Experts say key element hard to find on new mortgage disclosure form

Proposed new federal mortgage-disclosure forms that are intended to make essential loan information easier to find buries the annual percentage rate (APR) information on the last page. Housing advocates tell Consumers Digest that the APR should be displayed more prominently, so consumers can verify more easily whether a home-loan offer is within their means.

Consumer Financial Protection Bureau unveiled the proposed disclosure forms July 10, 2012. The proposal reduces to a format of three pages the current five-page forms. Specifically, it reorganizes the location of information about closing costs, interest rates, monthly payments and the total loan amount in a format that’s easier to read than the current forms are, experts say.

Mortgage-disclosure forms are part of the mortgage terms and agreements that a lender presents to a potential homebuyer during the closing process of a property sale, in which the ownership of the property is transferred to the buyer from the seller. The homebuyer reviews the forms during the closing to determine whether the buyer agrees with the terms of the mortgage.

The APR is the annual rate that the lender charges for a loan. The rate takes into account the loan’s principal, interest and any fees or transaction costs over the life of the loan. But CFPB should have placed the APR information on the first page of the forms rather than on the third page, says Andrew Pizor, who is an attorney at National Consumer Law Center.

The APR is significant, because it’s a more accurate barometer than interest rates are for determining whether you can afford a loan offer, Pizor says. That’s because interest rates can be calculated by different methods and, therefore, are less reliable.

The APR “sums up all kinds of numbers into one big figure that is easier to look at,” Pizor says. “All you really need to know is that a lower APR is better. The higher it goes, the more expensive the loan.”

When asked why the APR information isn’t included on the first page of the proposed disclosure forms, CFPB spokesperson Moira Vahey said the agency found that consumers who supplied feedback over the past 18 months indicated that the APR information is confusing or misleading.

However, a beneficial provision that’s included in the proposed disclosure forms is that lenders must provide consumers with the disclosure information within 3 business days prior to a closing. Pizor believes that the increased time that consumers have to review the forms allows consumers to have more time to determine whether a loan offer is appropriate for them.

The proposed mortgage-disclosure forms are expected to be finalized after November 2012, when the CFPB ends its call for public comments. However, consumers have until Sept. 7, 2012, to submit APR-related comments on the mortgage-disclosure form at regulations.gov.

– K. Fanuko