The Consumers Financial Protection Bureau (CFPB) released prototypes for simplified mortgage disclosure forms in early July. The goal is to make the mortgage process easier for consumers to understand. Specifically, the new forms seek to simplify the terms and costs of loans. A CFPB spokesperson commented that changes were needed for “restoring trust in the mortgage market.”
The changes came about after consumers and industry professionals participated in the CFPB’s “Know Before Your Owe” mortgage project. They underwent 10 rounds of testing over an 18-month period. The bureau hopes to cut down on the number of confusing and at times, redundant, disclosure forms. It was given the job of creating single, unified disclosure forms-one for loan applicants and one for those closing on property. The director of the CFPB, Richard Cordray stated, “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.”
Here’s a look at a few of the proposed new form’s improvements:
- Key costs are highlighted, such as, interest rates, the loan amount, monthly payments, and closing costs.
- The wording on the new forms is more simple to understand.
- To make comparisons easier, the estimated, final terms, and costs of different loan offers are included.
- It would do away with the previous Good Faith estimate and Truth in Lending disclosure documents.
- Warnings are also stated, such as the risks involved with prepayment penalties and negative amortization.
Jillayne Schlicke, the founder of the National Association of Fiduciaries, has been using the new forms with her students who are prospective loan originators. She acknowledged that they “love the proposed forms-hands down.” However, even those future lending professionals were taken aback by a few of its features.
The “total interest percentage” section shows the borrower the total amount of interest that they will pay over the term as a percentage of the loan amount. Schlicke explained that she felt that feature was needed and helps borrowers make more informed decisions. She also noted, “that’s really what disclosure forms are all about.”
The other section that the students have commented on is the lender’s, “approximate cost of funds.” It clearly shows that the bank receives money and pays a much lower interest rate than what it charges its borrowers. As for putting all the facts on the line, CFPB’s director, Richard Cordray stated, “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.”
Not everyone is thrilled with the proposed forms, however. NAR president, Moe Veissi recently said, “We believe these changes have the potential to cause significant confusion, disruption, and impose tremendous added costs to consumers and settlement service providers. We hope the CFFB will reconsider many of the changes they propose and instead focus on changes that will truly benefit consumers and will help foster the burgeoning housing recovery.”
In the meantime, the jury is still out. The proposed forms are up for public scrutiny until September 7, 2012 (tomorrow). In January 2013, the CFPB will make its final ruling.