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Senator PROXMIRE. I am going to call the final witnesses to come together. They are both experts in the field, and Senator Brock and I are interested in their statements. They are Mr. Gus Cramer, executive vice president of the Communication Workers of America, and Prof. Barlow Burke of the Washington College of Law, American University. Gentlemen, because the hour is late, and because we have hearings this afternoon at 2 o'clock, I would appreciate it if you

could possibly, and tell me if you can't, if you could possibly limit your statements to 5 minutes and then give Senator Brock and myself an opportunity to question.

Would that be satisfactory?
Mr. CRAMER. Yes, Senator Proxmire.
Mr. BURKE. Yes, Mr. Chairman.



Mr. CRAMER. Mr. Chairman, and members of the subcommittee, my name is Gus Cramer, and I am executive vice president of the Communications Workers of America, a union representing more than 575,000 men and women employed in the communications and other industries.

Appearing with me today is Hall Sisson of our legislative staff.

It was just 14 years ago that I appeared before this subcommittee to plead the case of the working man and woman who was faced with the unnecessary and unjustly high cost of settling the purchase of a home.

At that time interest rates were fairly low, and mortgage money readily available. What we were trying to do was get the Congress to eliminate the final stumbling block in the home buying process,

the so-called settlement costs. We were trying to get a fair shake for those individuals who could afford the downpayment and the monthly payments required to own a home, but who could not scrape up enough money to pay for such required items as title search, title insurance, tax escrow, transfer taxes, lawyer's fees, and the like.

We took the position that mortgage lenders should be required to absorb the cost of title search, and any title insurance they might require as a condition for granting a mortgage. We also advocated an end to price discrimination between mortgage lenders and home buyers in the sale of title services so that if a home buyer decided to purchase title insurance on his own, he would pay the same rate as the lender.

And finally, and most importantly, we stated that settlement lawyers should be prohibited by law from taking any commissions from, or kickbacks for, directing the services involved in real estate settlement.

We felt this was a reasonable position, and one which would bring needed reform to the settlement process. But what did we get for our reasonableness?

The Senate passed the omnibus housing bill of 1972, and sent it to the House with a significant provision which called for the Secretary of Housing and Urban Development to determine reasonable charges for necessary services involved in the settlement process. It was a start.

The House Banking Committee worked almost 7 months on the bill. When the 1972 Housing Act was reported out, there were many fine improvements relating to the settlement process, but to our astonishment we discovered that the bill would have the effect of legalizing kickbacks to the parties involved in real estate settlements. That bill died in the House Rules Committee.

The final blow to our hopes for equity in the settlement process came when HUD dropped its plan to set maximum settlement charges for FHA and VA mortgage transactions, after a 2-year study by HUD showed conclusively that excessive settlement charges and practices are prevelant in many areas of the country and that maximum charges should be set. All that was last year.

Now interest rates have broken all records; mortgage money is nowhere to be found; housing starts are nosediving to record lows; and we have a moratorium on federally subsidized housing.

Working men and women can no longer afford the high cost of owning a home. Before, we considered it was just a problem of high settlement costs. Now it's a problem all the way from start to finish of the home-buying process.

So Mr. Chairman, I guess it's high time we quit trying to be reasonable and decided to get firm with our message.

The Communications Workers of America fully support S. 2288, Senator Proxmire's Closing Cost Reduction Act of 1973. We do so knowing full well that the cries of the title insurance companies, the settlement lawyers, and some lenders will be heard all over Capitol Hill and in the Department of Housing and Urban Development.

But they had their chance to reform. They saw the handwriting on the wall in the 1972 Housing Act. The mere fact that Senator Proxmire had to reintroduce this legislation proves the lesson was lost upon them.

Mr. Chairman, we feel that interest rates will eventually come down. We also believe that mortgage money and homes will be readily available. But unless Congress does something about the settlement cost ripoff, working men and women will still be faced with that final stumbling block to one of the most cherished of the American dreamsthe owning of a home.

The Communications Workers of America thank you for the opportunity to appear before this subcommittee.

Senator PROXMIRE. Thank you very much, Mr. Cramer.
Professor Burke?



Mr. BURKE. Thank you, Mr. Chairman.

My name is Barlow Burke, and I am an associate professor of law at American University Law School, where I teach in the areas of real property and conveyancing law. Some 2 years ago, I authored studies for the Department of Housing and Urban Development on the transfer of residential real property in 13 urban areas around the country. Those studies were one basis for a report made to the Congress and this committee in January 1972. My interest in the protection of housing buyers and the efficiency of real property transactions has continued unabated since that time.

The CHAIRMAN. Your full statement will be made part of the record (see p. 201).

Mr. BURKE. I appear today to testify on S. 2288. Two versions of this legislation, both concerned with closing and settlement costs, have recently been introduced. In part, one proposes that the HUD Secretary be ordered to set maximum rates for various types of real estate closing cost charges, while the other would repeal existing statutory authority to do this.

Mr. Chairman, it is a poor time to deny HUD such authority. My reasons for this statement are several:

(1) Since 1962, closing and settlement costs have risen sharply.

(2) Past Federal experience with title review shows that savings are possible.

(3) Since 1971, HUD has undertaken administrative review of the problem which should not be cut off in midstream.

(4) Currently, the States are considering new model regulations for title insurers; at such times, Federal controls should not be relaxed, but must be available in case of State inaction or per

missiveness. Expanding on this outline, let me take up the foregoing points in the order presented.

(1) On the matter of rising costs, it is important to note that legislation can help to control future rises in charges as much as to reduce present costs. A reduction in present costs is much harder to achieve than a reduction of future increases.

I have taken some examples of high costs and large increases from the Truth-In-Lending hearings of the 1960's and from the HUD studies done in 1971. For example, between 1961 and 1971 in Newark, average closing costs rose from $500 to $647. In Indianapolis, Ind., between 1961 and 1971, similar costs increased from $198 to $347. In St. Louis, Mo., in the same decade, costs rose from $330 to $389.

The CHAIRMAN. Is there any way we can determine the validity of this increase. We had great inflation, expecially in the housing area during this period. Could you comment on that?

Mr. BURKE. Conveyancing cost studies are scarce, but a study done by Prof. Fairfax Leary showed that for title searches in Philadelphia, the average search cost $75 in 1950. In 1972, he found that it cost $207. In 1950 dollars, that figure should have been $170, using the available economic indicators for the region. So there is, in that one cost at least, some fat in the system. While I do not say that our conveyancing is hopelessly inefficient, I do believe a great deal of fat could be eliminated.

For example, some developers allow their layers to charge full title search charges for what is essentially a shorter bring down or update search. A survey fee is often charged, leaving no markers on the ground, and that survey is repeated upon each transfer. In some areas, $15 and $25 fees are being charged for preparation of standard form documents which shouldn't cost more than $2.50 to prepare. Application fees are being charged, Senator, that involve no more than a


telephone call in many instances. No more than a telephone referral is involved. Lawyers' fees in many areas are based on a percentage of the loan, and result in billing not based on the personal services that lawyers are supposed to render their clients.

So in a great many areas, for a great many charges, the cost is just too high.

Where the Government has stepped into the area, where local highway authorities, for example, have to get title searches, they generalịy sign contracts with law offices and abstract companies. Some of those contracts I have seen. They show that for search charges, the cost of the search can be reduced by as much as 30 percent if you are a local government, a highway authority, or an urban renewal authority.

There are other ways of showing, I think, Senator, that savings are possible.

For the last 2 years, HUD has had in process administrative actions which would set some maximum rates. Some regulations were promulgated by HUD last year, and died aborning within the Department. HUD received a great many comments on them, and the regulations were by and large, as far as I could tell, quite fair, and the levels quite adequate. Many attorneys have indicated to me that the cost maximums were indeed adequate.

My final point concerns the title insurance industry, which has promulgated a new, revised title insurance code for introduction in State legislatures around the country, and in some States that code is now being offered to the legislators. It is in many ways a great improvement, in that it does more strictly regulate the title insurance industry. Its greatest improvements, I think, lie in the area of loss reserves and other financial requirements of the State insurance commissioners, but it is not at all, I think, a consumers' legislative bill. It gives very little attention to rate regulation, and has very little regard for ways in which the buyer of title insurance might be given more protection and coverage in his contract.

So I think there is room for a great deal of improvement in this area, and it is an area over which the Federal Government should maintain continued oversight. This is another reason why HUD should not be denied the authority at this time to regulate closing costs.

The CHAIRMAN. I want to thank you for your statement, Mr. Cramer, your statement was extraordinarily straightforward.

I like the way, Mr. Burke, that you documented your case so well.

You argue that future closing costs are likely to go up even more sharply. Is that correct, on the basis of the problems that we have, and then, No. 2, you argue that there is a lot of fat in this system, that there should be and could be means to prevent that.

Mr. BURKE. The problem is really a central city problem. In Los Angeles County, for example, some three-quarters of a million conveyancing documents are recorded annually.

Senator PROXMIRE. It is the low income and poor people who are especially hurt.

Mr. BURKE. I think so, because the closing costs in the low income area of a city could more than double the equity that one has to put out to achieve homeownership.

Senator PROXMIRE. It has been said that if we pass a law against kickbacks and require disclosure of costs, then rate regulation isn't necessary. Do you have any comments on that argument?

Mr. BURKE. I think that, Senator, merely to control existing abuses is not to improve the system, and for the future, we need to improve the system. So that when legislation is passed

Senator PROXMIRE. How does regulation necessarily improve the system?

Mr. BURKE. Excuse me?
Senator PROXMIRE. How does regulation improve the system?

Mr. BURKE. It doesn't in the short run. It will in the long run, I think, because certain firms that can't maintain the sufficiently large abstract plant will not be in business after 10 years or so.

The Chairman. How do you service a small town?

Mr. BURKE. That is not a problem here, because in the bills that have been written so far, regulation would be confined to one particular housing market, so that it is possible to define a market in such a way that you could limit your regulation to an SMSA, for example.

Senator PROXMIRE. Should the law provide the exemption or something of that kind to take care of the situation?

Mr. BURKE. I think the law should specify which housing markets have problems; yes. It is going to be very difficult to enforce any one maximum rate statewide, for any cost in any State.

Senator PROXMIRE. Mr. Cramer, would you like to comment?
Mr. CRAMER. I would have to concur with that, Senator.

Senator PROXMIRE. One other question: I understand that you provide a plan, you have details for a plan for Government underwriting of title insurance and title registration systems. What is your recommendation for dealing with the points problem. Should they come under the same regulation?

År. BURKE. The problem of points is a problem that faces the buyer using FHA or VA mortgage loans. Whether or not the buyer or the seller pays the points, as is true in some States, the buyer can still be certain that he is going to pay in the end. He might be able to amortize or capitalize the cost of points, but it will eventually be the buyer that pays. So the points should be controlled at the same time. Senator PROXMIRE. Senator Brock? Senator BROCK. I am sitting here listening to what you are saying. I am fascinated with your testimony, and I appreciate it. I think that last point illustrates one of the biggest problems we have, and I am particularly grateful, Professor Burke, for the last comment you make in your statement which I have read. You feel we have to go to market rates in order to get rid of the points problem.

There are situations in States where points are higher than the closing costs. It is something we just have to deal with.

Mr. BURKE. That is certainly correct, Senator. Senator BROCK. I am not sure where to begin. I read your original statement, and I thought it was excellent. I read, of course, this statement. I am not sure I find very much to disagree with except on one question that Senator Proxmire just previously asked.

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