May 26, 2011

CFPB Seeks To Combine Disclosure Forms, Unveils Prototypes

CFPB Seeks To Combine Disclosure Forms, Unveils Prototypes

The Consumer Financial Protection Bureau (CFPB) recently announced the Know Before You Owe project, an effort to combine the Truth in Lending Act (TILA) and Good Faith Estimate (GFE) disclosures into a single, simpler form aimed at making loan costs and risks clear and allowing consumers to comparison shop for the best mortgage offer.

Current regulations require that mortgage loan applicants receive two separate documents – the federal TILA mortgage disclosure and the Real Estate Settlement Procedures Act (RESPA) Good Faith Estimate form – within three days of their loan application. The current forms are two pages and three pages long, respectively. For years, Congress and federal regulators have considered merging the two documents, and last year’s Dodd-Frank Wall Street Reform and Consumer Protection Act directed the CFPB to propose new, integrated disclosures.

The CFPB will soon begin testing two alternate prototype forms that are designed to be given to consumers who have just applied for a mortgage loan. This testing – which will take place over the next several months and involve one-on-one interviews with consumers, lenders, and brokers – will precede CFPB’s formal rulemaking process.

The CFPB expects to conduct five rounds of evaluation and revision through September 2011 in order to select a single draft disclosure and then refine it. Interviews will be conducted in six cities: Albuquerque, New Mexico; Baltimore, Maryland; Birmingham, Alabama; Chicago, Illinois; Los Angeles, California; and Springfield, Massachusetts. In addition to this qualitative testing, the CFPB is soliciting online feedback from consumers and is asking consumer and industry groups to gather input, particularly regarding implementation and usability. The CFPB also has posted, on its website, the prototypes and an interactive tool to gather public input about the designs. As revisions to the prototypes are made, based on feedback received, they will be reposted to the CFPB’s website for further comment. This process will continue until July 2012, when the CFPB is required by the Dodd-Frank Act to issue proposed forms and regulations for formal notice and comment.

First Look at the Prototype Forms

The two prototype forms are relatively simple, two-page documents that essentially present the same information. The primary differences between the two new forms, at this point, are limited to formatting and location of information on the forms.

A significant change from the current TILA mortgage disclosure is the omission of the total finance charges and total payments over the entire life of the loan in favor of a comparison of the amount of total payments to be paid to the amount of principal paid-off over the first five years of the loan. Other items currently on the TILA mortgage disclosure that appear to be omitted from the new forms include references to demand features, security given, assumption features, property insurance requirements, and late charges.

Much of the information presented on the current GFE disclosure appears to be included on the new prototype forms, albeit, in a much more condensed version. Where the current GFE contains relatively detailed explanations of the various settlement charges and an entire page of instructions and comparison aids, the prototype forms contain only brief descriptions of the various settlement costs and little in the way of instructions or comparison aids. Among other notable differences between the current GFE and the prototype forms is the lack of a separate calculation and presentation of the origination charge. On the prototype forms the origination fee is presented as a single line item in the listing of estimated closing costs.

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