Never trust a consumer to make an informed credit decision. Indeed, never let a consumer have the freedom to make a bad economic choice - unless, of course, the consumer picks me.

After all the rhetoric is peeled away, this is the premise that underlies the efforts of some participants in the mortgage business to roll back the regulatory rights recently afforded consumers by the U.S. Department of Housing and Urban Development.

The department has announced that it is considering revision of regulations issued last year. These regulations are perceived by some to promote unfairly the ability of diversified companies to cross-market residential real estate products and services by permitting employers to compensate their employees for successful referrals to affiliated companies.

In addition, the regulations facilitate the automation of the lending industry through computer loan origination systems by permitting customers to pay for such a service.

The HUD Revision

The final regulations rejected proposals both to restrict the amount and timing of payments of these fees and to require the products of multiple lenders to be displayed on these systems. In each case, the agency concluded that requiring full disclosure to consumers was sufficient.

HUD is now rethinking whether both the cross-marketing of residential real estate products by efficient companies and the origination of mortgage loans by computers should be restricted further under the Real Estate Settlement Procedures Act.

The amended regulations are very controversial. The free flow of uncompensated referrals to unaffiliated mortgage brokers and mortgage lenders is perceived to be impaired.

Whether the government should sharply limit these activities by rescinding the revised regulations or merely require the disclosure to borrowers of the potential risks is the heart of the debate.

Protection from Bad Choices

Neither cross-marketing nor new computer technology is generally perceived in other industries to be abusive to consumers. Yet mortgage bankers are the strongest proponents of increased regulation.

Why should practices not objectionable in other industries be considered abhorrent and worthy of increased government intervention in the residential real estate market?

Critics of the law say, in effect, that the government should take away the right of a borrower to make an informed but ill-advised choice.

Under this view, the job of the government is not merely to assure that consumers are provided with accurate information on which to make decisions, but to protect, the consumers from making bad choices.

But even if this view were correct, the alternative certainly is worse. If the government is going to limit choices, at what point should the government draw the line? No mortgage broker or mortgage lender wants to limit the right of a borrower to choose it, only the right to choose someone else.

The logical extension of this principle is that government should prohibit any referral or the making of any loan that is not in the best interests of the consumer.

Federal consumer credit law generally relies on informed choices through full disclosure. The new regulations are consistent with this approach.

Fight for Market Share

Protection of the consumer is not the industry's paramount concern. Protection of turf is. The cloak of consumer protection could be viewed as a subter-fuge for an intense fight to retain market share.

The battle is based on three simple facts. First, through the use of the diversified companies and new computer technologies, the capital markets can directly access home loan applicants.

Second, mortgage products essentially are generic, with little variation in type or price discernible to the consumer. If a product is generic, who cares who offers it?

Third, mortgage brokers and lenders generally market their loan products to real estate agents and builders rather than directly to consumers.

Nobody is saying that retail lenders should not fight back. There are legitimate unfair-competition issues to be raised. Using the Real Estate Settlement Procedures Act, however, to disparage the ability of consumers to make informed choices after receiving full disclosure probably will backfire.

Mr Platt specializes in mortgage finance. He is a co-author of "A Practical Guide to Respa," the Real Estate Settlement Procedures Act.

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