The Consumer Financial Protection Bureau (CFPB) is a name you might not have heard of but they wield a good amount of influence and authority in the world of mortgage lending. That’s because they are an official part of the U.S. government and their site is an official government web site. “Like a neighborhood cop on the beat, the CFPB supervises banks, credit unions, and other financial companies, and we will enforce Federal consumer financial laws,” they boldly proclaim. Because mortgage borrowers have been overwhelmed by the paperwork demanded by lenders to originate a mortgage or refinance one, the CFPB has proposed a simplification of the interest rates and fees disclosure that are currently so laborious.
The proposal by the CFPB, which itself is 1,099 pages long, would force lenders to create a 3-page mortgage disclosure to replace the ones that consumers receive under existing federal rules. The mortgage-disclosure plan the CFPB is suggesting is the outcome of more than a year of research on how to streamline the horridly complicated process of qualifying for a mortgage, or even worse, the loan modification or refinance processes. Yes, there’s a genuine effort underway to simplify the lending process and to untangle the gigantic mess in the wake of the implosion of the mortgage markets which began with the financial crisis of 2008 (remember, that was at the end of the Bush Administration’s 8-year tenure).
According to a Wall Street Journal article dated July 12, 2012, “The agency [CFPB], led by its director, Richard Cordray, has been assigned to write lending rules for banks, brokers and other financial firms. “Mortgage lenders would have to charge a flat fee for processing a loan, ending the practice of calculating fees as a percentage of the loan size, under a proposal the CFPB is working on this year.” This is a big step in the right direction. The article also mentioned more good news on a long overdue broad set of standards which will apparently be called the “qualified mortgage,” that are supposed to ensure that the lender has determined whether the borrower can repay the loan.
That strikes this writer as ironic, and as self-evident as making sure someone applying for a driver’s license is able to drive a car. It also points to the gaping flaw in the old mortgage qualification process that was too big to be just an oversight. If you haven’t seen the award-winning documentary “Inside Job,” you’ll want to rent it and watch it to become informed on the root causes of the financial and mortgage meltdown that we’re all still suffering from. The new three-page mortgage-disclosure proposal, mandated by the Dodd-Frank financial legislation, would mean the borrower would receive the “loan estimate” within three days of applying for the mortgage. For some reason the CFPB like the number three—3 pages within 3 days. It would include the loan amount, interest rate, projected taxes and insurance and estimates of closing costs such as appraisal and title fees.
The CFPB evidently wants home buyers to apply with multiple lenders and use the document to compare rates and fees, an idea that makes very good sense. The Journal article said that after the 3-page “loan estimate,” borrowers would get a new 5 page “closing disclosure” form at least 3 business days before the closing date. The disclosure plan would prohibit lenders from increasing their own charges between the initial loan estimate and the closing date, a common practice in the past. The Mortgage Bankers Association has balked at the new proposals, claiming that they are too lengthy and that they would “…likely add a whole new set of layers of significant complexity in a very difficult environment for lenders and consumers.”
In spite of their objections, steps to simplify the application process for borrowers and make the costs and hidden fees more transparent are most definitely in the consumer’s best interests. The practice of receiving two sets of mortgage-disclosure forms when a buyer applies for a loan; a 2-page form required by the Truth in Lending Act of 1968 and the 3-page Good Faith Estimate required by the Real Estate Settlement Procedures Act of 1974, are in my opinion outdated and insufficient. Full, clear disclosures and the removal of loop-holes and hidden costs are needed more than ever as the nation heals from the financial wounds caused by insufficient oversight and regulations that obviously failed to protect the public from predatory lending practices.