Feds test simpler mortgage disclosure forms

The federal government on Thursday began testing simplified disclosure forms designed to help borrowers find the mortgage that's right for them.

There are two prototypes that will be tested by consumers and lenders, but both forms do the same thing: consolidate two federally required disclosure forms into a single and simpler one.

The forms will be given to consumers who have just applied for a mortgage. They are designed to make the loan's costs and risks clear and let borrowers comparison shop for the best offer.

The two-page prototypes, developed by the Consumer Financial Protection Bureau, combine the Truth in Lending Act mortgage disclosure and the Real Estate Settlement Procedures Act Good Faith Estimate given to borrowers within three days of application.

The current forms are two and three pages long, respectively. Critics say they have overlapping information and complicated terms that can be difficult to understand.

"With a clear, simple form, consumers will be in a better position to answer two basic questions: Can I afford this mortgage and can I get a better deal somewhere else?" said Elizabeth Warren, adviser to the Treasury Department.

Harry Pecci, a loan officer with Prosperity Mortgage in Doylestown, called the proposed changes "a step in the right direction and a welcome change within the industry."

"The current forms are too long and cumbersome," Pecci said. "I'd be surprised if any loan officer has actually sat down and read the existing disclosures through."

Philadelphia mortgage broker Fred Glick said while the proposed form is an improvement, "the individual fees are not broken down. I feel the old form that did that was just fine."

"If we add loan details to that form, that would be more consumer-friendly," he said.

The change was mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

Jerome Scarpello of Leo Mortgage in Ambler said other reforms recently introduced have clouded rather than clarified the issues.

"A perfect example is the new HUD [the HUD-1 settlement form]," he said. "It caused the form to go from two pages to four," creating a nightmare.

"Transparency has never been more clouded," he said.

Consumers and lenders in a number of cities will test the forms. Philadelphia borrowers can offer online feedback here.

The bureau has a 2012 deadline to come up with a form.