New Mortgage Form Said Required of Large and Small Banks

New U.S. rules requiring simplified mortgage paperwork will take effect in August 2015 without an exemption for small lenders, according to people briefed on plans by the Consumer Financial Protection Bureau.

The new regulation, the result of a two-and-a-half year effort to help borrowers shop around for home loans, would kick in on Aug. 1, 2015, according to one of the people, who asked to remain anonymous because it hasn’t been released. CFPB Director Richard Cordray plans to unveil the rule tomorrow at a field hearing in Boston.

Camden Fine, president of the Independent Community Bankers of America said bureau officials told him they “are not inclined” to exempt small lenders from the rule, which he called a regulatory burden.

“This rule will affect every lender, every title company, and every single borrower and property seller,” Fine said in an e-mail. “There won’t be any small creditor carve-outs on this rule at all.”

Form prototypes include information such as interest rates, monthly payments and closing costs in bold type and a less cluttered format.

The simplified form will be “a game changer” for consumers, CFPB Director Richard Cordray said in an interview with Bloomberg Television on Jan. 10. The 2010 Dodd-Frank Act required the agency to propose the new form by July 21, 2012 without setting a deadline for completion.

Understanding Loan

The initiative to create the form, dubbed “Know Before You Owe,” started in early 2011 when Elizabeth Warren, then running the agency, released draft prototypes of the forms. Warren, now a Democratic senator from Massachusetts, said the forms would help consumers understand if they can afford a mortgage and if they can get a better deal elsewhere.

Jen Howard, a CFPB spokeswoman, declined to comment on the regulation.

Small bankers have been rebuffed as they pressed Cordray to delay the implementation deadline for two other rules, on mortgage underwriting and servicing, that are scheduled to take effect in January. Lawmakers in the U.S. House of Representatives have also sought a delay.

The new regulation combines disclosures required under the Truth in Lending Act and the Real Estate Settlement Procedures Act. Before Dodd-Frank created the bureau the two laws were administered by separate federal agencies, which had hampered efforts to streamline the paperwork.

In its drafts of the form, the CFPB sought to determine what best helped borrowers understand the costs of their loans. For example, one draft featured the annual percentage rate, which includes fees, but a revised version focused on the interest rate.

Customer Relationships

Smaller lenders, which had no exemption from the regulations under the other agencies, pressed Cordray for an exemption on the grounds that the regulatory burden is unjustified since they have a close relationship with their customers.

Fine said his group of small lenders has “been all over CFPB” about the new disclosures, but failed to win an exemption for smaller companies.

They criticized the initial proposal, which topped 1,000 pages when it was released in July 2012. The consumer bureau responded that only about 200 pages of the proposal was actually a regulation, the rest being supporting documentation, some that Congress required.

This regulation could be as far-reaching as the two mortgage rules taking effect in January, Fine added. “It will take that much time or more for banks to digest and prepare for these new rules,” he said in an e-mail.

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