Apr 01 2003

SENATOR SHELBY SPEAKS TO THE NATIONAL ASSOCIATION OF MORTGAGE BROKERS

Good morning. I appreciate the opportunity to speak before you today. I would also like to thank you for the honor of being given the National Association of Mortgage Brokers’ “Excellence in Government Award.” I sincerely appreciate the recognition, and I will continue to work hard on behalf of small business during this Congressional session.

As you well know, the critical role that the real estate industry plays in the overall health of our economy can not be overstated. While many of our market sectors have been subject to uncertainty over the course of the last several years, the real estate industry and particularly the residential market has been a steady performer in the economy. As the intermediary between lending institutions and consumers, mortgage brokers play a vital role in achieving the dream of home ownership for many American families and a crucial function in maintaining the soundness of the economy.

While my overall agenda will continually evolve, there are a number of important issues on the horizon for the year. It promises to continue to be an active session for the Committee on both the legislative and oversight fronts, and I look forward to working with groups such as the National Association of Mortgage Brokers as we navigate through the year. I intend to focus on two key areas of particular interest to your industry this morning.

An issue that is of particular relevance to your industry is the status of the Real Estate Settlement Procedures Act. RESPA reform has broad, far reaching implications for the $2 trillion dollar housing industry that would affect all players in the market - from consumers, to lenders, to settlement service providers. As I am sure you are aware, HUD has released its proposed revisions to the RESPA regulations that are aimed at simplifying RESPA disclosure and lowering settlement costs.

I wholeheartedly endorse the underlying goals of HUD’s efforts. The need to simplify the settlement process for home mortgages is something that most in the debate can agree on. However, I have significant concerns with the rule as proposed by HUD. When HUD’s proposal was released, it generated over 40,000 letters during the public comment period. This is an indication of the tremendous amount of interest and concern that the proposal produced from the businesses and consumers that would be affected by HUD’s proposal. I believe that HUD must proceed cautiously in their rule making with respect to RESPA, and take the time to fully consider the implications any rule would have on consumers and small businesses. HUD should also re-evaluate the procedural concerns that have been raised with regard to its proposal. It would be unwise for HUD to issue a final rule without fully vetting the economic impact analysis required of them by law. HUD must adequately address the impact the proposal would have on small businesses involved in the settlement process.

One of my underlying philosophies in approaching the RESPA debate is the importance of allowing our markets to work effectively to maintain competition and lower costs for consumers. I have serious concerns that the current RESPA proposal would stifle competition - such a result would harm consumers and the businesses that provide settlement services. The underlying principle in the guaranteed mortgage packaging portion of HUD’s proposal is that savings can be passed onto the consumer through economies of scale and volume discounts. It is my fear that only the larger institutions would have the market power and volume of business that would permit them to offer volume discounts. This would crowd out small businesses without the resources to compete. We must take into consideration the impact that any rule would have on competition and work toward an equitable solution that ultimately increases savings to consumers and does not adversely affect small business.

Another concern I have with the proposal is with the suggested changes in the disclosure requirements for packaging. HUD’s proposal would create a regulatory incentive to provide guaranteed mortgage packages, providing consumers a bottom line price. While this would certainly simplify the process, I have serious problems with any mortgage agreement that would fail to disclose an itemized breakdown of every service that the consumer is paying for. Transparency is essential in any financial transaction, particularly in a situation where fees could be hidden behind an all inclusive price. HUD’s proposal seems to suggest that buyers are not interested in knowing the specific services that they are paying for. If we want consumers to shop around and compare prices for mortgage packages, we must arm them with all of the information they need to make an informed choice. Full disclosure of fees should simply be a requirement for everyone in the settlement process.

The Congressional response to HUD’s proposal has reflected the great level of interest generated by the RESPA rule. On the House side, the Subcommittee on Housing and Community Opportunity; the full Committee on Financial Services; and the House Committee on Small Business have all held hearings on this issue. On March 20th, Secretary Martinez testified before the Banking Committee on the issue. At the hearing, I raised the same concerns that I have just outlined to you. I conveyed my belief to Secretary Martinez that HUD should proceed thoughtfully, and issue a revised proposed rule and a new economic impact study - one that will weigh the impact that HUD’s rule will have on the small businesses involved as well as the market as a whole. HUD’s ruling on RESPA will alter the competitive landscape in the real estate settlement process, and it is important that we consider all of the implications in a deliberate and thorough fashion. HUD must not issue a rule solely for the sake of expediency. Parties involved in the debate must work together to ensure that it is done the right way. As a next step, the Banking Committee will have another hearing on HUD’s proposal prior to the April recess.

Another pertinent issue that the Committee will focus on over the course of the year is the re-authorization of preemption provisions contained in the Fair Credit Reporting Act. It is in our greatest interest to ensure that our laws continue to promote the availability of credit for consumers. I have established what I hope will be a deliberative process to ensure that as we consider the re-authorization of some of the law’s provisions, we fully appreciate the economic costs and benefits, policy values and goals we ultimately must balance. The Committee has already held a series of briefings to familiarize staff with a range of FCRA related issues, and I expect to continue these briefings for several more weeks. It is my intention to hold hearings on re-authorization following the completion of the briefings, sometime after the April recess. The Committee will continue to work closely with the Administration, business and consumer groups as we move forward to address the FCRA issue.

I am sure that you are all aware of my broad concerns regarding privacy. That said, while I do have strong views regarding personal privacy, I have not prejudged or predetermined the final contents of any legislation, including the FCRA provisions. I intend to work closely with my colleagues as we proceed on this important legislation.

Again, thank you for the opportunity to briefly speak before you today.