The federal agency tasked with regulating the mortgage industry recently released new disclosure forms that could help consumers shopping for home loans.
The Consumer Financial Protection Bureau, established under the Dodd-Frank Wall Street Reform and Consumer Protection Act, released a proposed lending regulation known as the "Know Before You Owe" project. Within the initiative, there are two separate forms. A borrower will receive one of these documents prior to applying for a loan, while the other is issued just before the home closing.
The CFPB will seek further feedback from both borrowers and lenders on the forms and make any necessary changes in the future. The public has until the beginning of November to review these new forms and provide further feedback to the agency Once comments are collected, the CFPB is expected to issue finalized documents shortly after.
"We believe in making disclosures simpler and more effective, and doing it with the input of the people who will actually use them," the agency said. "Know Before You Owe is our name for this participatory approach."
Specifically, borrowers will receive an initial three-page form including information such as the loan amount, interest rate and projected monthly payments. Lenders must provide this information to consumers within three days of receiving a loan application. With this document, the CFPB says it will be easier for those shopping for mortgages to compare options from different companies.
Meanwhile, the five-page document consumers receive just before closing on their home loan will provide specific information breaking down the costs due in order to complete the transaction. This form will also be due at least three days prior to the scheduled closing.
Prior to the Know Before You Owe project, consumers had similar forms available, but they were often redundant and difficult to understand. In contrast, the new documents have already been subjected to 10 rounds of testing and adjusted accordingly, based on feedback from borrowers and mortgage professionals.
Although this measure is meant to help consumers understand what they are taking on when applying for a home loan, it has been met with resistance from a number of financial institutions, industry groups and lawmakers. Many of them feel this is unnecessary red tape that will have a damaging impact on both borrowers and lenders. The CFPB has reassured these parties that these new forms aren't meant to negatively affect business.