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CFPB's Mortgage Disclosure Rules Need Work


I normally applaud the CFPB for its aggressive regulation and its attempts to expand its regulatory reach. When the CFPB first started rolling out proposed mortgage disclosure forms, I was excited. The required disclosures are one of the most confusing parts of a real estate closing. Most consumers don't understand how an APR is calculated or why an APR is higher than the loan's interest rate. However, APR is one of the most important factors in determining whether a loan is expensive.

On the new Loan Estimate form (which combines the Truth In Lending and Good Faith Estimate Disclosures), APR is listed on the last page. The disclosure puts more emphasis on the "Estimated Cash to Close" figure, which is listed at the bottom of page one. While this is a nice change for real estate attorneys who need to give their clients a ballpark estimate on closing costs, it doesn't do much to emphasize the actual cost of credit.

The actual cost of credit is long-term. How are payments applied? What is the actual markup due to interest? The cost to close does not disclose abusive loan terms. It does not disclose loans that are interest-only for the first five years. It doesn't disclose prepayment penalties.

Quite simply, the cost of credit can vary wildly based on the way the loan functions over time. A short-term concern like cash to close is not an indicator of the loan's cost. In many of the closings that I do, lenders give large credits toward closing costs to help borrowers bring less money to the closing table. Those types of credits are great for incentivising borrowing money, but they never indicate the cost of the loan in the long-term.

If the purpose of the new disclosures is to give consumers an informed choice when purchasing loan products, then the disclosures should put the most important data up front.

That said, the new forms do streamline the old forms quite nicely. Less paper is great. The data is easier to read and absorb when compared to the old forms. While they are a step forward, we need to ensure that the right information is prioritized so that the forms function as intended. I largely agree with the NCLC's analysis as well.