Bureau proposes simplified mortgage disclosure forms

Bureau proposes simplified mortgage disclosure forms

May 22nd, 2011 by By Jim Puzzanghera/McClatchy Newspapers in Business Around the Region

WASHINGTON - The blizzard of complex disclosure forms required in getting a mortgage soon could ease a bit as a new federal agency tries to streamline and simplify an important part of the process.

In its first major move, the Consumer Financial Protection Bureau released two prototypes of shorter and easier-to-understand disclosure forms that lenders must give home buyers when they apply for a mortgage.

The goal is to help consumers better comprehend the terms of the loans and compare them with mortgages available from other banks, Elizabeth Warren, the special White House and Treasury Department advisor helping to launch the consumer bureau, said Wednesday.

"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?" she said, stressing that the agency wants public feedback to help make the forms as understandable as possible. "That's good for American families and good for the markets they depend on."

The prototypes have simpler language and use highlighted terms, arrows and "yes or no" graphics to provide key details about a loan. Those include whether the mortgage terms can change, projected monthly payments for different years and a new piece of information - how much of the loan would be paid off in five years.

Seven banking executives saw the prototypes Tuesday and liked them, said Bob Davis, executive vice president of mortgage finance for the American Bankers Association.

Some mortgage industry leaders have supported simplified disclosures but have warned about the costs of the changes and possible new legal liability.

The bureau said the prototypes would be merged into one two-page form after it solicits extensive public feedback through its website, consumerfinance.gov, and interviews with consumers and industry representatives in Los Angeles, Chicago and four other cities.

The new form would replace two slightly longer mortgage disclosures that many home buyers complain are duplicative and difficult to understand.

Changing the disclosure forms is the first of several ways the agency will become a key player in mortgage regulation. For instance, it also will set new standards for how companies service home loans.

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.

Lenders are required to provide two forms to a consumer within three days after he or she applies for a mortgage. The forms outline the loan's interest rate, initial monthly payment and other features.

One form is a two-page Truth in Lending Act mortgage disclosure statement. The other is a three-page "good-faith estimate" required by the Real Estate Settlement Procedures Act.

"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 said.

In a poll last fall by Consumer Reports magazine, 84 percent of respondents who had applied for a loan or credit card recently said they had some difficulty understanding the financial disclosures.