The Consumer Financial Protection Bureau (CFPB) revealed its first two prototypes for a simpler mortgage disclosure form which the fledgling agency hopes will alleviate lender costs and borrower confusion.

In spite of the CFPB’s optimism, groups from every direction – including first tuesday – are throwing out their take on the mortgage disclosure form makeover.

CFPB take: Less is more. Regulatory simplification, in the form of a single Good Faith Estimate (GFE) mortgage disclosure document which combines the existing required Truth in Lending and GFE forms will improve the homebuyer experience, which right now and in the past has been a picture of pandemonium and paperwork. Replacing all of these content-heavy forms with clean straightforward ones will stop people from pursuing litigation after unsuccessfully reading between the lines. A simpler form means lenders can return estimates to borrowers faster, giving prospective homebuyers a better comparison when shopping multiple lenders for the best deal.

Lender take: Mortgage disclosure documents are often laden with details because home finance industry groups need to be contractually protected against frivolous borrower lawsuits. The CFPB’s slimmer version of the form will not only leave lenders, mortgage brokers and banks exposed to unnecessary litigation, but it will incur billions of dollars in costs to lenders (which may be passed down to consumers), disrupt every level in the industry as each adapts to the changes and limit variety and innovation in lending. The CFPB should include a safe harbor addendum in the form which will protect lenders from litigation if the lender’s quote at closing matches the estimate initially presented to the borrower.

Consumer take: Simplicity and comprehension is more than welcome and so is the opportunity to shop for a loan. The CFPB has the interest of the consumer at heart. The primary concern here lies around the question of borrower rights to litigation on causes of action, such as suing to stop a foreclosure.

first tuesday take: Forms should be engineered simple and designed to mitigate the risk of litigation for all involved. This is a practice we encourage and practice at first tuesday. Lenders thrive on legalized confusion.

Further, the “innovation card” lenders play falsely exploits the idea of creativity, a condition not needed by borrowers in the mortgage market, but by lenders pressing for comparative advantage among themselves for bond market investors.  We have fixed rate mortgage (FRM) loans for homebuyers and owners, and adjustable rate mortgage (ARM) loans with variable rates for speculators and the very wealthy to gamble with. No other innovation during the past 40 years has delivered anything but misleading variations on these two types, and always to the long-term detriment of the real estate industry and the public.

Thus, we second the CFPB take for the reasons that industry forms must:

Today, the CFPB’s GFE makeover is still in its early stages – Congress mandated the agency submit the finalized form by July 2012. There is plenty of room for improvements so it is to the interests of all groups concerned to submit their input now as the agency works to refine the form. Until then, prepare for the final unveiling, as well as massive lender lobbying to add copy to the point of total obfuscation.

The California Department of Real Estate (DRE) is an interloper in this process as it requires numerous additional pages to be used with this GFE which will not be helpful for borrowers to compare offers from different lenders to get the best deal. Hopefully the new GFE will be so simple and concise and complete that the DRE need do nothing to better protect Californians.

RE: “Banks Say Simpler Mortgage Form Could ‘Stifle’ New Products” from Businessweek