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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.

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