H. Rept. 112-633 - 112th Congress (2011-2012)
July 31, 2012, As Reported by the Financial Services Committee

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House Report 112-633 - RESPA HOME WARRANTY CLARIFICATION ACT OF 2012




[House Report 112-633]
[From the U.S. Government Printing 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''.

           *       *       *       *       *       *       *