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HUD Must Close This Deal

March 26, 2004

Americans lately have spent about $50 billion each year on home loan and refinancing settlement costs, an average of $4,500 per loan. Too often, the ultimate cost isn't even apparent until it's time to sign the towering pile of documents submitted by mortgage brokers and bankers, escrow companies, appraisers and others involved in the process. The federally required "good-faith estimate" of closing costs is often on the low side, and when the higher figure is discovered, it's usually too late for a consumer to start shopping for a cheaper loan.

Two years ago, the Department of Housing and Urban Development had a better idea -- eliminate the last-minute flurry of paperwork and fees by requiring the industry to tell consumers about all charges before they commit. Armed with accurate information, consumers could shop for the best deal. HUD estimated that reforming the frustrating system would trim closing costs by $8 billion per year, or an average of $700 for each closing.

The plan seemed like a no-brainer.

However, HUD unexpectedly has withdrawn its proposal. Acting HUD Secretary Alphonso Jackson says the Bush administration remains "strongly committed" to reforms.

Unfortunately, it's now a commitment without a plan.

As recently as late last year, HUD submitted revisions to its original proposal to the Office of Management and Budget, but neither consumer activists nor industry players even knew the contents of the revision. The secrecy was apparently in reaction to the flood of objections generated by the original straightforward proposal. Owners of small businesses had complained that the original HUD plan was tilting the playing field toward big, national players, while mortgage bankers and mortgage brokers feared it would give one or the other a competitive advantage. Consumer groups worried that predatory lenders could more easily take advantage of consumers.

But now even the revision is kaput.

HUD owes it to consumers to fulfill Jackson's promise to "refine the rule and reevaluate it," unlikely as that is during an election year.

Even mortgage brokers and bankers and others who make a living in the industry acknowledge that the system needs to be overhauled. The question is whether HUD, which is charged with regulating the frustrating process, can stand up to armies of lobbyists and make the process cheaper and more efficient.

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