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Closing-cost reform movement lives on -- Page 2

Some industry groups argued that the proposed mortgage reform would raise prices by squeezing out the little guys, reducing competition. Price increases seldom happen when Wal-Mart shuts down the small shops in town, but it's the argument that the industry deployed.

Says Camden R. Fine, president of the Independent Community Bankers of America: "HUD's proposed rule would likely dramatically reduce the options and service of mortgage shoppers while increasing their costs. We have strongly opposed the rule because of the damage it would do to consumers, the mortgage finance system and the small loan originators and small settlement-service providers that participate in it."

A few guarantee closing costs anyway
Under current RESPA rules, it's difficult, but not impossible, for a company to guarantee closing costs. A few do, including ABN AMRO Mortgage Group and E-Trade.

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Garth Graham, president of ABN AMRO Mortgage Group, says the withdrawal of the RESPA proposal "is not going to affect us at all. We think the value proposition and simplicity for consumers is so compelling that it makes sense to continue to do it."

ABN AMRO's guaranteed closing price product is called OneFee, and about 180,000 borrowers have used it in the past three years, Graham says. Growth would be even faster had RESPA reform been adopted, but the company will continue to offer OneFee because it's a good selling point.

"The biggest obstacle is that consumers think it's too good to be true," Graham says. "They ask what other costs will there be. They say, 'OK, how much is title insurance?' We say title insurance is included. They like that."

Rob Bernabe, president of E-Trade's mortgage arm, says the withdrawal of RESPA reform is bad for consumers but good for his company. E-Trade guarantees fees when the borrower locks the loan's rate and points. Tongue partly in cheek, Bernabe says, "I think it's good that the law got pushed back because it continues to give us competitive advantage. Clearly it's what consumers want."

E-Trade calls its fee guarantee the Up Front Price Promise, and the company also offers Fair Compare, in which visitors to the lender's Web site are instructed how to contrast the rate and fees on an E-Trade loan with competitors' rates and fees.

Defeat won't stop the movement
The death of RESPA reform doesn't mean that the mortgage industry will stop evolving, says Chris Larsen, president of E-Loan. It means that evolution will slow down, he says.

E-Loan doesn't charge lender fees (such as application, origination and document preparation fees), and it guarantees the third-party fees once the loan is approved and the rate is locked. For Larsen, the practice of guaranteeing a bundle of fees is not an end, but a means to an end. The goal, he says, is transparency -- allowing consumers to compare loans in a nonconfusing way.

Right now, Larsen says, the mortgage process has plenty of disclosure -- each loan is accompanied by dozens of pages of government-mandated forms for the consumer -- but not enough transparency. "Disclosure can be overwhelming," Larsen says. "A big part of reform was simplifying things to create transparency."

Some lenders might resist the drive toward greater transparency, Larsen says, "but at the end of the day, that's going to be the driver."

-- Posted: April 1, 2004
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