[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
                      MORTGAGE DISCLOSURES: HOW DO


                     WE CUT RED TAPE FOR CONSUMERS

                         AND SMALL 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

                             SECOND SESSION

                               __________

                             JUNE 20, 2012

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-138



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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

           James H. Clinger, Staff Director and Chief Counsel
      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:
    June 20, 2012................................................     1
Appendix:
    June 20, 2012................................................    39

                               WITNESSES
                        Wednesday, June 20, 2012

Abbinante, Christopher, President, American Land Title 
  Association (ALTA).............................................    14
Canfield, Anne C., Executive Director, Consumer Mortgage 
  Coalition (CMC)................................................    16
Cosgrove, Bill, CMB, President and Chief Executive Officer, Union 
  National Mortgage Company, on behalf of the Mortgage Bankers 
  Association (MBA)..............................................    18
Date, Raj, Deputy Director, Consumer Financial Protection Bureau 
  (CFPB).........................................................     4
Hardy, Chanelle P., Senior Vice President and Executive Director, 
  National Urban League Policy Institute.........................    20
Hughes, Brenda K., Senior Vice President and Retail Lending 
  Administrator, First Federal Savings Bank, on behalf of the 
  American Bankers Association (ABA).............................    22
Veissi, Moe, 2012 President, National Association of REALTORS...    23
Wilson, Tim, President, Affiliated Businesses, Long and Foster 
  Companies, on behalf of the Real Estate Services Providers 
  Council, Inc. (RESPRO)........................................    25

                                APPENDIX

Prepared statements:
    Abbinante, Christopher.......................................    40
    Canfield, Anne C.............................................    50
    Cosgrove, Bill...............................................   175
    Date, Raj....................................................   186
    Hardy, Chanelle P............................................   189
    Hughes, Brenda K.............................................   194
    Veissi, Moe..................................................   206
    Wilson, Tim..................................................   212

              Additional Material Submitted for the Record

Biggert, Hon. Judy:
    Written statement of the American Financial Services 
      Association (AFSA).........................................   227
    Joint written statement of the Appraisal Institute and the 
      American Society of Farm Managers and Rural Appraisers.....   230
    Written statement of the Consumer Bankers Association (CBA)..   233
    Written statement of the Credit Union National Association 
      (CUNA).....................................................   236
    Written statement of the Housing Policy Council of The 
      Financial Services Roundtable..............................   239
    Written statement of the Independent Community Bankers of 
      America (ICBA).............................................   242
    Written statement of the National Association of Federal 
      Credit Unions (NAFCU)......................................   251
    Written statement of the National Association of Mortgage 
      Brokers (NAMB).............................................   253
Gutierrez, Hon. Luis:
    Written statement of the National Consumer Law Center........   257


                      MORTGAGE DISCLOSURES: HOW DO

                     WE CUT RED TAPE FOR CONSUMERS


                         AND SMALL BUSINESSES?

                              ----------                              


                        Wednesday, June 20, 2012

             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 1:30 p.m., in 
room 2128, Rayburn House Office Building, Hon. Judy Biggert 
[chairwoman of the subcommittee] presiding.
    Members present: Representatives Biggert, Capito, McHenry, 
Dold; Gutierrez, Cleaver, Clay, Watt, and Sherman.
    Also present: Representative Green.
    Chairwoman Biggert. The Subcommittee on Insurance, Housing 
and Community Opportunity will come to order.
    Without objection, all Members' opening statements will be 
made a part of the record, and I will begin with my opening 
statement.
    Good afternoon, everyone. Hopefully, the bells won't go off 
too soon, but we are expecting votes, unfortunately, in a 
little bit. So we thought we would get started right on time.
    I would like to welcome everyone to today's hearing titled, 
``Mortgage Disclosures: How Do We Cut Red Tape for Consumers 
and Small Businesses?'' I welcome today's witnesses to this 
important hearing.
    As we all know, Congress has been examining complex 
settlement procedures and confusing mortgage disclosures for 
several decades. Mortgage disclosures required under the Real 
Estate Settlement and Procedures Act, our favorite RESPA, and 
the Truth in Lending Act, or TILA, have been of interest to me 
since my days as a real estate attorney. Many of my colleagues 
on the committee share that interest as they, too, were real 
estate professionals in a former life.
    For most homeowners, the biggest financial decision of 
their lives is made at the closing table as consumers read the 
mounds of confusing and complicated paperwork. Hence, in States 
like Illinois, a lawyer is required at closing. For many years, 
Ruben Hinojosa and I have authored letters to Federal 
regulators outlining our concerns about these disclosures. At 
times, these bipartisan letters have garnered the signatures of 
over 240 Members of the House.
    To Federal regulators, we have emphasized that newly 
proposed mortgage disclosures must: one, be streamlined and 
simplified; two, be thoroughly tested and vetted; three, allow 
stakeholders ample time to provide input; and four, provide a 
regulatory input analysis, with a particular focus on small 
businesses.
    It is important to keep in mind that these new disclosures 
can radically change the marketplace for both businesses and 
consumers. That is why as our housing market recovers and as 
other relevant mortgage rulemakings, such as the Qualified 
Mortgage, QM, and Qualified Residential Mortgage, QRM, rules 
are under development, it is critical that any new mortgage 
disclosures first do no harm to consumers, businesses, and the 
recovering real estate marketplace.
    And that is why we are here today. This hearing is a 
continuation of the subcommittee's examination of provisions in 
the Dodd-Frank Act and other regulatory initiatives that will 
impact the mortgage origination process for both consumers and 
service providers.
    On July 21, 2011, the Dodd-Frank Act transferred general 
rulemaking authorities on TILA and RESPA to the Consumer 
Financial Protection Bureau (CFPB). At this hearing, we will 
examine more closely the efforts of the CFPB to improve and 
combine RESPA and TILA mortgage disclosures; and we will 
examine questions raised by consumers and lenders about the new 
disclosures, hopefully shedding some light on how the CFPB 
intends to move forward. I anticipate this will not be our last 
hearing on mortgage disclosures and rules during the 112th 
Congress.
    So, with that, I look forward to hearing from today's 
witnesses--we are having two panels--and to an informative 
discussion on this very important subject.
    Now, I would like to recognize our ranking member, the 
gentleman from Illinois, Mr. Gutierrez, for his opening 
statement.
    Mr. Gutierrez. Thank you for yielding, Madam Chairwoman, 
and thank you for holding this hearing.
    Complete, accurate, accessible information is critical to 
ensuring that consumers are prepared when they consider what 
could be their largest lifetime investment, purchasing a home. 
Accurate and exhaustive disclosures are also one of the largest 
deterrents against fraud, and eventually, defaults and 
foreclosures.
    More than 5 million American homeowners are facing the risk 
of foreclosure, and it is clear that many homeowners were not 
properly informed about loan terms or the risk of certain types 
of mortgages. The need to harmonize TILA and RESPA disclosures 
has been raised repeatedly over the years, and we were happy to 
include it in the Wall Street reform law.
    Today, we will learn about the work done by the Consumer 
Financial Protection Bureau in addressing this provision and 
meeting the two twin objectives of: one, providing appropriate 
consumer information; and two, keeping the costs reasonable and 
manageable.
    I look forward to hearing how the CFPB and the industry are 
working to ensure that these new disclosure forms and rules 
prioritize the need of the consumer and how they contribute to 
a more secure housing market. I also look forward to learning 
more about how the concerns of the industry and other 
stakeholders are being addressed by the CFPB as it completes 
its proposals for integrated disclosures and accompanying rules 
for mortgage loans by July 21, 2012.
    Madam Chairwoman, before I yield back, I request unanimous 
consent to introduce the written comments submitted to the CFPB 
on April 18, 2012, by the National Consumer Law Center, the 
Alliance for a Just Society, Community Consumer Action, the 
National Association of Consumer Advocates, and the National 
Community Reinvestment Coalition regarding the ``Know Before 
You Owe'' proposed mortgage disclosures.
    Chairwoman Biggert. Without objection, it is so ordered.
    Mr. Gutierrez. I thank you very much, and I yield back the 
balance of my time, Madam Chairwoman.
    Chairwoman Biggert. Thank you, Mr. Gutierrez.
    The gentlelady from West Virginia, Mrs. Capito, is 
recognized for 2 minutes.
    Mrs. Capito. Thank you, Madam Chairwoman. Thanks for the 
time and for holding this hearing on the ongoing effort to 
improve the mortgage disclosure process.
    Many of us in this room have been through this process and 
we know it is daunting. To sign the forms is daunting; to read 
the forms, impossible; and it is a very difficult procedure 
that I think can be improved.
    Almost all of us have had these issues, and I know it has 
been a priority of the CFPB to develop a more transparent and 
understandable disclosure process. As this is not a new 
endeavor, I still wonder if this renewed effort under the CFPB 
will really do anything to reduce the paperwork and 
information. I have said from this dais here several times, are 
we just going to have the same stack of papers with two new 
papers on top of it that we are going to have to sign anyway 
because of all the legal disclosures?
    The CFPB has been given substantial rulemaking authorities 
in the mortgage area--I think maybe 20 or 29 or so are 
pending--giving its broad mandate and the importance of 
regulatory certainty to the mortgage finance industry. We know 
they are still struggling. I am very interested in the 
development of many of these rulemakings in the pipeline.
    How will the directive being discussed this afternoon 
impact other rulemakings, such as your QRM and the QM 
definitions, which I think have been pushed off to the end of 
the year? And will these rulemakings ultimately really provide 
the clarity to consumers and small businesses? In promulgating 
the rules, it is a tough task, and I hope they are mindful of 
the impact that the rules will have on access to credit.
    I want to thank the witnesses for being here today, and I 
want to thank the chairwoman for having the hearing.
    I yield back.
    Chairwoman Biggert. Thank you.
    It is now time to introduce our first witness, Mr. Raj 
Date, who is the Deputy Director of the Consumer Financial 
Protection Bureau.
    Welcome. We are happy to have you here. Without objection, 
your written statement will be made a part of the record. You 
are now recognized for a 5-minute summary of your testimony.

  STATEMENT OF RAJ DATE, DEPUTY DIRECTOR, CONSUMER FINANCIAL 
                    PROTECTION BUREAU (CFPB)

    Mr. Date. Thank you.
    Chairwoman Biggert, Ranking Member Gutierrez, and members 
of the subcommittee, thank you for this opportunity to testify. 
As you mentioned, my name is Raj Date, and I serve as the 
Deputy Director of the Consumer Financial Protection Bureau.
    For more than 30 years, Federal law has required lenders to 
provide two different disclosure forms to consumers shortly 
after they apply for a mortgage. The law has also generally 
required two different forms shortly before or at closing. Two 
different Federal agencies developed these forms under two 
different statutes: the Truth in Lending Act; and the Real 
Estate Settlement Procedures Act. The information on these 
forms is overlapping, and the language is inconsistent. Not 
surprisingly, consumers often find that the forms are 
confusing, and lenders and settlement agents often find that 
the forms are burdensome to provide and to explain.
    The American mortgage business was supposed to be the 
broadest, deepest, most liquid, most sophisticated consumer 
finance market in the history of the world, but it failed us, 
and it failed us in part because consumers did not understand 
the products that they were getting into or the risk profile 
associated with those obligations.
    While Federal agencies tried to address these disclosure 
problems in the past, they did not arrive at a coordinated 
conclusion. Dodd-Frank transferred authority for the TILA and 
RESPA mortgage disclosures to the Bureau last July, July 2011, 
and directed us to propose rules and forms combining the two 
disclosures by this July, so next month, July 2012.
    The Dodd-Frank Act established two goals for the combined 
mortgage form: number one, improve customer understanding of 
mortgage loan transactions; and number two, facilitate industry 
compliance with TILA and RESPA.
    To achieve these goals, the Bureau gathered information in 
a variety of ways from a variety of sources. We tested draft 
forms. We used interactive online tools and blog posts. We 
hosted roundtables. We held conference calls and meetings. 
These activities included the public, they included consumer 
advocacy groups, and they included industry stakeholders, as 
well as other government agencies.
    One of those, one such activity, was our signature Know 
Before You Owe initiative. We used our Web site to share early 
prototypes of the combined disclosure forms to get the public's 
feedback on the prototypes. We conducted extensive testing of 
these prototype forms through interviews with more than 100 
consumers, lenders, mortgage brokers, and settlement agents. 
Those interviews took place in nine cities across the country.
    Consumers were asked to assess whether the forms enabled 
them to understand and compare different mortgage loans and to 
identify changes during the mortgage loan process. Industry 
participants were asked to use the prototype forms to explain 
the loans as they would to a consumer and to identify areas for 
improvement.
    After each round of testing, Bureau staff analyzed the 
results and designed new and improved prototypes. In fact, 
almost every month between May 2011, and February 2012, the 
Bureau posted these prototype forms on our Web site and sought 
additional feedback. In total, the Bureau posted more than a 
dozen prototype forms and received more than 27,000 responses.
    In February of this year, 2012, the Bureau convened a Small 
Business Review Panel with officials from the Small Business 
Administration and the Office of Management and Budget. This 
panel gathered information from small business representatives 
about the cost of the proposed disclosures and other 
potentially less burdensome alternatives. We are using all of 
that information to develop proposed forms that will make the 
mortgage process easier for consumers and for industry.
    We will meet our statutory deadline. The forms will be 
issued for public comment by the statutory deadline of July 21, 
2012. At that time, we will also be issuing a proposed rule 
that provides detailed requirements and guidance for filling 
out the forms. The idea is to reduce unnecessary compliance 
burden by providing clear guidance for industry while 
strengthening protections for consumers.
    Finally, the proposed rule must reconcile several 
inconsistencies between TILA and RESPA. TILA and RESPA 
establish different timing requirements for disclosing final 
loan terms and costs and require different parties to provide 
the forms.
    During the small business review process, we discussed 
potential solutions to these inconsistencies. We sought 
feedback on whether the combined final disclosure should be 
provided 3 days before closing so that consumers would have 
time to review the final terms and costs and resolve any 
questions or concerns and problems. We also asked about whether 
the lender or the settlement agent would be better equipped to 
provide the combined final disclosure or whether some sort of 
shared responsibility was appropriate. We will continue to 
explore these options in the proposed rule.
    We are excited about this opportunity to develop a 
practical solution to what has been a longstanding challenge 
for both consumers and industry. Thank you for inviting me to 
testify today, and I look forward to your questions.
    [The prepared statement of Mr. Date can be found on page 
186 of the appendix.]
    Chairwoman Biggert. Thank you.
    We have, I think, just been called for a vote, but we have 
a few minutes. My personal best is 2\1/2\ minutes, but I don't 
want to try to do that again. So we will start with the 
questions, and as a reminder to each of the Members, there are 
5 minutes for questions. I will yield myself 5 minutes.
    When you did all of these focus groups or roundtables and 
everything, what was the timeline that you wanted to get for 
somebody who was going to have a mortgage? Because as I recall 
in doing so many of these--the lawyer always got in at closing, 
which was a little bit late sometimes for knowing what was 
going on before the mortgage had already been made. So how do 
you decide what--and now you are talking about 3 days. What 
happens?
    Mr. Date. The concern that you flag is definitely one that 
is shared both by industry stakeholders as well as consumers. 
Consumers, unfortunately, feel like they show up at closing and 
there is a gigantic pile of paper that most people don't even 
know how to begin making heads or tails of. It is only through 
the guidance, for example, of a settlement agent that they even 
find their way through with some level of comfort.
    And, of course, industry stakeholders, be it mortgage 
brokers or lenders or settlement agents themselves, feel like 
so much ends up getting rushed at the last moment that there 
are certain constraints that the timetable creates that 
otherwise in a perfect world would not exist.
    We are trying to tackle that in at least two broad ways. 
One is, owing to the complexity--it is after all a relatively 
complex transaction when all is said and done. With that 
complexity in mind, still we want to really streamline, 
clarify, and simplify that which consumers have before them. It 
is only through maximizing the simplicity of the documents 
themselves that you can maximize the chance that that timetable 
doesn't work against you.
    Chairwoman Biggert. Is it CFPB's plan to move forward the 
new disclosures and rules? More specifically, what is the 
timeline for rulemaking and shouldn't the QM and QRM rules be 
finalized before you really complete the work on mortgage 
disclosures?
    Mr. Date. Sure. As you know, this is not our only mortgage 
rulemaking. The CFPB has as many as--I want to say seven 
different mortgage rulemakings, all of which Congress has 
appropriately pointed us towards to remediate reasonably clear 
deficiencies in the mortgage market as it had developed.
    Taking the example that you raised, the Qualified Mortgage 
Rulemaking, the proposal with respect to the ability to repay 
provision in Dodd-Frank and the Qualified Mortgage definition 
had been made by the Federal Reserve Board before we inherited 
authorities from the Board last July. Our plan--and I can 
assure you that it remains our plan--is to finalize the 
Qualified Mortgage definition before the statutory deadline of 
January of next year.
    As a practical matter, I certainly understand the argument 
and the concept behind the argument that a number of these 
rules ought to be finalized before the disclosure forms are 
made final. It is in fact an issue that we raised explicitly 
with the Small Business Review Panel, and so it is entirely 
possible that timetable you contemplate is the one that will 
play out.
    Chairwoman Biggert. Where is the CFPB in the process of its 
work with the Small Business Review Panel?
    Mr. Date. I am pleased with our work to date. We have 
conducted three Small Business Review Panels: one with respect 
to mortgage loan originator compensation; one with respect to 
mortgage servicing; and the third with respect to the subject 
of today's hearing, the integration of the TILA and RESPA 
rules.
    We are the first bank agency or financial regulator to 
conduct Small Business Review Panels, so at some level it was 
hard to know exactly what to expect. And I am not particularly 
an especially optimistic person. I have been very pleased with 
the process as it has played out, the input that we have 
received, and the utility of that which we have heard as we 
move forward. So I am really quite pleased.
    With respect to this particular rulemaking, we will issue 
the report coming out of the Small Business Review Panel at the 
same time as we issue the proposed rule.
    Chairwoman Biggert. Okay. You are looking at new 
disclosures for consumers and small businesses that are 
involved in the mortgage origination process. Are you 
conducting testing? What is the testing for that?
    Mr. Date. Yes. Our general approach to testing is one that 
I think is shared by other Federal agencies with which I am 
familiar, as well as broadly across much of the private sector 
around consumer finance, and I would describe it in two big 
pieces.
    One up front is a series of what in a prior life I called 
deep customer insight or deep discovery interviews. In this 
case, we did more than 100 fairly lengthy interviews with 
consumers, small business stakeholders, and other industry 
participants to understand the broad contours and alternatives 
we might pursue. That goes by lots of different names. The term 
that we use is called qualitative usability testing. That 
qualitative usability testing then forms the basis for our 
proposal and then we would pursue quantitative testing through 
one of several different means after the proposal is issued and 
before it is finalized.
    Chairwoman Biggert. Thank you.
    Mr. Gutierrez, would you like to get your questioning in or 
would you rather wait until we come back?
    Okay. We will recess to go vote. There are three votes, so 
it should take about 25 minutes, I would say. We will be back 
as soon as we can. Thank you so much.
    [recess].
    Chairwoman Biggert. The committee will reconvene.
    Mr. Gutierrez, you are recognized for 5 minutes.
    Mr. Gutierrez. Thank you.
    Mr. Date, you spoke about the consumer testing that the 
CFPB has done on the prototype mortgage disclosure forms. Often 
when a buyer is reviewing these disclosures, they are in a 
high-pressure atmosphere. Many of us have been there when we go 
to a closing, sign this, sign that, move papers along, time to 
get the keys and see the house; and this can sometimes lend 
itself to inadequate review. Has the CFPB's consumer testing 
simulated the high-pressure situation that borrowers can find 
themselves in at all?
    Mr. Date. Thank you, Congressman.
    It is an excellent question, because some of the criticism 
that is possible with respect to qualitative usability testing 
is that, in general, it does not exactly simulate real-life 
pressures in the moment. I think you are correct. It would be 
odd to find a borrower at a closing table who says to himself, 
``I would like to be here all day.'' Nobody says that.
    Usability testing does do some things, but it does not do 
everything. What it does do is set out the broad contours of 
what ought to work in terms of basic comprehension and 
understanding how the pieces of the transaction fit together. 
In terms of more statistically significant and larger 
quantitative testing, it is not a substitute for that, which is 
why we are going to pursue quantitative testing after the 
proposal and before finalization.
    Mr. Gutierrez. I have heard of instances where borrowers 
are the targets of deceptive practices. Let me ask you, has the 
CFPB tested whether consumers understand the information 
included in the prototype forms if they are verbally misled 
about mortgage terms or settlement costs even?
    Mr. Date. A couple of the elements of that which we may be 
pursuing with respect to this rulemaking are meant to make it 
much more difficult for bad actors in this space to be able to 
deceive consumers. So, just a couple of examples with respect 
to that.
    First, HUD in the most recent revisions to RESPA's 
disclosure forms tightened rules with respect to tolerances 
associated with changes in closing costs after they are 
initially disclosed to borrowers. There are areas in which we 
are evaluating whether or not those tolerances were fully 
effective or fully appropriate and so we would try to think 
through those issues.
    Part of the purpose for that is that it allows borrowers to 
be more surefooted as they evaluate a potential transaction and 
compare it to alternative transactions but at the same time to 
be able to make it more difficult for so-called bait-and-switch 
tactics to take hold of the process.
    Mr. Gutierrez. There have been some concerns expressed that 
in combining TILA and RESPA disclosures, the CFPB may have 
inappropriately expanded beyond harmonizing and improving the 
disclosures to include a reworking of any underlying 
regulations. How do you respond to the accusation that you may 
be reworking the underlying regulation?
    Mr. Date. Congress has given us, in my mind, a quite 
appropriate task, which is to combine, make from several into 
one, to streamline, to clarify, and to make cheaper, less 
expensive, and less burdensome to comply with. All of those are 
entirely appropriate responsibilities for us to undertake, and 
that is what we are doing. And we are doing it in a way that is 
hopefully at the end of the day responsive to borrower needs 
while providing incremental consumer protections as well as 
making it easier and cheaper to comply with these two 
disclosure regimens.
    Mr. Gutierrez. The goal--I know it is your goal. I don't 
think you are changing it. I think you are doing exactly what 
the Congress of the United States in the last Congress enabled 
you to do.
    And I do want to say that I have never encountered the 
problem, but then if America only had to deal with problems 
that we encounter as a Member of Congress, they probably would 
not encounter a great deal. We are really legislating for the 
rest of America.
    Because I have to tell you, I go to my bank. I take out a 
home loan. It is pretty clear. Exactly what they said was going 
to happen is what happens. The interest rate, I never get a 
surprise later on.
    But, at the same time, there are surprises in so many other 
financial products, even for Members of Congress, like the 
famous credit card, get 25,000 miles, get a free ticket. I 
don't know to where you get a free ticket for 25,000 miles, but 
they keep advertising.
    So there still are bad actors out there, and there are 
still people who will again try to manipulate and exploit a 
maybe somewhat unsophisticated public when it comes to having 
some kind of financial literacy. So I want to thank you and 
wish you Godspeed in the work you do, and please let us know if 
we can be a helping hand to getting that work done.
    Thank you so much.
    Chairwoman Biggert. Thank you.
    If I could just quickly follow up on the RESPA and TILA and 
whether there is a conflict, I wasn't quite clear on how you 
answered that. Does the CFPB have the authority to resolve what 
is a conflict? Let's say it is a conflict. And you talked about 
streamlining and getting them to move together. But in law, 
there is a difference. Can you change that?
    Mr. Date. We believe that we can, both through the explicit 
instruction to integrate these disclosures as well as the 
broader authorities granted to the Bureau, which roughly 
parallel that which the Federal Reserve Board had in Title X 
and Title XIV.
    Chairwoman Biggert. Thank you. Okay.
    The gentleman from Missouri, Mr. Clay, is recognized for 5 
minutes.
    Mr. Clay. Thank you so much, Chairwoman Biggert; and thank 
you, Mr. Date, for being here.
    We hear a lot from community bankers, mortgage bankers, 
about compliance with regulators gumming up the works and the 
red tape. Let me ask you about the requirement that consumers 
receive their final settlement disclosure form 3 days in 
advance. Give me your thinking behind the 3-day requirement.
    Mr. Date. Certainly. Consumers, in order to make sense and 
be confident and be surefooted in the transaction they are 
about to undertake, which, after all, both enables for many 
people the best part of their financial lives but also in 
reality is probably the single biggest obligation and single 
biggest set of financial risk that they will face, in order to 
do that in a surefooted way they need time to really understand 
that which they are getting into. And the idea is to the extent 
that data can be made available in a way that normal human 
beings would be able to understand, 3 days ahead of time as 
opposed to 3\1/2\ minutes, that is rather an advantage.
    Now, obviously, things may change. In routine mortgage 
transactions, there are some things that do change between 3 
days out and the time of closing. For example, recording fees 
might not be knowable 3 days ahead of time, hypothetically. So 
what we are going to try to do and what we have been attentive 
to the feedback from small business representatives through our 
Small Business Review Panel about is to be attentive to those 
areas where: number one, there is a real chance that you don't 
know 3 days ahead of time; and number two, there is not a 
prejudice to the borrower as a result.
    Mr. Clay. And having been a real estate agent prior to 
coming here, tell us what the CFPB's rules will do for 
documentation at closing. Does it simplify it? I know that 
there are numerous documents that each buyer signs and 
sometimes seller. Does this help in that process?
    Mr. Date. I believe that it does, and it does so by taking 
a real step forward in terms of streamlining Federal disclosure 
forms around the mortgage process. It is not just page count 
that is reduced, although that will happen, but it is also 
making it easier for someone to actually understand, which, of 
course, should be the goal of any disclosure regimen.
    Now, there is a lot that happens at the closing table and 
otherwise in a mortgage transaction that has nothing to do with 
Federal requirements per se, but we can absolutely put 
borrowers in a better context with better tools to understand 
that which they are facing, and everyone benefits as a result.
    Mr. Clay. And in your public comment period, what kind of 
feedback are you getting from the industry, from the mortgage 
banker community and the community bankers, too? What are you 
hearing?
    Mr. Date. We will have a formal comment period that extends 
after publishing our proposed rule next month. But essentially 
from the very week that I arrived at the Treasury Department at 
the end of September 2010, during that entire time period we 
have been quite actively reaching out to small business 
representatives and other industry participants across the 
mortgage landscape. And the basic thread, both in general 
terms--maybe I will give you the general and then a specific.
    In general terms, I think it is fair to say that no one 
looks at the Federal disclosure regimen as it exists today and 
says, yes, that is ideal. That is the best of all possible 
worlds. No one thinks that. There are certainly differences of 
opinion about pace and exact trajectory, but fundamentally 
everyone acknowledges that which we have today is not ideal.
    Even to date, we have been able to incorporate specific 
suggestions over time. One that immediately comes to mind is 
sort of the notion in the loan estimate that we will propose in 
our rule. Originally, our early prototypes didn't have, for 
example, principal, interest, taxes, and insurance all 
separately enumerated; and it was quite clear from the feedback 
that we received, both from consumer groups and from the 
industry, that you ought to do that, and later prototypes did.
    That is not the only example, but it really speaks to the 
power of an iterative approach where you actually reach out to 
people who are affected by these things.
    Mr. Clay. And I guess that is the key to this process. It 
is striking a fair balance between more disclosure and the 
mortgage banker industry and how we can expedite the process 
while we still protect consumers. So thank you for your efforts 
at CFPB.
    Mr. Date. Thank you, sir.
    Mr. Clay. Madam Chairwoman, I yield back.
    Chairwoman Biggert. The gentleman from Illinois, Mr. Dold, 
is recognized for 5 minutes.
    Mr. Dold. Thank you, Madam Chairwoman; and, Mr. Date, thank 
you so much for taking your time to join us today.
    Congress, through the Economic Growth and Regulatory 
Paperwork Reduction Act of 1996, directed the Department of 
Housing and Urban Development and the Federal Reserve Board to 
simplify and improve RESPA and TILA disclosures. My 
understanding is that there are some notable conflicting 
provisions in the statutes and the agencies failed to provide a 
joint disclosure. They concluded that meaningful change should 
come only through legislation.
    How did the Dodd-Frank Wall Street Reform and Consumer 
Protection Act differ from the 1996 Act to compel regulatory 
agencies to come up with a joint disclosure document?
    Mr. Date. As I had mentioned briefly before, the advantages 
I think are threefold post-Dodd-Frank versus obviously what has 
been a long-standing challenge within the mortgage marketplace. 
I say threefold, because the first is about having a singular 
authority with respect to both statute and regulatory schemes. 
Not to put too fine a point on it, but having a single agency 
in charge of both statutes on the margin makes everything 
easier in terms of trade-offs between them.
    Second, there is, of course, a specific mandate within 
Dodd-Frank to integrate these disclosure regimens so that they 
are simultaneously better for consumers and that they ensure 
compliance and make compliance easier for industry 
participants.
    And third is that both Title X and Title XIV in our view 
clearly gives us the authority to do just that.
    So the right mission with the right structural 
accountabilities and the right authority to do it.
    Mr. Dold. Correct me if I am wrong, but Dodd-Frank required 
that by July 21st of this year, the CFPB propose and integrate 
an accompanying rule for mortgage loans that satisfies the 
requirements of both RESPA and TILA. Will the CFPB be meeting 
that deadline?
    Mr. Date. Yes, sir, we will be meeting that deadline.
    Mr. Dold. Fantastic. So we can expect to see it on or 
before--do you think it is going to be pretty close to July 
21st?
    Mr. Date. My hope would be not just before the clock 
strikes midnight on that date, but it will be proposed next 
month, yes.
    Mr. Dold. Okay. Fantastic.
    With regard to mortgage disclosures and closings, one of 
the things that I hear oftentimes from my constituents is that 
they don't read the documents because the stack is so large 
that they couldn't possibly get through them. When was the last 
time you talked to a consumer who actually read every one of 
those documents? Or, more importantly, when was the last time 
you sent somebody, an average consumer, to a closing without an 
attorney?
    Mr. Date. I will go one further, Congressman. I bought a 
house last year. My wife does financial fraud cases for the 
Department of Justice. Consider what I do for a living. We 
didn't read the papers at the closing able. It is an 
unrealistic premise that the disclosure regimen has been based 
on, which is why we talked with the Small Business Review Panel 
about the notion of delivering the closing disclosure not just 
in simpler form but in fact earlier than the closing itself.
    Mr. Dold. Okay. Madam Chairwoman, I have no further 
questions right now.
    Chairwoman Biggert. The gentleman yields back.
    The gentleman from Texas?
    Mr. Green. Thank you, Madam Chairwoman; and I thank the 
witness for appearing.
    I must say to my colleague who is about to exit the room 
that you have preempted me. I think that probably more than 
anything else when I talk to consumers about mortgages and 
closing on their homes, they talk about just the inordinate 
amount of paper and how it is just impossible to peruse it; 
and, even if they do, they contend that they don't really 
understand all that is there.
    My question is, at the end of the day, when you finish, 
given that lawyers have opinions about what must be done to 
properly protect clients, will you be able to remove enough of 
the language so that the stack of paperwork will be condensed 
to some extent, and will the process be such that people won't 
sign papers that have not been completed?
    Many times a person simply signs documents, and they are 
told that, ``We will fill that in later. Just go ahead and sign 
now.'' So at the end of the day, I believe that is a noble and 
laudable goal, but will we get there at the end of the day?
    Mr. Date. I am optimistic, and I am optimistic in the 
following two ways: one is a process point; and another is 
substantive.
    The process point is what we have done to date, this 
iterative approach of developing prototypes that are informed 
by outreach, informed by qualitative usability testing, 
informed by hard work, and the willingness to change what was 
originally done. Your first prototype ought to improve as you 
get to your second, that process fundamentally I think is 
better suited to create disclosure forms or, frankly, a lot of 
other things that are not just things that are written by 
lawyers for lawyers, but in fact things that are written to 
work in the real world with actual human beings in stressful 
moments doing important things in their financial lives. That 
is the process point.
    The substantive point is I personally am optimistic that 
the concept that we spoke about with the Small Business Review 
Panel earlier this year about separating the closing disclosure 
from the giant stack of paperwork at the closing table, so the 
first time that a consumer sees these important bits of 
information is not when they are confronted with, for example, 
the note itself or all manner of other documents that are first 
subject to State law and at some level may be irreducible in 
order to protect the security interest in the underlying, et 
cetera.
    So I think there are both process and substantive reasons 
to be optimistic, but we absolutely share your objective.
    Mr. Green. Thank you.
    And, of course, I think that you have to have an acid test 
to ascertain whether or not you have succeeded. So you will 
develop your new paradigm, the process will be changed to some 
extent maybe, and you will have your new instruments to be 
signed, but what will be the acid test to ascertain whether or 
not you have succeeded?
    Mr. Date. There are two bits of testing that will give us a 
lens into that.
    The first lens happens before we even finalize the rule, as 
we conduct quantitative testing to make sure that what we have 
proposed in fact does what we hope that it will. Many of these 
things you just don't know until you really do test them.
    The second is Dodd-Frank, to my mind, appropriately calls 
on us to take retrospective look-backs at new regulations that 
we promulgate to ensure that what was intended in fact was the 
result. And that is something that we, not just in this context 
but across-the-board in terms of our policy agenda, are quite 
serious about. Because even if it did work perfectly on day 
one, markets change. They are dynamic. So we should be 
attentive to circumstances as they change as well.
    Mr. Green. Thank you very much. You have a daunting 
challenge, but I do believe that it is not a Quixotic quest. I 
think it can be done.
    I just hope you won't assume that you will get it done the 
first time. I think looking back and having an acid test will 
be very helpful, because there is just so much involved in what 
you are doing. It really is awesome when you actually go 
through the process, as you have, I have; and consumers are 
quick to point out that they just give up and they are just so 
happy to get the home that they will sign anything and they 
will walk away.
    And my final point would be the signing of documents 
wherein you indicate, I have read this and I understand it, can 
you just give me a comment in terms of how you will handle 
this? Because many people will sign a statement saying, I have 
read it and I understand it, but they really haven't read it. 
And even if they did, they didn't understand it, but they want 
the house, the home. Please.
    Mr. Date. Why don't I just make a general comment with 
respect to that?
    I think your observation points to the self-limiting nature 
of just piling on disclosure form after disclosure form after 
disclosure form. If there is a substantive problem in consumer 
understanding, just generating another mostly meaningless to 
the average person piece of paper that has to be signed doesn't 
solve that substantive problem. They are hard problems to 
solve, but if you take the right approach, again, I am 
optimistic.
    Mr. Green. Thank you, Madam Chairwoman.
    Chairwoman Biggert. Thank you, Mr. Green.
    Just one quick question, and then we will excuse you, Mr. 
Date, and go on to the next panel.
    Is the CFPB working to ensure that disclosures ensure 
transparency in charges that reflect different kinds of 
business models? For example, we have the independent title 
insurers, but we also have title insurers and brokers that have 
an affiliation business arrangement, and we also have 
independent appraisers as well as banks with in-house appraisal 
management companies.
    Mr. Date. In general, the approach is to try to give 
consumers information that is complete enough to understand how 
it is that the money in the transaction is flowing, as well as 
the information presented in a way to give them a real sense of 
the nature of the risks and the nature of the transaction that 
they are looking at in substantive terms.
    We presented to the Small Business Review Panel options 
around changing, for example, the tolerance associated with 
changes in costs for affiliates of lenders versus independent 
providers of those services, and it could well be there are 
changes on the margin there that would tend to conceivably put 
those players on a better, more competitive, even playing field 
with each other. But, again, it is certainly one of the 
issues--
    Chairwoman Biggert. And will there be transparency?
    Mr. Date. In general, we have tried to make sure and we 
will continue to try to make sure as we refine going forward 
that those elements that really ought to be important to a 
consumer's understanding of the transaction and of risk are as 
transparent as we can make them.
    Chairwoman Biggert. Thank you. Thank you so much for being 
here today. You are excused. We really appreciate your time.
    The Chair notes that Members may have additional questions 
for this witness, 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 this witness 
and to place his responses in the record.
    We will now have the next panel take their seats.
    While we are having the second panel take their seats, I 
will just ask unanimous consent to insert the following 
materials into the record: a June 20, 2012, letter from the 
Credit Union National Association; a June 20, 2012, letter from 
Impact Mortgage Management Advocacy and Advisory Group; a June 
20, 2012, letter from the Appraisal Institute; a June 20, 2012, 
letter from the Housing Policy Council of the Financial 
Services Roundtable; a June 20, 2012, letter from the National 
Association of Federal Credit Unions; a June 20, 2012, letter 
from the Consumer Bankers Association; a June 20, 2012, letter 
from the National Association of Mortgage Brokers; a June 20, 
2012, letter from the American Financial Services Association; 
and a June 20, 2012, statement from the Independent Community 
Bankers of America.
    Without objection, it is so ordered.
    Okay, welcome to this second panel.
    I will introduce the panel: Mr. Christopher Abbinante, 
president, American Land Title Association; Ms. Anne Canfield, 
executive director, Consumer Mortgage Coalition; Mr. Bill 
Cosgrove, president and chief executive officer, Union National 
Mortgage Company, on behalf of the Mortgage Bankers 
Association; Ms. Chanelle Hardy, senior vice president and 
executive director, National Urban League Policy Institute; Ms. 
Brenda Hughes, senior vice president and retail lending 
administrator, First Federal Savings Bank, on behalf of the 
American Bankers Association; Mr. Moe Veissi, 2012 president, 
National Association of REALTORS; and Mr. Tim Wilson, 
president, affiliated businesses, Long & Foster Companies, on 
behalf of the Real Estate Services Providers Council.
    Once again, without objection, your written statements will 
be made a part of the record. You will each be recognized for a 
5-minute summary of your testimony, and we will start with you, 
Mr. Abbinante. You are recognized for 5 minutes.

 STATEMENT OF CHRISTOPHER ABBINANTE, PRESIDENT, AMERICAN LAND 
                    TITLE ASSOCIATION (ALTA)

    Mr. Abbinante. Thank you.
    Chairwoman Biggert, members of the subcommittee, my name is 
Christopher Abbinante, and I am the president of the American 
Land Title Association. I have been in the title industry for 
over 35 years, most recently serving as the president of 
eastern operations for Fidelity National Title Group.
    ALTA members act as independent third-party settlement 
agents in real estate transactions. We prepare and provide the 
HUD-1 settlement statement which provides all parties to the 
transaction with their final settlement costs.
    ALTA supports simplified mortgage disclosures. It is 
critical that the CFPB get this rule right for consumers and 
industry. However, industry groups and the Bureau agree that 
there are a number of statutory conflicts between RESPA and 
TILA. It is not clear if these conflicts can be resolved by the 
Bureau or will require an act of Congress.
    My testimony will outline five principles that ALTA has 
identified to help the Bureau avoid unintended consequences for 
consumers and industry.
    Our first principle is to prevent disruptive and costly 
delays to closings for consumers. We recognize that RESPA and 
TILA have conflicting timing requirements for when consumers 
receive their settlement disclosure. To resolve this conflict, 
the Bureau is expected to adopt the TILA requirement and 
propose that consumers receive their final disclosure 3 days 
before closing.
    Providing disclosure earlier in the process makes sense in 
theory, but it is simply not practical and will result in 
delays, increased costs, and frustrations for businesses and 
consumers. A lot of costs change within 3 days of closing 
because of property inspections and walk-throughs. If each 
change triggers a new 3-day waiting period, the rule will 
almost certainly delay settlements and add costs.
    Our second principle is to provide industry with clear 
guidance. Today, a lack of clear and definitive guidance causes 
lenders and settlement agents to unnecessarily lose an 
estimated 3 million hours of productivity each year. When these 
forms changed just 2 years ago, HUD issued 400 frequently asked 
questions after the rule was published. This was very costly 
for businesses, because each change required new software 
coding, testing, and training.
    Our third principle is that the rule should promote 
competition. To improve accuracy and prevent bait-and-switch, 
regulators hold lenders liable for some costs that increase 
more than a certain amount at closing. This is called 
tolerance. However, the economics of tolerance inflate 
estimates and reduce the number of settlement agents that are 
allowed to compete for business. We urge the Bureau to work 
with us to improve accuracy for consumers and to protect 
consumers by ensuring that settlement agents continue to serve 
as the independent third party at the closing.
    Our fourth principle is to avoid unnecessarily high costs 
for small businesses. These forms will be very costly to 
implement. Software vendors estimate that they will each spend 
around $2.5 million to develop and implement compliant 
software. This is more than twice the amount that was spent 
when these forms changed in 2010. These costs will likely be 
passed on to the 21,000 settlement agents across the country, 
roughly 88 percent of which are small businesses, and 
ultimately to the consumer. We estimate they will pay $800 per 
employee for up-front implementation and training and see a 20 
percent annual increase in software fees. It is also estimated 
that their closing staff will be able to close two fewer 
transactions per day.
    In addition, changes that might be perceived as industry 
friendly can actually be very costly. One example is that we 
strongly recommend a standard disclosure form as required by 
RESPA rather than a model disclosure form as required by TILA. 
Standardization reduces costs and prevents consumer confusion 
caused by the hundreds of different versions of the same 
disclosure produced for each mortgage lender.
    Our final principle is to encourage consumers to make 
informed decisions. The choice of words influences consumers' 
likelihood of making decisions in their financial interests. 
Some drafts of the form described owner's title insurance as 
not required. A consumer without an owner's title policy is out 
of luck if their ownership is challenged. This is tragic and 
can be prevented. If these forms need to use modifiers to 
describe a particular settlement service, they should use terms 
like ``recommended'' or ``advisable'' to encourage consumers to 
make an informed choice.
    We appreciate the opportunity to discuss federally-mandated 
mortgage disclosures. Getting this rule right is critical. ALTA 
is eager to serve as a resource to this subcommittee as well as 
to the Bureau.
    Thank you.
    [The prepared statement of Mr. Abbinante can be found on 
page 40 of the appendix.]
    Chairwoman Biggert. Thank you so much.
    Ms. Canfield, you are recognized for 5 minutes.

  STATEMENT OF ANNE C. CANFIELD, EXECUTIVE DIRECTOR, CONSUMER 
                    MORTGAGE COALITION (CMC)

    Ms. Canfield. Thank you, Chairwoman Biggert, and members of 
the subcommittee.
    My name is Anne Canfield and I serve as the executive 
director of the Consumer Mortgage Coalition, a trade 
association of national mortgage lenders, servicers, and 
service providers. We appreciate the opportunity to testify and 
appreciate the subcommittee's attention to this important 
issue.
    I would also like to request that the appendices to my 
testimony be made a part of the record.
    Chairwoman Biggert. Without objection, it is so ordered.
    Ms. Canfield. Thank you.
    Along with its industry colleagues, the CMC has been a 
long-time and strong supporter of efforts to streamline 
mortgage disclosures. The disclosure should assist consumers in 
understanding their transaction and help them make informed and 
prudent decisions. A well-informed consumer will also help 
prevent abusive mortgage practices from taking hold.
    The CFPB does have an historic opportunity, given that the 
regulatory authority over the two principal government statutes 
governing mortgage disclosures, RESPA and TILA, now reside in 
one Bureau.
    It would be most unfortunate if the CFPB were to repeat the 
experience that occurred when the 2008 amendments to Regulation 
X were implemented. At that time, the confusion surrounding the 
2008 rule necessitated 11 rounds of frequently asked questions 
after the rule was final, but never really did provide the 
clarity that the industry needed, and required delaying 
enforcement of the regulation by 4 months. While this was an 
extremely difficult and expensive experience for the industry, 
more importantly, the 2008 amendments resulted in a set of 
mortgage disclosures that are even more confusing to consumers 
than any of the previous disclosure regimens.
    In order to get it right, the CFPB must take a holistic and 
methodical approach to this project. Otherwise, chaos is likely 
to ensue.
    First, the CFPB should examine the existing TILA, RESPA, 
and related rules to determine where modifications to those 
rules might be needed so that any superfluous disclosures that 
are emanating from the existing rules can be either eliminated 
or modified.
    Second, the Dodd-Frank Act includes a number of provisions 
that will result in additional mortgage disclosures. All the 
Dodd-Frank Act rules that will drive additional disclosures 
need to be finalized, including the QM rule and the QRM rule. 
The disclosures will only work if they are designed together. 
Indeed, that was the main purpose for assigning to a single 
regulator the task of designing the disclosures.
    Third, once all the Dodd-Frank mortgage-related rules that 
will result in additional disclosures are finalized, those 
rules should be placed on hold until all the new disclosure 
requirements are ready to be implemented. Both the substantive 
rule changes and the disclosure changes should be implemented 
once, at the same time.
    Fourth, the new disclosure should then be designed to 
accommodate all the existing and new disclosure requirements, 
along with the requirements set by the States, unless the CFPB 
agrees or decides to preempt the State disclosure requirements.
    Fifth, once the new draft disclosures are designed, they 
need to be tested on actual closed loans, not in focus groups, 
across all available loan products to ensure that they actually 
work. Testing the disclosures on closed loans may reveal the 
changes that will need to be made to the draft forms.
    Sixth, once the format of the forms is finalized, a 
reasonable implementation period needs to be given so that the 
industry is given the time it needs to change its systems, 
train its employees, and monitor and audit the changes to 
ensure that everybody is compliant.
    I would like to reemphasize that both the rule changes that 
are substantive along with the disclosure changes need to be 
implemented once, and at the same time. Otherwise, the industry 
will be in a position of having to implement and redo its 
systems repeatedly, and in this process I can't even imagine 
what the disclosures will look like to consumers. It will be 
very, very confusing.
    Also, the Dodd-Frank Act, as you heard in the prior 
testimony by Mr. Date, requires that the CFPB come out with a 
proposed rulemaking by July 21st. Since the Dodd-Frank rules 
and the related disclosures are not going to be known at that 
time, any proposed disclosures they come out with in a proposed 
rulemaking at that time will not make any sense and will not be 
usable. So we would recommend that Congress and the CFPB delay 
that proposed rulemaking date. It only makes sense. It is not 
unprecedented that Congress sometimes delays those required 
dates. They did so with the QRM rule. There are many other 
examples when legislation is passed that is a very large bill 
and not every piece of it fits together perfectly.
    The other thing that we would like to recommend is that the 
CFPB implement a four-step disclosure regimenn even when it 
does design its disclosures.
    We think that at step one, a loan estimate can be given to 
the consumer. It is a single disclosure that would be sent to 
the consumer within 3 days of application.
    At step two, using the same form that was provided at step 
one after the loan has been underwritten, the consumer would 
receive a second updated disclosure form. That second 
disclosure form could also serve the purpose of meeting the 
Regulation B ECOA notice. So the consumer would receive one 
form at that stage of the transaction versus two.
    Chairwoman Biggert. If you could wrap up, we will probably 
come back to this in questions. Thank you.
    Ms. Canfield. Great. Thank you. I appreciate your time.
    Our remaining remarks are we think we can get part of the 
way there in meeting the CFPB's desire to have a 3-day waiting 
period before final closing documents are provided to the 
consumer, but I think that actually requiring 3 days, a 3-day 
waiting period, before the consumer does get the final closing 
documents will create chaos. It was tried in 1975, and it did 
not work, and it would be very harmful to the industry if it 
were to happen again.
    [The prepared statement of Ms. Canfield can be found on 
page 50 of the appendix.]
    Chairwoman Biggert. Thank you.
    Mr. Cosgrove, you are recognized for 5 minutes.

STATEMENT OF BILL COSGROVE, CMB, PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, UNION NATIONAL MORTGAGE COMPANY, ON BEHALF OF THE 
               MORTGAGE BANKERS ASSOCIATION (MBA)

    Mr. Cosgrove. Thank you, Chairwoman Biggert.
    My testimony this afternoon will provide MBA's perspective 
on the CFPB's Know Before You Owe effort.
    I own an independent mortgage banking company headquartered 
in Ohio. We employ 220 mortgage professionals. I have 26 years 
of experience in mortgage banking. Last year, my company 
originated over $750 million of mortgage business, and this 
year we are on track to close approximately $1 billion in 
mortgage loans.
    RESPA and TILA disclosures directly impact my company and 
our customers. If done right, these new combined disclosures 
will help borrowers make better-informed decisions about what 
they can and cannot afford. These disclosures also make it 
easier for them to compare the estimated cost of the loan 
versus the actual cost at closing.
    MBA has long supported that RESPA and TILA disclosures work 
together as a way to provide better information for home 
buyers. Splitting the authority between HUD and the Federal 
Reserve never worked. The disclosures diverged over the years. 
The CFPB Know Before You Owe initiative has the potential to 
finally sync up the information borrowers receive.
    Let me highlight the key points of our testimony.
    First and foremost, MBA believes this effort must be done 
right and not in haste.
    Second, while these forms have benefited from multiple 
rounds of feedback from the public, more work needs to be done 
to ensure they are as useful as possible to consumers.
    Third, the forms and rules resulting from this effort 
should not be finalized until after other Dodd-Frank rules 
impacting these forms are finalized and taken into account.
    Fourth, the rules accompanying the forms should be 
developed carefully so that they protect consumers without 
unwittingly harming the market and the borrowers that they are 
intended to serve.
    And, finally, when the forms and rules are finished, they 
should be implemented in an orderly manner that is respectful 
of the considerable commitment of resources small businesses 
like mine will need to make to ensure compliance.
    Let me expand on some of these principles, starting with 
the importance of getting this right rather than rushing to 
meet arbitrary deadlines.
    Buying and financing a home remains the largest financial 
transaction in any family's life, yet the mandated disclosures 
remain confusing and inconsistent. Past efforts to improve the 
disclosures have been uncoordinated, and ultimately failed to 
achieve their objectives. Yet, small businesses continue to 
spend untold sums to implement the most recent RESPA rule, 
which is about to be eclipsed by the CFPB's latest efforts. In 
the end, those costs are borne by our borrowers, your 
constituents, who then pay more for their mortgage loan.
    Second, as I noted earlier, we can't develop these new 
disclosures in a vacuum and ignore the many other mortgage-
related rules mandated by Dodd-Frank. The CFPB alone is 
currently working on: ability to repay and its QM definitions, 
as well as rules dealing with high-cost loans, originator 
compensation, and servicing rules. All these rules will impact 
the disclosure requirements. For example, materials related to 
the loan originator compensation rule indicate the CFPB is 
concerned about borrower confusion of discount points and 
origination charges. These new forms, not new restrictions, are 
the right way to address those concerns.
    MBA also does not agree with the CFPB's suggestion that the 
application information needed by lenders to issue a loan 
estimate should be reduced to six items without also allowing 
the lender to request other information it deems necessary, as 
permitted under RESPA today. Under the proposed QM rule, 
lenders face significant liability for failing to determine 
that a borrower can repay a mortgage. Constraining companies 
like mine from gaining relevant information could not only 
result in unreliable estimates for consumers but could actually 
put us in legal jeopardy later on.
    Contradictory rules add uncertainty to the mortgage market. 
This uncertainty is leading to factors behind today's tight 
credit environment that is preventing qualified borrowers from 
getting a loan, and it is holding back the housing recovery. 
For these reasons, the final RESPA/TILA forms and regulations 
should not be finalized until issues under the other Dodd-Frank 
rules have been resolved.
    Chairwoman Biggert, we at MBA appreciate your longstanding 
interest in improving the mortgage process. We stand ready to 
work with you and the members of the subcommittee on both sides 
of the aisle to ensure this effort leads to the best and most 
efficient set of mortgage disclosures for consumers.
    Thank you.
    [The prepared statement of Mr. Cosgrove can be found on 
page 175 of the appendix.]
    Chairwoman Biggert. Thank you so much, Mr. Cosgrove.
    Ms. Hardy, you are recognized for 5 minutes.

   STATEMENT OF CHANELLE P. HARDY, SENIOR VICE PRESIDENT AND 
   EXECUTIVE DIRECTOR, NATIONAL URBAN LEAGUE POLICY INSTITUTE

    Ms. Hardy. Thank you.
    Chairwoman Biggert and members of the subcommittee, thank 
you for the opportunity to testify today, and for the 
leadership you have shown on this issue.
    I am Chanelle Hardy, senior vice president and executive 
director of the National Urban League's Policy Institute. On 
behalf of the League, its president and CEO, Marc Morial, and 
the 2.6 million Americans served by our 97 affiliates last 
year, I am pleased to share our views on the CFPB's effort to 
create combined TILA/RESPA disclosures as mandated by Dodd-
Frank.
    With the help of HUD Housing Counseling Grants, the 
National Urban League acts as a direct provider of housing 
counseling services in 36 cities throughout the country. Last 
year alone, the National Urban League affiliates offered 
counseling to more than 10,000 families, with services ranging 
from prepurchase workshops to mortgage modification and the 
initiation of forbearance agreements. The goal of our 
counseling model is to break down barriers and obtain economic 
equality through education, self-reliance, and a greater 
understanding of financial tools and services.
    Our counselors see firsthand the damage caused by confusion 
at the point of loan origination when well-intentioned and 
qualified borrowers are confronted with hopelessly confusing 
documents and sometimes deliberately abusive and malicious 
lending agents. Today, we know that substantial evidence 
indicates that African-American and Latino borrowers, 
particularly, who were qualified for prime loans were often 
steered into subprime loans and into loans that were overpriced 
and unaffordable.
    In our view, the CFPB's proposal discussed today, 
simplifying and consolidating the information required by TILA 
and RESPA, represents a critical step toward combating and 
limiting this type of abuse and confusion that contributed in 
no small part to the current foreclosure crisis.
    The broader context for these reforms must not be 
forgotten. The fact that between 5 million and 6 million 
American homeowners are currently at risk of foreclosure allows 
us to accept one of two possibilities: either the American 
people in droves deliberately entered into loan agreements to 
secure homes that they knew they could not afford; or, at 
minimum, hardworking people seeking to achieve the American 
dream lacked full awareness of the types of risks of certain 
types of mortgages before agreeing to their terms.
    Communities of color, and African-American communities in 
particular, have borne much of the brunt of this crisis, 
leading to a loss of family and community wealth that can only 
be described as devastating. The Federal Reserve has recently 
pointed to a 40 percent plunge in the wealth of the average 
American family, from $126,400 before the crisis to $77,300 
after. But these numbers are shockingly lower for African-
American and Latino families, where numbers began between 
$11,000 and $13,000 and are now between $4,000 and $6,000.
    The heartbreaking stories that the Urban League counselors 
have heard from our clients reveal that many of them did not 
fully understand the potential of many mortgage terms to cause 
problems in the future, and many claimed to have been unaware 
of those provisions at all. Better consumer education is a 
significant part of the solution to the recurrence of the 
current housing crisis, and streamlining these disclosure forms 
is a critical component to the solution.
    Now that the CFPB has authority over RESPA and TILA, we 
believe the combination of these authorities will make it 
easier to unify the legal approach. And while some will 
certainly argue for an approach that reduces the regulatory 
burden on the mortgage industry, we strongly believe the 
central challenge of CFPB's focus must be on improving the 
ability of consumers to understand disclosures.
    Timely, consistent, and clearer disclosures have the 
potential to reduce the frequency of poor financial decisions 
by consumers, many of whom lack the sophistication to read 
between the lines. Consumers will benefit from clarity and 
reinforcement regarding elements of mortgage obligations that 
could create future risks.
    We commend the CFPB staff for its diligent work in crafting 
this proposal and recognize that the home mortgage process is 
unique and complex and that developing a fair and reasonable 
method of ensuring early and accurate price disclosure is 
challenging.
    Unfortunately, whatever decisions are made with respect to 
the disclosures in this proposed rule, it will not prevent 
future predatory loans from being made. They will not fix the 
misaligned market incentives that created this current 
situation. But what they will do is empower consumers with the 
information they need to evaluate all cost factors together so 
that they can make the most informed choices possible.
    I will close today by offering three recommendations to the 
proposals: one, we believe that requiring all settlement and 
financing terms to be communicated well in advance of 
settlement with clear and consistent language is critical; two, 
require that client disclosure and acknowledgment forms be 
completed by the lender, not unlike the know-your-client 
protection provisions mandated in the securities investment 
marketplace; and three, the Qualified Residential Mortgage 
rules should require all securitized residential loans, 
qualified and other, to feature complete and valid know-your-
borrower documentation in addition to other prescribed forms of 
risk retention.
    Thank you for your time today, and I look forward to your 
questions.
    [The prepared statement of Ms. Hardy can be found on page 
189 of the appendix.]
    Chairwoman Biggert. Thank you so much.
    Ms. Hughes, you are recognized for 5 minutes.

STATEMENT OF BRENDA K. HUGHES, SENIOR VICE PRESIDENT AND RETAIL 
LENDING ADMINISTRATOR, FIRST FEDERAL SAVINGS BANK, ON BEHALF OF 
             THE AMERICAN BANKERS ASSOCIATION (ABA)

    Ms. Hughes. Thank you, Chairwoman Biggert, Ranking Member 
Gutierrez, and members of the subcommittee.
    My name is Brenda Hughes, and I am senior vice president 
and retail lending administrator at First Federal Savings Bank, 
a 96-year-old community bank in Twin Falls, Idaho. We are a 
$482 million institution serving the southern Idaho region. We 
do both portfolio lending as well as selling actively into the 
secondary market. We are also the largest lender in our region.
    I am also co-vice chair of the ABA's Mortgage Markets 
Committee, and I am pleased today to testify on behalf of the 
American Bankers Association.
    Thank you for holding this hearing on the reform of 
mortgage disclosures. We commend the Consumer Financial 
Protection Bureau's ongoing efforts to merge the RESPA and TILA 
disclosures as mandated by Dodd-Frank. Those efforts have been 
diligently undertaken with a commitment to openness and 
communication with all stakeholders.
    ABA fully supports the reformation of the existing mortgage 
disclosure system. We believe the RESPA and TILA forms are 
convoluted and complex and must be fixed. It is common 
knowledge that consumers either ignore these disclosures or 
don't fully grasp the information contained in them. Simpler, 
clearer forms have long been a priority for all stakeholders.
    Notwithstanding our support, we do have critical concerns 
to share. In reforming the RESPA and TILA disclosure 
requirements, the Bureau is effectively rewriting the rules 
that control the timing of the loan origination process, the 
disclosures to consumers, and the legal liabilities that 
result.
    This is a massive and important undertaking. It determines 
how we communicate with our customers. We must get this right. 
The goal must to be achieve a workable and lasting framework of 
clear mortgage disclosures. Rigid timeframes should not trump 
quality.
    The Bureau has thus far demonstrated an excellent capacity 
to analyze the issues. However, they still need to carefully 
consider a great number of elements that affect the RESPA/TILA 
disclosure system.
    The Bureau should be allowed to satisfy the July 21st 
statutory deadline for completing a proposed rule by issuing an 
advance notice of proposed rulemaking. This would allow the 
Bureau to continue considering options regarding the structure 
of the rule and allow flexibility to incorporate changes 
without having to repropose additional rules. It also allows 
Congress to assess the Bureau's progress.
    This flexibility is important because any other approach 
will lead to a difficult sequence of expensive regulatory 
revisions. The comprehensive forms in Dodd-Frank impose many 
other regulatory changes to the mortgage loan origination 
process and will significantly affect the disclosures being 
considered under the RESPA/TILA reform. It would be cumbersome, 
expensive, inefficient, and confusing to finalize a merger rule 
without considering these other rules that must be implemented. 
It would result in erratic and never-ending amendments to our 
compliance system. Such a result is unwarranted and avoidable.
    As a second consideration, we encourage disciplined and 
efficient rule writing, and we therefore offer four important 
principles to guide this process.
    First, the RESPA/TILA merger must result in simplified 
disclosures that are clearer for consumers. This is not an easy 
task, given the new requirements imposed in Dodd-Frank as well 
as current Federal, State, and local requirements.
    Second, the merger rule must incorporate all changes that 
emanate from the Dodd-Frank Act. If this rule misses a new 
requirement, then it does not achieve the goal of integration.
    Third, the Bureau should not overstep the boundaries of the 
RESPA and TILA laws, which have explicit legal boundaries that 
must be respected as the disclosures are merged.
    Fourth, and finally, adequate timeframes should provide for 
guidance and implementation of the final rule. Once finalized, 
the Bureau should commit to timely guidance and adequate time 
for implementation and interpretations.
    Thank you. I look forward to your questions.
    [The prepared statement of Ms. Hughes can be found on page 
194 of the appendix.]
    Chairwoman Biggert. Thank you so much, Ms. Hughes.
    Mr. Veissi, you are recognized for 5 minutes.

 STATEMENT OF MOE VEISSI, 2012 PRESIDENT, NATIONAL ASSOCIATION 
                       OF REALTORS (NAR)

    Mr. Veissi. Chairwoman Biggert and members of the 
subcommittee, I am honored to testify today on behalf of the 
over 1 million members of the National Association of REALTORS 
who practice in all the areas of residential and commercial 
real estate. My name is Moe Veissi. I am the broker-owner of 
Veissi and Associates in Miami, Florida, and I have been a 
REALTOR for over 43 years.
    Before I begin, I would like to thank the Chair and the 
members of the Financial Services Committee for all of their 
hard work on extending the National Flood Insurance Program. We 
strongly support your efforts for a long-term resolution to 
this vital program.
    The housing industry is experiencing a fragile recovery 
after the financial crisis in 2008. To prevent another 
financial disaster, many well-meaning regulations are adopted. 
The past several years have shown us that tight credit is 
slowing the recovery of the housing market. It is time for 
Congress and the Administration to seriously reexamine the 
breadth of some of the laws and the regulations that have come 
out of the financial and mortgage crisis, and that includes the 
Real Estate Settlement Procedures Act and Truth in Lending 
harmonization efforts.
    NAR has participated in the effort by the Consumer 
Financial Protection Bureau to continue the Truth in Lending 
Act disclosures with RESPA and good-faith estimates. NAR 
strongly supports reducing the duplicative paperwork and 
combining those two forms, providing the combined document is 
useful and effective. The Consumer Financial Protection Bureau 
has done an adequate job harmonizing the good-faith estimate 
and the truth-in-lending disclosure. But more testing and work 
needs to be done, including testing on actual loans and final 
fine-tuning for products that are not plain vanilla.
    Lining up the good-faith estimates in truth-in-lending 
disclosure is the most essential part of the rulemaking and 
truly represents what Congress, industry, and most consumer 
groups originally intended in pushing for RESPA/TILA 
harmonization. The effort to harmonize the HUD-1 settlement 
statement and the final truth-in-lending disclosure could be 
very disruptive to industry and consumers.
    Unlike the good-faith estimate and truth-in-lending 
disclosure, the two documents have very different purposes. The 
TILA is a mortgage disclosure and settlement statement, and it 
is a memorization of the entire transaction. Trying to tie the 
two together to apply truth-in-lending rules and RESPA rules to 
both could create severe complications. For example, at present 
we do not even know who will fill out the combined statements. 
And, currently, lenders provide truth-in-lending disclosure, 
and the settlement agent does the HUD-1. These are people with 
two definite and determined skill sets and roles in a 
transaction, and neither is totally equipped or positioned to 
do the other's job or bear their liability.
    Other problems include requiring the HUD-1, 3 days before 
closing. And, for reference, that was tried in 1970, and 
Congress had to remove that provision because it created 
disasters in the closing process.
    Tightening RESPA tolerances is also a mistake. The HUD 
tolerances have failed to save consumers money, and since their 
implementation in 2010, closing costs have increased over 17 
percent, according to several studies. The tolerances should 
not be expanded. They should be rolled back to include any 
lender charges.
    The solution that the National Association of REALTORS 
recommends is for the Consumer Financial Protection Bureau to 
focus on fixing the initial disclosures. That would mean 
merging the good-faith estimate and truth in lending and either 
drop the more comprehensive and unnecessary effort to transform 
RESPA and TILA into a single entity or seriously curtail the 
effort. Currently, it is possibly unworkable and will make the 
expensive, time-consuming, and frustrating HUD RESPA form of 
2009 look like a minor inconvenience in comparison.
    Thank you for providing the National Association of 
REALTORS this opportunity to testify about the critical issues 
contained here. And we stand ready to work with you and the 
committee and your staff to find a productive solution. Thank 
you.
    [The prepared statement of Mr. Veissi can be found on page 
206 of the appendix.]
    Chairwoman Biggert. Thank you so 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. (RESPRO)

    Mr. Wilson. Thank you.
    Good afternoon, Chairwoman Biggert, and members of the 
subcommittee. My name is Tim Wilson, and I am president of 
affiliated businesses for Long and Foster Companies and 
immediate past chairman of RESPRO.
    Long and Foster is the third-largest independent 
residential real estate brokerage firm in the Nation, with 185 
real estate offices and 12,000 sales associates in the mid-
Atlantic region. We also offer a full array of mortgage, title, 
and insurance services through affiliated businesses that are 
regulated at the Federal level under RESPA.
    Affiliated businesses are not new in the industry. In 2011, 
the Nation's 500 largest residential real estate brokerage 
firms closed almost 120,000 mortgage loans and conducted over 
325,000 closings through affiliated companies. Economic studies 
and consumer surveys have shown that affiliated services are 
competitive in cost and that consumers who use them have a more 
satisfactory home-buying experience.
    My testimony today focuses on three issues in the Bureau's 
RESPA/TILA rulemaking that are particularly relevant for 
affiliated businesses.
    First, the Bureau says it is considering imposing a zero 
tolerance on fees offered by a lender's affiliated companies, 
meaning that these charges at closing could not exceed those 
disclosed in the loan estimate. Fees charged by unaffiliated 
companies would continue to be subject to the current 10 
percent tolerance.
    The Bureau's reasoning behind this proposed zero tolerance 
is that lenders should be better able to estimate the cost of 
services provided by their affiliated companies. This 
reasoning, however, is faulty because the cost of many third-
party services are subject to variables unknown to both 
affiliated and unaffiliated lenders at the time the loan 
estimate would be provided.
    In addition, the Bureau says it also may propose to trigger 
the lender's delivery of the loan estimate after only receiving 
limited information. Imposing a zero tolerance on affiliated 
services, in addition to limiting the information the lender 
can collect upon application, would create a difficult 
compliance burden on affiliated lenders that would place them 
at an unfair competitive advantage.
    Second, RESPRO believes that the Bureau needs to integrate 
its RESPA/TILA rulemaking with the points and fees definition 
that is being separately developed in its QM rulemaking. A 
mortgage loan cannot be a QM if the total points and fees paid 
by the consumer exceed 3 percent of the loan amount. Affiliated 
businesses are particularly affected because the fees that a 
consumer pays to a lender's affiliated company count toward the 
3 percent cap but not fees paid to an unaffiliated company.
    As a result, loans in which a lender's affiliated company 
is used would most likely not qualify as QMs, even if the 
affiliated company's fees are equal to or even lower than an 
unaffiliated company's fees. Affiliated companies like Long and 
Foster would need to discontinue offering either mortgage or 
title services in conjunction with those loans in which the 
caps would be exceeded, which would decrease competition and 
increase the cost of mortgage credit, particularly for low- and 
middle-income borrowers.
    Moreover, the Bureau has announced that it is considering 
including additional fees in the finance charge, many of which 
also would count toward the points and fees threshold. This 
would significantly increase the percentage of affiliated loans 
that would exceed the points and fees cap, which would further 
limit competition.
    RESPRO has two recommendations to minimize this 
potentially harmful impact. First, we urge Congress to pass the 
Consumer Mortgage Choice Act, which excludes from the 
definition of points and fees charges for title services 
regardless of affiliation. Second, it is essential that the 
Bureau research the potential impact of including these 
additional fees in the points and fees caps and disclose it to 
the public for comment in its proposed rule.
    Finally, I would like to comment on the Bureau's proposal 
to require that the settlement disclosure be provided to the 
consumer 3 days before closing.
    Long and Foster's affiliated mortgage company, Prosperity 
Mortgage, has some experience with the issues involved in 
providing the current HUD-1 in advance of the closing. Under 
its Target Date program, Prosperity Mortgage pays an incentive 
bonus to its operation team members when the HUD-1 is delivered 
to the consumer 2 days in advance of their closing date. So far 
in 2012, we have achieved that goal in 56 percent of our 
transactions. Consumers who receive their HUD-1, 2 days in 
advance of their closing date have had a higher documented 
customer satisfaction score, based on independent third-party 
evaluations.
    RESPRO supports the concept of a 3-day requirement in 
principle, and we believe that affiliated businesses could be 
more capable of complying with this requirement because of the 
efficiencies associated with many of the services needed to 
close the loan under one corporate entity. However, the 
ultimate viability of such a concept and its ultimate value to 
the consumer lies in the specifics of the proposal. In our 
written testimony, we have identified many issues that will 
need to be addressed in any proposed and final 3-day 
requirement.
    Thank you for the opportunity to testify before you today, 
and I will be glad to answer any questions.
    [The prepared statement of Mr. Wilson can be found on page 
212 of the appendix.]
    Chairwoman Biggert. Thank you, Mr. Wilson.
    We will now proceed to Member questions. And I will give 
myself 5 minutes to ask questions. Let me start with Mr. 
Abbinante.
    I asked a question of Mr. Date about whether the CFPB has 
the authority to resolve conflicts between RESPA and TILA, and 
he said he thought that they did.
    Do you think Congress needs to fix any RESPA/TILA 
conflicts?
    Mr. Abbinante. I think it is a tough question, and I heard 
Mr. Date's response, as well, where he said he thought he had 
the authority. I am certainly not a legislative expert, but I 
think there is certainly room to argue that they may not have 
that authority, and, in fact, it may require action by Congress 
to address some of these issues.
    Chairwoman Biggert. We certainly had a hard time in the 
last few years trying to get the two of them together to 
resolve--the two bodies to resolve that, so I think that there 
is a problem there.
    But what are the conflicts?
    Mr. Abbinante. Certainly, from my perspective, I think we 
look at a couple of things: the timing of disclosure. TILA 
requires a 3-day provision. RESPA doesn't have a 3-day rule. 
Forms, who will complete them? Today, TILA is completed by the 
lender, as is the GFE, and what we call today the HUD-1 is 
completed by the settlement community.
    And then we have the issue of standardized forms versus 
model forms. Under RESPA, it is a standardized form. Under 
TILA, it is a model form. We believe that using a model form 
will only cause more confusion and increase costs tremendously 
throughout the closing process. We would be certainly much more 
in favor of standardized forms. I think it gives the industry 
and ultimately the consumer a better position in terms of 
understanding what they are looking at, because the information 
they are receiving should be consistent no matter who they are 
using.
    Chairwoman Biggert. Okay. Thank you.
    Then, for anyone, the CFPB has indicated that it may 
require all and final settlement charges to be disclosed 3 days 
before closing. And you have all been talking about this. I 
think that we had a bill which did pass to make the 3 days, but 
I am not convinced yet.
    As I said, in my former life I was a real estate attorney, 
and I know that, so many times, standing by a fax machine--we 
didn't do as much with email then--by a fax machine, waiting 
for the final decisions to come over so that I could tell the 
buyer how much money they had to bring to closing and whether 
they had enough or they had to run back to the bank before it 
closed.
    And so many times there were things that were not settled 
and came up very late--for example, fences, where was the 
fence? Was it on the other person's property? Was it on that 
property? And were we going to have to work that out? And a 
couple of times where sellers had not cleared everything out of 
the garage, or something like that that caused a lot of angst 
at the very end, very close to the closing.
    So I wonder, would that all happen 3 days before so that it 
would be resolved? It really seems to me that when you get 
there, there are still some problems. Now, having to have an 
attorney in Illinois made a big difference, but would anybody 
like to address that?
    Should the CFPB maybe consider a multistep disclosure 
process?
    Ms. Canfield. Chairwoman Biggert, maybe I can address this. 
In the appendix to our testimony, we wrote a short White Paper 
on the history of this actual experience.
    When RESPA was enacted in the mid-1970s, Chairman Proxmire 
put in a 12-day waiting period. And after it was implemented, 
the regulations and everything were implemented, the Congress 
ended up repealing it 6 months later because there was such 
dislocation around the country. What happened is that people 
were moving out of their homes, and because of the artificial 
waiting requirement, they had to stay in hotels, other 
temporary lodgings--they had all their belongings in moving 
vans--until the 12-day requirement was met. So there was an 
uproar. It was enormous--
    Chairwoman Biggert. I remember that.
    Ms. Canfield. Okay. So I don't think it would be a good 
idea to repeat that experience.
    But I do think that what we are recommending gets you part 
of the way there. I understand the goal, but if you look at the 
four-step disclosure regimen we were talking about, what we are 
saying is that within 3 days of closing, you would get a final 
loan estimate. And because the lenders currently have a zero 
percent tolerance on their costs from the time the initial 
good-faith estimate is sent to the consumer all the way through 
closing, the differences between the costs of the final loan 
estimate and closing really wouldn't be allowed to change for 
the lender's costs.
    There would be some settlement charges that could change, 
but, again, those are subject to a 10 percent tolerance from 
the beginning of the initial good-faith estimate to the closing 
document. So there is some limitation as to how much those--
    Chairwoman Biggert. Would that be true of what the CFPB is 
proposing? Because if it is zero tolerance, than whenever it is 
finished--
    Ms. Canfield. There currently is a zero tolerance for 
lender's costs, but then there is a 10 percent tolerance for 
settlement-related costs. They are suggesting that maybe there 
be a zero tolerance applied for settlement costs, as well. I 
think that would be quite problematic because the lenders don't 
control--Regulation 10 prohibits them from controlling those 
costs. So I think it might actually increase settlement charges 
if that were to be done.
    But if you do have a final loan estimate 3 days before 
closing and there are the existing tolerances that are kept in 
place, the only costs that could change between the final loan 
estimate and the closing document would be changes related to 
the property, such as those you were describing, or if the 
person changed the closing date, the odd-days interest and 
transaction taxes would change. But they would be relatively 
minor changes.
    Chairwoman Biggert. Thank you. And my time has expired.
    Mr. Cleaver from Missouri, you are recognized for 5 
minutes.
    Mr. Cleaver. Thank you, Madam Chairwoman. And thank you for 
holding this hearing, because I think this is extremely 
important. We did a lot of work to try to create an opportunity 
for consumers to be protected.
    And, Mr. Abbinante, on the 3-day requirement, you have said 
that the 3-day requirement might cause things to change over 
that 3-day period. Give me an example of some of the things 
that could change that would impact the consumer.
    Mr. Abbinante. Sure. In my experience of 35 years, both as 
an attorney and then as a member of the title industry, it is 
not unusual for a walk-through to occur just prior to the 
closing, sometimes literally hours before the closing. So the 
closing is scheduled at 1:00, the buyer wants to see the 
property and make sure there was no damage, that everything 
that was supposed to be left, in fact, was left or if something 
was taken and something else substituted. It happens all the 
time. They show up at the closing, haven't had a chance to talk 
to each other about it, so the first time the issue is raised 
is at the closing.
    And then you get into, is this going to require an 
adjustment in price? Is this going to require a holdback? Is 
this going to require damage to be repaired? And do any of 
these things then prevent the closing from occurring? Does it 
affect the loan-to-value ratio? Does it affect the ability to 
close that day? Because a change may, under the CFPB rule, 
require a new 3-day waiting period because something has 
changed, something substantial. If it requires a new 3-day 
waiting period, will the borrower now lose the lock on that 
loan? Or can they waive that?
    So I think the situation in theory makes a lot of sense. 
Look, I think our goal, everyone's goal is to protect the 
consumer. And I don't think anyone on this panel or anyone else 
that is involved in the real estate industry would argue with 
that. We want the consumer to be protected, we want them to 
have the information. But there are just some practicalities 
that occur all the time in the process, and frequently occur 
the day of closing.
    Mr. Cleaver. I am going to stay on that subject, but, Ms. 
Hardy, and you, too, Mr. Abbinante, do we need 10 days? Do we 
need 15 days? Do we need 20 days? Do we need 30 days? What 
happens if the consumer is subjected to bait-and-switch? People 
buy a home, and they are--and I can say this in front of 
everybody here because everybody here has bought a home, and 
most people in here are guilty. There is probably not a person 
in here who owns a home who read every line in the contract. If 
you did, you are rare, and somebody needs to give you some 
apples or something. The chances are not high.
    So everybody wants to sign; I want to get into my new home. 
So aren't they more subject to bait-and-switch, Ms. Hardy, that 
things can actually--some new stuff ends up in the contract?
    Ms. Hardy. With a longer time period?
    Mr. Cleaver. Yes.
    Ms. Hardy. I think that we think that the 3-day period 
sounds reasonable. It provides enough time, in terms of the 
loan disclosure documents, for them to get additional insight 
from those who have expertise. We are flexible around the 
settlement disclosures because we recognize that there is a 
need for some flexibility toward the end of the process.
    Mr. Cleaver. Do you agree with that, Mr. Abbinante?
    Mr. Abbinante. I agree that there has to be some rethinking 
in terms of flexibility, absolutely. Otherwise, you are stuck 
with the problem of, it is a change; does it require a new 3-
day waiting period? And if it does, what happens to the 
borrower's lock on the loan or the ability to complete the 
transaction? Because, frequently, the furniture is sitting on 
the truck, parked out in front, waiting to move into the new 
property. Who picks up that cost? Or how does the seller go 
close on their transaction, because they needed the cash from 
the transaction that they are involved in so they can walk 
next-door and buy their house?
    Mr. Cleaver. Now, during this 3-day period, we are 
automatically assuming that the interest rate doesn't change.
    Mr. Cosgrove. Congressman, if I may add, as well, in 2010, 
RESPA put in a provision for the tolerances that cannot go over 
10 percent--that were talked about earlier. And I think that 
also goes a long way toward eliminating any possibility of 
bait-and-switch, because the lender is locked into the lender 
fees at application.
    And, also, another thing that we are talking about, the 
goal here is--everybody mentioned that there has been just a 
pancake of mortgage disclosures, that six disclosures say the 
same thing, and the borrower checks out. And everybody has 
acknowledged that the borrower doesn't read all those 
disclosures. I think the goal here is, if we truly get 
simplification from the CFPB, that would go a long way--if the 
borrowers see that the disclosures have been reduced and they 
truly read all the documents, both at application and closing, 
that would go a long way to eliminate any bait-and-switch that 
is in the marketplace today, which I think is very little.
    Mr. Cleaver. Thank you, Madam Chairwoman.
    Chairwoman Biggert. Thank you. And I might note, Mr. 
Cleaver, I don't want to be a ``Goody Two-Shoes,'' but I did 
read every line to my clients. And they were dying by the end, 
but it was my job.
    Mr. Cleaver. She is an attorney.
    Chairwoman Biggert. Mr. McHenry from North Carolina is 
recognized for 5 minutes.
    Mr. McHenry. Thank you, Madam Chairwoman. And I am glad I 
have finally met someone who has.
    I am still licensed as a REALTOR in the State of North 
Carolina, but I want to concur with my colleague across the 
aisle that the stack of information--we have mandated so much 
disclosure, that there is no disclosure now. I want to be 
gentle about how I say that, and I am grateful that there are 
great legal minds who actually will go through those documents, 
and I am glad I trust my attorney--in the State of North 
Carolina, we have attorneys do closings, rather than settlement 
companies--but I am very grateful for that, and I put a lot of 
trust in him.
    So, I would say to my colleague, I was going to begin by 
asking the panel if they have actually read all the disclosure 
documents--not to impair any reputations with the business you 
are in.
    But I want to just understand this because, in the first 
panel, Mr. Date, I think he has a very sharp mind, and is a 
very talented individual, but last week he apparently 
referenced the fact that he didn't go through all the 
documents. And so we have a very high-ranking government 
official who is in charge of refining this process, and when he 
has his closing, he doesn't go through it. It is clear we have 
a problem here.
    So the question here is, what is the appropriate amount of 
information a consumer should have before they go to the 
closing table, before all their stuff is in the truck outside 
the settlement company or outside the attorney's office, they 
come in and they find out there is a mistake. That means hotel 
rooms, that means kids displaced--big troubles. Not that this 
doesn't happen now, but how can we make sure that consumer has 
the appropriate amount of information ahead of time? What is 
that balance?
    What are the essential ingredients? Is it the HUD-1? We say 
you are supposed to get certain disclosures beforehand. But 
what are the essential ingredients a consumer needs to know 
before he goes in? Can we figure that out, and can the consumer 
get that 3 days in advance? Could that work?
    So I just want to sort of offer that as a broad question. 
Start with Mr. Wilson, and we could just go down the list here 
and you all could make your comments on that.
    Mr. Wilson. I believe the HUD-1 is the one of the few forms 
they do, in fact, focus on, because that is, in fact, where the 
seller's proceeds come from and where the buyer's check is 
written from, that is where the number comes from. So having 
that what I would consider very important document to them 3 
days ahead of time, I would be a fan of that.
    There would be a lot of rules around that. I think you 
would have to build in some flexibility for a garbage disposal 
or some small item that could be adjusted at close based on the 
final walk-through, as one of the witnesses said.
    But, I am looking for more than just doing what is right 
for the consumer; I am looking for a good customer experience. 
And I think for last-minute changes at closing that happen in 
the last hour, nobody feels good about that. And it happens too 
often in our industry, from my perspective. This will force 
everybody in our industry to be better at what we do. The real 
estate contracts that are written in 30 days needs to be 
written in 45 days. And everybody should--if you need it there 
3 days ahead of time, then you get it there 3 days ahead of 
time. We pay a bonus to do that today, 2 days ahead of time. We 
do it for a reason: Because we want a great customer 
experience, and that gives us good referrals.
    So, I think it can be done, but I think we have to be 
careful and protect not just the buyer's side of the 
transaction but also the seller's side. And done right, it can 
be done.
    Mr. McHenry. Mr. Veissi? Or down the line, if you all would 
like to comment?
    Mr. Veissi. There is little disagreement in the fact that 
when there are minor instances that impact the closing, that 
would create the kind of experience at the end that just 
doesn't occur.
    I am reminded of the time when I went to Disneyworld and 
the folks kept telling me where I parked, where I parked, where 
I parked. And they did that because they knew I was going to 
have 8 hours' worth of wonderful experiences, but they also 
knew that if I had a lousy time trying to find my car in 95-
degree weather with humidity, it would be horrible. And that is 
what happens at the closing statement when we don't get advance 
information.
    So advance information with the respect of telling our 
customers and our clients exactly what is going to happen--not 
necessarily changing it or not necessarily concerned about 
giving it a 3-day or a 5-day or a 10-day, but making sure that 
they understand upfront what the situation is so that their 
experience at the end is exactly what they had been wanting to 
do, and that is to close on that home.
    Ms. Hughes. I would agree that we just need clarity in the 
disclosures that we have presently. I am not sure more 
disclosures are going to solve the issue. RESPA, as it is 
currently written, allows for a provision for consumers to 
receive their settlement statement 24 hours at a minimum in 
advance of closing if they desire. And that settlement 
statement, I agree, is the key to telling them what they need, 
and if initial disclosures are done appropriately, that should 
be all that is required.
    I don't have an issue with an additional disclosure 
required 3 days before closing. I believe that my buyers and my 
REALTORS in my community will have a huge issue with it, 
because it is just an additional 3-day delay in a process that 
is already too cumbersome.
    Ms. Hardy. I think our concern is making sure that the 
egregious and abusive activities don't happen. And so, to the 
extent that simplification increases the likelihood that 
consumers will actually read the documents that are set before 
them and that an additional time period provides them with 
opportunities to verify their understanding of the documents 
with independent experts, we think that that is useful.
    Mr. Cosgrove. I would say that we all have a passion for 
customer service. Referrals is how we make a living. At my 
company, we have over a 99 percent referral rate, and we are 
very proud of that.
    I find it somewhat ironic that after 26 years in the 
business--and we talk about fixing what is broke. The process 
that we have tried over the 26 years is to add disclosure after 
disclosure, and we have pancaked disclosures for 26 years, 
thinking more is the answer. And I find it ironic that I am 
sitting here contemplating another disclosure, 3 days before 
closing. And though I understand what we are trying to 
accomplish--
    Mr. McHenry. No, that is not my question. I am just asking 
what the consumer needs to know ahead of time.
    My time has expired, so if we could just keep this brief 
and wrap up. I want to know what the consumer needs to know, 
because that gets to the root of the whole disclosure process.
    Mr. Cosgrove. I think the consumer needs to know the 
pertinent lending information is payment, downpayment, all the 
settlement charges, and the lender fees. And although I do 
believe that at closing a 3-day disclosure potentially could be 
problematic because, as we are talking about here, things 
happen within 3 days of the closing that a lot of times can't 
be foreseen.
    Mr. McHenry. Sure.
    Ms. Canfield. Thank you. Very quickly, I think it is 
important to design the disclosures so that the consumers 
receive a disclosure relevant to the particular loan product of 
their choice. That would also help prevent a bait-and-switch 
situation. So if a consumer has chosen a fixed-rate product, 
they should get the same disclosure form from the beginning of 
the transaction through to the end, through closing, so that 
they are seeing the same document all the way through the 
transaction.
    And at the end they get a HUD-1 that would be a revised 
document that is similar in style to what they received at the 
beginning at the transaction, accompanied by a detailed 
document that would detail where all the costs and where all 
the fees are going. But that is what I think is important.
    Mr. Abbinante. Congressman, I would suggest that they 
certainly would need to know their downpayment. You could 
certainly tell them that 3 days before closing. They would need 
to know their interest rate. You could tell them that before 
closing.
    It becomes a little bit more questionable, if there is a 
change that occurs, whether you can actually give them the cash 
they need to bring to closing. Because if that walkthrough 
occurs on the day of closing, the cash they may need may 
change. It could also affect the itemized disbursement that 
both consumers at the closing require and should have, not just 
the buyer but the seller as well.
    Chairwoman Biggert. Thank you.
    Mr. Sherman from California, you are recognized for 5 
minutes.
    Mr. Sherman. Thank you.
    Mr. Veissi, I want to commend you for bringing to our 
attention the importance of passing the bill to extend the 
Flood Insurance Program. This is critically important in so 
many parts of the country. Even I know it is critically 
important. I have been working on it, and I represent a desert 
where we built a city.
    Now, on page 3 of your testimony, you talk about the 
interconnection of the rules we are dealing with now with rules 
that are probably not going to be available anytime soon. The 
Consumer Financial Protection Bureau plans to issue rules that 
we are discussing by July 21st, but it will be long after that 
that we find out what is a Qualified Mortgage and what is a 
Qualified Residential Mortgage, when we define what mortgages 
you have to have a risk retention--and I think it is going to 
be very few banks are going to want to make those mortgages--
and what is the definition of an ability to pay.
    Should we delay the RESPA and TILA rule finalization until 
we can make sure it is coordinated with QM and QRM?
    Mr. Veissi. There is no question in my mind that you don't 
want to do anything right now that would otherwise hurt a 
fledgling recovery of the real estate marketplace in this 
country. And if you were to impose rules and regulations 
without total comprehension of what those rules and regulations 
would be, I think you would do that.
    So I would want to get it right the first time out of the 
box. That would be my simple answer to your question.
    Mr. Sherman. Thank you. Let's hope they do that, because 
the last thing my area needs is another precipitous decline in 
home values.
    Mr. Abbinante, what do you think is the most important one 
or two things that the CFPB could do to protect consumers 
during the closing process?
    Mr. Abbinante. It would seem to me the thing that is most 
critical to the consumer is information that is useful and 
easily understood in a format that they can read and not need a 
special technical degree to figure out how forms interrelate 
one to the other. So simplification, easily understood, easy to 
use--the kind of basic premise of prudent business.
    Mr. Sherman. I am going to turn to Mr. Cosgrove, but I am 
going to add one more concept, and that is shorter. Because I 
know what is politically correct. Politically correct is to 
take anything that anybody could argue needs to be disclosed to 
the consumer and require it to be in 20-point type on red 
paper. The result to the consumer is 400 pages of red paper 
with everything in 20-point type. And just putting it in 20-
point type isn't going to get me to read it, as a consumer, if 
it goes on for hundreds of pages.
    Mr. Cosgrove, what can we do to prevent a layering of 
disclosure requirements in increasingly large type on 
increasingly brighter shades of red paper?
    Mr. Cosgrove. I think the CFPB has truly an opportunity 
that has not been in front of us for 35 years, since RESPA, and 
the TILA document, the good-faith estimate and the closing 
document, was in different regulatory bodies. So we have an 
opportunity and the CFPB has an opportunity that we have not 
had as an industry in this country for 35 years.
    And if they would work with the industry and all the 
stakeholders, consumer groups, everyone, and truly work with 
the States--because you have municipalities, you have State 
disclosures, you have Federal disclosures, FHA disclosures, VA 
disclosures--again, the pancaking of 26 years of, the answer 
has been more disclosures--
    Mr. Sherman. Let me just try to squeeze one more thing in. 
And I hope that Mr. Abbinante, but other witnesses as well, 
would respond for our record, but, more importantly, bring to 
the CFPB's attention: What are the situations where you can 
make a change in the last 3 days? The last thing I want to do 
is lose my 3 percent mortgage because we have to delay closing 
3 days because of a garbage disposal. And, at the same time, 
what are the changes that would require restarting that 3-day 
period?
    I know my time has elapsed, but I have been through a few 
of these closings, and the last thing I want to do is have to 
choose between getting a $100 reduction in the purchase price 
because the garbage disposal doesn't work on the one hand and 
having to come back to the closing 3 days later, endangering my 
loan, endangering the sale price, et cetera, and, as some of 
the witnesses pointed out, endangering the seller's ability to 
close on his or her property because I can't give up my check 
until you give me the hundred bucks for the garbage disposal or 
something that minor.
    So I look forward to reading your comments.
    And I yield back to the chairwoman.
    Chairwoman Biggert. Thank you, Mr. Sherman.
    The gentleman from North Carolina, Mr. Watt, whom I believe 
is also a former real estate attorney, is recognized for 5 
minutes.
    Mr. Watt. I don't know why you malign me that way, 
gratuitously. But you are correct. I did a lot of real estate 
work, which is why I came. I actually just wanted to hear the 
questions. I couldn't get here for the testimony, but I will 
review it.
    This is a subject that is very difficult, and I won't 
belabor that point. So I don't think I have any questions 
because I am afraid I would repeat something that somebody has 
already asked. So I will review the record, and if I have any 
questions, I will submit them in writing.
    Chairwoman Biggert. All right. Thank you.
    That gives me an opportunity to--I would like to ask just a 
couple of questions, and I recognize myself.
    Ms. Hughes, on page 8 of your testimony, you state that one 
complication of the merger of RESPA and TILA disclosures is the 
question of whether the merged document will be prepared by the 
settlement agent or the lender, creditor. Who should prepare 
the document, and why? And I think, particularly, I am 
concerned about who would bear the liability if the merged 
document form isn't correct?
    Ms. Hughes. Presently--and Idaho is a settlement agent 
State, so we do not have attorneys who do our closing documents 
for us. But we need to define within the regulations who is 
responsible for completion of those documents. If they are 
combined into one document and we utilize a settlement agent to 
prepare that closing, who is going to prepare that document? 
Are they going to do it? Are we going to do it? Are we 
responsible for their data? Are they responsible for our data? 
Are they responsible for the regulatory disclosures that go 
into that? There just needs to be some very clear clarification 
as to how that breaks out.
    Chairwoman Biggert. I think that is something that we 
probably should have asked earlier, but I think it is a very 
good question and something that we really have to look at. So 
I thank you for that.
    Then, for the witnesses, we haven't talked much about 
costs. So what are the potential costs of new mortgage 
disclosures to businesses, particularly lenders and other real 
estate service providers that are small businesses? What is 
going to happen with them?
    Mr. Veissi?
    Mr. Veissi. Some of the documentation that we have seen 
with reference to that would add additional cost in the form of 
labor at the time of closing, extending the closing itself, 
having more people involved in the process, that cost being 
either absorbed by small business--and that is not a great 
thing to have happen right now--or absorbed by the folks who 
are trying to make the purchase of the property or the seller 
in those terms.
    So more paperwork means more people. More people means more 
money, more time. It is not an efficient and economical way to 
process a closing.
    Chairwoman Biggert. Thank you.
    Would anybody else care to address this?
    Ms. Canfield. Yes, I would like to make a comment.
    That is why it is so important--this is going to be a very 
costly endeavor, to change all of the systems, do all the 
training, do the audit, et cetera. So that is why it is so 
important that all the rule changes, the substantive rule 
changes and the related disclosures changes, be done once. 
Because if you do it on a piecemeal basis, the costs are just 
going to be astronomical. In addition, the disclosures 
resulting from that piecemeal disclosure process will be even 
more confusing to consumers than they are today.
    Mr. Cosgrove. And that, as a business owner--
    Chairwoman Biggert. Mr. Cosgrove?
    Mr. Cosgrove. Thank you, Madam Chairwoman. As a business 
owner, there is no doubt the last few years, as piecemeal 
regulations have come, we continually are working on our 
systems. And even a company like ours, a small business, is 
spending hundreds of thousands of dollars on systems and 
people. And all that does is increase the cost to our 
customers.
    Chairwoman Biggert. Thank you.
    Mr. Abbinante. Chairwoman Biggert?
    Chairwoman Biggert. Yes?
    Mr. Abbinante. I would like to, if I may, just add to both 
questions you have asked, the previous question about who.
    I think today the system--and when we talk about this, we 
want to focus on what is not working. Today, I don't think it 
is a question of what is not working. Lenders today adequately, 
accurately fill out the forms that have to do with the GFE and 
with the TILA requirements. And the settlement agents across 
the country, regardless of the State, whether it is an 
attorney, a settlement agent, a title company, they fill out 
the forms relative to the HUD-1. We have expertise that exists, 
and it would seem to me this current proposal is confusing or 
creating a murky situation that we don't need to create.
    In terms of costs, I can only reiterate what everyone else 
has said, and that is: It is the cost of software, it is the 
cost of training, it is the cost of implementation. And we have 
a pretty good handle on this because, just 2 years ago, we did 
this with the last changes to HUD in 2010. And it wasn't an 
easy set-to at that time, especially when you had to deal with 
over 400 FAQs. And as responses came in, things were constantly 
changing. It just seems that there is a better way to do this.
    Mr. Cosgrove. I would agree, the system is working much 
better today than it has in the past.
    Chairwoman Biggert. Thank you so much.
    Mr. Cleaver, do you have another question?
    Mr. Cleaver. I just have one question, Madam Chairwoman.
    Chairwoman Biggert. You are recognized for 5 minutes.
    Mr. Cleaver. And this is related to the earlier discussion 
we had. And maybe, Mr. Cosgrove, this would be directed to you.
    How often at a closing have you ever experienced a consumer 
contesting the cost? How often, if ever?
    Mr. Cosgrove. I can't remember a scenario in which a 
consumer of ours has come in and contested the cost in the last 
5 years.
    Mr. Cleaver. Anybody else have any--yes, Ms. Hughes?
    Ms. Hughes. I have been in real estate lending for 22 
years, and I can never recall a borrower coming in and saying, 
``I don't understand what these fees are.'' I believe if you 
explain what the process is upfront and you get to the end and 
it is the same, it is all about the education along the way. 
And I can never recall one instance.
    Mr. Cleaver. Could it also be that, as somebody said, the 
moving van is outside?
    Mr. Cosgrove. No.
    Ms. Canfield. Actually, I think there have been changes 
that have been implemented in--one of the things that happened 
in 2010--a change that was made in 2010 was that there was a 
zero percent tolerance on the lender's costs from the beginning 
of the transaction to the end, and there is a 10 percent 
tolerance on third-party costs. So what can change has been 
limited.
    The changes that could occur between the final documents 
that you get 3 days before closing today and the actual closing 
documents are related to if the closing date changes, the odd-
days interest and taxes might change the calculations, or 
changes related to the property itself, such as was described 
by Mr. Abbinante and Chairwoman Biggert.
    Mr. Cleaver. Hypothetically, if there is a change--and you 
answered the question exactly how I thought you would answer 
it--isn't it also possible because of that, someone would 
ignore, move over, not recognize cost changes?
    Ms. Canfield. I think you might be concerned about the 
bait-and-switch situation. Is that what you are most concerned 
about?
    Mr. Cleaver. Yes.
    Ms. Canfield. I think, first of all, there are currently 
laws in place that prohibit that. So that would be mortgage 
fraud. It would be a fraudulent loan.
    Second, with the tolerances that are currently in place, 
your ability to do that is very limited.
    Third, I think with even clearer disclosures, which is what 
we have been talking about, the consumer would be able to see 
that they are not getting the loan product that they had signed 
up for when they chose the loan product at the beginning of the 
process.
    Mr. Cleaver. Thank you.
    Let me yield to Mr. Watt from North Carolina, because the 
time is running out.
    Mr. Watt. Actually, they say we have to get out of the 
room.
    I had an unrelated question that occurred to me. It has 
come to my attention that, because of the meltdown, there seems 
to be a lot more conservatism in appraisals now. Mr. Cosgrove 
and Mr. Abbinante in particular, have you all experienced that 
and is there any recourse if both the seller and the buyer 
believe that the appraisal is too conservative, too low?
    Mr. Cosgrove. I would believe that today the system is 
fixed. And what I mean by that, the loan officer, no one 
involved in the lending process, the real estate agent, the 
borrowers are allowed to have contact or influence the 
appraiser. So the appraiser is truly independent. And we 
believe--
    Mr. Watt. But that assumes that appraising is a science 
that is so precise that nobody ever makes a mistake. What does 
one do if they disagree with the appraisal?
    Mr. Cosgrove. If we have a consumer who disagrees with the 
appraisal, most times we will make a business decision to get a 
second opinion, pay for a second opinion, which we pay for as a 
company, and then we analyze both of the appraisals and make an 
underwriting decision.
    Mr. Watt. Okay. That is not related to this hearing. I 
appreciate the chairwoman--
    Chairwoman Biggert. Thank you, Mr. Watt, and thank you, Mr. 
Cleaver. I might note that we are having a hearing on the 
appraisals on June 28th, next week. So we will see you there.
    I would like to thank you all. You have been a great panel 
with a lot of information that you have given us on a topic 
that seems to go on and on and on, but it hasn't been fixed 
yet, and I think you have been very helpful.
    The Chair notes that some Members may have additional 
questions for this panel, that 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.
    With that, this hearing is adjourned.
    [Whereupon, at 4:10 p.m., the hearing was adjourned.]


                            A P P E N D I X



                             June 20, 2012

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