New Residential Mortgage Application Rules Proposed by the Consumer Financial Protection Bureau - Tools of the Trade

The Consumer Financial Protection Bureau announced proposed rules regarding residential mortgages, with the intent to simplify the process in what has become, for many Americans, a confusing and opaque process. The Bureau released the proposed rules in a Detailed Summary of the Proposal. It appears from the summary that the proposed rules specifically relate to the disclosure forms that lenders provide to consumers during the application process. Specifically, the detailed summary states:

For more than 30 years, federal law has required lenders to provide two different disclosure forms to consumers applying for a mortgage. The law also has generally required two different forms at or shortly before closing on the loan. Two different federal agencies developed these forms separately, under two federal statutes: the Truth in Lending Act and the Real Estate Settlement Procedures Act. The information on these forms is overlapping and the language is inconsistent. Not surprisingly, consumers often find the forms confusing. It is also not surprising that lenders and settlement agents find the forms burdensome to provide and explain.

The Dodd-Frank Wall Street Reform and Consumer Protection Act directs the Bureau to combine the forms. To accomplish this, the Bureau has engaged in extensive consumer and industry research and public outreach for more than a year. Based on this input, the Bureau is now proposing a rule with the new, combined forms. The rule also provides a detailed explanation of how the forms should be filled out and used.

Most affected by the proposed rules would be the Loan Estimate Form and the Closing disclosure form. The Loan Estimate Form discloses the terms of the mortgage and the Closing Disclosure Form provides the final loan terms and closing costs. In order to provide more clarity to applicants, the Bureau’s proposed forms cut several pages from the current forms that are used by lenders and attempt to make the forms better understood.

The proposal is open for review and comment until November 6, 2012. A full summary of the proposal can be viewed here. Additional information can be found on the Bureau’s website.