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New mortgage forms aim for transparency

"When making what is likely the biggest purchase of their life, consumers should be looking at paperwork that clearly lays out the terms of the deal," Consumer Financial Protection Bureau director Richard Cordray says. Credit: Getty Images, 2011

The government has proposed new rules to help Americans understand the costs and risks of getting a mortgage.

The Consumer Financial Protection Bureau last week unveiled redesigned forms that mortgage borrowers would get after applying for a loan but before closing on the house. The forms would be available three days before closing.





The proposal is the bureau's first that would change how people get mortgages.

For more than 30 years, federal law has required lenders to give home buyers two overlapping sets of disclosure forms.



A "loan estimate," outlining key features, costs and risks of a mortgage, would be provided to people within three days after they submit a loan application.

A "closing disclosure," to help people understand the costs of closing, would be provided at least three days before closing.

The forms would also help people compare the cost of different loan offers, including the cost of the loans over time.

The rules would apply to most home mortgages, but not to home equity lines of credit, reverse mortgages and other specialized loans.


It also bans last-minute changes to closing costs. Lenders generally would not be allowed to charge people more for closing than the amount listed in the loan estimate form.

To protect vulnerable borrowers with imperfect credit, the proposal expands what is considered a "high-cost mortgage," a mortgage with an interest rate or fees deemed to be steep. People who receive such loans would receive special protections.Under the rule, people with high-cost mortgages wouldn't face balloon payments -- large lump-sums that typically are due at the end of a loan. Lenders also could not charge these consumers a penalty for loan prepayments.

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