CFPB Proposes New Loan Application and Closing Disclosure Forms
The Consumer Financial Protection Bureau Monday afternoon released its Loan Estimate form, which will eventually replace the good faith-estimate disclosure that borrowers receive three days after applying for a mortgage.
The proposed disclosure form and implementation rules will ensure the costs and risks of a loan are not hidden in the fine print, according to CFPB director Richard Cordray.
“Our new Loan Estimate [form] highlights the information that is most important to consumers,” said Cordray, speaking at the National Council of La Raza’s annual convention in Las Vegas. “Interest rate, monthly payments and closing costs will be clearly presented on the first page, along with information about whether and how these terms can change during the life of the loan.”
Consumers also will receive a “closing disclosure” three days before their settlement date that can be easily compared to the Loan Estimate disclosure. This will prevent what the CFPB calls “last minute closing shock,” enabling consumers to negotiate and seek changes if the costs have gone up.
“For the industry, the closing disclosure reduces the number of forms to fill out and is easier to explain,” the bureau said.
The Loan Estimate and Closing Disclosure forms and rules are being issued for a 120-day comment period that ends Nov. 6.
Cordray stressed that Congress created the CFPB to “help restore trust in the mortgage market.” The bureau also is working on rules to set standards for servicers and for underwriting qualified mortgages.
The agency also issued a proposed rule on Monday that will expand the definition of a “high cost” mortgage. The proposal would ban balloon payments and prepayment penalties on such loans. The 60-day comment period ends Sept. 7.
“Over the next six months, as Congress directed us to do, we will be proposing and finalizing clear rules of the road to address each stage of the mortgage process,” Cordray said. “Clear rules of the road help support responsible decision-making, but consumers must ultimately make the right decision for themselves.”