WASHINGTON, D. C. The Committee will come to order. I want to thank the panel for assembling today before the Banking Committee for the second in a series of hearings on HUD's proposed rule to the Real Estate Settlement Procedures Act.
On March 20th, the Committee heard from Mel Martinez, Secretary of the Department of Housing and Urban Development on HUD's goal of reforming the real estate industry through this rule making. At that time, I, and several other members of the Committee expressed our agreement that the underlying goals behind HUD's effort are laudable. Simplifying the complex paperwork surrounding home buying has the potential to improve home ownership rates, eliminate unwelcome surprises from occurring at the settlement table, and increase competition within the industry. There is no debate on whether these are worthy goals.
Substantial debate, however, has centered around whether this proposed rule would accomplish those goals. Concerned parties from across the nation – and even internally in the federal government – have let HUD know of their concerns. During the public comment period and even after, a barrage of objections were released. HUD received in excess of 40,000 comment letters. Three committees or subcommittees on the House side have received testimony on this controversial proposal. This Committee met last month about the proposed rule to hear from the Administration and is again gathering to hear from consumer groups and industry groups about the impact this proposed rule would have on the central players in the $2 trillion real estate market. Additionally, we have received more mail on this issue at the Committee than on any other topic that I can recall.
My views on the proposed rule are widely known. In its current form, I think it is anti-competitive; significantly damaging to small businesses; and lacks effective provisions to provide clarification for consumers. While I feel there could be an emerging place for packaging in this current real estate environment, I have significant concerns that HUD's proposal allows packagers an exemption from disclosing fees. And I have not been able to get a satisfactory answer from anyone that explains why hiding information from consumer protects them..... in my experience, the best decisions are made when consumers are armed with all the information they need to make an informed choice. Transparency is a central component.
Regarding competition, I feel like this rule accomplishes the opposite of what is intended. The underlying principle of guaranteed mortgage packaging is that savings achieved through volume discounts with settlement service providers will be passed on to the consumer, resulting in lower settlement costs. What evidence is there to demonstrate that those savings would be passed on?
It is my fear that only large institutions would have the market power and volume of business to compete in that environment. The result could be that small businesses, who lack the resources of large lenders, could be shut out of the process and only large lending institutions would prevail. Ultimately, competition would be stifled, rather than enhanced, as the large players increase their market share and push small firms out of business. What incentive would exist then to pass on savings to the consumer?
Finally, the re-characterization of yield spread premiums as a lender payment to the borrower is misleading one that will limit the broker's ability to compete on a level playing field with lenders. It would not, in fact, lend "clarity" to the process. And this sentiment is not just my own. The Federal Trade Commission actually said that this change could "confuse consumers and lead them to misinterpret the overall cost of a transaction.
For these reasons and others that will likely be articulated this morning, I asked Secretary Martinez to reconsider this proposal and address these concerns. At our April hearing, I asked that the Secretary commit to issuing both a new, more thorough and expansive Economic Analysis and REVISED proposed rule that takes into consideration the results of the new Economic Analysis. I have hopes that he will do just that. I have conveyed the message that I firmly believe that it can only lend credibility to the process and win him points for being conscientious and fair.
Having said that, let's hear opening statements and then move on the first panel. We are pleased to have with us this morning, the Honorable Donald Manzullo, Chairman of the House Small Business Committee. His Committee, as he will likely elaborate on, held a hearing in March on the Impact of the RESPA rule on small business providers.
The second panel is comprised of industry and consumer groups which I will introduce individually once we move to the second panel.