Secretary Martinez should be commended for his efforts and leadership to streamline the home buying process so Americans can shop for mortgages and better understand what will happen at the closing table. If implemented correctly, the proposed rule reforming the Real Estate Settlement Procedures Act (RESPA) regulations could help achieve these worthy goals.
While I applaud HUD for undertaking this reform, I have a few concerns about the proposed rule to ensure that the goals of the reform and HUD's intentions are achieved.
First of all, Yield Spread Premiums (YSPs), essentially the payments representing the difference between the underlying interest rate of the loan and the rate charged to the consumer, must go for closing costs and nothing else. Any other purpose should be classified as an illegal referral under RESPA law. According to a study by Freddie Mac and HUD's own analysis, 45 cents of every dollar of YSP does not go for closing costs, and that practice must stop.
Secondly, the Guaranteed Mortgage Package (GMP) as proposed by the reform should be limited to the prime market only. The exemptions provided by the proposed rule would make it too easy for subprime lenders to engage in predatory practices, which this committee has been working very hard to prevent. There are relatively straightforward ways that HUD could ensure that GMPs are only offered in the prime market.
Finally, there has to be a stiffer penalty for the failure to follow rules, such as a private right of action, or originators will ignore the new rules when it is to their advantage to do so.
As a result, I hope that you will work to incorporate some of these changes into your final rule. If done appropriately, I believe your proposed reforms will help more Americans achieve the dream of homeownership. I look forward to your testimony today.