September 1, 2010
Regulations Division
Office of General Counsel
Department of Housing and Urban Development
451 7th Street, S.W.
Room 10276
Washington, D.C. 20410–0500
RE: Real Estate Settlement Procedures Act (RESPA): Strengthening and Clarifying RESPA’s
‘‘Required Use’’ Prohibition Advance Notice of Proposed Rulemaking, 24 CFR Part 3500
[Docket No. FR–5352–A–01] RIN 2502–A178
Dear Sir/Madam:
On behalf of the Real Estate Settlement Providers Council, Inc. (RESPRO®), I am submitting
comments on the above-referenced Department of Housing and Urban Development’s (HUD)
Advanced Notice of Proposed Rulemaking (ANPR).
I. Summary of RESPRO® and Our Comments
RESPRO® is a national non-profit trade association of approximately 175 companies from
throughout the residential home buying and financing industry, including real estate
broker-owners, homebuilders, mortgage lenders/brokers, title agents/underwriters, and
other settlement service providers (see Appendix for Membership List). The bond that
unites our members is that they support a federal and state regulatory environment that
promotes the delivery of convenient, innovative, and cost-efficient settlement services for
home buyers and owners through affiliated businesses and other strategic alliances across
industry lines.
Our members also support a RESPA regulatory environment that treats providers among
the various industries equally, regardless of their industry or affiliation. In that respect,
RESPRO® provides them a forum to negotiate their differences as competitors on issues that
potentially could favor one segment of the housing industry over another. 1
RESPRO® is aware that many of our homebuilder members have or will submit comments to
HUD that answer specific questions in the ANPR about their practices when offering
consumer incentives on new homes, and, therefore, we will defer to them on these
1 As an example, RESPRO® members in October 28, 2002 comments to HUD proposed that HUD
replace its “Single Package” approach towards RESPA reform with a “Dual Package” approach
that would allow companies to separately offer a package of title/settlement services at one
uniform price. While HUD in its 2004 final RESPA rule adopted some elements of the “Dual
Package” approach, it failed to adopt all of its necessary elements. HUD withdrew the final rule in
March 2004 before its publication.
questions. In our comments, we will represent all of our members – including homebuilders,
real estate brokers, and other settlement service providers that often offer incentives to
consumers who purchase their affiliated services – by responding to questions asked by
HUD regarding the general issue of consumer incentives and affiliated businesses.
II. RESPRO®’s Position on Consumer Incentives
RESPRO® has long supported a definition of “required use” under RESPA that would allow
providers in all segments of the home buying and financing industries to offer voluntary,
genuine incentives to consumers who purchase their affiliated settlement services.
In 1992, we strongly supported a final regulation published by HUD on November 2, 1992
that established the first regulatory framework for affiliated businesses under RESPA. This
regulation adopted the current definition of “required use”, which clarifies that discounts,
rebates, or other incentives offered by providers to consumers who purchase their affiliated
settlement services are not a "required use" (and therefore allowable) as long as the
affiliated services being referred are optional (e.g., they don’t have to be purchased), as
long as all services are separately available at prices generally available from that
provider, and as long as the incentive is genuine -- meaning it is not offset by increasing
prices of other services in the transaction.
As part of a more comprehensive March 14, 2008 RESPA regulation, HUD proposed to
modify this longstanding definition of “required use” in order to ban incentives offered by
any provider to consumers who purchase its affiliated settlement services, with one narrow
exception.
RESPRO® strongly objected to this Section of HUD’s proposed RESPA rule in our June 12,
2008 regulatory comments to HUD because it (1) would have prohibited many consumer
incentives offered by homebuilders and real estate brokers in today’s marketplace that
provide consumers with lower costs and/or better service2; (2) was based on
unsubstantiated and anecdotal evidence about alleged abuses; (3) attempted to
address violations that already are prohibited under RESPA, and (4) was based on an
inaccurate reading of anti-trust laws.3
RESPRO® also expressed its objections to this proposed revised definition of “required use”
in a meeting with officials at the Office of Management and Budget (OMB) during its final
review of HUD’s draft Final Rule, and in testimony before the U.S. House of Representatives’
Subcommittee on Oversight and Investigations of the Committee on Financial Services at
2 HUD proposed to create a narrow exemption for “The offering by a settlement service provider of
an optional combination of bona fide settlement services to a borrower at a total price lower than
the sum of the prices of the individual settlement services.” See 73 Fed. Reg. 14056. As RESPRO®
pointed out in its June 12, 2008 comments to HUD, this exception was so narrowly drafted that the
proposed definition of “required use” would have totally prohibited anyone from offering any type
of consumer incentive for the purchase of affiliated mortgage, title, or other settlement services.
3 RESPRO® also provided information to correct the record with regard to HUD’s Regulatory Impact
Analysis’ discussion of “Reverse Competition, Referral Fees, and Controlled Businesses”, which we
stated was so outdated, incomplete, and inaccurate that we questioned whether it received
adequate Departmental review before being published.
its hearing on HUD’s proposed RESPA rule.4 Through our comments to HUD, meetings, and
Congressional testimony, RESPRO® explained the reasons why our real estate broker and
homebuilder members offer consumer incentives and we provided concrete examples of
incentive programs that provided tangible benefits to our members’ customers.
HUD’s final RESPA rule allowed “settlement service providers” to continue to offer incentives
for the purchase of affiliated services. For example, under HUD’s final rule it would not be a
required use for a real estate broker – which is a “settlement service provider”-- to offer an
incentive such as a $500 Lowes Gift Certificate to consumers who chooses to use its
affiliated mortgage or title company.
However, HUD’s final rule completely prohibited non-settlement service providers (e.g.,
homebuilders) from offering any incentive to consumers who use their affiliated settlement
services, even an incentive that is optional, positive, and clearly genuine. RESPRO®
objected to this final rule in April 9, 2009 comments to HUD for a variety of reasons,
including the fact that the rule was based on biased and unsubstantiated evidence about
the alleged problems and practices in the marketplace.
.
III. Consumer Incentives in Today’s Marketplace
Over the last two decades, homebuilders5 and real estate brokerage firms6 increasingly
have recognized the value of assuring that each transaction is done as quickly and
efficiently as possible by an affiliated company that they own or partially own.
A homebuilder’s or real estate brokerage firm’s affiliated mortgage and settlement service
businesses are able to conduct transactions with greater efficiency because they often
have integrated platforms that allow them and their affiliated companies to communicate
with each other, resulting in a quicker closing process. The buyers’ names, addresses,
telephone numbers, the name and address of the lender, the property address, the sellers’
names, and the date and place of the closing are types of information which all
settlement service providers require to render their services. Having the information
available on a common platform reduces the time to complete the transaction and
reduces the likelihood that errors will be made by separate entries on different computer
systems.
4 Testimony of RESPRO® before the U.S. House of Representatives Subcommittee on Government
Oversight, September 16, 2008.
5 In 2004, all of the top ten homebuilders had affiliated mortgage and title businesses. The top 11 to
150 homebuilders had increased their participation in the mortgage business from 59% in 1999 to
76% in 2004, and had increased their participation in the title business from 38% in 1999 to 83% in
2004. Significant Changes Found and Expected in the Way Houses are Bought and Sold, by
Weston Edwards & Associates (March 2004).
6 Of the top 350 realty firms in the country, 88% offered mortgages in 2004 versus 72% in 1999. The
most significant jump was among the smaller firms (the top 251 to 350), whose participation went
from 56% percent to 87%). The top 50 realty firms increased their participation in the title insurance
business from 59% in 1999 to 69% in 2004 and in other closing services from 16% to 4%. The smaller
firms (the top 251 to 350) increased their participation in the title insurance business from 24% in
1999 to 55% in 2004, and in other closing services from 2% to 16%. Significant Changes Found and
Expected in the Way Houses are Bought and Sold, by Weston Edwards & Associates (March 2004).
If a mortgage or title service issue arises, a homebuilder or real estate broker is better able
to use its affiliated settlement service businesses to resolve those issues in an expedient
manner better than an unaffiliated company with which it has no previous relationship.
The value of their affiliated mortgage and/or title or other settlement service companies
have only increased in today’s housing market, as an increasing number of mortgage
originators have failed and as homebuilders and real estate brokers have recognized the
increased importance of using their affiliated mortgage and title companies to get each
transaction to closing. RESPRO® members have reported a significantly increased number
of transactions in the pipeline that lost their funding because the mortgage or title
company used by the consumer in the transaction had closed its doors. In each case,
they had to bring their affiliated mortgage and title companies in to close the transaction.7
Homebuilders have additional risks if the buyer does not use their affiliated provider or at a
minimum, a “preferred provider” that could be an outside provider who has dedicated
personnel working with the builder. A builder could commit hundreds of thousands of
dollars for each home on a contract offer that is usually backed by two things: a small
earnest money deposit and a prequalification letter from a lender stating the buyer’s
creditworthiness. The earnest monies cannot in most cases service a builder’s debt
incurred during construction if the buyer fails to complete the purchase. Prequalification
letters don’t contain a penalty for misstatement or misrepresentation on the part of the
lender, nor can they make allowances for changes in a buyer’s circumstances during the
often lengthy construction process.
If the buyer ends up not making the purchase, if the closing is significantly delayed
because the mortgage originator’s statements regarding the buyer’s ability to complete
the transaction prove incorrect, or if the mortgage originator has gone out of business, the
consumer could suffer financially and emotionally because of the potential need for
storage, temporary housing, and/or an additional move. The homebuilder also would lose
significant amounts of money in the form of carried construction costs that would need to
be passed on to other consumers.
IV. The Costs of Affiliated Versus Unaffiliated Businesses
HUD asks if there is evidence that consumers who use affiliated lenders pay higher rates of
interest or higher closing costs than those that use unaffiliated lenders.
RESPRO® commends HUD for specifically asking for empirical evidence on the costs of
affiliated versus unaffiliated mortgage loans. This is a far more thoughtful approach
towards rulemaking than it took in its March 14, 2008 proposed RESPA rule, when it
attempted to justify a total ban on consumer incentives by referring to an unsupported
This is reinforced in a December 2007 national survey of 2400 real estate agents by Campbell
7
Communications on how the current housing market has affected their business. The agents
reported that more than one-third of home purchase transactions over the last three months had
either been postponed or failed due to a tightening of underwriting standards and the elimination
of many previously popular mortgage programs. Significantly, approximately 40% of those
surveyed indicated that they have modified their mortgage recommendation practices in light of
the ongoing shakeup in the mortgage industry. The most common change was to more frequently
recommend their real estate broker’s preferred mortgage company. “How Agents View Lender
Relationships in Stressed Markets”, Campbell Communications (www.campbellsurveys.com),
December 2007.
statistic provided by the National Association of Mortgage Brokers (NAMB) – which
represents companies that compete against homebuilder-based mortgage companies --
that their loan rates were ½% higher than those offered by unaffiliated companies.8
Nevertheless, it would have been extremely difficult if not impossible before HUD’s
September 1, 2010 comment deadline to quantify with any statistical validity the mortgage
origination costs of affiliated versus unaffiliated loans, for two reasons.
First, mortgage origination costs are unlike title and closing costs, which are generally fixed
fees or percentages tied to the value of the home. Instead, mortgage origination costs
vary according to based on the creditworthiness of the borrower and the interest rate
market as of the day the loan is locked. It would be extremely difficult to accurately
compare multiple borrowers’ mortgage origination prices without also being able to
control for differences in creditworthiness and the timing of when they locked their rate.
Second, until HUD’s new HUD-1 Settlement Statement took effect on January 1, 2010, there
was no documented information on final mortgage origination costs, which made it
virtually impossible before that time to even obtain evidence of affiliated versus
unaffiliated final mortgage origination costs of any scale, outside of published rates that
typically are the rates available to the most creditworthy borrower for certain loan
products.9
With regard to whether consumers who use affiliated title/settlement service providers pay
higher closing costs, we offer two studies by independent economists that conclusively
demonstrate that title and title-related costs of affiliated businesses – which have always
been disclosed on the HUD-1 Settlement Statement -- are competitive to those of
unaffiliated businesses.10
The latest economic study, performed by The CapAnalysis Group, Inc. in 2006, analyzed
over 2200 HUD-1 Settlement Statements from transactions conducted in nine states
(Alabama, Illinois, Maryland, Michigan, Minnesota, North Carolina, Ohio, South Carolina
and Virginia) in 2003 and 2005.11 The study concluded that title premiums and title-related
8
Regulatory Impact Analysis accompanying HUD’s March 14, 2008 proposed Real Estate Settlement
Procedures Act (RESPA) rule.
9 Even though the new HUD-1 Settlement Statements include information on the interest rate, it still
lacks complete information about the mortgage loan (e.g., it does not include the credit score of
the applicant).
10 While these studies were commissioned by RESPRO® and used data supplied by RESPRO®
members, they were performed by independent economic firms that used industry-accepted
practices in the collection and assessment of empirical data. No RESPRO® staff person or RESPRO®
member reviewed the accumulative data collected from HUD-1 Settlement Statements or had
input into the study conclusions. The data collected was from RESPRO® members because they
had customers who purchased both affiliated and unaffiliated title and title-related services, which
enabled them to collect enough data on both types of transactions to develop statistically valid
conclusions.
11
Affiliated Business Arrangements and Their Effects on Residential Real Estate, The CapAnalysis
Group, Inc. (2006). The states from which the data were collected were chosen because they had
no laws or regulations that significantly restricted affiliated businesses during the time periods of the
study (2003 and 2005), and because there was enough of a RESPRO® member presence in those
settlement closing charges are not higher when affiliated business arrangements are
involved compared to when they are not; and that the growth of affiliated businesses has
provided pro-competitive benefits to consumers, such as the convenience of one stop
shopping, more accountability or control over the transaction, better service, and greater
speed in closing the transaction.
The other economic study on the costs of affiliated versus unaffiliated title and title-related
costs was performed by the independent economic consulting firm of Lexecon, Inc. in
1994. Lexecon found that title and title-related services for transactions performed by
affiliated title companies in seven states – Florida, Minnesota, Tennessee, Wisconsin,
Mississippi, Pennsylvania, and California – were competitive with those provided by
unaffiliated title companies.12
Significantly, HUD noted in an Economic Analysis accompanying a 1996 final RESPA
regulation that the Lexecon Study was actually biased against affiliated businesses.
Specifically, HUD said:
“HUD is aware of only one study that compares prices of settlement services provided
by affiliated and non-affiliated firms. RESPRO®, an association of controlled businesses,
commissioned a study by an independent contractor, Lexecon, Inc ... [The study may
be] biased in favor of the unaffiliated firms. Therefore, the [study] results might suggest
that affiliated firms on average have lower prices than their competitors.” 13 (Emphasis
added).
RESPRO® would be glad to provide these studies in their entirety to HUD at its request.
V. The Affiliated Business Disclosure’s Impact on the Consumer’s Ability to Shop
HUD asks two questions about the currently-required RESPA Affiliated Business Disclosure,
which anyone who refers business to an affiliated settlement service provider is required to
be provide to the borrower at or before the time of any referral and to obtain a written
acknowledgment of receipt:
(1) Whether there is data on the extent to which the current affiliated business disclosure
encourages consumers to comparison shop with nonaffiliated service providers before
signing contracts; and
(2) Whether the affiliated business disclosure can be improved to inform consumers of
the advantages and disadvantages of affiliated lending practices.
RESPRO® is not aware of any specific data that has been developed on the extent to
which the affiliated business disclosure encourages consumers to comparison shop. In
fact, any data collected before HUD’s new Good Faith Estimate (GFE) and HUD-1
states to assure a reasonable data sample.
12 Economic Analysis of Restrictions on Diversified Real Estate Services Providers, Lexecon, Inc. (1995).
13 HUD’s Regulatory Impact Analysis accompanying HUD’s June 7, 1996 final Real Estate Settlement
Procedures Act (RESPA) regulation governing affiliated business arrangements.
Settlement Statement became effective on January 1, 2010 – whether on affiliated or
unaffiliated businesses -- would now be outdated in view of the fact that HUD’s primary
purpose for developing these new RESPA disclosures was to help consumers better
understand their loan terms so that they can shop more effectively14. Specifically, HUD’s
new RESPA regulation (1) required that the GFE disclose, for the first time, the costs
associated with the origination of the mortgage loan; (2) required that the GFE be
provided to potential borrowers within three business days of the taking of a mortgage
application; (3) identified for the consumer the period of time in which the terms of that
particular GFE are available, which can be no less than ten business days from when it is
provided; and (4) restructured the HUD-1 Settlement Statement to make comparisons
between the GFE and the HUD-1 simpler so that borrowers can more easily determine
whether the final charges on the HUD-1 are the same or different than as disclosed on the
GFE.
With regard to the content of the affiliated business disclosure, HUD requires in its RESPA
regulations that a person who refers business to an affiliated company states the following,
in capital letters:
“THERE ARE FREQUENTLY OTHER PROVIDERS WHO OFFER THE SAME SERVICES, AND YOU
SHOULD SHOP AROUND TO SEE THAT YOU ARE GETTING THE BEST SERVICES AT THE BEST
RATES.”
Significantly, this disclosure is not provided to borrowers who are referred to unaffiliated
settlement service providers, even if that provider is a family member or friend or even if
that provider is accepting things of value that are illegal under RESPA.
We do believe, however, that the foregoing language in the affiliated business disclosure
creates a perception that the person referring business is guaranteeing that his/her
company has the best rates or the best services. In reality, borrowers need to make a
variety of decisions when choosing their loan product sand settlement services and often
choose not to accept a service for a lower rate or choose to accept a higher rate for
additional services or conveniences. As long as the borrower is aware that they can shop
and have the information needed for effective comparison shopping, this should be
allowed. Therefore, RESPRO® believes that this language should be changed to say the
following:
“THERE ARE FREQUENTLY OTHER PROVIDERS WHO OFFER THE SAME SERVICES, AND YOU
SHOULD SHOP AROUND TO SEE THAT YOU ARE GETTING THE SERVICES AND RATES THAT
ARE MOST SUITABLE FOR YOUR CIRCUMSTANCES.”
VI. State and Local Experience
HUD specifically asks for information on state and local regulations “regarding practices
that steer consumers to overpriced settlement service providers, as well as provide
information about successful and unsuccessful means of preventing such abuse.” It then
asks what the impact of state and local regulatory enforcement “in this area”.
14
See HUD News Release, “HUD Proposes Mortgage Reform to Help Reform to Help consumers Better
Understand Their Loan, Shop for Lower Costs” (March 14, 2008) and HUD News Release, “HUD Issues
New Mortgage Rules to Help Consumers Shop for Lower Cost Home Loans” (November 12, 2008).
Given that the ANPR specifically is focused on “required use” and on homebuilder
incentives, we are confused by the vagueness of this question and trust that HUD is not
assuming that homebuilder incentives or affiliated businesses are per se “practices that
steer consumers to overpriced settlement service providers”, since, as discussed above, all
empirical evidence to date has demonstrated that costs of affiliated businesses are
competitive with those of unaffiliated businesses. However, since RESPRO® has monitored
the state regulatory environment governing affiliated businesses for almost twenty years,
we will provide an overview of state regulatory history and current requirements in this
area.
A. State Regulation of Homebuilder Incentives
To our knowledge, no state has adopted legislation or regulations that specifically
restrict homebuilders from offering incentives to borrowers who purchase affiliated
mortgage and settlement service products beyond the current restrictions in RESPA
and HUD RESPA regulations.15 Legislation and/or regulations that would impose such
restrictions have been proposed in a handful of states – primarily at the request of
mortgage brokers who compete with homebuilder-affiliated businesses – but have
been rejected when opponents of the proposal pointed out that RESPA and HUD
RESPA regulations require that all incentives offered to consumers for the purchase of
affiliated business be voluntary and genuine.
Recently, however, the North Carolina Office of the Commissioner of Banks (NCCOB)
and several homebuilder-affiliated mortgage companies negotiated a Letter of
Agreement in which the NCCOB agreed to replace a proposed regulation banning
all homebuilder incentives for the purchase of affiliated mortgage loans with a
proposed regulation with limitations on the amount and types of incentives that can
be offered. This Letter of Agreement is discussed further below in Section VII.
B. State Regulation of Affiliated Title Businesses
Because the primary regulation of the title industry has been at the state level, most
state laws governing affiliated businesses have governed affiliated title businesses.
When homebuilders, real estate brokerage companies, and mortgage lenders
expanded their presence in the title industry in the early 1980s, their unaffiliated
competitors were successful in convincing several state legislatures and regulators to
adopt “percentage cap laws” that restricted the amount of business that a title
company could receive from an affiliated real estate brokerage firm, homebuilder,
mortgage lender, or other settlement service provider.
These state percentage cap restrictions were designed by the competitors of
affiliated businesses either to drive affiliated title operations out of their states -- which
15
Some states have adopted so-called “anti-inducement” laws/regulations that prevent real estate
brokers/agents from offering inducements or rebates to consumers. These laws have been
consistently opposed by the Department of Justice and the Federal Trade Commission. For a
summary of these laws, see the Department of Justice’s “Competition and Real Estate web page
at http://www.justice.gov/atr/public/real_estate/states_map.htm.
they often did to the detriment of consumers in those states16 -- or to capture a
significant portion of their business. The caps were arbitrarily and artificial,
disregarding whether a title company provided legitimate and competitive title and
title-related services to the public.
As the actual and potential benefits of affiliated title businesses became more well-
known, this “percentage cap” approach lost favor among federal and state
regulators to less arbitrary and less anti-competitive methods of regulating affiliated
businesses.
In 1983, the U.S. House of Representatives’ Banking Committee rejected an
amendment to RESPA advocated by competitors of affiliated title businesses that
would have prohibited settlement service providers from receiving more than 20% of
their gross revenues from affiliates. In a voice vote, the Committee voted in favor of
an amendment offered by Congressman Barney Frank (D-MA) that would strike the
percentage cap restriction in the draft legislation and replace it with the three
affiliated business requirements (disclosure, no required use, no prohibited payments)
that still is the law today.
After extensive testimony and discussion concerning affiliated title business
arrangements during its 1993-1995 review of the Model Title Insurers Act and Model
Title Insurance Agency Act, the National Association of Insurance Commissioners’
(NAIC) Title Insurance Working Group decided to drop its former recommendation of
a 20% cap on the amount of gross revenues that a title insurer or agency could
receive from an affiliate, and instead to present it as an optional state regulatory
approach along with two other options: (1) a state law modeled after RESPA that
requires disclosure of the financial interest, no required use, and no payments
otherwise prohibited under RESPA; or (2) a requirement that all title agents to be
bonded, satisfy training criteria, and/or carry errors and omissions insurance.
Since that time, individual state legislatures and regulators have favored a less
arbitrary and artificial approach towards regulation in this area. Over the last several
years, legislatures or regulators in Delaware, the District of Columbia, Massachusetts,
Mississippi, Montana, North Carolina, North Dakota, Rhode Island, South Dakota, and
Virginia have repealed their percentage cap limitations.17 In 2007, the Kansas
legislature amended its law to increase the amount of business a title agency can
obtain from an affiliated business from 30% to 80%18, and in 2009 held hearings on
proposed legislation to eliminate the percentage cap altogether.
16 In a 1992 study on the costs of affiliated title businesses in the Minnesota-St. Paul, Minneapolis
marketplace, Anton Economics, Inc. also researched title and closing rates in Wichita County,
Kansas before and after the effective date of a 1989 Kansas law (which took effect in 1992) that
placed a 20% cap on the amount of business that title agencies could obtain from affiliated
businesses, which caused all real estate broker-owned title companies in Kansas to shut down.
Anton Economics found that the two largest unaffiliated title companies in Wichita County raised
their rates 50-60% in the next rate filing after the effective date of the Act, depending on the
service.
17
2007 Survey of State Affiliated Business Laws (RESPRO®).
18 Id.
Over the last few years, two states have rejected proposed legislation promoted by
unaffiliated title agencies to place a percentage cap on the amount of business a
title agency could obtain from affiliates, choosing instead to enact a law providing it
with the ability to more effectively enforce HUD’s Sham Joint Venture Guidelines.19 In
2006, the Colorado legislature rejected legislation promoted by unaffiliated title
agencies to place a percentage cap on the amount of business a title agency could
obtain from affiliates, choosing instead to enact a law providing it with the ability to
more effectively enforce HUD’s Sham Joint Venture Guidelines.20 In 2007, the Ohio
Department of Insurance chose to reject a draft regulation to lower the amount of
voting stock that a “prohibited party” (e.g., a real estate broker, developer, mortgage
originator) could own in a state-licensed title agency in favor of a regulation that
would incorporate HUD’s Sham Joint Venture Guidelines into Ohio title regulations.21
C. State Regulation of Affiliated Mortgage Businesses
Whether affiliated or not, all mortgage brokers and loan officers are covered by the
federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act),
which required all 50 states within one year from the date of enactment to pass
legislation requiring the licensure of mortgage loan originators according to national
standards and the participation of state agencies on the Nationwide Mortgage
Licensing System and Registry (NMLS). The SAFE Act was designed to enhance
consumer protection and reduce fraud through the setting of minimum standards for
the licensing and registration of all mortgage loan, affiliated or unaffiliated
VII. Benefits From One-Stop Shopping
HUD asks whether there is any way to quantify the benefit to home buyers of one-stop
shopping, and whether there is any evidence that homebuyers derive greater benefit from
one-stop shopping “than from comparison shopping for the best loan terms and
settlement costs.”
Once again, we question the terminology used in HUD’s question since the fact that a
homebuyer chose the benefits of one-stop shopping does not mean that the homebuyer
did not comparison shop or that they did not get the best loan terms and settlement rates.
Nevertheless, one of the best ways to quantify the benefit to home buyers of one-stop
shopping is through surveys of potential and recent home buyers.
The most detailed survey of homebuyers and one-stop shopping that RESPRO® is aware of
was performed by Harris Interactive (the parent of Harris Polls) for Murray Consulting in
2002. In an on-line survey of 2052 recent and future homebuyers, Harris Interactive first
asked the recent homebuyers whether they purchased certain services (real estate,
mortgage, title, home insurance, home inspection, and home warranty) from one source
or from multiple sources, and then separately asked how satisfied they were with the
overall home purchase transaction and with how satisfied they were with each service
19 2007 Survey of State Affiliated Business Laws, Real Estate Services Providers Council (RESPRO®).
20 2007 Survey of State Affiliated Business Laws, Real Estate Services Providers Council (RESPRO®).
21 Id.
received. The survey found that homebuyers who had used one-stop shopping had a
more satisfactory experience not only with their overall home purchase experience (71 vs.
64%), but also in all of the individual service areas.22
In 2008, Harris Interactive conducted a national survey of over 2000 home buyers
nationwide on behalf of the National Association of Realtors (NAR). It concluded that 93%
of home buyers would consider using a simplified, one-stop shopping process either
strongly, somewhat, or a little and that the biggest perceived advantages are saving
money because of discounted prices (77%), increased efficiency and manageability
(73%), convenience (73%) and things not falling through the cracks (73%). Harris Interactive
also found that home buyers who used one-stop shopping in their latest real estate
transaction are more satisfied with their home buying experience and are more likely to
prefer affiliated services, and that one-stop shoppers were more satisfied with their overall
experience than those who used multiple sources.23
HUD and the Federal Trade Commission (FTC) also have recognized the benefits of one-
stop shopping that affiliated businesses provide. HUD has made the following statements
concerning the benefits of affiliated businesses and one-stop shopping:
“[T]here is some reason to expect that referrals among affiliated firms may reduce
costs to businesses and consumers. Businesses may benefit from lower marketing
costs and the ability to share information on the home purchase or refinancing
among settlement service providers. In the long run, any cost savings should be
passed on to consumers in most cases. Consumers may benefit additionally from
reduced shopping time and related hassles.”24
“Controlled business arrangements and so-called ‘one-stop shopping’ may offer
consumers significant benefits including reducing time, complexity, and costs
associated with settlements.”25
The staff of the Federal Trade Commission’s Bureau of Consumer Protection, Bureau of
Economics, and Office of Policy Planning (FTC staff) pointed out to HUD during a recent
RESPA rulemaking that consumer incentives can lower home purchase costs for
consumers:
“Bundling related services can create efficiencies in – lower the costs of – providing
those services, and discounting the bundle allows consumers to pay less for the
services. Indeed, HUD recognizes the potential benefits of bundling, and
appropriately retains a safe-harbor to allow settlement service bundling.26
22
“Consumer Perspectives on Realty-Based One-Stop Shopping”, Murray Consulting, April 2002.
RESPRO® can provide HUD a copy upon request.
One-Stop Shopping Consumer Preferences, Harris Interactive, February 2008.
23
24HUD’s Regulatory Impact Analysis accompanying HUD’s June 7, 1996 final Real Estate Settlement
Procedures Act (RESPA) regulation governing affiliated business arrangements.
25HUD’s July 21, 1994 proposed Real Estate Settlement Procedures Act (RESPA) regulation, 59 Fed.
Reg. 37360.
26Comments of the Staff of the Bureau of Consumer Protection, Bureau of Economics, and Office of
Policy Planning of the Federal Trade Commission, page 30 (June 11, 2008).
VIII. How Incentives and Disincentives Might Be Treated by HUD
HUD requests comments on the relationship between incentives to use an affiliated
settlement service provider and disincentives or penalties for using a nonaffiliated
settlement service provider, and how incentives and disincentives might be treated in any
new regulation.
As we stated in our June 12, 2008 and April 9, 2009 comments to HUD, RESPRO® does not
believe that it is necessary to restrict incentives to homebuyers for the purchase of
affiliated mortgage and settlement services beyond those under HUD’s current RESPA
regulations, which state that incentives offered by providers to consumers who
purchase their affiliated settlement services are not a "required use" (and therefore
allowable) as long as the affiliated services being referred are optional (e.g., they don’t
have to be purchased), as long as all services are separately available at prices generally
available from that provider, and as long as the incentive is genuine -- meaning it is
not offset by increasing prices of other services in the transaction. These regulations, if
enforced effectively, would prevent any abuses involving the offering of home buyer
incentives in today’s marketplace without preventing homebuilders and real estate
brokerage firms from offering incentives that are genuine, that leave the consumer with
the choice of his/her mortgage and/or title provider, and that can give the consumer
monetary benefits or better service if they choose the affiliated provider.
If HUD does choose to proceed with a proposed rule modifying the “required use”
definition under RESPA, we believe that it should consider as a possible baseline a July 2010
Letter Agreement between the North Carolina Office of the Commissioner of Banks
(NCCOB) and several homebuilder-affiliated mortgage lenders (Lenders) that was
negotiated after the NCCOB proposed a rule that, if adopted, would have prohibited the
offering of any incentive by a builder in exchange for the use of its affiliated lender.
In this Letter Agreement, the NCCOB agreed to withdraw its proposed prohibition on
homebuilder incentives and to propose a revised rule that would:
♦ Limit the total aggregate incentive provided by the homebuilder for the use of an
affiliated lender to 3% of the final sales price; and
♦ Limit the incentive(s) to the payment of reasonable and bona fide closing costs and
to the payment of bona fide discount points (interest rate buydowns).
The new rule would prohibit homebuilders from tying home sales prices or upgrades to the
use of the affiliated lender, and would require that any homebuilder incentives for the
purchase of the home be disclosed separately from any incentive for the use of its
mortgage lender.
Coupled with the current RESPA regulations governing consumer incentives, RESPRO®
believes that the standards set forth in this Letter Agreement would level the playing field
among providers who offer incentives to buyers of new and existing homes while still
allowing them to offer voluntary, genuine incentives that tangibly benefit the home buyer.
In addition, we recommend one other change to the “required use” definition. Currently,
the definition appropriately states that a consumer is not considered to be “required to
use” a particular settlement service if the consumer is not paying for the service. This is
based on the premise that if person referring business pays for the service or provides a free
service, he/she should be able to choose the service. In many situations, however,
providers are willing or only able to pay for the dominant share of a service (e.g., a
situation in which a provider is willing to pay for an owner’s title policy and give the
borrower a discounted simultaneous issue rate on the lender policy). It is currently not
clear that when a person offers to pay for the dominant share of a service that the
consumer who now has to pay far less than they otherwise could not still claim they are
being required to use the service. Therefore, we believe the “required use” definition
should be clarified to state that a situation in which a person pays the dominant share of a
services and selects that service is not a “required use” if the borrower has the option to
reject the offer and pay for the entire service at the normal cost.
RESPRO® appreciates the opportunity to provide these comments. If you have any questions,
you can reach me at sjohnson@respro.org or at 202-862-2051, Extension 210.
Sincerely
Susan E. Johnson, Esq.
Executive Director
RESPRO Membership List
2010
BOARD MEMBERS
Alliant National Title Insurance Investors Title Insurance Realogy Corporation
Company Company Parsippany, NJ
Longmont, CO Chapel Hill, NC Residential Mortgage, LLC
American Home Shield Latter & Blum/CJ Brown Mount Pleasant, SC
Memphis, TN New Orleans, LA Shelter Mortgage Company,
Baird & Warner, Inc. Long & Foster Companies LLC
Chicago, IL Chantilly, VA Brown Deer, WI
Bank of America National Real Estate Shorewest Realtors
Calabasas, CA Information Services Brookfield, WI
Cornerstone Mortgage Pittsburgh, PA Sibcy-Cline Realtors
Company North American Title Group Cincinnati, OH
Houston, TX Miami, FL Stewart Title Guaranty
DHI Mortgage Company Old Republic Home Protection Company
Austin, TX Co., Inc. Houston, TX
Eagle Nationwide Abstract San Ramon, CA Tenura Holdings, Inc.
Company Old Republic National Title Austin, TX
Chadds Ford, PA Insurance The Trident Group/Prudential
F.C. Tucker Company, Inc. Minneapolis, MN Fox & Roach
Indianapolis, IN Orange Coast Title Company Devon, PA
HMS National Santa Ana, CA Title Alliance, Ltd.
Fort Lauderdale, FL Prospect Mortgage, LLC Media, PA
HomeServices of America, Inc. Sherman, CA Weichert Companies
Edina, MN Prudential HomeSale Services Morris Plains, NJ
Howard Hanna Financial Group Wells Fargo Home Mortgage
Services Lancaster, PA Des Moines, IA
Pittsburgh, PA Prudential Real Estate & William E. Wood and
Howard Perry & Walston Relocation Services Associates
Realty, Inc. Valhalla, NY Virginia Beach, VA
Raleigh, NC Pulte Financial Services William Raveis Real Estate
Hunt Real Estate Corporation Bloomfield Hills, MI Southport, CT
Williamsville, NY RE/MAX Advantage Realty ZipRealty
Columbia, MD Emeryville, CA
GENERAL MEMBERS
American Home Bank Media, PA
2-10 Home Buyers Resale Mountiville, PA Associated Capital Title
Warranty American Mortgage Service Champaign, IL
Denver, CO Company
Advantage Title, Inc. Cincinnati, OH Block 6 Services, LLC /
Irvine, CA Americlose Group Housemaster
Bound Brook, NJ Eatontown, NJ RE/MAX Premier Realty
Bonded Title Agency Lakeside Title Company Irvine, CA
Freehold, NJ Columbia, MD Real Estate One
Burnet Title, Inc. Lawyers Title of Cincinnati, Inc. Southfield, MI
Edina, MN Cincinnati, OH Regions Insurance Services,
C.E. Anderson & Company Leading Real Estate Companies Inc.
Rolling Meadows, IL of the World Memphis, TN
Century Bank Chicago, IL Reli Title
Santa Fe, NM Legacy Mortgage Birmingham, AL
Colonial Valley Abstract Albuquerque, NM
Company Lyon Real Estate
York, PA Sacramento, CA Risk Mitigation Group
M/I Financial Corporation Arlington, TX
Colorado American Title Columbus, OH Rose & Womble Realty
Glendale, CO Market Leader, Inc. Company, LLC
Comey & Shepherd, Inc. Kirkland, WA Virginia Beach, VA
Cincinnati, OH McColly Real Estate Shaffer Title and Escrow, Inc
Commerce Title Schererville, IN Chesapeake, VA
Baton Rouge, LA Sheldon, May & Associates, PC
Dragas Mortgage Company MFC Mortgage, Inc. Of Florida Rockville Center, NY
Virginia Beach, VA Maitland, FL Sterling National Corp
Edward Surovell Realtors Michael Saunders & Company Atlanta, GA
Ann Arbor, MI Sarasota, FL Surety Title Corporation
Elite Lender Services, Inc. Morreale Real Estate Services Marlton, NJ
Jacksonville, FL Glen Ellyn, IL The Agent Owned Realty Co.
New American Mortgage Mount Pleasant, SC
Equity National Title & Closing Charlotte, NC The Danberry Company
Services, Inc. NM Management, Inc Toledo, OH
Riverside, RI Alexandria, VA The Detrick Companies
Equity Settlement Services, Inc Northwest Title Tulsa, OK
Smithtown, NY Columbus, OH The Group, Inc.
Fairway Mortgage Northwood Realty Services Ft. Collins, CO
Sun Prairie, WI Pittsburgh, PA Title Ventures, LLC
First Priority Mortgage, Inc. PNC Partnership Solutions Chesapeake, VA
Buffalo, NY Cleveland, OH Towne Bank Mortgage
Fiserv Lending Solutions Preferred Title Virginia Beach, VA
Rocky Hill, CT Madison, WI VOI Insurance Solutions, LLC
Gilpin Mortgage Company/ Presidential Bank, FSB Sherman Oaks, CA
Patterson-Schwartz Real Estate Bethesda, MD Walker Title, LLC
Wilmington, DE Primary Land Services Fairfax, VA
Heritage Mortgage Services, Commack, NY Weidel Realtors
LLC Professional Closing Network, Pennington, NJ
Woodmere, OH Inc. Weissman, Nowack, Curry &
Home Security of America, Inc. Pittsburgh, PA Wilco, P.C.
Cross Plains, WI Property Service Group Atlanta, GA
IBC Bank Southeast Wendel, Rosen, Black and
Austin, TX Knoxville, TN Dean, LLP
Investors Title Company Prudential Douglas Elliman Oakland, CA
St. Louis, MO South Huntington, NY Westcor Land Title Insurance
K. Hovnanian American Prudential Preferred Realty Co.
Mortgage, LLC Pittsburgh, PA Winter Park, FL
Boynton Beach, FL Prudential Starck Realtors Westiminster Abstract
K. Hovnanian Title Division Palatine, IL Ashburn, VA
STATE AFFILIATE MEMBERS
Alliant National Title Company Alliant National Title Company American Home Title and
Longmont, CO Austin, TX Escrow Company
Denver, CO Equity Title Associates II Santa Ana, CA
Bray & Company Fort Morgan, CO Mountain States Title Corp.
Grand Junction, CO Equity Title Associates III Denver, CO
Castle, Meinhold & Stawiarski, Denver, CO National Title LLC
LLC Equity Title of Colorado Denver, CO
Denver, CO Aurora, CO Oakwood Homes, LLC
Darling Homes, Inc. First National Tile, LLC Denver, CO
Frisco, TX Denver, CO Randolph-Brooks Federal Credit
Equity Title Agency, Inc. Guardian Title Agency Union
Scottsdale, AZ Englewood, CO Live Oak, TX
Equity Title Associates I Integrity Title Records Universal Land Title of
Denver, CO Houston, TX Colorado
Michelman & Robinson Englewood, CO
ASSOCIATE MEMBERS
Alliance Solutions, LLC Columbus, OH
Cincinnati, OH Peirson & Patterson, LLP
Blank Rome LLP Dallas, TX
Philadelphia, PA Saul Ewing, LLP
Buckley Sandler LLP Princeton, NJ
Washington, DC
Channel Match Consulting, LLC Sheppard Mullin Richter &
Plano, TX Hampton, LLP
ClosingCorp Los Angeles, CA
La Jolla, CA Shuster Legal Solutions, LLC
Corporate Management Palm Beach Gardens, FL
Advisors SoftPro
Altamonte Springs, FL Raleigh, NC
Dickenson Gilroy, LLC Sterbcow Law Group
Alpharetta, GA New Orleans, LA
Employee Relocation Council SunTrust Lender Management,
Arlington, VA LLC
Franzen and Salzano, P.C. King William, VA
Norcross, GA Virtual Escrow Technology
Gordon & Associates Tustin, CA
Laguna Beach, CA Weiner Brodsky Sidman Kider
Holland & Knight, LLP PC
New York, NY Washington, DC
Joseph Carroll Womble Carlyle Sandridge &
Costa Mesa, CA Rice, PLLC
K & L Gates Greensboro, NC
Washington, DC WHR Group Inc.
Law Offices of Joseph A. Pewaukee, WI
Riccelli
Chicago, IL
Magnuson & Barone
Westerville, OH
Mandrien Corporation
Coral Springs, FL
Michigan Bankers Association
Lansing, MI
National Association of Home
Builders
Washington, DC
New Vista Asset Management
San Diego, CA
Ohio Association of Realtors
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