[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
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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

                              ----------                              
                                                                   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

                              ----------                              


                      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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