On July 10, 2012, the Consumer Financial Protection Bureau (CFPB) proposed easier-to-use mortgage disclosure forms that will help consumers make informed decisions when shopping for a mortgage and avoid costly surprises at the closing table. The CFPB is also proposing a rule today that expands protections for “high-cost” mortgage loans.
“When making what is likely the biggest purchase of their life, consumers should be looking at paperwork that clearly lays out the terms of the deal,” said CFPB Director Richard Cordray, who will be speaking in Las Vegas on July 10, about the agency’s work to restore trust in the mortgage market. “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.”
EASIER-TO-USE MORTGAGE DISCLOSURE FORMS
The proposed forms, which consumers will receive after applying for a loan and before closing, are part of the CFPB’s Know Before You Owe mortgage project. They are the result of more than a year of research, testing, writing, and review. The proposed rule is available here.
Consumers currently receive two different but overlapping federal disclosure forms after application that are supposed to spell out the terms and costs of the mortgage loan – the forms required by the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA). The differences in these two forms can be confusing to consumers and industry. At the direction of Congress, the CFPB is combining them to create one document.
The CFPB has designed the new “Loan Estimate” and “Closing Disclosure” forms to present the costs and risks of the loan in clearer terms. The forms benefit consumers by using plain language and a format that will help them understand their loans. They benefit lenders by cutting down on redundancy. Below are some of the key improvements in the CFPB’s proposed forms:
The CFPB’s proposal took into consideration 10 rounds of testing with consumers and industry and feedback from the public on multiple prototype forms over the past 18 months. Public feedback has included tens of thousands of comments. A side-by-side comparison of the proposed mortgage forms and the old ones, an illustration of how the rule relates to the forms, and a timeline of the CFPB’s Know Before You Owe mortgage project will be available.
The public can weigh in on the CFPB’s proposal here. The public will have 120 days, until Nov. 6, 2012, to review and provide comments on most of this proposal. However, comments are due for specific portions after 60 days on Sept. 7, 2012. The CFPB will review and analyze the comments before issuing final rules.
HIGH-COST MORTGAGE PROTECTIONS
Consumers who take out mortgages that are considered “high cost” receive special protections from fees and risky loan terms. The CFPB is proposing rules on July 10 that would expand what is considered a “high-cost mortgage” and provide more protections to consumers who take out those loans.
The proposed rule is available here.
The proposed rule would implement Congress’s expansion of the Home Ownership and Equity Protection Act (HOEPA) with respect to mortgages with high interest rates, fees, or prepayment penalties. The CFPB’s proposal would:
The public can weigh in on the CFPB’s proposal here. The public will have 60 days, until Sept. 7, 2012, to review and provide comments on most of this proposal. The CFPB will review and analyze the comments before issuing final rules in January 2013.
Click here to see the factsheet about the CFPB’s mortgage rules.