Reform plan faces hurdles
Should millions of home buyers and refinancers have the option of shopping for a guaranteed, fixed-price package of settlement costs on their mortgage, along with the interest rate quote?
Wouldn’t such a choice provide at least some improvement on the current system, in which last-minute settlement charges can add hundreds and sometimes thousands of dollars of unexpected expenses to a mortgage transaction?
Most major consumer organizations, including the Consumer Federation of America, AARP, Consumers Union and the National Consumer Law Center, endorse the basic concept of guaranteed fees. The 35-million-member AARP, formerly the American Assn. of Retired Persons, said the settlement-cost packaging plan proposed by Housing Secretary Mel Martinez represents “a novel concept to promote true comparison shopping” that will “exponentially enhance consumer understanding” and provide certainty to consumers.
Under the proposed alternative to the current system, rate quotes that come with fixed-price costs would be “shoppable” among competing lenders before you sign up. One lender might quote you 6% and $2,750 in total costs. A second lender might be $500 higher on closing costs. A third might quote a lower interest rate but higher fees. Once you pick the best rate-and-cost package, the deal would be guaranteed and legally enforceable at settlement.
At the same time, you could still shop under a modified version of the current system, in which rates are quoted but fees are not guaranteed. The two alternatives would exist as parallel financing options.
Martinez’s staff at the Department of Housing and Urban Development is reviewing 45,000-plus comments about the plan from AARP and other groups. The agency hopes to adopt final rules sanctioning guaranteed fees in early 2003.
But not all comments are laudatory. In fact, some high-profile trade groups are dead set against the idea. The 840,000-member National Assn. of Realtors considers the packages “radical,” “untested” and lacking in “consumer benefit.”
The group, in language that has some consumer advocates shaking their heads in disbelief, said “there is little or no data to confirm that large variances exist” between closing costs quoted to loan applicants in the “good faith estimates” and what they’re asked to pay at closing.
HUD, however, has documented thousands of consumer complaints about surprise fees at settlements during the last few years.
Other groups perplexed by the Realtors’ opposition recalled that the association traditionally has endorsed packaging and has testified on Capitol Hill in favor of settlement-service “bundles” and “one-stop shopping.”
In testimony before a Senate banking subcommittee in 1997, Russell K. Booth, then president of the Realtors’ group, said packaging “provides added convenience and value to consumers, through reduction of costs of search and related ‘transaction’ costs.”
Countering fears that packaged services would favor large companies over smaller ones, Booth cited an academic study commissioned by the Realtors that “found that bundling of services does not disproportionately favor large firms.”
Stephen K. Cook, a spokesman for the Realtors, said the Martinez proposal “is different from earlier proposals” in that it is centered around mortgages. “We have concerns over loosening consumer protections under [this] proposal,” he said.
The group’s official comments express fears that by allowing “packagers” to escape current federal “anti-kickback” restrictions, consumers could be deprived of legal protections they now have.
The title insurance industry also is in the opposition camp. The American Land Title Assn. questions HUD’s statutory authority to create the packaging option and worries that lenders will force title and settlement agencies to roll back their prices in order to be included in competitive packages.
Also in opposition: Appraisers fear that there will be pressure to decrease their fees as the price of inclusion in settlement packages. That would affect “many small appraisal businesses,” said a joint letter from appraisal groups, and would encourage use of lower-cost valuation alternatives to traditional appraisals.
The outlook for the new plan in 2003? Pretty good unless politically powerful opponents can convince the new Congress that lowering costs for homeowners and refinancers is a bad idea.
*
Ken Harney’s e-mail address is kharney@winstarmail.com. Distributed by Washington Post Writers Group.
