Model Forms for Mortgage Statements

With the influx of proposed consumer protection mechanisms for mortgage loans in the years since the mortgage crisis, credit unions are tasked with answering the complicated question of how to best provide customers with a full and comprehensible disclosure of loan information.

In an effort to answer this question, last May the Consumer Financial Protection Bureau (CFPB) helped to spearhead the “Know Before You Owe” campaign with the goal of educating consumers about the terms, conditions and repayment requirements of their home loans before they are taken out. This effort proved to be helpful from a standpoint of preemptive loan education, but it failed to teach customers how to budget for repayment.

The CFPB believes that one of the best ways for lenders to help borrowers budget for their loan repayment is to provide them with a regular statement that clearly outlines what is owed and what has already been paid on a loan. Although many financial institutions already use such a statement, many do not, and updating statements to conform to this goal, or to provide a model form statement, may be time-consuming and costly.

Currently, there are no standard elements required on periodic statements, but the CFPB is working to change that. Section 1420 of the Dodd-Frank Act amends the Truth in Lending Act by including a section on “Periodic Statements for Residential Mortgage Loans.” This section requires creditors, assignees or servicers to send the borrower a periodic statement for each billing cycle that includes the following information:

  1. The principal loan amount;
  2. The current interest rate;
  3. The date on which the interest rate may next reset;
  4. A description of any late payment fees and any prepayment fee to be charged;
  5. Information about housing counselors;
  6. Contact information for a borrower to obtain information about the mortgage; and
  7. Any other information that the CFPB may prescribe in regulation.

Although it is highly likely that financial institutions will need to do some form of statement change because of the Dodd-Frank changes to the Truth in Lending Act, it is unclear what those changes will look like and what form the statement will actually be required to take. The CFPB has put together a prototype form statement that includes all of the above information and can be transmitted either in writing or electronically.

The CFPB is currently accepting email comments on its prototype model form at MortgageStatement@cfpb.gov. Although this is only in the proposal stage, and there is no strict schedule or certainty that these changes will take place, the CFPB plans to polish the prototype and propose a rule (including the proposed form of the statement) for public notice and comment this summer.

 

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in Compliance.