Real Estate Law

Troutman Sanders LLP: CFPB Announces Third Round of Public Comments for Mortgage Disclosure Forms

By David N. Anthony. John C. Lynch. Ashley L. Taylor, Jr. and Jarrod F. Loadholt

In what has become one of the CFPB's signature regulatory initiatives - "Know Before You Owe" - the CFPB announced on July 28, 2011, that it would be conducting its third round of public commenting and consumer testing on the proposed two-page Real Estate Settlement Practices Act ("RESPA") and Truth in Lending Act ("TILA") mortgage disclosure forms.

The first round of mortgage disclosures created front page "shopping sheets" designed to allow consumers to compare key terms across mortgage products. The CFPB released the first round of disclosures on May 18, 2011, to an overwhelming public response generating more than 13,000 comments

The second round of public commenting and consumer testing was limited to comparing two closing cost prototypes comprising the second page of the form, which would disclose all relevant information concerning fees and closing costs. The CFPB received nearly 5,000 comments on the second round of public commenting.

The third round of public commenting and consumer testing incorporates input from the first two rounds, creating a revised two-page disclosure form. According to the CFPB's "Know Before You Owe" announcement, three major changes will be incorporated into the third round of disclosures:

  • Clarifying the "Cautions" Provision: The first page of the proposed disclosure form in Round 1 contained a "Cautions" section detailing mortgage features like adjustable rates, possible increases in the loan amount, balloon payments and prepayment penalties that borrowers should be cautious of when comparing mortgages. Public comments and consumer testing suggested that the "Cautions" section on Form A, in particular, were confusing, informing the design of a revised "Cautions" section for the third round of public commenting and testing.
  • Striking the Right Balance on Closing Cost and Fee Disclosure: Public comments and consumer testing during the second round (Form A and Form B) were divided on the benefits of more itemization of closing costs and fees versus a shorter, more concise presentation of all relevant fees and costs. The third round of public commenting and testing will attempt to strike the right balance on the degree of itemization for closing costs and fees pursuant to the consumer testing results and comments from round two.
  • Moving "Important Dates" to a More Prominent Position: The second page's "Important Dates" section presenting the expiration date for a mortgage's closing costs was located near the bottom of both prototypes in round two. Unsurprisingly, the consensus that emerged after the testing and commenting period was that the "Important Dates" section should be placed near the top of the back page.

The CFPB's announcement of its third round of public commenting and consumer testing on the RESPA/TILA disclosure can be read here.

Interested parties are encouraged to submit comments to the CFPB by August 8, 2011.

Copyright © 2011, Troutman Sanders LLP

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