tions in the ability of GSEs to offer packages and regulation to prevent loan steering by third party packagers. Without such regulations, the full competitive benefits of RESPA reform are unlikely to be realized.

The proposed Guaranteed Mortgage Package, arguably, would provide customers an easy method of comparison-shopping. However, we are concerned that providing a so-called interest rate guarantee that is held open for a minimum of 30 days as part of the package would just not work. Problems arise because it is not a true interest rate guarantee. And the length of commitment is beyond industry norms. We suggest that HUD work with lenders to develop a methodology for establishing and adjusting rates.

Another concern is conflict with state law. There are approximately 40 states in which the Guaranteed Mortgage Package may not be able to be implemented for a variety of reasons. ACB suggests that HUD look at the differences in how closings are conducted from state to state and at what different state laws may require.

In conclusion, ACB believes that one, mortgage broker fee disclosures are an integral part of making mortgage fees comprehensible to consumers and should be implemented immediately. The Guaranteed Mortgage Package, with revisions, should take priority and be tested in the market as soon as practicable. And finally, revisions to the Good Faith Estimate should be postponed, re-examined and adjusted as the Guaranteed Mortgage Package is being tested.

ACB members stand ready to work with the members of the committee and HUD to complete the RESPA reform process in an effective manner.

We thank you for the opportunity to testify on this issue today. Thank you, Mr. Chairman.

[The prepared statement of D. Russell Taylor can be found on page 418 in the appendix.]

Chairman NEY. Thank you.

Mr. Garczynski?

STATEMENT OF F. GARY GARCZYNSKI, PAST PRESIDENT, NATIONAL ASSOCIATION OF HOME BUILDERS

Mr. GARCZYNSKI. Chairman Ney, Vice Chairman Green and Members of the Committee, on behalf of the 212,000 member firms of NAHB, I am pleased to have this opportunity to testify in support of HUD's proposal to reform RESPA.

NAHB's comments today will focus on two major components of HUD's proposal. First are the changes in the disclosure requirements of the cost of mortgage transactions to the consumer-the Good Faith Estimate. Second, I want to comment on the addition of an option for lenders to offer a package of settlement services at a guaranteed cost-the Guaranteed Mortgage Package.

NAHB applauds HUD's efforts to increase the transparency and simplify mortgage transactions and loan closings by improving the disclosure of mortgage fees and expenses to consumers. The proposed changes should also eventually lower mortgage transaction costs and help minimize unexpected charges at the time of loan settlement.

My oral statement will be confined to those aspects of the proposed rule which deal with the circumstances involved in processing mortgages for newly built homes. Transactions for newly built homes are different in that they typically involve a fairly lengthy loan origination process that matches a sometimes lengthy building process.

On the Good Faith Estimate, under the requirements for the estimate, the proposed rule does not specify when changes in the transactions warrant a new disclosure. Re-disclosure could be burdensome to lenders in a new construction environment where the loan origination period spans from housing start to home completion and may last anywhere from four months to nine months or more. Many changes can, and normally do, take place during the construction process. For example, the purchase price may fluctuate, depending on the buyer's optional preferences. Also, the attractiveness of different mortgage products may change, as could the buyer's financial situation.

Changes in the home purchase price directly impact the cost of document stamps, transfer tax fees. And similarly, changes in the loan amount affect the fee charge for the lender's title insurance. On the Guaranteed Mortgage Package-the concept of the Guaranteed Mortgage Package is appealing and could reduce consumer costs primarily through originator's negotiations with settlement services that are provided.

However, a guaranteed package that is determined at loan commitment and lasts until settlement on a new home transaction puts the packager in a position of excessive risk. This may lead the original packager to offer less competitive terms than packagers who have an opportunity to offer a mortgage package closer to the date of the projected loan closing. Wider tolerances in guarantees would be needed for a new home transaction where the price and loan amount often change dramatically during the construction period.

So NAHB recommends for financing quotes on newly constructed homes that both the Good Faith Estimate and the Guaranteed Mortgage Package have an alternative that is based upon a daysuntil-closing threshold for providing final quotes and guarantees. For example, a lender would provide preliminary estimates at the initial application and then issue final guaranteed estimates 30 or 60 days out from the proposed closing. This procedure would be comparable to the timing of guarantees that would be made in financing an existing home purchase.

The solution would allow the customer sufficient time to shop again if the final package was deemed to be less than competitive, while providing the lender an opportunity to adjust those components of the package that actually changed.

In closing, NAHB recognizes the effort HUD has put into correcting some salient shortcomings in an otherwise effective housing financing system. However, loans for new homes, which represent more than a quarter of the annual purchase mortgage originations, have unique characteristics and, thus, they must be specifically addressed in any RESPA reform package. We are confident that HUD will address the concerns that have been expressed regarding this proposal and can do so without sacrifice to mortgage services.

Thank you.

[The prepared statement of F. Gary Garczynski can be found on page 325 in the appendix.]

Chairman NEY. I want to thank the panel for their testimony.

One question I have for anyone on the panel that would like to answer it-under the proposal, loan originators offering loans whose rate or points trigger the HOEPA protections may not benefit from the Section 8 exemption. Should the packaging proposal be extended to HOEPA? And if not, what is the lender's incentive to offer a guaranteed package?

Would anybody like to comment on that?

Ms. CANFIELD. We believe, and stated in our testimony, that the Guaranteed Mortgage Package proposal should be extended to HOEPA loans and they should be included. Without it, there is— HOEPA borrowers are not going to be able to get the benefit of the Guaranteed Mortgage Package offer.

Chairman NEY. I assumed you would want to respond, Ms. Saun

ders.

Ms. SAUNDERS. That is right, Mr. Chairman. I appreciate the opportunity.

Because the effect of the package will be to hide Truth in Lending Disclosures and it will be impossible to determine whether a lender has complied with Truth in Lending when a package is of fered, we think that it is very important to preserve Truth in Lending Compliance for all loans which are not of the most competitive nature. And there can be no debate, I think, that some subprime loans are predatory. To avoid spreading the problem of predatory loans, we need to at least maintain the current transparency, not add to the murkiness of the situation.

So we think that, at least at the beginning part of the process, the Guaranteed Packages should not be allowed not only to HOEPA loans, but to all subprime loans.

Mr. COURSON. Mr. Chairman?

Chairman NEY. Thank you.

Mr. Courson?

Mr. COURSON. I am sorry-if I may-
Chairman NEY. Yes.

Mr. COURSON. In due respect, the system under the proposed rule of the guaranteed fee package-Guaranteed Mortgage Package does not obviate the need to still provide a Truth in Lending Disclosure at the time of the closing of the loan. So, in effect, the borrower will still receive a Truth in Lending Disclosure disclosing those charges that are in the finance charges and the amount financed and an APR, in addition to the Guaranteed Mortgage Package disclosures.

There will be two disclosures. And the TILA, if you will-the Truth in Lending-will still be provided as it is today.

Chairman NEY. Thank you.

One other question I would have, I think, for Ms. Canfield-there is currently at least four national lenders offering one-fee loan products an example would be ABN AMRO. Since lenders are doing this without a Section 8 exemption, why is there a need for a regulatory change because they are doing it without Section 8 exemption?

Ms. CANFIELD. First, I would make the observation that there are tens of thousands of loan originators out there and only four that are offering any kind of product similar to what we are talking about. But the difference here is a timing difference. Under the HUD proposal, HUD is saying that you will get the Section 8 exemption if you guarantee closing costs at application and send out the guarantee in writing to consumers within three days. For the products that I have seen out there in the marketplace today, their guarantee does not come until much later in the loan-in the loan process-really almost near loan commitment, after the loan has been underwritten and the property has been appraised. So the HUD proposal would provide more certainty much sooner in the process than what is allowed today under current law because RESPA prevents it from happening.

Chairman NEY. One final question I have and, Mr. Fendly, I do not know if you want to comment on this, but the "Wall Street Journal" ran an article yesterday that stated that all mortgage brokers are making millions off of the refinance boom. And I just wondered if you wanted to give us your

Mr. FENDLY. I did, Mr. Chairman. I would like to make a couple comments about it.

First of all, the writer picks the top producer at one of the top brokerage firms in the highest cost metropolitan areas in the country to stereotype our industry. And I think it is somewhat absurd to criticize an industry and characterize them in this manner, based on one individual.

But it also states that 5 percent of the brokers make over $1 million, but the average broker made $120,000. Statistically, if you run the numbers, this means the other 95 percent make an average of less than $74,000, working 10 to 12 hours a day, seven days a week-meeting with loan applicants virtually any time day or night.

And I think they have glossed over the good things about mortgage brokers. A wide yield spread premium was used to pay closing costs and consequently, the borrower got a great rate and paid no closing costs. The actual payment for the loan was slightly more than 1 percent-$2,800 on $240,000. And I think this underlines our assertions that yield spread premiums are used to help the borrower. And furthermore, 1 percent on a loan is a far cry from 6 percent realtors make on the purchase of a home.

Now, it is true, some loans are less labor intensive than others, but just like the realtors, some homes sell faster than others, but they still get their 6 percent and that is pretty much non-negotiable.

And last

Chairman NEY. My time has run out.

[Laughter.]

Mr. FENDLY. All right.

Chairman NEY. Luckily, I think somebody else might want to respond to that, I would assume.

[Laughter.]

Thank you.

Ranking Member-Ms. Waters?

Ms. WATERS. Well, let me apologize for having to go out for a few minutes. Let me pick upon some of the discussion that I heard coming back in. For many years, there have been a lot of questions about fees and charges for mortgage brokers. As was indicated in testimony by our consumer advocate here, the concern about mock displaying all of the charges is a concern that did not just start today, but it has been there for a long time. And I do not have the empirical data, but the reputation of brokers for charging exorbitant fees is a reputation that you have gained, whether or not you are deserving.

If, in fact, there is a belief by consumers, and particularly by consumer advocates, that the charges have been exorbitant, what can you do to convince us who are concerned about that, that we do not need to continue to display every fee that is charged in a transaction?

Let me ask that question of Mr. Courson.

Mr. COURSON. Let me respond from the Mortgage Bankers Association standpoint. Obviously, I think that what you are getting, Congresswoman, is, in fact, the certainty of a one-of a guarantee. The issue today is one, frankly, of an opportunity of bait and switch-of showing a consumer at the time of application a list of charges on a Good Faith Estimate that has no important law to enforce that if by the time that consumer goes to the closing or the funding those numbers change through the addition of fees or other hidden charges and now the consumer is so far down the path they are at the closing table and under current law, there is no penalty for that.

And so this system is one that says, "Tell the consumer up front, give them a guarantee a one number guarantee and when they get to closing, that number does not change."

Ms. WATERS. How can I be assured, as a consumer that that one number is not exorbitant? How do I know that you have not doubled what I would have had to pay had I known what the fees for each of the items should have been-could have been?

Mr. COURSON. That is a very good question. If, today, you took a Good Faith Estimate, which you are given, which is a laundry list, if you will, of charges and tried to shop it, I would submit to you that even some of us in the business would have difficulty shopping that to try to match up different fees, different language, different terminology, different charges. And, in fact, very honestly, we talk about predatory lending, if anything that has that much confusion in it is, in fact, an opportunity to fool the consumer.

So now, what you do is with one number-that is a shopable number. They now have one figure that they can shop with other originators. You know, when a customer comes in to one of our branch offices-consumer-they really, in all due respect, want to know two things-maybe three. One, how much cash do I have to bring to closing? What is it going to cost me? How much cash do I have to have? And what are my payments and my interest rate? And I will tell you that my experience in 40 years in the business-of people looking at Good Faith Estimates and trying to, if you will, see if the pest inspection or the flood certification or the whatever else we have certifications are marketable-in our market, it just does not happen.