Federal regulators on Tuesday endorsed a wholesale revamping of the Truth-in-Lending and Real Estate Settlement Procedures acts but stopped short of recommending abolition of either law.

Testifying before Senate Banking's financial institutions subcommittee, Fed Governor Laurence H. Meyer and Assistant HUD Secretary Nicolas P. Retsinas said their agencies are developing a joint legislative proposal for overhauling the disclosure laws.

"There is significant and growing interest in more sweeping reform," Mr. Meyer said. "We have before us a unique opportunity to make significant changes to the way in which consumers shop for and obtain mortgage loans."

Draft legislation should be ready in October, and a final proposal will be sent to lawmakers by year's end, Mr. Meyer said. To facilitate the drafting of legislation, the Federal Reserve and the Department and Housing and Urban Development will hold a hearing July 30 to solicit suggestions from the public.

Mr. Meyer said he expects to recommend modifying existing laws rather than combining them into a single statute. Such drastic action, he said, could upset the broad consensus among lenders, consumer activists, and regulators for reform.

Mr. Retsinas said any plan must provide "meaningful and timely" disclosure of interest rates and closing costs for mortgages and must protect the public from illegal settlement fees.

Legislation must establish clear rules, encourage innovative products, and be adaptable to changes in the industry, he said.

Mr. Retsinas noted that many disclosures occur after a consumer has paid a mortgage application fee, making comparison shopping tough.

Mr. Meyer said Congress set most of the provisions dictating what is disclosed and when. "Given the statutory requirements, there is little room for our agencies to simplify and combine disclosures in any significant way by regulation," he said.

Sen. Lauch Faircloth agreed on the need for reform. "The statutes have evolved into a mess and must be rewritten," he said.

The North Carolina Republican, who leads the subcommittee, also used the hearing to criticize HUD for failing to issue a rule resolving whether yield-spread premiums are legal. Class actions have sprung up around the country charging these fees are illegal kickbacks banned by Respa.

"HUD has let the consumer and the industry down," Sen. Faircloth said. "Every day by saying nothing you are creating more lawsuits."

Mr. Retsinas said the agency hopes to release a proposed rule on yield- spread premiums in early September.

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