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Consumer Financial Protection Bureau

CFPB Unveils Initial Drafts of Closing Disclosure

November 8, 2011

The Consumer Financial Protection Bureau (CFPB) moved to the second phase of its Know Before You Owe mortgage project by releasing the first draft of two alternative prototypes of a final disclosure form to be used during closing to explain to consumers final loan terms and closing costs.

The CFPB issued two draft forms of the closing disclosure, combining the Truth in Lending disclosure and a HUD-1 Settlement Statement. The first, called Ironwood Bank, is six pages. The second, Hornbeam Bank, is five pages. ALTA’s RESPA Task Force will meet Thursday, Nov. 10, to discuss the forms in detail. ALTA encourages members to provide feedback to the CFPB regarding the draft closing disclosure.

The first page of the forms has basic information that attempts to help consumers understand their loan and closing costs. Additional pages ensure that when consumers buy or sell a home, they will know where the money comes from and who it is paid to.

“It sounds basic, but a disclosure that is transparent and itemizes costs is especially important,” said Justin Ailes, ALTA’s vice president government and regulatory affairs. “ALTA members are the real estate professionals responsible for providing these important disclosures to consumers at the closing table. We will continue to work with CFPB and others to make these forms as useful as possible.”

Here’s a brief summary of what is found on each of the pages:

  • Page 1 looks very similar to the initial disclosure’s first page, with information about the loan terms, projected payments and closing costs.
  • Page 2 is a summary of the borrower and seller column charges.
  • Page 3 outlines closing costs, whether they are paid for by the borrower or seller and whether they are POC. On the Hornbeam form, money paid outside of closing is broken out by the amount, paid by, paid to and when (such as at closing).
  • Page 4 of Ironwood lists POC charges, limits on increases and an adjusted interest rate table. There is also a line showing the increase between the estimate and the final in a percentage and dollar amount over the limit (tolerances). Page 4 of Hornbeam lists limits on increases and an adjustable interest rate table.
  • Page 5 has loan disclosures including liability after foreclosure (required under Dodd-Frank, security interest disclosure and an escrow account disclosure, etc. On Hornbeam, Page 5 also lists a signature line, other disclosures and what to do about questions. These are on Page 6 of Ironwood.
In addition to soliciting public feedback online, the CFBP will test these forms for a week, starting today, in Des Moines, Iowa. This testing, according to the CFPB, will entail one-on-one conversations with consumers, lenders, brokers, and other industry professionals. The Bureau expects to conduct four rounds of testing and revisions through February 2012. Starting in the second or third round of this phase, the CFPB said it will test both the initial and final disclosures together. Settlement agents will be included in the testing process. The CFPB also plans to issue draft forms for public comment as part of notice and comment rulemaking procedures in July 2012.

“Purchasing a home is one of the biggest financial decisions a consumer can make,” said Raj Date, Special Advisor to the Secretary of the Treasury on the CFPB. “The second phase of our Know Before You Owe mortgage project is aimed at simplifying the federal disclosures consumers have to tackle at the closing table. Our goal is to help make the costs and risks clear at all stages of the mortgage process – from shopping for a mortgage to signing on the dotted line.”

Current federal law says that at or before closing on a mortgage loan, borrowers generally must be given two documents – the federal Truth in Lending Disclosure and the HUD-1 Settlement Statement. The CFPB is now combining these two forms. The CFPB is also consolidating other new and current federal mortgage disclosure requirements.

For more information, see ALTA RESPA Task Force Addresses Concerns Over Initial Mortgage Disclosure.

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