Realtors' group criticizes possible mortgage reforms
By Kathleen M. Howley
Bloomberg News service
WASHINGTON — Mortgage lending reforms proposed by the U.S. Department of Housing and Urban Development favor large lenders and would result in less competition and higher fees, according to the National Association of Realtors.
HUD has proposed changes to the Real Estate Settlement Procedures Act, or Respa, allowing lenders to charge one fee for a package of services including appraisals and title services. The "bundling" will make it easier for consumers to compare competing products and save money, said HUD Secretary Mel Martinez.
The Realtors' group is concerned the changes will stifle competition by giving an advantage to big lenders such as Washington Mutual Inc., Wells Fargo Home Mortgage and Countrywide Credit Industries Inc., which can offer greater discounts on bundled services.
HUD's proposal "could increase concentration, reduce transparency, discourage innovation, reduce the quality of services provided, and ultimately lead to higher closing costs," said NAR President Martin Edwards. "Small and medium-size settlement services providers as well as consumers could be at risk."
U.S. home lending is expected to reach a record $2.42 trillion this year and fall to $1.77 trillion in 2003, according to the Mortgage Bankers Association of America. The current lending process makes it difficult for consumers to compare interest rates and closing costs, said Ken Posner, a Morgan Stanley analyst who follows the mortgage industry.
"If two lenders are charging 6 percent interest on a loan, and one charges $3,000 to close it and the other charges $2,000, that difference isn't always clear to the consumer as things stand now," Posner said. "If bundling is combined with effective and fair disclosure, I think it will increase competition because consumers will know all their costs."
HUD is also proposing changes to "good-faith estimates" of closing costs, making the estimate less likely to change before the loan closes. Under the rule, which the Realtors' group supports, lenders' fees quoted in the estimate cannot change, and fees for services such as appraisals and pest inspections must be within 10 percent of the estimate.
U.S. consumers taking out a new mortgage will save $8 billion annually, or $700 per loan, under the reforms, Martinez said last week.
The proposed changes prompted a record 27,000 letters during the 90-day public comment period ended Oct. 28, said HUD spokes-man Brian Sullivan. The letters have not been tallied to see how many support the changes and how many are opposed, he said.
"What we're proposing is an option," Sullivan said. "As a practical matter, HUD has just begun to review the public's comment on our proposal, to explore the impact of our proposed rule on everybody, especially small businesses."
