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Simplified mortgage disclosure forms proposed by Consumer Financial Protection Bureau

May 18, 2011 | 10:45 am

Elizabeth warren 3 The new Consumer Financial Protection Bureau on Wednesday released two proposed prototypes for simplified mortgage disclosure forms and will start seeking feedback from the industry and people around the country.

The agency is trying to design a new two-page form that lenders are required to give to potential home buyers when they apply for a mortgage. The goal is to help consumers more easily understand the interest rate, payments and other key information and compare them with mortgages available from other banks.

The new form would combine and replace two longer federally required mortgage disclosure forms that some have complained are duplicative and difficult to understand

"With a clear, simple form, consumers can better answer two basic questions: Can I afford this mortgage and can I get a better deal someplace else?" said Elizabeth Warren, the special White House and Treasury adviser helping to launch the consumer bureau. "That’s good for American families and good for the markets they depend on."

The financial reform law enacted last year created the consumer bureau and directed it to develop a "single, integrated disclosure for mortgage loan transactions" by July 2012. Warren has made creation of the form a top priority and released the two prototypes on Wednesday as the agency kicked off its Know Before You Owe project to get feedback from the public, consumer groups and the mortgage industry.

As part of that process, the agency is soliciting comments through its website and will interview consumers and people in the mortgage industry in six cities -- Los Angeles; Chicago; Albuquerque; Baltimore; Birmingham, Ala.; and Springfield, Mass. -- over the next four months.

The agency will use the information to refine the two prototypes (download them here and here) into a proposed form to replace the two-page Truth in Lending Act mortgage disclosure statement and the three-page Good Faith Estimate required by the Real Estate Settlement Procedures Act. At that point, the agency will go through a formal federal rule-making procedure, which also requires public comment.

Lenders are required to provide both of those forms to a consumer within three days of applying for a mortgage to outline the loan's interest rate, length and other features.

"They are intended to convey the basic facts about home loans to help consumers comparison shop ... but these forms have overlapping information and complicated terms that can be difficult to understand," Warren told reporters.

Both prototypes stress simple language and use highlighted terms, arrows and "yes or no" graphics to provide important information, such as whether the terms can change, projected monthly payments for different years and the maximum interest rate on an adjustable mortgage.

The Financial Services Roundtable's Housing Policy Council, which represents companies that originate 75% of U.S. home mortgages, said the release of the prototypes was "a positive step forward."

"We hope this process will lead to simpler disclosures that help consumers better understand the terms of a mortgage as they seek to purchase a home," the group said.

-- Jim Puzzanghera

Photo: Special White House and Treasury adviser Elizabeth Warren is helping to launch the Consumer Financial Protection Bureau, which is proposing simplified mortgage disclosure forms. Credit: Associated Press