Last May, we began the Know Before You Owe project to improve mortgage disclosures. We improved these disclosures by including the consumers and lenders who will use them in the design process and getting their feedback. But knowing before you owe is only part of the process. Once consumers have their mortgages: how do they budget for repayment?
One thing that can help is a regular statement that describes what you owe and what you have already paid. Many financial institutions already use such a statement. Some do not, however, and the elements of the current statements are not standard.
Section 1420 of the Dodd-Frank Act addresses this issue. It amends the Truth in Lending Act by including a section on “Periodic Statements for Residential Mortgage Loans.” This section requires creditors, assignees, or servicers to send the borrower a periodic statement for each billing cycle. (There is an exception if the consumer receives a coupon book with this same information in it.)
The law specifies several items that must be included:
- The principal loan amount
- The current interest rate
- The date on which the interest rate may next reset
- A description of any late payment fees and any prepayment fee to be charged
- Information about housing counselors
- Phone number and email address for borrower to obtain information about the mortgage
- Other information the CFPB may prescribe in regulation
The Dodd-Frank Act also requires the Bureau to develop a model form for this statement. We have begun creating a prototype that takes into account the possibility that the statement may be transmitted in writing or electronically. You can see an early draft of it to the right.
We have put our model form through one round of consumer testing, and we are scheduling two more. We are posting this version because we also want to hear from the public, including consumer groups and industry. What do you think of it? Let us know!
Our goal is to create a statement that is easy to understand and that provides information to borrowers about current and past payments. We want to include all the important information but not overload the consumer with unnecessary details.
Once we have polished the prototype, we plan to propose a rule (including a proposed form) for public notice and comment this summer. That rule will specify what information must be included and will include the form. After final publication of the rule and form, creditors, assignees, and servicers will have some flexibility to tailor the model form to work for their needs and the needs of their customers.
Take a look at the prototype model form and let us know what you think. If you have thoughts you’d prefer to send directly to us, you may email them to: MortgageStatement@cfpb.gov.