Mr. Secretary, I want to commend you for undertaking the difficult, complex, and controversial task of improving the mortgage origination process. While it has become something of a sport to belittle the Real Estate Settlement Procedures Act (RESPA), it is worth reminding people that the law helped bring order and equity to a process that was suffering from rampant kickbacks and referral fees among settlement service providers. Those side payments clearly resulted in higher costs for consumers. For many years, RESPA has served consumers well by aligning market incentives with the interests of borrowers. And I think the result has been a strong and effective real estate market.
In my view, RESPA can continue to play this valuable role if the regulations are updated to address new issues as they arise. HUD has put a proposal on the table that it hopes will achieve this goal. I believe, if done correctly, that the proposed rule holds out the prospect of resulting in significant good. If not done correctly, it would result in great harm. I want to continue to work with the Secretary to ensure the better outcome.
As you know, a number of us on the Committee have sent you a letter outlining what we think are the essential elements of any final rule. The key principles that are included in that letter are as follows:
First, a rule must not undermine existing RESPA or Truth In Lending Act protections for subprime borrowers. Subprime borrowers are far more likely to be subjected to predatory practices against which RESPA and TILA provide some remedies. We must be sure that the final rule retains these important protections.
Second, the additional protections or rights that the proposed rule would create are of little use if they are not enforceable. The Department's 2001 policy "clarification" undermined the ability of consumers to seek redress against illegal yield spread premiums (YSPs), half of which, as your own analysis points out, are not used to offset closing costs, as the industry promises. In my view, your proposed changes in the treatment of YSPs, as well as your proposals for a Guaranteed Mortgage Package, must allow for effective enforcement, which should include private enforcement.
Third, a final rule must not allow "bait and switch" tactics. The Guaranteed Mortgage Package should include an interest rate, and be contingent only on the confirmation of information provided by the borrower. If done in this way, and if limited to the prime market, the Guaranteed Mortgage Package has the potential of significantly improving outcomes for consumers.
Finally, the rule should not preempt state laws. For example, a number of states have laws that require brokers to act as agents for the borrower. HUD should not undermine these laws.
Mr. Secretary, I will not repeat here all the details of the comment letter a number of us sent to you last fall. Let me simply say that, at the very least, it is imperative you go forward with the proposal to ensure that brokers tell consumers, upfront, what they charge, and "ensure that YSPs are fully disclosed to consumers, that consumers determine whether and how to use them, and that consumers receive the full benefit of any such payment," as the Department committed earlier this year, in written testimony to the House Financial Services Committee.
I will close by saying that I am supportive of the goals the Secretary has expressed, and some of the steps he is seeking to take to achieve these goals. I reiterate that I am willing to work with the Secretary and his staff to make sure the final rule embodies these important principles.