Following on the heels of its overhaul of credit card disclosures announced in March, the Consumer Financial Protection Bureau, or CFPB, last week launched its "Know Before You Owe" project, a similar attempt to streamline and clarify government-required mortgage disclosures.
"Buying a home is one of the biggest financial decisions most Americans will ever make. The Know Before You Owe project is about giving consumers upfront, easy-to-understand information that helps them compare different mortgage offers and find the one that's best for them," says CFBC chief architect Elizabeth Warren.
It's safe to say that some part of the ongoing foreclosure mess was due to a don't-ask, don't-tell mentality on the part of all parties in the homebuying process. Most homebuyers find it nearly impossible to cut through the legalese of mortgage contracts, so they don't ask and sign anyway, Some Realtors don't want paperwork paralysis to kill a sale, so they tend to summarize rather than clarify for the buyer. And some title insurers and other players would rather the homebuyer not know that they are free to shop around for those services.
The CFPB hopes to end this real estate DADT by presenting the facts, including the uncomfortable fee and interest bits, in a clear, concise way that consumers can understand even after schlepping through six dozen listings.
Current federal law requires that homebuyers receive two documents within three days of applying for a mortgage: the Real Estate Settlement Procedures Act, or RESPA, good faith estimate and the federal Truth in Lending Act, or TILA, disclosure.
The rap on these two forms is that they contain overlapping information and are crammed with sufficient legalese and unfamiliar terms to challenge a "Jeopardy" champion.
Last year's Dodd-Frank Act directed the CFPB to combine these two critical forms into one consumer-friendly version so that future homebuyers can indeed know the real picture before they owe. The bureau has simultaneously undertaken a similar program to standardize and clarify credit card disclosures.
The CFPB plans to test English and Spanish versions of two drafts in six cities: Albuquerque, N.M.; Baltimore, Md.; Birmingham, Ala.; Chicago; Los Angeles; and Springfield, Mass.
Here's where you come in. The CFPB wants to know what you think of its new streamlined form. You can check out the two beta versions and share your thoughts with the bureau at its Know Before You Owe website.
By all means, you should check it out. I was immediately impressed; the sleek new prototypes are already a vast improvement over the previous versions. It's as if James Patterson took a whack at Tolstoy's "War and Peace."
The bureau has set September as its target date to complete its evaluation and revisions.
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