[House Report 112-633]
[From the U.S. Government Publishing Office]
112th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 112-633
======================================================================
RESPA HOME WARRANTY CLARIFICATION ACT OF 2012
_______
July 31, 2012.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Bachus, from the Committee on Financial Services, submitted the
following
R E P O R T
[To accompany H.R. 2446]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 2446) to clarify the treatment of homeowner
warranties under current law, and for other purposes, having
considered the same, report favorably thereon with an amendment
and recommend that the bill as amended do pass.
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``RESPA Home Warranty Clarification Act
of 2012''.
SEC. 2. TREATMENT OF HOMEOWNER WARRANTIES.
Section 8 of the Real Estate Settlement Procedures Act of 1974 (12
U.S.C. 2607) is amended by adding at the end the following new
subsection:
``(e) Homeowner Warranties.--
``(1) In general.--Nothing in this section, section 2, or
section 3 shall be deemed to include, or be deemed to have
included, homeowner warranties or similar residential service
contracts for the repair or replacement of home system
components or home appliances.
``(2) Notice by home warranty company.--Any person that pays
another person not employed by the person for selling,
advertising, marketing, or processing, or performing an
inspection in connection with, a homeowner warranty or similar
residential service contract for the repair or replacement of
home system components or home appliances shall include the
following statement, in boldface type that is 10-point or
larger, in any such warranty or contract offered or sold as an
incident to or as part of any transaction involving the
origination of a federally related mortgage loan:
```NOTICE: THIS COMPANY MAY PAY PERSONS NOT EMPLOYED
BY THE COMPANY FOR SELLING, ADVERTISING, MARKETING, OR
PROCESSING, OR PERFORMING AN INSPECTION IN CONNECTION
WITH, A HOMEOWNER WARRANTY OR SIMILAR RESIDENTIAL
SERVICE CONTRACT FOR REPAIRING OR REPLACING HOME SYSTEM
COMPONENTS OR HOME APPLIANCES.'
``(3) Notice by real estate agent or broker.--Any person who
has contracted to receive payment from a provider of the
services described in paragraph (1) for recommending the
purchase of a home warranty or similar residential service
contract, and is not an employee of such provider, shall
provide the potential purchaser, upon first recommending the
purchase of a homeowner warranty or similar residential service
contract, a written notice containing the following language in
boldface type that is 10-point or larger (with the bracketed
matter being replaced with the information described by such
bracketed matter):
```NOTICE: THIS IS TO GIVE YOU NOTICE THAT [the
provider of the notice] HAS RECEIVED OR WILL RECEIVE
COMPENSATION FROM [the home warranty company] FOR [the
residential service for which the notice provider is
being compensated]. YOU ARE NOT REQUIRED TO PURCHASE A
HOME WARRANTY OR A SIMILAR RESIDENTIAL SERVICE CONTRACT
AND IF YOU CHOOSE TO PURCHASE SUCH COVERAGE YOU ARE
FREE TO PURCHASE IT FROM ANOTHER PROVIDER'.''.
Purpose and Summary
H.R. 2446, the RESPA Home Warranty Clarification Act of
2012, would amend current law to clarify that commissions paid
by home warranty companies to a real estate broker or agent are
permitted under the Real Estate Settlement and Procedures Act
(RESPA). H.R. 2446 would also require that a home warranty
company and real estate broker or agent each provide the
homeowner with a written notice that specifies the compensation
arrangement for the real estate broker or agent who sells,
advertises, markets, processes, or performs an inspection in
connection with a home warranty for the repair or replacement
of appliances or home system components.
Background and Need for Legislation
The Real Estate Settlement Procedures Act of 1974 (RESPA)
(12 U.S.C. 2601) requires lenders, mortgage brokers, or
servicers of federally related mortgage loans for one-to-four
family residences to provide borrowers with pertinent and
timely disclosures regarding the nature and costs of real
estate settlement services. RESPA also prohibits referral fees
or kickbacks among real estate settlement service providers to
prevent settlement fees from increasing unnecessarily. RESPA
also requires that a real estate settlement services provider
affiliated with a lender, mortgage broker, or servicer of such
loans through a business arrangement that provides a referral
to a borrower also provides the borrower with a disclosure
related to the business arrangement.
A home warranty is a service contract under which a home
warranty company provides repair or replacement coverage for a
home's system components and/or appliances. A real estate
broker or agent typically acts as a representative for the home
warranty company that offers the home warranty. The real estate
broker or agent receives a commission from the home warranty
company for presenting the home warranty to the home buyer, if
the homeowner purchases the warranty.
From 1974 to 1992, the Department of Housing and Urban
Development (HUD) provided no rules or guidance about the sale
of home warranties presented by real estate brokers or agents
at real estate settlements. In 1992, HUD issued regulations
which specified that ``homeowner's warranties'' are a
settlement service when ``provided in connection with a
prospective or actual settlement.'' In 2008, in response to an
individual inquiry, HUD's Office of General Counsel issued an
unofficial staff interpretation letter confirming that certain
compensation agreements between home warranty companies and
real estate agents violated RESPA. In 2010, HUD issued an
interpretive rule and subsequent guidance under which a home
warranty company's compensation of a real estate broker or
agent for presenting a home warranty to a borrower in
connection with a real estate transaction violated RESPA.
Between 1992 and 2010, however, HUD took no action to
explicitly prohibit home warranty companies from compensating
real estate brokers or agents for presenting home warranties to
borrowers in connection with real estate settlements. If
questions arose regarding the performance or enforcement of a
home warranty contract, the holder of the warranty had legal
redress through the state regulatory or judicial systems under
various contract, consumer protection, or other state laws.
During a hearing on home warranties held by the
Subcommittee on Insurance, Housing and Community Opportunity,
witnesses testified that the sale of home warranties was not
necessary or required to close a real estate transaction. These
witnesses also testified that the compensation of real estate
brokers or agents for the sale of home warranties should not be
treated as a violation of RESPA, unless the compensation
arrangement between the home warranty company and real estate
broker or agent was not disclosed to the borrower.
Hearings
On July 13, 2011, the Subcommittee on Insurance, Housing
and Community Opportunity held a hearing entitled ``Mortgage
Origination: The Impact of Recent Changes on Homeowners and
Businesses,'' to review H.R. 2446. This was a two-panel
hearing, and the following witnesses testified:
The Honorable Sandra F. Braunstein, Director
of Division of Consumer and Community Affairs, Board of
Governors of the Federal Reserve System
The Honorable Teresa Payne, Associate Deputy
Assistant Secretary, Regulatory Affairs, Department of
Housing and Urban Development
Ms. Kelly Cochran, Deputy Assistant Director
for Regulations, Consumer Financial Protection Bureau,
Department of Treasury
Mr. James R. Park, Executive Director,
Appraisal Subcommittee, Federal Financial Institutions
Examination Council
Mr. William B. Shear, Director of Financial
Markets and Community Investment, Government
Accountability Office
Ms. Anne Norton, Maryland Deputy
Commissioner of Financial Regulation, on behalf of the
Conference of State Bank Supervisors
Mr. Steve A. Brown, Executive Vice
President, Crye-Leike, on behalf of the National
Association of Realtors
Mr. Henry V. Cunningham, Jr., CMB President,
Cunningham & Company, on behalf of the Mortgage Bankers
Association
Mr. Tim Wilson, President, Affiliated
Businesses for Long & Foster Companies, on behalf of
the Real Estate Services Providers Council, Inc
Ms. Anne Anastasi, President, Genesis
Abstract and President, American Land Title Association
Mr. Mike Anderson, President, Essential
Mortgage, on behalf of the National Association of
Mortgage Brokers
Mr. Marc Savitt, President, The Mortgage
Center, on behalf of the National Association of
Independent Housing Professionals
Ms. Sara Stephens, President Elect,
Appraisal Institute
Mr. Don Kelly, Executive Director, Real
Estate Valuation Advocacy Association (REVAA), on
behalf of REVAA and the Coalition to Facilitate
Appraisal Integrity Reform
Ms. Janis Bowdler, Director, Wealth-Building
Policy Project Office of Research, Advocacy, and
Legislation, on behalf of the National Council of La
Raza
Ms. Ira Rheingold, Executive Director,
National Association of Consumer Advocates
Committee Consideration
The Subcommittee on Insurance, Housing and Community
Opportunity met in open session on December 8, 2011, and
ordered H.R. 2446 favorably reported to the full Committee by
voice vote.
The Committee on Financial Services met in open session on
March 27, 2012, and ordered H.R. 2446, as amended, favorably
reported to the House by voice vote.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto.
There were no record votes taken on amendments or in connection
with ordering H.R. 2446, as amended, reported to the House.
During consideration of H.R. 2446 by the Committee, the
following amendment and motion were considered:
1. An amendment offered by Mr. Hinojosa, no. 1, to require
home warranty companies and real estate agents or brokers that
receive compensation in connection with the purchase of a home
warranty to provide the home buyer with a written notification
regarding their selling and marketing of home warranties, was
agreed to by voice vote.
2. A motion offered by Mrs. Biggert to move the previous
question on H.R. 2446 was agreed to by voice vote.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee has held hearings and
made findings that are reflected in this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
The objective of H.R. 2446 is to make clear that
commissions paid by home warranty companies to a real estate
broker or agent are permitted under the Real Estate Settlement
and Procedures Act (RESPA). H.R. 2446 would also require that a
home warranty company and real estate broker or agent each
provide homeowners with a written notice that specifies the
compensation arrangement for the real estate broker or agent
who sells, advertises, markets, processes, or performs an
inspection in connection with a home warranty for the repair or
replacement of appliances or home system components.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimate
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
May 14, 2012.
Hon. Spencer Bachus,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2446, the RESPA
Home Warranty Clarification Act of 2011.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susan Willie.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
H.R. 2446--RESPA Home Warranty Clarification Act of 2011
Under current law, entities that provide settlement
services for real estate transactions involving federally
related mortgages may pay or accept fees to recommend a
specific service provider only if that provider actually
performs the service for which the fee was paid. (Settlement
services include activities such as document preparation, title
searches, and property appraisals.) H.R. 2446 would amend
current law to allow such fees to be paid for home warranty
services or service contracts to repair or replace home
appliances and other components of a home, regardless of who
provides the service.
The bill also would require new disclosures to the
purchaser of a home when the transaction involves a federally
related mortgage. Specifically, H.R. 2446 would require:
Providers of home warranty services to note
instances when persons not employed by the provider are
paid to perform certain services, and
Real estate brokers and agents to disclose
the receipt of compensation to recommend home warranty
or other residential services.
Based on information from the Bureau of Consumer Financial
Protection and other agencies with authority to regulate
activities related to federally related mortgages, CBO expects
that implementing the requirements in the bill would not
significantly increase the workload of any of the affected
agencies. CBO estimates that enacting H.R. 2446 would increase
direct spending; therefore, pay-as-you-go procedures apply.
However, CBO expects that such effects on spending would be
insignificant, that is, less than $500,000 annually. Further,
CBO estimates that enacting the bill would not affect revenues
or discretionary spending.
H.R. 2446 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would not affect
the budgets of state, local, or tribal governments.
The disclosure and notice requirements in H.R. 2446 are
private-sector mandates, as defined in UMRA. According to
industry sources, the cost to provide such notices would be
small. Therefore, CBO estimates that the cost to the private
sector of complying with the mandates would fall well below the
annual threshold established in UMRA for private-sector
mandates ($146 million in 2012, adjusted annually for
inflation).
The CBO staff contacts for this estimate are Susan Willie
(for federal costs) and Paige Piper/Bach (for the impact on the
private sector). The estimate was approved by Theresa Gullo,
Deputy Assistant Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of the section
102(b)(3) of the Congressional Accountability Act.
Earmark Identification
H.R. 2446 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI.
Section-by-Section Analysis of the Legislation
Section 1--Short title
``RESPA Home Warranty Clarification Act of 2012.''
Section 2--Treatment of homeowner warranties
Section 2 stipulates that section 8 of the Real Estate
Settlement Procedures Act (RESPA) (12 U.S.C. 2607), regarding a
``prohibition against kickbacks and unearned fees,'' as well as
RESPA sections 2 and 3 regarding Congressional findings and
definitions, would not apply to home warranties. A company that
pays a real estate broker or agent that sells, advertises,
markets, processes, or performs an inspection in connection
with a home warranty and during the origination of a mortgage
would be required to provide a borrower with a specific
disclosure in conjunction with the offer or sale of the home
warranty. A real estate broker or agent contracted to receive
payment from a home warranty company for selling or marketing
its home warranty product, must--upon recommending that a
borrower purchase the product--provide the borrower with a
specific disclosure.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (new matter is
printed in italic and existing law in which no change is
proposed is shown in roman):
REAL ESTATE SETTLEMENT PROCEDURES ACT OF 1974
* * * * * * *
PROHIBITION AGAINST KICKBACKS AND UNEARNED FEES
Sec. 8. (a) * * *
* * * * * * *
(e) Homeowner Warranties.--
(1) In general.--Nothing in this section, section 2,
or section 3 shall be deemed to include, or be deemed
to have included, homeowner warranties or similar
residential service contracts for the repair or
replacement of home system components or home
appliances.
(2) Notice by home warranty company.--Any person that
pays another person not employed by the person for
selling, advertising, marketing, or processing, or
performing an inspection in connection with, a
homeowner warranty or similar residential service
contract for the repair or replacement of home system
components or home appliances shall include the
following statement, in boldface type that is 10-point
or larger, in any such warranty or contract offered or
sold as an incident to or as part of any transaction
involving the origination of a federally related
mortgage loan:
``NOTICE: THIS COMPANY MAY PAY PERSONS NOT
EMPLOYED BY THE COMPANY FOR SELLING,
ADVERTISING, MARKETING, OR PROCESSING, OR
PERFORMING AN INSPECTION IN CONNECTION WITH, A
HOMEOWNER WARRANTY OR SIMILAR RESIDENTIAL
SERVICE CONTRACT FOR REPAIRING OR REPLACING
HOME SYSTEM COMPONENTS OR HOME APPLIANCES.''
(3) Notice by real estate agent or broker.--Any
person who has contracted to receive payment from a
provider of the services described in paragraph (1) for
recommending the purchase of a home warranty or similar
residential service contract, and is not an employee of
such provider, shall provide the potential purchaser,
upon first recommending the purchase of a homeowner
warranty or similar residential service contract, a
written notice containing the following language in
boldface type that is 10-point or larger (with the
bracketed matter being replaced with the information
described by such bracketed matter):
``NOTICE: THIS IS TO GIVE YOU NOTICE THAT
[the provider of the notice] HAS RECEIVED OR
WILL RECEIVE COMPENSATION FROM [the home
warranty company] FOR [the residential service
for which the notice provider is being
compensated]. YOU ARE NOT REQUIRED TO PURCHASE
A HOME WARRANTY OR A SIMILAR RESIDENTIAL
SERVICE CONTRACT AND IF YOU CHOOSE TO PURCHASE
SUCH COVERAGE YOU ARE FREE TO PURCHASE IT FROM
ANOTHER PROVIDER''.
* * * * * * *