Watch ALTA's President Testify Live Today during Congressional Hearing
July 12, 2011
ALTA President Anne Anastasi will testify today during a hearing before the Financial Services Insurance, Housing and Community Opportunity Subcommittee titled “Mortgage Origination: The Impact of Recent Changes on Homeowners and Businesses.” The hearing begins at 2 p.m. ET., and you can view it here.
Click here to read Anne Anastasi’s written testimony
Anastasi joins 16 others on the witness list and will speak during the second panel, which consists of 10 witnesses.
Anastasi will testify that the best way to improve the mortgage origination process is to improve federally mandated mortgage disclosures, which would ultimately protect consumers and help them make educated decisions when obtaining a loan.
To improve federal mortgage disclosures and ensure consumers receive the information needed for them to shop for their mortgage and settlement services, ALTA suggests disclosures should be transparent and include accurate estimates so that consumers can get a complete view of their transaction and make informed decisions about their transaction. Also, nationally mandated disclosures should be flexible enough to allow for variations in a consumer’s individual transaction and should be modified to account for regional variations in closing practices.
“ALTA and its membership strongly believe that consumers are best protected when they are able to make informed decisions about their transaction based on transparent and accurate information,” Anastasi said. “This can be achieved by delivering disclosures in a timely fashion that encourage consumers to make informed decisions about closing services associated with their transaction and encourages them to investigate services that will protect their investment.”
Anastasi will testify that improving transparency by itemizing costs will help consumers understand their entire transaction. One significant change to the RESPA disclosures adopted in November 2008 and implemented in January 2010 was the introduction of “roll-up” lines and aggregate line item totals on the HUD-1 Settlement Statement. This concept was designed to help consumers shop for settlement services by making it simpler to aggregate classes of charges. While the stated goal was improving consumer understanding of charges, roll-ups have not been an effective tool for achieving this goal.
“Our experience has found that transparency, simplicity and itemization of charges are a more effective solution for consumers,” Anastasi said.
In the current forms, roll-ups lump fees into aggregate standard categories. Consumers are then encouraged to shop based on these aggregates. Alongside or underneath the aggregate, some (but not all) fees are itemized. Thus, consumers are given a disclosure that includes an aggregate fee that may not reconcile with an addition of the itemized fees listed underneath or alongside.
“ALTA members routinely see the confusion this causes for consumers who are unable to reconcile the numbers on the page,” Anastasi said. “A better solution would be to return the itemization and transparency from the previous GFE and HUD-1. Just like when you go out to dinner, your check doesn’t just give you a total price. Rather, each item is listed giving you a breakdown of what you pay for. These forms would allow consumers to see where their money is going and to better inquire regarding fees they find questionable.
"This level of transparency offers a better opportunity for consumers to shop for these additional services by providing them detailed information to use when going to other providers to obtain competing bids,” Anastasi continued.
Anastasi will also stress that mortgage disclosures should not prejudice consumers against protecting their financial investment. Certain services purchased as part of the real estate transaction protect consumers’ financial interests. Rather, mortgage disclosures should encourage consumers to investigate whether the service is in their best interest.
The choice of words used to refer to certain services can greatly influence consumers’ likelihood of purchasing those services and acting in their best financial interests. An example of this is Owners Title Insurance. Recent mortgage disclosure proposals use the term “not required” on the GFE to disclose to consumers the closing costs that are not mandated by the lender, but are available to consumer, including Owners Title Insurance. However, by calling a service “not-required,” these proposals contain a less than encouraging implication that the service is of less value to consumers.
“This message prejudices consumers against considering these services, even when these services are often in consumers' best interests and protection,” Anastasi said. “ALTA strongly encourages policymakers to avoid using the term ‘not required’ in these disclosures, and instead use terms like ‘recommended’ or ‘advisable.’ These terms encourage consumers to investigate services like owner’s title and make an informed decision.”
This concept was recognized by HUD in the current Settlement Cost Booklet where the guide encourages consumers to investigate these services, including an Owners Title Insurance policy, indicating: “If you want to protect yourself from claims by others against your new home, you will need an owner's policy.”
“If we have learned anything from the foreclosure crisis, it is that consumers should be encouraged to investigate products like Owners Title Insurance that help protect the consumers’ interest,” Anastasi said.