WASHINGTON—The Consumer Financial Protection Bureau’s initiative to revamp the good-faith estimate has gotten off to a good start with the release of two prototype disclosures.
One prototype reads across the page like a book and the second presents the data going straight down the page.
Brian Benjamin of Two River Mortgage said he likes the second prototype because it’s easier to use with clients.
“There are some things I would like to see changed. But in general, it is a heck of a start,” he said.
Benjamin is the president of the New Jersey Professional Mortgage Originators and he attended a meeting with CFPB staff who gave industry officials a preview of the prototypes.
As directed by Congress, the CFPB is charged with merging the GFE and Truth in Lending Act disclosures into a single document that homebuyers receive three days after applying for a mortgage.
Elizabeth Warren, who is in charge of getting the CFPB up and running by July 21, has made the mortgage disclosure project a priority for the fledging bureau. It will also be a test for the bureau to show critics that financial disclosures can be useful while reducing regulatory burden.
The CFPB began testing two prototypes of the new “loan estimate” disclosure during the week of May 16 by interviewing consumers, lenders and mortgage brokers in six cities.
By the end of September, the CFPB wants to complete five rounds of evaluations and revisions of the two-page disclosure.
“With a clear, simple form, consumers will be in a better position to answer two basic questions: Can I afford this mortgage and can I get a better deal somewhere else?” Warren said on May 11 when the prototypes were unveiled and posted on the bureau website.
Many industry officials seem impressed by the CFPB’s first effort, including the Mortgage Bankers Association. “The CFPB staff has obviously put a lot of thought into the new forms and we look forward to participating in the review and revision process alongside consumers,” said MBA president and chief executive David Stevens.
He noted, however, that the industry just implemented a new GFE regime 18 months ago at considerable expense. “We need to make sure that this new form is highly beneficial to consumers who will bear the implementation costs,” Stevens said.
The current GFE has few advocates and many claim it is not consumer friendly and it has driven up closing costs.
CFPB officials want to perfect the loan estimate disclosure form by this fall and start work on the regulations that will implement the new disclosures.
At that point they will have to take on the tough issues of whether lenders should continue to guarantee closing costs. And whether tolerances on third-party closing costs should be retained or eliminated.
One CFPB staffer told reporters they want to gather information on tolerances and learn how they are working.
The bureau also appears to be working on a new disclosure that will be given to homebuyers before they go to the closing table.
Under the Dodd-Frank Act, the new bureau must issue the proposed disclosure forms and implement regulations for public comment by July 2012.
Anne Canfield, executive director of the Consumer Mortgage Coalition, has been working on mortgage disclosure issues since the 1990s.
“We are extremely appreciative of the process they have outlined and are really looking forward to working with them to make sure the disclosures provide the kind of information that consumers really need and actually work,” she said.
Her industry group would like to see a basic disclosure form that can be expanded with “plug-ins” for more complex products like interest-only loans.
“The prototypes are going to have to be revised so the terms of the loans are clearer to consumers,” Canfield said.
The New Jersey mortgage broker is hoping the CFPB will keep the disclosure form simple. Benjamin likes the second page of the loan estimate because it looks like the workout sheets most lenders use to show borrowers how much they will pay at closing.
His biggest complaint is the disclosure of the annual percentage rate, which he says is confusing to consumers.
Nevertheless, he believes CFPB officials are making a good-faith effort to improve disclosures.
“This is a breath of fresh air. They are trying to understand the industry and all the variables and they are trying to get a handle on it. I think they are going to turn things around,” he said.
