The Consumer Financial Protection Bureau released its final proposal for simpler mortgage disclosures — a three-page summary of home-loan costs and risks — to a lukewarm response from industry groups and a key consumer advocate.
The comparison sheets are designed to clearly disclose important details of home loans to borrowers before they sign their mortgage documents, preventing nasty surprises at closing and sometimes years later.
The proposed "loan estimate" and "closing disclosure" forms, with the same categories in both, are to be given to borrowers three days after they apply for a loan and three days before it closes to give them time to evaluate the mortgage.
The simple forms for consumers were accompanied by 1,009 pages of material explaining the bureau's proposed approach and how lenders should implement the new rules.
Bankers and consumer groups reacted guardedly, saying they needed more time to study the details. The Center for Responsible Lending, a leading consumer advocacy group, declined to comment, referring questions to National Consumer Law Center attorney Diane Thompson, who expressed disappointment.
Thompson said the forms make it possible for consumers to compare interest rates and closing costs for loans, and provide assurance those terms won't rise significantly when the loan closes. They also make clear whether a loan is adjustable, state a maximum payment and examine insurance and property tax costs.
But the new forms downplay a previous benchmark, the annual percentage rate, which attempted to summarize the combined effect of the fees, interest rate and term of the loan in one figure. Thompson said that emphasizing the separate components of a loan at the expense of the overall effect could cause borrowers to select a loan that isn't the best alternative.
"Nobody has had time to digest the final forms and to read the details of the testing reports," Thompson said. "But from what we've seen, they've focused much more on the constituent components of the cost of credit rather than allow homeowners to compare loans that are priced differently."
A group representing major financial firms was cautiously positive about the proposal.
"We are generally supportive of the effort and have been working with them for a while on this," said Scott Talbott, chief lobbyist for the Financial Services Roundtable. "We are still reading it and won't have comments good or bad until a little later in the week."
David Stevens, chief executive of the Mortgage Bankers Assn., said he welcomed simpler disclosure rules but said the change would "impose massive change on the industry."
"We will be working with the CFPB to make sure the forms, and the rules surrounding them, are best for borrowers and lenders alike," Stevens said.
In the past, consumers often complained about hefty finance charges that cropped up just as they were ready to buy a home. Many said they had not realized the consequences of adjustable loans — mortgages whose rising payments helped create the mortgage meltdown that touched off the financial crisis.
"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," bureau Director Richard Cordray said in a news release.
The proposed rules also would cap late fees, ban loan-modification fees and restrict fees charged when consumers ask for payoff statements for their loans.
The new rules are not yet final. The public has until Sept. 7 to review and comment on the proposals. Links to information and the proposed new regulations are provided at the Consumer Financial Protection Bureau website, http://www.consumerfinance.gov/
The views, opinions, positions or strategies expressed by the authors and those providing comments or external internet links are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of First Capital, we make no representations as to accuracy, completeness, current, suitability, or validity of this information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Any information provided does not constitute an offer or a solicitation to lend. Providing information to purchase does not guarantee a loan approval. All registered trademarks, copyright, images, or other items used are property of their respective owner and are used for editorial purposes only.
First Capital Mortgage is a subsidiary of PHH Home Loans LLC, a direct lender, Dept. of Corporations file #413-0713 NMLS#4256
Visit First Capital Online or call: 310-458-0010