Mr. Chairman, it was one year ago when this subcommittee held two hearings on the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA). The purpose of the hearings was to learn from the consumer and industry groups and from the Department of Housing and Urban Development and the Federal Reserve Board about the prospects of fundamental RESPA and TILA reform. Today I look forward to hearing the recommendations that the Board and HUD have made on how to reform RESPA and TILA.
I am encouraged by the hard work that HUD and the Fed have engaged in over the past two years and the effort that both agencies have made to determine how to reform the current regulatory environment. This is no small task. But we have learned over the past 23 years with RESPA and TILA that as technology changes, so does the need to create a new framework for the real estate and mortgage industry. This framework, however, must be clear but flexible as it relates to consumer protection when purchasing a home.
The mortgage reform. working group, HUD and the Federal Reserve Board all have agreed that the current system affecting the homebuying process is not working and is in need of comprehensive reform. Most of us have experienced and know firsthand how difficult and confusing it can be to purchase a home. Determining what the best interest rate is and deciding how the points work and where to find information to compare costs is all very complex. And the decisions about the appraisal and the inspection and who represents the buyer all contribute to this complicated process. And we are all too familiar with the endless number of forms that we sign at closing and the difficulty of obtaining this information ahead of time. Consumers deserve a more straight-forward, easier system that is given to them early in the application process. They deserve to know the bottom line on what it will cost to buy a home.
Buyers are typically aware of the mortgage interest rate from firms that advertise in the newspapers, from mortgage brokers and more recently from online sources of information over the Internet. Not all consumers, however, have access to the Internet or are aware of how to shop for different interest rates and many times rely on the interest rate quoted to them by their broker. As a result, the consumer may not always get the best deal available.
While mortgage rates by themselves appear to be competively priced, there can be substantial differences about how other fees, such as points and loan origination and underwriting fees that determine the actual interest rate, are being charged. For example, a buyer may be pleased with the mortgage rate that has been negotiated only to discover late in the process that many charges and fees associated with the loan were not negotiated.
Settlement costs typically run from 3 to 5 percent of the home purchase price. Time constraints on the consumer and the complexity of the fees make it difficult to shop for these services. Some fees, like those for appraisals, pest inspections, title insurance and mortgage insurance may be shopped for, but the typical buyer is not likely to know where to look and how to compare prices.
One-stop shopping or bundling of services as suggested in this report is an effort to streamline service fees and encourage competition. This concept requires the lender to package all of the needed settlement services and offer this package at a single-price. Borrowers would then be able to compare this single price with that of the competitor which could bring about real competition among settlement providers.
Mr. Chairman, thank you for holding this hearing this morning in time to review the joint
report that HUD and the Board have made to Congress. I look forward to hearing their
recommendations and perspective on this complex issue.
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