In testimony this week before the House Committee on Small Business, ICBA called on the Bush administration to pull back its final rule governing real estate closing procedures and open it up for additional public comments.
HUD asked OMB on December 16 to clear a final rule to overhaul RESPA's compliance rules, but did not release details of the new plan to the public. "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," testified ICBA witness R. Michael Menzies, Sr., president and CEO of Easton Bank and Trust in Easton, Maryland. Menzies also is a director of ICBA Mortgage, ICBA's secondary mortgage market access service corporation for community banks.
The nucleus of the rule as originally proposed 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. "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 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 said.
Menzies added that the rule will create an environment where the largest originators and settlement service providers will drive out the smallest. "Larger market participants have a greater ability to negotiate volume discounts for services within the package than do smaller participants because of their size," he said. "The result will be less competition, less consumer choice and higher mortgage costs."
The hearing — unusual since it took place during a congressional recess — was conducted by Small Business Committee Chairman Donald Manzullo (R-IL), who charged that the proposed regulation does not adequately address effects on small businesses. Manzullo invited Alphonso Jackson, HUD's acting secretary, to testify, but he declined, sending another HUD official in his place. Manzullo barred the HUD official from testifying (although he accepted his testimony for the hearing record), and left an open seat at the witness table with Acting Secretary Jackson's nameplate prominently displayed.
Several remedies are available to Congress if HUD does not address its concerns. It could apply political pressure to HUD to meet its demands, deny funds to HUD to implement the rule, or pass new legislation amending the underlying law. In addition to Manzullo, a number of other lawmakers have publicly called on HUD to reopen the comment period on the proposal.