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Mortgage Bankers Association of America
89th Annual Convention

Remarks prepared for delivery by Secretary Mel Martinez

Chicago, Illinois
Tuesday, October 22, 2002

Good morning.

It is a pleasure to be meeting again with the Mortgage Bankers Association of America. I have tremendous respect for the men and women of MBA. Your work is critical to the health of our national economy and the lives of every family hoping to build security and stability through homeownership.

I want to recognize outgoing president Jim Murphy. Jim, I appreciate the leadership you have brought to MBA. It was a big thrill for me at the 2001 conference in Toronto when you announced that MBA was dedicating a Habitat for Humanity house in my name. As you know, promoting the work of faith-based organizations is a top priority of President Bush. It is wonderful that MBA members are so deeply involved in Habitat's fundraising and building projects.

Three senior members of the HUD leadership team have joined me here today. FHA Commissioner and Assistant Secretary of Housing John Weicher, Ginnie Mae President Ronnie Rosenfeld, and Inspector General Ken Donohue are all doing outstanding work. I feel very fortunate to have the benefit of their considerable experience.

Thank you, John, for your very generous introduction, and congratulations as you officially take MBA's reins. I want to thank you for your leadership in the President's initiative to increase minority homeownership. The mortgage finance industry will play a vital role in meeting the President's goal to boost the number of minority homeowners by at least 5.5 million families by the end of the decade.

President Bush announced that goal in June when he rolled out America's Homeownership Challenge, the centerpiece of his efforts to close the homeownership gap that exists between minority and non-minority Americans.

Our response to the President's challenge was the Blueprint for the American Dream Partnership - an unprecedented public/private partnership that harnesses the resources of the federal government with those of the housing industry to accomplish the President's goal. We launched the Blueprint Partnership last week at the White House Conference on Increasing Minority Homeownership in Washington, DC. MBA has been a partner in this effort from the start, and I applaud you for your leadership on this initiative.

The President calls homeownership a "cornerstone of America" and I doubt that anyone here would disagree. The purchase of a home represents the path to prosperity for the vast majority of families. The ability of the American people to tap assets like their homes allows them to unlock what Peruvian economist Hernando DeSoto calls the "mystery of capital." Families can insure their homes against loss, borrow against them, and pass them on to their children. They can use their mortgage to help fund a new business.

Boosting minority homeownership has tremendous social benefits for individuals and families. At the same time, it spurs job growth, increases consumer spending, and increases the economic security of neighborhoods and the nation as a whole. A HUD study we released last week revealed that the potential economic benefit of adding 5.5 million first-time minority homebuyers is a staggering $256 billion.

Everyone in this room knows that when it comes to creating and spreading wealth, homeownership is a force like no other. The commitments that you and our other Blueprint for the American Dream partners have made are the key to helping us to close the minority homeownership gap and helping more Americans to create more wealth.

As the President said last week, "We can put light where there's darkness, and hope where there's despondency in this country. And part of it is working together as a nation to encourage folks to own their own home."

I told you last year in Toronto that one of the major ways this Administration is working to increase minority homeownership is by streamlining the mortgage finance process.

This time last year, I issued a policy statement clarifying HUD's position on yield spread premiums, preserving them as a financing option for families. At the same time, we recognized that there were serious disclosure problems involving yield spread premiums. Yield spread premiums were often used to generate additional profits through an unscrupulous business practice that placed unsuspecting borrowers in higher-rate loans without their knowledge. Of course, only a small percentage of brokers were involved in this kind of activity. Most are doing wonderful work in their communities.

In the process of issuing our policy statement on yield spread premiums, I committed HUD to establishing clearer disclosure rules, and to simplifying and improving the mortgage origination process.

Last October, we began a process to overhaul the regulations governing the Real Estate Settlement Procedures Act. And today, I am happy to report that we are nearing the finish line.

In addition to RESPA being an outdated and complicated law, we all know that mortgage finance is itself a complicated industry  - even for those who work in it. It is even more of a mystery for families who are undertaking a process of this magnitude for the first time. Too often, they are not armed with the knowledge they need. And the process itself is not very transparent.

This Administration is working to remove the uncertainty from the mortgage finance process and ensure that would-be homeowners - and existing homeowners looking to refinance - are armed with the facts. This will ultimately prevent unscrupulous lending practices and increase homeownership for those who seek it, particularly minorities.

After months of consultations with industry groups, consumer advocates, and federal agencies, HUD published its RESPA reform proposal for public comment on July 29. For nearly three months, people have had the opportunity to respond. The comment period is open for just one more week - until October 28.

The Proposed Rule addresses the inadequacies of the existing RESPA regulations in three ways:

The Rule fundamentally changes the way in which compensation to mortgage brokers is disclosed to borrowers. With these changes, the Rule ensures that borrowers understand the availably of yield spread premiums to help pay their closing costs and preserves their use for this purpose.

The Rule significantly improves HUD's Good Faith Estimate settlement cost disclosure. In so doing it makes the costs clearer to and firmer for borrowers, which will lead to lower settlement costs. Consumers will get the estimate before they have to make a commitment to a lender, giving them time to shop for the best loan to meet their needs.

As you know, HUD's current rules impede the ability of industry to offer simpler guaranteed packages of settlement services and mortgage loans to consumers. The proposed Rule changes this by removing regulatory barriers to allow any entity to develop and offer such packages if they choose to do so. It is not our intention to pick winners or losers in the economy but rather to unleash the creativity of the marketplace.

We believe that our proposal can reduce settlement costs by an average of $700 per closing. Overall, the annual savings to consumers could be as much as $8 billion. That kind of savings will allow many Americans who are priced out of the homebuying market today to buy a home.

Numerous industry groups, consumer advocates, and government agencies have publicly endorsed our efforts to simplify and streamline the homebuying process. I applaud the MBA leadership for its support.

Despite the broad support for our proposal, I know that not everyone is happy with it. Mortgage brokers, for example, tell me they feel they are being singled out. I can tell you that no segment of the industry is being singled out. My job as HUD Secretary, and my sole focus in this reform effort, is to protect the consumer, so that when they purchase a home, they understand exactly what they are paying for. Under our Proposed Rule, consumers are protected.

I am committed to this reform effort. Once we have read all the comments and carefully considered all of the significant issues raised, we will make any necessary revisions and, as quickly as possible, complete the Final Rule.

There is no question that the housing industry is vital to the success of the American economy. The events of September 11th, 2001, showed us just how important the industry has become; even though the economy hit a rough spot in the months that followed, the strength of the industry prevented much of the country from falling into recession. In light of our changing world, we need to do all that we can to help the housing industry grow and prosper.

The announcement I am making today about FHA-insured multifamily properties will help.

Since the events of 9/11, primary insurance companies have been excluding or limiting coverage for acts of terrorism in catastrophic loss insurance policies. This includes policies that cover multifamily properties. Even when such coverage is available, it is expensive, the terms are restrictive, and the coverage limits are low.

Although it was not required in the past, some lenders have begun requiring properties to secure terrorism insurance as a condition of the mortgage. Such coverage could cost the owner of a typical 100-unit project an additional $5,000 annually. This is putting a financial strain on existing properties and discouraging the construction of new properties.

In response, HUD is announcing that we will not require insurance coverage against acts of terrorism. In the event that an act of terrorism destroys or partially destroys an FHA-insured multifamily property, HUD will pay the claim to the lender.

This new policy will reduce costs for existing and future FHA-insured multifamily properties, and encourage the construction of new projects. At a time when affordable housing is difficult to find in certain pockets around the country, this is an important step in ensuring more options for renters and continuing economic growth in our country.

While we are passionate about our mission to increase the ranks of America's homeowners, HUD's agenda is broad and covers every aspect of single-family housing, multifamily housing, and urban and economic development.

Another important aspect of our work at HUD is providing affordable, safe, and decent housing opportunities to those who rent. Our rental assistance programs collectively help more than four million rental households. Along with help for renters, we continue to help communities meet housing and other needs through HUD's Community Development Block Grants and our HOME program. And our Administration is deeply engaged in meeting the challenge of homelessness.

Through all of our work, our focus is on helping families and individuals who never imagined owning their own home or becoming economically self-sufficient, to realize their own American Dream.

In this, we depend on your partnership.

The mortgage finance industry is one piece of an elaborate network this nation has developed to meet the housing needs of our citizens. It is a critical piece, for when it comes time for a family to finance the largest purchase most of them will ever make, they turn to you. The fact that anybody in this country - regardless of their background, or the place they were born - has the opportunity to purchase the home of their choice, in the neighborhood of their choosing, is a remarkable achievement. And you help to make it happen.

At the White House Conference on Increasing Minority Homeownership last week, I met a family that symbolizes everything the President is trying to achieve through his focus on minority homeownership. Their story should be an inspiration to all of us who work to make homeownership a reality for families in this country.

Carlos and Jane Arias and their son Gian Carlos arrived here as immigrants from Peru. They wanted to own their own home, but faced so many obstacles that homeownership to them was nothing but a dream. They did not speak English. They had no credit history in this country. And even if they could get a mortgage, they had little money to put towards a down payment and closing costs.

But through homebuyer education and down payment assistance provided by our Blueprint partners, the Arias family navigated their way through the process of establishing credit and buying a home. Just 18 months after arriving in this country, they became homeowners. In 18 months, they went from being new immigrants with little hope of ever owning a home of their own, to being homeowners. And last week, they got to tell their story to the President - just a few days before they were sworn in as American citizens.

I would say that if the Arias family can become homeowners in this country, the dream of owning a home is available to all Americans.

Through our work at HUD, the continued commitment of President Bush, and the support of partners like MBA, we will inspire more success stories like the one the Arias family has to tell. And our communities and the entire nation will grow even stronger as more families achieve the American Dream for themselves.

Content Archived: March 16, 2010

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