Consumer bureau shows off simplified mortgage forms

By Peter Schroeder - 07/09/12 03:32 PM ET

Consumers might be able to better understand the terms of the home loans they are signing on to under new, simplified documents proposed Monday by the Consumer Financial Protection Bureau (CFPB).

The CFPB said the revisions would simplify two mortgage forms that are widely used by consumers and lenders.

"We at the Consumer Bureau are saying 'no más' to costs and risks buried in the fine print," said CFPB Director Richard Cordray at a Las Vegas event hosted by the Hispanic advocacy group La Raza. "Our proposal presents the costs and risks of the loan in clearer terms on a single form."

Officials at the bureau, which was created by the Dodd-Frank financial reform law, argue consumers will make better financial decisions if they can easily understand the terms of loans, mortgages and other financial products.

The proposal is the latest move in what has been one of the CFPB's first and signature initiatives, the "Know Before You Owe" program that is aimed at making complex financial documents easier to understand.

The bureau began work on the project even before it officially opened its doors. After Cordray was nominated by President Obama to serve as its first director — but before he was controversially recess appointed to the position — he told the Senate Banking Committee the project was a "win-win" and could serve as an example for other future regulatory overhauls by the bureau.

Under the project, the CFPB is trying to convert two dense forms required by real estate and lending laws into easy-to-understand documents that clearly lay out the most important information for consumers. One document would be provided when a consumer requests a loan estimate, while the second would be delivered before closing on a home purchase.

Under Monday's proposal, the CFPB would require lenders to provide the loan estimate within three business days of a request, and give consumers the same amount of time to evaluate a closing document before signing off on a mortgage.

The bureau said it received "tens of thousands" of public comments on numerous prototype forms it published on its website over the last year and a half. The public will have six months to comment on the proposal, except for comments on certain sections that are due within two months.

At the same time it unveiled the proposed documents, the CFPB also proposed new rules that would protect consumers seeking high-cost mortgages. The proposed rules would ban certain fees tied to the pricey mortgages, as well as certain risky features such as balloon payments. It also would make it mandatory for consumers to receive housing counseling before taking out such a mortgage. The public can comment on that proposal for two months.