[Federal Register Volume 59, Number 139 (Thursday, July 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-17598]


[[Page Unknown]]

[Federal Register: July 21, 1994]


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Part V





Department of Housing and Urban Development





_______________________________________________________________________



Office of the Assistant Secretary



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24 CFR Part 3500



Real Estate Settlement Procedures Act; Amendments to Regulation X; 
Proposed Rule
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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner

24 CFR Part 3500

[Docket No. R-94-1725; FR-3638-P-01]
RIN 2502-AG26

 

Amendments to Regulation X, the Real Estate Settlement Procedures 
Act Regulation (1994 Revisions)

AGENCY: Office of the Assistant Secretary for Housing-Federal Housing 
Commissioner, HUD.

ACTION: Proposed rule.

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SUMMARY: The Department of Housing and Urban Development is proposing 
to revise Regulation X, the regulation implementing the Real Estate 
Settlement Procedures Act (RESPA), as amended to extend its coverage to 
subordinate liens and for other purposes and to make technical 
corrections. This proposed rule addresses referral payments, computer 
loan origination services, and controlled business disclosure 
requirements, and is intended to protect consumer interests while 
recognizing the potential benefits of technological and business 
arrangement innovations relating to these areas.

DATES: Comment due date: September 19, 1994.
    During this comment period owners and operators of computerized 
loan origination systems (CLOs) are also invited to participate in a 
Technology Demonstration of Computerized Loan Origination Systems, to 
be sponsored by the Department and held in Washington, DC, on September 
26, 1994, beginning at 9:30 a.m. (EST), as discussed more fully in the 
preamble under SUPPLEMENTARY INFORMATION. (Requests for participation 
must be received on or before August 11, 1994, as provided under the 
ADDRESSES section.)

ADDRESSES: Interested persons are invited to submit written comments 
regarding this rule to the Rules Docket Clerk, Office of General 
Counsel, Room 10276, Department of Housing and Urban Development, 451 
Seventh Street, SW., Washington, DC 20410-0500. Communications should 
refer to the above docket number and title. Facsimile (FAX) comments 
are not acceptable. A copy of each communication submitted will be 
available for public inspection and copying between 7:30 a.m. and 5:30 
p.m weekdays at the above address.
    To participate in the Technology Demonstration, contact David 
Williamson, Director, RESPA Enforcement, at (202) 708-4560, or in 
writing at room 5241, Department of Housing and Urban Development, 7th 
and D, SW., Washington, DC 20410, or on E-Mail through Internet at 
[email protected], on or before August 11, 1994. The TDD number for 
persons who are hearing- or speech-impaired is (202) 708-4594. (The 
telephone numbers are not toll-free.)

FOR FURTHER INFORMATION CONTACT: William Reid, Senior Economist, Office 
of Policy Development and Research, room 8212, telephone (202) 708-
0421. The TDD number for persons who are hearing- or speech-impaired is 
(202) 708-0770. For legal questions, Grant E. Mitchell, Senior Attorney 
for RESPA, room 10252, telephone (202) 708-1552; or Kenneth A. 
Markison, Assistant General Counsel for GSE/RESPA, room 10252, 
telephone (202) 708-3137. The address for all the above-listed persons 
is: Department of Housing and Urban Development, 451 Seventh Street, 
SW., Washington, DC 20410. (The telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION

Paperwork Reduction Act Statement

    The information collection requirements regarding controlled 
business disclosures and the CLO disclosures (appendices D and E of 
this rule) have been approved by the Office of Management and Budget, 
under section 3504(h) of the Paperwork Reduction Act of 1980 (44 U.S.C. 
3501-3520), and assigned OMB control number 2502-0265.

I. Technology Demonstration

    The purpose of the Technology Demonstration (see additional 
information under the headings DATES and ADDRESSES, above) is to 
provide owners and operators of computer loan origination systems 
(CLOs) with an opportunity to demonstrate or discuss the operation and 
benefits of their systems and the impact of the proposed rule on their 
systems, and to provide consumer groups, industry organizations, and 
members of the public with an opportunity to witness such presentations 
or demonstrations.
    As discussed more fully below, this rule proposes to modify the 
application of the current Regulation X to CLOs. Information gained by 
the Department from the Technology Demonstration may be used in 
developing a final rule. Owners and operators are invited to notify the 
Department of their interest in participating in this Technology 
Demonstration. Participants will be free to make visual or conceptual 
presentations without including actual use of computer loan origination 
systems. Based upon the number of interested parties and other 
practical considerations, the Department will determine the format, 
timing, and logistical arrangements for the Technology Demonstration. 
To the extent feasible, the Department will provide electrical and 
telephonic hook-ups for participants. The Department reserves the 
option of limiting the length of presentations, or setting any other 
guidelines for participation, in accordance with the number of 
participants.

II. Background

    On November 2, 1992, HUD published a revised Real Estate Settlement 
Procedures Act of 1974 (12 U.S.C. 2601 et seq.) (RESPA) rule 
(hereinafter ``final rule'' or ``1992 final rule''), which became 
effective on December 2, 1992, and was amended on February 10, 1994 (59 
FR 6505). Technical corrections were published on March 30, 1994 (59 FR 
14748). The final rule contained long-awaited provisions implementing 
amendments to RESPA regarding controlled businesses. These amendments 
were originally enacted in 1983 as section 461 of the Housing and 
Urban-Rural Recovery Act (HURRA), Pub. L. 98-181. The final rule also 
updated the original RESPA rule, which had not been amended since 1976.
    On October 28, 1992, a few days before publication of the final 
rule in the Federal Register, then-President Bush signed the Housing 
and Community Development Act of 1992 (Pub. L. 202-550) (1992 Act), 
which amended RESPA to state specifically that the making of a mortgage 
loan was a covered transaction (a Federal court case had created 
uncertainty) and that refinancing transactions were transactions 
covered by RESPA. The 1992 Act also extended RESPA's coverage to all 
subordinate liens involving 1- to 4-family residential property. 
Implementing provisions, along with revisions of the final rule, are 
set forth in the Federal Register of February 10, 1994, and are 
effective on August 9, 1994. The effect of the statutory and regulatory 
changes was to expand substantially the coverage of this criminal and 
civil statute.
    Following issuance of the final rule, two lawsuits were filed: one 
by the Mortgage Bankers Association and one by a group of independent 
service providers, called CRISIS. Both suits objected to provisions of 
the final rule and alleged that HUD had not complied with the 
Administrative Procedure Act (5 U.S.C. 551 et seq.) in promulgating the 
November 2, 1992, rule. The cases have been dismissed, but are subject 
to being reinstituted at any time.
    Upon assuming office, HUD officials in the new Administration were 
inundated with comments--mostly complaints--about the final rule issued 
in the last days of the previous Administration. Notably absent from 
the interests contacting HUD about the final rule were any 
representatives of consumer interests. Instead, comments came almost 
entirely from the affected industries. Some industry representatives 
argued that the provisions of the final rule benefited consumers, while 
others argued that the provisions, sometimes the same provisions, were 
harmful to consumers.
    The Department also received allegations that the final rule 
created uncertainty about whether referral fees were in fact prohibited 
by RESPA. Specifically, some commenters claimed that the introduction 
in the final rule of an employer-employee exemption from the 
prohibition on referral fees prompted some persons to set up sham 
employer-employee relationships to shield prohibited referral fees, and 
prompted others to ``extort'' referral fees from other settlement 
service providers on the premise that HUD now allowed such 
compensation. The final rule did not authorize such practices; however, 
some commenters argued that the existence of confusion about whether it 
did suggested that the final rule failed to establish a bright line, 
comprehensible to industry participants, between permissible and 
impermissible activities.
    Given the controversy over the final rule, the Secretary determined 
that a review of the previous policies was needed, particularly 
focusing on the final rule's impact on consumers. The Secretary also 
articulated three principles to guide that review:
    (1) HUD's responsibility is to protect the consumer--not to mediate 
among industry interests.
    (2) HUD should regulate multibillion dollar industries 
responsibly--principally by acting quickly to end uncertainty.
    (3) Technological and business arrangement innovations have the 
potential to provide significant consumer benefits, and HUD does not 
serve consumers well if its regulations unduly stifle such 
advancements.
    On July 6, 1993, in an effort to ensure that the new Administration 
heard the views of all interested parties, the Department published a 
``notice of written comment period and informal public hearing'' (58 FR 
38176), inviting testimony and written comments on the impact on 
consumers of the following four provisions of the final rule:

Issue 1

    Section 3500.14(g)(2)(ii), which provides that RESPA Section 8 does 
not prohibit ``an employer's payment to its own employees for any 
referral activities * * *.'' (Hereafter, this issue is referred to as 
the ``employer-employee exemption'' or ``Issue 1''.)

Issue 2

    Section 3500.14(g)(2)(iii), which provides that Section 8 of RESPA 
does not prohibit ``any payment by a borrower for computer loan 
origination services, as long as the disclosure set forth in Appendix E 
of [the final rule] is provided the borrower.'' (Hereafter, this issue 
is referred to as the ``computer loan origination (CLO) exemption'' or 
``Issue 2''.)

Issue 3

    Section 3500.13(b)(2), which provides that ``in determining whether 
provisions of State law or regulations concerning controlled business 
arrangements are inconsistent with RESPA or this part, the Secretary 
may not construe those provisions that impose more stringent 
limitations on controlled business arrangements as inconsistent with 
RESPA, as long as they give more protection to consumers and/or 
competition.'' (Hereafter, this issue is referred to as ``preemption 
policy'' or ``Issue 3''.)

Issue 4

    Section 3500.15(b)(1), which provides for a ``written disclosure in 
controlled business situations, in the format of the Controlled 
Business Arrangement Disclosure Statement set forth in appendix D of 
this part'' of certain information regarding the ownership and 
financial relationships between referring and referred-to parties, and 
for certain timing and other methods for disclosure. (Hereafter, this 
issue is referred to as ``controlled business disclosure policy'' or 
``Issue 4''.)
    At a public hearing held on August 6, 1993, at the General Services 
Administration (GSA) Auditorium in Washington, DC, all 36 parties who 
had requested to testify did so. Twenty-two witnesses opposed 
provisions of the rule and 14 witnesses supported provisions of the 
rule. The Department also received 1,553 written comments.\1\ Of the 
1,526 comments reviewed, 1,148 comments opposing provisions of the 
final rule were received from mortgage lenders, or State or regional 
organizations representing mortgage lending professionals; consumer 
organizations; 3 Federal agencies; and, in both combined comments and 
separately, several State Attorneys General. An additional 325 critical 
comments were received from law firms and title insurance companies. 
Twenty-four comments were wholly or generally supportive of the final 
rule, including comments from individuals and organizations in real 
estate-related industries, lenders or title insurance providers, real 
estate brokers, a builder, and the Federal Reserve Board. The remainder 
of the comments were not characterized.
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    \1\A total of 1,553 comments were officially logged in by the 
Department's Rules Docket Clerk. More than two dozen were 
duplicates, leaving 1,526 unduplicated comments.
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III. The Secretary's Position: A Brief Summary

    Based on a complete review of the substantive arguments in support 
of and in opposition to the final rule provided in the testimony at the 
August 6, 1993, hearing; the written comments received; and a review of 
the RESPA statute, its purpose, and its history, the Department reached 
certain conclusions about its policy objectives on Issues 1-4, set 
forth above. The Department therefore proposes to amend the final rule 
as described below. Recognizing the rapid evolution of technology and 
business practices, the Department believes that development of the 
final rule will require additional collateral information about how 
certain details of this proposal will work in practice and whether 
these details will further the Department's policy objectives. 
Therefore, the Department has developed a series of questions about 
specific aspects of the proposal and asks commenters to offer any 
information they may have about how the rules would work. These 
questions are detailed throughout this preamble.
    The following are the Department's policy objectives in addressing 
each issue and the Department's conclusions as set forth in the 
proposed rule:

A. Issue 1: The Employer-Employee Exemption

    (1) HUD's objective. Controlled business arrangements and so-called 
``one-stop shopping'' may offer consumers significant benefits 
including reducing time, complexity, and costs associated with 
settlements. If they do, the market should produce incentives for the 
creation of controlled business arrangements without HUD authorizing 
incentive payments (otherwise impermissible under RESPA) to encourage 
these arrangements. However, HUD cannot scrutinize every aspect of the 
financial relationship between interrelated companies. Therefore, HUD's 
objective is primarily to prohibit compensation for business 
development for related entities at a point when that compensation has 
the greatest potential for overwhelming the other considerations that 
go into business referrals, e.g., long-term customer satisfaction.
    (2) HUD Proposal. (a) The exemption under the final rule permitting 
employers to pay their own employees referral fees is proposed to be 
withdrawn. Under this proposal, no employee of a company may be paid 
referral fees, even for referrals to an affiliate company. This 
proposal is based on the Department's view that the exemption under the 
final rule was too expansive and compromised the statute's purpose of 
protecting the consumer from being referred for settlement services 
based on financial gain to the referrer, rather than on the highest 
quality and best price of the services.
    (b) In the interest of avoiding undue interference with the 
internal operations of controlled businesses, which Congress has 
concluded are permitted business arrangements under RESPA, the proposed 
rule would allow the payment of bonuses and compensation to managerial 
employees in controlled businesses for such purposes as the generation 
of business among affiliates; provided, however, that the compensation: 
(i) Is not tied on a one-to-one basis or calculated as a multiple of 
the number or value of any referrals; and (ii) these employees do not 
routinely deal with the public.

B. Issue 2. Computerized Loan Origination Systems

    (1) HUD's Objective. The comments and witnesses at the public 
hearing demonstrated that there is some confusion concerning the scope 
of the Department's authority under RESPA to regulate CLOs. Thus, the 
Department's first objective in this area is to clarify what the RESPA 
rules can and cannot do. (See section below describing the legal 
framework for analysis of payments for CLO services.) In addition, the 
Secretary wishes to encourage the exploration and use of new 
technology, especially when the new technology may provide information 
and services to better inform consumers about one of the largest and 
most complex financial transactions in their lives, thus allowing the 
consumers to be more effective shoppers. However, the use of that 
technology does not justify increasing the cost of mortgage loan 
originations when the technology does not provide meaningful 
information otherwise available without charge, or when there is no 
additional convenience, clarity, or other benefit.
    (2) HUD Proposal. The final rule would be amended to define a CLO 
and to provide that payments made by borrowers to CLO operators for use 
of a qualified CLO are exempt from RESPA scrutiny. The definition would 
set forth reasonable requirements for qualified CLO systems for access, 
lender-neutrality, and disclosure to consumers. Systems that fall 
outside the exemption would have to meet the basic test of Section 8 of 
RESPA that the borrower's payments be for goods or facilities actually 
furnished or for services actually performed.

C. Issue 3: Preemption

    There are no proposed changes to the preemption provisions. The 
Secretary has concluded that change to these provisions is not 
warranted at this time.

D. Issue 4: Controlled Business Disclosure Form

    The rule would be amended to add an acknowledgement provision on 
the controlled business disclosure form and to make other small 
revisions.

IV. Discussion of Comments

A. Commenters Opposing the 1992 Revised RESPA Rule

    The following summarizes the nature of the commenters and comments 
opposing and supporting provisions on which HUD invited comment in its 
July 6, 1993, notice (58 FR 38176), as well as the positions taken in 
this proposed rule. In general, commenters were responsive to the 
notice's invitation and focused their remarks on the four identified 
provisions of the rule. A few comments raised other issues concerning 
the final rule, but the focus of the hearing and request for comments 
was the four specific areas listed. This proposed rule deals only with 
the four issues on which comment was invited.
    Eleven hundred forty-eight commenters opposed provisions of the 
final rule. Commenters included mortgage lenders, realtors, and State 
or regional organizations representing mortgage lending professionals. 
The Department received an additional 325 comments critical of the rule 
from law firms and title insurance providers. Opposition was also 
expressed by six national organizations representing elements of the 
mortgage finance or title insurance industries, two national consumer 
organizations, an economist, a legal aid society, a real estate 
consultant, a law student, and four commenters whose professional 
interest could not be ascertained. A few national or regional computer 
service providers also commented on the rule.
    Finally, 3 Federal agencies--the Federal Reserve Board, the Federal 
Deposit Insurance Corporation (FDIC), and the Office of Thrift 
Supervision--submitted comments on the final rule, and 4 opposition 
comments were received from State Attorneys General, including 1 
comment representing the unified position of the Attorneys General of 
16 States.

B. Commenters in Support of the Revised RESPA Rule

    Comments wholly or generally supportive of the final rule were 
received from 24 individuals and organizations engaged in real estate-
related industries, including 15 lenders or title insurance providers; 
6 real estate brokers or agents; an organization composed of controlled 
businesses, including realtors, which was formed in part to support the 
final rule (RESPRO); a builder; and the Federal Reserve.\2\
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    \2\Support for portions of the final rule was also expressed in 
scattered comments received from individuals and businesses writing 
to criticize other specific features. The only issue receiving an 
appreciable amount of positive comment from critics of the rule's 
other features was Issue number 4 of the July 6 notice--the 
controlled business disclosure form.
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C. Summary of the Comments

    In the ensuing discussion, arguments presented by the commenters 
related to these four issues will be summarized under the four issue 
headings. When commenters have asserted related arguments affecting the 
disposition of two or more of these issues, those comments will be 
mentioned in the course of discussing the issue that HUD perceives to 
be the core argument made by the particular commenter.
(1) Issue 1: The Employer-Employee Exception
    The employer-employee exception provision in Sec. 3500.14(g)(2)(ii) 
of the final rule--allowing ``an employer's payment to its own 
employees for any referral activities * * *''--was the subject of more 
adverse comment than any other issue raised by the July 6, 1993, 
notice.
    Hundreds of lenders, attorneys, and settlement agents objected to 
the rule's provision permitting employer payments to employees for 
``referral activities''. Objections were focused, in large part, on 
what commenters perceived as the anticompetitive effect of permitting 
referral-based payments. Additionally, the Mortgage Bankers 
Association, sixteen State attorneys general, and a large number of 
other institutional and individual commenters saw the referral payment 
provision as being directly contrary to the RESPA statute, or, at a 
minimum, as contravening statutory intent.
    The supporting commenters cited the desirability of vertical 
integration and the difficulty in enforcing employer-employee 
arrangements when the employer controlled all of the relevant 
documentation.
    (a) ``Anticompetitive'' Arguments Against Referral Payments. The 
central argument raised by numerous commenters, including the combined 
comments of attorneys general of several States, was that referral 
payments were a breach of the trust of prospective home purchasers, 
particularly in transactions involving real estate agents and 
affiliated companies:

    Consumers expect to be treated fairly by their real estate 
agents and therefore trust that a referral to a settlement service 
provider is based solely on their agent's knowledge of comparative 
prices and service features. When there was no financial incentive 
for the [real estate agent], consumers were justified in thinking 
that they were referred to a settlement service provider because 
that provider offered good service at a reasonable price, not 
because the agent received a payment in exchange for the referral. 
This is no longer the case.

Comments of State Attorneys General
    Referral payments, commenters repeatedly pointed out, permit 
vertically integrated real estate companies to provide financial 
incentives to their employees to make all settlement service referrals 
to affiliated companies. As a result, settlement service providers tied 
to a real estate company are ``insulated from competition on prices and 
services.''
    RESPA was adopted, one commenter observed, because of Congress' 
recognition that the very nature of the real estate transaction is 
arcane and cumbersome, and that the typical consumer lacks any 
comparable economic experiences. The Consumers Federation of America 
(CFA) noted that the consumer has traditionally relied for assistance 
on the real estate broker (who ordinarily is an agent of the seller)--a 
person in ``a highly privileged position of influence over the consumer 
* * *.'' CFA concluded that RESPA evidences congressional recognition 
that this influence can be easily abused for broker self-gain at the 
material expense of consumers.
    The Mortgage Bankers Association (MBA) and other commenters 
remarked that in the absence of referral fees, real estate agents may 
be expected to afford good advice to home buyers. The real estate agent 
has an incentive (the prospect of a sales commission, as well as 
potential business referrals and repeat business) to send a buyer to a 
lender offering the best combination of service and price. However, 
when the person making the referral has another motive--a direct 
financial interest--it becomes less clear that the agent or broker's 
referral will be made with the best interests of the home buyer 
uppermost, the MBA asserted.
    According to its opponents, the principal consequences of the 
employer-employee exemption were:
    (i) Failure to refer home buyers to lenders and other settlement 
service providers that provide the best service and prices; and
    (ii) Ultimate reduction or elimination of competition in the 
industry, brought about by ``unfair competition'' driving out small, 
independent settlement service providers.
    CFA echoed the arguments of lenders, attorneys, and title insurance 
providers who repeatedly asserted that home buyers lacked the 
experience to be sophisticated consumers:

    For better or worse, consumers are simply not effective 
financial services shoppers * * *. Since there is no possibility of 
one-stop shopping because the consumer is not shopping, the core 
claim of consumer benefit offered by controlled business arrangement 
advocates--consumer choice--crumbles under the weight of economic 
reality * * *.
    Although shopping may not be occurring, there is, nonetheless, 
the profound opportunity for `reverse competition' created by a 
captive market willing to pay higher-than-market prices. What this 
rule champions is not one-stop shopping, but, rather, one-stop pick-
pocketing of the consumer through the multi-layers of a diversified 
financial services holding company.\3\
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    \3\CFA cited and characterized a report commissioned by HUD from 
Peat Marwick in 1980 as finding that two-thirds of home buyers 
included in that sample did no ``shopping'' at all for a lender, and 
that more than 80 percent failed to ``shop'' for settlement 
services.

    Commenters opposed to referral payments were not persuaded by 
arguments in the 1992 final rule in support of permitting employer-
employee referrals. ``What matters,'' one commenter said, ``is not that 
the payment is going from employer to employee * * * [but] that there 
is payment for a raw referral, creating the very anti-competitive and 
anti-consumer financial incentive Section 8 [of RESPA] was intended to 
eliminate.''
    (b) Legal Arguments Against Referral Payments. Many of the same 
commenters who opposed referral payments on policy or economic grounds 
also argued that permitting employer-employee payments for referrals 
directly violated the RESPA statute. CFA, after characterizing the 
events that led to the Congress' 1983 controlled business arrangement 
amendments to RESPA, asserted that the Congress' clear intent was to 
permit controlled business arrangements ``only under certain specific 
conditions.'' The final rule, CFA claimed, ``grossly exceeds any 
reasonable interpretation of statutory authority, and * * * has 
returned the settlement service marketplace--or at least the controlled 
business arrangement market--to the pre-RESPA era of anti-consumer and 
anti-competitive brokerage steering.''
    MBA and other commenters observed that Section 8(c)(4)(C) of RESPA 
states that controlled business arrangements are permissible as long as 
``the only thing of value that is received from the arrangement, other 
than payments permitted under this subsection, is a return on the 
ownership interest or franchise relationship.'' MBA argued that because 
the final rule permits employees to receive a ``bonus'' when they refer 
settlement business to affiliates, the rule ``fails to give effect to 
the plain language of the statute.''
    (c) Arguments in Support of the Employer-Employee Exception. 
Several institutional commenters, along with real estate brokers, 
lenders, insurance companies, and vertically integrated real estate 
service providers, expressed support for the employer-employee 
exception provided for in Sec. 3500.14(g)(2)(ii) of the final rule.
    The Director of the Consumer and Community Affairs Division of the 
Federal Reserve System supported the rule's exemption for employer 
payments to its own employees for referral services, saying that it is 
a ``legitimate expectation'' that an employee would make referrals for 
the employer and be compensated for the referrals. Prohibiting payment 
for referrals, the Federal Reserve spokesperson said, would prove 
difficult from an enforcement standpoint, since examiners would then be 
required to review employer bonus and salary policies to determine 
whether compensation was based on general performance, or whether it 
included payments for referrals.
    The Federal Reserve spokesperson also expressed a concern related 
to the Community Reinvestment Act of 1977 (12 U.S.C. 2901 et seq.) and 
to the Federal Reserve's efforts to encourage banks to refer business 
to community-based lenders:

    * * * A bank may support these efforts by rewarding employees 
for referring potential applicants who have not previously 
considered the [Community Reinvestment target] bank an accessible 
community lender. An adverse interpretation by HUD of this provision 
could be detrimental to future innovations and developments in 
community lending.

    The Real Estate Services Providers Council (RESPRO) pointed out 
that the November 2, 1992, rule makes clear that employer payments to 
employees cannot be reimbursed by the party receiving the referral, or 
that employer payments cannot be made to nonemployees.
    The Consumer Bankers Association (CBA), although generally 
supportive of the final rule, urged HUD to go further by expanding the 
exemption to the referral fee prohibition to allow payment for 
referrals to employees of affiliated businesses. In the absence of such 
an expansion, CBA argued, the structure of the institution could 
determine whether an employee could receive a payment for referrals. 
CBA urged that the difference in the legal treatment of a referral 
payment based on the internal structure of a banking organization lacks 
any policy justification.
    Other commenters asked for expansion of the employer payments 
principle to allow entities with common ownership to pay referral fees 
to affiliated companies.
    (d) The Proposed Rule's Position on the Employer-Employee 
Exception. The Department reviewed the extensive history relating to 
this issue, including the history of the controlled business 
arrangements amendment to RESPA. In enacting Section 8 of RESPA in 
1974, Congress prohibited all fees, kickbacks, or things of value for 
the referral of settlement service business. The statute, as originally 
enacted, did not address referrals of business to affiliated companies.
    In 1980, the case of Coldwell Banker v. Department of Insurance 
(102 Cal.App.3d 381 (2d. Dist. 1980)) reached the courts. In that case 
the California Insurance Commissioner refused to grant a license to a 
wholly owned subsidiary of a real estate company to act as a title 
insurer. The denial was based on a concept of restriction of trade. 
This case drew HUD and congressional attention to whether this or 
similar controlled business arrangements might violate Federal law. On 
July 24, 1980, HUD issued an Interpretive Rule (subsequently withdrawn) 
that stated that ``controlled business arrangements may be a violation 
of Section 8.'' (49 FR 49360; withdrawn on May 18, 1982, 47 FR 21304.). 
Two days of congressional hearings were held on September 15 and 16, 
1981, and, in 1983, Congress enacted the ``controlled business 
arrangement'' amendment to RESPA.
    The 1983 controlled business arrangement amendment represented a 
compromise between those who wanted no restrictions on the ability of 
real estate settlement service professionals to refer settlement 
service business to entities with which they had an ownership interest 
and those who wanted a blanket prohibition against such referrals. The 
compromise (see H.R. Report 97-532, at page 52) made clear that 
controlled business arrangements do not violate RESPA--allowing 
affiliated entities, such as real estate professionals, to refer 
settlement business to related entities--provided that specified 
disclosure requirements and safeguards are satisfied, including: (1) A 
requirement that the relationship between the provider of settlement 
services and the person making the referral be disclosed, along with 
the estimated charges of the provider; (2) a bar against the required 
use of a particular provider, except under certain specified exceptions 
under Section 8; and (3) a bar against anything of value being received 
by the referring party, beyond a return on ownership interest or 
franchise relationship or payments otherwise permissible under Section 
8(c) of RESPA.
    Between the enactment of the 1983 amendments to RESPA and the 
issuance of the 1992 final rule, HUD had issued several informal legal 
opinions concerning the extent to which employers could pay referral 
fees to employees. The opinions made clear that bona fide full-time 
employees could be compensated for generating business for their own 
employers, as this would be within the scope of their employment. These 
opinions also made clear that uncompensated referrals to affiliated 
companies were not prohibited. These opinions did not, however, broadly 
approve compensation to all employees for referrals to affiliated 
companies. In the circumstances addressed by HUD informal opinions 
prior to the final rule, the permissibility of compensation of 
employees for referral related activities depended upon the structure 
of the affiliated companies or on whether the employees were acting 
within the scope of their employment.
    The 1992 final rule went beyond any of these previous positions and 
created an exemption for any and all employer payments to its own 
employees for referrals of business, including referrals to affiliated 
companies. The final rule only retained the stricture that the company 
receiving the settlement business could not directly or indirectly 
compensate anyone for such business. Although the rule did not limit 
this exemption to controlled businesses, the exemption has little 
utility for entities other than affiliated companies, since it is 
unlikely that an employer would pay its own employees for making 
referrals to unrelated individuals or companies. The preamble of the 
final rule set forth the position that payments from an employer for 
referrals were exempt from Section 8 because a business entity acts 
through its employees; the action of the employees is not sufficiently 
distinct from the action of the employer to provide the requisite 
plurality of actors needed to violate Section 8. Although the rule 
permitted an employer to compensate its own employees for referrals, it 
indicated that if the company receiving the referral reimbursed the 
employer or the referring employees, Section 8 of RESPA would be 
violated.
    Entities critical of the 1992 final rule have characterized the 
provision permitting employers' payments to their own employees for 
referrals as broadly sanctioning referral payments. Trade and business 
press have frequently restated this position without examination. Also, 
the Department's attention has been drawn to a number of advertisements 
and mailings in which various companies have cited RESPA as authority 
for bogus or sham programs under which fees may be paid to individuals 
who will become ``employees.'' While the final rule did not permit sham 
arrangements, neither did it adequately clarify the extent of the 
exemption.
    Following a full consideration of the testimony and comments, the 
Secretary has concluded that the 1992 final rule's employer-employee 
exemption was too broad. Accordingly, the Secretary proposes to amend 
the final rule by withdrawing the exemption set forth in 
Sec. 3500.14(g)(2)(ii) of that rule. This amendment will have the 
effect of providing that, while an employer may compensate its own bona 
fide employees for the generation of its own business, all compensation 
for referrals to outside entities, including affiliates, will be 
prohibited under RESPA.
    In addition to withdrawing the exemption, the proposal clarifies 
specifically when compensation to employees runs afoul of the 
requirements of RESPA. The rule provides that:
    (i) No employee or agent may receive compensation from his or her 
employer or any other source when the compensation is tied on a one-to-
one basis to, or is calculated as a multiple of the number or value of, 
referrals of business to an affiliated entity; and
    (ii) The compensation of agents or employees who routinely are in 
direct contact with the consumer may not be based in whole or in part 
on the value or number of referrals made to affiliated entities.
    These two clarifications are designed to minimize any incentive 
that a person in a position to make or influence a referral might have 
to make a referral based on his or her own financial interests. 
Clearly, compensation calculated as a multiple of the number or value 
of referrals creates a powerful incentive to make referrals that 
maximize one's own compensation. Similarly, agents or employees who 
ordinarily are in direct contact with the consumer may be influenced in 
making referrals if their overall performance is measured and 
compensation is set, even in part, based on the number or value of 
referrals to affiliated entities. The proposal makes clear that RESPA 
prohibits such compensation. By withdrawing the broad exemption, the 
potential for conflict of interest by those persons making referrals is 
reduced, increasing the possibility of true competition among 
settlement service providers based on the cost and quality of the 
services provided.
    Most facets of the settlement services business are very 
competitive, and the Secretary wants to assure that the rule does 
nothing to harm this competitiveness. The provisions set forth above 
that would clarify how RESPA affects employee compensation can be 
enforced and will not require HUD to interfere unduly with the internal 
operations of controlled business arrangements. Because Congress has 
clearly ruled on the acceptability, with conditions, of controlled 
business arrangements, the role of the Department is not to encourage 
or discourage controlled business arrangements, but to clarify what 
activities between interrelated companies are permissible or not 
permissible under RESPA.
    With the withdrawal of the exemption, employees of controlled 
business arrangements could continue to send consumers to affiliated 
companies, but they may be more likely to exercise independent judgment 
reflecting the interests of the consumer if the inducement of referral-
specific compensation is not present.
    The proposal to withdraw the exemption would obviate the need for a 
full examination of the question raised by some commenters about 
whether the exemption in the proposed rule is contrary to the statute, 
particularly since the Department has decided not to withdraw the 
employer-employee exemption without notice-and-comment rulemaking. In 
any event, the Department believes the exemption in the final rule 
would be legally sustainable, because of the broad exemption authority 
of the Secretary under Section 19 of RESPA.
    Pending this proposed rule becoming final, the existing employer-
employee exemption remains operational and employer payments made in 
accordance with the existing RESPA regulation will not be treated by 
the Department as conduct violative of the RESPA statute. However, the 
exemption in the existing rule is only available for employees, not 
independent contractors, a class that, under the Internal Revenue Code, 
includes most real estate agents and many others in the settlement 
services business. Those persons engaging in sham practices in an 
attempt to avoid the strictures of RESPA are not protected under the 
1992 final rule during the pendency of these revisions.
    (e) Questions and comments on this proposal. The Secretary's 
proposal on the employer-employee issue seeks to clarify RESPA's 
consumer protections while avoiding unnecessary intrusion into 
controlled businesses. The Secretary intends to be flexible in 
finalizing this proposal in pursuit of these objectives. To assist in 
this rulemaking, the Secretary is particularly interested in comments 
containing responses to the following questions:
    (i) To what extent do you believe the Secretary's proposal will 
accomplish the objectives of eliminating compensated referrals and 
other payments that pose the greatest dangers to consumers without 
overwhelming other legitimate considerations for referrals, such as 
long-term customer satisfaction?
    (ii) What effect will the proposal have on the ability of firms to 
provide high-quality and well-priced services to consumers?
    (iii) To what extent do you believe the proposal will unduly 
interfere with the operations of controlled businesses?
    (iv) What would be the effect of any such interference (with the 
operations of controlled businesses) on consumers?
    (v) To what extent do you believe this proposal will interfere with 
legitimate business development programs of affiliated companies?
    (vi) To what extent do you believe that the proposal will result in 
increased competition in the settlement services industry?
    (vii) If you disagree with the approach embodied in the proposal, 
what alternative approaches would increase competition?
    (viii) Do you believe that the proposal will adequately protect 
consumers from steering?
    (ix) If you do not believe the proposals will provide adequate 
protection from steering, what alternatives would provide such 
protection?
    (x) To what extent do you believe the proposal will lead to cost 
savings through increased efficiencies in the settlement services 
industry?
    (xi) If you disagree that the proposal will lead to cost savings, 
what alternatives would you suggest to facilitate efficiencies?
    In promulgating a final rule, the Secretary invites, and will 
consider, economic and other data submitted on the effect on the 
settlement services industry and consumers of the Secretary's and other 
proposals.
(2) Issue 2: Computer Loan Origination Services (``CLOs'')
    (a) Comments Critical of the CLO Provision. The final rule's 
revision of the RESPA regulations indicated that payment by a borrower 
for computer loan origination services was not 'prohibited by RESPA or 
Regulation X. This provision also drew hundreds of adverse comments, as 
well as support from several commenters responding to the Department's 
July 6, 1993, notice.
    Many commenters treated the CLO issue and the issue of referral 
payments as closely related concerns. Computer loan origination 
services, these commenters claimed, often are nothing more than thinly 
disguised arrangements for the referral of settlement services. The 
commenters argued that both referral payments and superficial or 
nominal CLO services involve the ``steering'' of homebuyers to a 
limited choice of service providers. A number of these commenters 
indicated their belief that simple disclosure of the fact that a fee is 
being charged affords inadequate protection against these dangers.
    The Consumer Federation of America (CFA) entered vigorous 
objections to the borrower fee authorized by the final rule. ``If there 
is economic value to the adoption of electronic loan origination 
technology, CFA believes that the marketplace will, on its own, adopt 
it. There is no reason why the consumer should foot the bill for the 
industry's capital investment.'' The CFA asserted that the RESPA 
statute was ``suspicious'' of fees for services of unknown or 
questionable value, and it objected to any ``sanctioned levy against 
consumers for CLO services.''
    Several commenters expressed their confusion concerning a CLO-
related question posed to the public in the July 6, 1993, notice. The 
question presented was whether further clarifications or additional 
conditions regarding CLOs are needed or would be desirable to protect 
consumers, particularly if any payment for the CLO service comes 
directly or indirectly from a lender. (Emphasis supplied.)
    Some commenters addressing this issue said they had assumed that 
the final rule only permitted ``customer-pay'' systems. If lender-pay 
systems are permissible, these commenters claimed, a major new problem 
is presented. Lender-pay systems are especially dangerous, the 
commenters declared, because the broker's financial gain and incentive 
to steer may be totally hidden.
    A significant minority of the commenters (including many who 
otherwise opposed features of the final rule) believe that CLO services 
are the wave of the future and that computer-based systems promise real 
benefit to prospective homebuyers. These commenters, however, joined 
with other critics of the CLO provision in questioning the legitimacy 
of linking CLO systems to referral fee arrangements. Others commenters 
objected to the final rule's failure to assure universal access to CLOs 
by lenders doing business in a particular location. Hundreds of 
comments--predominantly from lenders and related settlement service 
providers--urged that a comprehensive, limiting definition of CLO 
services be added to the rule.
    A commenter representing an automated service provider expressed 
his fear that CLOs operated by real estate brokers and agents could be 
used to ``display financial information [about other lenders] inferior 
to what [the broker's affiliate] is offering, and charge the borrower 
for doing it; then use the CLO fee collected for payment of `employee 
compensation' to guide the buyer to the broker-owned title company, 
closing service, insurance agency, home warranty company, and pest 
control company. The referral fee will not come from the normal real 
estate commission, but instead each service generates sufficient income 
to pay a referral fee to capture the next service, commencing with the 
CLO fee.'' The commenter further stated:

    Information provided through technology is not only valuable, 
but vital given today's complex and sophisticated lending; but, to 
allow a real estate broker to charge a purchaser for providing this 
information without having adequate guidelines in place assuring 
that the consumer will, in fact, receive information that is in the 
best interest of the consumer * * * is a terrible disservice to the 
consumer * * *.

    Commenters on the CLO issue had an array of suggestions for 
revising the RESPA regulations to limit, expand, or otherwise control 
the use of homebuyer- or lender-compensated CLO services, and to add 
suitable definitions of the term ``CLO''. Among these suggestions were:
    (i) Creating an (unspecified) ``market mechanism'' to keep CLO fees 
reasonable and closely related to the true value of the service being 
performed;
    (ii) Requiring the borrower to pay for CLO services at the time the 
service is being provided (a number of commenters believed that such a 
requirement would help assure that the homebuyer would insist on 
receipt of a ``real'' service, ``rather than unknowingly subsidize a 
disguised referral fee that is buried at the end of escrow'');
    (iii) Mandating that a substantial number of lender participants be 
included in any CLO system, and defining the term ``computer loan 
origination service'' in such a way as to exclude CLO providers that 
afford the borrower only limited information;
    (iv) Requiring CLOs operated by real estate brokers or agents to 
make special disclosures concerning use of CLO systems, in greater 
detail than the disclosures set out in Appendix E to 24 CFR part 3500. 
(A large number of lender-commenters asserted that special disclosure 
was unnecessary when CLOs are used by lenders, arguing that real estate 
brokers, ``who may be receiving another fee in the transaction,'' were 
the only parties for whom CLO-related disclosures should be required.);
    (v) Cautioning HUD not to permit lenders to pay for CLO services 
(arguing that any payment coming directly or indirectly from a lender 
should be subject to the anti-kickback provisions of Section 8 of 
RESPA). While the 1992 final rule addressed only the issue of fees paid 
by borrowers, commenters also discussed the issue of fees paid by 
lenders for inclusion on CLO systems, in response to the invitation for 
such comments in the July 6, 1993, notice. Most commenters referred to 
such payments as thinly disguised referral fees.
    (vi) Requiring disclosure that particular CLO listings provide only 
partial information about available loans. (A few commenters urged that 
the CLO fee disclosure form include ``bold print'' disclosing that the 
same information could be acquired by the prospective homebuyer ``for 
free'' by shopping on their own.);
    (vii) Recognizing that CLO services, if performed by a real estate 
broker or agent for a homebuyer, create a conflict of interest and a 
``potentiality for fraud'' for the broker or agent, whose fiduciary 
duty is to the seller. Unified comments from 16 State Attorneys General 
asserted that the use of CLOs by real estate agents is analogous to the 
situation once prevalent in the travel industry:

    * * * where independent travel agents using computer reservation 
services steered travelers to whichever airline happened to own the 
computer system used by the travel agent. Those flights were not 
always the most convenient or cheapest for the consumer. Private 
antitrust enforcement actions were required to rein in these 
practices.

    The Attorneys General declared that the economic costs of these 
airline-industry practices are ``trivial compared to the costs to 
consumers if CLOs are used to steer consumers in large numbers to more 
expensive mortgages than are readily available [elsewhere] in the 
market.''
    (viii) Suggesting that (in defining a CLO system) HUD require equal 
access to the system by any lender requesting access;
    (ix) Urging that fees for CLO services be proscribed because access 
to lender information has, before, been a free service performed by 
real estate agents or brokers; thus CLO charges would ``create a new 
fee for no real [new] value or service provided;''
    (x) Arguing that borrower information achieved through the CLO 
process was near-worthless, because lenders will have to reverify any 
information provided before underwriting loan applications; and
    (xi) Requiring that the CLO disclosure (and acknowledgement) occur 
before the borrower agrees to use computer loan origination services.
    In addition to these recommendations from multiple commenters, the 
Mortgage Bankers Association (MBA) recommended specific modifications 
to Sec. 3500.14(g)(2)(iii):
    (one) Prohibiting the receipt of compensation for operating a CLO 
by any person who already receives compensation for the same 
transaction in another capacity;
    (two) Defining ``computer loan origination services'' in a manner 
that would require interactive communication with the computer systems 
and the listing of multiple lenders upon request and for no charge; and
    (three) If the first two recommendations are not accepted by HUD, 
requiring that the CLO fee be both disclosed and paid for before the 
CLO is accessed.
    The MBA also urged that the rule set out the principle that the 
mere performance of ``clerical loan origination activities, most or all 
of which will have to be repeated by the lender'' does not constitute a 
service justifying the collection of a fee.
    (b) Comments Supportive of the CLO Provision. Comments in support 
of the CLO provision of the rule were varied. In general, these 
comments urged retention of the final rule's disclosure-based 
authorization of CLOs and CLO charges to borrowers. However, supporters 
of the CLO provision and other commenters on the provision expressed 
considerable sentiment that substantial clarification of the rule was 
necessary in this area.
    Several commenters observed that the rule was silent on the 
question of what disclosure (if any) would be required if the borrower 
was not charged a fee for access to a CLO service.
    One commenter ventured that, evidently, the rule's silence on the 
issue would indicate that no disclosure would be required when, for 
example, the lender paid CLO-connected fees. While the commenter 
approved this result, he added that ``further clarification would be 
welcome.'' The comment recommended that no separate disclosure be 
required for lender-pay or for ``no charge'' CLO services--even where 
it was clear that no-fee CLO systems were being paid for out of loan 
origination fees or lump-sum fees that are charged to lenders and 
mortgage brokers to process and underwrite mortgage loan applications. 
In these instances, the commenter maintained, the CLO services were 
less like traditional settlement services and more like services 
purchased by a settlement service provider to help it perform its 
normal functions--``back office'' loan origination services.
    In general remarks, the same commenter argued that overregulation 
of CLO services would stifle innovation and competitiveness. It was 
pointed out that one of the major advantages of CLO services was the 
expansion of housing opportunity ``into sectors of the U.S. economy not 
now adequately served by the mortgage lending industry.''
    Several commenters suggested that, with the very recent revision of 
Sec. 3500.14(g)(2)(iii), the Department should not make immediate 
changes, but should allow the marketplace to develop and experiment 
with CLOs without additional regulation. However, in a number of 
instances commenters supportive of the final rule's treatment of CLO 
services joined opponents in requesting that HUD provide clarifications 
of the rule that would:
    (i) Define the term ``computer loan origination services'';
    (ii) Indicate whether payment for CLO services must come solely 
from borrowers, or whether lender-paid services are permitted; and
    (iii) Advise whether there exists an ``implicit limitation'' on the 
fees that can be paid to CLO providers (such as a reasonable 
relationship to the market value of the services performed).
    Other pro-rule commenters joined commenters that had objections to 
the CLO services provision in supporting an explicit requirement that 
the CLO fee disclosure statement be given to the borrower before the 
fee is imposed, and that the fee be paid to the CLO operator before 
services are performed. ``By requiring upfront disclosure and 
payment,'' one commenter observed, ``the borrower will be aware that a 
separate fee is being imposed for services not required by the mortgage 
lender and will be able to determine whether the services provided by 
the CLO operator merit such a fee.''
    On the subordinate issue of the number of lenders included on CLOs, 
commenters supporting the CLO provision generally differed with 
opponents, many of whom urged much closer regulation of this aspect. 
The pro-CLO services commenters generally advocated ``leaving to the 
marketplace'' the determination of how many lenders were appropriate 
for a CLO service. One commenter argued that dictating how many lenders 
must appear on the CLO system ``is another example of well-intentioned 
regulation which could ultimately hurt consumers.'' The commenter 
pointed out that individual lenders may want to develop competing CLO 
products, each marketing its own software products, with the CLO 
operator then having access to several single-lender CLOs. The 
commenter concluded, as did several other supporters of the final 
rule's CLO services provision, that a consumer provided with full 
disclosure can determine the services for which the consumer is willing 
to pay.
    A few commenters anticipated adverse comment on the CLO systems 
issue and urged the Department not to bend to those commenters who 
would impose limitations on fees for CLO services or would require that 
fees be collected up-front.
    One commenter whose overall position strongly supported the final 
rule took a position comparable to many anti-CLO commenters in several 
respects. To protect consumers this commenter supported the imposition 
of additional conditions relating to CLO systems, such as:
    (i) Up-front disclosure of the CLO fee, and payment in advance of 
the performance of services; and
    (ii) A regulatory requirement that real estate brokers be required 
to perform services ``beyond electronically providing a menu of 
lenders' interest rates and products.'' The same commenter, however, 
joined other CLO services proponents in urging that HUD should not 
attempt to regulate the number of lenders to be included in CLOs.
    One commenter, evidently the operator of a large, independent 
computer loan origination system, made several points from that 
perspective:
    (i) The commenter's independent CLO system avoided ``steering'' 
abuses because steering arises when lenders offer commissioned loan 
officers or mortgage brokers a larger commission on some products than 
on others, thus encouraging lenders to sell a particular type of loan. 
The commenter's system required uniform charges across loan products 
and lenders, which are established by contract among participants and 
monitored by the CLO service provider;
    (ii) The system encourages competitive loan pricing, by including a 
wide variety of information affecting the overall cost of a loan to a 
consumer and making it simple for a loan counselor to find the ``best 
deal'';
    (iii) The system increases competition in rural areas, by expanding 
the number of lenders offering loans;
    (iv) The system helps to avoid racial and other forms of 
discrimination against borrowers by making the loan-decision process 
``demonstrably race-blind'';
    (v) The system avoids the criticism that CLO systems are mere 
``kickback schemes,'' because the loan counselors working with the 
system perform full loan-origination functions.
    This commenter recommended that RESPA be revised to stipulate that 
real estate brokers may not charge for origination services 
(implicitly, CLO services) unless they actually register a loan 
commitment with the lender. ``This assures that the [broker] has at 
least qualified the borrower, and made a loan selection with the 
borrower's concurrence. These are non-trivial functions for which a 
payment is justified,'' the commenter said. The commenter favored this 
``functional'' test, as opposed to a regulatory limitation on the 
number of CLO services provided or a ban on single-lender CLOs.
    Several comments from real estate brokers stated their support for 
the CLO services provision of the final rule. Among these, at least two 
real estate broker commenters assumed that CLO services would involve 
multiple lenders:

    [I assume that] all CLOs will offer the rates and costs of many 
lenders. When lenders realize that they are in competition with 
other lenders, they will be forced to deliver the best rates at the 
lowest cost * * *. I can assure you that if a home buyer walks into 
a lender's office to obtain a loan, there is little chance that 
lender would send the buyer to a competitor even though the rates 
and costs may be lower.

    A second real estate broker described his company's CLO service as 
having access to an affiliate and 20 competitors, indicating that this 
variety and choice afforded borrowers with distinct advantages over 
borrower-initiated loan shopping.
    (c) Description of the Legal Framework for Analysis of Payments for 
CLO Services. HUD has found that the use of the term ``CLO exemption'' 
in the preamble of the 1992 final rule may have created certain 
misperceptions. To ensure that there is no confusion about the scope of 
the regulatory exemption proposed below, the Department believes that 
it will be helpful to set out the legal framework for its analysis of 
payments for CLO services.
    In general, the provision of CLO services may be financed by the 
operator of a CLO system in several ways:
    (i) The operator could charge lenders to have information about 
their products displayed on the CLO system;
    (ii) The operator could charge borrowers to use the CLO system;
    (iii) The operator could charge both lenders and borrowers; and
    (iv) The operator could provide the service free of charge to both 
lenders and borrowers in the belief that providing the service will 
attract more customers for the operator's related settlement service 
business.
    Section 8(a) of RESPA prohibits a lender from paying a CLO operator 
a referral fee. Section 8(b) of RESPA prohibits a CLO operator from 
accepting a payment from a borrower ``other than for services actually 
performed.'' Therefore, in the absence of any regulatory exemption, 
under RESPA:
    (one) Payments by a lender to a CLO operator are subject to 
scrutiny to determine whether the payment is a referral fee or is bona 
fide compensation for goods or facilities actually furnished or for 
services actually performed;
    (two) Payments by a borrower to a CLO operator are subject to 
scrutiny to determine whether the payment is a sham or duplicative 
charge, rather than a payment for goods or facilities actually 
furnished or services actually performed; and
    (three) When neither borrowers nor lenders pay a fee for the CLO 
services, only certain disclosures are required.
    The 1992 final rule created an exemption from Section 8 for ``any 
payment by a borrower for computer loan origination services,'' as long 
as certain disclosures were provided (emphasis added). This rule did 
not address payments made by lenders, thus leaving such payments 
subject to Section 8 scrutiny. Although the term ``CLO exemption'' is 
frequently used, including in the preamble of the 1992 final rule, the 
exemption was not for the CLO itself, but only for payments made for 
CLO services by borrowers.
    Many commenters were concerned about whether any system that merely 
claimed to be a CLO deserved to be given an exemption from RESPA's 
requirements. As noted in the above statement of HUD's objective, the 
Department seeks to encourage the use of new technology in ways that 
provide meaningful information and services to consumers. Uncertainty 
about how RESPA applies to CLOs may inhibit their development. 
Therefore, the Department has determined that continuation of such an 
exemption is justified; however, the Department seeks to limit the 
exemption only to payments for access to CLO systems that provide 
meaningful information and services to consumers. Payments for access 
to systems that provide such benefits will not be subject to scrutiny 
under Section 8.
    Accordingly, the Department proposes to amend the 1992 final rule 
to limit the exemption to payments made by borrowers for services from 
``qualified CLOs'' only, and to define qualified CLOs to be those 
systems that the Department believes provide meaningful information and 
services to consumers. Payments by borrowers for services of systems 
other than ``qualified'' CLOs are not prohibited; rather those payments 
are subject to scrutiny under the Section 8 test articulated above.
    Similarly, the 1992 final rule did not mention payments made by 
lenders to CLO operators. However, having proposed to limit the scope 
of the exemption for borrower payments and certain lender payments, the 
Department asks commenters to address whether a parallel exemption for 
payments made by lenders to operators of ``qualified CLOs'' would be in 
the best interest of consumers.
    (d) Position of the Proposed Rule on CLOs. Based upon a review of 
the comments and testimony on this issue, the Secretary concluded that 
the potential of CLOs to be convenient and provide consumers with 
meaningful information about their choices justified the encouragement 
of certain CLOs and the continuation of an exemption for borrower 
payments for certain CLOs. The Secretary also determined that it is 
necessary to amend the rule to define the type of CLO for which 
borrower payments are permitted without further RESPA scrutiny, in 
order to maximize the potential consumer benefits from this developing 
technology and protect consumers. Accordingly, the Secretary proposes 
to amend the rule to provide that payments made by borrowers for 
qualified CLO services only are exempt, and to define qualified CLOs as 
those systems meeting the following requirements:
    (i) Qualified CLOs must be responsive to information about the 
borrower and provide information regarding loan options for that 
borrower. (This provision is responsive to commenters who feared that 
without definition, a system using FAX-transmitted data or even 
telephone calls might qualify as a CLO system.)
    (ii) Qualified CLOs must meet certain fair participation and 
display requirements, including that participation and display of loan 
products from numerous lenders offering various loan products must be 
allowed, factors for selecting lenders to participate on the CLO system 
be fair and legitimate; and information on individual loan products 
must be displayed in a lender-neutral manner. While the Department 
recognizes that there are practical limits on the number of lenders 
that can be included usefully on a system, because of technological and 
other limitations, the proposed rule contemplates that a minimum of 20 
lenders will participate on a qualified CLO system. (The Department 
asks for comments on whether this number is appropriate or another 
number would better ensure competition while providing a meaningful 
level of information to the consumer.) The exemption is still available 
when less than 20 lenders choose to participate, as long as the CLO 
system remains open to and accepts additional lenders. Selection of 
lenders for participation must be done as a result of the fair 
application of impartial criteria, which may include, but are not 
limited to, the date of the lender's application for participation on 
the CLO system (e.g., first-come, first-served), the quality of 
services and capabilities a lender provides to consumers, the types of 
loan products offered by a lender and its pricing practices, and the 
extent to which a lender's participation will increase the variety of 
loan products offered to consumers by the system. (The application of 
factors may not be used to avoid the 20 lender requirement.) CLO system 
operators must have a reasonable justification supported by 
documentation for selection decisions. No lender may be favored or 
disfavored by the manner in which information regarding the lender or 
its products is presented to the borrower or is utilized on the system, 
or by the scope of information that a particular lender is permitted to 
include as compared to another lender.
    (iii) Qualified CLOs must provide borrowers with a CLO disclosure 
form that states that use of the system is not required, space on the 
system is limited, the full range of products meeting the borrowers' 
needs may not be listed on the system, and other lenders not listed on 
the system may offer better terms and conditions including lower rates. 
A disclosure format for this and other information is set forth in the 
proposed rule as Appendix E.
    (iv) Qualified CLOs must charge borrowers the same fee for the same 
CLO service or the same components of service. The exemption does not 
attempt to fix a price for CLO services; market forces and market 
experiences should continue to shape the evolution and development of 
qualified CLO systems. Rather, where fees are charged, all borrowers 
must be treated equally. If fees are waived by a CLO provider, they 
must be waived fairly and not because of the choice of a particular 
lender. If the fee is contingent on use of a loan product on the 
system, the contingency must apply equally to all loan products and 
lenders on the system.
    (v) An operator of a qualified CLO may also charge lenders for 
access to the system and for a portion of maintenance and operation 
costs of the system. However, the schedule of charges for each lender 
on the system must be identical. Furthermore, qualified CLOs must 
disclose to the borrower, on the form prescribed in Appendix E and on 
the HUD-1 or the HUD-1A, the amount of any anticipated payments by a 
lender.
    (vi) Fees and disclosures about the CLO system must also be 
prominently displayed and visible to the potential borrower on the 
premises near where the CLO terminal is located. The information that 
more advantageous loan alternatives may exist that are not displayed on 
the system must be similarly disclosed.
    (vii) Any borrower payment to a CLO operator for use of a qualified 
CLO must be paid outside of and before closing. A borrower must receive 
full disclosure of the amount of the fee before the CLO services are 
performed.
    In this proposed rule, the Department is establishing the minimum 
requirements that must be met by a qualified CLO system if payments by 
a borrower to the operator of the system are to enjoy an exemption from 
RESPA. The Department believes that these requirements are responsive 
to the many comments on CLOs, and that compliance with the requirements 
will assure that: CLO systems receiving the benefit of the exemption 
are operated fairly; these systems will not be used as disguised means 
of steering borrowers to particular lenders on a basis other than the 
quality of services provided; and lenders wishing to participate in 
qualified CLO systems will be permitted to do so on a fair and 
equitable basis.
    In addition, this proposed rule would continue and augment certain 
requirements for all providers of CLO services, whether or not the CLO 
is a qualified CLO. In all circumstances where a CLO is utilized, the 
CLO disclosure set forth in Appendix E must be provided to borrowers 
before the CLO services are performed. The existence of any controlled 
business arrangement involving the operator of a CLO and any 
participating lender must be disclosed to the borrower before the 
system is utilized. Similarly, lender payments to other settlement 
service providers for CLO services must continue to be disclosed on the 
Good Faith Estimate and on the HUD-1 or HUD-1A, in accordance with the 
February 10, 1994 (59 FR 6505) revision of the regulations, and the 
possibility of such payments must be noted on the CLO disclosure.
    (e) Questions and comments on this proposal. In formulating the 
final rule, the Department may modify the requirements for the 
exemption, based on comments from the public. The Department seeks 
public comment on all aspects of its proposal to limit the exemption 
for borrower payments to payments made for qualified CLOs, including:
    (i) Does the approach embodied in this proposal--establishing a 
safe harbor for borrower payments for qualified systems, continuing to 
scrutinize borrower payments for nonqualified systems under RESPA, and 
mandating certain disclosures for all systems--the best approach to 
encourage the use of technology to benefit consumers and, at the same 
time, protect consumers from unfair practices? Instead, should the 
Department provide that any payment for a CLO system that does not 
qualify for the safe harbor is presumed to violate RESPA? (Commenters 
who believe that there should be broader prohibitions should detail the 
legal and other justifications for this belief.)
    (ii) Would establishment of a parallel exemption for payments made 
by lenders to operators of qualified CLOs be in the best interest of 
consumers? If so, should the requirements for a lender payment CLO 
exemption be the same as the requirements for the borrower payment 
exemption? Those commenters who believe the requirements should be 
different should specify what differences they recommend.
    (iii) Are most CLO systems likely to be financed using borrower 
payments, lender payments, or a combination of both? Will any CLO 
system provide access to the system to lenders and borrowers free of 
charge?
    (iv) Are the benefits of having borrower payments exempt from RESPA 
scrutiny sufficient to encourage CLO operators to develop qualified 
CLOs? Will CLO operators prefer to be subject to the general test under 
RESPA that borrower payments must be in exchange for services actually 
performed or to meet the requirements for qualified CLOs?
    (v) Will the requirements for qualified CLOs in the proposal result 
in cost-effective CLOs offering meaningful services to consumers?
    (vi) Is the requirement for CLO disclosure to consumers in this 
proposal reasonable and does it serve the consumers' best interests?
    (vii) Is the definition of a qualified CLO sufficiently flexible, 
considering the nature of this emerging industry and the Secretary's 
consumer protection objectives?
    (viii) Are the requirements concerning lender-neutrality and the 
selection of lenders on a qualified CLO reasonable?
    (ix) Is the minimum number of lenders on a qualified CLO (i.e., 20) 
practical from an operational perspective? Is it sufficient to ensure 
competition? (If another number is suggested, please explain why this 
number would be superior in promoting competition and the consumers' 
interests?)
    (x) Is the requirement that all disclosures be made before 
performance of CLO services reasonable?
    (xi) What will be the impact of the requirement that any borrower 
payments must be made outside of and before closing?
    (xii) Does the requirement that qualified CLOs must provide the 
borrower with certain information about loans generally available; 
collect information about the borrower, the property, and the loan 
sought; and provide the borrower with information about loan products 
available to that borrower accomplish the intended objective of 
ensuring that a meaningful service is provided?
    The Department anticipates that the Technology Demonstration that 
it plans to conduct (see Section I of this preamble) will also be a 
useful vehicle for developing answers to some of these questions.
(3) Issue 3: Preemption of State Laws or Regulations
    In Sec. 3500.13(b)(2), the November 2, 1992, final rule provided 
that ``in determining whether provisions of State law or regulations 
concerning controlled business arrangements are inconsistent with RESPA 
or this part, the Secretary may not construe those provisions that 
impose more stringent limitations on controlled business arrangements 
as inconsistent with RESPA so long as they give more protection to 
consumers and/or competition.'' In connection with the preemption 
issue, the Department's July 6, 1993, notice requested comments on 
establishing standards to be used in evaluating whether provisions in 
State laws provide greater protection to consumers. The Department also 
invited any other comment relative to the preemption provision of the 
1992 final rule.
    (a) Positions Taken by Commenters Critical of the Rule's Preemption 
Policy. While the Department received hundreds of comments addressing 
the preemption question, this issue attracted fewer expressions of 
opinion than did the other three issues raised in the July 6, 1993, 
notice. Most of the commenters addressing the issue (excluding 
identical-form responses) were attorneys or major institutional 
commenters. However, even among the comments from organizations 
representing institutional interests or segments of the real estate and 
real estate finance industries, preemption was the least-frequently 
addressed of the four issues.
    Commenters who were critical of other aspects of the rule had a 
mixed approach to the preemption issue and reflected suspicion of the 
Department's motives. These comments assumed that, despite the benign 
phrasing of Sec. 3500.13(b)(2), HUD would (in light of the other 
features of the 1992 final rule) use preemption in the future to weaken 
State-initiated regulation of controlled business arrangements. Those 
commenters who shared this suspicion varied in their recommendations 
for improvement of the rule's preemption feature. Several commenters 
advised HUD to provide ``greater clarity'' regarding a State's right to 
ban or closely regulate controlled business arrangements. Other 
commenters referenced particular existing State laws that require 
controlled business entities to seek a substantial portion of their 
business from sources other than their affiliated entities. These 
commenters urged that HUD provide explicitly that State laws and 
regulations of this type would not be subject to preemption.
    The tone of these comments suggested that the standard set out in 
the final rule--i.e., no preemption, so long as a State law affords 
``more protection to consumers and/or competition''-- was insufficient 
assurance against Federal preemption. Apparently the final rule was 
perceived by the commenters as being ``anti-consumer'' in the guise of 
a consumer protection regulation. The commenters believed it was clear 
that State laws forcing controlled businesses to draw business from 
nonaffiliates should never be preempted under RESPA authority. The 
commenters were not persuaded that the Department intended to apply 
Sec. 3500.13(b)(2) in a manner that would treat these State laws as 
``pro-consumer''.
    Concerned commenters made diverse recommendations: several asked 
the Department to clarify in the rule that preemption would not be 
applied; other commenters, clearly equally averse to preemption of 
State laws, recommended case-by-case judgments regarding preemption, 
using the existing standard set out in Sec. 3500.13(b)(2). These latter 
commenters often combined their status quo recommendation with an 
urging that HUD modify or reverse positions taken on the employer-
employee exception or CLO issues. Their thrust was that HUD's 
preemption policy would not be objectionable if the RESPA rule were 
modified to cure the specific problems being addressed by commenters in 
their accompanying remarks.
    The combined comment of the 16 State Attorneys General stated the 
belief that it would be too difficult to ``define criteria for 
preemption in the abstract.'' The comment recommended a case-by-case 
approach. (Again, this comment was made in the context of a strong 
statement of opposition to the final rule's employer-employee fee 
policy and CLO exemption.)
    The predominant position of institutional commenters addressing the 
preemption issue was that it is unnecessary for HUD to set out strict 
standards to evaluate whether State law provisions provide greater 
protection to the consumer. However, there was considerable sentiment 
in favor of regulatory ``clarifications'' to serve, in essence, as 
guarantees that the Department would not preempt State laws in any 
instance where its goal was to limit controlled business arrangements. 
Consumers Union believed that HUD's own rules should be changed to 
afford consumers stronger protections, but, if this was not to be, ``at 
the very least States should be free to protect their own consumers''. 
Accordingly, Consumers Union favored the enunciation of standards for 
determining whether State law provisions provide greater protection:

    * * * These standards are necessary since the final rule is 
anti-consumer, but was presented as if it were pro-consumer. To 
eliminate any resulting ambiguity, HUD should clarify that [State-
originated] rules totally eliminating any incentive to steer 
business to an affiliate would be viewed as stronger consumer 
protection.

    A large number of comments received from individuals and small 
businesses (mainly lenders) favored the establishment of written 
standards for the evaluation of State laws. However, these comments 
offered no specific advice concerning the content of the favored 
written standards.
    Comments submitted by the American Land Title Association (ALTA) 
claimed that the November 1992 rule on preemption had ``frightened'' 
State legislators and regulators ``into believing that the RESPA 
disclosure provisions [would be read by HUD to] preempt more stringent 
state legislation or regulations.'' The ALTA expressed the belief that 
the new regulations were ``perverting'' congressional policy regarding 
the circumstances warranting preemption. The ALTA further claimed that 
the preemption provision suggests that ``only if the Secretary of HUD 
determines that a state controlled business provisions gives more 
protection to consumers and competition would the state provisions not 
be preempted.'' (Emphasis in original.)
    The ALTA also complained that the final rule was deterring State 
governments from considering more stringent regulation of controlled 
business, and suggested that the Department support legislative 
revisions to RESPA to replace ``ineffective'' consumer disclosure 
requirements with Federal ``public business'' requirements (i.e., 
requirements that controlled businesses derive a significant proportion 
of their business from nonaffiliates).
    One of the Federal agencies commenting on the rule, the Office of 
Thrift Supervision (OTS), suggested that separate review standards for 
preemption determinations were unnecessary and that HUD could employ a 
case-by-case analysis, using the review method outlined in 
Sec. 3500.13(c) of the final rule. (OTS submitted comments critical of 
the final rule on the referral fee and CLO issues.)
    (b) Positions Taken by Supporters of the Preemption Provisions. As 
in the case of commenters critical of the final rule, supporters of the 
rule commented less frequently on the preemption issue than any of the 
other questions raised in the July 6, 1993, notice. However, there was 
perhaps a greater gulf between supporters of the 1992 final rule and 
its opponents on this issue than on any other. As indicated earlier in 
this preamble, opponents of the rule expressed widespread fear that the 
Department would use its preemption power to nullify what the opponents 
perceived as salutary State regulation of controlled business. 
Proponents of the final rule also read Sec. 3500.13(b)(2) of the rule 
as promising extensive HUD employment of preemption; however, these 
commenters welcomed it.
    The commenters regarded RESPA as sufficient to provide consumers 
with protection against unfair pricing by settlement service providers. 
Often, the commenters claimed, State laws that purport to be protective 
of consumers are actually designed to benefit local settlement service 
providers, by hindering the entry of larger, broad-based providers into 
local markets.
    Commenters appeared to assume that the chief intended target of 
preemption would be State laws directly or indirectly preventing real 
estate brokers from owning affiliated title businesses, prohibiting 
mortgage lenders from affiliating with title agencies, or restricting 
the percentage of business that can be derived from referrals from 
affiliated businesses.
    A lender with nationwide business objected strongly to the 
inefficiencies it said resulted from multiple and inconsistent State 
law requirements. While these varying requirements are justified if 
they provide identifiable consumer benefits, the commenter said, they 
frequently represent attempts to limit competition among lenders, and 
actually increase the costs paid by consumers.

    The experience in Kansas is instructive. After the state enacted 
a law limiting referrals to affiliated entities, many title agent 
affiliates of real estate brokers and mortgage companies were forced 
out of business. Freed from the need to compete with such providers, 
we understand that independent title agents increased their rates by 
approximately 60%. The Department need look no further than this 
example to recognize that protection of ``turf,'' rather than 
protection of consumers, is normally at the heart of such 
limitations.

    The commenter went on to urge that HUD make clear that State 
limitations affecting controlled business arrangements are preempted by 
RESPA.
    One commenter said that RESPA regulations encourage nationwide 
service providers to diversify their product offerings and enter new 
geographic markets. Accordingly, Federal preemption of adverse State 
laws would result in increased competition.
    While a few commenters appeared to be recommending summary 
preemption of the array of State laws affecting controlled business, 
other commenters, responding to the Department's direct question, urged 
the establishment of standards for the case-by-case determination of 
whether State laws or regulations are inconsistent with RESPA in the 
controlled business area, i.e., whether a particular law ``give(s) more 
protection to consumers and/or competition'' than does RESPA.
    One commenter suggested that the final rule's treatment of 
preemption should be fundamentally changed because it is ``unclear and 
vaguely worded'': ``What is meant by `stringent limitations' and `give 
more protection to * * * competition?'''
    Another commenter cited the legislative history of the 1983 RESPA 
amendments as indicating Congress' expectation that, if necessary to 
protect consumers or encourage competition, HUD would recommend further 
legislation to place a percentage limitation on the amount of 
controlled business that could be transacted. The commenter observed 
that in the ten years since the controlled business exemption became 
law, HUD has not recommended further legislation in this area. 
Additionally, the commenter claimed, many State governments have not 
seen the necessity of enacting restrictions on the percentage of 
business that can be derived from affiliated entities. The commenter 
concluded that State ``percentage of business'' laws were inconsistent 
with RESPA and should be preempted as anticompetitive.
    (c) Position on Preemption in the Proposed Rule. Based upon the 
comments and testimony, the Secretary has determined that it is 
unnecessary at this time to set out specific written standards for 
preemption of State laws. As numerous commenters, including the State 
Attorneys General, observed, setting out comprehensive and informative 
preemption standards presents an almost insurmountable task, in the 
absence of a wide array of specific fact situations that are raising 
preemption issues. If it becomes necessary to consider this issue 
further, the Secretary may reopen the issue by rulemaking or deal with 
specific preemption issues by means of interpretive rules. No 
amendments are proposed on this subject in this rule.
(4) Issue 4: Adequacy of the Controlled Business Disclosure Statement
    In Sec. 3500.15(b)(1) of the 1992 final rule, provision was made 
for ``written disclosure, in the format of the Controlled Business 
Arrangement Disclosure Statement set forth in appendix D of this 
part.'' This disclosure referred to certain information regarding the 
ownership and financial relationships between referring and referred-to 
parties, as well as information regarding the timing of the disclosure 
and other methods for disclosure.
    HUD solicited the views of commenters in its July 6, 1993, Federal 
Register notice concerning whether the controlled business disclosures 
outlined in appendix D ``are adequate to protect the consumer, and, if 
not, how they might be improved.''
    (a) Comments Critical of the Disclosure Statement. A majority of 
the commenters expressing dissatisfaction with one or more features of 
the 1992 final rule's employer payments provisions also objected to the 
Controlled Business Arrangement Disclosure Statement set out in 
Appendix D to part 3500.
    Generally, these objections were twofold. First, commenters argued 
that even the best and most complete form of disclosure imaginable was 
not an effective means of coping with what the commenters perceived as 
anticonsumer aspects of controlled business arrangements. Second, 
opposition commenters urged that if, against their advice, HUD 
continued to sanction referral payments by employers to employees, the 
form of disclosure required should be strengthened substantially, and 
the timing of the required disclosure should be pinpointed for maximum 
effect in affording consumers a realistic opportunity to choose 
alternative settlement service providers.
    More than 800 comments from lenders and settlement attorneys urged 
expansion of the controlled business disclosure to assure that 
borrowers understand that the referral ``will provide a financial 
benefit to the related parties.''4
---------------------------------------------------------------------------

    \4\HUD notes that the Appendix D disclosure format already 
requires: (1) Disclosure of the nature of the relationship between 
the referring party and the prospective provider of the service, 
including ownership or other financial interests; (2) estimates of 
the charges for the service or services; and (3) a statement that 
the consumer ``may be able to get these services at a lower rate by 
shopping with other settlement service providers.'' (57 FR 49600, 
49622; November 2, 1992.)
---------------------------------------------------------------------------

    Perhaps the most comprehensive criticism of the disclosure policy 
was expressed by the 16 State Attorneys General in their comments. 
After criticizing both the referral payments provision and the CLO 
exemption, the Attorneys General said that they were skeptical that 
disclosures can remedy the inherent dangers to consumers when there are 
financial incentives for referrals of business. Conceding that the 1983 
RESPA amendments expressly permitted controlled business arrangements, 
the Attorneys General urged that the disclosure contemplated by the 
regulatory amendment ``be as clear and explicit as possible to alert 
consumers to the potential for harm.'' The comment advocated that the 
disclosure form state with greater clarity the purpose for which a 
disclosure is made and the harm against which it is aimed.
    Specifically, the State Attorneys General criticized as vague the 
form's reference to a ``business relationship'' and advocated the 
inclusion of a statement that, in making the referral to the controlled 
business, the referring company or agent (to be identified by name) 
would benefit ``financially or otherwise.'' The State Attorneys General 
wanted the form to indicate that, in addition to lower rates, consumers 
might receive ``better services'' by shopping around. ``Indeed, 
consumers must be affirmatively encouraged to shop around * * * 
consumers should be warned in clear, unambiguous language of the 
pitfalls of relying on a controlled business referral and encouraged to 
make intelligent choices among settlement service providers.'' 
Consumers should also be told in explicit terms, the comment continued, 
that they are ``free to choose [their] own settlement service provider 
and will not be denied any services or loan for exercising this 
choice.''
    Finally, the State Attorneys General favored disclosure of the 
``existence of and amounts of'' any fees or kickbacks paid, directly or 
indirectly, to the real estate broker or another referring party, or to 
an affiliated provider, for the performance of settlement services. A 
large number of individual commenters and the Coalition to Retain 
Independent Services in Settlements (CRISIS) echoed this position.
    The CFA disparaged disclosure, by itself, as being an ``inadequate 
remedy for the market risks that consumers are exposed to in the 
purchase of real estate'':

    The Department's rule has placed before the consumer a new array 
of fees for which the delivery of the equivalent of a tollgate 
ticket is hardly ample protection.
    One of the central problems of controlled business arrangements 
is that the underlying purchase is carried out under conditions of 
urgency and stress that will always overwhelm a captive consumer. 
The ability to distinguish between what must be done--and 
purchased--and what is optional, is limited.

    The MBA advocated elimination of the employer-employee referral fee 
exception, but urged that, at least, the disclosure form should be 
expanded to include the existence and amount of the referral fee. 
Similar advice was received from Consumers Union and from individual 
commenters.
    The FDIC also expressed some doubt about the efficacy of written 
disclosure, calling the disclosure form ``just one of dozens of 
confusing papers handed to [consumers] over the course of a real estate 
transaction.'' FDIC nevertheless advocated strengthening the form by 
requiring the disclosing entity to meet specific content guidelines and 
to use layman's language, ``* * * so less opportunity [is] given for 
`creative writing'.'' The FDIC also advocated the use of an 
acknowledgement line or box on the form, to show that the consumer had 
read and understood the controlled business arrangement disclosure.
    The Office of Thrift Supervision (OTS), while expressing concern 
about employer-employee referral fees and the efficacy of CLO 
disclosures, commented that the content and timing requirements for 
controlled business disclosures, as set out in the final rule, seemed 
adequate to protect consumers.
    Departing from the recommendations of other commenters to the 
effect that the disclosure form should be expanded to highlight the 
presence of referral fees and other relationships between the referrer 
and the service provider, ALTA's spokesman called the disclosure 
process ``worthless as a consumer protection measure in the settlement 
services arena.'' The ALTA claimed that the consumer is likely to rely 
upon the recommendation of a trusted professional, ``even where a 
personal financial inducement is disclosed.'' ALTA's spokesman 
advocated legislative solutions, including amendment of RESPA to permit 
a competitor's right of action and the institution of blanket 
prohibitions on controlled businesses.
    (b) Comments from Supporters of the Final Rule's Disclosure 
Statement. The Department received detailed comments on controlled 
business disclosure policy from more than a dozen commenters who 
supported the final rule in most of its particulars. Typically, these 
commenters believed that the form and level of detail of disclosure of 
controlled business arrangements that were in the final rule were 
``more than adequate'' to permit informed choice by consumers 
concerning settlement service providers.
    Several commenters pointed out that the required form of disclosure 
appeared to exceed the statutory disclosure requirements in several 
respects. One, the commenters urged that the statute required only that 
the ``existence'' of a financial interest be disclosed, while the 
regulation required that the disclosure outline the ``ownership and 
financial interest.'' Two, the regulation requires that all 
disclosures, not just those related to costs, be made in writing. 
Three, the regulations require separate disclosure of controlled 
business relationships. Finally, the ``suggested format'' for the 
disclosure (although not the regulation itself) includes the caution: 
``You may be able to get these services at a lower rate by shopping 
with other settlement service providers.''
    Most commenters who raised these points did not address them as 
objections to, or criticisms of, the 1992 final rule. Instead, these 
observations were cited as indications that, in the commenters' views, 
the rule already was suitably attentive to consumer protection 
concerns, in that it went beyond bare-bones statutory disclosure 
requirements. Several of these comments went on to urge that the 
Department continue to limit its RESPA regulations to disclosure-
related concerns, and not bend to the will of advocates of other 
methods of regulating or curbing controlled business arrangements:

    RESPA is predicated on the belief that consumers, when provided 
with appropriate disclosures, are capable of making informed 
decisions. Those who argue otherwise frequently do so only to 
protect their competitive position, not to advance the interests of 
consumers. * * * [T]he information contained in the existing 
controlled business arrangement disclosures is sufficient and the 
requirements should not be disturbed.

    The Federal Reserve Board's comment agreed that the controlled 
business disclosure policy set out in the rule and the format were 
``more than adequate'' as disclosures. ``* * * [I]f anything, it may be 
over-disclosing given the quantity of information that a consumer 
receives when applying for a mortgage loan.'' A few lender-commenters 
expressed a similar view. The Federal Reserve suggested that the 
consumer needs to know that the two parties involved in the referral 
are related, but may not need further details. While the Federal 
Reserve agreed it is important that the consumer know that use of the 
provider is not required, it suggested that including the estimated 
charges for the service was ``redundant,'' since such costs would have 
been disclosed on the Good Faith Estimate.
    One lender argued that controlled business arrangements arise in a 
variety of situations, and that it is ``impossible'' to mandate the use 
of a form that is suitable for all providers in all situations. The 
commenter asked the Department to provide for flexibility concerning 
format, ``as long as consumers are informed of the referral and the 
relationship between the parties.''5
---------------------------------------------------------------------------

    \5\The same commenter, a lender, asked for more flexibility in 
the timing of the controlled business disclosure. Many referrals do 
not occur at face-to-face meetings between the consumer and the 
referring party, the commenter suggested, and asked that the rule 
clarify that the service provider be required to furnish a 
disclosure ``at the time of the initial contact between the consumer 
and the provider.''
---------------------------------------------------------------------------

    Another comment urged that the controlled business disclosure form 
not be required for disclosure of the specific providers of ``lender 
required services such as credit reports, appraisals, [or] flood plain 
searches.'' The commenter suggested that early disclosure of the 
identity of these providers was impractical and provided ``absolutely 
no benefit to the consumer.'' The information, the commenter concluded, 
would appear on the HUD-1 Settlement Statement.
    The most frequent criticism of the rule's controlled business 
disclosure requirements from commenters supportive of the rule was 
that, in some instances, it was unclear when a controlled business 
arrangement was required to be disclosed. Several commenters asked 
whether the disclosure was required when a bank has a wholly-owned 
subsidiary mortgage company or when a mortgage company is a wholly-
owned subsidiary of the same holding company as the bank.
    The situations in which related businesses were required to make 
disclosure also were questioned. One commenter asked whether, if a bank 
is affiliated with a mortgage company by common ownership, the bank has 
to make disclosures to consumers in the following circumstances:
     When a consumer is directly referred to the mortgage 
company for a mortgage loan;
     When the consumer is simply informed of the availability 
of loans from the mortgage company; and
     When the bank includes references to the mortgage company 
in its advertising or its brochures.
    One commenter, stating that the entire category of ``referrals'' 
was not intended to fall within the coverage of the controlled business 
arrangement rules, recommended creation of an exemption to the 
controlled business arrangement rules for ```referrals' between bank 
holding companies' wholly-owned subsidiaries.'' Two commenters asserted 
that failing to provide this exemption would be placing mortgage 
companies within bank holding companies at a competitive disadvantage 
when compared to bank mortgage departments. ``The purpose of RESPA is 
not to dictate the form in which a bank structures its lending 
business.''
    (c) Position Taken in the Proposed Rule on the Controlled Business 
Disclosure Statement. The Secretary concluded that the elimination of 
the employer-employee exception would, in turn, eliminate a number of 
the strongest concerns regarding the information in the controlled 
business disclosure. However, the Secretary has accepted some 
suggestions for modifications to the disclosure as useful and 
beneficial to the consumer. Accordingly, certain of these suggestions 
have been included in the proposed rule and in the format of Appendix 
D.
    The suggested borrower-acknowledgement box has been added to the 
controlled business disclosure format. Additional plain language has 
been added to the format. Section 3500.15(b) proposes a requirement 
that disclosure be given at a time to be relevant to the consumer: 
either (i) at the time of referral or no earlier than 3 days before; or 
(ii) if the lender requires the use of a particular provider, the time 
of the loan application. The preamble of revisions that extended RESPA 
coverage to subordinate lien transactions (59 FR 6505, 6510, February 
10, 1994) also discussed the appropriateness of disclosures, stating 
that ``incidental and uncompensated referrals, such as brochures in a 
bank lobby or street directions given by a bank employee, are not 
perceived as rising to the level necessary to require a controlled 
business disclosure.''
    More sweeping modification of the controlled business disclosure 
form is not considered necessary. While many commenters disparaged the 
use of written disclosure as a means of coping with perceived 
controlled business-related problems, the Department continues to 
believe that full disclosure is useful as a means of informing 
consumers. Disclosure is also a preeminent principle of the RESPA 
statute.

V. Other Matters

Regulatory Flexibility Act

    The Secretary, in accordance with the Regulatory Flexibility Act (5 
U.S.C. 605(b)), has reviewed this rule before publication and by 
approving it certifies that this rule does not have a significant 
economic impact on a substantial number of small entities, other than 
those impacts specifically required to be applied universally by the 
RESPA statute.

Environmental Impact

    A finding of no significant impact with respect to the environment 
has been made in accordance with HUD regulations in 24 CFR part 50 that 
implement section 102(2)(C) of the National Environmental Policy Act of 
1969 (42 U.S.C. 4332). The finding is available for public inspection 
during regular business hours in the Office of the General Counsel, 
Rules Docket Clerk, room 10276, 451 Seventh Street SW., Washington, DC 
20410.

Executive Order 12866

    This proposed rule was reviewed by the Office of Management and 
Budget under Executive Order 12866, Regulatory Planning and Review. Any 
changes made to the rule as a result of that review are clearly 
identified in the docket file, which is available for public inspection 
at the Office of the Rules Docket Clerk, Office of the General Counsel, 
room 10276, Department of Housing and Urban Development, 451 Seventh 
Street SW., Washington, DC 20410-0500. A Regulatory Impact Analysis 
(RIA) performed on this proposed rule is also available for review at 
the same address.

Executive Order 12612, Federalism

    The General Counsel, as the Designated Official under section 6(a) 
of Executive Order 12612, Federalism, has determined that the policies 
contained in this proposed rule will not have substantial direct 
effects on States or their political subdivisions, or the relationship 
between the federal government and the States, or on the distribution 
of power and responsibilities among the various levels of government. 
As a result, the rule is not subject to review under the Order. 
Promulgation of this rule expands coverage of the applicable regulatory 
requirements pursuant to statutory direction.

Executive Order 12606, The Family

    The General Counsel, as the Designated Official under Executive 
Order 12606, The Family, has determined that this proposed rule does 
not have potential for significant impact on family formation, 
maintenance, and general well-being, and, thus, is not subject to 
review under the order. No significant change in existing HUD policies 
or programs will result from promulgation of this rule, as those 
policies and programs relate to family concerns.

Regulatory Agenda

    This rule was listed as Item 1586 in the Department's Semiannual 
Agenda of Regulations published on April 25, 1994 (59 FR 20424, 20447), 
in accordance with Executive Order 12866 and the Regulatory Flexibility 
Act.

List of Subjects in 24 CFR Part 3500

    Consumer protection, Housing, Mortgages, Real property acquisition, 
Reporting and recordkeeping requirements.

    For the reasons set out in the preamble, part 3500 of title 24 of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 3500--REAL ESTATE SETTLEMENT PROCEDURES ACT

    1. The authority citation for part 3500 would continue to read as 
follows:

    Authority: 12 U.S.C 2601 et seq.

    2. Section 3500.2, effective on August 9, 1994 (February 10, 1994 
at 59 FR 6505, 6511), is amended by adding, in alphabetical order, 
definitions for ``CLO'', ``CLO access fee'', ``CLO operator'', ``CLO 
services'', ``CLO system'', ``managerial employee'', and ``qualified 
CLO system'', and by removing the word ``and'' at the end of paragraph 
(14), redesignating paragraph (15) as paragraph (16), and adding a new 
paragraph (15) to the definition of ``settlement service'', to read as 
follows:


Sec. 3500.2  Definitions.

* * * * *
    CLO means computer loan origination.
    CLO access fee means a fee paid by a borrower to a CLO operator for 
CLO services.
    CLO operator means a provider of settlement services who operates a 
CLO system for a borrower.
    CLO services means services provided to a borrower by a CLO 
operator using a CLO system.
    CLO system means a computer system that:
    (1) Provides to prospective borrowers information regarding the 
rates and terms of federally related mortgage loans;
    (2) Collects, assembles, and transmits information concerning the 
borrower, the property, and other information on a potential mortgage 
loan for evaluation by a lender(s); and
    (3) Based on the data transmitted, responds to the borrower with 
detailed information, including, without limitation, loan terms, rates, 
and payment schedules for various loan products that would be available 
to the borrower from such lender(s).
* * * * *
    Managerial employee means an employee of a settlement service 
provider who does not routinely deal directly with the public, and who 
either hires, directs, assigns, promotes, and rewards other employees 
or is in a position to formulate, determine, or influence the policies 
of their employer. Neither the term ``managerial employee'' nor the 
term ``employee'' includes real estate agents or other independent 
contractors.
* * * * *
    Qualified CLO system means a CLO system that meets the requirements 
of Sec. 3500.14(g)(3).
* * * * *
    Settlement service * * *
    (15) Provision of CLO services; and
* * * * *
    3. Section 3500.14 is amended by revising paragraph (g)(2); by 
redesignating paragraphs (g) (3) and (4) as paragraphs (g) (5) and (6), 
respectively; and by adding new paragraphs (g) (3) and (4), to read as 
follows:


Sec. 3500.14  Prohibition against kickbacks and unearned fees.

* * * * *
    (g) * * *
    (2) Section 8 of RESPA does not prohibit normal promotional and 
educational activities that are not conditioned on the referral of 
business and that do not involve the defraying of expenses that 
otherwise would be incurred by persons in a position to refer 
settlement services or other related business.
    (3) Section 8 of RESPA does not prohibit any payment by a borrower 
for CLO services provided by a qualified CLO system that provides CLO 
services and meets the following requirements:
    (i) Multiple Products and Lenders. The qualified CLO system shall 
provide openings for 20 or more lenders offering various loan products. 
The factors for selecting the lenders to be included on a qualified CLO 
system (see paragraph (g)(3)(ii) of this section) may not be designed 
to limit or have the effect of limiting eligibility to less than 20 
lenders. When the qualified CLO system has less than 20 lenders, the 
system shall remain open to and accept additional lenders until at 
least 20 lenders participate.
    (ii) Selection Factors. To determine eligibility for inclusion in 
the system, the qualified CLO system shall utilize selection factors 
that are fair and impartial and are designed to contribute to the 
efficiency and quality of the system. These factors may include, but 
are not limited to, the date of the lender's application for 
participation on the qualified CLO system, the quality of services and 
capabilities the lender provides to consumers, the types of loan 
products offered by the lender and its pricing practices, and the 
extent to which the lender's participation will increase the variety of 
loan products offered to consumers by the system. Qualified CLO system 
owners shall have a reasonable justification for selection decisions, 
supported by documentation which they must maintain.
    (iii) Neutrality. The CLO operator of a qualified CLO system and 
the qualified CLO system shall provide borrowers with information in a 
neutral manner. No lender shall be favored or disfavored by the manner 
in which information regarding the lender or its products is utilized 
or is presented to the borrower, is used on the system, or is presented 
by the CLO operators, or by the scope of information that one lender is 
permitted to include as compared to another lender. No payments, 
disincentives, or penalties may be provided directly or indirectly to 
CLO operators of qualified CLO systems by any person, including the CLO 
operator's employer, to influence the CLO operator to favor any lender 
on the qualified CLO system.
    (iv) Disclosure Statement. The CLO operator of a qualified CLO 
system shall provide a CLO disclosure form to the borrower before CLO 
services are performed. The CLO operator shall require the borrower to 
sign on the CLO disclosure form an acknowledgment that the borrower has 
received the disclosure. An enlarged, completed copy of the CLO 
disclosure form (no smaller than 16'' by 20''), including any 
applicable fee, shall be displayed prominently within 5 feet of the CLO 
terminal. The CLO disclosure form shall:
    (A) Be in the format established in Appendix E of this part;
    (B) Specify the fee and services being provided; and
    (C) Include statements that use of the system is not required; 
space on the system is limited; the full range of products meeting the 
borrower's needs may not be listed on the system; and other lenders not 
listed on the system may offer better terms and conditions, including 
lower rates.
    (v) CLO Access Fee. The CLO operator of a qualified CLO system 
shall charge all borrowers using the qualified CLO system the same CLO 
access fee(s) for the same service or the same components of service. 
The CLO operator of a qualified CLO system shall require the borrower 
to pay any CLO access fee outside of and before the closing of any loan 
that may be obtained through use of this system. The CLO operator of a 
qualified CLO system may only waive the CLO access fee based on 
business considerations of the operator and not on any action of a 
lender. If the payment of the CLO access fee is contingent on use of a 
loan product on the qualified CLO system, the contingency shall apply 
equally to all loan products and lenders on the qualified CLO system.
    (vi) Lender Charges for Access. The CLO operator of a qualified CLO 
system may charge lenders for access to the qualified CLO system if:
    (A) Charges are set forth in a written schedule of charges;
    (B) Charges for the same services and components of services are 
the same for all lenders on the system; and
    (C) The charges are reasonably related to the costs of maintenance 
and operation of the qualified CLO system (i.e., the facilities 
furnished or the services actually performed).
    (4) Any payment by a borrower to a CLO operator for services from a 
nonqualified CLO system, and any payments by a third party settlement 
service provider to a CLO operator for access to any CLO system in 
relation to a federally related mortgage loan, will be subject to 
examination under Section 8 of the Act and this part. The disclosure 
format set forth in Appendix E of this part and Box 2 of Appendix E of 
this part shall be utilized by all CLO operators for all CLO systems 
and shall be completed before any CLO services are performed.
* * * * *
    4. Section 3500.15 is amended by revising paragraph (b)(1); by 
removing the word ``and'' at the end of paragraph (b)(3)(i)(A); by 
removing the period at the end of paragraph (b)(3)(i)(B) and replacing 
it with ``; and''; and by adding paragraph (b)(3)(i)(C), to read as 
follows:


Sec. 3500.15  Controlled business arrangements.

    (b) * * *
    (1) The person making a referral has furnished to each person whose 
business is referred a written disclosure, in the format of the 
Controlled Business Arrangement Disclosure Statement set forth in 
Appendix D of this part. This disclosure shall specify the nature of 
the relationship (explaining the ownership and financial interest) 
between the provider of settlement services (or business incident 
thereto) and the person making the referral, and shall describe the 
estimated charge or range of charges (using the same terminology, as 
far as practical, as Section L of the HUD-1 or HUD-1A settlement 
statement) generally made by the provider of settlement services. The 
disclosure must be provided on a separate piece of paper at or no 
earlier than 3 business days before each referral, or, if the lender 
requires the use of a particular provider, the time of loan 
application, except that:
* * * * *
    (3) * * *
    (i) * * *
    (C) No agent or employee may accept any payment from his or her 
principal or employer or any other source when that payment is 
correlated on a one-to-one basis or calculated as a multiple of the 
number or value of any referrals of business from his or her employer 
or principal to an affiliated entity. For example, no person shall pay 
any managerial employee or any employee or agent who is in direct 
contact with the public a bonus or other compensation correlated on a 
one-to-one basis or calculated as a multiple of the number or value of 
any referral of settlement service business by the employee or the 
employee's organizational unit to an entity affiliated with the 
employer or principal. In addition, no compensation of an employee or 
agent who is routinely in direct contact with the public may be based 
in whole or in part on the number or value of referrals that the 
employee or agent makes to affiliated entities.
    5. Appendix B to part 3500 is amended by revising Illustration 11 
to read as follows:

Appendix B to Part 3500--Illustration of Requirements of RESPA

* * * * *
    11. Facts: A, a mortgage lender, is affiliated with B, a title 
company, and C, an escrow company, and offers consumers a package of 
mortgage title and escrow services at a discount from the prices at 
which such services would be sold if purchased separately. Neither 
A, B, or C, requires consumers to purchase the services of their 
sister companies, and each company sells such services separately 
and as part of the package. A also pays its employees (i.e., loan 
officers, secretaries, etc.) a bonus for each loan, title insurance, 
or closing that A's employees generate for A, B, or C. A pays such 
employees bonuses out of its own funds and receives no bonuses or 
reimbursements for these bonuses from B or C. At or before the time 
that customers are told by A or its employees about the services 
offered by B and C and about the package of services that is 
available, the customers are provided with a controlled business 
arrangement disclosure form.
    Comments: Selling a package of settlement services at a discount 
is not prohibited by RESPA. Also, A may compensate its own employees 
for business generated for A's company, but A may not directly or 
indirectly compensate A's employees who are routinely in contact 
with consumers for business generated for B or C. Nor may B or C 
directly or indirectly compensate A or A's employees for business 
referred to B or C by A's employees. Sections 3500.15(b)(3)(i) (A) 
and (B) set forth the permissible exchanges of funds between 
controlled business entities. No employee or agent may receive 
compensation correlated on a one-to-one basis or calculated as a 
multiple of the number or value of referrals of business to an 
affiliated entity. Nothing in the RESPA rule prohibits bonuses or 
other compensation based, in part, on the generation of business by 
A to B and C being paid to managerial employees who are not 
routinely in contact with consumers.
    6. Appendix D to Part 3500 is revised to read as follows:

Appendix D to Part 3500

Controlled Business Arrangement Disclosure Statement Format Notice

To:--------------------------------------------------------------------

From:------------------------------------------------------------------
(Entity Making Statement)
Property:--------------------------------------------------------------

Date:------------------------------------------------------------------

    This is to give you notice that [referring party] has a business 
relationship with [provider receiving referral] . [Describe the 
nature of the relationship between the referring party and the 
provider, including percentage of ownership interest, if 
applicable.] Because of this relationship, this referral may provide 
[referring party] a financial or other benefit.
    Set forth below is the estimated charge or range of charges by 
[provider] for the following settlement services:
    ____________: $____________
    ____________: $____________
    ____________: $____________
    ____________: $____________
    ____________: $____________
    You are NOT required to use [provider] as a condition for 
[settlement of your loan on] [or] [purchase, sale, or refinance of] 
the subject property. YOU MAY BE ABLE TO GET THESE SERVICES OR 
BETTER SERVICES AT A LOWER RATE BY SHOPPING WITH OTHER SETTLEMENT 
SERVICE PROVIDERS, AND THIS IS SOMETHING YOU SHOULD CONSIDER 
DOING.\1\
---------------------------------------------------------------------------

    \1\Where the lender is requiring an attorney, credit reporting 
agency, or real estate appraiser to represent its interests, this 
paragraph and the corresponding acknowlegment should be omitted.
---------------------------------------------------------------------------

    A lender is allowed to require the use of an attorney, credit 
reporting agency, or real estate appraiser chosen to represent the 
lender's interest.\2\

Acknowledgment

    [I/we have read this disclosure form and understand its 
contents, as evidenced by my/our signature(s) below.]\2\
---------------------------------------------------------------------------

    \2\Use this paragraph and acknowledgment for disclosures 
involving required attorneys, credit reporting agencies, or real 
estate appraisers and omit the second acknowledgment. For all other 
disclosures, use the second acknowledgment.
---------------------------------------------------------------------------

    [I/we have read this disclosure form, and understand that 
[referring party] is referring me/us to purchase the above-described 
settlement services from [provider receiving referrals], and may 
receive income as the result of this referral.]
----------------------------------------------------------------------
(Applicant's signature)
----------------------------------------------------------------------
(Co-applicant's signature)
----------------------------------------------------------------------

----------------------------------------------------------------------

    [Specific timing rules for delivery of the controlled business 
disclosure are set forth in 24 CFR 3500.5(b)(1)(i) (Regulation X).]

    7. Appendix E to part 3500 is revised to read as follows:

Appendix E to Part 3500

CLO Fee Disclosure

To:--------------------------------------------------------------------
[Potential Borrower]
From:------------------------------------------------------------------
[Person Making Disclosure]

    NOTICE: I have available a Computer Loan Origination System 
(CLO), a computer system that can access a variety of mortgage loans 
and rates. The CLO is available to you under the following 
conditions:
    1. [  ] You are obligating yourself today to pay $________, 
outside of and before the settlement of any loan that may be 
obtained through use of this system by ________ check, ________ 
credit card, ________ cash, ________ other ______. (specify)
    2. [  ] You will not be charged a direct fee, but the lender who 
funds your loan will pay us a fee related to your loan estimated to 
be $--------------------, which will likely be recovered by the 
lender in the cost of your loan.
    3. [  ] I am providing you access to the CLO without a separate 
charge.
    USE OF THIS SYSTEM IS NOT REQUIRED. SPACE ON THE SYSTEM IS 
LIMITED, THE FULL RANGE OF PRODUCTS MEETING YOUR NEEDS MAY NOT BE 
LISTED, AND BETTER TERMS AND CONDITIONS, INCLUDING LOWER RATES, MAY 
BE AVAILABLE FROM OTHERS NOT LISTED ON THE SYSTEM.
    [INSTRUCTIONS: Include the following text, when applicable. 
Instructions in square brackets, including these instructions, 
should be omitted, as appropriate.] [(Name of operator of the 
system) has an affiliated business relationship with (name(s) of 
lender(s) on the system under which this overall organization gains 
financially if you enter into a mortgage loan with them. A further 
explanation of this business relationship is set forth in the 
controlled business arrangement disclosure form that is also being 
given to you at this time.]
    The following services will be provided:
    [  ] Displaying a variety of mortgage loans and rates that may 
be available to you.
    [  ] Counseling you regarding the different types of loans 
available and the relative rates in a fair and equitable manner.
    [  ] Relating your financial needs with available mortgage loan 
programs; and assisting you in deciding which, if any, meet your 
needs.
    [  ] Entering information regarding you into the Computer Loan 
Origination System.
    [  ] Reviewing responses to submitted information.
    [  ] Other ____________________

Acknowledgment

    I/we have read this disclosure form, and understand its 
contents, as evidenced by my/our signature(s) below.
----------------------------------------------------------------------
Applicant's signatures
----------------------------------------------------------------------
Co-Applicant's signature
----------------------------------------------------------------------
    Date: July 14, 1994.
Nicolas P. Retsinas,
Assistant Secretary for Housing-Federal Housing Commissioner.
[FR Doc. 94-17598 Filed 7-20-94; 8:45 am]
BILLING CODE 4210-27-P