Could the federal rules governing American home buyers' and refinancers' biggest financial headache -- settlement costs -- be reformed by as early as next spring?

Could surprise "junk fees" imposed on consumers at closings begin to disappear in the first half of 2003?

Top officials at the Department of Housing and Urban Development hope so. This week they reached their first milestone toward achieving that goal: They closed the official comment period on their proposed changes to the regulations that control millions of real estate settlements annually.

Now they begin the arduous task of reviewing the 20,000-plus critiques and counterproposals the department received from mortgage, realty, title, appraisal and settlement industry organizations during the three-month public comment period. After all that has been digested, according to HUD lawyers, the agency will come out with a final rule in the first half of next year.

What might that mean to you as a buyer or refinancer? Potentially, plenty.

For starters, whatever new regulation emerges next year will put teeth into the current, much-maligned disclosure system for settlement charges. In HUD's own words, current "good-faith estimates" provided to mortgage applicants by lenders often "are not made in good faith, and do not provide meaningful guidance on the costs [consumers] ultimately will face at settlement."

That's because current rules permit countless shenanigans without penalty or legal recourse -- from low-balled settlement charges to inventive, 11th-hour add-on fees for "services" never rendered. Example: Your good-faith estimate said $2,800 in closing costs, but the final settlement sheet says $4,200.

Next year's rules -- assuming HUD meets its own deadline -- are likely to:

* Force lenders and loan brokers to guarantee the accuracy of their upfront estimates. For lender-controlled origination fees and other settlement services selected by the lender -- such as appraisals, credit reports, flood zone certifications and title insurance -- there would be zero tolerance for underestimates. For other services required by the lender but "shoppable" by the borrower, the final charges would not be allowed to exceed the good-faith estimates by more than 10 percent.

* Order the rearrangement of the current jumble of fees and charges listed on the good-faith estimate into more intelligible categories, which would allow borrowers to readily compare competing lenders' costs before committing to a specific deal.

* Require an addendum to the good-faith estimate that could pull the curtain off two of the least understood, most controversial elements in the settlement process: title insurance charges and mortgage broker fees. It is likely to require separate disclosures of total broker charges and to force title agencies for the first time to disclose their cuts of the title insurance premiums.

Many consumers haven't the slightest idea that under current procedures much of what they believe to be the title insurance premium is actually a commission to the title agency or settlement attorney orchestrating the closing. In many parts of the country, title agencies or settlement attorneys take 75 to 80 percent or more of the title fees, on top of other closing charges. In California, the undisclosed cut can exceed 90 percent.

Next year's federal rules also are expected to create a radically new, consumer-friendly alternative to the good-faith estimate system nationwide: guaranteed interest rate and settlement cost "packages." Under HUD's probable final rule, packages will exist as an option in the marketplace for loan shoppers who want complete certainty upfront -- and who want to be able to compare lenders not only on interest rates but also on guaranteed bottom-line settlement charges.

Under the packaging approach, you might choose to compare several lenders: The first might quote you a 6.25 percent, 30-year rate and $3,750 in guaranteed closing costs. The quote on fees would include everything needed to close the loan, including all lender fees, with the exception of items subject to your own discretion -- for example, hazard insurance on the house, private mortgage insurance coverage or per diem interest charges.

A second lender might offer you 6.25 percent and $3,500, and a third might quote you 6.25 percent and $3,250, with the variations dependent on cost reductions negotiated by the lender from service providers in the package deal. You'd be free to go with the lender whose deal had the least fat.

All these reforms may sound good, but potential hurdles and snares stand in their way. The industry groups whose fees are most directly threatened by these changes vow to fight them strenuously on Capitol Hill and in the courts. If they succeed in gumming up the works politically, you can forget about settlement-cost reform anytime soon.

More on who the groups are and why they oppose reform in the weeks ahead.

Kenneth R. Harney's e-mail address is