Federal housing officials on Monday said they will withdraw a proposal aimed at cutting mortgage closing costs and submit a revised plan.

Alphonso Jackson, acting secretary for Housing and Urban Development, said the agency's effort to simplify the Real Estate Settlement Procedures Act (RESPA), which governs the mortgage settlement process, has raised a number of questions. Given the complexity of the issue, he said, it is prudent to start over.

There is no timetable for coming up with a new proposal, but that doesn't mean the process is stalled, Jackson said. "We're committed to reforming the home-buying process," he said.

HUD will take time to consider comments on reforming the law from government agencies, members of Congress and consumer and industry groups.

In June 2002, former HUD secretary Mel Martinez unveiled a proposal aimed at eliminating cheating and confusion from mortgage settlements. Among other things, the plan would have made it easier to comparison shop for a mortgage by letting borrowers lock in closing costs as they now can lock in an interest rate.

Too often, home buyers discover at their closing that the settlement costs are higher than expected. A guaranteed closing cost would eliminate surprises.

In 2002, the most recent year for which government data are available, Americans closed on 16.9 million mortgage loans and paid about $80 billion in settlement costs. As a result of the reforms, HUD had estimated that the average borrower would save $700 to $1,000.

But the mortgage settlement process is complicated, and changes can have unintended consequences, some experts say. During the comment period, HUD received more than 40,000 responses to the proposal. The agency then sent a draft of final rules to be reviewed by the Office of Management and Budget. On Monday, OMB sent a letter to HUD suggesting additional analysis on the rules' impact.

Both industry and consumer groups generally praised HUD's decision to withdraw the proposal.

"RESPA is very complex, and the details have to be done right to really make a difference for consumers," says Allen Fishbein, director of housing and credit policy for the Consumer Federation of America.

For instance, Fishbein says, he was concerned that the original proposal could shield predatory lenders.

The Mortgage Bankers Association said that it sent in 60 pages of comments about the proposal to HUD. Though the group supported the goals of the proposal, it was concerned about how it would have been implemented, fearing that in some cases it could actually cause costs to rise, says Kurt Pfotenhauer, senior vice president of government affairs for the MBA



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