Should you be able to buy a guaranteed fixed-price home mortgage settlement package from your Realtor?

That is the burning question of the hour -- and the day and the month -- before policymakers at the US Department of Housing and Urban Development (HUD). Officials there are considering home settlement reform proposals that would allow consumers to shop for two packages of fixed fees in connection with a home purchase or refinancing: A "mortgage package" consisting of a guaranteed interest rate quote, plus fees for credit, appraisal, document preparation and underwriting; plus a second and discrete "settlement cost package" including title search, title insurance, survey and other settlement-related expenses.

The two-package reform concept is being pushed by the National Association of Realtors, the American Land Title Association, settlement lawyers and other settlement-services groups. It differs from the original, all-inclusive single settlement cost package approach proposed by HUD Secretary Mel Martinez last year.

Under that concept, consumers would shop among lenders and others for single-fee packages covering everything from the mortgage rate to the guaranteed closing costs at settlement. You might sign up for a 30-year 5 3/4 percent fixed-rate mortgage with one point and an attached, fixed-cost settlement charge of $3,800. That would be a major advance over today's system where you know your rate in advance, but you often cannot be sure what the bottom line will be on your settlement sheet. The reason: lenders are not required to stand behind their up-front "good faith" estimates, leaving consumers vulnerable to eleventh-hour surprises.

The big drawback with Martinez's original plan, according to realty brokers and title groups, is that it tends to concentrate power in the hands of lenders. Over 40 large realty brokers wrote to Martinez last week urging him to allow them to compete for their own customers' settlement business by sponsoring "guaranteed settlement packages" independent of lenders.

A home buyer working with a Realtor under that system could shop for a loan origination package on the open market, and sign up for a guaranteed-cost package of settlement services directly from the Realtor. Many realty firms already have title insurance agency affiliates or subsidiaries, and they argue that they are well equipped to produce competitively-priced settlement packages.

Martinez, speaking in Washington last Thursday to a "housing summit" organized by the NAR, declined to say whether his final reform package -- expected in the near future -- will embrace the two-package approach. He did say that the NAR's suggestions on mortgage reforms had been helpful to the "evolution" of the program he plans to announce. Martinez did not say when he expects to unveil the final reforms, but said it would definitely "not be at the Mortgage Bankers (Association) convention" scheduled for late October.

Some trade publications had printed stories recently suggesting that the October 21-22 MBA event in San Diego could be the likely venue for the announcements.

All of which left the key question twisting slowly in the wind in Washington: Will Martinez listen to the Realtors and title companies and allow consumers to shop for two separate service packages in connection with a home purchase?

Or will he insist on an all-inclusive, guaranteed-price single package as mortgage lenders and consumer groups strongly favor?

A HUD official said "there's only one person who knows the answer to that" -- Martinez himself -- "and he is not talking."

One possibility: Allow both single packages and dual packages to coexist freely, and let home buyers and refinancers shop for and compare them, and choose the lowest-priced alternative.

Published: September 29, 2003

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consumer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.