11/13/2007 — 

MR. REED: Mr. President, today I introduce the Real Estate Transparency Act of 2007. This bill would amend the Real Estate Settlement Practices Act of 1974 to improve the early loan disclosures given to those applying for a mortgage, ensure binding and transparent payment agreements between mortgage originators and borrowers, and require that a borrower be given a copy of their final settlement statement at least one business day before settlement so that it can be thoroughly examined before closing.

As we are all too aware, current Good Faith Estimates do not provide enough useful information to help borrowers truly make informed lending decisions. We have heard too many stories of borrowers not understanding the terms of their loan or not being told about unexpectedly high settlement fees until they are at the closing table. This lack of early and appropriate disclosures regarding the terms of a mortgage loan and the costs of closing on that loan hinders a family's ability to shop for the best loan product for the purchase of a home, and also has allowed families to be taken advantage of by unscrupulous brokers and lenders.

First and foremost, the Real Estate Transparency Act would replace the current Good Faith Estimate with an early written settlement statement of all of the costs to be charged to that person at or before settlement of the loan. It would require that this early settlement statement be in the same form as the final settlement statement, currently known as the HUD 1. The borrower would not be liable for any fees which are not disclosed on this early settlement statement, except for third party fees within 10 percent of the cost listed on the early settlement statement, or fees for bona fide and reasonable expenses not anticipated by the mortgage originator for an inspection, appraisal, survey, or flood certification. This early written settlement statement should allow consumers to compare the costs associated with different loan products from different mortgage originators and shop around for the best product for them early in the process.

Second, this legislation would require for the first time that the HUD 1 or final settlement statement be provided to the borrower at least one business day before settlement. If this final settlement statement is not provided to the borrower, then lenders will be subject to statutory damages.

Third, this bill would require mortgage originators to provide borrowers with a written agreement itemizing all of the fees they may charge the borrower, including any origination fees, underwriting fees, broker fees, or other fees to be charged at or before settlement of such loan to be paid to the lender, the broker, or affiliates of the lender or broker. In addition, this written agreement would have to set out and explain three possible methods of payment for such fees: payment in cash before or at settlement; adding such fees into the loan amount to be borrowed; and increasing the interest rate of the loan. The borrower also could choose to both pay in cash and incorporate some of the fees into the loan amount. This written agreement regarding mortgage origination fees would have to be provided to the borrower within three days of application and be signed before the borrower is obligated to pay any of these fees. Not only should this provide greater transparency regarding what fees are going to be charged by the mortgage originator, consumers also can decide not to sign on the dotted line if they do not like the costs associated with the loan.

Finally, the bill subjects mortgage originators to statutory damages for violations of these disclosure provisions equal to the sum of the borrower's actual damages plus $5,000 for each instance such instance of noncompliance.

Congress needs to take many steps to address the subprime mortgage crisis and to reinstate confidence among our nation's homeowners and those we hope will become homeowners. I believe that giving consumers the information they need regarding their loan costs is a vital part of improving this complicated and often overwhelming process. Borrowers need to better understand the financial ramifications of choosing a certain loan product from a certain mortgage originator early in this process, and before they actually consummate the loan. I hope my colleagues will join with me in supporting this legislation that I believe will greatly improve mortgage loan disclosures.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.