Mr. WILLIAMS. I would like to make a suggestion

The CHAIRMAN. All right.

Mr. WILLIAMS. That you recognize me. I know that Mr. Jackson was speaking from a hand written statement. I noticed on a number of occasions you made extraneous remarks. Do you think you could reduce all of this to writing and see that every member of this committee receives a copy of your statement.

The CHAIRMAN. I believe he said he was going to do that, did you not?

Mr. JACKSON. We will be happy to, Mr. Williams.

The CHAIRMAN. It came about because

Mr. JACKSON. As many of you know, we were invited yesterday morning.

The CHAIRMAN (continuing). Of an unavoidable circumstance. You see, we announced the hearing less than 24 hours ago.

Mr. WILLIAMS. I hope he has a good memory.

The CHAIRMAN. It is a good suggestion and he has agreed to carry it out.

(Mr. Jackson's prepared statement follows:)

PREPARED STATEMENT OF PHILIP C. JACKSON, JR., PRESIDENT, MORTGAGE BANKERS ASSOCIATION OF AMERICA

I am Philip C. Jackson, Jr., Vice President of the Jackson Company, a mortgage banking concern of Birmingham, Alabama, and President of the Mortgage Bankers Association of America. With me is Mr. Lee Holmes, Senior Director and Legislative Counsel for the Association and Dr. Oliver Jones, its Executive Vice President.

We appreciate the opportunity to appear this morning.

We would like to emphasize that we support the intent of the legislation under consideration. We support the consolidation and simplification programs that it proposes and we hope that the Department of Housing and Urban Development will use this opportunity to simplify its regulations and the administration of its programs.

We also support the interest of the Committee in protecting borrowers and home purchasers and in establishing a code of conduct between borrowers and lenders in connection with the purchase of homes.

At this time, we would like to express our concern on several technical aspects of the legislation particularly in Title IX. It would appear to us, from our pragmatic day-to-day relationship with the mortgage business, that the provisions of some Sections of Title IX work against the intent of the Committee. For that reason, Mr. Chairman, I would first like to address myself particularly to the technical aspects of certain sections.

1. Title IX proposes to regulate most lender relationships with borrowers, and here I emphasize most lenders, because the proposal does not regulate all lenders and all transactions.

It would appear from the definition that insurance companies, pension funds, and various other types of lenders, including foundations would not be covered under the scope of Title IX. We believe that all lenders should be covered.

The definitions in Title IX would include commercial transactions, such as large apartment and other commercial ventures, including purely commercial transactions between construction lenders and builders, despite the ability of these sophisticated lenders to take care of their interests. We believe that the thrust of the legislation would be improved if it covered all lenders, but focused only on one- to four-family, owner-occupied, residential housing.

2. Under Section 902, the Committee provides for establishing maximum settlement costs, but does not really define what is to be included. We would expect it is the Committee's intent to include those settlement costs covered by the HUDVA study on settlement costs which you recently considered. If that is the case, we think the language of the Section could be strengthened by specifically so stating, or by specifically providing the Secretary of HUD with the discretion to define settlement costs.

Unfortunately, Section 902 contains a provision whereby a borrower can be denied federal insurance or guarantee on a loan through an honest error on the part of the lender. In instances where the closing costs might exceed the maximum permitted by this provision, the lender would not have the authority to restore the overcharge to the borrower and will have his loan insured or guaranteed. We think providing for such errors would improve the operation and effect of this provision.

3. Under Section 904, you provide for the development of special information booklets by HUD. We think the idea of a better informed borrower is sound, however, the provision requires that such booklets be delivered at the time of application for a loan. Practically speaking, I do not know when such application takes place. Is it at the time a prospective purchaser might fill out a form at a builder's office or a realtor's office? Or is it at the time he might mail it from his home to the office of the lender?

I would suggest, as a substitute for that particular language, a requirement providing that such booklets be supplied to borrowers at the time lenders receive the loan applications. I believe this clarification would be an improvement in procedure that would work to the best interests of all concerned.

Today's real estate lenders are genuinely interested in a better informed borrower. To that extent, it would be my opinion that Section 904 would be even more effective if lenders were permitted to publish and distribute these booklets with the approval of the Secretary. I believe the cost savings to the government would be substantial.

4. Section 905 of the bill requires the accurate disclosure of settlement costs to prospective borrowers 10 days prior to the time of settlement. While this is desirable, in many cases it is a practical impossibiilty. Proration of taxes, insurance and accruals of various types are often difficult to predict. This provision would be more practical and effective if it merely required substantial accuracy rather than accuracy down to the last penny.

I also doubt the value of providing such advance statements of cost factors to a federal agency which might insure or guarantee the loan. After all, the bill provides that such statements be later supplied to these agencies. Thus, the need to also provide them 10 days prior to the closing of a transaction and in turn require the government to acknowledge receipt, will unduly complicate the transaction and create more paper work and delay in the completion of a simple real estate transaction.

This Section of the bill also requires that these statements include utility costs. I am embarrassed to say that, after 23 years in the lending and real estate business, I do not know what utility costs are and, if the wishes of the Committee are to control this cost area, we certainly would urge that this requirement be carefully defined.

The bill does not grant any borrower or lender the privilege of waiving the 10-day advance information requirement. This will work a hardship on many people. For example, if a serviceman is ordered overseas, is in the processing of buying a house and is forced to leave the country on relatively short notice, he would be denied the opportunity to close the transaction in less than 10 days under the language of this provision. You will recall that Truth in Lending provides that a borrower, if it is in his best interest and a genuine emergency, may waive advance notice and complete the transaction.

5. Section 906 prohibits certain types of kickbacks. Here again, we would assume that it was the intent of the Committee to stop the type of nefarious practices that the Department of Housing and Urban Development has recently brought under tighter regulation. The definition and thrust of this provision is not clear. We hope that the Committee's report will emphasize the same control over all loans that HUD presently maintains over all FHA transactions.

6. Section 908 limits the acquisition of advance escrow deposits. Frankly, most lenders operate within the intent of 908 as it is presently drawn. Unfortunately, as drafted, this Section would prohibit lenders from doing certain things in the interest of the borrower that are presently possible. For example, if taxes were suddenly increased, creating deficits in escrow accounts, the present language would forbid lenders to collect their deficits on a monthly basis over the next year and would require further collections of the deficient amounts from borrowers in lump sums. I am afraid the result would be some defaults that might have been avoided. We would suggest that the Committee look for workable substitute language in the language contained in several HUD uniform mortgag and deed of trust agreements.

7. Section 909 requires disclosure of the previous selling price of existing real property. Yet, a look at the text indicates that it does not follow the title's im

plication. The present language includes all properties owned by any seller for less than two years. What is needed is either a definition of the term "existing real property" or, perhaps better, substitution of the term "housing previously occupied."

An example of the difficulty which the present wording imposes would be a house finished by a builder, but not yet occupied. Before the borrower could get a commitment to secure a permanent mortgage loan on the house the builder would be required to supply a breakdown of all costs incurred since the purchase of the lot. This is extremely difficult to accomplish since many otherwise competent builders would not be prepared to prorate such items as overhead and incidental expenses. Moreover, it does not seem to be necessary to include this type of transaction to accomplish the Committee's objective.

Additionally, Section 909 prohibits a borrower from negotiating a loan with a lender until all of the costs under this Section are known. It would appear, in our view, that the wiser choice would be to require that the borrower be supplied a copy of any certification 10 days prior to closing, along with the other closing costs. The present language would produce a very lengthy, complicated situation in which a lender would be forbidden to complete arrangements with a borrower for financing the transactions until the seller was able to complete all possible modifications or repairs and supply the borrower with detailed list of costs.

Section 909 also places the entire burden on the lender for the accuracy of statements supplied to the borrower. In actuality, the lender has no way to monitor the accuracy of such statements. The practical effectiveness of this Section would be improved if lenders were required to certify that such statements were true "to the best of their knowledge and belief" before being the subject of this Section's criminal provisions.

It would also perfect the usefulness of Section 909 if foreclosure sales were eliminated from its coverage. We do not believe it is of any particular benefit to include such sales since this type of sale does not involve consumers who are in need of protection.

8. Section 911, providing for a demonstration land parcel recording system, is probably the most progressive feature in Title IX. The Committee is to be congratulated for its efforts to cure one of the basic causes of high settlement charges while controlling some of the results. The improvement of the physical land record system in the United States would not only reduce closing costs for borrowers immediately, but will be of great benefit to future generations.

There are several other aspects of this legislation which appear to help consumers, but may in practice actually do great harm to their interest.

9. Section 7(b)(1) of Title I of the revised National Housing Act provides for a three-year builder's warranty on new construction. The effect of the cost of providing escrows or bonds, in all probability, would be to drive money builders away from HUD insured housing programs, and the result of the reduction of the supply of lower priced housing would certainly not be in the best interest of the consumers which this Section is designed to assist.

10. Section 402 of Title IV will require the recipients of subsidized housing to obtain permission from their local government to purchase houses in projects which encompass eight or more subsidized units. As the Committee knows, new houses are not built under Section 235 (Section 402 in the proposed legislation), but are built under Section 203(b) (new) Section 401). Only when an eligible purchaser applies for a loan does the loan become insured under Section 235. The present language of the new Section 402 has the potential of placing individual home purchasers in the position of appearing before their local government body to request permission to purchase homes under the subsidized loan program. We question that these are the most effective people to plead their case.

11. Section 3(a)(1) of Title I provides for a maximum mortgage amount for unsubsidized mortgages not in excess of 180 percent of the area prototype housing costs, with certain exceptions, which could be made by the Secretary. The result of this percentage figure is likely to reduce the maximum loan amount from present ceilings in some areas. The 200 percent figure recommended by HUD would provide a more realistic range within which area markets could operate. The maximum conventional mortgage limits on FNMA's secondary market operations should be equalized with those of the Federal Home Loan Mortgage Corporation so that these two secondary market facilities will be more compatible. By relating FNMA's maximum mortgage amount to the figure utilized by the Federal Home Loan Bank Board, as in the Senate passed housing bill, both secondary market operations will be flexible in meeting consumer demands.

12. Title VII, Section 103. Our Association has testified on a number of occasions concerning the proposed experimental dual interest rate system provided

for in this legislation. Although our industry continues to feel that the homeowner will be served best by a rate free from statutory and administrative ceilings, we also continue to express concern over the practicality of the proposed dual interest rate system. Our principal concerns are as follows:

1. If the dual rate is adopted, the Secretary should be required to "meet the mortgage or loan market" at all times. If past practices prevail, we fear that the flexible side of the dual system will encourage the Secretary to maintain the fixed side at arbitrarily low levels. Under such artificial conditions, any hope of testing the proposal will be aborted.

2. Conventional mortgage lenders will be free to increase interest rates and to charge discounts. The result will be to push FHA and VA contract rates further above conventional rates and, thereby, to require those families in need of the low downpayment FHA or VA loan to pay higher mortgage rates.

3. Under either a free system or the present fixed system the yield can be negotiated between borrower and lender. Under the dual system negotiation would be unworkable. It should be noted that the borrower does not pay the discount, therefore, any time the fixed rate is below the free market rate the borrower will seek the fixed rate with a discount. The assumed negotiation of rates on the flexible side of the dual system would be inconclusive at best and no real test would actually take place.

4. Under the proposal, FHA would retain the right and responsibility to refuse to insure a loan if the rate, on the flexible side, were deemed to be too high. FHA's 77 offices are ill-equipped to judge the appropriate interest rate on a single loan, which may differ from market averages because of the larger downpayment, a shorter term, or a greater risk. If the flexible side of this system is not, in fact, completely free of regulation, confusion and public resentment will be the result.

13. Title V appropriately seeks to provide housing for low- and moderateincome famiiles, to revitalize blighted areas, and to improve employment opportunities. Whether the State Development Agency issues tax exempt securities or is provided a grant to make up the difference between tax exempt securities and taxable obligations, the general taxpayer subsidizes the reduced financing costs. This decision to use tax dollars for these purposes is an appropriate social decision.

We urge the Congress to insure the use of these tax dollars to supplement the activities of private industry and not to supplant them. For example, mortgage bankers have proven their willingness and ability to originate and service mortgage loans for low-income families in the center city when credit sources are available. They are the principal originators of subsidized loans under FHA, FNMA, and GNMA programs. State Development Agencies should not be permitted to use tax dollars to duplicate the overhead cost represented by the existence of a segment or private industry that is ready, willing, and able to work with them.

The Committee should also recognize that the authority to engage in land and development loans with tax dollars (1) will encourage these Agencies to use their resources outside the inner-city where government assistance is least needed and (2) will bring these Agencies into the type of real estate financing that carries the greatest risk, a risk that will be borne by the Treasury guarantee. Thank you for giving us this opportunity to appear and present our views. The CHAIRMAN. All right, now Mr. Roessner representing the National League of Insured Savings Associations. You may proceed for 10 minutes, sir, with the understanding that you can submit your remarks when you get through and then you will, of course, remain and answer questions submitted by the committee members.

STATEMENT OF G. G. ROESSNER, PRESIDENT, CITY FEDERAL SAVINGS & LOAN ASSOCIATION, ELIZABETH, N.J., ON BEHALF OF THE NATIONAL LEAGUE OF INSURED SAVINGS ASSOCIATIONS Mr. ROESSNER. My name is G. G. Roessner. I am president of the City Federal Savings & Loan Association of Elizabeth, N.J. I appear today to testify on behalf of the National League of Insured Savings

Associations, a nationwide trade association composed principally of savings and loan association members.

On September 9, 1971, the National League filed a statement with the Subcommittee on Housing of this committee giving its views on three of the housing bills then pending. These were the Housing and Urban Development Act of 1971 (H.R. 9688), the Community Development Act of 1971 (H.R. 8853) and the Housing Consolidation. and Simplification Act of 1971 (H.R. 9331).

On February 22, 1972, on behalf of the National League a statement was submitted to Chairman Barrett of the Subcommittee on Housing. The statement presented observations on certain proposals for legislation that would place restrictions on settlement costs in residential real property transactions.

I will not at this time repeat the observations made in those earlier statements, both of which are contained in the printed record of the hearings.

Rather, I will confine my remarks to 6 amendments we hope the committee will consider including in the omnibus housing bill it proceeds to mark up after these current hearings.

With your consent, Mr. Chairman, I will also offer for inclusion in the record a copy of the May 30 letter sent to you on behalf of the National League, which comments on the settlement cost provisions in title IX of the May 11, 1972, committee print of the Housing and Urban Development Act of 1972. It is our understanding that the committee print sets forth the bill recommended by the Subcommittee on Housing.

The CHAIRMAN. Without objection you may extend your remarks accordingly. And without objection all the witnesses will have the privilege of doing the same thing and to insert not only what you have but any related matter which will carry out your point as you desire to carry them out.

Mr. ROESSNER. Thank you, Mr. Chairman.

Following the 1972 legislative conference held by the National League, representatives of the league conferred with the Federal Home Loan Bank Board to sound out the views of the Board as to certain legislative proposals discussed at the National League Legislative Conference. That meeting with the Board resulted in the development of six proposals dealing with housing and its financing. It is the National League's understanding that its support of efforts to have these six proposals enacted into law would meet with no opposition from the Federal Home Loan Bank Board.

The six items were prepared in the form of amendments suitable for inclusion as part of the omnibus housing bill. They can be summarized as follows:

1. By the first amendment, Federal savings and loan associations would be authorized to make loans insured by the Federal Housing Administration in the Department of Housing and Urban Development, or the Veterans' Administration outside the normal 100-mile lending area of such associations. Section 5(c) of the Home Owner's Loan Act of 1933 presently authorizes them to purchase such loans from others, but not to make such loans themselves. The amendment would enable Federal associations to serve better the needs of the public in view of the increasing numbers of veterans returning from over

seas.