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


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


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. 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. . 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.



Testimony of RESPRO® before the U.S. House of Representatives Subcommittee on Government Oversight, September 16, 2008. 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). 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 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 (, 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.

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). 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.



   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.

Economic Analysis of Restrictions on Diversified Real Estate Services Providers, Lexecon, Inc. (1995). 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

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 wellknown, 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.


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.


2007 Survey of State Affiliated Business Laws (RESPRO®). 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 20 21

2007 Survey of State Affiliated Business Laws, Real Estate Services Providers Council (RESPRO®). 2007 Survey of State Affiliated Business Laws, Real Estate Services Providers Council (RESPRO®). 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 onestop 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.


HUD’s Regulatory Impact Analysis accompanying HUD’s June 7, 1996 final Real Estate Settlement Procedures Act (RESPA) regulation governing affiliated business arrangements. HUD’s July 21, 1994 proposed Real Estate Settlement Procedures Act (RESPA) regulation, 59 Fed. Reg. 37360. Comments 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 or at 202-862-2051, Extension 210. Sincerely

Susan E. Johnson, Esq. Executive Director

RESPRO Membership List 2010
Alliant National Title Insurance Company American Home Shield Memphis, TN Baird & Warner, Inc. Chicago, IL Bank of America Calabasas, CA Cornerstone Mortgage Company Houston, TX DHI Mortgage Company Austin, TX Eagle Nationwide Abstract Company Chadds Ford, PA F.C. Tucker Company, Inc. Indianapolis, IN HMS National Fort Lauderdale, FL HomeServices of America, Inc. Edina, MN Howard Hanna Financial Services Pittsburgh, PA Howard Perry & Walston Realty, Inc. Raleigh, NC Hunt Real Estate Corporation Williamsville, NY
Longmont, CO

Investors Title Insurance Company Chapel Hill, NC Latter & Blum/CJ Brown New Orleans, LA Long & Foster Companies Chantilly, VA National Real Estate Information Services Pittsburgh, PA North American Title Group Miami, FL Old Republic Home Protection Co., Inc. San Ramon, CA Old Republic National Title Insurance Minneapolis, MN Orange Coast Title Company Santa Ana, CA Prospect Mortgage, LLC Sherman, CA Prudential HomeSale Services Group Lancaster, PA Prudential Real Estate & Relocation Services Valhalla, NY Pulte Financial Services Bloomfield Hills, MI RE/MAX Advantage Realty Columbia, MD

Realogy Corporation Parsippany, NJ Residential Mortgage, LLC Mount Pleasant, SC Shelter Mortgage Company, LLC Brown Deer, WI Shorewest Realtors Brookfield, WI Sibcy-Cline Realtors Cincinnati, OH Stewart Title Guaranty Company Houston, TX Tenura Holdings, Inc. Austin, TX The Trident Group/Prudential Fox & Roach Devon, PA Title Alliance, Ltd. Media, PA Weichert Companies Morris Plains, NJ Wells Fargo Home Mortgage Des Moines, IA William E. Wood and Associates Virginia Beach, VA William Raveis Real Estate Southport, CT ZipRealty Emeryville, CA

2-10 Home Buyers Resale Warranty Denver, CO Advantage Title, Inc. Irvine, CA American Home Bank Mountiville, PA American Mortgage Service Company Cincinnati, OH Americlose Group Media, PA Associated Capital Title Champaign, IL Block 6 Services, LLC / Housemaster

Bound Brook, NJ Bonded Title Agency Freehold, NJ Burnet Title, Inc. Edina, MN C.E. Anderson & Company Rolling Meadows, IL Century Bank Santa Fe, NM Colonial Valley Abstract Company York, PA Colorado American Title Glendale, CO Comey & Shepherd, Inc. Cincinnati, OH Commerce Title Baton Rouge, LA Dragas Mortgage Company Virginia Beach, VA Edward Surovell Realtors Ann Arbor, MI Elite Lender Services, Inc. Jacksonville, FL Equity National Title & Closing Services, Inc. Riverside, RI Equity Settlement Services, Inc Smithtown, NY Fairway Mortgage Sun Prairie, WI First Priority Mortgage, Inc. Buffalo, NY Fiserv Lending Solutions Rocky Hill, CT Gilpin Mortgage Company/ Patterson-Schwartz Real Estate Wilmington, DE Heritage Mortgage Services, LLC Woodmere, OH Home Security of America, Inc. Cross Plains, WI IBC Bank Austin, TX Investors Title Company St. Louis, MO K. Hovnanian American Mortgage, LLC Boynton Beach, FL K. Hovnanian Title Division

Eatontown, NJ Lakeside Title Company Columbia, MD Lawyers Title of Cincinnati, Inc. Cincinnati, OH Leading Real Estate Companies of the World Chicago, IL Legacy Mortgage Albuquerque, NM Lyon Real Estate Sacramento, CA M/I Financial Corporation Columbus, OH Market Leader, Inc. Kirkland, WA McColly Real Estate Schererville, IN MFC Mortgage, Inc. Of Florida Maitland, FL Michael Saunders & Company Sarasota, FL Morreale Real Estate Services Glen Ellyn, IL New American Mortgage Charlotte, NC NM Management, Inc Alexandria, VA Northwest Title Columbus, OH Northwood Realty Services Pittsburgh, PA PNC Partnership Solutions Cleveland, OH Preferred Title Madison, WI Presidential Bank, FSB Bethesda, MD Primary Land Services Commack, NY Professional Closing Network, Inc. Pittsburgh, PA Property Service Group Southeast Knoxville, TN Prudential Douglas Elliman South Huntington, NY Prudential Preferred Realty Pittsburgh, PA Prudential Starck Realtors Palatine, IL

RE/MAX Premier Realty Irvine, CA Real Estate One Southfield, MI Regions Insurance Services, Inc. Memphis, TN Reli Title Birmingham, AL Risk Mitigation Group Arlington, TX Rose & Womble Realty Company, LLC Virginia Beach, VA Shaffer Title and Escrow, Inc Chesapeake, VA Sheldon, May & Associates, PC Rockville Center, NY Sterling National Corp Atlanta, GA Surety Title Corporation Marlton, NJ The Agent Owned Realty Co. Mount Pleasant, SC The Danberry Company Toledo, OH The Detrick Companies Tulsa, OK The Group, Inc. Ft. Collins, CO Title Ventures, LLC Chesapeake, VA Towne Bank Mortgage Virginia Beach, VA VOI Insurance Solutions, LLC Sherman Oaks, CA Walker Title, LLC Fairfax, VA Weidel Realtors Pennington, NJ Weissman, Nowack, Curry & Wilco, P.C. Atlanta, GA Wendel, Rosen, Black and Dean, LLP Oakland, CA Westcor Land Title Insurance Co. Winter Park, FL Westiminster Abstract Ashburn, VA

Alliant National Title Company Longmont, CO Alliant National Title Company Austin, TX American Home Title and Escrow Company

Denver, CO Bray & Company Grand Junction, CO Castle, Meinhold & Stawiarski, LLC Denver, CO Darling Homes, Inc. Frisco, TX Equity Title Agency, Inc. Scottsdale, AZ Equity Title Associates I Denver, CO

Equity Title Associates II Fort Morgan, CO Equity Title Associates III Denver, CO Equity Title of Colorado Aurora, CO First National Tile, LLC Denver, CO Guardian Title Agency Englewood, CO Integrity Title Records Houston, TX Michelman & Robinson

Santa Ana, CA Mountain States Title Corp. Denver, CO National Title LLC Denver, CO Oakwood Homes, LLC Denver, CO Randolph-Brooks Federal Credit Union Live Oak, TX Universal Land Title of Colorado Englewood, CO

Alliance Solutions, LLC Cincinnati, OH Blank Rome LLP Philadelphia, PA Buckley Sandler LLP Washington, DC Channel Match Consulting, LLC Plano, TX ClosingCorp La Jolla, CA Corporate Management Advisors Altamonte Springs, FL Dickenson Gilroy, LLC Alpharetta, GA Employee Relocation Council Arlington, VA Franzen and Salzano, P.C. Norcross, GA Gordon & Associates Laguna Beach, CA Holland & Knight, LLP New York, NY Joseph Carroll Costa Mesa, CA K & L Gates Washington, DC Law Offices of Joseph A. 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 Columbus, OH Peirson & Patterson, LLP Dallas, TX Saul Ewing, LLP Princeton, NJ Sheppard Mullin Richter & Hampton, LLP Los Angeles, CA Shuster Legal Solutions, LLC Palm Beach Gardens, FL SoftPro Raleigh, NC Sterbcow Law Group New Orleans, LA SunTrust Lender Management, LLC King William, VA Virtual Escrow Technology Tustin, CA Weiner Brodsky Sidman Kider PC Washington, DC Womble Carlyle Sandridge & Rice, PLLC Greensboro, NC WHR Group Inc. Pewaukee, WI



Sign up to vote on this title
UsefulNot useful