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HUD pulls plan over closing costs
WASHINGTON -- Federal housing officials on Monday withdrew a proposal that they said could have simplified mortgage settlements and saved consumers hundreds of dollars on closing costs.
The Federal Trade Commission and others had questioned whether the plan would accomplish those goals.
Alphonso Jackson, acting secretary for the Department of Housing and Urban Development, said he decided to shelve the plan after industry groups and members of Congress said they needed more time to review it. He said he would resubmit the plan but offered no timetable.
"The most prudent thing is to refine the rule and re-evaluate it," he said.
Jackson denied the move was an attempt to curry favor with Sen. Wayne Allard, who chairs Senate Banking subcommittee on housing. At a confirmation hearing last month, Allard, R-Colo., told Jackson he could not back his nomination because HUD was moving ahead with the planned changes in the Real Estate Settlement Procedures Act.
"I hope I caught their attention," Allard said. "I hope that HUD will go ahead and review RESPA reform and work closer with the marketplace entities involved in the reform, take comment and listen to what they are saying."
The proposed changes had been in the works for over two years and had been submitted to the Office of Management and Budget for approval in December.
A key element would have encouraged lenders to offer one price to cover all closing costs, such as broker fees, title searches and appraisals. Currently, those costs are itemized.
HUD officials said that many homebuyers are confused by all the numbers and that offering one price for closing costs would make it easier to shop around.
But critics, led by Sen. Richard Shelby, R-Ala., chairman of the Senate Banking, Housing and Urban Affairs Committee, said the proposed changes could lead to problems with lenders hiding fees from consumers.
The Small Business Administration also opposed the changes, as did the FTC, which studied the idea and concluded it would "result in more confusion, less competition and higher costs for consumers."
The Mortgage Bankers Association estimates that closing costs average $2,000 per transaction, but that varies widely depending on the price and the condition of the house, the amount of the loan and other factors.
Last year, HUD estimated homebuyers could save up to half the average closing cost if the changes were made.
"The quarrel is not with the goal," said Kurt Pfotenhauer, a senior vice president with the Mortgage Bankers Association. "It was just a lack of confidence (because) the process to date hasn't produced a workable plan to achieve a goal."
Ann vom Eigen, legislative/regulatory counsel for the American Land Title Association, said some companies already are offering to fold closing costs into a single fee even without the proposed HUD changes.
Some critics also maintain that smaller companies which offer more personalized service might be driven out of business because they wouldn't be able to afford the price cuts that larger national settlement companies could make.