CFPB Issues Mortgage Disclosure Update

The CFPB has issued its fourth update to the Mortgage Disclosure form. This is the fourth time since May 2011 that the CFPB has issued an update to the form and requested comments. 

To date, the CFPB has received more than 24,000 comments, as part of its Know Before You Owe, the review program that commenced in May 2011. The CFPB website, activated on February 3, 2011, contains more information about providing feedback to the Know Before You Owe endeavor.

In September, the CFPB requested that commenters compare two different designs as well as to compare two different loans using the same design. The purpose of the comparative approach is apparently to enable the public to determine ease of use.

We have reported continuously on the development of the Mortgage Disclosure, for example, here and here.

At this time, the CFPB has also undertaken a study to update the HUD-1 Settlement Statement. When that model is introduced, the CFPB will again ask for comments.

Fourth Model 

This fourth model is being tested with consumers and industry in Albuquerque, New Mexico. In that study, the CFPB is comparing a fixed-rate and an adjustable-rate loan, permitting the users to see how this prototype would work for both loan products.

Essentially, the model is based on a disclosure that combines the Truth in Lending form and the Good Faith Estimate.

Interesting Comments  

There have been various comments of interest to the development of the Mortgage Disclosure. Among the more interesting are: suggesting that the cost calculations show a 10 year time frame, to clearly distinguish separately the lender from the non-lender charges, to add more information about shopping for mortgages, and to more clearly explain the time-sensitivity of price comparisons. 

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Mortgage Disclosures - Models
Fixed and Adjustable  
October 17, 2011

Seeking Clearance to Fund Disclosure Research

On September 26, 2011, the Consumer Financial Protection Bureau (CFPB) published its September 20, 2011 Generic Information Collection Request (Generic ICR) to the Office of Management and Budget (OMB). This Generic ICR requests OMB's review and clearance under the Paperwork Reduction Act of 1995.

The title of the Generic ICR is Generic Clearance for Research in Development of Disclosure Forms.

This issuance commences a Comment Period to the OMB, which will conclude on or before October 26, 2011.

Synopsis

 

The Dodd-Frank Act (Title X) requires the CFPB to develop model forms that integrate separate disclosures concerning residential mortgage loans that are required under the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).

For more information, please visit our newsletters or the CFPB section in our Library.

Development of these integrated disclosures will involve qualitative testing of the disclosures given in connection with consummation of the transaction and may involve testing of additional disclosures required by TILA and RESPA during the shopping, application, and origination process.

The CFPB may perform qualitative testing of other model disclosures or materials related to the integrated mortgage loan disclosures, such as instructions for loan originators, tools to assist consumers in understanding the disclosures and certain loan products and features, other mortgage loan-related disclosures, and of industry usability.

Also, the CFPB anticipates engaging the public to obtain feedback about the draft integrated mortgage loan disclosures and related materials before formal notice and comment of proposed rules.

Data Collection and Disclosures

 

The CFPB plans to collect qualitative data through a variety of collection methods, which may include interviews, focus groups and the Internet, in order to inform its design and development of the mandated integrated disclosures and their implementation.

The information collected through qualitative evaluation methods is being gathered in order to inform the disclosure form's design and content, using an "iterative process" to improve the draft form, presumably to make it easier for consumers to use the document to (1) identify the terms of the loan, (2) compare among different loan products, and (3) understand the final terms and costs of the loan transaction.

The research is expect to result in recommendations for development of and revisions to disclosure forms and related materials that would be provided to consumers in connection with obtaining mortgage loans.

Research activities will be conducted primarily by external contractors employing various cognitive psychological testing methods. The CFPB claims that "this approach has been demonstrated to be feasible and valuable by other agencies in developing disclosures and other forms."

The planned research activities will be conducted during FY 2012 through FY 2014 with the goal of creating effective disclosures and related materials for consumers.

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Generic Clearance for Research 

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September 26, 2011

CFPB: Heat Maps and Mortgage Disclosure

The Consumer Financial Protection Bureau (CFPB) has taken an innovative approach toward designing the forthcoming, combined Good Faith Estimate and Truth in Lending Disclosure (Mortgage Disclosure): it is using heat maps to determine viewer orientation to information stated on the Mortgage Disclosure. This is part of the CFPB's Know Before You Owe project.

The CFPB announced this unique evaluative tool recently in its issuance, entitled Mortgage Disclosure Is Heating Up.

A heat map is a graphical representation of data, where a two-dimensional color table represents certain variable values. It has many uses in numerous fields.

Heat maps can be extrapolated from statistical values, providing feedback based on specific data points.

In our previous newsletter, we discussed the two sample Mortgage Disclosures that were under consideration by the CFPB. These were the subjects of heat map evaluations.

The forms were labeled "Ficus Bank" and "Pecan Bank."

Copies of those forms are available in our Library.

RESPONDENTS

According to the CFPB, more than 14,000 people submitted a choice between the two forms, and 13,000 individual comments were received.

The heat maps, essentially, were generated from the statistical values created by visitors clicking areas of the form.

The CFPB's evaluation process seems to include the heat maps - which provide the ways areas of the forms were experienced - along with the choice of disclosures selected by the visitors, and, importantly, the review of comments that the visitors provided.

HEAT MAP - MORTGAGE DISCLOSURE

The CFPB is using heat maps to display areas of the Mortgage Disclosure most frequently clicked by website visitors who were viewing the forms.

Click Heat Map

LEARNING CURVE

Thus far, the CFPB has determined the following from the use of the heat maps:

Respondents:

• Were interested in the bottom line.

CFPB: "The full loan amount at the top of the page, the projected payments section at the bottom of the page, and the estimated closing payment on the second page all received a lot of clicks."  

• Had a great deal to say about the "Key Loan Terms" and "Cautions" sections.

• Commented on the first page of the draft form much more than on the second.

CFPB: "This is a pretty common occurrence, and on its own, it serves as helpful advice for our designers about where to put certain important information. But the information on the second page (like closing costs, for example) is also an essential part of mortgage disclosure. That's why the next round of testing will focus on the second page."

INITIAL OBSERVATIONS

CFPB observed that the heat maps showed:

• How the two different formats drew attention to different parts of the form.
• Differences between what consumers and lenders commented on. ("For example, industry reviewers were very interested in applicant or lender information at the top of the form. Consumer reviewers paid less attention to that.")
• Differences between what positive and negative reviewers noticed on a form.
  
  

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