At one time or another, you have undoubtedly had to deal with lengthy and cumbersome mortgage disclosure documents – pages numbering 10 or more, long documents, small print and verbiage that confuses more than explains. This may all be coming to an end as the Consumer Financial Protection Bureau is beginning the process of developing and eventually testing a simpler mortgage disclosure document that condenses all that gibberish down to just two pages. The goal is to make the document easier to understand, which will help borrowers compare deals from multiple lenders.
Who doesn’t feel lost when they attempt to read through an entire mortgage disclosure document? The process seems daunting, making the thought of going through it multiple times not worth the possibility of finding a better deal. The looming question is, by having only two pages (still most likely filled with small print), will you change your behavior and be willing to spend time comparing mortgage deals to save money?
In this economy, the logical answer appears to be yes. However, there are many experts who feel that consumer behavior isn’t so easily changed. Of course, consumer behavior can be changed and has been in somewhat similar circumstances recently. During the late 1990’s, when the internet exploded with websites offering online quotes for insurance products, consumers benefited from heavier competition and lower prices. The convenience of getting rate quotes online simplified comparison shopping and consumers took advantage. Competition became fierce, prices dropped or stabilized and profit margins of insurance companies took a staggering blow.
A second possible effect of simplified mortgage disclosure documents is the benefit to small lenders. The high cost of complying with current regulations and producing all the paper work needed lends itself to larger companies who can take advantage of economies of scale and top of the line technology. If the new regulations resulting from the Dodd-Frank Act reduce the cost of doing business, local banks and lenders will be more competitive against larger corporations. Furthermore, if consumers begin digging deeper when comparing financing packages, smaller lenders will get their product in front of more borrowers.
Of course, with such complicated legislation, it will take some time. Bids on constructing the document and testing it for consumer use have already been received. The bureau must have something on the table for public comment by July 2012. However, in an effort to beat the deadline, vendors are required to have the work completed by January 15, 2012.
The verdict is still out as to whether simplified mortgage documents will reduce mortgage financing costs for borrowers, whether small lenders will benefit, or if it is even possible to produce a readable mortgage document. However, there is no harm in the attempt and plenty to gain for borrowers, even if it is only reducing the headache of reading through the documents.