PARAMOUNT MORTGAGE - LENDER'S BLOG

The Consumer Financial Protection Bureau (CFPB) is developing a simplified mortgage-disclosure form to make it easier for borrowers to understand the terms of their financial commitment.

Elizabeth Warren, the Obama administration adviser charged with setting up the CFPB, has said she would like to see a standard document of one or two pages to replace about 80 percent of the mortgage disclosures mandated by the Truth In Lending Act (TIL) and the Real Estate Settlement Procedures Act (RESPA).

The current “pile of papers” confuses consumers and is costly to business, Warren has said.

The CFPB will contract with an outside vendor in January 2011 to develop the new disclosure form. The vendor must complete the work by January 15, 2012 or a year after the contract is awarded, whichever is earlier.

Bob Davis, an executive vice president at the American Bankers Association, said short disclosure forms might not simplify the process as much as Warren suggests, because of the “interconnected requirements” imposed by federal law.

John Kozup agrees. “It’s asking a lot for a piece of paper to change actual consumer behavior,” stated Kozup, an associate professor of marketing at Villanova University and director of the Villanova Center for Marketing and Public Policy Research. “It could be a decision aid but that is it.”

Kozup said that by the time applicants get a mortgage pre-approval and find a house, they “have a psychological commitment to a certain mortgage bank or broker, and no kind of disclosure is going to change that.”

More concise disclosure is one of the main stated goals Warren wants to implement under the Dodd-Frank Act. She is committed to developing the new disclosure form utilizing “consumer testing” and then making revisions based on the findings of “testing and public comments.”