Chairman GONZALEZ. I have been referred to as 74 years and a few months old.

Mr. MFUME. It is an institutional history that many of us, I think on both sides of the aisle, appreciate, and it is both provocative and evocative. I think if we are fair in our assessment of evaluation that we are attempting to bring to this matter, we are almost compelled, I think, to consider some of the very real and sensitive issues that you have raised.

I don't have any questions. I have read Mr. Keating's testimony. I agree with the gentlewoman from New Jersey, it is comprehensive, and I would congratulate you, Mr. Chairman, with moving forward to the continuation of these hearings, and yield back the balance of my time.

Chairman GONZALEZ. Thank you very much, Mr. Mfume.

Mr. Keating, again, thank you very much for your patience and for your help here.

The subcommittee will adjourn until further call of the Chair. [Whereupon, at 12:05 p.m., the hearing adjourned subject to the call of the Chair.]

OPENING STATEMENT

OF CHAIRMAN HENRY B. GONZALEZ

REAL ESTATE SETTLEMENT PROCEDURES ACT
Wednesday, August 8, 1990

Today we begin the first of a series of hearing on the Real Estate Settlement Procedures Act of 1974 (RESPA). In May 1988, HUD proposed to make changes in the regulations implementing RESPA. I believe it is appropriate for Congress to review recent changes in the real estate market before any further regulatory actions are Today's hearing will cover the development of Computerized Loan Origination Services, or CLOS, the applicability of RESPA to these services and the effects of such services on the consumer.

taken.

Let me say first that although this issue has generated a great deal of controversy within the real estate and mortgage banking industries, we do not approach this issue with any preconceived notions. RESPA was originally enacted because of Congressional concerns about kickbacks and other abusive business practices in the real estate community. It is a consumer protection statute, and we are here today to learn more about these CLO systems and to assess their potential impact, both beneficial and otherwise, on the consumer.

CLOS are computer services that are accessed through a computer terminal placed in a real estate agent's office. These systems

allow agents to retrieve information regarding mortgage loan products offered by one or more lenders and to provide to a buyer information and services in connection with a mortgage. Such information can include a pre-qualification analysis and the preparation and submitting of a loan application on behalf of the buyer. Sometimes the agent is compensated by the lender for these services, sometimes by the buyer.

One of the issues we will be exploring in this hearing is the applicability of RESPA's to the payments made to real estate agents in connection with CLOS. RESPA prohibits the payment of referral fees or kickbacks. However, payments for services rendered are excluded from this prohibition, as are payments between commonly controlled business entities. In order to determine whether payments to real estate agents violate this prohibition, we will need to learn more about the systems themselves and the relationships between the agents, the owners of the systems and the lenders whose products are marketed over these systems.

In reviewing these systems and related controlled business arrangements, I am also concerned about the potential conflict of interest that can arise when a real estate agent accepts payments from both the buyer and seller in a single transaction.

Finally, I am curious about effect of CLOS on competition in the loan market and on credit allocation. It is possible that the use of CLOS will actually increase competition by increasing the number

of lenders from which buyers can chose. However, these systems could have just the opposite effect if they offer the products of only one lender or if they limit the ability of small local lenders to compete with large national financial institutions. Further, if the use of CLOS results in increased consolidation in the mortgage market, the availability of credit throughout the country may be adversely affected.

Unfortunately, representatives from the Department of Housing and Urban Development could not be here today to discuss this issue. Their testimony would have been instructive since HUD has been grappling with this issue for several years. I plan, however, to solicit their views on this issue later this fall.

I look forward to the testimony of our witnesses.

This is in response to your letter of July 23, 1990, inviting me or my designee to testify at a hearing on the Real Estate Settlement Procedures Act (RESPA), which is now scheduled for August 8, 1990. I understand that the principal focus of the hearing will be issues pertaining to computerized loan

origination systems (CLOS) and controlled business arrangements. I regret that neither I nor my designee, General Counsel Frank Keating, will be available to testify at the hearing.

As you know, the Department has to date deferred final regulatory action on those issues that will be the main focus of your hearing. We have done so, in large measure, because both you and Senator Garn have previously expressed to HUD the concern that such action should not be taken prior to an examination of these issues by the appropriate committees of Congress.

Be assured that we share your Subcommittee's interest in ensuring that the RESPA statute and regulations appropriately protect consumer interests. Accordingly, at my direction and under the guidance of General Counsel Keating, we are actively evaluating a number of potential approaches to some of the most important of these consumer-related issues, including CLOS, controlled business arrangements, referral fees and escrow accounts. We intend to propose a regulatory agenda in the near future that will provide consumers with sufficient protection and at the same time provide the least costly and most effective means of obtaining mortgage credit.

The Department is also committed to enforcing vigorously existing RESPA regulations and to ensure that illegal kickback and referral schemes are fully investigated and, if appropriate, prosecuted by the Justice Department. A number of such investigations are already ongoing.

We will be pleased to appear before your subcommittee at a future date, preferably in the Fall. At that time, we will be