[House Hearing, 112 Congress] [From the U.S. Government Publishing Office] MORTGAGE ORIGINATION: THE IMPACT OF RECENT CHANGES ON HOMEOWNERS AND BUSINESSES ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON INSURANCE, HOUSING AND COMMUNITY OPPORTUNITY OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TWELFTH CONGRESS FIRST SESSION __________ JULY 13, 2011 __________ Printed for the use of the Committee on Financial Services Serial No. 112-47 U.S. GOVERNMENT PRINTING OFFICE 67-942 WASHINGTON : 2011 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 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. 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