MISMO Winter 2014 Summit
Smart Disclosure
Leveraging Modern Technology to Improve Consumer Understanding
Megan Thibos & Brian Webster
Consumer Financial Protection Bureau
January 13, 2014
The MISMO Winter 2014 Summit Education Program is sponsored by:
Agenda
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Know Before You Owe (KBYO)
– Background
– Purpose
– Goal
Smart Disclosures
Benefits
Vision
Looking Ahead
Megan Thibos & Brian Webster: Smart Disclosure
Winter 2014 Educational Summit & Workshops
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Know Before You Owe: Background
Background
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For over 30 years, federal law required lenders to provide
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Truth in Lending Act (TILA)
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Truth in Lending Disclosure (TIL)
Federal Reserve Board
Real Estate Settlement Procedures Act of 1974 (RESPA)
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Two different disclosure forms to consumers at application
Two different disclosure forms to consumers before consummation
Good Faith Estimate
HUD 1 Settlement Statement
Department of Housing and Urban Development
Dodd-Frank Wall Street Reform and Consumer Protection Act (DoddFrank Act) directs the CFPB to integrate the mortgage loan disclosures
under TILA and RESPA.
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Final Rule was issued on November 20, 2013
Effective Date is August 1, 2015
Megan Thibos & Brian Webster: Smart Disclosure
Winter 2014 Educational Summit & Workshops
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Know Before You Owe: Purpose & Goals
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Purpose
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Mortgages are complex transactions
May include risky features
Consumer needs to clearly understand important information about the mortgage
Current disclosures are confusing and contain overlapping information
Goals
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Reduce paperwork and consumer confusion
Use clear language and design
Highlight the information that has proven to be most important to consumers
Provide more information about taxes, insurance and possible rate/payment changes
Warn consumers about features they may want to avoid
Make the cost estimates more reliable
Provide consumers with adequate time to review, understand and ask questions about
the final costs of the transaction
Megan Thibos & Brian Webster: Smart Disclosure
Winter 2014 Educational Summit & Workshops
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Know Before You Owe: Form Integration (I)
Loan Estimate
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Replaces the previous two
forms provided to consumer
when applying for a mortgage.
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Early TIL
Good Faith Estimate (GFE)
Designed to help consumers
understand.
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Key features
Costs
Risks
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Must be provided to consumer
within 3 business days after
loan application.
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MISMO mapping completed by
MISMO Originations Working
Group.
Speaker Name: Presentation Title
Winter 2014 Educational Summit & Workshops
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Know Before You Owe: Form Integration (II)
Closing Disclosure
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Replaces the previous two forms
provided to consumer when closing
the mortgage loan.
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Designed to provide:
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Speaker Name: Presentation Title
Winter 2014 Educational Summit & Workshops
Final TIL
HUD 1 Settlement Statement (HUD 1)
Parallel format to the Loan Estimate
Clear understanding of all of the costs
associated with the transaction.
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Must be provided to consumers three
business days prior to closing.
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MISMO mapping led by GSEs and
endorsed by MISMO Originations
working group. Electronic submission
of data will be required under GSE
Uniform Closing Dataset policy.
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KBYO: A suite of related initiatives
Improving the consumer mortgage experience
through modern technology
Owning A Home
Consumer-friendly
tools and resources for
mortgage shoppers on
consumerfinance.gov
TILA-RESPA
INTEGRATION
KBYO:
Closing Time
Working with lenders and
vendors to improve the
closing experience
through technology
Smart Disclosure
Empowering consumers
to better understand and
evaluate their mortgage
options through useful
access to their own
data
Megan Thibos & Brian Webster: Smart Disclosure
Winter 2014 Educational Summit & Workshops
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What is smart disclosure?
Disclosure
(information pertaining to the
consumer and/or a transaction)
to the consumer
in a “smart” format
(or to a third-party app
authorized by the consumer)
(electronic data version of the
disclosure information)
Third Party
Tools
Counselors
Megan Thibos & Brian Webster: Smart Disclosure
Winter 2014 Educational Summit & Workshops
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Why smart disclosure?
PROBLEM: Mortgages are complex & evaluating options is difficult for consumers.
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Pricing is multi-dimensional; consumers tend to focus on only one variable.
Compound interest, variable payments especially difficult to grasp intuitively.
Many consumers may make tradeoffs based on a gut instinct or rough approximation of the
costs rather than a careful analysis.
New CFPB integrated forms will help improve understanding, but paper-based forms have
limitations (e.g., they are inherently static).
HOW CAN SMART DISCLOSURE HELP?
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Delivering disclosure information in a “smart” data format enables the use of modern
visualization and decision-support technologies that will…
Lift the information up off the page and into dynamic formats that are easier to understand.
Help consumers grasp complex concepts more intuitively and more effectively evaluate
and compare options.
Leverage external datasets (such as a consumer’s personal financial history) to better
contextualize the loan offer and better prepare the borrower to make timely payments.
Megan Thibos & Brian Webster: Smart Disclosure
Winter 2014 Educational Summit & Workshops
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Why now?
1. Smart disclosure will enhance and support the CFPB’s other
efforts to improve the consumer mortgage experience
Owning A Home
Consumer-friendly
tools and resources for
mortgage shoppers on
consumerfinance.gov
TILA-RESPA
INTEGRATION
KBYO:
Closing Time
Working with lenders and
vendors to improve the
closing experience
through technology
Smart Disclosure
Personalized tools
and resources
Empowering consumers
to better understand and
evaluate their mortgage
options through useful
access to their own
data
“Redline” Loan Estimate
vs. Closing Disclosure
2. Leverage current opportunities from TRID
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Lenders and vendors will be re-tooling their systems to meet TILA-RESPA
integration requirements in 2014-2015.
Organizations looking to enhance compliance capabilities can take advantage of
benefits of implementing smart disclosures.
Megan Thibos & Brian Webster: Smart Disclosure
Winter 2014 Educational Summit & Workshops
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Benefits for industry
Better informed borrowers = better performing borrowers
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Tools will help borrowers visualize their mortgage offer – over time, and in conjunction with
the rest of their financial lives.
Tools will help borrowers make smarter tradeoffs between loan options (e.g., rate & points),
reducing time spent by loan officers to draw up different offer permutations.
Lenders can use the standard too! Many opportunities for innovation.
Compliance and Loan Quality
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Reduce compliance burden through more efficient data management
Improve loan quality by improving quality and security of the data
Potential for reducing fraud by direct alignment of the data and documentation
Early participants will…
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Have an opportunity to help shape the program from the ground up
Have an opportunity to get out in front of a long-run market trend
Have an opportunity to collaborate closely with the CFPB
Megan Thibos & Brian Webster: Smart Disclosure
Winter 2014 Educational Summit & Workshops
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Our vision
In collaboration with industry, CFPB seeks to build the technological
“plumbing” and develop program ground rules to enable:
Disclosure
to the consumer
in a “smart” format
Third
Party
Tools
Loan Estimate
Counselors
We need
your help!
Megan Thibos & Brian Webster: Smart Disclosure
Winter 2014 Educational Summit & Workshops
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Getting from A to B
We have a few basic principles and assumptions….
1. This is an experimental and collaborative pilot program. We don’t have all the
answers and look forward to working with industry to refine our vision.
2. The program will be based on an open standard. Third party app developers
(and lenders!) can compete to provide the best visualization and analysis tools.
3. The program will leverage MISMO’s Loan Estimate mapping.
4. Participation will be voluntary for lenders/vendors.
Many questions….
1. How should the data file format be specified? (Is this an appropriate use for
MISMO SmartDocs?)
2. What transmission mechanism(s) should be used to transmit the data from
the lender/vendor to the consumer and/or the consumer’s choice of app?
And we look forward to working with MISMO and the industry to flesh out
the details…
Megan Thibos & Brian Webster: Smart Disclosure
Winter 2014 Educational Summit & Workshops
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Questions?
Megan Thibos
Consumer Financial Protection Bureau
202-435-7370
megan.thibos@cfpb.gov
Brian Webster
Consumer Financial Protection Bureau
202-435-9609
brian.webster@cfpb.gov
Web Address: www.consumerfinance.gov
Megan Thibos & Brian Webster: Smart Disclosure
Winter 2014 Educational Summit & Workshops
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Thank You to our 2014 Winter Summit Primary Event Sponsor
Megan Thibos & Brian Webster: Smart Disclosure
Winter 2014 Educational Summit & Workshops
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