Mr. FENDLY. I believe there are multiple issues. And certainly the FHA-VA loan program is part of that issue. But to get back to small business again, I think it is very, very important to understand, as the statement you made, my company has five employees. I have been in the business industry for 20 years. You are never going to convince me that I can compete in a packaging scenario with a mega-lender. And quite frankly, our industry is composed mostly of small brokers. Contrary to what I have heard at this hearing, I believe the only opportunity it provides for small mortgage brokers is to seek a new career. Mr. COURSON. Can I respond, Congresswoman? I am sorry. Mr. COURSON. Well, you know, one of the and that is one of the reasons that in our comment letter to the department, we, frankly, have encouraged them-there are two different proposals, if you would, one talking about the Guaranteed Mortgage Package, the other about the Good Faith with the tolerances. We are saying to the department, "Let us take the package-let us put it into play-let us see if the consumer, the originators, the lenders will accept it." Is the guarantee something that is acceptable in the marketplace? Is it good for the consumer? Is it good for the industry? Does the packaging benefits benefit closure? Because if they do, in a free marketplace it will get acceptance, it will get traction and it will move forward. But do not change both at the same time. Leave the current Good Faith, allow the marketplace to work the way it is working today because if the package, in fact, is viable, then in the-in the marketplace, it will gather that acceptance. And do not change both at the same time. Chairman NEY. Thank you. Time has expired. Ms. HART. Thank you, Mr. Chairman. Chairman NEY. I want to thank the panel for their testimonya very interesting testimony on an important subject today. I want to thank you. Also note the chair would note that some members may have additional questions for this panel which they may wish to submit in writing to the panel. 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. I want to thank you. We can move on to the second panel, please. I want to thank the second panel for being here. The first witness is Peter Birnbaum. Mr. Birnbaum is the President and Chief Executive Officer of Attorneys' Title Guaranty Fund, Incorporated, which is headquartered in Champaign and downtown Chicago, Illinois. Attorneys' Title Guarantee Fund provides title insurance to home buyers and lenders through its network of 3,500 member lawyers. Dr. Charles J. Mendoza-Dr. Mendoza is a member of the board of the American Association of Retired Persons-AARP. As a former criminal defense attorney, Dr. Mendoza is active in AARP's telemarketing fraud campaign. He has written numerous articles on consumer fraud which have been published in national maga zines. He also plays a key role in working with AARP's Hispanic membership. AARP is a non-profit, of course, non-partisan membership organization for people aged 50 and over. I will see you in a year. AARP provides information and resources, advocates on legislative, consumer and legal issues, assists members to serve their communities and offers a wide range of unique benefits, special products and services for its members. Arne M. Rovick-Arne M. Rovick is Vice Chairman General Counsel for Edina Realty Home Services, a large regional broker operating in Minnesota and Western Wisconsin. Edina Realty has had an affiliated mortgage company and an affiliated title insurance and closing services company and an insurance agency that was added. Arne has been a Director of the Real Estate Services Provider Counsel, Incorporated-RESPRO-and is a past chairman. Ira Rheingold-Mr. Rheingold is the Executive Director and General Counsel of the National Association of Consumer AdvocatesNACA. And NACA is a nationwide association of more than 800 attorneys and consumer advocates who have a wide range of experience curbing abuse of the predatory business practices and promoting justice for consumers. I want to welcome everyone here today on the panel. Thank you for attending. And we will start with Mr. Birnbaum. STATEMENT OF PETER J. BIRNBAUM, PRESIDENT, ATTORNEYS' TITLE GUARANTY FUND, CHAMPAIGN, IL, ON BEHALF OF NATIONAL ASSOCIATION OF BAR RELATED TITLE INSURERS Mr. BIRNBAUM. Mr. Chairman, thank you. Members of the committee, I represent a constituency of about 20,000 law firms nationwide that represent the typical mom and pop in their home closing. So I could certainly relate to many of the comments by Congressman Manzullo, Congresswoman Hart, Congressman Watt, Congressman Davis in terms of what it is like to practice law in this area. We are opposed to the packaging aspects of the proposed rule. And I thought in articulating that we would look back and then look to where we are today before making comments. When Congress enacted this legislation in 1974, it is clear that it wanted to accomplish four things-one is to give consumers better protection for the largest financial transaction of their lives; two, to prohibit kickbacks because Congress found that the cost of the kickbacks passed on to the consumer; three, to disclose the cost of home sales and home purchasers to the seller and buyer; and finally, to give consumers the right to shop. RESPA is not perfect, and we heard a lot of comments related to that today. It needs a lot of work-lots of dumb stuff-these closings with hundreds of documents. I agree it is totally confusing. But the concept works. And certainly the proposal does not address some of those comments that were addressed today. I think it is important to step back for a second and do look at the fact that the closing business and the title business is a highly competitive business. There are lots of competitors, lots of price competition, lots of service competition. The proposed rule, in my opinion, is going to overturn an important cornerstone in terms of consumer protection in the housing industry. We have got four serious problems with the proposed rule. First, and foremost, we believe that the proposed rule has the effect, and I think it has been noted by members of the committee today, of eliminating competition and, in effect, giving a monopoly to big banks and mortgage banks. Effectively, small law firms, small title agents are going to be out of business if this becomes a reality. Second, and startling to me and I am surprised there has not been more comment on this-is that it gives banks, and no one else, pretty much safe harbor immunity from criminal and civil prosecution for taking kickbacks. One, I question the statutory authority for that and two, when Congress found the need to make this prohibition was specifically to protect the consumer. Three, it allows lenders to sell these closing services as part of a package with no disclosure to the consumer of what they are buying, from whom or what price. And then finally, and it was addressed by one of the committee members earlier, it seeks to set a national framework for real estate transactions. And as a result-and I think Congressman Green raised this-it is going to have the practical effect of preempting state law. Before we do that-before we go down that path, we have got to remember that closings are very parochial in nature-who does closings-who pays for these closings-how the services are allocated between the parties in terms of costs-very parochial a patchwork quilt, if you will. it has always been regulated at the state level and it is impractical, improper and probably exceeds HUD's authority to suggest otherwise. My opinion if this rule passes-I think that four things are going to happen. One, prices are going to rise. Kickbacks-there is no question in my mind-are going to be passed on to the consumer in the form of higher prices. Also, in terms of cost allocation in seller-pay states, those costs are going to be shifted to the buyer and it is going to make prices rise. Two, consumers, if they are bewildered today, they are going to be even more bewildered by this process that hides virtually all the costs. Three, competition is going to be eliminated. And then, four, all lawyers and all the other small folks that are in there providing this kind of competition are going to be gone from this business. What do we think you should do? A couple of suggestions-one, there is a lot of talent in this room today, alone. And there is a lot of talent in this industry. And to my knowledge, HUD has not worked with an advisory council on trying-there is a lot of disagreement about how to implement these rules. And I would love to see HUD bring us in to try to work through some of the issues. Two, I think you should study the costs. The Secretary says that this is going to lower consumer prices. I do not see that. I do not see that at all and I think we owe it to the consumers to study that issue. Three, I think that absolutely this should be done by legislative process and not by rule. I do not believe that HUD has the authority to promulgate this regulation. We ask that you not implement the rule as drafted. We think that costs are going to skyrocket. We think that housing is going to become less affordable. There is going to be no less paperwork involved. And a complex process is going to become even more mystifying to the consumer. Thank you. [The prepared statement of Peter J. Birnbaum can be found on page 63 in the appendix.] Chairman NEY. The time has expired. Thank you. I also would note, without objection, your written statements for the entire panel will be made a part of the record. You will be each, of course, recognized for your five minutes, but it can be made part of the record without objection. Dr. Mendoza? STATEMENT OF CHARLES J. MENDOZA, MEMBER, BOARD OF DIRECTORS, AMERICAN ASSOCIATION OF RETIRED PERSONS, WASHINGTON, DC Mr. MENDOZA. Good afternoon, Chairman Ney and Ranking Members Waters and Members of the Subcommittee on Housing and Community Opportunity. I am Charlie Mendoza and I am a member of AARP's board of directors. And I really appreciate this opportunity to offer AARP's assessment of the U.S. Department of Housing and Urban Development's proposal to reform the Real Estate Settlement Procedures Act. We believe, at AARP, that there is a clear need to simplify and improve the process of shopping for and obtaining home mortgages. And AARP strongly supports the thrust of HUD's approach for reforming today's confusing settlement process. For nearly a decade, AARP has been actively advocating for the reform of RESPA, with these same objectives in mind. Many homebuyers are mid-life Americans buying a long awaited first home, or those who are trading up, or older Americans who are restructuring their households as they approach their retirement years. Unfortunately, the existing RESPA disclosure requirements have turned a virtue into a vice by inhibiting, rather than facilitating, competition for loan products and comparative shopping by homebuyers. Chairman Ney, because of the importance and complexity of the issues being raised, I have attached to my statement a copy of AARP's detailed agency comments regarding the proposed RESPA reform rule. If space permits, I would like to request that our comment letter be made a part of today's hearing record. [The following information can be found on page 336 in the appendix.] Chairman NEY. Without objection. Mr. MENDOZA. Thank you. HUD's proposal contains three major provisions-enhanced disclosures of mortgage broker or loan originator compensation; revisions to the Good Faith Estimate system, often referred to as GFE Disclosure; and the availability of guaranteed mortgage packages that include guaranteed settlement costs and interest rates. This loan package is often referred to as the GMP option. In the limited time that I have to address the subcommittee, I would like to suggest or highlight several key features of AARP's comment letter as they refer to these provisions. First, AARP supports HUD's proposal to streamline and improve the Good Faith Estimate and to create a new disclosure form to permit the offering of a Guaranteed Mortgage Package. The GMP package carries with it guaranteed loan terms and settlement costs. Second, we support HUD's proposal to streamline and improve the accuracy of the GFE option. The proposed changes will offer significant advantages to borrowers over the current system by creating greater certainty. The revised GFE will be especially beneficial for subprime borrowers who will receive firmer cost information without the risk of losing important consumer protection rights. Third, we favor the GMP as a novel concept to promote true comparison shopping by providing certainty for consumers at an early shopping stage. Fourth, we strongly recommend, however, limiting the GMP package to the competitive prime market until knowledge regarding subprime market behavior becomes more standardized and reliable. Our concern is that the subprime market has not yet developed the required market information that is necessary for creating competitive pricing standards. Fifth, in our comments to the department, we detail the need for greater enforcement mechanisms for the GFE and the GMP. And lastly, we suggest revising the proposed GFE and GMP disclosure forms to improve their clarity and comprehensibility. Arcane as the language of RESPA may be, the substance of RESPA is tied directly to a central component of the American dream, the expectation that most of us, as Americans, will be able to afford to own our home. We really appreciate the purpose served by this hearing in focusing public attention on an important rule-making proposal and process. And let me close by saying that while a number of important and useful modifications can and should be made to the proposed RESPA rule before final promulgation by HUD, we strongly support the department's efforts to move this rule forward. And we, at AARP, would be happy to answer any questions that you have regarding our proposal. Thank you. [The prepared statement of Charles J. Mendoza can be found on page 329 in the appendix.] Chairman NEY. I would thank the witness for his testimony. STATEMENT OF ARNE ROVICK, VICE-CHAIR AND GENERAL Mr. ROVICK. Mr. Chairman, good afternoon. |