Do you think that the "good-faith estimates" of loan fees and closing costs that lenders and others provide to home mortgage customers ought to be the same as what appears on the settlement sheet weeks later?
Do you think the federal government should encourage lenders to provide mortgage shoppers guaranteed, fixed-fee deals including mortgage rate and settlement fees to eliminate last-minute surprise closing-cost charges?
If you answered yes, then you should be glad to hear that reform of the American home mortgage system is moving -- again -- inside the Bush administration. Though federal housing officials withdrew the government's reform proposals under heavy congressional and industry group pressure in March, the plan never died.
"It is alive and well and certainly not on life support," Housing and Urban Development Department spokesman Brian Sullivan said last week. For the past several months, he said, the agency quietly has been discussing mortgage reform improvements with a variety of agencies, including banking regulators, seeking some rough consensus among them.
During the summer, the next phase will begin: discussions with key congressional committees and with some of the industry lobbies that helped block the reforms this spring. Most of the groups, including the National Association of Realtors and the Mortgage Bankers Association, profess support for the broad objective of reforming the settlement system. By late 2004, said Sullivan, HUD Secretary Alphonso Jackson expects to have enough input from all parties to move ahead. "This is going to happen," said Sullivan, though the specific time-call will be Jackson's.
Part of the goal is to make lenders' upfront estimates reflect reality, rather than function as a low-balling lure for consumers.
To illustrate: You shop for a mortgage and get a rate quote of 6.25 percent for 30 years from Lender A and a good-faith estimate of $3,600 for closing expenses. Lender B also offers 6.25 percent but gives you an estimate of "about $2,800" in settlement charges.
You would probably be inclined to go with Lender B. But the sad reality is that both of them could be low-balling their estimates to get your business. Neither estimate is legally required to bear any serious resemblance to the fees you would pay at closing.
Federal law requires delivery of good-faith estimates of total expected costs within three days of your application. But then the law leaves consumers dangling in the breeze. There are no standards for "good faith," and no real enforcement of what is estimated vs. what is delivered. As a result, thousands of buyers have complained in recent years to HUD and the Federal Trade Commission about last-minute surprise add-on charges -- title, settlement and lender fees that balloon by $1,000 and more beyond original estimates.
Under the HUD reform plan that was first proposed two years ago, lenders would be required to deliver accurate upfront estimates, with a maximum 10 percent tolerance level for unexpected increases. They would also be given incentives to offer totally fixed-price, guaranteed loan deals to buyers who seek certainty.
Though Sullivan would not discuss the current direction of the reform proposals, mortgage industry experts expect retention of the two key objectives -- greater certainty in closing costs and national standards for guaranteed fee programs.
Several large groups have countered with their own versions of the fixed-fee concept, and HUD will be looking at those ideas. One prominent alternative involves allowing consumers to shop for two guaranteed-fee deals -- a mortgage origination costs package (interest rate, credit appraisal and lender charges), plus a separate settlement and title costs package. The first fixed-cost package would be offered to you by your lender. The second might be offered to you through your realty broker, in connection with a title or escrow agency or settlement lawyer partner.
The two-fixed-fee package approach, say supporters at real estate brokerage and title groups, would prevent large banks and mortgage companies from dominating the move to guaranteed-fee offerings.
While all this is getting renewed attention in Washington, several large lenders continue to offer their own versions of fixed-fee plans, and they are racking up huge business doing so. ABN-AMRO Mortgage Corp. says it has completed more than $30 billion in One-Fee home loans carrying fixed lender costs and settlement charges. GMAC Mortgage Group and its Ditech.com subsidiary say they have closed more than $60 billion in fixed-fee programs, including the heavily advertised "flat-fee" plan. E-Trade Financial, E-Loan and several dozen other lenders also are offering fixed-fee deals ahead of the federal reforms.
But keep this in mind: Every lender's fixed-price deal differs from every other lender's program. Read the fine print carefully to see what's covered by the guarantee and what's not.
Kenneth R. Harney's e-mail address is firstname.lastname@example.org.