‘Know Before You Owe’ Project Aims to Make Mortgage Costs Clear Upfront
WASHINGTON – The Consumer Financial Protection Bureau (CFPB) today announced the Know Before You Owe project, an effort to combine two federally required mortgage disclosures into a single, simpler form that makes the costs and risks of the loan clear and allows consumers to comparison shop for the best offer.
On May 19, 2011, the CFPB will begin testing two alternate prototype forms that are designed to be given to consumers who have just applied for a mortgage loan. This testing – which will take place over the next several months and involve one-on-one interviews with consumers, lenders, and brokers – will precede and inform the CFPB’s formal rulemaking process. The CFPB also has posted the prototypes on its website with an interactive tool to gather public input about the designs.
“Buying a home is one of the biggest financial decisions most Americans will ever make. The Know Before You Owe project is about giving consumers upfront, easy-to-understand information that helps them compare different mortgage offers and find the one that’s best for them,” said Elizabeth Warren, Assistant to the President and Special Advisor to the Secretary of the Treasury on the CFPB. “The current forms can be complicated and difficult for consumers to use. They are also redundant and can be costly for lenders to fill out. With a clear, simple form, consumers will be in a better position to answer two basic questions: Can I afford this mortgage and can I get a better deal somewhere else?”
Current federal law requires that mortgage loan applicants receive two documents – the federal Truth in Lending Act (TILA) mortgage disclosure and the Real Estate Settlement Procedures Act (RESPA) Good Faith Estimate – within three days of application. The current forms are two pages and three pages long, respectively. While they are intended to convey basic facts about home loans to help consumers comparison shop, these forms have overlapping information and complicated terms that can be difficult to understand.
For years, Congress and federal regulators have considered merging the two documents, and last year’s Dodd-Frank Wall Street Reform and Consumer Protection Act directed the CFPB to propose new integrated disclosures. The CFPB implementation team quickly began work on this project, hosting roundtables, studying the existing disclosures and legal requirements, reviewing research, consulting with stakeholders, and designing draft prototypes.
The launch of the Know Before You Owe project begins the next stage of that work. The Bureau expects to conduct five rounds of evaluation and revision through September 2011 to select a single draft disclosure and then refine it. Initial rounds of testing will include both English- and Spanish-language versions. Interviews will be conducted in six cities: Albuquerque, New Mexico; Baltimore, Maryland; Birmingham, Alabama; Chicago, Illinois; Los Angeles, California; and Springfield, Massachusetts. In addition to this qualitative testing, the Bureau is soliciting online feedback from consumers and reaching out to consumer and industry groups to gather input, particularly regarding implementation and usability.
The testing and public feedback process will enable the CFPB to revise the design and refine the content based on how it works for consumers. The CFPB has taken a fresh approach to the form, considering what the laws mandate, what information consumers really need for comprehension and comparison, and how to make the form stand out from other loan documents.
Over the summer, in addition to testing the draft forms, the CFPB will conduct additional analysis and research. The Bureau will also consider underlying regulatory issues and ways to refine closing-stage forms, a process that will likely extend into the fall and early next year. The Bureau is required by the Dodd-Frank Act to issue proposed forms and implementing regulations by July 2012 for formal notice and comment. The CFPB also expects to conduct quantitative tests prior to finalizing the form.