WallStreet Journal
Bush Wants to Expand Mortgage Disclosures
Thursday September 20, 2007 1:29 am ET
By Deborah Solomon

As President Bush seeks ways to respond to the subprime-mortgage meltdown, his administration is readying a plan that would help borrowers better understand the costs and fees associated with buying a home. The twist: It proposed and shelved a similar plan three years ago.

In 2004, the administration backed down amid fierce opposition from the housing industry and members of Congress from both parties. After spending two years trying to "simplify, improve and lower costs associated with obtaining home mortgages," the Department of Housing and Urban Development tabled its proposed rule "due to the significant number of questions raised."

The renewed emphasis on loan disclosure is prompting some head shaking among consumer groups, who say at least some of the current problems could have been avoided if HUD had succeeded in overhauling the rules. While parts of its original proposal were heavily criticized, there has long been widespread agreement that the paperwork borrowers receive when they reach the settlement table is opaque and confusing.

"Home buyers, particularly among those taking out subprime loans, all too frequently find that when they show up at the settlement table...their loan terms are different from what they understood," said , Consumer Federation of America's director of housing and credit policy.

Now, the administration plans to revive the proposal as one way to prevent a recurrence of some of the problems roiling the housing sector. The White House says it will announce new rules this fall. Mr. Bush, in a radio address this month, said his administration "is working on new rules to help our consumers compare and shop for loans that meet their budgets and needs."

Those efforts, along with the administration's overall response -- which also includes helping distressed homeowners refinance through the Federal Housing Administration and private lenders -- are expected to be discussed at a House Financial Services hearing today where HUD Secretary Alphonso Jackson, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke will testify.

HUD has long agreed the settlement process is confusing but has been stymied in its efforts to make changes that would affect a huge, powerful industry that has grown up around the current rules. After its original proposal in 2002, HUD was deluged with more than 40,000 letters. In February 2004, Sen. Wayne Allard (R., Colo.) told Mr. Jackson -- who was then the nominee to head HUD -- that he couldn't support his nomination because of the proposed changes.

One month later, Mr. Jackson pulled the rule, saying the agency would "re-examine" and repropose it. HUD held a series of roundtables in 2005, but the issue moved to the back burner, administration officials said.

Brian Montgomery, assistant secretary of HUD, said the agency knows borrowers need better information and is working to improve disclosure. "If we can help consumers understand the fine print, we can help prevent them from getting in over their heads in the first place," he said in a written statement.

The biggest change is expected to be to the Good Faith Estimate, a document given to borrowers that lists costs such as title insurance, appraisals and other fees. The administration wants a more explicit detailing of mortgage-broker fees and loan terms, such as whether the interest rate increases or is there is a prepayment penalty.

At the same time, HUD plans to drop one of the more controversial aspects of the original proposal: allowing banks to handle the settlement in a single package at a set price, according to a HUD document. HUD viewed the provision as a way to bring down costs, but it ran into stiff opposition from smaller businesses, such as title companies and appraisers, who feared they would be squeezed by big banks and forced out of business.

The housing industry is bracing for HUD's revised proposal -- in particular, mortgage brokers, who are barraged with criticism in the current housing crisis. Members of Congress, consumer groups and others have accused mortgage brokers of steering individuals, including those with good credit, into subprime loans with higher interest rates that benefited them financially.

Brokers often receive fees from the lender when the borrower agrees to pay a higher interest rate than he or she qualifies for. The higher the rate, the higher the fee for the broker, though some lenders cap the amount they will pay. HUD is expected to require more explicit disclosure of broker compensation so borrowers clearly understand the relationship between broker and lender.

President Bush singled out the industry in a speech last month, saying his administration "will soon issue regulations that require mortgage brokers to fully disclose their fees and closing costs."

, president-elect of the National Association of Mortgage Brokers, said his industry already provides adequate compensation information. "I don't know of anybody else in our industry where you completely disclose every dime you make in a transaction, so I don't know what more we could disclose," he said.

Write to Deborah Solomon at deborah.solomon@wsj.com



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