Manzullo, Ranking Member Velazquez, Distinguished Members of the
you for the opportunity to join you this afternoon to discuss
the impact on small businesses of a major initiative of the Bush
Administration: our unprecedented effort to better protect consumers
and increase homeownership by making the home financing process
more transparent, simpler, and less costly.
emphasis Americans place on homeownership sets us apart from many
other nations of the world. In this country, homeownership provides
financial security for families and stability for children. It
creates community stakeholders who have a vested interest in what
happens in their neighborhoods. It generates economic strength
that fuels the entire nation.
Bush Administration is committed to helping more families achieve
the American Dream of homeownership.
do this, we must eliminate the homeownership gap that exists between
the minority and non-minority populations. Last year, the President
set a goal of creating 5.5 million new minority homeowners by
the end of this decade, and he challenged the real estate and
mortgage finance industries to work with us to boost homeownership
partners have responded enthusiastically, by making specific commitments
that will move us toward the President's goal. The Administration
is doing its part by proposing a number of new and expanded homeownership
initiatives in HUD's Fiscal Year 2004 budget. Each will help us
break through the barriers that prevent too many Americans from
knowing the security that comes with owning their own home.
mortgage finance process and the costs of closing remain major
impediments to homeownership. 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 major purchase. This makes them vulnerable
to predatory lending practices more often pushed on members of
minority or elderly populations.
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.
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).
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. Yield spread premiums are payments from
lenders to mortgage brokers that are reflected in a higher interest
rate. Since yield spread premium entails a higher interest rate,
it can be unclear whether the higher rate results in the borrower
being given a higher cost loan or whether it being used to offset
origination costs. 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 under RESPA.
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. There was general - virtually unanimous
- agreement among all the industry groups, as well as consumer
advocates, about the need for better disclosure: simpler, clearer,
and on a timely basis so consumers could shop for the best loan.
last year, we undertook a major reform of RESPA's regulatory requirements.
From day number one, we reached out to the affected industry groups
to ensure their involvement.
you know, the real estate settlement services industry is not
a single industry but several that provide settlement services
needed to help originate and close mortgage loans. Settlement
service providers include mortgage lenders, mortgage brokers,
real estate professionals, title insurers, title and settlement
agents, pest inspectors, appraisers, credit bureaus, and others.
These businesses range from the very large to the very small,
and include many sole proprietors. The combined efforts of settlement
service businesses, large and small, have helped to make the mortgage
finance system in this country the envy of the world.
the start of our reform process, we met with industry groups,
consumer advocates, and other interested parties to solicit their
concerns about the RESPA regulations and their suggestions for
reform. Many of their recommendations helped shape the direction
of our proposal.
we were drafting our reform proposal, we continued to meet with
industry groups, consumer advocates, and other interested parties
to ensure that, to the best of our ability, their concerns were
addressed in our draft proposal. We were methodical and deliberative
in our planning, and we took the time to get it right.
Nine months after first publicly announcing our intention to reform
RESPA's regulatory requirements - and well over a year after our
internal work had begun - HUD published its reform proposal for
public comment. Within the rule itself, we solicited additional
input from the industry groups, consumer advocates, and other
interested parties we had been communicating with throughout this
process. The rule asked 30 specific questions to help us gauge
the impact of our proposal on these various stakeholders. We felt
it was critical to know whether the approaches we have proposed
are the right ones - and if not, what alternatives may work better.
received nearly 43,000 public comments in response, although many
of them were form letters. The 18 weeks since the comment period
closed on October 28th, 2002, have been spent carefully studying
the written comments. Many have come from mortgage brokers and
title agents. Also, there were many detailed letters from trade
associations for these industries. As you can imagine, reviewing
and cataloguing the comments has been a lengthy process due to
the sheer volume we received.
comments, along with the meetings we have continued to hold since
October with industry groups, consumer advocates, and other interested
parties have been helpful in assisting the Department as we examine
the impacts of the proposal on small businesses, and consider
how best to minimize such impacts. All the while, we are keeping
in mind that the goal of RESPA is to ensure that settlement costs
for consumers are reduced.
the proposed rule was published last summer, alternatives have
been brought to our attention. Our thinking is evolving on how
portions of the proposal can be revised for the final rule, to
ensure that all businesses, large and small, can take advantage
of the opportunities presented by the rule.
remain committed to addressing the concerns raised by small businesses,
and we are continuing to work with the Small Business Administration's
Office of Advocacy as we develop the final rule. I want to assure
the Committee that our final rule, and the economic analysis to
be issued with it, will address the concerns raised by the affected
small businesses. The Department is committed to issuing a final
rule fully mindful of impacts on small businesses.
they ensure greater transparency, our proposed reforms will make
it more difficult for unscrupulous lenders to abuse borrowers.
But let me be clear that RESPA reform alone will not end predatory
lending. Efforts HUD has undertaken in the past two years to target
abusive lending practices include at least 15 new rules focused
on, among other priorities, weeding out unscrupulous appraisers,
ending the practice of quick re-sales or "flipping," and helping
us to identify problem loans and lenders early on. We intend to
do even more to address predatory lending while preserving a source
of credit for those with less-than-perfect credit histories.
is committed to creating a homebuying and mortgage finance process
grounded in transparency and simplicity. By reforming the rules
governing the purchase and financing of a home, we will create
new opportunities for first-time homebuyers, keep the American
dream of homeownership alive for more families, and inspire greater
public confidence in the mortgage lending industry.
would again like to thank the Committee for the opportunity to
meet with you today. I welcome your continued counsel as we work
together on behalf of the American people.