By Theodore Bush
The Dodd-Frank Wall Street Reform and Consumer Protection Act established a Bureau of Consumer Financial Protection (the CFPB). One of the provisions of the Act called on the Director of the CFPB to “establish a unit whose functions include researching, analyzing and reporting on – (C) consumer awareness, understanding, and use of disclosures and communications regarding consumer financial products and services;”
On May 18, 2011, the CFPB launched its “Know Before You Owe” project. This project is an effort by the CFPB to combine the Good Faith Estimate (GFE) (currently 3 pages) and the Truth in Lending Act disclosure (TIL) (currently 2 pages) into a single two page form. According to Elizabeth Warren, “[t]he 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?”
On May 19, 2011, the CFPB began testing two alternative prototypes. The new forms emphasize monthly payment information, projected payments, interest rates and certain “cautions” regarding loan features that might trigger higher or additional payments such as increasing loan amounts, balloon payments or any prepayment penalties. The forms also provide information regarding estimated closing costs.
Testing will take place over several months and includes one-on-one interviews with consumers, lenders and brokers in six cities: Albuquerque, NM; Baltimore, MD; Birmingham, AL; Chicago, IL; Los Angeles, CA, and Springfield, MA. Initial testing will include both English and Spanish language versions of the forms. The prototypes are also posted on the CFPB’s website (www.consumerfinance.gov) with an interactive tool to gather additional feedback. The CFPB’s goal is to issue proposed forms and implementing regulations by July 2012 for formal notice and comment.
The CFPB “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.” This will seem to require a change to the HUD-1 since the 2010 changes to the GFE and HUD-1 included cross-references to each other.
Affected industries have been cautious in their comments thus far. Some have noted that it was less than a year and a half ago that revisions were made to the GFE and HUD-1, which led to substantial implementation costs. Other comments have been more particular such as suggestions that the term “non-required services,” which currently includes Owner’s title insurance and Home Warranty, should be changed to something like “recommended” services.
Given the political controversy surrounding Elizabeth Warren and her future with the CFPB, and the amount of time between now and July 2012, it is uncertain what course these proposals will take. During the last revision to the GFE, HUD received over 12,000 comments. Stay tuned for updates.
Ted Bush is the Operations Director of Thoroughbred Title Agency, Inc. (TTA), working hand-in-hand with the Real Estate Default Group of affiliate of Weltman, Weinberg & Reis Co., LPA. His responsibilities include overseeing the daily operations of TTA. Ted can be reached directly at 216.685.1054 and tbush@weltman.com.
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