The Consumer Financial Protection Bureau (CFPB) came to town last week, choosing Boston as the venue to unveil the final versions of its new mortgage application and closing forms.

The federal Truth in Lending (TILA) and Real Estate Settlement Procedures (RESPA) acts mandate several layers of financial disclosures and protections that lenders are obligated to provide consumers when completing a loan.

Under the Dodd Frank Act, the CFPB was charged with consolidating the four forms required by RESPA and TILA. The two new “Know Before You Owe” forms are four pages each, and share similar layouts, to enable consumers to make line-by-line comparisons of the estimated cost of the loan when they applied with the actual cost they will be charged at closing. Information about interest rates, pre-payment penalties and the amount of cash required at closing is given star billing on page one, while more comprehensive cost breakdowns, including annual percentage rate info, are only to be found on the inner pages.

“Today is a new beginning,” said CFPB Director Richard Cordray. “We’re asking mortgage industry participants to reach out and work with us to help improve the loan application process for consumers.”

The CFPB trumpeted the extensive testing and feedback process they undertook to iterate the forms, which included field testing them with the public. Overall comprehension of loan terms rose 29 percent using the new forms compared with the old, according to the CFPB.

Lenders will have 21 months to implement the new forms, with the switch kicking in in August 2015.

Streamlining Concerns

Both industry representatives and consumer advocates welcomed the simplification of the new forms, and spoke positively of the steps the bureau has taken to make the costs easier for consumers to understand. But concerns remain.

“Getting the forms down from two to one is good,” said Debbie Sousa, executive director of the Massachusetts Mortgage Bankers Association. But “the nuts and bolts may still be problematic,” she added.

For example, under the new rules consumers are supposed to receive the final closing disclosure form, which lists the final loan costs, three days before the closing itself. Regulators say that time is needed to give consumers a chance to properly review the final costs and question any changes between the final fees and the estimate provided at application.

But often the last few days before closing are a whirlwind for lenders, who have to conduct credit checks and other tests required by Fannie and Freddie and other investors as close to the closing date as possible. It’s not yet clear how lenders will satisfy both sets of demands.

And while 21 months may seem like ample time to implement the new rules, many smaller lenders, who often use products and services from a variety of third-party software vendors to process loans, are worried that may not be enough time to review, test and coordinate all the changes.

“I think we’re probably going to know more about the pace [of implementing the changes] in a year. Hopefully if we need more time, they’ll listen to us,” said Sousa.

Both consumer advocates and industry observers emphasized that they hoped the CFPB would prove willing to tweak the forms further if ambiguities crop up once they’re in use.  Agency representatives promised to listen to feedback as the forms were put into use. But they also emphasized that after an unprecedented, lengthy qualitative and quantitative testing process, they were certain the new forms are a substantial improvement over the old.

The biggest remaining piece of the puzzle is the question of how the new closing procedures will fit in with the other substantial reforms currently in the midst of being implemented by the CFPB, including finalizing the qualified residential mortgage definition and loan officer compensation.

John ‘Bernie’ Winne, president and CEO of the Boston Firefighters Credit Union, spoke at the event on behalf of credit unions and community bankers. He warned that the bevy of regulations being implemented may simply make it too costly for small lenders like his institution to offer innovative loan products.

Referring to the mortgage crisis, small lenders “didn’t start this fire,” but “sometimes we’re the ones who feel the brunt” of new regulations, Winne said, provoking a round of applause.  

Email: csullivan@thewarrengroup.com