Secretary Martinez should be commended for his effort to streamline the home buying process. If implemented correctly, the proposed rule reforming the Real Estate Settlement Procedures Act (RESPA) regulations could help make the home buying process both easier to understand and less expensive.
As the Secretary has been learning during the rulemaking process, this rule means real change in the real estate industry, and as such, it has created much controversy. However, I think there is much good the final rule might accomplish if it includes the following points.
First, according to a recent study by Freddie Mac and HUD's own analysis, 50 cents of every Yield Spread Premium dollar does not go for closing costs, and this practice must stop. Yield Spread Premiums, the difference between the underlying interest rate of the loan and the rate charged to the consumer, are for closing costs and should not be used for anything else. Any other purpose should be classified as an illegal referral under RESPA law.
Second, the proposed Guaranteed Mortgage Package (GMP) should be limited to the prime market only. The exemptions provided by the proposed rule would make it too easy for subprime lenders to engage in predatory practices, which this committee has been working very hard to prevent. I believe HUD can ensure that GMPs are only offered in the prime market and should do so.
Finally, I believe HUD does not have, nor will it ever have, sufficient resources to patrol every real estate transaction. Therefore, HUD's regulations need to include stiffer penalties for breaking the rules, such as a private right of action for consumers.
I appreciate the time and thought today's witnesses are giving to this important issue, and I look forward to working with them to ensure that HUD considers their viewpoints while formulating a final rule. If done appropriately, I believe the proposed reforms would help more Americans achieve the dream of homeownership.