HUD’S PROPOSED RESPA RULE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 16, 2008 

Printed for the use of the Committee on Financial Services 

Serial No. 110–138 

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HUD’S PROPOSED RESPA RULE 

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HUD’S PROPOSED RESPA RULE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 16, 2008 

Printed for the use of the Committee on Financial Services 

Serial No. 110–138 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

DON CAZAYOUX, Louisiana 

TRAVIS CHILDERS, Mississippi 

SPENCER BACHUS, Alabama 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

MELVIN L. WATT, North Carolina, Chairman 

LUIS V. GUTIERREZ, Illinois 

MAXINE WATERS, California 

STEPHEN F. LYNCH, Massachusetts 

EMANUEL CLEAVER, Missouri 

MICHAEL E. CAPUANO, Massachusetts 

AL GREEN, Texas 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

ED PERLMUTTER, Colorado 

JACKIE SPEIER, California 

GARY G. MILLER, California 

PATRICK T. MCHENRY, North Carolina 

EDWARD R. ROYCE, California 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

J. GRESHAM BARRETT, South Carolina 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KEVIN McCARTHY, California 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

September 16, 2008 .......................................................................................... 1 

Appendix: 

September 16, 2008 .......................................................................................... 43 

WITNESSES 

TUESDAY, SEPTEMBER 16, 2008 

Borne, Rebecca, Policy Counsel, Center for Responsible Lending ....................... 16 

Kermott, Gary, President, American Land Title Association (ALTA) ................. 17 

Kittle, David, President, Mortgage Bankers Association (MBA) ......................... 11 

Lindsey, T. Anthony, Chief Executive Officer, GlobeCrossing, LLC, on behalf 

of the National Association of Realtors (NAR) .................................................. 13 

Saunders, Margot, Counsel, National Consumer Law Center (NCLC) ............... 14 

Savitt, Marc S., President, National Association of Mortgage Brokers 

(NAMB) ................................................................................................................. 9 

Stevens, David H., President, Affiliated Businesses, Long and Foster Companies, on behalf of Real Estate Services Providers Council (RESPRO) ............. 21 

Still, Debra, President and Chief Operating Officer, Pulte Mortgage LLC, 

on behalf of the National Association of Homebuilders (NAHB) ..................... 19 

APPENDIX 

Prepared statements: 

Watt, Hon. Melvin L. ....................................................................................... 44 

Bachmann, Hon. Michele ................................................................................. 48 

Borne, Rebecca .................................................................................................. 49 

Kermott, Gary ................................................................................................... 66 

Kittle, David ...................................................................................................... 94 

Lindsey, T. Anthony ......................................................................................... 203 

Saunders, Margot ............................................................................................. 233 

Savitt, Marc S. .................................................................................................. 259 

Stevens, David H. ............................................................................................. 277 

Still, Debra ........................................................................................................ 285 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Proposed HUD rule, dated March 14, 2008 ........................................................... 296 

Proposed Good Faith Estimate (GFE) .................................................................... 329 

Existing Good Faith Estimate (GFE) ..................................................................... 333 

Letter from Chairman Frank to HUD Secretary Preston, dated June 12, 

2008 ....................................................................................................................... 336

Comment letter from the Board of Governors of the Federal Reserve System 

to HUD, dated June 13, 2008 .............................................................................. 338 

Letter from Representatives Hinojosa and Biggert to HUD Secretary Preston, 

signed by Members of Congress, dated August 7, 2008 .................................... 343 

Undated response letter from HUD to Representative Biggert ........................... 363 

Written statement of the Independent Community Bankers of America ........... 365 

Written statement of the National Credit Reporting Association, Inc. ............... 378 

Letter from Representatives Hinojosa and Biggert to the Office of Management and Budget, dated September 16, 2008 .................................................... 387 

Letter from HUD to Hon. Melvin L. Watt, dated September 12, 2008 ............... 389 

Responses to questions submitted by Hon. Melvin L. Watt to Rebecca Borne ... 390 

Responses to questions submitted by Hon. Melvin L. Watt to Gary Kermott .... 402 

Page

VI 

Responses to questions submitted by Hon. Melvin L. Watt to David Kittle ...... 404 

Responses to questions submitted by Hon. Melvin L. Watt to T. Anthony 

Lindsey .................................................................................................................. 411 

Responses to questions submitted by Hon. Melvin L. Watt to Margot Saunders ........................................................................................................................ 414 

Responses to questions submitted by Hon. Melvin L. Watt to Marc S. Savitt ... 428 

Responses to questions submitted by Hon. Melvin L. Watt to David H. Stevens ....................................................................................................................... 439

Responses to questions submitted by Hon. Melvin L. Watt to Debra Still ......... 443 

(1) 

HUD’S PROPOSED RESPA RULE 

Tuesday, September 16, 2008 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 9:08 a.m., in room 

2128, Rayburn House Office Building, Hon. Melvin Watt [chairman 

of the subcommittee] presiding. 

Members present: Representatives Watt, Lynch, Cleaver, Green, 

Klein, Perlmutter; Miller and Royce. 

Also present: Representatives Hinojosa, Manzullo, and Biggert. 

Chairman WATT. This hearing of the Subcommittee on Oversight 

and Investigations of the Financial Services Committee will come 

to order. Without objection, all members’ opening statements will 

be made a part of the record. 

We will recognize as many members as wish to give an opening 

statement, within limits, for up to 5 minutes each, and I will recognize myself for a brief opening statement, just to set the stage. 

Let me first welcome all of the witnesses; thank you for being 

here. As I explained to you before we got into formal session, these 

hearings normally start at 10 a.m., but there is a full Financial 

Services Committee markup this afternoon, and at the time we 

made the decision to move the hearing up to 9 a.m. to get out of 

the way of that markup, we actually had two panels of witnesses 

scheduled, which I will talk about. So I think members will be 

here. There is a substantial amount of interest in this subject, as 

reflected by the number of pieces of input that we have gotten in 

the process. But the 9 a.m. hour for Members of Congress is—at 

least for starting hearings as opposed to going to breakfasts and 

greeting constituents or doing the other parts of the job—a heavy 

lift. 

Let me launch into a few comments. Today’s hearing is entitled, 

‘‘HUD’s Proposed RESPA Rule.’’ The Real Estate Settlement Procedures Act of 1974, which we call RESPA, is the Federal statute 

that governs the mortgage settlement process for all Americans. As 

anyone knows who has ever purchased a home or refinanced a 

home mortgage, the process involves most Americans’ biggest investment and can be intimidating and complicated. Buyers and 

borrowers must sign dozens of forms and legal documents in one 

sitting, and quite often they do not understand everything they are 

signing. Sometimes they don’t understand anything they are signing. RESPA mandates the disclosure of certain terms, such as a 

2 

home loan’s initial interest rate, prepayment penalties, and settlement costs, among others. 

RESPA and RESPA disclosures have been the subject of intense 

controversy and anticipated reform since at least the Reagan Administration. The Financial Services Committee has held several 

hearings on RESPA reform, most recently in the 105th and 108th 

Congresses. Our colleagues on the Small Business Committee have 

also held hearings on RESPA reform, most recently in May of this 

year. RESPA reform continues to generate bipartisan interest, and 

I thank Ranking Member Gary Miller for requesting this hearing, 

and we were happy to accommodate his request. It was at a bipartisan outcry and request that we pulled people together to discuss 

this. 

The reason for today’s hearing is to examine the proposed 

RESPA rule issued by HUD on March 14, 2008, for public comment. At the outset I should note that over 240 Members of Congress signed a ‘‘Dear Colleague’’ letter to HUD Secretary Steve 

Preston urging HUD to withdraw the proposed rule and commence 

a joint rulemaking with the Federal Reserve Board to produce 

more simplified mortgage and real estate settlement cost disclosure 

forms. The letter also warned that the proposed RESPA rule could 

hinder rather than help the recovery of the housing market, which 

is of even more concern in light of recent turbulence in the housing 

market and the government takeover of Fannie Mae and Freddie 

Mac. 

Chairman Frank also wrote a letter to HUD Secretary Preston 

in June urging HUD to work with the Federal Reserve Board to 

reconcile inconsistencies between the proposed RESPA rule and the 

Truth in Lending Act, TILA, disclosure requirements to avoid consumer confusion and redundant disclosures. 

I ask unanimous consent at this point that the Members’ letter 

signed by over 240 Members of Congress to HUD, dated August 7, 

2008, and Chairman Frank’s letter, dated June 12, 2008, be made 

a part of the record. Without objection, it is so ordered. 

I was one of the few Members of the House who was not a signatory to the letter of the over 240 Members, or to Chairman Frank’s 

letter, and I may be the only remaining Member of Congress who 

can truly be said to be at least publicly neutral on HUD’s proposal, 

so I was glad when Ranking Member Miller requested the hearing. 

I thought it would be fun to see a bipartisan pummeling of a Federal Government agency and a spirited defense by that agency. I 

am always up for a good fiery discussion, if not a brawl. 

But, alas, that is not going to happen, at least not today, because 

before we could issue our invitation to HUD to come and explain 

what HUD was thinking, in August, HUD formally sent the proposed RESPA rule to the Office of Management and Budget for review and now claims that it is obliged not to comment further. So 

HUD Secretary Preston will not be with us today. That is why we 

only have one hearing panel today. 

The Federal Reserve was not formally invited, but indicated that 

it would be reluctant to be critical of another Federal agency in 

public. I would note, however, that the Fed issued a staff comment 

letter, dated June 13, 2008, expressing some concerns, and I ask 

3 

unanimous consent to submit that letter for the record. Without objection, it is so ordered. 

We are pleased that representatives of virtually every other 

group in America that I could think of have been lining up at the 

door to testify, which is why we have so many witnesses on this 

panel. We have a wide array of witnesses and we look forward to 

their testimony. The testimony will be available to HUD and to 

OMB for whatever use they desire to make of it as we move this 

process forward. 

At the end of the day, RESPA reform should be about improving 

disclosure to consumers so that they can understand their rights 

and responsibilities when buying a home and avoid unwelcome surprises at the settlement table. While I have never been, and many 

of you have probably heard me express this view, a big advocate 

of the benefits claimed by the advocates of disclosure, it is certainly 

true that disclosure helps consumers better understand what they 

are signing when buying a home or getting a loan. RESPA reform 

should not unnecessarily confuse consumers, and should not result 

in unreasonable regulatory burdens and costs to the real estate industry as the fragile housing market seeks to recover. 

I welcome the Members here. I am going to be as impartial as 

I can be today. I have fought to maintain this position, not signing 

on to any of the letters, and I was going to try to be the mediator. 

I am not sure there is going to be anybody here to mediate between, because having reviewed the statements, there seems to me 

to be pretty consistent opposition to the proposed rules for one reason or another. 

I am looking forward to building this record, and I will recognize 

Ranking Member Gary Miller, who is actually the originator of the 

idea for this hearing, and we thank him for doing that. I recognize 

the gentleman for 5 minutes for his opening statement. 

Mr. MILLER. Thank you, Mr. Chairman. It is good to have all of 

you here today. We are here today because of all of you. 

Over the years, we have examined some of the RESPA proposals 

that have occurred in the past that haven’t been enacted and we 

have all been very concerned. Many of you have come by the office 

and we have talked at different functions about your concerns, and 

I think it is most appropriate that we get those concerns out on the 

table. We really don’t know what it is going to look like when we 

get the RESPA rule, but from what many are hearing, there are 

a lot of concerns. I will say that I have a lot of high regard for Secretary Preston. I think he is a good man, and he is going to try 

to do a good job, but I think it is also appropriate for us to talk. 

Our industry, the mortgage industry, is going through incredible 

upheavals right now. We don’t know how bad it is going to get, but 

we don’t want to make it worse. What we don’t want to do is, with 

our U.S. financial markets, experience the upheaval they have to 

make things more complicated. Record high foreclosures and delinquency rates, bank failures, and Treasury’s recent actions with 

Fannie Mae and Freddie Mac, together with high commodity prices 

and the suffering labor market have truly put the U.S. economy to 

a test that we have never really experienced in recent years. 

Certainly the foreclosure crisis has taught us all that we need to 

improve the mortgage origination process. Revamping these regulaVerDate Aug 31 2005 15:00 Jan 12, 2009 Jkt 045622 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 K:\DOCS\45622.TXT TERRIE
4 

tions, however, must not be done haphazardly, especially considering the current housing market and the tightening credit situation. Our financial institutions are extremely vulnerable right now. 

We cannot afford any more large bank failures, and we need to 

focus on bringing stability to the housing and financial markets. 

Any reforms must not negatively impact mortgage affordability and 

availability in this extraordinary environment. 

Furthermore, some housing experts are predicting that the mortgage losses will reach staggering levels in this coming year. While 

disclosures must be improved to prevent another mortgage crisis in 

the future, we must not exacerbate these losses, and we need to instill some certainty in the marketplace right now. 

It is important for consumers to understand the terms of their 

mortgage. Comments of the Federal Reserve Board on HUD’s proposal describe how the revised Good Faith Estimate, GFE, is inconsistent and duplicative of TILA’s disclosure efforts which may lead 

to confusion or consumers disregarding crucial information about 

their loan terms. The Federal Reserve Board was extremely critical 

of HUD’s proposal and warned that the lack of adequate consumer 

testing of these disclosures could ultimately hurt, rather than help, 

consumers, and I have talked to many of you and that seems to be 

your concern also. The Board also points out how HUD has failed 

to incorporate consumer testing results from their study in mortgage disclosure reforms. 

The Federal Trade Commission, FTC, has also voiced concern 

with the proposed rule. The FTC has stated that some of the 

changes may further complicate the mortgage process. The FTC 

has also advocated a collaborative effort among HUD and the Federal Reserve Board to reform mortgage disclosures. 

Additionally, 244 Members of Congress had concerns with the 

proposed rule and requested HUD to withdraw the rule and work 

with the Federal Reserve Board to reform mortgage disclosures. On 

August 18th, HUD rejected this request and sent the proposed rule 

to the Office of Management and Budget, OMB, on that very same 

day. 

While we are unaware of the revisions that HUD made to the 

rule, it is important to have a discussion about the effects of the 

proposed changes. I look forward to listening to the concerns that 

you all are going to bring forward today, and hopefully HUD is listening at least on the TV to what we are going to do today. While 

we would have liked to have heard from HUD today about this extensive rule to reform mortgage disclosures, they declined our invitation to testify. 

With that said, as many of you know, Secretary Preston previously served as an effective director of the Small Business Administration. Mr. Preston made important reforms to the Administration and understands the needs of America’s entrepreneurs, 

lenders, and small businesses. I believe the Secretary brings great 

experience to the Department of Housing and Urban Development, 

and I am confident that he is taking this issue and your comments 

seriously with his great consideration of reforming the mortgage 

lending process. 

You are an incredibly talented bunch of witnesses that we have 

today, you understand your industry and your market, and I am 

5 

really looking forward to the testimony. I thank you for holding 

this hearing, Mr. Chairman. 

Chairman WATT. Thank you for requesting the hearing, and I 

thank you for your opening statement. 

I am going to go a little bit out of order because I know Mr. 

Cleaver and Mr. Green have to leave for a meeting that I also need 

to be at but I can’t attend, so they are going to be my eyes and 

ears at that meeting. So Mr. Cleaver is recognized for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. I won’t take 5 minutes. 

I would like to express my appreciation to you and Ranking 

Member Miller for holding this hearing. I am very sorry that the 

Department of Housing and Urban Development did not send a 

representative here today and also submit to the questions that we 

might ask. 

The proposal is a very sensitive issue, and the chairman and others have already expressed their opinions. And to be quite frank, 

I know people don’t normally like to have group projects. People 

don’t like to work together or come together, but I can’t come up 

with any logical reason why there cannot be collaboration between 

HUD and the Fed. It is just not practical to say that we can’t come 

to a hearing because Federal agencies don’t like to contradict one 

another. Their very existence in many instances is a contradiction 

to other agencies. 

And so I am very interested in hopefully getting back to hear 

your answers to questions. Ms. Borne articulated in her statement 

some things that I really would like to get into. I appreciate the 

fact of your coming, and I can hope that with all of the various witnesses we have today that somehow we can get HUD to consider 

some of the conclusions and suggestions that many of you have 

reached and I think, frankly, many of us have already reached. So 

I look forward to getting back in time to listen to some of your comments or to listen to the answers to some of the questions we raise. 

Thank you, Mr. Chairman. 

Chairman WATT. Mr. Miller is recognized for a unanimous consent request. 

Mr. MILLER. Yes, Mr. Chairman. I would like to submit the letter 

from HUD into the record regarding their not testifying today. And 

I really wish they could have been here, at least to testify on what 

the original RESPA proposal was. We could at least have had some 

questions answered on that. Nevertheless, I ask to submit this letter for the record. 

Chairman WATT. Without objection, the letter will be made a 

part of the record. 

Now lest you all be concerned that I am going to pass over Mr. 

Manzullo, he is not on the subcommittee, and I am going to personally ask, along with Mr. Miller, that we give him unanimous consent to make an opening statement, but I need to let the members 

of the subcommittee make their opening statements first. So I will 

go next to Mr. Green for up to 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. I especially thank you for 

holding this hearing, and I thank Ranking Member Miller as well. 

He has demonstrated a willingness to work with us across the aisle 

in a bipartisan fashion and I appreciate what he has done to work 

with me on some other issues. 

6 

Mr. Chairman, as Ranking Member Miller indicated, we don’t 

know what the reform will look like, and I concur. But I also do 

know this: We must act. Even when we do act, there are those who 

contend that we haven’t acted. I think that the least we can do is 

make sure that we can have a reasonable retort to those who will 

contend that we have not done anything and show that we have 

done something of worth. We understand that knowledge is power, 

and what we must do is empower the consumer by according the 

consumer the knowledge necessary to make reasonable, prudent, 

and judicious decisions. 

We have some concerns that I think can be addressed. We have 

two agencies that are charged with the responsibility of dealing 

with these issues. The Truth in Lending Act directs the Federal 

Reserve Board to regulate disclosures on loan terms. RESPA directs HUD to do so. These two entities may not harmonize all the 

time, and as a result we may not get harmony in terms of what 

should be accorded the consumer with the disclosure forms. 

I am concerned about the yield spread premium. The yield 

spread premium has caused many persons to pay fees that they ordinarily would not have paid had they known they were being accorded these fees. These fees were being placed upon them. There 

must be some way for the consumer to make an intelligent decision 

about the yield spread premium. For those who do not know who 

may be viewing this, the yield spread premium is a fee that an 

originator can get when he or she causes a borrower to take out 

a loan for an interest rate higher than the one the borrower has 

qualified for, and it need not be disclosed to the borrower that this 

fee is being charged. The yield spread premium is a concern. We 

have to have fairness in borrowing such that people know what 

they are confronting. 

The initial rate versus the adjusted rate is a concern. Many consumers don’t understand this whole notion of a teaser rate and 

then a rate that will adjust that they cannot pay for. The adjusted 

rate has to be made clear to consumers. The prepayment penalties—there are many consumers who don’t know that they have 

prepayment penalties when they take out their loans. This is something that we have to make available and known to consumers. 

And finally, just the cost of the loan. And by the way, I say finally only because I think my time doesn’t permit me to go into a 

multiplicity of other things. But the cost of the loan, there are 

many consumers who literally, at the time they negotiate their 

loan, have no idea as to what this loan will cost them. Why? Because consumers are so eager to have a place to call home, especially the first-time homebuyer, that they will sign anything. They 

literally sign documents that have no language on them, and they 

are told, ‘‘We will get this back to you at a later time,’’ and they 

then contend, ‘‘I didn’t sign that with that on it,’’ at the later time 

and find that is not going to be justification for having signed the 

document and the liabilities associated with the document. 

So I am very concerned about the consumer. I want the consumer to be empowered with knowledge. We can do this, but I do 

think that it is going to require bipartisanship, and I think that it 

is going to require that we have the opportunity to talk to HUD 

and to the Fed about this. 

7 

I thank you and I yield back the balance of my time. 

Chairman WATT. I thank the gentleman for his participation. Mr. 

Lynch is recognized for 5 minutes. 

Mr. LYNCH. Thank you, Mr. Chairman, and I want to thank 

Ranking Member Miller as well. I will try to be very brief; I do 

want to hear from our witnesses this morning. 

I want to thank all of the panelists here for attending. I would 

be remiss if I didn’t express my disappointment with HUD and 

with the Fed for their failure to attend. I simply cannot imagine 

how this helps the American people have any confidence in the fact 

that our agencies are working with government to address the 

problems that they face in these extraordinary times when these 

agencies don’t even show up. While I understand the difficulties 

there, there should have been some way to send someone here to 

address the points that the committee and that you on the panel 

are raising. 

With that, I just want to point out, I know that, Mr. Savitt, your 

organization (the National Association of Mortgage Brokers) and 

Mr. Kittle, your organization (the Mortgage Bankers Association) 

are intimately involved in the current difficulties that we are facing, not only on the subprime but generally. I will be very keen to 

hear what you might think we can do to improve the settlement 

process. And I know that many of the frailties and weaknesses that 

we see in the mortgage origination process come from the underwriting side, perhaps, but I do think that the moment of settlement 

is a time at which some of these weaknesses could be brought to 

light and the underlying agreements strengthened. 

So I will be interested in hearing from you, but also from everyone who has come here this morning to help Congress with its 

work. So thank you, Mr. Chairman, and I yield back. 

Chairman WATT. I thank the gentleman for his comments. 

And I join Mr. Miller in asking unanimous consent for permission to allow Mr. Manzullo to give an opening statement. I know 

he has been active on this issue in the Small Business Committee, 

so we welcome his opening statement. The gentleman is recognized. 

Mr. MANZULLO. Thank you, Mr. Chairman, for holding this hearing today and for allowing me to testify. 

I have been a longtime opponent of changes to RESPA. During 

my time as chairman of the Small Business Committee, I held two 

hearings on the impact of HUD’s proposed RESPA changes on 

small businesses. At both hearings, I was strongly dissatisfied by 

the lack of knowledge displayed by HUD staff regarding the details 

of their own proposal and the impact that it would have on consumers and businesses. Secretary Jackson testified that there are 

eight people working full time at that Department just on the 

RESPA issue. Their time could be well spent doing something else, 

such as trying to figure out what to do with this horrible real estate market. 

In June of this year, I sent a strongly worded comment letter to 

HUD emphasizing that they have again displayed a serious lack of 

familiarity with real work experience in the real estate settlement 

process. I have been involved in over 2,000 real estate closings as 

a member of the bar for 22 years before I was elected to Congress, 

and I can tell you they have no clue as to what happens at a real 

8 

estate closing, and now they come here with this, again, ridiculous 

regulation that could really hurt. I recently met with HUD’s Secretary Preston, a man I hold in high regard, to discuss these 

changes. 

Although I see many problems with the current RESPA proposal, 

I want to mention just a couple of them. First of all, HUD has 

never complied with the Regulatory Flexibility Act. I repeat, HUD 

has never complied with the Regulatory Flexibility Act. Never. The 

data used here is 6 to 8 years old. It was incomplete back then, 

it is incomplete now, and they ought to hang their heads in shame 

over lack of scholarship and come out with the impacts that this 

has on small business. And they come back again, and again, and 

again with the same old crap. I just cannot believe that regulators 

have nothing else to do but to sit there and destroy small businesses. And now it comes back again, the bungling of services to 

help out big people and destroy the small businesses under the 

veiled name of the ‘‘volume discount.’’ 

HUD ought to do what its statutory duty is to do. Before RESPA 

came out, I closed real estate transactions with a one-page form, 

and everybody knew exactly what the cost of that mortgage was, 

exactly all of the different costs. Today, more confusion. I would 

just ask HUD, just withdraw this thing. Just throw it into the river 

and get on with something else in your lives. I guess you know 

where I stand, Mr. Chairman. 

Chairman WATT. I thank the gentleman for his comments, and 

now we have ourselves fired up here. 

I welcome the gentlelady, Mrs. Biggert, to the hearing. She is not 

a member of the subcommittee either, but I ask unanimous consent 

to allow her an opening statement if she desires to make one. 

Mrs. BIGGERT. Thank you, Mr. Chairman. I don’t have an opening statement, but I would like to submit for the record a letter 

that Congressman Ruben Hinojosa and I submitted to OMB about 

the HUD RESPA and asking them to send it back to HUD and to 

have further hearings on such a ruling that they have made. 

Chairman WATT. I thank the gentlelady for her unanimous consent request, but we have already submitted that letter. That is the 

one that was co-signed by about 240 Members, as I recall, or is 

there another letter? 

Mrs. BIGGERT. Yes, sir. 

Chairman WATT. There is a separate letter? Okay. 

Mrs. BIGGERT. This is a further letter that was submitted yesterday, and we are getting signatures, again, on this letter. 

Chairman WATT. Without objection, that letter will also be submitted for the record. 

I think we have exhausted all of the opening statements now. I 

told you that there was a great deal of interest in this, and there 

will be other members coming in, I am sure, probably after 10:00. 

There is a conference going on, a Republican conference, and some 

meetings that I am aware of, so it is a busy day. 

So let’s get to the witnesses. Without objection, all other members’ opening statements will be made a part of the record. I will 

now introduce briefly the members of the panel who will be testifying today. Your full bios and CVs will be made a part of the 

record, so we are going to abbreviate the introductions. 

9 

We welcome you here. Our first witness will be Mr. Mark Savitt, 

president of the National Association of Mortgage Brokers. 

Our second witness will be Mr. David Kittle, president of the 

Mortgage Bankers Association. 

Our third witness will be my homeboy, T. Anthony Lindsey from 

Charlotte, who is here representing the National Association of Realtors, and he is also the chief executive officer of GlobeCrossing, 

LLC, a diverse real estate company in Charlotte, my hometown. 

Our fourth witness will be Ms. Margot Saunders, counsel for the 

National Consumer Law Center, with whom I have also had a long 

and warm relationship, going back to North Carolina. 

Our fifth witness will be Ms. Rebecca Borne, policy counsel for 

the Center for Responsible Lending. 

Our sixth witness will be Mr. Gary Kermott, president—did I get 

that right? Kermott? Somewhere in the neighborhood, he says— 

president of the American Land Title Association. 

Our next witness after him will be Ms. Debra Still, president and 

chief operating officer of Pulte Management, LLC, and she is 

speaking on behalf of the National Association of Homebuilders. 

And our final witness today will be Mr. David Stevens, president, 

Affiliated Businesses, Long and Foster Companies, on behalf of 

Real Estate Services Providers Council (RESPRO), our most recent 

addition to this panel. 

Mr. MILLER. Pulte Mortgage. It is supposed to be Pulte Mortgage, LLC. 

Chairman WATT. Pulte Mortgage, LLC. I am sorry. Just trying 

to rush through this. 

So we welcome all of you. Your written statements that you have 

submitted will be made a part of the record in their entirety, and 

each of you will be recognized for 5 minutes to summarize your 

statement and highlight some of the points that you wish to make. 

There is a lighting system in front of you. It will come on green 

at the beginning. At 4 minutes, it will go to yellow, and at 5 minutes, it will go to red. We are not in the habit of being as mean 

as some Chairs are, but we do ask you to respect that there is another demand for this room, and so we ask you to kind of sum up 

when you get to that red light before we have to ask you to do that. 

So Mr. Savitt, you are recognized for 5 minutes for your statement. 

STATEMENT OF MARC S. SAVITT, PRESIDENT, NATIONAL 

ASSOCIATION OF MORTGAGE BROKERS (NAMB) 

Mr. SAVITT. Good morning, Chairman Watt, Ranking Member 

Miller, and members of the subcommittee. 

I am Marc Savitt, president of the National Association of Mortgage Brokers. In addition to serving as NAMB president, I am also 

a licensed mortgage broker, and like most of my fellow NAMB 

members, I am a small business owner. 

I would like to thank you for the opportunity to testify here 

today on HUD’s proposed RESPA rule. NAMB applauds HUD’s response to the current problems in our mortgage markets. We share 

HUD’s resolute commitment to simplify the process of obtaining 

mortgages and to protect consumers from unnecessarily high settlement costs. 

10 

However, NAMB objects to several elements of the proposal that 

would not best serve consumers because they would confuse consumers, impede competition, and treat direct competitors differently. In addition, HUD has failed to consider other highly effective and less burdensome alternatives to their proposal. In light of 

the current mortgage situation, in addition to recent rulemaking 

and the passage of key legislation, NAMB questions the appropriateness of the timing and implementation of HUD’s proposal. 

A significant component of the proposal addresses broker compensation or YSP. YSP is already required to be disclosed on the 

good faith estimate and on the HUD–1 settlement statement for 

the last 16 years since 1992. The proposal, however, reclassifies 

this compensation as a credit to the borrower, the practical effect 

of which will be very confusing to consumers and puts brokers at 

a competitive disadvantage by imposing uneven disclosure obligations among originators receiving comparable compensation. YSP 

or its equivalent is present in every origination channel regardless 

of whether a broker is involved in the transaction or not. In fact, 

with the originate to distribute model, most originators are merely 

brokering loans, yet HUD fails to address the converging roles of 

mortgage originators in its proposal. 

HUD’s proposal addresses broker disclosure in an inequitable 

manner and in a way that will confuse consumers about the overall 

cost of a mortgage. This is not simplifying the mortgage process. 

There needs to be a level playing field for consumers. 

The proposal relies on testing that was conducted using flawed 

methodology to assess the value of HUD’s proposed disclosures relating to YSP. Additionally, HUD failed to test the disclosures in 

actual transactions involving competing originators, thereby producing flawed results. Exhaustive studies of mortgage disclosures 

as detailed in our written testimony issued by the FTC, the Federal 

Reserve Board, and academic scholars show that broker-only disclosure of YSP creates confusion among consumers and causes them 

to choose more expensive loans. Additionally, these studies show 

that broker-only disclosure of YSP leads to bias against broker-assisted transactions and impedes competition, resulting in harm to 

consumers. 

Such authoritative research and studies, in addition to consumer 

testing, led the Federal Reserve to remove broker-only disclosure 

provisions from its final rule amending Regulation Z of the Truth 

in Lending Act. NAMB has urged HUD to take a similar action 

with regards to its proposal and we encourage HUD to work with 

the Fed to produce an alternative disclosure proposal. 

One alternative NAMB strongly supports is a revised GFE that 

clearly outlines loan terms and the originators role in the transaction. NAMB has submitted the prototype of such a form to HUD 

on several occasions. However, HUD has yet to comment on this 

proposal. 

Finally, NAMB opposes the section of the proposal that would require an addendum to the HUD–1 settlement statement which 

would compare loan terms and settlement charges estimated on the 

good faith to the HUD. Because the addendum, or closing script, 

as it is known, is required to be read out loud by the settlement 

agent in closing, it will unnecessarily complicate the settlement 

11 

process, delay closings, and ultimately drive up costs to the consumers. 

Our mortgage market today is significantly strained, and it continues to experience ongoing turmoil and change. Because of this, 

NAMB believes that consumers and the market in general may be 

better served if HUD would consider delaying implementation of 

any new policies or procedures until the market and all market 

participants have had time to digest the multitude of events already affecting consumers’ ability to obtain credit. We also would 

like to see HUD harmonize its RESPA rule with the Fed’s implementation of Reg Z. 

We look forward to continuing to work with this subcommittee 

as well as with HUD and other regulators on finding solutions that 

are effective in helping consumers but will not unreasonably obstruct the market or disadvantage competing originators. I thank 

the committee for allowing me to testify today, and I would be 

happy to answer any questions. 

And Mr. Chairman, I would like to make one other statement if 

I could. Mr. Green made a comment in his opening statement that 

YSP was not disclosed to consumers, that they basically found this 

out when they got to closing. YSP, which is disclosed by mortgage 

brokers, were the only channel of distribution that actually discloses in this indirect compensation. We have been doing this since 

1992 on the good faith estimate when the consumer first comes into 

our office, and once again at the settlement on the closing statement, and most States, such as the States in which I am licensed, 

also required two State-specific forms. So when a consumer comes 

into my office, I disclose it 4 times. 

Thank you. 

[The prepared statement of Mr. Savitt can be found on page 259 

of the appendix.] 

Chairman WATT. I thank the gentleman for his testimony, and 

Mr. Kittle is recognized for 5 minutes. 

STATEMENT OF DAVID KITTLE, PRESIDENT, MORTGAGE 

BANKERS ASSOCIATION (MBA) 

Mr. KITTLE. Chairman Watt, and Ranking Member Miller, thank 

you for the opportunity to appear before you to discuss RESPA, one 

of the Mortgage Banker Association’s top policy issues. 

I would like to make three points, and then I would be happy to 

answer any questions. First, MBA and I, personally, are firmly 

committed to improving the mortgage process for both industry and 

consumers, and we have been for a very long time. Second, any reforms should give consumers the information they need to effectively shop for loans, to inform themselves about the true cost of 

closing on a mortgage, and to protect themselves from unscrupulous actors in the mortgage process. That requires a comprehensive 

approach to the loan application and closing process involving both 

HUD’s RESPA reforms as well as the Federal Reserve’s TILA 

forms. And last, HUD’s proposed RESPA reforms do not even come 

close to achieving simplification. They should be delayed and officials at HUD should work with the Federal Reserve on a joint and 

comprehensive effort to simplify and improve forms and disclosures. 

12 

Improving the mortgage closing and application process will result in better informed customers who understand their loans and 

the closing process. With greater transparency and better information, consumers can shop more effectively. This will lead to better 

mortgage decisions, and those lenders who can objectively provide 

the best products for their customers will be the companies that get 

the most business. The market will become more efficient. Lenders 

will have better and happier customers. 

Reform is right for the market and for consumers. But reform for 

reforms sake would be quite damaging to the system. Reforms 

should achieve two interrelated goals: One, help the consumer 

shop; and two, help them understand their loan and the closing 

terms better. That is why it is imperative that HUD not work in 

isolation on this issue, but work with the Federal Reserve in helping consumers shop for and understand their loan. 

The Fed is responsible for implementing the Truth in Lending 

Act, or TILA. HUD is responsible for RESPA. At the time of the 

application, borrowers receive a TILA disclosure and a good faith 

estimate of closing costs. In the middle of the process, recently 

passed Federal law now mandates another TILA disclosure. Then, 

at the closing table, the borrower gets yet another document, the 

HUD–1, which is different from the previous two documents. 

All of these documents are ultimately confusing for the consumer. You simply can’t compare one document to another without 

a map. It is so confusing, HUD literally has created a map between 

the two documents. How is that simplification? Real simplification 

would look at all of the documents and harmonize them so they can 

work together. Incredibly, this HUD RESPA proposal would make 

actual forms less similar. This is exactly what consumers do not 

need. If you have purchased a home, you have some idea how the 

closing process works. Does anybody really believe that the way to 

fix the closing mess is to make a closing longer and to give more 

paper to consumers? 

What HUD has proposed would take what should be a one page 

form and turn it into four pages, require a 45-minute script to be 

read to the consumer, stretching an already long closing process 

with no benefit to the borrower, and continue to have a series of 

forms where the lines don’t match up and consumers can’t figure 

out what happens from one part of the process to the next. 

MBA has long supported efforts to make the mortgage process 

simpler, clearer, and more transparent for consumers. Common 

sense dictates that HUD and the Fed work together. The rules and 

forms should be harmonious, work for borrowers, and be implemented at the same time to avoid confusion and unnecessary costs 

for lenders, sellers, and buyers. 

In closing, let me say that we all know that the context of this 

hearing is the larger situation in the mortgage and financial markets. As you know, right now the market is fragile. This is not the 

time to ask the industry or consumers to assume costs of regulatory changes unless they are necessary and well-conceived. We 

need reform, but we have to make sure we get the right reform. 

We are pleased that HUD attempted to make a very difficult task. 

They deserve to be commended for their efforts, but unfortunately 

HUD’s efforts will not give consumers what they need. 

13 

Again, I thank you for the opportunity to appear before you, and 

I look forward to answering your questions. 

[The prepared statement of Mr. Kittle can be found on page 94 

of the appendix] 

Chairman WATT. I thank the gentleman for his testimony, and 

we will now go to Mr. Anthony Lindsey on behalf of the National 

Association of Realtors. 

STATEMENT OF T. ANTHONY LINDSEY, CHIEF EXECUTIVE OFFICER, GLOBECROSSING, LLC, ON BEHALF OF THE NATIONAL ASSOCIATION OF REALTORS (NAR) 

Mr. LINDSEY. Good morning, Chairman Watt, Ranking Member 

Miller, and members of the subcommittee. 

Thank you for holding this hearing and for giving me the opportunity to share the concerns of the National Association of Realtors 

and its 1.2 million members with the proposed rule to reform the 

Real Estate Settlement Procedures Act, known as RESPA. Again, 

my name is T. Anthony Lindsey. I am the founder and chief executive officer of GlobeCrossing Realty in Charlotte, North Carolina. I 

currently serve as a director on the board of the North Carolina Association of Realtors and a director on the board of governors for 

the Real Estate and Building Industry Coalition, which serves the 

metro region of Charlotte, North Carolina. In addition, I owned and 

operated a regional residential mortgage brokerage for 6 years. 

Reform of RESPA is critically important to NAR members simply 

because it affects almost every home purchase. Since many consumers look to the real estate professional to help them understand 

the home buying process, the consumer turns to us when they have 

questions. We clearly recognize the need to reform RESPA and 

make the process easier to understand. 

However, we believe that HUD’s current RESPA reform proposal 

falls short of this stated goal. Specifically, we believe that the new 

good faith estimate and anti-competitive aspects of the rule need 

further revision. NAR believes the new rule does not simplify the 

transaction or provide full disclosure. In fact, it will most likely 

cause confusion, reduce the incentive to shop, and likely raise 

prices for settlement services in the long run. For example, going 

from a two page GFE to a four page GFE does not achieve simplification in our view. 

The new good faith estimate should mirror the HUD–1 settlement statement, as was suggested by HUD’s own design consultants. Marrying these two forms would help consumers understand 

whether the terms and expenses that were disclosed to them upon 

loan application are in fact the same ones outlined at closing. Despite its longer length, the new GFE does not include all closing 

costs, another factor that will contribute to misunderstanding and 

probably inhibit shopping. NAR, along with the Center for Responsible Lending, has recommended that HUD develop a one page 

summary GFE for shopping purposes and a full GFE matched to 

the HUD–1 statement that includes all closing costs to help reduce 

this confusion. We also believe that HUD and the Federal Reserve 

should coordinate their efforts to revise the RESPA disclosure 

forms and the Truth in Lending rules as called for by Congress 

some 12 years ago. 

14 

HUD must also consider the anti-competitive consequences of the 

good faith estimate. As proposed, the good faith estimate carries a 

HUD required price guarantee only for a lender-provided package 

of settlement services. As a result, we believe consumers will be 

less likely to shop for these services, especially when it is pointed 

out to them that a second GFE would be required if they do shop 

and there might be a charge for the second GFE. This point is very 

important and one that gets little attention in the RESPA debate. 

The largest financial institutions will likely benefit the most from 

these new pricing provisions. We anticipate they will use their 

market clout and promises of high volume business to force down 

prices so they present the lowest cost packages of services and capture market share. 

Now on the face of it, that sounds good, and we support the goal 

of lower cost, but we and many others believe that reduction in 

prices will only be temporary. In the long run, closing costs will 

rise and service quality may diminish as smaller lenders and local 

settlement firms are pushed out of the market. 

In conclusion, NAR strongly supports better disclosures of mortgage terms and settlement services. HUD’s RESPA reform proposal, however, should be reworked to focus on common sense disclosures while eliminating the volume discount, the closing script, 

and—provisions. 

Thank you very much, and I will be happy to address any questions. 

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

203 of the appendix.] 

Chairman WATT. I thank you very much for your testimony. 

Ms. Margot Saunders of the National Consumer Law Center is 

recognized for 5 minutes. 

STATEMENT OF MARGOT SAUNDERS, COUNSEL, NATIONAL 

CONSUMER LAW CENTER (NCLC) 

Ms. SAUNDERS. Thank you, Chairman Watt, Mr. Miller, and 

members of the subcommittee. We appreciate the opportunity to 

speak today on behalf of low-income consumers. 

The National Consumer Law Center works with lawyers all over 

the country, legal services, and private lawyers who try to help clients to prevent them from losing their homes. I see hundreds of 

mortgages every year, and there is no doubt that the current system is broken. RESPA does need reform. We think that HUD’s latest proposal is a good way down the road towards positive reform 

of RESPA. We agree with the members of this panel, however, that 

more work needs to be done. We hope that the current effort is not 

suspended, but instead that HUD continues to improve the regulations, as recommended, and then finalize them. In our lengthy comments to HUD as well as our testimony we have provided comprehensive responses to all of the myriad of issues that HUD 

raises. 

In the few minutes that I have today I want to focus on just two 

of those issues. One, the necessity to include the APR, the annual 

percentage rate, rather than the interest rate in the good faith estimate, and two, the dangers of the proposal on yield spread premiums. 

15 

HUD is appropriately focused on reducing costs for consumers 

and facilitating shopping. The APR in the mortgage market is a necessity to achieve those goals. It is the only shopping metric that 

allows consumers to equate all fees, all potential interest rates, 

over the full term of the loan. We know from research that most 

consumers do use the APR when they are shopping for mortgages. 

Interest rates, while reflecting the largest cost of credit, do not reflect other important aspects of credit. 

In recent years, the marking of dangerous payment option ARMs 

reveals the problem with relying too much on interest rates. The 

payment option ARMs are typically advertised, for example, as a 

2 percent fixed rate, even though the rate may be fixed for no more 

than a day or a month. The APR, while it does not entirely reflect 

the upwards adjustment in the interest, at least reduces the distortion by requiring that the rate be disclosed as a composite rate over 

the term of the loan. Consumers cannot do the math to determine 

which of two loans is cheaper given different rates, different fees, 

and different terms. The APR solves that problem and permits consumers to shop intelligently and efficiently. 

Yield spread premiums must be substantively regulated. Lenderpaid broker compensation, as HUD describes, leads to higher settlement costs and higher interest costs. Generally, borrowers receive little if any benefit from lender-paid broker compensation. 

Worse, lender-paid broker compensation appears to drive racially 

disparate pricing. Only where the fees are either all in or all out 

of the rate are consumers able to shop successfully for the cheapest 

loan. 

When consumers can compare loans with the fees all in or all 

out, they are comparing a limited number of variables. On the one 

hand is a loan with a particular rate and all fees required to be 

paid by the borrower either in cash or out of the home equity of 

their loan. On the other hand is the same loan with all of the fees 

paid by the lender but from the interest rate, no additional cash 

or equity is required. This is a no-cost loan. 

There are multiple benefits for no-cost loans, including the retention of precious cash and equity, as well as the lesser known finding that no-cost loans result in significant reduction of all closing 

costs. However, the key to achieving this reduction is that the lender has to pay all the fees; there cannot be a mix. The use of the 

combination of payments has the opposite effect and the studies 

routinely find that the combinations of payments result in a higher 

total of closing costs. 

Most disclosures of lender-paid broker compensations are likely 

to confuse consumers because the trade-offs are so complex and because borrowers are led to believe erroneously that brokers are acting as their agents. We share HUD’s concerns that a separate 

agreement is likely to confuse borrowers. We agree that the impact 

of any permissible yield spread premium must be clearly disclosed 

on the GFE. However, HUD’s use of the term ‘‘credit’’ to describe 

lender-paid broker compensation in the absence of substantive regulation that limits total fees is terribly misleading. 

The key point is that disclosure of a loan is not sufficient. Yield 

spread premiums should be prohibited unless all other fees are 

folded into the interest rate and no discount points are charged. 

16 

Additionally, no other lender-paid broker compensation should be 

permitted if the borrower is making any direct payments to the 

broker. 

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

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

233 of the appendix.] 

Chairman WATT. Thank you so much for your testimony. 

Ms. Rebecca Borne, on behalf of the Center for Responsible Lending, is recognized for 5 minutes. 

STATEMENT OF REBECCA BORNE, POLICY COUNSEL, CENTER 

FOR RESPONSIBLE LENDING 

Ms. BORNE. Good morning, Chairman Watt, Ranking Member 

Miller, and members of the subcommittee. Thank you for inviting 

me to testify today about RESPA. I am policy counsel at the Center 

for Responsible Lending, a not-for-profit nonpartisan research and 

policy organization dedicated to protecting homeownership and 

family wealth. We are an affiliate of Self-Help, a lender that makes 

responsible fixed-rate mortgage loans to people with blemished or 

nontraditional credit. We first wish to congratulate HUD for its efforts to improve RESPA. Confusing and misleading information has 

contributed to this foreclosure crisis. 

However, we cannot overemphasize that poor disclosure has not 

been the driver of this crisis and that improving disclosure will not 

prevent future predatory lending. This crisis was primarily caused 

by lenders and brokers selling unsustainable loans, largely in response to secondary market demand. Only substantive laws will 

prevent predatory practices, realign incentives, and ultimately restore health to the mortgage market. HUD, through RESPA, has 

the authority to eliminate one of the key culprits of the subprime 

crisis, abusive yield spread premiums. 

In designing RESPA, Congress adopted not only disclosure provisions, but also substantive ones aimed to prevent anti-competitive 

conduct that makes mortgages unnecessarily more expensive. As 

has already been noted today, yield spread premiums, or YSPs, are 

payments from lenders to brokers in exchange for the broker selling the borrower a loan with a higher interest rate than the borrower qualifies for. RESPA has long prohibited payments for simply delivering a loan with a higher interest rate, calling these kickbacks. HUD has said, though, that since consumers can use YSPs 

to buy down upfront origination costs, they deliver value and are 

not prohibited. 

But in reality, particularly in the subprime market, this tradeoff 

of rate and upfront costs rarely, if ever, occurred. Consumers unknowingly paid YSPs and earned no corresponding reduction in upfront costs. The single most effective action HUD could take to protect consumers through RESPA is to refine its policy position to 

allow YSPs only when they result in a corresponding reduction in 

upfront costs. This would help reform the subprime market without 

significantly impacting the prime market. 

In its proposed rule, HUD attempted to address YSPs through its 

origination cost disclosure on the good faith estimate. However, the 

disclosure will not ensure a price tradeoff between YSPs and upfront costs. This shortcoming does not represent a failure on the 

17 

part of the disclosure as much as it reflects the impossibility of ensuring a price tradeoff without substantive reform. If we are going 

to try to rely on disclosure alone, the proposed disclosure should be 

much improved. 

We understand that in designing the disclosure, HUD attempted 

to treat lenders and brokers evenhandedly. However, we don’t 

think HUD should do so at the expense of a more comprehensible 

disclosure that better alerts consumers to the risky nature of YSPs, 

especially considering that our most recent research shows that 

borrowers pay significantly more for subprime loans originated by 

independent brokers versus retail lenders. HUD’s own recent study 

of FHA loans was consistent with our findings. Our testimony and 

our comments to HUD on the proposed rule include several specific 

recommended improvements to the origination cost disclosure. 

With respect to GFE provisions more generally, HUD and the 

Federal Reserve should coordinate to develop one integrated disclosure form. Short of this, we have made several recommendations 

for how HUD should improve its GFE so that it better alerts consumers to the riskiest features of their loans. Critically, HUD 

should require that terms be binding for 30 days instead of 10, and 

it must provide an interest rate lock of at least 10 days to prevent 

common bait and switch tactics. 

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, especially the GFE and the HUD–1. The lack of a private right of action has meant that abuse often carries no consequences, in which case even the most perfectly designed disclosure will not help consumers. Thank you again for this opportunity 

to testify today, and I look forward to your questions. 

[The prepared statement of Ms. Borne can be found on page 49 

of the appendix.] 

Chairman WATT. Thank you for your testimony, Ms. Borne. 

Mr. Gary Kermott, president of the American Land Title Association, is recognized for 5 minutes. 

STATEMENT OF GARY KERMOTT, PRESIDENT, AMERICAN 

LAND TITLE ASSOCIATION (ALTA) 

Mr. KERMOTT. Thank you, Chairman Watt, Ranking Member 

Miller, and members of the subcommittee. Thank you for the opportunity to testify on HUD’s proposal to amend RESPA. I would 

also like to thank Representatives Hinojosa and Biggert and all the 

members who signed the Dear Colleague letter that was sent to 

HUD. 

As the 2008 president of the American Land Title Association, I 

am speaking on behalf of our 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 fewer than 20 employees. 

As we are all painfully aware, the real estate market is experiencing a downturn of historic proportions. The recent Federal takeover of Fannie Mae and Freddie Mac, and the bankruptcy filing 

yesterday of Lehman Brothers are just the latest examples of the 

18 

severe stress in the housing and financial markets. Although we all 

agree with the goal of increasing transparency and simplifying the 

transactions, HUD’s rule does not do so. It would add increased 

new regulatory burdens on the industry and confusing, lengthy disclosures to homebuyers. In the current environment, it would make 

things worse. 

My remarks today will focus on four areas of the rule that would 

be most harmful for our members and homebuyers. First, the closing script. The closing script should be eliminated from the rule. 

Why? First of all, it is too late at the closing for a homebuyer to 

change the terms of the loan. In some cases, the moving van is 

parked outside. Second, the settlement agent doesn’t have the information or knowledge to answer questions raised by the closing 

script. Third, the increased costs for longer closings will fall on the 

homebuyers. And finally, in some States, it would violate unauthorized practice of law statutes. Another point that HUD fails to recognize is that over 50 percent of closings occur at the end of the 

month. The increased time to draft, read, and explain the closing 

script will harm smaller settlement companies because they lack 

the resources to add personnel and physical space to accommodate 

these extended closings. 

Second, title and closing fee disclosures. The disclosure of title 

and closing fees on the proposed forms is misleading and will discourage shopping by homebuyers for the 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 services at a lower price. They 

won’t know what is in the so-called 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 dispersed and 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. Title and closing fees should all be itemized on both the 

GFE and the HUD–1 to encourage shopping. 

Third, volume discounts and tolerances. As proposed by HUD, 

the allowance of volume discounts will be impractical, anti-competitive, and will harm small title insurance companies, small banks, 

mortgage brokers, appraisers, and other small settlement businesses. It is in fact a disguised form of packaging that was uniformly rejected in 2002. The largest companies have the resources 

to either favor their own affiliated companies or to create a network of preferred providers that can offer services at or below cost. 

This will push small independent providers out of business, resulting over time in less competition and higher prices. Our members 

do not believe that HUD should dictate such changes. The tolerance provisions will inhibit shopping. The message from the lender 

to the borrower will be, ‘‘Go with my recommendations, you will get 

a better deal.’’ Yet there is no guarantee that these recommended 

service providers are the least expensive or the best. Again, this 

will discourage shopping. 

Finally, the proposed forms are confusing. They create more 

problems for the homebuyer than they solve. They are very conVerDate Aug 31 2005 15:00 Jan 12, 2009 Jkt 045622 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 K:\DOCS\45622.TXT TERRIE
19 

fusing. For example, as has been mentioned by my panel colleagues, the proposed GFE would differ from TILA in its treatment 

of interest rates. Also, by characterizing the yield spread premium 

as a credit to homebuyers will be very, very confusing. 

In conclusion, ALTA recommends that HUD limit its efforts to 

simplifying only the GFE and the HUD–1 so that comparisons can 

be easily made between the documents. ALTA, along with the National Association of Realtors and the Center for Responsible Lending have worked together to develop new GFE and HUD–1 forms 

that are clearer and more transparent than both the existing and 

the proposed HUD forms. This would be a huge improvement for 

homebuyers without imposing an extraordinary cost on our small 

business members. 

Thank you. 

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

66 of the appendix.] 

Chairman WATT. Thank you for your testimony. I will try to get 

it right this time. Ms. Debra Still, president and chief operating officer of Pulte Mortgage LLC, on behalf of the National Association 

of Homebuilders, you are recognized for 5 minutes. 

STATEMENT OF DEBRA STILL, PRESIDENT AND CHIEF OPERATING OFFICER, PULTE MORTGAGE LLC, ON BEHALF OF 

THE NATIONAL ASSOCIATION OF HOMEBUILDERS (NAHB) 

Ms. STILL. Thank you very much. Chairman Watt, Ranking 

Member Miller, and members of the subcommittee, on behalf of the 

235,000 members of the National Association of Homebuilders, 

thank you for holding this hearing and for the opportunity to share 

our concerns regarding HUD’s proposed RESPA changes. 

My name is Debra Still. I am president and CEO of Pulte Mortgage, a subsidiary of Pulte Homes, one of the Nation’s largest 

homebuilders with operations in 26 States. My comments today 

focus on HUD’s proposed definition of required use, which would 

prohibit a homebuilder from offering incentives in exchange for a 

buyer’s use of the affiliated mortgage or title company. Our position 

is that HUD’s proposed definition would have an immediate negative impact on the efficient operations of homebuilders and the majority of consumers buying new homes and that HUD has not established a sound rationale for this change. 

Most homebuyers need a loan to buy a home and this financing 

is a critical part of the home buying process. Homebuilders create 

affiliates to ensure that the financing is ready when the home is 

complete and to enhance the customer’s overall home buying experience. Any home that fails to close on time hurts the builder in 

the form of financial and reputational costs and creates a hardship 

for the buyer. With aligned processes, affiliates consistently outperform outside lenders in executing timely closings because outside firms are simply not prepared to deal with the complexities of 

new construction lending which can and do include frequent last 

minute construction change orders. In addition, an affiliate is committed to the high value a builder places on customer satisfaction 

because the builder relies on its customers for repeat and referral 

business. 

20 

According to a recent study by J.D. Power and Associates, also 

cited in HUD’s regulatory impact analysis, the majority of borrowers surveyed who financed through a builder affiliate were 

more satisfied with the financing experience and chose the builder 

affiliate because its interest rates were competitive and the entire 

buying process was easier. Moreover, customer service from an affiliate means more accurate moving costs, estimates, and the certainty that the borrowers understand their loan programs. Customer service is a long term view for an affiliate because they 

focus, along with the builder, on creating communities and enhancing the builder’s brand. We don’t just do one-off transactions. Contrary to HUD’s view, timely closings and extraordinary customer 

service are the primary business value affiliates provide to homebuilders, benefits to the consumer that far outweigh the income the 

builders receive from the affiliate ownership. 

Affiliate relationships have facilitated home purchases for upwards of millions of consumers over the last several decades. In the 

market conditions of the past year, as mortgage financing has become unstable and uncertain, affiliate relationships have assumed 

an even greater importance. Many homebuilders can document 

hundreds of sales originally scheduled for outside lender financing 

that have fallen through and were subsequently saved by the builder-affiliated mortgage and title company. Now more than ever, reliable service, accurate forecasting, and competitive pricing offered 

by affiliates are needed by homebuilders and their buyers. 

In truth, affiliates allow builders to manage the business of 

building and selling homes with greater efficiency, the benefits of 

which translate into value for the buyer. HUD’s proposal fails to 

account for the savings builders realize through affiliated businesses, which are then passed on to the consumers in its incentives. Contrary to HUD’s assertion, homebuilders do not increase 

the selling prices of homes to offset these incentives. The competitiveness of the marketplace does not allow it. 

Beyond the negative impact to builders and homebuyers, we do 

not believe HUD has established a sound rationale for changing 

the definition of required use. HUD supports its proposal entirely 

based on anecdotal, incomplete, and unsubstantiated examples 

which have been advanced by previously outspoken competitors of 

affiliated businesses. The problems cited by HUD appear to be violations under the current RESPA regulations and should be addressed as such, but they do not make a case for change. 

Furthermore, HUD has provided no empirical studies or statistics substantiating its position that consumers are harmed by the 

use of builder affiliate service providers. We suggest that in developing this proposal, HUD’s research does not conform to the data 

quality requirements imposed in all Federal rulemaking. 

In closing, I will reemphasize that prohibiting affiliated incentives would ultimately increase home purchase costs, undermining 

critical financing support to the consumer at this time of unprecedented turmoil in our industry. As further detailed in my written 

statement, NAHB has offered an alternative definition of required 

use which, if adopted, would continue to permit homebuilders to 

offer bona fide and reasonable incentives in exchange for buyer’s 

use of affiliated companies. 

21 

Mr. Chairman, thank you for this opportunity to share our views 

and those of the National Association of Homebuilders. I would 

welcome any questions. 

[The prepared statement of Ms. Still can be found on page 285 

of the appendix.] 

Chairman WATT. Thank you so much for your testimony. 

Mr. David Stevens, president, affiliated business, Long and Foster Companies on behalf of Real Estate Service Providers Council, 

RESPRO, is recognized for 5 minutes. 

STATEMENT OF DAVID STEVENS, PRESIDENT, AFFILIATED 

BUSINESSES, LONG AND FOSTER COMPANIES, ON BEHALF 

OF REAL ESTATE SERVICES PROVIDERS COUNCIL (RESPRO) 

Mr. STEVENS. Thank you. Good morning, Chairman Watt, Ranking Member Miller, and members of the subcommittee. Thank you 

for the opportunity to speak here today. 

Long and Foster Companies is the third largest residential real 

estate brokerage firm in the Nation with over 200 residential real 

estate brokerage offices in the 8-State mid-Atlantic region. We offer 

a full array of mortgage, title, and insurance services through a 

combination of either wholly-owned or partly-owned businesses. 

Today I am representing RESPRO, a national nonprofit association of over 200 companies who promote diversified services for 

homebuyers, often called one-stop shopping. I share the concerns 

my fellow witnesses have expressed today in their testimony over 

the potential impact of HUD’s RESPRO rule on these individual industries. I am here today, however, to address the particular impact that the required use provision of the proposed rule will have 

on diversified real estate brokerage firms and our customers. 

The majority of the Nation’s 500 largest real estate brokerage 

firms offer mortgage, title, or closing services. According to a 2008 

survey of homebuyers by Harris Interactive, 45 percent of homebuyers chose a one-stop shopping service in 2008 compared to 2002. 

In today’s challenging housing market, which has seen the failure 

of numerous mortgage and title firms that can threaten prompt 

and efficient closings, diversified real estate brokerage firms are increasingly using our affiliated companies to enable our real estate 

customers to close on time. Because we own companies needed to 

close the home purchase transaction, we are better able to resolve 

any service issues that arise more efficiently than we could with 

independent companies. 

RESPA prohibits requiring the use of an affiliated provider. HUD 

has long allowed voluntary incentives to consumers who purchase 

affiliated services as long as the services are separately available 

and as long as the incentive is not offset by increased prices of 

other services in the transaction. Because diversified real estate 

brokerage firms can ensure more prompt and efficient closing 

through our affiliated companies, we commonly offer voluntary 

positive incentives to consumers who use our affiliated services 

under this longstanding RESPA exemption. 

For example, we offered our real estate customers who purchased 

a mortgage through our affiliated mortgage company, Prosperity 

Mortgage, a half percentage reduction in their mortgage over the 

first year, which using a rate of 6 percent saved them $762 on a 

22 

$200,000 mortgage. The program was voluntary, and if it wasn’t 

used, the homebuyer paid no more. But if it was used, the customers would have received substantial savings, and we would be 

better able to ensure that they get to closing on time. 

I have described many other examples of consumer incentives 

used in our industry in my written statement. These voluntary consumer incentives have been well-received by consumers. In fact, 

Harris Interactive found in its 2008 survey that I referred to earlier that 77 percent of homebuyers consider the biggest advantage 

of using one-stop shopping programs is saving money through discounted prices. Unfortunately, HUD has proposed in its RESPA 

rule to prohibit companies from offering these consumer incentives 

that lower cost and enable prompt and efficient closings. HUD has 

provided no indication that it has analyzed the types of consumer 

incentive programs being offered throughout the industry today 

that provide consumers tangible savings and better service. 

Mr. Chairman and members of the subcommittee, HUD’s proposed ban on voluntary consumer incentives is another example of 

how HUD’s proposed RESPA rule would increase costs and result 

in poorer service for homebuyers. The rule was not well-conceived 

as a whole. Given the breadth of HUD’s proposed RESPA rule, and 

its potential impact on today’s fragile housing market, we believe 

that HUD should withdraw its RESPA regulation and work with 

the Federal Reserve Board to develop uniform mortgage disclosures 

that would truly accomplish its goals in rulemaking. 

Thank you for the opportunity to testify, and I would be glad to 

answer any questions. 

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

277 of the appendix.] 

Chairman WATT. Thank you for your testimony. I thank all of 

the witnesses for their testimony and for being very timely. Almost 

everybody came in right at the 5-minute limit, or under the 5- 

minute limit in some cases, and we appreciate that. 

We welcome Mr. Royce, who is a member of the subcommittee, 

Mr. Perlmutter, who is a member of the subcommittee, and Mr. 

Hinojosa, who is not a member of the subcommittee— 

Mrs. BIGGERT. Mr. Chairman, may I just correct something that 

I said about the letter? 

Chairman WATT. The gentlelady is recognized. 

Mrs. BIGGERT. Thank you. The letter that I referred to that was 

being sent to OMB from me, Representative Hinojosa, and others 

has not been sent yet. It will be very soon. I had said that it had 

been sent yesterday, and I did not want people to think that they 

did not receive it. 

Chairman WATT. We will make that clarification and modify the 

unanimous consent request to insert into the record the final letter 

when it is sent, because the record will still be open at that point. 

I welcome Mr. Hinojosa, who is not on the subcommittee, and I 

would ask unanimous consent at this point that Mrs. Biggert and 

Mr. Hinojosa, who are not members of the subcommittee, be allowed to engage in the questioning of witnesses at the end of the 

subcommittee members’ questions. Without objection, it is so ordered. Both of them have a very, very strong interest in this issue. 

In fact, they both led the letter that was sent to HUD originally 

23 

and obviously are leading a subsequent letter that is going to OMB 

now, so they have strong feelings about this and strong knowledge 

about it also. 

We thank the witnesses for being here and for covering a wide 

range of issues related to the proposed rule. There are some differences of opinion within the panel. I thought it would be just a 

consistent flogging of HUD, but we may have some interesting 

interchanges within the panel also. 

I am going to now recognize members of the subcommittee, and 

subsequently members who are not on the subcommittee but are 

members of the full committee, to ask questions, each for 5 minutes. And I will defer my questions to the very end to allow other 

members to go in case they need to leave. I will start with Mr. 

Lynch. He is recognized for 5 minutes. 

Mr. LYNCH. Thank you, Mr. Chairman, and Ranking Member 

Miller. I appreciate the testimony that has been offered this morning. Let me just say at the outset that I share much of your concern regarding the HUD proposed rule. 

However, with that being said, I do want to caution—a number 

of you this morning have talked about the cost of regulation, and 

I just want to remind you of the cost of no regulation. As we know, 

much of this subprime mortgage crisis came out of a process that 

was completely unregulated with respect to mortgage brokers. The 

no-document loans, the no-document mortgages, the liar loans, the 

liar mortgages, all of that went out the door without substantial 

regulation as compared to banks, and I think there was an outsized 

representation of those bad mortgages originated by mortgage brokers as opposed to banks that were more heavily regulated and 

overseen. 

I am not saying there was no regulation, I am just saying there 

was less regulation of our mortgage brokers. So when I hear that 

we don’t need additional regulation of the mortgage brokerage industry, it is sort of like the captain of the Titanic saying we don’t 

need more lifeboats, and making the statement from the deck of 

the Titanic, because we are obviously having a very difficult time. 

I thought, Mr. Kermott, your observation that you—you are trying to correct these weaknesses at the closing, it is a bit too late. 

I have been the victim of enough closings, I should say, to know 

that there is only so much you can accomplish on that day, at that 

moment. You have eight people at the table, and seven of them are 

being paid only if the closing goes through, so it is a very difficult 

situation to try to catch the runaway horse at that point. I agree 

with that very succinct observation. 

However, given the fix that we are in—and I understand that the 

HUD proposal has many weaknesses in it, and I understand that 

there is a disparity between where HUD is going and where the 

Fed has gone with respect to the Truth in Lending Act, and it is 

almost apples and oranges when you look at the two proposals and 

the two approaches by both of those agencies. 

I am going to ask Mr. Savitt and Mr. Kittle to have a first whack 

at this since I have mentioned them in my opening remarks. Do 

you think we should try to reconcile the approaches by HUD and 

by the Fed with respect to the Truth in Lending language, or do 

you think that we should start from scratch on both and try to, 

24 

rather than harmonize the two existing proposals, just go back to 

square one and try this all over again? 

Mr. SAVITT. Mr. Lynch, first I want to, if you don’t mind, I would 

like to address one of the comments that you made about— 

Mr. LYNCH. I expect that. 

Mr. SAVITT. Okay, about the subprime. First of all, mortgage brokers are regulated in every State in this country and the District 

of Columbia. As a matter of fact, in some cases we are more regulated than other originators, loan officers who work in banks, for 

example. But most importantly, dealing with the subprime issue, 

mortgage brokers did not develop the loan products. They did not 

develop subprime products. 

Mr. LYNCH. Fair enough. 

Mr. SAVITT. We didn’t set the guidelines, we don’t underwrite, 

and we don’t originate those loans. We sold the loans that were created by others. So I think to characterize mortgage brokers as the 

ones that caused the problem with subprime loans, I think, is a little— 

Mr. LYNCH. I think I conceded in my opening statement, I said 

I realize that a lot of the weaknesses and frailties are in the underwriting process. However—and again, there is involvement by the 

broker, there is involvement by the rating agency that gave it a triple A rating, there were failings all along the line. I am just trying 

to give you your share. 

Mr. SAVITT. I appreciate it. Plus there was a— 

[Laughter] 

Mr. SAVITT. We have taken more than our share, trust me. 

Mr. LYNCH. Probably. 

Mr. SAVITT. There was a GAO study that was commissioned by 

Chairman Frank and Ranking Member Spencer Bachus, and the 

purpose of that study was to show what happened with the mortgage meltdown, with the housing crisis in this country, and particularly if mortgage brokers were the culprits, and mortgage brokers were vindicated within that study. One other study by Georgetown University showed that by using a mortgage broker for a 

subprime loan, a consumer would save on average 1.13 percent on 

their annual percentage rate. So I thought it was important to 

bring that up. 

But as far as your question about HUD and the Fed, I think it 

is important that they do harmonize. I think that would solve a lot 

of the problems. 

Mr. LYNCH. Okay. Thank you, sir. Mr. Kittle? 

Mr. KITTLE. Mr. Lynch, thanks for the question. May I also open 

with just a quick comment? 

Mr. LYNCH. Oh, absolutely. 

Mr. KITTLE. Okay. I am sure you expect it. 

Mr. LYNCH. Yes, sir. 

Mr. KITTLE. It is not, and we will defend this statement and can, 

it is not necessarily the products that caused the problem. They 

were just made to the wrong people, because 85 percent of those 

products are still paying on time at the end of the day. So I just 

want to make that point clear, that the cause for foreclosure—and 

we are not here talking about that, but we are talking about the 

25 

issues—the three top causes are unemployment, divorce, and 

healthcare. They weren’t the products themselves. 

But to answer your question, we do think that it is time for the 

Fed and HUD to sit down together. HUD mentions through its 

own—it states through its own actions, the documents that I held 

up during my 5-minute testimony, that it is so confusing that they 

have to make a map to explain to the consumer. So this is onerous, 

it is over the top. 

I am going on my 31st year in this business, and when I got in 

the business back in the 1970’s, I had to disclose Truth in Lending 

and calculate it at the application by hand. I didn’t have computers, we didn’t have PDFs and cell phones, we had to calculate 

it out. 

Part of the issue is the education process. We put information in 

the computer and it spits our forms out. The people taking the loan 

applications need to be educated on the forms they are giving to 

the consumer, so we advocate not only for pulling this RESPA law, 

but advocate also for education of the people who are taking the 

loan applications. 

Mr. LYNCH. Mr. Chairman, I yield back. 

Chairman WATT. I thank the gentleman. Ranking Member Miller 

is recognized for 5 minutes. 

Mr. MILLER. Thank you. I took the cost of regulation a little differently than my good friend Mr. Lynch did. I took you meaning 

the cost of inconsistent regulation, was what I took in your statements. And I agree, the cost of inconsistent regulation can have a 

very negative impact on the marketplace. 

Mr. Lindsey, you had said the small lenders would be pushed out 

of the marketplace based on this regulation. Can you further elaborate on that, please? 

Mr. LINDSEY. Thank you, Ranking Member Miller. The concern 

that we have is that the way that the regulation is proposed right 

now, it would offer an opportunity for the larger lenders to put 

forth a package of guaranteed services and that would in fact allow 

them to use their market clout to press down the prices, which ultimately would lead to smaller lenders or smaller service providers 

being anti-competitive, and perhaps even having to cut back on the 

services that they provide in order to meet those prices that would 

be required for them to be included in these packages. So if they 

are not included in the package, they have lesser opportunity to 

present themselves to the marketplace, and invariably, they would 

probably be pushed out of the market. 

Mr. MILLER. Thank you. Ms. Still, you said there would be an 

immediate negative impact on the marketplace. Could you further 

elaborate on that? 

Ms. STILL. Well, certainly a negative impact on the efficient operations of the homebuilders, and definitely a negative impact on the 

consumer. If you look at the value of the incentive, that which is 

offered by the builder and is a reflection of the builder’s benefits, 

we take the economic value, certainly, away from the consumer. 

We would also take away from the consumer the ability, if you will, 

to understand the value that a builder affiliate brings in its years 

of expertise in a new construction environment. New construction 

lending is different than lending in an existing environment. We 

26 

would not be able to appropriately demonstrate to the consumer 

the efficiencies that we could create through the coordination of affiliates, the commitment to customer satisfaction, and the longterm view. 

We do not believe as mortgage affiliates we do transactions. We 

build communities, we want our communities to perform, we want 

our communities to perform 1 year, 2 years, or 3 years down the 

road. We sell lifestyle. So we take great care in making sure that 

our buyers understand the loan programs that they are choosing, 

make sure they understand their total move in cost estimates, and 

make sure there are no surprises at the closing table. 

Mr. MILLER. It seems to be a common complaint that you hear 

among people who are buying, that they were given an estimate, 

and when the closing process occurs, all of a sudden things start 

to pop up. I know HUD has tried to deal with that through their 

proposal. 

Somebody very close to me, it happened to them where they got 

the good faith estimate and they had a lock-in date on their rates, 

so they had 3 days to close or they were going to lose their rate, 

and all of a sudden some points and fees start to appear that they 

weren’t expecting, which they really can’t do. HUD tried to fix it. 

If you don’t agree with the rule, how would you think that could 

be better handled? Yes, Mr. Kittle. 

Mr. KITTLE. Well we have proposed to HUD a very simple GFE 

and a new HUD–1. They have had it for almost a year. 

Mr. MILLER. It is the same as basically the upfront good faith estimate? 

Mr. KITTLE. Right, but the difference is that all the lines match. 

I mean, that isn’t real rocket science. You can’t have predatory 

lending until you lend, which is what you are saying. So when a 

consumer goes to closing, whether it is a first-time homebuyer or 

somebody who has bought 20 houses, elderly, minority, if all the 

lines match, then you can’t change fees and points, and if you do 

at that point, the customer always has the right to back away from 

the table. 

Mr. MILLER. And to clarify, you are not arguing against regulation, you want consistent regulation is the biggest concern I heard 

from all of you when we— 

Mr. KITTLE. Well let me go to Debra Still’s point in her testimony, which was a great point and we all need to take it away 

today, is that there is a lot of regulation on the books right now, 

a lot of laws, and they are not being enforced by HUD. Maybe we 

should enforce what is there. Regulation is great as long as it is 

not onerous and it doesn’t add cost to the consumer. 

Mr. MILLER. And everybody understands what it is. 

Mr. KITTLE. Everybody understands it; it is clear and transparent. 

Mr. MILLER. Now the Federal Reserve Board’s comments on the 

proposed RESPA rule discuss how HUD and the Fed should harmonize TILA and RESPA, the disclosure. They discuss how the different disclosures are duplicative and inconsistent. Would you 

agree with these comments and how would you ensure consumers 

receive disclosure in a competent printed manner, and how would 

consumers react to multiple disclosures? Whomever would like to 

27 

answer that one. It is a three-part question, so take any part. Yes, 

Mr. Savitt. 

Mr. SAVITT. Mr. Miller, as we know, in addition to the Fed, the 

Federal Trade Commission has also weighed in on this with two 

studies from 2004 and 2007. The 2007 study was even more extensive than 2004, and it talked about these different types of disclosures, that they were too complicated, there were too many of 

them, and that we needed to simplify this process for the consumer, and they even came up with some other type of—in addition 

to the Fed having some ideas of how to disclose, the Federal Trade 

Commission also came at it with their own form. 

So I think what we really need to have here is the Federal Trade 

Commission, the Fed, and HUD sit down, and I know it would be 

unprecedented, but if the three of them would sit down and harmonize their forms together—and I know we are adding one more 

into the mix here with the FTC—but I think if we did that and we 

listened to the one agency that is charged with protecting the consumer, that being the FTC, I think we would have the right forms 

for the consumer—there probably would be less forms—but the 

right forms for the consumer that would make it easier for them 

to understand the transaction, thereby avoiding problems when 

they got to closing. 

Mr. MILLER. I agree with that. 

HUD is proposing to address this in a booklet form. Do you think 

people are really going to take the time to review the booklet to try 

to comprehend inconsistent loan terms? Yes, Ms. Still. 

Ms. STILL. Yes, I might mention, using an example from my company, we conduct a disclosure conference call one week after loan 

application, and it is to provide the customer in assisted fashion to 

go through all of the disclosures that they have to sign even today. 

And as an independent mortgage bank with State disclosures as 

well as Federal disclosures, today it is a 45-minute phone call. On 

average it takes 45 minutes to make sure that the borrower truly 

understands the initial Truth in Lending Disclosure, the good faith 

estimate, and all of the State disclosures. We have to have a comprehensive approach for Federal disclosures, or that call is just 

going to get longer. 

Mr. MILLER. Mr. Stevens? 

Mr. STEVENS. It is interesting, and you referred to Mr. Miller in 

having recently had a friend who closed a mortgage and the surprises at the settlement table or prior to that with things changing. 

Between the deed of trust and the promissory note, all the disclosures, I really question today how deep a consumer goes into each 

one of those documents. We provide every consumer a glossary of 

terms, which is actually prepared by HUD, that we present to our 

consumers so they understand what kind of mortgage product they 

are getting. The challenge that we see, if you go through the actual 

good faith estimate document, I can’t see anything that will confuse 

a consumer more than this new document that would be added to 

the additional documents they get already. 

So while we all agree that we need to come up with better ways 

to disclose mortgage products, particularly option ARMs and the 

kind of things that caused so much trouble over the last 24 months 

particularly, this will just do nothing more but confuse. As a matVerDate Aug 31 2005 15:00 Jan 12, 2009 Jkt 045622 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\45622.TXT TERRIE
28 

ter of fact, I don’t even think it explains the ARM very well in the 

questions it asks, and I think consumers will walk away just with 

more confusion. 

Mr. MILLER. Well I want to thank you all for your comments. 

They have been very productive, and I appreciate it very much. 

Chairman WATT. I thank the gentleman for his questions. Mr. 

Perlmutter is recognized for 5 minutes. 

Mr. PERLMUTTER. Thank you, Mr. Chairman, and thank you, Mr. 

Miller, for convening this panel. And I just want to thank the panel 

members here because all of you know your stuff. We have sort of 

been on the downside of the market and everybody is in kind of 

emergency mode here, but I just appreciate this. 

I want to tell you the framework I am coming from. First, with 

respect to RESPA, we are dealing with the biggest transaction in 

most people’s lives, and that is the purchase of a home, so we start 

there. Now how we got to this panel today, I would say, there was 

a lot of money chasing a lot of transactions, a lot of loans. And so 

as time went on, the products got riskier because the borrowers became less creditworthy, in my opinion, just having been sitting up 

here for a long time and listening to these kinds of things. 

Mr. Stevens, and here is really the dilemma I have and that all 

of you have, and that is convenience versus sort of confidence or, 

potentially, confusion. But convenience in the transaction versus 

confidence in the price of a different—other than just the purchase 

price, but the price of all the ancillary services. Or I think it maybe 

was you, Ms. Borne, who said this, but it is comprehensive versus 

comprehensible. The more comprehensive it is given the myriad of 

products that we have now, the more incomprehensible this form 

is going to be, or the least useful the form is going to be. 

There are a lot of things up in the air, so let’s get back to basics. 

What is the purpose of the good faith estimate? Let’s start with 

you, Mr. Kittle, you have been through the wars on this thing. 

What is the purpose? 

Mr. KITTLE. Well, the purpose is, at the loan application, to disclose to the customer in good faith that these are the costs that 

they are going to incur for the purchase of their home. And it is 

called the good faith estimate because those costs can change under 

certain circumstances. If the house doesn’t appraise that they are 

buying, they may have to go back and re-negotiate the price, therefore it changes. If they, during the process, decide that they may 

want to change loan programs, a whole new disclosure has to be 

made and then re-disclosed with a new good faith estimate. So 

there are situations when things change. That is why it is an estimate of cost. 

Plus, there are two things on there that we don’t know for sure 

at the loan application. That is when the loan is going to close, so 

we have to estimate the amount of daily interest they pay to closing date to the first of the next month, and the estimated property 

taxes. The title search hasn’t been done yet, we have to make sure 

that those things are accurate. So many of the costs on GFE are 

exactly what we know. There are some that can change. 

So when we go to closing we need a HUD–1 settlement statement that matches up line for line. Each one of these lines are 

numbered. Why can’t they, why shouldn’t they match up? And that 

29 

is a rhetorical question. So when the customer goes to closing, they 

can say ‘‘Oh, you said it was going to be $300 for an appraisal, why 

is it $375?’’ Or, ‘‘You said my interest rate was ‘X,’ why has it 

changed?’’ 

Mr. PERLMUTTER. No, I am with you 100 percent, and these 

forms— 

Mr. KITTLE. But that is why we have a good faith estimate. 

Mr. PERLMUTTER. Some of these forms make it very complicated 

for the borrower, but on the other hand, you have this myriad of 

products. Now maybe I am living in antiquity, but I thought 

RESPA, I thought these forms were the result of a fear of tying arrangements, of anti-competitive combinations between the real estate brokerage firm and the mortgage company and the homebuilder all— 

Mr. KITTLE. We had a good faith estimate before we had RESPA 

laws. 

Mr. PERLMUTTER. But I thought RESPA, which is what—okay, so 

you answered as to good faith estimate. Let’s talk about RESPA. 

Now, with respect to RESPA, which is the intention to try to modify RESPA a little bit or these good faith forms, how do we take 

into effect then this—or should we just get rid of sort of this fear 

of tying arrangements? 

Mr. KITTLE. Now, we just want—and I will finish this and turn 

it over to Mr. Savitt—what we are advocating is, one, the Federal 

Reserve and HUD to sit down together and work this thing out. 

Not only do we need a GFE that is clear that matches the HUD– 

1, let’s get it all done at the same time and get TILA reform also. 

The most confusing form at loan closing and application is the 

Truth in Lending, the four blocks across the top, the APR disclosure. That is the most confusing form. The one where predatory 

lending can happen is not the TILA, though, it is when you get to 

closing and costs have changed on the HUD–1 from the good faith 

estimate. You match lines with numbers, it makes it harder for it 

to have predatory lending and change the fees and costs. 

Mr. PERLMUTTER. And then Mr. Savitt, and then I would like Mr. 

Lindsey to talk about—I guess my concern is, do we need to worry 

about tying arrangements and any of that in these forms? From my 

experience, that was one of the key pieces of it all. 

Mr. SAVITT. Well, the first thing I would like to say is that I 

agree with Mr. Kittle about the one page disclosure of the good 

faith estimate. There is a sound bite for you. And the problem that 

we have with—well, let me just address this. 

Some of my colleagues here today spoke about the required use 

section of RESPA. This is something that I know quite a bit about. 

I have been researching this for the past 4 years based upon complaints that I first received from my customers and then also working directly with HUD. The number one complaint that HUD has, 

according to HUD, are complaints over affiliated business arrangements. 

Now affiliated business arrangements are not bad. We are not 

advocating outlawing them. They are required, these companies are 

allowed—builders, for example, and mortgage companies are allowed to offer a discount to the consumers provided it is a true disVerDate Aug 31 2005 15:00 Jan 12, 2009 Jkt 045622 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 K:\DOCS\45622.TXT TERRIE
30 

count and it is not made up anywhere else in the transaction, and 

we are fine with that. 

The problem comes in under the tying arrangement, where you 

mentioned, Mr. Perlmutter, where you have a builder who offers, 

perhaps, a $5,000 assistance towards closing costs, maybe an upgraded kitchen, a swimming pool, we have seen cars, we have seen 

all kinds of things, but it is contingent upon the required use of a 

specific settlement provider, namely a mortgage company and a 

title company. And what we have found is that in many cases, the 

interest rates charged in the beginning, or the interest rates disclosed on the good faith estimate in the beginning, are not what 

happens, are not what materialize when you get to closing because 

you are not locking in the interest rate when you first file your application with the builder, in many cases because houses usually 

take 4 to 6 months to complete. 

So what happens is when you get down towards the end, maybe 

30 days out when they give you the interest rate, at that point the 

interest rate is substantially higher in a majority of the cases. So 

if you try and get out of the transaction to use an outside lender, 

the first thing they tell you is, ‘‘You are not getting your $5,000 towards closing costs. We gave you an upgraded kitchen at a cost of 

$20,000. You need to write me a check for $20,000 and if you don’t 

do that, you are in violation of your contract, and we are going to 

void your contract and keep your deposit.’’ 

So there is a major problem with tying arrangements. 

Mr. PERLMUTTER. My time has expired, and maybe the chairman 

will allow another pass through the panel, but I appreciate— 

Chairman WATT. I think Mr. Stevens at least wants to respond, 

so we will give him equal time to respond. 

Mr. STEVENS. Thank you, Chairman Watt. There are just two 

minor points I would like to make sure we have on the table. 

One is that the current RESPA law requires that these tying arrangements, that affiliated business arrangements must be disclosed to the consumer, which we do upfront in our industry, and 

there is a separate disclosure. For example, if you use a Long and 

Foster agent to buy a home and you use affiliated businesses, that 

disclosure is all clearly provided to the consumer at time of real estate contract submission, not at the end. So that is already covered 

in the RESPA provision. That is one key point. 

The other thing I would just like to add is in the written statement that I provided all of you, I gave examples in that statement 

of some discounts we have used. Those are true subsidies. We lost 

revenue on those provisions that we provided to consumers. They 

are typically short-lived, but they were consumer benefits, and it 

was only through the value proposition of being able to have a full 

service real estate company that has all of these services together 

that we could, in essence, do that. But it was a direct benefit to 

the consumer, it was less revenue than we would have realized on 

the transaction, and less, we believe, than competitors could provide on that transaction unless they offered the same kind of discount. It is a direct consumer benefit, and that is the key point I 

also would like to add. 

Thank you. 

31 

Mr. SAVITT. Mr. Perlmutter, may I clarify my statement? What 

I was speaking of is tying of incentives to the required use of a specific service provider. I am not talking about the disclosure, the affiliated business arrangement disclosure. Thank you. 

Chairman WATT. I thank the gentleman for his questions. Mr. 

Hinojosa is recognized for 5 minutes for questions. 

Mr. HINOJOSA. Thank you, Mr. Chairman. First of all, I wish to 

thank Congresswoman Judy Biggert for joining me to lead the effort to try to bring us to the point that we are having this congressional hearing which Chairman Watt has helped us bring before 

Congress. 

I found the testimony given by each one of you to be very informative, and I believe that we make the case for what we were trying 

to do in the letters that were sent August the 7th, August the 18th, 

and May the 5th between HUD, and now the next letter that will 

be going to OMB. But I want to ask that you raise your hand if 

any of you know the content of the revised RESPA proposal as submitted to OMB. 

[No hands raised] 

Mr. HINOJOSA. Not one of you. 

Mr. Chairman, I think that we need to know that this process 

has not been what it should have been in order to have something 

that is good for those borrowing monies for home mortgages, nor 

the lenders. 

I have another question: Do you agree that OMB should reject 

the revised RESPA proposal and send it back to HUD with instructions to reopen it for a 60-day comment period and work with the 

Federal Reserve as it revisited the Truth in Lending Act? Raise 

your hand if you are in favor of that. 

[Every witness raised their hands] 

Mr. HINOJOSA. Thank you. I want to express my appreciation to 

you for holding this important and timely hearing on a flawed, misguided, and seemingly mysterious proposal by the Department of 

Housing and Urban Development to amend the Real Estate Settlement Procedures Act, commonly known as RESPA. I ask for unanimous consent that my entire statement be included in the hearing 

today. Thank you. I also want to take some excerpts from my statement because I want to make some points. 

I believe that it is the responsibility of Members of Congress who 

sit on this increasingly important committee to ensure that HUD 

does not alter RESPA to the detriment of consumers, the home 

buying process, and ultimately the economy of the United States 

which relied so heavily in the recent past on the strength of the 

housing market to sustain itself. 

I believe it was on May 5th that Congresswoman Judy Biggert 

and I sent a letter to HUD’s Deputy Secretary Roy A. Bernardi requesting that HUD extend the comment period on the proposed 

RESPA rule change by 60 days, and all they gave us was a 30-day 

extension. On August the 7th, Congresswoman Biggert and I sent 

a letter to HUD addressed to Steven Preston, the Secretary of 

HUD. The letter requested that HUD withdraw its flawed proposed 

RESPA rule and immediately commence a joint rulemaking process 

with the Federal Reserve Board to produce more simplified mortgage and real estate settlement cost disclosure forms. 

32 

On August the 18th, HUD hand-delivered a document that they 

claim to this day is the response from the Secretary of HUD to me 

and to Congresswoman Biggert and the other 242 Members of Congress who signed the letter. It is important for the record to show 

that the Secretary of HUD apparently did not have the time nor 

the inclination to respond to a letter signed by 244 Members of 

Congress. Instead, he had his Assistant Secretary for Governmental Affairs author and sign the document which was the response we got. I thought that was insulting, not only to Judy and 

to me, but I believe to the other 242 Members of Congress who cosigned the letter. 

Now let’s look at what we think is the next step. No one other 

than HUD and OMB knows the content of HUD’s revised RESPA 

proposal. I think its revised proposal needs to be vetted by consumers, by industry, and by Members of Congress. Now that the 

revised RESPA proposal has been submitted, OMB may take one 

of three actions: One, reject the revised proposed rule; two, send it 

back to HUD to be published in the Federal Register as final; or 

three, return the revised proposal to HUD with instructions. 

Cpngresswoman Biggert informed you earlier today that we coauthored and co-signed a letter to OMB requesting that they reject 

the revised RESPA proposal and send it back to HUD with instructions to coordinate with the Board of Governors of the Federal Reserve as well as other relevant Federal agencies. The letter will be 

sent out today. Chairman Watt, HUD received almost 12,000 letters opposing its proposed rule—244 Members of Congress signed 

a letter to HUD requesting that it withdraw its proposal and commence a joint rulemaking with the Federal Reserve Board as it revisits the Truth in Lending Act. Everyone on this panel wants 

OMB to send HUD’s flawed RESPA proposal back to HUD with instructions. I cannot stress how important it is for OMB to send the 

revised RESPA proposal to HUD with instructions. 

I ask unanimous consent that copies of these three letters that 

I have been making reference to dated August the 7th to Honorable 

Steven Preston, Secretary of HUD, August 18th letter to Judy 

Biggert and to me, which was the answer that I referred to by the 

Assistant to the Under Secretary for Congressional Affairs, and the 

third one is dated May the 5th, which we sent to the Honorable 

Roy A. Bernardi, Deputy Secretary, and I ask unanimous consent 

that they be included in today’s record. 

Chairman WATT. Without objection, it may be that all parts of 

those have already been submitted for the record prior to your coming in, but we will make sure that they enter the record in their 

entirety. 

Mr. KITTLE. Mr. Chairman, if I could, I just want to commend 

the Congressman, say well done, and Congresswoman Biggert, 

thank you for getting that done. Well done. 

Mr. HINOJOSA. I have one last question before I conclude. I think 

that the mess that we are in, the subprime mortgage loans contributed to the crisis we face in home construction today. But let’s look 

at the possibility—and I want somebody to answer this. What 

would be the impact of the proposal that the adjustable rate mortgage for home loans be prohibited for a period of not less than 5 

33 

years? Could somebody answer that? What would be the impact? 

Yes? 

Mr. KITTLE. If I understand the question, you would prohibit all 

adjustable rate mortgages for up to 5 years? 

Mr. HINOJOSA. It has been a mess. 

Mr. KITTLE. But was that the question? 

Mr. HINOJOSA. It was explained in one of our hearings that there 

were people who could possibly use it to buy a house and flip it in 

a short period of time, but it made a mess out of the situation that 

we have today. And my question to you is, there are lots of options 

available for me or anyone else to borrow money and be able to buy 

a home. If you were to take ARM from one of those options, what 

would be the consequences? Because I certainly am prepared to 

take congressional action and ban that from the list at least for 5 

years so that we can see if we can straighten out the mess that we 

have. 

Mr. KITTLE. I think that would be an action that we would be 

totally against. I think it would be inappropriate for this reason: 

Adjustable rate mortgages, when given to the right customer with 

the right caps and margin disclosures are an effective tool. Back in 

the early 2000’s, 2001, 2003, they were actually as much as 35 percent of the loan production that was out there. They represented 

35 percent of the business. They weren’t subprime ARMs, they 

were good, solid 3/1, 5/1 adjustable rate mortgages that were sold 

to the GSEs and private investors. 

They are an effective tool. They are not the ones that are delinquent. You can flip a house regardless of a program that you take. 

You can flip a house on a 30-year mortgage. So it doesn’t make any 

difference whether it is an ARM, a pay option ARM, an FHA loan, 

or one that goes to Fannie or Freddie. So I think that is confusing 

the difference between flipping and an adjustable rate mortgage, so 

we think that it would hurt business and it would hurt—FHA has 

a great program right now. 

Mr. HINOJOSA. Let me ask Rebecca— 

Mr. KITTLE. A 1-year ARM that would— 

Mr. HINOJOSA. Fine. I understand everything you said. I want to 

ask Rebecca Borne, as representing the Center for Responsible 

Lending. 

Ms. BORNE. For many years, adjustable rate mortgages have 

been made and underwritten responsibly, and they didn’t create 

the crisis that we have seen today. Far more responsible for the crisis has been the 2/28 and 3/27 teaser rate loans where consumers 

were sold super low rates for 2 to 3 years and payment option 

ARMs, whose teaser rate may last as long as 1 day. Those were 

toxic products and they were not properly underwritten. The borrower’s ability to repay was not properly assessed in many cases. 

So I think that we would be more likely to recommend an approach 

that addressed proper underwriting standards and addressed some 

of the broader perverse incentives in the market, from the secondary market all the way down to the broker, such as assignee 

liability, before we would recommend banning all ARMs for a 5- 

year period. 

Mr. HINOJOSA. Thank you, Chairman Watt. 

34 

Chairman WATT. I thank the gentleman and to the extent that 

members of the panel have additional responses to this question, 

you are welcome to submit them in writing. It is really not the 

focus of this particular hearing, but I didn’t want to cut off discussion of that issue. It is a novel idea and I suspect everybody on the 

panel would be uniformly opposed to it in this breadth, at least 

even though those who have some concerns about the way adjustable rate mortgages have had impacts in the marketplace. 

Mr. Manzullo is recognized for 5 minutes. 

Mr. MANZULLO. Thank you, Mr. Chairman. When I practiced law 

and was involved in at least a couple thousand closings, it was apparent to me that the more people who are involved in closings, the 

more the consumer is protected. We found that through the analysis of taking and looking at the closing statements, we would get 

figures in to the title companies that the attorneys involved, the 

Realtors, the bank, and there was always that backup that you had 

an independent set of third eyes that would take a look at the closing statement. 

I have a question to Mr. Kermott and Mr. Lindsey. In your testimony you discussed your organizations’ opposition to so-called volume discounting. These are the big guys. I believe volume discounting is a veiled attempt to reintroduce the concept of bundling 

services. In the hearings that we had when I chaired the Small 

Business Committee in 2003, the long-term impact of volume discounts is to eliminate competition and destroy small businesses. 

However, HUD has indicated that people have never been to a real 

estate closing expect perhaps their own, and then they brought in 

a lawyer. HUD has indicated they feel that volume discounts are 

not a repeat of bundling. 

I would like to ask you if you agree with that assessment. Can 

you discuss the impact that volume discounting would have on title 

companies and other small businesses and also on the Realtor profession? 

Mr. KERMOTT. Yes, thank you for that question. We agree with 

your assessment. The members of the American Land Title Association, we have both large companies and small companies, but we 

are uniformly against HUD mandating or encouraging volume discounts. On the one hand, it is hard to argue against lower prices 

for consumers. But to mandate it or to pave the way for larger companies to have a competitive advantage is not the way to do that. 

In fact, volume discounts would be discriminatory. It would discriminate against smaller companies who don’t have the relationships with large volume lenders, so they can’t offer a volume discount, and it would also discriminate against consumers who are 

not dealing with a lender who has that network of service providers. For instance— 

Mr. MANZULLO. Mr. Lindsey, why don’t you pick it up—I don’t 

want to run out of time—and then we can come back. 

Mr. LINDSEY. I concur with what Mr. Kermott said thus far, and 

I think what we would like to add to this, though, is that there is 

also the component of value. 

At the local level, for example, real estate professionals have relationships with smaller vendors and smaller providers who provide value and are more accustomed to the local practices and cusVerDate Aug 31 2005 15:00 Jan 12, 2009 Jkt 045622 PO 00000 Frm 00042 Fmt 6633 Sfmt 6633 K:\DOCS\45622.TXT TERRIE
35 

toms in that particular marketplace that have real applicability to 

the transactions. And if we are allowed to suppress the pricing so 

that those local providers are unable to compete and therefore are 

then pushed away, then we eliminate the choice option that we 

have. We also will expose ourselves to the potential of a reduced 

set of value that is actually being delivered. And ultimately, when 

it is all said and done and all the dust clears, there is a strong likelihood that prices are going to go up again because we have reduced competition. 

Mr. MANZULLO. What has always bothered me about HUD, and 

the fact that the people who draw this up have no real estate experience, is that they come out with the outrageous statement that 

a consumer will save $1,000 at closing if bundling is allowed. They 

have never been able to answer the question of what cloud they 

picked that from. 

Plus, my understanding as I take a look at this four-page monster and the other one called TILA, I guess ‘‘TILA the HUD,’’ if 

that is what you want to call it, is the fact that real estate closings, 

when I closed them, would take a half hour. When my wife and I 

bought a townhouse out here in 1996, it took 3 hours, we were told 

not to bring our kids with us, and I had to hire an attorney to go 

through those documents even with the vast experience that I had. 

Now HUD, again, has made it even messier. 

But my understanding, as I look at those documents, is if there 

is a kickback arrangement between a lender and a real estate company, that does not have to be disclosed if the bundling takes place. 

Isn’t that correct? 

Mr. LINDSEY. That is our understanding as well, and I think we 

also have a further concern that when in fact this bundling occurs, 

we don’t have a breakout of the actual services that are involved. 

So sometimes you might have a person show up at closing, and 

there is a charge on there which they had no knowledge of in advance of that. 

Mr. MANZULLO. You mean the so-called document fee? 

Mr. LINDSEY. Yes, or commitment fee, or many other fees that 

would be allowed to be included. 

And just recently looking at the settlement statement and comparing it to the GFE, for example, the title charges are not broken 

out, and there are a number of title charges that would be discrete 

and shown on the existing HUD–1 settlement statement that have 

now been combined, and those include attorney fees in some States 

that are attorney closing States, like North Carolina, for example, 

where there is no place on that good faith estimate for an attorney’s charge for settlement services. 

So this bundling of things is really just obfuscating the process 

further, and we think actually complicating it more and making it 

less simple. 

Mr. MANZULLO. So they create the problem with the bundling, 

and then they come up with a disclosure that does not show where 

any misuse or abuse would take place in that. I had a good friend 

who bought a piece of real estate from a very large real estate company, and they, of course, had their own mortgage company. He 

ended up with two closings because of the war that broke out because he did not want to use their lender. I guess he finally told 

36 

them, ‘‘I can pick my own lender. Don’t force me to go with your 

lender.’’ 

No one talks about that coercion that takes place with the consumer, and that is why I think the consumer groups ought to be 

out fighting this bundling, because any time you have a relationship—some people are starting to itch out there, and you should— 

any time you have a close relationship between a real estate firm 

and a so-called preferred lender, that does not help out the consumer because so oftentimes the consumer is simply talked into it 

and does not have the opportunity to shop on it. I am not saying 

that the rate may not be more competitive, it may be, but it just 

puts more pressure on the consumer. 

Thank you, Mr. Chairman. 

Mr. STEVENS. Mr. Chairman, may I make a comment? 

Chairman WATT. Mr. Stevens, I think, wanted to respond to your 

last comment, so we will give him that opportunity. 

Mr. STEVENS. Thank you. Again, just two reminders that we always like to make sure that we emphasize when this discussion 

comes up. 

First of all, the required use provision exists in the existing 

RESPA law, so you cannot require the use of an affiliated business 

as part of the real estate transaction. That is prohibited today, the 

law is in effect, it has been so for 16 years, so that does exist. I 

think you make a great point. 

I would like to look at the other side. In August of 2007, one of 

the largest home lenders in America out of New York failed, and 

we were presented with hundreds of transactions at Long and Foster that could not settle in the subsequent days and weeks that 

had been committed to, locked, and approved by this lender, and 

only by having our own companies, in-house, where we control the 

process, could back up our commitments, could we make sure those 

transactions closed. It saved literally hundreds, and I would be 

glad to submit the actual number for the record during that period, 

and that was literally from just one institution— 

Mr. MANZULLO. Well, that was okay in that crisis, but in Oregon 

or Illinois, a town of 3,500, and throughout the country, the power 

of the largeness, as it were, of your organization could actually 

hurt the other people. That is what they are concerned about. 

Mr. STEVENS. Could hurt other people in what way? 

Mr. MANZULLO. Because of the bundling that you—you go into an 

area, and you have a whole panoply of your—you have your appraisers, you have your surveyors, you—the so-called one stop 

shop, that is really the job of the Realtor, because I have seen Realtors, Realtors go out there and they fight for their client to get the 

best rates on mortgages, to find the people who have the best reputations in the individual trades. And as these people come together, they don’t have intertangling interests. They are there looking out for the consumer because the consumer hires them directly. 

And my concern, and this is just in general terms, is that the 

more you bundle these services to make it so-called easier for the 

consumer, the more likelihood there is that mischief could take 

place to the little people who don’t have the opportunity to be as 

large as you are. And again, that is not an accusation, that is just 

a general statement. 

37 

Chairman WATT. Ms. Still? 

Ms. STILL. I would just only point out that the difference between 

a true discount and offering an incentive of value is different than 

bundling services and not accounting for those services. 

Chairman WATT. I thank the gentleman for his questions, and I 

think the time has come for me, finally, to ask some questions, and 

I will yield myself 5 minutes. 

My philosophy at these hearings is to try to get as much into the 

record of varying opinions as we can, not to pit people against each 

other, but I think it is helpful to hear all sides of an issue. By and 

large, everybody has been uniformly opposed to HUD’s proposed 

regulation in some respect, so that is a consistent thread. But there 

are some potential inconsistencies in the panel that I would like to 

explore just a little bit. 

Ms. Still and Mr. Stevens strongly advocated the—I guess it is 

an affiliate service issue. I would like to get on the record Ms. 

Saunders’ and Ms. Borne’s perspective if your organizations have 

a perspective on the affiliated service position. We have seen some 

indications of the conflict with Mr. Manzullo’s questioning, but Ms. 

Saunders, Ms. Borne, do your organizations have positions on this 

issue? 

Ms. SAUNDERS. Yes, but it is short and sweet. If, to the extent 

that an affiliate is required, we think that the total cost of the loan, 

not just the services provided by the affiliate, need to be disclosed 

and reduced, which I think goes to many of the comments that we 

have heard today. 

The critical point is that consumers, when they are buying a 

house or obtaining a mortgage, very rarely shop for specific settlement services. They shop for the total cost of the loan. It doesn’t 

matter to them which particular provider they use, it matters how 

much money they have to come up with, how much money the loan 

is going to be extra because of these closing costs, and what is the 

cost of the loan. 

Chairman WATT. Ms. Borne. 

Ms. BORNE. We agree with the National Consumer Law Center 

on that. We would only add that we do support HUD’s clarification 

of the definition of required use to provide that using a preferred 

provider should not produce an incentive or disincentive for consumers. 

Chairman WATT. Okay. I wasn’t trying to create a point, counterpoint, I just wanted to make sure that we have in the record 

everybody’s perspective on it if there are varying perspectives on 

the panel. 

The second issue is—do you have something that you wanted to 

add to this point, Mr. Lindsey? Go ahead. 

Mr. LINDSEY. Yes, if I may, Mr. Chairman. The one point that 

we have sort of glossed over is that the enforcement of this is really 

one of the critical components of this. We don’t find there is a really big problem with having affiliated relationships provided we 

have enforcement that weeds out the bad actors. There was a very 

good example that Mr. Stevens gave that there really is a substantial difference between cost and price here, and if a vendor is able 

to reduce cost and therefore pass that along through an arrangement where there is an affiliation, we don’t find that to be a disVerDate Aug 31 2005 15:00 Jan 12, 2009 Jkt 045622 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\45622.TXT TERRIE
38 

advantage to the consumer necessarily. But what we do need to do 

is to weed out the bad actors. So enforcement needs to be really 

beefed up, I think. 

Ms. STILL. And if I could just go on the record— 

Chairman WATT. Ms. Still, I think, is about to agree with you. 

Ms. STILL. Yes, if I could just go on record and absolutely agree 

with Mr. Lindsey that there is current regulation. Current regulation, if enforced, would weed out the bad apples, and we wouldn’t 

be throwing the baby out with the bath water for the real value 

that affiliates offer the consumer. 

Chairman WATT. Mr. Kittle, quickly though, because I have one 

other conflict that I want to clear up here. 

Mr. KITTLE. Very quick is that you already have to disclose the 

affiliated business arrangement. That is disclosed, so I agree. But 

we are also required to give an approved provider list in addition 

to that which lists several closing services that the consumer can 

choose from. It was rightly said most of them don’t choose to go 

anyplace else than what is recommended in 99 percent of the cases. 

So we already give an approved provider list in addition to the affiliated business arrangement. 

Chairman WATT. I agree that most people do not look. In fact, 

I am just kind of in the position right now. I am refinancing. If I 

were refinancing in Charlotte, where I live, I know all of the providers. The title companies, the lawyers, the lenders, the brokers, 

I mean I would be shopping this thing to death. But closing a refinance of a condo here in Washington, I know none of the providers, 

so when I was offered the opportunity to just turn that over to 

somebody, it seemed like a good idea because I wasn’t going to go 

take the time to shop around on this thing. So I mean I think it 

differs from market to market. 

Mr. Savitt on this point. 

Mr. SAVITT. Again, it is not the disclosure. I think everybody 

does disclosure properly. The problem here is the carrot that is 

dangled in front of the consumer: ‘‘If you use our settlement service 

providers you will receive a discount or an incentive, but if you do 

not use our service providers, you won’t get the same discounts.’’ 

So this is the problem. They are being coerced into using these specific settlement service providers and it is not always the best deal. 

As a matter of fact, the majority of time it is actually more expensive. 

Chairman WATT. See, I thought this was the least controversial 

of the subjects. 

A second issue that I wanted to see whether there was a way to 

reconcile was the opposing positions of Ms. Saunders and Ms. 

Borne and Mr. Kittle and Mr. Lindsey and Mr. Savitt, I believe, 

probably, on this whole YSP. Is there a way to reconcile your positions or are you all just—I take it that once I would like to just 

do away with yield spread premiums or some such—tell me how 

this can be reconciled. Mr. Savitt first, Mr. Kittle, and whomever 

else wants to weigh in, and then we are going to end this. 

Mr. SAVITT. Well, the first thing I think we need to do is keep 

in mind the consumer here. This is all about the consumer. We 

have to level the playing field for consumer. We all talk about occasionally leveling the playing field for ourselves. 

39 

We have to level it for the consumer, and the way to do that is 

all originators, regardless of how they are licensed, should be required to disclose all of their direct and indirect compensation. Everybody discloses in the exact same form—or on the exact same 

forms in the exact same manner. This is what the FTC was talking 

about, because by making only brokers disclose their indirect compensation—and we know everybody gets it. As a matter of fact, 

that was addressed in 3915. Everybody gets it. So let’s be fair to 

the consumer, let’s have everybody disclose all of their indirect 

compensation in the exact same manner on the exact same forms, 

and then the consumer has a fighting chance. 

Chairman WATT. Mr. Kittle. 

Mr. KITTLE. Where we respectfully disagree with Mark and his 

group is, number one, yield spread premium disclosure is something that should remain. I think it is wrong to say, as we stated 

earlier, that every time you use yield spread premium or a broker 

that it results in higher costs to the consumer. That is absolutely 

wrong. 

The individual loan officer company can set its own benchmark 

based on the price it receives from the lender, and they can determine to take less, and in many cases do in a competitive market, 

and reduce their cost and advertise an even lower rate with YSP. 

But as far as our difference here is, we think that it should be disclosed. People who are lenders, like myself, or larger members of 

the Mortgage Bankers Association, can’t disclose what they are 

making on a loan in many cases— 

Chairman WATT. But do you think the other costs ought to also 

be disclosed? If you are going to disclose yield spread premium for 

brokers, are there other internal costs if there is not an outside 

broker that also ought to be disclosed? 

Mr. KITTLE. I think everything should be transparent. They are 

asking us to have a ‘‘level playing field.’’ If I am going to hedge my 

loan, if I am going to portfolio that loan or hold it in my warehouse 

line, I can’t tell you what I am making on it the day I close, whereas, when a broker closes the loan, their total compensation is received at that moment, on the spot. 

Chairman WATT. Okay, I think the bottom line here is pretty 

much the same bottom line we got to on the other issue. If these 

things are done responsibly and they are disclosed and the buyer/ 

consumer/borrower understands what is going on and it is of some 

benefit, then there is some value here. Is that a fair summary, Ms. 

Saunders? 

Ms. SAUNDERS. Not quite, Mr. Chairman. 

Chairman WATT. Give me a fair summary then. 

Ms. SAUNDERS. We think disclosure in this instance is not sufficient. HUD clearly has under its statutory authority the authority 

to substantively regulate yield spread premiums, and we think that 

they should explicitly say yield spread premiums are legal only 

when they are the sole source of payment of the broker and all 

other fees. That way— 

Chairman WATT. Can they do that in this rulemaking RESPA 

process or should that be a separate issue from the RESPA reform? 

Ms. SAUNDERS. HUD has chosen in the years and years that it 

has been working on this effort to deal with yield spread preVerDate Aug 31 2005 15:00 Jan 12, 2009 Jkt 045622 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 K:\DOCS\45622.TXT TERRIE
40 

miums. The consumer groups have consistently said both in the 

discussions, ongoing private and public discussions and in our comments that yield spread premium regulation needs to be substantive. There is no reason why that substantive regulation cannot be included in this rulemaking. It is part of RESPA. It is part 

of 2607 of RESPA. 

Chairman WATT. Mr. Savitt, last word on this point. I am way 

over my time. 

Mr. SAVITT. Okay, a couple of things. I have been saying this for 

a few years and it used to be a joke, but maybe it is not a joke 

anymore. Maybe we should rename RESPA the ‘‘Require Everyone 

to Show Profits Act.’’ Mortgage brokers have been disclosing for 16 

years everything they make, and we don’t have a problem with 

that, but we think in order to be fair to the consumer, everybody 

should do it. Lenders know exactly what they are going to make 

on a loan, and I think it is also as to what Ms. Saunders said. It 

is allowable if all of the closing costs are included. Shouldn’t this 

be the consumers choice whether they want to include all or part 

of their closing cost? We are taking choice away from the consumer 

if we follow her line of thinking. 

Chairman WATT. My time has long since expired, and so I am 

going to treat you all the same way on this issue as I did Mr. 

Hinojosa. 

We would welcome follow-up comments, written comments on 

this issue. I think these are the two major issues, really, where inside the panel there are disagreements. Generally speaking, the 

common thread through the panel was we don’t like RESPA’s rule 

in one respect or another, not always for the same reasons, but 

there was uniform opposition to immediate promulgation and finalization of a rule. But on these two issues we have some internal 

disputes in the panel. 

Mr. Cleaver is recognized for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. In fear that I would 

ask questions that have already been asked, I would just express 

appreciation to the panel, and I have surveyed your written comments. Thank you very much. If any of you have influence over 

HUD, would you please exercise it? Thank you. 

[Laughter] 

Chairman WATT. The gentleman yields back his time, and I 

would say to the gentleman and to all members that members may 

have additional questions for this panel which they may wish to 

submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to 

these witnesses and to place their responses in the record. 

It has been a wonderful hearing. The breadth and knowledge 

about this issue has been very impressive, the exact kind of input 

that we need in the legislative process. At this moment, this is outside the legislative process, but we reserve the right to pull it back 

in if it becomes necessary, and this might be an important predicate for doing that. 

Let me do a couple of housekeeping things. I ask unanimous consent to submit for the record the following items. Number one, 

HUD’s proposed rule that was issued in 73 Federal Register 

14030–14061, dated March 14, 2008. Number two, the proposed 

41 

good faith estimate form. Number three, the existing good faith estimate form. Number four, an undated response letter to Representatives Hinojosa and Biggert from Sheila Greenwood. I think 

Mr. Hinojosa’s unanimous consent request probably covered that. 

Number five, a statement for the record from the Independent 

Community Bankers of America dated September 16, 2008. I don’t 

know how they didn’t get on this panel, and they are probably mad 

at me, but I will make it up to them. Next, a statement for the 

record from the National Credit Reporting Association dated September 16, 2008. And— 

Mr. MILLER. I would like to submit for the record a statement 

by Michele Bachmann. 

Chairman WATT. A statement dated September 16, 2008, from 

Representative Michele Bachmann. 

Without objection, those items will be submitted for the record. 

Let me thank once again all of the witnesses for being here today 

to testify. It was a wonderful hearing, and the hearing is adjourned. 

[Whereupon, at 11:56 a.m., the hearing was adjourned.] 

(43) 

A P P E N D I X 

September 16, 2008 

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