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HMO Mortgages Won't Work, ICBA Tells Congress

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Washington, D.C. (Jan. 6, 2004) - Equating a Department of Housing and Urban Development proposal on real estate settlement procedures with the HMO approach to rationing consumer choice in health care delivery, the Independent Community Bankers of America (ICBA) today called on the Bush administration to pull back its final rule and open it up for additional public comments.

Testifying before the House Committee on Small Business, community banker Mike Menzies, president and CEO of Easton Bank and Trust Co. in Easton, Md., said HUD's proposed rule would likely dramatically reduce the options and service of mortgage shoppers while increasing their costs. "The public and the industry should have an opportunity for additional comment to ensure the rule will not cause harm to consumers and small businesses and a well-functioning mortgage marketplace," Menzies testified.

Menzies is a director of ICBA Mortgage, ICBA's secondary mortgage market access service corporation for community banks.

A key component of the proposed rule is the Guaranteed Mortgage Package, which establishes a package of standardized settlement services and a mortgage loan with a guaranteed interest rate. Menzies told the committee that ICBA supports simplifying the mortgage loan process and giving borrowers more choices, but the HUD proposal will not accomplish this goal. Rather, the proposed rule would reduce consumer choices and make the mortgage loan process more confusing, not less.

The Guaranteed Mortgage Package "looks to me like the HMO approach to health care delivery," Menzies said, criticizing the proposal. "Providers will be asked to deliver mortgage solutions based on how cheap they can make the solution. The likely unintended consequences will be payment for inferior service and support. Consumers deserve better."

ICBA has strongly opposed HUD's proposed rule, which would amend the Real Estate Settlement Procedures Act, because of the damage it will do to consumers, the mortgage finance system and the small loan originators and small settlement service providers that participate in it.

"We must be sure the proposed RESPA changes truly reflect the realities of the industry so as not to cause a serious disruption of the mortgage finance process, and increase the cost of homeownership," Menzies added.