A new rule prohibiting bank employees from receiving compensation for loan referrals to mortgage subsidiaries would be overturned under legislation sponsored by House Banking Committee Chairman Jim Leach.

The proposal, unveiled last week as part of a regulatory relief package, would roll back a Department of Housing and Urban Development rule slated to go into effect Oct. 7.

Industry groups have argued that large banks would lose business if forced to comply. "HUD has made it virtually impossible for bank holding companies to compensate employees," said Anne Canfield, executive vice president of the Consumer Mortgage Coalition. "There is no way banks can live with this."

Rep. Leach's proposal would retain current rules implementing the Real Estate Settlement Practices Act, which prohibits real estate agents and mortgage brokers from receiving kickbacks for loan referrals.

The regulatory relief package is attached to legislation shoring up the thrift insurance fund. A House vote on the bill is expected Wednesday.

Other mortgage-related changes unveiled by Rep. Leach last week include:

*Allowing real estate settlement companies to provide written disclosures within three business days when providing referrals by telephone or other electronic services.

*Exempting mortgage servicers that acquire delinquent loans from the Fair Debt Collection Practices Act, which regulates collection agencies.

Key Democrats on the House Banking Committee argued against the mortgage provisions in a Sept. 12 letter to Rep. Leach. Reps. Henry Gonzalez, John LaFalce, and Bruce Vento complained that the panel has not held hearings on the effect of reversing the new HUD rules.

"Regardless of whether these amendments are good public policy - and that is really not apparent - they deserve a more deliberate consideration," the letter said.

The letter also reiterated opposition to other regulatory relief provisions in the bill, which they argued would weaken the Truth-in- Lending, Home Mortgage Disclosure, and Community Reinvestment Acts.

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