THE Bush administration provided a peek last week at its long-awaited proposals to reform the American system of applying for and closing a home mortgage.

Under the proposals, homebuyers and those refinancing mortgages would for the first time get the opportunity to choose among competing, guaranteed-cost mortgage packages from lenders.

Mortgage companies and banks would compete for borrowers not with interest rate quotes alone, but also with total-expense packages - interest rates plus all fees - that they would be required to honor at settlement.

The competitive pressures to reduce "junk fees," high title-insurance charges and other expenses would rest squarely with lenders. If Lender A obtained title, appraisal, document preparation and other services for $1,000 less than Lender B, those savings would be quoted upfront to mortgage shoppers and guaranteed in writing.

If Lender B quoted you 7 percent and $4,200 in guaranteed closing costs and Lender A quoted 7 percent and $3,200, which would you sign up with? Why pay $1,000 more in fees for the same interest rate?

Under the new approach, which would be optional for lenders and consumers, closing fees no longer would be subject to 11th-hour surprise increases. Mortgage shoppers would know for certain what their final costs would be and could compare competing loan packages intelligently. Lenders who charged more at settlement than the guaranteed price would be subject to federal penalties.

The guaranteed-cost feature is just one element in federal Housing Secretary Mel Martinez's "Homebuyer Bill of Rights." Also included are significant changes in cost disclosures - the "good-faith estimates" that loan applicants receive three days after application - and mortgage-broker fee disclosures.

Under regulatory proposals Martinez released Wednesday, brokers would have to detail the compensation they receive from lenders and make it clear that consumers have a range of choices connected with that compensation. A slightly higher rate on the loan - say a quarter of a percentage point - could translate into sharply reduced or no closing costs.

Some brokers explain their fees and closing cost options to their customers. The new proposals would make that standard for the industry.

Brokers no longer could cloak the fees they receive from lenders with cryptic notations on the settlement sheet such as "YSP $3,900 (p.o.c.)." That translates to: "Yield Spread Premium $3,900 paid outside closing." Often in the past, such premiums were payments from lender to brokers for delivering borrowers at interest rates higher than the lender's lowest posted rate - without the borrower's knowledge and without closing-cost reductions.

Although the administration's new regulatory proposals are designed to promote better consumer understanding of home-loan expenses, probably the most far-reaching will be the guaranteed-cost concept.

In an interview last week, Federal Housing Administration Commissioner John C. Weicher explained how the plan would work. A new category of service "packagers" would probably spring into being to serve lenders' competitive needs, he said.

"The packager would have the ability to negotiate with service providers on their prices," he said, and then to pass discounts on to lenders vying with each other for consumers' loan business. Because the bottom-line settlement quote would be guaranteed, "lenders or packagers would have to eat any unexpected increases," Weicher said.

A packager - a corporate division of a lender, a title insurance group or some other entity - would contract with individual service providers regionally or nationwide. It might contract with appraisers who, in exchange for a steady stream of assignments, would agree to lower appraisal fees.

There could still be "junk fees" and padded costs in settlement charges, Weicher said. But every marked-up expense would count against the lender's competitive interests in attracting borrowers with lower guaranteed-cost packages.

To make national low-cost service contracts by packagers feasible, the new proposal would shield them from current federal rules that prohibit certain compensation arrangements among service providers.

The guaranteed-cost approach would never be mandatory for borrowers or lenders. It would constitute a system parallel to the current approach. Lenders could offer consumers a choice among a full-cost guaranteed package with a locked interest rate; a guaranteed-cost package with a floating rate; or a rate quote with non-guaranteed "good faith estimate" settlement costs.

Kenneth R. Harney is a syndicated columnist. Send letters in care of the Washington Post Writers Group, 1150 15th St. N.W., Washington, D.C. 20071. Or e-mail him at kenharney@aol.com.