U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

40–855 PDF 2008

FULL COMMITTEE HEARING ON

RESPA AND ITS IMPACT ON

SMALL BUSINESS

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

MAY 22, 2008

Serial Number 110-96

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

HEATH SHULER, North Carolina 

CHARLES GONZALEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

VERN BUCHANAN, Florida, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZALEZ, Texas, Chairman 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida

Subcommittee on Rural and Urban Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLES GONZALEZ, Texas 

RAUL GRIJALVA, Arizona 

MARY FALLIN, Oklahoma, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 2

Lipinski, Hon. Dan .................................................................................................. 3

WITNESSES

PANEL I: 

Jackson, Ms. Ivy, Director of the Office of RESPA and Interstate Land Sales, 

U.S. Department of Housing and Urban Development ..................................... 4

PANEL II: 

Kermott, Mr. Gary L., Vice Chairman, First American Title Insurance Company, Executive Vice President, The First American Corporation, On behalf 

of the American Land Title Association ............................................................. 20

Cockey, Mr. Adam D., Senior Vice President, Prudential Carruthers Realtors, 

On behalf of the National Association of Realtors .......................................... 21

Kittle, Mr. David G., CMB, Chairman-Elect, Mortgage Bankers Association .... 23

Savitt, Mr. Marc, President-elect, The National Association of Mortgage Brokers ........................................................................................................................ 25

Gordon, Ms. Julia, Policy Counsel, Center for Responsible Lending .................. 27

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 35

Chabot, Hon. Steve .................................................................................................. 37

Altmire, Hon. Jason ................................................................................................. 38

Jackson, Ms. Ivy, Director of the Office of RESPA and Interstate Land Sales, 

U.S. Department of Housing and Urban Development ..................................... 39

Kermott, Mr. Gary L., Vice Chairman, First American Title Insurance Company, Executive Vice President, The First American Corporation, On behalf 

of the American Land Title Association ............................................................. 53

Cockey, Mr. Adam D., Senior Vice President, Prudential Carruthers Realtors, 

On behalf of the National Association of Realtors .......................................... 81

Kittle, Mr. David G., CMB, Chairman-Elect, Mortgage Bankers Association .... 89

Savitt, Mr. Marc, President-elect, The National Association of Mortgage Brokers ........................................................................................................................ 144

Gordon, Ms. Julia, Policy Counsel, Center for Responsible Lending .................. 158

Statements for the Record: 

Attorneys’ Title Guaranty Fund, Inc. ..................................................................... 172

Independent Community Bankers of America ...................................................... 175

National Association of Federal Credit Unions ..................................................... 180

(V) 

(1)

FULL COMMITTEE HEARING ON RESPA 

AND ITS IMPACT ON SMALL BUSINESS 

Thursday, May 22, 2008

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Committee met, pursuant to call, at 10:07 a.m., in Room 

1539, Longworth House Office Building, Hon. Nydia M. Vela ́zquez 

[Chair of the Committee] Presiding. 

Present: Representatives Vela ́zquez, Cuellar, Lipinski, Altmire, 

Clarke, Johnson, Chabot, Bartlett, and Fallin. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

Chairwoman VELA ́ ZQUEZ. Good morning. I call this hearing to 

order. 

Today, we will examine the Department of Housing and Urban 

Development’s proposed rule on the Real Estate Settlement Procedures Act. 

The recent housing crisis has revealed that predatory lending remains much a problem. It has also demonstrated the importance 

of providing quality information to home buyers. Over time, the 

closing process has become more complex, making these consumer 

disclosures even more critical. 

The recent abuses we have seen in the mortgage market have, 

in part, been exacerbated by a lack of such protections. RESPA was 

initially established to provide these very safeguards, but clearly, 

they are not working in today’s housing market. At its very foundation are the Good Faith Estimate and the HUD-1 forms, which provide home buyers with basic information concerning the costs of 

their purchases. 

Unfortunately, HUD’s recent proposal to update these forms as 

well as the settlement process is not the cure-all that home buyers 

need. The rule creates additional paperwork and complexity, potentially adding to the confusion of an already stressful purchase. This 

could lead to information overload and could ultimately result in 

more uncertainty for consumers. In addition to these problems, it 

will create chaos for small settlement service providers. These 

firms play a key role in the home-buying process, and they stand 

to incur billions of dollars in costs due to the implementation of the 

RESPA regulation. 

Aside from the enormous costs posed to small businesses, it also 

creates an environment in which they are placed on an unlevel 

playing field. While HUD asserts that volume discounts will provide consumers with savings, we know better. It will lead to the 

2

bundling of services and will reduce competition by forcing small 

firms out of business. As a result, consumers will ultimately face 

higher prices. 

It is my expectation that Steven Preston, who President Bush recently nominated to be Secretary of HUD, will help address these 

problems. We know Mr. Preston well on this Committee, and I am 

hopeful that he will utilize his experience as head of the SBA to 

ensure that the RESPA rule does not unnecessarily burden small 

firms. 

The changes the proposed rule makes to the settlement and closing costs have come at a challenging time in the housing market. 

It is important that we closely examine this modification so its recovery is not undermined. We also have the responsibility to protect home buyers by ensuring that they are given information 

about loan terms and closing fees in a clear, easy-to-understand 

manner. At today’s hearing, we will begin to answer these questions and will make sure that we are not doing more harm than 

good to the home-buying process. 

I look forward to today’s testimony, and I thank all of the witnesses again for coming here to share their views. 

I now yield to Ranking Member Chabot for his opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr. CHABOT. I thank the chairwoman for yielding. 

I want to thank her once again for holding this important hearing on the Department of Housing and Urban Development’s proposed changes to rules implementing the Real Estate Settlement 

Procedures Act, or RESPA. 

This is the committee’s third hearing on HUD’s plan to modify 

regulations governing the real estate settlement process. Although 

HUD has made significant strides since the Committee last examined this issue back in January of 2004, I remain concerned about 

the procedures used to assess the economic impact that the proposal will have on small businesses operating in the residential 

real estate market. 

I certainly concur with the idea that the complex process associated with the purchase of a home can and should be simplified 

given the state of the housing market in certain areas of the country, including my home State of Ohio, and we just happened to 

have the Governor of Ohio in for a meeting this morning. The Ohio 

delegation did. There is no doubt that a more transparent process 

on the front end may ameliorate problems on the back end, thereby 

potentially reducing the number of foreclosures. 

The effort to reduce confusion and to increase transparency in 

the real estate process should not be borne solely by small businesses. The Regulatory Flexibility Act, or RFA, requires Federal 

agencies to consider the impact of their proposed rules on small 

businesses and to determine whether there are any practical alternatives that would reduce the adverse effects on small business 

while still achieving the Agency’s regulatory objectives. 

In the case of the proposed RESPA rules, HUD must assess alternatives that increase transparency and that assist consumers 

but that do not necessarily pose undue burdens on small busiVerDate 0ct 09 2002 16:28 Jun 24, 2008 Jkt 033615 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\40855.TXT LEANN
3

nesses that play a vital role in the operation of the residential real 

estate market. In particular, the Department’s initial Regulatory 

Flexibility and Analysis and Regulatory Impact Study used data 

from 2002 and 2004. The data may be accurate, but they clearly 

do not reflect the current turbulence in the residence real estate 

market. An accurate analysis under the RFA requires an assessment of the regulation in the context of the current economy, not 

in the economy of 5 years ago. 

I will be interested in hearing from HUD how it plans to update 

this data to reflect current economic conditions. I also will be interested in hearing from our other witnesses how changes in the marketplace affect their capacity to implement regulatory changes. I 

am also concerned that HUD did not perform a detailed assessment 

of the consequences of volume pricing on the future viability of 

small businesses. There is no doubt that volume discounts will benefit consumers and may provide marginal assistance in improving 

the residence real estate market. However, the long-term consequences of reduced competition may argue against making 

changes that will further shrink an already troubled sector of our 

small business economy. 

Finally, I also would like to hear from our witnesses as to whether this is an appropriate time to commence this type of significant 

rulemaking change. The focus of the Department’s resources should 

be on helping the ailing housing sector, not implementing new regulations that might divert some of these resources away from the 

more critical mission of restoring health to our housing sector. 

Once that is done, the Department could turn its attention to its 

modification of rules to implement RESPA. 

I want to thank the witnesses for taking the time to come here 

to testify this morning. 

I will conclude by just noting that I am also the ranking member 

of the Antitrust Task Force of the Judiciary Committee, and we are 

holding a hearing at 11:00 o’clock. All the five heads of the oil companies are being hauled in. They have been thrashed over in the 

Senate, and now they will be thrashed here in the House, and so 

I have to attend that particular thrashing. Mary Fallin from Oklahoma will be sitting in for me, and she will be here shortly. 

I want to, again, thank the chairwoman for holding this hearing. 

I yield back. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Chabot. 

I would like to recognize Mr. Lipinski for the purpose of making 

an opening statement. 

OPENING STATEMENT OF MR. LIPINSKI 

Mr. LIPINSKI. Thank you, Madam Chairwoman. 

I would like to, first of all, thank Chairwoman Vela ́zquez and 

Ranking Member Chabot for holding this hearing today and for 

their continued leadership on this and on other small business 

issues. 

I also would like to thank all of our witnesses today for their participation and input on this issue that we all know, with all of the 

turmoil going on in the housing market today, is very critical. 

As the housing foreclosure crisis worsens, I think all of us want 

to do all we can to help homeowners while taking action to prevent 

4

future crises. However, we must not rush to solutions that will significantly increase costs to consumers, that will reduce choices, and 

that will shut out small businesses from providing settlement or 

mortgage origination services. Unfortunately, I am concerned that 

HUD’s proposed rule may have some of these negative impacts. At 

a time when our economy is already suffering, we should not be 

sacrificing the jobs and economic growth created by small businesses while we make an effort to address the housing crisis. 

I look forward to listening to testimony, and I am hopeful that 

we can find an alternative solution that helps consumers without 

burdening small businesses. I will also be submitting for the record 

testimony provided by Attorneys’ Title Guaranty Fund, a lawyer’s 

service that represents more than 3,500 law firms throughout the 

Midwest, many of which are small businesses. I urge my colleagues 

to take a look at this thoughtful testimony they have provided regarding this proposed rule. 

Again, I thank the chairwoman and ranking member for holding 

this hearing. I yield back the balance of my time.

Chairwoman VELA ́ ZQUEZ. Thank you. 

Now I welcome Ms. Ivy Jackson, Director of the Office of RESPA 

and Interstate Land Sales in the U.S. Department of Housing and 

Urban Development. Her office is responsible for administering the 

Real Estate Settlement Procedures Act and the Interstate Land 

Sales Full Disclosure Act. Ms. Jackson has a Master’s of Science 

in Consumer Economics from Auburn University. 

Welcome. 

STATEMENT OF MS. IVY JACKSON, DIRECTOR OF THE OFFICE 

OF RESPA AND INTERSTATE LAND SALES, U.S. DEPARTMENT 

OF HOUSING AND URBAN DEVELOPMENT 

Ms. JACKSON. Chairwoman Vela ́zquez, Ranking Member Chabot, 

on behalf of the Department, I appreciate the opportunity to discuss important issues related to the Real Estate Settlement Procedures Act, known as RESPA, and to highlight aspects of the proposed rule as part of HUD’s RESPA reform. 

Today, in the midst of a housing downturn when thousands of 

Americans are faced with the prospect of losing their homes 

through foreclosure, there is no doubt that the process of buying a 

house, itself, has been part of the problem. Many homeowners went 

to the settlement table, paid thousands of dollars in closing costs 

and entered into loans they did not fully understand. Consumers 

need to know: What type of loan are they getting? How much will 

it cost per month? What is included in their monthly payment? 

Will it go up? Today, consumers have no assurance that the loan 

terms and closing costs they are offered will be what they will be 

faced with at the settlement table. 

RESPA was enacted to protect consumers during the home-buying process, requiring certain disclosures and prohibiting practices 

such as kickbacks and referral fees that increase the cost of settlement. RESPA requires the lender or mortgage broker to give a 

good faith estimate of charges the consumers will expect to pay to 

close the loan. The HUD-1 settlement statement itemizes the 

charges actually imposed. 

5

RESPA covers millions of transactions each year involving virtually all loans by one-to-four family residential properties. It extends to providers settlement services such as appraisals, credit reporting, loan origination, and title and closing services. 

The RESPA reform process has been thorough and inclusive. 

HUD has sought input from consumers, industry and Congress 

about how to update and improve the settlement process. In 2005, 

HUD held seven roundtable discussions with consumer and industry groups. Three roundtables conducted in Chicago, Fort Worth 

and Los Angeles were in conjunction with the Small Business Administration. HUD has thoroughly considered various options and 

opinions arising from these meetings in developing the current proposed rule, which includes a standardized GFE to improve the disclosure of loan terms and settlement costs, making it easier for consumers to shop, limitations on how much final settlement charges 

can vary from the estimated charges, and modification of the HUD1, including a closing script, that will compare the final HUD-1 

charges with the GFE and will describe to the consumer the terms 

of the loan he is receiving. 

Finally, the proposal requires indirect fees paid to the mortgage 

broker by the lender and charged to the borrower through the interest rate to be applied to reduce the consumer’s direct costs at 

closing. 

HUD believes clear presentation of loan terms will improve borrower understanding of risky mortgage features, such as teaser 

rates, interest-only loans and balloon payments. Improved consumer shopping will lead to lower settlement costs of an estimated 

$500 to $700 per loan or over $8 billion annually. These savings, 

we believe, will come from competition and high-priced producers. 

Since there is no evidence small businesses have been disproportionately charging high prices, there is no expectation of a disproportionate impact on small businesses. 

Industry costs for the rule include one-time adjustment costs for 

training, software upgrades and legal advice related to the proposed GFE and HUD-1. These costs are estimated to be $570 million and $390 million from small business but at $5,000 to $6,000 

per business. Recurring GFE costs include time processing the new 

forms and in calculating third-party charges to meet the tolerances. 

HUD-1 recurring costs include preparing the closing script and in 

reading it to the borrower. Total recurring costs are estimated to 

be $98 per loan. Even if all costs were passed on to the consumer, 

there would be a positive net effect of approximately $700 per loan. 

There are other economic effects that are important but difficult to 

quantify. 

As a result of the proposed reform, consumers are less likely to 

engage in risky and uninformed borrowing, which could have positive impacts on the housing market, on the financial system and 

on the national economy. HUD would like to work with Congress 

to enact legislative changes to RESPA, such as requiring the delivery of the HUD-1 to the borrower 3 days prior to closing and providing for civil money penalties to bolster consumer protection and 

to ensure uniform enforcement. 

Given the recent increase in home foreclosures, HUD remains 

committed to improving the complicated, unclear and costly homeVerDate 0ct 09 2002 16:28 Jun 24, 2008 Jkt 033615 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 G:\CLERK SB-LD\HEARINGS\TRANSCRIPTS\40855.TXT LEANN
6

buying process. Under this proposal, home buyers would be presented for the first time ever with the standard form disclosing important aspects of the loan. 

Thank you for the opportunity to appear here today. I look forward to your questions. 

[The prepared statement of Ms. Jackson may be found in the Appendix on page 39.]

Chairwoman VELA ́ ZQUEZ. Thank you, Ms. Jackson. 

Ms. Jackson, the RESPA rule requires settlement agents to explain the terms of a mortgage at closing. It seems to me that the 

lender is in the best position to explain these terms, not the settlement agent. 

Do you anticipate that settlement agents will be able to answer 

most mortgage-related questions at closing? 

Ms. JACKSON. We believe that they would. It is merely taking the 

information that we believe would be transmitted with closing instructions from the lender to the settlement agent and going over 

the documents. Many settlement agents go over these documents 

today. I have been lucky in all of my closings to have that done. 

Chairwoman VELA ́ ZQUEZ. Does that mean that HUD is putting 

the settlement agent in a position of speaking for the lender? 

Ms. JACKSON. We are only asking that the—just as the information about the other loans and charges are transmitted from the 

lender to the title agent or to the closing agent to prepare the 

HUD-1, then this information would be transmitted to the disclosures on the script to be read to the borrower. 

Chairwoman VELA ́ ZQUEZ. If an agent tried to explain the mortgage and tried to answer questions that should be answered by the 

lender, doesn’t that put an agent in the position of providing the 

unauthorized practice of law under many State laws? 

Ms. JACKSON. Well, we have heard there is some concern out 

about that in different States, and that would certainly be something we would be looking at in the final rule into what would be 

appropriate for the closing agent to communicate to the borrower. 

Chairwoman VELA ́ ZQUEZ. So you are telling us that you are revisiting that issue? 

Ms. JACKSON. Well, we certainly would be looking at it. This is, 

of course, a proposed rule. Anything is open to, you know, comment 

or to other ideas, certainly. 

Chairwoman VELA ́ ZQUEZ. I know HUD intended for the longer 

Good Faith Estimate format to provide more transparency to consumers. However, in some respects, the form decreases transparency. Unlike the existing format, the new GFE fails to itemize 

the fees. 

Why did you or why did HUD reduce this level of detail in the 

new GFE? 

Ms. JACKSON. We are trying to stop the proliferation of fees. I 

have had title agents or lenders call and say they have run out of 

lines on the HUD-1 and on the GFE. They had so many different 

types of fees that they were charging the borrower, and it is difficult to compare what one lender calls an ′′admin fee′′ and what 

the other calls a ′′processing fee.′′ Even in negotiating on your loan 

costs, you may find you get one of the charges—the processing 

7

fee—off only to find, at closing, there is an admin fee for approximately the same amount of money. So we have tried to compress 

cost categories. 

Chairwoman VELA ́ ZQUEZ. Ms. Jackson, I understand all of that. 

I have the two forms here—the old format and the new one. This 

one is four pages. This one has all of the items. It itemizes all the 

fees so the borrower is able to look at it and see what he is paying 

for at closing. On this one, I think it is much easier for someone 

to hide some of the fees, don’t you think? 

Ms. JACKSON. Well, in the good faith estimate stage, we are trying to get the borrower to concentrate more on the bottom line of 

what his costs are going to be and the loan terms. Now, it is true 

that we have compressed certain categories on page 2 of the GFE. 

Of course, that is also open to comment. If there are specific items 

that others believe that should be required to be itemized, we will 

certainly take that into consideration. 

Chairwoman VELA ́ ZQUEZ. Ms. Jackson, the RESPA rules require 

settlement agents to determine whether certain charges estimated 

on the GFE exceed a 10 percent tolerance at closing. I know some 

members of the real estate industry are concerned that the rules 

do not give them enough guidance on what to do if the tolerance 

is exceeded. 

Can you clarify to us what a settlement agent is supposed to do 

if the tolerance is exceeded? 

Ms. JACKSON. We would just expect the settlement agent to highlight that to the borrower. If it is a refinance transaction and the 

borrower has the ability to rescind the transaction—

Chairwoman VELA ́ ZQUEZ. I understand the concern from some of 

the people in real estate that you do not provide enough guidance. 

Ms. JACKSON. Well, we would certainly take that into consideration in going forward. 

Chairwoman VELA ́ ZQUEZ. Let me ask you: Is a settlement agent 

supposed to stop a sale when the tolerance is exceeded by a mere 

$10 or $20? 

Ms. JACKSON. No, that was not our intention. It was only to highlight it to the borrower. Also, because we intend to ask Congress 

to give us the authority to require that the HUD-1 be given to the 

borrower 3 days in advance, then we believe that the borrower 

would then have enough time to compare the GFE and the HUD1 and to contact the lender and make a determination if there was 

a mistake or it would be the borrower’s choice then what they 

would like to do with that. 

Chairwoman VELA ́ ZQUEZ. Okay. Mr. Chabot alluded in his opening statement to the fact of the regulatory flexibility analysis that 

HUD conducted for the RESPA rule, which was extensive. However, some firms in the real estate industry are concerned that it 

underestimated the economic effect on them given the fact that, 

when the regulatory flexibility analysis was conducted, the economic climate was totally different from what we are in today. 

So what kind of outreach did you conduct with the small business community to determine the economic impact of the rule? 

Ms. JACKSON. Well, we did hold the roundtables. That was, you 

know, back in 2005. We have been, you know, listening, talking to 

people. During this comment period, we have offered to meet with 

8

any group or individual who would like to come in and talk with 

us about it. We will also be going back to see at the time of the 

final rule if there have been any changes in our figures that we 

would be updating that at that time. 

Chairwoman VELA ́ ZQUEZ. Let me ask you: Can you give us any 

example of where HUD makes changes to the rule based on feedback from small businesses? 

Ms. JACKSON. Well, packaging is no longer a part of this rule. We 

certainly heard about that in the proposed rule in 2002. As you 

know, a former rule was withdrawn in 2004, and that has been 

part of this whole reform process. 

Chairwoman VELA ́ ZQUEZ. Is that one example or do you have 

more examples? 

Ms. JACKSON. I would think that that is probably the, you know, 

major example. 

Chairwoman VELA ́ ZQUEZ. I have other questions. I will come 

back to you. 

Now I will recognize the ranking member. 

Mr. CHABOT. Thank you, Madam Chair. 

Ms. Jackson, does the Department plan on updating the 2002 

and 2004 data that it used to prepare the initial regulatory flexibility analysis? 

Ms. JACKSON. Well, HUD used the latest census data available. 

So, if there is other data available by another source, then we 

would consider looking at it. 

Mr. CHABOT. But that was data from back a number of years 

ago. 

Ms. JACKSON. Right, it was. 

Mr. CHABOT. Would you concede that the situation in the real estate industry has been pretty tumultuous in recent years? With the 

market’s having tanked and just the home-building market and everything that is going on out there, wouldn’t you agree that we 

have very different circumstances now than we did from the time 

of that data? 

Ms. JACKSON. Well, circumstances in the market have certainly 

changed. I am not sure whether that would affect our cost analysis 

or not. 

Mr. CHABOT. So, at this point, you do not have any plans on 

doing it. Would you be open to—

Ms. JACKSON. We would certainly be open to looking at more recent data—

Mr. CHABOT. Okay. 

Ms. JACKSON. —and in looking at and in calculating what the 

costs would be. 

Mr. CHABOT. Okay. Thank you. 

Is HUD planning to hold any more public forums after the comment period closes? 

Ms. JACKSON. At this time, we do not have plans to hold any. 

Mr. CHABOT. Is that something else that might be considered if 

you determine there was reason to do that? 

Ms. JACKSON. Well, we would be in the rulemaking process, and 

I am afraid I would have to check to make sure that that was 

something that would be appropriate during the comment period. 

Mr. CHABOT. I am going to yield back at this time, Madam Chair. 

9

Chairwoman VELA ́ ZQUEZ. Ms. Clarke. 

Ms. CLARKE. Thank you, Madam Chairwoman and Ranking 

Member Chabot, for holding this very important hearing. 

The Real Estate Settlement Procedures Act is a vital tool in the 

American home-buying process. Most importantly, small businesses, such as title insurance companies and title agents, are important in the settlement and closing costs of residential mortgages. I believe that more transparent information could enhance 

consumer shopping and could discourage predatory, discriminatory 

and fraudulent lending processes. 

So it is my hope that this concern is at the center of all that we 

understand the impact of HUD’s proposed rule on small entities 

will address as this is a very important component of the subprime 

mortgage crisis and its predatory lending. 

Ms. Jackson, I just have a couple of questions for you. First, can 

you explain to me how the proposed Good Faith Estimate is shorter 

or less complicated? 

Ms. JACKSON. Well, borrowers would be able, if they wished, to 

just take the first page and to use that to compare costs and loan 

terms from different lenders since the loan terms are all on this 

first page, the important ones that we believe, like ′′Is there a prepayment penalty?′′ ′′Can the interest rate go up?′′ ′′What is the beginning interest rate?′′ Then at the bottom, there is a total of their 

costs. 

Page 2, of course, then goes into more detail about the different 

types of costs and the different services that the borrower is paying 

for. 

Pages 3 and 4 are merely more of an informational type for borrowers to explain to them what are some other charges that they 

may encounter in the home purchase and ownership. It also talks 

about whether the borrower would—if they do not have the money 

to bring $10,000 to closing, maybe through the trade-off table, they 

could see if there is a loan product that has a little bit higher interest rate where they would only have to bring $3,000 or $4,000 to 

close. So it is more of an educational tool for consumers, pages 3 

and 4. 

Ms. CLARKE. Would the Good Faith Estimate allow for an easy 

comparison to the HUD-1 settlement statement? 

Ms. JACKSON. We have made some changes to the HUD-1 so that 

you can look back from the HUD-1 to the cost categories on the 

Good Faith Estimate. The closing script also—currently, we had 

proposed to have what we call a ′′crosswalk′′ where the fees on the 

GFE are listed and the fees on the HUD-1 so that the borrower can 

easily see if there is any difference. 

Chairwoman VELA ́ ZQUEZ. Would the gentlelady yield? 

Do you think that, for the consumer, it is much easier and that 

they will be able to detect and to compare apples with oranges 

here? 

Ms. JACKSON. Well, yes, because what we are trying to do is to 

come to, for example, a total of all lender fees so they can compare 

the lender fees of one loan to the lender fees of another. Like I said, 

borrowers become confused when the different fees have different 

names, whether it is an admin or a processing fee or a fee to sell 

10

their loan in the secondary market or miscellaneous fees, those 

types of categories that we see. 

Chairwoman VELA ́ ZQUEZ. I will yield back, but I have to tell you, 

if I am in the process of reviewing this for my own sake, it will be 

quite difficult for me as a consumer to be able to compare the fees 

in this format, the HUD-1, with the Good Faith Estimate. My concern is we are doing this to protect consumers. Do you test these 

forms? What type of outreach do you do with consumers? 

Ms. JACKSON. Yes, we did extensive different rounds of testing. 

I believe we had at least six rounds of testing beginning in 2002 

through November 2007. We have been in Atlanta; Boston; Denver; 

Seattle; Tulsa; Los Angeles; Minneapolis; Austin, Texas; Portland, 

Oregon; Birmingham, Alabama. 

Chairwoman VELA ́ ZQUEZ. Okay. Okay. So you showed these two 

forms to them, to the consumers? 

Ms. JACKSON. We showed them different forms. First, the company that was developing the form talked to the consumers and 

found out what they felt that they needed and developed the form, 

and then we did test something that was very similar to the HUD1, and the consumers liked the form better that we have now. 

Chairwoman VELA ́ ZQUEZ. So you are telling me—and I will yield 

back and give you more time. 

You are telling me that it is not much easier for some people to 

hide fees that are not itemized? Because they are not itemized 

here. It is not easier to hide those fees? 

Ms. JACKSON. Well, it would be in the—they would see the totals 

of which category was higher than another category. 

Chairwoman VELA ́ ZQUEZ. I yield back. Thank you. 

Ms. CLARKE. Thank you, Madam Chair. I just have one final 

question. 

Ms. Jackson, as you know, hidden costs can act as a payment 

shock to a borrower, causing financial distress, which could possibly lead to rising foreclosure rates. Borrowers may have entered 

into high-cost loans as a result of discrimination. 

Can you explain to me how this proposed rule will address this 

issue and, yet, not adversely affect small businesses? 

Ms. JACKSON. Well, what we are trying to get borrowers to do is 

to shop. By holding lenders and brokers who are loan originators 

to a zero tolerance as we have proposed, then what they propose 

on the GFE is what the borrower would actually be charged at settlement. We have calls in my office every day from people who are 

at settlement who find out they need $900 more to close or that 

there was a fee that they did not anticipate. So what we are trying 

to do is, really, put the faith back into good faith estimate. 

Ms. CLARKE. You spoke about the zero tolerance. 

How was that enforced or how is oversight given to that? 

Ms. JACKSON. Unfortunately, we do not have penalty provisions, 

civil money penalty authority, under RESPA. My staff is very pro 

consumer and has been able to call on behalf of consumers and, in 

most cases, get those fees reduced or taken off. Sometimes just 

HUD’s calling gets their attention, and they offer to do that. We 

have returned hundreds of thousands of dollars to borrowers that 

way, but we do believe that we need civil money penalty authority 

11

to make certain that we can enforce what is put on the GFE and 

then what is charged at the HUD-1 or closing stage. 

Ms. CLARKE. Just in closing, Madam Chair, I think part of the 

run on the mortgage foreclosure piece has been a lack of real oversight and penalty. The practice has become sort of, I think, a way 

of doing business. Unfortunately, as a result of that, so many people have been adversely impacted. 

So it is my hope that as you look at this and as you speak to 

the value of zero tolerance that some sort of provision is made to 

really enforce that so that we change that behavior and so that 

people do not see our sort of new paradigm of lending as a way of 

continuing a practice that has been really injurious to our economy. 

I yield back. Thank you very much, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Sure. 

Mr. Bartlett. 

Mr. BARTLETT. Thank you very much. 

Among other pursuits in a former life, I was a land developer 

and a home builder, so I have sat many times at the settlement 

table. I am not a big fan of regulation, but I am a huge fan of truth 

in advertising. 

I gather what you are doing comes closer to truth in advertising 

than it does to regulation? 

Ms. JACKSON. Well, we do believe that what borrowers are told 

on the phone or what is put on a Good Faith Estimate should be 

what they will receive at the closing table, and so we do want to 

see that. It has impacted—we do believe that borrowers have paid 

higher origination charges. HUD will soon come out with a study 

done with the Urban Institute where we believe, based on the 

study, that African Americans paid $315 to $532 more than nonminorities after controlling for other relevant factors and that 

Latinos paid $290 to $450 more than non minorities after controlling for all other factors. We believe that, in making the Good Faith 

Estimate actually be what the borrower will finally see, that they 

will have the confidence to shop and to obtain the best loan. 

Mr. BARTLETT. When the real costs exceed by more than 10 percent the Good Faith Estimate, who pays that? 

Ms. JACKSON. On the 10 percent—on the tolerance? 

Mr. BARTLETT. You have gotten a Good Faith Estimate of what 

it was going to cost. You come to the settlement table, and it costs 

more than that. Your regulations say that if it, in fact, exceeds that 

by more than 10 percent somebody has to pay that difference. Who 

pays the difference? 

Ms. JACKSON. If the borrower wants to go ahead and close 

through the transaction, then they would go ahead and pay the additional amount of money. We hoped by having the HUD-1 delivered 3 days in advance that there would be a dialogue between the 

borrower and the lender to either reduce the cost back under the 

10 percent tolerance or less. We also, if given civil money penalties, 

would look to see whether there was a pattern or a practice with 

that lender or, perhaps, report that lender to Federal and State 

regulators also. 

Mr. BARTLETT. But there is no leverage at the settlement table 

to get those costs reduced if they, in fact, exceed the Good Faith 

Estimate? 

12

Ms. JACKSON. Well, I think some people probably have the leverage to do that, particularly on—

Mr. BARTLETT. But you do not? You do not have any leverage? 

Today, no one is compelled to make up the difference. The buyer 

either goes through with it or—

Ms. JACKSON. He does. He goes through and pays. We have 

looked at asking the rule about the possibility of a time limit to 

cure so that the lender, whether it is 15 days or 30 days or some 

other time frame, would go back to reimburse the borrower for the 

overcharges during that cure period. If they did not, if we were 

given penalty provisions, then we would start an action, an action 

against the lender. 

Mr. BARTLETT. Do you think the borrowers who are now in distress did not go to the settlement table with their eyes wide open? 

Ms. JACKSON. I think that some did not. I know that sometimes 

borrowers are brought—we had an example in our office where the 

documents were sent to the consumer’s home to sign. It was, you 

know, in the evening. She signed them without really looking at 

them. She ended up with an $8,000 prepayment penalty and an adjustable rate interest that was a lot higher and additional charges, 

I believe, around $12,000. Now, we were able to use just our influence to get her out of that, but there are millions of borrowers who 

are ripped off every day. 

Mr. BARTLETT. I would like to note in closing, Madam Chairman, 

of the many times I sat at the settlement table, I never read the 

documents because there were too darned many of them. As a result of regulations, there is a huge pile of documents. I paid a lawyer to sit at the table with me, and I trusted that he had read the 

documents and that he gave me good advice. 

You cannot, Ms. Jackson, count on the consumer to read these 

documents. They are too technical. There are too darned many of 

them. There is a huge pile of them at the usual settlement. Somehow we have got to cut through this so that the buyer really knows 

what he is signing. I trusted the lawyer who sat with me at the 

table. I do not know who they trust. Is it their agents? 

Ms. JACKSON. I do not know, sir. That is exactly what we are trying to do because there are so many documents, and different 

terms of the loan are in different places, and there is different information. So that is why on the first page we put what we thought 

was most important. 

Mr. BARTLETT. Thank you very much, Madam Chairman. 

Chairwoman VELA ́ ZQUEZ. Mr. Cuellar. 

Mr. CUELLAR. Thank you, Madam Chair. 

Ms. Jackson, I am an attorney. In the past, I have done closings, 

so I think we know exactly what we are talking about. Even as an 

attorney, I think it is complicated. Even as an attorney, I think it 

is too much paperwork, and I do understand the reason you are 

trying to do this, but we have to be careful about the solution that 

we want to use to address the problem. I always believe that the 

solution should be better than what it was before. 

In hearing from my Texas folks, they seem to have big concerns, 

and I do not know if you have seen that there is a huge amount 

of questions on this side. I am talking about this side of the table. 

13

The first thing is I think your own estimates say that the cost of the real estate industry would be $570 million up front and then 

about $1.2 billion annually; is that correct? Is that what your estimates are? 

Ms. JACKSON. Our estimates would be that it would be about 

that amount up front, the $585 million to $590 million, and we believe that works out to be about $5,000 to $6,000 per small business 

Mr. CUELLAR. Okay. Who do you think the small business is 

going to transfer that cost to? 

Ms. JACKSON. To the consumer. 

Mr. CUELLAR. Okay. 

Ms. JACKSON. However, we believe that there are substantial 

consumer savings. Even if you pass all of the costs on to the consumer, our estimate is that the consumer would still be saving 

around an average of $600 per loan transaction. 

Mr. CUELLAR. So, if you transfer $5,000 and take another savings, you say, at the end it will save the consumer money? 

Ms. JACKSON. Yes. We believe, in the end it would save the consumer money. 

Mr. CUELLAR. Okay. You do know that there are so many folks 

who disagree with your opinion on this. 

Ms. JACKSON. Yes. 

Mr. CUELLAR. Okay. Second of all, paperwork. Some attorneys 

charge by page. No, I am just kidding. There is a lot of paperwork. 

I am a big believer—in Texas, I had legislation to reduce paperwork for all of the agencies. One is, if you can put it on one page 

instead of on 10 pages, let us try to reduce it. Nothing against attorneys—I am also an attorney—but if you can put it in plain 

English, put it in plain English. 

Does this reduce paperwork or does this add paperwork to a 

process—and I know this process because I have done it in the 

past. Does this reduce or does this add to a process that already 

has a lot of paperwork? 

Ms. JACKSON. Well, it does add more pieces of paper to the process, which does have a lot of paper now, but at the same time we 

believe that it is important information to keep borrowers from getting into the messes that they are in now. We believe that a lot 

of borrowers did not understand the loans that they were getting. 

So, if it takes another sheet of paper or, you know, another line of 

disclosure, then we believe that that is worth it. 

Mr. CUELLAR. Is it possible to save money and save paperwork—

well, is it possible to help the consumer by doing it in such a way 

that you actually save him money and actually reduce the paperwork or are you saying the only way we can help consumers is by 

adding more paperwork and by adding another $5,000 to the real 

estate industry that will be passed on to the consumer? 

Ms. JACKSON. Well, we only control the Good Faith Estimate and 

the HUD-1 and a couple of other disclosures in the process. So we 

do not—you know, HUD does not necessarily have the control to 

reduce other paperwork that may be required by the State. Oftentimes, borrowers are asked to re-sign disclosures. 

Mr. CUELLAR. So you are saying that you have the power to increase paperwork but not to reduce paperwork? 

14

Ms. JACKSON. We have the power to control what is on the GFE 

and on the HUD-1 and on a few other disclosures but that anything else would be outside of our jurisdiction. 

Mr. CUELLAR. I know my time is almost up. Let me just ask my 

last question. 

I can understand the intent. I do not have a problem with that. 

I want to protect the folks whom you mentioned—the Hispanics, 

the blacks—anybody who might be taken advantage of, okay? I just 

want to see a solution that will make it easier and simpler for the 

folks we are trying to protect and not make it expensive. The last 

question that I want to ask is: 

Did you all do a cost-benefit analysis to this? In other words, in 

order to help somebody, is it going to cost more to help that person? Does it cost more than the benefit we are trying to provide? 

Ms. JACKSON. We do not believe so. We believe that it will cost—

add—an additional approximately $98 per loan closing, but we believe that consumers will still reap substantial benefits in hundreds 

of dollars more. 

Mr. CUELLAR. So we are adding to the costs to help the benefit 

to the consumer? 

Ms. JACKSON. Well, we are adding to the—perhaps it will be 

more costly to explain a little more to the consumer what they are 

actually getting, but at the end of the day, then, you know, maybe 

they would not get a loan with a prepayment penalty where they 

cannot get out of that. 

Mr. CUELLAR. I am with you, but my question is, if you can just 

answer this: In terms of paperwork and cost to the consumer, does 

the cost-benefit analysis mean we are adding more to the cost to 

benefit the consumer? Just a ′′yes′′ or ′′no.′′

Ms. JACKSON. Yes. 

Mr. CUELLAR. Okay. Thank you. 

Chairwoman VELA ́ ZQUEZ. Mr. Johnson. 

Mr. JOHNSON. Thank you. 

I am coming in on the tail end of this discussion, so I must apologize. I hope I will not ask anything that has already been asked. 

I will say that, you know, there is some cost in implementing 

these new regulations that have been proposed, but the regulations 

and the costs will be passed on to the consumer. Is that what I am 

hearing you say? It will be approximately how much per closing? 

Ms. JACKSON. $98 per closing. 

Mr. JOHNSON. $98 per closing. 

But now the purpose of these new regulations is to enable the 

borrower to understand precisely the kind of loan product that is 

being offered in advance, prior to the borrower’s coming to the closing table, correct? 

Ms. JACKSON. Correct. 

Mr. JOHNSON. Then once the borrower is at the closing table, the 

regulations, the proposed regulations, will result in the borrower’s 

having a better understanding of the product that is being closed 

on their behalf, correct? 

Ms. JACKSON. Correct. 

Mr. JOHNSON. So it will tend to help people avoid getting locked 

into situations that they never intended, and it just comes up at 

15

the closing, such as the fact that this mortgage has a balloon payment feature, correct? 

Ms. JACKSON. Correct. 

Mr. JOHNSON. Or it has got an adjustable rate and the rate can 

adjust every 6 months or every year or every 2 years or after 2 

years or 3 years or 5 years have gone by, that kind of thing, correct? 

Ms. JACKSON. That is absolutely correct, sir. 

Mr. JOHNSON. And that is not a 30-year fixed rate mortgage. 

There is even a prepayment penalty. There is or is not a prepayment penalty. 

Ms. JACKSON. That is correct. 

Mr. JOHNSON. And your yield spread premium, which most people have no idea of what that means, they get an understanding 

of what the yield spread premium is and how much it is actually 

going to cost them, correct? 

Ms. JACKSON. Yes. 

Mr. JOHNSON. So these kinds of regulations would result in, 

probably, a savings as far as any equity that may be in a home 

that is being refinanced? 

Ms. JACKSON. That is correct. 

Mr. JOHNSON. And it probably even has the potential to cut down 

on some of the up-front costs on a new mortgage that the borrower 

would be expected to produce at the closing table? 

Ms. JACKSON. That is what we expect, to the tune of about $600 

per loan. 

Mr. JOHNSON. So this $98 that it would cost the borrower would 

have to be weighed against the potential savings that would accrue 

to the borrower. Then a net result, in your humble estimation, 

would be what in terms of dollars to the borrower? 

Ms. JACKSON. Well, we believe that the savings would be around—almost $700 to start. Then there could be additional savings for time efficiencies to the borrower. Then after subtracting 

the $98, we still believe that the consumer would have a net benefit of $600 to $700. 

Mr. JOHNSON. What would that savings be derived from? 

Ms. JACKSON. It would be derived from the fact that we believe 

that borrowers could take the first page and shop from lender to 

lender and have everything on the first page so that they could 

compare apples to apples so that you know that you are comparing 

loan features—if they are fixed rate to fixed rate, no prepayment 

penalty to no prepayment penalty—and derive the best loan for 

you. Then once you accept that loan, what you believe you will pay 

at the GFE stage is what you will actually see at settlement. 

Mr. JOHNSON. Okay. All of this has been precipitated by the 

alarming increase in the number of home foreclosures that were 

brought on by people being steered into the subprime market who 

could have afforded a prime loan, but yet they ended up with a 

subprime loan unbeknownst to them? 

Ms. JACKSON. That has certainly—we believe that the fact that 

they did not know what terms they were getting and that their 

costs were greatly increased has helped lead to the current crisis. 

Mr. JOHNSON. All right. Thank you. 

Chairwoman VELA ́ ZQUEZ. Ms. Fallin, do you have any questions? 

16

Ms. FALLIN. Thank you, Ms. Chairman. 

Sorry I missed getting to hear some of your testimony, but we 

appreciate your coming today and helping us with this very important issue. I had something I wanted to ask you about on the volume price discounts. That is: 

Does the HUD plan on assessing in its final regulatory flexibility 

analysis the viability of small business in the residential real estate settlement industry due to the implementation of the volume 

price discounts? What effect will it have on small businesses, and 

will it be able to compete? 

Ms. JACKSON. Well, we do not really think that it would have an 

effect on small business. 

First, volume-based discounting is allowed now under RESPA. 

What we have tried to do in the rule is to clarify to all of the different jurisdictions across the country that HUD interprets that it 

is not a violation of RESPA for volume-based discounts as long as 

any savings derived from it is passed on to the consumer. So, if 

there were some negotiation to lower appraisals or the cost of appraisals, as long as that savings was passed to the consumer, then 

we would not consider it to be a violation. 

Ms. FALLIN. Well, do you think the same amount of small businesses will be able to compete for this program to be able to offer 

the discount? 

Ms. JACKSON. We do think that small businesses will also be able 

to take advantage of volume-based discount. 

Ms. FALLIN. All right. Thank you. 

Thank you, Ms. Chair. 

Chairwoman VELA ́ ZQUEZ. Ms. Jackson, I understand that HUD 

requires for settlement agents to draw up a script and to read it 

aloud. My understanding is that HUD estimates that that requirement will add up to 45 minutes to the time it takes to close a 

transaction. 

How did you arrive at this figure? How much will this new requirement cost small businesses in the real estate industry? 

Ms. JACKSON. Well, we believe that, as we said, it would add, 

probably, I think it was, around $54 per loan for the recurring cost 

on the HUD-1. 

Chairwoman VELA ́ ZQUEZ. The 45 minutes will represent $54? 

Ms. JACKSON. Well, it was 30 minutes. That was for the preparation of the script, then an additional 15 minutes would be—reading 

the script about 5 minutes, and we allowed about 10 minutes per 

question, and so we used a loaded salary figure of about $150,000 

and came up with the $54 for the 45 minutes. Now that is assuming—we thought that that was the worst-case scenario, that that 

would be going from additional costs to a settlement agent who did 

not go over any documents with consumers at all now, who just basically said, ′′Here, sign these documents.′′ As we know, many settlement agents go through the documents with the consumer now, 

so we tried to come—we do not believe that it will be $54 per loan 

for all transactions, but we tried to use the worst-case scenario. 

Chairwoman VELA ́ ZQUEZ. So 45 minutes. That means that agents 

will be doing fewer closings because they have to go through this 

process. So how are they going to make up for the closings that 

17

they will not be able to do given the fact that they are going to be 

spending 45 minutes? 

Ms. JACKSON. Well, we do believe that these costs probably will 

be passed on to the consumer, but we do believe that the consumer 

will still save in the long run. 

Chairwoman VELA ́ ZQUEZ. You mentioned that it will represent $600 more per consumer. 

Ms. JACKSON. Right. A net cost benefit after $98 of approximate 

costs for the new rule per loan was subtracted. 

Chairwoman VELA ́ ZQUEZ. RESPA, if done properly but without 

enforcement and oversight, will take us nowhere. 

So how do you intend to have in place the type of oversight that 

will make it work? 

Ms. JACKSON. Currently, we depend on other Federal banking 

regulators and State regulators. When they go in and do examinations, they check to see that RESPA is followed. If not, it is sometimes referred to us or sometimes they take action themselves. As 

I said—

Chairwoman VELA ́ ZQUEZ. What happened? What happened? We 

have almost 3 million homeowners in this country who are going 

through foreclosure or who will be going through foreclosure. 

Where were the regulators? Were they sleeping at the switch? 

Ms. JACKSON. Well, I cannot speak for all of the different regulators, but that is our concern. That is why we have asked for penalty provisions so that we can also enforce and try to make certain 

that borrowers, at the closing, do get the deal that they were promised. We want transparency in the transaction. 

Chairwoman VELA ́ ZQUEZ. And simplicity, too, because if there is 

transparency without simplicity, we might not achieve the goal for 

the consumer to know every fee that they are supposed to pay at 

closing. 

I have to go back to these pages of this format. You know, when 

I compare it to the old one, you can match them up line by line, 

and you can find the fees on the settlement statement with the 

Good Faith Estimate. When I tried to do this here—believe me, I 

do not know what test you do with consumers to come up with the 

conclusion that this four-page format is better suited to achieve the 

goal of protecting consumers and to have transparency in the process. 

Ms. JACKSON. Well, we are in the comment period, and we will 

be, you know, re-looking at all of the comments that come in, and 

we will be re testing. 

Chairwoman VELA ́ ZQUEZ. Well, for whatever it is worth, this almost Ph.D. candidate here will tell you that I just—I do not get it. 

I just—I do not get it. I do not get it. If I am going to close and 

have this—believe me, I went through this. I did not read it. My 

husband did. If I have to go in a room by myself, it is going to take 

me I do not know how long to compare the fees that are, one, on 

the good faith and on the settlement statement. So I do not get it. 

I hope that you will go back and revisit that just because it is four 

pages. Sometimes—like some of the members from the administration come and say that they do more with less. Maybe consumers 

will be able to get better with less in terms of the pages that you 

are putting together. 

18

Ms. JACKSON. We do think that that first page is very important, 

though, that consumers know whether they have a prepayment 

penalty or whether their interest rate can go up. 

Chairwoman VELA ́ ZQUEZ. Okay. Does any other member have 

any more questions? Yes. 

Ms. CLARKE. Madam Chair, I have one final question. 

As it stands, the GFE would become a binding or a final quote, 

which would be difficult to provide without underwriting. Loan 

pricing depends on having information about borrower credit history and ability to pay. Also, loan originators need to assess borrower risk to generate a binding quote, especially high-risk borrowers, which takes time and money. 

Wouldn’t your proposed GFE disclosure requirements create 

some controversy? 

Ms. JACKSON. Well, it has certainly created controversy. What we 

believe is that you do make certain assumptions. The GFE is generated after certain information is obtained from the borrower—a 

property address, their Social Security number—so that a credit report can be pulled. Then based on certain types of information, that 

is what the quote would be based on. If, once you get into the loan 

processing you find that the borrower went out and bought a new 

car or that something changed his financial picture—if you found 

a bankruptcy that did not show up in the filed credit report—well, 

those types of things, of course, would be a reason to change the 

loan product. So it is not that once you get the GFE and you find 

out something is different in the borrower’s financial picture that 

you would have to go through with that quote. 

Ms. CLARKE. So does the process begin again? I mean what happens to that borrower? Most of these borrowers are coming to the 

table, and they are not as sophisticated about their financial standing with respect to credit reports and things of that nature. If, in 

fact, you come upon a case like that, do they have an opportunity 

to revisit the GFE? What exactly happens at that point? What do 

you think would happen at that point? Because this is all theoretical at this point. 

Ms. JACKSON. This is what we envision would happen, that if 

something comes up in the borrower’s credit or in his financial situation that the lender did not know about at the time, then they 

would say that they could not offer that loan product. If they had 

another loan product that the borrower would fit, they would then 

issue a new GFE for that new loan product. 

Ms. CLARKE. Thank you, Madam Chair. I yield back. 

Chairwoman VELA ́ ZQUEZ. Ms. Fallin, do you have any other questions? 

Ms. FALLIN. Ms. Chairman, I have just one more question. 

Do you have any suggestions on how we can protect the consumers and give them the information that they need to have full 

disclosure of all of the fees and costs to reduce the paperwork? Is 

there anything that we, as Congress, mandate, which I know there 

is a lot of stuff, that you see that might be unnecessary as far as 

the protection, the disclosure and the loan process itself, that we 

could consider doing away with? 

I was looking at these forms also, like the chairwoman. By the 

way, she mentioned that she had her husband look at the forms 

19

because she did not understand them. She is a very smart woman. 

She just has less time than her husband, so I just wanted to clarify 

that. Her husband is very smart, too. I just think she has less time 

to understand all this stuff. 

In looking at the forms, when you can look side by side, it does 

appear to be easier to understand, and I have had many loans myself and kind of prefer that information, but I thought I would just 

ask if you have any recommendations for us as to how the government can help the government. 

Ms. JACKSON. Well, not at this time. We will be glad to look at 

that and maybe get back to you, you know, and respond to that. 

The form is—you know, four pages is long, but like I said, the last 

two are more educational information for the borrower. We have, 

you know, struggled with that. Do we put the information in the 

settlement cost booklet? However, if we do that, then the information, such as the tradeoff table, is not loan-specific. So, you know, 

we are struggling with that. You know, we will certainly take your 

comments into consideration. 

Ms. FALLIN. I always like to provide full disclosure to people 

when they are buying stuff, but sometimes we get too wordy and 

too complicated in our forms, and it confuses us more. I wonder 

sometimes if the government does not want to just confuse people. 

Thank you. 

Chairwoman VELA ́ ZQUEZ. Ms. Jackson, you are excused. Thank 

you so much for being here today. 

I will ask the second panel, please, to come forward. 

Ms. Jackson, I would like also to know if there is a staff person 

who will remain in the hearing room. 

Ms. JACKSON. Yes, there is. 

Chairwoman VELA ́ ZQUEZ. Can we have his or her name? 

Ms. JACKSON. Andrew Faye. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Sorry for the inconvenience of the room, but our Small Business 

Committee room is under renovation, so hopefully—this is the government, you understand. It can take one more month or maybe 

three or four, so who knows. 

Anyway, I would like to welcome our first witness, Mr. Gary L. 

Kermott. Mr. Kermott is Vice Chairman of First American Title Insurance Company and also serves as Executive Vice President of 

the First American Corporation. He will be testifying on behalf of 

the American Land Title Association. 

ALTA, founded in 1907 is the national trade association and 

voice of the abstract and title insurance industry. Nearly 3,000 title 

agents, abstractors and title insurance companies are active members and conduct business internationally in almost 100 countries 

worldwide. 

Welcome. You will have 5 minutes to make your opening statement. 

20

STATEMENT OF MR. GARY L. KERMOTT, VICE CHAIRMAN, 

FIRST AMERICAN TITLE INSURANCE COMPANY, EXECUTIVE 

VICE PRESIDENT, THE FIRST AMERICAN CORPORATION, ON 

BEHALF OF THE AMERICAN LAND TITLE ASSOCIATION 

Mr. KERMOTT. Thank you, Chairwoman Vela ́zquez, and thank 

you, members of the committee, for this opportunity to testify on 

HUD’s proposal to amend RESPA. 

As Madam Chairman mentioned, my name is Gary Kermott, and 

I am serving as the 2008 President of the American Land Title Association. As such, I am speaking on behalf of our nearly 3,000 title 

insurance companies, agents, abstractors, escrow officers and attorneys who search, examine, insure land titles, and perform real estate closings. A majority of our members are small businesses with 

between 2 and 16 employees. 

Although we agree with HUD on its goals, we are concerned that 

the proposal will not achieve them and may, indeed, create problems that undermine HUD’s efforts. In addition, the association believes the Department is attempting, by regulation, to convert a 

statutory disclosure regime into a new pricing regime that was not 

intended by Congress and is not authorized by the statute. We address that in our written statement. 

My remarks today will focus on three areas of the rule that 

would be most harmful to our small business members and consumers: First, the closing script; second, how fees are disclosed 

and, third, volume discounts and tolerances. 

First, the closing script: The closing script will lead to longer and 

postponed closings, to the loss of down payments and increased litigation while failing to provide any real benefit to consumers. Why? 

First, it is too late at closing for consumers to change the terms of 

their loan. The moving van is parked outside. Second, the settlement agent does not have the information or the knowledge to answer questions raised by the closing script. Third, the increased 

costs for longer closings will fall on the consumer. In some States, 

it will raise the issue, as mentioned earlier, of the unauthorized 

practice of law, but more importantly for our small business members, HUD fails to recognize that over 50 percent of closings occur 

at the end of the month. This increased time to complete, read and 

explain the closing script will definitely and disproportionately 

harm smaller settlement companies because they lack the resources to add personnel and physical space to accommodate these 

extended closings. The script should be completed and delivered by 

the lender earlier in the process so that the consumer understands 

their loan terms and has the opportunity to negotiate changes. 

Title and closing fee disclosures: Although one of HUD’s key objectives is to simplify and to improve consumer disclosures, how 

our fees are disclosed on the new forms is misleading and will discourage consumer shopping for services that are in their best interests. Why? Because the new GFE only discloses an aggregate figure 

for a range of services. That makes it more difficult for the consumer to shop for individual title or closing services at a lower 

price. They will not know what is included in the package. Similarly, by lumping together so many different charges into the category of Primary Title Services on the new HUD-1, the buyer and 

seller will not know how their funds were actually disbursed and 

21

to which providers. This defeats a primary purpose of the HUD-1 

as a record of the transaction. This will also hide what fees the 

seller may have negotiated or be required to pay under State law, 

practice or contract. 

Volume discounts and tolerances: Volume discounts are anti-competitive and will harm small title insurance companies, small 

banks, mortgage brokers, appraisers, and other small settlement 

providers. The largest companies have the resources to either favor 

their own affiliated companies or to create a network of preferred 

providers that could offer services below cost. This will push small, 

independent providers out of business, resulting in less competition 

and higher prices. Our members do not believe HUD should dictate 

such changes. Because lender recommended services are subject to 

a 10 percent tolerance, the message to the borrower will be ′′Go 

with me. You will get a better deal.′′ By emphasizing these guaranteed prices to consumers, lenders would encourage a borrower selection of the recommended provider and end shopping. HUD even 

recognizes this in their economic analysis. Yet, there is no guarantee that these recommended service providers are the least expensive or the best. This is a disguised form of packaging that was 

uniformly rejected in 2002. 

Based on these concerns, ALTA suggests that HUD limit its efforts to simplifying only the GFE and the HUD-1 so the comparisons can be more easily made between the documents. This would 

be a huge improvement for consumers without imposing extraordinary costs on small businesses. 

Thank you. 

[The prepared statement of Mr. Kermott may be found in the Appendix on page 53.]

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Kermott. 

Our next witness is Mr. Adam D. Cockey. Mr. Cockey is the Senior Vice President of Prudential Carruthers Realtors, a real estate 

firm, with 25 offices located in the District of Columbia, Maryland 

and Virginia. He is here to testify on behalf of the National Association of Realtors. NAR was founded in 1908 in Chicago, Illinois. 

It is America’s largest trade association with 1.2 million members. 

Welcome. 

STATEMENT OF MR. ADAM D. COCKEY, JR., SENIOR VICE 

PRESIDENT, PRUDENTIAL CARRUTHERS REALTORS, ON BEHALF OF THE NATIONAL ASSOCIATION OF REALTORS

Mr. COCKEY. Thank you, Madam Chair Vela ́zquez and members 

of the committee. Thank you for holding these hearings and for giving the National Association of Realtors the opportunity to share 

our 1.2 million members’ concerns about HUD’s proposed RESPA 

rule. 

My name is Adam Cockey. I am the Senior Vice President for 

Prudential Carruthers, which is a full-service real estate firm, located in Washington, Maryland and Virginia. I started in the real 

estate profession 33 years ago, the same year Congress passed 

RESPA, so RESPA and I have sort of gone through this industry 

together. 

22

RESPA reform is important to NAR members because it is an essential component of any home purchase. Real estate agents develop working relationships with clients and stay with them 

throughout the closing process. As a result, consumers look to their 

real estate professional to help them understand the process from 

beginning to end. 

In 1974, the key congressional objectives of RESPA were to reduce settlement costs, to eliminate referral fees and kickbacks, and 

to require disclosure to consumers so that they could better understand the terms and costs of their transactions. One thing Congress 

made very clear when it passed this law was that RESPA was not 

designed to be a rate-setting statute. NAR believes that HUD’s extensive changes to the Good Faith Estimate and to the HUD-1 disclosure forms fall short of the mark and need additional work. 

HUD’s changes, though well-intended, could have been much improved if HUD had tested some of these ideas with those who must 

implement them. We believe that the proposed rules err by, one, 

expanding the current two-page Good Faith Estimate to have four 

pages, by eliminating the disclosure of a number of settlement 

costs and by requiring a 45-minute closing script. This is not simplification. Despite the suggestion of its own design consultant, 

HUD did not reformat the GFE to more closely match the HUD1. Marrying the two forms in a common sense solution would greatly have helped the consumer decide whether the terms of expenses 

that were disclosed to them at loan application are those that are 

governing the loan terms and costs at closing. 

NAR also believes it is imperative that the consumer has information of all relevant costs. HUD’s failure to include all of the 

standard costs in its revised GFE will give consumers less than full 

disclosure, which Congress intended. While Congress never intended RESPA to be a rate-setting statute, that is where HUD has 

chosen to focus. The proposal includes anti-kickback exemptions for 

volume discounts and tolerances for some costs that will tip the 

balance in favor of the largest lenders and will hurt small, independent settlement service providers. 

The proposed rule permits lenders to offer borrowers a package 

of third-party settlement services. Clearly, the largest lenders will 

be most successful in exerting their sizable market strength on providers to create the lowest cost package of settlement services to 

the detriment of small businesses. 

While the idea of creating a mechanism to reduce prices is appealing, HUD has ignored the impact that this will have on service 

quality. As we have seen in the current market mortgage crisis, 

quality loan products and appraisals do matter. If recent experience has not taught us anything, it is that cutting corners in this 

business only results in broken dreams. Now we are all paying for 

it. 

Finally, HUD’s proposed closing script will add far more costs 

than HUD anticipates and will provide little benefit. HUD estimates the closing script will add 45 minutes and little cost. It is 

hard to imagine closing attorneys will donate that extra threequarters of an hour or that a closing agent will not need to be compensated for the reduced number of transactions that can be handled. In the end, buyers and sellers will pay the added cost. In my 

23

practical experience, the information, including in the closing 

script, comes too late. Disclosure could be better achieved by a 

clearer Good Faith Estimate at the beginning of the process. 

In conclusion, NAR strongly supports better disclosure of mortgage terms and settlement costs. HUD’s RESPA reform proposal, 

however, should be reworked to focus on common sense disclosure 

while eliminating the volume discounts, closing script and tolerance provision. NAR believes that we need to put aside the political 

calendar and work on a practical and effective reform focused on 

simple disclosure. We have the ability to do RESPA reform right. 

We cannot afford just a good enough approach. 

Thank you. 

[The prepared statement of Mr. Cockey may be found in the Appendix on page 81.]

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Cockey. 

Our next witness is Mr. David G. Kittle. Mr. Kittle is ChairmanElect of the Mortgage Bankers Association and is President and 

Chief Executive of Principal Wholesale Lending, Inc., in Louisville, 

Kentucky. Mr. Kittle has been active in the mortgage banking industry since 1978. The Mortgage Bankers Association is the national association representing the real estate finance industry, an 

industry that employs more than 500,000 people in virtually every 

community in the country. 

Welcome. 

STATEMENT OF MR. DAVID G. KITTLE, CMB, CHAIRMANELECT, MORTGAGE BANKERS ASSOCIATION 

Mr. KITTLE. Madam Chairwoman, thank you for the opportunity 

to appear before you as a mortgage banker and as a small businessman. I am pleased to discuss the changes HUD has proposed 

to the RESPA regulations. 

Since HUD last issued a RESPA rule in 2004, the real estate 

market has experienced an unprecedented crisis, resulting in severe hardship for consumers and businesses alike. This crisis has 

many causes and victims. The causes range from economic conditions to real estate prices, to outsized investor and borrower appetites. The victims include borrowers—but more than that, future 

borrowers—communities and the economy at large. While MBA 

does not believe that the lack of transparency in the mortgage process is the main cause of borrower difficulties or that its improvement is the only solution, greater transparency could help stem 

abuses. The sheer volume and complexity of disclosures today allow 

abusers to hide in plain sight. 

Long before the current market crisis, MBA supported simplification and greater financial literacy. MBA believes that the problems 

in the industry are a good reason to redouble efforts in both of 

these areas. Greater transparency would better empower consumers to make smart choices based on their own individual needs. 

It would also empower borrowers to compare their initial loan offers to the final cost of the loan, which would help protect against 

abuse. In today’s market, people shop more effectively for a new 

flat screen TV than they do for a mortgage. We all need to do a 

24

better job to encourage increased shopping by consumers and clearer loan information. 

The forms that borrowers confront today include the truth in 

lending disclosures, which detail the cost of credit, and the Good 

Faith and HUD-1, both of which detail settlement costs. These 

forms are required under TILA and RESPA. Consumers need to get 

a clearer, simpler set of forms than these. So any changes to TILA 

forms, which are the Federal Reserve’s responsibility, and to 

RESPA forms, which are HUD’s, should happen together. Otherwise, additional costs associated with implementing new forms and 

procedures will fall on consumers and small businesses. In other 

words, reform should happen comprehensively rather than piecemeal. 

HUD has issued its rule, and the Federal Reserve has announced 

that it will work on a new TILA rule. HUD and the Fed should 

work together on these forms. If they are unable to do that, at the 

very least, HUD should delay the implementation of its rules until 

the Fed implements its TILA changes. Most importantly, the disclosures must work together. It makes no sense to have TILA, GFE 

and HUD-1 forms that do not. 

While we have many issues that are detailed in our testimony, 

actually improving transparency is the most important. The HUD1 and the GFE should work hand in hand. If nothing else, failing 

to ensure that they do will be a missed opportunity that will result 

in continued confusion among consumers. While simplification of 

the mortgage process is a high priority for MBA, we do not believe 

improvements should unduly harm small businesses. We believe 

that small businesses operate effectively in all aspects of the mortgage process and should continue to do so. 

The rule as proposed by HUD will have significant effects on 

both small and large businesses. The effects of the proposed rule 

would include onetime and ongoing costs of the new rule, including 

increased time and money spent in closing and possibly increased 

legal liability for everyone involved. My written statement goes on 

to further detail on these points. 

The Mortgage Bankers Association supports efforts to make the 

mortgage process simpler, clearer and more transparent for consumers. Doing so will empower consumers and will help fight predatory lending. The RESPA rule released by HUD is not simplification. Consumers need a full reform of the disclosures they see, including RESPA and TILA, that help them quickly and effectively 

navigate the mortgage process. Public policy should help ensure 

that the problems we see in the market today do not happen again. 

Reforming the mortgage process is an important but difficult task, 

and it is imperative that we get this right. 

One more quick point. I appreciate the 5 minutes you have given 

me today. Just imagine if I had to read the entire closing script 

that HUD proposes. It would have taken me nine times as long as 

this statement took me to read. 

Thank you. I look forward to answering your questions. 

[The prepared statement of Mr. Kittle may be found in the Appendix on page 89.]

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Kittle. 

25

Our next witness is Mr. Marc Savitt. Mr. Savitt is the PresidentElect to the National Association of Mortgage Brokers. The national association is the voice of the mortgage broker industry, representing the interests of mortgage brokers and home buyers since 

1973. 

Welcome, sir. 

STATEMENT OF MR. MARC SAVITT, PRESIDENT-ELECT, THE 

NATIONAL ASSOCIATION OF MORTGAGE BROKERS 

Mr. SAVITT. Good morning, Chairwoman Vela ́zquez and members 

of the committee. Thank you for the opportunity to testify today. 

Like most of my fellow NAMB members, I am a small business 

owner, living in the same community where I work. As a member 

of NAMB, I am required to adhere to a professional code of ethics 

and best lending practices. In addition to NAMB requirements, 

mortgage brokers are regulated in all 50 States and in the District 

of Columbia. 

HUD’s proposed rule will make bold changes in the marketplace 

and in my business. In light of the current market situation, rising 

home foreclosures, the credit crunch and recent proposed changes 

to the FHA program, NAMB questions the appropriateness of the 

timing and implementation of the proposed rule. 

Today’s mortgage market is significantly strained and continues 

to experience turmoil and change. At this time, NAMB believes 

HUD’s efforts and the mortgage market in general may better be 

served by focusing on the market today and in providing support 

for consumers currently at risk of losing their homes to foreclosure. 

NAMB applauds HUD’s RESPA reform efforts to date. However, 

we believe HUD should consider declaring the implementation of 

any new policies or procedures until the market is able to stabilize, 

to accommodate changes and to provide assistance to the high volume of borrowers currently in need of refinancing and/or foreclosure assistance through programs administered by HUD. 

NAMB believes HUD should continue to move forward with the 

RESPA reform process, focusing specifically on measures in the 

proposed rule that seek to protect consumers from unnecessarily 

high settlement costs and abusive practices and enhance transparency of the loan origination process, taking into consideration 

comments and suggestions received during the critical review period. 

NAMB has long advocated for high uniformed standards for all 

mortgage transactions as well as the creation of minimum standards for education, criminal background checks and the national 

registry for all originators. NAMB objects to components of the proposed rule that would not best serve the consumer either because 

they would impede competition, would treat direct competitors differently, would fail to reflect the most authoritative research or 

would not consider the most effective and least burdensome alternatives. 

Despite changes in the market since 1992, such as automated 

underwriting systems, Web-enabled credit scoring, software programs, et cetera, which have blurred the lines between broker and 

lender transactions, the proposed rule continues to promote artificial distinctions between broker and lender transactions. 

26

The proposed rule requires the disclosure of yield spread premiums, YSPs, only in broker transactions. In general, YSP represents the spread between the wholesale and retail rate of funds. 

This spread is not required to be disclosed in lender transactions. 

This artificial distinction places small business mortgage brokers at 

a competitive disadvantage by imposing asymmetrical disclosure 

obligations among the originators receiving the same competition. 

Exhaustive studies of the mortgage disclosures by the Federal 

Trade Commission—the government’s principal consumer protection agency—in 2004 and again in 2007 showed that additional disclosures of YSP created confusion, caused consumers to choose 

more expensive loans, led to a bias against broker transactions, 

and impeded competition, thus hurting consumers. Requiring brokers but not other originators to make such disclosures enables our 

competitors to steer consumers away from brokers even if brokers 

offer more favorable loans. 

For these reasons, NAMB believes the FTC should conduct a 

thorough analysis and field testing of any proposed GFE forms to 

ensure the market remains competitive and that new disclosures 

do not lead to biases or fraudulent practices between the distribution channels. We are operating in a vastly different market where 

all originators act in the same capacity. Therefore, regulations 

must be based on function, not artificial distinctions based on license, classification. Even the MBA acknowledges this shift in the 

market towards an originate to distribute model. Due to this market change, it seems clear that HUD must broaden its definition 

of ′′mortgage broker′′ to capture everyone who originates to distribute. 

Additionally, for two reasons, NAMB believes that HUD has 

failed to adequately comply with the Regulatory Flexibility Act 

when promulgating its proposed rule. 

First, HUD’s initial regulatory flexibility analysis relies upon 

outdated information when estimating the economic impact of the 

proposed rule on small entities, including mortgage brokers. Second, HUD’s IRFA does not reflect sufficient comparative analysis 

of less burdensome alternatives to the proposed rule which would 

minimize the adverse impact on small entities. 

NAMB looks forward to continuing to work with this committee 

as well as with respective regulators on accomplishing solutions 

that are effective in helping consumers without hurting small business. 

Thank you. I would be happy to answer any questions. 

[The prepared statement of Mr. Savitt may be found in the Appendix on page 144.]

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Savitt. 

Our next witness is Ms. Julia Gordon. Ms. Gordon is the Policy 

Counsel for the Center for Responsible Lending. Ms. Gordon works 

with Congress, Federal agencies, civil rights and consumer groups, 

housing counsel and agencies, industry groups, and others to ensure fairness in lending, especially with respect to mortgages. 

Welcome. 

27

STATEMENT OF MS. JULIA GORDON, POLICY COUNSEL, 

CENTER FOR RESPONSIBLE LENDING 

Ms. GORDON. Thank you. 

Good morning, Chairwoman Vela ́zquez, Congresswoman Fallin 

and other members of the subcommittee who I know to be there 

even though I cannot see them. 

I am Policy Counsel at the Center for Responsible Lending, a 

nonprofit, nonpartisan research and policy organization dedicated 

to protecting homeownership and family wealth. We are affiliated 

with a lender self-help which makes responsible, fixed-rate home 

mortgage loans to people with blemished and nontraditional credit. 

As others on the committee and panel have noted, we do not consider inadequate disclosure to be the only or even the leading culprit in today’s foreclosure crisis. Rather, the crisis was caused by 

lenders and brokers who are selling risky and unsustainable loans 

primarily in response to demand by the secondary market. Improved disclosures will not necessarily provide adequate protection 

to consumers who will be making one of the most important and 

complicated financial decisions they will ever make. It will take 

substantive laws to prevent discriminatory and predatory practices, 

to realign incentives and to restore health to the mortgage market. 

That said, even within the context of RESPA, we see an opportunity to prevent some of the abuses that have led to the current 

crisis. 

In our view, yield spread premiums have played a key role in 

causing the problems we see today. Under this practice, as it works 

in the subprime market, lenders pay brokers a premium for steering people into higher rate loans than those for which they qualify. 

Then often they pay those brokers an additional bonus for locking 

borrowers into those higher rates with prepayment penalties. 

RESPA has long prohibited compensation for services that simply 

deliver a loan with a higher interest rate, referring to such compensation as a ′′kickback.′′ Although it may seem that all yield spread premiums might constitute kickbacks, HUD has opined that, since consumers can use 

yield spread premiums to buy down up-front loan origination costs, 

they are delivering value, and they are not prohibited. That is how 

the practice often works in the prime market. Yet, in the subprime 

market, this trade-off rarely, if ever, occurs. The lion’s share of 

subprime loans carries significant up-front fees, closing costs, discount points, prepayment penalties along with the yield spread premium. Consumers end up compensating the broker at both the 

front and back ends, essentially buying the rate down and then 

buying it right back up. 

We would like to see HUD use its longstanding definition of a ′′kickback′′ to prohibit those yield spread premiums that are made 

in conjunction with up-front broker compensation or other rate-lowering payments. We believe this would help to reform the subprime 

market without impacting the prime market adversely. 

In the changes to RESPA before us today in the disclosure related to the yield spread premiums, while we are glad to see HUD 

acknowledge the importance of the issue, we think that the proposed disclosure has as its core assumption the existence of this 

price trade-off that we do not believe exists. Moreover, the new 

28

GFE characterizes this as a credit when in fact this results in an 

increase in cost. So, in any reworking of this GFE, we would like 

to see that more clear and accurately disclosed. 

We understand that brokers are concerned that they are not be 

being treated even-handedly, and I have great sympathy for Mr. 

Savitt’s position on that. However, CRL’s recent research shows a 

vast disparity between the cost of subprime loans originated by 

independent brokers versus retail lenders. We see that the cost 

over the life of the loan can be as much as $43,000 for every 

$100,000 borrowed. Even, you know, in the shorter time period, 

such as 5 years or 4 years, you know, it is close to $5,000. 

In our written testimony, we talk about some other aspects of today’s RESPA reforms, but just to mention a few, we do believe any 

change to the GFE must ensure that the GFE includes the APR, 

which enables consumers to make an apples-to-apples comparison, 

and because most consumers shop mainly on total monthly payment rather than on comparing settlement costs, the GFE should 

include that number again. 

Finally, we strongly support HUD’s request that Congress enhance RESPA’s civil penalties and equitable relief. We further request that Congress add a private right of action for all elements 

of RESPA, particularly the GFE and HUD-1. In our work, we have 

often seen GFEs misused to lure people into abusive loans, and the 

lack of a private right of action means that such misuse often carries no consequences. If it is not enforceable, even the most perfectly designed disclosure form will not assist consumers. 

Thank you so much for the opportunity to testify, and I look forward to your questions. 

[The prepared statement of Ms. Gordon may be found in the Appendix on page 158.]

Chairwoman VELA ́ ZQUEZ. Thank you, Ms. Gordon. 

We are going to proceed with questions. We are going to have 

three votes. We will see. We will recess and then come back here, 

but I am going to start with Mr. Kermott. 

You heard me questioning Ms. Jackson regarding the burden 

that the rule puts the title agents in, in explaining loan terms at 

closings. I am asking you if you feel it is appropriate for the title 

agent to be responding to questions about loan documents or 

should that be the lender’s responsibility. 

Mr. KERMOTT. It should absolutely be the lender’s responsibility. 

The way the rule is written now, there are many problems with the 

closing script in explaining the loan terms and so forth. First, it is 

too late in the process, as I mentioned in my opening remarks. 

They are at the closing table. What is the borrower to do if there 

is a discrepancy between what they thought the terms of the loan 

were and what they actually are? 

Chairwoman VELA ́ ZQUEZ. Well, if I heard Ms. Jackson well, I believe that she mentioned that she is going to revisit this issue. 

Mr. KERMOTT. I hope she does revisit it because it should be provided by the lender earlier in the process. 

With regard to the time it takes a settlement agent to prepare 

the closing script, to read this closing script and to respond to questions, HUD estimates it would take 45 minutes. We have done a 

29

survey of our members, and that is a minimum. Most would expect 

it would take at least an hour to an hour and a half in additional 

time on top of what it already takes to perform a closing. So that 

is an added expense and added time tacked on to particularly our 

small business members. 

There is a UPL issue that we mentioned earlier, the unauthorized practice of law. In many States, a lay closing agent is precluded from explaining the terms of the loan because of unauthorized practice of law statutes. With regard to the economic analysis 

that HUD has done, it would cost our industry $2.5 billion in providing the closing script. 

Chairwoman VELA ́ ZQUEZ. Mr. Cockey, I would like to ask you: 

Can you explain if HUD’s estimate of 45 minutes is accurate or will 

it take even longer? 

Mr. COCKEY. In our estimate, it will take longer. 

Part of what I do every day is I run a title service for our company, and I have for the last 15 years been involved in it. There 

is not a settlement service person here who is going to be able to 

get through that process in 35 or 45 minutes. 

Chairwoman VELA ́ ZQUEZ. Okay. Mr. Kittle, it is crucial that borrowers be able to easily compare the Good Faith Estimate with the 

HUD-1 form, and you heard me asking Ms. Jackson about the two 

forms. 

Can you discuss the discrepancies between the new forms and 

how this may create confusion for borrowers? 

Mr. KITTLE. I can, Madam Chairwoman. 

As somebody who owns a small business, a small mortgage company, and still meets regularly with customers to take the loan application—I still meet them face-to-face—this is an example of—it 

is not because of financial privacy, an actual FHA file. It is because, from application to closing, this is about how big a file is. 

Going from a one-page GFE to a four-page only adds to that, first 

of all. 

We have proposed and have sent to HUD—the Mortgage Bankers 

Association—a new HUD-1 that actually matches the GFE together 

line for line. That way, the borrower does not have to look at a 

four-page GFE with references to go and try and look it up, which 

only delays the loan application and adds turmoil to the whole 

process. 

So we are against the reading of the document that we are talking about, and we are against the four-page GFE. It does not add 

simplification. 

Chairwoman VELA ́ ZQUEZ. Ms. Gordon, do you have any comments regarding the two forms? 

Ms. GORDON. We agree that we are a little bit mystified, if the 

effort was to make the GFE and HUD-1 easier to compare, why 

they are not more similar. 

Chairwoman VELA ́ ZQUEZ. Mr. Savitt, I understand that your industry is concerned about the RESPA rule’s requiring yield spread 

premiums to be disclosed on the new GFE form. 

Is there a different way to get at the issue of transparency? 

Mr. SAVITT. Well, first of all, mortgage brokers have been completely transparent in the disclosure of all of their compensation 

since 1992. Under a HUD mandate at that time, we were required 

30

to disclose, obviously, all of our up-front fees and any type of indirect compensation, which of course we call YSP, and others who receive it call it other things. I do not know how we can be any more 

transparent in what we are doing now. Every dime that we make 

is completely disclosed to the consumer at time of application and 

also again at time of settlement. 

Chairwoman VELA ́ ZQUEZ. I am going to recognize Ms. Fallin because she has some commitments, and will not be able to come 

back, but I will be coming back, and I hope the other two members 

will be able to come back. 

Go ahead. 

Ms. FALLIN. Thank you, Madam Chair. I will make it quick, and 

maybe Ms. Clarke can get some questions in, too, if we can do some 

quick answers here because we are short on time. 

Mr. JOHNSON. And perhaps Mr. Johnson also. 

Ms. FALLIN. Mr. Johnson, too. 

Mr. JOHNSON. Thank you. 

Ms. FALLIN. Yes, sir. You bet. 

Mr. JOHNSON. All right. I feel like Ms. Gordon over there in the 

corner. 

Ms. FALLIN. Nobody is paying attention to you. 

Mr. JOHNSON. Right. 

Ms. FALLIN. If I could ask Mr. Kermott: Do you think that the 

new regulations will hurt small business lenders? 

Mr. KERMOTT. Yes. 

Ms. FALLIN. All right. I think, Mr. Cockey, you talked about the 

failure to disclose all closing costs. 

Can you explain what some of those costs are that are not being 

disclosed? 

Mr. COCKEY. Well, they are some of the settlement costs that 

they will really kind of be bundling. To me—

Ms. FALLIN. They are all bundled together? 

Mr. COCKEY. Right. That is not the way to approach it. If we are 

trying to give full disclosure to the consumer, we are just hiding 

or have the opportunity that things can be hidden. 

Ms. FALLIN. All right. 

Mr. COCKEY. To me, that is what we are trying to fight against. 

Ms. FALLIN. Mr. Kittle, you mentioned something about our 

needing to change the form so consumers can shop prices and different services that are available and different lenders. I think it 

might have been you. It may have been somebody else. 

Mr. Savitt? 

Mr. SAVITT. No, I do not believe—

Ms. FALLIN. Is there any way that we can help consumers be 

able to compare prices? 

Mr. SAVITT. Yes, absolutely. 

Just like the MBA, NAMB turned in to HUD an example of a 

Good Faith Estimate which was very close to your Good Faith Estimate. It was a mirror image of the settlement statement which we 

think would be the most effective for consumers to better understand the transaction. There is nothing easier when you go to closing than to have on the Good Faith Estimate the same numbers 

match up identically as they do with the HUD-1 settlement statement. So, therefore, a consumer can compare line by line all the 

31

way across, and if there is a difference they would be able to easily 

spot it. 

Mr. KITTLE. We totally agree with that line for line. 

Ms. FALLIN. That is what I am trying to get at. Okay. 

Mr. KITTLE. Absolutely. 

Ms. FALLIN. Thank you. 

Madam Chairman, I will quit here so they can ask their questions. Thank you. 

Chairwoman VELA ́ ZQUEZ. Ms. Clarke. 

Ms. CLARKE. Thank you, Madam Chair. 

My question is to Ms. Gordon. I know you are there. 

Can you tell this committee how the inadequate disclosure of incentives for brokers and lenders, also known as the yield spread 

premiums, adversely impacts the secondary market but, most importantly, the consumers? 

Ms. GORDON. Well, the reason they adversely affect the secondary market is because what has happened is borrowers have 

been sold loans that are unaffordable. They are steered into loans 

at higher rates than those for which they would qualify based just 

on their credit scores and income, and then they are locked into 

those rates with prepayment penalties. 

If you look at a subprime rate sheet, you will see the additional 

compensation that the broker receives from the creditor for putting 

somebody into a higher rate loan than that for which they qualify 

and then for also adding a prepayment penalty to that loan. Now, 

the consumers do not ever see these rate sheets. You know, you do 

not get to see that. So, for the most part, consumers have no idea 

that this practice occurs. 

To the extent that there is disclosure of fees to borrowers, our experience with vast numbers of consumers is they had no idea how 

this system was working and how they were compensating their 

brokers. 

Now, I have no doubt that there are excellent brokers out there 

who fully explain this to their customers, but a lot of the problems 

that we are seeing in the subprime market come from the fact that 

that largely did not happen, and this was a significant problem, especially in the African American and Latino communities. 

Ms. CLARKE. Ms. Gordon, you believe that YSPs are kickbacks 

between brokers and lenders. 

What do you recommend today on how to strengthen the disclosure to YSPs, especially to subprime mortgages? 

Ms. GORDON. I think that you could probably write the disclosure 

form in an easier-to-understand way. We go into more details on 

that in our comments to HUD, but I think the important thing is, 

unless the yield spread premium is really a trade-off for closing 

costs, it should not be permissible. After that, all that is happening 

is somebody is being compensated for bumping up a rate, and that 

specifically is what is prohibited by RESPA. 

Ms. CLARKE. I am sure you have some comments on that, Mr. 

Savitt. Would you like to respond as well? 

Mr. SAVITT. Absolutely. Thank you for recognizing me. 

First of all, as I mentioned to the chairwoman, yield spread premiums are an indirect compensation that are completely disclosed 

by mortgage brokers twice—once on the Good Faith Estimate at 

32

time of application and the second at the settlement. Yield spread 

premiums are a very useful tool that consumers have been taking 

advantage of for many years. When consumers shop for a loan, the 

first question they ask is ′′What is your interest rate?′′ They compare lenders, brokers, other originators. Usually, the question of 

closing costs does not come into it until they actually, you know, 

drill down a little further, but the first question is they are comparing interest rate to interest rate. 

If a lender offers an interest rate, for example—and most consumers want usually a 30-year fixed rate with zero points. So, if 

I am at 6 percent for zero points and a lender or a bank is 6 percent at zero points, obviously the bank is receiving the same type 

of compensation. It is just that they do not have that requirement 

that we do to disclose it. Brokers are fully transparent. 

As far as subprime loans go and brokers taking advantage and 

the yield spread premium costing consumers more money, there 

was a study done a few years ago by Georgetown University. 

NAMB had nothing to do with that study whatsoever. They came 

to us after the fact and stated that by using a mortgage broker a 

consumer would save 1.13 percent on their annual percentage rate 

by using a broker over other types of originators. Also, there was 

a GAO study that was commissioned by Chairman Frank of the 

House Financial Services Committee on what caused the crisis that 

we are having today, the foreclosure crisis. That study not only vindicated mortgage brokers, but it also—because, of course, you know 

we were getting the blame for everything in the beginning, but it 

also did not mention yield spread premiums at all, let alone as the 

root or the cause of this. 

The final thing I would like to say is I get very frustrated for several reasons when I hear that a yield spread premium is a kickback. Number one, usually if you are getting a bribe or a kickback, 

you do not disclose it to the consumer. State housing agencies—one 

of the States that I am licensed in is West Virginia. The State 

housing agency, the West Virginia Housing Development Fund, has 

a bond program. As you know, it is a below-market interest rate 

that tries to help consumers—first-time home buyers—get into a 

home for less money out of their pocket. I have been dealing with 

them for over 20 years. In the beginning, they used to charge up 

front 1.5—or they would charge the consumer 1.5 points up front. 

That would go to the broker. Everyone now—all of the lenderbroker compensation and anyone who is a participating member of 

that State housing agency—is paid by either a yield spread premium or a service release fee. 

Ms. CLARKE. Thank you, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Mr. Johnson. 

Mr. JOHNSON. Thank you. I just have one question. 

Has HUD reached out in an efficient way to you all in their composing of this new rule? If not, what could they do to improve the 

process? 

Mr. COCKEY. It is my feeling that they think they have reached 

out, and they have listened, but I am not sure that they have been 

able to hear the messages that have been given. We have certainly 

had the opportunity to present information and thoughts and process, but I am not convinced that they have really heard—I listened 

33

to Ms. Jackson this morning, and it is almost like they were talking about something that was another industry, that they really 

had no practical knowledge of what we do as practitioners from the 

real estate side on a day-to-day basis and how we move our clients 

through the process of getting a mortgage, of having the settlement 

services done and standing beside them. It just boggled my mind 

to listen to some of the comments. I was much more interested in 

what the committee has said because I thought you asked excellent 

questions and seemed to have a greater grasp on some of the 

things that were happening than HUD had. 

Mr. KITTLE. I would agree with that, Mr. Johnson. The MBA has 

a great working relationship with HUD. We visit with them and 

talk with them and meet with them often, but I am not sure they 

hear. We are the professionals. We do it every day, and we present 

to them simplification—again, a GFE and a HUD-1, two pages 

total that match. Yet they come up with a four-page GFE that does 

not match with references. So at the end of the day I am not sure 

that they are hearing what the industry is having to say. 

Mr. SAVITT. In the roundtables that Ms. Jackson spoke about 

during her testimony, HUD said they were looking for a consensus 

from industry and that they were going to also consult with Congress before they came out with a proposed rule. The roundtable 

that I attended was in Fort Worth. I believe there were about 35 

or 40 people there from all over the industry. You had consumers. 

You had closing agents, bankers, brokers, title companies. Everybody was there. 

There was a real estate agent who mentioned that the Good 

Faith Estimate, the four-page Good Faith Estimate, was so confusing that as a realtor for 30 years she could not understand it. 

HUD received her consensus, but as far as I am concerned, they 

really did not take any of that information into consideration because they basically came up with the same rule that they had last 

time minus packaging. 

Mr. JOHNSON. Mr. Kermott, you are going to do—

Chairwoman VELA ́ ZQUEZ. Mr. Johnson, you can see Ms. Gordon 

would like to make some comments. 

Mr. JOHNSON. Okay. 

Ms. GORDON. I just want to add that, a couple of years ago, the 

Center for Responsible Lending joined with the National Association of Realtors in developing a kind of consensus GFE. You know, 

HUD took that from us, but it was not what the final product was. 

Mr. KERMOTT. As was mentioned earlier, HUD had the roundtable discussions in 2005. Our membership was invited to participate in that. I would just like to echo what my fellow panel members have said. 

We emphasize simplifying the GFE and in getting it consistent 

with the HUD-1. If HUD would do that, it would make the transaction simpler and more efficient without adding what they are 

proposing here, which would add costs and complexity to the transaction. 

Chairwoman VELA ́ ZQUEZ. The time has expired. I just would like 

to ask a question to Ms. Gordon and to, maybe, any other member 

of the panel who might wish to comment. 

34

What kind of reforms do we need that the RESPA rules do not 

address? 

Ms. GORDON. A private right of action. I mean it would be great 

to have the perfect GFE, the most simple, clear GFE that lines up 

perfectly with the HUD-1, but if the GFE is only enforceable by 

regulatory agencies, we know that for the most part there will continue to be a lot of inaccurate and, in many cases, blatantly misleading or lying GFEs. Without the enforcement that comes from 

having a private right of action, I mean I think we could truly design the perfect form, and it would not matter. 

Chairwoman VELA ́ ZQUEZ. Does any member of the panel wish to 

speak? So you do not feel that we need any other thing—

Mr. KITTLE. Well, I will take one stab at it. 

We issued a paper on Monday, 33 pages, of which you have a 

copy, that gives a clear, definitive line between mortgage bankers 

and mortgage brokers. We think that will help transparency. Mortgage brokers are my clients, but at the end of the day, its clear, 

distinct difference is we lend and they do not, and we are required 

to report for HMDA and things like that, and they are not. So 

there are clear, distinct differences we can do. 

Chairwoman VELA ́ ZQUEZ. Unfortunately, we have run out of 

time, and we have votes on the House floor. 

Let me just thank all of you for being here. I know this is a complex issue, and we will continue to monitor it. 

I ask unanimous consent that members will have 5 days to submit a statement and supporting materials. For the record, without 

objection, so ordered. 

This hearing is now adjourned. 

[Whereupon, at 12:05 p.m., the committee was adjourned.]

35


40855.001
36


40855.002
37


40855.003
38


40855.004
39


40855.005
40


40855.006
41


40855.007
42


40855.008
43


40855.009
44


40855.010
45


40855.011
46


40855.012
47


40855.013
48


40855.014
49


40855.015
50


40855.016
51


40855.017
52


40855.018
53


40855.019
54


40855.020
55


40855.021
56


40855.022
57


40855.023
58


40855.024
59


40855.025
60


40855.026
61


40855.027
62


40855.028
63


40855.029
64


40855.030
65


40855.031
66


40855.032
67


40855.033
68


40855.034
69


40855.035
70


40855.036
71


40855.037
72


40855.038
73


40855.039
74


40855.040
75


40855.041
76


40855.042
77


40855.043
78


40855.044
79


40855.045
80


40855.046
81


40855.047
82


40855.048
83


40855.049
84


40855.050
85


40855.051
86


40855.052
87


40855.053
88


40855.054
89


40855.055
90


40855.056
91


40855.057
92


40855.058
93


40855.059
94


40855.060
95


40855.061
96


40855.062
97


40855.063
98


40855.064
99


40855.065
100


40855.066
101


40855.067
102


40855.068
103


40855.069
104


40855.070
105


40855.071
106


40855.072
107


40855.073
108


40855.074
109


40855.075
110


40855.076
111


40855.077
112


40855.078
113


40855.079
114


40855.080
115


40855.081
116


40855.082
117


40855.083
118


40855.084
119


40855.085
120


40855.086
121


40855.087
122


40855.088
123


40855.089
124


40855.090
125


40855.091
126


40855.092
127


40855.093
128


40855.094
129


40855.095
130


40855.096
131


40855.097
132


40855.098
133


40855.099
134


40855.100
135


40855.101
136


40855.102
137


40855.103
138


40855.104
139


40855.105
140


40855.106
141


40855.107
142


40855.108
143


40855.109
144


40855.110
145


40855.111
146


40855.112
147


40855.113
148


40855.114
149


40855.115
150


40855.116
151


40855.117
152


40855.118
153


40855.119
154


40855.120
155


40855.121
156


40855.122
157


40855.123
158


40855.124
159


40855.125
160


40855.126
161


40855.127
162


40855.128
163


40855.129
164


40855.130
165


40855.131
166


40855.132
167


40855.133
168


40855.134
169


40855.135
170


40855.136
171


40855.137
172


40855.138
173


40855.139
174


40855.140
175


40855.141
176


40855.142
177


40855.143
178


40855.144
179


40855.145
180


40855.146
181

Æ


40855.147