Mary Clay Berry
Mary Clay Berry

Fellowship Title:

The Magical Power of Letters From Home

Mary Clay Berry
May 18, 1976

Fellowship Year

(This is the second of two newsletters on lobbying and the Real Estate Settlement Procedures Act of 1974.)

"RESPA, RESPA, on the wall, Who’s the fairest of them all?
Could it be William Proxmire?
No, for his name rhymes with quagmire."


WASHINGTON–The passage of the Real Estate Settlement Procedures Act of 1974 headed off, at least for the time being, any serious attempt by Congress to lower real estate settlement costs and introduce competition into the settlement process. The title insurance industry and their Washington lawyer, William T. Finley Jr. of Sharon, Pierson, Semmes, Crolius & Finley, had failed to get Congress to repeal a 1970 law which gave the Department of Housing and Urban Development authority to regulate settlement costs where federally-insured loans were involved. But HUD had stopped trying to use this authority and the companies hoped the subject would not come up again before Congress for several years.

They were to be disappointed. The second chapter of the RESPA story begins on the day in June 1975 when the bankers and realtors, whose involvement in the original legislation had been marginal despite Finley’s efforts to establish a RESPA coalition, woke up to discover that the responsibility for disclosing settlement costs to home buyers fell heavily upon the bankers’ shoulders and that common realtors’ practices might now be illegal. It took nearly two and a half years for the title companies and their allies, principally attorneys who handled real estate settlements, to convince Congress to pass RESPA. It took six months for the: lenders and real estate agents to dismember it.

As approved by Congress in December 1974, the essence of RESPA was disclosure. The law required that a potential home buyer be given an itemized written statement of settlement costs at least twelve days prior to settlement. The statement was to be prepared by the lender and the itemized costs were to be as accurate as possible although where it was impossible for the lender to give the exact cost, a “good faith estimate” was acceptable. If he was in a hurry to complete the transaction, the home buyer, but not the lender, had the right to waive the disclosure statement.

The law also required the disclosure of the previous selling price of property and the cost of improvements to it under certain conditions, a provision which grew out of Rep. Leonora K. Sullivan’s concern about “straw party” transactions in which a house changed hands several times on paper without actually changing ownership in order to boost its value.

RESPA required HUD to draw up an information booklet listing settlement procedures and costs which was to be given by lenders to potential customers. HUD was also to devise a uniform settlement statement that clearly itemized all charges to be imposed upon home buyers and sellers, for example, the broker’s commission, the loan origination fee, and various insurance charges and taxes.

Finally, the law prohibited kickbacks and other unearned fees, limited funds in escrow accounts, prohibited charges for the preparation of settlement statements or Truth-in-Lending statements, and initiated a study of ways to modernize the existing land records system.

There were criminal penalties for failure to comply with some sections of the law, including the anti-kickback sections Other sections allowed for civil suits.

From a consumer’s point of view, RESPA was not really much of a law. The theory was that disclosure would enable consumers to shop around for the best deal in settlement services but there is little evidence that it worked that way in practice. Because of confusion over what the anti-kickback section meant, no one found out whether a prohibition on unearned fees would actually lower settlement costs for the home buyer. The law did not repeal HUD’s authority to limit settlement costs in some cases but it is an authority HUD has never used.

After RESPA was signed into law, HUD had the responsibility for drawing up regulations to implement it, as well as for compiling the booklet and uniform settlement statement. Six months later, on June 20, a complicated set of detailed regulations went into effect.

There is no indication that, prior to June 20, lenders had any intention other than complying with RESPA. Various trade associations offered seminars for their members to show them how to obey the law or supplied them with literature explaining it. To the envy of the other trade associations, the American Bankers Association, a group which had had little to do with the evolution of RESPA, was “first on the street” with explanations of the new law. (This is not surprising since the association has a staff of more than two hundred persons whose primary work is research and “education” of this sort.) Other groups, such as the Mortgage Bankers Association and the National Association of Realtors, made similar educational efforts.

“There was no thought on anyone’s part of repeal,” said a lobbyist for the mortgage bankers. “We had fought like the duce to get the bill enacted. But when the regs came out, we said, ‘by God, this is ridiculous.’”

What was “ridiculous” from the lenders’ point of view was the complexity of the settlement statement, the paperwork involved (many bankers insisted they had to hire extra staff to cope with it), and the twelve-day waiting period. “I don’t think anyone realized what the twelve-day waiting period would mean,” said James B. Cash, an American Bankers Association lobbyist. This was further complicated by the fact that the bankers’ attorneys all advised them not to allow customers to waive the waiting period since the waiver was revocable.

The real estate agents had a different problem. Under the leadership of their trade association, they had been philosophically opposed to the regulation of settlement costs but not particularly concerned about it. They did not consider themselves to be affected by the settlement cost regulations HUD proposed in 1972 since the broker’s fee comes out of the seller’s pocket, not the buyer’s, and therefore, was not technically a settlement cost. In fact the realtors were not affected by the original bill which the title companies helped Rep. Robert G. Stephens draft. But, as the legislation wended its way through Congress, the definition of settlement services was expanded to include brokers’ fees.

“We were understaffed and it was months later we discovered he (Sen. William Brock) had included real estate services in the settlement services,” recalled Jo Ann Barefoot, then a lobbyist for the National Association of Realtors. The realtors tried to get this wording taken out of the bill but were unsuccessful.

“Their position had been the bill doesn’t involve us,” said William J. McAuliffe, executive vice president of and chief lobbyist for the American Land Title association, the title companies’ trade association. “We made efforts to get them involved. Their legislative staff, in my judgment, didn’t watch what was going on and it went too far before they tried to correct it. They didn’t wake up until just before the bill was signed.”

The broadened definition of settlement services meant that the realtors came under anti-kickback provisions of the law, for which there were criminal penalties. It raised the question of whether a whole range of practices, such as cooperative brokerage listings, was illegal. The realtors tried unsuccessfully to get a joint ruling on this from HUD and the Department of Justice.

As implemented, RESPA had no ill effects upon the title companies. But, according to McAuliffe, they knew that the lenders were going to try to scuttle RESPA and feared that doing so might lead to serious federal regulation of their industry.

“Some of us had invested a lot of time and money in RESPA,” said McAuliffe. That was certainly true. Twenty-odd title insurance underwriters split the cost of retaining Finley’s law firm. Finley’s fees for lobbying in 1974 alone amounted to more than $46,000 and his expenses, which his clients paid, were $6,426.88, according to records his firm filed with the Clerk of the House of Representatives. ALTA reported having spent $5,838.29 on lobbying efforts in the same year, The title companies did not want lose their investment just because HUD had written regulations with which the lenders and realtors found it hard to comply.

“RESPA was a pretty good example of people not knowing how things will work out in practice,” remarked one RESPA advocate. “The people on the other side (Rep. Leonora K. Sullivan and Sen. William Proxmire) were anxious to do something. But, by and large, they were very unyielding in what they wanted–twelve day disclosure, no waiver, a ‘tight’ protective kind of bill.”

The result was RESPA, a broad bill with “tight” regulations. “HUD was being responsive to the leadership in the banking committees, which opposed the bill,” said Barefoot. “So HUD was very conservative in its initial regs.”

When the HUD regulations implementing RESPA went into effect in June, congressmen, and not just members of the banking committees, were deluged with letters from banker constituents and realtor constituents, even an occasional consumer constituent, protesting the new law. Sen. Proxmire, who had opposed RESPA from the very beginning, told of attending the Wisconsin-Michigan football game one Saturday afternoon and being surrounded by people shouting, “Down with RESPA.” That night he went to a Green Bay Packers game and ran into pickets. And he received the poem quoted at the start of this article in the mail.

“You can imagine his reaction to that,” said a member of the Senate Banking, Housing and Urban Affairs Committee staff.

Sen. Proxmire, up for re-election in 1976 and furious about being blamed for a law he had urged his colleagues to vote down the previous year, wanted something done about RESPA quickly. At his direction, the committee sent out a letter to lenders, particularly in his home state of Wisconsin, asking for suggestions as to how RESPA could be improved.

The American Bankers Association wanted something done quickly, too. Actually, the bankers’ and the realtors’ trade associations found themselves in an embarrassing position. Before the regulations came out, most of them had engaged in some sort of educational campaign for their membership and, with the exception of the American Bankers Association and the National Association of Realtors, the trade associations were talking about legislation on which they themselves had worked to some extent. Then, in June, the law they had helped to draft turned out to be a paperwork nightmare for their members. (How real this nightmare was is debatable. Many banking association representatives will admit that bankers could have learned to live with the RESPA paperwork just as they had earlier learned to live with Truth-in-Lending.)

“It was a difficult position for us,” recalled one bank lobbyist. “We were going around explaining how to do it. Pretty soon we were not saying that we had supported that bill. We quickly let our membership forget that.”

Trade associations serve a variety of purposes but one of their principle functions is to keep their membership informed about legislation and administrative procedures that will affect them. Most publish journals and/or newsletters for this purpose. In the case of urgent issues, on which they hope to encourage members to write or telephone their congressmen, the most effective form of lobbying from their point of view since it combines industry pressure with constituent pressure, most organizations have something equivalent to what the realtors refer to as a “call to action” (RESPA never warranted a “call to action”, according to Barefoot).

While they should not be lumped together since the trade associations involved in the amending of RESPA do differ in a number of notable ways, most have similar methods of determining policy. In the case of the American Bankers Association, policy-making on issues like RESPA begins in the association’s housing and real estate finance division where the “parochial” view of member banks which are heavily involved in this area of banking is represented. However, the real policy-making forum is the association’s 80-member Government Relations Council. In the case of the realtors, their association has a 100-member legislative committee which meets several times a year with the staff of the association’s Washington office. Both the American Bankers Association and the National Association of Realtors have large staffs. The other trade associations involved in RESPA–the U.S. League of Savings Associations, the Mortgage Bankers Association, the National Association of Mutual Savings Banks, and the American Land Title Association–are all smaller but the policy-making process is similar.

Trade associations are assisted in their lobbying functions by industry-supported political action committees which distribute campaign contributions to Congressional candidates. In the case of some political action committees such as the Title Industry Political Action Committee, organized by ALTA, the amounts of money involved are very small. However, the Banking Profession Political Action Committee, which was set up a few years ago by the American Bankers Association, channeled $100,000 to candidates in the 1974 congressional elections. And the Realtors Political Action Committee, established by the National Association of Realtors, handed out almost $300,000.

On complicated banking and housing issues, these trade associations provide legislators with information and expertise which are both necessary and legitimate. “We can be a help to a staff guy in the House,” said Lee B. Holmes, staff vice president and a lobbyist for the U.S. League of Savings Associations. “We produce a lot of stuff which can be of use to congressmen. Sometimes it comes through the agencies, but it’s the same information. The original source is the trade organization.”

But there is another side to this. On most complex banking and housing issues, there is simply little consumer input. This is one area in which public interest lobbies have made little impact to date. Frequently what is involved is in-fighting within the banking industry and legislators have relatively little non-industry information upon which to base their actions.

The amending of RESPA was no exception. There was only one consumer group actively lobbying on this issue–the Consumer Federation of America. At first opposed to any change in the legislation (which CFA had not originally supported, fully understanding that it was devised by the title companies to avoid meaningful reform), the Consumers Federation finally came around to lining up with the title companies against the American Bankers Association which wanted to repeal RESPA immediately. Their motives were completely different but the CFA and the title companies worked together to preserve the pro-consumer shreds of RESPA. Generally, however, consumer lobbying is not very important in the area of banking and housing legislation. It is this, in addition to the campaign contributions, grassroots activity, Congressional savvy and excellent research that makes the American Bankers Association and other groups like it so powerful.

The American Bankers Association decided that RESPA had to go. Sen. Proxmire had sent them a copy of a proposed draft bill, along with an invitation to appear at hearings in September. The draft bill arrived just as the real estate finance division’s executive committee was meeting, according to Cash, and they quickly advised the Government Relations Group of what was up. Copies of the Proxmire letter and bill went out to members.

Cash insists that the association did not have to urge its 14,000 members to write their senators and congressmen. “The mail was spontaneous,” he said, with a laugh. “We didn’t have to generate anything on this.”

Cash, whose area of expertise is the Senate banking committee, said he talked with staff people about RESPA but no senators, not even Sens. Robert Morgan and Jake Garn who introduced legislation that would have suspended all the onerous sections of RESPA indefinitely. The volume of RESPA mail made it unnecessary for the American Bankers Association to bring in local bankers for “hard lobbying” of individual members.

“There are two things about lobbying,” remarked Cash. “First, you have to get the attention of the members. Then you have to persuade the members. With RESPA, it was easy.”

All the trade associations involved in amending RESPA deny that they had to encourage congressional mail.

“As far as the realtors were concerned, the letter writing after the HUD regs came out was spontaneous,” said Barefoot.

“To my knowledge there was no attempt to encourage letters,” said a lobbyist for one of the other banking associations. “I know we didn’t. Only to this degree–we’d get a phone call from a member (with a RESPA problem) and I’d tell him to tell the customer to write his congressman. Is that a letter-writing campaign?”

There were a few oft-cited letters from consumers complaining about nights spent in motels during the twelve-day waiting period but a careful examination of the letters which flooded into Washington shows that the great majority of them were not from consumers but from small town bankers (few large metropolitan banks complained). The letters have few of the earmarks of the conventional letter-writing–identical or similar words or paragraphs and little slips to indicate that the writer has had no personal experience with the legislation in question and does not really understand it. The RESPA letters were individual, highly articulate letters for the most part. Whether the letters were spontaneous is not really the important issue. The letters supplemented or were supplemented by the positions taken by the industry trade associations. Which came first is really a chicken-egg situation.

The associations’ positions varied. Most groups simply wanted the part of the legislation which caused them hardships corrected.

HUD revised the regulations but there were problems which only new legislation could resolve, Only the title companies knew as unequivocally as the American Bankers Association where they stood on the whole of RESPA.

“Garn had the support of the American Bankers Association and the realtors,” said McAuliffe. “The thrust of the proponents (of suspension) was that they wanted relief yesterday. We opposed that.”

“We sort of felt that their strategy was misguided,” said another RESPA advocate. “Suspension would have been the worst of all possible worlds.” The reason, of course, was that it might lead to tougher settlement cost legislation.

Accordingly, Finley, an associate, Sheldon B. Hochberg, who did most of the legwork for Finley in 1975, and ALTA representatives sat down to figure out what kind of changes were necessary to make RESPA workable. They looked for allies wherever they could find them. One of their first converts was Kathleen O’Reilly, a CFA lobbyist who had adamantly opposed suspension of RESPA’s disclosure provisions. Someone from Finley’s firm even called Cash at the American Bankers Association. Cash says he doesn’t remember the attorney’s name. “His basic view was while we have the attention of Congress let’s amend RESPA.” Cash was polite but noncommittal. “We were looking for relief,” he said.

Meanwhile, the staff of the Senate Banking, Housing and Urban Affairs Committee was working with HUD on a compromise bill. However, the senators would have nothing to do with it. After brief hearings on RESPA in September, Sen. Proxmire and the committee quickly approved legislation that had the effect of suspending the important provisions of RESPA for one year.

O’Reilly, who knew the staff was working on a compromise, thought the senator had promised, through a member of the staff, that there would be no consideration of the suspension bill until the compromise had been worked out.

“It was all a matter of timing,” she said. “We were working on an effort to stall it (suspension), talking to staffs, trying to work out a compromise.”

O’Reilly was disappointed. “Proxmire pulled the rug out from under me 24 hours later,” she said of her understanding with the staff. “At six o’clock one Wednesday evening, Proxmire made a deal with Garn to mark up the suspension bill. Kuttner (Robert L, Kuttner of the committee staff didn’t tell me anything about it. The mark-up took about two minutes. I didn’t know any-thing about it.”

“The key to the thing is Proxmire,” observed Professor Dale Whitman, a former Federal Housing Administration staff member now a professor of law at Brigham Young University in Utah and an authority on settlement costs.

A lobbyist who did not wish to be quoted explained that, after several defeats in the committee (of which he had just become chairman), Sen. Proxmire had evidently decided not to get into unnecessary fights with the other members. RESPA was just not worth it. After all, it wasn’t even a bill he had supported.

On the day the Senate approved a one-year suspension of RESPA, the Senate committee staff worked out a compromise that seemed acceptable to all parties except the American Bankers Association. Holmes remembers being asked by Kuttner whether the League could support the compromise. Holmes said he replied yes, they could, that disclosure was “a lot of Mickey Mouse” but that if it was what Congress wanted, go ahead. However, the Senate’s approval of suspension legislation on October 9 meant that it was up to the House to salvage disclosure and other consumer aspects of RESPA.

On October 22, Rep. Garry Brown introduced a bill in the House which got rid of the offending portions of RESPA while providing a sop of sorts to consumers–lenders would be required to provide potential buyers with a good faith estimate of closing costs at the time they applied for a loan. Brown’s bill also altered the anti-kickback section of RESPA to allow fee-splitting and multiple listings by real estate brokers. And it got rid of the provisions requiring disclosure of previous selling prices.

Brown’s bill was similar to the compromise worked out by the Senate committee and nearly everyone likes to take credit for it.

“We picked up the approach worked out by the Senate staff and pushed it through the House,’ said ALTA’s McAuliffe.

Hochberg, of the Finley law firm, worked hard on setting up a coalition to push for the compromise. O’Reilly remembers attending at least one meeting of the coalition, such as it was. O’Reilly talked personally with Reps. Brown and Fernand St. Germain about the compromise and felt she was particularly effective with Brown who, like O’Reilly, was from Michigan.

Jo Ann Barefoot visited Rep. Stephens to talk about the anti-kickback provisions of RESPA. And all the different types of bank lobbyists talked to their friends on the Hill and to one another.

“It was a cooperative bill,” said a bank lobbyist of Brown’s proposal.

“It was pretty much walked around,” remarked another RESPA lobbyist. “It was the only way to do it.”

The American Bankers Association stood alone in holding out for repeal, however, they modified their position slightly in a letter to Housing Subcommittee chairman William A. Barrett. “Our members and customers need immediate relief…and to the extent that H.R. 10283 (Brown’s bill) accomplishes this, we support its enactment,” wrote William W. Alexander, the American Bankers Association’s vice president.

“I think that the bankers got locked in by their decision-making group,” commented a housing lobbyist. “That happens. Sometimes you take a strong position and there is no possibility to go for something else. They were trying to kill the RESPA revision.”

Cash said the reason the association continued to push for repeal was that its staff and members did not think Congress could pass Rep. Brown’s bill quickly enough to give them relief.

But Congress did. Rep. Brown introduced his bill in late October. By mid-November, the House had passed what was essentially the Brown bill by a vote of 379-21. Representatives of both House and Senate committees met once to resolve their differences, the Senate committee having agreed to accept what was basically the Brown bill instead of a one-year suspension. The Senate committee wanted to require the lender to provide the buyer with a completed uniform settlement statement one day in advance of settlement in addition to the good faith estimate provided for in the Brown bill. They also wanted to give the Federal Reserve Board authority t require disclosure or all or a part of the information required in the Truth-in-Lending Act at the time a loan commitment was made. The conference committee was unable to decide what to do. “A pissing contest,” said one bank lobbyist. Finally the differences were worked out the day before Congress adjourned. The Brown bill was amended to require disclosure one day in advance. And, in the last few hours before the Members of Congress left for their Christmas vacations, RESPA was amended.

Most of the industry lobbyists who worked on RESPA during the second half of 1975 remember it as a nightmare. They were under unrelenting pressure from their constituents to get something done about that dreadful law quickly.

“I never saw an issue felt so strongly,” remarked Barefoot, who said that much of her time was spent listening to the complaints of member realtors.

“I’d hate to have to go through RESPA again,” said Holmes.

Nevertheless, most of the lobbyists associated with the revision of RESPA agree that it did not require much “hard lobbying” personal visits by bankers and realtors to Members of Congress, for instance. The banking committees simply caved in before the flood of protests, unable to withstand the combination of industry and constituent pressure.

Was this grassroots pressure orchestrated by the industry? Many members of the committee staffs think so. Anne B. Miller of the Senate banking committee staff remarked on the fact that, when the committee reported out legislation suspending RESPA for one year, the flood of angry letters dried up overnight.

Kathleen O’Reilly of the CFA believes that the letter-writing was highly selective. “The industry really got to work in Wisconsin putting the pressure on Proxmire,” she said. (By industry, she meant the American Bankers Association and its members.) And Rep. Frank Annunzio of Chicago, who has a record of support for consumer legislation, received few letters, according to O’Reilly.

Despite O’Reilly’s activities, there was little grassroots consumer support for RESPA. “I don’t think there’s much unrest in the countryside,” remarked a member of the lobbying coalition that supported the Brown bill.

RESPA was a poor law and not just from the industry’s point of view. Disclosure offered very little real protection to the home buyer and even less at the end of 1975. Forgotten in the skirmish over extra secretaries, mountains of paperwork, and disgruntled customers living out the twelve-day waiting period in motel rooms was the original question of how to lower settlement costs. Congress started out to address this in 1972 but was diverted from it by the title companies and their lawyers, in large part because there was no strong grassroots demand for reform. Even though the present law requires HUD to report back to Congress on the need for further legislation by 1980, the title companies’ lawyers served them well. If you ask members of the staff of either of the banking committees whether Congress is likely to take up settlement costs any time soon, they look at you as if you were crazy.

“The RESPA experience was very bad,” said Kenneth A. McLean, staff director of the Senate committee.

Congressmen remember RESPA.

Received in New York on May 18,1976

©1976 Mary Clay Berry

Mary Clay Berry, a freelance writer, is an Alicia Patterson Foundation award winner. She is studying lobbying in Washington, DC. This article may be published with credit to Ms. Berry as a Fellow of the Alicia Patterson Foundation. The views expressed by the author in this newsletter are not necessarily the views of the Foundation.