After being all but tarred, feathered and run out of Washington by consumer groups for caving to industry interests, Housing And Urban Development Secretary Mel Martinez had some harsh words for mortgage bankers at their annual convention in Toronto.

"The industry can and must do more to protect the home-buying public," Sec. Martinez told the Mortgage Bankers Association.

He said "too many lenders and brokers have taken advantage of poorly informed home buyers. And he didn't find too many lenders who would disagree with him. Indeed, his statement was met with applause signaling the audience's agreement.

Afterwards, Senior Vice President for Government Affairs Howard Glaser said his group "welcomes" the challenge laid down by the secretary, who said the White House has "high expectations" from the lending industry.

The same could be said of consumer groups for Martinez. But they were terribly disappointed early last week when he reiterated his department's two-year-old policy statement that yield spread premiums those often undisclosed and sometimes unearned back-end fees funding lenders pay loan brokers are not necessarily illegal.

The MBA was hoping the Secretary would say that. The industry is potentially on the hook for billions in damages in some 200 or so class action lawsuits which claim that brokers and lenders have duped unsuspecting borrowers into paying higher rates than they otherwise should have.

Lenders, who pay yield spread premiums when brokers bring them loans at above-market rates, have been arguing they could be bankrupted if HUD didn't clarify its position.

If the 11th Circuit Court of Appeals' certification of Culpepper v. Irwin Mortgage as a class action is allowed to stand, new MBA Chairman James Murphy said prior to the convention, "the trial lawyers will have a field day."

Murphy, a commercial mortgager banker from Boston, said his group wasn't looking for HUD to intervene of its behalf. "We're not looking for cover," he said. "We will fight our own battles."

Now, they have what they wanted. The Secretary's statement "solidifies" the industry position with regard to YSPs," said MBA Chairman-Elect John Courson, who is president of Central Pacific Mortgage in Folsom, Calif. But it does not dismiss any of the lawsuits that are pending. "They're still out there and are going to have to be litigated,"

It doesn't stop any future suits, either, Courson said. "It merely clarifies what's been out there for two years and puts us back where we thought we were."

In his talk to the MBA, Sec. Martinez said "the viability and stability of the mortgage banking industry must be preserved."

He said the yield spread premiums can be a valuable tool for savvy home buyers. By retaining the premium as a financing option, more families will have the opportunity to close on a home, he said, adding that the country "needs more home buyers sitting at the settlement table, not sitting inside a courtroom."

At the same time, though, he called for complete and total reform of the mortgage process, from the moment a would-be borrower calls in for a rate quote to the second the last page is signed at the closing table. The MBA also has been pleading for changes in a system in which borrowers never know the total cost of their loans until settlement.

Sec. Martinez said it is "unacceptable" that consumers often are "forced to make an impossible choice" at the closing table; to either "hand over (the) extra cash" to cover unexpected fees that had not been disclosed in advance or "lose the house."

Because the extra charges are "thrust upon" buyers at the "last moment," he said, "they have no opportunity to determine whether (the charges) are at all reasonable." And they often are "not told who is getting their money or what services they are receiving in return."

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