Mortgage Guessing Game

Who hasn’t had nightmares about refinancing a home loan? What’s less painful, higher points or a higher interest rate? Are all these documents really necessary? Where did all these added fees come from, and what are they really for?

Consumer organizations cheered in 2002 when Housing and Urban Development Secretary Mel Martinez promised to make it easier and less expensive to secure a home loan or complete a refinance. But it was clear from the outset that the most sweeping reform since 1974 of regulations governing the cozy mortgage settlement business would take the wisdom of Solomon, the patience of Job and the unfailing support of Martinez and the White House to institute. Presumably, Job and Solomon remain on call, but Martinez’ resignation in December to run for the U.S. Senate in Florida has raised concern that the controversial reform has stalled.

Acting HUD Secretary Alphonso Jackson in December promised to continue the fight. This is an election year, though, so everyone who makes a living from the loan process -- mortgage brokers and lenders, Realtors, title insurers, escrow companies, appraisers and inspectors -- is lobbying Congress to protect a special interest.

An initial HUD proposal floated a year and a half ago suggested that reforms would strip $8 billion a year, or $700 per home buyer, from the average mortgage settlement. The industry flooded HUD with protests during a subsequent public comment period that drew a record 43,000 responses.

HUD recently completed a new version of the proposed rule that supposedly addresses concerns raised by the industry. But the new package won’t be made public until after the Office of Management and Budget completes a required review, so industry insiders and consumer groups alike are scratching their heads over where HUD is headed.

Escrow companies, appraisers and mortgage brokers are hoping that HUD has eliminated what they see as onerous rules that would push smaller companies out of the business.

Consumer groups have cautioned that they will not support the proposal unless it offers significant new protections. The Consumer Federation of America, the Consumers Union and other groups said in a joint letter that reforms must include “an interest rate and closing cost guarantee.” They also want costs presented in a way that makes comparison shopping possible. The current system, with its myriad charges and fees, makes that almost impossible.

Martinez boldly promised to create “a clearer and cheaper settlement process.” Unfortunately, it’s come down to a struggle between consumer organizations and those who profit from keeping consumers guessing. This is one round that consumers thoroughly deserve to win.