Need help understanding your mortgage? It may be on the way from the Consumer Financial Protection Bureau. (Photo Credit: CC BY-ND/David White/Seek4Media)

In 1975, Congress passed the Home Mortgage Disclosure Act, which required mortgage lenders to fully report all public loan data. While this and other consumer-friendly provisions relating to mortgages have been in effect for more than 30 years, the recent U.S. subprime mortgage crisis illustrated that additional regulation may be necessary. Hence, the soon-to-be-activated Consumer Financial Protection Bureau plans to debut a new version of the standard mortgage disclosure form that should make things easier for homebuyers to understand.

New mortgage disclosure form a ‘key priority’

The Wall Street Journal reports that the new mortgage disclosure form is a “key priority” of the Consumer Financial Protection Bureau, a Dodd-Frank organization that will begin operations on July 21.

Mortgage forms currently consist of copious amounts of paper documenting all aspects of the mortgage agreement in Byzantine detail. Borrowing costs and other fees connected to the closing of the loan are buried in a sea of provisions. These book-like forms were created under the auspices of 1968′s Truth in Lending Act and the Real Estate Settlement Procedures Act of 1974. If the CFPB has its way, mortgage disclosure forms will become much more user-friendly.

“We will be looking at our first (mortgage form) prototypes,” White House adviser and possible CFPB chairwoman Elizabeth Warren told Dow Jones Newswires.

Housing industry has opposed simpler forms before

Elizabeth Warren sided with scores of consumer advocates when she announced the CFPB’s intentions to simplify mortgage disclosure forms. However, various members of Congress and the housing industry have opposed similar attempts in the past to improve the readability of mortgage papers so that consumers can understand the exact costs associated with their mortgage loans. It remains to be seen whether Warren, or whomever officially accedes to the top CFPB post, will have as much success against the housing industry as the organization has had thus far with the credit card industry.

Sources

Home Mortgage Disclosure Act of 1975

Wall Street Journal

You should understand your mortgage

Credit card application checklist

The following is a checklist of key terms of your credit card agreement that you should look for before applying: the introductory and regular APRs for new purchases and balance transfers, the annual fee, the balance transfer fee and details on rewards programs. In order to determine how much of the above information could be easily found on credit card applications, CardHub.com conducted a study investigating the online applications of the 10 largest credit card issuers, based on outstanding balances.

Which companies have the clearest disclosures

In the CardHub.com Summer 2010 Credit Card Applications Study, Capital One and Bank of America ranked the highest in terms of clarity on their applications. These companies did the best in clearly disclosing the key information mentioned above without the applicant having to actively search for it. The credit card issuer with the least upfront applications was U.S. Bank, followed by USAA and American Express.

Common problems on credit card applications

The area in which most of the credit card companies were lacking was disclosure of the balance transfer fee. This is particularly problematic because not only is it the hardest component to find, but it is also the component that applicants are least likely to know to look for. The balance transfer fee is a common fee that is assessed when a customer transfers their balance from one credit card to another, and it is usually between 3 percent and 4 percent of the amount of the transferred balance. Another common problem was clarity on how much rewards points and miles are worth on non-cash back rewards credit cards (i.e. are 20,000 rewards points worth a family ski trip or a new dress?).

Improvements on credit card applications

Although there were common areas of weakness, the study also found that vague and misleading language, such as “as low as” or “up to,” has diminished considerably. Many companies were much more likely to clearly display the full range of APRs (e.g. Regular APR 12.99 percent — 24.99 percent) and clearly define how much cash back a customer would get on the purchases they made for cash back rewards credit cards.