A long effort to simplify the mortgage closing process drew criticism Tuesday from bankers, brokers and consumer advocates, amid claims that the overhaul might further confuse overwhelmed homebuyers.
The hearing by a House oversight subcommittee focused on a proposal intended to simplify the papers that consumers sign when they're buying a house or refinancing their mortgage. Advocates want buyers to understand the fees and full cost of the loan.
“Sometimes, they (consumers) don't understand anything they are signing,” said U.S. Rep. Mel Watt, a Charlotte Democrat, who chairs the panel of the House Financial Services Committee.
The Department of Housing and Urban Development initially tried to revamp the law in 2002, then submitted a new regulation in March. More than 12,000 individuals and groups commented on it. At least 240 members of Congress wrote HUD, asking that the proposal be withdrawn.
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HUD recently submitted a final rule. It isn't allowed to discuss the proposal until it's approved and released by the Office of Management and Budget. So it's unclear if concerns were addressed in the latest version.
“They (HUD) have no clue what happens at a real estate closing, and they come here with this ridiculous proposal,” said Rep. Donald Manzullo, R-Ill., a vocal critic.
HUD, which sent no representative to testify on Tuesday, issued a statement saying it was sad that the subcommittee waited so long to hold the hearing, but was confident the final rule would help consumers.
The changes to the Real Estate Settlement Procedures Act don't address home foreclosures. But the issues are closely related.
The proposed regulation addresses issues ranging from spelling out brokers' fees to restricting the way homebuilders can steer consumers to affiliated lenders. Those two features were among the most controversial at Tuesday's hearing.
“The new rule does not simplify the transaction or provide full disclosure, and in fact, it will most likely cause confusion,” said T. Anthony Lindsey, a Realtor with GlobeCrossing Realty in Charlotte and a board member of the National Association of Realtors. He said that large lenders would be able to offer cheaper settlement packages that include title search and insurance, appraisals and inspections with in-house or preferred-provider relationships. He said smaller lenders don't have the leverage to negotiate.