HUD Secretary Mel Martinez Looks to Lower Closing Costs

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This is a partial transcript from Your World with Neil Cavuto, May 29, 2003, that was edited for clarity. Click here for complete access to all of Neil Cavuto's CEO interviews.

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NEIL CAVUTO, HOST:  Well, you can pay the loan. You just can’t pay the money you have to pay to get the loan. Ask anyone who wants to get a mortgage or refinance the one they already have, and that is the biggest hurdle of all, the closing costs. Thousands, often tens of thousands of dollars, in fees and settlement costs that just keep going up, up, up, and away.

With us now, a man who is trying to get some of those costs under control, or least have you understand them better, the Housing and Urban Development Secretary Mel Martinez.

Secretary, good to see you.

MEL MARTINEZ, HUD SECRETARY:  Pleasure to be with you.

CAVUTO:  I see you with all the Secret Service out there. I thought they were here for me, but I guess...

MARTINEZ:  Keeping me safe.

CAVUTO:  Yes, all right. Good to have you, sir.

MARTINEZ:  Yes, sir.

CAVUTO:  Let’s talk a little bit about this because I think you’re dead-on right about this. I think tens of thousands of more Americans would be able to afford homes if they could get past those closing costs, let alone understand them. What’s the problem?

MARTINEZ:  Well, we know that that’s the biggest hurdle for home ownership for many poor families, minority groups particularly, and so if we can lower those costs, it will be a wonderful day. Not only lowering the costs, but also having a little more understanding of what it is you’re signing when you get to the settlement table.

CAVUTO:  Why have they been getting higher and higher? We were just saying that mortgages are the cheapest they’ve ever been, and closing costs are the most expensive they’ve ever been.

MARTINEZ:  Neil, over 25 years ago… as a result of a congressional enactment put in place, RESPA, by the Real Estate Settlements & Procedures Act, and what that does is essentially froze the marketplace static since that time. We haven’t evolved in the marketplace on closing or settlement costs as everything else has in the marketplace.

Back in the days… we were doing it the same way we’re doing it today. So my proposal is to deregulate the system, allow the market forces to take over, and then allow competition for settlement services to really be something that consumers can shop for and have the opportunity...

CAVUTO:  Yes, but, Secretary, the problem is they’ve got you in a bind. I mean, let’s say you’ve sold your house or you’re ready to come to the table, sign on the dotted line, and all of a sudden, all these numbers above the dotted line...

MARTINEZ:  Well, we’ve...

CAVUTO:  ... they just materialize.

MARTINEZ:  We’ve got a solution for that, too, which is the good faith estimate, which home buyers get, It has to be within the parameters of what it is on the day you get it and at the day of closing.

CAVUTO:  Yes, but they’re good faith lies. These guys are thieving SOBs. You get there. You get to the table. They lie to you.

MARTINEZ:  I need to bring you to Washington with me. You sound like...

CAVUTO:  I’m being polite here, but...

MARTINEZ:  Not only that -- no, no, but...

CAVUTO:  ... they really lie. How do you stop them from lying?

MARTINEZ:  And so what we will do is to have a good faith estimate, which today has big tolerances in it. We’re going to say the good faith estimate has to be enforced, and what you get and what you give the consumer has to be what you get at the closing table.

CAVUTO:  But what if that estimate then -- they just say, “All right, fine. We’ll tell you the truth. We’re going to screw you. We’ll have your outlandish fees pre-written.”

MARTINEZ:  No. We will allow a packager to put together and say, “Okay, here’s what your cost is going to be for closing.” Right now, people focus on the interest rate.

CAVUTO:  That’s true.

MARTINEZ:  But people don’t really get a number for what it is going to be for their closing costs. So now in the new system, they’ll get both. They’ll get your interest rate, which are at record lows at this time.

CAVUTO:  Absolutely. Right.

MARTINEZ:  Even dropped yesterday for...

CAVUTO:  Do you see that continuing by the way, the housing boom?

MARTINEZ:  It appears to continue, right. Freddie announced some lower numbers yesterday. You know...

CAVUTO:  Record lows. So that continues.

MARTINEZ:  Right. So as that continues...

CAVUTO:  Why can’t you just roll a lot of those closing costs into mortgages, especially for first-time buyers? Because I really argue that with these rates so low, a lot of people would bite the bullet, throw those closing costs into the mortgage. I know some are marginally accepted to begin with, but that would help a lot of people.

MARTINEZ:  People can do that. The yield spread premium. And we’re also trying to fix that in the RESPA reforms we’re doing, which is to make sure that the mortgage broker fees are clearly disclosed, and people know what they’re paying a mortgage broker. You know, over 60 percent of mortgages today are marketed by a broker, which is a good thing.


MARTINEZ:  But we need to make sure...


CAVUTO:  ... he gets his slice of the pie.

MARTINEZ:  Right. And the consumer needs to know.

CAVUTO:  Right.

MARTINEZ:  He or she needs to know what they’re paying that broker and how much it’s costing for those services.

CAVUTO:  I think you’re right on this, Secretary. People have to be aware of how this cabal operates.


CAVUTO:  You’ve got the broker, who leads you to the lender. I’m not saying they’re evil people, but together they do evil things. All of a sudden, the fees you pay all of these guys leaves you broke after you leave the table.

MARTINEZ:  Our reforms will save $8 billion, an average of about $700 per transaction. That’s going to help a lot more families in America to get into homeownership…

CAVUTO:  But you’ve got to get the banks to go along, and that’s where they’re making their gravy.

MARTINEZ:  We will through this reform force all parties at the table to be able to do it in a way that’s going to be much more consumer-friendly.

CAVUTO:  What are the banks and lenders telling you? I can’t imagine they’re greeting you with open arms.

MARTINEZ:  I should know. The mortgage bankers are supportive of this. I’m having a lot more trouble convincing title companies and...

CAVUTO:  Oh, is that so?

MARTINEZ:  ... service providers.

CAVUTO:  Lawyers.

MARTINEZ:  And lawyers. Right. But, you know, at the end of the day, that’s part of my responsibility as secretary of HUD, to change these regulations. We’ve been studying it and hearing a lot of comments from all the different groups, and we’re going to do it. The time has come, and we’re going to get it done.

CAVUTO:  All right. Well, from your mouth to lenders’ ears. We shall see. Secretary, always good seeing you.

MARTINEZ:  Thank you. Good to be here.

CAVUTO:  Thank you very much.

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