A treble-commission penalty in favor of the person charged the commission is provided for violations. The definition of commission prohibits any attorney from receiving even reasonable charges for legal services as to title work that are connected with selection or procurement of a title company (section 901 (4) (A)). Because the National League represents neither attorneys nor title companies, it withholds comment on this section.

SEC. 908-LIMITATION ON REQUIREMENT OF ADVANCE DEPOSITS
IN ESCROW ACCOUNTS

Section 908 seeks to place a limit on the amount of money a borrower under a federally-related mortgage loan can be required to place in an escrow account designed to assure payment of taxes and insurance on the mortgaged property as they fall due. It divides its prohibitions into two stages.

The first deals with amount required to be placed in such escrow account before or on the settlement date. The second deals with the period after the settlement date.

Section 908 (1) appears to aim at limiting the amount required by the settlement date to amounts of taxes and insurance premiums due as of that date plus 1/12 of the amount that will fall due within 12 months beginning on the settlement date.

But section 908 (2) restricts the amount required to go into the escrow account in any month beginning after the settlement date to a flat 1/12 of the amount of taxes and insurance premiums due during the 12 months beginning on the first day of the month that follows the settlement date.

This second formula seems to allow for requiring no excess above the amount of taxes and insurance premiums due on a 12-month basis, as far as amounts deposited in months following the settlement date are concerned. Yet what happens during the period following 12 months after the settlement date when the authority for the 1/12 surplus allowed under section 908(1) expires?

And how are these 12-month formulas to be applied in the case of hazard insurance premiums that become due and payable only once every 3 years?

It is assumed that the aim of the section is to prohibit undue surpluses from being required to be deposited in tax and insurance escrow accounts. But the language used appears to outlaw even a reasonable surplus.

The month-by-month limit in section 908 (2) presumes that it is always known 12 months in advance exactly how much is to become due and payable as taxes or insurance premiums. But this is not always true. It seems unnecessary to state that taxes usually increase year after year. And changes in insurance premiums are not made effective only 12 months after the change has been made. Therefore a proportionate amount honestly calculated to be enough to pay taxes and insurance premiums 12 months hence will often prove to be insufficient in fact. Consequently, especially in the periods of inflation which seem to have become perennial in this country, some "surplus" is necessary if these bills are to be met in full as they actually become payable.

The language of section 908 needs revision even to carry out its apparent intent.

SEC. 909-DISCLOSURE OF PREVIOUS SELLING PRICE OF EXISTING REAL PROPERTY

In a seeming attempt to provide a potential buyer of federally-related residential property with a yardstick of its true value, section 909 requires a reconstruction of the history of past sales prices of the property. This is a roundabout method of accomplishing the desired result. The more direct route would be to attack the problem by obtaining an appraisal of the present value. While appraisal itself is still more of an art than a science, it is the technique best designed to arrive at true present value. It is the technique a careful buyer would employ to enable him to make a relevant bid to purchase the property. Appraisal results would seem to be of more direct benefit to an unsophisticated buyer than would a list of past sales prices and improvement prices which he must adjust for inflationary effects in order to arrive at a measure of the present worth of the property.

In many jurisdictions, the lender has no precise knowledge of earlier sales prices of property and has no easy but sure way to obtain them. Section 909 requires the lender, under threat of criminal penalty, to be certain that the seller or his agent has submitted to the buyer required information about earlier sales

prices and costs of improvements, at least 5 days before the lender commits itself to make the loan.

If the Congress feels this indirect approach to the problem is desirable, why does it not impose the obligations on the seller and his agent, upon whom the provision places the prime duty to submit information to the buyer? Why impress the lender into service when its main function is to provide the buyer a service by lending him the money he needs to complete the purchase transaction? Among the information to be disclosed is the present status of the property as to options or contracts to sell and the amount involved in these options or contracts. If matters of public record, these will be disclosed in a title search; if not matters of public record, the lender has no sure way to unearth the information. If they are not matters of public record, their existence without the lender's knowledge would not normally prejudice the lender's recorded first mortgage lien on the property.

Section 909 (b) speaks of "the last arm's length purchase price". What tests are to be employed in identifying whether the price truly represented an arm's length transaction?

The entire section changes the nature of the financial institution from an entity that supplies money to the borrower to an entity that constitutes a detective agency to assure that the buyer received information that may not be within the knowledge of the lending institution.

The whole section seems to be an ill-conceived attempt to use indirect means to enable the potential buyer to learn how the price he is being asked to pay for the property compares with its present value. Why not let the buyer engage the services of an independent appraiser to gain that information, as astute buyers do now?

SEC. 910-FEE FOR PREPARATION OF TRUTH-IN-LENDING STATEMENTS Section 910 forbids a financial institution from charging any fee for the preparation of a disclosure statement it is mandated by the Congress to prepare for the benefit of the buyer. If an institution cares to challenge this proposal judicially, it may find help in the Constitutional provision that protects the taking of property without due process of law. The provision would outlaw not only unreasonable fees, but purports to outlaw even a reasonable fee to recompense the institution for work it performs under Congressional dictate.

The Congress in enacting legislation should reflect upon the costs it is thereby imposing. Little can be done for nothing these days, even under Congressional dictate. Only so much money is involved in each transaction and the Congress is deceiving itself as well as others if it seeks to leave the impression that the economic incidence of added costs imposed by the Congress will not tend to shift indirectly, if barred from shifting directly. Because this shift usually places the ultimate incidence upon the customer as a buyer (or as a taxpayer if the Congress places the cost on the government) it is appropriate for the Congress to consider whether the benefits of the legislative proposals before it will actually outweigh the added costs they place upon the economic system.

SEC. 911-ESTABLISHMENT ON DEMONSTRATION BASIS OF LAND PARCEL RECORDING SYSTEM

Section 911 would direct the Secretary of HUD to establish in places he selects a computerized system for recordation of title to land parcels, in an attempt to make easier and simpler the transfer and mortgaging of land and to reduce the costs of those transactions. The section states that it aims at a nationally uniform computerized system of land parcel recordation.

This section is somewhat remote from the activities of National League members. The National League therefore withholds comment on it.

SEC. 912-TITLE COMPANIES

Section 912 licenses insurance-issuing title companies to perform title services in connection with issuing title insurance in a federally-related mortgage loan settlement. But it prohibits a title company from issuing title insurance in such a settlement if the seller owns or controls the title company. A treble-charge penalty applies to violators.

National League members engage in few real estate sales transactions as sellers. Usually this would occur only as to property acquired by the savings

and loan association because a borrower defaulted on his mortgage payments to such an extent as to cause the institution to take title to the property in an attempt to salvage its loan investment.

With encouragement from their Federal regulatory agency, many savings and loan associations have recently formed subsidiary corporations commonly known as service corporations to perform services generally related to savings and loan association activities. Any net profits from these activities then go to the savings and loan association or associations that own the service corporation, instead of going to individuals who may have ties with the association and perform through organizations they own the services performed by the service corporation.

In order to perform title company services, a service corporation must presently obtain the prior consent of the Federal Home Loan Bank Board on a case-by-case application. Each service corporation by consent of its owners is placed under the examination power of the Federal Home Loan Bank Board, which also has regulatory power over the savings and loan associations that own the service corporation. Consequently there would appear to be little uncontrollable danger in allowing a savings and loan association that is selling its "real estate owned" to make use of a title insurance policy issued by its service corporation in effectuating the sale, even though no such service yet exists. Therefore we would ask that an exception to the prohibition in section 912(b) be made in the case of service corporations owned by savings and loan associations, if the Congress decides to legislate provisions like those in section 912.

SEC. 913-LIMITATIONS AND DISCLOSURES WITH RESPECT TO CERTAIN FEDERALLY

RELATED MORTGAGE LOANS

Section 913 (b) would prohibit any FSLIC-insured institution from making a federally-related mortgage loan to a fiduciary unless it exacts as a prior condition that the identity of the loan beneficiary will at all times be revealed to the institution. That identity is to be reported to the Federal Home Loan Bank Board and made available to the public by the Board. A like provision would apply to FDIC-insured banks, other mutual savings banks and other cooperative banks under section 913 (a), but no provision would apply the prohibition to any other types of lenders involved in federally-related mortgage loans, such as credit unions, mortgage bankers or brokers, insurance companies or individuals.

Presumably one aim of these provisions is to diminish the possibility of having a lender exceed the limits placed on the amount of loans it can make to a single borrower. If so, it would seem adequate to require that the identity of the beneficiary disclosed by the fiduciary be reported to the Federal or other regulatory body. That body has the duty of enforcing regulatory restrictions.

The requirement for public disclosure would seem to violate the confidential nature usually accorded loans by financial institutions without adding any notable likelihood to observance of the regulatory requirements. The citizens of this country, including members of the Congress, guard the privilege of privacy of their business transactions unless some overriding public need demands otherwise.

If the Congress does not trust duly-appointed regulatory agencies to carry out their duties, it has recourse (which it proposes to take in section 904(d)) to the Comptroller General as its agent to check up on performance of duties by regulatory agencies involved in Federal matters; instead of overturning the confidential treatment customarily given to private business transactions.

SEC. 914-STUDY CONCERNING PAYMENT OF INTEREST ON CERTAIN ESCROW ACCOUNTS

Section 914 requires the Federal Reserve Board to conduct a study of escrow accounts maintained by financial institutions to require borrowers to make periodic prepayment of taxes, insurance and other items with respect to residential real property. The study is to determine the feasibility of requiring financial institutions to pay interest on such accounts. Results are to be reported to the Congress by June 30, 1973.

This section does not purport to limit the study to escrow accounts maintained for federally-related mortgage loans, which presumably are the only ones as to which the Congress would consider legislation.

On the other hand, the study would be directed only to financial institutions, omitting all other lenders that also maintain such escrow accounts. These could include credit unions, insurance companies and mortgage bankers and brokers. Because even now not all financial institutions maintain tax and insurance escrow accounts, the Congress should give some thought to the advisability of embarking the Federal Reserve Board upon a probably year-long study on this topic. A legislative requirement that interest be paid upon these escrow accounts, such as that contained in H.R. 13337, would undoubtedly result in a substantial decrease in the number of such escrow accounts maintained, even assuming legislation of this nature withstood challenges to its constitutionality. Whether the increase in defaults and foreclosures that could result if the borrower is unable to meet lump sum payment of taxes and insurance premiums when they become payable would really accomplish any help to the borrower by such mandatory legislation is highly questionable and the backlash might well find its way to the body that dictated such legislative requirements. No parallel action has been noted by the Congress to require payment of interest to those Federal taxpayers who are required to prepay Federal income taxes periodically; yet they are deprived of the use of that money to the same extent as is a borrower who is required to place funds in an escrow account to assure that taxes and insurance premiums will be paid when they become due.

CONCLUSION

In summary, the National League is disappointed with proposals to enact most of the provisions of Title IX. It believes that in an effort to help one class of citizens, the proposals often miss that mark while inflicting harm on other classes of citizens. In an economy as complex as that of the United States, no simple solutions exist to many economic problems. Those that the Congress has chosen to address itself to in Title IX deserve more careful and intensive attention to proposed legislative remedies than has been demonstrated to date in order to determine objectively their probable adverse effects on the economy. So far the members of the Congress involved in this legislation seem to have considered only what they deem to be plusses; the minuses have been seemingly ignored. The entire subject of settlement costs is one better left to consideration by the States and the citizens thereof in accordance with the spirit of the Tenth Amendment to the Constitution.

Sincerely,

The CHAIRMAN. Thank you, sir.
Mr. ST GERMAIN. A point of order.

WILLIAM F. MCKENNA, General Counsel-Vice President.

The CHAIRMAN. What is your point of order?

Mr. ST GERMAIN. I would like at this very moment to tell the people from the Savings and Loan League that the habit they have gotten into in the past of tacking amendments to the supervisory agencies, dealing with the supervisory banking agencies, has come to an end. I intend to make a point of order on any of these amendments that they contend relate to housing but really and truly to the integrity of the financial institutions involved. They deserve separate hearings and I might

The CHAIRMAN. The gentleman can reserve his point of order until it is appropriate to do so.

Mr. ST GERMAIN. Thank you Mr. Chairman.

The CHAIRMAN. You may insert additional matters.

Next is Mr. Bruce Zeiser.

Mrs. Heckler, I understand he is from your area and you requested that he appear. If you would like to introduce him briefly you may do so.

Mrs. HECKLER. Thank you, Mr. Chairman.

It is my privilege to present to the committee Mr. Bruce Zeiser, State representative from the town of Wellesley, Mass., which I am very honored to represent in this distinguished body, but a man who deserves the opportunity to be heard because of his indepth knowledge and credentials in the field of housing.

Representative Zeiser has previously served as assistant to the General Counsel of the FHA and he presently in addition to being a representative in the State government in the Commonwealth of Massachusetts is the State manager in the Boston office of the Lawyers Title Insurance Corporation.

We spent a great deal of time on the question of title insurance before this committee and I am very honored to present for expert testimony Representative Bruce Zeiser.

The CHAIRMAN. We are glad to have you, sir; and you may proceed in your own way.

STATEMENT OF HON. BRUCE ZEISER, MEMBER OF THE MASSACHUSETTS STATE HOUSE OF REPRESENTATIVES, ON BEHALF OF THE NEW ENGLAND LAND TITLE ASSOCIATION (NELTA)

Mr. ZEISER. Thank you very much, Mr. Chairman, and thank you, Mrs. Heckler. I really don't know how well I am going to do after that introduction but I will certainly try.

I am actually officially representing, as past president, the New England Land Title Association which is a regional association affiliated with the American Land Title Association. The remarks which I will submit to the record will be remarks of the New England Land Title Association (NELTA). I understand the American Land Title Association or ALTA also wishes to submit written testimony and I would hope the committee would accept that when it is submitted by ALTA.

It is true that I have worked in the housing field and have sat on your side of the affairs and looked at witnesses and although I had testified on the Senate side on this bill, it is still an interesting experience for me to be a witness but I am going to use the time and perhaps less than 10 minutes by limiting my comments to title 9 and with particular emphasis on certain of the differences between the Senate bill and the House bill. And I am going to make recommendation based on the feeling of our members and also to some extent on my own experiences, which years ago also included, as Mrs. Heckler said, a year and a half with the Federal Housing Administration.

There are a couple of differences between these bills that I think are significant. One of them is the definition of the federally related mortgage loan. In the Senate bill they are talking about one- to fourfamily houses and in your markup draft you are talking about all residential construction. This would include apartment house construction as well as single and double family houses.

Basically I think what you are trying to get at here is consumer legislation. I think you are concerned, and rightly so, about the effect of the whole title examination, title insurance, real estate closing aspect, in terms of the little fellow, if you will, the individual home buyer, who goes through this only once or twice or three times