America's Community Bankers Government Affairs Meeting

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Remarks as prepared for delivery
by Secretary Mel Martinez*
Washington, DC

Tuesday, March 11, 2003

Thank you, Russ. I appreciate your generous introduction.

Our Administration has tremendous respect for America's banking industry and the way in which you empower families to achieve the "American Dream" of homeownership. Although your member banks have evolved with the times and today serve not only individuals and families, but small businesses, too, housing remains one of your primary missions. In fact, ACB members originate more than a quarter of all mortgages.

Your efforts are critical to the strength of our communities and national economy - especially during this time of global uncertainty. With the War Against Terrorism continuing and the attention of the world focused on Iraq, America needs to be strong. The President's initiative for stimulating the economy - with its focus on reducing the family tax burden, promoting business investment, and creating jobs - is one of our Administration's top priorities. As the President has said, "We cannot be satisfied until every part of our economy is healthy and vigorous."

The Administration's jobs and growth plan will boost the economy at a time when just such a boost is needed.

The housing market will be key to helping us achieve this. As it has over the past two years, housing continues to lead the way in turning around the nation's economy. The recent news that sales of existing homes rose in January to a new monthly record is yet another indicator of the ongoing strength of the housing market, and another sign of a strengthening economy.

Creating affordable housing options for more Americans remains a critical component of the President's agenda. As a first step, we want more families to become homeowners. And we want more of those families to be minorities.

Homeownership reached record levels last year: 68.3 percent of all Americans own their own homes. Yet, we continue to see a gap between the homeownership rates of minorities and non-minorities. By a significant margin, minority families are less likely to own their own homes.

President Bush is committed to closing the gap. Last year, he set a bold goal of creating an additional 5.5 million minority homeowners by the end of this decade. HUD responded by launching our Blueprint for the American Dream Partnership, and every segment of the housing industry has joined with us to help meet the President's challenge.

Another way that we are working to increase homeownership, and at the same time attack the problem of predatory lending, is by reforming the Real Estate Settlement Procedures Act. This has been a top priority of mine since coming to HUD.

Every day, Americans enter into mortgage loans - the largest financial obligation most families will undertake - without the clear and useful information they receive with most any other major purchase.

After agreeing to the price of a house, too many families sit down at the settlement table and discover unexpected fees that can add hundreds, if not thousands, of dollars to the cost of their loan. As a result, many homebuyers find the settlement process to be filled with mystery and frustration.

This Administration is committed to streamlining the mortgage finance process, so consumers can shop for mortgages and better understand what will happen at the closing table. For these reasons, HUD has proposed a major overhaul of the regulations governing the Real Estate Settlement Procedures Act [RESPA].

Before getting into details, I want to thank ACB for its support as we have moved forward on reforming RESPA. I have welcomed your input throughout the process, and in particular the statement Chairman Taylor gave two weeks ago when he testified before the Subcommittee on Housing and Community Development. We have heard ACB's concerns, and have worked hard to address them.

RESPA has been a priority of mine since I came to HUD. Shortly after taking office, I was faced with a major RESPA issue: the legality of yield spread premiums. In response, we issued a policy statement repeating our view that as long as the broker's compensation is for goods, facilities, or services, and the total compensation is reasonable, yield spread premiums to the mortgage broker are legal under RESPA.

At the same time, we recognized that there were serious disclosure problems involving yield spread premiums. We noted that less-scrupulous brokers often used yield spread premiums to generate additional profits, placing unsuspecting borrowers in higher-rate loans without their knowledge. And so in the process of issuing the policy statement, I committed HUD to establishing clearer disclosure rules for mortgage broker fees, and to simplifying and improving the mortgage origination process for everyone involved.

The experts told me that fixing this would be too difficult and too controversial, and our efforts would probably not succeed. But this problem is too important to ignore. Reforming RESPA is the right thing to do.

Beginning last year, we undertook a major reform of RESPA's regulatory requirements. After months of meetings with industry groups, consumer advocates, and other interested parties, HUD published its reform proposal for public comment on July 29, 2002.

HUD received nearly 43,000 responses while the rule was open for public comment, which was a record for us. We have spent the 18 weeks since the comment period closed reviewing and cataloguing each submission. Just as we have done since first undertaking this massive effort, we have continued to meet with industry groups, consumer advocates, and other interested parties. It was critical that HUD know whether the approaches we have proposed are the right ones - and if not, what alternatives may work better.

I believe that the Department has developed a well-crafted proposal that can save consumers as much as $8 billion annually. That represents an average reduction in settlements costs of $700 per closing. This kind of savings will have the great benefit of increasing the number of lower-income Americans who will now be able to buy a home. We also expect our proposal to promote innovation in the marketplace and inspire greater public confidence in the mortgage lending industry.

As we near publication of the final RESPA rule, we welcome input from the industry on how we can best implement the rule to ensure a smooth transition. We obviously want this to work in a way that minimizes any disruption to the mortgage market.

Of course, tough regulations mean little if they are not backed up by tough enforcement. We are doing this as well. In the past two fiscal years, we have taken vigorous action against abusive, fraudulent, and negligent lending institutions and individual lenders. These investigations have resulted in more than 500 debarments, another 500 suspensions, and close to 5,000 indemnifications.

I want us to be even more vigilant, so I have directed new resources to HUD's enforcement activities. We are interviewing for additional investigative staff this week, and by the end of March, we will have tripled the number of enforcement personnel. These new resources will help us to increase enforcement activities toward unregulated institutions.

Because they ensure greater transparency, our proposed reforms will make it more difficult for unscrupulous lenders to take advantage of borrowers. However, let me be clear that although RESPA reform is an important tool for addressing predatory lending, it will not end predatory lending on its own. And so we are attacking the predatory lending problem while preserving a source of credit for those with less-than-perfect credit histories.

I understand that abusive lenders constitute only the smallest percentage of mortgage lenders. The vast majority of you are outstanding businessmen and women who hold yourselves to the highest standards and provide a valuable service in your communities. Yet, the activities of only a handful of unscrupulous lenders can cast a shadow over the entire industry.

HUD will devote all the resources at our disposal to putting abusive lenders out of business.

In addition to expanding homeownership, HUD is expanding affordable rental housing production. We have taken a number of critically important actions that are helping to boost the supply of affordable multifamily housing. These efforts have prompted an enormous increase in activity in FHA's major multifamily program. Community banks continue to play a leadership role in the production of affordable housing by providing funding for multifamily projects across the country.

Earlier, I mentioned that HUD has introduced a number of exciting initiatives to close the minority homeownership gap. Today, I am expanding that list by announcing a new proposal that will provide additional financing options to those seeking FHA-backed mortgages. More financing options, of course, mean more homeownership opportunities for families.

We are proposing to expand our offerings of adjustable-rate mortgage products on FHA-insured mortgages. Our plan would provide additional ARMs tailored to the financial conditions and desires of the borrowers. Consumers would be able to choose mortgages with periods of three, five, seven, or ten years during which time the interest rate would be fixed. Homebuyers would have the security of knowing their payment could not increase during that time.

We estimate that as many as 40,000 families a year will choose these new adjustable-rate mortgages to finance their home purchases. This represents yet another financing tool and another option for making affordable homeownership a reality.

In closing, let me say that the federal government, consumers, and the lending industry are linked by our mutual goal of creating housing opportunities for more Americans. We should be proud of our accomplishments over the past two years, but we cannot rest on them. We have much more to achieve together, and our best hope of being successful is to work in close concert with each other… guided by the same high standards and principles, and motivated by the same goals.

I look forward to strengthening HUD's partnership with ACB and its members in the coming months, as we pursue the goal we share of opening the American Dream to more families and individuals, and opening up our communities to new opportunities for growth and prosperity.

Thank you.

***THIS IS NOT A TRANSCRIPT OF THE SECRETARY'S SPEECH***