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 ShoppingSheet@ed.gov.
Arne Duncan is Secretary of Education.
Recently, I saw your notice of proposed rulemaking to combine and simplify existing mortgage disclosures. It’s 1,099 pages long! Why does it take so many pages to create something that’s supposed to be easy to use and understand?
Interested in your regulations
This is a great question, one you’re not alone in asking — 1,099 is a lot of pages, as those of us who were involved in writing them can attest.
Let’s start with some background. Currently, two federal laws – the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) – mandate that consumers receive disclosures of certain information about mortgage loans. The Dodd-Frank Act required the CFPB to propose a rule to combine the TILA and RESPA disclosures.
If you want to see the new combined disclosures, combine and simplify existing mortgage disclosures check them out here. If you want to see what the proposal means for you, we’ve provided summaries, one on what it would mean for consumers and one with more technical detail.
You said “propose a rule to combine the disclosures” instead of just “propose combined disclosures.” Why?
It’s an important distinction. The rule explains how we would expect industry to use the disclosures: when to issue them, how they apply to different loans, what various terms mean, etc.
And that proposed rule is 1,099 pages?
Actually, no. We are not proposing 1,099 pages of new regulations. That page count is for the notice of the proposed rule, not the rule. Like notices of proposed rulemaking issued by other agencies (particularly the Federal Reserve Board), our proposal consists of three basic parts: (1) the preamble explaining the proposal; (2) the text of the proposed regulations; and (3) guidance on how to comply with those regulations.
In terms of pages, the new regulations are only a small part. Most of the pages explain what we are doing and why we are doing it. As required by law, we analyze the costs and benefits of the proposal for consumers and industry. We also provide thorough guidance on how to comply including samples of completed forms, which the industry requested during our outreach and Small Business Review Panel process. Because of the variability of mortgage loan and real estate transactions, industry wanted specific guidance for many different potential scenarios. This added to the page count.
Here’s how the notice breaks down:
Proposed amendments to regulations
Proposed guidance regarding compliance with the amended regulations
The preamble is long.
It is. The preamble provides context for the proposed forms and regulatory changes. The mortgage market is big, and mortgage disclosure regulation has 43 years of history. Also, before writing the rule, we spent a lot of time talking to industry and consumers and analyzing costs and benefits. That’s a lot of context, and that means a long preamble.
Why bother with all this context?
First, some of it is required by law. Second, we believe that part of our commitment to open government is providing more rather than less information about our work. Finally, we want your comments to help us understand the market better, and providing context can lead to more informative comments. Explaining what we considered in writing the proposal makes it easier to craft specific responses or to draw our attention to something you think we’ve missed. Comments that provide new insight or information can be the ones that have the greatest impact on what we do next.
That leaves 415 pages. Only part of that is new rules, though. What else is left?
The technical and conforming amendments make sure the new rules don’t conflict with existing rules, that they make the right cross-references, etc. This actually accounts for more than half of the proposed regulatory language.
The proposed guidance explains what certain regulatory language means in context. For example, the phrase “within three business days” appears a lot in this notice, as in: a creditor must deliver the loan estimate disclosure “within three business days” of application. But what counts as a business day? If a bank is closed the Friday before an Independence Day that falls on Saturday, does that Friday count as a business day? (Answer for purposes of delivery of this disclosure: yes.) Providing guidance that clarifies issues like these can save time, energy, and costs for both industry and regulators.
And the signature gets its own page?
Yes. We don’t expect a lot of comments on that page.
So where can I comment on this notice of proposed rulemaking?
First, we hope you’ll take a look at the Know Before You Owe project that helped us develop the proposed disclosures. Then, review the rule and submit your comments at Regulations.gov.
This is the third post in a series on the Know Before You Owe project for simplifying mortgage disclosures. Last week, we explored the origins of the project and the process that brought us to this point. Today, we’re explaining the proposed rule we’re issuing to make mortgage disclosures more effective and easier to use.
For the majority of Americans, buying a home means taking out a loan. A mortgage loan is the biggest financial commitment most of them will make in their lifetimes. With something so important, you ought to be able to get up-front, easy-to-understand information that lets you compare different loan offers and find the one that’s best for you.
That idea was the starting point for the Know Before You Owe mortgage disclosure project. The Dodd-Frank Act requires us to combine the Truth in Lending and Real Estate Settlement Procedures Act disclosures, and we began Know Before You Owe to make sure the people who would use the new forms were part of the process of creating them.
Today, we’re presenting the results. After more than a year of research, testing, writing, and review, we’re submitting a proposed rule to the Federal Register to create new, easier-to-use mortgage disclosures.
There is more to the proposal than just the forms. Today, rules known as “Regulation X” and “Regulation Z” tell industry how to fill out the forms. We are proposing new rules in Regulation Z to tell industry how to fill out the new forms. We are also proposing commentary that interprets the rules to help industry understand how to comply. To help you see how the rules and the commentary interact with each other and the forms, we are showing you the applicable rules and commentary for each section of the first page of the Loan Estimate.
We’re doing this to save you the trouble of flipping pages to find the right rule for filling out the form, and then flipping more pages to find the right comment to help you understand that rule. Instead of you hunting for the rules and commentary, they will come to you.
We think this is a helpful way to present the proposed rules and commentary to busy industry stakeholders. If this is useful, we will explore doing it for the rest of the rule. See for yourself.
More about the proposed rule
The proposed rule and forms would have benefits for both consumers and industry:
- Simpler than the old forms. Lenders can explain the terms more easily using fewer forms. Consumers, meanwhile, can understand and compare different mortgages more effectively, and compare their estimated and final terms and costs more easily, helping them make the right decisions for themselves and their families.
- Highlight information consumers need. Interest rates, monthly payments, the loan amount, and closing costs are all right there on the first page. Also, the first page explains how the interest rates, payments, and loan amount might change over the life of the loan, including the highest they can go. The forms also offer more information about taxes, insurance, and other property costs so consumers can better understand the total cost.
- Easier to look out for risks. The forms provide clear warnings about features some consumers may want to avoid, such as adjustable interest rates and payments, prepayment penalties, and loan balances that increase (negative amortization). The proposed rule also contains provisions to make estimates more reliable. And because the proposed rule requires lenders to keep electronic copies of the forms they give to consumers, industry and regulators will be able to address compliance questions more easily.
- More time to consider choices. The lender or broker must give the estimate within three business days of applying, and they must receive the closing disclosure at least three business days before closing.
The rule will be published in the Federal Register soon, and when it is, we’ll update this blog post to let you know how to comment.
In the meantime, please, check out the new forms and the process that brought us here. We’ve got a lot more for you to explore: a side-by-side comparison of the new forms and the old ones, a visual timeline of how we got here, summaries for consumers and for industry, and reports on what we learned.
Thank you for all your hard work. We couldn’t have done this without you.
This is the post second in a series. Yesterday, we looked at the origins of the Know Before You Owe project for simplifying mortgages. Today, we look back at how the project unfolded. Very soon, we’ll issue a new proposed rule to make mortgage disclosure more effective and easier to use.
In our last post, we mentioned that one question that we asked people to consider was: “What would you like to see improved on the form? Is there some way to make things a little bit clearer?” Soon, we’ll propose the rule that implements new mortgage disclosure forms, and you’ll be able to judge whether they’re better and clearer than the existing forms. (To get a message when we do, sign up to the right.)
For today, we want to take a look back at the work we did with your input to get to this point. This post is a little longer than most of what we write on this blog, but this partnership with the public has produced results that deserve a lot of recognition.
Know Before You Owe wasn’t actually the first step in the process of combining mortgage disclosures. Technically, the first step was the signing of the Dodd-Frank Act on July 21, 2010. The Act includes provisions requiring us to combine the Truth in Lending and Real Estate Settlement Procedures Act mortgage disclosures.
In November 2010, we joined the Treasury Department to host a symposium on mortgage disclosure with consumer advocates, government officials, psychologists, marketers, and representatives from the mortgage lending industry. The day was a jumping-off point for our efforts, a way to share and collect ideas for what kind of changes in disclosure would help consumers.
Before we could test forms, we needed forms to test. We needed something more specific than “What should we change about the current forms?” to give our testers some direction on what we were trying to achieve. So, starting with a blank piece of paper on a wall, we asked ourselves two questions: What information about the mortgage is useful to consumers? What information is useful to the industry? By using these questions as the framework for the forms’ legal requirements, we came away with a series of drafts that let us begin testing.
The testing process took us to cities across the country: Baltimore, Los Angeles, Albuquerque, Springfield (MA), and more. In each place, we tested new prototypes of the combined initial disclosure with different kinds of mortgages, different terms, and different comparisons of loans. For a few days in each city, we asked consumers, lenders, and mortgage brokers questions about our prototype forms. This exposed issues with the designs we were testing and made sure our design process was always user-centered.
As we were testing, we were also wrestling with another issue: how the new disclosure consumers receive after they apply for a loan would work with the disclosure consumers receive before they close on the mortgage. These forms need to work together. Consumers should be able to understand whether the final terms and costs of their loan have changed from the initial estimates.
To address this, after six months of testing the initial disclosure, we began testing a new combined closing disclosure. This form combined the HUD-1 Settlement Statement with the final Truth in Lending disclosure. We tested versions of this form in cities across the country like Des Moines, Birmingham, and Austin.
At the same time we began in-person testing of the initial disclosure in Baltimore in May 2011, we also posted the first two prototypes for comparison here on consumerfinance.gov. We created an online feedback tool that let people choose between two different prototypes, and then click on the parts of the forms they thought worked well or didn’t, found confusing or interesting, had suggestions for. Basically, we wanted any reaction that could help us learn and improve. They could then submit a comment telling us why they clicked on a particular part of the form. We also asked if there was anything missing.
The feedback was overwhelming. Over seven rounds of this online feedback tool, we received more than 27,000 user comments, split almost evenly between consumers and industry. And we used this feedback in a variety of ways. For example:
- We aggregated the results into heat maps that let us get a sense for which parts of the forms people paid attention to most. Each prototype generated a different click pattern, so we could analyze them against each other to understand how people’s reactions changed.
- We aggregated and analyzed the comments submitted along with clicks. Seeing what drew people’s attention is one thing. Learning the specifics of what they were concerned about or liked gave us more specific sentiments. These sentiments guided us for future versions of the prototypes and offered ideas for how to solve problem areas elsewhere in the form.
- We used the online results to supplement the in-person testing. In-person sessions functioned more like real-world mortgage applications than the online review did. Testing participants were asked more specific questions, like which of two loans they would choose or, for industry, how they would explain certain sections to consumers. Seeing how people would actually use a form suggested different things from seeing what they thought of it theoretically.
As we began focusing on writing the rule to implement new disclosure requirements earlier this year, we also started the small business review process. Mortgage disclosure is important to a variety of small businesses, such as lenders, mortgage brokers, and settlement agents. We asked for their feedback on the potential impacts of complying with various proposals we were considering.
When we release the proposed rule and forms, we’ll also release reports on both the testing that led us here and the small business review that gave us feedback on particular proposals. The reports will offer some context for the heart of the work: the new proposed rule and the forms. Make sure you hear from us when it’s available.
This post is the first in a series. Today, we look at the origins of the Know Before You Owe project for simplifying mortgage disclosures. Tomorrow, we’ll look back at how the project unfolded. And very soon, we’ll explain a new proposed rule the CFPB is issuing to make mortgage disclosures more effective and easier to use.
Over the past thirteen months, the CFPB has developed a series of projects under the name Know Before You Owe: for mortgages, for student loans, and for credit cards. The idea is simple: When you buy a financial product or service, you should understand the terms you’re being 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, effective, and easy to understand.
In short, we believe in making disclosures simpler and more effective, and doing it with the input of the people who will actually use them. “Know Before You Owe” is our name for this participatory approach.
Where do mortgages come in? The CFPB is combining 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– into a single, and ideally simpler, set of forms. In May 2011, we began that effort with the disclosure you get after you apply.
If you’ve ever applied for a mortgage loan, you’ve received two forms required by federal law: a two-page Truth in Lending form and a three-page Good Faith Estimate. They are meant to give you the basic facts about home loans that you apply for and to help you pick the mortgage product that’s best for you. But these forms have overlapping information and complicated terms and are just plain difficult to understand.
We wanted the lenders, mortgage brokers, settlement agents, and consumers who will use the new combined forms to help as we developed them. We visited cities around the country to get in-depth feedback on how well the forms worked. We posted them online and asked for both consumer and industry feedback. Finally, we took extra steps to speak to small businesses affected by mortgage disclosures about their concerns, and we consulted with appropriate federal agencies.
As we started this process, we put forth three questions to define our approach to creating the new forms:
- Would the forms help consumers understand the true costs and risks of a mortgage?
- Could lenders and brokers clearly and easily explain the forms to their customers?
- What could be improved on the forms? Is there some way to make things a little bit clearer?
Over the past year, we’ve heard from consumers, designers, policymakers, financial institutions, legal and regulatory experts, systems vendors, and thousands of lenders, settlement agents, mortgage brokers, appraisers, closing attorneys, title agents, and real estate agents. Now, we’re almost ready to share the results: a proposed rule that meets our statutory obligation, and a single, simplified set of proposed forms.
Soon, we will submit a Notice of Proposed Rulemaking to the Federal Register to begin the public notice-and-comment process. When we submit the proposed rule, we’re also going to release a lot of interesting information here on our site: a side-by-side comparison of the existing forms and the new ones, reports on what we learned from testing the forms and from our discussions with small businesses, a timeline of the project leading up to this point, and a new way of presenting the rules and commentary that tell industry how to fill out the forms.
Tomorrow we’ll go into how we got here. For now, sign up here if you want us to tell you as soon as we release the notice.
Tomorrow, April 27th, I will join the President and First Lady at Fort Stewart, Georgia, where he will sign an Executive Order directing the Departments of Education, Defense, and Veterans Affairs, in consultation with the Consumer Financial Protection Bureau (CFPB), to take steps to ensure that servicemembers, veterans and their families can get the information they need about the schools where they spend their education benefits. His directive also strengthens oversight and accountability of the schools that offer educational programs to the military.
I applaud this effort to see that servicemembers, veterans, and their families get the most “bang for their buck” when they use their educational benefits. During the past year I’ve traveled to military installations in 15 states and spoken to active-duty, National Guard, and Reserve military members and their families. I’ve also met with veterans and their families, as well as those who advocate for them. One issue that has come up repeatedly in my conversations with them is the challenge of making an informed decision on where to use GI Bill and Military Tuition Assistance benefits. How do they find a quality school that will charge them a fair price, provide adequate support, and set them up for success after graduation without a mountain of student loan debt holding them back?
Too often the schools being selected are for-profit institutions more notable for their slick marketing than for their academic credentials and sound value, much less the gainful employment history of their graduates. Here are just a few stories I’ve heard on my travels:
- An active-duty military spouse at Fort Campbell, Kentucky, was under the impression she was attending a “military-affiliated college” (she wasn’t; it was a for-profit school with no official military status). After she filled out an interest form she was called 10-15 times a day until she enrolled. When she had trouble logging on to her online class, she couldn’t get anyone from the college to help her. She failed the class due to lack of access but was charged the full fee.
- National Guard education officers in Ohio and North Carolina told me they are besieged by for-profit colleges desiring access to the troops. They noted that if they hold a job fair, over half the tables may be for-profit colleges, and that servicemembers may see a school’s presence at a job fair as an implied promise that you will get a job if you graduate from that school.
- A veteran at a forum I attended in Chicago, Illinois, had used up her benefits and incurred $100,000 in student loan debt for Bachelor’s and Master’s degrees from a for-profit college, but was unable to find an employer who was interested in her degrees. She was still working at the same job she had before she went to college.
The CFPB has been working on military education issues. This month at ConsumerFinance.gov we began testing a new online tool, the Financial Aid Comparison Shopper, which includes a military benefits calculator, to help people compare options at different colleges, as well as see graduation and retention rates. We have set up a student loan complaint system, and my office reviews all complaints from servicemembers, veterans, and their families. And we’ve been coordinating with the Federal Trade Commission and the Departments of Justice, Education, Veterans Affairs, and Defense on military education issues.
It’s in everyone’s interest to see that military education dollars are well-spent. If they are, they will provide our country with educated veterans and family members who, like the World War II generation before them, can become the engine that drives our economy forward.
Holly Petraeus leads the Office of Servicemember Affairs at the Consumer Financial Protection Bureau. Last year, she wrote about the incentives that lead for-profit colleges to see servicemembers as “nothing more than dollar signs in uniforms.”
Learn more about the Know Before You Owe project for student loans.