Saturday, August 2, 2003

Critics push for home-loan changes

By Genaro C. Armas
The Associated Press

WASHINGTON - Carolyn Carter was eager to close on her first home, but when she got to the settlement table and read the fine print, she found the costs were $6,000 more than expected, and the interest rate was higher. She walked away.

Carter, 36, of Bowie, Md., found another mortgage company and eventually bought a three-bedroom townhouse.

"I wouldn't want to go through that again," said Carter, who commutes to her job as a marketing researcher in Washington. "It was ridiculous what I had to go through to get it."

Federal housing officials heard more such complaints as a record number of Americans took advantage of low interest rates to buy homes or refinance existing mortgages.

Housing and Urban Development Secretary Mel Martinez wants wide-ranging changes that he says would make the settlement process simpler and cheaper.

The key element of the HUD proposal would encourage more lenders to offer one price to cover all closing costs. Martinez said this "guaranteed mortgage package" would make it easier for people to price-shop.

According to the Mortgage Bankers Association of America, closing costs average about $2,000 a transaction, though that varies widely depending on the price and condition of the house, the amount of the loan and a host of other factors.

HUD estimates home buyers could save up to half the average cost if the changes are implemented.

"There wouldn't be junk fees like another $50 here and $25 there," Martinez said. "If you are going to be competitive, it can't have junk fees."

Current regulations require broker fees, title searches, appraisals and other closing-related services be itemized and disclosed at settlement. They usually are listed in fine print on paperwork that looks like a tax return.

Typically, mortgage companies give home buyers an estimate of those costs before settlement. But in many cases the costs are higher.

The key elements of the proposals:

Good Faith Estimate: Final closing costs would be no more than 110 percent of what mortgage lenders proposed in the "good faith estimate" at the start of the transaction.

Guaranteed Mortgage Package: Currently, costs are itemized at closing. Under the proposal, lenders could offer one price for all closing-related fees. Martinez says that would make it easier for consumers to shop around. In return, lenders wouldn't have to itemize fees and would be free to seek volume discounts from third-party service providers.

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