Mr. Chairman, I want to thank you for calling this hearing and for your ongoing efforts to bring more clarity and precision to two very important consumer laws, the Real Estate Settlement Practices Act, and the Truth in Lending Act.
I also want to thank the witnesses and the organizations they represent for all their hard work. HUD and the Federal Reserve Board have taken on a very difficult task and done a very good job at it.
RESPA and TILA are the two laws that provide the foundation upon which protections in the arena of mortgage finance and consumer credit have been built. These laws have helped to ensure that consumers are better informed and more fully protected from unfair practices that needlessly raise mortgage and credit costs to the American people. Further, these laws have helped set the ground rules within which the American mortgage market, in particular, has been able to grow and thrive to the point where it is now the envy of the world.
Nonetheless, there is general consensus that these laws have some serious shortcomings, especially with regards to the mortgage process. Advances in technology and changes in the industry have made parts of these laws obsolete, less effective for consumers, and cumbersome for lenders, realtors, and other real estate professionals. Disclosures are often too inaccurate, or too late in the process to be of use to a consumer who wants to shop for a good mortgage deal.
This joint report appears to be, based on my review of the testimony, a very strong start to updating these consumer protection laws in a way that creates more certainty for lenders and provides more timely and accurate information for consumers.
The first issue in the testimony involves the Annual Percentage Rate or APR. The testimony seems to indicate that HUD and the Federal Reserve Board are recommending that the APR be expanded to reflect the full costs of a loan more accurately.
This is a crucial point, and I strongly congratulate the witnesses for reaching this conclusion. When a consumer takes out a loan, he pays a certain interest rate as well as points and transaction fees. Currently, it is extremely difficult for consumers to make accurate comparisons among loan options because there are, in effect, too many moving parts. Is it better to pay a higher rate and fewer points and fees, or a lower rate and more points? Today, consumers do not have a good basis on which to make this decision.
If the HUD/Fed recommendation is adopted, consumers will be armed, for the first time, with a single figure -- APR -- that allows them to make this important comparison and make an informed choice.
For many of these same reasons, I am also pleased to see that the testimony calls for greatly increased accuracy with respect to the disclosure of closing costs. As with the loan rate, homebuyers cannot now accurately assess the other costs associated with buying a home. Without knowing exactly, or nearly exactly, how much they will have to pay at the closing table, consumers cannot be good shoppers.
The Report apparently offers two alternatives to address this need: lenders and others can either offer a bundle of closing services whose price would be guaranteed to the consumer; or the lender can provide a good faith estimate, as currently required, except that the estimate must be accurate within certain tolerances. This is an important advance over current law if the tolerances are tightly crafted.
The timing of these disclosures is also crucial. It seems to me that a homebuyer, in order to be able to get the best possible deal available in the marketplace, has to know as accurately as possible, before they are required to pay a significant fee, how much it will cost, from beginning to end, to get a loan and close on a home. HUD reaches this same conclusion, and I commend them for it.
The testimony of the two witnesses raises some concerns in my mind regarding the suggested changes in the right of rescission. Frankly, from the testimony I am not clear what the Report recommends on this point. However, I would be very reluctant to support changes in the current law that undercuts a meaningful right of rescission.
Finally, Mr. Chairman, I am gratified to see that both HUD and the Fed are willing to address the problems of abusive lending practices.
All of us have heard stories about unscrupulous mortgage brokers and lenders who entice vulnerable, elderly homeowners to take out home equity loans with extremely high interest rates, outrageous fees, and other features, such as balloon payments or credit life insurance, that the homeowners cannot afford and do not understand. Often, the terms of these loans guarantee that the homeowner will soon have to refinance, generating a whole new round of fees for the broker and further financial hardship for the consumer.
Several years ago, this Committee responded to these problems by
passing legislation to provide additional protections for consumers
against some of these tactics. While very useful and important, today's
testimony makes it clear that we need to do more. The call for
expanding the coverage and increasing the protections provided by
current law against these abusive practices are extremely important, and
I look forward to working with both my colleagues on the Committee,
HUD and the Federal Reserve Board to implement these changes.
Home | Menu | Links | Info | Chairman's Page