August 8, 2012
Could a makeover of mortgage disclosure forms be the solution to consumer confusion and lender frustration? President Obama’s year-old Consumer Financial Protection Bureau (CFPB) thinks so, and it’s devised a simple replacement for a complex document that has frustrated and baffled home buyers and lenders for years.
The current federal mortgage disclosure forms, which include four overlapping documents from two different government agencies, would be replaced with a new document that highlights interest rates, monthly payments, loan amounts and closing costs – all on the first page.
Richard Cordray, the CFPB director, maintains that the new forms will be cost efficient in the future and will spare buyers and lenders enormous headaches because of the clarity they’ll offer. “Over time this is going to save money,” Cordray said last week at a congressional hearing. “There’s going to be savings in each real estate settlement closing, each one over time that will pile up year by year [in] millions of transactions.”
Sounds like a good idea from an agency that was created to help protect consumers in their dealings with banks and financial institutions and streamline the borrowing process – but it’s not the way many Republicans and conservative critics of the agency see things.
Some GOP lawmakers have questioned the agency’s claim that the change will save money rather than become a financial burden to small businesses, which was the focus of last week’s hearing before the House Committee on Small Business.
Committee Chairman Sam Graves, R-Mo, expressed concern at how the proposed rule would affect small businesses like community banks and credit unions, which would be required to retrain their employees and upgrade their software, a potentially costly process.
“There appear to be holes in the agency’s assessment of the economic impact of the rule on small businesses and very little discussion of how the alternatives may reduce economic burdens,” Graves said. He said he feared that rather than saving lenders time and energy, the proposed rule change could add millions of dollars in operating costs to small businesses.
Rep. Scott Tipton, R-Co, questioned the necessity of the proposed rule and its potential cost to businesses, citing the CFPB’s estimate of $100 million in one-time costs to revise software and compliance systems in order to implement the new disclosure forms.
“If those dollars are being spent more and more on regulatory compliance, does that drain money out of resources that could be applied to grow jobs, get people back to work and get this economy moving?” Tipton asked.
Though a rework of mortgage disclosure documents is small potatoes compared to some of the major rules battles being waged at the Environmental Protection Agency and other larger departments and agencies, it is emblematic of the Republicans’ contention that the Obama administration is saddling industry and businesses with too much red tape.
The rule is also attracting attention because it is one of the first to be proposed by the controversial CFPB since its creation last year as part of the Dodd-Frank financial overhaul law. Cordray's predecessor, Harvard professor Elizabeth Warren, was a lightning rod for industry and GOP attacks before she left the Obama administration to run for a Senate seat in Massachusetts.
While Cordray, a former Ohio attorney general, is a far less controversial or combative figure, his agency nonetheless frequently draws attacks from conservatives, as it did recently when it recommended in a report that some college graduates and their families should be allowed to seek bankruptcy protection for onerous private student debt.
Despite Republican skepticism toward the bureau’s mission, the one-year-old consumer watchdog agency has already established a track record of reaching out to consumers and small businesses by holding review panels on topics like the proposed rule change that will directly affect small entities.
In an April panel, participants shared Republican lawmakers’ concerns that the expenses to comply with the proposed rule change would be costly. Some businesses reported that retraining staff and making software upgrades could cost them $150 per employee.
While weighing out the costs in the long run, however, most businesses sided with the CFPB and said the new mortgage disclosure forms would be less of a burden to explain to their customers and would be worth the transitional costs.
Kevin Breeland, senior loan officer for Residential Mortgage, an Alaska-based mortgage company, and a panel participant, told The Fiscal Times that although training staff and updating software in order to comply with the proposed rule would be a costly expense,“it will be worth it because it will help consumers better understand the documents,” Breeland said.
Since this is only a proposed change and not a final rule, the CFPB is taking the panel’s responses into consideration as well as seeking suggestions on the rule change from the public online until Nov. 6. The bureau has not yet said when the rule change would take effect.