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Savvy mortgage shoppers ask for Martinez reforms

You probably didn't notice the anniversary last week, but here is the key consumer question it provoked: Where are the far-reaching reforms to the confusing and costly home mortgage settlement process proposed by the Bush administration one year ago?

Where are the guaranteed mortgage packages that would cut down on junk fees and eliminate 11th-hour surprise charges on settlement sheets?

Where are the "Good Faith Estimate" disclosure changes and other reforms designed to save consumers an average $1,000 when they close a home loan?

The quick answer: They have been delayed by opponents who prefer the current system over the one proposed by Housing Secretary Mel R. Martinez on June 26, 2002.

These opponents include title insurance agents, real estate settlement lawyers, mortgage brokers and realty agents. They also include powerful Republicans on Capitol Hill, including the chairman of the Senate Banking Committee (himself a title agency chairman back home in Alabama) and the head of the House Small Business Committee, a former real estate settlement attorney in Illinois.

Officials at the Department of Housing and Urban Development (HUD) say that the reform plans merely have been delayed, not killed, and that the Bush administration remains pledged to simplifying and cutting costs in the home settlement field.

But why should you wait for official action to start saving money? Use the core ideas of Martinez's reform proposals when you shop for a mortgage. And, thanks to increasing competitive pressures in the market, you will find growing numbers of lenders and mortgage brokers who will deliver at least some version of the reforms.

For example, take guaranteed mortgage settlement fee packages. Dozens of mortgage bankers, up from just a handful a year ago, now provide an upfront guarantee of both interest rate and final settlement costs. National lenders offering fixed-fee packages include ABN Amro Mortgage Group, E-Loan Mortgage, E-Trade Mortgage, Ditech.com, GMAC Mortgage Corp and Greenlight Financial Services, among others.

Mid-sized and regional mortgage companies are banding together to purchase title, appraisal and other settlement services at discounted costs, then passing the savings along to home buyers.

Equally significant, hundreds of brokers across the country now quote guaranteed-fee settlement packages nationwide. Working with Interfirst Wholesale Lending, a division of ABN Amro that buys loans from local brokers, they have signed up $100-million worth of guaranteed-fee, cut-cost mortgage package deals in recent weeks, according to an ABN Amro spokesman.

Even if you can't locate a broker or lender to quote you a fixed-cost package, you can shop to find out who will incorporate a second part of the Martinez plan: a written guarantee that the fees quoted upfront in the Good Faith Estimates disclosure will not increase by some preset "tolerance" amount on the final closing sheet.

Martinez's plan requires 10 percent tolerance caps on major settlement fees from the Good Faith Estimates stage to final closing. The odds are good that, with a little shopping, you can locate a broker who will go along with that concept.

Finally, you can demand more in depth and more understandable disclosures from brokers about their fees. Many brokers now provide detailed descriptions of their fees, how much they'll earn from you, how much from the lender, etc. Most brokers are also willing to offer a so-called "zero cost" option, where all settlement fees are rolled into the interest rate. That rate may be .25 of a percentage point or more higher than you'd otherwise pay, and there's no guarantee that the underlying title insurance, appraisal and other charges are discounted in any way. But at least you're spared last-minute settlement cost surprises and you can compare competing brokers' zero-cost interest rate quotes in a meaningful way.

The bottom line here: The Martinez reforms will carry the full legal and regulatory oversight power of the federal government when they arrive, something that you as an individual cannot possibly obtain. There's no substitute for nationally uniform standards, but there's nothing preventing you, as a heads-up mortgage shopper, from asking lenders and brokers for at least some of the improvements now.

Ken Harney's e-mail address is kharneywinstarmail.com.

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