WASHINGTON – Credit unions and banks would be required to give prospective borrowers a concise, three-page disclosure of interest rates and fees to help compare loan terms in “plain language” under a proposal issued yesterday by the Consumer Financial Protection Bureau.
“Our proposed redesign of the federal mortgage forms provides much-needed transparency in the mortgage market and gives consumers greater power over the exciting and daunting process of buying a home,” Consumer Bureau Director Richard Cordray said in the agency’s statement.
The short form would replace more comprehensive disclosures required now under the Truth in Lending Act and the Real Estate Settlements Act, which CFPB officials said “can be confusing to consumers and industry.”
The proposed changes are required under the Dodd-Frank Act of 2010, which created the consumer bureau. The disclosure form proposal, which follows more than a year of research on how to streamline and simplify the mortgage application process, is a small part of the agency’s efforts to overhaul practices in the mortgage market.
The forms, described in an 1,100-page proposal, would change the way the annual percentage rate is calculated to include certain fees that are now excluded, such as those charged for title searches, credit reports and appraisals. The documents highlight loan costs and spell out how they could change over time.
NAFCU, noting that the CFPB also put out a separate proposal, the Home Ownership and Equity Protection Act yesterday, criticized the TILA/RESPA bid and the piecemeal approach to reform being adopted by the new consumer bureau. “With respect to compliance costs, NAFCU is focusing not only on this rule but on all the rules in place before the Dodd-Frank Act and those implemented under its mandates that, combined, present real problems for credit unions,” said Carrie Hunt, NAFCU’s general counsel and vice president of regulatory affairs.
Under the proposal, consumers would receive a new, three-page “loan estimate” form within three days of applying for a mortgage. It would include the loan amount, interest rate, projected taxes and insurance, and estimates of closing costs such as appraisal and title fees.
After the three-page “loan estimate,” borrowers would get a new, five-page “closing disclosure” form at least three business days before the closing date. The CFPB said borrowers would be able to use that three-day period to review the loan terms and potentially negotiate changes.