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MORTGAGE ORIGINATION: THE 

IMPACT OF RECENT CHANGES ON 

HOMEOWNERS AND BUSINESSES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INSURANCE, HOUSING AND 

COMMUNITY OPPORTUNITY 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

JULY 13, 2011 

Printed for the use of the Committee on Financial Services 

Serial No. 112–47 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO ‘‘QUICO’’ CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

LARRY C. LAVENDER, Chief of Staff 

(III) 

SUBCOMMITTEE ON INSURANCE, HOUSING AND COMMUNITY OPPORTUNITY

JUDY BIGGERT, Illinois, Chairman 

ROBERT HURT, Virginia, Vice Chairman 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

PATRICK T. MCHENRY, North Carolina 

LYNN A. WESTMORELAND, Georgia 

SEAN P. DUFFY, Wisconsin 

ROBERT J. DOLD, Illinois 

STEVE STIVERS, Ohio 

LUIS V. GUTIERREZ, Illinois, Ranking 

Member 

MAXINE WATERS, California 

NYDIA M. VELA ́ ZQUEZ, New York 

EMANUEL CLEAVER, Missouri 

WM. LACY CLAY, Missouri 

MELVIN L. WATT, North Carolina 

BRAD SHERMAN, California 

MICHAEL E. CAPUANO, Massachusetts 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

July 13, 2011 ..................................................................................................... 1 

Appendix: 

July 13, 2011 ..................................................................................................... 53 

WITNESSES 

WEDNESDAY, JULY 13, 2011 

Anastasi, Anne, President, Genesis Abstract, LLC, and President, American 

Land Title Association ......................................................................................... 26 

Anderson, Mike, CRMS, Vice President & Chairman of Government Affairs, 

National Association of Mortgage Brokers ......................................................... 28 

Bowdler, Janis, Director, Wealth-Building Policy Project, National Council 

of La Raza ............................................................................................................. 34 

Braunstein, Sandra F., Director, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System ................................ 3 

Brown, Steve A., Executive Vice President, Crye-Leike REALTORS®, on behalf of the National Association of REALTORS® ............................................. 21 

Cochran, Kelly Thompson, Deputy Assistant Director, Office of Regulations, 

Consumer Financial Protection Bureau, U.S. Department of the Treasury ... 7 

Cunningham, Henry V., Jr., CMB, President, Cunningham & Company, on 

behalf of the Mortgage Bankers Association ..................................................... 23 

Kelly, Donald E., Executive Director, Real Estate Valuation Advocacy Association (REVAA), on behalf of REVAA and the Coalition to Facilitate Appraisal 

Integrity Reform ................................................................................................... 33 

Norton, Anne Balcer, Deputy Commissioner, Maryland Office of the Commissioner of Financial Regulation, on behalf of the Conference of State Bank 

Supervisors ........................................................................................................... 11 

Park, James R., Executive Director, Appraisal Subcommittee, Federal Financial Institutions Examination Council ................................................................ 8 

Payne, Teresa B., Associate Deputy Assistant Secretary, Regulatory Affairs, 

U.S. Department of Housing and Urban Development ..................................... 5 

Rheingold, Ira, Executive Director, National Association of Consumer Advocates ...................................................................................................................... 36 

Savitt, Marc, CRMS, President, the National Association of Independent 

Housing Professionals .......................................................................................... 29 

Shear, William B., Director, Financial Markets and Community Investment, 

U.S. Government Accountability Office .............................................................. 10 

Stephens, Sara W., MAI, CRE, President-elect, Appraisal Institute .................. 31 

Wilson, Tim, President, Affiliated Businesses, Long and Foster Companies, 

on behalf of the Real Estate Services Providers Council .................................. 25 

APPENDIX 

Prepared statements: 

Hurt, Hon. Robert ............................................................................................. 54 

Anastasi, Anne .................................................................................................. 55 

Anderson, Mike ................................................................................................. 65 

Bowdler, Janis .................................................................................................. 73 

Braunstein, Sandra F. ...................................................................................... 80 

Brown, Steve A. ................................................................................................ 106 

Cochran, Kelly Thompson ................................................................................ 114 

Cunningham, Henry V., Jr. ............................................................................. 118 

Kelly, Donald E. ................................................................................................ 139 

Page

VI 

Prepared statements—Continued 

Norton, Anne Balcer ......................................................................................... 147 

Park, James R. .................................................................................................. 179 

Payne, Teresa B. ............................................................................................... 192 

Rheingold, Ira ................................................................................................... 198 

Savitt, Marc ...................................................................................................... 207 

Shear, William B. ............................................................................................. 218 

Stephens, Sara W. ............................................................................................ 230 

Wilson, Tim ....................................................................................................... 247 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Biggert, Hon. Judy: 

Written responses to questions submitted to James Park ............................ 253 

Gutierrez, Hon. Luis: 

Article from American Banker entitled, ‘‘New CFPB Mortgage Disclosures 

Win Praise for Content and Process,’’ dated May 19, 2011 ....................... 262 

Anderson, Mike: 

Letter to Federal Reserve Chairman Ben Bernanke from Ranking Member Barney Frank, dated March 24, 2011 ................................................... 264 

(1) 

MORTGAGE ORIGINATION: THE 

IMPACT OF RECENT CHANGES ON 

HOMEOWNERS AND BUSINESSES 

Wednesday, July 13, 2011 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON INSURANCE, HOUSING

AND COMMUNITY OPPORTUNITY, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:15 p.m., in room 

2128, Rayburn House Office Building, Hon. Judy Biggert [chairwoman of the subcommittee] presiding. 

Members present: Representatives Biggert, Hurt, Miller of California, Duffy, Dold, Stivers; Gutierrez, Waters, Clay, Watt, and 

Sherman. 

Also present: Representative Green. 

Chairwoman BIGGERT. This hearing of the Subcommittee on Insurance, Housing and Community Opportunity will come to order. 

I thank all the witnesses for waiting. We always have these pesky 

votes in the afternoon. I am sorry to keep you waiting. We are 

going to start, even though we don’t have very many members 

here. We do have two panels and lots of witnesses, so we want to 

give you the time to speak and then to have questions. 

Without objection, all members’ opening statements will be made 

a part of the record, and I will recognize myself for 5 minutes. 

Good afternoon, and thank you for attending today’s hearing entitled, ‘‘Mortgage Origination: The Impact of Recent Changes on 

Homeowners and Businesses.’’ I would like to welcome today’s witnesses, and given that we have such a large number of witnesses, 

I will be brief. I would ask that others do the same so that members have time to ask our witnesses questions. 

Today’s hearing is about jobs, the recovery and future of the 

housing and mortgage markets, as well as consumer access to credit services and useful information. 

As we did during our first hearing of the 112th Congress, this 

subcommittee will continue to focus on regulatory barriers to the 

housing market recovery, barriers that include policies that limit 

the availability of credit, raise costs for consumers, and add uncertainty to this already fragile recovery. 

With that, I recognize the gentleman from Illinois for 5 minutes. 

Mr. DOLD. Thank you, Chairwoman Biggert. I certainly appreciate the time, and I want to thank the panelists for taking your 

time to come and join us today. 

2 

Congress has an obligation to continually review and reevaluate 

existing laws and regulations to determine if they are working, 

have they done what they were intended to do, what unintended 

negative consequences or unanticipated consequences have resulted, and have the legislative and regulatory costs exceeded the 

corresponding benefits. 

Historically, Congress has performed this continual review and 

reevaluation obligation far too infrequently, but I am pleased to see 

that the committee and this subcommittee in particular take the 

congressional obligation seriously under the leadership of Chairman Bachus and Chairwoman Biggert. That is why Chairwoman 

Biggert has called this hearing, to perform our congressional obligation to review and to reevaluate the Dodd-Frank rules and the 

corresponding regulations relating to mortgage origination. 

More specifically, we are here to evaluate the rules and the regulations relating to mortgage disclosure, home warranties, repayment ability standards, risk retention rules, loan originator compensation, and appraisal reforms. Are the Dodd-Frank provisions 

and the corresponding regulations working, are they likely to work 

or are they having or likely to have unintended negative consequences, and are their costs likely to exceed their benefits? Are 

they promoting or hindering private sector job growth, capital investment, credit availability, and overall economic growth? 

The answers to these important questions can dramatically affect 

small business, of which I am a small business employer. They can 

also affect employment, consumers and borrowers, the mortgage finance and real estate markets, and our economy as a whole. 

So, I thank Chairwoman Biggert for holding this important hearing, and I thank the witnesses for your time and for your testimony. I yield back the balance of my time. 

Chairwoman BIGGERT. Thank you, Mr. Dold. Mr. Hurt, do you 

have a statement? 

Mr. HURT. I do not. 

Chairwoman BIGGERT. Then, we will start with our first panel. 

We have a great panel: Ms. Sandra Braunstein, Director of the Division of Consumer and Community Affairs, Board of Governors of 

the Federal Reserve System; the Honorable Teresa Payne, Deputy 

Assistant Secretary, Office of Regulatory Affairs, U.S. Department 

of Housing and Urban Development; Ms. Kelly Cochran, Deputy 

Assistant Director, the Office of Regulations, Consumer Financial 

Protection Bureau (CFPB), U.S. Department of the Treasury; Mr. 

James Park, Executive Director, Appraisal Subcommittee, Federal 

Financial Institutions Examination Council; Mr. William Shear, Director, Financial Markets and Community Investment, U.S. Government Accountability Office; and Ms. Anne Norton, Maryland 

Deputy Commissioner of Financial Regulation, on behalf of the 

Conference of State Bank Supervisors. 

Welcome to you all. As you know, without objection, your written 

statements will be made a part of the record, and you will each be 

recognized for a 5-minute summary of your testimony. Then, we 

will recognize the members for 5 minutes each to ask questions in 

the same order as opening statements. 

Mr. Gutierrez, would you like to give an opening statement? 

I recognize Mr. Gutierrez for 5 minutes. 

3 

Mr. GUTIERREZ. Good afternoon, and thank you, Chairwoman 

Biggert, for holding this hearing on mortgage origination. I would 

like to welcome the witnesses here today. 

It has been almost a year since this Chamber passed the historic 

Wall Street Reform and Consumer Protection Act, or Dodd-Frank. 

These past few months have been especially critical to the implementation of many important provisions. 

For the first time in the history of the United States, and thanks 

to the passage of Dodd-Frank, an agency has been created to specifically serve and assist and, most importantly, protect American 

consumers from the unfair and abusive practices of financial services providers. The Consumer Financial Protection Bureau is a central provision in Dodd-Frank and is expected to provide a crucial 

role to protect consumers and help ensure that our country never 

finds itself on the brink of economic collapse. 

Undoubtedly, the rulemaking period for provisions in DoddFrank that deals with ameliorating our housing system and the 

transfer of authority of many of these provisions to the CFPB, 

which we will discuss today, is exceptionally important to the national recovery. 

In approximately a week, many important activities will be 

transferred to the CFPB. This agency will be responsible for overseeing the regulations that will address and reform the abusive 

and deceptive practices in our Nation’s housing industry. I would 

like to commend the CFPB for measures they have already taken 

to develop a single, more streamlined, user-friendly mortgage disclosure form and for engaging key industry representatives and 

consumer advocates in that process. 

I would like to enter into the record an article from the American 

Banker that further highlights the CFPB’s leadership and diligence 

on this issue. 

Chairwoman BIGGERT. Without objection, it is so ordered. 

Mr. GUTIERREZ. The CFPB will become a vital agency in handling many important and necessary proposals that were included 

in Dodd-Frank and which, once fully implemented, will address the 

Nation’s housing crisis and will help American homeowners during 

the most devastating economic downturn. 

I look forward to hearing the thoughts and opinions of our witnesses here today and I thank the chairwoman. 

Chairwoman BIGGERT. Thank you, Mr. Gutierrez. 

Ms. Braunstein, you are recognized for 5 minutes. 

STATEMENT OF SANDRA F. BRAUNSTEIN, DIRECTOR, DIVISION OF CONSUMER AND COMMUNITY AFFAIRS, BOARD OF 

GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Ms. BRAUNSTEIN. Thank you. 

Chairwoman Biggert, Ranking Member Gutierrez, and members 

of the subcommittee, I appreciate the opportunity to appear today 

to discuss regulatory actions taken by the Federal Reserve in the 

home mortgage markets. Our goal has been to craft clear rules that 

deter abuses and enhance consumer protections while preserving 

responsible lenders’ ability to meet the needs of all segments of the 

market. 

4 

During the past 3 years, the Board addressed the need for mortgage reform by issuing seven final rules under the Truth in Lending Act and the Home Ownership and Equity Protection Act, plus 

five additional proposed rules that will become the responsibility of 

the Consumer Financial Protection Bureau. These 12 rulemakings 

cover all stages of the mortgage lending process. 

In July 2008, the Board issued rules establishing new consumer 

protections for residential mortgages. For higher-priced loans, the 

rules strengthened underwriting requirements, restricted prepayment penalties, and required escrow accounts. Other protections 

were applied to the entire mortgage market to address issues with 

appraisals, advertising, loan servicing, and the need for earlier cost 

disclosures. 

In September 2010, the Board issued final rules prohibiting unfair practices relating to loan originator compensation. The Board 

had initially proposed a disclosure-based solution, but withdrew 

that proposal in 2008 after consumer testing showed that disclosures were ineffective. The final rules regulate the manner in 

which loan originators may be compensated, but not the amount. 

The rule also prohibits originators from steering consumers to 

loans which increase the originator’s compensation but are not in 

the consumer’s interest. The DFA also addresses these concerns, 

and after enactment the Board decided to finalize its proposed 

rules as the best way to effectuate that law’s legislative purpose 

and eliminate these unfair practices without further delay. The 

Board recognizes, however, that there are some additional requirements in the DFA which will require subsequent rulemaking by 

the Bureau. 

In 2008, the Board issued rules to strengthen the property valuation process by prohibiting coercion of appraisers. The DFA codified the anti-coercion provisions in the Board’s rules while also including a provision requiring that independent appraisers receive 

customary and reasonable compensation. The statute directed the 

Board to issue interim final rules implementing these requirements 

within 90 days, which the Board did in October 2010. 

Going forward, the Board, the other Federal banking agencies, 

the Federal Housing Finance Agency, and the Bureau will share 

responsibility for jointly issuing permanent rules on appraisal independence. 

In March 2011, the Board issued a final rule to implement a provision of the DFA that increased the annual percentage rate 

threshold used to determine whether a mortgage lender is required 

to establish an escrow account for jumbo mortgage loans. Also in 

March, the Board proposed Dodd-Frank mandated rules for escrow 

accounts that add new disclosures and expand the mandatory escrow period from 1 to 5 years. The proposal would also exempt 

creditors from the escrow requirements if they operate predominantly in rural or underserved areas and originate a limited number of loans that are held in portfolio. 

In April 2011, the Board published proposed rules under the 

DFA to strengthen mortgage underwriting. The proposal provides 

options for creditors to meet the requirement that they make a reasonable and good faith determination that the consumer will have 

5 

the ability to make the scheduled payments. The Bureau will assume responsibility for developing final rules. 

During 2009 and 2010, the Board issued three regulatory proposals to improve disclosures for closed-end mortgages, HELOCs, 

and reverse mortgages. In February, the Board announced that 

these pending disclosure rulemakings would be transferred to the 

Bureau. 

Consumer protection remains important to the Board, notwithstanding the upcoming transfer of various rule-writing authorities 

to the Bureau. During the mortgage crisis, we have witnessed the 

importance of effective consumer protection, not only in preserving 

the well-being of particular communities, but more importantly to 

the economy as a whole. The effectiveness of the regulations depends critically on strong supervision and enforcement. The Federal Reserve retains a significant responsibility in supervising financial institutions, which we will continue to take seriously. 

Thank you very much. I look forward to your questions. 

[The prepared statement of Ms. Braunstein can be found on page 

80 of the appendix.] 

Chairwoman BIGGERT. Thank you. 

Ms. Payne, you are recognized for 5 minutes. 

STATEMENT OF TERESA B. PAYNE, ASSOCIATE DEPUTY ASSISTANT SECRETARY, REGULATORY AFFAIRS, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT 

Ms. PAYNE. Thank you, Chairwoman Biggert, Ranking Member 

Gutierrez, and members of the subcommittee for this opportunity 

to testify today. 

My name is Teresa Payne, and I am the Associate Deputy Assistant Secretary for Regulatory Affairs at HUD with responsibility 

over RESPA, ILS, the SAFE Act, and manufactured housing. I 

have been working at the Department for nearly 15 years, during 

which I have spent a significant amount of time on RESPA policy 

enforcement issues. It is my pleasure to bring you up to date on 

the status of RESPA and the transition of its statutory authority 

from HUD to the CFPB. 

Let me begin by first bringing you up to date on the current status of RESPA at HUD, HUD’s work on regulating home warranties 

under RESPA, and the transition to the CFPB. 

While we have been preparing for our authority and staff to 

move over to the CFPB, we have been hard at work administering 

RESPA through policy and enforcement actions. During 2010 and 

2011, the RESPA complaint caseload in the office of RESPA has 

been extremely heavy. More than 1,500 cases were opened in the 

last 18 months. The office’s increased caseload has led to greater 

coordination with State regulators, the Department of Justice, and 

HUD’s own OIG. 

As you are aware, in November 2008, the Department issued a 

new RESPA regulation that established a standard required GSE 

form, a revised and expanded HUD-1 settlement statement, and a 

new settlement cost booklet. 

To be in compliance with RESPA and help assure fair prices for 

consumers, actual costs at closing must fall within established tolerance ranges for the first time. The new disclosures were impleVerDate Nov 24 2008 16:25 Jan 06, 2012 Jkt 067942 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\67942.TXT TERRIE
6 

mented on January 1, 2010. The RESPA office established a compliance guidance regiment to educate all interested stakeholders. 

This included speaking to over 175 organizations, periodically publishing on its Web site, the RESPA Roundup, which is a newsletter 

to address relevant compliance questions, and issuing on its Web 

site over 300 frequently asked questions and answers. 

In order to reach out directly to better inform consumers, the 

RESPA office also produced and released three consumer education 

videos: Shopping for Your Home; Shopping for a Loan; and Closing 

the Deal. 

Although it hasn’t been long since the completion of the 2010 implementation year, some tangible results are being seen. Prospective borrowers are receiving more accurate GSE, and costs at closing are being held within tolerance ranges. 

Several interpretive rules and policy pieces have been published 

during the last 18 months. I would like to highlight just a few. 

Home warranties have been expressly covered as a settlement service under HUD’s regulations since 1992. In June 2010, HUD issued 

an interpretive rule regarding compensation arrangements for real 

estate agents in connection with the sale of home warranties. This 

rule clarified circumstances under which a real estate agent may 

be compensated for the sale of home warranties under RESPA. Although not required, HUD also invited public comment on the clarity and scope of the rule. Based on the comments received, the Department published additional clarifying guidance. 

Additionally, you have asked HUD to review and comment on the 

recently proposed legislation entitled the RESPA Home Warranty 

Clarification Act of 2011. While the Administration has not taken 

a formal position on the bill, HUD has preliminary concerns that 

the proposed legislation could limit consumer protection in the context of home warranties and lead to higher closing costs for consumers through referral fees. HUD recommends that prior to enacting legislation, a study be conducted by appropriate regulatory 

agencies about the sale of home warranties, representations made 

by real estate professionals to consumers about what the home 

warranty covers, and the underlying terms of the contract. 

While we are preparing for our impending transfer to the CFPB, 

we continue to work diligently on enforcement. This week, we announced a settlement with Fidelity National Financial for $4.5 million for RESPA violations. Just this morning, we announced a settlement with Prospect Mortgage in the amount of $3.1 million for 

creating sham affiliated businesses through limited liability companies. 

I would like to turn now to the question of the transfer of 

RESPA-related functions and personnel to the CFPB. Please note 

that I am still an employee of HUD and will not be an employee 

of the CFPB until July 31st. Therefore, I am not authorized to 

speak on behalf of the CFPB. 

As you know, next week the statutory authority for RESPA will 

formally transfer from HUD to the CFPB, and 37 HUD employees 

are currently slated to become CFPB employees by July 31st. HUD 

has been working diligently with the CFPB to make the transition 

of documents, IT systems, and personnel as smooth and seamless 

as possible. 

7 

Thank you again for this opportunity to appear before you today, 

and I look forward to answering any questions you may have. 

[The prepared statement of Ms. Payne can be found on page 192 

of the appendix.] 

Chairwoman BIGGERT. Thank you, Ms. Payne. 

Ms. Cochran, you are recognized for 5 minutes. 

STATEMENT OF KELLY THOMPSON COCHRAN, DEPUTY ASSISTANT DIRECTOR, OFFICE OF REGULATIONS, CONSUMER 

FINANCIAL PROTECTION BUREAU, U.S. DEPARTMENT OF 

THE TREASURY 

Ms. COCHRAN. Thank you. Thank you, Chairwoman Biggert, 

Ranking Member Gutierrez, and members of the subcommittee for 

inviting me to testify today about the work of the Consumer Financial Protection Bureau. On behalf of the CFPB, I appreciate this 

opportunity to update you about our work on simplifying mortgage 

disclosures. 

Last year, the Dodd-Frank Act both created the Bureau and directed the Bureau to develop integrated disclosure forms that 

would satisfy the requirements of both the Truth in Lending Act 

and the Real Estate Settlement Procedures Act. Merging these two 

disclosure regimes has been the focus of legislative and regulatory 

activity since 1996, and the Dodd-Frank Act directs the Bureau to 

propose integrated reforms and related regulations by July 21, 

2012. At the Bureau, we have made this project one of our top priorities and we have conducted extensive outreach to industry, consumer advocacy groups, and other stakeholders to get a clear picture of issues regarding the current forms. 

I was pleased to participate in May in a bipartisan CFPB briefing with staff of this committee, and we appreciate the opportunity 

to update you today on our work on this important undertaking. 

The Dodd-Frank Act sets two purposes for the integrated disclosures. The first is to aid consumer understanding by using readily 

understandable language, and the second is to facilitate compliance 

with TILA and RESPA. Our goal here is shorter, clearer forms, the 

kind that on the one hand, make it easier for consumers to understand key loan terms and to compare offers to find a loan that best 

meets their needs, and on the other hand, reduce unwarranted regulatory burdens for lenders and other industry participants. 

We started work on the disclosure project with a roundtable at 

the Treasury Department last fall that brought together industry 

and consumer advocates to discuss ways to simplify the disclosures. 

In the months since, we have reviewed research, we have conducted extensive additional outreach, and we have begun the process of design and analysis. Our outreach has included meetings 

with all sectors of industry, with document service providers and 

other technology support companies, consumer advocacy groups 

and housing counselors, Federal and State regulators, and academic researchers. 

In May, we released two prototypes for the combined mortgage 

disclosures that must be provided 3 days after application. We tested the two drafts through one-on-one interviews with consumers, 

lenders, and brokers. In addition, we posted the prototypes on our 

Web site to gather broad-based public input through an interactive 

8 

Web tool. More than 13,000 users responded to this process with 

written feedback to the initiative, which we are calling the ‘‘Know 

Before You Owe Project.’’ Based on the results of the initial testing 

and the public feedback, we revised the draft disclosures and released a second round of prototypes in late June. We have now 

completed testing on the second round and received related feedback from nearly 4,000 users via our Web site. 

To our knowledge, we are the first Federal financial services 

agency is to seek such broad-based public input this early in the 

design process before proposing a rule for a consumer disclosure. 

This is a learning process for us and for the participants, and we 

are very encouraged by the response to date. We believe this process can be particularly useful in identifying potential implementation issues that may arise for different kinds of financial service 

providers and in helping us to address those issues as we move 

along in the design process. 

Looking ahead, we expect to conduct several additional rounds of 

revision and testing into the fall. We will accelerate work on the 

underlying regulations and on developing integrated closing stage 

disclosures. We also expect to convene a panel to consult with 

small businesses regarding potential impacts prior to composing a 

rule and to consult with prudential regulators and other appropriate agencies. 

In conclusion, Chairwoman Biggert, Ranking Member Gutierrez, 

and members of the subcommittee, thank you again for inviting me 

to testify today about our work on this project. We know that no 

one initiative can solve all issues regarding mortgage originations, 

but we remain convinced that simple, streamlined disclosures are 

a critical piece that can both provide more value to consumers and 

reduce burden to lenders. 

We welcome the opportunity to discuss our efforts and further 

update you on our progress and we welcome any questions. Thank 

you. 

[The prepared statement of Ms. Cochran can be found on page 

114 of the appendix.] 

Chairwoman BIGGERT. Thank you. 

Mr. Park, you are recognized for 5 minutes. 

STATEMENT OF JAMES R. PARK, EXECUTIVE DIRECTOR, APPRAISAL SUBCOMMITTEE, FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL 

Mr. PARK. Good afternoon. Thank you, Chairwoman Biggert, 

Ranking Member Gutierrez, and members of the subcommittee. 

The Appraisal Subcommittee appreciates the opportunity to provide information about its mission and current activities on behalf 

of the Chairman of the Federal Financial Institutions Examination 

Council. My testimony today does not necessarily represent the 

views of the Council or the Appraisal Subcommittee. Today, I will 

give you a brief history of the Appraisal Subcommittee, commonly 

known as the ASC, and describe its primary responsibilities. 

Congress passed Title XI of the Financial Institutions Reform Recovery and Enforcement Act to address identified weaknesses regarding real property appraisals. This law created the ASC as an 

9 

entity within the Council. In general, the ASC operates independently of the Council. 

The law created a regulatory framework that involves the following private, State, and Federal entities: The Appraisal Foundation, a private nonprofit, is the parent organization for the Appraisal Standards Board and Appraiser Qualifications Board. These 

Boards respectively issue the uniform standards of professional appraisal practice and the real property appraiser qualification criteria. 

The State programs regulate appraisers in the 50 States, the 

District of Columbia, and 5 territories. The Federal financial institutions regulatory agencies are responsible for prescribing appropriate standards for the performance of appraisals, and the ASC 

provides Federal monitoring support and oversight to both the private and State entities. 

The ASC Board is made up of seven members designated by each 

of the Federal financial institutions’ regulatory agencies, the Department of Housing and Urban Development, and pursuant to 

Dodd-Frank, the Federal Housing Finance Agency, and the Consumer Financial Protection Bureau. 

The primary responsibilities of the ASC include monitoring the 

State programs and maintaining a national registry of appraisers. 

Users of the national registry can easily determine whether an appraiser is eligible to perform appraisals for federally-related transactions and view their disciplinary histories. The ASC also monitors and reviews the Appraisal Foundation and provides grants to 

the foundation to defray costs relating to the activities of the Appraisal Standards Board and the Appraisal Qualifications Board. 

Dodd-Frank expanded the ASC’s mission and authority. Actions 

already taken pursuant to Dodd-Frank include: increasing the national registry fee from $25 to $40 effective January 1, 2012; adding the Federal Housing Finance Agency to the ASC; and determining that a national appraisal complaint hotline does not exist. 

The ASC is currently studying various options for the establishment of such a hotline. 

Dodd-Frank also required the adoption of several other reforms, 

for example, regulation of appraisal management companies. In 

general, appraisal management companies provide regional and national third party valuation services. The ASC will monitor State 

registration and supervision of appraisal management companies 

and maintain a national registry once regulations setting minimum 

requirements are promulgated as required by Dodd-Frank. The 

ASC 2010 annual report gives a more detailed overview of this and 

other Dodd-Frank amendments to Title XI. 

State programs are assessed every 2 years through an onsite 

compliance review process. Last year marked the second full year 

the ASC conducted State compliance reviews under a revised process and with positive results. The ASC may take action against a 

State in the case of noncompliance which historically was limited 

to an order of non-recognition. Such an order would severely affect 

mortgage lending in the State. 

The regulatory reforms developed by Chairwoman Biggert and 

former Congressman Kanjorski that eventually became part of 

Dodd-Frank provide the ASC with additional tools that can assist 

10 

the agency’s oversight of the appraisal process, thereby leading to 

improvement in appraisal credibility and consumer confidence in 

appraisals. The ASC is dedicated to carrying out its new and existing Title XI mandates transparently and efficiently. 

In conclusion, I again appreciate the opportunity to appear before 

the subcommittee and look forward to addressing your questions. 

[The prepared statement of Mr. Park can be found on page 179 

of the appendix.] 

Chairwoman BIGGERT. Thank you, Mr. Park. 

Mr. Shear, you are recognized for 5 minutes. 

STATEMENT OF WILLIAM B. SHEAR, DIRECTOR, FINANCIAL 

MARKETS AND COMMUNITY INVESTMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. SHEAR. Chairwoman Biggert, Ranking Member Gutierrez, 

and members of the subcommittee, I am pleased to be here today 

to discuss our work on residential real estate valuations which encompass appraisals and other value estimation methods. My statement summarizes the report on residential appraisals we are releasing today which responds to a mandate in the Dodd-Frank Act. 

Among other things, the report discusses: first, the use of different valuation methods and their advantages and disadvantages; 

and second, conflicts of interest in appraisal selection policies and 

views on the impacts of these policies on industry stakeholders and 

appraisal quality. 

In summary, we found that appraisals are the most commonly 

used valuation method for first lien residential mortgage originations. While data on different appraisal approaches are limited, we 

found that the sales comparison approach is required by Fannie 

Mae, Freddie Mac, and FHA and is reportedly used in nearly all 

appraisals. We also found that the cost approach, in which an estimate of value uses data on land value and what it would cost to 

replace or reproduce a residence, is often used in conjunction with 

the sales comparison approach. 

With respect to the second topic that I just raised on conflict of 

interest policies, including the Home Valuation Code of Conduct, 

these policies have changed appraisers’ selection processes in the 

appraisal industry more broadly. Specifically, the policies have led 

to increased use of appraisal management companies, which are 

also called AMCs. Federal regulators and the Enterprises said they 

held lenders responsible for ensuring that AMC’s policies and practices meet their requirements for appraiser selection, appraisal review, and reviewer qualifications, but that they generally do not directly examine AMC’s operations. The Dodd-Frank Act places its 

supervision of AMCs with State appraiser licensing boards and requires the Federal banking regulators, the Federal Housing Finance Agency, and the Bureau of Consumer Financial Protection to 

establish minimum standards for States to apply in registering 

AMCs. 

Setting minimum standards that address key functions AMCs 

perform on behalf of lenders would enhance oversight of appraisal 

services and provide greater assurance to lenders, the Enterprises, 

and others of the credibility and quality of the appraisals provided 

by AMCs. Therefore, we recommend that these regulators consider 

11 

addressing several key areas, including criteria for selecting appraisers, as part of their joint rulemaking under the Act to set minimum standards for States to apply in registering AMCs. 

Chairwoman Biggert and Ranking Member Gutierrez, this concludes my prepared statement. I would be happy to answer any 

questions. 

[The prepared statement of Mr. Shear can be found on page 218 

of the appendix.] 

Chairwoman BIGGERT. Thank you, Mr. Shears. 

Ms. Norton, you are recognized for 5 minutes. 

STATEMENT OF ANNE BALCER NORTON, DEPUTY COMMISSIONER, MARYLAND OFFICE OF THE COMMISSIONER OF FINANCIAL REGULATION, ON BEHALF OF THE CONFERENCE 

OF STATE BANK SUPERVISORS 

Ms. NORTON. Thank you. Good afternoon, Chairwoman Biggert, 

Ranking Member Gutierrez, and distinguished members of the subcommittee. My name is Anne Balcer Norton, and I serve as the 

Deputy Commissioner of the Office of Financial Regulation for the 

State of Maryland. It is my pleasure to testify before you today on 

behalf of the Conference of State Bank Supervisors. I would also 

like to recognize Maryland’s Secretary of Labor, Licensing and Regulation, Alex Sanchez, who is here with me today. 

I thank you for holding this hearing on issues affecting residential mortgage origination. State regulators play a central role in 

overseeing mortgage origination markets, and we appreciate the 

opportunity to be part of this important discussion. 

My statement today will touch briefly on changes and improvements to State mortgage regulation. The policy and regulatory response to the financial crisis remains a work in progress, involving 

Congress as well as State and Federal regulators. State mortgage 

regulators have been focused on improving and enhancing mortgage regulation to better protect the consumer and to strengthen 

the mortgage market itself. Key to these goals is ensuring that the 

industry is diverse and supports a variety of business models. 

The Nationwide Mortgage Licensing System and Registry, or the 

NMLS, was conceptualized and created by State regulators to unify 

State mortgage supervision in a single framework. NMLS provides 

the foundation for coordinated, consistent, and comprehensive supervision of the mortgage industry. 

At its launch, NMLS was a voluntary State initiative. Subsequently Congress, through the leadership of Chairman Bachus, embraced and codified NMLS into Federal law through the SAFE Act, 

creating an integrated and comprehensive State-Federal approach 

to mortgage supervision. 

State regulators have moved aggressively to implement the many 

provisions of the SAFE Act, which include providing free consumer 

access to licensing information and creating a mortgage call report. 

Just 3 years after the passage of the SAFE Act, nearly every single 

residential mortgage loan originated in this Nation will be performed by a loan originator who is either State licensed or federally 

registered through NMLS. 

NMLS and the SAFE Act are key parts of a larger effort aimed 

at creating a framework for seamless and comprehensive mortgage 

12 

origination, but this framework still relies on regulators to supervise the industry effectively. 

In 2008, CSBS and AARMR established the Multi-State Mortgage Committee, or the MMC, to serve as the coordinating body for 

examination and enforcement supervision of multi-State mortgage 

entities by State mortgage regulators. Innovative examination techniques and sophisticated software utilized by the MMC have radically improved supervision of the residential mortgage industry 

and have uncovered fraudulent behavior in some mortgage companies. As a result of these examinations, State regulators have been 

forced to take enforcement actions when fraud is found, which in 

some cases has resulted in revocation of licensure. Just last month, 

the MMC coordinated a multi-State settlement with the Mortgage 

Access Corporation after an examination found numerous compliance and internal control deficiencies. 

With regard to the climate in the mortgage industry and the 

other areas that we supervise, State regulators see a great deal of 

anxiety that reflects fears about the effect of the Dodd-Frank Act 

and other regulatory actions deemed necessary to address identified weaknesses in the financial system. 

For instance, the Federal Reserve’s loan originator compensation 

restrictions have presented challenges in terms of implementation. 

State regulators support the prohibition of payments to mortgage 

brokers or loan officers based on a loan’s interest rate or payment 

features, but are struggling to provide field examiners with clear 

guidance on how to evaluate industry compliance. Official guidance 

from either the Federal Reserve or the CFPB is needed to provide 

directions to regulators and clarity for the industry. 

As in other areas of financial services, State financial regulators 

remain concerned about policies that encourage or accelerate industry consolidation. The challenge for policymakers and the regulators who implement these policies is to create a regulatory framework that ensures industry professionalism and accountability. We 

must also ensure there are no unnecessary regulatory inefficiencies 

and burdens for State regulators. Policies and approaches that encourage regulatory collaboration and coordination and that support 

regulatory innovation have been vital to striking this balance. 

Thank you for the opportunity to testify before you today. I look 

forward to answering any questions that you have. 

[The prepared statement of Ms. Norton can be found on page 147 

of the appendix.] 

Chairwoman BIGGERT. Thank you, Ms. Norton. 

We will now move to questions, and each member will have the 

opportunity to ask questions for 5 minutes, and I will recognize 

myself for 5 minutes. I would address this to Ms. Payne. 

Looking at the underlying law, and I have looked at that several 

times, but nowhere do I see reference to modest referral payments 

on homeowner warranties as one of the objectionable practices that 

Congress sought to outlaw in 1982. Would you agree that Congress 

did not explicitly cover homeowner warranties in the text of 

RESPA? 

Ms. PAYNE. Thank you for the opportunity to comment on that 

question. 

13 

From HUD’s perspective, the statutory language prohibits referral fees amongst settlement service providers and the statutory 

language also identifies several types of settlement service providers, and it is not an exhaustive list, as was determined in 1992 

when HUD’s regulations determined that it did cover home warranty companies. 

Chairwoman BIGGERT. While I appreciate your suggestion in 

your written testimony that Congress should first study the issue, 

I will ask if HUD studied this issue first before issuing its rule and 

guidance? 

Ms. PAYNE. Thank you for that question. The guidance in 1992, 

was that your question? 

Chairwoman BIGGERT. 1982 and 1992. 

Ms. PAYNE. I don’t know off the top of my head the regulatory 

history behind what was studied prior to enacting, but I will be 

happy to go back and do some research and get back to you on that 

question. 

Chairwoman BIGGERT. Okay. It seems that for over 20 years, 

HUD has allowed home warranties to be sold through real estate 

agents and brokers under RESPA, and yet the new interpretation 

by HUD in recent years has cited this practice as a RESPA violation and created an incentive for litigation. 

Could you explain HUD’s rationale for prohibiting the home warranty sales through the real estate agents and brokers? 

Ms. PAYNE. Yes. Thank you for that question. 

HUD’s interpretation was simply a clarification of its long-standing opinion on this. 

Chairwoman BIGGERT. Has there been any evidence that consumers have been harmed? 

Ms. PAYNE. The harm to consumers on the underlying policy 

would be beyond the scope of RESPA as RESPA reads today on the 

underlying warranty. However, I can tell you that, just to go back 

to your previous question if I may, HUD did simply reiterate 

HUD’s long-standing policy that a real estate broker or agent must 

perform actual, necessary, and distinct services from their primary 

services for which there are not duplicative fees. And the rationale 

in HUD’s longstanding interpretation has been that referral fees 

tend to unnecessarily increase closing costs for consumers because 

those costs are ultimately borne by the consumer. 

Chairwoman BIGGERT. Even though it was done for 20 years. 

Thanks. 

Now, I will turn to Ms. Braunstein. The appraisers independence 

provision of the Dodd-Frank Act, section 1472, requires lenders to 

compensate fee appraisers at a rate that is ‘‘customary and reasonable’’ and the Fed has issued related rules. Should the government 

be in the fee setting business? 

Ms. BRAUNSTEIN. Actually, in determining what is customary 

and reasonable, we precisely did not set fees. We talked about a 

process by which someone could arrive at a fee that would be considered customary and reasonable, but we did not publish fee 

schedules or set specific prices. Part of the reason for that is that 

it would be very difficult to do that, given all the factors that need 

to be taken into account in determining the fee. 

14 

Chairwoman BIGGERT. Do you think this provision in DoddFrank should be repealed, or do you think it is a good provision? 

How are people going to know what is reasonable and customary? 

Ms. BRAUNSTEIN. What we tried to lay out was a means by which 

you could arrive at those conclusions by looking at the scope of the 

work, the qualifications of the appraiser, and what the customary 

rates are in the geography where it is taking place. There are 

methods to do that. There also was an alternative provided that 

was in the statute whereby companies could rely on surveys that 

are done in local markets. So, there are a number of ways to determine that. 

Chairwoman BIGGERT. Okay. Thank you. My time has expired. 

Mr. Gutierrez, you are recognized for 5 minutes. 

Mr. GUTIERREZ. Thank you so much. First, I would like to ask 

Ms. Braunstein, could you just tell us three significant consumer 

protection actions that have been taken in the last 3 years, the 3 

most significant ones that come to your mind? 

Ms. BRAUNSTEIN. By the Federal Reserve, you mean? 

Mr. GUTIERREZ. Yes, by the Federal Reserve under your leadership. 

Ms. BRAUNSTEIN. Yes. I think enacting the HOEPA rules over 

high-cost mortgages and putting those protections in place was significant. I also think putting the prohibitions on loan originator 

compensation was significant. It is hard to say. I think some of the 

things that are being done in requiring ability to repay throughout 

the entire market, which is somewhat a codification of what we did 

in HOEPA, but for a larger population of loans, I think that is also 

quite significant. 

Mr. GUTIERREZ. That is, you have to take into consideration the 

ability to repay? 

Ms. BRAUNSTEIN. The ability to repay the loan, yes. 

Mr. GUTIERREZ. Because many loans were— 

Ms. BRAUNSTEIN. They were made without taking those considerations—frankly, without doing good underwriting. 

Mr. GUTIERREZ. Good underwriting, like— 

Ms. BRAUNSTEIN. Income. 

Mr. GUTIERREZ. It is 5 percent today, 7 percent next year, maybe 

11 or 12 percent in years and you can’t make the payment. It looks 

good the first year, but maybe the second, the third and the fourth 

you can’t make the payment. Those are cases you probably see, not 

exactly in those. 

Ms. BRAUNSTEIN. You are talking about teaser rates. 

Mr. GUTIERREZ. Without any relationship to my income or possible income into the future. 

Ms. BRAUNSTEIN. Correct. 

Mr. GUTIERREZ. I think those are significant. How long did it 

take to put—when did you first begin to put the HOEPA rules in 

place? 

Ms. BRAUNSTEIN. We held hearings in 2007 and we released the 

final rules in 2008. 

Mr. GUTIERREZ. In 2008. And were there practices that have 

been—have you outlawed practices that have been longstanding 

practices? 

15 

Ms. BRAUNSTEIN. Yes. We addressed problems that we identified 

in the mortgage market, some of which I would say were more 

longstanding than others, some of which came about as a result of 

the subprime boom in the market and were specifically identified. 

Mr. GUTIERREZ. Some might be more recent rules necessary 

given the new generation of products. 

Ms. BRAUNSTEIN. Right. We looked at the markets at that time, 

the products that existed, where there were problems. 

Mr. GUTIERREZ. But if something were going on for 10, 15, or 20 

years, you wouldn’t say it has been going on for 10, 15, or 20 years, 

so we shouldn’t take a look at it. 

Ms. BRAUNSTEIN. If it is causing a problem in the marketplace, 

and in particular it is causing a problem and concern for consumer 

protection, we should address it regardless of how long it has been 

going on. 

Mr. GUTIERREZ. Excuse my ignorance, but I have enjoyed having 

you testify before us for so many years. Are you staying at the Federal Reserve? 

Ms. BRAUNSTEIN. Yes, I am. 

Mr. GUTIERREZ. Ms. Payne, you are going over to the new Consumer Protection Agency? 

Ms. PAYNE. Yes, sir. 

Mr. GUTIERREZ. And when do you start there? 

Ms. PAYNE. July 31st. 

Mr. GUTIERREZ. July 31st. Who are you going to report to when 

you get there? 

Ms. PAYNE. I am going to be reporting to the enforcement office 

under Mr. Richard Cordray. 

Mr. GUTIERREZ. And does he have a boss? 

Ms. PAYNE. I assume so. Maybe an acting boss. 

Mr. GUTIERREZ. An acting boss. Do you think you might be reporting to someone who will be reporting to an acting person? 

Ms. PAYNE. I am not sure what the structure will be. I am not 

that familiar at this point, and I can’t speak on behalf of the CFPB. 

Mr. GUTIERREZ. You can’t speak on their behalf. Right. I still 

have time. Thank you. We get along so well, we chat sometimes up 

here just by ourselves. 

I am looking forward to you going over there, and— 

Ms. PAYNE. Thank you. 

Mr. GUTIERREZ. —putting that agency together. Because I think 

one of the things fundamental to a democracy is if a majority of 

legislators in the House and a majority of legislators in the Senate 

get together, go to conference, a public conference, the kind of public conference I haven’t seen since I have been here in 18 years; 

that is, we spent days and nights in public and we came up with 

a product and that product has certain people in charge of certain 

agencies and directors in charge, I just find it a little undemocratic 

to then one year later say, forget all that process, unless, of course 

you go through a process that undoes all of that. Right? 

So I kind of just want to use these moments to say that I hope 

that there won’t be those who will use undemocratic approaches, 

approaches that aren’t transparent and clear, to thwart a majority 

that has been elected by the American people and signed by the 

16 

President of the United States, so that you might have real supervisory personnel when you get there, just like you have at HUD. 

Thank you so much for your testimony today. 

Chairwoman BIGGERT. Thank you. 

Mr. Hurt, you are recognized for 5 minutes. 

Mr. HURT. Thank you, Madam Chairwoman. Thank you all for 

appearing before us today. I had a question for Ms. Braunstein and 

maybe sort of a follow-up with Ms. Cochran. 

On April 1st, the Fed issued a final rule governing loan originator compensation, and there have been some complaints about 

the vagueness of that final rule. I was wondering, does the Federal 

Reserve Board intend to issue formal guidance, and if so, why, and 

if not, why not? 

Ms. BRAUNSTEIN. When the Federal Reserve Board issued the 

rules last year in 2010, we did issue guidance in the form of an official staff commentary on that rule. Since then, we have also answered numerous questions and inquiries about that rule. We have 

provided a lot of guidance to industry. And in fact, we held a 

webinar just a few months ago where we had over 19,000 people 

listening in on that. And when people have asked us for clarifications, we have provided those clarifications. 

Mr. HURT. But that is not the same as formal guidance, is it? 

Ms. BRAUNSTEIN. In terms of formal guidance, the official staff 

commentary is formal guidance. 

Mr. HURT. This is to Ms. Cochran. Ms. Cochran, do you know 

whether or not the CFPB intends to review this final rule because 

of the jurisdiction that you all will be given over consumer financial 

products and services? 

Ms. COCHRAN. Under Title XIV of the Dodd-Frank Act, there is 

one additional issue with regard to loan originator compensation in 

situations where consumers have paid up-front discount fees. We 

know we need to go back and look at that issue because it is not 

addressed in the current rule. So, at a minimum, we will have that 

process and expect a notice and comment rulemaking. 

Mr. HURT. And when will that transition take place? 

Ms. COCHRAN. We are still planning out our process for the coming months. The regulation is due under the statute by January 

2013, but we don’t have a specific target date yet on the proposal. 

We are still planning that. 

Mr. HURT. Ms. Payne, for you, I recently read a survey that was 

prepared relating to the RESPA reform that suggested that 56 percent of the buyers said they did no comparison shopping among 

lenders at a time when HUD’s focus on consumer shopping seemed 

to be at the top of the list. Additionally, 49 percent of the buyers 

said that good faith estimate disclosure was too complicated, a 

waste of time, or they weren’t sure. 

I was wondering if you could comment on the suggestion that 

perhaps this RESPA reform is not headed in the direction that you 

all obviously would like it to be? 

Ms. PAYNE. Thank you for that question. I can take it in a few 

parts. 

We spent the better part of a year working on educating and 

bringing everybody into compliance. The way I looked at the new 

RESPA rule, I would describe it that it really changed the culture 

17 

around the GSE forms and the settlement forms. So, we spent a 

lot of time internally working on education and implementation. 

Mr. HURT. You mean culture within the agency? 

Ms. PAYNE. Culture within the marketplace. 

Mr. HURT. Or among consumers? 

Ms. PAYNE. Among the consumers and the industry preparing 

the forms. 

Your point about little or not enough comparison shopping by 

consumers, we also—as I said in my opening comments, I don’t 

know if you were here—produced three consumer education videos 

to try to get consumers aware of the new culture and to help them 

shop. The three videos were ‘‘Shopping For Your Home’’— 

Mr. HURT. I heard you say that. 

Ms. PAYNE. —‘‘Shopping For Your Loan’’ and ‘‘Closing the Deal.’’ 

Mr. HURT. Who is watching them? How do you get them out 

there? On your Web site? 

Ms. PAYNE. On our Web site. They are on HUD’s YouTube channel. 

Mr. HURT. You are hopeful that the videos will encourage a new 

culture among consumers to comparison shop? 

Ms. PAYNE. We tried to get the word out through the National 

Association of REALTORS® to actually get them to show the videos to consumers when they come in there to try to purchase a 

home. 

And as far as the GSEs, your comment about being too complicated, I think the RESPA rule has taken a good first step to 

change this culture. As you know, in a week we pass that baton 

to the CFPB and they have already started their process to further 

the RESPA–TILA reform efforts. 

Mr. HURT. Thank you. 

Chairwoman BIGGERT. The gentleman from Ohio, Mr. Stivers, is 

recognized. 

Mr. STIVERS. Thank you, Madam Chairwoman. I appreciate everybody being here today and appreciate your time and all of your 

testimony. 

I wanted to sort of talk about the QRM a little bit. What is going 

to be the role of the QRM with regard to, will it change the market 

share or the role of FHA versus the GSEs? Does anybody have a 

thought regarding that? 

No one? Okay. 

Does anybody have concerns about the ability-to-repay provision 

contained in Dodd-Frank and how it has been interpreted in the 

Qualified Residential Mortgage debate? 

Ms. NORTON. Sir, I can jump in, particularly back to your original question relating to the FHA and GSE loans. What we are seeing on the State level, and particularly with the mortgage lenders 

that we supervise, that is the majority of their market and those 

are loans that are exempt under the new rules. So there is still, 

as I said in my testimony, a lot of uncertainty about how these are 

going to play out in practice. 

The position of State bank regulators is that the QRM should be 

the best product on the market, but not the only product on the 

market. We agree with the rule’s threshold and think it is necessary to have high standards. It is not the only product, but we 

18 

also believe there needs to be a certain degree of flexibility, so as 

we start to see the market improve and additional products and 

participants in the market, that there is flexibility to adjust, to revisit, and to ensure that it is not stifling growth. 

Mr. STIVERS. Great. With that in mind, Ms. Norton, do you have 

any concern that the definition of the Qualified Residential Mortgage is so tight that it is going to cause some problems in the marketplace? 

Ms. NORTON. I think that is a good question. From our licensees, 

we hear concerns. Frequently, we are on the ground, and we hear 

quite a bit of feedback. But, again, from our perspective, it is still 

unknown. I think that is the unfortunate reason for my giving you 

what is probably not the best answer in that we don’t know. And 

we see the market as concentrated right now with FHA and Fannie 

products, which are exempt, and our prediction is that this is not 

going to be the only product on the market, which we have tried 

to reassure our licensees. However, again, we don’t know, which is 

why we hope to continue to work with our partners at the Federal 

level when we need to revisit any rules, not limited to this, to ensure that there is flexibility and it does not stifle growth. 

Mr. STIVERS. Thank you. 

Ms. Payne, with regard to your role at HUD, do you see significant barriers to private capital reentering the mortgage lending 

and secondary markets, and if so, do you have any thoughts about 

how we can make it a more hospitable environment for private capital? 

Ms. PAYNE. Thank you for that question. That is really beyond 

the scope of my authority at HUD and my office, but I would be 

happy to take that question back and try to get you an answer. 

Mr. STIVERS. Okay. What has HUD done to look at the impact 

of the policies that have been undertaken as part of some of the 

rules and the changes in Dodd-Frank and what they mean to existing homeowners and future homeowners? Have you looked at those 

two groups of people and what the new regulations mean to them? 

Ms. PAYNE. From HUD’s perspective, we have really been focusing on implementing the new RESPA rule most recently, and the 

SAFE rule, which just became finalized, that final rule, and then 

also now in transitioning everything to the CFPB, so I do not think 

we have gone in depth into analyzing that. 

Mr. STIVERS. Thank you. I yield back. 

Chairwoman BIGGERT. Thank you. We are happy to be joined 

again by the gentleman from Texas, Mr. Green. You are recognized 

for 5 minutes. 

Mr. GREEN. Thank you, Madam Chairwoman, and I thank the 

ranking member as well. I am honored to have the opportunity to 

sit. I am not a part of the subcommittee, but thank you for allowing me to be an interloper. 

Chairwoman BIGGERT. Yes, but you have the best attendance 

record. 

Mr. GREEN. Thank you. With reference to the QRM, I talk quite 

a bit to constituents, many of whom are REALTORS®, and they 

talk quite a bit to people who purchase property. It all makes sense 

so far. They tell me that many of the consumers are concerned 

about 20 percent, that 20 percent is a bit much. I absolutely believe 

19 

that zero is a bit too little for a QRM. The question becomes, is 

there someplace between 0 and 20 percent that is more appropriate? I understand that we have the 5 percent retention that is 

going to apply to these other products. Who would like to give me 

some intelligence on this in terms of how you are proceeding? 

Thank you very much. It is very difficult for me to see names 

across, and I am confident I could look at the list, but if you would, 

please, ma’am? 

Ms. BRAUNSTEIN. The Federal Reserve was involved with drafting the QRM rules. The first thing I would say is that the QRM 

is out for comment. We are getting a lot of comment on this proposal, and intentionally extended the comment period so that we 

could hear all the views before we move forward to produce final 

rules. In terms of your question about the criteria that are used, 

one thing to remember is that the QRM was intended to be a very 

narrow slice of the market, and that most housing loans would be 

outside the QRM, and that there would still be a robust market 

outside of the QRM. 

Mr. GREEN. So far—and obviously we are not far enough along 

to have enough empirical evidence to give us a great assessment, 

but are you finding thus far that we are having these other products come to fruition? I am not hearing a lot about them, and I do 

not follow it as closely as you do, but what about the other products? 

Ms. BRAUNSTEIN. At this point in time, as we all know, the housing markets are depressed, so there is not a lot of activity there, 

but I think envisioning a marketplace that recovers and is more robust, we would envision the QRM as being a narrower slice of that 

marketplace. 

Mr. GREEN. Is it possible that a QRM, as presently constructed— 

and by the way, I supported Dodd-Frank, and I am really—this is 

a search for truth about this that I am engaged in. I do not want 

it to appear to be a quick-sided quest. Do you think that this, at 

this moment in time, may need some adjustment because we understand the importance of the role of the housing market in our 

recovery? 

Ms. BRAUNSTEIN. The rules have not taken effect. They are just 

proposed, and that is why we have the comment period, because we 

want to get the comments and make some determinations. 

Mr. GREEN. Exactly. So the possibility still looms that it may be 

less than 20 percent? 

Ms. BRAUNSTEIN. I have no idea what the final rules will show. 

We will look at the comments and then see. But the other thing 

to remember, obviously, is that we just came through a very difficult period where housing was a big problem and that one of the 

things this was intended to address is that people were saying 

there was not enough skin in the game. 

Mr. GREEN. I understand. Because my time is limited, let me ask 

one additional question on this, and I may get in another. 

With reference to the rule itself, when do you anticipate getting 

the final rule? 

Ms. BRAUNSTEIN. I have no idea on that. It is an interagency 

process. We extended the comment period until August, and we 

20 

have, I think, thousands of comments, so we will have to see after 

that. 

Mr. GREEN. Let me quickly ask this question: On the 21st of 

July, rulemaking authority for RESPA will be transferred over to 

the CFPB. At that point, how will persons desiring to tweak certain 

rules have to go about it? I do not want you to give me all of the 

details, but do they then come before the CFPB or is HUD completely out of the picture? How does that work at that point? 

Ms. COCHRAN. With regard to the rulemaking authority, that is 

correct, that on the 21st it transfers to the CFPB, and so if someone was interested in petitioning for a rulemaking, they would address the petition to the Bureau at that time. 

Mr. GREEN. So, these questions concerning home warranties 

would then fall under the auspices of the CFPB on the 21st? 

Ms. COCHRAN. That is correct. 

Mr. GREEN. Thank you, Madam Chairwoman, for the time. 

Chairwoman BIGGERT. Thank you, Mr. Green. I have just two 

questions, and then if there are no other questions, we can move 

to the next panel, since it is quite large. 

Mr. Park, Congress established a funding mechanism and directed the Appraisal Foundation to do two things, standards and 

qualifications. Appraisal practices seemed to be outside of this 

area. Where do you see the role of the new Appraisal Practices 

Board fitting into the two mandates given by Congress? 

Mr. PARK. The Appraisal Subcommittee is charged with overseeing the appraisal, with monitoring the Appraisal Foundation, 

and reviewing the Appraisal Foundation, particularly with respect 

to the Appraisal Standards Board and the Appraiser Qualifications 

Board. The subcommittee also provides a Federal grant to the foundation to carry out the activities of the standards board and the 

qualifications board. The practices board is not something that 

was—it is not part of Title XI, the foundation has done that of their 

own volition. We do monitor the practices board as part of our role, 

but that is the limit of it. 

Chairwoman BIGGERT. Can the Appraisal Subcommittee direct 

the Appraisal Foundation to take certain actions then? 

Mr. PARK. No. The Appraisal Foundation is a private organization, and the subcommittee has no authority to direct the Appraisal 

Foundation. 

Chairwoman BIGGERT. So it is just monitoring and reviewing? 

Mr. PARK. Yes, ma’am. 

Chairwoman BIGGERT. Okay. What role did the Appraisal Subcommittee play in the creation of the Appraisal Practice Board? 

Mr. PARK. The Appraisal Subcommittee played no role in the creation of the practices board. 

Chairwoman BIGGERT. Okay. Thank you. And then Mr. Shear, is 

appraisal oversight sufficient as it is established now? 

Mr. SHEAR. That is a question I cannot answer at this time, but 

one thing that I would like to mention is we have an ongoing audit 

that is mandated by Dodd-Frank. The due date on that is in January of 2012. We have interacted a lot with Jim Park and others associated with the Appraisal Subcommittee, and we are addressing 

many of the issues that are in Dodd-Frank, including funding type 

21 

questions. So we are looking into it, and we will continue to interact with committee staff on it. 

Chairwoman BIGGERT. Great, thank you. I would like to thank 

this panel so much for being here, and we appreciate all your testimony. 

The Chair notes that some members may have additional questions for this panel which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit written questions to these witnesses and to 

place their responses in the record. 

Thank you so much. 

If the panel will take their seats so that we can begin the second 

panel. I am glad to see that all the witnesses fit—almost. Thank 

you all. 

With that, I will introduce the second panel: Mr. Steve Brown, 

executive vice president of Crye-Leike, on behalf of the National 

Association of REALTORS®; Mr. Henry Cunningham, CMB, president, Cunningham & Company, on behalf of the Mortgage Bankers 

Association; Mr. Tim Wilson, president, Affiliated Businesses, Long 

& Foster Companies, on behalf of the Real Estate Services Providers Council; Ms. Anne Anastasi, president of Genesis Abstract 

and president, American Land Title Association; Mr. Mike Anderson, president, Essential Mortgage, on behalf of the National Association of Mortgage Brokers; Mr. Marc Savitt, president, The Mortgage Center, on behalf of the National Association of Independent 

Housing Professionals; Ms. Sara Stephens, president-elect, Appraisal Institute; Mr. Don Kelly, executive director, Real Estate 

Valuation Advocacy Association, on behalf of REVAA and the Coalition to Facilitate Appraisal Integrity Reform; Ms. Janis Bowdler, 

director of the Wealth-Building Policy Project, Office of Research, 

Advocacy, and Legislation, on behalf of the National Council of La 

Raza; and Mr. Ira Rheingold, executive director, National Association of Consumer Advocates. 

With that, let me just say that without objection, your written 

statements will be made a part of the record, and you will each be 

recognized for a 5-minute summary of your testimony. We will 

start with Mr. Brown. You are recognized for 5 minutes. 

STATEMENT OF STEVE A. BROWN, EXECUTIVE VICE PRESIDENT, CRYE-LEIKE REALTORS®, ON BEHALF OF THE NATIONAL ASSOCIATION OF REALTORS® 

Mr. BROWN. Madam Chairwoman, Ranking Member Gutierrez, 

and members of the subcommittee, I am Steve Brown, executive 

vice president and a 37-year practitioner in the real estate business 

based in Memphis, Tennessee. I thank you for the opportunity to 

testify on behalf of the 1.1 million members of the National Association of REALTORS® (NAR). 

Crye-Leike is the Nation’s sixth largest brokerage company, with 

a network of more than 3,600 licensed sales associates, 600 staff 

members, and over 130 offices located throughout Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, Oklahoma, and Tennessee. In my testimony today, I would like to cover several issues 

affecting housing and the mortgage origination process. 

22 

A major issue facing real estate firms, home warranty companies, 

and consumers is the treatment of home warranties under the Real 

Estate Settlement Procedures Act, or RESPA. RESPA was enacted 

to prevent kickbacks for referrals among settlement service providers. Settlement service is defined as a service required to originate a federally-related mortgage. Traditional settlement service 

providers include lenders, real estate agents and brokers, title 

agents and companies, appraisers, and attorneys. 

A home warranty is a contract issued to cover any needed future 

repairs for a list of specific appliances or systems spelled out in a 

warranty contract. Home warranties are a purely optional insurance product regulated by State law. Today, many times they 

aren’t even purchased by buyers. Rather, sellers offer them as a 

way to facilitate a sale or they are sold after closing. Since many 

warranty companies do not employ a sales force, real estate firms 

and agents have been the industry’s traditional means of making 

consumers aware of the product. For their processing, marketing, 

administrative, and after-sale problem-solving services, the real estate professional receives a modest stipend. 

Despite the fact that a home warranty is not a required service 

to obtain a mortgage or buy a home, HUD long ago included home 

warranties in the list of settlement services subject to RESPA. This 

was not problematic since compensation to agents and brokers was 

considered appropriate under RESPA’s long-standing exception 

that says a person can be paid for services actually performed. 

That changed when HUD issued a letter in 2008 that said the sale 

of warranties by real estate agents was essentially a per se violation of RESPA. 

Since 2008, NAR has worked with HUD to obtain clarification 

and reverse this incorrect opinion. In 2010, HUD finally issued additional guidance. Unfortunately, that guidance has been even 

more problematic and has led to even more crippling class action 

lawsuits that are hurting the industry. Perhaps even more unfortunately, the guidance will likely make warranties more expensive 

and less easily available to consumers. 

For these and other reasons, NAR urges the subcommittee to 

pass H.R. 2446, introduced by Representatives Biggert and Clay, to 

clarify that home warranties are not subject to RESPA while still 

providing for appropriate consumer disclosure. 

Another area of concern is a problem that arises as a result of 

the definition of points and fees contained in the Qualified Mortgage provision of Dodd-Frank. The definition is complicated, but 

the effect is that mortgage companies with affiliates, such as the 

real estate firm’s title company, in the transaction, must count affiliate charges toward a 3 percent cap on fees and points. A mortgage company without affiliates does not have to do so. As a result, 

many affiliated companies will not be able to offer a full array of 

services to their clients because in doing so they would violate the 

3 percent cap. 

The House addressed this issue in its version of the Dodd-Frank 

bill with an amendment by Representative Clay, which was removed during conference. Congress should rectify the 3 percent cap 

issue at its earliest opportunity so consumers can fully benefit from 

greater competition between affiliated and unaffiliated lenders. 

23 

Finally, I would also like to reiterate the importance of the FHA 

program to the Nation’s real estate recovery. With credit already 

tight, FHA plays a vital role in providing affordable, well underwritten mortgage credit to American families. FHA’s book of business since 2009 is performing extremely well. Pending changes to 

the FHA loan limit formula will result in significant declines in the 

current loan limits in 669 counties in 42 States. In my firm’s market, FHA is used by more than 60 percent of our buyers. These declines will have a dramatic impact on liquidity in our markets and 

across the country. With housing markets struggling to recover, the 

last thing we need to do is put an avoidable stumbling block in the 

path of a much-needed housing recovery. I know it has been said 

before, but I believe it bears repeating: without a housing recovery, 

the Nation’s economy as a whole will struggle to recover its balance. 

I strongly urge the subcommittee to approve H.R. 1754, the Preserving Equal Access to Mortgage Finance Programs Act. This bill, 

introduced by Representatives Gary Miller and Brad Sherman, will 

make the current limits through FHA permanent and ensure that 

families across the country have ongoing access to affordable mortgages. 

NAR opposed risky lending in 2004 when it approved the policy 

that called for strong mortgage underwriting. We now feel the pendulum has swung too far and fewer otherwise qualified people are 

able to get a loan. Congress and the Administration need to reexamine the impact of well-meaning laws and regulations that have 

come out of the financial mortgage crisis to ensure the still fragile 

housing and economic recovery stay on track. 

I thank you for your attention. 

[The prepared statement of Mr. Brown can be found on page 106 

of the appendix.] 

Chairwoman BIGGERT. Thank you so much. 

Mr. Cunningham, you are recognized for 5 minutes. 

STATEMENT OF HENRY V. CUNNINGHAM, JR., CMB, PRESIDENT, CUNNINGHAM & COMPANY, ON BEHALF OF THE 

MORTGAGE BANKERS ASSOCIATION 

Mr. CUNNINGHAM. Thank you, Chairwoman Biggert, Ranking 

Member Gutierrez, and members of the subcommittee. My testimony today on behalf of the Mortgage Bankers Association comes 

at a time of great change in our industry. The recent economic crisis has led many lenders to alter their practices and return to a 

more traditional way of originating mortgages. As an independent 

mortgage banker operating in North Carolina, I can tell you firsthand that these changes are having a profound effect on our industry, consumers’ access to credit, and our overall economy. 

Back in April, I testified before the Capital Markets Subcommittee on the proposed risk retention rule. That rule and the 

Qualified Residential Mortgage definition continue to be MBA’s top 

focus. Simply put, the rule proposed by the regulators would make 

credit more expensive and less available, especially for minority, 

low- to moderate-income, and first-time home buyers with little impact on reducing defaults. It is a rule that needs to be pulled back 

and resubmitted. 

24 

There is a parallel regulatory effort that I fear could be just as 

harmful to consumers and lenders. The Federal Reserve has proposed new rules implementing Dodd-Frank’s ability to repay provisions. These rules would prohibit lenders from making mortgages 

unless they make a reasonable determination that the consumer 

has the ability to repay the loan. Dodd-Frank allows lenders to 

meet this requirement by originating a Qualified Mortgage, or QM. 

Our concern is the rule offers a rebuttable presumption as an alternative to a true safe harbor. In order for the QM to work, lenders need an ironclad safe harbor, with brightline standards that 

can be easily proven. If the standard is uncertain, lenders will act 

more conservatively. If, however, there is a strong safe harbor, borrowers will enjoy greater access to credit and lower cost. 

MBA believes the QM and QRM need to be harmonized. Both 

were designed by Congress to achieve the same purpose of achieving better, more sustainable lending. Regulators should strive to 

achieve definitions that are essentially the same. Because the 

QRM, as proposed, would exclude too many borrowers from the 

most affordable loans, MBA believes the QM proposal is a much 

better starting point for both sets of rules. 

Another issue of importance is the ongoing implementation of the 

SAFE Act. This is a well-intended law but has placed considerable 

stress on States regulating lenders who operate in multiple States 

or who would like to hire registered loan originators working for 

federally-regulated lenders. Both problems could be resolved if the 

States adopted transitional licensing so that out-of-State or federally-registered originators could work for a period of time as they 

qualify for State licensing. Furthermore, we strongly oppose States 

covering servicers under the definition of loan originators. This is 

something Congress never intended. 

We also call your attention to the difficulties we have had with 

the recent loan officer compensation restrictions from the Federal 

Reserve. The rule was finalized with too little guidance and has led 

to great confusion. We urge the CFPB, which will take over TILA 

responsibility, to review this rule and listen closely to the concerns 

of the industry before it moves to implement similar provisions 

under Dodd-Frank. 

Finally, MBA is grateful to see RESPA and TILA finally come 

under one roof. We hope the CFPB also draws on the expertise of 

the housing industry as it merges these two disclosures. Lenders 

work with consumers every day and have extensive experience conveying information to consumers in the most useful manner. 

Madam Chairwoman, I am concerned that this wave of regulation, while well intended, will further tighten credit and smother 

a fragile housing recovery. Cunningham & Company is not a big 

lender. We did not cause the housing crisis. Last year, we originated $440 million in mortgages, 97 percent of which were fixedrate mortgages and prime fixed-rate mortgages. We have been in 

the business for 21 years and employ 88 people. We are certainly 

not too-big-to-fail, but sometimes I feel we may be too-small-to-comply. 

I would urge this panel to continue providing strong oversight 

and act where necessary to ensure these new rules are being implemented in a manner that allows consumers to continue to enjoy the 

25 

benefits of competition that smaller, independent firms like 

Cunningham & Company provide. 

Thank you for the opportunity to testify today. I look forward to 

your questions. 

[The prepared statement of Mr. Cunningham can be found on 

page 118 of the appendix.] 

Chairwoman BIGGERT. Thank you very much. 

Mr. Wilson, you are recognized for 5 minutes. 

STATEMENT OF TIM WILSON, PRESIDENT, AFFILIATED BUSINESSES, LONG AND FOSTER COMPANIES, ON BEHALF OF 

THE REAL ESTATE SERVICES PROVIDERS COUNCIL, INC. 

Mr. WILSON. Good afternoon, Chairwoman Biggert, and members 

of the subcommittee. My name is Tim Wilson, and I am president 

of the Affiliated Businesses for Long & Foster Companies and 2011 

chairman of the Real Estate Services Providers Council, known as 

RESPRO®. Long & Foster Companies is the third largest residential real estate brokerage firm in the Nation, with 13,000 real estate associates operating out of 185 offices in the 8-State Mid-Atlantic region. 

We offer a full array of mortgage, title, and insurance services 

through affiliated business arrangements that are regulated at the 

Federal level under RESPA. 

Today, I am representing RESPRO®, a national nonprofit trade 

association of almost 200 residential real estate brokerage, mortgage, home building, title, and other companies that offer one-stop 

shopping for home buyers through affiliated businesses. Firms like 

Long & Foster use our affiliated companies to help assure that our 

real estate customers close on time and move into their new homes 

as scheduled. Because we own or partially own other companies 

needed to close the home purchase transaction, we can resolve any 

service issues more efficiently than independent companies could. 

Our affiliated businesses also help us reduce the cost of the entire 

mortgage transaction through shared facilities, management, technology, equipment, and marketing expenditures. 

Long & Foster is not alone in offering one-stop shopping through 

affiliated businesses. According to the independent real estate research firm REAL Trends, the Nation’s 500 largest residential real 

estate brokerage firms closed over 150,000 mortgage loans and conducted over 350,000 title closings through affiliated companies in 

2010. 

My testimony today will focus on how the Dodd-Frank ability to 

repay and risk retention standards discriminate against affiliated 

businesses in a way that will reduce competition and increase 

mortgage credit costs in many marketplaces throughout the country. 

As you know, Dodd-Frank provided a rebuttable presumption 

that Qualified Mortgages, or QMs, comply with its ability to repay 

standards. It created a similar category of Qualified Residential 

Mortgages, or QRMs, under its risk retention standards. DoddFrank specified that a mortgage cannot be a QM if the total points 

and fees paid by the consumer in the transaction exceed 3 percent 

of the loan amount and that a QRM cannot be defined more broadly than a QM. 

26 

The problem for affiliated businesses is that Congress used a 

1994 HOEPA points and fees definition that counts fees paid to a 

mortgage lender’s affiliated company towards the 3 percent threshold, but not fees paid to an unaffiliated company. As a result, loans 

in which a mortgage lender’s affiliated title company is used would 

more likely exceed the 3 percent threshold, which means that they 

would not qualify as QMs under the ability to repay test or as 

QRMs under the risk retention standards. 

Since the consequences of not being a QM or QRM are severe, 

companies with affiliated mortgage and title businesses, like Long 

& Foster, would need to discontinue offering either mortgage or 

title services in conjunction with those loans in which a 3 percent 

threshold would be exceeded. Competition in many marketplaces in 

the country would decrease because of the withdrawal of affiliated 

businesses. This ultimately would increase the cost of mortgage 

credit for consumers. Because 3 percent is more easy to reach on 

smaller loans, the impact would be most predominant in low-income or lower- to middle-income marketplaces. 

There is absolutely no reason to discriminate against affiliated 

mortgage lenders in this manner. The affiliated mortgage companies of Long & Foster and other RESPRO® members use underwriting standards that meet Dodd-Frank requirements and have 

equivalent or even lower default rates when compared to the rest 

of the industry. Economic studies over the years have shown that 

affiliated title businesses are competitive in cost, and consumer 

surveys show consistently that consumers who use the real estate 

brokerage firm’s affiliated businesses have a more satisfactory 

home buying experience. 

RESPRO® believes that Congress can prevent this negative impact on competition and mortgage credit costs by creating a narrow 

exemption for affiliated title fees from the 3 points and fees threshold. For reasons identified in my written statement, we believe this 

narrow exemption would correct the problem without being inconsistent with the goals of Dodd-Frank. 

Thank you for the opportunity to testify, and I look forward to 

your questions. 

[The prepared statement of Mr. Wilson can be found on page 247 

of the appendix.] 

Chairwoman BIGGERT. Thank you, Mr. Wilson. 

Ms. Anastasi, you are recognized for 5 minutes. 

STATEMENT OF ANNE ANASTASI, PRESIDENT, GENESIS ABSTRACT, LLC, AND PRESIDENT, AMERICAN LAND TITLE ASSOCIATION 

Ms. ANASTASI. Madam Chairwoman, Ranking Member Gutierrez, 

and members of the subcommittee, I am Anne Anastasi, president 

of Genesis Abstract in Hatboro, Pennsylvania. For the past 33 

years, I have worked as a land title professional, and I am the current president of the American Land Title Association (ALTA). 

ALTA members serve as independent third-party facilitators who 

conduct real estate and mortgage closings. We interact with consumers every day at the closing table where we are responsible for 

two major functions: first, we ensure that the transaction is completed quickly, honestly, and in accordance with all of the parties’ 

27 

instructions; and second, we serve as the last resource for consumers if they have questions about the fees that they are paying 

or the documents they are signing at closing. These closings can 

often feel daunting because most consumers only experience a closing a few times in their lives. Because of our special view into the 

consumer’s experience, ALTA supports improvement to the mortgage process, and our members can be especially useful to policymakers as they consider how best to accomplish this task. 

As we seek to improve the mortgage origination process, we need 

to fundamentally rethink a key part of the architecture of the current process: the Federal mortgage disclosure laws. These laws are 

designed to help consumers shop for a mortgage and settlement 

services by reducing confusion and providing the consumer with 

timely information about their transaction. However, our experience with consumers at the settlement table reveals that a significant amount of confusion still exists. As efforts are undertaken to 

revise and combine the mortgage disclosures required under 

RESPA and TILA, we offer the following three recommendations to 

improve the process. 

First, improve the disclosures transparency by itemizing all 

costs, not just some. ALTA members routinely see the confusion 

caused by the current practice of itemizing some fees while combining other fees into categories or roll-ups. In addition, the greater 

transparency provided by full itemization increases information to 

help consumers shop for settlement services among competing providers, promoting competition and reducing excessive fees. 

Second, make disclosures flexible enough to be applicable in all 

parts of the country. While real estate closings and practices vary 

greatly from State to State, the 2010 RESPA regulation created a 

regime that forces transactions into a one-size-fits-all disclosure. In 

many parts of the country, a number of fees that must be listed on 

the borrower’s GFE are actually paid by the seller. Despite this, 

the latest RESPA regulation includes strict rules that require that 

these fees be irrationally disclosed as the borrower’s responsibility. 

While appropriate credits are given on other lines of the new proposed combined disclosure, this unnecessary confusion must be explained to consumers by the lender and the closing agent. 

One example of this paradox is the owners’ title insurance policy. 

In many parts of the country, owners’ title insurance is paid for by 

the seller. However, the lender and closing agent must disclose this 

charge as a borrower’s cost. Not only does this create confusion, but 

the consumer starts to question the integrity of the transaction 

when we have to sit at the closing table and say, we are showing 

this fee on your side of the ledger. Do not worry about it. We will 

give you a credit on some other page. 

Our last recommendation is that if the purpose of the Federal 

mortgage disclosure is to protect consumers, then every effort 

should be made to ensure that the disclosure helps consumers 

make educated choices. At a minimum, these disclosures should not 

prejudice consumers against protecting themselves. The current 

draft of the initial disclosure form includes the term ‘‘not required’’ 

when they describe settlement services that are not for the lender’s 

benefit. 

28 

One example is owner’s title insurance which, if it is purchased, 

indemnifies consumers against challenges to the title to their property. If a consumer chooses not to purchase this coverage, their financial interests are not protected, even though the lender is protected by a loan title insurance policy. Disclosure forms should 

avoid prejudicial phrases like ‘‘not required’’ that could imply that 

a particular service is of less value to the consumers. We know, as 

a result of the robo-signing and the foreclosure crisis, that the purchasing of an owner’s title insurance policy is a prudent decision. 

We encourage the CFPB to find alternative terms when describing these types of services such as ‘‘additional protections’’ or ‘‘recommended.’’ How can we say we want to protect consumers when 

an unfortunate choice of words could lead to a misinformed and 

dangerous decision with unintended consequences? 

ALTA is eager to serve as a resource, and we welcome your questions. Thank you very much. 

[The prepared statement of Ms. Anastasi can be found on page 

55 of the appendix.] 

Chairwoman BIGGERT. Thank you so much. 

Mr. Anderson, you are recognized for 5 minutes. 

STATEMENT OF MIKE ANDERSON, CRMS, VICE PRESIDENT & 

CHAIRMAN OF GOVERNMENT AFFAIRS, NATIONAL ASSOCIATION OF MORTGAGE BROKERS 

Mr. ANDERSON. Good afternoon, Chairwoman Biggert, Ranking 

Member Gutierrez, and members of this committee. And thank you 

for inviting me to testify today. 

For decades, this country has encouraged homeownership because we believe it is the bedrock of building strong communities. 

However, we find ourselves at a tipping point relative to homeownership. In this down economy, we are no longer encouraging people 

to climb that ladder. In fact, we are making it increasingly more 

difficult at every single turn. We are destroying the ladder of homeownership. 

First-time home buyers will find it virtually impossible to purchase a home in most markets if a 20 percent downpayment rule 

is required. This will mean that the current homeowners looking 

to move up will find it more difficult to sell their home because of 

the shrinking pool of eligible home buyers. As a result, home values will continue to decline. 

Since 2007, our industry has been overwhelmed by literally thousands of pages of legislation, regulation, and disclosures aimed at 

helping the consumer better understand the mortgage process. 

However, here we are today, 4 years later, and the outlook for our 

housing recovery is dismal at best. While homes are more affordable now, new regulations, extremely tight underwriting, high unemployment, and low consumer confidence are preventing would-be 

home buyers from entering the market. 

The recent rule regarding loan originator compensation has created the most unlevel playing field I have seen in my 30 years in 

the business. It is so flawed and biased against the small businesses that we have little chance of competing with the large 

banks, thereby reducing consumer choice and competition in local 

29 

communities. I receive emails every single day from small businesses closing their doors because of this rule. 

I want to give you just a few examples. After I quote a consumer 

a mortgage rate and fees, I cannot lower my price to compete 

against the bank next door. You heard that right. I cannot lower 

my price to compete with the bank next door under any circumstances. Honestly speaking, you have to admit that this is just 

not right. If the consumer pays a broker commission, I cannot pay 

my loan officer who worked with that consumer a commission for 

that transaction. 

Lastly, at the closing table, many consumers find themselves 

short a few hundred dollars with circumstances beyond their control. I cannot reduce my profit to help the consumer whatsoever. 

We all know in this room that this is wrong. And I would like to 

say, you will miss us when we are gone. We are urging Congress 

and the CFPB to amend LO comp. 

Before I conclude, I also want to touch briefly on the subject of 

the QRM. I have with me a chart prepared by the Federal Reserve 

Bank that illustrates foreclosures by loan type from 1998 through 

2007. Looking at the data outlined in the chart, it is clear what 

caused the mortgage crisis. It was bad loan products. 

So what should we conclude from this? In short, if it is not broken, please do not try to keep fixing it. Fixed mortgages were not 

the culprits in the mortgage crisis. We need to slow down and consider the unintended consequences of this rule. 

When the FDA discovers that a prescription drug is causing 

harmful side effects to consumers, it exercises its authority to pull 

the drug off the shelves. The agency does not seek to overhaul the 

way doctors prescribe all medication or how pharmacists fill those 

prescriptions. So we need to take the same approach. 

I want to thank you for letting me testify today, and if there are 

any questions, I will be happy to answer them. 

[The prepared statement of Mr. Anderson can be found on page 

65 of the appendix.] 

Chairwoman BIGGERT. Thank you so much, Mr. Anderson. 

Mr. Savitt, you are recognized for 5 minutes. 

STATEMENT OF MARC SAVITT, CRMS, PRESIDENT, THE NATIONAL ASSOCIATION OF INDEPENDENT HOUSING PROFESSIONALS 

Mr. SAVITT. Good afternoon, Chairwoman Biggert, Ranking 

Member Gutierrez, and members of the committee. I am Marc 

Savitt, president of the National Association of Independent Housing Professionals (NAIHP). Thank you for inviting NAIHP to testify 

on these important issues which are critical to the restoration of 

our housing market and the overall economic health of our country. 

NAIHP represents small business housing professionals in all 50 

States and the District of Columbia. Our members are Main Street 

USA who assist consumers through the difficult maze of purchasing or refinancing residential real estate. For the past 4 years, 

two Administrations and Congress have sought a solution to reenergize the housing industry. Despite the most affordable home 

prices and lowest interest rates in a generation, tax credits and 

30 

other incentives, our Nation’s housing market continues to underperform. 

Like so many of the housing professionals I represent, I am a 

small business owner. In today’s market, I not only struggle to attract new business, I am also severely overburdened with an onslaught of punishing rules and regulations that are destroying 

small business, killing jobs, and harming consumers. Worst of all, 

there does not seem to be an end in sight. 

Let me give you an example. Under the SAFE Act—which we 

supported, by the way—I was required to go through an extensive 

background investigation: fingerprinting; credit check; two written 

examinations, both the State and Federal; 20 hours of 

preeducation; and the purchase of a surety bond. However, despite 

having met these strict qualifications, I cannot be trusted to order 

a residential real estate appraisal. 

To remind the committee, it was not mortgage brokers or originators who were the subject of former New York Attorney General 

Cuomo’s investigation. It was the federally-chartered banks. Moreover, these same banks now enjoy additional profits from their joint 

venture relationships with unregulated appraisal management 

companies and have complete control over the valuation system in 

this country. Regulators and consumers justify excluding brokers 

from the appraisal process because they claim having a financial 

interest in the transaction is a conflict of interest. If this were really about conflicts of interest, then banks, who have already been 

implicated in appraiser coercion, would not be allowed to have joint 

venture relationships with the appraisal management companies 

and share profits. This is about market share. 

The bank and AMC joint ventures have also led to the assassination of the appraisal industry. Under these guidelines, license appraisers have two choices: work for the AMCs for fees between 40 

and 60 percent less than what is customary and reasonable in their 

geographic area; or go out of business. Many thousands of appraisers have gone out of business across the country. These guidelines 

have increased the costs for consumers by an estimated $2.8 billion 

a year. Is there a consumer benefit? Absolutely not. Since May 1, 

2009, the day these guidelines were implemented, valuation fraud 

has increased over 50 percent. These guidelines have also contributed to the continuing decline in property values. 

With your permission, Mrs. Biggert, I would like to take the remainder of my time to address some comments that were made by 

Ms. Braunstein from the Federal Reserve Board. 

Chairwoman BIGGERT. Without objection, it is so ordered. 

Mr. SAVITT. Thank you. She made some comments, first of all, 

saying they had a webinar on March the 17th, which they did, to 

try to explain and clarify what was involved with the loan officer 

compensation rule. It is our understanding that there were approximately 10,000 people on that call. A few days before that call, 

they came out with the slides, they issued the slides that they were 

using in their presentation, and every one of those slides had a disclaimer on it which basically said, ‘‘Do not hold us to this.’’ So, 

there really was not much of a clarification. She mentioned a compliance guide. The compliance guide, which they submitted after 

they received a letter from the SBA’s Office of Advocacy because 

31 

they had not submitted one at first, they finally did submit one 

which amounted to a 4-page cut-and-paste out of their rule. 

They have steadfastly refused to answer questions in writing. 

They will tell you anything you want to know verbally. They will 

not answer any questions in writing, which puts all of us in this 

industry in a position to be sued because we do not know what 

they want us to do. We have asked numerous times, and sometimes 

even verbally, we get different answers. 

The SBA’s Office of Advocacy also still has a problem, even 

though they did turn in that 4-page cut-and-paste, they still have 

a problem with that. They wanted a proper compliance guide because in the Fed’s rule itself, it said there would be a significant 

economic impact on small entities, but the Fed, of course, never addressed that. 

The last thing is, as you may know, NAIHP and NAMB filed suit 

against the Federal Reserve Board over this compensation rule, 

and in the answer to our lawsuit, the Federal Reserve Board acknowledged that there was no difference because, as you know, this 

was over the unfair and deceptive practice of what they were claiming Yield Spread Premiums or YSPs were, that they did acknowledge that there was no difference between broker YSP and what 

they called lender YSP or creditor YSP. 

Thank you. 

[The prepared statement of Mr. Savitt can be found on page 207 

of the appendix.] 

Chairwoman BIGGERT. Thank you. 

Ms. Stephens, you are recognized for 5 minutes. 

STATEMENT OF SARA W. STEPHENS, MAI, CRE, PRESIDENTELECT, APPRAISAL INSTITUTE 

Ms. STEPHENS. I would like to thank the chairwoman, the ranking member, and the members of the subcommittee for the opportunity to be with you today. 

Professional real estate appraisers are analysts of local markets. 

Their research and opinions help protect the safety and the soundness of our banking system and provide a tool that defends mortgage lenders. Today, many lenders enabled by government policies 

continue down a treacherous path toward the commoditization of 

appraisals, promoting collateral validation over collateral valuation. This puts banks, home buyers, and taxpayers at risk. Unfortunately, for many years, appraisal has been viewed as an impediment to closing deals. Like other risk management functions, appraisal has been marginalized with many financial institutions as 

evidenced by recent investigative reports which tell how loan production rules and financial institutions lack a risk chromosome. 

New policies intended to correct past regulatory failures have concentrated power over appraisal decisions in the hands of a few. Coercion of appraisers has taken on new forms, where some are proposing to dictate the outcome of appraisals by actually legislating 

how to conduct an appraisal. All of these actions serve to effectively 

tie the hands of appraisers. Strangely, real estate agents have reported that consumers are paying higher appraisal fees, yet fees actually paid to appraisers have declined, in some cases by more than 

40 percent. 

32 

How can this be? Simply put, lenders have added administrative 

expenses onto the backs of the consumers through the appraisal 

line on the HUD–1 form. Further, many lenders have chosen to 

outsource the appraisal management function to third-party management companies who pass only a fraction to the appraiser actually performing the appraisal service. Current policy leaves consumers completely in the dark. Here, we need transparency between appraisal and appraisal management fees, especially since it 

is the consumer who pays these fees in nearly all transactions. 

Given the diversity of real estate, appraisals cannot and should 

not be developed like a cookbook with a set of recipes that dictate 

how an appraisal is to be developed. The Appraisal Institute’s 80 

years of experience have taught us that a credible appraisal process does not lend itself to a step-by-step, by-the-numbers, how-to 

guidebook. Instead, what is required is that the practitioner is sufficiently trained to understand the process as appropriate to the 

specific assignment. 

For many appraisal problems, there is more than one solution. 

Take the valuation of green properties, our appraisals in declining 

markets. These are complex issues that require some flexibility of 

approach. Rules of thumb do not work. Credibility requires rigorous 

research and analysis, as for every rule there may be an exception. 

It also requires expertise by those using an appraisal or establishing processes around it. 

To this point, Federal agency policies have resulted in caps on 

appraisal fees and propped up a business model of third-party middlemen. Unfortunately, the Federal Reserve’s interim final rule is 

not faithful to congressional intent. The Appraisal Institute thinks 

Congress’ intent was right on target. We urge Congress to guide 

the regulators’ aim, directing them to correct the interim final rule 

to promote credibility over speed and cost. 

We must also look at the process under which appraisal policies 

are overseen and implemented. Congress directed and funded the 

Appraisal Foundation to perform two functions: developing uniform 

appraisal standards; and establishing minimal appraisal qualifications. Without direction from Congress, the foundation has created 

a new board with no clear purpose or boundaries. Congress authorized the Appraisal Subcommittee, the Federal oversight agency of 

our profession, to monitor and review the activities and structure 

of the Appraisal Foundation, but not to direct or overrule its activities and structure. The Appraisal Subcommittee may have exceeded its congressional authorization with respect to the creation of 

the new board. 

Such potential regulatory overreach is a huge concern. At a minimum, the recent actions of the Appraisal Subcommittee and the 

Appraisal Foundation should be examined by Congress, and we 

urge this committee to bring clarity and accountability to the relationship between the Appraisal Subcommittee and the Appraisal 

Foundation where it does not exist today. 

In conclusion, last year Congress passed the most significant legislative update of the appraisal regulatory structure in 2 decades. 

In our view, this was only a beginning. Moving forward, Congress 

must maintain an active role in oversight of appraisal regulators 

and build on these reforms to address ongoing weaknesses. We can 

33 

ill afford to allow another 20 years to pass without a thorough 

audit of appraisal regulations. Consumers, lenders, and taxpayers 

deserve much better than what they have been given to date. 

Thank you very much. 

[The prepared statement of Ms. Stephens can be found on page 

230 of the appendix.] 

Chairwoman BIGGERT. Thank you. 

Mr. Kelly, you are recognized for 5 minutes. 

STATEMENT OF DONALD E. KELLY, EXECUTIVE DIRECTOR, 

REAL ESTATE VALUATION ADVOCACY ASSOCIATION 

(REVAA), ON BEHALF OF REVAA AND THE COALITION TO FACILITATE APPRAISAL INTEGRITY REFORM 

Mr. KELLY. Madam Chairwoman, and members of the subcommittee, I appreciate the opportunity to testify today both for 

REVAA and for the FAIR Coalition. On a personal note, as a 

former staffer of what was then called the Banking Committee, it 

is my great pleasure to be back here with you today. 

In summary, first, REVAA and FAIR members provide valuable 

services to financial institutions, appraisers, and consumers in the 

course of the residential real estate appraisal. 

Second, REVAA and FAIR members are working proactively with 

both the Federal Government and the States to implement the registration and regulatory requirements for appraisal management 

companies contained in the Dodd-Frank Act. 

Third, we encourage the Consumer Financial Protection Bureau 

to rely on the research and reasoning utilized by the Federal Reserve Board for payment of customary and reasonable appraisal 

fees. 

To my first point, REVAA members produce real estate valuation 

products, including appraisals and broker price opinions and others. They have been responsible for advancements in technology 

that benefit mortgage investors, servicers, originators, and ultimately consumers. FAIR is a coalition of five of the Nation’s largest 

appraisal management companies. 

AMCs typically operate a regional or national network of employee-based appraisers, independent contractors, and companies 

for the completion of appraisal reports. AMCs act as a centralized 

appraisal source for mortgage lenders that operate on a wide geographic basis. AMCs work to match the assignment with a qualified local appraiser. The average appraiser contracted for an assignment by a major AMC has 15 years of experience and typically 

travels less than 13 miles on any given assignment. AMCs perform 

extensive administrative and quality control functions on behalf of 

both the appraiser and the lender to ensure delivery of a high quality appraisal report. 

Contrary to what some have suggested, appraisers directly benefit from working with an AMC by having an advocate to ensure 

appraisal independence to make sure that no improper attempt is 

made to influence the appraisal process. Much of the appraisal 

fraud that contributed to our current crisis has been linked to such 

improper influence. In addition, AMCs provide significant valueadded services to appraisers, such as quality control, marketing, 

billing processes, etc., that reduce the cost of back room and adminVerDate Nov 24 2008 16:25 Jan 06, 2012 Jkt 067942 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 K:\DOCS\67942.TXT TERRIE
34 

istrative tasks. AMCs help consumers by reducing the time required for appraisal delivery and improving the quality of appraisers with efficient and effective quality control systems. 

To my second point, AMCs are subject to new regulatory requirements under the Dodd-Frank Act, including new minimum standards and a national registry. Prior to the passage of the Act, several States had begun the process of enacting laws to require the 

registration of AMCs and to establish minimum requirements. 

AMCs have been actively involved with the States from the inception of these regulatory laws and have long supported transparency 

and independence in the appraisal process. We believe that it is important to work toward consistency and uniformity in the State 

laws and regulations to ensure that AMCs can effectively implement the necessary compliance procedures to operate on a national 

basis. We believe the Appraisal Subcommittee and the relevant 

banking agencies should contribute to ensuring a consistent set of 

requirements in this regard. 

Finally, the Dodd-Frank Act required that lenders and their 

agents, including AMCs, compensate appraisers at a customary 

and reasonable rate for appraisal services. REVAA and FAIR believe that the Federal Reserve Board acted appropriately and logically to implement the congressional intent to this provision. The 

Board has recognized that appraisal services are not one-size-fitsall, as my friend Sara has indicated, and it has created a compliance structure for the payment of customary and reasonable fees 

that reflects market reality and ensures that the appraisal costs 

borne by consumers will remain fair and competitive. 

While the Board’s interim final rule remains effective without 

further finalization, we are concerned that some may ask the new 

consumer bureau to reconsider the rule with the intention to mandate a higher level of compensation for appraisers, one above market rates. This would be unfortunate, as consumers would then be 

subjected to higher appraisal fees without gaining any additional 

service for that fee. We hope that the new bureau, for the benefit 

of the consumer, will maintain the payment structure established 

by the Board. 

Thank you for the opportunity to testify. I hope that you will consider us as a resource in the future. 

[The prepared statement of Mr. Kelly can be found on page 139 

of the appendix.] 

Chairwoman BIGGERT. Thank you so much. 

Ms. Bowdler, am I pronouncing that correctly? 

Ms. BOWDLER. Yes. 

Chairwoman BIGGERT. You are recognized for 5 minutes. 

STATEMENT OF JANIS BOWDLER, DIRECTOR, WEALTHBUILDING POLICY PROJECT, NATIONAL COUNCIL OF LA RAZA 

Ms. BOWDLER. Thank you. Good afternoon. I would like to thank 

you, Chairwoman Biggert, and Ranking Member Gutierrez for inviting me here today. In my capacity as the director of the WealthBuilding Policy Project at the National Council of La Raza (NCLR), 

I oversee our research and advocacy on housing and financial services issues facing Hispanic families. 

35 

NCLR has worked tirelessly for decades to make homeownership 

possible for a greater number of Latinos. The NCLR homeownership network provides thousands of first-time home buyers objective advice and guidance each year. This work gives us a unique 

insight into the opportunities and challenges facing Latinos in the 

housing market. In fact, NCLR documented a number of systemic 

problems impacting Hispanic consumers prior to the market crash. 

The evidence and feedback from Latino service agencies led us to 

support the protections included in Dodd-Frank. While we wait for 

final regulations, NCLR has high hopes that the new rules will protect consumers while maintaining market access. 

In my time today, I will briefly review those challenges, and then 

turn to three critical areas of mortgage origination reform currently 

under consideration. In testimony before the Financial Services 

Committee 2 years ago, NCLR President and CEO Janet Murguia 

shared four basic problems facing Latino housing consumers. 

Briefly, they were that shopping for credit is nearly impossible. 

Few tools exist, so even the most diligent shoppers have a hard 

time making apples-to-apples comparisons. Borrowers are steered 

towards expensive products, even when they have good credit. 

Creditors trap borrowers in cycles of debt, and fraud and scams are 

rampant. The FTC has found that Latinos are more than twice as 

likely to become targets of fraud as Whites. This blatant pattern 

of overpayment, abuse, and discrimination disrupts the financial 

stability of low-income and minority households. In such an environment, deceptive actors have had their way at the expense of responsible lenders, homeowners, and taxpayers. 

The protections established in Dodd-Frank responded directly to 

this situation. Well-implemented regulations should advance a 

mortgage market that treats consumers and honest dealers fairly 

and maintains a responsible flow of credit to qualified borrowers. 

In response to questions raised during this hearing, we offer our 

perspective on three aspects of origination. The first is the revised 

TILA GFE disclosure being drafted by CFPB. As I mentioned, our 

mortgage shopping tools are inadequate. The GFE was supposed to 

play this role but comes too late in the process to be effective. 

NCLR applauds CFPB for their progress so far in developing and 

evaluating a new tool. The online feedback tool is transparent and 

allows for a broad audience to provide input. CFPB has also co-developed a Spanish language version of the disclosure. Word-forword translations are often problematic and fail to communicate 

the same meaning, tone, and purpose as the English original. We 

urge CFPB to use their online tools to solicit comments on the 

Spanish version of the disclosure. 

Also under debate is the Federal Reserve’s rule on originator 

compensation. Steering was one of the most egregious deceptive 

lending tactics aimed at Hispanic borrowers. Simply put, originators were paid more for pushing creditworthy borrowers into loans 

with high upfront fees, interest-only payments, negative amortization, and exploding interest rates. Mortgage brokers play an essential role in helping Latino families purchase their home, especially 

when Spanish is their preferred language, but unfortunately this 

trust was violated by unscrupulous actors, causing irreparable 

harm to families and honest brokers. 

36 

Therefore, we strongly support the commonsense rule proposed 

by the Federal Reserve and further cemented by Dodd-Frank. This 

rule rightly prohibits compensation based on the terms of the loan 

while still allowing originators to be paid for their work. 

Finally, NCLR urges this committee to consider the role of housing counselors in mortgage origination. Research has shown that 

borrowers who receive counseling before they buy are less likely to 

default. During the bubble years, housing counselors often delivered the tough ‘‘eat-your-veggies’’ message to consumers, often in 

direct competition with originators and REALTORS®. Rather than 

work with counselors, many industry players saw them as a roadblock to a fast and lucrative closing. 

The elimination of funding for the housing counseling program is 

a huge loss for home buyers and communities of color in particular. 

We urge Congress to fully fund the program at $88 million in the 

2012 budget. 

I want to take a moment to especially thank the members of this 

committee, in particular Mrs. Biggert, Mr. Gutierrez, and Ms. 

Waters for your support and leadership. Members of this committee have been big champions of counseling. We appreciate that. 

In sum, NCLR supports the mandates of Dodd-Frank that further responsible and accessible markets, reward honest lenders, 

and aid qualified home buyers and homeowners. I would like to 

make three modest recommendations: make the Spanish TILA 

form available for public comment; fully fund the housing counseling program; and swiftly implement the Federal Reserve’s rule 

on steering. 

Thank you, I would be happy to answer any questions. 

[The prepared statement of Ms. Bowdler can be found on page 

73 of the appendix.] 

Chairwoman BIGGERT. Thank you. 

Mr. Rheingold, you are recognized for 5 minutes. 

STATEMENT OF IRA RHEINGOLD, EXECUTIVE DIRECTOR, 

NATIONAL ASSOCIATION OF CONSUMER ADVOCATES 

Mr. RHEINGOLD. Thank you. 

Chairwoman Biggert, Ranking Member Gutierrez, and members 

of the subcommittee, thank you for inviting me to testify today. 

My name is Ira Rheingold, and I offer this testimony on behalf 

of the National Association of Consumer Advocates (NACA) and the 

low-income clients of the National Consumer Law Center. 

I have been a public interest attorney for my entire career and 

worked in some of our Nation’s poorest urban and rural communities. From the mid-1990s through 2001, I lived and worked in 

Chicago, where I ran the Legal Assistance Foundation’s Home 

Ownership Preservation Project. During those years, I worked 

against the unfair and deceptive practices most of the actors in the 

mortgage industry were involved in. 

Today, I am the executive director of the National Association of 

Consumer Advocates, an organization of attorneys who represent 

those very same consumers and communities all across this country. At NACA, I also manage the Institute for Foreclosure Legal 

Assistance, a project that provides funding and training to Legal 

Aid programs that assist consumers trying to save their homes. 

37 

Before I address recent changes to rules affecting mortgage origination, I think it is essential to put the recent reforms into the context of what the mortgage process looked like until its bubble burst 

and shattered our Nation’s economy. 

The mortgage market of the past few decades in no way resembles what most of us thought we understood about buying a home 

or getting a loan. I have talked to thousands of consumers who believed that the mortgage entity that originated their loan would 

only profit when they timely made their mortgage payment. While 

this may have been the case when our parents or even our grandparents bought their homes, this was not true for most of the past 

2 decades. 

Instead, because of the growth of securitization as a tool to fund 

both prime and subprime mortgages, with all its confusing layers, 

multiple actors and other perverse incentives, the nature of the 

consumer mortgage originator relationship, unbeknownst to the 

consumer, fundamentally changed. 

No longer was the borrower’s best interest or even their ability 

to repay the loan part of the mortgage transaction calculation. Instead, the real transaction was between the mortgage originator 

and the investment bank, not the borrower. 

Under these circumstances, what American consumers needed 

was vigorous enforcement of existing consumer protections as well 

as a new set of consumer protections to correspond with the very 

different mortgage world that had now been created. 

Unfortunately, what the Federal Government gave us was the 

exact opposite, not only diminishing its regulation and enforcement 

of this markets, but providing interference and protection under 

the guise of preemption for mortgage market players when States, 

recognizing the fundamental flaws in the system, attempted to protect their own citizens. 

Despite the dire warnings of consumer advocates about the consequences of the clearly broken U.S. mortgage marketplace, it took 

a full-scale credit and mortgage meltdown before Congress finally 

and belatedly took action by passing the historic Dodd-Frank Act. 

While discussing the merits of the important mortgage origination reforms created by this law, to me the question before our 

panel today seems to be extremely premature. Simply, we really 

won’t know how successful the law will be in creating a fair and 

honest mortgage marketplace until we have a fully functioning 

housing market. Unfortunately, that won’t happen until we effectively resolve the foreclosure crisis that continues to serve as an 

anchor on our housing market and on our overall economy. 

Nonetheless, from a consumer’s perspective, Dodd-Frank was an 

incredibly important piece of legislation. It not only created the 

independent and absolutely essential CFPB, but it also addressed 

most of the significant problems faced by everyday Americans trying to get a mortgage loan. So let’s take a look at those provisions 

and how they should impact the mortgage market. 

The banning of Yield Spread Premiums: The banning of YSPs 

may be the most important change in the mortgage origination 

landscape. Simply put, no longer will mortgage brokers be allowed 

to benefit by steering consumers into loans with high rates or other 

terms lucrative for the broker but harmful to consumers. 

38 

The banning of forced arbitration clauses: Restoring a consumer’s 

right to hold mortgage banks accountable in court is essential to 

building a mortgage market that consumers can trust. 

Limitation on prepayment penalties: Another one of the most 

abusive practices witnessed in the very recent mortgage market 

past, prohibiting prepayment penalties for non-safe-harbor mortgages should eliminate the problem of homeowners being trapped 

in expensive mortgage loans. 

Requiring creditors to evaluate a consumer’s ability to repay: 

Consumers were typically amazed and pretty appalled when I explained that there was no effective Federal law that prohibited 

mortgage originators from making loans that borrowers could not 

afford. Now that this has been remedied, I would hope that the 

mortgage industry would once again engage in fair and responsible 

underwriting of loans. 

The expansion of HOEPA: By expanding the range of loans subject to HOEPA, it will not only provide consumers with much more 

robust protection from high-cost loans, it will hopefully provide a 

sufficient disincentive so that originators don’t continue to make 

these disruptive loans. 

Beginning to reform the appraisal process; creating safe harbor 

mortgages; and finally, a single integrated disclosure: Dodd-Frank 

required the CFPB to create a single integrated disclosure for 

mortgage transactions that combine the RESPA settlement statement and the mandatory TILA disclosures for mortgages. 

For more than a decade, Federal regulators have struggled to 

create a fair and simple disclosure that gives consumers the essential information they need to both shop for a mortgage and openly 

choose wisely for themselves. Each time HUD or the Fed attempted 

to develop a form that offered some promise for consumers, objections arose from various single interest entities who feared that 

real honest and consumer-friendly disclosures might hurt their bottom line. 

Today, almost 1 year since the passage of the groundbreaking 

Dodd-Frank legislation— 

Chairwoman BIGGERT. If you can conclude, please. 

Mr. RHEINGOLD. I am concluding. While the struggle continues— 

today, almost 1 year since the passage of Dodd-Frank, millions of 

former and current homeowners continue to battle to right themselves. While the struggle will continue until we finally and forcefully address the foreclosure crisis that continues to depress our 

housing market, we have great faith that the mortgage mandates 

of Dodd-Frank, if implemented properly, will go a long way in creating a fair and honest, consumer-friendly marketplace. 

[The prepared statement of Mr. Rheingold can be found on page 

198 of the appendix.] 

Chairwoman BIGGERT. Thank you. Your time has expired. 

I actually have a question for Ms. Bowdler and Mr. Rheingold, 

and that is, are you familiar with the RESPA Home Warranty 

Clarification Act that was talked about earlier, H.R. 2446, and 

could you comment on the bill? 

Mr. RHEINGOLD. I can’t say that I am incredibly familiar with it. 

I know enough about the home warranty issue and the RESPA 

process. I think my initial reaction to the whole notion is that we 

39 

have always been concerned about what REALTORS® can sell to 

homeowners. 

Consumers are a captive audience at that very moment, and the 

reason why RESPA was created was because of the concern that 

consumers who had this trust relationship could be sold most 

things by that REALTOR®. So, I think we have a real concern 

about any exception that allows a real estate agent to sell, even a 

home warranty, to consumers. If the home warranty is a good product and a useful product, then I think consumers will have the opportunity to buy it. I think there is a real danger there because of 

the nature of the trust relationship to have a real estate agent selling it. 

Chairwoman BIGGERT. Thank you. 

Hopefully, you will work with us on this bill. 

Ms. Bowdler, would you like to comment on it? 

Ms. BOWDLER. Only to say that the bill was just brought to our 

attention. We have not had a chance to fully review it. But we will 

take a closer look at it and definitely connect with your office. 

Chairwoman BIGGERT. Thank you. I appreciate that. 

Mr. Brown and maybe anyone else who is aware of this, are you 

aware of any study that HUD conducted on the home warranties 

or of complaints about the product or method of sales? Any complaints that have been filed with HUD? 

Mr. BROWN. I am not aware of any study that they conducted, 

Madam Chairwoman, but it is a little ironic that the term used to 

describe the relationship between a REALTOR® and a home warranty is a mere referral. 

Last week, I had meetings with the dominant provider of services 

for HVAC contractors, heaters, plumbers, etc., with 15 of our top 

agents, because we are trying to smooth out the problems that 

occur during the sale and processing and problems that they have 

after the sale. So the active engagement that agents perform in 

those services is undeniable, marketing from the time it starts 

until after closing, solving those problems. 

Chairwoman BIGGERT. And do HUD’s rules and guidance have 

any impact on jobs? 

Mr. BROWN. I think it could. The warranty companies don’t have 

sales forces. The modest amount of money that is paid to a real estate company for the presentation, marketing, explanation, and 

servicing during those problems, and as I just mentioned, after the 

sale problems that result with people who have problems with their 

systems breaking down—they go to their REALTOR®, or many 

times before they call them, they call the warranty company. 

If they are not compensated, if they are not allowed to—we have 

agents today who say, why do I go through this process? The suggestion from HUD was to write down the serial numbers of systems as a compensable service, which does absolutely no good to 

the warranty company or anyone. So I think that consumers could 

actually be harmed if they take the REALTOR® out of that equation. 

Chairwoman BIGGERT. Couldn’t HUD’s rule limit consumer 

choice and awareness and protections? 

Mr. BROWN. They can. It is a very competitive industry. As I said 

before, the REALTOR® is the one who typically is involved in givVerDate Nov 24 2008 16:25 Jan 06, 2012 Jkt 067942 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\67942.TXT TERRIE
40 

ing the consumer options at that time, and without their active involvement and active engagement in that process, I could see a limiting of the choices. 

Chairwoman BIGGERT. Thank you. 

Ms. Stephens, appraisals fraud and inflated appraisals, I guess, 

were two of the contributing factors to the financial crisis. You alluded to that fact, the fact that Congress may need to act to enhance appraisal oversight. Can you offer some suggestions? 

Ms. STEPHENS. Yes. At all costs, I think that one of the most important things that needs to come forward from what we have seen 

with the fraud and the inflated appraisals is the push to professionalism and the push to people who are trained to do the work 

that a professional appraiser does, who has an education, who has 

taken the time to put themselves in a position to understand their 

market, to understand the nuances of a neighborhood and the 

areas in which they are working. Yes, ma’am. 

Chairwoman BIGGERT. Thank you. 

And one more question. The Dodd-Frank Act required Federal 

regulators to issue risk retention rules which require mortgage 

originators to retain 5 percent of the risk of a mortgage that is not 

in QRM and securitized and sold on the secondary market. On 

March 29, 2011, Federal regulators issued a proposed rule and solicited comments, but the deadline was extended until August 1st. 

Like the Federal Reserve’s ability to repay proposed rules, one component of the risk retention rules requires that points and fees for 

a QRM not exceed 3 percent of the loan retention. 

It seems like what has happened here is that these fees do not 

count toward this cap for third party settlement, but settlement 

fees of an affiliated business do. So does this mean that QRM 

standards and risk retention rules may result in increased compliance and legal costs for mortgage industry participants, but there 

are competing businesses that would be treated differently? Is this 

a level playing field? 

Mr. WILSON. I think you summarized that correctly, and it does 

not—it makes it an unlevel playing field. So anybody who has affiliated businesses is at a disadvantage. 

Chairwoman BIGGERT. And how could we fix that? Would it be 

legislation? 

Mr. WILSON. I believe so. But I think endorsing the title exemption is the best way to do it, exempt title from those fees and services. 

Ms. ANASTASI. Madam Chairwoman, we would also like to just 

reemphasize that if we are looking for a gold standard mortgage, 

we want to make sure there is a title insurance search and product 

associated with that to reduce the risk even further. 

Chairwoman BIGGERT. That just amazes me, as a former real estate attorney, not having an owner’s policy, It amazes me. 

Ms. ANASTASI. It amazes us, too. 

Chairwoman BIGGERT. Thank you. 

Mr. Gutierrez, you are recognized for 5 minutes. 

Mr. GUTIERREZ. Thank you so much. 

I have a question for Mr. Brown, and let me just preface, and 

that is over the last couple of decades, every home I have either 

bought or sold has been with a member of the association that you 

41 

represent. So I have had a wonderful relationship with them and 

look forward to my buying and selling, so you shouldn’t take this 

as an indication about how I feel, because in my personal life, obviously, it should be reflected. 

We have a new consumer protection agency that we are giving 

birth to pretty soon. So tell me, REALTORS®, your thoughts on 

that and the relationship going forward, things they should do, because I am sure you also represent the best interests of consumers, 

the very people that you serve every day. 

Mr. BROWN. Absolutely. I think that they serve a proper role to 

ensure that the consumer is not taken advantage of. I am not certain that I am the person to ask for the entire scope of all of their 

services. 

Mr. GUTIERREZ. Is there something you think they might consider doing that would help consumers and make the industry 

prosper? 

Mr. BROWN. I think that in the vein of making sure that there 

isn’t fraud in the lending process, that there is transparency in the 

process, simplification of rules and regulations, to the extent that 

they can make those types of changes and those types of protections— 

Mr. GUTIERREZ. A consumer protection agency that would help 

make the process more transparent and less fraudulent for consumers would be a good thing. 

Mr. BROWN. And not burdensome to business at the same time. 

Mr. GUTIERREZ. Okay. Let me ask the same question of Mr. 

Cunningham. 

Mr. CUNNINGHAM. I think that the benefit of the Consumer Financial Protection Bureau, the potential benefit, is they now have 

control of all the consumer laws related to mortgage lending. They 

have a unique opportunity to consolidate disclosures, disclosures 

that are, quite frankly, very consuming, sometimes conflicting to 

the consumer. So I think the biggest— 

Mr. GUTIERREZ. Helping to facilitate a better understanding of 

the consumer in terms of the actual product they are going to acquire through better understanding or clarification or simplification 

of the documents that you might need. 

Mr. CUNNINGHAM. Exactly right. I think that today, consumers 

sign documents without understanding them because there are so 

many, and there is a way to simplify that process. 

Mr. GUTIERREZ. I assure both of you as soon as the obstacles for 

the new director—I talked to her—I am sorry, maybe him, because 

they might have their way. But thank you for those answers, because I am with you on those levels, and I would like to talk with 

you at any time about other things. 

I am going to go over to Mr. Ira Rheingold. Tell me, you just 

heard from the industry, the mortgage association and the REALTORS®, what do you think? 

Mr. RHEINGOLD. What do I think about the CFPB? 

Mr. GUTIERREZ. What they said. 

Mr. RHEINGOLD. I think that is a positive statement. I think that 

we all can agree that the way disclosures work in the mortgage 

process is pretty much disastrous. 

42 

Mr. GUTIERREZ. The number one thing the new Consumer Protection Agency can do? 

Mr. RHEINGOLD. Do I think that is the number one thing they 

should do? 

Mr. GUTIERREZ. No, no. What is the number one thing you think 

they should do? 

Mr. RHEINGOLD. I think that taking the definition of getting involved in what a Qualified Mortgage is, helping define what a safe 

mortgage is as the statute requires, I think is a really important 

thing to do. I think beginning to take a look at TILA and RESPA, 

the abuses that exist, getting ahold of those regulations and making sure that they take enforcement actions when those laws are 

violated, but then also begin to investigate and use their oversight 

capacity to take a look at that. 

Mr. GUTIERREZ. So some more enforcement— 

Mr. RHEINGOLD. Enforcement and regulation. 

Mr. GUTIERREZ. Ms. Bowdler, please? 

Ms. BOWDLER. I want to say that I think that we have to keep 

in mind that CFPB is really important for all of the fair and honest 

businesses that are out there, too. In 2006, we did a series of interviews with Hispanic mortgage brokers serving the Latino community, and these were on-the-ground interviews in six different cities. And many of them were appalled by the practices that were 

going on and the bad name that their industry was getting and actually welcomed something to clean up the industry. So I think if 

CFPB is doing their job right, they are also on the side of the fair 

and honest dealer here. 

I think one of the most important things the agency can take on 

is really incorporating fair lending into their oversight of lenders 

and making sure that the procedures and protocols are in place at 

the institutions that they are regulating to check for that. But it 

hasn’t been a prominent part of the exams. 

Mr. GUTIERREZ. You see, I think there is a way, Madam Chairwoman, that we can work to both benefit an industry that is on the 

side of creating the mortgages, the banking side, right, and the REALTORS®, who show everybody the house and make everybody 

understand what is in the market and help consumers, and at the 

same time, help consumers. Because as I go out there, I have to 

tell you, I have REALTORS® who are doing other jobs. They are 

not REALTORS® anymore, a lot of the ones I know. And it isn’t 

because they are slackers or they are bad REALTORS®, because 

I remember when they were really busy. I know a lot of people in 

the mortgage banking industry who aren’t busy. And I know Chicago Title and Trust and all the other title companies, there are 

lots of—you can get anywhere on the schedule if you want to go 

insure a home. 

It seems to me there has been an overall collapse of the system, 

that it has been bad both for consumers and for those people in the 

industry, and you can’t get this economy going again until you get 

the housing industry straight. Let’s fix it so that you can all be 

prosperous and make lots of money, and people can get wonderful 

homes and make wonderful investments and have wonderful places 

to raise their children. 

Thank you for your answers. 

43 

Chairwoman BIGGERT. I think that is what we are all looking for. 

Mr. GUTIERREZ. I look forward to working with the gentlewoman. 

Chairwoman BIGGERT. Mr. Hurt is recognized. 

Mr. HURT. Thank you, Madam Chairwoman. 

I want to thank each of you for being here this afternoon, and 

I guess I wanted to follow up with Mr. Savitt and his remarks relating to Ms. Braunstein and what she testified to in the earlier 

panel. 

It sounds to me that perhaps you all do not have the clear guidance that you sought from the Federal Reserve as it relates to the 

loan originators compensation rule that was adopted in April. I was 

wondering if you could talk a little bit more about the effects of 

that, what effect it has had on your business, and what do you 

need from the Federal Reserve Board or from the CFPB going forward to help solve your issues? 

I was hoping, I would like to hear from Ms. Anastasi and Mr. 

Anderson as well, if you could also follow up. 

Mr. SAVITT. The effects have been devastating. It actually has 

turned out worse than we even thought it was. The Federal Reserve Board themselves indicated in their rule that there would be 

a significant economic—I am trying to think of their exact words— 

impact, a significant economic impact on small entities, but they 

never elaborated on that. 

The Federal Reserve Board has given absolutely no guidance 

whatsoever. I have had conversations, both in email and on the 

telephone, with their Community Affairs Office asking them for 

clarification. I actually had one of them write back and say, ‘‘We 

don’t answer anything in writing.’’ 

So, we have a tremendous problem with this. We have to proceed 

very cautiously. We are not sure if we are doing things right or not, 

which could put us in trouble with regulators. 

Speaking of regulators, the regulators have told me in numerous 

States that they are also confused by this, that the Federal Reserve 

Board has provided no guidance whatsoever to them, and in many 

States, they are not even enforcing this; they are not going to regulate this, because they also don’t want to make any mistakes. This 

has cost, as I said before, a tremendous amount of job loss. And it 

continues, and if we don’t get some type of guidance, there won’t 

be mortgage brokers very much longer. 

Mr. ANDERSON. I actually agree with what Mr. Savitt just said. 

We are experiencing problems, severe problems. I had a loan officer 

quit yesterday. The guidance portion, we have asked the National 

Association of Mortgage Brokers. We have requested written guidance and we can’t get written guidance. It is very, very complicated. We can’t charge a processing fee. We can’t charge the normal fees that we have normally charged. And when I said in my 

oral testimony that I am literally getting emails every day, the one 

I got yesterday is from a lady in Texas who has been in business 

for 10 years. She said she never participated in subprime loans. 

She shut her doors yesterday and said she couldn’t take it anymore. 

Madam Chairwoman, I would also like to add to the record a letter from the Honorable Barney Frank to the Federal Reserve. 

Chairwoman BIGGERT. Without objection, it is so ordered. 

44 

Ms. ANASTASI. Thank you. 

One of the things that we continually look for and that we all 

continually talk about is transparency. That is one of the reasons 

why we are suggesting that we go back to itemization of fees, so 

that the consumer understands completely what they are charging 

rather than the current way of rolling up the fees into certain categories. 

We believe, along with everybody on this panel and everybody 

sitting in front of me, that clarity begets compliance, and without 

having answers, particularly answers in writing, to help protect us 

in our businesses, without having those answers, we are forced to 

make up and create the answers, and they may not necessarily be 

the correct answers. 

So, we are simply asking for answers to questions, and I don’t 

think that is too much to ask. Thank you. 

Mr. HURT. Thank you, Madam Chairwoman. I yield back. 

Chairwoman BIGGERT. Thank you. 

The gentlelady from California, Ms. Waters, is recognized for 5 

minutes. 

Ms. WATERS. Thank you very much, Madam Chairwoman. I 

thank you for holding this hearing. You have an awful lot of people 

here representing various aspects of the mortgage industry. 

I would first like to say that we all must accept some responsibility for the subprime meltdown and the economic crisis that resulted as a result of the meltdown. I accept responsibility as a 

Member of Congress sitting on a committee where we have oversight responsibilities. I think the regulators are going to have to accept some responsibility, and many of you in the industry have to 

accept some responsibility. 

One of the most devastating aspects of the meltdown had to do 

with these exotic products that we have learned about. I am just 

wondering, to the brokers and the bankers, when you saw these 

products out there, what did you think? Did you think, something 

is wrong with this, but if the regulators say it is okay, I am going 

to use these products? Or did you think, maybe I ought to call 

somebody and tell somebody that I think this is wrong? And what 

can you do now? Given that we have gone through everything that 

we have gone through and even now that we have had Dodd-Frank 

and we are trying to help the consumer, do you think there are 

ways, given that you are the experts, that you could help the consumers and the Members of Congress move a little quicker when 

these things are happening? 

Let me start with, I guess, the brokers. 

Mr. ANDERSON. Like I said in the oral testimony, I am going to 

use an example of—remember the Ford Pinto? It was a bad product. And what did you do? You got rid of the product. You didn’t 

go after the salesman, the auto salesman who sold it. And when 

the subprime market came out, and I commend you for saying, we 

all need to take responsibility, and you are right. There is enough 

blame to go around. 

But I can tell you, I remember just Fannie Mae and Freddie Mac 

loans, I remember sitting around after work and having a beer 

with colleagues and saying, can you believe that we are getting 

loans approved through Fannie Mae and Freddie Mac, 100 percent 

45 

with a 65 percent debt-to-income ratio with a 550 credit score? We 

did have those conversations. Those of us in the industry knew 

that this day was going to come. 

With that said, like that chart illustrates that was supposed to 

be displayed here, we know what caused the crisis. It was the loan 

product. If you take that product off the shelf, it is a simple fix. 

And if you look in our State of Louisiana, 13 percent of our business was subprime. I hope that answers it. 

Ms. WATERS. All right, let me go to another question rather than 

continue down this line. The President admitted just a few days 

ago that if there is any failure that they have had, it is in dealing 

with this crisis and loan modifications and an inability to create a 

program that would really assist the homeowners in a credible 

way. 

We know that they had the HAMP program, and it did not work. 

Now he is talking about the ability to keep people in their homes 

for at least one year if they qualify. But it doesn’t cover Fannie and 

Freddie. 

We need help in designing a program to deal with loan modifications that is credible. One of the things we experienced when we 

got into this loan modification business was the servicers were not 

always qualified. They had to get up to speed in training them. I 

personally called and talked to servicers, got waivers from homeowners to do so. They lost papers. That was the name of the game. 

‘‘We lost your papers. Submit them again.’’ They didn’t take into 

consideration all of the streams of income, whether it was child 

support payments, etc., etc., etc., on and on and on. 

One person, give me your take on what we can do to have a good, 

sound loan modification program that works? Anybody? 

Mr. SAVITT. You can start with a timely response, Ms. Waters. 

A lot of the problems with the modifications that we have seen, a 

borrower or a homeowner will submit their paperwork to the lender 

and it takes forever to get an answer, and they tell them that you 

have to be at least 2 or 3 months behind. So, they get 2 or 3 

months behind intentionally as a recommendation from their lender, and then later on down the road, when they finally do get a response from the lender, it is a no and now you have somebody who 

is at the point of going into foreclosure. So, I think some of those 

things need to be corrected first. 

Mr. RHEINGOLD. I think there are so many things. I think Congress had the opportunity with traditional modification, and unfortunately that failed. That would have made a gigantic difference in 

making loan modifications happen. I think the problem is we have 

never mandated that these things happen. It has always been sort 

of this ‘‘please do it, we are giving you incentives to do it,’’ but it 

has never been mandated. I think that has been a serious failure. 

I think finally there has to be principal reduction in foreclosures. 

There has to be. Because we are not going to get the housing market stabilized. The housing market is flooded with homes that are 

being foreclosed, with people underwater, and until we bring housing prices down to where they really need to be by dealing with all 

those foreclosed properties, we are not going to solve this problem. 

Mr. CUNNINGHAM. I think also national standards for servicing 

are important. I think that MBA has been proactive in taking a poVerDate Nov 24 2008 16:25 Jan 06, 2012 Jkt 067942 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 K:\DOCS\67942.TXT TERRIE
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sition, having a study as it relates to that, and we would be glad 

to share that study with you after this hearing. 

Ms. WATERS. Thank you, Madam Chairwoman. You have been 

very generous. 

I would certainly hope if you submit to the Chair that study, she 

would make it available to all of us. 

Mr. WILSON. Could I add, I work with the large lenders on both 

modifications and short sales, and as you want rules around making the new loans, debt-to-income ratios and fully doc loans, you almost can’t have those rules on modifications. We created so many 

rules in HAMP, that nobody qualified, and there was no long-term 

solution for that borrower. So, the same rules you want as you are 

originating new loans can’t apply, unfortunately, to the existing 

modification program. 

I think there has to be regulated relief, both for the servicers, the 

banks, and the consumer, together. Because the banks are afraid 

to make one with a 42 percent debt-to-income ratio, even though 

that customer can in fact afford the payment if their interest rate 

is lowered. But they are afraid they will overstep their servicing requirements. There has to be regulated relief among those three for 

that to ever be a viable program. 

Chairwoman BIGGERT. We are going to have to move on. 

But, without objection, we will make the MBA’s study part of the 

record. 

Chairwoman BIGGERT. Mr. Stivers, you are recognized. 

Mr. STIVERS. Thank you, Madam Chairwoman. 

My first question is for Mr. Brown. You talked earlier about the 

home warranty issue. I know a lot of home buyers buy home warranties to limit their downside in case a major system fails. I was 

just curious if you think that the new HUD rules involving RESPA 

will result in less home buyers buying this protection from this 

downside? 

Mr. BROWN. I can’t say that I would think that their rules would 

necessarily decrease sales of warranties. I think that agents are 

going to do what is good for their clients in general. But what is 

happening is that they are just not being compensated for what 

they are doing. So they are not happy about it, I can tell you that. 

The things that they are being asked to do, to perform what is referred to as a compensable service, are absolutely absurd. 

Mr. STIVERS. Let me ask it this way, Mr. Brown, do you believe 

that providing access to these home warranties is an important 

service to home buyers? 

Mr. BROWN. It absolutely is. There is no question about it. 

Mr. STIVERS. Therefore, it makes sense—have you heard of any 

home buyers complaining about their brokers getting compensated? 

Mr. BROWN. No, and it has to be disclosed, and it should absolutely be disclosed beforehand. And it is, in the majority of the instances that I am aware of. 

Mr. STIVERS. Thank you so much. 

Mr. Cunningham, I wanted to ask you about the safe harbor provisions that were in your testimony. Can you help me understand 

why a safe harbor is important? I think it makes a lot of sense. 

Can you just help us understand the value of a Qualified Mortgage 

safe harbor for your members? 

47 

Mr. CUNNINGHAM. I would be glad to. 

I think if rules are vague, a lender is going to be unsure, certainly has liability from a lawsuit and, therefore, is going to step 

way back from where the presumed line is and, therefore, reduce 

the availability of credit to consumers who might otherwise qualify. 

If the standards are bright-line standards, then it is easy for a 

lender to comply, and it is at the same time easy for a consumer 

to show where they have not complied if a lawsuit is justified. 

Mr. STIVERS. Thank you. 

And the current QRM rules actually provide more harm to home 

buyers buying more affordable, less expensive homes, do they not, 

because of the percentages definitions in the qualifying mortgage? 

Mr. CUNNINGHAM. You are talking about the Qualified Residential Mortgage. 

Mr. STIVERS. Qualified Residential Mortgage. 

Mr. CUNNINGHAM. Correct. If you just looked at my book of business in 2009, which was a pretty conservative book of business— 

referenced earlier that 97 percent of those were fixed rate. I applied those rules to our book of business; 58 percent of our purchase business and 74 percent of our refinance business would not 

have qualified. 

Mr. STIVERS. Thank you. That is important to note. 

The next question is for Ms. Anastasi. You talked earlier about 

how itemization and transparency is important so that home buyers can get the information that they need. Can you help us understand how home buyers shop for real estate settlement services? 

Ms. ANASTASI. When a home buyer receives under the current 

rules the good faith estimate, on the estimate there is a section 

that describes the fees that are estimated to be charged for settlement services. They can simply pick up a phone, call other local 

providers, go on Web sites. Almost all of us have our own company 

Web sites. They can talk to their REALTOR® if it is a sale. They 

can talk to their mortgage lender if it is a refinance. 

Mr. STIVERS. That is great. I just have one more question. 

Can you help us understand some of the questions that home 

buyers are asking you at the closings that lead you to believe that 

more itemization and transparency are important? 

Ms. ANASTASI. When you get to—on the HUD–1 settlement 

sheet, on page 2, line 1101, there is a roll up of all settlement services rolled up into one figure. When the consumer starts to shop, 

they don’t know what is in that figure from the GSE estimate. But 

they ask us what is included, and we start going through the litany 

of what is in there. We are asked by the mortgage lenders— 

Mr. STIVERS. They can’t still tell, shop fee-by-fee. They can’t tell, 

because it is not itemized, right? 

Ms. ANASTASI. They cannot. We are not allowed to itemize on the 

HUD–1 settlement sheet. We are forced to do addendums to satisfy 

our lenders, to satisfy VA, and more importantly, to satisfy the consumers, so they know what it is from. 

Mr. STIVERS. Thank you. 

My time has expired. I yield back. 

Chairwoman BIGGERT. Thank you. 

Mr. Sherman, you are recognized for 5 minutes. 

48 

Mr. SHERMAN. Ms. Anastasi, I have additional questions for you. 

In your testimony, you said that disclosures need to be flexible to 

account for local practices. How can a single disclosure form be 

made flexible enough for every part of the country, and can you explain how buying a home in Illinois is different from buying a home 

in a much nicer place to live, namely California? 

Chairwoman BIGGERT. Now, wait just a minute here. 

Ms. ANASTASI. Good to see you, Mr. Sherman. 

We need flexibility not only in the form but in what we are being 

forced to put on the form. Right now under the rule and what is 

expected in the new combined disclosure is that any fee that could 

possibly be charged to the buyer has to go on the GSE, even though 

in parts of California or in parts of Pennsylvania, that particular 

fee is always paid by the seller or it is contractually—the seller is 

contractually obligated. So, force-feeding fees into the GSE on the 

buyer’s side, force feeding fees on to the HUD– 1 settlement sheet 

on the buyer side is just so confusing for the consumer. 

And flexibility, give us a couple of extra lines. Let us itemize, but 

do not force the lenders to put a fee on the GSE that is not going 

to be paid for by the buyer. 

Mr. SHERMAN. Are you objecting to just the fact there is a line 

for that fee and you would put a zero next to it, or— 

Ms. ANASTASI. You are not allowed to put a zero next to it. That 

is the problem. 

Mr. SHERMAN. So, there may be a line indicating that I, as the 

buyer of a home, may have to pay some sort of fee in a State where 

I am never going to have to pay the fee? 

Ms. ANASTASI. That is exactly correct, or in the contract that has 

been negotiated to be paid for by the seller. 

Mr. SHERMAN. And you can’t put on that line ‘‘zero’’ or ‘‘seller 

pays.’’ You have to leave me worrying that somebody is going to 

put a dollar figure in that and I am going to get hit with a charge 

of a type that I am not going to get hit with? 

Ms. ANASTASI. You are exactly correct. I often talk about how we 

have to do a wink and a nod to the consumer saying, ‘‘I have to 

put this here, but don’t worry, you won’t get charged.’’ 

Mr. SHERMAN. Some of us have grown skeptical over the years, 

even when it is true. 

Mr. Anderson, I heard the testimony of the Director of the Federal Reserve Division of Consumer Affairs, Ms. Braunstein, and I 

was pleased to note that she believes that brokers can now compensate their employees through commissions on consumer-paid 

transactions. I understand that this represents a change in their 

policy. 

Does this change alleviate your concerns about loan officer compensation, or do we need to do more? 

Mr. ANDERSON. When she said that, in the written testimony, I 

was surprised. We have not been notified of a change in the compensation. So that is the communication channel that we are not 

receiving. 

There is more to it— 

Mr. SHERMAN. It just means she told us before she told you. 

Mr. ANDERSON. This was news to me. I have not heard that. So 

it would certainly be— 

49 

Mr. SHERMAN. Have you had enough time to look at that and can 

you comment on it, or does the fact that you were blindsided on 

it mean that in order to get your informed opinion, I will have to 

wait a few days? 

Mr. ANDERSON. I would really like to review it. It is not that I 

don’t trust them, but I would like to review it. But I will tell you, 

it is a start if we are allowed to pay our loan officers a commission 

on a consumer-paid transaction, if that is what she is referring to. 

But we would certainly like to review it. 

Mr. SHERMAN. I yield back. 

Chairwoman BIGGERT. Thank you. 

And now the other gentleman from California, Mr. Miller, is recognized for 5 minutes. 

Mr. SHERMAN. Whom I am sure agrees with the observation I 

made earlier. 

Mr. MILLER OF CALIFORNIA. If the California State legislature 

doesn’t screw the State up worse than it already is, I agree with 

you. 

But right now, the inability of the market in this recession to 

strengthen itself is causing huge problems, and it is just a lack of 

consumer confidence we are facing. You are all seeing it in your 

areas. 

People need to be confident their home prices are not going to 

continue to fall every week like they have, and they need to know 

that mortgages are going to be available today, tomorrow, and the 

year after. 

But in Washington, we are doing some strange things, like conforming loan limits in high-cost areas. We are talking about eliminating them and dropping them right in the middle of a crisis 

when they have shown to do some good. 

GSE reform, I don’t think there is a doubt Freddie and Fannie 

have to go, but you have an alternative to them to provide liquidity 

for the marketplace. And the concept of just getting rid of them, 

if you don’t have an alternative, you have no concern for the health 

of the marketplace, and that has to be dealt with specifically. 

There are several issues that I am very interested in with respect to mortgage finance and homeownership. I am concerned 

with QRM. How they define this in the rule is going to be a huge 

problem. The SAFE Act, I am concerned about the overreach on 

equal application of the licensing requirements. The appraisals, I 

want to make sure the regulations are consistent across agencies. 

That has to take place. The merger of RESPA forms and truth in 

lending form, this is an important goal but must be undertaken 

very carefully to avoid consumer uncertainty, confusion and misinformation. 

But the loan origination compensation, that application has to be 

considered nothing but a joke, at best. The Fed rule on loan origination compensation is more restrictive than was intended, even 

under Dodd-Frank. The compensation of employees, the rule creates a problem for mortgage brokers to compensate their employees 

in a way they have always done. It does not allow for commissions, 

but that is customary. 

The lowering of compensation at closing of corrections, how can 

they restrict that? The lowering of compensation benefits the 

50 

buyer, and in many cases, they are doing that just to make sure 

the loan does close. It is not a benefit to the broker at all. In fact, 

I am introducing a bill today to deal with that specifically. It has 

to be dealt with. 

But on GSE reform, housing is critical to stabilize the economy, 

without a doubt. Private capital must be the dominant source. The 

government must have some continuing role. If you don’t, you have 

no confidence in the system whatsoever. 

Mr. Anderson, I enjoyed the testimony from all of you, but why 

shouldn’t brokers be allowed to compensate their employees 

through a commission split versus an hourly wage as is being discussed? 

Mr. ANDERSON. So we can be on a level playing field with the 

bank next door, Congressman. It has been that way for years. They 

work hard. The bank next door can do it, but we are prohibited as 

a mortgage broker. 

Mr. MILLER OF CALIFORNIA. When you are talking about adjusting a loan, couldn’t the current regulation result in the inability to 

close a loan at the last moment, by not allowing you to modify your 

fees? 

Mr. ANDERSON. Right. We should be—it happens all the time, or 

used to happen all the time, that we would lower our compensation 

at the closing table. 

Mr. MILLER OF CALIFORNIA. Let’s give the example that you give an estimate of an appraisal, maybe $500. It comes back a day before closing at $750. In many cases, the mortgage broker will drop 

his commission $250 to allow the loan to go ahead and close. Has 

that been a problem? 

Mr. ANDERSON. It is now. 

Mr. MILLER OF CALIFORNIA. But has it ever in the past when you 

did that? 

Mr. ANDERSON. No. We always did it. 

Mr. MILLER OF CALIFORNIA. By allowing mortgage originators to 

reduce compensation at closing, let’s say by a cap of 30 percent, do 

you think that would mitigate the potential for consumer abuse in 

the issue? 

Mr. ANDERSON. I don’t see how it would have any abuses. It 

would certainly help the consumer. 

Mr. MILLER OF CALIFORNIA. Would you believe 30 percent is adequate? 

Mr. ANDERSON. It certainly is a start. I would say, try it. 

Mr. MILLER OF CALIFORNIA. Can you give me an example of 

when a mortgage origination would want to reduce compensation 

at closing besides that? 

Mr. ANDERSON. We have a lot in our State because of insurance 

issues. We find out at the last minute that flood elevation is at a 

certain level and the insurance premium goes up by $300 or $400. 

We are all at the closing table, and we all pitch in to help that consumer. Because there are sellers and buyers, and you know how it 

goes. It has been a great exercise that we have done for years, and 

now the broker cannot do this any more. 

Mr. MILLER OF CALIFORNIA. The issues I have just touched on, 

we could spend hours talking about them, but if we could take care 

of these issues, if we could eliminate Freddie and Fannie and have 

51 

another facility that did the same purpose of providing private-sector dollars into the marketplace with certainty, do you believe it 

would have a major impact on the future of the housing market? 

Mr. ANDERSON. Yes, I do, and I think this would be a good question for the bankers as well. 

Mr. MILLER OF CALIFORNIA. Let’s hear the bankers address it. I 

know how difficult it is for you. But you make many loans that you 

plan on selling off to the secondary market, and it allows you to 

have the liquidity to make more loans. And you service those loans, 

you make the loan origination fees. If we could resolve these issues, 

do you not believe the market would start to turn? 

Mr. CUNNINGHAM. Define which issue you are trying to resolve. 

Mr. MILLER OF CALIFORNIA. The issues I have talked about that 

we are dealing with in the marketplace overall. Like right now, you 

can’t even in California, they won’t accept a loan application for a 

conforming loan limit of 730, even though it doesn’t expire for a 

while, because they can’t process it in time. 

Mr. CUNNINGHAM. We certainly support extending the loan limits 

to at least December 31, 2012. I think you can’t reduce the loan 

limits now when the market is as fragile as it currently is. 

Mr. MILLER OF CALIFORNIA. What percentage of your loans do 

you sell out to GSEs, would you guess? 

Mr. CUNNINGHAM. Today, most of our loans are either FHA, 

VA— 

Mr. MILLER OF CALIFORNIA. Ninety-two percent. Now, if they are 

not there, what do you do? 

Mr. CUNNINGHAM. Probably 97 percent. 

Mr. MILLER OF CALIFORNIA. What do you do if they are not 

there? 

Mr. CUNNINGHAM. It would be a significant problem. There 

would be no liquidity in the marketplace. 

Mr. MILLER OF CALIFORNIA. If we are going to protect taxpayers, 

let’s do everything we can to make sure the value of their home 

does not plummet, because if you can’t buy a home or sell a home, 

homes aren’t worth anything. So when Congress says, we are trying to protect taxpayers, we need to look at the real issue, who are 

we protecting and how are we doing it. 

You have been very generous, Madam Chairwoman. I yield back 

the balance of my time. 

Chairwoman BIGGERT. Thank you, Mr. Miller. 

I have just one further question, and that is for Mr. Kelly. I 

asked Ms. Braunstein this question earlier talking about the appraiser independence provision of the Dodd-Frank Act, Section 

1472, which requires lenders to compensate appraisers at a rate 

that is customary and reasonable, and the Fed has issued a related 

rule. Do you think that this provision in the Dodd-Frank Act 

should be repealed, or do agree with it? 

Mr. KELLY. We believe that the Fed has done a good job with following the intent of Congress. In fact, you heard from the Fed 

today that they structured a rule based on the reasonableness and 

the market conditions of applying all the factors that are exigent 

with any appraisal product. So, we think that while the language 

of the Dodd-Frank Act was not perfect, certainly the efforts of the 

52 

Fed to resolve the customary reasonable fee issue have been satisfactory. 

Chairwoman BIGGERT. Thank you. 

Ms. Stephens, do you agree with that? 

Ms. STEPHENS. It is my understanding that one of the major provisions in the Dodd-Frank reasonable and customary fee is that it 

is exclusive of a fee to the AMC, that this is the fee that the appraiser would receive. And I don’t think that is happening in a lot 

of instances. We are not hearing that from our members, and certainly we are not hearing that from other members of the appraisal 

profession. 

Many of our folks are working at fees that are 40 to 60 percent 

what they were making before, and I think that is incumbent on 

this group and on your committee, please, to look into this and to 

see if we can’t make some kind of provision that is fair and that 

gives our appraisers fair compensation for the work that they do 

and the expertise they possess. 

Chairwoman BIGGERT. Thank you. 

With that, I would like to thank all the witnesses and just say 

that early this fall, in September, which seems like it is coming 

very soon, this subcommittee is going to hold a hearing which will 

focus solely on housing counseling, which is certainly a critical step 

for new homeowners and those facing foreclosures and seniors who 

are seeking a reverse mortgage. So if any of today’s witnesses 

would like to comment on HUD’s program, appropriations or any 

other matters relating to housing counseling, please feel free to 

submit additional comments for today’s hearing record. We would 

appreciate it. 

With that, I would note that some members may have additional 

questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for members to submit their questions to these witnesses and to 

place their responses in the record. 

With that, thank you again. This hearing is adjourned. 

[Whereupon, at 5:05 p.m., the hearing was adjourned.] 

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