternoon, and
at the time we made the decision to move the hearing up to 9
a.m. to get out of the way of that markup, we actually had two
panels of witnesses scheduled, which I will talk about. So I
think members will be here. There is a substantial amount of
interest in this subject, as reflected by the number of pieces
of input that we have gotten in the process. But the 9 a.m.
hour for Members of Congress is--at least for starting hearings
as opposed to going to breakfasts and greeting constituents or
doing the other parts of the job--a heavy lift.
Let me launch into a few comments. Today's hearing is
entitled, ``HUD's Proposed RESPA Rule.'' The Real Estate
Settlement Procedures Act of 1974, which we call RESPA, is the
Federal statute that governs the mortgage settlement process
for all Americans. As anyone knows who has ever purchased a
home or refinanced a home mortgage, the process involves most
Americans' biggest investment and can be intimidating and
complicated. Buyers and borrowers must sign dozens of forms and
legal documents in one sitting, and quite often they do not
understand everything they are signing. Sometimes they don't
understand anything they are signing. RESPA mandates the
disclosure of certain terms, such as a home loan's initial
interest rate, prepayment penalties, and settlement costs,
among others.
RESPA and RESPA disclosures have been the subject of
intense controversy and anticipated reform since at least the
Reagan Administration. The Financial Services Committee has
held several hearings on RESPA reform, most recently in the
105th and 108th Congresses. Our colleagues on the Small
Business Committee have also held hearings on RESPA reform,
most recently in May of this year. RESPA reform continues to
generate bipartisan interest, and I thank Ranking Member Gary
Miller for requesting this hearing, and we were happy to
accommodate his request. It was at a bipartisan outcry and
request that we pulled people together to discuss this.
The reason for today's hearing is to examine the proposed
RESPA rule issued by HUD on March 14, 2008, for public comment.
At the outset I should note that over 240 Members of Congress
signed a ``Dear Colleague'' letter to HUD Secretary Steve
Preston urging HUD to withdraw the proposed rule and commence a
joint rulemaking with the Federal Reserve Board to produce more
simplified mortgage and real estate settlement cost disclosure
forms. The letter also warned that the proposed RESPA rule
could hinder rather than help the recovery of the housing
market, which is of even more concern in light of recent
turbulence in the housing market and the government takeover of
Fannie Mae and Freddie Mac.
Chairman Frank also wrote a letter to HUD Secretary Preston
in June urging HUD to work with the Federal Reserve Board to
reconcile inconsistencies between the proposed RESPA rule and
the Truth in Lending Act, TILA, disclosure requirements to
avoid consumer confusion and redundant disclosures.
I ask unanimous consent at this point that the Members'
letter signed by over 240 Members of Congress to HUD, dated
August 7, 2008, and Chairman Frank's letter, dated June 12,
2008, be made a part of the record. Without objection, it is so
ordered.
I was one of the few Members of the House who was not a
signatory to the letter of the over 240 Members, or to Chairman
Frank's letter, and I may be the only remaining Member of
Congress who can truly be said to be at least publicly neutral
on HUD's proposal, so I was glad when Ranking Member Miller
requested the hearing. I thought it would be fun to see a
bipartisan pummeling of a Federal Government agency and a
spirited defense by that agency. I am always up for a good
fiery discussion, if not a brawl.
But, alas, that is not going to happen, at least not today,
because before we could issue our invitation to HUD to come and
explain what HUD was thinking, in August, HUD formally sent the
proposed RESPA rule to the Office of Management and Budget for
review and now claims that it is obliged not to comment
further. So HUD Secretary Preston will not be with us today.
That is why we only have one hearing panel today.
The Federal Reserve was not formally invited, but indicated
that it would be reluctant to be critical of another Federal
agency in public. I would note, however, that the Fed issued a
staff comment letter, dated June 13, 2008, expressing some
concerns, and I ask unanimous consent to submit that letter for
the record. Without objection, it is so ordered.
We are pleased that representatives of virtually every
other group in America that I could think of have been lining
up at the door to testify, which is why we have so many
witnesses on this panel. We have a wide array of witnesses and
we look forward to their testimony. The testimony will be
available to HUD and to OMB for whatever use they desire to
make of it as we move this process forward.
At the end of the day, RESPA reform should be about
improving disclosure to consumers so that they can understand
their rights and responsibilities when buying a home and avoid
unwelcome surprises at the settlement table. While I have never
been, and many of you have probably heard me express this view,
a big advocate of the benefits claimed by the advocates of
disclosure, it is certainly true that disclosure helps
consumers better understand what they are signing when buying a
home or getting a loan. RESPA reform should not unnecessarily
confuse consumers, and should not result in unreasonable
regulatory burdens and costs to the real estate industry as the
fragile housing market seeks to recover.
I welcome the Members here. I am going to be as impartial
as I can be today. I have fought to maintain this position, not
signing on to any of the letters, and I was going to try to be
the mediator. I am not sure there is going to be anybody here
to mediate between, because having reviewed the statements,
there seems to me to be pretty consistent opposition to the
proposed rules for one reason or another.
I am looking forward to building this record, and I will
recognize Ranking Member Gary Miller, who is actually the
originator of the idea for this hearing, and we thank him for
doing that. I recognize the gentleman for 5 minutes for his
opening statement.
Mr. Miller. Thank you, Mr. Chairman. It is good to have all
of you here today. We are here today because of all of you.
Over the years, we have examined some of the RESPA
proposals that have occurred in the past that haven't been
enacted and we have all been very concerned. Many of you have
come by the office and we have talked at different functions
about your concerns, and I think it is most appropriate that we
get those concerns out on the table. We really don't know what
it is going to look like when we get the RESPA rule, but from
what many are hearing, there are a lot of concerns. I will say
that I have a lot of high regard for Secretary Preston. I think
he is a good man, and he is going to try to do a good job, but
I think it is also appropriate for us to talk.
Our industry, the mortgage industry, is going through
incredible upheavals right now. We don't know how bad it is
going to get, but we don't want to make it worse. What we don't
want to do is, with our U.S. financial markets, experience the
upheaval they have to make things more complicated. Record high
foreclosures and delinquency rates, bank failures, and
Treasury's recent actions with Fannie Mae and Freddie Mac,
together with high commodity prices and the suffering labor
market have truly put the U.S. economy to a test that we have
never really experienced in recent years.
Certainly the foreclosure crisis has taught us all that we
need to improve the mortgage origination process. Revamping
these regulations, however, must not be done haphazardly,
especially considering the current housing market and the
tightening credit situation. Our financial institutions are
extremely vulnerable right now. We cannot afford any more large
bank failures, and we need to focus on bringing stability to
the housing and financial markets. Any reforms must not
negatively impact mortgage affordability and availability in
this extraordinary environment.
Furthermore, some housing experts are predicting that the
mortgage losses will reach staggering levels in this coming
year. While disclosures must be improved to prevent another
mortgage crisis in the future, we must not exacerbate these
losses, and we need to instill some certainty in the
marketplace right now.
It is important for consumers to understand the terms of
their mortgage. Comments of the Federal Reserve Board on HUD's
proposal describe how the revised Good Faith Estimate, GFE, is
inconsistent and duplicative of TILA's disclosure efforts which
may lead to confusion or consumers disregarding crucial
information about their loan terms. The Federal Reserve Board
was extremely critical of HUD's proposal and warned that the
lack of adequate consumer testing of these disclosures could
ultimately hurt, rather than help, consumers, and I have talked
to many of you and that seems to be your concern also. The
Board also points out how HUD has failed to incorporate
consumer testing results from their study in mortgage
disclosure reforms.
The Federal Trade Commission, FTC, has also voiced concern
with the proposed rule. The FTC has stated that some of the
changes may further complicate the mortgage process. The FTC
has also advocated a collaborative effort among HUD and the
Federal Reserve Board to reform mortgage disclosures.
Additionally, 244 Members of Congress had concerns with the
proposed rule and requested HUD to withdraw the rule and work
with the Federal Reserve Board to reform mortgage disclosures.
On August 18th, HUD rejected this request and sent the proposed
rule to the Office of Management and Budget, OMB, on that very
same day.
While we are unaware of the revisions that HUD made to the
rule, it is important to have a discussion about the effects of
the proposed changes. I look forward to listening to the
concerns that you all are going to bring forward today, and
hopefully HUD is listening at least on the TV to what we are
going to do today. While we would have liked to have heard from
HUD today about this extensive rule to reform mortgage
disclosures, they declined our invitation to testify.
With that said, as many of you know, Secretary Preston
previously served as an effective director of the Small
Business Administration. Mr. Preston made important reforms to
the Administration and understands the needs of America's
entrepreneurs, lenders, and small businesses. I believe the
Secretary brings great experience to the Department of Housing
and Urban Development, and I am confident that he is taking
this issue and your comments seriously with his great
consideration of reforming the mortgage lending process.
You are an incredibly talented bunch of witnesses that we
have today, you understand your industry and your market, and I
am really looking forward to the testimony. I thank you for
holding this hearing, Mr. Chairman.
Chairman Watt. Thank you for requesting the hearing, and I
thank you for your opening statement.
I am going to go a little bit out of order because I know
Mr. Cleaver and Mr. Green have to leave for a meeting that I
also need to be at but I can't attend, so they are going to be
my eyes and ears at that meeting. So Mr. Cleaver is recognized
for 5 minutes.
Mr. Cleaver. Thank you, Mr. Chairman. I won't take 5
minutes.
I would like to express my appreciation to you and Ranking
Member Miller for holding this hearing. I am very sorry that
the Department of Housing and Urban Development did not send a
representative here today and also submit to the questions that
we might ask.
The proposal is a very sensitive issue, and the chairman
and others have already expressed their opinions. And to be
quite frank, I know people don't normally like to have group
projects. People don't like to work together or come together,
but I can't come up with any logical reason why there cannot be
collaboration between HUD and the Fed. It is just not practical
to say that we can't come to a hearing because Federal agencies
don't like to contradict one another. Their very existence in
many instances is a contradiction to other agencies.
And so I am very interested in hopefully getting back to
hear your answers to questions. Ms. Borne articulated in her
statement some things that I really would like to get into. I
appreciate the fact of your coming, and I can hope that with
all of the various witnesses we have today that somehow we can
get HUD to consider some of the conclusions and suggestions
that many of you have reached and I think, frankly, many of us
have already reached. So I look forward to getting back in time
to listen to some of your comments or to listen to the answers
to some of the questions we raise.
Thank you, Mr. Chairman.
Chairman Watt. Mr. Miller is recognized for a unanimous
consent request.
Mr. Miller. Yes, Mr. Chairman. I would like to submit the
letter from HUD into the record regarding their not testifying
today. And I really wish they could have been here, at least to
testify on what the original RESPA proposal was. We could at
least have had some questions answered on that. Nevertheless, I
ask to submit this letter for the record.
Chairman Watt. Without objection, the letter will be made a
part of the record.
Now lest you all be concerned that I am going to pass over
Mr. Manzullo, he is not on the subcommittee, and I am going to
personally ask, along with Mr. Miller, that we give him
unanimous consent to make an opening statement, but I need to
let the members of the subcommittee make their opening
statements first. So I will go next to Mr. Green for up to 5
minutes.
Mr. Green. Thank you, Mr. Chairman. I especially thank you
for holding this hearing, and I thank Ranking Member Miller as
well. He has demonstrated a willingness to work with us across
the aisle in a bipartisan fashion and I appreciate what he has
done to work with me on some other issues.
Mr. Chairman, as Ranking Member Miller indicated, we don't
know what the reform will look like, and I concur. But I also
do know this: We must act. Even when we do act, there are those
who contend that we haven't acted. I think that the least we
can do is make sure that we can have a reasonable retort to
those who will contend that we have not done anything and show
that we have done something of worth. We understand that
knowledge is power, and what we must do is empower the consumer
by according the consumer the knowledge necessary to make
reasonable, prudent, and judicious decisions.
We have some concerns that I think can be addressed. We
have two agencies that are charged with the responsibility of
dealing with these issues. The Truth in Lending Act directs the
Federal Reserve Board to regulate disclosures on loan terms.
RESPA directs HUD to do so. These two entities may not
harmonize all the time, and as a result we may not get harmony
in terms of what should be accorded the consumer with the
disclosure forms.
I am concerned about the yield spread premium. The yield
spread premium has caused many persons to pay fees that they
ordinarily would not have paid had they known they were being
accorded these fees. These fees were being placed upon them.
There must be some way for the consumer to make an intelligent
decision about the yield spread premium. For those who do not
know who may be viewing this, the yield spread premium is a fee
that an originator can get when he or she causes a borrower to
take out a loan for an interest rate higher than the one the
borrower has qualified for, and it need not be disclosed to the
borrower that this fee is being charged. The yield spread
premium is a concern. We have to have fairness in borrowing
such that people know what they are confronting.
The initial rate versus the adjusted rate is a concern.
Many consumers don't understand this whole notion of a teaser
rate and then a rate that will adjust that they cannot pay for.
The adjusted rate has to be made clear to consumers. The
prepayment penalties--there are many consumers who don't know
that they have prepayment penalties when they take out their
loans. This is something that we have to make available and
known to consumers.
And finally, just the cost of the loan. And by the way, I
say finally only because I think my time doesn't permit me to
go into a multiplicity of other things. But the cost of the
loan, there are many consumers who literally, at the time they
negotiate their loan, have no idea as to what this loan will
cost them. Why? Because consumers are so eager to have a place
to call home, especially the first-time homebuyer, that they
will sign anything. They literally sign documents that have no
language on them, and they are told, ``We will get this back to
you at a later time,'' and they then contend, ``I didn't sign
that with that on it,'' at the later time and find that is not
going to be justification for having signed the document and
the liabilities associated with the document.
So I am very concerned about the consumer. I want the
consumer to be empowered with knowledge. We can do this, but I
do think that it is going to require bipartisanship, and I
think that it is going to require that we have the opportunity
to talk to HUD and to the Fed about this.
I thank you and I yield back the balance of my time.
Chairman Watt. I thank the gentleman for his participation.
Mr. Lynch is recognized for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman, and I want to thank
Ranking Member Miller as well. I will try to be very brief; I
do want to hear from our witnesses this morning.
I want to thank all of the panelists here for attending. I
would be remiss if I didn't express my disappointment with HUD
and with the Fed for their failure to attend. I simply cannot
imagine how this helps the American people have any confidence
in the fact that our agencies are working with government to
address the problems that they face in these extraordinary
times when these agencies don't even show up. While I
understand the difficulties there, there should have been some
way to send someone here to address the points that the
committee and that you on the panel are raising.
With that, I just want to point out, I know that, Mr.
Savitt, your organization (the National Association of Mortgage
Brokers) and Mr. Kittle, your organization (the Mortgage
Bankers Association) are intimately involved in the current
difficulties that we are facing, not only on the subprime but
generally. I will be very keen to hear what you might think we
can do to improve the settlement process. And I know that many
of the frailties and weaknesses that we see in the mortgage
origination process come from the underwriting side, perhaps,
but I do think that the moment of settlement is a time at which
some of these weaknesses could be brought to light and the
underlying agreements strengthened.
So I will be interested in hearing from you, but also from
everyone who has come here this morning to help Congress with
its work. So thank you, Mr. Chairman, and I yield back.
Chairman Watt. I thank the gentleman for his comments.
And I join Mr. Miller in asking unanimous consent for
permission to allow Mr. Manzullo to give an opening statement.
I know he has been active on this issue in the Small Business
Committee, so we welcome his opening statement. The gentleman
is recognized.
Mr. Manzullo. Thank you, Mr. Chairman, for holding this
hearing today and for allowing me to testify.
I have been a longtime opponent of changes to RESPA. During
my time as chairman of the Small Business Committee, I held two
hearings on the impact of HUD's proposed RESPA changes on small
businesses. At both hearings, I was strongly dissatisfied by
the lack of knowledge displayed by HUD staff regarding the
details of their own proposal and the impact that it would have
on consumers and businesses. Secretary Jackson testified that
there are eight people working full time at that Department
just on the RESPA issue. Their time could be well spent doing
something else, such as trying to figure out what to do with
this horrible real estate market.
In June of this year, I sent a strongly worded comment
letter to HUD emphasizing that they have again displayed a
serious lack of familiarity with real work experience in the
real estate settlement process. I have been involved in over
2,000 real estate closings as a member of the bar for 22 years
before I was elected to Congress, and I can tell you they have
no clue as to what happens at a real estate closing, and now
they come here with this, again, ridiculous regulation that
could really hurt. I recently met with HUD's Secretary Preston,
a man I hold in high regard, to discuss these changes.
Although I see many problems with the current RESPA
proposal, I want to mention just a couple of them. First of
all, HUD has never complied with the Regulatory Flexibility
Act. I repeat, HUD has never complied with the Regulatory
Flexibility Act. Never. The data used here is 6 to 8 years old.
It was incomplete back then, it is incomplete now, and they
ought to hang their heads in shame over lack of scholarship and
come out with the impacts that this has on small business. And
they come back again, and again, and again with the same old
crap. I just cannot believe that regulators have nothing else
to do but to sit there and destroy small businesses. And now it
comes back again, the bungling of services to help out big
people and destroy the small businesses under the veiled name
of the ``volume discount.''
HUD ought to do what its statutory duty is to do. Before
RESPA came out, I closed real estate transactions with a one-
page form, and everybody knew exactly what the cost of that
mortgage was, exactly all of the different costs. Today, more
confusion. I would just ask HUD, just withdraw this thing. Just
throw it into the river and get on with something else in your
lives. I guess you know where I stand, Mr. Chairman.
Chairman Watt. I thank the gentleman for his comments, and
now we have ourselves fired up here.
I welcome the gentlelady, Mrs. Biggert, to the hearing. She
is not a member of the subcommittee either, but I ask unanimous
consent to allow her an opening statement if she desires to
make one.
Mrs. Biggert. Thank you, Mr. Chairman. I don't have an
opening statement, but I would like to submit for the record a
letter that Congressman Ruben Hinojosa and I submitted to OMB
about the HUD RESPA and asking them to send it back to HUD and
to have further hearings on such a ruling that they have made.
Chairman Watt. I thank the gentlelady for her unanimous
consent request, but we have already submitted that letter.
That is the one that was co-signed by about 240 Members, as I
recall, or is there another letter?
Mrs. Biggert. Yes, sir.
Chairman Watt. There is a separate letter? Okay.
Mrs. Biggert. This is a further letter that was submitted
yesterday, and we are getting signatures, again, on this
letter.
Chairman Watt. Without objection, that letter will also be
submitted for the record.
I think we have exhausted all of the opening statements
now. I told you that there was a great deal of interest in
this, and there will be other members coming in, I am sure,
probably after 10:00. There is a conference going on, a
Republican conference, and some meetings that I am aware of, so
it is a busy day.
So let's get to the witnesses. Without objection, all other
members' opening statements will be made a part of the record.
I will now introduce briefly the members of the panel who will
be testifying today. Your full bios and CVs will be made a part
of the record, so we are going to abbreviate the introductions.
We welcome you here. Our first witness will be Mr. Mark
Savitt, president of the National Association of Mortgage
Brokers.
Our second witness will be Mr. David Kittle, president of
the Mortgage Bankers Association.
Our third witness will be my homeboy, T. Anthony Lindsey
from Charlotte, who is here representing the National
Association of Realtors, and he is also the chief executive
officer of GlobeCrossing, LLC, a diverse real estate company in
Charlotte, my hometown.
Our fourth witness will be Ms. Margot Saunders, counsel for
the National Consumer Law Center, with whom I have also had a
long and warm relationship, going back to North Carolina.
Our fifth witness will be Ms. Rebecca Borne, policy counsel
for the Center for Responsible Lending.
Our sixth witness will be Mr. Gary Kermott, president--did
I get that right? Kermott? Somewhere in the neighborhood, he
says--president of the American Land Title Association.
Our next witness after him will be Ms. Debra Still,
president and chief operating officer of Pulte Management, LLC,
and she is speaking on behalf of the National Association of
Homebuilders.
And our final witness today will be Mr. David Stevens,
president, Affiliated Businesses, Long and Foster Companies, on
behalf of Real Estate Services Providers Council (RESPRO), our
most recent addition to this panel.
Mr. Miller. Pulte Mortgage. It is supposed to be Pulte
Mortgage, LLC.
Chairman Watt. Pulte Mortgage, LLC. I am sorry. Just trying
to rush through this.
So we welcome all of you. Your written statements that you
have submitted will be made a part of the record in their
entirety, and each of you will be recognized for 5 minutes to
summarize your statement and highlight some of the points that
you wish to make. There is a lighting system in front of you.
It will come on green at the beginning. At 4 minutes, it will
go to yellow, and at 5 minutes, it will go to red. We are not
in the habit of being as mean as some Chairs are, but we do ask
you to respect that there is another demand for this room, and
so we ask you to kind of sum up when you get to that red light
before we have to ask you to do that.
So Mr. Savitt, you are recognized for 5 minutes for your
statement.
STATEMENT OF MARC S. SAVITT, PRESIDENT, NATIONAL ASSOCIATION OF
MORTGAGE BROKERS (NAMB)
Mr. Savitt. Good morning, Chairman Watt, Ranking Member
Miller, and members of the subcommittee.
I am Marc Savitt, president of the National Association of
Mortgage Brokers. In addition to serving as NAMB president, I
am also a licensed mortgage broker, and like most of my fellow
NAMB members, I am a small business owner.
I would like to thank you for the opportunity to testify
here today on HUD's proposed RESPA rule. NAMB applauds HUD's
response to the current problems in our mortgage markets. We
share HUD's resolute commitment to simplify the process of
obtaining mortgages and to protect consumers from unnecessarily
high settlement costs.
However, NAMB objects to several elements of the proposal
that would not best serve consumers because they would confuse
consumers, impede competition, and treat direct competitors
differently. In addition, HUD has failed to consider other
highly effective and less burdensome alternatives to their
proposal. In light of the current mortgage situation, in
addition to recent rulemaking and the passage of key
legislation, NAMB questions the appropriateness of the timing
and implementation of HUD's proposal.
A significant component of the proposal addresses broker
compensation or YSP. YSP is already required to be disclosed on
the good faith estimate and on the HUD-1 settlement statement
for the last 16 years since 1992. The proposal, however,
reclassifies this compensation as a credit to the borrower, the
practical effect of which will be very confusing to consumers
and puts brokers at a competitive disadvantage by imposing
uneven disclosure obligations among originators receiving
comparable compensation. YSP or its equivalent is present in
every origination channel regardless of whether a broker is
involved in the transaction or not. In fact, with the originate
to distribute model, most originators are merely brokering
loans, yet HUD fails to address the converging roles of
mortgage originators in its proposal.
HUD's proposal addresses broker disclosure in an
inequitable manner and in a way that will confuse consumers
about the overall cost of a mortgage. This is not simplifying
the mortgage process. There needs to be a level playing field
for consumers.
The proposal relies on testing that was conducted using
flawed methodology to assess the value of HUD's proposed
disclosures relating to YSP. Additionally, HUD failed to test
the disclosures in actual transactions involving competing
originators, thereby producing flawed results. Exhaustive
studies of mortgage disclosures as detailed in our written
testimony issued by the FTC, the Federal Reserve Board, and
academic scholars show that broker-only disclosure of YSP
creates confusion among consumers and causes them to choose
more expensive loans. Additionally, these studies show that
broker-only disclosure of YSP leads to bias against broker-
assisted transactions and impedes competition, resulting in
harm to consumers.
Such authoritative research and studies, in addition to
consumer testing, led the Federal Reserve to remove broker-only
disclosure provisions from its final rule amending Regulation Z
of the Truth in Lending Act. NAMB has urged HUD to take a
similar action with regards to its proposal and we encourage
HUD to work with the Fed to produce an alternative disclosure
proposal.
One alternative NAMB strongly supports is a revised GFE
that clearly outlines loan terms and the originators role in
the transaction. NAMB has submitted the prototype of such a
form to HUD on several occasions. However, HUD has yet to
comment on this proposal.
Finally, NAMB opposes the section of the proposal that
would require an addendum to the HUD-1 settlement statement
which would compare loan terms and settlement charges estimated
on the good faith to the HUD. Because the addendum, or closing
script, as it is known, is required to be read out loud by the
settlement agent in closing, it will unnecessarily complicate
the settlement process, delay closings, and ultimately drive up
costs to the consumers.
Our mortgage market today is significantly strained, and it
continues to experience ongoing turmoil and change. Because of
this, NAMB believes that consumers and the market in general
may be better served if HUD would consider delaying
implementation of any new policies or procedures until the
market and all market participants have had time to digest the
multitude of events already affecting consumers' ability to
obtain credit. We also would like to see HUD harmonize its
RESPA rule with the Fed's implementation of Reg Z.
We look forward to continuing to work with this
subcommittee as well as with HUD and other regulators on
finding solutions that are effective in helping consumers but
will not unreasonably obstruct the market or disadvantage
competing originators. I thank the committee for allowing me to
testify today, and I would be happy to answer any questions.
And Mr. Chairman, I would like to make one other statement
if I could. Mr. Green made a comment in his opening statement
that YSP was not disclosed to consumers, that they basically
found this out when they got to closing. YSP, which is
disclosed by mortgage brokers, were the only channel of
distribution that actually discloses in this indirect
compensation. We have been doing this since 1992 on the good
faith estimate when the consumer first comes into our office,
and once again at the settlement on the closing statement, and
most States, such as the States in which I am licensed, also
required two State-specific forms. So when a consumer comes
into my office, I disclose it 4 times.
Thank you.
[The prepared statement of Mr. Savitt can be found on page
259 of the appendix.]
Chairman Watt. I thank the gentleman for his testimony, and
Mr. Kittle is recognized for 5 minutes.
STATEMENT OF DAVID KITTLE, PRESIDENT, MORTGAGE BANKERS
ASSOCIATION (MBA)
Mr. Kittle. Chairman Watt, and Ranking Member Miller, thank
you for the opportunity to appear before you to discuss RESPA,
one of the Mortgage Banker Association's top policy issues.
I would like to make three points, and then I would be
happy to answer any questions. First, MBA and I, personally,
are firmly committed to improving the mortgage process for both
industry and consumers, and we have been for a very long time.
Second, any reforms should give consumers the information they
need to effectively shop for loans, to inform themselves about
the true cost of closing on a mortgage, and to protect
themselves from unscrupulous actors in the mortgage process.
That requires a comprehensive approach to the loan application
and closing process involving both HUD's RESPA reforms as well
as the Federal Reserve's TILA forms. And last, HUD's proposed
RESPA reforms do not even come close to achieving
simplification. They should be delayed and officials at HUD
should work with the Federal Reserve on a joint and
comprehensive effort to simplify and improve forms and
disclosures.
Improving the mortgage closing and application process will
result in better informed customers who understand their loans
and the closing process. With greater transparency and better
information, consumers can shop more effectively. This will
lead to better mortgage decisions, and those lenders who can
objectively provide the best products for their customers will
be the companies that get the most business. The market will
become more efficient. Lenders will have better and happier
customers.
Reform is right for the market and for consumers. But
reform for reforms sake would be quite damaging to the system.
Reforms should achieve two interrelated goals: One, help the
consumer shop; and two, help them understand their loan and the
closing terms better. That is why it is imperative that HUD not
work in isolation on this issue, but work with the Federal
Reserve in helping consumers shop for and understand their
loan.
The Fed is responsible for implementing the Truth in
Lending Act, or TILA. HUD is responsible for RESPA. At the time
of the application, borrowers receive a TILA disclosure and a
good faith estimate of closing costs. In the middle of the
process, recently passed Federal law now mandates another TILA
disclosure. Then, at the closing table, the borrower gets yet
another document, the HUD-1, which is different from the
previous two documents.
All of these documents are ultimately confusing for the
consumer. You simply can't compare one document to another
without a map. It is so confusing, HUD literally has created a
map between the two documents. How is that simplification? Real
simplification would look at all of the documents and harmonize
them so they can work together. Incredibly, this HUD RESPA
proposal would make actual forms less similar. This is exactly
what consumers do not need. If you have purchased a home, you
have some idea how the closing process works. Does anybody
really believe that the way to fix the closing mess is to make
a closing longer and to give more paper to consumers?
What HUD has proposed would take what should be a one page
form and turn it into four pages, require a 45-minute script to
be read to the consumer, stretching an already long closing
process with no benefit to the borrower, and continue to have a
series of forms where the lines don't match up and consumers
can't figure out what happens from one part of the process to
the next.
MBA has long supported efforts to make the mortgage process
simpler, clearer, and more transparent for consumers. Common
sense dictates that HUD and the Fed work together. The rules
and forms should be harmonious, work for borrowers, and be
implemented at the same time to avoid confusion and unnecessary
costs for lenders, sellers, and buyers.
In closing, let me say that we all know that the context of
this hearing is the larger situation in the mortgage and
financial markets. As you know, right now the market is
fragile. This is not the time to ask the industry or consumers
to assume costs of regulatory changes unless they are necessary
and well-conceived. We need reform, but we have to make sure we
get the right reform. We are pleased that HUD attempted to make
a very difficult task. They deserve to be commended for their
efforts, but unfortunately HUD's efforts will not give
consumers what they need.
Again, I thank you for the opportunity to appear before
you, and I look forward to answering your questions.
[The prepared statement of Mr. Kittle can be found on page
94 of the appendix]
Chairman Watt. I thank the gentleman for his testimony, and
we will now go to Mr. Anthony Lindsey on behalf of the National
Association of Realtors.
STATEMENT OF T. ANTHONY LINDSEY, CHIEF EXECUTIVE OFFICER,
GLOBECROSSING, LLC, ON BEHALF OF THE NATIONAL ASSOCIATION OF
REALTORS (NAR)
Mr. Lindsey. Good morning, Chairman Watt, Ranking Member
Miller, and members of the subcommittee.
Thank you for holding this hearing and for giving me the
opportunity to share the concerns of the National Association
of Realtors and its 1.2 million members with the proposed rule
to reform the Real Estate Settlement Procedures Act, known as
RESPA. Again, my name is T. Anthony Lindsey. I am the founder
and chief executive officer of GlobeCrossing Realty in
Charlotte, North Carolina. I currently serve as a director on
the board of the North Carolina Association of Realtors and a
director on the board of governors for the Real Estate and
Building Industry Coalition, which serves the metro region of
Charlotte, North Carolina. In addition, I owned and operated a
regional residential mortgage brokerage for 6 years.
Reform of RESPA is critically important to NAR members
simply because it affects almost every home purchase. Since
many consumers look to the real estate professional to help
them understand the home buying process, the consumer turns to
us when they have questions. We clearly recognize the need to
reform RESPA and make the process easier to understand.
However, we believe that HUD's current RESPA reform
proposal falls short of this stated goal. Specifically, we
believe that the new good faith estimate and anti-competitive
aspects of the rule need further revision. NAR believes the new
rule does not simplify the transaction or provide full
disclosure. In fact, it will most likely cause confusion,
reduce the incentive to shop, and likely raise prices for
settlement services in the long run. For example, going from a
two page GFE to a four page GFE does not achieve simplification
in our view.
The new good faith estimate should mirror the HUD-1
settlement statement, as was suggested by HUD's own design
consultants. Marrying these two forms would help consumers
understand whether the terms and expenses that were disclosed
to them upon loan application are in fact the same ones
outlined at closing. Despite its longer length, the new GFE
does not include all closing costs, another factor that will
contribute to misunderstanding and probably inhibit shopping.
NAR, along with the Center for Responsible Lending, has
recommended that HUD develop a one page summary GFE for
shopping purposes and a full GFE matched to the HUD-1 statement
that includes all closing costs to help reduce this confusion.
We also believe that HUD and the Federal Reserve should
coordinate their efforts to revise the RESPA disclosure forms
and the Truth in Lending rules as called for by Congress some
12 years ago.
HUD must also consider the anti-competitive consequences of
the good faith estimate. As proposed, the good faith estimate
carries a HUD required price guarantee only for a lender-
provided package of settlement services. As a result, we
believe consumers will be less likely to shop for these
services, especially when it is pointed out to them that a
second GFE would be required if they do shop and there might be
a charge for the second GFE. This point is very important and
one that gets little attention in the RESPA debate. The largest
financial institutions will likely benefit the most from these
new pricing provisions. We anticipate they will use their
market clout and promises of high volume business to force down
prices so they present the lowest cost packages of services and
capture market share.
Now on the face of it, that sounds good, and we support the
goal of lower cost, but we and many others believe that
reduction in prices will only be temporary. In the long run,
closing costs will rise and service quality may diminish as
smaller lenders and local settlement firms are pushed out of
the market.
In conclusion, NAR strongly supports better disclosures of
mortgage terms and settlement services. HUD's RESPA reform
proposal, however, should be reworked to focus on common sense
disclosures while eliminating the volume discount, the closing
script, and--provisions.
Thank you very much, and I will be happy to address any
questions.
[The prepared statement of Mr. Lindsey can be found on page
203 of the appendix.]
Chairman Watt. I thank you very much for your testimony.
Ms. Margot Saunders of the National Consumer Law Center is
recognized for 5 minutes.
STATEMENT OF MARGOT SAUNDERS, COUNSEL, NATIONAL CONSUMER LAW
CENTER (NCLC)
Ms. Saunders. Thank you, Chairman Watt, Mr. Miller, and
members of the subcommittee. We appreciate the opportunity to
speak today on behalf of low-income consumers.
The National Consumer Law Center works with lawyers all
over the country, legal services, and private lawyers who try
to help clients to prevent them from losing their homes. I see
hundreds of mortgages every year, and there is no doubt that
the current system is broken. RESPA does need reform. We think
that HUD's latest proposal is a good way down the road towards
positive reform of RESPA. We agree with the members of this
panel, however, that more work needs to be done. We hope that
the current effort is not suspended, but instead that HUD
continues to improve the regulations, as recommended, and then
finalize them. In our lengthy comments to HUD as well as our
testimony we have provided comprehensive responses to all of
the myriad of issues that HUD raises.
In the few minutes that I have today I want to focus on
just two of those issues. One, the necessity to include the
APR, the annual percentage rate, rather than the interest rate
in the good faith estimate, and two, the dangers of the
proposal on yield spread premiums.
HUD is appropriately focused on reducing costs for
consumers and facilitating shopping. The APR in the mortgage
market is a necessity to achieve those goals. It is the only
shopping metric that allows consumers to equate all fees, all
potential interest rates, over the full term of the loan. We
know from research that most consumers do use the APR when they
are shopping for mortgages. Interest rates, while reflecting
the largest cost of credit, do not reflect other important
aspects of credit.
In recent years, the marking of dangerous payment option
ARMs reveals the problem with relying too much on interest
rates. The payment option ARMs are typically advertised, for
example, as a 2 percent fixed rate, even though the rate may be
fixed for no more than a day or a month. The APR, while it does
not entirely reflect the upwards adjustment in the interest, at
least reduces the distortion by requiring that the rate be
disclosed as a composite rate over the term of the loan.
Consumers cannot do the math to determine which of two loans is
cheaper given different rates, different fees, and different
terms. The APR solves that problem and permits consumers to
shop intelligently and efficiently.
Yield spread premiums must be substantively regulated.
Lender-paid broker compensation, as HUD describes, leads to
higher settlement costs and higher interest costs. Generally,
borrowers receive little if any benefit from lender-paid broker
compensation. Worse, lender-paid broker compensation appears to
drive racially disparate pricing. Only where the fees are
either all in or all out of the rate are consumers able to shop
successfully for the cheapest loan.
When consumers can compare loans with the fees all in or
all out, they are comparing a limited number of variables. On
the one hand is a loan with a particular rate and all fees
required to be paid by the borrower either in cash or out of
the home equity of their loan. On the other hand is the same
loan with all of the fees paid by the lender but from the
interest rate, no additional cash or equity is required. This
is a no-cost loan.
There are multiple benefits for no-cost loans, including
the retention of precious cash and equity, as well as the
lesser known finding that no-cost loans result in significant
reduction of all closing costs. However, the key to achieving
this reduction is that the lender has to pay all the fees;
there cannot be a mix. The use of the combination of payments
has the opposite effect and the studies routinely find that the
combinations of payments result in a higher total of closing
costs.
Most disclosures of lender-paid broker compensations are
likely to confuse consumers because the trade-offs are so
complex and because borrowers are led to believe erroneously
that brokers are acting as their agents. We share HUD's
concerns that a separate agreement is likely to confuse
borrowers. We agree that the impact of any permissible yield
spread premium must be clearly disclosed on the GFE. However,
HUD's use of the term ``credit'' to describe lender-paid broker
compensation in the absence of substantive regulation that
limits total fees is terribly misleading.
The key point is that disclosure of a loan is not
sufficient. Yield spread premiums should be prohibited unless
all other fees are folded into the interest rate and no
discount points are charged. Additionally, no other lender-paid
broker compensation should be permitted if the borrower is
making any direct payments to the broker.
Thank you. I will be happy to answer any questions.
[The prepared statement of Ms. Saunders can be found on
page 233 of the appendix.]
Chairman Watt. Thank you so much for your testimony.
Ms. Rebecca Borne, on behalf of the Center for Responsible
Lending, is recognized for 5 minutes.
STATEMENT OF REBECCA BORNE, POLICY COUNSEL, CENTER FOR
RESPONSIBLE LENDING
Ms. Borne. Good morning, Chairman Watt, Ranking Member
Miller, and members of the subcommittee. Thank you for inviting
me to testify today about RESPA. I am policy counsel at the
Center for Responsible Lending, a not-for-profit nonpartisan
research and policy organization dedicated to protecting
homeownership and family wealth. We are an affiliate of Self-
Help, a lender that makes responsible fixed-rate mortgage loans
to people with blemished or nontraditional credit. We first
wish to congratulate HUD for its efforts to improve RESPA.
Confusing and misleading information has contributed to this
foreclosure crisis.
However, we cannot overemphasize that poor disclosure has
not been the driver of this crisis and that improving
disclosure will not prevent future predatory lending. This
crisis was primarily caused by lenders and brokers selling
unsustainable loans, largely in response to secondary market
demand. Only substantive laws will prevent predatory practices,
realign incentives, and ultimately restore health to the
mortgage market. HUD, through RESPA, has the authority to
eliminate one of the key culprits of the subprime crisis,
abusive yield spread premiums.
In designing RESPA, Congress adopted not only disclosure
provisions, but also substantive ones aimed to prevent anti-
competitive conduct that makes mortgages unnecessarily more
expensive. As has already been noted today, yield spread
premiums, or YSPs, are payments from lenders to brokers in
exchange for the broker selling the borrower a loan with a
higher interest rate than the borrower qualifies for. RESPA has
long prohibited payments for simply delivering a loan with a
higher interest rate, calling these kickbacks. HUD has said,
though, that since consumers can use YSPs to buy down upfront
origination costs, they deliver value and are not prohibited.
But in reality, particularly in the subprime market, this
tradeoff of rate and upfront costs rarely, if ever, occurred.
Consumers unknowingly paid YSPs and earned no corresponding
reduction in upfront costs. The single most effective action
HUD could take to protect consumers through RESPA is to refine
its policy position to allow YSPs only when they result in a
corresponding reduction in upfront costs. This would help
reform the subprime market without significantly impacting the
prime market.
In its proposed rule, HUD attempted to address YSPs through
its origination cost disclosure on the good faith estimate.
However, the disclosure will not ensure a price tradeoff
between YSPs and upfront costs. This shortcoming does not
represent a failure on the part of the disclosure as much as it
reflects the impossibility of ensuring a price tradeoff without
substantive reform. If we are going to try to rely on
disclosure alone, the proposed disclosure should be much
improved.
We understand that in designing the disclosure, HUD
attempted to treat lenders and brokers evenhandedly. However,
we don't think HUD should do so at the expense of a more
comprehensible disclosure that better alerts consumers to the
risky nature of YSPs, especially considering that our most
recent research shows that borrowers pay significantly more for
subprime loans originated by independent brokers versus retail
lenders. HUD's own recent study of FHA loans was consistent
with our findings. Our testimony and our comments to HUD on the
proposed rule include several specific recommended improvements
to the origination cost disclosure.
With respect to GFE provisions more generally, HUD and the
Federal Reserve should coordinate to develop one integrated
disclosure form. Short of this, we have made several
recommendations for how HUD should improve its GFE so that it
better alerts consumers to the riskiest features of their
loans. Critically, HUD should require that terms be binding for
30 days instead of 10, and it must provide an interest rate
lock of at least 10 days to prevent common bait and switch
tactics.
Finally, we strongly support HUD's request that Congress
enhance RESPA's civil penalties and equitable relief. We
further request that Congress add a private right of action for
all elements of RESPA, especially the GFE and the HUD-1. The
lack of a private right of action has meant that abuse often
carries no consequences, in which case even the most perfectly
designed disclosure will not help consumers. Thank you again
for this opportunity to testify today, and I look forward to
your questions.
[The prepared statement of Ms. Borne can be found on page
49 of the appendix.]
Chairman Watt. Thank you for your testimony, Ms. Borne.
Mr. Gary Kermott, president of the American Land Title
Association, is recognized for 5 minutes.
STATEMENT OF GARY KERMOTT, PRESIDENT, AMERICAN LAND TITLE
ASSOCIATION (ALTA)
Mr. Kermott. Thank you, Chairman Watt, Ranking Member
Miller, and members of the subcommittee. Thank you for the
opportunity to testify on HUD's proposal to amend RESPA. I
would also like to thank Representatives Hinojosa and Biggert
and all the members who signed the Dear Colleague letter that
was sent to HUD.
As the 2008 president of the American Land Title
Association, I am speaking on behalf of our 3,000 title
insurance companies, agents, abstractors, escrow officers, and
attorneys who search, examine, insure land titles, and perform
real estate closings. A majority of our members are small
businesses with fewer than 20 employees.
As we are all painfully aware, the real estate market is
experiencing a downturn of historic proportions. The recent
Federal takeover of Fannie Mae and Freddie Mac, and the
bankruptcy filing yesterday of Lehman Brothers are just the
latest examples of the severe stress in the housing and
financial markets. Although we all agree with the goal of
increasing transparency and simplifying the transactions, HUD's
rule does not do so. It would add increased new regulatory
burdens on the industry and confusing, lengthy disclosures to
homebuyers. In the current environment, it would make things
worse.
My remarks today will focus on four areas of the rule that
would be most harmful for our members and homebuyers. First,
the closing script. The closing script should be eliminated
from the rule. Why? First of all, it is too late at the closing
for a homebuyer to change the terms of the loan. In some cases,
the moving van is parked outside. Second, the settlement agent
doesn't have the information or knowledge to answer questions
raised by the closing script. Third, the increased costs for
longer closings will fall on the homebuyers. And finally, in
some States, it would violate unauthorized practice of law
statutes. Another point that HUD fails to recognize is that
over 50 percent of closings occur at the end of the month. The
increased time to draft, read, and explain the closing script
will harm smaller settlement companies because they lack the
resources to add personnel and physical space to accommodate
these extended closings.
Second, title and closing fee disclosures. The disclosure
of title and closing fees on the proposed forms is misleading
and will discourage shopping by homebuyers for the services
that are in their best interests. Why? Because the new GFE only
discloses an aggregate figure for a range of services. That
makes it more difficult for the consumer to shop for individual
services at a lower price. They won't know what is in the so-
called package. Similarly, by lumping together so many
different charges into the category of primary title services
on the new HUD-1, the buyer and seller will not know how their
funds were actually dispersed and to which providers. This
defeats a primary purpose of the HUD-1 as a record of the
transaction. This will also hide what fees the seller may have
negotiated or be required to pay under State law, practice, or
contract. Title and closing fees should all be itemized on both
the GFE and the HUD-1 to encourage shopping.
Third, volume discounts and tolerances. As proposed by HUD,
the allowance of volume discounts will be impractical, anti-
competitive, and will harm small title insurance companies,
small banks, mortgage brokers, appraisers, and other small
settlement businesses. It is in fact a disguised form of
packaging that was uniformly rejected in 2002. The largest
companies have the resources to either favor their own
affiliated companies or to create a network of preferred
providers that can offer services at or below cost. This will
push small independent providers out of business, resulting
over time in less competition and higher prices. Our members do
not believe that HUD should dictate such changes. The tolerance
provisions will inhibit shopping. The message from the lender
to the borrower will be, ``Go with my recommendations, you will
get a better deal.'' Yet there is no guarantee that these
recommended service providers are the least expensive or the
best. Again, this will discourage shopping.
Finally, the proposed forms are confusing. They create more
problems for the homebuyer than they solve. They are very
confusing. For example, as has been mentioned by my panel
colleagues, the proposed GFE would differ from TILA in its
treatment of interest rates. Also, by characterizing the yield
spread premium as a credit to homebuyers will be very, very
confusing.
In conclusion, ALTA recommends that HUD limit its efforts
to simplifying only the GFE and the HUD-1 so that comparisons
can be easily made between the documents. ALTA, along with the
National Association of Realtors and the Center for Responsible
Lending have worked together to develop new GFE and HUD-1 forms
that are clearer and more transparent than both the existing
and the proposed HUD forms. This would be a huge improvement
for homebuyers without imposing an extraordinary cost on our
small business members.
Thank you.
[The prepared statement of Mr. Kermott can be found on page
66 of the appendix.]
Chairman Watt. Thank you for your testimony. I will try to
get it right this time. Ms. Debra Still, president and chief
operating officer of Pulte Mortgage LLC, on behalf of the
National Association of Homebuilders, you are recognized for 5
minutes.
STATEMENT OF DEBRA STILL, PRESIDENT AND CHIEF OPERATING
OFFICER, PULTE MORTGAGE LLC, ON BEHALF OF THE NATIONAL
ASSOCIATION OF HOMEBUILDERS (NAHB)
Ms. Still. Thank you very much. Chairman Watt, Ranking
Member Miller, and members of the subcommittee, on behalf of
the 235,000 members of the National Association of
Homebuilders, thank you for holding this hearing and for the
opportunity to share our concerns regarding HUD's proposed
RESPA changes.
My name is Debra Still. I am president and CEO of Pulte
Mortgage, a subsidiary of Pulte Homes, one of the Nation's
largest homebuilders with operations in 26 States. My comments
today focus on HUD's proposed definition of required use, which
would prohibit a homebuilder from offering incentives in
exchange for a buyer's use of the affiliated mortgage or title
company. Our position is that HUD's proposed definition would
have an immediate negative impact on the efficient operations
of homebuilders and the majority of consumers buying new homes
and that HUD has not established a sound rationale for this
change.
Most homebuyers need a loan to buy a home and this
financing is a critical part of the home buying process.
Homebuilders create affiliates to ensure that the financing is
ready when the home is complete and to enhance the customer's
overall home buying experience. Any home that fails to close on
time hurts the builder in the form of financial and
reputational costs and creates a hardship for the buyer. With
aligned processes, affiliates consistently outperform outside
lenders in executing timely closings because outside firms are
simply not prepared to deal with the complexities of new
construction lending which can and do include frequent last
minute construction change orders. In addition, an affiliate is
committed to the high value a builder places on customer
satisfaction because the builder relies on its customers for
repeat and referral business.
According to a recent study by J.D. Power and Associates,
also cited in HUD's regulatory impact analysis, the majority of
borrowers surveyed who financed through a builder affiliate
were more satisfied with the financing experience and chose the
builder affiliate because its interest rates were competitive
and the entire buying process was easier. Moreover, customer
service from an affiliate means more accurate moving costs,
estimates, and the certainty that the borrowers understand
their loan programs. Customer service is a long term view for
an affiliate because they focus, along with the builder, on
creating communities and enhancing the builder's brand. We
don't just do one-off transactions. Contrary to HUD's view,
timely closings and extraordinary customer service are the
primary business value affiliates provide to homebuilders,
benefits to the consumer that far outweigh the income the
builders receive from the affiliate ownership.
Affiliate relationships have facilitated home purchases for
upwards of millions of consumers over the last several decades.
In the market conditions of the past year, as mortgage
financing has become unstable and uncertain, affiliate
relationships have assumed an even greater importance. Many
homebuilders can document hundreds of sales originally
scheduled for outside lender financing that have fallen through
and were subsequently saved by the builder-affiliated mortgage
and title company. Now more than ever, reliable service,
accurate forecasting, and competitive pricing offered by
affiliates are needed by homebuilders and their buyers.
In truth, affiliates allow builders to manage the business
of building and selling homes with greater efficiency, the
benefits of which translate into value for the buyer. HUD's
proposal fails to account for the savings builders realize
through affiliated businesses, which are then passed on to the
consumers in its incentives. Contrary to HUD's assertion,
homebuilders do not increase the selling prices of homes to
offset these incentives. The competitiveness of the marketplace
does not allow it.
Beyond the negative impact to builders and homebuyers, we
do not believe HUD has established a sound rationale for
changing the definition of required use. HUD supports its
proposal entirely based on anecdotal, incomplete, and
unsubstantiated examples which have been advanced by previously
outspoken competitors of affiliated businesses. The problems
cited by HUD appear to be violations under the current RESPA
regulations and should be addressed as such, but they do not
make a case for change.
Furthermore, HUD has provided no empirical studies or
statistics substantiating its position that consumers are
harmed by the use of builder affiliate service providers. We
suggest that in developing this proposal, HUD's research does
not conform to the data quality requirements imposed in all
Federal rulemaking.
In closing, I will reemphasize that prohibiting affiliated
incentives would ultimately increase home purchase costs,
undermining critical financing support to the consumer at this
time of unprecedented turmoil in our industry. As further
detailed in my written statement, NAHB has offered an
alternative definition of required use which, if adopted, would
continue to permit homebuilders to offer bona fide and
reasonable incentives in exchange for buyer's use of affiliated
companies.
Mr. Chairman, thank you for this opportunity to share our
views and those of the National Association of Homebuilders. I
would welcome any questions.
[The prepared statement of Ms. Still can be found on page
285 of the appendix.]
Chairman Watt. Thank you so much for your testimony.
Mr. David Stevens, president, affiliated business, Long and
Foster Companies on behalf of Real Estate Service Providers
Council, RESPRO, is recognized for 5 minutes.
STATEMENT OF DAVID STEVENS, PRESIDENT, AFFILIATED BUSINESSES,
LONG AND FOSTER COMPANIES, ON BEHALF OF REAL ESTATE SERVICES
PROVIDERS COUNCIL (RESPRO)
Mr. Stevens. Thank you. Good morning, Chairman Watt,
Ranking Member Miller, and members of the subcommittee. Thank
you for the opportunity to speak here today.
Long and Foster Companies is the third largest residential
real estate brokerage firm in the Nation with over 200
residential real estate brokerage offices in the 8-State mid-
Atlantic region. We offer a full array of mortgage, title, and
insurance services through a combination of either wholly-owned
or partly-owned businesses.
Today I am representing RESPRO, a national nonprofit
association of over 200 companies who promote diversified
services for homebuyers, often called one-stop shopping. I
share the concerns my fellow witnesses have expressed today in
their testimony over the potential impact of HUD's RESPRO rule
on these individual industries. I am here today, however, to
address the particular impact that the required use provision
of the proposed rule will have on diversified real estate
brokerage firms and our customers.
The majority of the Nation's 500 largest real estate
brokerage firms offer mortgage, title, or closing services.
According to a 2008 survey of homebuyers by Harris Interactive,
45 percent of homebuyers chose a one-stop shopping service in
2008 compared to 2002. In today's challenging housing market,
which has seen the failure of numerous mortgage and title firms
that can threaten prompt and efficient closings, diversified
real estate brokerage firms are increasingly using our
affiliated companies to enable our real estate customers to
close on time. Because we own companies needed to close the
home purchase transaction, we are better able to resolve any
service issues that arise more efficiently than we could with
independent companies.
RESPA prohibits requiring the use of an affiliated
provider. HUD has long allowed voluntary incentives to
consumers who purchase affiliated services as long as the
services are separately available and as long as the incentive
is not offset by increased prices of other services in the
transaction. Because diversified real estate brokerage firms
can ensure more prompt and efficient closing through our
affiliated companies, we commonly offer voluntary positive
incentives to consumers who use our affiliated services under
this longstanding RESPA exemption.
For example, we offered our real estate customers who
purchased a mortgage through our affiliated mortgage company,
Prosperity Mortgage, a half percentage reduction in their
mortgage over the first year, which using a rate of 6 percent
saved them $762 on a $200,000 mortgage. The program was
voluntary, and if it wasn't used, the homebuyer paid no more.
But if it was used, the customers would have received
substantial savings, and we would be better able to ensure that
they get to closing on time.
I have described many other examples of consumer incentives
used in our industry in my written statement. These voluntary
consumer incentives have been well-received by consumers. In
fact, Harris Interactive found in its 2008 survey that I
referred to earlier that 77 percent of homebuyers consider the
biggest advantage of using one-stop shopping programs is saving
money through discounted prices. Unfortunately, HUD has
proposed in its RESPA rule to prohibit companies from offering
these consumer incentives that lower cost and enable prompt and
efficient closings. HUD has provided no indication that it has
analyzed the types of consumer incentive programs being offered
throughout the industry today that provide consumers tangible
savings and better service.
Mr. Chairman and members of the subcommittee, HUD's
proposed ban on voluntary consumer incentives is another
example of how HUD's proposed RESPA rule would increase costs
and result in poorer service for homebuyers. The rule was not
well-conceived as a whole. Given the breadth of HUD's proposed
RESPA rule, and its potential impact on today's fragile housing
market, we believe that HUD should withdraw its RESPA
regulation and work with the Federal Reserve Board to develop
uniform mortgage disclosures that would truly accomplish its
goals in rulemaking.
Thank you for the opportunity to testify, and I would be
glad to answer any questions.
[The prepared statement of Mr. Stevens can be found on page
277 of the appendix.]
Chairman Watt. Thank you for your testimony. I thank all of
the witnesses for their testimony and for being very timely.
Almost everybody came in right at the 5-minute limit, or under
the 5-minute limit in some cases, and we appreciate that.
We welcome Mr. Royce, who is a member of the subcommittee,
Mr. Perlmutter, who is a member of the subcommittee, and Mr.
Hinojosa, who is not a member of the subcommittee--
Mrs. Biggert. Mr. Chairman, may I just correct something
that I said about the letter?
Chairman Watt. The gentlelady is recognized.
Mrs. Biggert. Thank you. The letter that I referred to that
was being sent to OMB from me, Representative Hinojosa, and
others has not been sent yet. It will be very soon. I had said
that it had been sent yesterday, and I did not want people to
think that they did not receive it.
Chairman Watt. We will make that clarification and modify
the unanimous consent request to insert into the record the
final letter when it is sent, because the record will still be
open at that point.
I welcome Mr. Hinojosa, who is not on the subcommittee, and
I would ask unanimous consent at this point that Mrs. Biggert
and Mr. Hinojosa, who are not members of the subcommittee, be
allowed to engage in the questioning of witnesses at the end of
the subcommittee members' questions. Without objection, it is
so ordered. Both of them have a very, very strong interest in
this issue. In fact, they both led the letter that was sent to
HUD originally and obviously are leading a subsequent letter
that is going to OMB now, so they have strong feelings about
this and strong knowledge about it also.
We thank the witnesses for being here and for covering a
wide range of issues related to the proposed rule. There are
some differences of opinion within the panel. I thought it
would be just a consistent flogging of HUD, but we may have
some interesting interchanges within the panel also.
I am going to now recognize members of the subcommittee,
and subsequently members who are not on the subcommittee but
are members of the full committee, to ask questions, each for 5
minutes. And I will defer my questions to the very end to allow
other members to go in case they need to leave. I will start
with Mr. Lynch. He is recognized for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman, and Ranking Member
Miller. I appreciate the testimony that has been offered this
morning. Let me just say at the outset that I share much of
your concern regarding the HUD proposed rule.
However, with that being said, I do want to caution--a
number of you this morning have talked about the cost of
regulation, and I just want to remind you of the cost of no
regulation. As we know, much of this subprime mortgage crisis
came out of a process that was completely unregulated with
respect to mortgage brokers. The no-document loans, the no-
document mortgages, the liar loans, the liar mortgages, all of
that went out the door without substantial regulation as
compared to banks, and I think there was an outsized
representation of those bad mortgages originated by mortgage
brokers as opposed to banks that were more heavily regulated
and overseen.
I am not saying there was no regulation, I am just saying
there was less regulation of our mortgage brokers. So when I
hear that we don't need additional regulation of the mortgage
brokerage industry, it is sort of like the captain of the
Titanic saying we don't need more lifeboats, and making the
statement from the deck of the Titanic, because we are
obviously having a very difficult time.
I thought, Mr. Kermott, your observation that you--you are
trying to correct these weaknesses at the closing, it is a bit
too late. I have been the victim of enough closings, I should
say, to know that there is only so much you can accomplish on
that day, at that moment. You have eight people at the table,
and seven of them are being paid only if the closing goes
through, so it is a very difficult situation to try to catch
the runaway horse at that point. I agree with that very
succinct observation.
However, given the fix that we are in--and I understand
that the HUD proposal has many weaknesses in it, and I
understand that there is a disparity between where HUD is going
and where the Fed has gone with respect to the Truth in Lending
Act, and it is almost apples and oranges when you look at the
two proposals and the two approaches by both of those agencies.
I am going to ask Mr. Savitt and Mr. Kittle to have a first
whack at this since I have mentioned them in my opening
remarks. Do you think we should try to reconcile the approaches
by HUD and by the Fed with respect to the Truth in Lending
language, or do you think that we should start from scratch on
both and try to, rather than harmonize the two existing
proposals, just go back to square one and try this all over
again?
Mr. Savitt. Mr. Lynch, first I want to, if you don't mind,
I would like to address one of the comments that you made
about--
Mr. Lynch. I expect that.
Mr. Savitt. Okay, about the subprime. First of all,
mortgage brokers are regulated in every State in this country
and the District of Columbia. As a matter of fact, in some
cases we are more regulated than other originators, loan
officers who work in banks, for example. But most importantly,
dealing with the subprime issue, mortgage brokers did not
develop the loan products. They did not develop subprime
products.
Mr. Lynch. Fair enough.
Mr. Savitt. We didn't set the guidelines, we don't
underwrite, and we don't originate those loans. We sold the
loans that were created by others. So I think to characterize
mortgage brokers as the ones that caused the problem with
subprime loans, I think, is a little--
Mr. Lynch. I think I conceded in my opening statement, I
said I realize that a lot of the weaknesses and frailties are
in the underwriting process. However--and again, there is
involvement by the broker, there is involvement by the rating
agency that gave it a triple A rating, there were failings all
along the line. I am just trying to give you your share.
Mr. Savitt. I appreciate it. Plus there was a--
[Laughter]
Mr. Savitt. We have taken more than our share, trust me.
Mr. Lynch. Probably.
Mr. Savitt. There was a GAO study that was commissioned by
Chairman Frank and Ranking Member Spencer Bachus, and the
purpose of that study was to show what happened with the
mortgage meltdown, with the housing crisis in this country, and
particularly if mortgage brokers were the culprits, and
mortgage brokers were vindicated within that study. One other
study by Georgetown University showed that by using a mortgage
broker for a subprime loan, a consumer would save on average
1.13 percent on their annual percentage rate. So I thought it
was important to bring that up.
But as far as your question about HUD and the Fed, I think
it is important that they do harmonize. I think that would
solve a lot of the problems.
Mr. Lynch. Okay. Thank you, sir. Mr. Kittle?
Mr. Kittle. Mr. Lynch, thanks for the question. May I also
open with just a quick comment?
Mr. Lynch. Oh, absolutely.
Mr. Kittle. Okay. I am sure you expect it.
Mr. Lynch. Yes, sir.
Mr. Kittle. It is not, and we will defend this statement
and can, it is not necessarily the products that caused the
problem. They were just made to the wrong people, because 85
percent of those products are still paying on time at the end
of the day. So I just want to make that point clear, that the
cause for foreclosure--and we are not here talking about that,
but we are talking about the issues--the three top causes are
unemployment, divorce, and healthcare. They weren't the
products themselves.
But to answer your question, we do think that it is time
for the Fed and HUD to sit down together. HUD mentions through
its own--it states through its own actions, the documents that
I held up during my 5-minute testimony, that it is so confusing
that they have to make a map to explain to the consumer. So
this is onerous, it is over the top.
I am going on my 31st year in this business, and when I got
in the business back in the 1970's, I had to disclose Truth in
Lending and calculate it at the application by hand. I didn't
have computers, we didn't have PDFs and cell phones, we had to
calculate it out.
Part of the issue is the education process. We put
information in the computer and it spits our forms out. The
people taking the loan applications need to be educated on the
forms they are giving to the consumer, so we advocate not only
for pulling this RESPA law, but advocate also for education of
the people who are taking the loan applications.
Mr. Lynch. Mr. Chairman, I yield back.
Chairman Watt. I thank the gentleman. Ranking Member Miller
is recognized for 5 minutes.
Mr. Miller. Thank you. I took the cost of regulation a
little differently than my good friend Mr. Lynch did. I took
you meaning the cost of inconsistent regulation, was what I
took in your statements. And I agree, the cost of inconsistent
regulation can have a very negative impact on the marketplace.
Mr. Lindsey, you had said the small lenders would be pushed
out of the marketplace based on this regulation. Can you
further elaborate on that, please?
Mr. Lindsey. Thank you, Ranking Member Miller. The concern
that we have is that the way that the regulation is proposed
right now, it would offer an opportunity for the larger lenders
to put forth a package of guaranteed services and that would in
fact allow them to use their market clout to press down the
prices, which ultimately would lead to smaller lenders or
smaller service providers being anti-competitive, and perhaps
even having to cut back on the services that they provide in
order to meet those prices that would be required for them to
be included in these packages. So if they are not included in
the package, they have lesser opportunity to present themselves
to the marketplace, and invariably, they would probably be
pushed out of the market.
Mr. Miller. Thank you. Ms. Still, you said there would be
an immediate negative impact on the marketplace. Could you
further elaborate on that?
Ms. Still. Well, certainly a negative impact on the
efficient operations of the homebuilders, and definitely a
negative impact on the consumer. If you look at the value of
the incentive, that which is offered by the builder and is a
reflection of the builder's benefits, we take the economic
value, certainly, away from the consumer. We would also take
away from the consumer the ability, if you will, to understand
the value that a builder affiliate brings in its years of
expertise in a new construction environment. New construction
lending is different than lending in an existing environment.
We would not be able to appropriately demonstrate to the
consumer the efficiencies that we could create through the
coordination of affiliates, the commitment to customer
satisfaction, and the long-term view.
We do not believe as mortgage affiliates we do
transactions. We build communities, we want our communities to
perform, we want our communities to perform 1 year, 2 years, or
3 years down the road. We sell lifestyle. So we take great care
in making sure that our buyers understand the loan programs
that they are choosing, make sure they understand their total
move in cost estimates, and make sure there are no surprises at
the closing table.
Mr. Miller. It seems to be a common complaint that you hear
among people who are buying, that they were given an estimate,
and when the closing process occurs, all of a sudden things
start to pop up. I know HUD has tried to deal with that through
their proposal.
Somebody very close to me, it happened to them where they
got the good faith estimate and they had a lock-in date on
their rates, so they had 3 days to close or they were going to
lose their rate, and all of a sudden some points and fees start
to appear that they weren't expecting, which they really can't
do. HUD tried to fix it.
If you don't agree with the rule, how would you think that
could be better handled? Yes, Mr. Kittle.
Mr. Kittle. Well we have proposed to HUD a very simple GFE
and a new HUD-1. They have had it for almost a year.
Mr. Miller. It is the same as basically the upfront good
faith estimate?
Mr. Kittle. Right, but the difference is that all the lines
match. I mean, that isn't real rocket science. You can't have
predatory lending until you lend, which is what you are saying.
So when a consumer goes to closing, whether it is a first-time
homebuyer or somebody who has bought 20 houses, elderly,
minority, if all the lines match, then you can't change fees
and points, and if you do at that point, the customer always
has the right to back away from the table.
Mr. Miller. And to clarify, you are not arguing against
regulation, you want consistent regulation is the biggest
concern I heard from all of you when we--
Mr. Kittle. Well let me go to Debra Still's point in her
testimony, which was a great point and we all need to take it
away today, is that there is a lot of regulation on the books
right now, a lot of laws, and they are not being enforced by
HUD. Maybe we should enforce what is there. Regulation is great
as long as it is not onerous and it doesn't add cost to the
consumer.
Mr. Miller. And everybody understands what it is.
Mr. Kittle. Everybody understands it; it is clear and
transparent.
Mr. Miller. Now the Federal Reserve Board's comments on the
proposed RESPA rule discuss how HUD and the Fed should
harmonize TILA and RESPA, the disclosure. They discuss how the
different disclosures are duplicative and inconsistent. Would
you agree with these comments and how would you ensure
consumers receive disclosure in a competent printed manner, and
how would consumers react to multiple disclosures? Whomever
would like to answer that one. It is a three-part question, so
take any part. Yes, Mr. Savitt.
Mr. Savitt. Mr. Miller, as we know, in addition to the Fed,
the Federal Trade Commission has also weighed in on this with
two studies from 2004 and 2007. The 2007 study was even more
extensive than 2004, and it talked about these different types
of disclosures, that they were too complicated, there were too
many of them, and that we needed to simplify this process for
the consumer, and they even came up with some other type of--in
addition to the Fed having some ideas of how to disclose, the
Federal Trade Commission also came at it with their own form.
So I think what we really need to have here is the Federal
Trade Commission, the Fed, and HUD sit down, and I know it
would be unprecedented, but if the three of them would sit down
and harmonize their forms together--and I know we are adding
one more into the mix here with the FTC--but I think if we did
that and we listened to the one agency that is charged with
protecting the consumer, that being the FTC, I think we would
have the right forms for the consumer--there probably would be
less forms--but the right forms for the consumer that would
make it easier for them to understand the transaction, thereby
avoiding problems when they got to closing.
Mr. Miller. I agree with that.
HUD is proposing to address this in a booklet form. Do you
think people are really going to take the time to review the
booklet to try to comprehend inconsistent loan terms? Yes, Ms.
Still.
Ms. Still. Yes, I might mention, using an example from my
company, we conduct a disclosure conference call one week after
loan application, and it is to provide the customer in assisted
fashion to go through all of the disclosures that they have to
sign even today. And as an independent mortgage bank with State
disclosures as well as Federal disclosures, today it is a 45-
minute phone call. On average it takes 45 minutes to make sure
that the borrower truly understands the initial Truth in
Lending Disclosure, the good faith estimate, and all of the
State disclosures. We have to have a comprehensive approach for
Federal disclosures, or that call is just going to get longer.
Mr. Miller. Mr. Stevens?
Mr. Stevens. It is interesting, and you referred to Mr.
Miller in having recently had a friend who closed a mortgage
and the surprises at the settlement table or prior to that with
things changing.
Between the deed of trust and the promissory note, all the
disclosures, I really question today how deep a consumer goes
into each one of those documents. We provide every consumer a
glossary of terms, which is actually prepared by HUD, that we
present to our consumers so they understand what kind of
mortgage product they are getting. The challenge that we see,
if you go through the actual good faith estimate document, I
can't see anything that will confuse a consumer more than this
new document that would be added to the additional documents
they get already.
So while we all agree that we need to come up with better
ways to disclose mortgage products, particularly option ARMs
and the kind of things that caused so much trouble over the
last 24 months particularly, this will just do nothing more but
confuse. As a matter of fact, I don't even think it explains
the ARM very well in the questions it asks, and I think
consumers will walk away just with more confusion.
Mr. Miller. Well I want to thank you all for your comments.
They have been very productive, and I appreciate it very much.
Chairman Watt. I thank the gentleman for his questions. Mr.
Perlmutter is recognized for 5 minutes.
Mr. Perlmutter. Thank you, Mr. Chairman, and thank you, Mr.
Miller, for convening this panel. And I just want to thank the
panel members here because all of you know your stuff. We have
sort of been on the downside of the market and everybody is in
kind of emergency mode here, but I just appreciate this.
I want to tell you the framework I am coming from. First,
with respect to RESPA, we are dealing with the biggest
transaction in most people's lives, and that is the purchase of
a home, so we start there. Now how we got to this panel today,
I would say, there was a lot of money chasing a lot of
transactions, a lot of loans. And so as time went on, the
products got riskier because the borrowers became less
creditworthy, in my opinion, just having been sitting up here
for a long time and listening to these kinds of things.
Mr. Stevens, and here is really the dilemma I have and that
all of you have, and that is convenience versus sort of
confidence or, potentially, confusion. But convenience in the
transaction versus confidence in the price of a different--
other than just the purchase price, but the price of all the
ancillary services. Or I think it maybe was you, Ms. Borne, who
said this, but it is comprehensive versus comprehensible. The
more comprehensive it is given the myriad of products that we
have now, the more incomprehensible this form is going to be,
or the least useful the form is going to be.
There are a lot of things up in the air, so let's get back
to basics. What is the purpose of the good faith estimate?
Let's start with you, Mr. Kittle, you have been through the
wars on this thing. What is the purpose?
Mr. Kittle. Well, the purpose is, at the loan application,
to disclose to the customer in good faith that these are the
costs that they are going to incur for the purchase of their
home. And it is called the good faith estimate because those
costs can change under certain circumstances. If the house
doesn't appraise that they are buying, they may have to go back
and re-negotiate the price, therefore it changes. If they,
during the process, decide that they may want to change loan
programs, a whole new disclosure has to be made and then re-
disclosed with a new good faith estimate. So there are
situations when things change. That is why it is an estimate of
cost.
Plus, there are two things on there that we don't know for
sure at the loan application. That is when the loan is going to
close, so we have to estimate the amount of daily interest they
pay to closing date to the first of the next month, and the
estimated property taxes. The title search hasn't been done
yet, we have to make sure that those things are accurate. So
many of the costs on GFE are exactly what we know. There are
some that can change.
So when we go to closing we need a HUD-1 settlement
statement that matches up line for line. Each one of these
lines are numbered. Why can't they, why shouldn't they match
up? And that is a rhetorical question. So when the customer
goes to closing, they can say ``Oh, you said it was going to be
$300 for an appraisal, why is it $375?'' Or, ``You said my
interest rate was `X,' why has it changed?''
Mr. Perlmutter. No, I am with you 100 percent, and these
forms--
Mr. Kittle. But that is why we have a good faith estimate.
Mr. Perlmutter. Some of these forms make it very
complicated for the borrower, but on the other hand, you have
this myriad of products. Now maybe I am living in antiquity,
but I thought RESPA, I thought these forms were the result of a
fear of tying arrangements, of anti-competitive combinations
between the real estate brokerage firm and the mortgage company
and the homebuilder all--
Mr. Kittle. We had a good faith estimate before we had
RESPA laws.
Mr. Perlmutter. But I thought RESPA, which is what--okay,
so you answered as to good faith estimate. Let's talk about
RESPA. Now, with respect to RESPA, which is the intention to
try to modify RESPA a little bit or these good faith forms, how
do we take into effect then this--or should we just get rid of
sort of this fear of tying arrangements?
Mr. Kittle. Now, we just want--and I will finish this and
turn it over to Mr. Savitt--what we are advocating is, one, the
Federal Reserve and HUD to sit down together and work this
thing out. Not only do we need a GFE that is clear that matches
the HUD-1, let's get it all done at the same time and get TILA
reform also. The most confusing form at loan closing and
application is the Truth in Lending, the four blocks across the
top, the APR disclosure. That is the most confusing form. The
one where predatory lending can happen is not the TILA, though,
it is when you get to closing and costs have changed on the
HUD-1 from the good faith estimate. You match lines with
numbers, it makes it harder for it to have predatory lending
and change the fees and costs.
Mr. Perlmutter. And then Mr. Savitt, and then I would like
Mr. Lindsey to talk about--I guess my concern is, do we need to
worry about tying arrangements and any of that in these forms?
From my experience, that was one of the key pieces of it all.
Mr. Savitt. Well, the first thing I would like to say is
that I agree with Mr. Kittle about the one page disclosure of
the good faith estimate. There is a sound bite for you. And the
problem that we have with--well, let me just address this.
Some of my colleagues here today spoke about the required
use section of RESPA. This is something that I know quite a bit
about. I have been researching this for the past 4 years based
upon complaints that I first received from my customers and
then also working directly with HUD. The number one complaint
that HUD has, according to HUD, are complaints over affiliated
business arrangements.
Now affiliated business arrangements are not bad. We are
not advocating outlawing them. They are required, these
companies are allowed--builders, for example, and mortgage
companies are allowed to offer a discount to the consumers
provided it is a true discount and it is not made up anywhere
else in the transaction, and we are fine with that.
The problem comes in under the tying arrangement, where you
mentioned, Mr. Perlmutter, where you have a builder who offers,
perhaps, a $5,000 assistance towards closing costs, maybe an
upgraded kitchen, a swimming pool, we have seen cars, we have
seen all kinds of things, but it is contingent upon the
required use of a specific settlement provider, namely a
mortgage company and a title company. And what we have found is
that in many cases, the interest rates charged in the
beginning, or the interest rates disclosed on the good faith
estimate in the beginning, are not what happens, are not what
materialize when you get to closing because you are not locking
in the interest rate when you first file your application with
the builder, in many cases because houses usually take 4 to 6
months to complete.
So what happens is when you get down towards the end, maybe
30 days out when they give you the interest rate, at that point
the interest rate is substantially higher in a majority of the
cases. So if you try and get out of the transaction to use an
outside lender, the first thing they tell you is, ``You are not
getting your $5,000 towards closing costs. We gave you an
upgraded kitchen at a cost of $20,000. You need to write me a
check for $20,000 and if you don't do that, you are in
violation of your contract, and we are going to void your
contract and keep your deposit.''
So there is a major problem with tying arrangements.
Mr. Perlmutter. My time has expired, and maybe the chairman
will allow another pass through the panel, but I appreciate--
Chairman Watt. I think Mr. Stevens at least wants to
respond, so we will give him equal time to respond.
Mr. Stevens. Thank you, Chairman Watt. There are just two
minor points I would like to make sure we have on the table.
One is that the current RESPA law requires that these tying
arrangements, that affiliated business arrangements must be
disclosed to the consumer, which we do upfront in our industry,
and there is a separate disclosure. For example, if you use a
Long and Foster agent to buy a home and you use affiliated
businesses, that disclosure is all clearly provided to the
consumer at time of real estate contract submission, not at the
end. So that is already covered in the RESPA provision. That is
one key point.
The other thing I would just like to add is in the written
statement that I provided all of you, I gave examples in that
statement of some discounts we have used. Those are true
subsidies. We lost revenue on those provisions that we provided
to consumers. They are typically short-lived, but they were
consumer benefits, and it was only through the value
proposition of being able to have a full service real estate
company that has all of these services together that we could,
in essence, do that. But it was a direct benefit to the
consumer, it was less revenue than we would have realized on
the transaction, and less, we believe, than competitors could
provide on that transaction unless they offered the same kind
of discount. It is a direct consumer benefit, and that is the
key point I also would like to add.
Thank you.
Mr. Savitt. Mr. Perlmutter, may I clarify my statement?
What I was speaking of is tying of incentives to the required
use of a specific service provider. I am not talking about the
disclosure, the affiliated business arrangement disclosure.
Thank you.
Chairman Watt. I thank the gentleman for his questions. Mr.
Hinojosa is recognized for 5 minutes for questions.
Mr. Hinojosa. Thank you, Mr. Chairman. First of all, I wish
to thank Congresswoman Judy Biggert for joining me to lead the
effort to try to bring us to the point that we are having this
congressional hearing which Chairman Watt has helped us bring
before Congress.
I found the testimony given by each one of you to be very
informative, and I believe that we make the case for what we
were trying to do in the letters that were sent August the 7th,
August the 18th, and May the 5th between HUD, and now the next
letter that will be going to OMB. But I want to ask that you
raise your hand if any of you know the content of the revised
RESPA proposal as submitted to OMB.
[No hands raised]
Mr. Hinojosa. Not one of you.
Mr. Chairman, I think that we need to know that this
process has not been what it should have been in order to have
something that is good for those borrowing monies for home
mortgages, nor the lenders.
I have another question: Do you agree that OMB should
reject the revised RESPA proposal and send it back to HUD with
instructions to reopen it for a 60-day comment period and work
with the Federal Reserve as it revisited the Truth in Lending
Act? Raise your hand if you are in favor of that.
[Every witness raised their hands]
Mr. Hinojosa. Thank you. I want to express my appreciation
to you for holding this important and timely hearing on a
flawed, misguided, and seemingly mysterious proposal by the
Department of Housing and Urban Development to amend the Real
Estate Settlement Procedures Act, commonly known as RESPA. I
ask for unanimous consent that my entire statement be included
in the hearing today. Thank you. I also want to take some
excerpts from my statement because I want to make some points.
I believe that it is the responsibility of Members of
Congress who sit on this increasingly important committee to
ensure that HUD does not alter RESPA to the detriment of
consumers, the home buying process, and ultimately the economy
of the United States which relied so heavily in the recent past
on the strength of the housing market to sustain itself.
I believe it was on May 5th that Congresswoman Judy Biggert
and I sent a letter to HUD's Deputy Secretary Roy A. Bernardi
requesting that HUD extend the comment period on the proposed
RESPA rule change by 60 days, and all they gave us was a 30-day
extension. On August the 7th, Congresswoman Biggert and I sent
a letter to HUD addressed to Steven Preston, the Secretary of
HUD. The letter requested that HUD withdraw its flawed proposed
RESPA rule and immediately commence a joint rulemaking process
with the Federal Reserve Board to produce more simplified
mortgage and real estate settlement cost disclosure forms.
On August the 18th, HUD hand-delivered a document that they
claim to this day is the response from the Secretary of HUD to
me and to Congresswoman Biggert and the other 242 Members of
Congress who signed the letter. It is important for the record
to show that the Secretary of HUD apparently did not have the
time nor the inclination to respond to a letter signed by 244
Members of Congress. Instead, he had his Assistant Secretary
for Governmental Affairs author and sign the document which was
the response we got. I thought that was insulting, not only to
Judy and to me, but I believe to the other 242 Members of
Congress who co-signed the letter.
Now let's look at what we think is the next step. No one
other than HUD and OMB knows the content of HUD's revised RESPA
proposal. I think its revised proposal needs to be vetted by
consumers, by industry, and by Members of Congress. Now that
the revised RESPA proposal has been submitted, OMB may take one
of three actions: One, reject the revised proposed rule; two,
send it back to HUD to be published in the Federal Register as
final; or three, return the revised proposal to HUD with
instructions.
Cpngresswoman Biggert informed you earlier today that we
co-authored and co-signed a letter to OMB requesting that they
reject the revised RESPA proposal and send it back to HUD with
instructions to coordinate with the Board of Governors of the
Federal Reserve as well as other relevant Federal agencies. The
letter will be sent out today. Chairman Watt, HUD received
almost 12,000 letters opposing its proposed rule--244 Members
of Congress signed a letter to HUD requesting that it withdraw
its proposal and commence a joint rulemaking with the Federal
Reserve Board as it revisits the Truth in Lending Act. Everyone
on this panel wants OMB to send HUD's flawed RESPA proposal
back to HUD with instructions. I cannot stress how important it
is for OMB to send the revised RESPA proposal to HUD with
instructions.
I ask unanimous consent that copies of these three letters
that I have been making reference to dated August the 7th to
Honorable Steven Preston, Secretary of HUD, August 18th letter
to Judy Biggert and to me, which was the answer that I referred
to by the Assistant to the Under Secretary for Congressional
Affairs, and the third one is dated May the 5th, which we sent
to the Honorable Roy A. Bernardi, Deputy Secretary, and I ask
unanimous consent that they be included in today's record.
Chairman Watt. Without objection, it may be that all parts
of those have already been submitted for the record prior to
your coming in, but we will make sure that they enter the
record in their entirety.
Mr. Kittle. Mr. Chairman, if I could, I just want to
commend the Congressman, say well done, and Congresswoman
Biggert, thank you for getting that done. Well done.
Mr. Hinojosa. I have one last question before I conclude. I
think that the mess that we are in, the subprime mortgage loans
contributed to the crisis we face in home construction today.
But let's look at the possibility--and I want somebody to
answer this. What would be the impact of the proposal that the
adjustable rate mortgage for home loans be prohibited for a
period of not less than 5 years? Could somebody answer that?
What would be the impact? Yes?
Mr. Kittle. If I understand the question, you would
prohibit all adjustable rate mortgages for up to 5 years?
Mr. Hinojosa. It has been a mess.
Mr. Kittle. But was that the question?
Mr. Hinojosa. It was explained in one of our hearings that
there were people who could possibly use it to buy a house and
flip it in a short period of time, but it made a mess out of
the situation that we have today. And my question to you is,
there are lots of options available for me or anyone else to
borrow money and be able to buy a home. If you were to take ARM
from one of those options, what would be the consequences?
Because I certainly am prepared to take congressional action
and ban that from the list at least for 5 years so that we can
see if we can straighten out the mess that we have.
Mr. Kittle. I think that would be an action that we would
be totally against. I think it would be inappropriate for this
reason: Adjustable rate mortgages, when given to the right
customer with the right caps and margin disclosures are an
effective tool. Back in the early 2000's, 2001, 2003, they were
actually as much as 35 percent of the loan production that was
out there. They represented 35 percent of the business. They
weren't subprime ARMs, they were good, solid 3/1, 5/1
adjustable rate mortgages that were sold to the GSEs and
private investors.
They are an effective tool. They are not the ones that are
delinquent. You can flip a house regardless of a program that
you take. You can flip a house on a 30-year mortgage. So it
doesn't make any difference whether it is an ARM, a pay option
ARM, an FHA loan, or one that goes to Fannie or Freddie. So I
think that is confusing the difference between flipping and an
adjustable rate mortgage, so we think that it would hurt
business and it would hurt--FHA has a great program right now.
Mr. Hinojosa. Let me ask Rebecca--
Mr. Kittle. A 1-year ARM that would--
Mr. Hinojosa. Fine. I understand everything you said. I
want to ask Rebecca Borne, as representing the Center for
Responsible Lending.
Ms. Borne. For many years, adjustable rate mortgages have
been made and underwritten responsibly, and they didn't create
the crisis that we have seen today. Far more responsible for
the crisis has been the 2/28 and 3/27 teaser rate loans where
consumers were sold super low rates for 2 to 3 years and
payment option ARMs, whose teaser rate may last as long as 1
day. Those were toxic products and they were not properly
underwritten. The borrower's ability to repay was not properly
assessed in many cases. So I think that we would be more likely
to recommend an approach that addressed proper underwriting
standards and addressed some of the broader perverse incentives
in the market, from the secondary market all the way down to
the broker, such as assignee liability, before we would
recommend banning all ARMs for a 5-year period.
Mr. Hinojosa. Thank you, Chairman Watt.
Chairman Watt. I thank the gentleman and to the extent that
members of the panel have additional responses to this
question, you are welcome to submit them in writing. It is
really not the focus of this particular hearing, but I didn't
want to cut off discussion of that issue. It is a novel idea
and I suspect everybody on the panel would be uniformly opposed
to it in this breadth, at least even though those who have some
concerns about the way adjustable rate mortgages have had
impacts in the marketplace.
Mr. Manzullo is recognized for 5 minutes.
Mr. Manzullo. Thank you, Mr. Chairman. When I practiced law
and was involved in at least a couple thousand closings, it was
apparent to me that the more people who are involved in
closings, the more the consumer is protected. We found that
through the analysis of taking and looking at the closing
statements, we would get figures in to the title companies that
the attorneys involved, the Realtors, the bank, and there was
always that backup that you had an independent set of third
eyes that would take a look at the closing statement.
I have a question to Mr. Kermott and Mr. Lindsey. In your
testimony you discussed your organizations' opposition to so-
called volume discounting. These are the big guys. I believe
volume discounting is a veiled attempt to reintroduce the
concept of bundling services. In the hearings that we had when
I chaired the Small Business Committee in 2003, the long-term
impact of volume discounts is to eliminate competition and
destroy small businesses. However, HUD has indicated that
people have never been to a real estate closing expect perhaps
their own, and then they brought in a lawyer. HUD has indicated
they feel that volume discounts are not a repeat of bundling.
I would like to ask you if you agree with that assessment.
Can you discuss the impact that volume discounting would have
on title companies and other small businesses and also on the
Realtor profession?
Mr. Kermott. Yes, thank you for that question. We agree
with your assessment. The members of the American Land Title
Association, we have both large companies and small companies,
but we are uniformly against HUD mandating or encouraging
volume discounts. On the one hand, it is hard to argue against
lower prices for consumers. But to mandate it or to pave the
way for larger companies to have a competitive advantage is not
the way to do that.
In fact, volume discounts would be discriminatory. It would
discriminate against smaller companies who don't have the
relationships with large volume lenders, so they can't offer a
volume discount, and it would also discriminate against
consumers who are not dealing with a lender who has that
network of service providers. For instance--
Mr. Manzullo. Mr. Lindsey, why don't you pick it up--I
don't want to run out of time--and then we can come back.
Mr. Lindsey. I concur with what Mr. Kermott said thus far,
and I think what we would like to add to this, though, is that
there is also the component of value.
At the local level, for example, real estate professionals
have relationships with smaller vendors and smaller providers
who provide value and are more accustomed to the local
practices and customs in that particular marketplace that have
real applicability to the transactions. And if we are allowed
to suppress the pricing so that those local providers are
unable to compete and therefore are then pushed away, then we
eliminate the choice option that we have. We also will expose
ourselves to the potential of a reduced set of value that is
actually being delivered. And ultimately, when it is all said
and done and all the dust clears, there is a strong likelihood
that prices are going to go up again because we have reduced
competition.
Mr. Manzullo. What has always bothered me about HUD, and
the fact that the people who draw this up have no real estate
experience, is that they come out with the outrageous statement
that a consumer will save $1,000 at closing if bundling is
allowed. They have never been able to answer the question of
what cloud they picked that from.
Plus, my understanding as I take a look at this four-page
monster and the other one called TILA, I guess ``TILA the
HUD,'' if that is what you want to call it, is the fact that
real estate closings, when I closed them, would take a half
hour. When my wife and I bought a townhouse out here in 1996,
it took 3 hours, we were told not to bring our kids with us,
and I had to hire an attorney to go through those documents
even with the vast experience that I had. Now HUD, again, has
made it even messier.
But my understanding, as I look at those documents, is if
there is a kickback arrangement between a lender and a real
estate company, that does not have to be disclosed if the
bundling takes place. Isn't that correct?
Mr. Lindsey. That is our understanding as well, and I think
we also have a further concern that when in fact this bundling
occurs, we don't have a breakout of the actual services that
are involved. So sometimes you might have a person show up at
closing, and there is a charge on there which they had no
knowledge of in advance of that.
Mr. Manzullo. You mean the so-called document fee?
Mr. Lindsey. Yes, or commitment fee, or many other fees
that would be allowed to be included.
And just recently looking at the settlement statement and
comparing it to the GFE, for example, the title charges are not
broken out, and there are a number of title charges that would
be discrete and shown on the existing HUD-1 settlement
statement that have now been combined, and those include
attorney fees in some States that are attorney closing States,
like North Carolina, for example, where there is no place on
that good faith estimate for an attorney's charge for
settlement services.
So this bundling of things is really just obfuscating the
process further, and we think actually complicating it more and
making it less simple.
Mr. Manzullo. So they create the problem with the bundling,
and then they come up with a disclosure that does not show
where any misuse or abuse would take place in that. I had a
good friend who bought a piece of real estate from a very large
real estate company, and they, of course, had their own
mortgage company. He ended up with two closings because of the
war that broke out because he did not want to use their lender.
I guess he finally told them, ``I can pick my own lender. Don't
force me to go with your lender.''
No one talks about that coercion that takes place with the
consumer, and that is why I think the consumer groups ought to
be out fighting this bundling, because any time you have a
relationship--some people are starting to itch out there, and
you should--any time you have a close relationship between a
real estate firm and a so-called preferred lender, that does
not help out the consumer because so oftentimes the consumer is
simply talked into it and does not have the opportunity to shop
on it. I am not saying that the rate may not be more
competitive, it may be, but it just puts more pressure on the
consumer.
Thank you, Mr. Chairman.
Mr. Stevens. Mr. Chairman, may I make a comment?
Chairman Watt. Mr. Stevens, I think, wanted to respond to
your last comment, so we will give him that opportunity.
Mr. Stevens. Thank you. Again, just two reminders that we
always like to make sure that we emphasize when this discussion
comes up.
First of all, the required use provision exists in the
existing RESPA law, so you cannot require the use of an
affiliated business as part of the real estate transaction.
That is prohibited today, the law is in effect, it has been so
for 16 years, so that does exist. I think you make a great
point.
I would like to look at the other side. In August of 2007,
one of the largest home lenders in America out of New York
failed, and we were presented with hundreds of transactions at
Long and Foster that could not settle in the subsequent days
and weeks that had been committed to, locked, and approved by
this lender, and only by having our own companies, in-house,
where we control the process, could back up our commitments,
could we make sure those transactions closed. It saved
literally hundreds, and I would be glad to submit the actual
number for the record during that period, and that was
literally from just one institution--
Mr. Manzullo. Well, that was okay in that crisis, but in
Oregon or Illinois, a town of 3,500, and throughout the
country, the power of the largeness, as it were, of your
organization could actually hurt the other people. That is what
they are concerned about.
Mr. Stevens. Could hurt other people in what way?
Mr. Manzullo. Because of the bundling that you--you go into
an area, and you have a whole panoply of your--you have your
appraisers, you have your surveyors, you--the so-called one
stop shop, that is really the job of the Realtor, because I
have seen Realtors, Realtors go out there and they fight for
their client to get the best rates on mortgages, to find the
people who have the best reputations in the individual trades.
And as these people come together, they don't have
intertangling interests. They are there looking out for the
consumer because the consumer hires them directly.
And my concern, and this is just in general terms, is that
the more you bundle these services to make it so-called easier
for the consumer, the more likelihood there is that mischief
could take place to the little people who don't have the
opportunity to be as large as you are. And again, that is not
an accusation, that is just a general statement.
Chairman Watt. Ms. Still?
Ms. Still. I would just only point out that the difference
between a true discount and offering an incentive of value is
different than bundling services and not accounting for those
services.
Chairman Watt. I thank the gentleman for his questions, and
I think the time has come for me, finally, to ask some
questions, and I will yield myself 5 minutes.
My philosophy at these hearings is to try to get as much
into the record of varying opinions as we can, not to pit
people against each other, but I think it is helpful to hear
all sides of an issue. By and large, everybody has been
uniformly opposed to HUD's proposed regulation in some respect,
so that is a consistent thread. But there are some potential
inconsistencies in the panel that I would like to explore just
a little bit.
Ms. Still and Mr. Stevens strongly advocated the--I guess
it is an affiliate service issue. I would like to get on the
record Ms. Saunders' and Ms. Borne's perspective if your
organizations have a perspective on the affiliated service
position. We have seen some indications of the conflict with
Mr. Manzullo's questioning, but Ms. Saunders, Ms. Borne, do
your organizations have positions on this issue?
Ms. Saunders. Yes, but it is short and sweet. If, to the
extent that an affiliate is required, we think that the total
cost of the loan, not just the services provided by the
affiliate, need to be disclosed and reduced, which I think goes
to many of the comments that we have heard today.
The critical point is that consumers, when they are buying
a house or obtaining a mortgage, very rarely shop for specific
settlement services. They shop for the total cost of the loan.
It doesn't matter to them which particular provider they use,
it matters how much money they have to come up with, how much
money the loan is going to be extra because of these closing
costs, and what is the cost of the loan.
Chairman Watt. Ms. Borne.
Ms. Borne. We agree with the National Consumer Law Center
on that. We would only add that we do support HUD's
clarification of the definition of required use to provide that
using a preferred provider should not produce an incentive or
disincentive for consumers.
Chairman Watt. Okay. I wasn't trying to create a point,
counterpoint, I just wanted to make sure that we have in the
record everybody's perspective on it if there are varying
perspectives on the panel.
The second issue is--do you have something that you wanted
to add to this point, Mr. Lindsey? Go ahead.
Mr. Lindsey. Yes, if I may, Mr. Chairman. The one point
that we have sort of glossed over is that the enforcement of
this is really one of the critical components of this. We don't
find there is a really big problem with having affiliated
relationships provided we have enforcement that weeds out the
bad actors. There was a very good example that Mr. Stevens gave
that there really is a substantial difference between cost and
price here, and if a vendor is able to reduce cost and
therefore pass that along through an arrangement where there is
an affiliation, we don't find that to be a disadvantage to the
consumer necessarily. But what we do need to do is to weed out
the bad actors. So enforcement needs to be really beefed up, I
think.
Ms. Still. And if I could just go on the record--
Chairman Watt. Ms. Still, I think, is about to agree with
you.
Ms. Still. Yes, if I could just go on record and absolutely
agree with Mr. Lindsey that there is current regulation.
Current regulation, if enforced, would weed out the bad apples,
and we wouldn't be throwing the baby out with the bath water
for the real value that affiliates offer the consumer.
Chairman Watt. Mr. Kittle, quickly though, because I have
one other conflict that I want to clear up here.
Mr. Kittle. Very quick is that you already have to disclose
the affiliated business arrangement. That is disclosed, so I
agree. But we are also required to give an approved provider
list in addition to that which lists several closing services
that the consumer can choose from. It was rightly said most of
them don't choose to go anyplace else than what is recommended
in 99 percent of the cases. So we already give an approved
provider list in addition to the affiliated business
arrangement.
Chairman Watt. I agree that most people do not look. In
fact, I am just kind of in the position right now. I am
refinancing. If I were refinancing in Charlotte, where I live,
I know all of the providers. The title companies, the lawyers,
the lenders, the brokers, I mean I would be shopping this thing
to death. But closing a refinance of a condo here in
Washington, I know none of the providers, so when I was offered
the opportunity to just turn that over to somebody, it seemed
like a good idea because I wasn't going to go take the time to
shop around on this thing. So I mean I think it differs from
market to market.
Mr. Savitt on this point.
Mr. Savitt. Again, it is not the disclosure. I think
everybody does disclosure properly. The problem here is the
carrot that is dangled in front of the consumer: ``If you use
our settlement service providers you will receive a discount or
an incentive, but if you do not use our service providers, you
won't get the same discounts.'' So this is the problem. They
are being coerced into using these specific settlement service
providers and it is not always the best deal. As a matter of
fact, the majority of time it is actually more expensive.
Chairman Watt. See, I thought this was the least
controversial of the subjects.
A second issue that I wanted to see whether there was a way
to reconcile was the opposing positions of Ms. Saunders and Ms.
Borne and Mr. Kittle and Mr. Lindsey and Mr. Savitt, I believe,
probably, on this whole YSP. Is there a way to reconcile your
positions or are you all just--I take it that once I would like
to just do away with yield spread premiums or some such--tell
me how this can be reconciled. Mr. Savitt first, Mr. Kittle,
and whomever else wants to weigh in, and then we are going to
end this.
Mr. Savitt. Well, the first thing I think we need to do is
keep in mind the consumer here. This is all about the consumer.
We have to level the playing field for consumer. We all talk
about occasionally leveling the playing field for ourselves.
We have to level it for the consumer, and the way to do
that is all originators, regardless of how they are licensed,
should be required to disclose all of their direct and indirect
compensation. Everybody discloses in the exact same form--or on
the exact same forms in the exact same manner. This is what the
FTC was talking about, because by making only brokers disclose
their indirect compensation--and we know everybody gets it. As
a matter of fact, that was addressed in 3915. Everybody gets
it. So let's be fair to the consumer, let's have everybody
disclose all of their indirect compensation in the exact same
manner on the exact same forms, and then the consumer has a
fighting chance.
Chairman Watt. Mr. Kittle.
Mr. Kittle. Where we respectfully disagree with Mark and
his group is, number one, yield spread premium disclosure is
something that should remain. I think it is wrong to say, as we
stated earlier, that every time you use yield spread premium or
a broker that it results in higher costs to the consumer. That
is absolutely wrong.
The individual loan officer company can set its own
benchmark based on the price it receives from the lender, and
they can determine to take less, and in many cases do in a
competitive market, and reduce their cost and advertise an even
lower rate with YSP. But as far as our difference here is, we
think that it should be disclosed. People who are lenders, like
myself, or larger members of the Mortgage Bankers Association,
can't disclose what they are making on a loan in many cases--
Chairman Watt. But do you think the other costs ought to
also be disclosed? If you are going to disclose yield spread
premium for brokers, are there other internal costs if there is
not an outside broker that also ought to be disclosed?
Mr. Kittle. I think everything should be transparent. They
are asking us to have a ``level playing field.'' If I am going
to hedge my loan, if I am going to portfolio that loan or hold
it in my warehouse line, I can't tell you what I am making on
it the day I close, whereas, when a broker closes the loan,
their total compensation is received at that moment, on the
spot.
Chairman Watt. Okay, I think the bottom line here is pretty
much the same bottom line we got to on the other issue. If
these things are done responsibly and they are disclosed and
the buyer/consumer/borrower understands what is going on and it
is of some benefit, then there is some value here. Is that a
fair summary, Ms. Saunders?
Ms. Saunders. Not quite, Mr. Chairman.
Chairman Watt. Give me a fair summary then.
Ms. Saunders. We think disclosure in this instance is not
sufficient. HUD clearly has under its statutory authority the
authority to substantively regulate yield spread premiums, and
we think that they should explicitly say yield spread premiums
are legal only when they are the sole source of payment of the
broker and all other fees. That way--
Chairman Watt. Can they do that in this rulemaking RESPA
process or should that be a separate issue from the RESPA
reform?
Ms. Saunders. HUD has chosen in the years and years that it
has been working on this effort to deal with yield spread
premiums. The consumer groups have consistently said both in
the discussions, ongoing private and public discussions and in
our comments that yield spread premium regulation needs to be
substantive. There is no reason why that substantive regulation
cannot be included in this rulemaking. It is part of RESPA. It
is part of 2607 of RESPA.
Chairman Watt. Mr. Savitt, last word on this point. I am
way over my time.
Mr. Savitt. Okay, a couple of things. I have been saying
this for a few years and it used to be a joke, but maybe it is
not a joke anymore. Maybe we should rename RESPA the ``Require
Everyone to Show Profits Act.'' Mortgage brokers have been
disclosing for 16 years everything they make, and we don't have
a problem with that, but we think in order to be fair to the
consumer, everybody should do it. Lenders know exactly what
they are going to make on a loan, and I think it is also as to
what Ms. Saunders said. It is allowable if all of the closing
costs are included. Shouldn't this be the consumers choice
whether they want to include all or part of their closing cost?
We are taking choice away from the consumer if we follow her
line of thinking.
Chairman Watt. My time has long since expired, and so I am
going to treat you all the same way on this issue as I did Mr.
Hinojosa.
We would welcome follow-up comments, written comments on
this issue. I think these are the two major issues, really,
where inside the panel there are disagreements. Generally
speaking, the common thread through the panel was we don't like
RESPA's rule in one respect or another, not always for the same
reasons, but there was uniform opposition to immediate
promulgation and finalization of a rule. But on these two
issues we have some internal disputes in the panel.
Mr. Cleaver is recognized for 5 minutes.
Mr. Cleaver. Thank you, Mr. Chairman. In fear that I would
ask questions that have already been asked, I would just
express appreciation to the panel, and I have surveyed your
written comments. Thank you very much. If any of you have
influence over HUD, would you please exercise it? Thank you.
[Laughter]
Chairman Watt. The gentleman yields back his time, and I
would say to the gentleman and to all members that members may
have additional questions for this panel which they may wish to
submit in writing. Without objection, the hearing record will
remain open for 30 days for members to submit written questions
to these witnesses and to place their responses in the record.
It has been a wonderful hearing. The breadth and knowledge
about this issue has been very impressive, the exact kind of
input that we need in the legislative process. At this moment,
this is outside the legislative process, but we reserve the
right to pull it back in if it becomes necessary, and this
might be an important predicate for doing that.
Let me do a couple of housekeeping things. I ask unanimous
consent to submit for the record the following items. Number
one, HUD's proposed rule that was issued in 73 Federal Register
14030-14061, dated March 14, 2008. Number two, the proposed
good faith estimate form. Number three, the existing good faith
estimate form. Number four, an undated response letter to
Representatives Hinojosa and Biggert from Sheila Greenwood. I
think Mr. Hinojosa's unanimous consent request probably covered
that. Number five, a statement for the record from the
Independent Community Bankers of America dated September 16,
2008. I don't know how they didn't get on this panel, and they
are probably mad at me, but I will make it up to them. Next, a
statement for the record from the National Credit Reporting
Association dated September 16, 2008. And--
Mr. Miller. I would like to submit for the record a
statement by Michele Bachmann.
Chairman Watt. A statement dated September 16, 2008, from
Representative Michele Bachmann.
Without objection, those items will be submitted for the
record.
Let me thank once again all of the witnesses for being here
today to testify. It was a wonderful hearing, and the hearing
is adjourned.
[Whereupon, at 11:56 a.m., the hearing was adjourned.]
A P P E N D I X
September 16, 2008
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