Watchdog agency works toward clarity in mortgage lending

— -- The federal Consumer Financial Protection Bureau has proposed simplified forms to shed light on the costs of a mortgage. But consumer testing and further review are needed, and some speculate that lenders might not use such forms until 2014.

So I asked Richard Cordray, the director of the CFPB, how to avoid getting taken for a ride if you're shopping for a mortgage this summer when rates are at historic lows but long before mortgage forms officially change.

Cordray, who met with me this week before a town hall meeting in Detroit, says consumers need to do their homework and carefully understand offers.

Yet he insists that now is a good time to buy. "Frankly, the mortgage market looks a little different now than it did five years ago.

"You know, with the crash of the economy and the crash of mortgage financing, you don't have a lot of the same bad products being peddled now, because it's not so easy to sell them in the secondary market."

The CFPB continues to be one of the hot-button features of the Dodd-Frank financial overhaul law passed by Congress in 2010.

The bureau is traveling outside the Washington beltway and heard from consumer groups and others about financial mishaps. It also has held town halls in Durham, N.C.; Philadelphia; Minneapolis; Cleveland; Birmingham, Ala.; New York; and Sioux Falls, S.D.

At the town hall Monday in Detroit, the CFPB announced that it would be monitoring credit-reporting agencies and conduct on-site exams.

The agency is seeking to bring more clarity to complex financial services and products. Here's a look at some areas:

•Mortgages. Here, the bureau has designed new "Loan Estimate" and "Closing Disclosure" forms.

Consumers would see on the first page their interest rate, monthly payment, loan amount and closing costs. They'd see how rates or payments might change, if that is part of the package, too.

Cordray says some disclosures on current mortgage forms are already improving as lenders prepare for changes.

"If consumers have a clearer understanding of what the risks are in these products and what the actual pricing is, it's more likely they will end up with a sensible deal that they can maintain over the long term," Cordray says.

Housing counselors think that additional simplification of mortgage forms will help. But they say consumers could take advantage now of some free HUD-approved counseling to review their budget and study existing forms. "A lot of people don't understand how to use the Good Faith Estimate," says Kathy Conley, housing specialist for GreenPath Debt Solutions, a nationwide, HUD-approved housing counseling agency.

One key part of that form, she says, is a line that tells consumers the date and timetable for how long the interest rate will be available. One can compare the Good Faith Estimate form with other loan offers, too.

Public comment is being sought on the new "Loan Estimate" form and "Closing Disclosure" forms. See www.consumerfinance.gov.

•Student loans. Right now, some grads have no idea what they'll pay each month for college debt.

"We have a lot of concerns about the student loan market, because we see aspects of that market that do resemble some of the bad features of the mortgage market from, say, five years ago," Cordray says. "There are loans being made without real attention to the ability to repay."