Get Ready for Second Round of CFPB’s Draft Mortgage Disclosure Form
June 23, 2011
If you remember the headaches caused by HUD’s RESPA reform in 2009, it’s vital ALTA members provide feedback as the Consumer Financial Protection Bureau (CFPB) attempts to combine the Truth in Lending Act (TILA) disclosure and the Real Estate Settlement and Procedures Act's Good Faith Estimate (GFE).
The CFPB is expected to release its second draft of the combined mortgage disclosure form next week and will begin discussing a new HUD-1 in the near future. In May, the CFPB released two initial prototypes, called Ficus Bank (Prototype 1) and Pecan Bank (Prototype 2). The CFPB accepted public comments on the draft forms for about a week. ALTA’s RESPA Task Force preferred the layout of the Ficus Bank form compared to Pecan Bank.
Once the CFPB releases its second round of the draft form, it will once again accept public comment for at least seven days.
ALTA’s RESPA Task Force is working closely with the CFPB, but ALTA members should provide feedback to the CFPB on how these new forms will impact real estate closings and business operations. ALTA encourages members to engage in the process by signing up for CFPB updates and offering feedback regarding the draft disclosure form. Comments may also be sent to ALTA at firstname.lastname@example.org.
One of the concerns the RESPA Task Force had with the initial draft was the use of the term “Non-Required Services" when referring to Owners Title Insurance on Line D of the back page of the form. The RESPA Task Force suggested using an alternative term such as “Recommended Services,” so the value of coverage can be better explained to consumers and it’s consistent with HUD’s Settlement Cost Booklet.
To improve the look of the form, the RESPA Task Force suggested including the header (bank name, loan officer etc.) on both pages. While this form is envisioned as a two-sided single sheet of paper, providers will likely distribute this sheet as two single sided sheets of paper. The RESPA Task Force said it would be useful to have the header on the first and second page for instances when the two sheets get separated. Further, moving the “Important Dates” information into the header might be useful to make that date more prominent to consumers.
The RESPA Task Force concluded that neither form does a good job of disclosing the cost of mortgage insurance. Mortgage insurance payments should be clearly disclosed in “Key Loan Terms,” instead of being lumped together with other insurance, according to the RESPA Task Force. Further, the estimated date when the consumer will obtain enough equity to alleviate the requirement for mortgage insurance should be referenced in the “Projected Payments” section to help consumers better understand how and why their payments might change. Currently, the projected payments show a $110 dollar decrease in years 9-30, which appears to be attributable to the expiration of the mortgage insurance requirement.
Prototypes for a new HUD-1 are expected in the months ahead. ALTA’s RESPA Task Force will continue to work with the CFPB as the forms are modified.