Housing Secretary Mel Martinez may have resigned last Friday to run for the U.S. Senate in Florida, but his ambitious and controversial plans to streamline the American home mortgage settlement system are alive and kicking.

Not only does Martinez say the reform proposals have the backing of the Bush administration, but his apparent successor, Alphonso Jackson, a Texas friend of the President, pledges to move the plans to the marketplace.

"What you started, I will finish," said Jackson to Martinez at a farewell gathering for HUD employees last Thursday. "(Settlement) reform is alive and well, and you have my word on that."

Rumors had been rampant in Washington that with Martinez gone from the cabinet, his proposals for fixed-fee, guaranteed mortgage settlement cost packages and more accurate "good faith estimates" for consumers would die.

The headline splashed across the top of the latest issue of the industry newspaper National Mortgage News reads: "Martinez Departure Kills RESPA Reform." (RESPA refers to the Real Estate Settlement Procedures Act, the federal government's principal consumer protection statute for home buyers and mortgage borrowers.)

But both Martinez and Jackson, in an exclusive interview with this reporter last week, emphasized that the reform plans remain on the front burner.

"This is going forward -- this is a commitment," said Martinez, who first proposed the sweeping changes in mid-2002. He predicted that all or much of the proposals would take effect within the coming year, or no later than "when President Bush takes his second oath of office" in January 2005, should he be reelected.

Industry and Congressional critics have forced Martinez to delay his release of the final version of the proposals for the past six months. Title agencies, appraisers, credit reporting firms, realty brokers, settlement attorneys and others have complained that the packaging proposals give disproportionate economic power to lenders. Though packaging discount fixed-fee settlement services legally would be open to all service providers, critics charge, lenders would have the advantage because they control the central element -- the mortgage itself.

Martinez explained that the six month delay has been used by the department to revise the original proposals to meet some of the industry concerns.

"We have given very thoughtful consideration" to industry criticism, he said in the interview, though no final proposal "is likely to please everybody."

Martinez declined to discuss any substantive specifics of the contents of the reform plan taking shape, but reports have circulated that it will permit realty agents and title agencies to offer "guaranteed settlement cost packages" separate and distinct from the guaranteed mortgage packages from lenders. Under that scenario, a home buyer working with a Realtor might be offered a single-fee settlement cost package covering title-related settlement services exclusively. The home buyer could also shop for a guaranteed mortgage cost package covering the interest rate and lender fees. That package, in turn, could be offered by lenders affiliated with Realtors and title agencies, or by competing lenders on the Internet and elsewhere. Some national lenders already have geared up and currently offer guaranteed single-fee settlement packages with their loans -- ABN-Amro Mortgage, GMAC Mortgage, Ditech.com, E-Trade and E-Loan Inc. are the most prominent -- well in advance of the expected HUD reforms.

Published: December 15, 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, consmer 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.