Mel Martinez, Secretary of the HUD, departed last Friday to embark on a career in politics. What does his exit mean to RESPA reform?

If Realtors were hoping for a reprieve for what many fear will be a HUD-sponsored single-package loan closing that will favor lender-supplied closing services over supplier choice for consumers, they won't get it.

Deputy Secretary Alphonso Jackson, who will be acting Secretary until the President's nomination of him is confirmed, told Martinez during his good-bye to HUD employees, "Mister Secretary. You had the courage to take on comprehensive mortgage reform even though people outside the department said it couldn't be done. In fact, I hear there are those who suggest your departure will mean RESPA reform is dead. Let me make this as clear as I can. This department will continue your work to make the process of buying and refinancing a home simpler, clearer and less expensive for consumers across this country. You have my word on this!"

For those unfamiliar with the issue, Martinez's goal was to find ways to save homebuyers and refinance consumers hundreds of dollars in transaction fees that would also be easier to understand and come with guaranteed closing costs. To that end, he proposed a new rule to congressional committees that promised the most sweeping reform of RESPA since 1974.

Martinez's proposal for a new rule was for a single package closing, which immediately produced an outcry from nearly every organization affected including both industry and consumer organizations such as the National Association of Realtors (NAR), the Real Estate Services Providers Council (RESPRO), the Mortgage Bankers Association, National Association of Mortgage Brokers, American Land Title Association, the American Bankers Association, Consumer Bankers Association, the Financial Services Roundtable, and more. Many, including the NAR, suggested that the HUD consider a two-package approach. Two approaches has suppliers and consumers demanding that the HUD repropose the rule to include the two-package approach and ask for comments, which so far the HUD has not given any indication that it plans to do.

Opinion is sharply divided over whether the guaranteed closing costs will best be supplied in a single package or two package closing. A single package would lump all settlement service costs together, including lending, title, and closing costs into one guaranteed amount. Critics, including the NAR, say the single package approach would put lenders in a position to negotiate for and to control fees by other suppliers, much like an HMO controls costs from doctors and hospitals. They can arrange bulk discounts from title company suppliers with little incentive to modify their own fees.

The NAR supports the two package approach which would put the lender fees in one package and title and closing services in another, allowing consumers to shop for the best prices and terms for both. Supporters say the two package approach would make lender fees more transparent. With a single package approach, a lender could simply refuse to consider suppliers it doesn't have "deals" with which would hurt smaller title and closing companies, as well as real estate brokers who have ancillary title and closing services to promote.

Spokespersons for the HUD said that officials are open to considering the two package approach, but NAR and others say they are still in the dark as to the direction the HUD plans to take.

But despite disagreeing with Martinez on how the settlement packages should be improved to benefit consumers, the National Association of Realtors isn't as glad to see Martinez go as pundits might think.

"We worked with Mel Martinez on a lot of projects," says Steve Cook, spokesperson for the NAR. "He spoke at our housing opportunity summit in September, and he was very supportive of our Hope Awards."

Cook says that as far as the NAR knows, HUD plans to go forward with something, and his departure does not mean the reforms are over or will sit on a back burner. "Whether the rule will go forward as proposed or will be reproposed as something new, we don't know."

Sue Johnson, spokesperson for RESPRO says that the latest rumor is that the HUD plans to go forward with the single package approach in its proposed rule, but will allow the option of a two package closing.

"We think that will be the same as a single package because the lenders can offer a single package and refuse to accept a non-lender's package of title and closing services," explains Johnson. "They can say 'We are offering everything.' Non-lenders couldn't compete. The supporters of two packages say that wouldn't be acceptable, we believe HUD would be well advised to go out with a reproposed rule and ask for further comments. The concept of the two package closing is a viable one, but it has surfaced since the proposed rule, and HUD should be putting that in a reproposed rule and accepting comments from interested parties."

She says that is why HUD's silence on the issue is disturbing. "RESPA reform has the potential to change the dynamics of the marketplace, that is why everyone (including most lender groups) is saying 'Hold on a minute!' This is a major regulatory change, and we should have the opportunity to comment before the rule is made."