Homebuyers to benefit from new application

By Al Yoon
Bloomberg News Service

CHICAGO — U.S. consumers taking out new mortgages will save $8 billion annually, or $700 per loan, under reforms aimed at making the mortgage application process more transparent, said Mel Martinez, U.S. Housing and Urban Development Secretary.

HUD has proposed changes to the Real Estate Settlement Procedures Act, or Respa, that would make it harder for lenders to increase rates and fees after a homebuyer applies for a mortgage.

HUD also wants to ease rules preventing lenders and brokers from packaging appraisals, title searches and other services for one fee.

"The rule significantly improves HUD's Good Faith Estimate settlement cost disclosure," Martinez said in the text of a speech delivered to a Mortgage Bankers Association of America conference in Chicago. "It makes the costs clearer and firmer for borrowers, which will lead to lower settlement costs."

The new rules, which were filed in July and are in a public comment period through Monday, also makes the compensation received by the broker clearer to borrowers.

Some small brokers have said the changes favor large lenders, who can offer greater discounts on bundled services. Martinez said no segment of the mortgage industry is being singled out by the reforms.

Martinez also said HUD would pay claims to lenders if an act of terrorism destroys a Federal Housing Authority, or FHA, insured apartment property. The move would help relieve owners of small apartment buildings from paying the high premiums necessary to buy terrorism insurance after the Sept. 11 terrorist attacks, he said. Terrorism coverage could cost the owner of a 100-unit project an additional $5,000 a year, he said.

Requirements of terrorism insurance "is putting a financial strain on existing properties and discouraging the construction of new properties," he said.