WASHINGTON — Are the Bush administration's ambitious plans for nationwide reforms of home-mortgage settlement practices dead?
That's a widespread view among mortgage and real-estate lobbyists on Capitol Hill in the wake of the sudden withdrawal of the proposals last month by the Department of Housing and Urban Development. Acting HUD Secretary Alphonso Jackson said the pullback was needed to allow the department time to consult with congressional and mortgage settlement-services groups. He added that a revised version of the reform proposal might still be proposed, but would not commit to a timetable.
Behind the pullback, however, were some hard political realities:
• Trade lobbies opposed to the HUD reforms had called in their political chips on Capitol Hill earlier last month and rallied 226 members of the House — a bipartisan voting majority — to sign a letter demanding a reproposal of the reform plan.
• The Senate's housing subcommittee chairman, Sen. Wayne Allard, R-Colo., had placed Jackson's nomination to the top job at HUD on hold, pending resolution of the settlement-reforms issue.
• The White House, which had endorsed the reforms and supported their prime advocate, former HUD Secretary Mel Martinez, found the issue a needless and noisy distraction in a tough re-election year. Martinez resigned from HUD last December to seek a U.S. Senate seat in Florida.
• The reform proposals themselves never were popular with the industry groups whose fees and long-standing practices they threatened. HUD received more than 40,000 mainly critical responses to its plans from mortgage brokers, title-insurance agents, real-estate settlement lawyers, realty brokers and others. Even some consumer groups turned against the plan when they feared the new rules might leave lower-income and unsophisticated borrowers open to new abuses by lenders and settlement agents.
In the end, there was virtually no political downside for the White House and HUD to put the controversial reforms on a back burner, but potentially severe political costs if they ignored fellow Republicans' demands for a resubmission.
What was so controversial in the Bush-Martinez reform program that upset so many people? For starters, it sought to promote the concept of guaranteed-fee mortgage packages, giving home buyers and borrowers an upfront combined quote for loan-origination charges and settlement costs.
The ironclad-guarantee concept was a response to consumer unhappiness with the current system, where last-minute, unexpected settlement fees can add hundreds or even thousands of dollars to the cost of a mortgage closing. The HUD proposal would allow shoppers to compare guaranteed packages of rates and settlement fees among competing lenders before making a commitment.
The lowest-cost package would naturally have the advantage in a free market environment — an advantage critics charged would harm small settlement-service providers who would be at the mercy of large lenders seeking bargain-basement prices for appraisals, credit reports, title insurance and other services.
Other proposed reforms would have forced lenders to be more accurate in the "good-faith estimate" disclosures of costs they provide to loan applicants. Still another would have changed the mandatory disclosures mortgage brokers must make to consumers about certain origination fees.
How should consumers proceed now that the reforms are on ice, at least temporarily? Here are a few suggestions:
• Put the best of the reform concepts to work for you, despite their absence from the federal rulebook. Many mortgage brokers and lenders already are willing to give their clients advance guarantees of certain closing costs, if requested. When you shop, ask them whether they will stand behind their upfront quotes and ask them to put that in writing. If not, ask why. After all, they are the mortgage professionals, they know the likely charges you'll encounter.
• Demand clarity and credible explanations for all fees lenders and settlement agents seek to charge you. Do not tolerate settlement sheets riddled with fluff charges such as "Admin-$350," "Processing-$450," "Doc Prep-$250," "Attendance Fee-$100," to name just a few commonplace junk fees.
• Federal law says you cannot be charged for fictional or duplicative services. Don't be passive when you see questionable charges on your HUD-1 settlement sheet. Complain. And if necessary, pull the plug on the whole deal.
• Best yet, search out the dozens of lenders across the country who have jumped ahead of the federal reforms and already offer shoppable, guaranteed fees and consumer-friendly disclosures.
HUD may still find a way to come out with standards that reform the mortgage marketplace nationwide.
But in the meantime, you can demand your own personal versions of reform: Rock-solid guarantees of your total loan costs, and absolute clarity about what you're being charged and why.
Kenneth Harney: kharney@winstarmail.com
