A federal consumer watchdog is taking steps to make it easier to comparison shop for a mortgage.
On Wednesday the Consumer Financial Protection Bureau launched its "Know Before You Owe" project. It's asking for the public's feedback on how to simplify the paperwork borrowers receive when applying for a home loan. The bureau unveiled two prototypes of a new form that will eventually replace the current required disclosures.
The bureau will begin testing the forms to determine which is easier to understand; it also wants suggestions on how to further clarify the expenses associated with a mortgage. The goal is to make it easier for borrowers to compare loan terms for what could be the biggest financial commitment of their lives.
Beyond the interest rates marketed to borrowers, the cost of a mortgage is affected by several factors such as adjusting rates and underwriting and settlement fees. Critics say improved disclosures could have helped prevent many of the past problems surrounding subprime mortgage crisis.
Currently, borrowers are entitled to receive two forms within three days after applying for a mortgage — a two-page Truth in Lending form and a three-page Good Faith Estimate. The latter form was revamped last year; a new regulation also required that the final costs can't vary more than 10 percent from the estimates quoted.
Despite past efforts at making the currently-used forms more consumer-friendly, they still present overlapping information and remain a source of confusion.
"They really don't tell the consumer what they want to know," said Mike Anderson of the National Association of Mortgage Brokers. For example, a key concern for borrowers is the total amount they'll need to pay at closing. Yet that figure is absent from the current forms.
The two prototype forms unveiled Wednesday both itemize key costs on the first page, including the total closing costs, monthly payments and projected monthly payments in future years. Both versions provide more details and explanation of the loan terms on the second pages.
The bureau said it will make revisions through September before a single form is selected and refined. Other forms and disclosures borrowers are given later on in the loan process may also be tweaked. All new proposed forms will be issued by July 2012.
To review the sample forms and suggest feedback, consumers can go to http://www.consumerfinance.gov/knowbeforeyouowe . The bureau says the forms will also be tested over the summer in one-on-one interviews with consumers, lenders and brokers. Interviews will be conducted in Albuquerque, N.M.; Baltimore; Birmingham, Ala.; Chicago; Los Angeles; and Springfield, Mass.
The Consumer Financial Protection Bureau was created as part of the federal financial overhaul last year to police financial products and services marketed to consumers. One of its first mandates was to consolidate and simplify the paperwork mortgage applicants are given.