Statement of Secretary Mel Martinez
before the Committee on Banking,
Housing, and Urban Affairs
U.S. Senate
March 20, 2003
Chairman
Shelby, Ranking Member Sarbanes, Distinguished Members of the Committee:
Thank
you for the opportunity to join you this morning to discuss the
impact 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.
The
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.
The
Bush Administration is committed to helping more families achieve
the American Dream of homeownership.
To
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 among
minorities.
Our
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.
The
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.
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).
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.
Beginning
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.
As
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.
At
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.
As
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.
HUD
received nearly 43,000 public comments in response, although many
of them were form letters. The 20 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.
These
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.
Since
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.
We
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.
Because
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.
HUD
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.
I
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.
Content Archived: June 25, 2010
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