Statement of John C. Weicher
January 6, 2004
Assistant Secretary for Housing
before the U.S. House of Representatives
Committee on Small Business
Chairman Manzullo, Ranking Member Velazquez, Distinguished Members
of the Committee:
you for the opportunity to testify this morning before the Committee
on Small Business of the United States House of Representatives
regarding the procedures that were used by the Department of Housing
and Urban Development to develop the Real Estate Settlement Procedures
Act reform rule.
want to start by stating that we at HUD have been working to comply
with all applicable law, and with the widest public involvement,
to carry out our responsibility to lower settlement costs to consumers
under RESPA in this rulemaking.
a key part of this process, we have worked diligently to satisfy
all applicable legal requirements and procedures, including those
that require analysis of the regulatory burden these changes may
bring to small businesses. Acting Secretary Jackson and the Department
are committed to full compliance in agency rulemaking. That commitment
applies to our rulemaking in general and to our RESPA rulemaking,
former Secretary Martinez testified last March, HUD regards RESPA
reform and the involvement of small businesses as necessarily complementary;
for RESPA reform to work, small businesses must continue to serve
their key role in an efficient and effective settlement process.
Small businesses perform important functions in real estate settlement
transactions because these transactions are by their nature local.
Real property is, of course, local, and a local realtor, appraiser,
settlement agent and mortgage broker or mortgage banker is ordinarily
required to complete the transaction. Because of the importance
of small businesses in making mortgage credit available to increase
homeownership, HUD as much as anyone is sensitive to the need to
assure that small entities are able to continue to play their key
role in the settlement process. At the same time, we also need to
make sure that we are carrying out the statute's purpose as we comply
with all other legal requirements.
President has set a national goal of increasing homeownership and
creating 5.5 million new minority homeowners by the end of this
decade. Because RESPA reform holds the promise of lower costs, this
effort has become a key part of the Administration's homeownership
effort. The mortgage finance process and the costs of a down payment
including closing costs are major impediments to homeownership.
Every day, Americans choose not to purchase homes because the process
of buying and financing a home is unnecessarily daunting and complicated.
Others stay away because they don't have the cash for a down payment
-a large part of which are settlement costs. For those that do embark
on the mortgage process, too many families find the process far
too confusing and too costly. We regard this rulemaking as a major
Administration initiative to better protect consumers and increase
homeownership by making the process of obtaining a home mortgage
simpler and clearer for American families.
is a consumer protection statute that was enacted in 1974 to lower
real estate settlement costs by assuring appropriate disclosures
of these costs to consumers including at the time of mortgage application
and at the time of settlement, and by prohibiting kickbacks, referral
fees, splits of fees, and unearned fees in mortgage transactions.
The law explicitly permits HUD to exempt particular classes of transactions
from these prohibitions to benefit consumers.
1974, the industry has changed dramatically and technology has brought
new efficiencies to lower costs, but the RESPA statute and rules
have remained essentially static. In 1998, as a result of direction
from Congress, HUD and the Federal Reserve offered a variety of
proposals to simplify and improve disclosures under RESPA. Shortly
after the Bush Administration took office in 2001, a major RESPA
issue confronted policy makers: the legality of yield spread premiums,
payments to mortgage brokers from lenders based on the interest
rates of individual loans. This issue came to a head following an
Eleventh Circuit U.S. Court of Appeals decision that called into
question the legality of these payments under RESPA. Because
the decision potentially jeopardized the legitimate use of these
payments to lower upfront settlement costs to consumers, HUD issued
a clarification to an earlier policy statement on this issue. RESPA
Policy Statement 2001-1 reiterated HUD's 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.
the process of issuing the policy statement, it once again became
evident to the Department that there were serious problems in the
real estate settlement process. Therefore, in the policy statement,
the Department committed itself to simplifying and improving settlement
cost disclosures and the settlement process for all involved.
July 2002, almost eighteen months ago, HUD published its proposed
RESPA reform rule to simplify and improve disclosures provided at
the time of mortgage application, in order to facilitate shopping
by borrowers and to increase competition to lower settlement costs.
HUD's proposal was in important respects informed by the joint HUD
- Federal Reserve 1998 report as well earlier HUD rulemakings on
mortgage broker fees. Most importantly, the proposed rule was the
culmination of years of review of these issues as well as consultation
with a wide variety of industry, consumer and government representatives.
AND SMALL BUSINESS ANALYSES
the time the proposed rule was issued, the Department issued an
economic analysis and an initial regulatory flexibility analysis,
in accordance with the Regulatory Flexibility Act as amended by
the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA).
These analyses addressed the market impacts of RESPA reform, and
the compliance and regulatory consequences of the proposed rule,
including the consequences as they related to small business.
recognized the significance of its proposed rule and the desirability
of full public discussion. Therefore, in order to maximize public
comment on its proposal, HUD extended the public comment period
for the rule, the economic analysis and the initial regulatory flexibility
analysis from the usual 60 days to 90 days. HUD also asked for comment
on 30 specific questions, to ensure that all major issues were fully
the end of the comment period, on October 29, 2002, HUD had received
a record number of comments, nearly 43,000. Of these, about 400
were substantive responses, detailed letters from a broad range
of industry, consumer and government representatives. These 400
responses covered all aspects of the rule and addressed all of the
30 questions raised by HUD in the proposed rule. The remainder were
short letters, in many cases form letters, expressing opposition
to the rule but not offering alternatives or suggestions for improvement.
the period of almost 18 months since the rule was proposed and almost
15 months since the comment period ended, the Department has met
with interested groups. We have held more than 60 such meetings
with interested groups and parties as well as maintaining continued
contact with interested government agencies, and we believe that
we have met with every group that has expressed a desire to meet
with us. These meetings have certainly included representatives
of affected small businesses. We have heard the views of these groups
concerning the proposal's impact on them, and their suggestions
for revisions. During this time, we also testified before and benefited
from the views of Congress including this Committee as well as the
House Committee on Financial Services and the Senate Banking, Housing
and Urban Affairs Committee.
TO THE IRFA
comments that we have received and the meetings that we have held
have included discussions of the Initial Regulatory Flexibility
Analysis (IRFA). In developing the final regulatory flexibility
analysis we considered these views and gave careful attention to
the guidance of the Office of Advocacy of the U.S. Small Business
Administration. This guidance helped us consider how best to minimize
burdens, while keeping in mind the objectives of our reform effort.
RULE UNDER REVIEW
December 16, 2003, HUD submitted a final rule, economic analysis
and final regulatory flexibility analysis to the Office of Management
and Budget (OMB) for Administration review. Because the rule has
been formally submitted to OMB and is still under review there,
I cannot comment on the specifics of any part of the rule or the
accompanying analyses. Discussing the rule or these analyses while
the rule is under OMB review would undermine the deliberative process
and interfere with the ability of the Executive Branch to make decisions.
Nonetheless, I can say that in my experience at HUD over four administrations,
there are nearly always changes between a proposed rule and a final
rule, based on the comments received. Indeed, making changes effectuates
the purpose of public comment.
can testify that we have worked diligently to follow applicable
procedural requirements to assure that the final rule satisfies
RESPA's intent, and that the process itself has satisfied applicable
small business related requirements as well as the other procedural
requirements of the Administrative Procedures Act. I can also assure
you that there has not been a rush to promulgate this regulation,
but rather a deliberate and careful effort to ensure that the letter
and spirit of RESPA, the Administrative Procedures Act and the Regulatory
Flexibility Act of 1996, as amended by the Small Business Regulatory
Enforcement Fairness Act of 1996, are fully satisfied.
believe that the Department has developed a comprehensive, balanced
rule. In developing it we carefully considered all comments offered
by the public, including the comments offered by settlement service
providers such as title agents, brokers, appraisers, credit bureaus,
consumers, and others that provide the basis for changes in the
thank the Committee for the opportunity to meet with you today.
Your continued interest in the Department's efforts to reform RESPA
is evidence of the importance of the issues we are addressing, and
I can assure you that we recognize their importance.
Content Archived: June 25, 2010