Mortgage Bankers Association National Housing Summit

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

Monday, March 10, 2003

Thank you, John. I appreciate your generous introduction. John has brought strong leadership to the Mortgage Bankers Association of America since coming aboard as Chairman. John, I was very happy to see MBA so quickly get behind the President's initiative to increase minority homeownership. And your personal commitment to our White House Conference last October helped to make the day a great success.

I want to begin by thanking MBA for the announcement you'll be making later today supporting President Bush and his plan to generate economic growth. 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."

A centerpiece of the plan is our proposal to eliminate the double taxation of corporate earnings. I know there has been concern within the affordable housing community that the President's economic package would have unintended consequences to the Low-Income Housing Tax Credit. The analysis MBA will be releasing later today determines that the overall benefits of job creation and economic growth will benefit consumers and the housing industry, and will not have a significant impact on the Low-Income Housing Tax Credit.

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

The efforts of America's mortgage banking industry 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 efforts have led the economy into recovery, but the Administration will not rest until we move beyond recovery and into lasting prosperity.

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.

Our Administration has tremendous respect for the mortgage banking industry and the way in which you empower families to achieve the "American Dream" of homeownership. It is worth noting that many of the families you serve are low- and moderate-income borrowers who might not otherwise have the option of owning their own homes. In fact, mortgage bankers consistently provide 80 to 85 percent of all FHA and VA home loans.

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.

MBA was one our first partners, and I salute the Association for coming aboard early. You have committed to expanding your outreach to minorities through homeownership education in Spanish, holding community forums to discuss the challenges of moving minorities into homeownership, and helping MBA members form effective public/private partnerships.

The President has asked me to report back to him in June on our progress in carrying out these and other commitments. John, I want you to know I have to report to the President on this - so just know I will be calling!

Our efforts to increase minority homeownership are having an impact. HUD had set a national goal of insuring 1.1 million FHA single-family mortgages last year. We far surpassed that goal with nearly 1.3 million actual endorsements. Of those, 419,000 went to minority families, which again was well above our target for the year.

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.

The mortgage finance process and the costs of closing remain major impediments to homeownership. 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. This makes them vulnerable to predatory lending practices, especially if the buyer is a member of the minority or elderly populations.

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.

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. There was general - virtually unanimous - agreement among all the industry groups, as well as consumer advocates, about the need for better disclosure: simpler, clearer, and on a timely basis so consumers could shop for the best loan.

When I met with you last year at MBA's annual conference in Chicago, I outlined in detail the steps HUD had taken up to that point to overhaul the RESPA regulations. I told you that we were nearing the finish line of this marathon effort. I can tell you today that we are almost there.

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.

Since the proposed rule was published last summer, alternatives have been brought to our attention. Our thinking is evolving on how portions of the proposal can be revised for the final rule, to ensure that all businesses, large and small, can take advantage of the opportunities presented by the rule. Tomorrow, I will be testifying before the House Committee on Small Business to describe the ways in which our proposal will impact small businesses, and how we can best minimize such impacts.

I believe that the Department has developed a well-crafted proposal that can reduce settlement costs by an average of $700 per closing. This kind of savings will allow many Americans currently priced out of the homebuying market to buy a home. Overall, the annual savings to consumers could be as much as $8 billion. 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.

Most importantly, our RESPA reforms will restore clarity, transparency, and simplicity to the homebuying process.

MBA was an early supporter of our work on RESPA. I want to personally commend MBA's leadership and members for your commitment to our efforts.

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.

The Administration is targeting unscrupulous lenders in part by pooling the resources of the Federal Government, and helping agencies work together to fight abusive lending practices. As a result, HUD and its partners are becoming much more effective in tracking down lenders who prey upon first-time homebuyers, senior citizens, and minorities.

FHA has mounted a vigorous assault on predatory practices. This year, we expect to publish at least 15 new regulations aimed directly at curtailing abusive lending.

Among the other regulations are several that will strengthen FHA's ability to monitor appraisers. These include new rules holding FHA lenders accountable for the quality of appraisals, strengthening the licensing and certification of FHA-approved appraisers, and implementing Appraiser Watch, a fully computerized system for monitoring an appraiser's default rate.

Three additional high-priority regulations are waiting to be finalized: improvements to the Credit Watch program that will help us identify problem loans and lenders earlier on, a proposal to limit the number of FHA loans a nonprofit can have at one time, and a rule to prevent future swindles like the 203(k) scam that threatened the availability of affordable housing in New York City.

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 FHA'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.

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.

If we had more time to spend together this morning, I would devote the next 15 minutes to talking about HUD's efforts to expand 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.

Our commitment to affordable housing production continues in the Fiscal Year 2004 budget, in which we have proposed a $113 million increase in funding for the HOME Investment Partnerships program. Overall, HOME will make $2.2 billion in funds available to state and local grantees to help finance the costs of land acquisition, new construction, rehabilitation, down payments, and rental assistance.

At MBA's October conference, I made an announcement restating HUD's policy regarding terrorism insurance. We felt it was important to do so because some lenders had begun requiring multifamily properties to secure terrorism insurance as a condition of the mortgage. The high cost of obtaining this insurance was putting a financial strain on existing properties and discouraging the construction of new properties.

I want you to know that HUD plans on issuing a proposed rule for public comment that says FHA will not require insurance against acts of terrorism for new multifamily projects with mortgage amounts under $50 million. This clarifies our original announcement and will impact very few applications for new FHA multifamily mortgage insurance. Most importantly, the proposed rule will help reduce costs for existing and future FHA-insured multifamily properties, encourage new construction, and stimulate the local economic activity that is so important today.

In closing, let me say that the federal government, consumers, and the mortgage banking 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 MBA 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**