CFPB Unveils New Loan Estimate and Disclosure Forms

The Consumer Financial Protection Bureaurn(CFPB) is rolling out two new mortgage disclosure forms for review and comment.  The forms, one a loan estimate and the otherrna closing disclosure, are intended, in the words of CFPB, to help consumersrnmake informed decisions when shopping for a mortgage and avoid costly surprisesrnat the closing table.  The forms are partrnof a new rule that CFPB is also proposing today that expands protections for high-costrnmortgage loans. </p

The forms, part of the CFPB’s Know Before You Owe project, will berngiven to consumers after they apply for a loan but before closing that loan. Theyrnare different but overlapping and are intended to replace those required by thernReal Estate Settlement Procedures Act (RESPA) and the Truth in Lending Actrn(TILA) which were long thought to be confusing to consumers.  The Bureau said more than a year of research,rntesting, writing, and review went into their development. </p

The Loan Estimaternand the ClosingrnDisclosure present the costs and risks of the loan using plain language andrnin a simplified format.  CFPB said theyrnwill also benefit lenders by cutting down on redundancy.  The forms will allow consumers to comparerndifferent mortgages more effectively and examine their estimated and finalrnterms and costs more easily.</p

In the case of both forms therninterest rates, monthly payments, loan amount and closing costs are clearlyrnspelled out on the first page.  Elsewherernthe forms explain how payments might change over the life of the loan and offerrnmore information about taxes, insurance, and other costs.  The forms also provide clear warnings aboutrnfeatures some consumers might want to avoid such prepayment penalties or an increasernin the loan balance should negative amortization be present, and provisions tornmake estimates more reliable.  The Loan Estimate,rnwhich is three pages long, must be given to consumers within three businessrndays of their submission of a loan application and the Closing Disclosures atrnleast three days before the scheduled closing. rnThe Closing Disclosure is now five pages in length.  A proposed rule would restrict circumstancesrnin which consumers can be required to pay more for settlement services than thernamount stated on their Loan Estimate.</p

“When making what is likely thernbiggest purchase of their life, consumers should be looking at paperwork thatrnclearly lays out the terms of the deal,” said CFPB Director Richard Cordray.  “Our proposed redesign of the federal mortgagernforms provides much-needed transparency in the mortgage market and givesrnconsumers greater power over the exciting and daunting process of buying arnhome.”</p

 The newrnrule proposed by CFPB today would provide special protections from fees andrnrisky loan terms for consumers who take out mortgages that are considered “highrncost” by virtue of the interest rates, points and fees, or prepaymentrnpenalties.  The rule, contained in arndocument of 1099 pages, would implement Congress’s expansion of the HomernOwnership and Equity Protection Act (HOEPA). rnThe proposal would generally ban potentially risky features such asrnballoon payments and would completely ban prepayment penalties on high-costrnloans. The rule would also ban fees for modifying loans, restrict fees whenrncustomers ask for a payoff statement, and cap late fees.</p

In addition the proposed rule would requirerncounseling for consumers before they could take out a high-cost mortgage andrnwould implement TILA counseling requirements where first-time borrowers arernconsidering a loan that permits negative amortization.  </p

The proposal will be available forrnpublic comment for 60 days (until September 7) with some provisions subject to commentrnuntil November 6.  A final rule will bernpublished next January.</p

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