Home borrowers should not have to pay attorney incurred by the lender when securing a home loan, a consumer group has told the Federal Home Loan Bank Board.

Public Citizen, a non-profit, public interest organization, asked the bank board to amend its existing regulations to place more restrictions on the legal costs that can be passed on from the leader to the borrower.

"This petition," Public Citizen wrote to the FHLBB, "is directed at the anti-competitive effects and ethical conflicts created by the practice of requiring borrowers to use attorneys affiliated with the lending institution."

Existing bank board regulations allow an insured lender to require home borrower to pay attorney fees incurred by the leader in the processing and closing of a home loan. The leader is allowed to pick its own attorney.

But according to the petition from Public Citizen and other individuals and organizations who joined in the action, "this unlimited right to choose any attorney has created several problems, particularly for borrowers and attorneys who are not closely tied to lenders."

The petition contends that the regulations seriously restrict competition for legal services among real estate attorneys "by not permitting the borrower to select the lowest-cost real estate attorney to represent the lender."

"Attorney's fees represent a significant portion of the home buyer's closing costs, and no buyer should have to pay more than is necessary to obtain a qualified attorney, acceptable to the lender," Public Citizen alleged.

Public Citizen suggested that many attorneys are hired by lenders not because they offer the lowest fees, director or stockholder of the lender. Because it represents "approximately 70,000 individuals, many of whom are now, and can reasonably be expected in the future to be, purchasers of home," Public Citizen says it has long been active in challenging practices and rules "which benefit attorneys, but increase the cost of purchasing a home."

In this case it is petitioning to place limitations on when home borrowers can be made to pay for attorney's fees. For example, the new regulation would prohibit charging the borrower for an attorney or attorneys affiliated with the lender unless the borrower was permitted to choose from not less than three attorneys, with no more than one affiliated with the lender.

And, the petition asks, the lender shall not directly or indirectly indicate a preference for a particular attorney.

"The effect of the existing (regulation) is that all of the participants in the closing transaction - lenders, borrowers and attorneys - either cannot or will not enter the attorney marketplace," Public Citisen contended. "Higher costs and inadequate representation are the unfortunate result."