Mortgage disclosures in plain language
For the past year, the Consumer Financial Protection Bureau, working with Kleimann Communications Group, has run extensive usability testing with consumers throughout the U.S. on the proposed new mortgage disclosure form. This form combines the original Truth in Lending disclosure and the Good Faith Estimate into a single three-page disclosure. Because purchasing a home is likely to be the most expensive and daunting purchase most of us will ever make, it’s critical that we receive clear, usable information that will allow us to compare rates from one lender to another and know exactly the fees we are paying. This new form will help us do that.
The following information appeared on the CFPB website and explains both the process and the results of this research.
The new disclosure – Compare our proposed disclosures to the existing ones.
How we did it – Review a timeline of the project, from the Dodd-Frank Act to today.
The proposed rule – See the full proposed rule, including a version of the first page of the Loan Estimate annotated with the relevant sections of the rule and commentary.
More resources – Proposal summaries, reports on what we heard in testing and the small business review panel, and more. 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 CFPB has, from their inception, been an advocate for consumers. Check out the new forms and the process. You also can see a side-by-side comparison of the new forms and the old ones, a visual timeline, and what they learned from testing and consumer/industry comments.
We will remind you to comment on the new rule when it’s time. Meanwhile, take a look at the new form and the report. It’s a tribute to the power of usability testing, document design, plain language, and a true focus on consumer needs.