Troutman Sanders LLP: CFPB Initiates Round Four of Public Comment on Mortgage Disclosure Forms

By David N. Anthony and Robert M. Luck, III

The Consumer Financial Protection Bureau has moved into the fourth round of its Know Before You Owe effort to revamp and simplify mortgage disclosure forms. This advisory describes what options are included in the latest round and what steps the CFPB is likely to take next.  

The CFPB's goal is to provide consumers with a two-page document disclosing all key terms and costs associated with a mortgage, and it appears that a consensus is developing on how that document will look. In the first three rounds, the CFPB compared different draft versions of mortgage disclosure forms that combined the required Truth in Lending Act and Real Estate Settlement Practices Act disclosures. 

For the first time, round four ask consumers, mortgage brokers, financial institutions and others to comment on different loan options while utilizing the same draft form.

The CFPB makes it clear that this round of testing does not represent the "final version of the form." However, the mortgage disclosure form for round four is very similar to the Azalea form in the third round and, when the Treasury Department first announced the Know Before You Owe project, it indicated that the CFPB planned only five rounds of evaluation. 

Although the CFPB is not required to present a final version of the form until next summer, its decision to use one form to compare multiple loan options indicates that the final version may look very much like what is seen in this fourth round.

In round four, the CFPB presents two adjustable rate mortgage options, Jasmine and Nandina, for a $121,000 home mortgage refinance. Mortgage professionals are asked to consider which option they would recommend to their clients based on the information presented, whether any key information is missing, or if the information might be more effectively presented in a different manner. 

The CFPB also has developed additional disclosure information which will be tested during in-person research in Massachusetts in an effort "to learn about how other disclosure items required under the Truth in Lending Act are working for consumers."

The Know Before You Owe initiative has been a significant departure from the traditional notice and comment procedures for adopting rules and regulations. The first two rounds alone generated over 18,000 comments on the draft forms. As with those earlier rounds, the comment period for this fourth round will be open for one week, closing Monday, September 19, 2011.

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