The Consumer Financial Protection Bureau (“CFPB”) has released two alternative prototypes of a mortgage disclosure form that would combine the two forms consumers get before finalizing a home loan—the Truth in Lending disclosure statement and HUD-1 Settlement Statement—into a single mortgage closing document. The CFPB has requested public feedback on the two prototypes which marks the second phase of its Know Before You Owe mortgage project. The project began in May with the release of two alternate prototype forms designed to replace the Truth in Lending disclosure statement and Good Faith Estimate form given to consumers when they apply for a mortgage loan. The CFPB said that its most recent mortgage closing document prototypes released on November 8 reflect the feedback received from five rounds of testing different prototypes of the loan estimate disclosure forms in the first phase of the Know Before You Owe mortgage project. The prototypes include some new disclosures that are not included on either of the current disclosure documents that the combined form would replace. The additions are new disclosures required by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The CFPB announced that it will accept public feedback on the two alternative prototype forms of closing disclosures while it conducts four rounds of testing and revisions through February 2012. The CFPB said that it plans to issue draft forms as part of a formal notice and comment rulemaking procedure in July 2012.
Nutter Notes: Section 1032 of the Dodd-Frank Act requires the CFPB to propose for public comment by July 21, 2012 rules and model disclosures that combine the disclosures required under the Truth in Lending Act (“TILA”) and Sections 4 and 5 of the Real Estate Settlement Procedures Act (“RESPA”) into a single, integrated disclosure for mortgage loan transactions, unless the CFPB determines that any proposal issued by the Federal Reserve and HUD carries out the same purpose. Responsibility for issuing these new disclosure forms under TILA and RESPA was transferred from other federal agencies to the CFPB when the agency officially launched on July 21, 2011. Changes from the current Truth in Lending disclosure statement and HUD-1 settlement statement include top-of-form sections where any possible monthly payment changes during the life of the mortgage would be noted. The first prototype disclosure form, called “Hornbeam” by the CFPB, is five pages and the second prototype, known as “Ironwood,” is six pages. The differences between the two prototypes primarily relate to the manner of presentation of certain loan information at the end of the forms. Hornbeam presents summaries of closing costs, lender’s cost of funds, originator fees, total interest as a percentage of the loan amount and total loan payments. Ironwood presents similar information in a tabular format and provides other disclosures using a larger typeface. Copies of the prototype disclosure documents are available on the CFPB’s website.