New Mortgage Disclosure Form to Help Safeguard Against Default: CFPB
By: Carrie Bay
The new Consumer Financial Protection Bureau (CFPB) aims to avert at least one hitch in the home loan process that some market experts say started a whirlwind of mortgage delinquencies — ensuring consumers have a clear understanding of the cost associated with their mortgage.
CFPB unveiled two prototypes for a new regulatory disclosure form Wednesday that the agency will begin testing this week.
Each of the prototypes combines the two-page Truth in Lending Act (TILA) disclosure document from the Federal Reserve and the three-page Real Estate Settlement and Procedures Act (RESPA) disclosure from HUD into a single, abbreviated form which lenders will be required to present to borrowers within three days of application for a mortgage.
The new form will consist of two pages. The first will provide a basic overview of the core costs related to the closing of the loan and the monthly payment the consumer can expect, as well as whether or not the amount of that payment will change over time. Page two offers a more detailed explanation of the cost breakdown.
Getting stuck with the wrong home loan can cost a family tens of thousands of dollars and even cost them their home, Elizabeth Warren, special advisor to the administration on the CFPB, told reporters Wednesday.
“The current forms can be complicated and difficult for consumers to use. They are also redundant and can be
costly for lenders to fill out,” Warren said. “With a clear, simple form, consumers will be in a better position to answer two basic questions: Can I afford this mortgage and can I get a better deal somewhere else?”
The testing phase of the disclosure prototypes will take place over the next several months and involve one-on-one interviews with consumers, lenders, and brokers.
CFPB expects to conduct five rounds of evaluation and revisions through September 2011. Initial rounds of testing will include both English- and Spanish-language versions.
Interviews will be conducted in six cities: Albuquerque, New Mexico; Baltimore, Maryland; Birmingham, Alabama; Chicago, Illinois; Los Angeles, California; and Springfield, Massachusetts.
Examples of the two prototype disclosure forms can be found on the CFPB Web site, along with an interactive tool to gather public input about the designs and content.
The agency is encouraging industry stakeholders to take a look at the prototype samples on the site and provide the agency with their comments and suggestions, particularly related to implementation and usability, in order to assist the bureau in the final development of the new disclosure form.
The testing and public feedback process will enable the CFPB to revise the design and refine the content based on how it works for consumers to develop a single form that will officially replace the dual TILA and RESPA disclosure requirements.
In addition to ensuring homebuyers receive the information they need to clearly understand the costs and risks of the loan up front, Warren says one primary goal of the new disclosure document is to “reduce regulatory burden” on mortgage lenders.
“Those in the industry have a real stake in us getting this right,” Warren said.
CFPB is required by the Dodd-Frank Act to issue the final proposed form and related regulations concerning disclosure timelines and compliance by July 2012 for formal notice and comment.
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