New consumer bureau proposes simplified mortgage disclosure forms

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The blizzard of complex disclosure forms required in getting a mortgage soon could ease a bit as a new federal agency tries to streamline and simplify an important part of the process.

In its first major move, the Consumer Financial Protection Bureau released two prototypes of shorter and easier-to-understand disclosure forms that lenders must give home buyers when they apply for a mortgage.

The goal is to help consumers better comprehend the terms of the loans and compare them with mortgages available from other banks, Elizabeth Warren, the special White House and Treasury Department advisor helping to launch the consumer bureau, said Wednesday.


“With a clear, simple form, consumers can better answer two basic questions: Can I afford this mortgage, and can I get a better deal someplace else?” she said, stressing that the agency wants public feedback to help make the forms as understandable as possible. “That’s good for American families and good for the markets they depend on.”

The prototypes have simpler language and use highlighted terms, arrows and “yes or no” graphics to provide key details about a loan. Those include whether the mortgage terms can change, projected monthly payments for different years and a new piece of information — how much of the loan would be paid off in five years.

Seven banking executives saw the prototypes Tuesday and liked them, said Bob Davis, executive vice president of mortgage finance for the American Bankers Assn.

“Our bankers felt this type of proposal was an improvement and a simplification, and we’re happy to see it,” Davis said.

Some mortgage industry leaders have supported simplified disclosures but have warned about the costs of the changes and possible new legal liability.

The bureau said the prototypes would be merged into one two-page form after it solicits extensive public feedback through its website,, and interviews with consumers and industry representatives in Los Angeles, Chicago and four other cities.


The new form would replace two slightly longer mortgage disclosures that many home buyers complain are duplicative and difficult to understand.

“They’re complicated and convoluted,” said Richard Green, director of the USC Lusk Center for Real Estate. “Simplifying them is a good thing, but it’s actually a very difficult thing to do because mortgages are just complicated.”

Created in great part because of regulatory failures leading up to the subprime mortgage meltdown, the consumer bureau is making simplified mortgage disclosures a priority as it prepares to start operations in July.

Changing the disclosure forms is the first of several ways the agency will become a key player in mortgage regulation. For instance, it also will set new standards for how companies service home loans.

“This isn’t just about giving consumers information in a clearer way,” said Travis Plunkett, legislative director for the Consumer Federation of America. “It’s about changing the way that lenders offer information to consumers to make sure they’re not being deceptive and they’re not low-balling financial risk.”

The financial reform law enacted last year created the consumer bureau and directed it to develop a “single, integrated disclosure for mortgage loan transactions” by July 2012.


Lenders are required to provide two forms to a consumer within three days after he or she applies for a mortgage. The forms outline the loan’s interest rate, initial monthly payment and other features.

One form is a two-page Truth-in-Lending-Act mortgage disclosure statement. The other is a three-page “good faith estimate” required by the Real Estate Settlement Procedures Act.

“They are intended to convey the basic facts about home loans to help consumers comparison-shop … but these forms have overlapping information and complicated terms that can be difficult to understand,” Warren said.

In a poll last fall by Consumer Reports magazine, 84% of respondents who had applied for a loan or credit card recently said they had some difficulty understanding the financial disclosures.

The consumer bureau released the forms as part of its “Know Before You Owe” project to get feedback from the public, consumer groups and the mortgage industry.

Over the next four months, the agency will conduct interviews about the forms with consumers and mortgage industry officials in six cities — Los Angeles, Chicago, Albuquerque, Baltimore, Birmingham, Ala., and Springfield, Mass.


After settling on a single prototype, the consumer bureau will start a formal federal rule-making procedure, which also requires public comment. Such comment is crucial because providing new information, such as how much of the mortgage would be paid off after five years, could backfire by overloading consumers, USC’s Green said.

“A lot of people when confronted with all those numbers just kind of panic,” he said. “I think testing is a really great idea. If you give people a form and ask them about it and they seem to know what’s going on, that’s a good sign.”