The Consumer Financial Protection Bureau is proposing a plan that would give banks the opportunity to test run the launch of new mortgage disclosures for borrowers, rather than throwing them directly into unfamiliar territory.
While the idea is still in the brainstorming stage, it's part of a broader initiative that the CFPB launched in 2011 to streamline and outline specific mortgage disclosures that the lending industry is required under Dodd-Frank reforms to deliver to borrowers.
The proposed plan would allow banks on a select case-by-case basis to obtain safe harbors from the CFPB's initial disclosure rules as they go through a trial period to figure out how to best deploy the revamped mortgage disclosures.
With the CFPB expected to role out a slew of new rules in January, the concept of allowing banks to test drive disclosures before they're forced to fully comply is attractive to the market.
"At first blush, the trial disclosure proposal that the CFPB announced today looks like an interesting idea, and a pretty unique approach," said Rick Sharga, with Carrington Mortgage Holdings. "Reaching out to practitioners to create in-market trial programs that benefit consumers and work better for financial institutions is a win/win."
He added, "By allowing lenders to make recommendations on better ways to clearly communicate disclosures to borrowers, and giving them safe harbor during the test period, the CFPB can tap into the expertise of professionals who work with consumers on a daily basis, and have real-world experience in what sorts of processes and procedures should work best for everyone involved in the transaction."
The initiative, which is known as Project Catalyst, would encourage banks, credit unions and other financial firms to propose trial runs to the CFPB for the purpose of studying how best to deliver the new disclosures.
In 2011, the CFPB began the long process of hashing out proposed forms for the combining of the Truth-in-Lending Act and RESPA mortgage disclosure forms. Sharga says he likes the test pilot concept, but needs more information.
"There are some details that need to be spelled out – what sorts of disclosures will be included — TILA? RESPA? Others? — what will constitute a "successful" test," he said. "But the CFPB should be applauded for taking an approach that solicits industry input, and works toward a common goal of enabling borrowers to make more informed decisions."
The CFPB said the option to test drive disclosures would apply to disclosure requirements that fall under the CFPB's direct authority.
Click here to read the CFPB's full proposal.