The CFPB has launched a third round of testing in its “Know Before You Owe” project. Last month, as we reported, the CFPB began testing and requested public input on two revised prototypes (named Mimosa and Sassafras) of a mortgage loan settlement disclosure combining the final TILA disclosure and the RESPA HUD-1 Settlement Statement. Based on the feedback it received in round two, the CFPB has revised those prototypes (now renamed Butternut and Hemlock) and is “asking people to look specifically at how the new closing disclosure prototypes work with our current application disclosure prototype.” We have some observations to share.
The “current version” of the application disclosure (named Honeylocust) posted on the CFPB’s website (which is presumably the same version it will use for in-person consumer testing) is not a previously-issued form, but is similar to the Yucca and Pinyon forms issued in October 2011.
According to the CFPB, round two commenters preferred Sassafras because it showed costs using a format similar to the initial disclosure approach of grouping categories of charges with less itemization. But some commenters told the CFPB to keep the line numbers (as it did in Mimosa), which is the approach of the existing HUD-1.
Of the latest prototypes, it is Butternut that more closely follows the approach of the initial disclosure by grouping categories of charges while Hemlock shows individual charges in a format more like the existing HUD-1. It’s interesting, however, that Butternut uses line numbers but Hemlock does not. (Could the CFPB’s choice of “Hemlock” as the name of the latest prototype closest to the existing HUD-1 have something to do with the lack of enthusiasm for the HUD-1 approach among commenters in round two?)
Hemlock, as well as the prior closing disclosure prototypes, only include an “Escrow” or “No Escrow” option in the “Projected Payments” section. Butternut takes a new approach by adding a “Partial Escrow” option, and in the “Escrow Account Information” section, includes an estimate of any property costs not escrowed (with HOA dues used as an example of such costs.) However, the estimated monthly amount for taxes, insurance and assessments shown on Butternut includes an amount for HOA dues.
Both Butternut and Hemlock contain a new “Contact Information” section that expands on a previous “Originator Information” section to add information for the mortgage broker, two real estate brokers and the settlement agent.
The CFPB says it will conduct a final round of testing in February and will soon explain the process of creating the federal rules that go with the new disclosures. The industry is eager to see that explanation since it has been frustrated by the CFPB’s approach of issuing prototypes that do not appear to comply with existing rules without any indication from the CFPB of what changes to existing rules it has in mind.