HUD proposing overhaul of mortgage applications


The federal government is proposing a rule aimed at giving consumers better estimates of the total cost of a home loan, but the mortgage finance industry and consumer advocates have expressed concern that the measure is being rushed.

Without providing specifics on the rule, which would overhaul the mortgage application process, the Department of Housing and Urban Development submitted what it called a final version last month to the Office of Management and Budget.

A version of the rule proposed a year and a half ago would have required lenders to offer a single price for the costs of processing the mortgage - including such expenses as appraisals and title insurance - or to stick much more closely to initial estimates of those costs.

HUD has estimated that a new rule would save homebuyers $700 per loan, or $8 billion a year. That is almost a sixth of the $50 billion that HUD says Americans spend each year in closing costs.

HUD was flooded with nearly 43,000 letters of comment on the initial proposal, far more than it had ever received on a policy proposal. Most approved of HUD's intentions - to make borrowing simpler for prospective homebuyers - but few agreed on the specifics of what a new rule should do. Mortgage brokers and bankers, appraisers and title insurers, real estate agents and consumer groups had been waiting for the revised rule.

"What HUD did flies in the face of democracy," said A.W. Pickel III, president of the National Association of Mortgage Brokers. "They issued a final rule during Congress' recess."

HUD defended its submission, pointing out that it spent a year and a half drafting its final proposal. In addition, it accepted public comments on the original rule for 90 days, rather than the usual 60, and asked 30 questions.

In written testimony submitted to a hearing of the House Small Business Committee Tuesday, John C. Weicher, assistant secretary for housing, said he could not comment on the new rule but assured the committee that "we carefully considered all comments offered by the public, including the comments offered by settlement service providers such as title agents, brokers, appraisers, credit bureaus, consumers and others."

"I can also assure you that there has not been a rush to promulgate this regulation, but rather a deliberate and careful effort," he said.

The committee hearing was called by Donald A. Manzullo, an Illinois Republican who has been an outspoken critic of the proposal.

HUD has not disclosed how the new proposal differs from the original.

The budget office can review the measure for 90 days and approve it by making it public in the Federal Register. Until the office approves or returns the proposal, the housing agency is prohibited from disclosing the details.

The White House has endorsed a revision of the Real Estate Settlement Procedures Act of 1974, sometimes called RESPA. President Bush has said he supports the changes.

Mel Martinez, who introduced the measure, resigned as the secretary of the housing agency in December to run for the U.S. Senate in Florida. Many industry professionals had expected the measure to fade with his departure.

The agency has said its chief objective is to simplify home buying by bundling a loan's closing costs and the points charged on the loan or by guaranteeing an interest rate. Ideally, borrowers would then be able to shop for loans based on the interest rate and the cost of the loan. Furthermore, they would no longer be surprised by additional costs or new rates at the closing table.

"Most people hold their noses, and they close their eyes, and they pay the extra hundreds or extra thousands of dollars in unanticipated costs," said Brian Sullivan, a spokesman for HUD. Commenting on the original rule, he said, "One of the things that we've tried to build into this proposal is more certainty for consumers at the front end of the process."

Consumer groups have supported changes in the way mortgage costs are presented to consumers but have said they are concerned about details. A consortium including the Consumer Federation of America and the Consumers Union told the Office of Management and Budget that it would support only a rule that included guarantees on interest rates and closing costs.

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