[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
MORTGAGE ORIGINATION: THE
IMPACT OF RECENT CHANGES ON
HOMEOWNERS AND BUSINESSES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
INSURANCE, HOUSING AND
COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
JULY 13, 2011
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-47
U.S. GOVERNMENT PRINTING OFFICE
67-942 WASHINGTON : 2011
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HOUSE COMMITTEE ON FINANCIAL SERVICES
SPENCER BACHUS, Alabama, Chairman
JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin
Pennsylvania KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
Larry C. Lavender, Chief of Staff
Subcommittee on Insurance, Housing and Community Opportunity
JUDY BIGGERT, Illinois, Chairman
ROBERT HURT, Virginia, Vice LUIS V. GUTIERREZ, Illinois,
Chairman Ranking Member
GARY G. MILLER, California MAXINE WATERS, California
SHELLEY MOORE CAPITO, West Virginia NYDIA M. VELAZQUEZ, New York
SCOTT GARRETT, New Jersey EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina WM. LACY CLAY, Missouri
LYNN A. WESTMORELAND, Georgia MELVIN L. WATT, North Carolina
SEAN P. DUFFY, Wisconsin BRAD SHERMAN, California
ROBERT J. DOLD, Illinois MICHAEL E. CAPUANO, Massachusetts
STEVE STIVERS, Ohio
C O N T E N T S
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Page
Hearing held on:
July 13, 2011................................................ 1
Appendix:
July 13, 2011................................................ 53
WITNESSES
Wednesday, July 13, 2011
Anastasi, Anne, President, Genesis Abstract, LLC, and President,
American Land Title Association................................ 26
Anderson, Mike, CRMS, Vice President & Chairman of Government
Affairs, National Association of Mortgage Brokers.............. 28
Bowdler, Janis, Director, Wealth-Building Policy Project,
National Council of La Raza.................................... 34
Braunstein, Sandra F., Director, Division of Consumer and
Community Affairs, Board of Governors of the Federal Reserve
System......................................................... 3
Brown, Steve A., Executive Vice President, Crye-Leike REALTORS,
on behalf of the National Association of REALTORS............. 21
Cochran, Kelly Thompson, Deputy Assistant Director, Office of
Regulations, Consumer Financial Protection Bureau, U.S.
Department of the Treasury..................................... 7
Cunningham, Henry V., Jr., CMB, President, Cunningham & Company,
on behalf of the Mortgage Bankers Association.................. 23
Kelly, Donald E., Executive Director, Real Estate Valuation
Advocacy Association (REVAA), on behalf of REVAA and the
Coalition to Facilitate Appraisal Integrity Reform............. 33
Norton, Anne Balcer, Deputy Commissioner, Maryland Office of the
Commissioner of Financial Regulation, on behalf of the
Conference of State Bank Supervisors........................... 11
Park, James R., Executive Director, Appraisal Subcommittee,
Federal Financial Institutions Examination Council............. 8
Payne, Teresa B., Associate Deputy Assistant Secretary,
Regulatory Affairs, U.S. Department of Housing and Urban
Development.................................................... 5
Rheingold, Ira, Executive Director, National Association of
Consumer Advocates............................................. 36
Savitt, Marc, CRMS, President, the National Association of
Independent Housing Professionals.............................. 29
Shear, William B., Director, Financial Markets and Community
Investment, U.S. Government Accountability Office.............. 10
Stephens, Sara W., MAI, CRE, President-elect, Appraisal Institute 31
Wilson, Tim, President, Affiliated Businesses, Long and Foster
Companies, on behalf of the Real Estate Services Providers
Council........................................................ 25
APPENDIX
Prepared statements:
Hurt, Hon. Robert............................................ 54
Anastasi, Anne............................................... 55
Anderson, Mike............................................... 65
Bowdler, Janis............................................... 73
Braunstein, Sandra F......................................... 80
Brown, Steve A............................................... 106
Cochran, Kelly Thompson...................................... 114
Cunningham, Henry V., Jr..................................... 118
Kelly, Donald E.............................................. 139
Norton, Anne Balcer.......................................... 147
Park, James R................................................ 179
Payne, Teresa B.............................................. 192
Rheingold, Ira............................................... 198
Savitt, Marc................................................. 207
Shear, William B............................................. 218
Stephens, Sara W............................................. 230
Wilson, Tim.................................................. 247
Additional Material Submitted for the Record
Biggert, Hon. Judy:
Written responses to questions submitted to James Park....... 253
Gutierrez, Hon. Luis:
Article from American Banker entitled, ``New CFPB Mortgage
Disclosures Win Praise for Content and Process,'' dated May
19, 2011................................................... 262
Anderson, Mike:
Letter to Federal Reserve Chairman Ben Bernanke from Ranking
Member Barney Frank, dated March 24, 2011.................. 264
MORTGAGE ORIGINATION: THE
IMPACT OF RECENT CHANGES ON
HOMEOWNERS AND BUSINESSES
----------
Wednesday, July 13, 2011
U.S. House of Representatives,
Subcommittee on Insurance, Housing
and Community Opportunity,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:15 p.m., in
room 2128, Rayburn House Office Building, Hon. Judy Biggert
[chairwoman of the subcommittee] presiding.
Members present: Representatives Biggert, Hurt, Miller of
California, Duffy, Dold, Stivers; Gutierrez, Waters, Clay,
Watt, and Sherman.
Also present: Representative Green.
Chairwoman Biggert. This hearing of the Subcommittee on
Insurance, Housing and Community Opportunity will come to
order. I thank all the witnesses for waiting. We always have
these pesky votes in the afternoon. I am sorry to keep you
waiting. We are going to start, even though we don't have very
many members here. We do have two panels and lots of witnesses,
so we want to give you the time to speak and then to have
questions.
Without objection, all members' opening statements will be
made a part of the record, and I will recognize myself for 5
minutes.
Good afternoon, and thank you for attending today's hearing
entitled, ``Mortgage Origination: The Impact of Recent Changes
on Homeowners and Businesses.'' I would like to welcome today's
witnesses, and given that we have such a large number of
witnesses, I will be brief. I would ask that others do the same
so that members have time to ask our witnesses questions.
Today's hearing is about jobs, the recovery and future of
the housing and mortgage markets, as well as consumer access to
credit services and useful information.
As we did during our first hearing of the 112th Congress,
this subcommittee will continue to focus on regulatory barriers
to the housing market recovery, barriers that include policies
that limit the availability of credit, raise costs for
consumers, and add uncertainty to this already fragile
recovery.
With that, I recognize the gentleman from Illinois for 5
minutes.
Mr. Dold. Thank you, Chairwoman Biggert. I certainly
appreciate the time, and I want to thank the panelists for
taking your time to come and join us today.
Congress has an obligation to continually review and
reevaluate existing laws and regulations to determine if they
are working, have they done what they were intended to do, what
unintended negative consequences or unanticipated consequences
have resulted, and have the legislative and regulatory costs
exceeded the corresponding benefits.
Historically, Congress has performed this continual review
and reevaluation obligation far too infrequently, but I am
pleased to see that the committee and this subcommittee in
particular take the congressional obligation seriously under
the leadership of Chairman Bachus and Chairwoman Biggert. That
is why Chairwoman Biggert has called this hearing, to perform
our congressional obligation to review and to reevaluate the
Dodd-Frank rules and the corresponding regulations relating to
mortgage origination.
More specifically, we are here to evaluate the rules and
the regulations relating to mortgage disclosure, home
warranties, repayment ability standards, risk retention rules,
loan originator compensation, and appraisal reforms. Are the
Dodd-Frank provisions and the corresponding regulations
working, are they likely to work or are they having or likely
to have unintended negative consequences, and are their costs
likely to exceed their benefits? Are they promoting or
hindering private sector job growth, capital investment, credit
availability, and overall economic growth?
The answers to these important questions can dramatically
affect small business, of which I am a small business employer.
They can also affect employment, consumers and borrowers, the
mortgage finance and real estate markets, and our economy as a
whole.
So, I thank Chairwoman Biggert for holding this important
hearing, and I thank the witnesses for your time and for your
testimony. I yield back the balance of my time.
Chairwoman Biggert. Thank you, Mr. Dold. Mr. Hurt, do you
have a statement?
Mr. Hurt. I do not.
Chairwoman Biggert. Then, we will start with our first
panel. We have a great panel: Ms. Sandra Braunstein, Director
of the Division of Consumer and Community Affairs, Board of
Governors of the Federal Reserve System; the Honorable Teresa
Payne, Deputy Assistant Secretary, Office of Regulatory
Affairs, U.S. Department of Housing and Urban Development; Ms.
Kelly Cochran, Deputy Assistant Director, the Office of
Regulations, Consumer Financial Protection Bureau (CFPB), U.S.
Department of the Treasury; Mr. James Park, Executive Director,
Appraisal Subcommittee, Federal Financial Institutions
Examination Council; Mr. William Shear, Director, Financial
Markets and Community Investment, U.S. Government
Accountability Office; and Ms. Anne Norton, Maryland Deputy
Commissioner of Financial Regulation, on behalf of the
Conference of State Bank Supervisors.
Welcome to you all. As you know, without objection, your
written statements will be made a part of the record, and you
will each be recognized for a 5-minute summary of your
testimony. Then, we will recognize the members for 5 minutes
each to ask questions in the same order as opening statements.
Mr. Gutierrez, would you like to give an opening statement?
I recognize Mr. Gutierrez for 5 minutes.
Mr. Gutierrez. Good afternoon, and thank you, Chairwoman
Biggert, for holding this hearing on mortgage origination. I
would like to welcome the witnesses here today.
It has been almost a year since this Chamber passed the
historic Wall Street Reform and Consumer Protection Act, or
Dodd-Frank. These past few months have been especially critical
to the implementation of many important provisions.
For the first time in the history of the United States, and
thanks to the passage of Dodd-Frank, an agency has been created
to specifically serve and assist and, most importantly, protect
American consumers from the unfair and abusive practices of
financial services providers. The Consumer Financial Protection
Bureau is a central provision in Dodd-Frank and is expected to
provide a crucial role to protect consumers and help ensure
that our country never finds itself on the brink of economic
collapse.
Undoubtedly, the rulemaking period for provisions in Dodd-
Frank that deals with ameliorating our housing system and the
transfer of authority of many of these provisions to the CFPB,
which we will discuss today, is exceptionally important to the
national recovery.
In approximately a week, many important activities will be
transferred to the CFPB. This agency will be responsible for
overseeing the regulations that will address and reform the
abusive and deceptive practices in our Nation's housing
industry. I would like to commend the CFPB for measures they
have already taken to develop a single, more streamlined, user-
friendly mortgage disclosure form and for engaging key industry
representatives and consumer advocates in that process.
I would like to enter into the record an article from the
American Banker that further highlights the CFPB's leadership
and diligence on this issue.
Chairwoman Biggert. Without objection, it is so ordered.
Mr. Gutierrez. The CFPB will become a vital agency in
handling many important and necessary proposals that were
included in Dodd-Frank and which, once fully implemented, will
address the Nation's housing crisis and will help American
homeowners during the most devastating economic downturn.
I look forward to hearing the thoughts and opinions of our
witnesses here today and I thank the chairwoman.
Chairwoman Biggert. Thank you, Mr. Gutierrez.
Ms. Braunstein, you are recognized for 5 minutes.
STATEMENT OF SANDRA F. BRAUNSTEIN, DIRECTOR, DIVISION OF
CONSUMER AND COMMUNITY AFFAIRS, BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM
Ms. Braunstein. Thank you.
Chairwoman Biggert, Ranking Member Gutierrez, and members
of the subcommittee, I appreciate the opportunity to appear
today to discuss regulatory actions taken by the Federal
Reserve in the home mortgage markets. Our goal has been to
craft clear rules that deter abuses and enhance consumer
protections while preserving responsible lenders' ability to
meet the needs of all segments of the market.
During the past 3 years, the Board addressed the need for
mortgage reform by issuing seven final rules under the Truth in
Lending Act and the Home Ownership and Equity Protection Act,
plus five additional proposed rules that will become the
responsibility of the Consumer Financial Protection Bureau.
These 12 rulemakings cover all stages of the mortgage lending
process.
In July 2008, the Board issued rules establishing new
consumer protections for residential mortgages. For higher-
priced loans, the rules strengthened underwriting requirements,
restricted prepayment penalties, and required escrow accounts.
Other protections were applied to the entire mortgage market to
address issues with appraisals, advertising, loan servicing,
and the need for earlier cost disclosures.
In September 2010, the Board issued final rules prohibiting
unfair practices relating to loan originator compensation. The
Board had initially proposed a disclosure-based solution, but
withdrew that proposal in 2008 after consumer testing showed
that disclosures were ineffective. The final rules regulate the
manner in which loan originators may be compensated, but not
the amount.
The rule also prohibits originators from steering consumers
to loans which increase the originator's compensation but are
not in the consumer's interest. The DFA also addresses these
concerns, and after enactment the Board decided to finalize its
proposed rules as the best way to effectuate that law's
legislative purpose and eliminate these unfair practices
without further delay. The Board recognizes, however, that
there are some additional requirements in the DFA which will
require subsequent rulemaking by the Bureau.
In 2008, the Board issued rules to strengthen the property
valuation process by prohibiting coercion of appraisers. The
DFA codified the anti-coercion provisions in the Board's rules
while also including a provision requiring that independent
appraisers receive customary and reasonable compensation. The
statute directed the Board to issue interim final rules
implementing these requirements within 90 days, which the Board
did in October 2010.
Going forward, the Board, the other Federal banking
agencies, the Federal Housing Finance Agency, and the Bureau
will share responsibility for jointly issuing permanent rules
on appraisal independence.
In March 2011, the Board issued a final rule to implement a
provision of the DFA that increased the annual percentage rate
threshold used to determine whether a mortgage lender is
required to establish an escrow account for jumbo mortgage
loans. Also in March, the Board proposed Dodd-Frank mandated
rules for escrow accounts that add new disclosures and expand
the mandatory escrow period from 1 to 5 years. The proposal
would also exempt creditors from the escrow requirements if
they operate predominantly in rural or underserved areas and
originate a limited number of loans that are held in portfolio.
In April 2011, the Board published proposed rules under the
DFA to strengthen mortgage underwriting. The proposal provides
options for creditors to meet the requirement that they make a
reasonable and good faith determination that the consumer will
have the ability to make the scheduled payments. The Bureau
will assume responsibility for developing final rules.
During 2009 and 2010, the Board issued three regulatory
proposals to improve disclosures for closed-end mortgages,
HELOCs, and reverse mortgages. In February, the Board announced
that these pending disclosure rulemakings would be transferred
to the Bureau.
Consumer protection remains important to the Board,
notwithstanding the upcoming transfer of various rule-writing
authorities to the Bureau. During the mortgage crisis, we have
witnessed the importance of effective consumer protection, not
only in preserving the well-being of particular communities,
but more importantly to the economy as a whole. The
effectiveness of the regulations depends critically on strong
supervision and enforcement. The Federal Reserve retains a
significant responsibility in supervising financial
institutions, which we will continue to take seriously.
Thank you very much. I look forward to your questions.
[The prepared statement of Ms. Braunstein can be found on
page 80 of the appendix.]
Chairwoman Biggert. Thank you.
Ms. Payne, you are recognized for 5 minutes.
STATEMENT OF TERESA B. PAYNE, ASSOCIATE DEPUTY ASSISTANT
SECRETARY, REGULATORY AFFAIRS, U.S. DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
Ms. Payne. Thank you, Chairwoman Biggert, Ranking Member
Gutierrez, and members of the subcommittee for this opportunity
to testify today.
My name is Teresa Payne, and I am the Associate Deputy
Assistant Secretary for Regulatory Affairs at HUD with
responsibility over RESPA, ILS, the SAFE Act, and manufactured
housing. I have been working at the Department for nearly 15
years, during which I have spent a significant amount of time
on RESPA policy enforcement issues. It is my pleasure to bring
you up to date on the status of RESPA and the transition of its
statutory authority from HUD to the CFPB.
Let me begin by first bringing you up to date on the
current status of RESPA at HUD, HUD's work on regulating home
warranties under RESPA, and the transition to the CFPB.
While we have been preparing for our authority and staff to
move over to the CFPB, we have been hard at work administering
RESPA through policy and enforcement actions. During 2010 and
2011, the RESPA complaint caseload in the office of RESPA has
been extremely heavy. More than 1,500 cases were opened in the
last 18 months. The office's increased caseload has led to
greater coordination with State regulators, the Department of
Justice, and HUD's own OIG.
As you are aware, in November 2008, the Department issued a
new RESPA regulation that established a standard required GSE
form, a revised and expanded HUD-1 settlement statement, and a
new settlement cost booklet.
To be in compliance with RESPA and help assure fair prices
for consumers, actual costs at closing must fall within
established tolerance ranges for the first time. The new
disclosures were implemented on January 1, 2010. The RESPA
office established a compliance guidance regiment to educate
all interested stakeholders. This included speaking to over 175
organizations, periodically publishing on its Web site, the
RESPA Roundup, which is a newsletter to address relevant
compliance questions, and issuing on its Web site over 300
frequently asked questions and answers.
In order to reach out directly to better inform consumers,
the RESPA office also produced and released three consumer
education videos: Shopping for Your Home; Shopping for a Loan;
and Closing the Deal.
Although it hasn't been long since the completion of the
2010 implementation year, some tangible results are being seen.
Prospective borrowers are receiving more accurate GSE, and
costs at closing are being held within tolerance ranges.
Several interpretive rules and policy pieces have been
published during the last 18 months. I would like to highlight
just a few. Home warranties have been expressly covered as a
settlement service under HUD's regulations since 1992. In June
2010, HUD issued an interpretive rule regarding compensation
arrangements for real estate agents in connection with the sale
of home warranties. This rule clarified circumstances under
which a real estate agent may be compensated for the sale of
home warranties under RESPA. Although not required, HUD also
invited public comment on the clarity and scope of the rule.
Based on the comments received, the Department published
additional clarifying guidance.
Additionally, you have asked HUD to review and comment on
the recently proposed legislation entitled the RESPA Home
Warranty Clarification Act of 2011. While the Administration
has not taken a formal position on the bill, HUD has
preliminary concerns that the proposed legislation could limit
consumer protection in the context of home warranties and lead
to higher closing costs for consumers through referral fees.
HUD recommends that prior to enacting legislation, a study be
conducted by appropriate regulatory agencies about the sale of
home warranties, representations made by real estate
professionals to consumers about what the home warranty covers,
and the underlying terms of the contract.
While we are preparing for our impending transfer to the
CFPB, we continue to work diligently on enforcement. This week,
we announced a settlement with Fidelity National Financial for
$4.5 million for RESPA violations. Just this morning, we
announced a settlement with Prospect Mortgage in the amount of
$3.1 million for creating sham affiliated businesses through
limited liability companies.
I would like to turn now to the question of the transfer of
RESPA-related functions and personnel to the CFPB. Please note
that I am still an employee of HUD and will not be an employee
of the CFPB until July 31st. Therefore, I am not authorized to
speak on behalf of the CFPB.
As you know, next week the statutory authority for RESPA
will formally transfer from HUD to the CFPB, and 37 HUD
employees are currently slated to become CFPB employees by July
31st. HUD has been working diligently with the CFPB to make the
transition of documents, IT systems, and personnel as smooth
and seamless as possible.
Thank you again for this opportunity to appear before you
today, and I look forward to answering any questions you may
have.
[The prepared statement of Ms. Payne can be found on page
192 of the appendix.]
Chairwoman Biggert. Thank you, Ms. Payne.
Ms. Cochran, you are recognized for 5 minutes.
STATEMENT OF KELLY THOMPSON COCHRAN, DEPUTY ASSISTANT DIRECTOR,
OFFICE OF REGULATIONS, CONSUMER FINANCIAL PROTECTION BUREAU,
U.S. DEPARTMENT OF THE TREASURY
Ms. Cochran. Thank you. Thank you, Chairwoman Biggert,
Ranking Member Gutierrez, and members of the subcommittee for
inviting me to testify today about the work of the Consumer
Financial Protection Bureau. On behalf of the CFPB, I
appreciate this opportunity to update you about our work on
simplifying mortgage disclosures.
Last year, the Dodd-Frank Act both created the Bureau and
directed the Bureau to develop integrated disclosure forms that
would satisfy the requirements of both the Truth in Lending Act
and the Real Estate Settlement Procedures Act. Merging these
two disclosure regimes has been the focus of legislative and
regulatory activity since 1996, and the Dodd-Frank Act directs
the Bureau to propose integrated reforms and related
regulations by July 21, 2012. At the Bureau, we have made this
project one of our top priorities and we have conducted
extensive outreach to industry, consumer advocacy groups, and
other stakeholders to get a clear picture of issues regarding
the current forms.
I was pleased to participate in May in a bipartisan CFPB
briefing with staff of this committee, and we appreciate the
opportunity to update you today on our work on this important
undertaking.
The Dodd-Frank Act sets two purposes for the integrated
disclosures. The first is to aid consumer understanding by
using readily understandable language, and the second is to
facilitate compliance with TILA and RESPA. Our goal here is
shorter, clearer forms, the kind that on the one hand, make it
easier for consumers to understand key loan terms and to
compare offers to find a loan that best meets their needs, and
on the other hand, reduce unwarranted regulatory burdens for
lenders and other industry participants.
We started work on the disclosure project with a roundtable
at the Treasury Department last fall that brought together
industry and consumer advocates to discuss ways to simplify the
disclosures. In the months since, we have reviewed research, we
have conducted extensive additional outreach, and we have begun
the process of design and analysis. Our outreach has included
meetings with all sectors of industry, with document service
providers and other technology support companies, consumer
advocacy groups and housing counselors, Federal and State
regulators, and academic researchers.
In May, we released two prototypes for the combined
mortgage disclosures that must be provided 3 days after
application. We tested the two drafts through one-on-one
interviews with consumers, lenders, and brokers. In addition,
we posted the prototypes on our Web site to gather broad-based
public input through an interactive Web tool. More than 13,000
users responded to this process with written feedback to the
initiative, which we are calling the ``Know Before You Owe
Project.'' Based on the results of the initial testing and the
public feedback, we revised the draft disclosures and released
a second round of prototypes in late June. We have now
completed testing on the second round and received related
feedback from nearly 4,000 users via our Web site.
To our knowledge, we are the first Federal financial
services agency is to seek such broad-based public input this
early in the design process before proposing a rule for a
consumer disclosure. This is a learning process for us and for
the participants, and we are very encouraged by the response to
date. We believe this process can be particularly useful in
identifying potential implementation issues that may arise for
different kinds of financial service providers and in helping
us to address those issues as we move along in the design
process.
Looking ahead, we expect to conduct several additional
rounds of revision and testing into the fall. We will
accelerate work on the underlying regulations and on developing
integrated closing stage disclosures. We also expect to convene
a panel to consult with small businesses regarding potential
impacts prior to composing a rule and to consult with
prudential regulators and other appropriate agencies.
In conclusion, Chairwoman Biggert, Ranking Member
Gutierrez, and members of the subcommittee, thank you again for
inviting me to testify today about our work on this project. We
know that no one initiative can solve all issues regarding
mortgage originations, but we remain convinced that simple,
streamlined disclosures are a critical piece that can both
provide more value to consumers and reduce burden to lenders.
We welcome the opportunity to discuss our efforts and
further update you on our progress and we welcome any
questions. Thank you.
[The prepared statement of Ms. Cochran can be found on page
114 of the appendix.]
Chairwoman Biggert. Thank you.
Mr. Park, you are recognized for 5 minutes.
STATEMENT OF JAMES R. PARK, EXECUTIVE DIRECTOR, APPRAISAL
SUBCOMMITTEE, FEDERAL FINANCIAL INSTITUTIONS EXAMINATION
COUNCIL
Mr. Park. Good afternoon. Thank you, Chairwoman Biggert,
Ranking Member Gutierrez, and members of the subcommittee. The
Appraisal Subcommittee appreciates the opportunity to provide
information about its mission and current activities on behalf
of the Chairman of the Federal Financial Institutions
Examination Council. My testimony today does not necessarily
represent the views of the Council or the Appraisal
Subcommittee. Today, I will give you a brief history of the
Appraisal Subcommittee, commonly known as the ASC, and describe
its primary responsibilities.
Congress passed Title XI of the Financial Institutions
Reform Recovery and Enforcement Act to address identified
weaknesses regarding real property appraisals. This law created
the ASC as an entity within the Council. In general, the ASC
operates independently of the Council.
The law created a regulatory framework that involves the
following private, State, and Federal entities: The Appraisal
Foundation, a private nonprofit, is the parent organization for
the Appraisal Standards Board and Appraiser Qualifications
Board. These Boards respectively issue the uniform standards of
professional appraisal practice and the real property appraiser
qualification criteria.
The State programs regulate appraisers in the 50 States,
the District of Columbia, and 5 territories. The Federal
financial institutions regulatory agencies are responsible for
prescribing appropriate standards for the performance of
appraisals, and the ASC provides Federal monitoring support and
oversight to both the private and State entities.
The ASC Board is made up of seven members designated by
each of the Federal financial institutions' regulatory
agencies, the Department of Housing and Urban Development, and
pursuant to Dodd-Frank, the Federal Housing Finance Agency, and
the Consumer Financial Protection Bureau.
The primary responsibilities of the ASC include monitoring
the State programs and maintaining a national registry of
appraisers. Users of the national registry can easily determine
whether an appraiser is eligible to perform appraisals for
federally-related transactions and view their disciplinary
histories. The ASC also monitors and reviews the Appraisal
Foundation and provides grants to the foundation to defray
costs relating to the activities of the Appraisal Standards
Board and the Appraisal Qualifications Board.
Dodd-Frank expanded the ASC's mission and authority.
Actions already taken pursuant to Dodd-Frank include:
increasing the national registry fee from $25 to $40 effective
January 1, 2012; adding the Federal Housing Finance Agency to
the ASC; and determining that a national appraisal complaint
hotline does not exist. The ASC is currently studying various
options for the establishment of such a hotline.
Dodd-Frank also required the adoption of several other
reforms, for example, regulation of appraisal management
companies. In general, appraisal management companies provide
regional and national third party valuation services. The ASC
will monitor State registration and supervision of appraisal
management companies and maintain a national registry once
regulations setting minimum requirements are promulgated as
required by Dodd-Frank. The ASC 2010 annual report gives a more
detailed overview of this and other Dodd-Frank amendments to
Title XI.
State programs are assessed every 2 years through an onsite
compliance review process. Last year marked the second full
year the ASC conducted State compliance reviews under a revised
process and with positive results. The ASC may take action
against a State in the case of noncompliance which historically
was limited to an order of non-recognition. Such an order would
severely affect mortgage lending in the State.
The regulatory reforms developed by Chairwoman Biggert and
former Congressman Kanjorski that eventually became part of
Dodd-Frank provide the ASC with additional tools that can
assist the agency's oversight of the appraisal process, thereby
leading to improvement in appraisal credibility and consumer
confidence in appraisals. The ASC is dedicated to carrying out
its new and existing Title XI mandates transparently and
efficiently.
In conclusion, I again appreciate the opportunity to appear
before the subcommittee and look forward to addressing your
questions.
[The prepared statement of Mr. Park can be found on page
179 of the appendix.]
Chairwoman Biggert. Thank you, Mr. Park.
Mr. Shear, you are recognized for 5 minutes.
STATEMENT OF WILLIAM B. SHEAR, DIRECTOR, FINANCIAL MARKETS AND
COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Shear. Chairwoman Biggert, Ranking Member Gutierrez,
and members of the subcommittee, I am pleased to be here today
to discuss our work on residential real estate valuations which
encompass appraisals and other value estimation methods. My
statement summarizes the report on residential appraisals we
are releasing today which responds to a mandate in the Dodd-
Frank Act.
Among other things, the report discusses: first, the use of
different valuation methods and their advantages and
disadvantages; and second, conflicts of interest in appraisal
selection policies and views on the impacts of these policies
on industry stakeholders and appraisal quality.
In summary, we found that appraisals are the most commonly
used valuation method for first lien residential mortgage
originations. While data on different appraisal approaches are
limited, we found that the sales comparison approach is
required by Fannie Mae, Freddie Mac, and FHA and is reportedly
used in nearly all appraisals. We also found that the cost
approach, in which an estimate of value uses data on land value
and what it would cost to replace or reproduce a residence, is
often used in conjunction with the sales comparison approach.
With respect to the second topic that I just raised on
conflict of interest policies, including the Home Valuation
Code of Conduct, these policies have changed appraisers'
selection processes in the appraisal industry more broadly.
Specifically, the policies have led to increased use of
appraisal management companies, which are also called AMCs.
Federal regulators and the Enterprises said they held lenders
responsible for ensuring that AMC's policies and practices meet
their requirements for appraiser selection, appraisal review,
and reviewer qualifications, but that they generally do not
directly examine AMC's operations. The Dodd-Frank Act places
its supervision of AMCs with State appraiser licensing boards
and requires the Federal banking regulators, the Federal
Housing Finance Agency, and the Bureau of Consumer Financial
Protection to establish minimum standards for States to apply
in registering AMCs.
Setting minimum standards that address key functions AMCs
perform on behalf of lenders would enhance oversight of
appraisal services and provide greater assurance to lenders,
the Enterprises, and others of the credibility and quality of
the appraisals provided by AMCs. Therefore, we recommend that
these regulators consider addressing several key areas,
including criteria for selecting appraisers, as part of their
joint rulemaking under the Act to set minimum standards for
States to apply in registering AMCs.
Chairwoman Biggert and Ranking Member Gutierrez, this
concludes my prepared statement. I would be happy to answer any
questions.
[The prepared statement of Mr. Shear can be found on page
218 of the appendix.]
Chairwoman Biggert. Thank you, Mr. Shears.
Ms. Norton, you are recognized for 5 minutes.
STATEMENT OF ANNE BALCER NORTON, DEPUTY COMMISSIONER, MARYLAND
OFFICE OF THE COMMISSIONER OF FINANCIAL REGULATION, ON BEHALF
OF THE CONFERENCE OF STATE BANK SUPERVISORS
Ms. Norton. Thank you. Good afternoon, Chairwoman Biggert,
Ranking Member Gutierrez, and distinguished members of the
subcommittee. My name is Anne Balcer Norton, and I serve as the
Deputy Commissioner of the Office of Financial Regulation for
the State of Maryland. It is my pleasure to testify before you
today on behalf of the Conference of State Bank Supervisors. I
would also like to recognize Maryland's Secretary of Labor,
Licensing and Regulation, Alex Sanchez, who is here with me
today.
I thank you for holding this hearing on issues affecting
residential mortgage origination. State regulators play a
central role in overseeing mortgage origination markets, and we
appreciate the opportunity to be part of this important
discussion.
My statement today will touch briefly on changes and
improvements to State mortgage regulation. The policy and
regulatory response to the financial crisis remains a work in
progress, involving Congress as well as State and Federal
regulators. State mortgage regulators have been focused on
improving and enhancing mortgage regulation to better protect
the consumer and to strengthen the mortgage market itself. Key
to these goals is ensuring that the industry is diverse and
supports a variety of business models.
The Nationwide Mortgage Licensing System and Registry, or
the NMLS, was conceptualized and created by State regulators to
unify State mortgage supervision in a single framework. NMLS
provides the foundation for coordinated, consistent, and
comprehensive supervision of the mortgage industry.
At its launch, NMLS was a voluntary State initiative.
Subsequently Congress, through the leadership of Chairman
Bachus, embraced and codified NMLS into Federal law through the
SAFE Act, creating an integrated and comprehensive State-
Federal approach to mortgage supervision.
State regulators have moved aggressively to implement the
many provisions of the SAFE Act, which include providing free
consumer access to licensing information and creating a
mortgage call report. Just 3 years after the passage of the
SAFE Act, nearly every single residential mortgage loan
originated in this Nation will be performed by a loan
originator who is either State licensed or federally registered
through NMLS.
NMLS and the SAFE Act are key parts of a larger effort
aimed at creating a framework for seamless and comprehensive
mortgage origination, but this framework still relies on
regulators to supervise the industry effectively.
In 2008, CSBS and AARMR established the Multi-State
Mortgage Committee, or the MMC, to serve as the coordinating
body for examination and enforcement supervision of multi-State
mortgage entities by State mortgage regulators. Innovative
examination techniques and sophisticated software utilized by
the MMC have radically improved supervision of the residential
mortgage industry and have uncovered fraudulent behavior in
some mortgage companies. As a result of these examinations,
State regulators have been forced to take enforcement actions
when fraud is found, which in some cases has resulted in
revocation of licensure. Just last month, the MMC coordinated a
multi-State settlement with the Mortgage Access Corporation
after an examination found numerous compliance and internal
control deficiencies.
With regard to the climate in the mortgage industry and the
other areas that we supervise, State regulators see a great
deal of anxiety that reflects fears about the effect of the
Dodd-Frank Act and other regulatory actions deemed necessary to
address identified weaknesses in the financial system.
For instance, the Federal Reserve's loan originator
compensation restrictions have presented challenges in terms of
implementation. State regulators support the prohibition of
payments to mortgage brokers or loan officers based on a loan's
interest rate or payment features, but are struggling to
provide field examiners with clear guidance on how to evaluate
industry compliance. Official guidance from either the Federal
Reserve or the CFPB is needed to provide directions to
regulators and clarity for the industry.
As in other areas of financial services, State financial
regulators remain concerned about policies that encourage or
accelerate industry consolidation. The challenge for
policymakers and the regulators who implement these policies is
to create a regulatory framework that ensures industry
professionalism and accountability. We must also ensure there
are no unnecessary regulatory inefficiencies and burdens for
State regulators. Policies and approaches that encourage
regulatory collaboration and coordination and that support
regulatory innovation have been vital to striking this balance.
Thank you for the opportunity to testify before you today.
I look forward to answering any questions that you have.
[The prepared statement of Ms. Norton can be found on page
147 of the appendix.]
Chairwoman Biggert. Thank you, Ms. Norton.
We will now move to questions, and each member will have
the opportunity to ask questions for 5 minutes, and I will
recognize myself for 5 minutes. I would address this to Ms.
Payne.
Looking at the underlying law, and I have looked at that
several times, but nowhere do I see reference to modest
referral payments on homeowner warranties as one of the
objectionable practices that Congress sought to outlaw in 1982.
Would you agree that Congress did not explicitly cover
homeowner warranties in the text of RESPA?
Ms. Payne. Thank you for the opportunity to comment on that
question.
From HUD's perspective, the statutory language prohibits
referral fees amongst settlement service providers and the
statutory language also identifies several types of settlement
service providers, and it is not an exhaustive list, as was
determined in 1992 when HUD's regulations determined that it
did cover home warranty companies.
Chairwoman Biggert. While I appreciate your suggestion in
your written testimony that Congress should first study the
issue, I will ask if HUD studied this issue first before
issuing its rule and guidance?
Ms. Payne. Thank you for that question. The guidance in
1992, was that your question?
Chairwoman Biggert. 1982 and 1992.
Ms. Payne. I don't know off the top of my head the
regulatory history behind what was studied prior to enacting,
but I will be happy to go back and do some research and get
back to you on that question.
Chairwoman Biggert. Okay. It seems that for over 20 years,
HUD has allowed home warranties to be sold through real estate
agents and brokers under RESPA, and yet the new interpretation
by HUD in recent years has cited this practice as a RESPA
violation and created an incentive for litigation.
Could you explain HUD's rationale for prohibiting the home
warranty sales through the real estate agents and brokers?
Ms. Payne. Yes. Thank you for that question.
HUD's interpretation was simply a clarification of its
long-standing opinion on this.
Chairwoman Biggert. Has there been any evidence that
consumers have been harmed?
Ms. Payne. The harm to consumers on the underlying policy
would be beyond the scope of RESPA as RESPA reads today on the
underlying warranty. However, I can tell you that, just to go
back to your previous question if I may, HUD did simply
reiterate HUD's long-standing policy that a real estate broker
or agent must perform actual, necessary, and distinct services
from their primary services for which there are not duplicative
fees. And the rationale in HUD's longstanding interpretation
has been that referral fees tend to unnecessarily increase
closing costs for consumers because those costs are ultimately
borne by the consumer.
Chairwoman Biggert. Even though it was done for 20 years.
Thanks.
Now, I will turn to Ms. Braunstein. The appraisers
independence provision of the Dodd-Frank Act, section 1472,
requires lenders to compensate fee appraisers at a rate that is
``customary and reasonable'' and the Fed has issued related
rules. Should the government be in the fee setting business?
Ms. Braunstein. Actually, in determining what is customary
and reasonable, we precisely did not set fees. We talked about
a process by which someone could arrive at a fee that would be
considered customary and reasonable, but we did not publish fee
schedules or set specific prices. Part of the reason for that
is that it would be very difficult to do that, given all the
factors that need to be taken into account in determining the
fee.
Chairwoman Biggert. Do you think this provision in Dodd-
Frank should be repealed, or do you think it is a good
provision? How are people going to know what is reasonable and
customary?
Ms. Braunstein. What we tried to lay out was a means by
which you could arrive at those conclusions by looking at the
scope of the work, the qualifications of the appraiser, and
what the customary rates are in the geography where it is
taking place. There are methods to do that. There also was an
alternative provided that was in the statute whereby companies
could rely on surveys that are done in local markets. So, there
are a number of ways to determine that.
Chairwoman Biggert. Okay. Thank you. My time has expired.
Mr. Gutierrez, you are recognized for 5 minutes.
Mr. Gutierrez. Thank you so much. First, I would like to
ask Ms. Braunstein, could you just tell us three significant
consumer protection actions that have been taken in the last 3
years, the 3 most significant ones that come to your mind?
Ms. Braunstein. By the Federal Reserve, you mean?
Mr. Gutierrez. Yes, by the Federal Reserve under your
leadership.
Ms. Braunstein. Yes. I think enacting the HOEPA rules over
high-cost mortgages and putting those protections in place was
significant. I also think putting the prohibitions on loan
originator compensation was significant. It is hard to say. I
think some of the things that are being done in requiring
ability to repay throughout the entire market, which is
somewhat a codification of what we did in HOEPA, but for a
larger population of loans, I think that is also quite
significant.
Mr. Gutierrez. That is, you have to take into consideration
the ability to repay?
Ms. Braunstein. The ability to repay the loan, yes.
Mr. Gutierrez. Because many loans were--
Ms. Braunstein. They were made without taking those
considerations--frankly, without doing good underwriting.
Mr. Gutierrez. Good underwriting, like--
Ms. Braunstein. Income.
Mr. Gutierrez. It is 5 percent today, 7 percent next year,
maybe 11 or 12 percent in years and you can't make the payment.
It looks good the first year, but maybe the second, the third
and the fourth you can't make the payment. Those are cases you
probably see, not exactly in those.
Ms. Braunstein. You are talking about teaser rates.
Mr. Gutierrez. Without any relationship to my income or
possible income into the future.
Ms. Braunstein. Correct.
Mr. Gutierrez. I think those are significant. How long did
it take to put--when did you first begin to put the HOEPA rules
in place?
Ms. Braunstein. We held hearings in 2007 and we released
the final rules in 2008.
Mr. Gutierrez. In 2008. And were there practices that have
been--have you outlawed practices that have been longstanding
practices?
Ms. Braunstein. Yes. We addressed problems that we
identified in the mortgage market, some of which I would say
were more longstanding than others, some of which came about as
a result of the subprime boom in the market and were
specifically identified.
Mr. Gutierrez. Some might be more recent rules necessary
given the new generation of products.
Ms. Braunstein. Right. We looked at the markets at that
time, the products that existed, where there were problems.
Mr. Gutierrez. But if something were going on for 10, 15,
or 20 years, you wouldn't say it has been going on for 10, 15,
or 20 years, so we shouldn't take a look at it.
Ms. Braunstein. If it is causing a problem in the
marketplace, and in particular it is causing a problem and
concern for consumer protection, we should address it
regardless of how long it has been going on.
Mr. Gutierrez. Excuse my ignorance, but I have enjoyed
having you testify before us for so many years. Are you staying
at the Federal Reserve?
Ms. Braunstein. Yes, I am.
Mr. Gutierrez. Ms. Payne, you are going over to the new
Consumer Protection Agency?
Ms. Payne. Yes, sir.
Mr. Gutierrez. And when do you start there?
Ms. Payne. July 31st.
Mr. Gutierrez. July 31st. Who are you going to report to
when you get there?
Ms. Payne. I am going to be reporting to the enforcement
office under Mr. Richard Cordray.
Mr. Gutierrez. And does he have a boss?
Ms. Payne. I assume so. Maybe an acting boss.
Mr. Gutierrez. An acting boss. Do you think you might be
reporting to someone who will be reporting to an acting person?
Ms. Payne. I am not sure what the structure will be. I am
not that familiar at this point, and I can't speak on behalf of
the CFPB.
Mr. Gutierrez. You can't speak on their behalf. Right. I
still have time. Thank you. We get along so well, we chat
sometimes up here just by ourselves.
I am looking forward to you going over there, and--
Ms. Payne. Thank you.
Mr. Gutierrez. --putting that agency together. Because I
think one of the things fundamental to a democracy is if a
majority of legislators in the House and a majority of
legislators in the Senate get together, go to conference, a
public conference, the kind of public conference I haven't seen
since I have been here in 18 years; that is, we spent days and
nights in public and we came up with a product and that product
has certain people in charge of certain agencies and directors
in charge, I just find it a little undemocratic to then one
year later say, forget all that process, unless, of course you
go through a process that undoes all of that. Right?
So I kind of just want to use these moments to say that I
hope that there won't be those who will use undemocratic
approaches, approaches that aren't transparent and clear, to
thwart a majority that has been elected by the American people
and signed by the President of the United States, so that you
might have real supervisory personnel when you get there, just
like you have at HUD.
Thank you so much for your testimony today.
Chairwoman Biggert. Thank you.
Mr. Hurt, you are recognized for 5 minutes.
Mr. Hurt. Thank you, Madam Chairwoman. Thank you all for
appearing before us today. I had a question for Ms. Braunstein
and maybe sort of a follow-up with Ms. Cochran.
On April 1st, the Fed issued a final rule governing loan
originator compensation, and there have been some complaints
about the vagueness of that final rule. I was wondering, does
the Federal Reserve Board intend to issue formal guidance, and
if so, why, and if not, why not?
Ms. Braunstein. When the Federal Reserve Board issued the
rules last year in 2010, we did issue guidance in the form of
an official staff commentary on that rule. Since then, we have
also answered numerous questions and inquiries about that rule.
We have provided a lot of guidance to industry. And in fact, we
held a webinar just a few months ago where we had over 19,000
people listening in on that. And when people have asked us for
clarifications, we have provided those clarifications.
Mr. Hurt. But that is not the same as formal guidance, is
it?
Ms. Braunstein. In terms of formal guidance, the official
staff commentary is formal guidance.
Mr. Hurt. This is to Ms. Cochran. Ms. Cochran, do you know
whether or not the CFPB intends to review this final rule
because of the jurisdiction that you all will be given over
consumer financial products and services?
Ms. Cochran. Under Title XIV of the Dodd-Frank Act, there
is one additional issue with regard to loan originator
compensation in situations where consumers have paid up-front
discount fees. We know we need to go back and look at that
issue because it is not addressed in the current rule. So, at a
minimum, we will have that process and expect a notice and
comment rulemaking.
Mr. Hurt. And when will that transition take place?
Ms. Cochran. We are still planning out our process for the
coming months. The regulation is due under the statute by
January 2013, but we don't have a specific target date yet on
the proposal. We are still planning that.
Mr. Hurt. Ms. Payne, for you, I recently read a survey that
was prepared relating to the RESPA reform that suggested that
56 percent of the buyers said they did no comparison shopping
among lenders at a time when HUD's focus on consumer shopping
seemed to be at the top of the list. Additionally, 49 percent
of the buyers said that good faith estimate disclosure was too
complicated, a waste of time, or they weren't sure.
I was wondering if you could comment on the suggestion that
perhaps this RESPA reform is not headed in the direction that
you all obviously would like it to be?
Ms. Payne. Thank you for that question. I can take it in a
few parts.
We spent the better part of a year working on educating and
bringing everybody into compliance. The way I looked at the new
RESPA rule, I would describe it that it really changed the
culture around the GSE forms and the settlement forms. So, we
spent a lot of time internally working on education and
implementation.
Mr. Hurt. You mean culture within the agency?
Ms. Payne. Culture within the marketplace.
Mr. Hurt. Or among consumers?
Ms. Payne. Among the consumers and the industry preparing
the forms.
Your point about little or not enough comparison shopping
by consumers, we also--as I said in my opening comments, I
don't know if you were here--produced three consumer education
videos to try to get consumers aware of the new culture and to
help them shop. The three videos were ``Shopping For Your
Home''--
Mr. Hurt. I heard you say that.
Ms. Payne. --``Shopping For Your Loan'' and ``Closing the
Deal.''
Mr. Hurt. Who is watching them? How do you get them out
there? On your Web site?
Ms. Payne. On our Web site. They are on HUD's YouTube
channel.
Mr. Hurt. You are hopeful that the videos will encourage a
new culture among consumers to comparison shop?
Ms. Payne. We tried to get the word out through the
National Association of REALTORS to actually get them to show
the videos to consumers when they come in there to try to
purchase a home.
And as far as the GSEs, your comment about being too
complicated, I think the RESPA rule has taken a good first step
to change this culture. As you know, in a week we pass that
baton to the CFPB and they have already started their process
to further the RESPA-TILA reform efforts.
Mr. Hurt. Thank you.
Chairwoman Biggert. The gentleman from Ohio, Mr. Stivers,
is recognized.
Mr. Stivers. Thank you, Madam Chairwoman. I appreciate
everybody being here today and appreciate your time and all of
your testimony.
I wanted to sort of talk about the QRM a little bit. What
is going to be the role of the QRM with regard to, will it
change the market share or the role of FHA versus the GSEs?
Does anybody have a thought regarding that?
No one? Okay.
Does anybody have concerns about the ability-to-repay
provision contained in Dodd-Frank and how it has been
interpreted in the Qualified Residential Mortgage debate?
Ms. Norton. Sir, I can jump in, particularly back to your
original question relating to the FHA and GSE loans. What we
are seeing on the State level, and particularly with the
mortgage lenders that we supervise, that is the majority of
their market and those are loans that are exempt under the new
rules. So there is still, as I said in my testimony, a lot of
uncertainty about how these are going to play out in practice.
The position of State bank regulators is that the QRM
should be the best product on the market, but not the only
product on the market. We agree with the rule's threshold and
think it is necessary to have high standards. It is not the
only product, but we also believe there needs to be a certain
degree of flexibility, so as we start to see the market improve
and additional products and participants in the market, that
there is flexibility to adjust, to revisit, and to ensure that
it is not stifling growth.
Mr. Stivers. Great. With that in mind, Ms. Norton, do you
have any concern that the definition of the Qualified
Residential Mortgage is so tight that it is going to cause some
problems in the marketplace?
Ms. Norton. I think that is a good question. From our
licensees, we hear concerns. Frequently, we are on the ground,
and we hear quite a bit of feedback. But, again, from our
perspective, it is still unknown. I think that is the
unfortunate reason for my giving you what is probably not the
best answer in that we don't know. And we see the market as
concentrated right now with FHA and Fannie products, which are
exempt, and our prediction is that this is not going to be the
only product on the market, which we have tried to reassure our
licensees. However, again, we don't know, which is why we hope
to continue to work with our partners at the Federal level when
we need to revisit any rules, not limited to this, to ensure
that there is flexibility and it does not stifle growth.
Mr. Stivers. Thank you.
Ms. Payne, with regard to your role at HUD, do you see
significant barriers to private capital reentering the mortgage
lending and secondary markets, and if so, do you have any
thoughts about how we can make it a more hospitable environment
for private capital?
Ms. Payne. Thank you for that question. That is really
beyond the scope of my authority at HUD and my office, but I
would be happy to take that question back and try to get you an
answer.
Mr. Stivers. Okay. What has HUD done to look at the impact
of the policies that have been undertaken as part of some of
the rules and the changes in Dodd-Frank and what they mean to
existing homeowners and future homeowners? Have you looked at
those two groups of people and what the new regulations mean to
them?
Ms. Payne. From HUD's perspective, we have really been
focusing on implementing the new RESPA rule most recently, and
the SAFE rule, which just became finalized, that final rule,
and then also now in transitioning everything to the CFPB, so I
do not think we have gone in depth into analyzing that.
Mr. Stivers. Thank you. I yield back.
Chairwoman Biggert. Thank you. We are happy to be joined
again by the gentleman from Texas, Mr. Green. You are
recognized for 5 minutes.
Mr. Green. Thank you, Madam Chairwoman, and I thank the
ranking member as well. I am honored to have the opportunity to
sit. I am not a part of the subcommittee, but thank you for
allowing me to be an interloper.
Chairwoman Biggert. Yes, but you have the best attendance
record.
Mr. Green. Thank you. With reference to the QRM, I talk
quite a bit to constituents, many of whom are REALTORS, and
they talk quite a bit to people who purchase property. It all
makes sense so far. They tell me that many of the consumers are
concerned about 20 percent, that 20 percent is a bit much. I
absolutely believe that zero is a bit too little for a QRM. The
question becomes, is there someplace between 0 and 20 percent
that is more appropriate? I understand that we have the 5
percent retention that is going to apply to these other
products. Who would like to give me some intelligence on this
in terms of how you are proceeding?
Thank you very much. It is very difficult for me to see
names across, and I am confident I could look at the list, but
if you would, please, ma'am?
Ms. Braunstein. The Federal Reserve was involved with
drafting the QRM rules. The first thing I would say is that the
QRM is out for comment. We are getting a lot of comment on this
proposal, and intentionally extended the comment period so that
we could hear all the views before we move forward to produce
final rules. In terms of your question about the criteria that
are used, one thing to remember is that the QRM was intended to
be a very narrow slice of the market, and that most housing
loans would be outside the QRM, and that there would still be a
robust market outside of the QRM.
Mr. Green. So far--and obviously we are not far enough
along to have enough empirical evidence to give us a great
assessment, but are you finding thus far that we are having
these other products come to fruition? I am not hearing a lot
about them, and I do not follow it as closely as you do, but
what about the other products?
Ms. Braunstein. At this point in time, as we all know, the
housing markets are depressed, so there is not a lot of
activity there, but I think envisioning a marketplace that
recovers and is more robust, we would envision the QRM as being
a narrower slice of that marketplace.
Mr. Green. Is it possible that a QRM, as presently
constructed--and by the way, I supported Dodd-Frank, and I am
really--this is a search for truth about this that I am engaged
in. I do not want it to appear to be a quick-sided quest. Do
you think that this, at this moment in time, may need some
adjustment because we understand the importance of the role of
the housing market in our recovery?
Ms. Braunstein. The rules have not taken effect. They are
just proposed, and that is why we have the comment period,
because we want to get the comments and make some
determinations.
Mr. Green. Exactly. So the possibility still looms that it
may be less than 20 percent?
Ms. Braunstein. I have no idea what the final rules will
show. We will look at the comments and then see. But the other
thing to remember, obviously, is that we just came through a
very difficult period where housing was a big problem and that
one of the things this was intended to address is that people
were saying there was not enough skin in the game.
Mr. Green. I understand. Because my time is limited, let me
ask one additional question on this, and I may get in another.
With reference to the rule itself, when do you anticipate
getting the final rule?
Ms. Braunstein. I have no idea on that. It is an
interagency process. We extended the comment period until
August, and we have, I think, thousands of comments, so we will
have to see after that.
Mr. Green. Let me quickly ask this question: On the 21st of
July, rulemaking authority for RESPA will be transferred over
to the CFPB. At that point, how will persons desiring to tweak
certain rules have to go about it? I do not want you to give me
all of the details, but do they then come before the CFPB or is
HUD completely out of the picture? How does that work at that
point?
Ms. Cochran. With regard to the rulemaking authority, that
is correct, that on the 21st it transfers to the CFPB, and so
if someone was interested in petitioning for a rulemaking, they
would address the petition to the Bureau at that time.
Mr. Green. So, these questions concerning home warranties
would then fall under the auspices of the CFPB on the 21st?
Ms. Cochran. That is correct.
Mr. Green. Thank you, Madam Chairwoman, for the time.
Chairwoman Biggert. Thank you, Mr. Green. I have just two
questions, and then if there are no other questions, we can
move to the next panel, since it is quite large.
Mr. Park, Congress established a funding mechanism and
directed the Appraisal Foundation to do two things, standards
and qualifications. Appraisal practices seemed to be outside of
this area. Where do you see the role of the new Appraisal
Practices Board fitting into the two mandates given by
Congress?
Mr. Park. The Appraisal Subcommittee is charged with
overseeing the appraisal, with monitoring the Appraisal
Foundation, and reviewing the Appraisal Foundation,
particularly with respect to the Appraisal Standards Board and
the Appraiser Qualifications Board. The subcommittee also
provides a Federal grant to the foundation to carry out the
activities of the standards board and the qualifications board.
The practices board is not something that was--it is not part
of Title XI, the foundation has done that of their own
volition. We do monitor the practices board as part of our
role, but that is the limit of it.
Chairwoman Biggert. Can the Appraisal Subcommittee direct
the Appraisal Foundation to take certain actions then?
Mr. Park. No. The Appraisal Foundation is a private
organization, and the subcommittee has no authority to direct
the Appraisal Foundation.
Chairwoman Biggert. So it is just monitoring and reviewing?
Mr. Park. Yes, ma'am.
Chairwoman Biggert. Okay. What role did the Appraisal
Subcommittee play in the creation of the Appraisal Practice
Board?
Mr. Park. The Appraisal Subcommittee played no role in the
creation of the practices board.
Chairwoman Biggert. Okay. Thank you. And then Mr. Shear, is
appraisal oversight sufficient as it is established now?
Mr. Shear. That is a question I cannot answer at this time,
but one thing that I would like to mention is we have an
ongoing audit that is mandated by Dodd-Frank. The due date on
that is in January of 2012. We have interacted a lot with Jim
Park and others associated with the Appraisal Subcommittee, and
we are addressing many of the issues that are in Dodd-Frank,
including funding type questions. So we are looking into it,
and we will continue to interact with committee staff on it.
Chairwoman Biggert. Great, thank you. I would like to thank
this panel so much for being here, and we appreciate all your
testimony.
The Chair notes that some 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.
Thank you so much.
If the panel will take their seats so that we can begin the
second panel. I am glad to see that all the witnesses fit--
almost. Thank you all.
With that, I will introduce the second panel: Mr. Steve
Brown, executive vice president of Crye-Leike, on behalf of the
National Association of REALTORS; Mr. Henry Cunningham, CMB,
president, Cunningham & Company, on behalf of the Mortgage
Bankers Association; Mr. Tim Wilson, president, Affiliated
Businesses, Long & Foster Companies, on behalf of the Real
Estate Services Providers Council; Ms. Anne Anastasi, president
of Genesis Abstract and president, American Land Title
Association; Mr. Mike Anderson, president, Essential Mortgage,
on behalf of the National Association of Mortgage Brokers; Mr.
Marc Savitt, president, The Mortgage Center, on behalf of the
National Association of Independent Housing Professionals; Ms.
Sara Stephens, president-elect, Appraisal Institute; Mr. Don
Kelly, executive director, Real Estate Valuation Advocacy
Association, on behalf of REVAA and the Coalition to Facilitate
Appraisal Integrity Reform; Ms. Janis Bowdler, director of the
Wealth-Building Policy Project, Office of Research, Advocacy,
and Legislation, on behalf of the National Council of La Raza;
and Mr. Ira Rheingold, executive director, National Association
of Consumer Advocates.
With that, let me just say that without objection, your
written statements will be made a part of the record, and you
will each be recognized for a 5-minute summary of your
testimony. We will start with Mr. Brown. You are recognized for
5 minutes.
STATEMENT OF STEVE A. BROWN, EXECUTIVE VICE PRESIDENT, CRYE-
LEIKE REALTORS, ON BEHALF OF THE NATIONAL ASSOCIATION OF
REALTORS
Mr. Brown. Madam Chairwoman, Ranking Member Gutierrez, and
members of the subcommittee, I am Steve Brown, executive vice
president and a 37-year practitioner in the real estate
business based in Memphis, Tennessee. I thank you for the
opportunity to testify on behalf of the 1.1 million members of
the National Association of REALTORS (NAR).
Crye-Leike is the Nation's sixth largest brokerage company,
with a network of more than 3,600 licensed sales associates,
600 staff members, and over 130 offices located throughout
Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi,
Oklahoma, and Tennessee. In my testimony today, I would like to
cover several issues affecting housing and the mortgage
origination process.
A major issue facing real estate firms, home warranty
companies, and consumers is the treatment of home warranties
under the Real Estate Settlement Procedures Act, or RESPA.
RESPA was enacted to prevent kickbacks for referrals among
settlement service providers. Settlement service is defined as
a service required to originate a federally-related mortgage.
Traditional settlement service providers include lenders, real
estate agents and brokers, title agents and companies,
appraisers, and attorneys.
A home warranty is a contract issued to cover any needed
future repairs for a list of specific appliances or systems
spelled out in a warranty contract. Home warranties are a
purely optional insurance product regulated by State law.
Today, many times they aren't even purchased by buyers. Rather,
sellers offer them as a way to facilitate a sale or they are
sold after closing. Since many warranty companies do not employ
a sales force, real estate firms and agents have been the
industry's traditional means of making consumers aware of the
product. For their processing, marketing, administrative, and
after-sale problem-solving services, the real estate
professional receives a modest stipend.
Despite the fact that a home warranty is not a required
service to obtain a mortgage or buy a home, HUD long ago
included home warranties in the list of settlement services
subject to RESPA. This was not problematic since compensation
to agents and brokers was considered appropriate under RESPA's
long-standing exception that says a person can be paid for
services actually performed. That changed when HUD issued a
letter in 2008 that said the sale of warranties by real estate
agents was essentially a per se violation of RESPA.
Since 2008, NAR has worked with HUD to obtain clarification
and reverse this incorrect opinion. In 2010, HUD finally issued
additional guidance. Unfortunately, that guidance has been even
more problematic and has led to even more crippling class
action lawsuits that are hurting the industry. Perhaps even
more unfortunately, the guidance will likely make warranties
more expensive and less easily available to consumers.
For these and other reasons, NAR urges the subcommittee to
pass H.R. 2446, introduced by Representatives Biggert and Clay,
to clarify that home warranties are not subject to RESPA while
still providing for appropriate consumer disclosure.
Another area of concern is a problem that arises as a
result of the definition of points and fees contained in the
Qualified Mortgage provision of Dodd-Frank. The definition is
complicated, but the effect is that mortgage companies with
affiliates, such as the real estate firm's title company, in
the transaction, must count affiliate charges toward a 3
percent cap on fees and points. A mortgage company without
affiliates does not have to do so. As a result, many affiliated
companies will not be able to offer a full array of services to
their clients because in doing so they would violate the 3
percent cap.
The House addressed this issue in its version of the Dodd-
Frank bill with an amendment by Representative Clay, which was
removed during conference. Congress should rectify the 3
percent cap issue at its earliest opportunity so consumers can
fully benefit from greater competition between affiliated and
unaffiliated lenders.
Finally, I would also like to reiterate the importance of
the FHA program to the Nation's real estate recovery. With
credit already tight, FHA plays a vital role in providing
affordable, well underwritten mortgage credit to American
families. FHA's book of business since 2009 is performing
extremely well. Pending changes to the FHA loan limit formula
will result in significant declines in the current loan limits
in 669 counties in 42 States. In my firm's market, FHA is used
by more than 60 percent of our buyers. These declines will have
a dramatic impact on liquidity in our markets and across the
country. With housing markets struggling to recover, the last
thing we need to do is put an avoidable stumbling block in the
path of a much-needed housing recovery. I know it has been said
before, but I believe it bears repeating: without a housing
recovery, the Nation's economy as a whole will struggle to
recover its balance.
I strongly urge the subcommittee to approve H.R. 1754, the
Preserving Equal Access to Mortgage Finance Programs Act. This
bill, introduced by Representatives Gary Miller and Brad
Sherman, will make the current limits through FHA permanent and
ensure that families across the country have ongoing access to
affordable mortgages.
NAR opposed risky lending in 2004 when it approved the
policy that called for strong mortgage underwriting. We now
feel the pendulum has swung too far and fewer otherwise
qualified people are able to get a loan. Congress and the
Administration need to reexamine the impact of well-meaning
laws and regulations that have come out of the financial
mortgage crisis to ensure the still fragile housing and
economic recovery stay on track.
I thank you for your attention.
[The prepared statement of Mr. Brown can be found on page
106 of the appendix.]
Chairwoman Biggert. Thank you so much.
Mr. Cunningham, you are recognized for 5 minutes.
STATEMENT OF HENRY V. CUNNINGHAM, JR., CMB, PRESIDENT,
CUNNINGHAM & COMPANY, ON BEHALF OF THE MORTGAGE BANKERS
ASSOCIATION
Mr. Cunningham. Thank you, Chairwoman Biggert, Ranking
Member Gutierrez, and members of the subcommittee. My testimony
today on behalf of the Mortgage Bankers Association comes at a
time of great change in our industry. The recent economic
crisis has led many lenders to alter their practices and return
to a more traditional way of originating mortgages. As an
independent mortgage banker operating in North Carolina, I can
tell you firsthand that these changes are having a profound
effect on our industry, consumers' access to credit, and our
overall economy.
Back in April, I testified before the Capital Markets
Subcommittee on the proposed risk retention rule. That rule and
the Qualified Residential Mortgage definition continue to be
MBA's top focus. Simply put, the rule proposed by the
regulators would make credit more expensive and less available,
especially for minority, low- to moderate-income, and first-
time home buyers with little impact on reducing defaults. It is
a rule that needs to be pulled back and resubmitted.
There is a parallel regulatory effort that I fear could be
just as harmful to consumers and lenders. The Federal Reserve
has proposed new rules implementing Dodd-Frank's ability to
repay provisions. These rules would prohibit lenders from
making mortgages unless they make a reasonable determination
that the consumer has the ability to repay the loan. Dodd-Frank
allows lenders to meet this requirement by originating a
Qualified Mortgage, or QM.
Our concern is the rule offers a rebuttable presumption as
an alternative to a true safe harbor. In order for the QM to
work, lenders need an ironclad safe harbor, with brightline
standards that can be easily proven. If the standard is
uncertain, lenders will act more conservatively. If, however,
there is a strong safe harbor, borrowers will enjoy greater
access to credit and lower cost.
MBA believes the QM and QRM need to be harmonized. Both
were designed by Congress to achieve the same purpose of
achieving better, more sustainable lending. Regulators should
strive to achieve definitions that are essentially the same.
Because the QRM, as proposed, would exclude too many borrowers
from the most affordable loans, MBA believes the QM proposal is
a much better starting point for both sets of rules.
Another issue of importance is the ongoing implementation
of the SAFE Act. This is a well-intended law but has placed
considerable stress on States regulating lenders who operate in
multiple States or who would like to hire registered loan
originators working for federally-regulated lenders. Both
problems could be resolved if the States adopted transitional
licensing so that out-of-State or federally-registered
originators could work for a period of time as they qualify for
State licensing. Furthermore, we strongly oppose States
covering servicers under the definition of loan originators.
This is something Congress never intended.
We also call your attention to the difficulties we have had
with the recent loan officer compensation restrictions from the
Federal Reserve. The rule was finalized with too little
guidance and has led to great confusion. We urge the CFPB,
which will take over TILA responsibility, to review this rule
and listen closely to the concerns of the industry before it
moves to implement similar provisions under Dodd-Frank.
Finally, MBA is grateful to see RESPA and TILA finally come
under one roof. We hope the CFPB also draws on the expertise of
the housing industry as it merges these two disclosures.
Lenders work with consumers every day and have extensive
experience conveying information to consumers in the most
useful manner.
Madam Chairwoman, I am concerned that this wave of
regulation, while well intended, will further tighten credit
and smother a fragile housing recovery. Cunningham & Company is
not a big lender. We did not cause the housing crisis. Last
year, we originated $440 million in mortgages, 97 percent of
which were fixed-rate mortgages and prime fixed-rate mortgages.
We have been in the business for 21 years and employ 88 people.
We are certainly not too-big-to-fail, but sometimes I feel we
may be too-small-to-comply.
I would urge this panel to continue providing strong
oversight and act where necessary to ensure these new rules are
being implemented in a manner that allows consumers to continue
to enjoy the benefits of competition that smaller, independent
firms like Cunningham & Company provide.
Thank you for the opportunity to testify today. I look
forward to your questions.
[The prepared statement of Mr. Cunningham can be found on
page 118 of the appendix.]
Chairwoman Biggert. Thank you very much.
Mr. Wilson, you are recognized for 5 minutes.
STATEMENT OF TIM WILSON, PRESIDENT, AFFILIATED BUSINESSES, LONG
AND FOSTER COMPANIES, ON BEHALF OF THE REAL ESTATE SERVICES
PROVIDERS COUNCIL, INC.
Mr. Wilson. Good afternoon, Chairwoman Biggert, and members
of the subcommittee. My name is Tim Wilson, and I am president
of the Affiliated Businesses for Long & Foster Companies and
2011 chairman of the Real Estate Services Providers Council,
known as RESPRO.
Long & Foster Companies is the third largest residential
real estate brokerage firm in the Nation, with 13,000 real
estate associates operating out of 185 offices in the 8-State
Mid-Atlantic region. We offer a full array of mortgage, title,
and insurance services through affiliated business arrangements
that are regulated at the Federal level under RESPA.
Today, I am representing RESPRO, a national nonprofit
trade association of almost 200 residential real estate
brokerage, mortgage, home building, title, and other companies
that offer one-stop shopping for home buyers through affiliated
businesses. Firms like Long & Foster use our affiliated
companies to help assure that our real estate customers close
on time and move into their new homes as scheduled. Because we
own or partially own other companies needed to close the home
purchase transaction, we can resolve any service issues more
efficiently than independent companies could. Our affiliated
businesses also help us reduce the cost of the entire mortgage
transaction through shared facilities, management, technology,
equipment, and marketing expenditures.
Long & Foster is not alone in offering one-stop shopping
through affiliated businesses. According to the independent
real estate research firm REAL Trends, the Nation's 500 largest
residential real estate brokerage firms closed over 150,000
mortgage loans and conducted over 350,000 title closings
through affiliated companies in 2010.
My testimony today will focus on how the Dodd-Frank ability
to repay and risk retention standards discriminate against
affiliated businesses in a way that will reduce competition and
increase mortgage credit costs in many marketplaces throughout
the country.
As you know, Dodd-Frank provided a rebuttable presumption
that Qualified Mortgages, or QMs, comply with its ability to
repay standards. It created a similar category of Qualified
Residential Mortgages, or QRMs, under its risk retention
standards. Dodd-Frank specified that a mortgage cannot be a QM
if the total points and fees paid by the consumer in the
transaction exceed 3 percent of the loan amount and that a QRM
cannot be defined more broadly than a QM.
The problem for affiliated businesses is that Congress used
a 1994 HOEPA points and fees definition that counts fees paid
to a mortgage lender's affiliated company towards the 3 percent
threshold, but not fees paid to an unaffiliated company. As a
result, loans in which a mortgage lender's affiliated title
company is used would more likely exceed the 3 percent
threshold, which means that they would not qualify as QMs under
the ability to repay test or as QRMs under the risk retention
standards.
Since the consequences of not being a QM or QRM are severe,
companies with affiliated mortgage and title businesses, like
Long & Foster, would need to discontinue offering either
mortgage or title services in conjunction with those loans in
which a 3 percent threshold would be exceeded. Competition in
many marketplaces in the country would decrease because of the
withdrawal of affiliated businesses. This ultimately would
increase the cost of mortgage credit for consumers. Because 3
percent is more easy to reach on smaller loans, the impact
would be most predominant in low-income or lower- to middle-
income marketplaces.
There is absolutely no reason to discriminate against
affiliated mortgage lenders in this manner. The affiliated
mortgage companies of Long & Foster and other RESPRO members
use underwriting standards that meet Dodd-Frank requirements
and have equivalent or even lower default rates when compared
to the rest of the industry. Economic studies over the years
have shown that affiliated title businesses are competitive in
cost, and consumer surveys show consistently that consumers who
use the real estate brokerage firm's affiliated businesses have
a more satisfactory home buying experience.
RESPRO believes that Congress can prevent this negative
impact on competition and mortgage credit costs by creating a
narrow exemption for affiliated title fees from the 3 points
and fees threshold. For reasons identified in my written
statement, we believe this narrow exemption would correct the
problem without being inconsistent with the goals of Dodd-
Frank.
Thank you for the opportunity to testify, and I look
forward to your questions.
[The prepared statement of Mr. Wilson can be found on page
247 of the appendix.]
Chairwoman Biggert. Thank you, Mr. Wilson.
Ms. Anastasi, you are recognized for 5 minutes.
STATEMENT OF ANNE ANASTASI, PRESIDENT, GENESIS ABSTRACT, LLC,
AND PRESIDENT, AMERICAN LAND TITLE ASSOCIATION
Ms. Anastasi. Madam Chairwoman, Ranking Member Gutierrez,
and members of the subcommittee, I am Anne Anastasi, president
of Genesis Abstract in Hatboro, Pennsylvania. For the past 33
years, I have worked as a land title professional, and I am the
current president of the American Land Title Association
(ALTA).
ALTA members serve as independent third-party facilitators
who conduct real estate and mortgage closings. We interact with
consumers every day at the closing table where we are
responsible for two major functions: first, we ensure that the
transaction is completed quickly, honestly, and in accordance
with all of the parties' instructions; and second, we serve as
the last resource for consumers if they have questions about
the fees that they are paying or the documents they are signing
at closing. These closings can often feel daunting because most
consumers only experience a closing a few times in their lives.
Because of our special view into the consumer's experience,
ALTA supports improvement to the mortgage process, and our
members can be especially useful to policymakers as they
consider how best to accomplish this task.
As we seek to improve the mortgage origination process, we
need to fundamentally rethink a key part of the architecture of
the current process: the Federal mortgage disclosure laws.
These laws are designed to help consumers shop for a mortgage
and settlement services by reducing confusion and providing the
consumer with timely information about their transaction.
However, our experience with consumers at the settlement table
reveals that a significant amount of confusion still exists. As
efforts are undertaken to revise and combine the mortgage
disclosures required under RESPA and TILA, we offer the
following three recommendations to improve the process.
First, improve the disclosures transparency by itemizing
all costs, not just some. ALTA members routinely see the
confusion caused by the current practice of itemizing some fees
while combining other fees into categories or roll-ups. In
addition, the greater transparency provided by full itemization
increases information to help consumers shop for settlement
services among competing providers, promoting competition and
reducing excessive fees.
Second, make disclosures flexible enough to be applicable
in all parts of the country. While real estate closings and
practices vary greatly from State to State, the 2010 RESPA
regulation created a regime that forces transactions into a
one-size-fits-all disclosure. In many parts of the country, a
number of fees that must be listed on the borrower's GFE are
actually paid by the seller. Despite this, the latest RESPA
regulation includes strict rules that require that these fees
be irrationally disclosed as the borrower's responsibility.
While appropriate credits are given on other lines of the new
proposed combined disclosure, this unnecessary confusion must
be explained to consumers by the lender and the closing agent.
One example of this paradox is the owners' title insurance
policy. In many parts of the country, owners' title insurance
is paid for by the seller. However, the lender and closing
agent must disclose this charge as a borrower's cost. Not only
does this create confusion, but the consumer starts to question
the integrity of the transaction when we have to sit at the
closing table and say, we are showing this fee on your side of
the ledger. Do not worry about it. We will give you a credit on
some other page.
Our last recommendation is that if the purpose of the
Federal mortgage disclosure is to protect consumers, then every
effort should be made to ensure that the disclosure helps
consumers make educated choices. At a minimum, these
disclosures should not prejudice consumers against protecting
themselves. The current draft of the initial disclosure form
includes the term ``not required'' when they describe
settlement services that are not for the lender's benefit.
One example is owner's title insurance which, if it is
purchased, indemnifies consumers against challenges to the
title to their property. If a consumer chooses not to purchase
this coverage, their financial interests are not protected,
even though the lender is protected by a loan title insurance
policy. Disclosure forms should avoid prejudicial phrases like
``not required'' that could imply that a particular service is
of less value to the consumers. We know, as a result of the
robo-signing and the foreclosure crisis, that the purchasing of
an owner's title insurance policy is a prudent decision.
We encourage the CFPB to find alternative terms when
describing these types of services such as ``additional
protections'' or ``recommended.'' How can we say we want to
protect consumers when an unfortunate choice of words could
lead to a misinformed and dangerous decision with unintended
consequences?
ALTA is eager to serve as a resource, and we welcome your
questions. Thank you very much.
[The prepared statement of Ms. Anastasi can be found on
page 55 of the appendix.]
Chairwoman Biggert. Thank you so much.
Mr. Anderson, you are recognized for 5 minutes.
STATEMENT OF MIKE ANDERSON, CRMS, VICE PRESIDENT & CHAIRMAN OF
GOVERNMENT AFFAIRS, NATIONAL ASSOCIATION OF MORTGAGE BROKERS
Mr. Anderson. Good afternoon, Chairwoman Biggert, Ranking
Member Gutierrez, and members of this committee. And thank you
for inviting me to testify today.
For decades, this country has encouraged homeownership
because we believe it is the bedrock of building strong
communities. However, we find ourselves at a tipping point
relative to homeownership. In this down economy, we are no
longer encouraging people to climb that ladder. In fact, we are
making it increasingly more difficult at every single turn. We
are destroying the ladder of homeownership.
First-time home buyers will find it virtually impossible to
purchase a home in most markets if a 20 percent downpayment
rule is required. This will mean that the current homeowners
looking to move up will find it more difficult to sell their
home because of the shrinking pool of eligible home buyers. As
a result, home values will continue to decline.
Since 2007, our industry has been overwhelmed by literally
thousands of pages of legislation, regulation, and disclosures
aimed at helping the consumer better understand the mortgage
process. However, here we are today, 4 years later, and the
outlook for our housing recovery is dismal at best. While homes
are more affordable now, new regulations, extremely tight
underwriting, high unemployment, and low consumer confidence
are preventing would-be home buyers from entering the market.
The recent rule regarding loan originator compensation has
created the most unlevel playing field I have seen in my 30
years in the business. It is so flawed and biased against the
small businesses that we have little chance of competing with
the large banks, thereby reducing consumer choice and
competition in local communities. I receive emails every single
day from small businesses closing their doors because of this
rule.
I want to give you just a few examples. After I quote a
consumer a mortgage rate and fees, I cannot lower my price to
compete against the bank next door. You heard that right. I
cannot lower my price to compete with the bank next door under
any circumstances. Honestly speaking, you have to admit that
this is just not right. If the consumer pays a broker
commission, I cannot pay my loan officer who worked with that
consumer a commission for that transaction.
Lastly, at the closing table, many consumers find
themselves short a few hundred dollars with circumstances
beyond their control. I cannot reduce my profit to help the
consumer whatsoever. We all know in this room that this is
wrong. And I would like to say, you will miss us when we are
gone. We are urging Congress and the CFPB to amend LO comp.
Before I conclude, I also want to touch briefly on the
subject of the QRM. I have with me a chart prepared by the
Federal Reserve Bank that illustrates foreclosures by loan type
from 1998 through 2007. Looking at the data outlined in the
chart, it is clear what caused the mortgage crisis. It was bad
loan products.
So what should we conclude from this? In short, if it is
not broken, please do not try to keep fixing it. Fixed
mortgages were not the culprits in the mortgage crisis. We need
to slow down and consider the unintended consequences of this
rule.
When the FDA discovers that a prescription drug is causing
harmful side effects to consumers, it exercises its authority
to pull the drug off the shelves. The agency does not seek to
overhaul the way doctors prescribe all medication or how
pharmacists fill those prescriptions. So we need to take the
same approach.
I want to thank you for letting me testify today, and if
there are any questions, I will be happy to answer them.
[The prepared statement of Mr. Anderson can be found on
page 65 of the appendix.]
Chairwoman Biggert. Thank you so much, Mr. Anderson.
Mr. Savitt, you are recognized for 5 minutes.
STATEMENT OF MARC SAVITT, CRMS, PRESIDENT, THE NATIONAL
ASSOCIATION OF INDEPENDENT HOUSING PROFESSIONALS
Mr. Savitt. Good afternoon, Chairwoman Biggert, Ranking
Member Gutierrez, and members of the committee. I am Marc
Savitt, president of the National Association of Independent
Housing Professionals (NAIHP). Thank you for inviting NAIHP to
testify on these important issues which are critical to the
restoration of our housing market and the overall economic
health of our country.
NAIHP represents small business housing professionals in
all 50 States and the District of Columbia. Our members are
Main Street USA who assist consumers through the difficult maze
of purchasing or refinancing residential real estate. For the
past 4 years, two Administrations and Congress have sought a
solution to reenergize the housing industry. Despite the most
affordable home prices and lowest interest rates in a
generation, tax credits and other incentives, our Nation's
housing market continues to underperform.
Like so many of the housing professionals I represent, I am
a small business owner. In today's market, I not only struggle
to attract new business, I am also severely overburdened with
an onslaught of punishing rules and regulations that are
destroying small business, killing jobs, and harming consumers.
Worst of all, there does not seem to be an end in sight.
Let me give you an example. Under the SAFE Act--which we
supported, by the way--I was required to go through an
extensive background investigation: fingerprinting; credit
check; two written examinations, both the State and Federal; 20
hours of preeducation; and the purchase of a surety bond.
However, despite having met these strict qualifications, I
cannot be trusted to order a residential real estate appraisal.
To remind the committee, it was not mortgage brokers or
originators who were the subject of former New York Attorney
General Cuomo's investigation. It was the federally-chartered
banks. Moreover, these same banks now enjoy additional profits
from their joint venture relationships with unregulated
appraisal management companies and have complete control over
the valuation system in this country. Regulators and consumers
justify excluding brokers from the appraisal process because
they claim having a financial interest in the transaction is a
conflict of interest. If this were really about conflicts of
interest, then banks, who have already been implicated in
appraiser coercion, would not be allowed to have joint venture
relationships with the appraisal management companies and share
profits. This is about market share.
The bank and AMC joint ventures have also led to the
assassination of the appraisal industry. Under these
guidelines, license appraisers have two choices: work for the
AMCs for fees between 40 and 60 percent less than what is
customary and reasonable in their geographic area; or go out of
business. Many thousands of appraisers have gone out of
business across the country. These guidelines have increased
the costs for consumers by an estimated $2.8 billion a year. Is
there a consumer benefit? Absolutely not. Since May 1, 2009,
the day these guidelines were implemented, valuation fraud has
increased over 50 percent. These guidelines have also
contributed to the continuing decline in property values.
With your permission, Mrs. Biggert, I would like to take
the remainder of my time to address some comments that were
made by Ms. Braunstein from the Federal Reserve Board.
Chairwoman Biggert. Without objection, it is so ordered.
Mr. Savitt. Thank you. She made some comments, first of
all, saying they had a webinar on March the 17th, which they
did, to try to explain and clarify what was involved with the
loan officer compensation rule. It is our understanding that
there were approximately 10,000 people on that call. A few days
before that call, they came out with the slides, they issued
the slides that they were using in their presentation, and
every one of those slides had a disclaimer on it which
basically said, ``Do not hold us to this.'' So, there really
was not much of a clarification. She mentioned a compliance
guide. The compliance guide, which they submitted after they
received a letter from the SBA's Office of Advocacy because
they had not submitted one at first, they finally did submit
one which amounted to a 4-page cut-and-paste out of their rule.
They have steadfastly refused to answer questions in
writing. They will tell you anything you want to know verbally.
They will not answer any questions in writing, which puts all
of us in this industry in a position to be sued because we do
not know what they want us to do. We have asked numerous times,
and sometimes even verbally, we get different answers.
The SBA's Office of Advocacy also still has a problem, even
though they did turn in that 4-page cut-and-paste, they still
have a problem with that. They wanted a proper compliance guide
because in the Fed's rule itself, it said there would be a
significant economic impact on small entities, but the Fed, of
course, never addressed that.
The last thing is, as you may know, NAIHP and NAMB filed
suit against the Federal Reserve Board over this compensation
rule, and in the answer to our lawsuit, the Federal Reserve
Board acknowledged that there was no difference because, as you
know, this was over the unfair and deceptive practice of what
they were claiming Yield Spread Premiums or YSPs were, that
they did acknowledge that there was no difference between
broker YSP and what they called lender YSP or creditor YSP.
Thank you.
[The prepared statement of Mr. Savitt can be found on page
207 of the appendix.]
Chairwoman Biggert. Thank you.
Ms. Stephens, you are recognized for 5 minutes.
STATEMENT OF SARA W. STEPHENS, MAI, CRE, PRESIDENT-ELECT,
APPRAISAL INSTITUTE
Ms. Stephens. I would like to thank the chairwoman, the
ranking member, and the members of the subcommittee for the
opportunity to be with you today.
Professional real estate appraisers are analysts of local
markets. Their research and opinions help protect the safety
and the soundness of our banking system and provide a tool that
defends mortgage lenders. Today, many lenders enabled by
government policies continue down a treacherous path toward the
commoditization of appraisals, promoting collateral validation
over collateral valuation. This puts banks, home buyers, and
taxpayers at risk. Unfortunately, for many years, appraisal has
been viewed as an impediment to closing deals. Like other risk
management functions, appraisal has been marginalized with many
financial institutions as evidenced by recent investigative
reports which tell how loan production rules and financial
institutions lack a risk chromosome. New policies intended to
correct past regulatory failures have concentrated power over
appraisal decisions in the hands of a few. Coercion of
appraisers has taken on new forms, where some are proposing to
dictate the outcome of appraisals by actually legislating how
to conduct an appraisal. All of these actions serve to
effectively tie the hands of appraisers. Strangely, real estate
agents have reported that consumers are paying higher appraisal
fees, yet fees actually paid to appraisers have declined, in
some cases by more than 40 percent.
How can this be? Simply put, lenders have added
administrative expenses onto the backs of the consumers through
the appraisal line on the HUD-1 form. Further, many lenders
have chosen to outsource the appraisal management function to
third-party management companies who pass only a fraction to
the appraiser actually performing the appraisal service.
Current policy leaves consumers completely in the dark. Here,
we need transparency between appraisal and appraisal management
fees, especially since it is the consumer who pays these fees
in nearly all transactions.
Given the diversity of real estate, appraisals cannot and
should not be developed like a cookbook with a set of recipes
that dictate how an appraisal is to be developed. The Appraisal
Institute's 80 years of experience have taught us that a
credible appraisal process does not lend itself to a step-by-
step, by-the-numbers, how-to guidebook. Instead, what is
required is that the practitioner is sufficiently trained to
understand the process as appropriate to the specific
assignment.
For many appraisal problems, there is more than one
solution. Take the valuation of green properties, our
appraisals in declining markets. These are complex issues that
require some flexibility of approach. Rules of thumb do not
work. Credibility requires rigorous research and analysis, as
for every rule there may be an exception. It also requires
expertise by those using an appraisal or establishing processes
around it.
To this point, Federal agency policies have resulted in
caps on appraisal fees and propped up a business model of
third-party middlemen. Unfortunately, the Federal Reserve's
interim final rule is not faithful to congressional intent. The
Appraisal Institute thinks Congress' intent was right on
target. We urge Congress to guide the regulators' aim,
directing them to correct the interim final rule to promote
credibility over speed and cost.
We must also look at the process under which appraisal
policies are overseen and implemented. Congress directed and
funded the Appraisal Foundation to perform two functions:
developing uniform appraisal standards; and establishing
minimal appraisal qualifications. Without direction from
Congress, the foundation has created a new board with no clear
purpose or boundaries. Congress authorized the Appraisal
Subcommittee, the Federal oversight agency of our profession,
to monitor and review the activities and structure of the
Appraisal Foundation, but not to direct or overrule its
activities and structure. The Appraisal Subcommittee may have
exceeded its congressional authorization with respect to the
creation of the new board.
Such potential regulatory overreach is a huge concern. At a
minimum, the recent actions of the Appraisal Subcommittee and
the Appraisal Foundation should be examined by Congress, and we
urge this committee to bring clarity and accountability to the
relationship between the Appraisal Subcommittee and the
Appraisal Foundation where it does not exist today.
In conclusion, last year Congress passed the most
significant legislative update of the appraisal regulatory
structure in 2 decades. In our view, this was only a beginning.
Moving forward, Congress must maintain an active role in
oversight of appraisal regulators and build on these reforms to
address ongoing weaknesses. We can ill afford to allow another
20 years to pass without a thorough audit of appraisal
regulations. Consumers, lenders, and taxpayers deserve much
better than what they have been given to date.
Thank you very much.
[The prepared statement of Ms. Stephens can be found on
page 230 of the appendix.]
Chairwoman Biggert. Thank you.
Mr. Kelly, you are recognized for 5 minutes.
STATEMENT OF DONALD E. KELLY, EXECUTIVE DIRECTOR, REAL ESTATE
VALUATION ADVOCACY ASSOCIATION (REVAA), ON BEHALF OF REVAA AND
THE COALITION TO FACILITATE APPRAISAL INTEGRITY REFORM
Mr. Kelly. Madam Chairwoman, and members of the
subcommittee, I appreciate the opportunity to testify today
both for REVAA and for the FAIR Coalition. On a personal note,
as a former staffer of what was then called the Banking
Committee, it is my great pleasure to be back here with you
today.
In summary, first, REVAA and FAIR members provide valuable
services to financial institutions, appraisers, and consumers
in the course of the residential real estate appraisal.
Second, REVAA and FAIR members are working proactively with
both the Federal Government and the States to implement the
registration and regulatory requirements for appraisal
management companies contained in the Dodd-Frank Act.
Third, we encourage the Consumer Financial Protection
Bureau to rely on the research and reasoning utilized by the
Federal Reserve Board for payment of customary and reasonable
appraisal fees.
To my first point, REVAA members produce real estate
valuation products, including appraisals and broker price
opinions and others. They have been responsible for
advancements in technology that benefit mortgage investors,
servicers, originators, and ultimately consumers. FAIR is a
coalition of five of the Nation's largest appraisal management
companies.
AMCs typically operate a regional or national network of
employee-based appraisers, independent contractors, and
companies for the completion of appraisal reports. AMCs act as
a centralized appraisal source for mortgage lenders that
operate on a wide geographic basis. AMCs work to match the
assignment with a qualified local appraiser. The average
appraiser contracted for an assignment by a major AMC has 15
years of experience and typically travels less than 13 miles on
any given assignment. AMCs perform extensive administrative and
quality control functions on behalf of both the appraiser and
the lender to ensure delivery of a high quality appraisal
report.
Contrary to what some have suggested, appraisers directly
benefit from working with an AMC by having an advocate to
ensure appraisal independence to make sure that no improper
attempt is made to influence the appraisal process. Much of the
appraisal fraud that contributed to our current crisis has been
linked to such improper influence. In addition, AMCs provide
significant value-added services to appraisers, such as quality
control, marketing, billing processes, etc., that reduce the
cost of back room and administrative tasks. AMCs help consumers
by reducing the time required for appraisal delivery and
improving the quality of appraisers with efficient and
effective quality control systems.
To my second point, AMCs are subject to new regulatory
requirements under the Dodd-Frank Act, including new minimum
standards and a national registry. Prior to the passage of the
Act, several States had begun the process of enacting laws to
require the registration of AMCs and to establish minimum
requirements. AMCs have been actively involved with the States
from the inception of these regulatory laws and have long
supported transparency and independence in the appraisal
process. We believe that it is important to work toward
consistency and uniformity in the State laws and regulations to
ensure that AMCs can effectively implement the necessary
compliance procedures to operate on a national basis. We
believe the Appraisal Subcommittee and the relevant banking
agencies should contribute to ensuring a consistent set of
requirements in this regard.
Finally, the Dodd-Frank Act required that lenders and their
agents, including AMCs, compensate appraisers at a customary
and reasonable rate for appraisal services. REVAA and FAIR
believe that the Federal Reserve Board acted appropriately and
logically to implement the congressional intent to this
provision. The Board has recognized that appraisal services are
not one-size-fits-all, as my friend Sara has indicated, and it
has created a compliance structure for the payment of customary
and reasonable fees that reflects market reality and ensures
that the appraisal costs borne by consumers will remain fair
and competitive.
While the Board's interim final rule remains effective
without further finalization, we are concerned that some may
ask the new consumer bureau to reconsider the rule with the
intention to mandate a higher level of compensation for
appraisers, one above market rates. This would be unfortunate,
as consumers would then be subjected to higher appraisal fees
without gaining any additional service for that fee. We hope
that the new bureau, for the benefit of the consumer, will
maintain the payment structure established by the Board.
Thank you for the opportunity to testify. I hope that you
will consider us as a resource in the future.
[The prepared statement of Mr. Kelly can be found on page
139 of the appendix.]
Chairwoman Biggert. Thank you so much.
Ms. Bowdler, am I pronouncing that correctly?
Ms. Bowdler. Yes.
Chairwoman Biggert. You are recognized for 5 minutes.
STATEMENT OF JANIS BOWDLER, DIRECTOR, WEALTH-BUILDING POLICY
PROJECT, NATIONAL COUNCIL OF LA RAZA
Ms. Bowdler. Thank you. Good afternoon. I would like to
thank you, Chairwoman Biggert, and Ranking Member Gutierrez for
inviting me here today. In my capacity as the director of the
Wealth-Building Policy Project at the National Council of La
Raza (NCLR), I oversee our research and advocacy on housing and
financial services issues facing Hispanic families.
NCLR has worked tirelessly for decades to make
homeownership possible for a greater number of Latinos. The
NCLR homeownership network provides thousands of first-time
home buyers objective advice and guidance each year. This work
gives us a unique insight into the opportunities and challenges
facing Latinos in the housing market. In fact, NCLR documented
a number of systemic problems impacting Hispanic consumers
prior to the market crash. The evidence and feedback from
Latino service agencies led us to support the protections
included in Dodd-Frank. While we wait for final regulations,
NCLR has high hopes that the new rules will protect consumers
while maintaining market access.
In my time today, I will briefly review those challenges,
and then turn to three critical areas of mortgage origination
reform currently under consideration. In testimony before the
Financial Services Committee 2 years ago, NCLR President and
CEO Janet Murguia shared four basic problems facing Latino
housing consumers.
Briefly, they were that shopping for credit is nearly
impossible. Few tools exist, so even the most diligent shoppers
have a hard time making apples-to-apples comparisons. Borrowers
are steered towards expensive products, even when they have
good credit. Creditors trap borrowers in cycles of debt, and
fraud and scams are rampant. The FTC has found that Latinos are
more than twice as likely to become targets of fraud as Whites.
This blatant pattern of overpayment, abuse, and discrimination
disrupts the financial stability of low-income and minority
households. In such an environment, deceptive actors have had
their way at the expense of responsible lenders, homeowners,
and taxpayers.
The protections established in Dodd-Frank responded
directly to this situation. Well-implemented regulations should
advance a mortgage market that treats consumers and honest
dealers fairly and maintains a responsible flow of credit to
qualified borrowers.
In response to questions raised during this hearing, we
offer our perspective on three aspects of origination. The
first is the revised TILA GFE disclosure being drafted by CFPB.
As I mentioned, our mortgage shopping tools are inadequate. The
GFE was supposed to play this role but comes too late in the
process to be effective. NCLR applauds CFPB for their progress
so far in developing and evaluating a new tool. The online
feedback tool is transparent and allows for a broad audience to
provide input. CFPB has also co-developed a Spanish language
version of the disclosure. Word-for-word translations are often
problematic and fail to communicate the same meaning, tone, and
purpose as the English original. We urge CFPB to use their
online tools to solicit comments on the Spanish version of the
disclosure.
Also under debate is the Federal Reserve's rule on
originator compensation. Steering was one of the most egregious
deceptive lending tactics aimed at Hispanic borrowers. Simply
put, originators were paid more for pushing creditworthy
borrowers into loans with high upfront fees, interest-only
payments, negative amortization, and exploding interest rates.
Mortgage brokers play an essential role in helping Latino
families purchase their home, especially when Spanish is their
preferred language, but unfortunately this trust was violated
by unscrupulous actors, causing irreparable harm to families
and honest brokers.
Therefore, we strongly support the commonsense rule
proposed by the Federal Reserve and further cemented by Dodd-
Frank. This rule rightly prohibits compensation based on the
terms of the loan while still allowing originators to be paid
for their work.
Finally, NCLR urges this committee to consider the role of
housing counselors in mortgage origination. Research has shown
that borrowers who receive counseling before they buy are less
likely to default. During the bubble years, housing counselors
often delivered the tough ``eat-your-veggies'' message to
consumers, often in direct competition with originators and
REALTORS. Rather than work with counselors, many industry
players saw them as a roadblock to a fast and lucrative
closing.
The elimination of funding for the housing counseling
program is a huge loss for home buyers and communities of color
in particular. We urge Congress to fully fund the program at
$88 million in the 2012 budget.
I want to take a moment to especially thank the members of
this committee, in particular Mrs. Biggert, Mr. Gutierrez, and
Ms. Waters for your support and leadership. Members of this
committee have been big champions of counseling. We appreciate
that.
In sum, NCLR supports the mandates of Dodd-Frank that
further responsible and accessible markets, reward honest
lenders, and aid qualified home buyers and homeowners. I would
like to make three modest recommendations: make the Spanish
TILA form available for public comment; fully fund the housing
counseling program; and swiftly implement the Federal Reserve's
rule on steering.
Thank you, I would be happy to answer any questions.
[The prepared statement of Ms. Bowdler can be found on page
73 of the appendix.]
Chairwoman Biggert. Thank you.
Mr. Rheingold, you are recognized for 5 minutes.
STATEMENT OF IRA RHEINGOLD, EXECUTIVE DIRECTOR, NATIONAL
ASSOCIATION OF CONSUMER ADVOCATES
Mr. Rheingold. Thank you.
Chairwoman Biggert, Ranking Member Gutierrez, and members
of the subcommittee, thank you for inviting me to testify
today.
My name is Ira Rheingold, and I offer this testimony on
behalf of the National Association of Consumer Advocates (NACA)
and the low-income clients of the National Consumer Law Center.
I have been a public interest attorney for my entire career
and worked in some of our Nation's poorest urban and rural
communities. From the mid-1990s through 2001, I lived and
worked in Chicago, where I ran the Legal Assistance
Foundation's Home Ownership Preservation Project. During those
years, I worked against the unfair and deceptive practices most
of the actors in the mortgage industry were involved in.
Today, I am the executive director of the National
Association of Consumer Advocates, an organization of attorneys
who represent those very same consumers and communities all
across this country. At NACA, I also manage the Institute for
Foreclosure Legal Assistance, a project that provides funding
and training to Legal Aid programs that assist consumers trying
to save their homes.
Before I address recent changes to rules affecting mortgage
origination, I think it is essential to put the recent reforms
into the context of what the mortgage process looked like until
its bubble burst and shattered our Nation's economy.
The mortgage market of the past few decades in no way
resembles what most of us thought we understood about buying a
home or getting a loan. I have talked to thousands of consumers
who believed that the mortgage entity that originated their
loan would only profit when they timely made their mortgage
payment. While this may have been the case when our parents or
even our grandparents bought their homes, this was not true for
most of the past 2 decades.
Instead, because of the growth of securitization as a tool
to fund both prime and subprime mortgages, with all its
confusing layers, multiple actors and other perverse
incentives, the nature of the consumer mortgage originator
relationship, unbeknownst to the consumer, fundamentally
changed.
No longer was the borrower's best interest or even their
ability to repay the loan part of the mortgage transaction
calculation. Instead, the real transaction was between the
mortgage originator and the investment bank, not the borrower.
Under these circumstances, what American consumers needed
was vigorous enforcement of existing consumer protections as
well as a new set of consumer protections to correspond with
the very different mortgage world that had now been created.
Unfortunately, what the Federal Government gave us was the
exact opposite, not only diminishing its regulation and
enforcement of this markets, but providing interference and
protection under the guise of preemption for mortgage market
players when States, recognizing the fundamental flaws in the
system, attempted to protect their own citizens.
Despite the dire warnings of consumer advocates about the
consequences of the clearly broken U.S. mortgage marketplace,
it took a full-scale credit and mortgage meltdown before
Congress finally and belatedly took action by passing the
historic Dodd-Frank Act.
While discussing the merits of the important mortgage
origination reforms created by this law, to me the question
before our panel today seems to be extremely premature. Simply,
we really won't know how successful the law will be in creating
a fair and honest mortgage marketplace until we have a fully
functioning housing market. Unfortunately, that won't happen
until we effectively resolve the foreclosure crisis that
continues to serve as an anchor on our housing market and on
our overall economy.
Nonetheless, from a consumer's perspective, Dodd-Frank was
an incredibly important piece of legislation. It not only
created the independent and absolutely essential CFPB, but it
also addressed most of the significant problems faced by
everyday Americans trying to get a mortgage loan. So let's take
a look at those provisions and how they should impact the
mortgage market.
The banning of Yield Spread Premiums: The banning of YSPs
may be the most important change in the mortgage origination
landscape. Simply put, no longer will mortgage brokers be
allowed to benefit by steering consumers into loans with high
rates or other terms lucrative for the broker but harmful to
consumers.
The banning of forced arbitration clauses: Restoring a
consumer's right to hold mortgage banks accountable in court is
essential to building a mortgage market that consumers can
trust.
Limitation on prepayment penalties: Another one of the most
abusive practices witnessed in the very recent mortgage market
past, prohibiting prepayment penalties for non-safe-harbor
mortgages should eliminate the problem of homeowners being
trapped in expensive mortgage loans.
Requiring creditors to evaluate a consumer's ability to
repay: Consumers were typically amazed and pretty appalled when
I explained that there was no effective Federal law that
prohibited mortgage originators from making loans that
borrowers could not afford. Now that this has been remedied, I
would hope that the mortgage industry would once again engage
in fair and responsible underwriting of loans.
The expansion of HOEPA: By expanding the range of loans
subject to HOEPA, it will not only provide consumers with much
more robust protection from high-cost loans, it will hopefully
provide a sufficient disincentive so that originators don't
continue to make these disruptive loans.
Beginning to reform the appraisal process; creating safe
harbor mortgages; and finally, a single integrated disclosure:
Dodd-Frank required the CFPB to create a single integrated
disclosure for mortgage transactions that combine the RESPA
settlement statement and the mandatory TILA disclosures for
mortgages.
For more than a decade, Federal regulators have struggled
to create a fair and simple disclosure that gives consumers the
essential information they need to both shop for a mortgage and
openly choose wisely for themselves. Each time HUD or the Fed
attempted to develop a form that offered some promise for
consumers, objections arose from various single interest
entities who feared that real honest and consumer-friendly
disclosures might hurt their bottom line.
Today, almost 1 year since the passage of the
groundbreaking Dodd-Frank legislation--
Chairwoman Biggert. If you can conclude, please.
Mr. Rheingold. I am concluding. While the struggle
continues--today, almost 1 year since the passage of Dodd-
Frank, millions of former and current homeowners continue to
battle to right themselves. While the struggle will continue
until we finally and forcefully address the foreclosure crisis
that continues to depress our housing market, we have great
faith that the mortgage mandates of Dodd-Frank, if implemented
properly, will go a long way in creating a fair and honest,
consumer-friendly marketplace.
[The prepared statement of Mr. Rheingold can be found on
page 198 of the appendix.]
Chairwoman Biggert. Thank you. Your time has expired.
I actually have a question for Ms. Bowdler and Mr.
Rheingold, and that is, are you familiar with the RESPA Home
Warranty Clarification Act that was talked about earlier, H.R.
2446, and could you comment on the bill?
Mr. Rheingold. I can't say that I am incredibly familiar
with it. I know enough about the home warranty issue and the
RESPA process. I think my initial reaction to the whole notion
is that we have always been concerned about what REALTORS can
sell to homeowners.
Consumers are a captive audience at that very moment, and
the reason why RESPA was created was because of the concern
that consumers who had this trust relationship could be sold
most things by that REALTOR. So, I think we have a real
concern about any exception that allows a real estate agent to
sell, even a home warranty, to consumers. If the home warranty
is a good product and a useful product, then I think consumers
will have the opportunity to buy it. I think there is a real
danger there because of the nature of the trust relationship to
have a real estate agent selling it.
Chairwoman Biggert. Thank you.
Hopefully, you will work with us on this bill.
Ms. Bowdler, would you like to comment on it?
Ms. Bowdler. Only to say that the bill was just brought to
our attention. We have not had a chance to fully review it. But
we will take a closer look at it and definitely connect with
your office.
Chairwoman Biggert. Thank you. I appreciate that.
Mr. Brown and maybe anyone else who is aware of this, are
you aware of any study that HUD conducted on the home
warranties or of complaints about the product or method of
sales? Any complaints that have been filed with HUD?
Mr. Brown. I am not aware of any study that they conducted,
Madam Chairwoman, but it is a little ironic that the term used
to describe the relationship between a REALTOR and a home
warranty is a mere referral.
Last week, I had meetings with the dominant provider of
services for HVAC contractors, heaters, plumbers, etc., with 15
of our top agents, because we are trying to smooth out the
problems that occur during the sale and processing and problems
that they have after the sale. So the active engagement that
agents perform in those services is undeniable, marketing from
the time it starts until after closing, solving those problems.
Chairwoman Biggert. And do HUD's rules and guidance have
any impact on jobs?
Mr. Brown. I think it could. The warranty companies don't
have sales forces. The modest amount of money that is paid to a
real estate company for the presentation, marketing,
explanation, and servicing during those problems, and as I just
mentioned, after the sale problems that result with people who
have problems with their systems breaking down--they go to
their REALTOR, or many times before they call them, they call
the warranty company.
If they are not compensated, if they are not allowed to--we
have agents today who say, why do I go through this process?
The suggestion from HUD was to write down the serial numbers of
systems as a compensable service, which does absolutely no good
to the warranty company or anyone. So I think that consumers
could actually be harmed if they take the REALTOR out of that
equation.
Chairwoman Biggert. Couldn't HUD's rule limit consumer
choice and awareness and protections?
Mr. Brown. They can. It is a very competitive industry. As
I said before, the REALTOR is the one who typically is
involved in giving the consumer options at that time, and
without their active involvement and active engagement in that
process, I could see a limiting of the choices.
Chairwoman Biggert. Thank you.
Ms. Stephens, appraisals fraud and inflated appraisals, I
guess, were two of the contributing factors to the financial
crisis. You alluded to that fact, the fact that Congress may
need to act to enhance appraisal oversight. Can you offer some
suggestions?
Ms. Stephens. Yes. At all costs, I think that one of the
most important things that needs to come forward from what we
have seen with the fraud and the inflated appraisals is the
push to professionalism and the push to people who are trained
to do the work that a professional appraiser does, who has an
education, who has taken the time to put themselves in a
position to understand their market, to understand the nuances
of a neighborhood and the areas in which they are working. Yes,
ma'am.
Chairwoman Biggert. Thank you.
And one more question. The Dodd-Frank Act required Federal
regulators to issue risk retention rules which require mortgage
originators to retain 5 percent of the risk of a mortgage that
is not in QRM and securitized and sold on the secondary market.
On March 29, 2011, Federal regulators issued a proposed rule
and solicited comments, but the deadline was extended until
August 1st. Like the Federal Reserve's ability to repay
proposed rules, one component of the risk retention rules
requires that points and fees for a QRM not exceed 3 percent of
the loan retention.
It seems like what has happened here is that these fees do
not count toward this cap for third party settlement, but
settlement fees of an affiliated business do. So does this mean
that QRM standards and risk retention rules may result in
increased compliance and legal costs for mortgage industry
participants, but there are competing businesses that would be
treated differently? Is this a level playing field?
Mr. Wilson. I think you summarized that correctly, and it
does not--it makes it an unlevel playing field. So anybody who
has affiliated businesses is at a disadvantage.
Chairwoman Biggert. And how could we fix that? Would it be
legislation?
Mr. Wilson. I believe so. But I think endorsing the title
exemption is the best way to do it, exempt title from those
fees and services.
Ms. Anastasi. Madam Chairwoman, we would also like to just
reemphasize that if we are looking for a gold standard
mortgage, we want to make sure there is a title insurance
search and product associated with that to reduce the risk even
further.
Chairwoman Biggert. That just amazes me, as a former real
estate attorney, not having an owner's policy, It amazes me.
Ms. Anastasi. It amazes us, too.
Chairwoman Biggert. Thank you.
Mr. Gutierrez, you are recognized for 5 minutes.
Mr. Gutierrez. Thank you so much.
I have a question for Mr. Brown, and let me just preface,
and that is over the last couple of decades, every home I have
either bought or sold has been with a member of the association
that you represent. So I have had a wonderful relationship with
them and look forward to my buying and selling, so you
shouldn't take this as an indication about how I feel, because
in my personal life, obviously, it should be reflected.
We have a new consumer protection agency that we are giving
birth to pretty soon. So tell me, REALTORS, your thoughts on
that and the relationship going forward, things they should do,
because I am sure you also represent the best interests of
consumers, the very people that you serve every day.
Mr. Brown. Absolutely. I think that they serve a proper
role to ensure that the consumer is not taken advantage of. I
am not certain that I am the person to ask for the entire scope
of all of their services.
Mr. Gutierrez. Is there something you think they might
consider doing that would help consumers and make the industry
prosper?
Mr. Brown. I think that in the vein of making sure that
there isn't fraud in the lending process, that there is
transparency in the process, simplification of rules and
regulations, to the extent that they can make those types of
changes and those types of protections--
Mr. Gutierrez. A consumer protection agency that would help
make the process more transparent and less fraudulent for
consumers would be a good thing.
Mr. Brown. And not burdensome to business at the same time.
Mr. Gutierrez. Okay. Let me ask the same question of Mr.
Cunningham.
Mr. Cunningham. I think that the benefit of the Consumer
Financial Protection Bureau, the potential benefit, is they now
have control of all the consumer laws related to mortgage
lending. They have a unique opportunity to consolidate
disclosures, disclosures that are, quite frankly, very
consuming, sometimes conflicting to the consumer. So I think
the biggest--
Mr. Gutierrez. Helping to facilitate a better understanding
of the consumer in terms of the actual product they are going
to acquire through better understanding or clarification or
simplification of the documents that you might need.
Mr. Cunningham. Exactly right. I think that today,
consumers sign documents without understanding them because
there are so many, and there is a way to simplify that process.
Mr. Gutierrez. I assure both of you as soon as the
obstacles for the new director--I talked to her--I am sorry,
maybe him, because they might have their way. But thank you for
those answers, because I am with you on those levels, and I
would like to talk with you at any time about other things.
I am going to go over to Mr. Ira Rheingold. Tell me, you
just heard from the industry, the mortgage association and the
REALTORS, what do you think?
Mr. Rheingold. What do I think about the CFPB?
Mr. Gutierrez. What they said.
Mr. Rheingold. I think that is a positive statement. I
think that we all can agree that the way disclosures work in
the mortgage process is pretty much disastrous.
Mr. Gutierrez. The number one thing the new Consumer
Protection Agency can do?
Mr. Rheingold. Do I think that is the number one thing they
should do?
Mr. Gutierrez. No, no. What is the number one thing you
think they should do?
Mr. Rheingold. I think that taking the definition of
getting involved in what a Qualified Mortgage is, helping
define what a safe mortgage is as the statute requires, I think
is a really important thing to do. I think beginning to take a
look at TILA and RESPA, the abuses that exist, getting ahold of
those regulations and making sure that they take enforcement
actions when those laws are violated, but then also begin to
investigate and use their oversight capacity to take a look at
that.
Mr. Gutierrez. So some more enforcement--
Mr. Rheingold. Enforcement and regulation.
Mr. Gutierrez. Ms. Bowdler, please?
Ms. Bowdler. I want to say that I think that we have to
keep in mind that CFPB is really important for all of the fair
and honest businesses that are out there, too. In 2006, we did
a series of interviews with Hispanic mortgage brokers serving
the Latino community, and these were on-the-ground interviews
in six different cities. And many of them were appalled by the
practices that were going on and the bad name that their
industry was getting and actually welcomed something to clean
up the industry. So I think if CFPB is doing their job right,
they are also on the side of the fair and honest dealer here.
I think one of the most important things the agency can
take on is really incorporating fair lending into their
oversight of lenders and making sure that the procedures and
protocols are in place at the institutions that they are
regulating to check for that. But it hasn't been a prominent
part of the exams.
Mr. Gutierrez. You see, I think there is a way, Madam
Chairwoman, that we can work to both benefit an industry that
is on the side of creating the mortgages, the banking side,
right, and the REALTORS, who show everybody the house and make
everybody understand what is in the market and help consumers,
and at the same time, help consumers. Because as I go out
there, I have to tell you, I have REALTORS who are doing other
jobs. They are not REALTORS anymore, a lot of the ones I know.
And it isn't because they are slackers or they are bad
REALTORS, because I remember when they were really busy. I
know a lot of people in the mortgage banking industry who
aren't busy. And I know Chicago Title and Trust and all the
other title companies, there are lots of--you can get anywhere
on the schedule if you want to go insure a home.
It seems to me there has been an overall collapse of the
system, that it has been bad both for consumers and for those
people in the industry, and you can't get this economy going
again until you get the housing industry straight. Let's fix it
so that you can all be prosperous and make lots of money, and
people can get wonderful homes and make wonderful investments
and have wonderful places to raise their children.
Thank you for your answers.
Chairwoman Biggert. I think that is what we are all looking
for.
Mr. Gutierrez. I look forward to working with the
gentlewoman.
Chairwoman Biggert. Mr. Hurt is recognized.
Mr. Hurt. Thank you, Madam Chairwoman.
I want to thank each of you for being here this afternoon,
and I guess I wanted to follow up with Mr. Savitt and his
remarks relating to Ms. Braunstein and what she testified to in
the earlier panel.
It sounds to me that perhaps you all do not have the clear
guidance that you sought from the Federal Reserve as it relates
to the loan originators compensation rule that was adopted in
April. I was wondering if you could talk a little bit more
about the effects of that, what effect it has had on your
business, and what do you need from the Federal Reserve Board
or from the CFPB going forward to help solve your issues?
I was hoping, I would like to hear from Ms. Anastasi and
Mr. Anderson as well, if you could also follow up.
Mr. Savitt. The effects have been devastating. It actually
has turned out worse than we even thought it was. The Federal
Reserve Board themselves indicated in their rule that there
would be a significant economic--I am trying to think of their
exact words--impact, a significant economic impact on small
entities, but they never elaborated on that.
The Federal Reserve Board has given absolutely no guidance
whatsoever. I have had conversations, both in email and on the
telephone, with their Community Affairs Office asking them for
clarification. I actually had one of them write back and say,
``We don't answer anything in writing.''
So, we have a tremendous problem with this. We have to
proceed very cautiously. We are not sure if we are doing things
right or not, which could put us in trouble with regulators.
Speaking of regulators, the regulators have told me in
numerous States that they are also confused by this, that the
Federal Reserve Board has provided no guidance whatsoever to
them, and in many States, they are not even enforcing this;
they are not going to regulate this, because they also don't
want to make any mistakes. This has cost, as I said before, a
tremendous amount of job loss. And it continues, and if we
don't get some type of guidance, there won't be mortgage
brokers very much longer.
Mr. Anderson. I actually agree with what Mr. Savitt just
said. We are experiencing problems, severe problems. I had a
loan officer quit yesterday. The guidance portion, we have
asked the National Association of Mortgage Brokers. We have
requested written guidance and we can't get written guidance.
It is very, very complicated. We can't charge a processing fee.
We can't charge the normal fees that we have normally charged.
And when I said in my oral testimony that I am literally
getting emails every day, the one I got yesterday is from a
lady in Texas who has been in business for 10 years. She said
she never participated in subprime loans. She shut her doors
yesterday and said she couldn't take it anymore.
Madam Chairwoman, I would also like to add to the record a
letter from the Honorable Barney Frank to the Federal Reserve.
Chairwoman Biggert. Without objection, it is so ordered.
Ms. Anastasi. Thank you.
One of the things that we continually look for and that we
all continually talk about is transparency. That is one of the
reasons why we are suggesting that we go back to itemization of
fees, so that the consumer understands completely what they are
charging rather than the current way of rolling up the fees
into certain categories.
We believe, along with everybody on this panel and
everybody sitting in front of me, that clarity begets
compliance, and without having answers, particularly answers in
writing, to help protect us in our businesses, without having
those answers, we are forced to make up and create the answers,
and they may not necessarily be the correct answers.
So, we are simply asking for answers to questions, and I
don't think that is too much to ask. Thank you.
Mr. Hurt. Thank you, Madam Chairwoman. I yield back.
Chairwoman Biggert. Thank you.
The gentlelady from California, Ms. Waters, is recognized
for 5 minutes.
Ms. Waters. Thank you very much, Madam Chairwoman. I thank
you for holding this hearing. You have an awful lot of people
here representing various aspects of the mortgage industry.
I would first like to say that we all must accept some
responsibility for the subprime meltdown and the economic
crisis that resulted as a result of the meltdown. I accept
responsibility as a Member of Congress sitting on a committee
where we have oversight responsibilities. I think the
regulators are going to have to accept some responsibility, and
many of you in the industry have to accept some responsibility.
One of the most devastating aspects of the meltdown had to
do with these exotic products that we have learned about. I am
just wondering, to the brokers and the bankers, when you saw
these products out there, what did you think? Did you think,
something is wrong with this, but if the regulators say it is
okay, I am going to use these products? Or did you think, maybe
I ought to call somebody and tell somebody that I think this is
wrong? And what can you do now? Given that we have gone through
everything that we have gone through and even now that we have
had Dodd-Frank and we are trying to help the consumer, do you
think there are ways, given that you are the experts, that you
could help the consumers and the Members of Congress move a
little quicker when these things are happening?
Let me start with, I guess, the brokers.
Mr. Anderson. Like I said in the oral testimony, I am going
to use an example of--remember the Ford Pinto? It was a bad
product. And what did you do? You got rid of the product. You
didn't go after the salesman, the auto salesman who sold it.
And when the subprime market came out, and I commend you for
saying, we all need to take responsibility, and you are right.
There is enough blame to go around.
But I can tell you, I remember just Fannie Mae and Freddie
Mac loans, I remember sitting around after work and having a
beer with colleagues and saying, can you believe that we are
getting loans approved through Fannie Mae and Freddie Mac, 100
percent with a 65 percent debt-to-income ratio with a 550
credit score? We did have those conversations. Those of us in
the industry knew that this day was going to come.
With that said, like that chart illustrates that was
supposed to be displayed here, we know what caused the crisis.
It was the loan product. If you take that product off the
shelf, it is a simple fix. And if you look in our State of
Louisiana, 13 percent of our business was subprime. I hope that
answers it.
Ms. Waters. All right, let me go to another question rather
than continue down this line. The President admitted just a few
days ago that if there is any failure that they have had, it is
in dealing with this crisis and loan modifications and an
inability to create a program that would really assist the
homeowners in a credible way.
We know that they had the HAMP program, and it did not
work. Now he is talking about the ability to keep people in
their homes for at least one year if they qualify. But it
doesn't cover Fannie and Freddie.
We need help in designing a program to deal with loan
modifications that is credible. One of the things we
experienced when we got into this loan modification business
was the servicers were not always qualified. They had to get up
to speed in training them. I personally called and talked to
servicers, got waivers from homeowners to do so. They lost
papers. That was the name of the game. ``We lost your papers.
Submit them again.'' They didn't take into consideration all of
the streams of income, whether it was child support payments,
etc., etc., etc., on and on and on.
One person, give me your take on what we can do to have a
good, sound loan modification program that works? Anybody?
Mr. Savitt. You can start with a timely response, Ms.
Waters. A lot of the problems with the modifications that we
have seen, a borrower or a homeowner will submit their
paperwork to the lender and it takes forever to get an answer,
and they tell them that you have to be at least 2 or 3 months
behind. So, they get 2 or 3 months behind intentionally as a
recommendation from their lender, and then later on down the
road, when they finally do get a response from the lender, it
is a no and now you have somebody who is at the point of going
into foreclosure. So, I think some of those things need to be
corrected first.
Mr. Rheingold. I think there are so many things. I think
Congress had the opportunity with traditional modification, and
unfortunately that failed. That would have made a gigantic
difference in making loan modifications happen. I think the
problem is we have never mandated that these things happen. It
has always been sort of this ``please do it, we are giving you
incentives to do it,'' but it has never been mandated. I think
that has been a serious failure.
I think finally there has to be principal reduction in
foreclosures. There has to be. Because we are not going to get
the housing market stabilized. The housing market is flooded
with homes that are being foreclosed, with people underwater,
and until we bring housing prices down to where they really
need to be by dealing with all those foreclosed properties, we
are not going to solve this problem.
Mr. Cunningham. I think also national standards for
servicing are important. I think that MBA has been proactive in
taking a position, having a study as it relates to that, and we
would be glad to share that study with you after this hearing.
Ms. Waters. Thank you, Madam Chairwoman. You have been very
generous.
I would certainly hope if you submit to the Chair that
study, she would make it available to all of us.
Mr. Wilson. Could I add, I work with the large lenders on
both modifications and short sales, and as you want rules
around making the new loans, debt-to-income ratios and fully
doc loans, you almost can't have those rules on modifications.
We created so many rules in HAMP, that nobody qualified, and
there was no long-term solution for that borrower. So, the same
rules you want as you are originating new loans can't apply,
unfortunately, to the existing modification program.
I think there has to be regulated relief, both for the
servicers, the banks, and the consumer, together. Because the
banks are afraid to make one with a 42 percent debt-to-income
ratio, even though that customer can in fact afford the payment
if their interest rate is lowered. But they are afraid they
will overstep their servicing requirements. There has to be
regulated relief among those three for that to ever be a viable
program.
Chairwoman Biggert. We are going to have to move on.
But, without objection, we will make the MBA's study part
of the record.
Chairwoman Biggert. Mr. Stivers, you are recognized.
Mr. Stivers. Thank you, Madam Chairwoman.
My first question is for Mr. Brown. You talked earlier
about the home warranty issue. I know a lot of home buyers buy
home warranties to limit their downside in case a major system
fails. I was just curious if you think that the new HUD rules
involving RESPA will result in less home buyers buying this
protection from this downside?
Mr. Brown. I can't say that I would think that their rules
would necessarily decrease sales of warranties. I think that
agents are going to do what is good for their clients in
general. But what is happening is that they are just not being
compensated for what they are doing. So they are not happy
about it, I can tell you that. The things that they are being
asked to do, to perform what is referred to as a compensable
service, are absolutely absurd.
Mr. Stivers. Let me ask it this way, Mr. Brown, do you
believe that providing access to these home warranties is an
important service to home buyers?
Mr. Brown. It absolutely is. There is no question about it.
Mr. Stivers. Therefore, it makes sense--have you heard of
any home buyers complaining about their brokers getting
compensated?
Mr. Brown. No, and it has to be disclosed, and it should
absolutely be disclosed beforehand. And it is, in the majority
of the instances that I am aware of.
Mr. Stivers. Thank you so much.
Mr. Cunningham, I wanted to ask you about the safe harbor
provisions that were in your testimony. Can you help me
understand why a safe harbor is important? I think it makes a
lot of sense. Can you just help us understand the value of a
Qualified Mortgage safe harbor for your members?
Mr. Cunningham. I would be glad to.
I think if rules are vague, a lender is going to be unsure,
certainly has liability from a lawsuit and, therefore, is going
to step way back from where the presumed line is and,
therefore, reduce the availability of credit to consumers who
might otherwise qualify.
If the standards are bright-line standards, then it is easy
for a lender to comply, and it is at the same time easy for a
consumer to show where they have not complied if a lawsuit is
justified.
Mr. Stivers. Thank you.
And the current QRM rules actually provide more harm to
home buyers buying more affordable, less expensive homes, do
they not, because of the percentages definitions in the
qualifying mortgage?
Mr. Cunningham. You are talking about the Qualified
Residential Mortgage.
Mr. Stivers. Qualified Residential Mortgage.
Mr. Cunningham. Correct. If you just looked at my book of
business in 2009, which was a pretty conservative book of
business--referenced earlier that 97 percent of those were
fixed rate. I applied those rules to our book of business; 58
percent of our purchase business and 74 percent of our
refinance business would not have qualified.
Mr. Stivers. Thank you. That is important to note.
The next question is for Ms. Anastasi. You talked earlier
about how itemization and transparency is important so that
home buyers can get the information that they need. Can you
help us understand how home buyers shop for real estate
settlement services?
Ms. Anastasi. When a home buyer receives under the current
rules the good faith estimate, on the estimate there is a
section that describes the fees that are estimated to be
charged for settlement services. They can simply pick up a
phone, call other local providers, go on Web sites. Almost all
of us have our own company Web sites. They can talk to their
REALTOR if it is a sale. They can talk to their mortgage
lender if it is a refinance.
Mr. Stivers. That is great. I just have one more question.
Can you help us understand some of the questions that home
buyers are asking you at the closings that lead you to believe
that more itemization and transparency are important?
Ms. Anastasi. When you get to--on the HUD-1 settlement
sheet, on page 2, line 1101, there is a roll up of all
settlement services rolled up into one figure. When the
consumer starts to shop, they don't know what is in that figure
from the GSE estimate. But they ask us what is included, and we
start going through the litany of what is in there. We are
asked by the mortgage lenders--
Mr. Stivers. They can't still tell, shop fee-by-fee. They
can't tell, because it is not itemized, right?
Ms. Anastasi. They cannot. We are not allowed to itemize on
the HUD-1 settlement sheet. We are forced to do addendums to
satisfy our lenders, to satisfy VA, and more importantly, to
satisfy the consumers, so they know what it is from.
Mr. Stivers. Thank you.
My time has expired. I yield back.
Chairwoman Biggert. Thank you.
Mr. Sherman, you are recognized for 5 minutes.
Mr. Sherman. Ms. Anastasi, I have additional questions for
you. In your testimony, you said that disclosures need to be
flexible to account for local practices. How can a single
disclosure form be made flexible enough for every part of the
country, and can you explain how buying a home in Illinois is
different from buying a home in a much nicer place to live,
namely California?
Chairwoman Biggert. Now, wait just a minute here.
Ms. Anastasi. Good to see you, Mr. Sherman.
We need flexibility not only in the form but in what we are
being forced to put on the form. Right now under the rule and
what is expected in the new combined disclosure is that any fee
that could possibly be charged to the buyer has to go on the
GSE, even though in parts of California or in parts of
Pennsylvania, that particular fee is always paid by the seller
or it is contractually--the seller is contractually obligated.
So, force-feeding fees into the GSE on the buyer's side, force
feeding fees on to the HUD- 1 settlement sheet on the buyer
side is just so confusing for the consumer.
And flexibility, give us a couple of extra lines. Let us
itemize, but do not force the lenders to put a fee on the GSE
that is not going to be paid for by the buyer.
Mr. Sherman. Are you objecting to just the fact there is a
line for that fee and you would put a zero next to it, or--
Ms. Anastasi. You are not allowed to put a zero next to it.
That is the problem.
Mr. Sherman. So, there may be a line indicating that I, as
the buyer of a home, may have to pay some sort of fee in a
State where I am never going to have to pay the fee?
Ms. Anastasi. That is exactly correct, or in the contract
that has been negotiated to be paid for by the seller.
Mr. Sherman. And you can't put on that line ``zero'' or
``seller pays.'' You have to leave me worrying that somebody is
going to put a dollar figure in that and I am going to get hit
with a charge of a type that I am not going to get hit with?
Ms. Anastasi. You are exactly correct. I often talk about
how we have to do a wink and a nod to the consumer saying, ``I
have to put this here, but don't worry, you won't get
charged.''
Mr. Sherman. Some of us have grown skeptical over the
years, even when it is true.
Mr. Anderson, I heard the testimony of the Director of the
Federal Reserve Division of Consumer Affairs, Ms. Braunstein,
and I was pleased to note that she believes that brokers can
now compensate their employees through commissions on consumer-
paid transactions. I understand that this represents a change
in their policy.
Does this change alleviate your concerns about loan officer
compensation, or do we need to do more?
Mr. Anderson. When she said that, in the written testimony,
I was surprised. We have not been notified of a change in the
compensation. So that is the communication channel that we are
not receiving.
There is more to it--
Mr. Sherman. It just means she told us before she told you.
Mr. Anderson. This was news to me. I have not heard that.
So it would certainly be--
Mr. Sherman. Have you had enough time to look at that and
can you comment on it, or does the fact that you were
blindsided on it mean that in order to get your informed
opinion, I will have to wait a few days?
Mr. Anderson. I would really like to review it. It is not
that I don't trust them, but I would like to review it. But I
will tell you, it is a start if we are allowed to pay our loan
officers a commission on a consumer-paid transaction, if that
is what she is referring to. But we would certainly like to
review it.
Mr. Sherman. I yield back.
Chairwoman Biggert. Thank you.
And now the other gentleman from California, Mr. Miller, is
recognized for 5 minutes.
Mr. Sherman. Whom I am sure agrees with the observation I
made earlier.
Mr. Miller of California. If the California State
legislature doesn't screw the State up worse than it already
is, I agree with you.
But right now, the inability of the market in this
recession to strengthen itself is causing huge problems, and it
is just a lack of consumer confidence we are facing. You are
all seeing it in your areas.
People need to be confident their home prices are not going
to continue to fall every week like they have, and they need to
know that mortgages are going to be available today, tomorrow,
and the year after.
But in Washington, we are doing some strange things, like
conforming loan limits in high-cost areas. We are talking about
eliminating them and dropping them right in the middle of a
crisis when they have shown to do some good.
GSE reform, I don't think there is a doubt Freddie and
Fannie have to go, but you have an alternative to them to
provide liquidity for the marketplace. And the concept of just
getting rid of them, if you don't have an alternative, you have
no concern for the health of the marketplace, and that has to
be dealt with specifically.
There are several issues that I am very interested in with
respect to mortgage finance and homeownership. I am concerned
with QRM. How they define this in the rule is going to be a
huge problem. The SAFE Act, I am concerned about the overreach
on equal application of the licensing requirements. The
appraisals, I want to make sure the regulations are consistent
across agencies. That has to take place. The merger of RESPA
forms and truth in lending form, this is an important goal but
must be undertaken very carefully to avoid consumer
uncertainty, confusion and misinformation.
But the loan origination compensation, that application has
to be considered nothing but a joke, at best. The Fed rule on
loan origination compensation is more restrictive than was
intended, even under Dodd-Frank. The compensation of employees,
the rule creates a problem for mortgage brokers to compensate
their employees in a way they have always done. It does not
allow for commissions, but that is customary.
The lowering of compensation at closing of corrections, how
can they restrict that? The lowering of compensation benefits
the buyer, and in many cases, they are doing that just to make
sure the loan does close. It is not a benefit to the broker at
all. In fact, I am introducing a bill today to deal with that
specifically. It has to be dealt with.
But on GSE reform, housing is critical to stabilize the
economy, without a doubt. Private capital must be the dominant
source. The government must have some continuing role. If you
don't, you have no confidence in the system whatsoever.
Mr. Anderson, I enjoyed the testimony from all of you, but
why shouldn't brokers be allowed to compensate their employees
through a commission split versus an hourly wage as is being
discussed?
Mr. Anderson. So we can be on a level playing field with
the bank next door, Congressman. It has been that way for
years. They work hard. The bank next door can do it, but we are
prohibited as a mortgage broker.
Mr. Miller of California. When you are talking about
adjusting a loan, couldn't the current regulation result in the
inability to close a loan at the last moment, by not allowing
you to modify your fees?
Mr. Anderson. Right. We should be--it happens all the time,
or used to happen all the time, that we would lower our
compensation at the closing table.
Mr. Miller of California. Let's give the example that you
give an estimate of an appraisal, maybe $500. It comes back a
day before closing at $750. In many cases, the mortgage broker
will drop his commission $250 to allow the loan to go ahead and
close. Has that been a problem?
Mr. Anderson. It is now.
Mr. Miller of California. But has it ever in the past when
you did that?
Mr. Anderson. No. We always did it.
Mr. Miller of California. By allowing mortgage originators
to reduce compensation at closing, let's say by a cap of 30
percent, do you think that would mitigate the potential for
consumer abuse in the issue?
Mr. Anderson. I don't see how it would have any abuses. It
would certainly help the consumer.
Mr. Miller of California. Would you believe 30 percent is
adequate?
Mr. Anderson. It certainly is a start. I would say, try it.
Mr. Miller of California. Can you give me an example of
when a mortgage origination would want to reduce compensation
at closing besides that?
Mr. Anderson. We have a lot in our State because of
insurance issues. We find out at the last minute that flood
elevation is at a certain level and the insurance premium goes
up by $300 or $400. We are all at the closing table, and we all
pitch in to help that consumer. Because there are sellers and
buyers, and you know how it goes. It has been a great exercise
that we have done for years, and now the broker cannot do this
any more.
Mr. Miller of California. The issues I have just touched
on, we could spend hours talking about them, but if we could
take care of these issues, if we could eliminate Freddie and
Fannie and have another facility that did the same purpose of
providing private-sector dollars into the marketplace with
certainty, do you believe it would have a major impact on the
future of the housing market?
Mr. Anderson. Yes, I do, and I think this would be a good
question for the bankers as well.
Mr. Miller of California. Let's hear the bankers address
it. I know how difficult it is for you. But you make many loans
that you plan on selling off to the secondary market, and it
allows you to have the liquidity to make more loans. And you
service those loans, you make the loan origination fees. If we
could resolve these issues, do you not believe the market would
start to turn?
Mr. Cunningham. Define which issue you are trying to
resolve.
Mr. Miller of California. The issues I have talked about
that we are dealing with in the marketplace overall. Like right
now, you can't even in California, they won't accept a loan
application for a conforming loan limit of 730, even though it
doesn't expire for a while, because they can't process it in
time.
Mr. Cunningham. We certainly support extending the loan
limits to at least December 31, 2012. I think you can't reduce
the loan limits now when the market is as fragile as it
currently is.
Mr. Miller of California. What percentage of your loans do
you sell out to GSEs, would you guess?
Mr. Cunningham. Today, most of our loans are either FHA,
VA--
Mr. Miller of California. Ninety-two percent. Now, if they
are not there, what do you do?
Mr. Cunningham. Probably 97 percent.
Mr. Miller of California. What do you do if they are not
there?
Mr. Cunningham. It would be a significant problem. There
would be no liquidity in the marketplace.
Mr. Miller of California. If we are going to protect
taxpayers, let's do everything we can to make sure the value of
their home does not plummet, because if you can't buy a home or
sell a home, homes aren't worth anything. So when Congress
says, we are trying to protect taxpayers, we need to look at
the real issue, who are we protecting and how are we doing it.
You have been very generous, Madam Chairwoman. I yield back
the balance of my time.
Chairwoman Biggert. Thank you, Mr. Miller.
I have just one further question, and that is for Mr.
Kelly. I asked Ms. Braunstein this question earlier talking
about the appraiser independence provision of the Dodd-Frank
Act, Section 1472, which requires lenders to compensate
appraisers at a rate that is customary and reasonable, and the
Fed has issued a related rule. Do you think that this provision
in the Dodd-Frank Act should be repealed, or do agree with it?
Mr. Kelly. We believe that the Fed has done a good job with
following the intent of Congress. In fact, you heard from the
Fed today that they structured a rule based on the
reasonableness and the market conditions of applying all the
factors that are exigent with any appraisal product. So, we
think that while the language of the Dodd-Frank Act was not
perfect, certainly the efforts of the Fed to resolve the
customary reasonable fee issue have been satisfactory.
Chairwoman Biggert. Thank you.
Ms. Stephens, do you agree with that?
Ms. Stephens. It is my understanding that one of the major
provisions in the Dodd-Frank reasonable and customary fee is
that it is exclusive of a fee to the AMC, that this is the fee
that the appraiser would receive. And I don't think that is
happening in a lot of instances. We are not hearing that from
our members, and certainly we are not hearing that from other
members of the appraisal profession.
Many of our folks are working at fees that are 40 to 60
percent what they were making before, and I think that is
incumbent on this group and on your committee, please, to look
into this and to see if we can't make some kind of provision
that is fair and that gives our appraisers fair compensation
for the work that they do and the expertise they possess.
Chairwoman Biggert. Thank you.
With that, I would like to thank all the witnesses and just
say that early this fall, in September, which seems like it is
coming very soon, this subcommittee is going to hold a hearing
which will focus solely on housing counseling, which is
certainly a critical step for new homeowners and those facing
foreclosures and seniors who are seeking a reverse mortgage. So
if any of today's witnesses would like to comment on HUD's
program, appropriations or any other matters relating to
housing counseling, please feel free to submit additional
comments for today's hearing record. We would appreciate it.
With that, I would note that some 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 their questions
to these witnesses and to place their responses in the record.
With that, thank you again. This hearing is adjourned.
[Whereupon, at 5:05 p.m., the hearing was adjourned.]
A P P E N D I X
July 13, 2011
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