America's Community Bankers
Remarks as prepared for delivery
Government Affairs Meeting
by Secretary Mel Martinez*
Tuesday, March 11, 2003
Thank you, Russ. I appreciate your generous introduction.
Our Administration has tremendous respect for America's banking
industry and the way in which you empower families to achieve the
"American Dream" of homeownership. Although your member banks have
evolved with the times and today serve not only individuals and
families, but small businesses, too, housing remains one of your
primary missions. In fact, ACB members originate more than a quarter
of all mortgages.
Your efforts are critical to the strength of our communities and
national economy - especially during this time of global uncertainty.
With the War Against Terrorism continuing and the attention of the
world focused on Iraq, America needs to be strong. The President's
initiative for stimulating the economy - with its focus on
reducing the family tax burden, promoting business investment, and
creating jobs - is one of our Administration's top priorities.
As the President has said, "We cannot be satisfied until every part
of our economy is healthy and vigorous."
The Administration's jobs and growth plan will boost the economy
at a time when just such a boost is needed.
The housing market will be key to helping us achieve this. As it
has over the past two years, housing continues to lead the way in
turning around the nation's economy. The recent news that sales
of existing homes rose in January to a new monthly record is yet
another indicator of the ongoing strength of the housing market,
and another sign of a strengthening economy.
Creating affordable housing options for more Americans remains
a critical component of the President's agenda. As a first step,
we want more families to become homeowners. And we want more of
those families to be minorities.
Homeownership reached record levels last year: 68.3 percent of
all Americans own their own homes. Yet, we continue to see a gap
between the homeownership rates of minorities and non-minorities.
By a significant margin, minority families are less likely to own
their own homes.
President Bush is committed to closing the gap. Last year, he set
a bold goal of creating an additional 5.5 million minority homeowners
by the end of this decade. HUD responded by launching our Blueprint
for the American Dream Partnership, and every segment of the housing
industry has joined with us to help meet the President's challenge.
Another way that we are working to increase homeownership, and
at the same time attack the problem of predatory lending, is by
reforming the Real Estate Settlement Procedures Act. This has been
a top priority of mine since coming to HUD.
Every day, Americans enter into mortgage loans - the largest
financial obligation most families will undertake - without
the clear and useful information they receive with most any other
After agreeing to the price of a house, too many families sit down
at the settlement table and discover unexpected fees that can add
hundreds, if not thousands, of dollars to the cost of their loan.
As a result, many homebuyers find the settlement process to be filled
with mystery and frustration.
This Administration is committed to streamlining the mortgage finance
process, so consumers can shop for mortgages and better understand
what will happen at the closing table. For these reasons, HUD has
proposed a major overhaul of the regulations governing the Real
Estate Settlement Procedures Act [RESPA].
Before getting into details, I want to thank ACB for its support
as we have moved forward on reforming RESPA. I have welcomed your
input throughout the process, and in particular the statement Chairman
Taylor gave two weeks ago when he testified before the Subcommittee
on Housing and Community Development. We have heard ACB's concerns,
and have worked hard to address them.
RESPA has been a priority of mine since I came to HUD. Shortly
after taking office, I was faced with a major RESPA issue: the legality
of yield spread premiums. In response, we issued a policy statement
repeating our view that as long as the broker's compensation is
for goods, facilities, or services, and the total compensation is
reasonable, yield spread premiums to the mortgage broker are legal
At the same time, we recognized that there were serious disclosure
problems involving yield spread premiums. We noted that less-scrupulous
brokers often used yield spread premiums to generate additional
profits, placing unsuspecting borrowers in higher-rate loans without
their knowledge. And so in the process of issuing the policy statement,
I committed HUD to establishing clearer disclosure rules for mortgage
broker fees, and to simplifying and improving the mortgage origination
process for everyone involved.
The experts told me that fixing this would be too difficult and
too controversial, and our efforts would probably not succeed. But
this problem is too important to ignore. Reforming RESPA is the
right thing to do.
Beginning last year, we undertook a major reform of RESPA's regulatory
requirements. After months of meetings with industry groups, consumer
advocates, and other interested parties, HUD published its reform
proposal for public comment on July 29, 2002.
HUD received nearly 43,000 responses while the rule was open for
public comment, which was a record for us. We have spent the 18
weeks since the comment period closed reviewing and cataloguing
each submission. Just as we have done since first undertaking this
massive effort, we have continued to meet with industry groups,
consumer advocates, and other interested parties. It was critical
that HUD know whether the approaches we have proposed are the right
ones - and if not, what alternatives may work better.
I believe that the Department has developed a well-crafted proposal
that can save consumers as much as $8 billion annually. That represents
an average reduction in settlements costs of $700 per closing. This
kind of savings will have the great benefit of increasing the number
of lower-income Americans who will now be able to buy a home. We
also expect our proposal to promote innovation in the marketplace
and inspire greater public confidence in the mortgage lending industry.
As we near publication of the final RESPA rule, we welcome input
from the industry on how we can best implement the rule to ensure
a smooth transition. We obviously want this to work in a way that
minimizes any disruption to the mortgage market.
Of course, tough regulations mean little if they are not backed
up by tough enforcement. We are doing this as well. In the past
two fiscal years, we have taken vigorous action against abusive,
fraudulent, and negligent lending institutions and individual lenders.
These investigations have resulted in more than 500 debarments,
another 500 suspensions, and close to 5,000 indemnifications.
I want us to be even more vigilant, so I have directed new resources
to HUD's enforcement activities. We are interviewing for additional
investigative staff this week, and by the end of March, we will
have tripled the number of enforcement personnel. These new resources
will help us to increase enforcement activities toward unregulated
Because they ensure greater transparency, our proposed reforms
will make it more difficult for unscrupulous lenders to take advantage
of borrowers. However, let me be clear that although RESPA reform
is an important tool for addressing predatory lending, it will not
end predatory lending on its own. And so we are attacking the predatory
lending problem while preserving a source of credit for those with
less-than-perfect credit histories.
I understand that abusive lenders constitute only the smallest
percentage of mortgage lenders. The vast majority of you are outstanding
businessmen and women who hold yourselves to the highest standards
and provide a valuable service in your communities. Yet, the activities
of only a handful of unscrupulous lenders can cast a shadow over
the entire industry.
HUD will devote all the resources at our disposal to putting abusive
lenders out of business.
In addition to expanding homeownership, HUD is expanding affordable
rental housing production. We have taken a number of critically
important actions that are helping to boost the supply of affordable
multifamily housing. These efforts have prompted an enormous increase
in activity in FHA's major multifamily program. Community banks
continue to play a leadership role in the production of affordable
housing by providing funding for multifamily projects across the
Earlier, I mentioned that HUD has introduced a number of exciting
initiatives to close the minority homeownership gap. Today, I am
expanding that list by announcing a new proposal that will provide
additional financing options to those seeking FHA-backed mortgages.
More financing options, of course, mean more homeownership opportunities
We are proposing to expand our offerings of adjustable-rate mortgage
products on FHA-insured mortgages. Our plan would provide additional
ARMs tailored to the financial conditions and desires of the borrowers.
Consumers would be able to choose mortgages with periods of three,
five, seven, or ten years during which time the interest rate would
be fixed. Homebuyers would have the security of knowing their payment
could not increase during that time.
We estimate that as many as 40,000 families a year will choose
these new adjustable-rate mortgages to finance their home purchases.
This represents yet another financing tool and another option for
making affordable homeownership a reality.
In closing, let me say that the federal government, consumers,
and the lending industry are linked by our mutual goal of creating
housing opportunities for more Americans. We should be proud of
our accomplishments over the past two years, but we cannot rest
on them. We have much more to achieve together, and our best hope
of being successful is to work in close concert with each other
guided by the same high standards and principles, and motivated
by the same goals.
I look forward to strengthening HUD's partnership with ACB and
its members in the coming months, as we pursue the goal we share
of opening the American Dream to more families and individuals,
and opening up our communities to new opportunities for growth and
***THIS IS NOT A TRANSCRIPT OF THE SECRETARY'S
Content Archived: March 16, 2010