WASHINGTON—Seeking to simplify the home-buying process, the new consumer protection agency on Wednesday unveiled mortgage disclosure forms aimed at helping home buyers understand the terms of loans and shop around for the best offers.
The Consumer Financial Protection Bureau's first step toward streamlining the mortgage-financing legalese won early praise from consumer groups and some bank-trade associations, such as the Financial Services Roundtable, but they also warned that much hard work lies ahead. Previous attempts to simplify mortgage disclosures have failed partly because of intense opposition from a spectrum of interests including mortgage lenders, brokers, title companies and consumer groups.
Streamlining mortgage paperwork has run against industry concerns about litigation. Lenders have sought to minimize consumer lawsuits by offering more disclaimers and information to borrowers. "Banks are just trying to make sure everyone understands the bargain," said Lawrence Kaplan, an attorney for the law firm Paul Hastings, who often represents banks. "The banks put in more detail...to avoid any ambiguity, so these documents will get longer and longer."
Home buyers are often hit with a stack of papers with forms that can be "complicated" and "redundant," said Elizabeth Warren, the consumer bureau's chief architect. Also, consumer advocates have argued that in the runup to the housing crisis, home buyers didn't understand the cost or terms of their home loans, partly because of confusing paperwork.
The paperwork swelled because of overlapping mortgage disclosures required by two laws, further complicating federal efforts to simplify the forms. Currently, home buyers receive two sets of mortgage-disclosure forms when they apply for a loan: a two-page form required by the Truth in Lending Act of 1968, or TILA, and the three-page Good Faith Estimate required by the Real Estate Settlement Procedures Act of 1974 or Respa.
"With a clear, simple form, consumers will be in a better position to answer two basic questions: Can I afford this mortgage, and can I get a better deal somewhere else?" Ms. Warren said in a statement Wednesday.
Mortgage Bankers Association President David Stevens said the association wants the forms to clearly provide relevant information to consumers. However, the group expressed concern the forms "can be implemented into lenders' operations and systems with a minimum of disruption." American Bankers Association Executive Vice President Bob Davis said the draft disclosures are "a good start" but that the consumer bureau still would need to address a slew of other federal mortgage requirements before consumers would see a significant cut in paperwork when buying a home.
The Dodd-Frank financial overhaul, which created the consumer bureau, directed the agency to combine the mortgage documents and propose new mortgage disclosure requirements by July 2012. Just days after President Barack Obama in September tapped Ms. Warren to help start the bureau, Ms. Warren and Treasury Secretary Timothy Geithner started working on streamlining the mortgage-disclosure documents.
"I see this as a real test case for the agency," said Mark Calabria, director of financial regulation studies at the Cato Institute and a former deputy assistant secretary at the U.S. Department of Housing and Urban Development. "I can't really think of too many issues in consumer finance that are as complicated and divisive and problem-ridden as this."
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