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Mortgage Bankers Association of America
88th Annual Conference

Remarks prepared for delivery by
Secretary Mel Martinez

Toronto, Ontario
Tuesday, October 16, 2001

Good morning. I appreciate your very warm welcome.

Jim, thank you for the kind words, and congratulations on surviving your first day as chairman. Thank you for your work on behalf of the mortgage industry and the homebuyers it serves.

I want to recognize your outgoing president, Andy Woodward. Andy, I appreciate the leadership you have brought to the Mortgage Bankers Association of America, especially as its president over the past year. Thank you for welcoming me when I first came to the Department of Housing and Urban Development and for breaking me in as the new Secretary.

I am honored by the invitation to participate in MBA's 88th Annual Convention.

The fact that this is your first annual meeting outside the United States says something important about the changing nature of the mortgage banking industry, and American commerce as a whole.

It hardly matters anymore whether a business partner is on the other side of the street or the other side of the world. Today, international borders can be crossed with a single click of a mouse. E-mail and Internet conferencing are the Pony Express of the 21st century, delivering information and bringing people together more quickly than ever before.

Our economy is a global economy in every sense, with new frontiers creating new opportunities. In many ways, the planet seems smaller. Events that matter in one country now matter in every country, because we are trading partners, we cross borders to visit family, we are enriched by each other's cultures and traditions.

Maybe this helps to explain why the attacks of September 11th were condemned from virtually every corner of this planet, and why the civilized world is now united behind the U.S. response.

I want to pay special tribute to our host nation. As a good neighbor and a great friend of the United States, Canada has stood shoulder to shoulder with us in every way. My government appreciates the unqualified support of this nation and the generosity of its people.

More than eighty nations, including Canada, lost countrymen amidst the destruction in New York, Pennsylvania, and the Pentagon. This was more than an attack on the United States. As President Bush said in his address to Congress, "Perhaps the NATO Charter reflects best the attitude of the world: An attack on one is an attack on all."

In every speech, President Bush has reassured the American people that he is resolved to winning the war against terrorism. And I am convinced that through his leadership, this President will prevail.

I wanted to come here this morning to tell you personally how much I appreciate the quick response of the lending community to these tragedies.

I was proud to speak for the industry when we stood beside families affected by the attacks - those who may have lost a breadwinner and had not yet had time to figure out how they were going to pay the mortgage. Mortgage bankers came to the forefront, and even though many of you were not required by law, you agreed to hold off on any foreclosures for 90 days. You showed compassion to these families during a very difficult time.

Later, when HUD advised lenders to reduce mortgage interest rates for military personnel on active duty, MBA immediately joined us to help spread the word to your customers. Military men and women are now free to focus on combating terrorism without fearing for their financial security back home.

Thank you for reaching out a helping hand.

Your actions are particularly commendable considering the personal loss of the men and women of the mortgage finance industry. Twenty-three MBA member companies had offices within the World Trade Center. Many other MBA firms are located nearby. My heart goes out to those of you who lost colleagues and loved ones.

In spite of our heartbreak, the President has urged the nation to get back to business. And somehow, we are.

MBA was no doubt tempted to cancel this conference in the days immediately following the attacks. But by coming together like this, a new agenda has taken root in your meetings and private conversations. Now MBA members want to know the implications of the attacks on your industry, how you can help your customers, how to spearhead disaster relief programs in your communities.

Well, I think the greatest service you can offer is to continue doing what MBA does best: helping families achieve the American Dream of homeownership.

Today, 72.3 million American families own their own home, the most at any time in this nation's history. I give a lot of the credit to MBA and its members. You provide the financing that makes homeownership possible for millions.

One of our top priorities at HUD is to expand the number of homeowners. This goal has the full support of President Bush. We all recognize that owning a home builds financial prosperity and emotional security. Just as importantly, homeownership creates stronger communities by turning tenants into stakeholders who get involved in their schools, work together to fight crime on their block, and become Little League coaches and soccer referees.

Minorities are achieving homeownership in record numbers, but at rates far below those of non-minorities. So we at HUD are focused on minority homeownership through initiatives like the American Dream Downpayment Fund and a new program that allows families to put their public housing vouchers toward a downpayment on a home.

President Bush has made it clear that this Administration will do everything in its power to give homebuyers all the information they need to make the right decisions for their families, and that we have high expectations of the lending industry. Earlier this year, in proclaiming National Consumer Protection Week, the President wrote, "While it is crucial that as many consumers as possible have access to credit, their access must not be hindered by unlawful lending practices."

I know that MBA works actively to bring cases of mortgage fraud and abuse to the attention of its members through conferences, mailings, and its web site. I applaud you, but I also say to you that this is not enough. The industry can - and must - do more to protect the homebuying public, and through better disclosure, empower consumers to shop for the financing that is right for them.

Although the purchase of their home is the single largest investment a family will probably ever make, most people are unprepared for the homebuying process. This is not by choice - the process itself is cumbersome and routinely fails to protect homebuyers.

At closing, 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. They are not told who is getting their money, or what services they are receiving in return. And because this is thrust upon the buyer at the last moment, they have no opportunity to determine whether these extra costs are at all reasonable.

On the spot, the purchaser is forced to make an impossible choice: either hand over the extra cash and sign, or lose the house.

Americans spend approximately $50 billion each year at closing, and I would suggest that most of them have no idea where their money went. This is unacceptable.

Congress first took on the problem in 1974 by enacting RESPA. RESPA curbed many troubling practices, but the process of buying a home has changed a great deal since then, and the law has not kept pace with industry practices.

HUD itself has issued a number of clarifications since 1976, and adopted new RESPA regulations in 1992 and 1994 and a new policy statement two years ago. The questions regarding disclosure of fees were never resolved, though, and repeated efforts to reach a consensus have been unsuccessful.

Our long-term goal is to make the homebuying experience less complicated, the paperwork requirements less demanding, and the mortgage process itself less expensive. As a first task, we will restore clarity to the process by finally reforming RESPA regulations. I invite your partnership in working together with HUD to create a user-friendly process that is, first and foremost, good for the consumer.

During my confirmation hearing, I said that RESPA reform was an area I felt a responsibility to address. I know that this is a difficult topic. In fact, the folks who counseled me to leave this issue alone call it the "third rail" of the finance industry: in other words, you touch it at your own risk.

But too many lenders and brokers have taken advantage of poorly informed homebuyers, and reforming RESPA now is the right thing to do. Consumers need it. The industry ought to embrace it. Because if we do it right, everybody benefits. Homebuyers will get the information they need in order to become intelligent, well-informed consumers. The lending industry will have fewer regulatory hoops to jump through.

Yesterday, I announced that HUD is opening a "rulemaking process" to begin the RESPA reforms that the industry and consumers need. It is time to begin removing the mystery from the maze of forms, fees, and procedures that families grapple with when they close on a new home.

As a central part of our efforts, we will require unprecedented disclosure from you, so that long before a family arrives for their closing, they know how much cash they will need; who is being paid, and for what services; and whether those costs are reasonable.

Ideally, this information should be available at the time a prospective homebuyer submits an application, so that they can use it to help them shop for the best loan, at the lowest cost, for their family.

Because I believe consumers should not have to wait for these protections while the rulemaking process is underway, I have written to FHA mortgage lenders strongly encouraging them to begin immediately disclosing all fees at the time of application. I am urging the rest of the mortgage lending industry to follow suit.

I look forward to MBA's support.

Most everyone agrees that the more financing options consumers have, the better. One of those options, the yield spread premium, can be a valuable tool for opening the doors of homeownership.

Unfortunately, yield spread premiums can - and have - been abused. We have all heard of cases where a broker persuades a homebuyer to accept a higher interest rate without a corresponding cut in upfront costs. Or a homebuyer is put into a higher interest rate than they qualify for, for the sole purpose of enriching the broker. The broker then pockets the yield spread premium, and the homebuyer is worse off.

HUD has always said that yield spread premiums are not illegal as long as the broker actually performs services for the buyer and the costs are reasonable. So in the second action HUD took yesterday, I sought to provide stability to the mortgage banking industry by clarifying HUD's long-standing rule and preserving yield spread premiums as a financing option.

The yield spread premium is an important homeownership tool that ought to be available for consumers to use in financing their homes. The cost of closing today is burdensome, especially for lower-income and minority families who have trouble saving enough cash to satisfy the downpayment and other closing costs. Yield spread premiums allow cash-strapped buyers to pay some or all of the settlement costs over the life of a mortgage. By retaining this financing option, we will give more Americans the opportunity to close on a new home.

The viability and the stability of the mortgage banking industry must be preserved, otherwise the flight from this segment of the industry will make it more and more difficult for families to finance their homes.

To accomplish these things, I issued a policy statement reaffirming the legality of yield spread premium - with the caveat that they ought to be fully disclosed at the beginning of the homebuying process. We also restated HUD's policy regarding the practice of up-charging, which the department has opposed for 20 years.

As part of RESPA reform, we are committed to simplifying the paperwork for homebuyers. Both the mortgage industry and consumer advocates have offered suggestions for improving disclosure forms and procedures.

We have heard your frustrations that HUD in the past has not done enough to enforce RESPA, basically rendering the law toothless. As a final step, we are making RESPA enforcement a priority and giving it more resources. This includes staff dedicated to studying complaints, a new $1.25 million contract for investigative services relating to RESPA compliance, and enhanced coordination of RESPA enforcement between HUD and the major federal banking regulators, to identify violators as a part of routine bank examinations.

With this stronger focus, we will not only respond to complaints, but move proactively against violators.

In the end, however, the first line of defense for a consumer should not have to be the court system. We need more homebuyers sitting at the settlement table, not sitting inside a courtroom. The comprehensive effort we are undertaking this week represents appropriate, achievable reforms.

HUD worked closely with consumers and lenders in crafting this solution, and I appreciate the input we received from MBA. I think the steps we have developed as a result offer an appropriate solution: both consumers and lenders benefit from increased disclosure and access to a range of home financing options.

I know that some of you are already going the extra mile by providing more disclosure to your customers, and I salute you for it. You are the model for the reforms we will require throughout the rest of the industry.

Quite frankly, there are practices within the lending community that in the long term, do not serve the public and do not serve the industry. Many homebuyers view the closing process as being filled with frustrations that reflect poorly on the entire industry. I do not condone these practices, and I know that you do not condone them either.

When the public comes to you for help in financing the home of their dreams, they deserve to do so in a consumer-friendly climate. They need to have the facts that will help them shop for the right mortgage. They need to know exactly how much they will pay at closing, and to whom, and what they will receive in return. The broker should be clear about whether they are working for the consumer or the lender or themselves.

If this critical information is not provided, the homebuyer should have the freedom to take their business elsewhere. This is the incentive that has been missing up until now, thanks to the lack of timely disclosure. And this is the incentive I intend to inject into the process.

As a past member of a bank board, I know how much good the banking community can do. Every day, families turn to you for help in making one of the most important decisions of their lives, and in return, you help them achieve their dreams and become homeowners. The journey from house-hunter to homebuyer cannot happen without you.

I am committed to working with you to create a homebuying process grounded in transparency and simplicity. We will ask more of you in the process and challenge you to your better nature. In doing so, I am convinced that we will inspire greater public confidence in the mortgage lending industry and make the American dream of homeownership a reality for more families.

Thank you.

Content Archived: March 11, 2010

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