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The Homebuyer Bill of Rights

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By Robert Brokamp (TMF Bro)
July 1, 2002

"Americans spend approximately $50 billion each year on settlement costs without knowing exactly what they are paying for or having the opportunity to shop effectively for the best mortgage to suit their needs." So said Housing and Urban Development Secretary Mel Martinez last week in his announcement of the "Homebuyer Bill of Rights."

Those of us who have ever taken on a mortgage know what he's talking about. On the big day, we show up at the settlement table with a money order worth thousands of dollars. But we also bring a checkbook because -- we're told by our agents, brokers, and attorneys -- there might be some extra closing costs involved. We review the settlement statement and try to understand the many costs, such as title insurance, escrow fees, courier charges, and tax service fees. If we're not happy with last-minute charges, what are we doing to do? Walk away and not buy the house?

For such reasons, HUD has developed the Homebuyer Bill of Rights. The proposed changes will not do away with the fees, but they would require that all fees be clearly delineated, and early in the home-buying process to prevent last-minute surprises. Also, the changes would allow mortgage companies and banks to compete for borrowers not just based on interest rate, but also on guaranteed-cost loan packages. Ideally, this will give lenders an incentive to lower closing costs to be more competitive.

The proposed changes will reform the Real Estate Settlement Procedures Act (RESPA) of 1974, which regulates settlement fees. RESPA was designed to keep settlement costs down, but, as noted in an HUD press release, "RESPA rules have impeded the offering of guaranteed packages of settlement services and mortgages that could lower costs and enable consumers to more easily shop for mortgages."

It should also make settlement charges more transparent. Margot Saunders, managing attorney with the National Consumer Law Center, told Forbes that, "There is a tremendous amount of money made in overcharges. We see people that are charged $1,000 for an appraisal that should cost $350, attorney fees that cost $1,000 when it should only cost a few hundred."

Any changes probably won't be implemented until next year. The specifics of the HUD proposal will be announced later this month. The public -- including industry groups -- will then have an opportunity to submit comments. When that time comes, take the opportunity to make your voice heard.

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