Bush settlement-fee reform in jeopardy in GOP Congress

Nation's Housing

April 20, 2003|By KENNETH HARNEY

THE BUSH administration's proposed reforms to the home mortgage system - strongly supported by consumer groups for cutting as much as $10 billion a year off American homebuyers' and refinancers' settlement costs - are in serious jeopardy on Capitol Hill.

Tops on the target list of political opponents: A proposal to give consumers the option to shop for guaranteed-cost "packages" of settlement fees combined with interest rate quotes. The guaranteed packages would allow borrowers to know with precision the bottom-line expense of a mortgage deal upfront, at the time of application.

Under the plan, homebuyers and refinancers could shop among competing lenders for the lowest-priced combination of guaranteed rate and guaranteed fees.

For example, Lender A might quote 6 percent for 30 years and $2,800 in guaranteed closing costs. Lender B might quote the same rate with $3,400 in guaranteed costs. The choice would be clear - and lenders would be required by federal law to deliver their packages at the promised price.

Under the current system, by contrast, consumers frequently are stuck with hundreds or thousands in settlement fees they never expected.

Opposition to the packaging concept has come primarily from middlemen in the system - title insurance agencies, mortgage brokers, realty brokers and settlement-service lawyers- all of whom fear loss of revenues if consumers are permitted to shop for discount-priced, guaranteed settlement packages from competing lenders.

Housing Secretary Mel Martinez estimates his entire proposal would save nearly $1,000 per home loan transaction on average if put into the marketplace.

Opponents believe that much of those savings would come from small and moderate-size title and settlement service companies and law firms, who would be forced to cut prices to be included in package deals.

For example, under the current system, title agencies and settlement attorneys frequently receive 80 percent to 85 percent or more of the mortgage applicant's title-related payments at closing.

In a guaranteed-package market environment, there would be pressure on them and on lenders to reduce fees substantially.

To fight the Bush-Martinez proposals, settlement service industry groups have garnered the support of a handful of key Republican legislators whose committee chairmanships give them the power to kill, or at least delay indefinitely, the adoption of the proposals.

Martinez had planned to issue his final rule activating the reforms before this summer. Now sources say the timetable is up in the air because of the heavy political fire Martinez is getting from fellow Republicans.

However, the sources of some of the heaviest fire are now generating their own backlash. For instance, the principal Senate critic of the packaging plan is Sen. Richard C. Shelby, the Alabama Republican who chairs the Senate Banking, Housing and Urban Affairs Committee.

Shelby has expressed repeated concern that the packaging plan would be "anti-competitive," and "significantly damaging to small businesses." He has asked Martinez to delay and revise it. Shelby has also complained that a lump-sum guaranteed figure would not provide consumers an itemized list of closing costs, as they currently receive.

What Shelby has not mentioned in his statements is that he has a significant personal financial stake in the very type of small business that the guaranteed-cost package plan could impact the most - a title agency.

According to Shelby's most recent federal financial filing, he is chairman of the board of Tuscaloosa Title Insurance Co. of Tuscaloosa, Ala. His holdings in Tuscaloosa Title are valued at $1 million to $5 million, according to the filing, and yield income of between $115,000 and $1,050,000.

Asked whether there is a potential conflict of interest when the chairman of a title agency has legislative control over a federal proposal directly impacting his business, Shelby's office provided me the following statement: "[Martinez's] proposal would have a wide-ranging and significant impact on the home ownership process across America. It is completely appropriate, indeed incumbent upon Sen. Shelby ... to participate in such a debate."

Larry Noble, executive director of the nonpartisan Center for Responsive Politics, which monitors the influence of money in national politics, called Shelby's aggressive role against mortgage reforms "outrageous."

"He is opposing a [consumer reform] that would have a direct impact on his personal financial interests." Shelby's financial disclosure is on the center's Web site, www.opensecrets.org.

But Shelby is not the only Republican committee chairman seeking to kill the packaging reforms who has a strong link to an affiliated industry.

Rep. Donald Manzullo, the Illinois Republican who chairs the House Small Business Committee, has announced plans to introduce formal legislation to block the Martinez plans.

Manzullo's business prior to running for Congress? He was a real estate settlement attorney - another sector expected to be under pricing pressure in a guaranteed-fee, competitive shopping marketplace.

Ken Harney's e-mail address is kharney@winstarmail.com.

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