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RESPA Reform, Guaranteed Mortgage Packages and Fee Bundling

January 2007 -- We'd still like your opinion.

Some big changes may be coming for you, the mortgage shopper... and you probably haven't heard anything about them.

Back in 2002 and 2003, the Department of Housing and Urban Development (HUD) offered several radical proposals to change the way that mortgages are offered, and especially the way fees are charged and disclosed to you.

HUD received a record 40,000 comments from industry participants, consumer groups, regulators, etc., but ultimately, the proposals were shelved as the many disparate groups couldn't come to any sort of agreement of how best (and most fairly) to proceed. The proposals were withdrawn in early 2004.

After a long hiatus, discussions about RESPA reform (the Real Estate Settlement Procedures Act, now over 30 years old) are alive again, and industry groups and regulators seem determined to formulate some new regulations. Six meetings took place in Summer 2005; various groups provided their inputs, including those who purportedly represent mortgage shoppers like you. While not yet certain, there is likely to be some movement on this issue as 2007 rolls along, and it's still in the works with nothing final as of yet.

That's still the case. However, issues in subprime and alt-A credit lending have lead to new concerns about onerous prepayment penalties and the fees associated with getting a mortgage loan, and of course, better and more clear disclosures about mortgage costs and risks.

We thought that asking people like you -- those who would be directly affected by these potential changes -- might prove instructive. (Please note that for brevity's sake, we've simplified the arguments somewhat).

Guaranteed Mortgage Package

The HUD proposal would allow lenders to offer you a Guaranteed Mortgage Package (GMP). Simply, the GMP calls for the lender to offer you an interest rate and a pay-one-price bundle of closing fees which he must guarantee for a specific period of time, typically 30 days. For example, your GMP might be a 30-year fixed rate at 6% with $3000 in fees; this deal would be guaranteed for the next 30 days, regardless of what interest rates might do.

Unsurprisingly, lender groups are against being required to guarantee the interest rate, as they have little control over market conditions which -- as most mortgage shoppers know -- can and do change dramatically in the time your application is in process. There has been considerable doubt as to whether or not the interest-rate portion of the GMP will actually pass HUD's final review process.

However, there has been support for "fee bundling" and/or fee packaging in one form or another, and there are some expectations that regulations which allow for such are most likely to happen. Some lenders are already producing their own form of bundled pricing.

Fee Bundling

The concept of "pay one price for all settlement services" isn't new, and there are a few lenders who offer such an arrangement now (however, by law, they still must itemize the actual fees you pay). The proposed law would allow for bundling without listing the actual fees charged by each service provider (appraisal, title search, credit reports, etc).

Proponents of fee bundling claim that it will simplify mortgage shopping, providing clarity to a now-confusing array of fees and conditions. Opponents claim that by quoting only one price, borrowers will never know what they are actually paying for each settlement service, and could end up overpaying for them.

There are also claims that such packaging favors large lenders over small, because the large players can leverage service providers into more favorable contracts -- and that those savings might not all be offered to the consumer, but instead would become profits for the lender.

"Enhanced" Good Faith Estimate of Closing Costs

Also contentious are discussions to revise the amount of information provided on the Good Faith Estimate of Closing Costs (GFE), which must be provided to you within three days of placing a mortgage applications. One such discussion centered around disclosing the mortgage broker/mortgage originator's compensation for originating the loan to you, as well as who should be liable for any errors on the GFE or violations of GFE regulations. Some early discussions called for limits on how much the final total closing cost fees could differ from the up-front estimates. So far, our poll (though May 2006) found two-to-one support for the revised GFE compared to the other potential options.

What's your opinion? (As always, our privacy policy applies.)

Would you prefer to see lenders offer you a pay-one-price GMP which includes a guaranteed interest rate?
Would you prefer a simple "bundle" of fees for settlement services (no guaranteed rate)?
Fee Bundling
Instead of guarantees, would you instead prefer a clearer, more accurate Good Faith Estimate of Closing Costs which allows for little or no deviation from the fee amounts which are quoted? A Better GFE
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Last totals, though September 27, 2007 (subject to change with further responses):
GMP 30%, Fee Bundling 10%, Better GFE 61% (totals may not equal 100% due to rounding)

See a list of previous VoxPop questions.