CFPB Finalizes “Know Before You Owe” Mortgage Forms
New Forms Improve Consumer Understanding, Aid Comparison Shopping, and Help Prevent Surprises
The Consumer Financial Protection Bureau (CFPB) issued a rule requiring easier-to-use mortgage disclosure forms that clearly lay out the terms of a mortgage for a homebuyer. The new “Know Before You Owe” mortgage forms will replace the existing federal disclosures and help consumers understand their options, choose the deal that’s best for them, and avoid costly surprises at the closing table.
“Taking out a mortgage is one of the biggest financial decisions a consumer will ever make. Our new ‘Know Before You Owe’ mortgage forms improve consumer understanding, aid comparison shopping, and help prevent closing table surprises for consumers,” said CFPB Director Richard Cordray. “Today’s rule is an important step toward the consumer having greater control over the mortgage loan process.”
For more than 30 years, federal law has generally required that within three business days after receiving a mortgage application, mortgage lenders must deliver two different, overlapping disclosures to consumers. At the closing stage, federal law again generally requires two forms. All of these forms contain duplicative and sometimes confusing information. The Dodd-Frank Wall Street Reform and Consumer Protection Act recognized the need to simplify and streamline this information for consumers and transferred responsibility for the forms to the CFPB.
Today’s final rule requires that lenders use the CFPB’s new disclosures, puts in place rules about when the new forms are given to the consumer, and limits how the final deal can change from the original loan estimate. The forms are available in English and Spanish.
- The Loan Estimate: This form will be provided to consumers within three business days after they submit a loan application. It replaces the early Truth in Lending statement and the Good Faith Estimate, and provides a summary of the key loan terms and estimated loan and closing costs. Consumers can use this new form to compare the costs and features of different loans.
- The Closing Disclosure: Consumers will receive this form three business days before closing on a loan. It replaces the final Truth in Lending statement and the HUD-1 settlement statement, and provides a detailed accounting of the transaction.
The CFPB conducted more than two years of extensive research, testing, and review to find out how to create mortgage disclosures that do what the law intended them to do: disclose information in a way that consumers can understand. A good disclosure helps consumers know if they want to commit to the loan being offered, and it enables them to make meaningful comparisons between loan products for better shopping. The Bureau received feedback from consumer testing, through the Bureau’s website, from a small business review panel, through public comments on the proposed rule, and from other supplemental outreach.
NCUA Letter to Credit Unions Detailing CUSO Rule Changes
NCUA released Letter to Credit Unions 13-CU-13 last week, which briefly details requirement in the new CUSO rule. The letter also contains an appendix with information on the new reporting requirements. The letter specifically details why NCUA updated the CUSO rule and the authority that they agency has to update the rule.
OCC Issues Guidance for the Use of Third Party Consultants
The Office of the Comptroller of the Currency (OCC) recently issued guidance for the use of consultants by national banks and federal thrifts. The OCC requires national banks and federal thrifts that are subject to enforcement orders to engage third-party consultants. The guidance, Bulletin 2013-33, summarizes how OCC will review consultants and monitor their work for federally chartered depository institutions.
According to the Bulletin, the OCC has used its enforcement authority to require banks to retain independent consultants in a significant number of cases and for a variety of purposes. When the OCC requires a consultant as part of an enforcement action, the agency expects a bank to conduct appropriate due diligence to ensure that an independent consultant performing a functional engagement has the necessary expertise and resources to provide the needed services. When the OCC determines that an enforcement action requires the use of an independent consultant, the OCC requires the bank to submit information regarding the bank’s due diligence, including the proposed independent consultant’s qualifications and terms of engagement.
CFPB Expands Student Loan Oversight Authority
Oversight of student loan servicers will be expanded under a new Consumer Financial Protection Bureau-issued rule.
The bureau currently oversees student loan servicing at large banks. Under the new rule, CFPB oversight authority will be expanded to non-bank student loan servicers that manage more than one million federal or private loans. The CFPB will oversee these firms to ensure compliance with federal consumer financial laws.
Non-bank servicers who are not considered "larger participants" may still be subject to the bureau's supervisory authority if the bureau has reasonable cause to determine the servicer poses risk to consumers, CFPB added.
"Student loan borrowers should be able to rest assured that when they make a payment toward their loans, the company that takes their money is playing by the rules," CFPB Director Richard Cordray said. "This rule brings new oversight to those large student loan servicers that touch tens of millions of borrowers."
The CFPB said this new oversight regime will grant it the authority to oversee the seven largest student loan servicers and more than 49 million borrower accounts. The bureau noted this represents most of the activity in the student loan servicing market.
The CFPB has frequently noted the impact that student loan debt has on housing, small business ownership, retirement savings and rural communities. A comprehensive CFPB student debt report released this spring found that Americans hold approximately $1.1 trillion in outstanding student loan debt. One-in-five U.S. households have at least one resident that has taken out a student loan. The average outstanding student loan balance is $26,682. One-in-eight student loan borrowers owe more than $50,000, and 30% of all student loan borrowers are delinquent.
The Credit Union National Association has said credit unions could do more to help debt-saddled grads if the maximum credit union student loan maturity of 15 years was increased. CUNA has also formed a student loan working group to explore current issues related to credit unions' offering private student loans to members. The group is working to develop best practices for credit union student loans and to monitor CFPB and National Credit Union Administration student loan activities.
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Veteran and Servicemember Protections Highlighted In NCUA Video
The many protections provided by the Servicemembers Civil Relief Act and the Military Lending Act are detailed in a new National Credit Union Administration video.
"Our servicemembers, veterans and their families have made sacrifices for their country, and yet unscrupulous lenders lure them into a cycle of financial chaos," NCUA Chairman Debbie Matz said. "The latest Consumer Protection Update reaffirms NCUA's commitment to ensuring that our nation's servicemembers are educated about their rights and won't have to worry about their finances while defending our nation."
Campaigns such as Military Saves Week and Military Consumer Protection Day are also highlighted in the video.
"Credit unions provide low-cost financial products and services to the military and defense communities worldwide. I encourage all credit unions to share this new video with their members and make sure that those who protect our country are themselves protected from usurious loans and predatory lenders," Matz added.
The video encourages credit unions to take part in the 2014 America Saves campaign and the 2014 Military Saving campaign. The NCUA also highlights servicemember financial resources on its MyCreditUnion.gov and Pocket Cents web sites.