The Feds' New Mortgage Disclosures Are a Bust

by Jonathan Macey

Wall Street Journal
July 17, 2012

The Consumer Financial Protection Bureau's "Mortgage Disclosure Team" just came out with two proposed forms that are supposed to make things easier for borrowers. It took CFPB a year and half of research, drafting and field testing to produce the new documents. The results shine a light on how the Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFPB, operates.

Agency head Richard Cordray claimed in the press release accompanying the new disclosure forms that they give "consumers greater power over the exciting and daunting process of buying a home." They won't. The rules that accompany the new forms reduce the power of consumers to choose the product that they want from the widest array of alternatives.

The CFPB is proposing to revise the old forms into a new Loan Estimate Form and Closing Disclosure Form. The old loan form had been five pages; according to the agency website, the new one is three. The closing form remains at five pages. That's a net savings of two pieces of paper. But the agency rules required to implement the new forms weigh in at an astonishing 1,099 pages.

Will they make it easier for consumers to get a loan? The nonprofit Habitat for Humanity is concerned that they will impede its "ability to enable low-income families to become homeowners." Why? Because any lender, including organizations such as Habitat, is at legal risk if they try to help low-income borrowers who lack the ability to repay their loans. (Habitat lends money to people so they can buy the houses they help build. It uses the monthly mortgage payments to help build still more houses.)

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