The Consumer Financial Protection Bureau, the Obama administration’s agency being set up by adviser Elizabeth Warren, plans to bring greater transparency to the credit industry by requiring the use of a simpler, more straightforward shopping sheet for mortgage lending. On Wednesday the agency website released two possible versions of a simpler mortgage disclosure form for public scrutiny. Reactions have been mixed from industry and consumer sources.
Current forms confuse consumers
The CFPB claims that hidden charges and unreasonable terms are often hidden within the confusing language of the forms currently being used by lenders. Currently, two mortgage disclosures are required: the federal Truth in Lending Act (TILA) mortgage disclosure and the Real Estate Settlement Procedures Act (RESPA) Good Faith Estimate. The new form will combine the two, reducing the the current five pages down to a one-page (front and back) form. The CFPB is calling it the “know before you owe” project.
Two different prototypes offered
Both versions of the new form contain the same information, but it is presented in different ways. Both show the interest rate, monthly loan payment, closing costs and taxes. At a glance, one can see monthly payments and how those payments might change during the life of the loan. The forms will also warn of possible penalties and other non-transparent charges.
Confusion can be costly
“Getting stuck with the wrong home loan can cost tens of thousands of dollars over the life of the loan,” Warren said Wednesday. “[This] is a clear, simple form so consumers can get better answers to two basic questions: Can I afford this mortgage, and can I get a better deal somewhere else?”
Mixed reactions on both sides
Industry and consumer reactions have been mixed. Industry groups say the changes may limit innovation and variety in lending, while consumer groups are concerned that the changes may limit the ability to stop a foreclosure with court action.
No change at this time
The new forms will not soon be available by any bank, however. The Consumer Financial Protection Bureau, created by the Dodd-Frank Act, will officially begin work on July 21. The CFPB will then conduct five rounds of testing in six different cities before introducing an official form in September. The bureau will then have until July 2012 to propose rules relating to the form’s implementation.