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Explainer: Why did it take 1,099 pages to propose a three-page mortgage disclosure?

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Dear CFPB,

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?

Sincerely,
Interested in your regulations

Dear Interested,

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:

Content Pages
Preamble
  • Directions on how to submit comments
  • Summary of the proposed rule
  • Overview of the mortgage market and the mortgage shopping process
  • Summary of 43 years of TILA and RESPA mortgage disclosure regulation
  • Summary of the Dodd-Frank Act provisions requiring the Bureau to combine the TILA and RESPA mortgage disclosures and related Dodd-Frank Act mortgage rulemakings
  • Summary of the Bureau’s outreach, disclosure testing, and Small Business Review Panel
  • Statement of the Bureau’s legal authority
  • Detailed explanations of the reasons for each aspect of the proposed rule and requests for comment
  • Analyses of the costs and benefits of the proposed rule for consumers and industry, as required by the Dodd-Frank Act, the Regulatory Flexibility Act (as amended by the Small Business Regulatory Enforcement Fairness Act), and the Paperwork Reduction Act
684
Proposed amendments to regulations
  • New rules
  • Technical and conforming amendments to existing rules
209
Proposed guidance regarding compliance with the amended regulations
205
Signature page
1
TOTAL
1,099

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.

  • Take Credit Cards Online

     Wow, great blog.Really looking forward to read more. Really Cool.

  • Dazed and confused

    Is there any chance that the CFPB can agree on one definition of business day?  And that the timing of all regulations use the same measure of time – either calendar day or business day?  This simple change would allow consumers and financial service companies to have a standard measure of time for all regulations.

    • Maryjr

      That would be too easy to understand!!!

      • Plain Jane

        A lot of government babble.  Doesn’t change the fact that it took 1099 pages to issue a three page disclosure.  Or is it 3 pages.  Let’s see – there are 2 variations of page 1, 4 variations of page 2 and 8 variations of page 3.  Huh???

  • PJ

    What is difficult to understand is, you (the CFPB) never once explained what the “Consumer” liked and disliked about the use of the new forms vs the old forms.  What did the “consumer” dislike so much that the process had to change?  What is it that the “Consumer” disliked so much that a new settlement disclosure form had to be created and the “Hud-1″ gone away with, a form that has been in exsistence since 1974?  Is it really the “Consumer” that has an issue with the forms? 

    • MJ

      The consumer has always had issues with the forms and process, which is why consumers have been advised to never attend a real estate closing without an attorney who can explain the HUD-1 line by line. Honestly, changing a form that’s almost 40 years old is not unusual, instead it demonstrates the need for more change in this industry.

      • PJ

        Again, not enough specifics, when you say the consumer always had issues with the forms and process, you need to be more specific.  What forms and which process?   Also who advises the consumer to attend a real estate closing without an attorney?  With all due respect, this is the biggest investment a consumer makes, plain and simple, the process is NOT simple.  Qualified people need to be at the root of the process.   Mortgage professionals to Title professionals need to be in the trenches everyday with consumers purchasing real estate in their local markets.  We cannot rely on big banks to dictate and control this process, that is how we got here in the first place!  You can change all the forms you want, but at the end of the day, who ultimately meets the consumer to explain the final product?  Who can the consumer trust at the table?   Not sure changing any form is going to help this process.

  • Qwerty

    Isn’t the real answer that the preamble is long because these guys are shaking in there bureaucratic boots about the courts doing to them what they have done to the sec?

  • Bank Lawyer

    It is entirely possible that it 1,099 pages are necessary. It is also entirely possible that 209 pages of rules and 205 pages of guidance are needed on the 3-page disclosure.  However, if these 1,099 pages are necessary, that only proves: 1) consumers unfamiliar with the rules and guidance don’t have a prayer to truly understand the disclosure; 2) lenders completing the disclosure will struggle to comply with the rules; 3) lawyers and consultants will reap more profits from lenders; and 4) the underlying laws (TIL and RESPA) are broken beyond repair.

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