The federal agency in charge of helping consumers avoid predatory or misleading lending practices is now proposing a way to help borrowers better understand the full cost of borrowing to buy a house.
The Consumer Financial Protection Bureau recently proposed a new type of disclosure form for mortgages that will give borrowers a clearer understanding of the costs they might face when seeking financing, the agency announced. The idea behind this is to help consumers avoid the potential issues that may arise with unexpected closing costs.
These forms would be given to borrowers after they applied for a loan but before they close, and is part of the agency’s Know Before You Owe project, the report said. More than a year of research, testing, writing and review went into the finalizing of these documents.
“When making what is likely the biggest purchase of their life, consumers should be looking at paperwork that clearly lays out the terms of the deal,” said CFPB director Richard Cordray. “Our proposed redesign of the federal mortgage forms provides much-needed transparency in the mortgage market and gives consumers greater power over the exciting and daunting process of buying a home.”
The new CFPB forms are designed to be easier to understand than the two existing mortgage disclosure documents mandated by the federal government, in that they are simpler, highlight more important data, and make it easier to spot potential risks. Further, by being given to borrowers after they submit their application but before closing, it gives them more time to consider their options.
Simultaneous to this announcement, the CFPB also said that it is proposing a new rule to increase protections for high-cost mortgage borrowing, the report said. This includes banning potentially problematic loan features such as balloon payments, and also eliminating penalties for paying early. Further, it would also increase limits on late fees or for receiving a payoff statement, and ban fees for modifying loans.
The public will have until Sept. 7 to review the proposal and give the CFPB feedback on it, the report said. The final rule will be issued in January.
Initially, the CFPB was focused on increasing the protections for consumer credit card accounts, but has greatly expanded operations under Cordray, who took office early this year.
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