[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





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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

                              ----------                              
                                                                   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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