Hearing held by the Subcommittee on
Housing and Community Development
August 8, 1990

"Real Estate Settlement Procedures Act (RESPA)

Questions for Mr. Norman D. Flynn from Chairman Henry B. Gonzales:

QUESTION (1):

How do the financing terms under computerized loan
systems compare to terms that homebuyers can obtain
without the program system.

Do you have hard data which would show that the terms are
the same, regardless of whether the homebuyer is referred
to a computer system or not?

ANSWER:

As to the financing terms, a borrower would obtain the same financing terms whether that person went to a traditional lender or obtained a loan from a mortgage broker who represented a group of lenders on a computerized loan origination (CLO) system.

Because the pricing is so competitive among lenders and changes so frequently, it is difficult to obtain any given time, data which could be considered to be legitimate hard data. The NATIONAL ASSOCIATION OF REALTORS® does, however, have documentation from REALTORS® who have been using CLO systems for four years, in which the borrower is guaranteed through a written statement issued by the lender that the financing terms will be the same regardless of whether the loan is obtained through the CLO system or the lender directly. Moreover, REALTORS®' experience with CLO systems in Ohio has proven that lenders will lower their rates in order to remain competitive with the other lenders who are participating in the CLO system.

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QUESTION (2):

The REALTORS are charged with doing the underwriting of
these loan applications when the loan applicant seeks
financing.

Are there rules to ensure that the REALTOR is qualified
to do the required underwriting work associated with a
computerized loan system?

ANSWER:

The loan underwriting function and the application and compilation of the loan package function are two separate and distinct stages of the process of making a loan. of the computerized loan origination (CLO) systems on the market today, none involve real estate licensees in the loan underwriting decisionmaking process.

QUESTION (3):

It is in the interest of the REALTOR to speed the
processing of the loan while at the same time upholding
his fiduciary duty to the seller to find a qualified
buyer who can obtain financing.

Once these computerized loan systems are in place, what
rules are in place to assure the buyer will obtain the
best terms possible and not simply the fastest terms
possible? Does the broker have any fiduciary duty to the
buyer with respect to the best possible terms?

ANSWER:

borrower, under any

There are no rules to guarantee that a circumstances, will get the "best terms" possible. However, the Federal government has several sets of laws in place, including the Truth in Lending Act and the Real Estate Settlement Procedures Act, which provide sufficient protection at the federal level, and many states have enacted even more stringent consumer protection laws. In the case of a buyer broker, there would be a fiduciary duty to find the best loan terms for the borrower's needs. In other situations, a real estate licensee acting as a loan processor would not have a fiduciary responsibility to the borrower to find the best possible loan terms. There are, however, no established requirements in any sales situation where the person selling a product has a duty to inform a buyer of a better deal from a competing vendor. At least in the case of CLO systems, the possibility of getting the best deal in the market is substantially increased since the borrower has access to more information about the market i.e., lenders and their mortgage products available on one computer screen.

in the market

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