How much does a mortgage cost? It's hard to tell, according to lenders, consumer groups and government officials.

What with points, origination fees, appraisals, insurance and other costs, the final cost of getting a mortgage is something many consumers don't find out until the day they close on a home.

"We have this really complex situation, and it's not serving anybody well," says Paul Mondor, senior director of regulatory affairs for the Mortgage Bankers Association of America. "It's really a pretty disorienting mishmash and that's why we've been trying to reform."

New law next year?
Recent Congressional hearings, fueled by heated talks among industry, government and consumer groups, could bring about new laws early next year that aim to make it easier for home buyers to compare mortgage costs. The changes being considered would require lenders to give mortgage borrowers more accurate cost estimates earlier in the application process, and either eliminate the annual percentage rate calculation or rework it to incorporate more closing costs.

Mortgage borrowers are supposed to be able to get an apples-to-apples comparison of competing loans by looking at the annual percent rates -- or APR. APR is defined by the Truth in Lending Act, which requires lenders to disclose any charges for obtaining credit, as well as how those charges raise the interest rate if they are included with the principal and paid over the life of the loan. That rate-plus-costs figure equals the loan's APR.

The other costs
But APR leaves out a lot of other borrowing costs, such as appraisal fees, credit report fees, title insurance and a laundry list of other expenses.

Regulators highlighted the problem before two subcommittees of the Senate Banking, Housing & Urban Affairs Committee in July. As part of a joint report by the Federal Reserve and the Department of Housing and Urban Development, Federal Reserve Governor Edward Gramlich noted that the Truth in Lending Act defines the term "finance charge" very broadly. It includes any charge paid by the consumer and imposed by the creditor as a result of the extension of credit.

"But in practice the finance charge and the corresponding APR have never disclosed the full cost of credit," Gramlich testified.

The true total includes costs that, while relatively small on an individual basis, can add up. Lending experts say appraisals average $300, title searches $50 and title insurance policies $200, with flood searches at less than $25 and credit reports costing a few dollars.

Cost estimates
Disclosure of these costs and others are governed by the Real Estate Settlement Procedures Act, which requires lenders to provide two pieces of information. The first, a so-called "good faith estimate" of those charges, must be given to potential borrowers soon after they turn in their loan applications. The second is an itemized bill of the actual costs. Known as the settlement statement, it is presented at the closing, when the borrowers often have already paid several charges, such as inspection fees or insurance premiums.

The problem is that borrowers frequently end up with estimates that vary widely from their final settlement costs. Even when they do receive an accurate estimate it comes too late for them to evaluate it against other offers.

"By the time you apply to a lender under today's situation, you're shopping is over," says Mondor of the Mortgage Bankers group. "People go and call up and say, 'What's your rate? How many points?' and if they're really savvy, they'll say, 'What are your closing costs?' and they just go on that information.

"But there's no law saying they have to be told anything that's remotely close to what they may end up paying."

Slogging through the issues
Although no legislation has been introduced on Capitol Hill yet, the Mortgage Bankers, National Association of Mortgage Brokers, Consumers Union and other concerned organizations continue to slog through the issues as part of the Mortgage Reform Working Group, an industry coalition. Congress is expected to continue hearings this fall to solicit public input, although nothing has been scheduled yet, and any bill likely won't be introduced for at least six months because of the upcoming election season.

The biggest potential change could involve modifications to how APR is figured. While the Fed and HUD favor expanding the rate to include more closing costs, lenders and mortgage brokers say consumers would be better off if the figure were eliminated completely. Rather than try to compare two numbers that might not include the same charges, borrowers would instead get just two figures -- the loan's basic interest rate and the cost of all closing expenses.

A Fed survey revealed that consumers practically ignore the APR when shopping for mortgages, says Robert Lotstein, the Mortgage Brokers' Washington-based counsel.

"They want to know the interest rate and points, they want to know the closing costs and they want to know their monthly payments," he said.

Some more suggestions
Another suggestion from HUD and the Fed is to eliminate the discrepancy between estimated and actual closing costs. Under this scenario, lenders would be required to give borrowers either a guaranteed quote or an estimate that varies from the final bill by no more than a certain percentage or dollar amount.

The time a lender has to provide such an estimate could be modified as well. The Fed wants a 3-day deadline and HUD is looking for an even quicker turnaround.

That would be simpler, in part, if the law were modified to make it easier for lenders to negotiate settlement service packages, regulators say. By setting up contracts in advance that guarantee the cost of title searches, appraisals and other closing requirements, lenders could estimate a borrower's charges sooner.