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Arrow, James Steven, additional material

Citicorp Mortgage, Inc., supplemental comments to testimony given before

the Subcommittee on Housing and Community Development..........

Gonzalez, Hon. Hemry B.:

Letter from HUD Secretary Jack Kemp dated August 2, 1990.........
Letter from James R. Maher, executive vice president, American Land

Title Association, dated August 17, 1990,

Questions to Mr. Druger






Real Estate Settlement Procedures Act

Wednesday, August 8, 1990



Washington, DC. The subcommittee met, pursuant to call, at 9:30 a.m., in room 2128, The Rayburn House Office Building, Hon. Henry B. Gonzalez (chairman of the subcommittee] presiding.

Present: Chairman Gonzalez.

Chairman GONZALEZ. The subcommittee will please come to order.

First and foremost, let me thank the witnesses for having accepted an invitation to come here this morning fully realizing that the Congress would be in break and it would be a hard thing to get a lot of the Members.

However, each Member of the subcommittee, as we have in the past, will have within a day or two, will have a copy of all the testimony, and a letter from me of transmittal explaining some things.

Let me point out that this is a formal subcommittee hearing. The issue is important. I announced at least 2 weeks ago, 3 weeks ago after having consulted with the minority leader that it was my intention to work during the break. My conviction is that these are times that don't call for business as usual.

The Congress as such has long been a source of worry to me in its procedures and its multiple layers of committees, subcommittees and even task forces, which tend to confuse and sometimes actually obstruct the efficient handling of legislation. But that is another issue, and will have to be addressed at another time under another circumstance within the confines so to speak of the majority party.

It is the majority party that organizes and controls and decides agendas and it has been a matter-I have raised the issue almost since the time I came here so that I begin to believe that now it is, what is really an intrainstitutional matter is becoming a little bit more obvious or at least there is some sensitivity to those who are not part of this world that something has to shape up now.

It also combines with very historical and unprecedented issues that actually test the very basis of our constitutional structure.

We have had disarray in the executive branch for some time. The disarray in the legislative or the policy-making branch is not as obvious because it is something that is really confined to this peculiar world. But there have been hearings since I have been chairman of this subcommittee in which I would find myself alone presiding over a hearing sometimes lasting until 6:30, 7 p.m. So I am no stranger to this and reminded my colleagues that even when there was less pressure I couldn't convince even one to stay to pull in. So I think this is very important in view of the fact that we have a conference on housing and housing related matters as soon as the Congress formally comes back on September the first.

Today we begin the first of a series of hearings on the Real Estate Settlement Procedures Act of 1974 and I was here in 1974 and I was a Member of the subcommittee in 1974 when we had a few hearings then.

In May 1988, HUD proposed to make changes in the regulations implementing RESPA. I do believe it is appropriate for Congress to review recent changes in the real estate market before any further regulatory actions are taken.

Today's hearings will cover the developments of computerized loan originated services, the applicability of RESPA to these services and the affects of such services on the consumer.

First, this issue, although it has generated a great deal of controversy within the real estate and mortgage banking industries, is one that we approach with know preconceived or predetermined thinking or feelings or conclusions. RESPA was originally enacted because of Congressional concerns about some operations-of course, you always have to have something that attracts news, kickbacks at that time, some abusive practices in some of the States, the plethora of delivering standards and different jurisdictions, and it was conceived as a consumer protection statute.

We are here to learn more about the CLO systems and to assess their potential impact, both beneficial and otherwise, on the con


The computerized services that are accessed through a computer terminal placed in a real estate office is, of course, as in other aspects of financial transactions, an introduction to the new world that has resulted since the war. 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 prequalification analysis and the preparation and submitting of a loan application on behalf of the buyer. Sometimes the act is compensated by the lender for these services, sometimes by the buyer.

One of the issues we will be exploring in these hearings is the applicability of RESPA to the payments made to the real estate agents in connection with the CLOS. RESPA prohibits the payment of referral fees or kick backs. However, payment 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, the relationships between the agents, the odds of the systems and the lenders whose products are marketed over these systems.

In reviewing these systems and related control 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 the seller in a single transaction.

Finally, I am curious about effects 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 the issue. Their testimony would have been instructive since HUD has been grappling with this issue for several years. However, we will solicit their views on this issue later and look forward to the testimony of the witnesses.

Two Members had indicated they would attempt to be here so they may come in after while, but in the meanwhile, I think with the number of witnesses we have, we ought to proceed as expeditiously as possible.

So thank you for your patience in listening to these opening introductory remarks.

I want to thank this panel and the rest. We have actually three panels today. If the witnesses find it convenient, why don't we hear from you in the order that you are listed.

I think we have Mr. Len Druger, vice president of the Citicorp Mortgage, Inc., from St. Louis, MO, listed first. Then Mr. Stan Gordon of Gordon & Drysdale, representing The Prudential Real Estate Affiliates, Inc., and Mr. James Merrion, senior vice president of Coldwell Banker Residential Group, and Mr. Norman D. Flynn, president, National Association of Realtors, located here in DC.

Let me say that this makes Mr. Flynn's appearance before the subcommittee or the committee, I would say about 3 or 4 in a matter of 3 weeks or so. We are deeply grateful for your continued and sustained cooperation with the subcommittee and the full committee.

If there is no objection, why don't we recognize Mr. Druger first.

[The prepared statement of Chairman Gonzalez can be found in the appendix.] STATEMENT OF LEONARD N. DRUGER, VICE PRESIDENT,


We appreciate the opportunity to be here today and to share with you our view of the mortgage industry and what Citicorp is doing, Mr. Chairman.

As a leader in the mortgage business, Citicorp is at the forefront of the change and innovation this industry is experiencing.

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