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Know Before You Owe

Know Before You Owe: preparing to finalize the new mortgage disclosure forms


Two and a half years ago, we began a line of work we call Know Before You Owe. The work that we did as part of that project helped lead us to the TILA-RESPA final rule we issued Wednesday. Among other things, that rule requires new mortgage disclosures: a Loan Estimate the consumer gets when applying for a mortgage, and a Closing Disclosure when the consumer is ready to close on the mortgage. Today we’re looking back at the project that helped get us here.

What is Know Before You Owe?

When you buy a financial product or service, you should understand the terms you’re offered before you sign on the dotted line. You should be able to compare different products effectively and make the right choices for yourself and your family. And the information you use to make those decisions should be clear and easy to understand.

This information is usually presented in writing, in forms like disclosures, contracts, and offer letters. We believe that the best way to make sure this information is clear is for the people who actually have to use the information to help us design them. So that’s exactly what we asked people to do. We call this project Know Before You Owe.

How does it apply to mortgages?

We started Know Before You Owe in May 2011 with mortgage disclosures. In the Dodd-Frank Act, Congress directed us to combine the existing disclosures you get when you apply for and close on a mortgage: the Truth in Lending disclosures, the Good Faith Estimate, and the HUD-1 Settlement Statement. These disclosures contain some of the basic facts about home loans, and they should help you pick the right mortgage product for you. But they have overlapping information and complicated terms, and they can be just plain difficult to understand.

The idea is to create a single, simpler set of forms so that when you shop for a mortgage, and then again when you close on one, you can understand the basic information you need to pick the right mortgage loan for you.

Over the course of about a year, we qualitatively tested the forms with consumers, lenders, and settlement agents across the country to see how people would use the forms. We saw how they understood different types of mortgages, different terms, and different versions of the forms. We supplemented this this qualitative testing by posting the forms here on and asking people to weigh in. Over the course of the project, we received more than 27,000 comments that helped us improve the disclosures we proposed.

What’s the final rule all about?

In July of last year, we proposed the rule that would require the new forms. As expected, we got a lot more comments: more than 2,800 of them. Since the proposal, we’ve been reviewing these comments to improve the rule. We’ve also conducted a quantitative validation study with about 850 consumers in 20 locations across the country. The study compared our new forms against the existing forms. We conducted additional qualitative testing. And we reviewed what information you told us we should add to the rule to make compliance easier.

The last big milestone in getting to a final rule was … issuing the rule, which we did last Thursday. The rule we submitted to the Federal Register had a lot of information and instruction about the new disclosures: what needs to be in them; what kinds of loans and which lenders need to use them; when to start using the new forms; and more. Along with the new rule, the notice contains information about the testing, analysis, and other work we did to develop the rule. And we posted a number of other things to help people understand the rule: what it means for consumers and for industry, additional testing results, and more.

A final rule that makes mortgage disclosure better for consumers


Today, we’re issuing the TILA-RESPA final rule. This rule improves the way consumers receive information about mortgage loans, both when they apply and when they’re getting ready to close. Alongside the rule, we’re publishing information to help industry understand what the requirements are, such as how to fill out the disclosure forms. Helping with that understanding will be an ongoing process. We’re also publishing information about the project that got us here and what the new rule means for consumers.

We want it to be easier for consumers to shop effectively for mortgages and to make the decisions that work for them. We want consumers who are confident in the information they receive, the lenders they work with, and their ability to make good comparisons. This rule is a key part of that effort, so we’ve spent a lot of time testing the new disclosures with consumers who will receive them as well as industry who will have to explain them to consumers. The results of that testing show that our new disclosures make information clearer and easier to use.

What does the rule do?

The final rule contains new rules and forms for two disclosure forms consumers receive in the process of getting a mortgage loan: the Loan Estimate, which comes three business days after application, and the Closing Disclosure, which comes three business days before closing on the loan. These disclosures are required by the Truth in Lending Act and the Real Estate Settlement Procedures Act. The new forms integrate existing disclosures and implement some new disclosure requirements from the Dodd-Frank Act.

The rule also offers some more protections for consumers. For example, consumers must receive their Closing Disclosure three business days before closing on the loan so they have time to review it. The final rule also limits the circumstances in which consumers will have to pay more for settlement services than the estimate they received.

These disclosures and requirements will be effective October 3, 2015.

What’s new about the disclosures?

For most homebuyers, a home is the biggest purchase they’ll ever make. It’s also the most complicated financially, with a lot of paperwork to review and understand. The new forms simplify and clarify a lot of information. Essentially, our forms work to allow consumers to compare loans and make better informed decisions.

The new forms are shorter than the forms under current law. Our Loan Estimate is three pages long; the existing federal disclosures it replaces run at least seven pages. Our Closing Disclosure is five pages long and combines five pages of old forms, plus new disclosures required by the Dodd-Frank Act. This is only some of the information consumers get; lenders, investors, other agencies, and states require other documents. We are working with these other parties to figure out how to reduce the paperwork burden further.

But length isn’t the only factor. The documents need to be easy to understand and use. If we reduced page count but increased confusion, we did the wrong thing. We adopted a user-centered design process in creating these forms that made us confident we could clarify as we streamlined. It turns out we were right: the public made us better at our work.

How do we know they work better?

After we proposed the rule that would have required the new forms, we worked with Kleimann Communication Group to conduct additional qualitative testing as well as a quantitative validation study to measure how well the forms work. Before beginning the study, based on the comments we received on that proposal, we made a few changes to make the forms even better for consumers. These modified versions were the ones tested in the study. Today, we’ve published a report on the study, including its methodology, but what wowed us, and what we want to share here, is the results, which are striking.

We asked participants to answer questions on a written test about a sample mortgage. Those who used our new forms provided more correct answers than those who reviewed the current forms, an improvement of 28.8 percent. The margin of error was plus or minus 4.7 percentage points. Put another way, our new forms performed significantly better than the current forms.

These results are consistent when we break down the questions by different variables in the study, such as identifying numbers from one loan or comparing two loans, experienced or inexperienced mortgage consumers, reviewing a fixed rate or an interest-only adjustable rate loan, or focusing on interest rates or on payments. Which is to say: we are confident we didn’t end up with proposed disclosures that work well for one kind of mortgage loan experience but are confusing for others.

The testing showed that it’s not just that people could understand the new disclosures; they could talk about them, too. People who used the new forms could explain why they made choices they did and offered more comments about their choices than people who used the existing forms. This suggests the new forms may help people articulate their thoughts more clearly. That could mean better discussions with spouses, financial advisers, realtors, and others who help consumers in the process. It may mean more than just better financial results; it may mean a better shopping experience.

What comes next

The next step on the TILA-RESPA rule is developing an implementation support effort. We’re already working on this. Look for information soon that helps industry understand how to comply with the new rules, what they need to do to prepare, and more.

In January, the Title XIV rules become effective. Those rules codified many lending and servicing practices that help consumers and prohibited many practices that tend to get them in trouble. We’re also beginning to develop tools focused on consumers that can help them shop for their homes.

These three areas of work – requiring good information, requiring good practices, and offering useful tools – create the foundation for a better homebuying experience, one in which consumers understand prices and risks and have the clarity they need to make the best decisions for themselves and their families.

Updated on July 27, 2015 to include the new effective date of October 3, 2015 for the Know Before You Owe disclosure rule.

Update: Save the date, Boston!


Join us for a field hearing in Boston on Know Before You Owe: Mortgages. The hearing will take place on Wednesday, November 20 at 11 a.m. EST at the following location:

Back Bay Grand
Back Bay Events Center
180 Berkeley Street
Boston, MA 02116

The event will feature remarks from CFPB Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public.

This event is open to the public and requires an RSVP.

Email with:

  • Your full name
  • Your organizational affiliation (if any)

Let us know if you need a special accommodation to participate.

See you there!

Save the date, Boston!


Join us for a field hearing in Boston on Know Before You Owe: Mortgages. The hearing will take place on Wednesday, November 20 at 11 a.m. EST. More information about the event will follow.

The event will feature remarks from CFPB Director Richard Cordray, as well as testimony from consumer groups, industry representatives, and members of the public.

This event is open to the public and requires an RSVP.

Email with:

  • Your full name
  • Your organizational affiliation (if any)

Let us know if you need a special accommodation to participate.

See you there!

More than 500 colleges agree to adopt financial aid shopping sheet


Cross posted from the Department of Education. We were proud to work with the Department of Education on this Know Before You Owe Project.

By Arne Duncan

I am pleased to announce that more than 500 colleges and universities (.xls), enrolling more than 2.5 million undergraduate students (thirteen percent of all undergrads), have committed to adopting the Financial Aid Shopping Sheet during the 2013-2014 school year.

The adoption of the Financial Aid Shopping Sheet is a big win for students already attending these institutions and those who are considering enrolling. The Shopping Sheet provides a standardized award letter allowing students to easily compare financial aid packages and make informed decisions on where to attend college. Students and their families now have a clear, concise way to see the cost of a particular school.

The Obama administration introduced the Shopping Sheet in July, and to coincide with the release, I sent a letter to college and university presidents asking them to adopt the Shopping Sheet as part of their financial aid awards starting in the 2013-14 school year.

I applaud the institutions that have agreed to adopt the Shopping Sheet, and hope more colleges and universities follow their example in offering students and families an easy-to-read award letter that delivers the bottom line on college costs.

Learn more about the Shopping Sheet here, and, if you’re an institution interested in adopting the Shopping Sheet for your students, or have questions about adopting it, please contact

Arne Duncan is Secretary of Education.