The Real Estate Settlement Procedures Act - the collection of rules governing referrals, kickbacks, and consumer protection in mortgage settlements - will be getting a muzzle unless President Clinton steps in with a veto.

But lenders are not celebrating. They and other observers fear that instead of liberating them to pursue their business strategies as they please, legislation being considered in both houses would merely create greater uncertainties.

Last week, the Senate Banking Committee approved the Economic Growth and Regulatory Paperwork Reduction Act of 1995, which is sponsored by Republicans Richard Shelby of Alabama and Connie Mack of Florida.

The legislation is billed as an attempt to streamline settlement act and Truth-in-Lending disclosure requirements. But consumer advocates and officials of the Department of Housing and Urban Development are saying that the Senate bill and a similar one in the House are an attempt by big business to muscle out HUD and dilute the agency's effectiveness.

Both bills would limit the power of HUD to enforce legislation, transferring it to the Federal Reserve. While passage is expected in both houses, President Clinton's position is still unclear.

Mortgage bankers say the changes would create more problems when it comes to understanding and implementing the settlement act. "For purposes of integrated big-picture enforcement, there is no one central power with the knowledge and understanding of HUD," said Paul Mondor, director of regulatory compliance with the Mortgage Bankers Association of America.

Mr. Mondor fears that transferal of power to the Federal Reserve may result in "narrowminded banking-centric" policy making and implementation. Others believe that the level of enforcement may suffer. "We're very fearful that we will find inconsistent enforcement because of this balkanization," said Sarah Rosen, a HUD special assistant.

The Senate bill also requires HUD to apply "negotiated rule making" to any new legislation. The concept requires all interested parties to reach a consensus concerning any rule HUD publishes. "The effective result of that legislation would be to tie HUD's hands," said Mr. Mondor.

"Because HUD will not be allowed to declare a stalemate, there will be no recourse against a party that likes the status quo and refuses to bargain," Mr. Mondor added.

For now, all anyone can do is sit and wait for the House and Senate toreconcile their bills. "I'm still hoping that HUD will be the enforcer, but I'm still hoping that there will be peace on Earth," said Mr. Mondor. "I give them about the same chances."

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