Consumer Financial Protection Bureau Announces Third Round of Public Comments for Mortgage Disclosure Forms

Consumer Financial Protection Bureau Announces Third Round of Public Comments for Mortgage Disclosure Forms

by Troutman Sanders CFPB Team

In what has become one of the Consumer Financial Protection Bureau's (CFPB) 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 consumer 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 of consumer testing and public commenting 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 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 consumer 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 commenting 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 are located near the bottom of both prototypes.  Unsurprisingly, the consensus that emerged after the testing and commenting period was that the "Important Dates" should be placed more prominently near the top of the back page.

The CFPB's announcement for its third round of public commenting and consumer testing on the RESPA/TILA disclosure can be read here.  Unlike the first and second rounds of sample forms, the third round of forms will be emailed to interested parties who sign up on the CFPB's "Know Before You Owe" webpage.

Read more at Consumer Financial Protection Bureau Report by Troutman Sanders LLP. 

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