Know Before You Owe: Transparency in the New Mortgage Disclosures

Purchasing a home is a big commitment. Aside from the walls, floors, and roof, for most Americans a new home also comes with a new mortgage. A mortgage document can contain numerous pages and there is a lot of information for a potential buyer to take in.

Almost two years ago, Congress passed the Dodd-Frank Act, which required the Consumer Financial Protection Bureau (“CFPB”) to combine two different federal statutes, the Truth in Lending Act and Real Estate Settlement Procedures Act, when disclosing the terms of a mortgage.

Currently, when closing on a home a buyer receives these disclosure forms shortly before the loan is signed. This can prevent a potential buyer from completely understanding what they are agreeing to. These disclosure forms can include penalties for paying early, describe how the loan payments may change over time, and itemize the total cost of the loan, information that a buyer should be well aware of and understand before they sign the dotted line. The current forms contain overlapping information that can allow risks and costs to be overlooked and hidden by lenders in the fine print.

Over the past year the Consumer Financial Protection Bureau (CFPB) has been researching and designing new, more transparent forms while coming up with new rules to help potential buyers. These rules focus not only on the disclosure forms, but also the loan estimate form. The CFPB has met with consumer-advocate groups, banks, marketers, and taken feedback from buyers themselves.

The CFPB recently launched an informational website, Know Before You Owe, to allow the public to view, vote, and make suggestions on the proposed forms. They also took those forms out and tested them in cities across the country, including right here in Massachusetts.