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The 20 year mistake: A message from NAMB President William R. Howe, CMC, CRMS

William R. Howe
Sep 03, 2010

After almost 20 years of government-imposed confusion, consumers may finally get a disclosure form that does not confuse them and not place mortgage brokers at a disadvantage in the marketplace. It appears the government is finally stepping up to the plate and will try to merge the Truth-in-Lending (TIL) and Good Faith Estimate (GFE) disclosures. Here is the reason for my hope. On Aug. 2, 2010. U.S. Treasury Secretary Timothy Geithner said the following, in reference to the language in the Dodd-Frank Act, which requires that within one year after the designated transfer date, the Consumer Financial Protection Bureau (CFPB) must propose a single, integrated disclosure for mortgage transactions combining disclosures for the Truth-in-Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA). “First, consumer protection. We want to move quickly to give consumers simpler disclosures for credit cards, auto loans and mortgages, so that they can make better choices, borrow more responsibly, and compare costs. One of the ways we intend to do that is by combining the two separate and inconsistent federal mortgage disclosure forms that consumers currently get. Next month, we'll convene mortgage companies, consumer advocates, housing counselors and other experts to gather ideas on how to do that. We'll take the best ones, test them on consumers, and then soon be able to unveil a new, easy to understand, federal disclosure form.” *Taken from (link takes you to the entire speech). One of the many battles the National Association of Mortgage Brokers (NAMB) has fought for years is the GFE and TIL disclosures. Former U.S. Department of Housing & Urban Development (HUD) Secretary Mel Martinez was the first to attempt changing the GFE. NAMB members responded with thousands of letters to the HUD Secretary addressing concern over the new document. We attended roundtable meetings across the country attempting to give input into the process and were promised consumer testing. As we saw the HUD tests, they had to bury an initial test where they did not show indirect compensation (yield spread premium) and the consumer success at picking the cheaper mortgage jumped into the 90 percent range. The result is our current three-page GFE, grouping costs into blocks, and disclosure of indirect compensation so complex it confuses attorneys from Wall Street to Main Street. If consumer testing was really done on this new document, I would certainly like to have attended one of the testing sites as a consumer. The new document is not simplification. In fact, the old one-page GFE is now called the Initial Fees Worksheet, but is really the same form with the name changed. We should conduct a survey on how many of us still use the GFE, or wait, I mean the Initial Fees Worksheet, to explain the cost to a consumer. HUD was very proud when the new three-page GFE was unveiled. They hosted Webinars for brokers and lenders. It turns out that the lenders had to put on Webinars for the brokers as well because they heard something different from HUD than what the brokers heard. Additionally, NAMB has received many complaints from across the country from our members about the problem of double-counting the mortgage broker indirect compensation. Who has the complaint line for specific answers … the Federal Reserve Board or HUD? Or, does anyone really have any authority, except for the lender we are submitting a loan to, since in the end, all lenders must default to protection of their corporate brand. This is the price of confusion where the government tries to step in without considering the unintended consequences of their action, just as they did in 1992, when they decided to require disclosure of information that still confuses consumers to this day. Basically, consumers need about four pieces of information to make a decision on a mortgage product that was originally one page. The Truth-in-Lending Act (TILA) of 1968 is a U.S. federal law designed to protect consumers in credit by requiring clear key terms of the lending arrangement and all costs. Regulation Z is the implementing regulation of the statute (we all knew this because of the SAFE Act education classes we passed). The sole purpose of TILA is to promote the informed use of consumer credit by requiring disclosures about its terms and costs, to be standardized, calculated and disclosed on a consumer’s principal dwelling. After seeing what happened to the GFE, I, for one, cannot wait to see what happens to merging the GFE and TIL disclosure. Combining these two forms is going to be nothing short of magic to make them understandable to a consumer. Again, I hope to be part of the consumer testing since I missed out the first time. How about you? Actually, I do look forward to a new, easy to understand, Federal Disclosure Form. Please join NAMB when we take this opportunity to make our case against that disclosure of our indirect compensation (what we call YSP). It only confuses consumers and places mortgage brokers at a competitive disadvantage with originators in banks, credit unions and lenders. In fact, NAMB has created several disclosure forms over the years that we believe are better for consumers than the ones we deal with today. In the next few weeks, NAMB will be placing these sample disclosure forms online so you can give us your opinion of each. Perhaps we can come up with an even better form we can take to Treasury Secretary Geithner. William R. Howe, CMC, CRMS is president of the National Association of Mortgage Brokers and president of Scottsdale, Ariz.-based Howe Mortgage Corporation. He may be reached by e-mail at  
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