Nov. 20 --Consumers will be more informed and have a better mortgage-shopping experience when mortgage lenders begin using revamped disclosure forms created by the Consumer Financial Protection Bureau, Richard Cordray, the bureau's director, said Nov. 20 at an event in Boston to kick off the bureau's “Know Before You Owe” initiative.
The new forms, which must be provided to consumers starting Aug. 1, 2015, are the centerpiece of a final rule announced earlier Nov. 20 in Washington by CFPB. The rule is designed to clarify mortgage cost disclosures for borrowers, as required by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The new forms replace those currently in use that are required under the Truth in Lending Act and the Real Estate Settlement Procedures Act (see related article in this issue).
The content and design of the final forms was chosen after the CFPB conducted 17 rounds of quality testing of the forms, with industry representatives and consumers, Cordray said. The agency received 27,000 comments on its proposed rule.
Consumers need to be better empowered to shop around for a mortgage, just as they shop around for a house, Cordray said. The current disclosure forms make it difficult for consumers to comparison shop for a mortgage.
“Closing costs can vary from lender to lender and fees can vary from loan to loan. Failing to understand these differences and make good choices about them can have lasting consequences for buyers and their families,’’ Cordray said.
“With a simple accounting of payments and fees, these new forms help consumers see just what they are getting into, the terms of the loan, the obligations and how they could change over time. We've made it a point to present the information in plain language in a format that is easy to follow, where the costs and risks of the loan are made clear,’’ Cordray said.
Under the new rules, consumers will receive a CFPB streamlined loan estimate form within three days after applying for a mortgage. “They'll be able to see who is providing better rates and cheaper application fees and who is quoting better pricing on insurance costs,’’ Cordray said.
Consumers will receive a CFPB closing disclosure form three days before closing on a home. The new forms make it easier for consumers to compare interest rates, monthly payments and total closing costs, plus any special risk factors that may cause higher payments down the road, Cordray said.
Cordray said that another priority of the CFPB is to simplify the closing process in house purchases. Too many forms are presented, and buyers don't have time to review them before signing. The CFPB believes one solution is for the industry to move toward electronic closings, in which many or all closing forms are presented to all parties electronically.
“We want to work collaboratively with industry, with consumer advocates and with government officials to take a close look at all the closing documents and identify how they can be reduced or eliminated if they are no longer adding value to the mortgage transaction,’’ Cordray said.
Marc Savitt, president and CEO of the National Association of Independent Housing Professionals, told Bloomberg BNA in an interview Nov. 20: “Electronic closings would be good. It's the way it should be.
“If consumers understand the loans, they are less likely to pick the wrong one,’’ Savitt said.
While the new forms are a big improvement, they do not go far enough, Willard Ogburn, executive director of the National Consumer Law Center said during a panel discussion at the event. The annual percentage rate is not prominently disclosed on the first page of the loan estimate. Instead, it is on the third page.
“To compare pricing of two different loans, the APR is the singularly, most important tool when shopping for a loan,’’ Ogburn said. Also, the APR the CFPB uses does not include the cost of title insurance and all closing costs. “It is an egregious omission.”
Bernie Winne, CEO of the Boston Firefighters Credit Union, said, “We're small and have limited resources to participate in compliance. We want to continue to be a flexible and progressive lender and yet meet compliance.”
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The final rule is accessible at: http://files.consumerfinance.gov/f/201311_cfpb_final-rule_integrated-mortgage-disclosures.pdf.
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