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Wednesday, June 20, 2012

Revisiting Mortgage Loan Disclosures Under the Consumer Financial Protection Bureau

Darryl E. Getter
Specialist in Financial Economics

Sean M. Hoskins
Analyst in Financial Economics

High default and foreclosure rates in the housing market have resulted in questions as to whether borrowers were fully informed about the terms of their mortgage loans. A lack of transparency with respect to loan terms and settlement costs can make it difficult for consumers to make wellinformed decisions when choosing mortgage products. In addition, inadequate disclosures can make some borrowers more vulnerable to predatory lending or discriminatory practices.

The adequate disclosure of mortgage terms is a longstanding issue that has prompted several congressional actions. For example, the Truth in Lending Act (TILA) of 1968 and the Real Estate Settlement Procedures Act (RESPA) of 1974 were enacted to require disclosures of credit costs and terms to borrowers. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (P.L. 104-208) directed the Federal Reserve Board and the Department of Housing and Urban Development (HUD) to propose a single form that satisfied the requirements of RESPA and TILA. However, the Federal Reserve Board and HUD concluded that regulatory changes would not be sufficient and that further statutory changes would be required for the forms to be consolidated. More recently, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act; P.L. 111-203), which established the Consumer Financial Protection Bureau (CFPB), mandated the new agency revisit disclosure stipulations for mortgage loans. In addition, the Dodd-Frank Act requires the CFPB to consolidate mandatory TILA and RESPA disclosures into one Loan Estimate form.

The 112th Congress has been closely monitoring the subsequent rulemaking associated with the Dodd-Frank Act, as well as the performance and effectiveness of the CFPB. Consequently, this report examines one of the first major actions undertaken by the new agency. Specifically, efforts by the CFPB to create an effective mortgage disclosure form for borrowers are discussed.

Date of Report: June 6, 2012
Number of Pages: 10
Order Number: R41980
Price: $29.95

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