Consumer agency unveils simplified mortgage disclosure forms
The proposed forms, which begin a public review period, are designed to clearly reveal important details of home loans to borrowers before they sign final documents.
E. Scott Reckard and Alejandro Lazo, Los Angeles Times, July 10, 2012, link
The Consumer Financial Protection Bureau released its final proposal for simpler mortgage disclosures — a three-page summary of home-loan costs and risks — to a lukewarm response from industry groups and a key consumer advocate.
The proposed disclosure forms, released Monday, are the product of 18 months of research and consumer testing. The bureau said the forms would benefit consumers by using plain language and lenders by replacing two sets of more complex disclosures that currently must be made.
The comparison sheets are designed to clearly disclose important details of home loans to borrowers before they sign their mortgage documents, preventing nasty surprises at closing and sometimes years later.
The proposed “loan estimate” and “closing disclosure” forms, with the same categories in both, are to be given to borrowers three days after they apply for a loan and three days before it closes to give them time to evaluate the mortgage.
The simple forms for consumers were accompanied by 1,009 pages of material explaining the bureau’s proposed approach and how lenders should implement the new rules.
Bankers and consumer groups reacted guardedly, saying they needed more time to study the details. The Center for Responsible Lending, a leading consumer advocacy group, declined to comment, referring questions to National Consumer Law Center attorney Diane Thompson, who expressed disappointment.
Thompson said the forms make it possible for consumers to compare interest rates and closing costs for loans, and provide assurance those terms won’t rise significantly when the loan closes. They also make clear whether a loan is adjustable, state a maximum payment and examine insurance and property tax costs.
But the new forms downplay a previous benchmark, the annual percentage rate, which attempted to summarize the combined effect of the fees, interest rate and term of the loan in one figure. Thompson said that emphasizing the separate components of a loan at the expense of the overall effect could cause borrowers to select a loan that isn’t the best alternative.
“Nobody has had time to digest the final forms and to read the details of the testing reports,” Thompson said. “But from what we’ve seen, they’ve focused much more on the constituent components of the cost of credit rather than allow homeowners to compare loans that are priced differently.”
A group representing major financial firms was cautiouslypositive about the proposal.
“We are generally supportive of the effort and have been working with them for a while on this,” said Scott Talbott, chief lobbyist for the Financial Services Roundtable. “We are still reading it and won’t have comments good or bad until a little later in the week.”
David Stevens, chief executive of the Mortgage Bankers Assn., said he welcomed simpler disclosure rules but said the change would “impose massive change on the industry.”
“We will be working with the CFPB to make sure the forms, and the rules surrounding them, are best for borrowers and lenders alike,” Stevens said.
In the past, consumers often complained about hefty finance charges that cropped up just as they were ready to buy a home. Many said they had not realized the consequences of adjustable loans — mortgages whose rising payments helped create the mortgage meltdown that touched off the financial crisis.
“Our proposed redesign of the federal mortgage forms provides much-needed transparency in the mortgage market and gives consumers greater power over the exciting and daunting process of buying a home,” bureau Director Richard Cordray said in a news release.
The proposal also would rewrite rules governing high-cost mortgages, requiring homeowners to meet with financial counselors before taking out the expensive loans. The new rules would ban penalties imposed on borrowers who pay off home loans early and would outlaw most balloon payments, large one-time payments at the end of a loan.
The proposed rules also would cap late fees, ban loan-modification fees and restrict fees charged when consumers ask for payoff statements for their loans.
The new rules are not yet final. The public has until Sept. 7 to review and comment on the proposals. Links to information and the proposed new regulations are provided at the Consumer Financial Protection Bureau website, http://www.consumerfinance.gov.