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The Federal Trade Commission’s staff submitted a comment to the U.S. Consumer Financial Protection Bureau on disclosure forms designed to help consumers understand the features, costs, and risks of home mortgage loans.  The comment is in response to a CFPB Notice of Proposed Rulemaking regarding disclosures consumers receive when they apply for and close on a mortgage loan. 

The FTC staff comment commends the CFPB’s efforts to develop improved mortgage disclosures that are designed to help consumers make better-informed decisions about mortgages.  It states that the disclosures developed by the CFPB will likely improve the information that consumers receive under current federal regulations; they are generally simpler and less technical, and should be easier to understand. 

In light of the significance of a consumer’s decision to purchase a home or seek other home financing, and the importance of mortgage disclosures in enabling consumers to evaluate the costs of the transaction, it is important to ensure that disclosures effectively enable consumers to evaluate the real costs of taking out a mortgage.  Therefore, the comment encourages the CFPB to conduct controlled quantitative testing before finalizing a rule to help ensure that the proposed disclosures effectively convey key mortgage terms to consumers and are not misinterpreted or misunderstood.  The comment notes that quantitative testing should focus on the actual performance of the disclosures in conveying the desired information to consumers, and include control groups that allow for valid comparisons to existing disclosures.  In 2007, an FTC staff study found that then-existing mortgage disclosures failed to convey key mortgage costs and terms to many consumers, and that better disclosures could be created to help consumers make informed decisions about mortgage products.

The Commission vote approving the comment was 5-0. (FTC File No. P124804; the staff contacts are James Lacko, 202-326-3387, or Carole Reynolds, 202-326-3230.)

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