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NEW CFPB unveils proposed mortgage disclosure forms
WASHINGTON (UPDATE 7/9/12 3:45 p.m. ET)--Taking what it might consider to be a one-two punch against the confusion that can surround consumers during the mortgage origination process, the Consumer Financial Protection Bureau (CFPB) Monday proposed a new, simplified mortgage disclosure form and also proposed to expand protections afforded consumers who take out mortgages that are considered "high cost."

Credit Union National Association (CUNA) Deputy General Counsel said CUNA will provide a summary of the extensive CFPB documents this week.

The CFPB's revised disclosure form combines the lengthy, duplicative, and, many say, confusing disclosure requirements under the Real Estate Settlement Procedures Act and the Truth in Lending Act into a single, more readable document.

"When making what is likely the biggest purchase of their life, consumers should be looking at paperwork that clearly lays out the terms of the deal," said CFPB Director Richard Cordray in a release.

"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."

The proposed forms, which consumers will receive after applying for a loan and before closing, are part of the CFPB's Know Before You Owe mortgage project. Regulators spent more than a year researching the changes, as well as testing,  writing, and reviewing the proposal before its public unveiling.

The agency lists the following as the key improvements of the revised form:

  • Simpler than the old forms. Consumers can understand and compare different mortgages more effectively, and examine their estimated and final terms and costs more easily, helping them make the right decisions for themselves and their families.
  • Highlights information consumers need. Interest rates, monthly payments, the loan amount, and closing costs are all right there on the first page of the CFPB proposed form. Also, the first page explains how the interest rates, payments, and loan amount might change over the life of the loan, including the highest they can go. In addition, the forms offer more information about taxes, insurance, and other property costs so consumers can better understand the total cost.
  • Easier to look out for risks. The forms provide clear warnings about features some consumers may want to avoid, such as prepayment penalties and an increase in the loan balance (negative amortization). The proposed rule also contains provisions to make estimates more reliable. And because the proposed rule requires lenders to keep electronic copies of the forms they give to consumers, industry and regulators will be able to address compliance questions more easily.
  • More time to consider choices. Lenders must give the Loan Estimate to consumers within three business days of applying for a loan and consumers must receive the Closing Disclosure at least three business days before closing on a loan. This will allow consumers to decide whether to go ahead with the loan and whether they are getting what they expected.
  • Limits on closing cost increases. The proposed rule would restrict circumstances in which consumers can be required to pay more for settlement services than the amount stated on their Loan Estimate.
Regarding consumer protections for high-cost mortgages, the CFPB proposed to extend protections under the Home Ownership and Equity Protection Act, as mandated by the Dodd-Frank Act.

The CFPB's proposal would:

  • Ban potentially risky features. For mortgages that qualify as high-cost based on their interest rates, points and fees, or prepayment penalties, the proposed rule would generally ban balloon payments (a large, lump sum payment usually due at the end of the loan), and would completely ban prepayment penalties.
  • Ban and limit certain fees. The CFPB's proposed rule would ban fees for modifying loans, cap late fees, and restrict the charging of fees when consumers ask for a payoff statement (a document that tells borrowers how much they need to pay off the loan).
  • Require housing counseling for high-cost mortgages. The proposed rule would require consumers to receive housing counseling before taking out a high-cost mortgage. In addition, the CFPB's proposal would implement TILA counseling requirements for first-time borrowers taking out certain mortgage loans that permit negative amortization. The proposal would also implement an amendment to RESPA to generally require that a list of housing counselors or counseling organizations be provided to all mortgage applicants.
Comments will be accepted by the CFPR on its high-cost loan proposal until Sept. 7.  That is also the comment deadline for sections 1026.1 (c) and 1026.4 of the TILA-RESPA disclosure plan.  For the rest of that proposal, CFPB will accept comments until Nov. 6.

CUNA, with its Consumer Protection Subcommittee and Housing Finance Reform Task Force, will be analyzing both CFPB proposals and drafting CUNA comment letters.
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