Mr. Chairman, today the subcommittee holds its second of two hearings on the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA). The purpose of today's hearing is to learn from the regulators -- the Department of Housing and Urban Development and the Federal Reserve Board -- about the prospects of fundamental RESPA and TILA reform as it relates to consumer protection when purchasing a home.
Last week we heard from the industry and consumer groups about the federal regulatory environment under RESPA and TILA. Generally, both groups agree that the current system affecting the homebuying process is not working and is in need of comprehensive reform. There is agreement that the consumer would benefit from clearer, more concise information given earlier in the process. A recent study commissioned by the mortgage bankers revealed that while the information that the borrower receives in relation to the home lending process is helpful, more than four out of ten consumers indicated there is simply too much infon-nation to comprehend. Consumers want straight-forward, easy to understand information that is given to them early in the application process.
The intent of the Real Estate Settlement Procedures Act of 1974 is to protect the consumer and keep the cost of settlement services down. Buyers are typically aware of the mortgage interest rate from firms that advertise in the newspapers. 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.
During last week's hearing, the mortgage brokers testified that they do not represent the consumer or the lender -- they represent themselves. The public perception, as we know, is that the mortgage broker represents the consumer and is working in their best interest. Unfortunately, this is not the case. As a result, there is a growing movement towards "buyer" brokers who represent the interests of homebuyers. But until the consumer is aware that such brokers exist, there will continue to be concern about who the mortgage broker or real estate agent represent and the need for overall RESPA reform.
A number of ideas and concepts are being discussed for RESPA and TILA reform that are worth mentioning. One-stop shopping, for example, has been suggested in 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.
Another is the growing use of computers and the Internet. As technology changes and the use of the Internet increases among homebuyers, there may be significant cost and time savings throughout the mortgage lending industry. The Internet could promote competition and become the major delivery channel for the homebuyer. This change could essentially enhance competition among mortgage brokers as it increases the information made available to the consumer. We are not there yet, however, and while the information superhighway is moving rapidly, we must continue to ensure that consumer protections are maintained throughout the homebuying process.
Consumer and industry groups are participating in a series of forums to determine if they can achieve a consensus on a reform package on RESPA and TILA. In my view, consumer participation is essential for this working group to succeed. If both groups remain focused on the goal to find common ground, continue to work together to form a consensus, and remain committed to their 9-month goal for recommendations for RESPA and TILA reform, then there is a very good chance that ftmdamental reform will take place.
I am encouraged that HUD and the Fed have been working together and will host a
public forum at the end of this month and then in the fall in an attempt to deten-nine how to
reform the cur-rent regulatory environment. We have learned over the past 23 years with
RESPA and TILA that as technology changes, the need to create a new framework for the real
estate and mortgage industry must be clear but flexible. I look forward to working with you in
achieving your goal to submit legislative recommendations to Congress by the end of the year
and to hear your suggestions and perspective on this complex issue.
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