- The Washington Times - Monday, August 4, 2003

More Americans than ever are taking advantage of low interest rates to buy homes, and more also are complaining about unexpectedly high fees associated with completing the sale.

Federal housing officials want to reduce those closing costs and make the process more transparent for home buyers.

Carolyn Carter was eager to close on her first home, but when she got to the settlement table and read the fine print she found the costs were $6,000 more than expected and the interest rate was higher. She walked away.

Miss Carter, 36, of Bowie, found another mortgage company and eventually purchased a three-bedroom town house.

“I wouldn’t want to go through that again,” said Miss Carter, who commutes to her job as a marketing researcher in Washington. “It was ridiculous what I had to go through to get it.”

Federal housing officials are hearing more such complaints as a record number of Americans buy homes or refinance existing mortgages.

Housing and Urban Development Secretary Mel Martinez wants wide-ranging changes that he says would make the settlement process simpler and cheaper.

“For consumers, it’s a very positive thing for them to be able to receive lower costs and be better informed, to know who they are paying and why they are paying it,” Mr. Martinez said.

Not everyone is convinced. Chief among the critics is Sen. Richard C. Shelby, Alabama Republican and chairman of the Senate Banking, Housing and Urban Affairs Committee. Mr. Shelby agrees change is needed but says the proposed reforms may have the effect of hiding fees from consumers.

“The concept is not what troubles me, it is the way the proposal is currently structured,” Mr. Shelby said. “Transparency is an important component of any financial transaction.”

Mr. Shelby has served as chairman of the board of a Tuscaloosa, Ala., title company since 1974. He listed shares in the company worth between $1 million and $5 million on his financial disclosure form.

The Mortgage Bankers Association of America says closing costs average about $2,000 per transaction, though that varies widely depending on the price and condition of the house, the amount of the loan and a host of other factors.

HUD estimates home buyers could save up to half the average cost if the changes are implemented.

“There wouldn’t be junk fees like another $50 here and $25 there,” Mr. Martinez said. “If you are going to be competitive, it can’t have junk fees.”

Current regulations require that broker fees, title searches, appraisals and other closing-related services be itemized and disclosed at settlement. They usually are listed in fine print on paperwork that looks like a tax return.

Mortgage companies typically give home buyers a “good-faith estimate” of those costs prior to settlement. In many instances, though, final closing costs are higher — sometimes significantly so — than the estimate.

The key element of the HUD proposal would encourage more lenders to offer one price to cover all closing costs. Mr. Martinez said this “guaranteed mortgage package” would make it easier for people to price-shop.

In return, lenders wouldn’t have to itemize fees and would be free to seek volume discounts from third-party service providers, such as appraisers. Most forms of such discounts are prohibited under the 1974 law now governing home sales involving a mortgage.

Consumers who don’t want the package deal still would have the option of a good-faith estimate of itemized fees, though under the proposal the final cost could be no more than 110 percent of the estimate.

HUD first proposed the changes last year and was flooded with tens of thousands of public comments. It is still going through them and revising the plan and has no timetable for issuing final rules.

Lawmakers can modify the rules through legislation if they are unhappy with the results.

Mr. Shelby said fees should be itemized at closing so consumers know what services are being provided. Not doing so could allow companies to hide costs, he said.

Mortgage brokers, who originate more than 60 percent of home loans, say it is unreasonable to predict and guarantee the costs of every loan. A broker acts as an intermediary between the buyer and the mortgage lender.

Small brokerage firms and other small businesses involved in the home-buying industry contend they would be hurt because they would be forced to offer volume discounts to compete with larger companies.

National firms could afford to do business that way, though, and could push smaller firms out of business, said Alan Hummel, president of the Appraisal Institute, an industry organization. He also heads a small appraisal firm in Des Moines, Iowa.

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