Time to simplify

Richard Smith, loan originator, Stearns Lending

As published in Scotsman Guide's Residential Edition, July 2011.

This past May, the Consumer Financial Protection Bureau (CFPB) solicited comments on two draft disclosure redesigns that combine the good-faith estimate (GFE) and Truth in Lending (TIL) disclosure at its Know Before You Owe website.

The changes are mandated by the Dodd-Frank financial-reform act. But more changes to mortgage-disclosure forms coming so quickly after major Real Estate Settlement Procedures Act overhaul seemed an open confession to what everyone in the industry had screamed since before Day 1: The current GFE is not consumer-friendly, as proclaimed.

Despite my doubts that a newer form would be better, I almost like the new disclosure. Whittling two forms and five pages to one two-page disclosure must be something of an improvement.

There are positive changes in the draft mortgage-disclosure forms. For one, yield-spread premium is not indicated on the form. If this holds up, regulators will take a major step toward reducing consumer confusion and finally leveling the disclosure playing field by removing a misleading and distracting obstacle to informed consumer choice.

Also, the forms actually come close to providing the information consumers want and need: the note rate, the payment and how much money they need to bring to closing.

To make it even more beneficial, I suggest the CFPB:

• Add downpayment to the “Estimated Amount You Will Pay at Closing” total.
• Drop annual percentage rate (APR) altogether. APR is not used to calculate payment or total finance costs, and I think it adds little help to consumers for comparison shopping.
• Show the total monthly payment and break out mortgage-insurance premiums, property taxes and insurance in the payment disclosures.
• List upfront mortgage insurance and funding fees separately in the Loan Estimate Details section.
• Replace the Comparisons field with a distinct presentation of note rate, payment, lender fees and loan-discount charges to help consumers compare loan terms.
• Add a signature line.

Industry groups have had positive reactions to the proposed disclosure changes. Marc Savitt, president of the National Association of Independent Housing Professionals, says combining the GFE and TIL disclosure is a “common-sense approach to giving consumers the information they need.”

Mike Anderson, government-affairs chair of the National Association of Mortgage Brokers (NAMB), says NAMB “applauds the effort of CFPB in developing the new [disclosure form] and for seeking industry input.”

The bureau will solicit further comments later this summer (Editor's note: The CFPB began soliciting its second round of comments on June 27). I think with industry input, the new disclosure form could be reduced to one page and actually give consumers useful and clear information about their loan, which will truly assist them with mortgage shopping.

Richard Smith is a loan originator with Stearns Lending. He has originated residential mortgages in Tennessee and Georgia since 1994. Smith writes a monthly column on legislative and regulatory issues for Scotsman Guide. Reach him at (423) 280-0345 or richard@richardsmithhomeloans.com. Visit www.richardsmithhomeloans.com for more information.