In Closing...

Love That New Form Smell!

Those of us of a certain age can no doubt relate to that scene in “Fast Times at Ridgemont High” when Mr. Hand passes out freshly mimeographed papers to his students, and the kids — all in unison — lift the forms to their noses and take in a deep whiff. Ahhh, dig that new form smell. Well, guess what. Thanks to a new disclosure being introduced by the Consumer Financial Protection Bureau (CFPB), the mortgage industry may soon relive those halcyon days of yore, only this new form, rather than giving off that weird mimeographed mayonnaise scent, will smell more like … well, victory.

At least for consumers.

The form (actually there are two prototypes, Design 1 and Design 2) combines the required Truth in Lending Act disclosure with the Department of Housing and Urban Development’s Good Faith Estimate (HUD-GFE) — two forms that have sometimes worked at cross-purposes with one another in the past.

Dubbed the Know Before You Owe project, the CFPB’s disclosure redraft aims at creating transparency and making sure consumers understand exactly what they’re getting — and for what money — when they’re borrowing funds. Consumers are able to compare this information across different banks and lenders, making it easier for them to know when they’re getting the best deal. The American Land Title Association has even been working with the CFPB to help create the new drafts.

These improvements are sorely needed. One of the problems with the previous disclosures is that they allowed people to simply focus on the present interest rate. That’s what you’d talk about at the cookout after you’d just refinanced: “Oh, I got a 5 percent rate. What did you get?” But what’s really important is how much you will be paying to get that rate. That’s what this new disclosure will pinpoint.

Another positive is that the form will force lenders and loan officers to do a little bit more customer service and a lot more explaining, which will help make prospective new clients feel more comfortable with the mortgage process. Because of this form, you’ll see more conversation, more disclosure, more questions, and more answers.

The downside for our industry, of course, is that we’ll all have to retool to actually produce these documents in the format that the CFPB wants, so there’s going to be expenses in getting up to speed. But I think, in the long run, this form seems to be a good move, and it’s certainly a positive sign that the CFPB has been asking for feedback from consumers and the mortgage industry.

In closing …

The CFPB hasn’t finalized its new form yet, so if you’d like to throw in your two cents, hop on its website and sign up to receive updates. As the drafts of the forms are revised, the CFPB says it will be asking for more feedback in late June. You can also find out information by reading the CFPB blog.

It’s hard to believe that soon we’ll be able to say to our HUD-GFE and Truth in Lending forms that immortal word uttered by Jeff Spicoli when he finally passed Mr. Hand’s class: Aloha.

Scott Stevenson