STATEMENT
Of the Honorable Nydia M. Velázquez, Chairwoman
United States House of Representatives, Committee on Small Business
Full Committee Hearing: “RESPA and its Impact on Small Business”
Thursday, May 22, 2008 at 10:00 am
Today, we will examine the Department of Housing and Urban Development’s proposed rule on the Real Estate Settlement Procedures Act. The recent housing crisis has revealed that predatory lending remains a major problem. It has also demonstrated the importance of providing quality information to homebuyers. Over time, the closing process has become more complex, making these consumer disclosures even more critical. The recent abuses we have seen in the mortgage market have in part been exacerbated by a lack of such protections.
RESPA was initially established to provide these very safeguards. – but clearly they are not working in today’s housing market. At its very foundation are the Good Faith Estimate and the HUD-1 form, which provide homebuyers with basic information concerning the cost of their purchase.
Unfortunately, HUD’s recent proposal to update these forms as well as the settlement process is not the cure-all that homebuyers need. The rule creates additional paperwork and complexity, potentially adding to the confusion of an already stressful purchase. This could lead to information overload and ultimately result in more uncertainty for consumers.
In addition to these problems, it will create chaos for small settlement service providers. These firms play a key role in the home buying process and they stand to incur billions of dollars in costs due to the implementation of the RESPA regulation.
Many title insurance companies, settlement attorneys, real estate agents, mortgage bankers and brokers struggling to survive in the worst housing market in decades may be pushed to the brink. This is largely due to the cost of the proposed rule. Loan originators and settlement service providers would have to pay up to $570 million to become compliant with the proposed rule changes. They would then face recurring compliance costs of $1.2 billion per year—or $98.48 per loan.
Aside from the enormous costs posed to small businesses, it also creates an environment in which they are placed on an unlevel playing field. While HUD asserts that volume discounting will provide consumers with savings, we know better. It will lead to the bundling of services and reduce competition by forcing small firms out of business. As a result, consumers will ultimately face higher prices.
It is my expectation that Steven Preston, who President Bush recently nominated to be Secretary of HUD, will help address these problems. We know Mr. Preston well on this Committee –
and I am hopeful that he will utilize his experience as head of the SBA – to ensure the RESPA rule does not unnecessarily burden small firms. Should that not happen, the Committee will be following up with him.
The changes the proposed rule makes to the settlement and closing process come at a challenging time in the housing market. It is important that we closely examine these modifications so its recovery is not undermined. We also have a responsibility to protect homebuyers by ensuring that they are given information about loan terms and closing fees in a clear, easy to understand manner.
Today’s hearing will begin to answer these questions and make sure that we are not doing more harm than good to the home buying process. I look forward to today’s testimony and thank the witnesses again for coming here to share their views.
