RESPA

(Questions from H. Gonzalez)

G) Q.

A.

program. Obviously, this average does not apply to every loan due to variation in rates, terms, and products.

Do you believe that additional fees should be charged to consumers above and beyond those currently charged through loan origination and real estate commissions for the use of MortgagePower® PLUS program or any other computerized system?

The most convenient and efficient place to originate a mortgage is in the Realtor's office at the point of sale. To the extent that a Realtor can provide mortgage brokerage services to a consumer at a cost less than currently charged by mortgage brokers, clearly the consumer is advantaged. To the extent that the financial service representative in a Realtor's office is performing this service at the point of sale using computer technology, it is likely that there can be further reductions of the cost. The Realtor should be entitled to be compensated for that service. There is possibly a double savings to consumers by obtaining financing through the Realtor at the point of sale by reason of a lower mortgage brokerage fee and possibly a lower origination fee because the lender's costs are reduced. Citicorp believes this and thus has a reduced origination fee.

The consumer need not contract with a Realtor if he or she does
not wish to obtain these services. The key is that they should be
free to do so if they wish. Even after a commitment is issued, a
consumer may continue to shop around without incremental cost or
penalty. Consumers are demanding more and more counselling and
mortgage service from the Realtor. Realtors have incremental cost
in providing this service. They, like the mortgage broker, are
entitled to recover their cost and realize a fair return on their
time and effort for these services. Any legislative effort to
preclude them from charging for this service rendered, precludes
them from offering the service, and withhold from the consumer a
whole new, much more efficient and much more informed and
effective way to obtain mortgage financing.

/respal.rpt

Chairman Henry B. Gonzalez

U. S. House of Representatives
Subcommittee on Housing and Community
Development
of the

Committee on Banking, Finance and Urban Affairs
One Hundred First Congress

B303 Rayburn House Office Building
Washington, DC 20515-6052

RE: RESPA Hearings

Dear Mr. Chairman:

I have enclosed herein corrections to the transcript of the hearing which was held on August 8, 1990 with regards to the Real Estate Settlement Procedures Act. The following is a recitation of the question which was asked in writing subsequent to the hearing and our response thereto:

QUESTION: PLEASE DETAIL THE EXPENSES PER APPLICATION THAT THE REAL ESTATE BROKERS INCUR. IF THE OVERHEAD EXPENSES ARE FIXED, THEN WHAT ARE THE VARIABLE EXPENSES PER APPLICATION ?

RESPONSE

The best approach to analyzing the costs incurred by the franchisees of the Prudential Real Estate Affiliates, Inc. in using the CLOS System is to look at the fixed and variable expenses incurred by each office. The following sets forth a table illustrating the minimum costs per office utilizing the CLOS System:

THE PRUDENTIAL REAL ESTATE AFFILIATES, INC. UTILIZING COSTS MONTHLY EXPENSES FOR BACH OFFICE of THE PRUDENTIAL REAL ESTATE

Expenses Incurred by Each Office Which Are Not Covered Above:

The foregoing expenses are typical when the System is being used only as an information source to facilitate sales agents in working with buyers and sellers in doing listing presentations and prequalifications. There is no recovery of these costs unless there are applications taken on the system. When applications are taken the percentage allocations will increase in proportion to the number of applications derived from the System. The greatest cost increase would be for the System administrator. It is the experience of the CLOS System to date that most offices are not recovering their minimum expenses attributable to CLOS. Furthermore, at the rate of $100 per application it is not likely that each office will receive compensation for its services in excess of costs being incurred.

Notwithstanding the foregoing, RESPA permits the recovery of the reasonable value of services rendered and facilities provided not merely a recovery of costs. We submit that based on our experience as well as the market value of similar services being rendered by mortgage brokers through the point of application, that

the reasonable value of the services rendered and facilities being provided by the real estate brokers operating CLOS are substantially in excess of $100 per application.

We remain available to provide any additional information that your subcommittee may require.

Enclosed are the materials you requested for the record for the Subcommittee's August 8 hearing on the Real Estate Settlement Procedures Act (RESPA).

I appreciated the opportunity to appear before your Subcommittee. As I stated in my testimony, the lack of clear and consistent regulatory guidance for companies which are trying to adapt to this marketplace is stifling the development of innovative products and services that today's homebuyer demands.

Coldwell Banker urges the Subcommittee to reject piecemeal legislative proposals that would limit the development of consumer products and services by restricting fees that real estate brokers can receive for providing various services. Instead, we hope the Administration and Congress will begin a long-term comprehensive review of the impact of the 1974 RESPA law on today's real estate marketplace, with the goal of eventually creating a more modernized regulatory structure that allows real estate brokers to offer a full array of products and services.