CFPB Takes on Perennial Challenge as First Big Test

From Ficus to Nandina, agency aims to simplify cumbersome and redundant mortgage disclosures.

December 21, 2011
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OK, answer quickly: What do Ficus, Pecan, Redbud, Dogwood, Azalea, Camellia, Jasmine, and Nandina have in common?

A. They’re ornamental plant varieties.
B. They’re characters in an animated children’s film.
C. They’re test versions of mortgage disclosures.
D. Both A and C.
E. None of the above.

If you answered D, we’re betting you spent part of your summer and fall in the garden and part of it following the first major endeavor of the new Consumer Financial Protection Bureau (CFPB): Creating new forms to combine and replace the cumbersome and redundant disclosures that must be presented to mortgage borrowers.

Both the creation of the CFPB and the epiphany that there must be a better way to inform consumers about their mortgage rates and terms were part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Here’s hoping it’s an omen of things to come that the agency settled first on its charge to “propose for public comment rules and model disclosures that combine the disclosures required under the Truth in Lending Act and sections 4 and 5 of the Real Estate Settlement Procedures Act of 1974, into a single, integrated disclosure.”

It would be a rare win-win if the bureau manages to create new rules and a form that streamlines the mortgage process for lenders and offers useful information in a comprehensible format for borrowers.

Of course, it’s not like the CFPB is swamped with work right now. In fact, it’s specifically prohibited from fulfilling some of its official duties—such as applying federal consumer financial protections to payday lenders, mortgage brokers, and other nontraditional providers—until its permanent director is appointed.

And because the Senate blocked the confirmation of former Ohio Attorney General Richard Cordray as CFPB director, the bureau’s work to date has largely been in research and consumer education.

Still, the gusto with which the bureau has dived into mortgage disclosure integration has been encouraging. Two months before its formal launch in July, CFPB introduced its “Know Before You Owe” program and posted two versions of proposed mortgage disclosure forms, nicknamed Ficus and Pecan, on its website to solicit feedback from consumers and lenders.

The CFPB received more than 13,000 comments on those forms and has since generated several additional rounds of sample forms for review, including Redbud and Dogwood in the second iteration (which were criticized for both the shortness of the comment period and proposed disclosure provisions) and Azalea and Camellia in the third.

A fourth set of revisions released in September, with forms nicknamed Jasmine and Nandina, took a new approach of using the same format to compare two adjustable-rate loan options, a 7/1 and 3/3 adjustable-rate mortgage.

Beyond its whimsical choices for naming the forms, the CFPB has employed some interesting evaluation methods. In the fourth review round, for example, it asked consumers which loan they would choose and lenders which one they would recommend.

The bureau also used a feedback tool called a “heat map” in earlier rounds to identify which portions of the online documents reviewers clicked most often.

What’s next? It’s hard to say who will win the standoff about its authority and structure, but the CFPB is forging ahead with additional form evaluations. It promised to publish proposed rules to implement the new form no later than next summer.

A federal agency that meets its own deadlines? Now that would be a rarity.

BILL KLEWIN is the director of regulatory compliance and ANNEKE DIEM is compliance manager for CUNA Mutual Group.

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