Know Before You Owe: Government Wants Your Opinion on New Mortgage Disclosure Forms

Option A and Option B for the new design You have until May 27 to review the new mortgage disclosure form and submit your feedback to Know Before You Owe. Image: HouseLogic

When was the last time the federal government asked your opinion on anything? Hold on to your citizenship hat. The feds are taking a cue from “American Idol” and asking for your input on something — by May 27.

Remember the wildly confusing disclosures you got a few days after you filled out your last mortgage application? Well, a new federal consumer watchdog agency wants to know what you think of a new, stripped-down mortgage disclosure form that’s supposed to clearly reveal the thing you must know before you take out a home loan: Can I afford this mortgage?

“The current forms can be complicated and difficult for consumers to use. They’re also redundant and can be costly for lenders to fill out,” says Elizabeth Warren, assistant to the president and special adviser to the secretary of the treasury on the Consumer Financial Protection Bureau.
“Complicated and difficult” is putting it mildly. “Incomprehensible to the average American who didn’t major in finance” would be more accurate. Instead of saying: “Shop around for the best deal on home owners insurance,” the old Truth-in-Lending form reads, “You may obtain property insurance from anyone you want that is acceptable to the creditor.”

The new forms have pretty much everything the old mortgage disclosure forms had, with one exception—they don’t tell you how much you’re going to end up paying the lender if you make it to the end of the loan without refinancing. You know this number. It’s the one you looked at during closing and thought, “I’m going to be paying the lender how $#@*(* much for this loan?”

So you’ve got until Friday, May 27 to check out the forms and tell Warren what you think at an interactive website called Know Before You Owe.

Warren’s new approach is a refreshing change from the classic regulator approach to consumer protection in which the agency proposes a rule, the industry comments, and the agency then tells everyone its original proposal was right and it’s sticking with it.

Compared with the current three-page good-faith estimate and the two-page Truth-in-Lending Estimate forms, the two versions of the new proposed form look fairly straightforward and simple. Both versions manage to use one page (back and font).

After the consumer comment period, the CFPB will do five rounds of testing, review, and revision with consumers and lenders in six cities: Albuquerque, N.M.; Baltimore; Birmingham, Ala.; Chicago; Los Angeles; and Springfield, Mass., through September 2011 to select and refine a single draft disclosure.

Initial rounds of testing will include both English- and Spanish-language versions.

So voting for a disclosure form might not be as exciting as casting a vote for your favorite “American Idol,” but just like on the TV show, you’ll wait for the results longer than you’d like. The final form won’t be ready to go until July of 2012.

Will you be submitting comments about this form? What do you think of the government’s approach to this process?