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Consumer Financial Protection Bureau

ALTA Comments on Third Round of Mortgage Disclosure Forms

August 11, 2011

ALTA submitted online comments to the Consumer Financial Protection Bureau as the period of collecting feedback on the third round of mortgage disclosure prototypes concluded Wednesday (Aug. 10).

The third set of forms, which are called Azalea Savings Bank and Camellia Savings Bank, can be found at the CFPB's website as part of its "Know Before You Owe," mortgage disclosure program.

After reviewing the latest drafts, ALTA’s RESPA Task Force said it preferred the Camellia form because it provides for nearly full itemization of all settlement costs associated with the transaction. This greater transparency provided by full itemization increases information to help consumers shop for settlement services, the Task Force said.

In regard to title insurance, the Task Force suggests that the Camellia form indicate whether Owner’s Title Insurance is included in the line for “All Other Title Service Fees.” This explanation and transparency helps consumers shop for settlement services by arming them with information to ask informed questions about different settlement services and accurately compare cost estimates.

“Without this transparency, consumers may believe they are protected even though no policy was purchased,” the Task Force said. “This concept of increased transparency was recognized by HUD in the current Settlement Cost Booklet where the guide encourages consumers to investigate these services, including an Owners Title Insurance policy.”

The Settlement Cost Booklet says: “If a title claim occurs, it can be financially devastating to an owner who is uninsured. If you want to protect yourself from claims by others against your new home, you will need an owner's policy.”

“If we have learned anything from the robo-signing crisis, it is that consumers should be encouraged to investigate products like Owners Title Insurance that help protect consumers’ financial interests,” the Task Force said in its comments to the CFPB.

The Task Force suggested the Bureau include a line with check boxes directly under the “All Other Title Service Fees” line indicating if an Owner’s Title Policy premium is included or if the Owner’s Title Policy premium will be paid by the seller.

“These two check boxes will enhance consumer comprehension on their settlement costs and allow them to ask informed questions about their transaction,” according to the Task Force.

It appears from the Amelia form that check boxes are feasible; however, if they prove too burdensome for software designers, the Task Force said other solutions such as separate line items would suffice.

Alongside this increased transparency, careful consideration will need to be given when developing the regulations governing completing this line item, the Task Force said. Consumers deserve to know they are comparing apples to apples. Lower cost disclosures should not be the product of teaser rates or excluding desired services but rather should be the product of actual lower cost estimates.

To help consumers understand how their estimated closing costs are calculated on the GFE, the Task Force suggested that subtotals be included for each section. Adding subtotals would allow the form to possess both the transparency of itemization with the simplicity of roll-ups. Currently, the form contemplates the consumer adding up these costs to reach the “cash needed to close”. However without the subtotals, the consumers will need to add up each line item (32 in all on Camellia) to reach that final number. In addition, if the Bureau is intent to continue the practice of tolerances, then the subtotals may be necessary to operate that scheme.

The Task Force also had concerns with the “Down Payment” section. The Task Force suggested the Bureau add the word "additional" or "remainder of" before "Down Payment."

“We found that the down payment line is confusing,” the Task Force noted. “Consumers may not understand that the down payment is actually $19,000. The line is referring to $10,000 in addition to the $9,000 earnest money deposit to make a total down payment of $19,000.”

Adding the word “additional” or “remainder of” before “Down Payment” would help clarify to consumers that the $10,000 is in addition to the $9,000 they have already paid.

ALTA’s Task Force supports allowing the forms to be flexible to allow for different market practices rather than one-size-fits-all documents.

“We are not clear whether the ‘Seller Credits’ line is designed to be a method for disclosing fees that the seller has agreed to pay per the purchase agreement,” the Task Force noted. “Our experience is that requiring that fees be irrationally disclosed as the borrower’s responsibility (as they are today), while giving appropriate credits on other lines of the disclosure creates unnecessary confusion for consumers that must be explained to consumers by their lender and closing agent. This practice has been one of the most confusing aspects for consumers of the current HUD-1. Rather the form should allow the omission of line items that will not be paid by the borrower at closing or have the line item read ‘$0’ or ‘Seller Paid.’ This will reduce confusion among consumers in areas where law, contract or custom means they will never pay for a certain settlement service.”

One of ALTA’s concerns is how these draft disclosures will interact with the HUD-1. Effective disclosure requires that consumers obtain necessary information throughout the mortgage and real estate transaction. Thus, there should be some interplay between disclosures that provide initial estimates of a transaction and the disclosures that provide final costs.

The CFPB claims prototypes for a new HUD-1 are expected later this year.

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