CFPB Unveils Consumer-Friendly Mortgage Forms

NEW YORK (MainStreet) — The Consumer Financial Protection Bureau took the first steps to revamp the mortgage application process today, unveiling two new sample documents that could replace existing federally-required mortgage disclosure forms.

These prototypes, which can be viewed (and commented on) on the CFPB website, are the result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which tasked the CFPB with designing a new, single federal form that lenders will be required to give consumers when they apply for a home loan

“The purpose is to provide upfront and easy to understand information that helps [consumers] compare different mortgages and find the one that is right for them,” Elizabeth Warren, who has been tasked with setting up the CFPB, said at a press briefing.  “It is always good for the consumer to know the real costs of a mortgage.”

Under current federal law, lenders are required to give mortgage loan applicants two documents – the federal Truth in Lending Act (TILA) mortgage disclosure form and the Real Estate Settlement Procedures Act (RESPA) Good Faith Estimate – within three days of the loan application. 

Warren explained that the current forms are two and three pages long, respectively, and that while they are intended to convey basic facts about home loans to help consumers shop for the best mortgage, these forms have “overlapping information and complicated terms that can be difficult to understand.” 

The new prototypes attempt to remedy the confusion by merging both documents into a single two-page form. The first page of each contains key information on a mortgage’s closing costs, monthly payments and how those can change over time. The second page delves into more detail about these costs. The CFPB said that the two prototypes differ mainly in aesthetics.

The next step in implementing the use of the forms is one-on-one interviews with consumers, lenders and mortgage brokers to get feedback on the documents. These interviews will take place in six cities: Albuquerque, N.M.;  Baltimore; Birmingham, Ala.; Chicago; Los Angeles and Springfield, Mass. Initial rounds of testing will be conducted on both English- and Spanish-language versions.

However, the interviews are just the beginning of rigorous testing process that will ultimately result in a new, single standardized document that lenders will be required to use. The CFPB said it expects to conduct five rounds of evaluation and revision before it issues a single version for its final proposal in September. This proposal will then be made public for comment on the Federal Register. Final regulations are expected to be introduced no later than July 2012.

Before the forms were released today, a spokesperson for Wells Fargo’s (Stock Quote: WFC)  home mortgage division said the bank was open to regulatory reform that would “harmonize the process” and make the forms more accessible for consumers.

Bank of America (Stock Quote: BAC) also showed support for the initiative, saying that it has already actively participated in the discussions with CFPB surrounding the the draft disclosure forms.

"In general, we believe this is a positive step forward for both consumers and financial institutions," a spokesperson for Bank of America's Home Loan division told MainStreet. "Bank of America shares CFPB’s desire to simplify the mortgage process and hopes this will lead to disclosures that help consumers better understand the terms of a mortgage as they seek to purchase or refinance a home."

JPMorgan Chase (Stock Quote: JPM) declined to comment.

Consumer advocates agreed that a new standardized document was needed to replace the old ones, which are confusing and difficult to get through.  

“It is a great start, but there is still a long ways to go,” Ira Rheingold, the executive director of the National Association of Consumer Advocates, told MainStreet. He explained that the CFPB’s new prototypes were “very thoughtful” and succeeded in “providing all of the most useful information about mortgage cost” upfront, but that the group is still unclear what rules and regulations will apply to the documents and whether or not they will be legally binding. 

The CFPB, for its part, said it plans to address the rules and regulations that would accompany the forms, as well as other disclosures it may want to require concerning mortgage applications, later on in the testing process, but could not comment on specifics at this time. 

In the interim, the CFPB has encouraged consumers to visit its website to provide feedback on the new prototypes.

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