- The Washington Times - Thursday, June 27, 2002

The Department of Housing and Urban Development yesterday proposed changes to mortgage settlement rules to prevent home buyers from unexpected last-minute costs when signing loans.

HUD Secretary Mel Martinez outlined a new rule that would require mortgage brokers to tell consumers up front how much they charge and how lender payments can help lower settlement costs.

And, he said estimates of closing costs that lenders must provide within three days of receiving an application, called "good faith estimates," would be made firmer and more comprehensive.

"It is time to take the uncertainty out of the mortgage finance process," Mr. Martinez said in a speech at the National Press Club. "This administration is going to streamline the process and make loan shopping and settlement simpler, so the consumer can shop for mortgage costs and better understand what will take place at the closing table."

Americans spend about $50 billion each year on settlement fees, which often cost several hundred dollars for a home buyer, HUD said. The proposed rule, likened to a "home buyer bill of rights," would reform the Real Estate Settlement Procedures Act, or RESPA, a 1974 law designed to control these costs. Mr. Martinez said yesterday that many aspects of RESPA are now obsolete.

"The RESPA law passed in 1974 was very appropriate for 1974," he said. "But the lending industry has changed dramatically in the past 28 years. The housing industry has changed dramatically, too. And yet, the RESPA regulations have not changed to keep up with the times. The disclosure requirements under RESPA have not been substantially revised in decades."

The rule also is designed to increase choices for home buyers by eliminating regulatory hurdles that in many cases prevent mortgage providers from offering guaranteed-loan packages.

Mr. Martinez, a native of Cuba, said new-home buyers and immigrants would have the most to gain from the rule, because they are often the ones most unfamiliar with the home-buying process. Minorities and those with language barriers also would benefit, particularly from measures to improve disclosure, he said.

The announcement follows a radio address by President Bush earlier this month in which he urged the real estate, mortgage and home-building industries to help increase homeownership. Fannie Mae responded by announcing a 10-point plan to increase homeownership among minorities.

Fannie Mae, a government-backed buyer of mortgages, said it would invest $700 billion over the next seven years to assist 4.6 million minority households with home financing.

Minority housing is at its highest level in history, with about 50 percent of Hispanics and blacks labeled as homeowners. Minorities are still outpaced by whites, about 70 percent of whom are homeowners.

Also, a report released Tuesday by Harvard University's Joint Center for Housing Studies said minorities will fuel the housing market over the next 20 years.

Specific wording of the reform proposal was unavailable, because it is still under review by the Office of Management and Budget. HUD said it expects the rule to be cleared by OMB by the end of next week. Congress will then review the rule for 15 days, after which it will be made available for public comment for 90 days.

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