Consumer Testing of the Good Faith Estimate Form (GFE)

summary REPORT February 2008 Consumer Testing of the Good Faith Estimate Form (GFE) U.S. Department of Housing and Urban Development Ofﬁce of Policy Development and Research

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Summary

REPORT

Consumer Testing of the Good Faith Estimate Form (GFE) Prepared for: U.S. Department of Housing and Urban Development Office of Policy Development and Research Prepared by:

Kleimann Communications Group, Inc.

Washington, DC

February 2008

The contents of this report are the views of the contractor and do not necessarily reflect the views or policies of the U.S. Department of Housing and Urban Development or the U.S. Government.

Executive Summary Summary of Testing From 2002–2007, Kle?mann Commun?cat?on Group, Inc. (KCG) has conducted s?x rounds of qual?tat?ve test?ng on var?ous consumer mortgage forms. The follow?ng report summar?zes each round of test?ng. Round 1 of consumer test?ng took place from December 9–13, 2002, and ?nvolved 45 part?c?pants ?n three geograph?cally d?verse c?t?es: Balt?more, Maryland; B?rm?ngham, Alabama; and Ch?cago, Ill?no?s. Test?ng ?n Round 1 ?nvolved collect?ng qual?tat?ve data to help ?nform the des?gn of the Good Fa?th Est?mate form (GFE) and the Guaranteed Mortgage Package Agreement form (GMPA). Round 1 of test?ng ?nvolved 45 demograph?cally d?verse part?c?pants. KCG used data collected dur?ng Round 1 to ?mprove the GFE and the Mortgage Package Offer form (MPO, formerly referred to as the GMPA) for Round 2 of test?ng. In add?t?on to the GFE and MPO, KCG tested Crosswalk forms that would help consumers compare est?mated and actual costs at settlement between the HUD-1 settlement form (HUD-1) and the GFE and MPO. Round 2 test?ng took place ?n 2003 over two weeks (January 20–24 and January 30–February 4) ?n three geograph?cally d?verse c?t?es: Aust?n, Texas; San D?ego, Cal?forn?a; and Portland, Oregon. Round ? 2 test?ng also ?nvolved 45 part?c?pants. Test?ng ?n Round 2 closely m?rrored Round 1. Round 3 test?ng took place from July 7–11, 2003, and ?nvolved 60 demograph?cally d?verse part?c?pants ?n Los Angeles, Cal?forn?a; W?lm?ngton, Delaware; M?nneapol?s, M?nnesota; and Tulsa, Oklahoma. In Round 3, KCG tested the GFE, the MPO, and the GFE and MPO Crosswalks. Round 4 of test?ng ?nvolved only the GFE and cons?sted of collect?ng quant?tat?ve data. KCG conducted th?s round of test?ng ?n December 2003 and ?ncluded 600 demograph?cally d?verse participants in five cities: Atlanta, Georgia; Boston, Massachusetts; Denver, Colorado; Seattle, Wash?ngton; and Tulsa, Oklahoma. Round 4 test?ng m?rrored a test?ng project conducted by the Federal Trade Comm?ss?on (FTC) and focused on whether a b?as ex?sted aga?nst mortgage brokers as a result of full d?sclosure of y?eld spread prem?um (YSP) ?nformat?on. Conducted ?n February 2004, Round 5 of GFE test?ng closely m?rrored Round 4. Aga?n, KCG tested 600 diverse participants in the same five cities used for Round 4 testing. The major focus of th?s round of test?ng was to study more ?n depth whether the d?sclosure of YSP ?nformat?on unfa?rly b?ased consumers aga?nst mortgage brokers. Round 6 test?ng took place ?n November 2007 and ?nvolved 60 demograph?cally d?verse part?c?pants ?n Test 1, and 20 part?c?pants ?n Test 2. KCG conducted Round 6, Test 1, test?ng ?n: Atlanta, Georg?a; Boston, Massachusetts; and Denver, Colorado. Round 6, Test 2, test?ng took place ?n C?nc?nnat?, Oh?o and Phoen?x, Ar?zona. In th?s round, KCG tested two vers?ons of the GFE: the 2004 vers?on of the GFE (w?th m?nor rev?s?ons) as well as a two-page GFE developed by HUD pr?or to Round 6 test?ng. Furthermore, ?n Round 6, KCG tested an extract of the HUD-1 Settlement form and Settlement Scr?pts. Execut?ve Summary

Executive Summary Goals of Testing HUD’s ma?n goals ?n rev?s?ng and test?ng these forms ?nclude the follow?ng: ▼ The forms should be used by borrowers ▼ The forms should prov?de borrowers w?th

as a means of compar?son shopp?ng for a clear understand?ng of the d?fferent

the?r mortgages. settlement fees.

▼ The trade-off between the ?nterest rate ▼ The borrowers should be able to match

and up-front fees should be clearer and the numbers on the?r GFE or GMPA/MPO

more eas?ly understood. to the HUD-1.

▼ The role of the loan or?g?nator, whether as

a lender or broker, should be clear.

For Round 4 and Round 5 of test?ng, the major goal was to study whether the d?sclosure of YSP ?nformat?on unfa?rly b?ased consumers aga?nst mortgage brokers. ?? HUD’s ult?mate goal, therefore, was to help borrowers become better consumers by prov?d?ng them w?th more ?nformat?on on the costs they w?ll encounter when buy?ng a home. Methodology Qualitative Testing For Rounds 1, 2, 3, and 6 of consumer test?ng, KCG developed a comprehens?ve qual?tat?ve test?ng methodology that addressed key ?ssues and quest?ons about the GFE, GMPA/MPO, Crosswalk, HUD-1 forms as well as Settlement Scr?pts (developed and used only ?n Round 6 of test?ng). Interv?ews w?th part?c?pants usually lasted for 60 to 90 m?nutes w?th a 10-m?nute break, and the ?nterv?ews had two parts: one part unstructured and one structured. In the unstructured port?on of the ?nterv?ews, KCG asked part?c?pants to th?nk aloud as they worked with each form for the first time. This unstructured and unprompted portion of the ?nterv?ew allowed staff to capture users’ ?n?t?al react?ons, ?nclud?ng ▼ areas of the forms that part?c?pants respond well to, ▼ areas of the forms that part?c?pants do not understand, and ▼ areas of the forms that part?c?pants quest?on. Test?ng staff captured th?s valuable ?nformat?on before quest?on?ng part?c?pants about d?fferent elements of the forms, ensur?ng that the ?nterv?ewer d?d not lead part?c?pants to d?scuss ?nformat?on they would not have not?ced on the?r own. In the structured port?on of the ?nterv?ews, staff asked targeted quest?ons to determ?ne how well part?c?pants understood certa?n areas of the forms and how HUD m?ght ?mprove the forms. KCG based the questions used in the structured interview on the key research questions identified as HUD goals. Execut?ve Summary

Executive Summary Quantitative Testing Rounds 4 and 5 of testing involved collecting quantitative data with 1,200 consumers in five geograph?cally d?verse c?t?es across the Un?ted States. Both Aspen Systems and KCG prov?ded staff to fill key positions within the testing team, with Aspen developing the databases to manage test data as well as prov?d?ng staff for data entry and report?ng. At each test?ng s?te, an Aspen employee served as test moderator wh?le an employee from KCG observed the test?ng sess?ons. At the end of each day of test?ng, part?c?pant answer sheets were sent to Aspen Systems for data entry. After enter?ng responses ?nto the database, Aspen staff performed qual?ty checks of the data and created un?que cod?ng systems for each compar?son. After cod?ng responses for each compar?son, the Aspen/KCG team comp?led the results by us?ng a MS Access © database. Once ?nput, the Aspen/KCG team conducted qual?ty checks of the data and removed any outl?ers before export?ng the data collected from MS Access © ?nto SPSS. © The Aspen/KCG team then calculated response frequenc?es for each test quest?on and then rev?ewed the results. Aspen/KCG staff then created matr?ces to organ?ze the data and determ?ned (a) what the data meant ?n terms of the other results and (2) how to rev?se the GFE. ??? Results in Brief The follow?ng l?st prov?des a br?ef overv?ew of test?ng results from all s?x rounds of test?ng: ▼ Rounds 1–3 were ?terat?ve development ― the add?t?on of arrows to call attent?on

test?ng projects that resulted ?n to ?mportant summary-l?ne cost

drafts of the GFE and MPO, and a ?nformat?on; and

recommendat?on to take a d?fferent

― the add?t?on of a mortgage shopp?ng

approach to the Crosswalk form.

chart to ass?st consumers ?n the

▼ Round 4 ?nvolved collect?ng quant?tat?ve

compar?son of var?ous loan offers.

data w?th respect to the GFE to determ?ne

▼ Results from Round 5 of test?ng found

?f there was b?as aga?nst mortgage

no ev?dence of a b?as aga?nst mortgage

brokers. The results of the “t?e” test, a

brokers when loan costs d?ffer, and no

brokered loan w?th the same cost as a

b?as aga?nst mortgage brokers ?n the case

loan from a lender, were cons?stent w?th

of a t?e when the shopp?ng chart appears

b?as aga?nst mortgage brokers.

as the last page of the GFE.

▼ Round 5 ?nvolved collect?ng quant?tat?ve ▼ Round 6 results suggest that the

data w?th respect to the GFE to determ?ne consumer-val?dated GFE from Round 5

?f there was b?as aga?nst mortgage ?s perform?ng well and that the add?t?onal

brokers. In th?s round, KCG stud?ed: ?nformat?on prov?ded ?n Settlement

― two types of YSP d?sclosures Scr?pts are effect?ve ?n help?ng consumers

(a 2-opt?on YSP vs. a 3-opt?on compare ?mportant ?nformat?on between

YSP d?sclosure), the GFE and the HUD-1.

― changes ?n character?z?ng the ?nterest

from h?gher and lower to restat?ng

the ?nterest rate;

For detailed information on each individual round of testing, please refer to the official testing reports located at http://www.kle?mann.com/hud.htm. Execut?ve Summary

Table of Contents Introduction...................................................................... 6

Contents of the Summary Report..............................................7

Round 1 Testing................................................................ 9

Introduction ..............................................................................9

HUDnulls Goals ..........................................................................10

Methodology ...........................................................................10

Study Questions .....................................................................16

Summary of Findings ..............................................................16

Recap of HUDnulls Goals ...........................................................22

Recommendations for Improving the Forms...........................24

How the Forms Changed ........................................................26

Questions for Round 2 Testing................................................34

?v Round 2 Testing.............................................................. 36

Introduction .............................................................................36

HUDnulls Goals ..........................................................................36

Methodology ...........................................................................37

Study Questions .....................................................................43

Summary of Findings ..............................................................43

Recap of HUDnulls Goals ...........................................................53

Recommendations for Improving the Forms...........................55

How the Forms Changed ........................................................56

Questions for Round 3 Testing................................................65

Round 3 Testing.............................................................. 67

Introduction ............................................................................67

HUDnulls Goals ..........................................................................67

Methodology ...........................................................................67

Study Questions .....................................................................74

Summary of Findings ..............................................................75

Recap of HUDnulls Gaosl ...........................................................87

Recommendations for Improving the Forms...........................91

How the Forms Changed ........................................................93

Questions for Round 4 Testing..............................................100

Round 4 Testing............................................................ 102

Introduction ..........................................................................102

HUDnulls Goals ........................................................................103

T able of Contents

Table of Contents Methodology .........................................................................103

Study Questions ...................................................................106

Summary of Findings ............................................................107

Recap of HUDnulls Goals ..........................................................109

Recommendations for Improving the Forms.........................110

How the Forms Changed ...................................................... 111

Questions for Round 5 Testing..............................................116

Round 5 Testing............................................................ 118

Introduction ..........................................................................118

HUDnulls Goals ........................................................................118

Methodology .........................................................................119

Study Questions ...................................................................125

Summary of Findings ............................................................126

Recap of HUDnulls Goals .........................................................132

Recommendations for Improving the Forms.........................133

How the Forms Changed ......................................................134

Round 6 Testing............................................................ 136

Introduction ..........................................................................136

Test 1nullevised GFE and Alternate GFE .............................137

Methodology for Test 1..........................................................137

Study Questions for Test 1 ....................................................143

Test 2nullevised GFE, HUD-1, and Settlement Script ..........144

Methodology for Test 2..........................................................144

Study Questions for Test 2 ....................................................149

Analytical Approach...............................................................150

Summary of Findings ............................................................151

Recap of HUDnulls Goals for Testing ........................................156

Recommendations for Improving the Forms.........................158

The GFE Today ............................................................. 159

Appendices ................................................................ 164

T able of Contents v

Introduction

Introduction On July 29, 2002, the U.S. Department of Housing and Urban Development (HUD) proposed a new rule under the Real Estate Settlement Procedures Act (RESPA) to simplify and improve the process of obtaining home mortgages. As part of the RESPA rule, HUD proposed a revision to the existing GFE as well as the development of new forms, among which was the Guaranteed Mortgage Package Agreement (GMPA). HUD intended for mortgage brokers and lenders to use these revised and new forms to provide borrowers with accurate, dependable estimates of their closing costs. HUDnulls main goals in revising these forms include the following: ▼ The forms should be used by borrowers ▼ The forms should prov?de borrowers w?th

as a means of compar?son shopp?ng for a clear understand?ng of the d?fferent

the?r mortgages. settlement fees.

▼ The trade-off between the ?nterest rate ▼ The borrowers should be able to match

and up-front fees should be clearer and the numbers on the?r GFE or GMPA to the

more eas?ly understood. HUD-1 (usually prov?ded at settlement).

6 ▼ The role of the loan or?g?nator, whether as

a lender or broker, should be clear.

HUDnulls ultimate goal, therefore, was to help borrowers become better consumers by providing them with more information on the costs they will encounter when buying a home. Kleimann Communication Group, Inc. (KCG), through a subcontract with Aspen Systems and HUD, led the redesign of HUDnulls GFE and clarified the language of the redesigned form. The Aspen/KCG team then tested the additions and revisions to the form in small- and large-scale, nationwide studies. During the first three rounds of testing, KCG took the lead in small-scale qualitative testing, while Aspen and KCG worked as a team on large-scale quantitative testing (Rounds 4 and 5). Aspen and KCG both provided team members for test design, focus group proctoring, and observing test sessions. Aspen led the development of databases to manage test data as well as completing the data entry. KCG provided staff for the analysis of data collected during testing, particularly with respect to qualitative data collected during Rounds 4 and 5. The cycle of five rounds of testing ended in 2005 when HUD decided to reassess the direction of RESPA reform. In late 2007, in conjunction with renewed RESPA reform efforts, HUD contracted with KCG to conduct an additional qualitative round of testing (Round 6). During the first three rounds of testing, work mainly focused on building and revising the forms to produce a set of forms that would be involved in consumer testing. HUD and KCG performed this worknullriven by the need to simplify both the language and the layout of the GFE. Data from consumer testing drove future revisions to the forms. In 2003, the Federal Trade Comm?ss?on (FTC) performed ?ts own round of consumer test?ng based on the GFE. The FTC’s object?ve was to study whether the YSP d?sclosure could unfa?rly b?as consumers aga?nst mortgage brokers. Thus, FTC extracted sect?ons of the proposed and new GFE, specifically the YSP disclosure, and tested only those sections that the FTC believed Intr oduct?on

Introduction m?ght create an unfa?r b?as aga?nst mortgage brokers. FTC’s data d?d suggest that consumers us?ng the extract only would (a) become confused when the YSP was d?sclosed and (b) become b?ased aga?nst brokers as a result of the d?sclosures made ?n the YSP. However, the FTC d?d not test the whole GFE; ?t used only an extract, and as such, consumers had no context aga?nst which to compare and contrast the YSP information. As a result, the FTC reported a significant b?as aga?nst brokers, based solely on the extract. Whether th?s b?as appl?es to the GFE as a whole would depend on test?ng results for the ent?re GFE rather than an extract. Because of the FTC study, HUD directed an additional two rounds of consumer testing on the GFE (Rounds 4 and 5). In late 2003, HUD directed KCG to mirror aspects of the FTC study (such as studying the GFE, both with and without the YSP disclosure) in Round 4 of testing; however, HUD wanted to keep the YSP in context by testing the entire GFE, rather than the extracted YSP disclosures. Staff used data collected in Round 4 testing to make improvements to the GFE. The revised GFE was the basis for another round of consumer testing (Round 5), in which KCG collected data to 7 see how well the forms worked as a result of the consumer-driven changes to the GFE. In 2005, HUD decided to reassess the direction of RESPA reform, and work on the GFE ceased until 2007, when renewed RESPA reform efforts compelled HUD to undertake an additional round of testing on the GFE. This second phase of work on the GFE, which included two separate testing sessions (diagnostic usability testing and a closing simulation), focused on ▼ val?dat?ng the proposed GFE and the ▼ test?ng new Settlement Scr?pts used to help

profess?onally developed GFE used ?n consumers compare clos?ng costs between

Round 1 of test?ng, the GFE and the HUD-1.

▼ test?ng a new, short vers?on of the

GFE, and

Contents of the Summary Report This summary report provides a high-level overview of each round of HUDnulls GFE testing and includes information on the following for each round of testing: ▼ HUDnulls Goals ▼ Methodology and Demographics ▼ Study Questions ▼ Summary of Findings ▼ Recommendations for Improving the Forms ▼ How the Forms Changed For detailed information on each individual round of testing, please refer to the official testing reports located at http://www.kleimann.com/hud.htm. Intr oduct?on

Consumer Testing of the Good Faith Estimate Form (GFE)

Round 1 Testing

Round 1 Testing Introduction The first round of HUD testing involved two forms. These forms included: ▼ the Good Faith Estimate form (GFE) and ▼ the Guaranteed Mortgage Package Agreement form (GMPA). Pr?or to the start of test?ng, staff from KCG, through a subcontract w?th Aspen Systems, met w?th key subject matter experts at HUD to d?scuss the two forms ?nvolved ?n Round 1 test?ng. At th?s meet?ng, staff d?scussed HUD’s goals and key messages for the forms as well as the problems and ?ssues that HUD ant?c?pated borrowers m?ght have w?th the forms. KCG then developed an initial draft of each form, and HUD officials reviewed the drafts, offering feedback to rev?se the forms further. KCG then used usab?l?ty experts and graph?c des?gners to develop the two forms that would meet the key cr?ter?a for good forms des?gn. The key cr?ter?a for good forms des?gn ensure that people can 9 ▼ follow the right pathways (Navigation), ▼ understand the information presented (Comprehension), and ▼ use the form appropriately (Task Completion/Decision Support). Through an ?terat?ve process of rev?ew and redes?gn, KCG developed a draft of each form for Round 1. Dur?ng ?n?t?al form development, a d?fference of op?n?on surfaced over whether homebuyers would prefer a form conta?n?ng a summary of the settlement costs on page 1 or a form w?th the total settlement costs after full d?sclosure of the mortgage deta?ls. Thus, KCG developed two vers?ons of the GFE to see wh?ch method of presentat?on part?c?pants would prefer. KCG tested both vers?ons ?n Round 1 of test?ng. 1 Basel?ne forms used for Round 1 of test?ng appear ?n Append?x A. Round 1 T est?ng ____________ 1 Round 1 participants preferred the GFE form with a summary on page 1. As such, KCG tested this version of the GFE in Round 2 of testing. Comments from test participants also informed additional changes to the GFE that KCG tested in Round 2.

Round 1 Testing HUD’s Goals Prior to testing, KCG identified HUD’s Round 1 testing goals. HUD’s goals included the follow?ng: ▼ Fac?l?tat?ng shopp?ng for mortgages ▼ Show?ng y?eld spread prem?um (YSP) and ― Are consumers w?ll?ng to shop? d?scounts to borrowers ― Are consumers able to choose the best ― Are consumers able to expla?n the

loan offer? “adjusted or?g?nat?on charge”?

▼ D?st?ngu?sh?ng ?tems homebuyers can ― Are consumers able to see what the

shop for trade-offs are?

― Are consumers able to ?dent?fy ?tems ▼ Mak?ng tolerances to HUD-1 clear

for wh?ch they can shop? ― Are consumers able to ?dent?fy

▼ Mak?ng bas?c costs clear tolerances on the GFE and GMPA? ― Are consumers able to ?dent?fy the ▼ Convey?ng prepayment penalt?es and 10 ?nterest rate, monthly payment, and balloon payments settlement charges correctly? ― Are consumers able to ?dent?fy whether the?r loan has a prepayment penalty? ― Are consumers able to ?dent?fy whether the?r loan has a balloon payment? Methodology KCG developed a comprehens?ve test?ng methodology that addressed key ?ssues and quest?ons about the forms. Interv?ews w?th part?c?pants lasted for 90 m?nutes w?th a 10-m?nute break, and the ?nterv?ews had two parts: one part unstructured, and one structured. In the unstructured port?on of the ?nterv?ew, KCG asked part?c?pants to th?nk aloud as they worked with each form for the first time. This unstructured and unprompted portion of the ?nterv?ew allowed staff to capture users’ ?n?t?al react?ons, ?nclud?ng ▼ areas of the forms that participants respond well to, ▼ areas of the forms that participants do not understand, and ▼ areas of the forms that participants question. Test?ng staff captured th?s valuable ?nformat?on before quest?on?ng part?c?pants about d?fferent elements of the forms, ensur?ng that the ?nterv?ewer d?d not lead part?c?pants to d?scuss ?nformat?on they would not have not?ced on the?r own. Round 1 T est?ng

Round 1 Testing In the structured port?on of the ?nterv?ew, staff asked targeted quest?ons to determ?ne how well part?c?pants understood certa?n areas of the forms and how HUD m?ght ?mprove the forms. KCG based the questions used in the structured interview on the key research questions identified as HUD goals. Testing Conditions For the first round of testing, KCG developed two versions of the GFE. One of the major issues about wh?ch KCG wanted to collect data was whether part?c?pants found ?t eas?er to use a GFE that had a summary page or a GFE that d?d not conta?n a summary page. As part of the study des?gn, half of the part?c?pants rece?ved the GFE w?th the summary page and half rece?ved a vers?on w?thout the summary page. In add?t?on, test?ng staff var?ed the order ?n wh?ch part?c?pants rece?ved the forms. Staff reasoned that wh?chever form part?c?pants saw second m?ght seem clearer to them because they became more familiar with the issues after looking at the first form. Half of the participants received the GFE first and half received the GMPA first. 11 These two cons?derat?ons resulted ?n four cond?t?ons for the part?c?pants (Table 1). The follow?ng reflects the number of participants tested in each condition: ▼ Condition 1: 12 participants ▼ Condition 2: 11 participants ▼ Condition 3: 11 participants ▼ Condition 4: 11 participants Table 1. Conditions of Testing for Round 1 Round 1 T est?ng Presentation of Forms Version of the GFE With Summary Page Without Summary Page GFE first, GMPA second Condition 1 Condition 2 GMPA first, GFE second Condition 3 Condition 4 The task descr?pt?ons of what the part?c?pants saw and d?d dur?ng the test?ng appear below ?n Tables 2 and 3. For the first round of testing, conditions 1 and 2 had the same schedule, and cond?t?ons 3 and 4 had the same schedule.

Round 1 Testing Table 2. Schedule of Testing for Conditions 1 and 2 in Round 1 Section TimeAllotted (minutes) Task Introduction 15 We introduce ourselves, briefly describe the purpose of the test in general terms, and have the participant read and sign the confidentiality statement and fill out the questionnaire. Task 1 15 The participant practices the task of reading and thinking aloud. The participant receives and reacts to a sample GMPA that completed as an example. Task 2 20 We ask the participant questions about the sample GFE. We give the participant another GFE to make a comparison. Break 10 Task 3 15 The participant receives and reacts to a sample GMPA completed as an example. Task 4 15 We ask the participant questions about the sample GMPA and ask the participant to compare the GFE and the GMPA. Total time 90 minutes Table 3. Schedule of Testing for Conditions 3 and 4 in Round 1 Section TimeAllotted (minutes) Task Introduction 15 We introduce ourselves, briefly describe the purpose of the test in general terms, and have the participant read and sign the confidentiality statement and fill out the questionnaire. Task 1 15 The participant practices the task of reading and thinking aloud. The participant receives and reacts to a sample GMPA that completed as an example. Task 2 15 We ask the participant questions about the sample GMPA. Break 10 Task 3 15 The participant receives and reacts to a sample GFE. Task 4 20 We ask the participant questions about the sample GFE. We give the participant another GFE to make a comparison. We ask the participant to compare the GFEs and the GMPA. Total time 90 minutes 12 Round 1 T est?ng

Round 1 Testing Demographic and Test Site Information The GFE and GMPA are forms used by those applying for a mortgage to buy or refinance a home. Therefore, the target populat?on for th?s study ?ncluded two ma?n groups of potent?al borrowers: (1) first-time and repeat homebuyers; and (2) persons who might refinance their homes. KCG tested the forms on members of these two groups, defined as follows: ▼ F?rst-t?me homebuyers—persons who ― Have contacted a real estate agent.

have not bought or refinanced a home in ― Have pre-qualified for a mortgage loan.

the prev?ous two years and are act?vely ▼ Exper?enced homebuyers—persons who

seek?ng to buy a home as ?nd?cated by at have bought or refinanced a home in the

least one of the follow?ng: prev?ous two years.

― Have gone to open houses. After develop?ng the forms ?n cooperat?on w?th HUD, KCG tested them at three geograph?cally diverse locations that represent varied settings and populations (Table 4). For the first round, test?ng took place dur?ng a one-week per?od. 13 Table 4. Round 1 Test Dates and Locations Dates Cities Number of Participants Tested Baltimore, MD 15 December Birmingham, AL 15 9null3, 2002 Chicago, IL 15 Total 45 Round 1 T est?ng Recruiting the Participants KCG recru?ted 45 part?c?pants across three s?tes and requ?red each of the test?ng fac?l?t?es to use a screener ?n recru?t?ng part?c?pants. KCG based the recru?t?ng screener on the demograph?cs that HUD requ?red for the sample. Eligibility Requirements HUD had several cr?ter?a for recru?t?ng part?c?pants for the sample. F?rst, one-th?rd of the sample needed to be new homebuyers. Second, HUD wanted to test the forms w?th groups that m?ght have more difficulty with the forms due to less experience or other reasons. This includes the follow?ng: ▼ The elderlynullefined as 65 years or older ▼ African Americans ▼ Hispanic Americansnullefined by self-identification ▼ Single females ▼ Low educationnullefined as not having graduated from high school

Round 1 Testing Recruitment by Site At each locat?on, KCG recru?ted 15 part?c?pants that met the requ?rements shown ?n Table 5. Table 5. Recruiting Criteria for the Sample Individual Potential Homebuyers Criteria Number needed Can read and write English All 15 Have not participated in a study with a particular facility in the last six months At least 10 of the 15 Consider themselves African American At least 3, but not more than 5 of the 15 Consider themselves Hispanic American At least 3, but not more than 5 of the 15 Are age 65 or older At least 3, but not more than 5 of the 15 Are single females At least 3 of the 15 Have not graduated from high school At least 3, but not more than 5 of the 15 Are first-time homebuyers who plan to buy a home within six months 5 of the 15 Have purchased or refinanced a home in the past two years 10 of the 15 14 Round 1 T est?ng Demographics Table 6 shows the results of the recru?t?ng efforts at each s?te. Overall, KCG ach?eved adequate representat?on from each of the groups. Test?ng staff would have preferred more elderly part?c?pants ?ncluded ?n the sample and more of those w?th lower educat?onal levels; however, a s?zable number of these populat?ons were ?n each group. The sample had very good representat?on of d?fferent rac?al and ethn?c groups, and many of the part?c?pants spoke and wrote Engl?sh as a second language. In add?t?on to the H?span?c group, part?c?pants from Korea, Pak?stan, Turkey, and Germany (among others) were part of the sample.

Round 1 Testing Table 6. Round 1 Demographic Characteristics of the Sample Demographic Characteristic Number In Sample Age 2 21 years or less 22 to 34 years 35 to 44 years 45 to 54 years 55 to 64 years 65 years and over 0 15 6 9 6 7 Race and Ethnicity Hispanic Black or African American Asian 6 12 0 Education—highest grade completed Less than high school High school graduate Some college College graduate Graduate school 3 4 18 15 5 Household Income Per Year Less than $20,000 $20,000 to $39,999 $40,000 to $59,999 $60,000 to $79,999 $80,000 to $99,999 $100,000 and over No response 3 11 14 6 4 5 2 Marital Status and Gender Single male Single female Married male Married female 8 14 11 12 15 Round 1 T est?ng ____________ 2 Some participants did not respond to all demographic questions.

Round 1 Testing KCG planned to have two-th?rds of the sample be exper?enced homebuyers who had bought or refinanced a home in the previous two years. As shown in Table 7, testing staff achieved this almost exactly. Of those who planned to buy ?n the next s?x months, most had gone to open houses and had contacted a real estate agent. Table 7. Home-buying Experience of the Sample Home-buying Experience Number in Sample Bought or refinanced in the past 2 years 29 Plan to buy in the next 6 months 16 Of those who plan to buy: Have gone to open houses Have contacted a real estate agent Have pre-qualified for a mortgage loan 12 10 4 16 Study Questions The study questions KCG identified for Round 1 of testing included the following: ▼ What do part?c?pants cons?der the most ▼ How comfortable or uncomfortable are useful ?nformat?on on both the GFE and part?c?pants w?th the GFE and the GMPA?

the GMPA?

▼ Do the forms prov?de the r?ght ?nformat?on

▼ What do part?c?pants l?ke the most about for part?c?pants?

the GFE and the GMPA? ▼ Are the GFE and GMPA wr?tten at the

▼ What do part?c?pants l?ke the least about “r?ght level” for part?c?pants?

the GFE and the GMPA?

Summary of Findings What do participants consider the most useful information on both the GFE and the GMPA? For both the GFE and the GMPA, staff asked part?c?pants what they cons?dered the most useful ?nformat?on on the form. Th?s was an open-ended quest?on and some part?c?pants d?d not respond. What do participants consider the most useful information on the GFE? In Round 1, part?c?pants found the most useful types of ?nformat?on to be facts about the money they would have to pay or opt?ons about the amount that they would have to pay. They were able to use the form to ?dent?fy key ?nformat?on that would help them ?n mak?ng dec?s?ons, such as the costs they can expect and ways to manipulate those costs to their own benefit. Round 1 T est?ng

Round 1 Testing Part?c?pants thought the most useful ?nformat?on on the GFE (F?gure 1) was the summary table g?v?ng the loan terms (page 1) and the breakdown of charges (page 2). Dur?ng th?s round, the trade-off table confused some part?c?pants and few ment?oned ?t ?n the?r comments. Figure 1. Participants’ Perception of the Most Useful Information on the GFE—Round 1 100%

90%

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50%

40%

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17 10%

0% Summary Table (page 1) Breakdown of Charges Trade-off Table (page 2) What do participants consider the most useful information on the GMPA? In test?ng the GMPA, part?c?pants aga?n responded most to types of ?nformat?on that offered facts about the money they would have to pay or opt?ons about the amount that they would have to pay. Part?c?pants chose the summary table (page 1) and the trade-off table as the ?nformat?on they thought was the most useful (F?gure 2). Figure 2. Participants’ Perception of the Most Useful Information on the GMPA—Round 1 Round 1 T est?ng 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Summary Table (page 1) Trade-off Table

Round 1 Testing What do participants like the most about the GFE and the GMPA? Staff asked part?c?pants what they l?ked most about the forms, ?f anyth?ng. Part?c?pants were free to respond ?n many ways, so the results cover a range of poss?ble responses. Staff grouped the responses ?n categor?es. However, many of the responses were un?que to a g?ven ?nd?v?dual, wh?ch staff d?d not ?nclude ?n reports based on th?s study. What do participants like the most about the GFE? The two top-rank?ng qual?t?es dealt w?th clar?ty—of wr?t?ng, of des?gn, and of charges. Some of these results were the same as descr?bed ?n the prev?ous sect?on about the most useful ?nformat?on. Part?c?pants reacted strongly to the form’s s?mple language, clear layout, and clear del?neat?on of charges. They cons?stently chose those qual?t?es as what they l?ked most about the GFE (F?gure 3). 18 Figure 3. What Participants Liked Most about the GFE—Round 1 Round 1 T est?ng 60% 50% 40% 30% 20% 10% 0%

Written/Laid Out Breakdown of Summary Table Information

Clearly Charges (page 1) Included

What do participants like the most about the GMPA? Participants identified some of the same qualities or sections as they did on the GFE as ones they l?ked on the GMPA, wh?le add?ng some new ones. In respond?ng to the GMPA, part?c?pants cont?nued to react pos?t?vely to the wr?t?ng, breakdown of charges, and layout of the form. Some participants also commented on the summary table. Participants identified four qualities they l?ked the most about the GMPA. All of these qual?t?es (F?gure 4) have to do w?th clar?ty of wr?t?ng, layout, or charges. The summary table prov?des the fundamental ?nformat?on for the potent?al homebuyer and seems to have been the eas?est part of the GMPA for part?c?pants to use.

Round 1 Testing Figure 4. What Participants Liked Most about the GMPA—Round 1 30% 25% 20% 15% 10% 5% 0% Easy to Breakdown of Summary Table Format/Layout Understand Charges (page 1) 19 What do participants like the least about the GFE and the GMPA? Staff also asked part?c?pants what they l?ked least about the GFE and the GMPA. What do participants like the least about the GFE? In Round 1 of test?ng, the elements that part?c?pants d?sl?ked most were the unexpla?ned terms, m?ss?ng ?nformat?on, generally confus?ng content, and the checkbox graph?cs (F?gure 5). Figure 5. What Participants Like the Least about the GFE—Round 1 Round 1 T est?ng 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Unexplained Missing Generally Checkbox Terms Information Confusing Graphics

Round 1 Testing Aside from the checkbox graphics, participants in the first round of testing focused on confusing content issues. They were confused by terms and by not being able to find information they wanted. What do participants like the least about the GMPA? In Round 1, as shown in Figure 6, participants identified these elements of the form as what they disliked the most: the acceptance section, lack of sufficient explanation, lack of explanation of what ?s ?ncluded ?n the mortgage package, and font s?ze. Figure 6. What Participants Dislike Most about the GMPA 18%

16%

14%

12% 20 10%

8%

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0%

Acceptance Need Explanation of Font Size Section Explanation Package How comfortable or uncomfortable are participants with the GFE and the GMPA? Staff asked part?c?pants how comfortable or uncomfortable they were w?th the form after they had completed many of the other quest?ons. Staff attempted to get part?c?pants to choose one character?zat?on or the other, but ?f they rema?ned undec?ded, staff recorded that response as neutral. How comfortable or uncomfortable are participants with the GFE? Many part?c?pants were not w?ll?ng to make a cho?ce on the?r comfort level w?th the GFE. F?gure 7 prov?des more ?nformat?on on part?c?pants’ comfort levels w?th the GFE. Round 1 T est?ng

Round 1 Testing Figure 7. Participants’ Comfort Level with the GFE Comfortable Uncomfortable 21 How comfortable or uncomfortable are participants with the GMPA? During the first round of testing, many participants unfavorably compared the GMPA to the GFE. F?gure 8 prov?des more ?nformat?on on part?c?pants’ comfort levels w?th the GMPA. Figure 8. Participants’ Comfort Level with the GMPA 80%

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Round 1 T est?ng 60% 50% 40% 30% 20% 10% 0% Comfortable Uncomfortable Do the forms provide the right information for participants? Staff asked a general quest?on about whether part?c?pants felt that the form prov?ded the “r?ght ?nformat?on” for them. The percentage of part?c?pants who thought the GFE prov?ded the r?ght ?nformat?on for them was h?gh ?n Round 1 of test?ng—70 percent (F?gure 9). For the GMPA, close to 62 percent felt the form prov?ded the r?ght ?nformat?on.

Round 1 Testing Figure 9. Percent of Participants Who Feel the GFE Has the Right Information 22 Are the GFE and GMPA written at the “right level” for participants? Staff asked part?c?pants whether they thought each form’s wr?t?ng was at the r?ght level for them. If part?c?pants responded that a form was not at the r?ght level, staff noted whether they thought it was too basic or too difficult. None of the participants felt the forms were too basic, which is not surpr?s?ng g?ven the complex?ty of the subject matter. Recap of HUD’s Goals After the first round of testing, KCG assessed HUD’s testing goals to see if the first round of test?ng met HUD’s needs. HUD’s goals ?ncluded the follow?ng: ✔ Facilitating shopping for mortgages ― Almost all homebuyers sa?d they would shop. ― 93 percent would get more than one GFE. ― 86 percent were able to find the lowest estimate among two GFEs and one GMPA. ✘ Distinguishing items homebuyers can shop for ― Only 62 percent of part?c?pants were able to ?dent?fy the d?fference between ?tems 3 and 5 on the GFE (consumers can shop for those ?n ?tem 5). ✔ Making basic costs clear ― 93 percent were able to ?dent?fy the correct ?nterest rate. ― 95 percent were able to ?dent?fy the monthly payment. 80% 70% 60% 50% 40% 30% 20% 10% 0% GFE Has the Right Information GFE Doesn’t Have the Right Information Round 1 T est?ng

Round 1 Testing ― 91 percent were able to ?dent?fy the est?mate of the total settlement charges ?n

the GFE.

― 90 percent were able to ?dent?fy the est?mate of the total settlement charges ?n

the GMPA.

✘ Showing yield spread premium (YSP) and discounts to borrowers ― 12 part?c?pants understood fully or had very m?nor quest?ons. ― 6 part?c?pants sk?pped or d?d not comment on the table. ― 27 part?c?pants d?d not understand the table at all or had major problems. Of the 27

who d?d not understand,

▼ 13 understood the figures and the calculation but not why they were getting a credit ▼ 8 had part?cular problems w?th the term “or?g?nat?on charge” or “adjusted

or?g?nat?on charge”

▼ 3 did not understand how their interest rate related to the figure ▼ 4 had other problems 23 ― Staff asked part?c?pants what “adjusted or?g?nat?on charge” meant to them ▼ 22 were not sure or d?dn’t know ▼ 15 answered “process?ng of the loan” (e.g., “The charge ?s for how much to pay

the lender.”)

▼ 9 had some understand?ng of “adjusted or?g?nat?on charge” (e.g., “Th?s ?s the

d?fference between the or?g?nat?on charge and the part that I don’t understand. A

charge m?nus a confus?ng charge equals a confus?ng charge.”)

▼ 4 had ?ncorrect or ?rrelevant responses (e.g., “Th?s ?s the penalty fee ?f I don’t lock ?n w?th?n 30 days.”) ✘ Making tolerances to HUD-1 clear ― For most charges on the GFE and the GMPA, less than half of the part?c?pants could

?dent?fy the correct tolerance level.

― For the GFE, the only charge identified by more than 70 percent of the participants was th?rd party serv?ces the lender selects. ― For the GMPA, the only charge identified by more than 70 percent of the participants was the guaranteed mortgage package. ✔ Conveying prepayment penalties and balloon payments ― 91 percent of participants correctly identified whether the loan had a pre-payment penalty. ― 93 percent of participants correctly identified whether the loan had a balloon payment. Round 1 T est?ng

Round 1 Testing Recommendations for Improving the Forms After Round 1 of test?ng, KCG recommended the follow?ng ?mprovements for the second round of test?ng: Recommendations for GFE Revision About Your GFE ▼ Leave as is, excluding terminology issues. ▼ Give contact information for loan originator. Summary of Your Loan Terms ▼ Keep the summary of the total estimated settlement charges on page 1. ▼ Switch the order of the tablesnulloan amounts followed by settlement charges. ▼ Make more of a visual separation between the nullixednulland nulldjustablenullcolumns. 24 ▼ Give date when GFE issued. Understanding Your Estimated Settlement Charges ▼ Add further explanation of the adjusted origination charge. ▼ Change the way the tolerances are presented. ▼ Add further explanation of some of the different settlement charges. ▼ Eliminate the checkboxes and use a different graphic element in nullther chargesnullsection. ▼ Create a better visual distinction between subtotals and totals on this page. Understanding the Trade-off ▼ Improve text explanation; tie it to the table more effectively. ▼ Keep same information in table but rearrange to improve clarity. ▼ Leave spaces for all items that will change. Understanding the Subtotals ▼ Integrate information with page 2, so that it is clear how these numbers fit into the totals. ▼ Change the checkboxes to bullets. Round 1 T est?ng

Round 1 Testing Recommendations for GMPA Revision About Your GMPA ▼ Improve format of text to make it more accessible. ▼ Eliminate references to other pages as much as possible. ▼ Explain what is guaranteed more clearly. ▼ Give contact information for the loan originator. Summary of Your Loan Terms ▼ Switch the order of the tablesnulloan amounts followed by settlement charges. ▼ Make more of a visual separation between the nullixednulland nulldjustablenullcolumns. ▼ Give date when GMPA issued. Understanding Your Estimated Settlement Charges 25 ▼ Explain what is included in the GMPA. ▼ Change the way the tolerances are presented. ▼ Add further explanation of the different settlement charges. ▼ Create a better visual distinction between subtotals and totals on this page. Understanding the Trade-off ▼ Improve text explanation; tie it to the table more effectively. ▼ Keep same information in table, but rearrange to improve clarity. ▼ Leave spaces for all items that will change. Services Included in the Package ▼ Change title to receive nulleports,nullnot nullervices.null Accepting this GMPA ▼ Rewrite content completely. ▼ Make issue of the fee clearer. ▼ Change appearance to be less dense, more inviting. Round 1 T est?ng

Round 1 Testing How the Forms Changed GFE The original design of the GFE was a three-page form with five major sections. For the first round of test?ng, staff developed two vers?ons of the GFE. One vers?on had a summary of the settlement charges on the first page, and the other did not. Dur?ng Round 1 of test?ng, KCG found that part?c?pants preferred the vers?on of the GFE w?th the summary on the first page and were able to use it more successfully in understanding their loan options. All subsequent versions of the GFE had a summary on the first page. Some of the other major problems that participants had during the first round of testing as well as the changes KCG made for Round 2 appear ?n the table below: Problem Change Made to the GFE Many terms were not understood; in particular, participants did not understand nulloan originatornullor nulldjusted origination charge.null We eliminated the term nulloan originatornullfrom the form. We defined as many other terms as possible in context. Page 1 references to page 2 annoyed participants; they did not want to immediately flip to the next page. We switched the order of the tables on the first page in order for participants to encounter the references when they are about to turn to the next page anyway. Some participants began reading the adjustable rate information even though the example was for a fixed rate loan. We made a better visual separation between the columns for fixed rate and adjustable rate loans. Participants were not clear how much time they had to consider the offer. We put a date in the first paragraph. Participants were not able to pick out the information about the tolerances. We created a separate section for the tolerance information. Many of the settlement charges were not clear to the participants because no explanations were included. We created a brief explanation of each of the settlement charges. Bullets and checkboxes were not clear in the form; sometimes participants thought they should check something when they shouldnnull, and vice versa. We only used checkboxes when something should be checked. Sometimes participants were not clear what charges were added to the total on the second page. We added letters (A and B) that were then shown next to the total (as A+B) to guide the participants. Participants liked the trade-off table but did not fully understand it. We placed the table before the text. We rewrote the headings on the columns to make them more oriented to the homebuyernulls issues. We rewrote the text to improve clarity. The section of the third page that gave a further breakdown of some of the charges on the second page confused many participants. This caused some to make errors on the best choice of a loan. We rewrote this section and made clearer references to page 2. 26 Round 1 T est?ng A sample of forms tested ?n Round 2 appear ?n Append?x B.

Round 1 Testing GMPA (MPO) 3 For the first round of testing, KCG developed only one version of the GMPA, which had a summary on the first page. Staff used the results from the GFE testing to conclude that part?c?pants seemed to prefer the summary page and cont?nued w?th that format ?n the second round. Some of the problems that part?c?pants had w?th the GMPA are the same as they had w?th the GFE, and some were d?fferent. The ones that were d?fferent appear ?n the table below: Problem Change Made to the GMPA Participants reacted poorly to the name of the Guaranteed Mortgage Package Agreement (GMPA). They did not understand what was guaranteed. The name seemed to make them suspicious rather than reassure them. We changed the name of the form to the Mortgage Package Offer, or MPO. On the second page of the GMPA, participants did not understand what was included in the mortgage package. Many said that they preferred the GFE because it gave more details. The GMPA received much lower ratings than the GFE because people were suspicious about it. We included a description of the services that would be included in the mortgage package. This description was made to be as parallel to the GFE as possible so that homebuyers could compare the two documents. Participants did not understand the last section of the form that described what to do when accepting the package. The wording of this section frightened them, and some participants who had liked the GMPA turned against it due to this last section. Many participants wanted to know if the fee applied to their settlement costs or not. We completely rewrote the acceptance section. We tried to make the language more inviting and put in more explanatory headings. We clarified that the fee would be applied towards their settlement costs. 27 Round 1 T est?ng ____________ 3 After Round 1, the name of the Guaranteed Mortgage Package Agreement (GMPA) changed to the Mortgage Package Offer (MPO).

Date added Added visual separation between columns Summary table moved to bottom of page 1 1

Added letters next to totals to guide users

section for tolerances Reorganized Revised section to 2 Created new trade-off table and related information make clearer references to page

Changed name of form from Guaranteed Mortage Package Agreement (GMPA) to Mortgage Package Offer (MPO)

Included service descriptions

acceptance section Rewrote

Round 1 Testing Questions for Round 2 Testing The study questions for Round 2 of testing mirrored those of Round 1 and included the following: ▼ What do part?c?pants cons?der the most ▼ How comfortable or uncomfortable are useful ?nformat?on on both the GFE and part?c?pants w?th the GFE and the MPO?

the MPO?

▼ Do the forms prov?de the r?ght ?nformat?on

▼ What do part?c?pants l?ke the most about for part?c?pants?

the GFE and the MPO? ▼ Are the GFE and MPO wr?tten at the “r?ght

▼ What do part?c?pants l?ke the least about level” for part?c?pants?

the GFE and the MPO?

34 Round 1 T est?ng

Consumer Testing of the Good Faith Estimate Form (GFE)

Round 2 Testing

Round 2 Testing Introduction The second round of testing mirrored many of the aspects of the first round, again focusing on the GFE and the MPO (formerly known as the Guaranteed Mortgage Package Agreement form, or GMPA). Th?s second round of test?ng also served to val?date changes made to the forms based on data from the first round of testing. Additionally, KCG, through a subcontract to Aspen Systems, tested two Crosswalks (one between the GFE and the HUD-1 and the other between the MPO and the HUD-1), wh?ch would serve as a?ds to consumers ?n compar?ng ?nformat?on between est?mated and actual settlement costs. HUD’s Goals HUD’s goals for Round 2 of testing were similar to the first round’s goals: ▼ Fac?l?tat?ng shopp?ng for mortgages ▼ Show?ng y?eld spread prem?um (YSP) and ― Are consumers w?ll?ng to shop? d?scounts to borrowers 36 ― Are consumers able to choose the best ― Are consumers able to expla?n the

loan offer? “adjusted or?g?nat?on charge”?

▼ D?st?ngu?sh?ng ?tems homebuyers can ― Are consumers able to see what the

shop for trade-offs are?

― Are consumers able to ?dent?fy ?tems ▼ Mak?ng tolerances to HUD-1 clear

for wh?ch they can shop? ― Are consumers able to ?dent?fy

▼ Mak?ng bas?c costs clear tolerances on the GFE and MPO? ― Are consumers able to ?dent?fy the ▼ Convey?ng prepayment penalt?es and

?nterest rate, monthly payment, and balloon payments

settlement charges correctly? ― Are consumers able to ?dent?fy whether

the?r loan has a prepayment penalty? ― Are consumers able to ?dent?fy whether the?r loan has a balloon payment? In addition to the above goals, which KCG carried over from the first round of testing, HUD added the follow?ng: ▼ Prov?d?ng a Crosswalk for the est?mates from the GFE and MPO to the HUD-1 ― Are consumers able to fill in the information from the GFE on the Crosswalk correctly? ― Are consumers able to find a discrepancy in the cost if the forms are filled in correctly? Round 2 T est?ng

Round 2 Testing Methodology For Round 2, KCG m?rrored the comprehens?ve test?ng methodology developed for Round 1, wh?ch addressed key ?ssues and quest?ons about the forms. Interv?ews w?th part?c?pants lasted for 90 m?nutes w?th a 10-m?nute break, and the ?nterv?ews had two parts: one part unstructured, and one structured. As ?n Round 1, ?n the unstructured port?on of the ?nterv?ew, KCG asked part?c?pants to th?nk aloud as they worked with each form for the first time. This unstructured and unprompted port?on of the ?nterv?ew allowed staff to capture users’ ?n?t?al react?ons, ?nclud?ng ▼ areas of the forms that part?c?pants respond well to, ▼ areas part?c?pants do not understand, and ▼ areas part?c?pants quest?on. Staff captured th?s valuable ?nformat?on before quest?on?ng part?c?pants about d?fferent elements 37 of the forms, ensur?ng that the ?nterv?ewer d?d not lead part?c?pants to d?scuss ?nformat?on they would not have not?ced on the?r own. In the structured port?on of the ?nterv?ew, staff asked targeted quest?ons to determ?ne how well part?c?pants understood certa?n areas of the forms and how HUD m?ght ?mprove the forms. KCG based the quest?ons used ?n the structured ?nterv?ew on the key research quest?ons that KCG identified as HUD goals. Testing Conditions For the second round of test?ng, KCG was concerned w?th d?fferent ?ssues than those ?n Round 1. KCG developed a Crosswalk from the GFE to the HUD-1 and tested ?t w?th part?c?pants. Staff had only one vers?on of the GFE and the MPO to test; however, staff st?ll wanted to vary the order of presentat?on of the GFE and the MPO. The test?ng team dec?ded to have two- th?rds of the part?c?pants work w?th cop?es of the GFE and MPO. Of these 30 part?c?pants, half received the GFE first followed by the MPO, and half had the reverse order. The other third of the part?c?pants rece?ved cop?es of the GFE but worked pr?mar?ly w?th the Crosswalk to the HUD-1. Th?s resulted ?n the three cond?t?ons shown ?n Table 8. Table 8. Conditions of Testing for Round 2 Round 2 T est?ng Presentation of Forms Condition GFE first, MPO second Condition 1 MPO first, GFE second Condition 2 GFE first, followed by the Crosswalk to the HUD-1 Condition 3

Round 2 Testing The task descr?pt?ons and t?me breaks for part?c?pants ?n each of the cond?t?ons appear ?n Tables 9, 10, and 11. Table 9. Schedule of Testing for Condition 1 in Round 2 Section Time Allotted (minutes) Task Introduction 15 We introduce ourselves, briefly describe the purpose of the test in general terms, and have the participant read and sign the confidentiality statement and fill out the questionnaire. Task 1 15 The participant practices the task of reading and thinking aloud and then receives and reacts to a sample GFE completed as an example. Task 2 20 We ask the participant questions about the sample GFE. We give the participant another GFE to make a comparison. Break 10 Task 3 15 The participant receives and reacts to a sample MPO completed as an example. Task 4 15 We ask the participant questions about the sample MPO and ask the participant to compare the GFE and the MPO. Total time 90 minutes 38 Round 2 T est?ng Table 10. Schedule of Testing for Condition 2 in Round 2 Section Time Allotted (minutes) Task Introduction 15 We introduce ourselves, briefly describe the purpose of the test in general terms, and have the participant read and sign the confidentiality statement and fill out the questionnaire. Task 1 15 The participant practices the task of reading and thinking aloud. The participant receives and reacts to a sample MPO completed as an example. Task 2 15 We ask the participant questions about the sample MPO. Break 10 Task 3 15 The participant receives and reacts to a sample GFE. Task 4 20 We ask the participant questions about the sample GFE. We give the participant another GFE to make a comparison. We ask the participant to compare the GFEs and the MPO. Total time 90 minutes

Round 2 Testing Table 11. Schedule of Testing for Condition 3 in Round 2 Section Time Allotted (minutes) Task Introduction 15 We introduce ourselves, briefly describe the purpose of the test in general terms, and have the participant read and sign the confidentiality statement and fill out the questionnaire. Task 1 15 The participant practices the task of reading and thinking aloud. The participant receives and reacts to a sample GFE completed as an example. Task 2 15 We give the participant the Crosswalk to the HUD-1 and an example HUD-1 settlement statement that matches the GFE. The participant looks at these while thinking aloud. Break 10 Task 3 20 The participant attempts to fill in the Crosswalk from the GFE. After 10 minutes, we give the participant a correctly completed Crosswalk and ask him/her to fill in the information from the HUD-1 while thinking aloud. Task 4 20 We ask the participant questions about how the GFE compares with the HUD-1. Total time 90 minutes 39 Round 2 T est?ng Demographic and Test Site Information The GFE, MPO, and Crosswalks are forms used by those apply?ng for a mortgage to buy or refinance a home. Therefore, the target population for Round 2 of this study included two main groups of potential borrowers: (1) first-time and repeat homebuyers; and (2) persons who might refinance their homes. Staff tested the forms on members of these two groups, defined as follows: ▼ F?rst-t?me homebuyers—persons who ▼ Exper?enced homebuyers—persons who have not bought or refinanced a home in have bought or refinanced a home in the the prev?ous two years and are act?vely prev?ous two years. seek?ng to buy a home as ?nd?cated by at least one of the follow?ng: ― Have gone to open houses. ― Have contacted a real estate agent. ― Have pre-qualified for a mortgage loan.

Round 2 Testing After rev?s?ng the forms ?n cooperat?on w?th HUD, KCG tested them at three geograph?cally d?verse locat?ons that represent var?ed sett?ngs and populat?ons (Table 12). Table 12. Round 2 Test Dates and Locations Dates Cities Number of Participants Tested January Austin, TX 15 20null4, 2003 San Diego, CA 15 January 30null Portland, OR 15 February 4, 2003 Total 45 Recruiting the Participants KCG recru?ted 45 part?c?pants across three s?tes. Staff requ?red each of the fac?l?t?es to use a recru?tment screener ?n recru?t?ng part?c?pants. KCG based the screener on the demograph?cs that were requ?red for the sample. 40 Eligibility Requirements HUD had several cr?ter?a for recru?t?ng part?c?pants for the sample. F?rst, one-th?rd of the sample needed to be new homebuyers. Second, HUD wanted to test the forms w?th groups that might have more difficulty with the forms due to less experience or other reasons. This includes the follow?ng: ▼ The elderly—defined as 65 years or older ▼ Afr?can Amer?cans ▼ Hispanic Americans—defined by self-identification ▼ S?ngle females ▼ Low education—defined as not having graduated from high school Recruitment by Site In each locat?on, staff recru?ted 15 part?c?pants that met the requ?rements shown ?n Table 13. Round 2 T est?ng

Round 2 Testing Table 13. Recruiting Criteria for the Sample Individual Potential Homebuyers Criteria Number needed Can read and write English All 15 Have not participated in a study with a particular facility in the last six months At least 10 of the 15 Consider themselves African American At least 3, but not more than 5 of the 15 Consider themselves Hispanic American At least 3, but not more than 5 of the 15 Are age 65 or older At least 3, but not more than 5 of the 15 Are single females At least 3 of the 15 Have not graduated from high school At least 3, but not more than 5 of the 15 Are first-time homebuyers who plan to buy a home within six months 5 of the 15 Have purchased or refinanced a home in the past two years 10 of the 15 Demographics Table 14 shows the results of the recru?t?ng efforts at each s?te. Overall, staff ach?eved adequate representat?on from each of the groups that HUD wanted to ?nclude ?n the sample. Aga?n, staff would have preferred more elderly part?c?pants as well as more of those w?th lower educat?onal levels, but there were a s?zable number ?n each group. Th?s sample also had very good representat?on of d?fferent rac?al and ethn?c groups, and many of the part?c?pants spoke and wrote Engl?sh as a second language. 41 Round 2 T est?ng

Round 2 Testing Table 14. Round 2 Demographic Characteristics of the Sample Demographic Characteristic Number In Sample Age 4 21 years or less 22 to 34 years 35 to 44 years 45 to 54 years 55 to 64 years 65 years and over 1 9 14 10 4 7 Race and Ethnicity Hispanic Black or African American Asian 10 7 9 Education—highest grade completed Less than high school High school graduate Some college College graduate Graduate school 6 9 11 14 5 Household Income Per Year Less than $20,000 $20,000 to $39,999 $40,000 to $59,999 $60,000 to $79,999 $80,000 to $99,999 $100,000 and over No response 5 10 17 6 4 2 1 Marital Status and Gender Single male Single female Married male Married female 5 12 13 15 42 Round 2 T est?ng Staff planned to have two-th?rds of the sample be exper?enced homebuyers who had bought or refinanced a home in the previous two years. As shown in Table 15, the testing team achieved th?s exactly. Of those who planned to buy ?n the next s?x months, most had gone to open houses and had contacted a real estate agent. ____________ 4 Some participants did not respond to all demographic questions.

Round 2 Testing Table 15. Home-buying Experience of the Round 2 Sample Home-buying Experience Home-buying Experience Bought or refinanced in the past 2 years 30 Plan to buy in the next 6 months 15 Of those who plan to buy: Have gone to open houses Have contacted a real estate agent Have pre-qualified for a mortgage loan 11 10 4 Study Questions The study quest?ons for Round 2 of test?ng m?rrored those of Round 1: ▼ What do part?c?pants cons?der the most ▼ How comfortable or uncomfortable are useful ?nformat?on on both the GFE and part?c?pants w?th the GFE and the MPO? 43 the MPO?

▼ Do the forms prov?de the r?ght ?nformat?on ▼ What do part?c?pants l?ke the most about for part?c?pants?

the GFE and the MPO? ▼ Are the GFE and MPO wr?tten at the “r?ght

▼ What do part?c?pants l?ke the least about level” for part?c?pants?

the GFE and the MPO?

Summary of Findings For both the GFE and the MPO, staff asked part?c?pants what they cons?dered the most useful ?nformat?on on the form. Th?s was an open-ended quest?on and some part?c?pants d?d not respond. The percentage of part?c?pants who gave a part?cular response appears ?n the figures below. What do participants consider the most useful information on both the GFE and the MPO? What do participants consider the most useful information on the GFE? In both Round 1 and Round 2 of test?ng, part?c?pants found the most useful types of ?nformat?on to be facts about the money they would have to pay or opt?ons about the amount that they would have to pay. They were able to use the form to ?dent?fy key ?nformat?on that would help them ?n mak?ng dec?s?ons—the costs they can expect and ways to man?pulate those costs to their own benefit. What part?c?pants perce?ved to be the most useful ?nformat?on on the form changed between Rounds 1 and 2. Round 2 T est?ng

Round 2 Testing In Round 1, part?c?pants thought the most useful ?nformat?on on the GFE was the summary table g?v?ng the loan terms (page 1) and the breakdown of charges (page 2). Dur?ng th?s round, the trade-off table confused some part?c?pants and few ment?oned ?t ?n the?r comments. In Round 2, the largest percentage of part?c?pants commented that they found the trade-off table to be the most useful (F?gure 10). Some also ment?oned the summary table. The breakdown of the charges on page 2 moved ?nto th?rd place. Figure 10. Participants’ Perception of the Most Useful Information on the GFE—Round 2 100%

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44 30%

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Round 2 T est?ng Summary Table (page 1) Breakdown of Charges Trade-off Table (page 2) The ?nformat?on ?n the trade-off table appears to be very ?mportant to many part?c?pants. The summary table and the breakdown of charges on page 2 cont?nued to be ?mportant to the part?c?pants who worked w?th the GFE ?n Round 2. One part?c?pant commented on the trade-off table: [The trade-off table] gives me a good example of the different interest rates—what the

monthly payments are and the settlement costs are. It helps you make a decision based

on how much cash you have up front to lay down and what payments you can afford.

(Participant 4082) Another Part?c?pant ment?oned the summary table and breakdown of charges on page 2: Loan terms, payment information. I like the summary table and the page 2 tables because

they show you where your money is going and why. (Participant 5052)

What do participants consider the most useful information on the MPO? In test?ng the MPO, part?c?pants aga?n responded most to types of ?nformat?on that gave them facts about the money they would have to pay or opt?ons about the amount that they would have to pay; however, the?r assessment of what was most useful ?n the form d?d not change as much as ?t d?d ?n test?ng the GFE.

Round 2 Testing Part?c?pants’ responses d?d not change much ?n the?r assessment of what the most useful ?nformat?on was between Rounds 1 and 2. In both rounds, part?c?pants chose the summary table on page 1 and the trade-off table as the ?nformat?on they thought was the most useful. The only change ?n the two rounds of test?ng ?s that more part?c?pants thought the summary table was the most ?mportant ?n Round 1, wh?le more part?c?pants thought the trade-off table was most useful ?n Round 2 (F?gure 11). Figure 11. Participants’ Perception of the Most Useful Information on the MPO—Round 2 100%

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Round 2 T est?ng Summary Table (page 1) Trade-off Table

In Round 2, far more part?c?pants responded pos?t?vely to the trade-off table and to the ?dea that the form presented them w?th opt?ons. Many part?c?pants seemed very happy at the measure of control th?s table gave them over how the?r ?nterest rate, settlement charges, and payments would appear. It may be that understand?ng the?r opt?ons more clearly ?n Round 2, after the rev?s?on, led more part?c?pants to choose the trade-off table as the most useful ?nformat?on on the form. Some participants commented on the trade-off table specifically: The most useful information is the comparison between different interest rates and costs. (Participant 6052) Summary of loan terms; I also like the settlement charges listed on page 2—that they make

that clear—also, the trade-offs table because it gives me options. (Participant 4142)

What do participants like the most about the GFE and the MPO? Staff asked part?c?pants what they l?ked most about the forms, ?f anyth?ng. They were free to respond ?n many ways, so the results cover a range of poss?ble responses. Staff grouped the responses ?n categor?es. Many of the responses were un?que to a g?ven ?nd?v?dual and do not appear ?n reports based on th?s research.

Round 2 Testing What do participants like the most about the GFE? When commenting on what they liked most, participants identified the same qualities in both Round 1 and Round 2 of test?ng (aga?n, the two top-rank?ng qual?t?es both dealt w?th clar?ty—of wr?t?ng, of des?gn, and of charges). Some of these results were the same as descr?bed ?n the prev?ous sect?on about the most useful ?nformat?on. Part?c?pants ?n both rounds of test?ng reacted strongly to the form’s s?mple language, clear layout, and clear del?neat?on of charges. They cons?stently chose those qual?t?es as what they liked most about the GFE. That participants identified these qualities or sections most often as what they l?ked ?n both rounds of test?ng s?mply re?terates the?r un?versal ?mportance and appeal (F?gure 12). Figure 12. What Participants Liked Most about the GFE—Round 2 35% 46 30%

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Written/Laid Out Breakdown of Summary Table Information Clearly Charges (page 1) Included Although the top two qual?t?es part?c?pants l?ked ?n Round 2 were the same as Round 1, part?c?pants ?n Round 2 appear more evenly d?str?buted around d?fferent qual?t?es about the form that they l?ked. Part?c?pants only agreed on the top two categor?es. Part?c?pants commented on what they l?ked about the wr?t?ng of the GFE: It’s easy to read; lays everything out well. (Participant 4071)

A person with a lower education could understand it. (Participant 6071)

Part?c?pants also commented on what they l?ked about the layout of the GFE: It’s simple; you don’t need a college education to understand it, it lays information out simply. (Participant 5052) Part?c?pants also commented on the del?neat?on of charges ?n the GFE: Breaks everything down and lays it out. (Participant 5142)

I like the way it’s broken down. (Participant 6101)

Round 2 T est?ng

Round 2 Testing What do participants like the most about the MPO? Participants identified some of the same qualities or sections as they did on the GFE as ones they l?ked on the MPO, wh?le add?ng some new ones. In respond?ng to the MPO, part?c?pants cont?nued to react pos?t?vely to the wr?t?ng, breakdown of charges, and layout of the form. In add?t?on, they commented on the summary table ?n Round 1, and the tradeoff table and acceptance sect?on ?n Round 2. In Round 2, the greatest number of participants also identified aspects about the clear writing and layout of the form as what they liked most. In Round 2, participants identified three qualities as those they l?ked the most about the MPO (F?gure 13). KCG rev?sed the sect?on on “Accept?ng th?s MPO” between Rounds 1 and 2 ?n order to make ?t clearer for part?c?pants. Th?s rev?s?on seems to have improved the section dramatically. In the first round, many participants were very ?nt?m?dated by th?s sect?on; ?n the second round, a number of part?c?pants ment?oned ?t as one of the best parts of the MPO. Figure 13. What Participants Liked Most about the MPO—Round 2 47 Round 2 T est?ng 30% 25% 20% 15% 10% 5% 0% Easy to Understand Trade-off Table Acceptance Section Part?c?pants commented on what they l?ked about the wr?t?ng and layout of the MPO: The simplicity of it all—it’s easy to read and the words it uses are really simple. (Participant 5082) Simplicity—there‘s not a lot of law jargon. You’ve got room to write things in. (Participant 4022) You can flip through the pages easily—I like the single sided pages. It’s easy to read, there’s

a good flow. (Participant 5041)

Part?c?pants commented on “Accept?ng th?s MPO”: [I like the section on] Accepting this Mortgage package—it answers those questions that you

might have. (Participant 6011)

Round 2 Testing What do participants like the least about the GFE and MPO? Staff also asked part?c?pants what they l?ked least. Many d?d not ment?on anyth?ng. For those that d?d, there were changes between the two rounds. What do participants like the least about the GFE? Between Rounds 1 and 2 of test?ng, part?c?pants were less confused about the GFE and were able to focus on part?cular aspects of the form. When part?c?pants were no longer d?stracted by problem terms and unanswered quest?ons, they were able to focus on the mechan?cs of work?ng w?th the phys?cal form ?tself. Quest?ons of content and of comprehens?ve clar?ty seemed resolved between Rounds 1 and 2, leav?ng more room for comment on nav?gat?onal techn?ques. In Round 2, the only th?ng that a number of part?c?pants ment?oned that they d?sl?ked about the form was the references to other sect?ons. Part?c?pants’ d?sl?kes var?ed more ?n Round 2 than ?n Round 1. When asked what they d?d not l?ke about the form, more part?c?pants sa?d “noth?ng.” Of those who d?d ment?on there was someth?ng they d?sl?ked, only a few actually had s?m?lar 48 comments (F?gure 14). Figure 14. What Participants Liked the Least about the GFE 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Round 2 T est?ng Unexplained Missing Generally Checkbox Terms Information Confusing Graphics What do participants like the least about the MPO? As w?th the GFE, part?c?pants’ responses to the MPO ?n Round 2 var?ed much more than the?r responses to the GMPA ?n Round 1. In Round 2, some of the ?ssues from Round 1 d?sappeared. The rewr?t?ng of the acceptance sect?on had a large ?mpact on part?c?pants’ percept?ons. In add?t?on, the explanat?on of what was ?ncluded ?n the mortgage package allev?ated some of the ?ssues part?c?pants had ?n Round 1. Part?c?pants cont?nued to comment that they needed more explanat?on and that the font used ?n the form was too small (F?gure 15).

Round 2 Testing Figure 15. What Participants Liked the Least about the MPO 12% 10% 8% 6% 4% 2% 0% Acceptance Need Explanation of Font Size Section Explanation Package How comfortable or uncomfortable are participants with the 49 GFE and the MPO? Staff asked part?c?pants how comfortable or uncomfortable they were w?th the form after complet?ng many of the other quest?ons. Staff tr?ed to get part?c?pants to choose one character?zat?on or the other, but ?f they rema?ned undec?ded, staff recorded the?r response as neutral. How comfortable or uncomfortable are participants with the GFE? For the GFE there was l?ttle change ?n the results between Round 1 and 2. Wh?le the percentage of part?c?pants report?ng that they were comfortable w?th the GFE went down between Rounds 1 and 2, the percent of those who were uncomfortable also went down. More part?c?pants were not w?ll?ng to make a cho?ce. The d?fferences are small ?n any case and may be due to random fluctuations given the sample size (Figure 16). Figure 16. Participants’ Comfort Level with the GFE—Round 2 Round 2 T est?ng 70% 60% 50% 40% 30% 20% 10% 0% Comfortable Uncomfortable

Round 2 Testing How comfortable or uncomfortable are participants with the MPO? For the MPO, the percentage of part?c?pants who were comfortable w?th the forms ?ncreased between Rounds 1 and 2, wh?le the percentage of part?c?pants who were uncomfortable fell cons?derably between the two rounds (F?gure 17). Figure 17. Participants’ Comfort Level with the MPO—Round 2 80% 70% 60% 50% 40% 30% 20% 50 10% 0% Comfortable Uncomfortable KCG made many changes ?n the GMPA/MPO between rounds, and these changes clearly affected the participant reaction. During the first round, participants unfavorably compared the GMPA to the GFE. For the second round, a h?gher percentage of part?c?pants were uncomfortable w?th the GFE rather than the MPO. The changes on the MPO, made between Rounds 1 and 2, clarified specific questions participants had about the package, such as how to accept ?t, and what serv?ces are ?ncluded ?n ?t. These changes seem to have reduced the number of part?c?pants who were “uncomfortable” w?th the form. Do the forms provide the “right information” for participants? Staff asked a general quest?on about whether part?c?pants felt that the form prov?ded the “r?ght ?nformat?on” for them. As w?th many of the other measures, there was cons?derable ?mprovement between the rounds for both forms. Does the GFE provide the right information? The percentage of part?c?pants who thought the form prov?ded the r?ght ?nformat?on for them was h?gh ?n Round 1—70 percent (F?gure 18). Th?s percentage was even h?gher for Round 2—86 percent thought that the GFE had the r?ght ?nformat?on for them. Th?s change—part?c?pants th?nk?ng the form had the r?ght ?nformat?on r?s?ng and the number of those who thought ?t d?d not have the r?ght ?nformat?on fall?ng—?s the result of nav?gat?on changes, rather than content changes, ?n the form. KCG d?d not drast?cally alter the content of the GFE between the two rounds but d?d change the presentat?on of ?nformat?on and the form’s navigational elements to help participants find the information they wanted. Round 2 T est?ng

Round 2 Testing Figure 18. Percent of Participants Who Think the GFE Has the Right Information 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% GFE Has the Right Information GFE Doesn’t Has the Right Information 51 Does the MPO provide the right information? L?ke the GFE, part?c?pants’ percept?ons of the ?nformat?on that the MPO prov?ded ?mproved cons?derably between Round 1 and Round 2. The percent of part?c?pants who thought the ?nformat?on was r?ght ?ncreased; the number of those who thought ?t was not, decreased. KCG changed the content of the GMPA/MPO more between Round 1 and Round 2 than the GFE, so th?s ?mprovement represents both content and nav?gat?onal changes (F?gure 19). Figure 19. Percent of Participants Who Think the MPO Has the Right Information Form Has the Right Form Doesn’t Have the

Information Right Information

Round 2 T est?ng 90%

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Round 2 Testing Are the GFE and the MPO written at the “right level” for participants? Staff asked part?c?pants whether they thought that the wr?t?ng of the forms was at the r?ght level for them. If they sa?d ?t was not at the r?ght level, staff noted whether they thought ?t was too basic or too difficult. None of the participants felt the forms were too basic. Is the GFE written at the “right level”? In both rounds, a h?gh percentage of the part?c?pants felt that the documents were wr?tten at the r?ght level for them (F?gure 20). Between Rounds 1 and 2, the percentage of part?c?pants who thought the wr?t?ng of the form was at the r?ght level for them ?ncreased sl?ghtly, and the percentage who thought the form was too difficult for them also increased. The differences are not very large, however, g?ven the sample s?ze. Figure 20. Participants’ Ratings of the Level of Writing in the GFE 52 The Right Level Too Difficult Don’t Know/Other Is the MPO written at the “right level”? The results for the MPO were s?m?lar to the GFE. In both rounds, h?gh percentages of the part?c?pants felt the forms were wr?tten at the r?ght level for them (F?gure 21). The percentage of part?c?pants who thought the form’s wr?t?ng was at the r?ght level ?ncreased sl?ghtly between Rounds 1 and 2, and the percentage of those who thought the writing was too difficult stayed at exactly the same level. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Round 2 T est?ng

Round 2 Testing Figure 21. Participants’ Ratings of the Level of Writing on the GMPA/MPO The Right Level Too Difficult Don’t Know/Other 53 Recap of HUD’s Goals After the second round of test?ng, KCG rev?ewed HUD’s Round 2 test?ng goals to see ?f the second round of test?ng met HUD’s goals. ✔ Facilitating shopping for mortgages ― Almost all homebuyers sa?d they would shop. ― Almost all homebuyers can find the lowest estimate among two GFEs and one MPO. ✘ Distinguishing items homebuyers can shop for ― In Round 2, 67 percent of part?c?pants were able to ?dent?fy the d?fference between ?tems 3 and 5 on the GFE (?.e., consumers can shop for those ?n ?tem 5). Th?s represented an increase of five percent between Rounds 1 and 2. ✔ Making basic costs clear ― 100 percent were able to ?dent?fy the correct ?nterest rate (an ?mprovement of 7

percentage po?nts between Rounds 1 and 2).

― 100 percent were able to ?dent?fy the correct monthly payment (an ?mprovement of 5 percentage po?nts between Rounds 1 and 2). ― 97 percent were able to ?dent?fy the est?mate of the total settlement charges ?n the

GFE (an ?mprovement of 6 percentage po?nts between Rounds 1 and 2).

― 93 percent were able to ?dent?fy the est?mate of the total settlement charges ?n the

MPO (an ?mprovement of 3 percentage po?nt between Rounds 1 and 2).

100%

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Round 2 Testing ✔ Showing yield spread premium (YSP) and discounts to borrowers ― Part?c?pants ?n Round 2 had fewer problems w?th the YSP sect?on. Staff observed a

10 percent ?ncrease ?n comprehens?on w?th respect to the YSP, and fewer part?c?pants

had problems understand?ng the table.

― Participants in Round 2 also had fewer problems defining “adjusted origination

charge.” Staff observed a 24 percent increase in participants’ ability to define

“adjusted or?g?nat?on charge” correctly. ✔ Making tolerances to HUD-1 clear ― 70 percent of part?c?pants were able to ?dent?fy all tolerances correctly. ― 76 percent of part?c?pants were able to ?dent?fy that the guaranteed mortgage

package pr?ce could r?se more than 10 percent between the est?mated and actual

settlement costs.

― 86 percent of part?c?pants were able to ?dent?fy that da?ly ?nterest charges could r?se

more than 10 percent between the est?mated and actual settlement costs.

54 ― 83 percent of part?c?pants were able to ?dent?fy that homeowner’s ?nsurance charges

could r?se more than 10 percent between the est?mated and actual settlement costs.

― 83 percent of part?c?pants were able to ?dent?fy that opt?onal owner’s t?tle ?nsurance

could r?se more than 10 percent between the est?mated and actual settlement costs.

― 86 percent of part?c?pants were able to ?dent?fy that reserves or escrow could not

change more than 10 percent between the est?mated and actual settlement costs.

✔ Conveying prepayment penalties and balloon payments ― 97 percent of participants correctly identified whether the loan had a pre-payment penalty; th?s represented an ?mprovement of 6 percentage po?nts between Rounds 1 and 2. ― 90 percent of participants correctly identified whether the loan had a balloon payment; th?s was 3 percentage po?nts lower than ?n Round 1. ✘ Providing a Crosswalk for the estimates from the GFE and MPO to the HUD-1 ― Part?c?pants had m?xed success ?n ?dent?fy?ng charges that could not change, charges

that could change but not more than 10 percent, and charges that could change more

than 10 percent.

Round 2 T est?ng

Round 2 Testing Recommendations for Improving the Forms After Round 2 of test?ng, KCG made the follow?ng recommendat?ons for ?mprov?ng the forms for the th?rd round of test?ng. Recommendations for GFE Revision About Your GFE ▼ Add contact ?nformat?on for the broker or lender. ▼ Add word?ng tell?ng the potent?al buyer to call w?th quest?ons. Summary of Your Loan Terms for This Estimate ▼ Consider moving text to bottom of the first table. Understand Which Charges Can Change at Settlement 55 ▼ Include more explanat?on of ?tems that can appear ?n more than one column. ▼ Emphas?ze the part of the explanat?on that shows what ?s d?fferent about the ?tems

that repeat.

Last Page of the GFE ▼ Reorder the sect?ons on that page: 1. Understand?ng some of the charges. 2. Understand?ng wh?ch charges can change. 3. Understand?ng the trade-offs. Recommendations for MPO Revision About Your MPO ▼ Add contact ?nformat?on for the broker or lender. ▼ Add word?ng tell?ng the potent?al buyer to call w?th quest?ons. Understanding Your Settlement Charges ▼ Add some add?t?onal word?ng about the package not chang?ng from th?s est?mate. ▼ Cons?der chang?ng the v?sual appearance to make the lack of ?nd?v?dual pr?c?ng clearer for

the package.

Round 2 T est?ng

Round 2 Testing Recommendations for the Crosswalk ▼ Report the tolerance table from the GFE. ▼ Make clearer to the homebuyer that they ▼ Add further explanat?on about the

should start w?th the GFE numbers and charges that can appear ?n more than

then use that ?nformat?on to help them

one sect?on.

find the charges on the HUD-1.

▼ Have subtotals for each of the three

▼ Cons?der whether some changes could

sect?ons and v?sually emphas?ze

be made ?n the HUD-1 to fac?l?tate

the totals.

the Crosswalk. ▼ Develop a method to help homebuyers

d?st?ngu?sh between lender and th?rd-

party serv?ces.

How the Forms Changed 56 GFE Generally the changes made ?n the forms worked qu?te well for the second round of test?ng. Almost all of the ?nd?cators that staff measured ?mproved. Nevertheless, KCG made add?t?onal changes ?n the GFE to ?mprove clar?ty. Round 2 T est?ng Problem Change Made to the GFE Many participants continued to want more information on who to call with their questions. We added a line to the introductory section where a contact number could be added. One of the terms that continued to be confusing to participants was nullhird party .null We eliminated this reference wherever it appeared. Although the tolerance information worked much better during the second round of testing, participants were confused by the charges that repeated across columns. We added a further qualifying sentence about the charges that repeated and improved the graphical appearance. Two of the tables on the third page of the GFE refer to charges on the second page. Participants question why this information is not on the second page. We moved these two tables up on the third page so that it would be clearer that this information would not fit on the second page and that it was being included as soon as possible after the second page. A sample of forms tested ?n Round 3 appears ?n Append?x C.

Round 2 Testing MPO Dur?ng the second round of test?ng, the MPO rece?ved much more favorable results and rat?ngs than the GMPA had received. For the final revisions, KCG made one of the changes also made for the GFE: that ?s, add?ng a l?ne to the ?ntroductory sect?on ?n order to add a contact number. In add?t?on, KCG made a few other changes, wh?ch were un?que to the MPO: Problem Change Made to the GFE Some participants continued to want to have the same detailed charges on the MPO as they had on the GFE. Although they were much more satisfied with the MPO compared with the GMPA, they still thought that the charges should be listed. We changed the graphical design of the second page of the form to indicate more clearly that there are no charges shown for each category. Participants generally understood the last section of the form that described what to do when accepting the package. However, some participants were still somewhat confused about what they were supposed to do next. We changed the order of the paragraphs to be more logical. We added steps to take to accept the package. 57 Round 2 T est?ng

Round 2 Testing Crosswalk Staff tested the Crosswalk from the GFE to the HUD-1 for the first time in Round 2. The Crosswalk from the MPO to the HUD-1 d?d not undergo test?ng. Problem Change Made to the GFE Participants made most of their errors with the charges that could appear in different parts of the Crosswalk depending upon whether they chose the provider of the service. Participants tended to enter the same information many times, which ended with an incorrect sum. We developed an initial table for participants to complete before working on the Crosswalk. The table tells them where to enter the information depending upon the provider of the service. We emphasized that a charge can only be entered once in the Crosswalk. Participants did not seem to see that the three tables added to a total for both the GFE and the HUD-1. We added visual clues to help the participants see the totals more clearly. We used the same device that had been successful on the GFE. Participants could not distinguish between items that the lender provides and those provided by third parties. These need to be placed in different sections of the Crosswalk because it potentially affects the tolerances. This problem cannot be fixed easily without changing the HUD-1. Participants did not use the information from the GFE to guide their search for numbers on the HUD-1. For example, if they know an appraisal was done, they can search for an appraisal on the HUD-1 and enter it in the same row. We added a section on nullelpful hintsnullthat instructs them to use the GFE to find charges on the HUD-1. Some participants did not know where to look for charges on the HUD-1. We added wording directing them to the second page of the HUD-1. Some participants did not understand where to find a number when we included an entire series (800null99). In the section on nullelpful hints,nullwe added an explanation of the series. 58 Round 2 T est?ng

Added line for contact information

Added additional of tolerances information and improved layout

to page 3 so they Tables relocated would be clearer

layout of page Improved graphic

Round 2 Testing Questions for Round 3 Testing Questions identified for Round 3 of testing included the following: ▼ Would consumers go to several d?fferent ▼ Are consumers able to ?dent?fy tolerances

mortgage lenders before choos?ng one? between the GFE/MPO forms and

▼ Do consumers understand that they the HUD-1?

can shop? ▼ Do consumers understand ?nformat?on on

▼ Are consumers able to choose the best penalty payments and balloon payments?

loan offer? ▼ Can consumers correctly fill in information

▼ Can consumers ?dent?fy those ?tems for from the GFE or MPO on the Crosswalk?

wh?ch they can shop? ▼ Can consumers correctly fill in information

▼ Are the bas?c costs on the GFE and from the HUD-1 on the Crosswalk?

MPO clear? ▼ Can consumers ?dent?fy d?screpanc?es ?n

▼ Do consumers understand the y?eld cost if the forms are filled in correctly?

65 spread prem?um ?nformat?on? Round 2 T est?ng

Consumer Testing of the Good Faith Estimate Form (GFE)

Round 3 Testing

Round 3 Testing Introduction For the th?rd round of test?ng, KCG, through a subcontract to Aspen Systems, made changes to the forms based on part?c?pants’ responses to the forms dur?ng the second round of test?ng as well as ?n response to comments that HUD had rece?ved from var?ous ?nterest groups who would be affected by the forms. The Good Fa?th Est?mate (GFE) and the Mortgage Package Offer (MPO) had significant modifications for the third round. The Crosswalk between the GFE and the HUD-1 and the Crosswalk between the MPO and the HUD-1 also were changed ?n order to fac?l?tate better consumer understand?ng. HUD’s Goals HUD’s Goals for Round 3 rema?ned the same as ?n Round 2 of test?ng: ▼ Fac?l?tat?ng shopp?ng for mortgages ▼ Mak?ng tolerances to HUD-1 clear ▼ D?st?ngu?sh?ng ?tems homebuyers can ▼ Convey?ng prepayment penalt?es and 67 shop for balloon payments ▼ Mak?ng bas?c costs clear (?nterest ▼ Prov?d?ng a Crosswalk for the est?mates

rate, monthly payment, and from the GFE and MPO to the HUD-1

settlement charges)

▼ Show?ng y?eld spread prem?um (YSP) and

d?scounts to borrowers

Methodology The test?ng team used a comprehens?ve test?ng protocol that addressed the key ?ssues and quest?ons about the forms. Interv?ews w?th each part?c?pant lasted for 90 m?nutes w?th a 10- m?nute break. The ?nterv?ews had two parts: one unstructured, and one structured. In the unstructured port?on of the ?nterv?ew, staff asked part?c?pants to th?nk aloud as they looked at each form for the first time. This unstructured and unprompted portion of the interview allowed us to capture part?c?pants’ ?n?t?al react?ons—?nclud?ng areas that they responded well to, areas they d?d not understand, and areas they quest?oned. Staff captured th?s valuable ?nformat?on before quest?on?ng part?c?pants about d?fferent elements of the forms, ensur?ng that the ?nterv?ewer d?d not lead part?c?pants to d?scuss ?nformat?on they would not have not?ced on the?r own. In the structured port?on of the ?nterv?ew, staff asked targeted quest?ons to determ?ne how well part?c?pants understood certa?n areas of the forms and to determ?ne how to ?mprove the forms. The test?ng team based the quest?ons used ?n the structured ?nterv?ew on the key research questions that staff identified as HUD goals. Ro und 3 T est?ng

Round 3 Testing Testing Conditions Staff ?nterv?ewed all part?c?pants for 90 m?nutes. Not all part?c?pants rece?ved the same mater?als. Staff tested half of the part?c?pants pr?mar?ly on the?r ab?l?ty to work w?th the GFE and MPO and tested the other half regard?ng the?r ab?l?ty to use the Crosswalks. In cases when part?c?pants d?d rece?ve the same mater?als, staff var?ed the order ?n wh?ch the part?c?pant rece?ved the forms, reason?ng that wh?chever form they saw second m?ght seem clearer to them because they became more familiar with the issues after looking at the first form. These two cons?derat?ons resulted ?n four cond?t?ons for the part?c?pants (Table 16). The number of part?c?pants tested ?n each cond?t?on was 15. Table 16. Conditions of Testing for Round 3 Condition Materials Number of Participants Tested Condition 1 2 GFEs first, MPO second 15 Condition 2 MPO first, 2 GFEs second 15 Condition 3 2 GFEs first, followed by the Crosswalk to the HUD-1 15 Condition 4 2 MPOs first, followed by the Crosswalk to the HUD-1 15 68 Round 3 T est?ng The task descr?pt?ons of what the part?c?pants saw and d?d dur?ng the test?ng appear below ?n Tables 17, 18, 19, and 20.

Round 3 Testing Table 17. Schedule of Testing for Condition 1 in Round 3 Section Time Allotted (minutes) Task Introduction 15 We introduce ourselves, briefly describe the purpose of the test in general terms, and have the participant read and sign the confidentiality statement and fill out the questionnaire. Task 1 15 The participant practices the task of reading and thinking aloud. The participant receives and reacts to a sample GFE completed as an example. Task 2 20 We ask the participant questions about the sample GFE. We give the participant another GFE to compare. Break 10 Task 3 15 The participant receives and reacts to a sample MPO completed as an example. Task 4 15 We ask the participant questions about the sample MPO and ask the participant to compare the GFEs and the MPO. Total time 90 minutes Table 18. Schedule of Testing for Condition 2 in Round 3 Section Time Allotted (minutes) Task Introduction 15 We introduce ourselves, briefly describe the purpose of the test in general terms, and have the participant read and sign the confidentiality statement and fill out the questionnaire. Task 1 15 The participant practices the task of reading and thinking aloud. The participant receives and reacts to a sample MPO completed as an example. Task 2 15 We ask the participant questions about the sample MPO. Break 10 Task 3 15 The participant receives and reacts to a sample GFE. Task 4 20 We ask the participant questions about the sample GFE. We give the participant another GFE to compare. We ask the participant to compare the GFEs and the MPO. Total time 90 minutes 69 Round 3 T est?ng

Round 3 Testing Table 19. Schedule of Testing for Condition 3 in Round 3 Section Time Allotted (minutes) Task Introduction 15 We introduce ourselves, briefly describe the purpose of the test in general terms, and have the participant read and sign the confidentiality statement and fill out the questionnaire. Task 1 15 The participant practices the task of reading and thinking aloud. The participant receives and reacts to a sample GFE. We give the participant another GFE to compare. Task 2 10 We give the participant the Crosswalk to the HUD-1 and an example HUD-1 that matches the GFE. The participant looks at these while thinking aloud. Break 10 Task 3 35 The participant attempts to fill in the Crosswalk from the GFE. After 15 minutes, we give the participant a correctly completed Crosswalk and ask them to fill in the information from the HUD-1 while thinking aloud. Task 4 5 We ask the participant questions about how the GFE compares with the HUD-1. Total time 90 minutes 70 Round 3 T est?ng Table 20. Schedule of Testing for Condition 4 in Round 3 Section Time Allotted (minutes) Task Introduction 15 We introduce ourselves, briefly describe the purpose of the test in general terms, and have the participant read and sign the confidentiality statement and fill out the questionnaire. Task 1 15 The participant practices the task of reading and thinking aloud. The participant receives and reacts to a sample MPO. We give the participant another MPO to compare. Task 2 10 We give the participant the Crosswalk to the HUD-l and an example HUD-l that matches the MPO. The participant looks at these while thinking aloud. Break 10 Task 3 35 The participant attempts to fill in the Crosswalk from the MPO. After 15 minutes, we give the participant a correctly completed Crosswalk and ask them to fill in the information from the HUD-l while thinking aloud. Task 4 5 We ask the participant questions about how the MPO compares with the HUD-1. Total time 90 minutes

Round 3 Testing Demographic and Test Site Information The GFE, MPO, and Crosswalks are forms that are used by those apply?ng for a mortgage to buy or refinance a home. Therefore, the target population for this study included two main groups of potential borrowers: first-time homebuyers and repeat homebuyers or persons who might refinance their homes. Staff tested the forms on members of these two groups, defined as follows: ▼ F?rst-t?me homebuyers—persons who ▼ Exper?enced homebuyers—persons who have not bought or refinanced a home in have bought or refinanced a home in the the prev?ous two years and are act?vely prev?ous two years seek?ng to buy a home as ?nd?cated by at least one of the follow?ng: ― Have gone to open houses. ― Have contacted a real estate agent. ― Have pre-qualified for a mortgage loan. 71 Staff tested the forms at four geograph?cally d?spersed locat?ons that represent d?verse sett?ngs and populat?ons (Table 21). Table 21. Sites for the Testing—Round 3 Round 3 T est?ng Cities Number of Participants Tested Los Angeles, CA 15 Wilmington, DE 15 Minneapolis, MN 15 Tulsa, OK 15 Total 60 Recruiting the Participants KCG recru?ted 60 part?c?pants across four s?tes. Each of the fac?l?t?es was requ?red to use a screener ?n recru?tment efforts. Staff based the screener on the demograph?cs that HUD requ?red for the sample.

Round 3 Testing Eligibility Requirements The test?ng team had several cr?ter?a for recru?t?ng part?c?pants for the sample. F?rst, staff wanted one-th?rd of the sample to be new homebuyers. Second, staff wanted to test the forms w?th groups that might potentially have more difficulty with the forms due to less experience or other reasons. Th?s ?ncludes the follow?ng: ▼ The elderly—defined as 65 years or older ▼ Afr?can Amer?cans ▼ Hispanic Americans—defined by self-identification ▼ S?ngle females ▼ Low education—defined as not having graduated from high school Recruitment by Site At each locat?on, KCG recru?ted 15 part?c?pants that met the requ?rements shown ?n Table 22. 72 Table 22. Recruiting Criteria for the Sample Individual Potential Homebuyers Criteria Number needed Can read and write English All 15 Have not participated in a study with a particular facility in the last six months At least 10 of the 15 Consider themselves African American At east 3, but not more than 5 at the 15 Consider themselves Hispanic American At least 3, but not more than 5 of the 15 Are age 65 or older At least 3, but not more than 5 of the 15 Are single females At least 3 of the 15 Have not graduated from high school At least 3, but not more than 5 of the 15 Are first-time homebuyers who plan to buy a home within six months 5 of the 15 Have purchased or refinanced a home in the past two years 10 of the 15 Round 3 T est?ng Demographics Table 23 shows the results of the recru?t?ng efforts at each s?te. Overall, staff ach?eved adequate representat?on from each of the groups that HUD wanted to ?nclude; however, staff would have preferred more part?c?pants w?th lower educat?onal levels. The sample had good representat?on of d?fferent rac?al and ethn?c groups.

Round 3 Testing Table 23. Demographic Characteristics of the Sample—Round 3 Demographic Characteristic Number In Sample Percent Age 5 21 years or less 22 to 34 years 35 to 44 years 45 to 54 years 55 to 64 years 65 years and over 0 14 19 12 7 8 0 24 32 20 12 13 Race and Ethnicity Hispanic Black or African American Asian 12 15 3 20 25 5 Education—highest grade completed Less than high school High school graduate Some college College graduate Graduate school 1 11 19 15 13 2 18 32 25 22 Household Income Per Year Less than $20,000 $20,000 to $39,999 $40,000 to $59,999 $60,000 to $79,999 $80,000 to $99,999 $100,000 and over No response 4 14 16 15 4 5 2 7 24 27 25 7 8 3 Marital Status and Gender Single male Single female Married male Married female 4 18 15 23 7 30 25 30 73 Round 3 T est?ng ____________ 5 Some participants did not respond to all demographic questions.

Round 3 Testing KCG planned to have two-th?rds of the sample be exper?enced homebuyers who had bought or refinanced a home in the previous two years, but three-fourths of the sample were in this category—as ?s shown ?n Table 24. One of the s?tes m?s?nterpreted the ?nstruct?ons, th?nk?ng that a person could fulfill the requirement of wanting to buy in the next six months even though they had bought or refinanced in the past two years. Of those who planned to buy in the next six months, all but one had gone to open houses and had contacted a real estate agent. Table 24. Home-Buying Experience of the Sample Home-buying Experience Home-buying Experience Percent Bought or refinanced in the past 2 years 30 76 Plan to Buy in Next 6 Months 14 24 Of those who plan to buy: Have gone to open houses Have contacted a real estate agent Have pre-qualified for a mortgage loan 13 13 6 93 93 43 Did not meet criteria 1 -- N 60 100 74 Round 3 T est?ng Study Questions Study questions for Round 3 of testing included the following: ▼ Would consumers go to several d?fferent ▼ Are consumers able to ?dent?fy tolerances mortgage lenders before choos?ng one between the GFE/MPO forms and before see?ng the forms? the HUD-1? ▼ Do consumers understand that they ▼ Do consumers understand ?nformat?on on can shop? penalty payments and balloon payments? ▼ Are consumers able to choose the best ▼ Can consumers correctly fill in information loan offer? from the GFE or MPO on the Crosswalk? ▼ Can consumers ?dent?fy those ?tems for ▼ Can consumers correctly fill in information wh?ch they can shop? from the HUD-1 on the Crosswalk? ▼ Are the bas?c costs on the GFE and ▼ Can consumers ?dent?fy d?screpanc?es ?n MPO clear? cost if the forms are filled in correctly? ▼ Do consumers understand the y?eld spread prem?um (YSP) ?nformat?on?

Round 3 Testing Summary of Findings This section presents the results of issues from Round 3 testing, organized first by the form tested and then w?th?n each form, the results appear by sect?on w?th?n the forms. Good Faith Estimate (GFE) About Your GFE Part?c?pants understood the “About Your GFE” sect?on of the GFE. Part?c?pants ?n cond?t?ons 1 and 3 read or sk?mmed the “About Your GFE” sect?on. Most of the part?c?pants had no problems w?th the sect?on and understood the overall purpose as well as the deta?l of th?s sect?on. Summary of Your Loan Terms for This Estimate All 30 part?c?pants ?n cond?t?onal 1 through 3 read or scanned the “Summary of Your Loan Terms for Th?s Est?mate” sect?on. A few part?c?pants had some problems w?th some of the terms used ?n th?s sect?on, ?nclud?ng the terms “balloon payment,” “prepayment penalty,” and “rate lock 75 period.” Seven percent of the participants who viewed the GFE noted difficulty with the term “balloon payment,” while 4 percent expressed difficulty with the term “prepayment penalty.” Another 4 percent had difficulty with the term “rate lock period.” Staff asked part?c?pants ?f they thought the ?nterest rate would vary over the term of the loan to assess if participants understood that the GFE example was for a fixed-price loan, and what that meant. Table 25 ?llustrates that most part?c?pants ?n cond?t?onal 1 and 2 (77 percent) were able to understand that the offer was for a fixed-price loan, which would not vary over the term of the loan. This finding has been consistent across the three rounds of testing. Table 25. Fixed vs. Adjustable Rate Mortgage(Conditions 1 and 2) Round 3 T est?ng Percent Question Round 1 Round 2 Round 3 Will this interest rate vary over the term of the loan? Correct (no) 73 79 77 Incorrect (yes) 9 3 13 Donnull know 4 4 3 Other 13 14 7 N 100 (45) 100 (29) 100 (30) A new ?tem ?ncluded ?n the summary table was the rate lock per?od. Staff asked part?c?pants how much t?me they have between the t?me they lock ?n the ?nterest rate and when they must go to settlement. The correct answer was 60 days, and Table 26 shows that most part?c?pants (83 percent) answered correctly.

Round 3 Testing Table 26. Rate Lock Period Question Percent How much time do you have between the time you lock in your Interest rate and when you must go to settlement? Correct (60 days) 83 Incorrect 10 Donnull know 7 N 100 (30) Understanding Your Estimated Settlement Charges In general, few of the 30 participants (Conditions 1 and 2) had difficulty with the second page of the form, which lists the settlement charges. The items that caused more difficulty were “2. requ?red serv?ces that we select,” “4. requ?red serv?ces that you select,” and “7. da?ly ?nterest charges.” Section 2, “required services that we select,” confused almost one-fifth (18 percent) 76 of the part?c?pants (w?th many of the part?c?pants confused by the example rather than the category). Forty-three percent of part?c?pants who encountered problems w?th th?s sect?on were unfam?l?ar w?th the term “survey.” Eleven percent of part?c?pants were confused by sect?on 4, “requ?red serv?ces that you can shop for.” Staff asked part?c?pants to tell us the d?fference between ?tems ?n sect?on 2, “requ?red serv?ces that we select” and sect?on 4, “requ?red serv?ces that you select.” Nearly one-th?rd (31 percent) of all part?c?pants who encountered problems understand?ng sect?ons 2 and 4 were unsure of the d?fference between the two categor?es. Add?t?onally, 16 percent of part?c?pants were confused by sect?on 7, “da?ly ?nterest charges.” Participants appeared to have a difficult time grasping the concept of daily interest charges for a mortgage loan. Staff asked part?c?pants ?f they were to close on a d?fferent date, ?f the total amount l?sted for the ?nterest charges would change. Part?c?pants ?n th?s subsample tended to understand that the amount would change but had trouble determ?n?ng ?f the amount would ?ncrease or decrease. Table 27 shows that about 70 percent (Cond?t?ons 1 and 2) were able to answer correctly that the ?nterest charges would change. Th?s was an ?ncrease ?n performance from Round 2. Part?c?pants had a more difficult time answering the next question about whether the amount would rise or fall. A correct answer was that ?t would r?se. Only 41 percent of part?c?pants answered correctly. Th?s percentage was very s?m?lar to Round 2. Round 3 T est?ng

Round 3 Testing Table 27. Per Diem Interest Charges on the GFE Percent Question Round 1 Round 2 Round 3 If you close on a different date, would the total amount listed change? Correct (yes) Incorrect (no) Donnull know Other 74 12 9 5 -- 60 27 13 -- 70 17 13 N 100 (43) 100 (30) 100 (30) Would it go up or down (with earlier closing date)? Correct (up) Incorrect (down) Donnull know Other 24 47 16 13 -- 40 55 5 41 41 15 4 N 100 (38) 100 (20) 100 (27) Charges That Can Change Part?c?pants generally understood the “Charges That Can Change” sect?on of the GFE. Most of the part?c?pants (66 percent) who looked at the “Charges That Can Change” sect?on appeared to have no problems understand?ng th?s sect?on. Twenty percent (9) of part?c?pants d?d not understand th?s sect?on very well; of these part?c?pants, two were confused over wh?ch charges can change and wh?ch cannot. F?ve part?c?pants (11 percent) sk?pped th?s sect?on. Discount Points and Yield Spread Premium The test?ng team asked subsample part?c?pants to paraphrase, ?n the?r own words, the ?ntended message ?n the d?scount po?nts and YSP sect?ons. We allowed part?c?pants to read th?s sect?on dur?ng the th?nk-aloud port?on of the test?ng and then aga?n dur?ng d?rect quest?on?ng. The percentage of part?c?pants (Cond?t?ons 1 and 2) who fully understood YSP, at 3 percent, was extremely low (Table 28). In general, participants found it very difficult to understand these two sect?ons. They d?d not understand how these two sect?ons relate to the other settlement charges. 77 Round 3 T est?ng

Round 3 Testing Table 28. Discount Points and Yield Spread Premium Comprehension Results of Paraphrasing Percent YSP Discount Points Understood the basic meaning 3 30 Has some understanding 23 23 Had no idea about the meaning 73 47 N 100 (30) 100 (30) Understanding the Trade-off Most part?c?pants understood the sect?on on “Understand?ng the Trade-off Between the Charges for Your Loan and the Interest Rate,” although some part?c?pants had trouble w?th the concept presented. Of the part?c?pants that v?ewed the GFE, 32 part?c?pants (Cond?t?ons 1 and 2) had no problems w?th the “Understand?ng the Trade-off Between the Charges for Your Loan and 78 Interest Rate” sect?on, and three part?c?pants sk?pped th?s sect?on altogether. S?x part?c?pants had major problems w?th th?s sect?on. Several thought th?s sect?on was show?ng them other loans that were ava?lable to them; others were unfam?l?ar w?th the term “settlement charges”; and some were unable to understand the ?nverse relat?onsh?p between clos?ng cost and monthly ?nterest charges. Staff asked part?c?pants ?f they pa?d more money ?n cash at settlement, would the monthly payment go up or down. A correct answer was that the payment would go down. E?ghty-s?x percent of part?c?pants were able to answer th?s quest?on correctly; th?s was down sl?ghtly from Round 2. Table 29. Understanding the Trade-off Table Round 3 T est?ng Question Percent If you pay more money in cash at settlement, would your monthly payment go up or down? Correct (go down) 86 Incorrect (go up) 14 Incorrect (stay the same) null Donnull know null Other null N 100 (n = 29)

Round 3 Testing Overall Comments on the GFE Near the end of each test?ng sess?on for cond?t?ons 1 and 2, part?c?pants were asked d?rect quest?ons about the?r overall feel?ngs about the form, the?r l?kes and d?sl?kes, and were g?ven a chance to make suggest?ons about the GFE. Overall Feelings Most participants felt comfortable with the GFE form. Staff asked part?c?pants how comfortable or uncomfortable they felt w?th the GFE form. In Round 3 test?ng, 74 percent sa?d they felt “comfortable”; wh?le 26 percent sa?d they felt “uncomfortable.” The percentage ?nd?cat?ng they felt comfortable was up from Round 2 test?ng. Most participants thought the GFE provided the right information for them. When staff asked part?c?pants ?f they thought the GFE form prov?ded the r?ght ?nformat?on for them, and the major?ty of part?c?pants (89 percent) sa?d the form prov?ded the r?ght ?nformat?on; only 12 percent sa?d e?ther they d?d not th?nk the form prov?ded the r?ght ?nformat?on or they d?d not know. 79 Most participants thought the writing of the GFE was at the correct level for them. Staff asked part?c?pants ?f they felt the wr?t?ng of the GFE was at the r?ght level for them, and most part?c?pants (88 percent) sa?d they felt the wr?t?ng of the GFE was at the r?ght level, wh?le 13 percent said it was too difficult. Likes and Dislikes ▼ Participants found the trade-off table part?c?pants to name what they l?ked

(on page 3) and the page 2 breakdown most about the GFE, 31 percent sa?d the

of charges to be the most useful layout was clear, wh?le 17 percent sa?d the

features. Staff also asked part?c?pants breakdown of charges on page 2.

what they found to be the most useful ▼ Participants did not like the section on

?nformat?on ?n the GFE. Just over a quarter “yield spread premium.” Comparat?vely,

(28 percent) sa?d the trade-off table on staff also asked part?c?pants what they

page 3, wh?le a quarter (25 percent) sa?d d?sl?ked the most about the form. About

the breakdown of charges on page 2, a fifth (21 percent) indicated they disliked

and 13 percent sa?d the summary table the sect?on on “y?eld spread prem?um,”

on page 1. wh?le 9 percent sa?d the “d?scount po?nts”

▼ Participants liked the clear lay out of sect?on, and 6 percent sa?d the “charges

the form the most. When staff asked that can change” sect?on.

Suggestions Participants suggested clarifying the “yield spread premium.” In Round 3 test?ng, 16 percent of the part?c?pants suggested clar?fy?ng the term “y?eld spread prem?um,” and 9 percent suggested clar?fy?ng “d?scount po?nts.” Round 3 T est?ng

Round 3 Testing Mortgage Package Offer (MPO) About Your MPO ▼ Th?rty part?c?pants worked w?th the MPO (Cond?t?ons 2 and 4). Most of the part?c?pants that

read or sk?mmed th?s sect?on had no problems w?th ?t. Some part?c?pants (4) ?nd?cated that

they l?ked that th?s sect?on made ?t clear that better offers m?ght be ava?lable through other

banks. One part?c?pant m?sread the text and bel?eved that ?t meant that the MPO guaranteed

the lowest-cost loan.

Summary of Your Loan Terms for This Estimate ▼ Th?s sect?on ?s the same as on the GFE. Generally, part?c?pants understood th?s sect?on

well, as ?s d?scussed under the GFE results. Some part?c?pants had trouble w?th some of

the terms used, part?cularly the terms “balloon payment,” “prepayment penalty,” and “rate

lock per?od.”

▼ Some part?c?pants (Cond?t?ons 1 and 2) had trouble understand?ng that the “charge or cred?t

for your po?nts” would be ?ncluded ?n the?r total settlement charges. Only 63 percent were

80 able to answer correctly the quest?on relat?ng to th?s part dur?ng the test?ng (Table 30).

Table 30. Charge or Credit for Your Points Included In Settlement Charges on the MPO Round 3 T est?ng Question Percent A charge is listed as nullharge or Credit for Your Points.nullI s this charge included in your total charges at settlement? Correct (yes) 63 Incorrect (no) 20 Donnull know 13 Other 3 N 100 (30) Understanding Your Settlement Charges ▼ Most part?c?pants (28) had no major problems w?th the “Understand?ng Your Settlement Charges” sect?on, but some part?c?pants had trouble w?th the concept related to the “Charge or Cred?t for Your Po?nts” sect?on because of the negat?ve s?gn. Some part?c?pants (9) commented that they wanted the charges ?tem?zed or preferred the breakdowns on the GFE. ▼ Some part?c?pants (8) had trouble w?th concepts related to the “Charge or Cred?t for Your Points” section. Of these, six said the negative $2,250 figure confused them, while five of the eight indicated they were unclear as to whether this figure represented a charge or credit.

Round 3 Testing Charges That Can Change ▼ Most part?c?pants (27) understood th?s sect?on, although 10 of these part?c?pants sk?mmed

the sect?on very qu?ckly. About e?ght part?c?pants sk?pped th?s sect?on altogether. Of those

who read or sk?mmed the sect?on, 7 part?c?pants had major problems. Two people found the

guaranteed mortgage package concept confus?ng. One felt the sect?on was “amb?guous”

and was not comfortable w?th the explanat?ons prov?ded.

Services That May Be in the Package ▼ Almost all part?c?pants (40) had no problems w?th th?s sect?on or had only m?nor quest?ons

(for example, “Why wouldn’t everyone want a pest ?nspect?on?”). A few part?c?pants (3)

sk?pped th?s sect?on altogether. Of those who d?d have a problem w?th the sect?on, three

part?c?pants sa?d they d?d not understand why the sect?on sa?d serv?ces “may be” ?ncluded ?n

the package. Part?c?pants ?ns?sted that serv?ces were e?ther ?ncluded or they were not.

Understanding the Trade-off 81 ▼ Th?s sect?on ?s the same as on the GFE, and the same results apply. Most part?c?pants

understood th?s sect?on.

Accepting This Mortgage Package Offer ▼ Many part?c?pants (18) found th?s sect?on confused them and were thus unsure how

to be the most confus?ng sect?on of to ?nterpret ?t.

the MPO and had a number of d?fferent ▼ Staff asked part?c?pants ?f they thought problems w?th ?t, ?nclud?ng confus?on over they could accept the terms of the the fee, the deadl?nes, the calculat?on MPO w?thout lock?ng ?n the ?nterest rate box, and the negat?ve s?gn ?n the “charge (Table 31). Only half (50 percent) of the or cred?t for your po?nts” sect?on. part?c?pants were able to answer th?s

Only 22 part?c?pants d?d not have any correctly, which was down significantly

problems w?th th?s sect?on. Some (6) from Round 2. It ?s poss?ble that some

part?c?pants sk?pped th?s or read very part?c?pants m?s?nterpreted th?s quest?on,

l?ttle of th?s sect?on. Four part?c?pants th?nk?ng ?t was an op?n?on quest?on rather

d?d not understand what the fee was for, than a factual quest?on based on the

and wondered whether ?t was ?n add?t?on ?nformat?on ?n the sect?on.

to other charges, or whether they would

▼ In add?t?on, staff also asked part?c?pants lose ?t ?f they d?d not accept the offer. how long they have to th?nk over the Two part?c?pants d?d not understand the terms of the MPO. Aga?n, part?c?pants significance of the 5-day deadline or d?d not answer correctly very often (only thought they only had five days to accept 13 percent answered correctly), and th?s the offer. Four part?c?pants d?d not use was down significantly from Round 2. The the calculat?on box to help them calculate dates should be clearer so homebuyers settlement charges for payment of po?nts. can p?ck out th?s ?nformat?on eas?ly. The Three part?c?pants sa?d the m?nus s?gn ?n dates were clearer on earl?er vers?ons of the “charge or cred?t for your po?nts” the MPO. Round 3 T est?ng

Round 3 Testing Table 31. Accepting the Offer on the MPO Percent Question Round 1 Round 2 Round 3 Can you accept the terms of this MPO without locking in the Interest rate? Correct (yes) Incorrect (no) Donnull know 75 18 8 80 17 3 50 40 10 N 100 (40) 100 (30) 100 (30) How long do you have to think over the terms of this MPO? Correct Incorrect Donnull know or other 67 15 18 66 10 24 13 43 43 N 100 (39) 100 (29) 100 (30) 82 When staff asked part?c?pants ?n th?s subsample unt?l when they have to lock ?n the ?nterest rate, most were able to answer correctly (Table 32). Table 32. Locking in the Offer on the MPO Round 3 T est?ng Question Percent If you do not lock in your Interest rate now, by when must you lock in the rate? Correct (5 days before settlement) 70 Incorrect 10 Donnull know 7 Other 13 100 (30) Staff ?ncluded a new box at the end of the acceptance sect?on for part?c?pants to calculate what the charge or cred?t for the?r po?nts would be ?f the ?nterest rate changed. When staff asked part?c?pants a quest?on about what the po?nts would be ?f a homebuyer were charged one and a half po?nts on the loan, most could not answer correctly (Table 33).

Round 3 Testing Table 33. Calculating the Charge or Credit for Points on the MPO Question Percent What would your new charge or credit for your points be if you were now charged one and a half (1.5) points? Correct ($1500) 6 20 Incorrect 13 Donnull know 43 Other 23 N 100 (30) An ?mportant goal for HUD ?s for homebuyers to understand that rece?v?ng an MPO does not mean that they rece?ved approval for the?r mortgage appl?cat?on. Staff asked a quest?on dur?ng the ?nterv?ew about whether the mortgage appl?cat?on would rece?ve approval just because a person accepted the MPO. Table 34 ?llustrates that 80 percent of part?c?pants understood that 83 the MPO would require information verification. Table 34. Accepting the Offer and Approving the Application on the MPO Round 3 T est?ng Question Percent What happens when you accept this MPO? Does It mean that your mortgage application is automatically approved? Correct (No, they need to verify) 80 Incorrect (Yes) 10 Donnull know 7 Other 3 N 100 (30) ____________ 6 Of the 6 participants that got the right answer, only one used the box on the page.

Round 3 Testing Overall Comments on the MPO Near the end of each test?ng sess?on, part?c?pants were asked d?rect quest?ons about the?r overall feel?ngs about the form, the?r l?kes and d?sl?kes, and were g?ven a chance to make suggest?ons about the MPO. Overall Feelings ▼ Many participants said they were the form provided the right ?nformat?on,

comfortable with the MPO, but wh?le 22 percent sa?d e?ther they d?d

the percentage of people feeling not th?nk the form prov?ded the r?ght

comfortable decreased from Round 2. ?nformat?on or that they d?d not know

Staff asked part?c?pants how comfortable or gave another answer. The pos?t?ve

or uncomfortable they felt w?th the MPO. response to the form prov?d?ng the

In Round 3 test?ng, 64 percent sa?d r?ght ?nformat?on was down sl?ghtly

they were “comfortable,” wh?ch was a from Round 2.

decrease from Round 2. About 35 ▼ Most participants felt the writing of

84 percent sa?d they were “uncomfortable,” the MPO was at the right level for

or sa?d they d?d not know or prov?ded a them. Staff asked part?c?pants ?f they felt

d?fferent answer. the wr?t?ng of the MPO was at the r?ght

▼ Most participants said they thought level for them, and most part?c?pants (88

the MPO provides the right information percent) sa?d they felt the wr?t?ng of the

for them. Staff asked part?c?pants ?f MPO was at the r?ght level, wh?le only 13

they thought the MPO prov?des the r?ght percent said it was too difficult. Results

?nformat?on for them, and the major?ty of were very s?m?lar between Round 2 and

part?c?pants (79 percent) sa?d they thought Round 3 of test?ng.

Likes and Dislikes ▼ Participants said they found the “Understanding Your Settlement Charges” section

(on page 2) and the loan summary information (on page 1) to be the most useful

information on the form. Staff also asked part?c?pants what they found to be the most

useful ?nformat?on ?n the MPO. A th?rd of the part?c?pants sa?d the “Understand?ng Your

Settlement Charges” sect?on (on page 2), wh?le a th?rd sa?d the loan summary (on page 1),

and 18 percent sa?d the sect?on on accept?ng th?s mortgage package offer (on page 3).

▼ Most participants liked the breakdown of charges on page 2 the best. When staff

asked part?c?pants to name what they l?ked most about the MPO, 38 percent ment?oned

the breakdown of charges on page 2, while 26 percent said the summary table on page 1.

Another 26 percent ?nd?cated they l?ked the trade-off table the most, and 15 percent sa?d

what they l?ked most was that the form was “easy to understand,” and “self-explanatory.”

▼ Most participants did not mention something that they particularly disliked about

the form. When staff asked part?c?pants what they d?sl?ked the most about the MPO, they

ment?oned only a few th?ngs. About 12 percent ?nd?cated they d?sl?ked not know?ng what ?s

?ncluded ?n the package, wh?le 9 percent ment?oned understand?ng the tradeoff sect?on, and

6 percent sa?d the serv?ces ?ncluded ?n the package sect?on.

Round 3 T est?ng

Round 3 Testing Suggestions ▼ A few participants suggested clarifying certain sections of the form. In Round 3 test?ng,

9 percent of the part?c?pants suggested clar?fy?ng the “po?nts sect?on”; 3 percent sa?d

clar?fy?ng the “tradeoff sect?on”; and 3 percent sa?d the form needed a more deta?led

breakdown of charges.

GFE Crosswalk In general, the GFE Crosswalk confused many part?c?pants, and as such, they were not able to complete ?t correctly. Section 1 ▼ Part?c?pants found the ?nformat?on presentat?on overwhelm?ng. Two part?c?pants had

problems w?th the presentat?on of the ?nformat?on ?n Sect?on 1, wh?ch covered “What ?s the

purpose of th?s worksheet” and “How should you use the worksheet.” These part?c?pants

85 commented that the Crosswalk had “too much” ?nformat?on and “looked l?ke a tax form.”

Table 1 ▼ Participants were confused about the purpose of the first table. Table 1 was included due to the problems that part?c?pants had ?n the prev?ous test?ng w?th try?ng to determ?ne where

charges should be ?ncluded on the subsequent tables. However, the table d?d not seem to

help w?th the problem. F?ve part?c?pants were confused about the fundamental purpose of

the first table. They were unable to determine what figures to enter, did not understand that they had a cho?ce of serv?ce prov?ders, or otherw?se d?d not understand the purpose of the table. ▼ Two participants understood the purpose of the table, but could not find what figures to ?nclude. Helpful Hints ▼ Part?c?pants were confused about the “Helpful H?nts” sect?on of the form. Some part?c?pants

d?d not read the helpful h?nts and then made the m?stakes that the h?nts were try?ng to help

them avo?d. For the part?c?pants who were generally confused about the Crosswalk, the

“Helpful H?nts” sect?on d?d not help part?c?pants understand ?tems where they exper?enced

confus?on. One part?c?pant was confused by the ser?es number referred to from the HUD-1

and even guessed that they m?ght be dollar amounts.

Round 3 T est?ng

Round 3 Testing Table 2 ▼ Part?c?pants were confused about Table ▼ Three participants had trouble finding 2. F?ve part?c?pants were fundamentally charges on the HUD-1. They had

confused about how to use Table 2. part?cular trouble w?th ?tems ?n the 800–

They could not remember key po?nts 899 ser?es and ?tem 1199.

from the GFE; they d?d not understand ▼ One part?c?pant had trouble w?th the term

that they could choose someone other

“Subtotal” and was not sure whether to

than the lender for serv?ces; they d?d not

calculate a subtotal or enter one from

understand how to read the charge for a

the GFE.

serv?ce; or they were otherw?se confused.

Table 3 ▼ Part?c?pants had trouble understand?ng what ?nformat?on to put ?n the boxes on Table 3.

Four part?c?pants understood the purpose of the table but had some trouble understand?ng

what figures should go in each box. Three participants were fundamentally confused and 86 e?ther d?d not understand why charges m?ght change or began to feel overwhelmed by

the ?nformat?on.

▼ One part?c?pant cla?med that th?s table really helped “break th?ngs down.” Table 4 ▼ Part?c?pants had a number of d?fferent ▼ One part?c?pant d?d not understand the

?ssues w?th Table 4. Two part?c?pants d?fference between Table 3 and Table 4.

commented on the language ?n th?s table: One part?c?pant was overwhelmed and

one thought the wr?t?ng was at too h?gh confused. One part?c?pant commented

a level and another commented that ?t that th?s table was very clear and noted

sounded “l?ke tax forms.” that the language matched that of

▼ Two part?c?pants could not understand the GFE. what figures to enter into this table. Round 3 T est?ng

Round 3 Testing Recap of HUD’s Goals After the th?rd round of test?ng, KCG rev?ewed HUD’s Round 3 test?ng goals to see ?f the th?rd round of test?ng met HUD’s goals: ✔ Facilitating shopping for mortgages ― When test?ng staff asked part?c?pants ― Beg?nn?ng w?th the two-way whether they would shop around compar?sons for the GFE, part?c?pants before they saw e?ther the GFE or the ?n Round 3 cont?nued to be able to MPO, half sa?d that they would, and tell wh?ch offer was the better deal. In half sa?d that they would not. fact, 100 percent of the part?c?pants ― When staff asked the same quest?on

identified the correct GFE when given after part?c?pants had looked at

the cho?ce of two. A smaller percentage the GFE or MPO, 80 percent of the

would choose th?s deal, but as part?c?pants sa?d they would shop

prev?ously ment?oned, there could be a around. All but one of those who sa?d

var?ety of reasons why they m?ght want 87 ?n?t?ally that they would shop around

to choose a part?cular offer. st?ll sa?d they would shop around. ― The results for the two-way compar?son However, there was a significant of MPOs were not as strong as for the change ?n att?tude for part?c?pants GFE (s?nce no data ex?sted for the MPO who ?n?t?ally sa?d they would not from earl?er rounds aga?nst wh?ch to shop around: 66 percent changed compare). For the MPO, 80 percent the?r m?nds after read?ng the GFE or p?cked the best deal. MPO, stat?ng they would shop around

― When asked to make the three-way after stat?ng ?n?t?ally they would not.

compar?son between the two GFEs and Th?s result ?nd?cates that look?ng at

an MPO, the results for round 3 were the GFE or MPO influences the

even better than for prev?ous rounds. att?tude of the part?c?pants toward

All but one of the part?c?pants on shopp?ng around.

Conditions 1 and 2 identified the best deal. ✘ Distinguishing items homebuyers can shop for ― Only 50 percent of part?c?pants understood that the d?fference between the categor?es was that they could shop for some ?tems or use the lender or broker’s prov?ders. To be ?ncluded as hav?ng a correct answer for th?s quest?on, the part?c?pant had to generate the correct answer w?th no help from test?ng staff. Most of those who gave incorrect answers were focused on the specific charges within the categor?es rather than the categor?es themselves. ✔ Making basic costs clear ― Part?c?pants could ?dent?fy the bas?c costs ?n the th?rd round. Over 90 percent of the part?c?pants were able to ?dent?fy every cost that staff asked them about. Round 3 T est?ng

Round 3 Testing ✘ Showing yield spread premium (YSP) and discounts to borrowers ― The percentage of part?c?pants who fully understood what YSP meant, at 3 percent,

was extremely low.

― Part?c?pants d?d sl?ghtly better understand?ng the mean?ng of “d?scount po?nts,” yet

only 30 percent had a full understand?ng or had only m?nor quest?ons.

― When asked what “our serv?ce charge meant,” a major?ty of part?c?pants, 70 percent,

were able to answer correctly. Nearly one-th?rd of part?c?pants d?d not know what the

serv?ce charge was.

✘ Making tolerances to HUD-1 clear ― In Round 3, sl?ghtly more than half of ― Part?c?pants had the most trouble the part?c?pants were able to answer ?dent?fy?ng all seven of the charges that quest?ons correctly about each of can change at settlement (37 percent), the tolerances for most of the but most part?c?pants were able to charges on the GFE. Th?s was a ?dent?fy at least some of the charges 88 significant decrease in performance that can change. from Round 2.

― In Round 3 of test?ng, only some of ― When quest?oned about wh?ch the part?c?pants were able to answer

charges should rema?n the same at quest?ons correctly about the MPO

settlement as they are on the GFE, tolerances. Performance decreased

only 2 participants (7 percent) clarified significantly from Round 2. Fifty percent that the serv?ce charge w?ll rema?n the of the part?c?pants correctly ?nd?cated same only after the ?nterest rate that the MPO could not ?ncrease at ?s locked. settlement. Only 17 percent noted that ― Forty percent answered the “serv?ce the “charge or cred?t for your po?nts”

charge,” but d?d not clar?fy that a could not ?ncrease after lock?ng ?n the

person would have to lock ?n. ?nterest rate, wh?le one part?c?pant sa?d

the “charge or cred?t for po?nts” but d?d not ment?on lock?ng ?n the ?nterest rate. ✔ Conveying prepayment penalties and balloon payments ― The GFE and MPO were both overwhelm?ngly successful ?n convey?ng ?nformat?on

about prepayment penalt?es and balloon payments. In Round 3 of test?ng, most

part?c?pants were able to answer quest?ons correctly about whether the loan had a

prepayment penalty (87 percent) and whether the loan had a balloon payment (93

percent). Only 14 percent sa?d they d?d not know or answered ?ncorrectly when asked

?f the loan has a prepayment penalty. Only s?x percent answered ?ncorrectly or gave a

d?fferent answer when asked ?f the loan had a balloon payment.

Round 3 T est?ng

Round 3 Testing ✘ Providing a Crosswalk from the estimates from the GFE and MPO to the HUD-1 settlement Can homebuyers correctly fill in the information from the GFE on

the Crosswalk?

― Part?c?pants showed w?de var?at?on

?n the?r success w?th d?fferent parts

of the form. Table 1 was part?cularly

confus?ng for part?c?pants. One-

th?rd of part?c?pants were confused

about the fundamental purpose of

the table.

― Part?c?pants were supposed to

enter two ?tems ?n Table 1 that

would then gu?de them to where to

put the ?tems ?n Tables 2, 3 and 4.

Few part?c?pants d?d th?s correctly.

Only 47 percent of the part?c?pants

put the title insurance figure in the

correct place, and only 20 percent

put the survey figure in the right place. A th?rd of the part?c?pants also put ?rrelevant ?tems ?n Table 1. ― The Helpful H?nts sect?on proved

to be unhelpful for most of the

part?c?pants and d?d not help to

clar?fy the?r confus?on.

― Part?c?pants also had a lot of trouble

filling out the rest of the tables

on the GFE Crosswalk, ?nclud?ng

Tables 2, 3, and 4 predom?nately

because they had a fundamental

problem read?ng and understand?ng

the directions on page 1, the first

table, and the helpful h?nts. The

first table should have alerted part?c?pants on where to place certain figures based on who arranged for the serv?ce. Because most

part?c?pants d?d not understand Table

1, part?c?pants showed a w?de var?at?on

in being able to fill out the rest of the tables correctly. ― Part?c?pants d?d relat?vely better ?n complet?ng the ?nformat?on ?n Table 2 compared w?th the rest of the Crosswalk, but the results were not as good as for Round 2. 89 ― For table 2 ?n the Crosswalk, a h?gh percentage of participants filled in the ?tems correctly, but some part?c?pants

were less successful. The ?tems

that required participants to fill in Table 1 correctly ?n order to enter

the ?nformat?on ?n Table 2 tended to

be a problem for the part?c?pants.

If participants did not fill in Table 1 correctly, they m?ssed ?t ?n table 2.

Th?s was true for the “t?tle serv?ces

and lender’s t?tle ?nsurance” and the

“requ?red serv?ces you can shop for.”

― The results for Table 4 of the Crosswalk were s?m?lar. Items that requ?red an understand?ng of Table 1 had a lower percentage of participants filling in Table 4 correctly. Round 3 T est?ng

Round 3 Testing Can homebuyers correctly fill in the information from the HUD-1 on the Crosswalk? ― The next task for the part?c?pants

was to enter the ?nformat?on

from the sample HUD-1 on the

Crosswalk. As w?th the GFE,

many ?tems were not very easy

for part?c?pants to complete

correctly because they had not

understood Table 1.

― Participants had difficulty with the

same ?tems prev?ously ment?oned

from the GFE: those that had to

be ?n d?fferent places depend?ng

upon who prov?ded the serv?ce.

They also had another difficulty.

Some sect?ons of the HUD-1 l?st

var?ous serv?ces that should be ?n

d?fferent sect?ons of the Crosswalk

depend?ng upon the type of charge.

Part?c?pants could not tell where

charges should go based on the

label ?n the HUD-1.

― F?ll?ng ?n Table 2 was successful for some ?tems. E?ghty percent of part?c?pants correctly completed one ?tem—the loan or?g?nat?on fee. The other fees d?d not have such h?gh percentages, although the percentages for the lenders fees were h?gher for Round 3 than for Round 2. ― For the second table ?n the Crosswalk, few participants filled in very many of the ?tems correctly. Many of the ?tems are difficult to find on the HUD-1, and part?c?pants searched for them w?thout

success. Overall, the Round 3 results

90 were somewhat better than the Round 2

results but were st?ll not sat?sfactory.

― The last table ?n the Crosswalk also had some ?tems that ?mproved somewhat ?n Round 3 over the results ?n Round 2. A larger percentage of part?c?pants were able to find the title charges and the survey. For some of the other ?tems,

such as the ?nterest, hazard ?nsurance

and owner’s coverage, the results were

not as good for Round 3 as for Round 2.

Round 3 T est?ng Can homebuyers find a discrepancy in the cost if they filled in the forms correctly? ― Most part?c?pants found the d?screpanc?es, but the accuracy was down from Round 2 on all d?screpanc?es. Test?ng staff asked part?c?pants ?f any of the ?tems had ?ncreased more than allowed. Only 40 percent of part?c?pants were able to answer correctly ?nd?cat?ng that they were not really us?ng or understand?ng the Crosswalk ?n the ?ntended way—as a tool to help them.

Round 3 Testing Recommendations for Improving the Forms Th?s sect?on summar?zes the recommendat?ons for future rev?s?ons for each of the forms tested ?n Round 3. The recommendat?ons for the GFE and MPO are broken down by sect?on of the form. GFE Recommendations About Your GFE ▼ Leave in the paragraph about shopping in the nullbout Your GFEnullsection. Summary of Your Loan Terms for This Estimate ▼ Use the term nullervice chargenullrather than nulloan origination feenullin the nullummary of Your

Loan Terms for this Estimate.null

Charges That Can Change 91 ▼ Improve the presentation of items that cannot change at settlement in the nullharges that

Can Changenullsection. Aspects of the format used in Round 2 could be used since they

worked well.

Discount Points and Yield Spread Premium ▼ Improve the explanation on nulliscount pointsnulland nullield spread premium.null MPO Recommendations About Your MPO ▼ Leave in the paragraph about shopping for the best loan in the nullbout Your MPOnullsection. Understanding Your Settlement Charges ▼ Make sure that a negative charge or credit for homebuyernulls points can be shown clearly in

the nullnderstanding Your Settlement Chargesnullsection.

Charges That Can Change ▼ Use the format tested in Round 2 for the nullharges that Can Changenullsection. Round 3 T est?ng

Round 3 Testing Accepting This Mortgage Package Agreement ▼ Emphasize the fact that homebuyers can accept the offer without locking in the interest rate

in the nullccepting This Mortgage Package Agreementnullsection.

▼ Make the time homebuyers have to consider the offer more prominent in the nullccepting This

Mortgage Package Agreementnullsection.

▼ Eliminate the points calculation box for a new interest rate within the nullccepting This

Mortgage Package Agreementnullsection.

GFE Crosswalk Recommendations ▼ Reconceptualize the GFE Crosswalk, and add more explanation about how to use it

and fill it out.

▼ Find a different method for presenting the charges that can appear in more than one section. ▼ Move the nullelpful Hintsnullup or find a dif ferent format for presenting them, such as presenting

the helpful hints along with the directions for how to use the worksheet.

92 MPO Crosswalk Recommendations ▼ Clarify the use of negative numbers, perhaps by including another hint. ▼ Change the boxes and subtotals to prevent consumers from having to enter numbers twice. Round 3 T est?ng

Round 3 Testing How the Forms Changed After Round 3 of test?ng, HUD removed the MPO and the Crosswalk forms from the next two rounds of test?ng. Changes to the GFE ?ncluded the follow?ng: ▼ Separating the contact information and educational information into two separate sections at the top of page 1 ▼ Returning summary lines to page 2 (after the nullharges for loan originationnull and nullharges for all other settlement costsnullsections) Changes to the MPO ?ncluded: ▼ Adding a block for originator and borrower contact information on page 1 ▼ Creating a new block for general educational information (About Your MPO) on page 1 ▼ Chunking the information on page 2 into types of charge and adding summary lines for each new chunk of information ▼ Simplifying the Charges that Can Change section at the bottom of page 2 ▼ Removing the nulliscount pointsnulland nullield spread premiumnullinformation from page 3 ▼ Moving the information about tolerances from page 2 to page 3 ▼ Adding information at the bottom of page 3 on how to proceed with the GFE ▼ Including a new section at the bottom of page 2 showing the services included in 93 the MPO ▼ Removing the Discount Points section from the top of page 3 ▼ Removing the YSP section from page 3 ▼ Moving the trade-off table to the top of page 3 ▼ Adding a new section to the bottom of page 3 explaining the steps involved in accepting the MPO Round 3 T est?ng A sample of forms tested ?n Round 4 appears ?n Append?x D. The rev?sed MPO, wh?ch HUD d?d not test ?n Round 4 test?ng, appears after the GFE forms HUD tested ?n Round 4.

New block contact Contact educational created for information information removed from information

summary line to page design top of page 2 Returned Returned YSP disclosures to summary line to page design Returned

to top of page 3 Tolerances information moved Section added so consumers know how to go forward

________________________________________________ ______________________________________________ Mortgage Package Offer (MPO) Added block for contact information _____ _____ ___________________ ________ ______________________________ _______________________ Name of Originator _____ Phone _________________________________________ Address _______________________________________ Borrower ______________________________________ SSN Property Address ________ g i g i l g i i i ly i l i l About Your block for the general educational What is an MPO? This MPO is an offer for a mortgage loan from us that includes: A guaranteed price for a package that includes most of the settlement serv ces needed to get the loan. An interest rate and points that are guaranteed if you accept th s offer and lock in by ____/____/____. Otherwise, they wil float until you lock. An agreement that binds us to provide you the loan descr bed n this document if you are approved for this loan. This MPO s based on your statements that your gross month ncome is $ , the value of the property is $ and on a credit ana ysis that we conduct. We will verify your monthly income, the property value, your credit rating, and other information that you’ve provided to us. How should you use this MPO to shop for the best loan? We cannot guarantee that we are getting you the best poss ble loan costs or interest rates that are available. You should compare this MPO with those that you get from others. By comparing loan offers, you can shop for the best loan. This terms and conditions of this MPO are va id for 10 business days from this date _____/_____/_____. Keep this MPO to compare with your actual costs at settlement. MPO Created new information Summary Your Loan Details of Your Loan Terms for This Estimate $Your loan amount will be: c i . ) $ $ c % $ for mortgage insurance c c c c An Adjustable Rate Loan % initially, then t will adjust The interest rate adjustment will be based on the index and can change up to percentage points Your first adjustment will occur in (months or years years The maximum your monthly payment for principal, interest, and any mortgage insurance could be is A Fixed Rate Loan years days. After you lock in your interest rate, you must go to settlement within this number of days to be guaranteed this interest rate. Your loan is Your interest rate Your loan term Your monthly payment principal, interest, and any Your rate lock period Does your loan have Yes, your maximum prepayment penalty is $ a prepayment penalty? No Does your loan have Yes, you have a balloon payment of $ due in years. a balloon payment? No l iThe interest rate and monthly payment shown above can change unti you lock n your interest rate. Your Settlement Costs ( ) ( ) ( ) $ Charge for Your Guaranteed Mortgage Package item 1 on page 2 Charge or Credit for the Specific Interest Rate Chosen item 2 on page 2 Estimated Charges for Settlement Services Outside the Package items 3-6 on page 2 Total Estimated Settlement Charges 1

Mortgage Package Offer (MPO) Understanding Your Settlement Charges Charge or Credit for the Specific Interest Rate Chosen (Points) 2. Charge or credit for the specific interest rate chosen — For a higher interest rate loan—the payment by the lender on your behalf that reduces the up-front charge you pay — For a lower interest rate loan—the additional up-front charge you pay the lender (discount points) $ Estimated Charges for Settlement Services Outside the Package Charge for Your Guaranteed Mortgage Package 1. Your guaranteed mortgage package Your guaranteed mortgage package is one fixed price for most of the services that you will need to get your loan. This price cannot change before settlement. This package includes the charges for the following services, if needed: Service charge This charge is for the services we provide when we process this loan for you. Other required settlement services This charge is for certain services we require to complete your settlement, for example, an appraisal, credit report, or survey. We will choose the providers of these services. Title services and lender’s title insurance This charge includes the services of a settlement agent, for example, and title insurance to protect the lender, if required. Taxes and fees This charge includes state and local taxes and fees. $ 3. Reserves or escrow This charge is held in an escrow account to pay recurring charges on your property, such as property taxes or insurance. 4. Daily interest charges This charge is for the daily interest on your loan from the day of your settlement until the first day of the next month or the first day of your normal mortgage payment cycle. For this loan, this amount is $ per day for days (if your closing date is ____/____/____). 5. Homeowner’s insurance This charge is for the insurance you must buy for the property to protect from a loss such as fire. 6. Optional owner’s title insurance This charge is for insurance you can choose to buy to protect yourself from title defects. $ Total Estimated Settlement Charges $ All of the charges listed above can change at settlement except for the Charge for Your Guaranteed Charges That Can Change Mortgage Package. The Charge or Credit for the Specific Interest Rate Chosen can change until you lock in your interest rate. c c c c c c c c c c c c c c c c Services That As part of this mortgage package, we will obtain certain services as indicated below. Yes No Yes No Will Be in This Added new section showing series included in MPO Package Property Appraisal Closing Services Credit Report Title Search Pest Inspection Title Examination Survey Lender’s Title Insurance 2

Mortgage Package Offer (MPO) Understanding the Trade-off Between the Charges for Your Loan and Your Interest Rate Reorganized page 3 Accepting This Mortgage Package Offer g I . g l . rate . l c c I ( ), ( ) ( ) ( ). i $ % $ f $ $ f l $ % $ f f f f f f f $ $ % $ f $ $ We have offered you a particular interest rate and estimated settlement costs in this MPO. But, it is important that you see how this loan compares to others that you could choose. f you want to choose a loan with a lower interest rate, then you will have higher settlement costs If you want to choose a loan with lower settlement costs, then you wil have a higher interest rate The table above shows how the loan that we’ve offered you in this MPO compares to these different options. The loan in this MPO is in the first column. In the middle column is a loan with a lower interest . In the last column is a loan with lower settlement costs If you want one of these options, you can ask for a new MPO. If this loan offer is for an adjustable rate mortgage, the comparisons in the table are for the initia interest rate before any adjustments are made. What should you do if you want to accept this offer? 1. You will need to pay a fee of $ which will be applied towards your settlement charges. 2. You will need to decide to lock in an interest rate now or later. Check the option you would like: I want to accept the offer by signing below and locking in the interest rate now. I want to accept the offer by signing below and will wait to lock in the interest rate. realize I must lock in the interest rate at least days before settlement. What happens once you accept this offer? We will verify your monthly income, the property value, your credit rating, and other information that you’ve provided to us. We may ask you for more information. Then we will complete the evaluation of your mortgage application. If you are approved, we will provide the mortgage loan and settlement services exactly as we’ve outlined in this offer. What if you are not sure you want to accept this offer? This offer of $ Guaranteed Mortgage Package Charges Interest Rate , and $ Charge or Credit for the Specific Interest Rate Chosen is valid until _____/______/_____ date From _____/______/_____ until _____/______/_____ , the package price is still guaranteed, but the interest rate and points offered will float. The interest rate and points will stop floating when you lock them. You can find current interest rates and points options by going to: If you do not accept by _____/______/_____, this offer will expire. Our Signature Date Your S gnature Date You will pay $ less every month Your lower interest rate will raise your settlement costs by A loan with a lower interest rate The loan in this MPO A loan with lower settlement costs Your loan amount Your interest rate How much your monthly payment will be How much more or less in monthly payments from this MPO How much more or less you will pay at settlement with this interest rate How much your tota estimated settlement charges will be No Change No Change You will pay $ more every month Your higher interest rate will lower your settlement costs by 3

Round 3 Testing Questions for Round 4 Testing Study quest?ons used for Round 4 of test?ng ?ncluded the follow?ng: ▼ Wh?ch of two offers w?ll cost less, or w?ll they cost the same amount? ▼ If shopp?ng for a mortgage loan and these two offers were the only ones ava?lable, would the

part?c?pant prefer one of the offers or are both equally attract?ve?

▼ Why d?d part?c?pants answer the way they d?d? 100 Round 3 T est?ng

Consumer Testing of the Good Faith Estimate Form (GFE)

Round 4 Testing

Round 4 Testing Introduction During the first three rounds of testing, work focused mainly on building and revising the forms to produce a set of forms that would be ?nvolved ?n consumer test?ng. HUD and KCG, through a subcontract w?th Aspen Systems, performed th?s work—dr?ven by the need to s?mpl?fy both the language and the layout of the GFE and MPO. Data from consumer test?ng drove future rev?s?ons to the forms. In 2003, the Federal Trade Comm?ss?on (FTC) performed ?ts own round of consumer test?ng based on the GFE. The FTC’s object?ve was to study whether the y?eld spread prem?um (YSP) d?sclosure could unfa?rly b?as consumers aga?nst mortgage brokers. Thus, FTC extracted sections of the proposed and new GFE, specifically the YSP disclosure, and tested only those sect?ons that the FTC bel?eved m?ght create an unfa?r b?as aga?nst mortgage brokers. Because of the lack of context ?n the FTC study, however, the?r data suggested that consumers us?ng the extract only would (a) become confused when the YSP was d?sclosed and (b) become b?ased aga?nst brokers as a result of the d?sclosures made ?n the YSP. However, the FTC d?d not test 102 the whole GFE; ?t used only an extract, and as such, consumers had no context aga?nst wh?ch to compare and contrast the YSP information. As a result, the FTC reported a significant bias aga?nst brokers, based solely on the extract. Whether th?s b?as appl?es to the GFE as a whole would depend on test?ng results for the ent?re GFE rather than an extract. Because of the FTC study, HUD d?rected another round of consumer test?ng on the GFE (Round 4). In late 2003, HUD d?rected KCG, through a sub-contract to Aspen Systems, to m?rror aspects of the FTC study (such as study?ng the GFE both w?th and w?thout the YSP d?sclosure); however, HUD wanted to keep the YSP ?n context by test?ng the ent?re GFE, rather than just extracted YSP d?sclosures. In HUD’s study, both new and exper?enced homebuyers were part of the part?c?pant pool w?th demograph?cs representat?ve of the U.S. populat?on to ensure that the study covered a d?verse range of ?ncomes, ethn?c?t?es, educat?onal backgrounds, and age groups. In add?t?on to demograph?c cons?derat?ons, KCG made a consc?ence effort to recru?t part?c?pants from low- educat?on and low-?ncome groups who have had past exper?ence shopp?ng for a mortgage loan. Staff then used data collected ?n Round 4 test?ng to make ?mprovements to the GFE form. The rev?sed GFE was the bas?s for another round of consumer test?ng (Round 5), ?n wh?ch Aspen/ KCG collected data to see how well the forms worked because of the consumer-dr?ven changes to the GFE. Round 4 T est?ng

Round 4 Testing HUD’S Goals HUD’s goals for Round 4 were to ▼ emulate certa?n aspects of a y?eld spread prem?um (YSP) study conducted by the Federal

Trade Comm?ss?on (FTC), and

▼ use qual?tat?ve and quant?tat?ve research to see how ?mprovements to the GFE helped

consumers choose lower-cost loans.

The major overall object?ve was to collect data to see how well the rev?sed forms worked both ?n structured one-on-one test?ng and ?n small group sess?ons. To th?s end, ?n Round 4, three study quest?ons helped to determ?ne how well the forms worked: ▼ Wh?ch of two offers w?ll cost less, or w?ll they cost the same amount? ▼ If shopp?ng for a mortgage loan and these two offers were the only ones ava?lable, would the

part?c?pant prefer one of the offers or are both equally attract?ve?

▼ Why d?d part?c?pants answer the way they d?d? 103 Methodology In Round 4, KCG tested 600 diverse participants across five sites: Atlanta, Georgia; Boston, Massachusetts; Denver, Colorado; Seattle, Wash?ngton; and Tulsa, Oklahoma. For th?s round of test?ng, staff tested four form var?at?ons: 1. D?fferent cost loan w?thout YSP 2. D?fferent cost loan w?th YSP 3. Same cost loan w?thout YSP 4. Same cost loan w?th YSP Each set of forms conta?ned a broker and a lender loan, and each part?c?pant saw two sets of loan offers. To l?m?t b?as, staff used 16 d?fferent rotat?ons for present?ng the loan offers. Analytical Approach Database Answer sheet responses were entered ?nto a M?crosoft Access © database. After enter?ng all of the data ?nto the database, staff purged outl?ers by conduct?ng a qual?ty assurance check on the ?ntegr?ty of the data. Aspen staff entered answer sheet responses ?nto a MS Access © database. After Aspen staff entered all of the data ?nto the database, they rev?ewed the data by conduct?ng a qual?ty assurance check. The Aspen/KCG team then generated reports and analyzed the quant?tat?ve data by export?ng the data from MS Access © ?nto SPSS © . The Aspen/KCG team then used SPSS © to calculate response frequenc?es for all quest?ons, w?th the except?on of the qual?tat?ve open-ended quest?ons. Round 4 T est?ng

Round 4 Testing Qualitative and Quantitative Analysis After purging outliers from the data, staff exported the data from Microsoft Access null into SPSS null , where response frequencies were calculated for all of the questions, with the exception of the open-ended questions. Us?ng a grounded theory approach, Aspen/KCG team rev?ewed all of the responses for each compar?son made and then created a un?que cod?ng system for that part?cular compar?son. After responses for each compar?son were coded, the results were comp?led us?ng the corrected M?crosoft Access © database. KCG then reviewed these final results, created matrices to organize those results, and determ?ned what the data meant ?n terms of the other results as well as how to rev?se the GFE. Study Methodology For Round 4, HUD asked KCG to parallel aspects of the FTC study, ?nclud?ng the quest?ons asked, the d?fference between the amounts of each offer, and the length of the test s?tuat?on. 104 However, because HUD thought that the context of the ent?re form m?ght prov?de a more accurate measure of part?c?pants’ understand?ng of the GFE, the study des?gn used a full-length GFE rather than the extract from the FTC study. For each s?te, staff selected 120 part?c?pants who m?rrored the demograph?cs of the U.S. Census. Both Aspen Systems and KCG staff filled key positions within the testing team. At each testing s?te, an Aspen team member served as test moderator wh?le a KCG team member observed the test?ng sess?ons. At the end of each day of test?ng, Aspen/KCG staff sent part?c?pant answer sheets to Aspen Systems for data entry. In Round 4, Aspen/KCG gave all 600 part?c?pants full-length GFEs. The control group—285 part?c?pants—rece?ved GFEs that om?tted YSP d?sclosure, wh?le the exper?mental group—315 part?c?pants—rece?ved GFEs w?th the YSP d?sclosed. Staff gave each part?c?pant two pa?rs of loans: one ?n wh?ch the broker loan was $300 less than the lender and one ?n wh?ch the broker and lender loan offers were the same cost. Staff asked each part?c?pant three quest?ons for each set of GFEs: 1. Wh?ch offer was cheaper, or do they cost the same? 2. Wh?ch would you choose? 3. Why d?d you make that cho?ce? Round 4 T est?ng

Round 4 Testing Demographics In Round 4 of the test?ng, staff recru?ted part?c?pants who m?rrored the U.S. census. As a part of the screen?ng protocol, profess?onal test?ng s?tes recru?ted part?c?pants based on the follow?ng cr?ter?a: ▼ Gender ▼ Age ▼ Education ▼ Income ▼ Marital Status ▼ Race/ethnicity Add?t?onally, KCG screened part?c?pants based on the?r exper?ences ?n ▼ obtaining a mortgage (whether purchasing or refinancing a home), and ▼ shopping for a new mortgage loan. 105 At each of the profess?onal test?ng s?tes, staff prov?ded recru?ters w?th the same screen?ng protocol, wh?ch they would read when contact?ng potent?al study part?c?pants. In the course of the call, screeners would ask prospect?ve part?c?pants a ser?es of quest?ons that allowed screeners to determ?ne ?f the ?nd?v?dual called was el?g?ble to part?c?pate ?n the study. If a recru?ter contacted a part?c?pant who d?d not meet the cr?ter?a, the recru?ter term?nated the call. Staff gave each s?te the same cr?ter?a for the number of part?c?pants needed ?n each demograph?c category. Th?s procedure ensured the study ?nvolved part?c?pants from a w?de range of backgrounds, ages, and ethn?c groups (among other cr?ter?a) but who also had e?ther obta?ned or shopped for a mortgage loan. Once selected, and after complet?ng the test?ng, staff pa?d part?c?pants an ?ncent?ve of $50.00. If more part?c?pants arr?ved than were needed or ?f cancellat?ons occurred, the test?ng s?te tr?ed to place or recru?t part?c?pants who would represent the requ?red demograph?cs. Table 35 prov?des demograph?cs for Round 4 test?ng. Round 4 T est?ng

Round 4 Testing Table 35. Participant Demographic Information—Round 4 Number Percent Gender Female Male 347 252 58 42 Age 21 or younger 22 to 34 35 to 44 45 to 54 55 to 64 65 or older 1 150 166 167 92 23 .2 25 27.7 27.8 15.4 3.9 Education Less than high school High school or GED Some college or a 2-year college program College graduate Graduate School 6 99 182 214 98 1 16.5 30.3 35.7 16.3 Income Less than $20,000 $20,000 to $39,999 $40,000 to $59,999 $60,000 to $79,999 $80,000 to $99,999 $100,000 or more 11 79 153 149 91 101 1.8 13.2 25.5 24.8 15.2 16.8 Marital Status Married Single/Divorced 415 177 69.2 29.5 Race/Ethnicity (participants could select more than one category) Hispanic/Latino American Indian/Alaskan Native Asian Black or African American Native Hawaiian or other Pacific Islander White Other 25 19 9 61 3 512 null 4.2 3.2 1.5 10.2 .5 85.3 null 106 Round 4 T est?ng Study Questions Study quest?ons used for Round 4 of test?ng ?ncluded the follow?ng: ▼ Which of two offers will cost less, or will they cost the same amount? ▼ If shopping for a mortgage loan and these two offers were the only ones available, would the participant prefer one of the offers or are both equally attractive? ▼ Why did participants answer the way they did?

Round 4 Testing Summary of Findings The FTC conducted a study of the YSP d?sclosure ?n 2003 us?ng extracted elements of HUD’s GFE as publ?shed ?n the 2002 RESPA proposed rule. In the?r study, FTC observed that the YSP d?sclosure unfa?rly b?ased consumers aga?nst brokers, wh?ch prompted HUD to undertake add?t?onal test?ng on the GFE. Thus, for Round 4 of test?ng, HUD asked KCG to parallel aspects of the FTC study, ?nclud?ng the quest?ons asked, the d?fference between the amounts of each offer, and the length of the test s?tuat?on. However, because HUD thought the context of the ent?re form m?ght prov?de a more accurate measure of part?c?pants’ understand?ng of the GFE, the study des?gn used a full-length GFE rather than the extracted elements from the FTC study. For each s?te, staff selected 120 part?c?pants for demograph?c d?vers?ty. The results of th?s test?ng showed both cons?stency and d?vergence w?th the FTC results. Different Cost Loan Comparisons With the YSP disclosed, 83 percent of the participants correctly identified the broker loan as cheaper, and 8 percent incorrectly identified the lender as cheaper. These results are an 107 ?mprovement over the FTC results of 72 percent and 17 percent. In th?s GFE scenar?o, 72 percent of the part?c?pants sa?d they would choose the broker offer and 11 percent sa?d they would choose the lender. S?m?larly, ?n the FTC study, 70 percent of the part?c?pants chose the broker offer, and 16 percent chose the lender offer (Table 36). Table 36. Different Cost Loan Results Round 4 T est?ng Without YSP (Percent) With YSP (Percent) FTC HUD FTC HUD Which loan is cheaper? Broker (correct) Lender (incorrect) Same (incorrect) Donnull know No answer 90.3 3.9 5.8 0 null 91.6 .7 5.6 0 2.1 71.8 16.5 9.7 1.9 null 83.2 7.9 6.3 0 2.6 Which would you choose? Broker Lender Either Neither Donnull know No answer Other 85.2 2.9 3.9 2.9 4.9 null null 88.1 .4 6.3 0 3.5 1.7 null 69.9 15.5 4.9 1.9 7.8 null null 72.1 11.1 11.4 0 3.5 1.9 null With the YSP disclosure removed, 92 percent correctly identified the broker loan as cheaper, and one percent incorrectly identified the lender as cheaper. These results are quite similar to FTC’s results of 90 percent and four percent. When asked to choose a loan, 88 percent of part?c?pants chose the broker offer, wh?le one percent chose the lender loan. These results compare to 85 percent and three percent respect?vely ?n the FTC test?ng.

Round 4 Testing Same Cost Loan Comparisons When given same cost loan offers with the YSP, 81 percent correctly identified both loans as costing the same; 15 percent incorrectly identified the lender as cheaper; and three percent incorrectly identified the broker as cheaper. In contrast, in the FTC study, only 53 percent correctly identified the offers as costing the same; 30 percent incorrectly identified the lender as cheaper; and 11 percent incorrectly identified the broker as cheaper. In this GFE scenario, 50 percent of part?c?pants would have chosen e?ther offer; 39 percent chose the lender offer; and only five percent chose the broker’s. In contrast, in the FTC study, only 25 percent chose either offer; 46 percent chose the lender offer; and 17 percent chose the broker’s offer. With the YSP excluded from the GFE, 95 percent correctly identified that the loans cost the same, wh?ch ?s cons?stent w?th FTC’s data (also 95 percent). When asked wh?ch loan part?c?pants would choose, 90 percent of the part?c?pants ?n HUD’s study answered “e?ther loan” correctly, wh?ch stands ?n contrast to FTC’s 78 percent. In the FTC study, seven percent chose the broker loan, seven percent chose the lender loan, and seven percent chose ne?ther loan. In the HUD study, only two percent chose the broker loan, and one percent chose the lender loan. 108 Qualitative Analysis Of part?cular concern was the d?fference between part?c?pants who could ?dent?fy the cheapest loan offer but d?d not choose ?t. Analys?s of the part?c?pant responses to the open-ended question of “why did you choose that offer” led to further modifications of the GFE to address this concern and to a fifth round of testing. These responses fell into four themes. First, in many comments, part?c?pants stated that they chose a part?cular offer because they d?d not want the “h?gher ?nterest rate” ?nd?cated on page two of the GFE. They concluded from the language on YSP d?sclosure that the ?nterest rate was h?gher than the rate c?ted on page one, “Loan Deta?ls.” Second, many comments reflected that participants felt that the broker YSP disclosure was not stra?ghtforward and perhaps man?pulat?ve. Th?rd, several part?c?pants chose a loan based on the loan or?g?nat?on fee as opposed to the overall adjusted charges. F?nally, many of those who had no preference for the cheaper broker loan ?nd?cated that $300 was not a b?g enough d?fference to be a dec?d?ng factor. Round 4 T est?ng

Round 4 Testing Table 37. Same Cost Loan Results Without YSP (Percent) With YSP (Percent) FTC HUD FTC HUD Which loan is cheaper? Broker (incorrect) Lender (incorrect) Same (correct) Donnull know No answer Other 1.9 2.9 95.1 0 null null .7 1.4 95.1 null 2.1 .7 10.7 30.1 53.4 5.8 null null 2.9 14.6 80.6 0 1.9 null Which would you choose? Broker Lender Either Neither Donnull know No answer Other 6.8 6.8 77.7 6.8 1.9 null null 2.1 1.4 89.5 0 4.6 2.1 .3 16.5 45.6 25.2 6.8 5.8 null null 5.4 39.3 50.4 0 2.6 2.3 null Recap of HUD’s Goals HUD’s goals for Round 4 were to ✔ Emulate certain aspects of a yield spread premium study conducted by the FTC and ✔ Use qualitative and quantitative research to see how improvements to the GFE helped consumers choose lower-cost loans. ― When the broker offer was cheaper. Staff presented two sets of complete GFEs, one w?th the YSP d?sclosed, and one w?th ?t removed. When the form d?sclosed YSP, 83 percent of the participants correctly identified the broker loan as cheaper, and 8 percent incorrectly identified the lender as cheaper. These results are an improvement over the FTC results of 72 percent and 17 percent. In th?s GFE scenar?o, 72 percent of the part?c?pants sa?d they would choose the broker loan offer, and 11 percent sa?d they would choose the lender. S?m?larly, ?n the FTC study, 70 percent of the part?c?pants chose the broker offer, and 16 percent chose the lender offer. When the form did not disclose the YSP disclosure, 92 percent correctly identified the broker loan as cheaper, and one percent incorrectly identified the lender as cheaper. These results are qu?te s?m?lar to FTC’s results of 90 percent and 4 percent. When asked to choose a loan, 88 percent of part?c?pants chose the broker offer, wh?le one percent chose the lender loan. These results compare to 85 percent and 3 percent respect?vely ?n the FTC test?ng. 109 Round 4 T est?ng

Round 4 Testing ― When offers cost the same. When g?ven same-cost loan offers w?th YSP, 81 percent correctly identified both loans as costing the same; 15 percent incorrectly identified the lender as cheaper; and three percent incorrectly identified the broker as cheaper. In contrast, only 53 percent in the FTC study correctly identified the offers as costing the same; 30 percent incorrectly identified the lender as cheaper; and 11 percent incorrectly identified the broker as cheaper. In this GFE scenario, 50 percent of part?c?pants would have chosen e?ther offer; 39 percent chose the lender offer; and only five percent chose the broker. In contrast, in the FTC study, only 25 percent chose e?ther offer; 46 percent chose the lender offer; and 17 percent chose the broker’s offer. The drop between the number of participants who identified a loan as lower or loans as cost?ng the same and the number who would choose as expected (the lower loan or either) suggested influences besides cost. Analysis of the qualitative responses to “Why did you choose this loan?” identified several possible sources, and four primary trends emerged. F?rst, the language about the YSP referred to “the charge for a h?gher 110 ?nterest loan.” Many part?c?pants commented that they wanted a lower ?nterest loan and thus chose the bank offer w?thout a cred?t. Second, many part?c?pants looked at the or?g?nat?on fee to determ?ne wh?ch loan offer was cheaper rather than focus?ng on the adjusted or?g?nat?on fee or the total settlement costs. Th?rd, some part?c?pants d?sl?ked the presence of YSP or d?scount po?nts, comment?ng on ?t as “tr?cky” or such. Fourth, some part?c?pants commented that the $300 d?fference ?n clos?ng cost, less than 5 percent of total clos?ng cost, and only 0.3 percent of the loan amount, were insufficient to force a choice. Recommendations for Improving the Forms Th?s sect?on summar?zes the recommendat?ons for future rev?s?ons to the GFE. The recommendat?ons for the GFE are broken down by sect?on of the form. Yield Spread Premium (YSP) Information ▼ Add a third option to the YSP information on page 2. Many consumers were confused by

the fact that on lender loans, where no YSP was reported, ne?ther of the opt?ons deal?ng w?th

YSPs or d?scount po?nts was checked. The solut?on to th?s ?ssue was to add an add?t?onal

opt?on to the YSP ?nformat?on, wh?ch would be checked when no amount was reported ?n

the second checkbox.

Round 4 T est?ng

Round 4 Testing How the Forms Changed Based on the data from Round 4 results, HUD ?nst?tuted several changes to the GFE, ?nclud?ng the follow?ng: ▼ Chang?ng the language about YSP ▼ Add?ng a th?rd opt?on to check when

to repeat the ?nterest rate and the cred?ts and charges were ?ncluded ?n

loan amount the or?g?nat?on fee and not broken

▼ Add?ng arrows ?n the marg?ns of page 1 to out separately emphas?ze total and sub-total amounts ▼ Add?ng a mortgage shopp?ng chart

(as a new page 4), wh?ch would help

consumers compare mult?ple loan offers

A sample of forms tested ?n Round 5 appears ?n Append?x E. 111 Round 4 T est?ng

call attention to summary lines Arrows added to

call attention to summary lines attention to summary lines Arrows added to Arrows added to call

Mortgage Shopping Chart added as page 4 to help consumers choose the loan that is right for them

Round 4 Testing Questions for Round 5 Testing In Round 5 of the GFE test?ng, the quest?ons were s?m?lar to those of Round 4 and ?ncluded an add?t?onal qual?tat?ve quest?on: ▼ Based on the information in these two offers, which of these two offers will cost you less, or

will they cost you the same amount?

▼ Why did you choose that answer? ▼ If you were shopping for a mortgage loan and these two offers were the only ones available,

would you prefer one of these offers, or are both equally attractive to you?

▼ Please tell us briefly why you chose the answer that you did to question 3. To test whether ?ncreased context ?mproved or decreased consumer performance w?th the rev?sed GFE, HUD asked Aspen/KCG to g?ve half of the part?c?pants (those g?ven the GFE w?th a 3-opt?on YSP) a four-loan compar?son as well. For th?s four-way compar?son, HUD ?ncluded a blank worksheet—the Mortgage Shopp?ng Chart—to a?d part?c?pants ?n compar?ng the loans. 116 Staff asked part?c?pants they d?rected to use the chart the follow?ng quest?ons: ▼ Which of the four loan offers would cost less? ▼ Was the Mortgage Shopping Chart helpful and why? Round 4 T est?ng

Consumer Testing of the Good Faith Estimate Form (GFE)

Round 5 Testing

Round 5 Testing Introduction Before beg?nn?ng work on Round 5 of test?ng, KCG, through a subcontract w?th Aspen Systems, used data collected dur?ng Round 4 to make ?mprovements to the GFE. Round 5 closely m?rrored Round 4 ?n object?ve, methodology, and demograph?cs. The key purpose of Round 5, however, was to collect data to see how well the forms worked because of consumer-dr?ven changes to the GFE. HUD’s Goals For Round 5, HUD’s goals ?ncluded the follow?ng: ▼ Test a 3-opt?on y?eld spread prem?um ▼ Assess the add?t?on of arrows to

(YSP) versus a 2-opt?on YSP GFE the des?gn

▼ Ver?fy language changes to the or?g?nat?on ▼ Test the Mortgage Shopp?ng Chart as an charges sect?on of the GFE add?t?onal cond?t?on to the 3-opt?on 118 YSP GFE

In Round 5 of the GFE test?ng, the quest?ons were s?m?lar to those of Round 4 and ?ncluded an add?t?onal qual?tat?ve quest?on: ▼ Based on the ?nformat?on ?n these two ava?lable, would you prefer one of

offers, wh?ch of these two offers w?ll these offers, or are both equally

cost you less, or w?ll they cost you the attract?ve to you?

same amount?

▼ Please tell us briefly why you chose the ▼ Why d?d you choose that answer? answer that you d?d to quest?on 3. ▼ If you were shopp?ng for a mortgage loan

and these two offers were the only ones

To test whether ?ncreased context ?mproved or decreased consumer performance w?th the rev?sed GFE, HUD asked Aspen/KCG to g?ve half of the part?c?pants (those g?ven the GFE w?th a 3-opt?on YSP) a four-loan compar?son as well. For th?s four-way compar?son, HUD ?ncluded a blank worksheet—the Mortgage Shopp?ng Chart—to a?d part?c?pants ?n compar?ng the loans. The worksheet conta?ned spaces for the or?g?nator’s name, loan amount, ?nterest rate, term, monthly payment, adjusted or?g?nat?on charge, charges for all other settlement serv?ces, and total est?mated settlement charges. On page one of the GFE, a sentence d?rect?ng part?c?pants to use the compar?son chart to compare offers was ?nserted. Add?t?onally, staff gave half of the part?c?pants expl?c?t verbal d?rect?ons to use the worksheet. Because of th?s add?t?onal cond?t?on study?ng the effect of the Mortgage Shopp?ng Chart on consumers’ dec?s?ons, staff asked half of the sample who rece?ved the Mortgage Shopp?ng Chart (150 part?c?pants) one or two further quest?ons, such as: ▼ Which of the four loan offers would cost less? ▼ If the Mortgage Shopping Chart was helpful, and why. Round 5 T est?ng

Round 5 Testing The object?ve ?n study?ng the Mortgage Shopp?ng Chart was two-fold. One quest?on concerned whether consumers would naturally use such a compar?son chart when they rece?ved more than two loan offers at once. The second question was to determine how well people identified the cost of loan offers when staff prompted them to use the compar?son form. Staff d?d not prompt the rema?n?ng 150 part?c?pants of the sub-sample to use the Mortgage Shopp?ng Chart. Methodology In Round 5, KCG tested 600 diverse participants in five sites. The sites for the testing were Atlanta, Georg?a; Boston, Massachusetts; Denver, Colorado; Seattle, Wash?ngton; and Tulsa, Oklahoma. In Round 5, Aspen/KCG tested two d?fferent GFEs: one w?th a 2-opt?on YSP sect?on and one 119 w?th a 3-opt?on YSP sect?on, wh?ch ?ncluded the Mortgage Shopp?ng Chart. To test the GFE, staff spl?t the sample ?nto two sub-samples of 285. Three hundred part?c?pants rece?ved the GFE w?th a 2-opt?on YSP, wh?le 315 part?c?pants rece?ved the GFE w?th a 3-opt?on YSP sect?on. To test the Mortgage Shopp?ng Chart, staff spl?t the 3-opt?on YSP sub-sample ?nto a further sub-sample of two groups of about 150 part?c?pants, half of whom rece?ved ?nstruct?ons to use the Mortgage Shopp?ng Chart. The rema?n?ng sub-sample d?d not rece?ve ?nstruct?ons to use the Mortgage Shopp?ng Chart. The test?ng team then set up e?ght var?at?ons to test the forms (L represents a lender offer and B represents a broker offer): 1. Same cost loan with 2-option YSP (L$6,500 vs. B$6,500) 2. Different cost loan with 2-option YSP (L$6,600 vs. B$6,100) 3. Different cost loan with 2-option YSP (L$6,400 vs. B$6,900) 4. Same cost loan with 3-option YSP (L$6,500 vs. B$6,500) 5. Different cost loan with 3-option YSP (L$6,600 vs. B$6,100) 6. Different cost loan with 3-option YSP (L$6,400 vs. B$6,900) 7. Four-form comparison (B$6,500 vs. L$6,600 vs. B$6,100 vs. L$6,500) 8. Four-form comparison (B$6,500 vs. L$6,600 vs. B$6,900 vs. L$6,500) Each set of loan offers conta?ned a broker and a lender loan offer, and each of the 600 part?c?pants saw three sets of loan offers. To l?m?t b?as, staff used 12 d?fferent rotat?ons for present?ng the d?fferent loan offers. At the end of the GFE study, 300 of the 600 part?c?pants saw an add?t?onal packet of four loan offers for a s?de-by-s?de compar?son. A further cond?t?on of th?s sample was the study of the Mortgage Shopp?ng Chart. Of the 300 who saw the four-form Round 5 T est?ng

Round 5 Testing compar?son, staff gave 150 part?c?pants d?rect?ons to use the compar?son chart. Staff d?d not d?rect the rema?n?ng part?c?pants to use the compar?son chart. Unlike Round 4, Round 5 loan-originator names did not contain the words “bank,” “financial,” or any other prejud?c?al term. In Round 5 of the test?ng, the only way for a part?c?pant to ?dent?fy whether the or?g?nator was a lender or a broker was by exam?n?ng YSP sect?on. Analytic Approach Database Aspen staff entered answer sheet responses ?nto a MS Access © database. After Aspen staff entered all of the data ?nto the database, they rev?ewed the data by conduct?ng a qual?ty assurance check. The Aspen/KCG team then generated reports and analyzed the quant?tat?ve data by export?ng the data from MS Access © ?nto SPSS © . The Aspen/KCG team then used SPSS © to calculate response frequenc?es for all quest?ons, w?th the except?on of the qual?tat?ve open-ended quest?ons. 120 Qualitative and Quantitative Analysis Qual?tat?ve analys?s ?s extremely ?mportant ?n any research des?gn because ?t allows researchers further ?ns?ghts ?nto the study’s results. For example, Round 4 test?ng showed that the vast majority of participants chose loans according to cost. However, some participants identified the cheapest loan but chose another, more expens?ve loan. Through qual?tat?ve analys?s ?n Round 4 test?ng, KCG researchers learned that many part?c?pants felt that $300 was not enough of a difference in closing costs to influence their decisions. Some participants believed issues like conven?ence and personal exper?ence w?th a broker or lend?ng ?nst?tut?on would overshadow the $300 d?fference ?n clos?ng costs. Th?s led Aspen/KCG and HUD to change the d?fference ?n clos?ng costs between loans to $500 for Round 5 test?ng (except ?n the four-form compar?sons). This change had a significant impact on resolving this discrepancy and helped clarify the consumers’ dec?s?on-mak?ng process. Us?ng a grounded theory approach, Aspen/KCG rev?ewed all of the responses for each compar?son made and then created a un?que cod?ng system for that part?cular compar?son. After responses for each compar?son were coded, the results were comp?led us?ng the cleaned M?crosoft Access © database. KCG then reviewed these final results, created matrices to organize those results, and determ?ned what those data meant ?n terms of the other results as well as how to rev?se the GFE. Round 5 T est?ng

Round 5 Testing Study Methodology Because of the test?ng and analys?s, rev?s?ons to the GFE ?ncluded the follow?ng: ▼ Aspen/KCG modified the language in box 2 on page two of the GFE referring to the nulligher

interest ratenulland nullower interest ratenullto reduce the possibility of borrowers misinterpreting

that the interest rate had changed from what appeared on the first page.

▼ Aspen/KCG added a third option to YSP/discount points section (on page 2) so lenders

could indicate that their credits or charges were already included in nullur Service Charge.null

This addition attempted to mitigate the sense of some participants that credits and charges

were not straightforward.

▼ Aspen/KCG added arrows on pages 1 and 2 to focus the borrowernulls attention on the

subtotals and the total estimated charges rather than individual components. In addition,

Aspen/KCG increased the point size in the Total Estimated Settlement Charges on the

bottom of page one to draw attention to the bottom-line.

For purposes of test?ng, staff made three other changes to the GFEs. F?rst, staff changed the 121 d?fference ?n the total cost to $500 to ?ncrease the l?kel?hood that the cost d?fference would be a dec?d?ng factor. Second, staff added another pa?r of loan opt?ons ?n wh?ch the lender offer was $500 less than the broker offer. Staff ?ntended th?s add?t?on to ?dent?fy any b?as for or aga?nst the broker and lender opt?ons. F?nally, staff added a set of four loans to ver?fy whether the compar?son across more than two offers ?ncreased or decreased part?c?pant performance. Staff d?d not test any vers?on of the GFE w?thout YSP and d?scount-po?nts language. For Round 5, staff d?v?ded 600 part?c?pants ?nto two groups, both of wh?ch rece?ved the rev?sed GFE. The first group—315 participants—received the revised GFE with changed language and w?th the add?t?on of a th?rd opt?on so lenders could ?nd?cate that YSP and d?scount po?nts had been ?ncluded ?n “Our Serv?ce Charge.” The second group—285 part?c?pants—rece?ved the ?dent?cal rev?sed GFE, w?th the th?rd opt?on box removed. All part?c?pants rece?ved three pa?rs of loans, one w?th the broker offer be?ng lower by $500, one w?th the lender offer be?ng lower by $500, and one ?n wh?ch both offers were the same. Both Aspen Systems and KCG staff filled key positions within the testing team. At each testing s?te, an Aspen team member served as test moderator wh?le a KCG team member observed the test?ng sess?ons. At the end of each day of test?ng, Aspen/KCG staff sent part?c?pant answer sheets to Aspen Systems for data entry. To test whether ?ncreased context ?mproved or decreased consumer performance w?th the rev?sed GFE, HUD asked Aspen/KCG to g?ve half of the part?c?pants (those g?ven the GFE w?th a 3-opt?on YSP) a four-loan compar?son as well. For th?s four-way compar?son, HUD ?ncluded a blank worksheet—the Mortgage Shopp?ng Chart—to a?d part?c?pants ?n compar?ng the loans. The worksheet conta?ned spaces for the or?g?nator’s name, loan amount, ?nterest rate, term, monthly payment, adjusted or?g?nat?on charge, charges for all other settlement serv?ces, and total est?mated settlement charges. On page 1 of the GFE, a sentence d?rect?ng part?c?pants to use the compar?son chart to compare offers was ?nserted. Add?t?onally, staff gave half of the part?c?pants expl?c?t verbal d?rect?ons to use the worksheet. Round 5 T est?ng

Round 5 Testing Of the part?c?pants who rece?ved the 3-opt?on GFE and the four-loan compar?son, half were given a set in which a broker loan offer of $6,100 cost less. The other three GFEs reflected a lender loan offer of $6,400 and lender and broker loan offers ?n wh?ch both cost $6,500. Staff gave the other half a set ?n wh?ch lender and broker loan offers cost the same and were the least expens?ve at $6,500. In th?s same set, part?c?pants rece?ved a broker loan offer of $6,900 and a lender loan offer of $6,600. In add?t?on, only 150 part?c?pants rece?ved expl?c?t verbal ?nstruct?ons to use the worksheet ?n the?r compar?son, wh?le half rece?ved no ?nstruct?ons. Demographics In Round 5 of test?ng, staff recru?ted the test populat?on to m?rror the U.S. census. As a part of the screen?ng protocol, profess?onal test?ng s?tes recru?ted part?c?pants based on the follow?ng cr?ter?a: ▼ Gender ▼ Age 122 ▼ Educat?on ▼ Income ▼ Mar?tal Status ▼ Race/ethn?c?ty Add?t?onally, staff screened part?c?pants based on the?r exper?ences ?n ▼ obtaining a mortgage (whether purchasing or refinancing a home), and ▼ shopp?ng for a new mortgage loan. At each of the profess?onal test?ng s?tes, Aspen/KCG prov?ded recru?ters w?th the same screen?ng protocol, wh?ch they would read when contact?ng potent?al part?c?pants. In the course of the call, screeners would ask prospect?ve part?c?pants a ser?es of quest?ons that allowed screeners to determ?ne ?f the ?nd?v?dual was el?g?ble to part?c?pate ?n the study. If recru?ters contacted a part?c?pant who d?d not meet those cr?ter?a, the recru?ter term?nated the call. Staff gave each s?te the same cr?ter?a for the number of part?c?pants requ?red ?n each demograph?c category. Th?s procedure ensured the study ?nvolved part?c?pants from a w?de range of backgrounds, ages, and ethn?c groups (among other cr?ter?a) but who also had e?ther obta?ned or shopped for a mortgage loan. Once part?c?pants were selected (and after the?r part?c?pat?on), they were pa?d an ?ncent?ve of $50.00. If more part?c?pants arr?ved than were needed or ?f cancellat?ons occurred, the test?ng s?te tr?ed to place or recru?t part?c?pants who would represent the needed demograph?cs. Table 38 prov?des demograph?cs for Round 5. Table 39 prov?des a s?de-by-s?de compar?son of demograph?cs for both Rounds 4 and 5. Round 5 T est?ng

Round 5 Testing Table 38. Participant Demographic Information—Round 5 Number Percent Gender Female Male 321 281 53.3 46.7 Age 21 or younger 22 to 34 35 to 44 45 to 54 55 to 64 65 or older 2 155 167 170 81 28 .3 25.7 27.7 28.2 13.4 4.7 Education Less than high school High school or GED Some college or a 2-year college program College graduate Graduate School 11 112 192 206 81 1.8 18.6 31.9 34.2 13.5 Income (six participants did not answer this question) Less than $20,000 $20,000 to $39,999 $40,000 to $59,999 $60,000 to $79,999 $80,000 to $99,999 $100,000 or more 15 86 151 140 90 115 2.5 14.3 25.0 23.2 14.9 19.1 Marital Status Married Single/Divorced 409 191 67.8 31.7 Race/Ethnicity (participants could select more than one category) Hispanic/Latino American Indian/Alaskan Native Asian Black or African American Native Hawaiian or other Pacific Islander White Other 38 17 10 64 3 500 25 6.3 2.8 1.7 10.6 .5 82.9 4.1 123 Round 5 T est?ng

Round 5 Testing Table 39. Participant Demographic Information—Side-by-Side Comparison Round 4 (Percent) Round 5 (Percent) Gender Female Male 58 42 53.3 46.7 Age 21 or younger 22 to 34 35 to 44 45 to 54 55 to 64 65 or older .2 25 27.7 27.8 15.4 3.9 .3 25.7 27.7 28.2 13.4 4.7 Education Less than high school High school or GED Some college or a 2-year college program College graduate Graduate School 1 16.5 30.3 35.7 16.3 1.8 18.6 31.9 34.2 13.5 Income (six participants did not answer this question) Less than $20,000 $20,000 to $39,999 $40,000 to $59,999 $60,000 to $79,999 $80,000 to $99,999 $100,000 or more 1.8 13.2 25.5 24.8 15.2 16.8 2.5 14.3 25.0 23.2 14.9 19.1 Marital Status Married Single/Divorced 69.2 29.5 67.8 31.7 Race/Ethnicity (participants could select more than one category) Hispanic/Latino American Indian/Alaskan Native Asian Black or African American Native Hawaiian or other Pacific Islander White Other 4.2 3.2 1.5 10.2 .5 85.3 null 6.3 2.8 1.7 10.6 .5 82.9 4.1 124 Round 5 T est?ng

Round 5 Testing Study Questions In Round 5 of the GFE test?ng, the quest?ons were ?dent?cal to those of Round 4 w?th the except?on of an add?t?onal qual?tat?ve quest?on: ▼ Based on the information in these two offers, which of these two offers will cost you less, or

will they cost you the same amount?

▼ Why did you choose that answer? ▼ If you were shopping for a mortgage loan and these two offers were the only ones available,

would you prefer one of these offers, or are both equally attractive to you?

▼ Please tell us briefly why you chose the answer that you did to question 3. To test whether ?ncreased context ?mproved or decreased consumer performance w?th the rev?sed GFE, HUD asked Aspen/KCG to g?ve half of the part?c?pants (those g?ven the GFE w?th a 3-opt?on YSP) a four-loan compar?son as well. For th?s four-way compar?son, HUD ?ncluded a blank worksheet—the Mortgage Shopp?ng Chart—to a?d part?c?pants ?n compar?ng the loans. 125 The worksheet conta?ned spaces for the or?g?nator’s name, loan amount, ?nterest rate, term, monthly payment, adjusted or?g?nat?on charge, charges for all other settlement serv?ces, and total est?mated settlement charges. On page one of the GFE, a sentence d?rect?ng part?c?pants to use the compar?son chart to compare offers was ?nserted. Add?t?onally, staff gave half of the part?c?pants expl?c?t verbal d?rect?ons to use the worksheet. Because of th?s add?t?onal cond?t?on study?ng the effect of the Mortgage Shopp?ng Chart on consumers’ dec?s?ons, staff asked half of the sample who rece?ved the Mortgage Shopp?ng Chart (150 part?c?pants) one or two further quest?ons, such as: ▼ Which of the four loan offers would cost less? ▼ Was the Mortgage Shopping Chart helpful, and why? The object ?n study?ng the Mortgage Shopp?ng Chart was two-fold. One quest?on was ?f people would naturally use such a compar?son chart when they rece?ved more than two loan offers at once. The second question was to determine how well people identified the cost of loan offers when staff prompted them to use the compar?son form. Staff d?d not prompt the rema?n?ng 150 part?c?pants of the sub-sample to use the Mortgage Shopp?ng Chart. Round 5 T est?ng

Round 5 Testing Summary of Findings The qual?tat?ve analys?s of results to the open-ended quest?ons ?n Round 4 resulted ?n several rev?s?ons to the GFE: 1. Staff modified the language in box 2 on page two of the GFE referring to the

nulligher interest ratenulland nullower interest ratenullto reduce the possibility of borrowers

misinterpreting that the interest rate had changed from what appeared on the first page.

2. A third option was added to YSP/discount points section on page two so a lender could

indicate that their credits or charges were already included in nullur Service Charge.null This

addition would mitigate the sense of some participants that credits and charges were not

straightforward.

3. Staff added arrows on pages 1 and 2 to focus the borrowernulls attention on the subtotals

and the total estimated charges rather than individual components. In addition, staff

increased the point size in the Total Estimated Settlement Charges on the bottom of page

one to draw attention to the bottom-line. 126 For purposes of test?ng, staff made three other changes to the GFEs. F?rst, staff changed the d?fference ?n the total cost to $500 to ?ncrease the l?kel?hood that the d?fference would be a dec?d?ng factor. Second, staff added another pa?r of loan opt?ons ?n wh?ch the lender offer was $500 less than the broker offer. Staff ?ntended for th?s add?t?on to ?dent?fy any b?as for or aga?nst the broker and lender opt?ons. F?nally, staff added a set of four loans to ver?fy whether the compar?son across more than two offers ?ncreased or decreased part?c?pant performance. Staff d?d not test any vers?on of the GFE w?thout YSP and d?scount-po?nts language. The results of th?s round of test?ng showed marked ?mprovement ?n part?c?pants’ performance on the rev?sed GFE, espec?ally ?n the 4-way compar?son. Different Cost Loan Comparisons (Broker Less) In the GFE in which the broker was cheaper, 92 percent of the participants correctly identified the broker as the cheaper loan offer. Th?s result represents an ?mprovement over the 72 percent reported by the FTC study and the 83 percent reported ?n Round 4 results. Only three percent of the participants incorrectly identified the lender as the cheaper loan offer, but again this was an ?mprovement over the 17 percent reported by the FTC and e?ght percent ?n Round 4. When asked to choose a loan, 87 percent of the part?c?pants chose the cheaper broker loan as compared to 70 percent of the part?c?pants ?n the FTC study and 72 percent of the part?c?pants ?n Round 4. The success rates for the 2-opt?on form are almost as good, just a percentage po?nt or two below the 3-opt?on form. Round 5 T est?ng

Round 5 Testing Table 40. Round 5 Different Cost Loan Comparisons (Broker Less) Which offer costs less? 2-option YSP 3-option YSP Number Percent Number Percent B$6,100 (correct) 262 90.7 274 91.6 Both loans are the same (incorrect) 10 3.5 13 4.3 L$6,600 (incorrect) 13 4.5 8 2.7 Other 4 1.4 4 1.4 Which loan would you prefer? 2-option YSP 3-option YSP Number Percent Number Percent B$6,100 249 86.3 261 87.3 Both offers are equally attractive 8 2.8 20 6.7 L$6,600 13 4.5 11 3.7 I donnull know 15 5.2 4 1.3 Other 3 1.0 2 .7 NR 1 .3 1 .3 127 Round 5 T est?ng Different Cost Loan Comparisons (Lender Less) In the GFE in which the lender was cheaper, 92 percent of the participants correctly identified the lender as the cheaper loan offer. A mere one percent incorrectly identified the broker as cheaper. When asked to choose a loan, 89 percent of the part?c?pants chose the lender loan, and less than one percent (0.3) chose the broker. Aga?n, the 2-opt?on form results are s?m?lar to the 3-opt?on results. The purpose of test?ng the case ?n wh?ch the lender was cheaper than the broker was to test for b?as by see?ng ?f the GFEs performed equally well when e?ther the lender or broker was the cheaper loan. A compar?son of the results (92 percent vs. 92 percent, 3 percent vs. 1 percent, 87 percent vs. 89 percent, and 3 percent vs. 0.3 percent) prov?des no support for the charge of ant?- broker b?as when the loans have d?fferent borrower costs.

Round 5 Testing Table 41. Round 5 Different Cost Loan Comparisons (Lender Less) Which offer costs less? 2-option YSP 3-option YSP Number Percent Number Percent B$6,100 (correct) 256 88.9 275 92.3 Both loans are the same (incorrect) 22 7.6 18 6.0 L$6,600 (incorrect) 6 2.1 3 1.0 Other 2 .7 1 .3 NR 2 .7 1 .3 Which loan would you prefer? 2-option YSP 3-option YSP Number Percent Number Percent L$6,400 248 86.1 264 88.6 Both offers are equally attractive 18 6.3 24 8.1 B$6,900 6 2.1 1 .3 I donnull know 16 5.6 9 3.0 128 Round 5 T est?ng Same Cost Loan Comparisons In the GFE ?n wh?ch the broker and lender loan offers were of equal cost, 90 percent of the part?c?pants were able to ?dent?fy that fact correctly. Th?s result compares very favorably w?th the 53 percent reported by FTC and the 81 percent from Round 4. Part?c?pants ?n Round 5 misidentified the lender as cheaper seven percent of the time, a large improvement over 30 percent in the FTC results and 15 percent in Round 4. Participants misidentified the broker as cheaper one percent of the t?me as compared to 11 percent ?n the FTC study and three percent in Round 4. This finding suggests that changes to the YSP information improved consumer performance. 7 Seventy percent of the t?me, part?c?pants sa?d they would choose e?ther loan, a dramat?c ?ncrease over the 25 percent ?n the FTC study and the 50 percent ?n Round 4. Twenty- one percent would choose the lender as compared to 46 percent ?n the FTC study and 40 percent ?n Round 4. Four percent of part?c?pants chose the broker compared to 17 percent ?n the FTC study and five percent in Round 4. The 2-option form results in Round 5 show the same bas?c s?zeable trend ?n success rates and reduct?on ?n b?as. ____________ 7 In our test design, the amounts of the YSP always exceeded the price differential between the loans, both when the prices are different as well as when they are the same. This approach was intentional in order to elicit the “YSP mistake” of adding the disclosed YSP to total estimated charges. Consumers who interpreted the YSP information in this way were likely to conclude that brokered loans were always more expensive than non-YSP lender loans.

Round 5 Testing Table 42. Round 5 Same Cost Loan Comparisons Which offer costs less? 2-option YSP 3-option YSP Number Percent Number Percent Both loans are the same (correct) 250 85.3 272 90.0 L$6,500 (incorrect) 25 8.5 21 7.0 B$6,500 (incorrect) 10 3.4 3 1.0 Other 6 2.0 0 0.0 NR 2 .7 6 2.0 Which loan would you prefer? 2-option YSP 3-option YSP Number Percent Number Percent Both offers are equally attractive 180 61.4 212 70.2 L$6,500 70 23.9 64 21.2 B$6,500 20 6.8 11 3.6 I donnull know 17 5.8 13 4.3 Other 6 2.0 2 .7 129 Round 5 T est?ng Four-Form Comparisons To test whether ?ncreased context ?mproved or decreased consumer performance w?th the rev?sed GFE, HUD asked Aspen/KCG to g?ve the part?c?pants a four-loan compar?son as well. For th?s four-way compar?son, HUD ?ncluded a blank worksheet to a?d part?c?pants ?n compar?ng the loans. The worksheet conta?ned spaces for the or?g?nator’s name, loan amount, ?nterest rate, term, monthly payment, adjusted or?g?nat?on charge, charges for all other settlement serv?ces, and total est?mated settlement charges. On page one of the GFE, staff ?nserted a sentence d?rect?ng part?c?pants to use the table to compare offers. Add?t?onally, half of the part?c?pants rece?ved expl?c?t verbal d?rect?ons to use the worksheet. The 300 part?c?pants who had rece?ved the 3-opt?on GFE were ?ncluded ?n th?s four-way compar?son. Half of them were g?ven a set ?n wh?ch a broker loan offer of $6,100 was the cheapest. The other three GFEs reflected a lender loan offer of $6,400, and a lender and a broker loan offer both cost?ng $6,500. The other half were g?ven a set ?n wh?ch a lender and a broker loan offer cost the same and were the cheapest at $6,500. In th?s same set, part?c?pants rece?ved a broker loan offer of $6,900 and a lender loan offer of $6,600. In add?t?on, only 150 part?c?pants rece?ved expl?c?t verbal ?nstruct?ons to use the worksheet ?n the?r compar?son, wh?le half rece?ved no ?nstruct?ons.

Round 5 Testing Part?c?pant performance on the four-way compar?son was ?mpress?ve. In the compar?son ?n wh?ch the broker loan offer of $6,100 was the cheapest, 92 percent of part?c?pants whom staff d?d not rem?nd to use the compar?son worksheet correctly reported the $6,100 broker loan as the cheapest. Three percent incorrectly identified the $6,400 lender loan as the cheaper loan. These results are the same as for the pa?red compar?son d?scussed earl?er where the broker was $500 less. Interest?ngly, very few of the part?c?pants whom staff verbally d?d not rece?ve a rem?nder to use the compar?son worksheet used ?t. When ?nstructed to use the compar?son sheet, many part?c?pants d?d, 97 percent correctly identified the $6,100 broker loan as the cheapest, and none wrongly picked the $6,400 lender loan. The overall success rate for ?dent?fy?ng the correct loan as the cheapest for both those gett?ng and those not gett?ng the verbal ?nstruct?ons to use the compar?son worksheet was 95 percent, w?th only one percent m?s?dent?fy?ng the lender as cheaper. 8 Table 43. Four-form Comparison, Participants Did Not Receive Instructions to Use the Mortgage Shopping Chart 130 Which offer costs less? Number Percent B$6,100 (correct) 68 91.9 L$6,500 (incorrect) 1 1.4 L$6,400 (incorrect) 2 2.7 B$6,500 (incorrect) 0 0.0 NR 3 4.1 Round 5 T est?ng Table 44. Four-form Comparison, Participants Received Instructions to Use the Mortgage Shopping Chart Which offer costs less? Number Percent B$6,100 (correct) 75 97.4 L$6,500 (incorrect) 0 0.0 L$6,400 (incorrect) 0 0.0 B$6,500 (incorrect) 0 0.0 NR 2 2.6 ____________ 8 A success rate of 95 percent may be as high as one could expect in this kind of testing. This is the same success rate of the FTC, when they gave borrowers two equally costly loans, one from a broker and one from a lender, without the YSP disclosed. In other words, where borrowers received two identical forms with identical loan data on them, only 95 percent figured out the offers were the same.

Round 5 Testing In the case where both loans cost the same and staff gave no verbal ?nstruct?ons to use the compar?son sheet, 41 percent p?cked the broker loan as cheaper and 49 percent p?cked the lender loan. W?th verbal ?nstruct?ons to use the worksheet, 57 percent p?cked the broker at $6,500 and 35 percent p?cked the lender at $6,500. The comb?ned average was 49 percent for the lender and 41 percent for the broker. 9 Table 45. Four-form Comparison, Participants Did Not Receive Instructions to Use the Mortgage Shopping Chart Which offer costs less? Number Percent B$6,500 (correct) 31 40.8 L$6,500 (correct) 37 48.7 B$6,900 (incorrect) 1 1.3 L$6,600 (incorrect) 4 5.3 Other 1 1.3 NR 2 2.6 Table 46. Four-form Comparison, Participants Received Instructions to Use the Mortgage Shopping Chart 131 Round 5 T est?ng Which offer costs lests? Number Percent B$6,500 (correct) 44 57.2 L$6,500 (correct) 27 35.0 B$6,900 (incorrect) 2 2.6 L$6,600 (incorrect) 2 2.6 Other 0 0 NR 2 2.6 ____________ 9 In this portion of testing, staff did not explicitly ask participants which loan they would prefer. Rather, staff asked only which loan offer cost less. This was intentional because HUD did not want to point participants to the fact that two loans might cost the same. By forcing only one choice for the cheaper loan when there were two at the lowest price, the study design implicitly asked which loan a participant would prefer.

Round 5 Testing Recap of HUD’s Goals For Round 5, HUD’s goals were to the follow?ng: ✔ Test a 3-option yield spread premium versus a 2-option yield spread premium GFE ― The 3-opt?on GFE and the 2-opt?on GFE performed s?m?larly w?th the 3-opt?on form cons?stently gett?ng sl?ghtly better results. Although some part?c?pants cont?nued to comment negat?vely about “po?nts” or cred?ts, the number of comments decreased and a few part?c?pants commented on l?k?ng the breakout of YSP and d?scount po?nts. ✔ Verify language changes to the origination charges section of the GFE ― The 3-opt?on GFE cons?stently performed better than the 2-opt?on GFE and reduced susp?c?on about the cred?t/charge of the YSP d?sclosure. ✔ Assess the addition of arrows to the design ― The summary-l?ne arrows were successful ?n focus?ng part?c?pants’ attent?on on the subtotals and total est?mated charges, allow?ng them to clearly see and understand 132 the bottom-l?ne costs. ✔ Test the Mortgage Shopping Chart as an additional condition to the 3-option yield

spread premium GFE.

― Four-form Comparison Results. Part?c?pant performance on the four-form compar?son was ?mpress?ve. In the compar?son, ?n wh?ch the broker loan offer of $6,100 was the cheapest, 92 percent of part?c?pants who staff rem?nded to use the compar?son worksheet correctly reported the $6,100 broker loan as the cheapest. Three percent incorrectly identified the $6,400 lender loan as the cheaper loan. These results are the same as for the pa?red compar?son d?scussed earl?er where the broker was $500 less. Interest?ngly, very few of the part?c?pants who d?d not rece?ve a rem?nder to use the compar?son worksheet used ?t. 10 When ?nstructed to use the comparison sheet, 97 percent correctly identified the $6,100 broker loan as the cheapest, and none wrongly p?cked the $6,400 lender loan. The overall success rate for correctly ?dent?fy?ng the correct loan as the cheapest for both those gett?ng and those not gett?ng the verbal ?nstruct?ons to use the compar?son worksheet was 95 percent, w?th only one percent m?s?dent?fy?ng the lender as cheaper. In the case where both loans cost the same, staff told part?c?pants to choose a loan. When staff gave no verbal ?nstruct?ons to use the compar?son sheet, 41 percent p?cked the broker loan as cheaper and 49 percent p?cked the lender loan. W?th verbal ?nstruct?ons to use the worksheet, 57 percent p?cked the broker at $6,500 and 35 percent p?cked the lender at $6,500. The results ?n both cases suggest that part?c?pants were more d?scr?m?nat?ng among var?ous factors when more than two loan offers were ?n front of them and that ?n same cost s?tuat?ons, they chose between broker and lender ?n fa?rly even numbers. ____________ 10 This lack of use may be attributed in part to the constraints of being in a timed testing situation. Round 5 T est?ng

Round 5 Testing Recommendations for Improving the Forms Th?s sect?on summar?zes the recommendat?ons for future rev?s?ons to the GFE. The recommendat?ons for the GFE are broken down by sect?on of the forms. ▼ Retain the revised language. Staff rev?sed the GFE language ?n Round 5 to reduce the

poss?b?l?ty of borrowers m?s?nterpret?ng that the ?nterest rate had changed from what

appeared on the first page. Also, a third option was added to YSP/discount points section on page 2 so a lender could ?nd?cate that the?r cred?ts or charges were already ?ncluded

?n “Our Serv?ce Charge.” Th?s add?t?on would m?t?gate the sense of some part?c?pants that

cred?ts and charges were not stra?ghtforward. By reta?n?ng the rev?sed language, the GFE w?ll

cont?nue to a?d consumers ?n understand?ng the ?nterest rate and YSP/d?scount po?nts and

allow them to determ?ne wh?ch offer ?s less expens?ve.

▼ Add additional loan-term disclosures. Staff prov?ded add?t?onal loan-term d?sclosures,

133 part?cularly w?th respect to loan balance and monthly amount owed, to help consumers

make better-?nformed dec?s?ons. Furthermore, KCG updated the Mortgage Shopp?ng Chart

to reflect the additional disclosures so consumers would be able to compare multiple offers accurately w?th the most comprehens?ve ?nformat?on ava?lable. ▼ Retain the 3-option yield spread premium. The 3-opt?on GFE cons?stently rece?ved sl?ghtly

better results than the 2-opt?on GFE. In the 3-opt?on GFE, ?n wh?ch the broker was cheaper,

92 percent of the participants correctly identified the broker as the cheaper loan offer. In

Round 4, 83 percent correctly identified the broker as the cheaper loan offer. In the 3-option

GFE where the lender was cheaper, 92 percent of the participants correctly identified the

lender as the cheaper loan offer. N?nety percent of the part?c?pants were able to ?dent?fy

correctly that both offers cost the same ?n the 3-opt?on GFE where the broker and lender

loan offers were equal. E?ghty-one percent correctly answered that both offers were the

same ?n Round 4. Both the 3-opt?on and 2-opt?on GFE performed well; however, the h?gher

results and better comprehens?on of the 3-opt?on GFE suggest that HUD should reta?n the

3-opt?on GFE. Staff also added add?t?onal language to the YSP d?sclosure, wh?ch ?nformed

consumers that lenders m?ght rece?ve an add?t?onal payment ?f they sell consumer loans

after settlement.

▼ Revise the taxes and fees disclosure to enhance clarity. Staff rev?sed ?tem 6 on page 2 of

the GFE to make government record?ng and transfer charges clearer.

▼ Retain the summary-line arrows. Staff added the arrows to focus the part?c?pants’

attent?on on the subtotals and the total est?mated charges rather than the ?nd?v?dual

components of the GFE. The summary-l?ne arrows were successful ?n focus?ng part?c?pants’

attent?on on the subtotals and total est?mated charges, allow?ng them to clearly see and

understand the bottom-l?ne costs.

Round 5 T est?ng

Round 5 Testing ▼ Retain the Mortgage Shopping Chart as a permanent part of the GFE and MPO (as a

new page four). The Mortgage Shopp?ng Chart allowed part?c?pants to conduct a four-loan

compar?son The Mortgage Shopp?ng Chart was successful ?n help?ng part?c?pants compare

four loans on one worksheet. The overall react?on of part?c?pants was that the chart was very

helpful ?n a?d?ng the?r compar?sons of several loans and allow?ng them to see wh?ch loan was

cheapest overall.

▼ Sponsor a Consumer Campaign. Consumers rema?n unclear about the ?ntent and purpose

of YSP. Prov?d?ng consumers standalone d?rect?ons for the GFE and MPO and mak?ng

those ava?lable v?a the Internet and ma?l w?ll help to educate consumers on the ?ntent and

purpose of YSP and allow them to better understand and use the GFE and MPO.

How the Forms Changed Between the end of the project ?n June 2004 and the beg?nn?ng of the next phase of test?ng,

HUD made only m?nor ed?ts to the GFE, ?nclud?ng the follow?ng: 134

▼ Add?ng more educat?onal and ?nstruct?onal ▼ S?mpl?fy?ng the “Summary of Your Loan

?nformat?on to the “About Your GFE” Terms for Th?s Est?mate” table on page 1,

sect?on on page 1 specifically improving the layout to

▼ Add?ng add?t?onal loan terms d?sclosures ensure that consumers do not have to

on page 1, ?nclud?ng loan balance jump around within the table to find

and monthly amount loan as well as ?mportant ?nformat?on

correspond?ng changes to the mortgage ▼ Reta?n?ng the 3-opt?on YSP GFE and

shopp?ng chart add?ng ant?-lender language to the YSP

▼ Mov?ng the ?nterest rate ava?lable date

d?sclosure box

up front to ensure consumers see ▼ Improv?ng the tolerances sect?on (page 3)

?mportant dates related to GFE and to decrease consumer confus?on

?nterest rate val?d?ty ▼ Reta?n?ng the Mortgage Shopp?ng Chart

as a permanent part of the GFE

A sample of forms tested ?n Round 6 appears ?n Append?x F. Round 5 T est?ng

Consumer Testing of the Good Faith Estimate Form (GFE)

Round 6 Testing

Round 6 Testing Introduction Before beg?nn?ng work on Round 6 of test?ng, Kle?mann Commun?cat?on Group (KCG) and HUD made ?mprovements to the GFE based on data collected ?n Round 5 of test?ng. Round 6 test?ng ?nvolved two GFE forms. Th?s report refers to these two vers?ons of the GFE as the “Rev?sed GFE” and “Alternate GFE.” The Revised GFE refers specifically to the GFE developed and tested ?n Rounds 1 though 5 of test?ng, wh?le the Alternate GFE refers to a two-page GFE developed ?nternally by HUD ?n 2007, before Round 6 test?ng began. The key purpose of Round 6 was to gauge part?c?pant comprehens?on of both the GFEs and to beg?n ?n?t?al test?ng of the Settlement Scr?pt and HUD-1 settlement form (also developed ?nternally by HUD ?n 2007). Round 6 cons?sted of two separate tests: Test 1 for the GFE and Test 2 for the Settlement Scr?pts. Test 1 followed trad?t?onal usab?l?ty test?ng methodolog?es to test the two vers?ons of the GFE and focused on the presentat?on of the Rev?sed and Alternate GFE forms as well as the total 136 est?mated settlement costs. Therefore, the ma?n goals of Test 1 ?n Round 6 were to study ▼ the performance of the two versions of the GFE, ▼ participant comprehension of the two versions of the GFE, and ▼ whether participants were able to compare information across GFEs. Test 2 focused on testing the performance and resulting benefits of HUD’s recently developed Settlement Scr?pt. A completed Settlement Scr?pt conta?ns two ma?n components: ▼ A summary of a homebuyer’s loan details at closing presented in read-aloud script form and ▼ A crosswalk comparison chart that compares homebuyers’ estimated settlement costs,

based on their GFE, to their actual settlement costs at closing, as shown on their HUD-1.

HUD’s ?ntent ?s for settlement agents to read Settlement Scr?pts at clos?ng to prov?de a clear and cand?d way for the agent and borrower to rev?ew clos?ng deta?ls. Thus, the ma?n goals of Test 2 ?n Round 6 were to determ?ne whether the Settlement Scr?pt does, ?n fact, help consumers ▼ identify loan details and settlement costs, ▼ facilitate the comparison of estimated and actual costs, and ▼ help consumers identify discrepancies. Us?ng a small sample of part?c?pants, KCG conducted a settlement “s?mulat?on,” w?th the test?ng moderator act?ng as the settlement agent and the test?ng part?c?pant act?ng as the borrower. The purpose of th?s s?mulat?on was to help gauge the general effect?veness and usab?l?ty of the scr?pt. Because the scr?pt was st?ll ?n the early stages of development, HUD wanted to use test?ng to val?date and ?nform further development of the scr?pt. Round 6 T est?ng

Round 6 Testing The append?x ?ncludes sample forms used ?n Test 1 and Test 2 of Round 6. These forms ?ncluded: Test 1 Test 2 ▼ Revised GFE ▼ Revised GFE ▼ Alternate GFE ▼ HUD-1 ▼ Settlement Script During testing, these forms were filled in with test data. Test 1—Revised GFE and Alternate GFE For Test 1 of the Rev?sed GFE and Alternate GFE, HUD’s goals were to ▼ Confirm that participants can identify the ▼ Determ?ne how well part?c?pants can

bas?c ?nformat?on ?n the GFE. compare across GFEs.

137 ▼ Determ?ne ?f part?c?pants can make ▼ Ident?fy ?f part?c?pants can accurately

?nferences from ?nformat?on w?th?n ?dent?fy the least and most expens?ve

the GFE. settlement costs when they see

▼ Ident?fy ?f part?c?pants spontaneously use three GFEs.

the shopp?ng chart. ▼ Determ?ne ?f a broker b?as ex?sts when

▼ Ident?fy ?f part?c?pants can understand part?c?pants choose the least expens?ve

when a tolerance has been set and settlement costs.

when the?r cho?ces can l?m?t the

tolerance requ?rement.

Methodology for Test 1 For th?s test, KCG created two separate Moderator Gu?des, one for part?c?pants rev?ew?ng the Rev?sed GFE and one for part?c?pants rev?ew?ng the Alternate GFE. The Moderator Gu?des were essent?ally the same, but conta?ned m?nor d?fferences (because of the word?ng and layout d?fferences between the Rev?sed and Alternate GFE forms). Staff structured both Moderator Gu?des ?nto three ma?n tasks and ?ncluded an ?ntroduct?on, break, and conclus?on. Round 6 T est?ng

Round 6 Testing Table 47. Structure—Round 6, Test 1 Section Time Allotted (minutes) Task Introduction 5 We introduce ourselves, briefly describe the purpose of the test in general terms, and have the participant read and sign the confidentiality statement and fill out the questionnaire. Task 1 30 The participant practices the task of reading and thinking aloud. The participant receives and reacts to a sample GFE completed as an example. Task 2 20 We ask the participant open-ended and closed-ended questions about the first GFE. Break 10 Task 3 25 The participant receives the remaining two GFEs to review and compares the total estimated settlement costs on all three GFEs. Total time 90 minutes 138 For Test 1, staff d?v?ded 60 part?c?pants ?nto three groups of 20. W?th?n these three groups, 10 part?c?pants rev?ewed the Rev?sed GFE and 10 part?c?pants rev?ewed the Alternate GFE. W?th?n these groups, ▼ 5 part?c?pants rev?ewed a Rev?sed GFE w?th lower broker charges for Tasks 1 and 2; ▼ 5 part?c?pants rev?ewed a Rev?sed GFE w?th lower lender charges for Tasks 1 and 2; ▼ 5 part?c?pants rev?ewed an Alternate GFE w?th lower broker charges for Tasks 1 and 2; and ▼ 5 part?c?pants rev?ewed an Alternate GFE w?th lower lender charges for Tasks 1 and 2. For Task 3, the moderator gave part?c?pants two add?t?onal GFEs, each of wh?ch was d?fferent from the or?g?nal GFE they were g?ven. See tables 48 and 49 for overall cond?t?on rotat?on across the three test s?tes (?n Atlanta, Georg?a; Boston, Massachusetts; and Denver, Colorado). Round 6 T est?ng

Round 6 Testing Table 48. Testing Conditions Rotation—Revised Package A (Revised GFE with Lower Broker Charges) Task 1 & 2: Think Aloud Task 3: Comparison GA MA CO Condition 1 Broker same Lender same & broker lower 2 1 2 Condition 2 Lender same Broker lower & broker same 2 2 1 Condition 3 Broker lower Broker same & lender same 1 2 2 Package B (Revised GFE with Lower Lender Charges) Task 1 & 2: Think Aloud Task 3: Comparison GA MA CO Condition 4 Broker same Lender same & lender lower 2 2 1 Condition 5 Lender same Lender lower & broker same 1 2 2 Condition 6 Lender lower Broker same & lender same 2 1 2 Table 49. Testing Conditions Rotation—Alternate Package C (Alternate GFE with Lower Broker Charges) Task 1 & 2: Think Aloud Task 3: Comparison GA MA CO Condition 7 Broker same Lender same & broker lower 2 2 1 Condition 8 Lender same Broker lower & broker same 1 2 2 Condition 9 Broker lower Broker same & lender same 2 1 2 139 Round 6 T est?ng Package D (Alternate GFE with Lower Lender Charges) Task 1 & 2: Think Aloud Task 3: Comparison GA MA CO Condition 10 Broker same Lender same & lender lower 2 1 2 Condition 11 Lender same Lender lower & broker same 2 2 1 Condition 12 Lender lower Broker same & lender same 1 2 2

Round 6 Testing Demographic and Test Site Information for Test 1 In Round 6, Test 1, staff tested 60 part?c?pants ?n three s?tes: Atlanta, Georg?a; Boston, Massachusetts; and Denver, Colorado. (In Round 6, Test 2, staff tested 20 part?c?pants ?n two s?tes: C?nc?natt?, Oh?o and Phone?x, Ar?zona.) F?gure 22 ?llustrates the geograph?c d?vers?ty of HUD test?ng, w?th grey states represent?ng Rounds 1 through 5 and orange states represent?ng Round 6 test?ng. Figure 22. Round 6 Test Sites 140 Round 6 T est?ng In Round 6 test?ng, staff recru?ted the test populat?on to m?rror the U.S. Census. As a part of the screen?ng protocol, profess?onal test?ng s?tes recru?ted part?c?pants based on the follow?ng cr?ter?a: ▼ Gender ▼ Age ▼ Educat?on ▼ Income ▼ Mar?tal Status ▼ Race/ethn?c?ty

Round 6 Testing Add?t?onally, staff screened part?c?pants based on the?r exper?ences ?n ▼ obtaining a mortgage (whether purchasing or refinancing a home) and ▼ shopp?ng for a new mortgage loan. At each of the profess?onal test?ng s?tes, KCG prov?ded recru?ters w?th the same screen?ng protocol, wh?ch they would read when contact?ng potent?al part?c?pants. In the course of the call, screeners would ask prospect?ve part?c?pants a ser?es of quest?ons that allowed screeners to determ?ne ?f the ?nd?v?dual was el?g?ble to part?c?pate ?n the study. If recru?ters contacted a part?c?pant who d?d not meet those cr?ter?a, the recru?ter term?nated the call. Staff gave each s?te the same cr?ter?a for the number of part?c?pants requ?red ?n each demograph?c category. Th?s procedure ensured the study ?nvolved part?c?pants from a w?de range of backgrounds, ages, and ethn?c groups (among other cr?ter?a), who also had e?ther obta?ned or shopped for a mortgage. For Test 1, once part?c?pants were selected (and after the?r part?c?pat?on), they were pa?d an 141 ?ncent?ve of $75 (Atlanta and Denver) or $100 (Boston). If more part?c?pants arr?ved than were needed or ?f cancellat?ons occurred, the test?ng s?te tr?ed to place those extra part?c?pants or recru?t part?c?pants who would represent the needed demograph?cs. Tables 50 and 51 prov?de demograph?cs for Test 1. Round 6 T est?ng

Round 6 Testing Table 50. Participant Demographic Information—Test 1 Demographic Characteristics Number in Sample Percent Age 20 to 34 13 22 35 to 44 16 27 45 to 54 14 23 55 to 64 11 18 65 or older 6 10 Race and Ethnicity* Asian 4 7 White 44 73 Black or African American 12 20 Other (Native Hawaiian/Pacific Islander 2 3 American, Indian/Alaskan Native, etc) * Participants were allowed to identify multiple ethnicities. Identified as Hispanic or Latino origin 4 7 Education—Highest Grade Completed Less than High School 0 0 High School or GED 9 15 Some college or associate’s degree 23 38 College graduate 15 25 Graduate School 13 21 Household Income Per Year Less than $50,000 16 27 $50,001 to $75,000 23 38 $75,001 to $100,000 12 20 $100,001 or more 9 15 Marital Status and Gender Single Male 14 23 Single Female 16 27 Married Male 11 18 Married Female 19 19 Total Respondents 60 100 (60) Round 6 T est?ng In add?t?on to the demograph?c requ?rements noted above, HUD requested to have two-th?rds of the sample include experienced homebuyers who had bought or refinanced a home in the prev?ous two years. 142

Round 6 Testing Table 51: Homebuying Experience—Test 1 Homebuying Experience Number in Sample Percent Bought or refinanced in past 2 years Yes 41 68 No 19 32 Plan to buy or refinance in next year Yes 23 38 No 36 60 No Response 1 2 Of those who plan to buy:* Have gone to open houses 21 35 Have contacted a real estate agent 14 23 Have pre-qualified for a mortgage loan 7 12 * Participants were allowed to select as many options as applied to their situation N 60 Study Questions for Test 1 Study quest?ons for Test 1 ?ncluded the follow?ng: Round 6 T est?ng ▼ Can part?c?pants ?dent?fy the bas?c ?nformat?on ?n the GFE? ▼ Can part?c?pants make ?nferences from ?nformat?on w?th?n the GFE? ▼ Do consumers spontaneously use the shopp?ng chart? ▼ Can part?c?pants understand when a tolerance ?s enforced and when the?r cho?ces can l?m?t the tolerance requ?rement? ▼ How well are part?c?pants able to compare ?nformat?on across GFEs? ▼ Can part?c?pants accurately ?dent?fy the least and most expens?ve settlement costs when they see three GFEs? ▼ Does a broker b?as ex?st when consumers choose the least expens?ve settlement costs? 143

Round 6 Testing Test 2—Revised GFE, HUD-1, and Settlement Script For Test 2 of the Revised GFE, HUD-1, and Settlement Script, HUD’s goals were to ▼ Confirm that participants can find ▼ Investigate whether the Settlement Script discrepancies between the GFE and helps participants to identify loan details.

the HUD-1.

▼ Investigate whether the Settlement

▼ Confirm if participants can determine Script functions as a “crosswalk” to help

whether discrepancies are within tolerance participants compare GFE costs to actual

limits. HUD-1 costs.

▼ Investigate participant response if identified discrepancy is outside tolerance limits. Methodology for Test 2 144 In Round 6, Test 2, questions focused on the following general topic areas: ▼ Participants’ general understanding of the GFE, HUD-1, and the Settlement Script ▼ Participants’ ability to identify information on different forms ▼ Participants’ ability to compare information across forms ▼ Participants’ general thoughts and reactions to the forms Staff also asked some questions from Test 1 to gauge participant understanding of the Revised GFE. In Test 2, KCG tested: ▼ 2 different GFEs: one with a 30-year-fixed mortgage and one with a Payment Option Adjustable Rate Mortgage (ARM) ▼ 2 different HUD-1’s: one with a corresponding 30-year-fixed mortgage and one with a

corresponding Payment Option ARM

▼ 2 different Settlement Summaries: one comparing the information between the 30-year-fixed

GFE and HUD-1 and one comparing the Payment Option ARM GFE against the HUD-1

Round 6 T esting

Round 6 Testing Table 52. Structure—Test 2 Section Time Allotted (minutes) Task Introduction 5 We introduce ourselves, briefly describe the purpose of the test in general terms, and have the participant read and sign the confidentiality statement and fill out the questionnaire. Task 1 20 We give the participant a few minutes to look over each document and ask a few general questions about each. Task 2 5 (for Script participants only) The moderator conducts “simulation” by reading through script with the participant. Break 5 Task 3 20 The participant answers a series of questions regarding the estimated and actual loan details and settlement costs and the variance between the two. These questions require the participant to compare across forms. Task 4 15 The participant answers a series of questions regarding his or her general impressions of the documents and any suggestions he or she might have. Total time 90 minutes 145 Round 6 T est?ng In Test 2, staff tested 20 part?c?pants across two s?tes: C?nc?nnat?, Oh?o and Phoen?x, Ar?zona. Staff divided these 20 participants into two groups of 10. Within these two groups, five participants worked with a GFE and HUD-1 that dealt with a 30-year-fixed mortgage, and five worked w?th a GFE and HUD-1 that dealt w?th a Payment Opt?on ARM. Of these two groups of 10, the first worked with only a GFE and HUD-1 form, while the second worked with a GFE, HUD-1, and Settlement Scr?pt. The test?ng team set up four var?at?ons to test the forms: ▼ 30-year-fixed GFE and HUD-1 with no Settlement Script (condition 1) ▼ 30-year-fixed GFE and HUD-1 with Settlement Script (condition 3) ▼ Payment Opt?on ARM GFE and HUD-1 w?th no Settlement Scr?pt (cond?t?on 2) ▼ Payment Opt?on ARM and HUD-1 w?th Settlement Scr?pt (cond?t?on 4) As shown ?n Table 53, forms were always presented ?n the follow?ng order: GFE (est?mated costs), HUD-1 (actual costs), and Settlement Scr?pt (?f appl?cable).

Round 6 Testing Table 53. Testing Conditions—Test 2 Package A—30 Year Fixed Participant Number Participant Number Condition 1 (No Script) AZ01 AZ02 AZ03 OH11 OH12 Condition 2 (With Script) AZ04 AZ05 OH13 OH14 OH15 Package B—Payment Option ARM Condition 3 (No Script) AZ06 AZ07 AZ08 OH16 OH17 Condition 4 (With Script) AZ09 AZ10 OH18 OH19 OH20 146 To conduct the s?mulat?on port?on of th?s test, staff gave all part?c?pants (1) a GFE and (2) a HUD-1. Test?ng staff gave part?c?pants a chance to rev?ew each document and then answered general quest?ons to help get them fam?l?ar w?th the form. Next, staff gave half the part?c?pants a Settlement Scr?pt w?th loan deta?ls and settlement costs that corresponded to the?r GFE and HUD-1. The moderator for each sess?on then read the ent?rety of the scr?pt aloud w?th the part?c?pant. Test?ng staff then asked both groups of part?c?pants a ser?es of quest?ons involving identification and comparison of their estimated and actual loan details and settlement costs as well as cost d?screpanc?es to help determ?ne ?f the scr?pt a?ded them ?n these tasks. Wherever poss?ble, these compar?son quest?ons were ?dent?cal for both the scr?pt and non-scr?pt part?c?pants. In add?t?on to s?mple l?ne-?tem compar?sons, several tolerance v?olat?ons were ?ncluded on the forms as notable discrepancies that would allow specific points of comparison across part?c?pant performance. All part?c?pants rece?ved GFE and HUD-1 forms that conta?ned a 25 percent actual cost ?ncrease over the est?mated costs on those charges that had a 10 percent ?ncrease tolerance l?m?t. Th?s ?ncrease was shown expl?c?tly on the scr?pt but requ?red a mult?- step calculat?on to determ?ne w?thout the scr?pt. HUD-1 forms also ?ncluded an ?ncrease ?n a charge categor?zed as not be?ng able to ?ncrease at settlement. Round 6 T est?ng

Round 6 Testing In test?ng, staff recru?ted the test populat?on to m?rror the U.S. Census. As a part of the screen?ng protocol, profess?onal test?ng s?tes recru?ted part?c?pants based on the follow?ng cr?ter?a: ▼ Gender ▼ Age ▼ Educat?on ▼ Income ▼ Mar?tal Status ▼ Race/ethn?c?ty Add?t?onally, staff screened part?c?pants based on the?r exper?ences ?n ▼ obtaining a mortgage (whether purchasing or refinancing a home) and ▼ shopp?ng for a new mortgage loan. 147 At each of the profess?onal test?ng s?tes, KCG prov?ded recru?ters w?th the same screen?ng protocol, wh?ch they would read when contact?ng potent?al part?c?pants. In the course of the call, screeners would ask prospect?ve part?c?pants a ser?es of quest?ons that allowed screeners to determ?ne ?f the ?nd?v?dual was el?g?ble to part?c?pate ?n the study. If recru?ters contacted a part?c?pant who d?d not meet those cr?ter?a, the recru?ter term?nated the call. Staff gave each s?te the same cr?ter?a for the number of part?c?pants requ?red ?n each demograph?c category. Th?s procedure ensured the study ?nvolved part?c?pants from a w?de range of backgrounds, ages, and ethn?c groups (among other cr?ter?a), who also had e?ther obta?ned or shopped for a mortgage. For Test 2, once part?c?pants were selected (and after the?r part?c?pat?on), they were pa?d an ?ncent?ve of $50 (C?nc?nnat?) or $60 (Phoen?x). Tables 54 and 55 prov?de demograph?cs for Test 2. Round 6 T est?ng

Round 6 Testing Table 54: Participant Demographics Information—Test 2 Demographic Characteristics Number in Sample Percent Age 20 to 34 5 25 35 to 44 4 20 45 to 54 7 35 55 to 64 2 10 65 or older 2 10 Race and Ethnicity* Asian 0 0 White 14 70 Black or African American 4 20 Other (Native Hawaiian/Pacific Islander 0 0 American, Indian/Alaskan Native, etc) * Participants were allowed to identify multiple ethnicities. Identified as Hispanic or Latino origin 2 10 Education—Highest Grade Completed Less than High School 1 5 High School or GED 2 10 Some college or associate’s degree 9 45 College graduate 5 25 Graduate School 3 15 Household Income Per Year Less than $50,000 5 26 $50,001 to $75,000 6 32 $75,001 to $100,000 2 11 $100,001 or more 6 32 Marital Status and Gender Single Male 2 10 Single Female 5 25 Married Male 7 35 Married Female 6 30 Total Respondents 20 100 (20) Round 6 T est?ng In add?t?on to the demograph?c requ?rements noted above, HUD requested to have two-th?rds of the sample include experienced homebuyers who had bought or refinanced a home in the prev?ous two years. 148

Round 6 Testing Table 55: Homebuying Experience of the Sample Homebuying Experience Number in Sample Percent Bought or refinanced in past 2 years Yes 14 70 No 6 30 Plan to buy or refinance in next year Yes 10 50 No 10 50 No response 0 0 Of those who plan to buy:* Have gone to open houses 9 45 Have contacted a real estate agent 4 20 Have pre-qualified for a mortgage loan 5 25 * Participants were allowed to select as many options as applied to their situation N 20 Study Questions for Test 2 Study questions for Test 2 included the following: Round 6 T est?ng ▼ Can participants find discrepancies between the GFE and the HUD-1? ▼ Can part?c?pants determ?ne whether d?screpanc?es are w?th?n tolerance l?m?ts? ▼ What are part?c?pant responses upon ?dent?fy?ng that a d?screpancy ?s outs?de tolerance l?m?ts? ▼ Does the Settlement Scr?pt help part?c?pants ?dent?fy loan deta?ls? ▼ Does the Settlement Scr?pt funct?on as a “crosswalk” to help part?c?pants compare GFE costs to actual HUD-1 costs? 149

Round 6 Testing Analytical Approach Th?s sect?on presents the comb?ned analyt?cal approach for both tests ?n Round 6. Qualitative Analysis Because of the smaller sample s?ze ?n Round 6, KCG d?d not perform any major stat?st?cal analyses on the results of the answer sheets or other data, but rather, used the results to look for qual?tat?ve trends. However, th?s report does prov?de some smaller scale percentages to help val?date trends from the qual?tat?ve data. Databases KCG created three M?crosoft Access © databases to collect and analyze data. The first database was created dur?ng test?ng, and observers entered each part?c?pant’s ?mmed?ate responses to closed-ended quest?ons ?nto a M?crosoft Access © database. Test?ng staff crosschecked part?c?pant answers to ensure accuracy. KCG then created compar?son graphs from the data ?mported ?nto th?s database. The results collected on the answer sheet showed how part?c?pants 150 answered, but not why. Therefore, KCG created a second M?crosoft Access © database of open-ended part?c?pant responses—organ?zed by quest?on number—taken from transcr?pts of test?ng sess?ons. Th?s database allowed staff to look w?th?n each quest?on for trends as to why part?c?pants answered a certa?n way. Us?ng a grounded analyt?c approach, researchers then rev?ewed the transcr?pts as a whole and created a un?que cod?ng system for any emerg?ng trends. After staff coded each transcr?pt, results were comp?led ?n a th?rd M?crosoft Access © database, and from th?s, researchers generated reports used ?n data analys?s. KCG then reviewed the data from the three databases and determined findings and recommendat?ons from the data ?n relat?onsh?p to earl?er results as well as how well the GFE, HUD-1, and Settlement Scr?pt performed and poss?ble areas for ?mprovement. Round 6 T est?ng

Round 6 Testing Summary of Findings Overall, the majority of findings from Round 6 were consistent with the findings from Rounds 1–5. However, s?nce the hous?ng market and mortgage ?ndustry have changed s?nce Round 5 test?ng, new concepts and themes emerged dur?ng Round 6 test?ng. For example, consumers ▼ were influenced by the media coverage of ▼ had h?gh emot?on,

the mortgage ?ndustry, ▼ knew someone who has been affected by

▼ focused more on ?nterest rates and the current mortgage cl?mate, and

loan terms, ▼ were more aware of—and caut?ous

▼ focused less on settlement charges, about—ARMs. Test 1—Revised GFE and Alternate GFE What Worked Design, layout, and language worked. Overall, KCG found that the GFE ?s work?ng. 151 Part?c?pants understood the deta?ls (that ?t ?ncluded a loan summary and est?mates of settlement charges), character?st?cs of the document (that the numbers are est?mates), and ?ts purpose (to help consumers to shop). ▼ 100 percent correctly identified and described the initial amount of the mortgage offer and length of t?me they have to pay off the mortgage loan. ▼ 98 percent correctly identified initial interest rate. The design and language in the GFE worked. Part?c?pants commented pos?t?vely about des?gn and language throughout test sess?ons. A few part?c?pants thought that someth?ng was m?ss?ng from the Alternate GFE. However, many participants specifically liked the Revised GFE’s length (4 pages), the layout of pages 1 and 2, the s?mpl?c?ty of the language, and the consumer-fr?endly language: Form length … you don’t have to go through 8 or 10 pages of documentation in order to get those

important features out…I don’t have to spend three hours and have an attorney go through

it. (CO60)

This is shorter, it’s not real long and it’s easier to look at… (CO45) Layout of pages 1 and 2 I do like page one, I mean its just clear and concise and everything is black and

white… (CO41)

I like this way it’s laid out because it’s all very crisp and I feel like it’s well-organized… (MA29) Yeah page two…it lays it out really nicely. (CO42) Round 6 T est?ng

Round 6 Testing Simplicity of language …it is very simple to read…I like how it’s presented. It is just very straightforward… (GA13) It’s in people’s English instead of lawyer English. (CO48) This is just very, very different and…certainly easier to read. (MA21) Consumer-friendly language This seems a lot more consumer-oriented than I’m used to reading. (MA21) It’s self-explanatory and that’s basic information. It’s user-friendly. (MA30) …It would be helpful to somebody who hasn’t done it before. It’s kind of refreshing

to me.. (MA21)

Participants were able to compare. Dur?ng the compar?sons sect?on, 90 percent of part?c?pants were able to ?dent?fy correctly the h?ghest and lowest settlement charges. The rema?n?ng 10 152 percent were able to ?dent?fy the h?ghest or the lowest, but not both. Part?c?pants remarked that standard?zat?on of the GFE helps them to compare GFEs: …this is easier because everything is the same, in the same place... (GA01) They’re very similar so they were easy to skim... (GA03) …it seems like there’s [often] a desire to make sure that nothing is standardized…

you guys have been very good at making the forms look and appear to be the

same… (CO60)

Trade-off bullets worked. Part?c?pants understood the trade-off bullets and used the table dur?ng the compar?sons sect?on of the test: …you can pick from those three different options as to which one you’re going to be going

with and I can get that just from that table right here which is really kind of cool. (MA26)

Makes perfect sense. This table shows how the loan we’ve offered you compares…it’s a

comparison... (GA08)

What Needs Work Potential problem of lender bias exists. Of the 15 part?c?pants that looked at one GFE w?th the lender charge lower and one w?th the broker charge h?gher, 80 percent understood that the lender ?s lower and the broker ?s h?gher; and 73 percent chose the one w?th the lower lender charge. In Round 5 test?ng, 92 percent understood that the lender ?s lower and 88 percent chose the one w?th the lower lender charge. Because of the small sample s?ze ?n Round 6, th?s result has no statistical significance; however, the variation from Round 5 results should be kept in m?nd. Round 6 T est?ng

Round 6 Testing One reason why th?s change occurred ?n Round 6 ?s the ?ntroduct?on of the lender d?sclosure sentence (on page 2). Many part?c?pants were unclear about the ?mpl?cat?ons of th?s lender sentence: It sounds like I have to come up with more money. I don’t know if that comes out of my end or

the next company that buys the loan. (MA25)

Does that mean that I have to give them an additional payment if they sell the loan? (GA13) Am I suppose to receive the additional payment or am I suppose to pay additional

payment? (CO58)

Dates were unclear. Many participants in Round 6, Test 1 had difficulty with dates. Seventy percent of part?c?pants were able to say accurately how long the ?nterest rate ?s ava?lable. The rema?n?ng 30 percent e?ther gave a wrong date or were unsure. The days are confusing December the 3rd to the 17th I don’t understand that. (GA16) Is this 60 days, 90 days, and five years? I don’t know what that means. It says your rate lock

153 period is 60 days. That is not clear to me. (CO46)

Tolerances were unclear. Many part?c?pants had trouble w?th the tolerances. Part?c?pants were not clear on the categor?es, m?ssed the tolerances, and thought the tolerance appl?es to each ?tem (?nstead of the sum of the ?tems): I doubt [the tolerances] can change very much if it can change. (MA23) …I don’t get [the tolerances] from reading this at all…It’s not explicitly spelled out that

way... (MA34)

Next steps were unclear. Many part?c?pants asked for more expl?c?t ?nstruct?ons about the next steps. They were unclear on how to lock the GFE’s rate. I think there needs to be a clearer set out way…this is what you have to do to lock in this

rate…That may become obvious after you get this but it would be helpful to have it on this

form… (GA10)

…what [does] it actually take to [lock the interest rate], is it a phone call, is it an email, do I

have to fill something out, fax something..? (MA22)

Round 6 T est?ng

Round 6 Testing Some terms raised questions. Wh?le the major?ty of part?c?pants remarked that the language was clear ?n the GFE, part?c?pants were unsure of the mean?ngs of Government Record?ng and Transfer Charges and Y?eld Spread Prem?um: Government Recording and Transfer Charges Is there such a thing…government recording and transfer charges for this

transaction? (GA14)

I’ve never heard of government recording and transfer…well there’s transfer fees but…I think

that’s maybe a certain percentage of the value of the home or something like that... (GA05)

Yield Spread Premium …I don’t know what [YSP] means…That must be a very technical term for a simplified set of

words that I don’t know…that I can’t relate. (CO60)

Yield spread premium…I really don’t understand what it is. (GA13) 154 Shopping chart needs minor edits. Many part?c?pants commented pos?t?vely about the shopping chart, but some were not clear who would fill it out. One participant thought that six columns were too many for the chart. I think this is a chart for me to use to shop and compare. So they want you to fill in…That’s

pretty cool…I like that. (MA24)

I like the chart because it’s clean, it’s concise, I know exactly what I’m reading…The chart is

easy to read. (CO45)

Test 2—Revised GFE, HUD-1, and Settlement Script What Worked Participants used the Settlement Script. KCG found that of those part?c?pants who rece?ved the Scr?pt ?n add?t?on to the GFE and HUD-1, most used ?t to compare and to answer quest?ons about both loan deta?ls and settlement costs. Some used the Scr?pt ?n conjunct?on w?th the other documents they rece?ved, wh?le many used the Scr?pt as the?r pr?mary source of ?nformat?on. Design, layout, and language worked. Part?c?pants reacted pos?t?vely to the language used for the read-aloud port?on of the Scr?pt, and generally thought the loan deta?ls were clear and easy to understand. The compar?son chart format also generated pos?t?ve feedback. Part?c?pants thought ?t fac?l?tated compar?sons and generally l?ked the concept of hav?ng the?r est?mated and actual costs s?de-by-s?de. Overall, part?c?pants reacted pos?t?vely to the Scr?pt’s “read-aloud” format, appear?ng to be more attent?ve and engaged w?th the process when follow?ng along w?th the moderator than when asked to compare the forms on the?r own. Round 6 T est?ng

Round 6 Testing I mean in this thing it actually kind of makes sense the way they explained it especially on

page. Its very easy to understand. (AZ05)

The way things are outlined and charted is helpful and you can follow things easily from point

to point. (OH15)

Settlement Script highlighted discrepancies between GFE and HUD-1. The Settlement Scr?pt helped part?c?pants ?dent?fy tolerances. Scr?pt part?c?pants were more l?kely to not?ce tolerance categor?es and more l?kely to quest?on charge ?ncreases related to tolerance categor?es. In add?t?on, a number of Scr?pt part?c?pants were able to detect the 25 percent ?ncrease tolerance v?olat?on dur?ng the?r ?n?t?al rev?ew of the documents, wh?le non-Scr?pt part?c?pants were unable to do so. Charges cannot increase, I was surprised to see increases because I thought they

couldn’t... (OH14)

The title services went up more than 10 percent...[The script] says it cannot increase more than 10 percent. Who would be paying these extra costs? (AZ04) 155 When staff po?nted out charge d?screpanc?es to part?c?pants, a major?ty of the part?c?pants sa?d they would, at the very least, quest?on these charges at settlement, and at the most, attempt to halt settlement. Overall, results show the Settlement Scr?pt helped to h?ghl?ght d?screpanc?es for part?c?pants. ...there are at least a couple things...above what they’re allowed to be. (OH11) ...[charges are] listed as something that shouldn’t increase more than 10 percent, so

somewhere a transaction...has been calculated incorrectly. (OH15)

What Needs Work Participants have trouble navigating more than two documents. Part?c?pants appeared to have difficulty manipulating more than two documents at a time. This fact inhibited performance when a th?rd document, ?n th?s case the Settlement Scr?pt, was ?ntroduced. Settlement Script language and design need tweaks. Part?c?pants suggested a few ?mprovements to the Scr?pt. They noted a number of terms for wh?ch they requ?red clarification. Participants also wanted to see the empty boxes on the forms filled in with some k?nd of placeholder that ?nd?cated that noth?ng was m?ss?ng. ...there are a lot of words on the Summary that are not clarified...I could read them but I

wouldn’t understand what they actually meant. (AZ10)

How come they didn’t show...the amount of increase there?...I mean that category says dollar

increase; shouldn’t it show in there? (AZ09)

Round 6 T est?ng

Round 6 Testing Recap of HUD’s Goals for Testing For Round 6, Test 1, HUD’s goals were to ✔ ?Confirm?that?participants?can?identify?the?basic?information?in?the?GFE ― All part?c?pants were able to ?dent?fy the bas?c ?nformat?on on the GFE. ✔ Determine if participants can make inferences from information within the GFE ― The major?ty of part?c?pants were able to make ?nferences from the ?nformat?on

w?th?n the GFE.

✘ Identify if consumers spontaneously use the shopping chart ― The major?ty of part?c?pants remarked pos?t?vely about the shopp?ng chart. However, only a few part?c?pants used the shopp?ng chart dur?ng the test sess?on. ✘ Identify if participants can understand when a tolerance is set and when their

156 choices can limit the tolerance requirement

― Many participants had difficulty understanding when a tolerance is set and when their cho?ces can l?m?t the tolerance requ?rement. ✔ Determine how well participants can compare across GFEs ― Almost all part?c?pants were able to compare across the three GFEs. The

standard?zat?on of the GFE format a?ded part?c?pants ?n the compar?son task.

✔ Identify if consumers can accurately identify the least and most expensive

settlement costs when they see three GFEs

― Almost all consumers were able to gauge the least and most expens?ve settlement

costs accurately.

✔ ?Confirm?that?a?broker?bias?does?not?exist?when?participants?choose?the?least? expensive settlement costs ― The GFE l?m?ts broker b?as. One hundred percent of the part?c?pants who compared a GFE w?th a lower broker charge aga?nst a GFE w?th a h?gher lender charge understood that the broker charge was lower than the lender charge. When asked to choose between the two offers, 100 percent chose the GFE w?th the broker offer. Round 6 T est?ng

Round 6 Testing For Round 6, Test 2, HUD’s goals were to ✔ ?Confirm?that?participants?can?find?discrepancies?between?the?GFE?and?the?HUD-1 ― The large major?ty of part?c?pants were able to ?dent?fy a d?screpancy between the

est?mated and actual amount of a charge, and what th?s d?screpancy was.

✔ ?Confirm?if?participants?can?determine?whether?discrepancies?are?within?tolerance? limits ― The major?ty of part?c?pants were able to ?dent?fy whether a charge was allowed to ?ncrease at settlement, based on the tolerance categor?es, and aga?n th?s performance seemed equal between Scr?pt and non-Scr?pt part?c?pants. However, as d?scussed above in the summary of the findings, only Script participants were able to identify the actual 25 percent ?ncrease for those charges w?th a 10 percent tolerance. ✔ ?Investigate?participant?response?if?identified?discrepancy?is?outside?tolerance?limits ― Just over half of the part?c?pants sa?d they would respond to the d?screpancy ?n some 157 way. At the least, they would quest?on the charges, and, at the most, they would not cont?nue w?th clos?ng ?f they not?ced charge ?ncreases l?ke those apparent ?n the s?mulat?on. Whether th?s act?on would occur ?n a real-world s?tuat?on ?s unknown, but the scr?pt seemed to fac?l?tate consumer quest?ons. ✘ Investigate whether the Settlement Script helps participants to identify

loan details

― Part?c?pants were able to ?dent?fy the?r est?mated loan deta?ls both w?th and w?thout the a?d of the Scr?pt. The major?ty also seemed capable of ?dent?fy?ng the?r actual loan deta?ls when they were g?ven the Scr?pt w?th the?r GFE or HUD-1. However, part?c?pant performance ?n ?dent?fy?ng est?mated loan deta?l decreased sl?ghtly when the Scr?pt was introduced, possibly due to the difficulty of navigating too much paperwork as is discussed in the findings. ✔ Investigate whether the Settlement Script functions as a “crosswalk” to help

consumers estimate GFE costs to actual HUD-1 costs

― Participant performance in this small sample did not significantly differ between Scr?pt and non-Scr?pt groups. The pos?t?ve comments generated from the Scr?pt’s “crosswalk” format ?nd?cated that th?s format was well rece?ved and perhaps even beneficial to consumers. Round 6 T est?ng

Round 6 Testing Recommendations for Improving the Forms Test 1 GFE ▼ Use the Revised GFE, not the Alternate ▼ Create an Instruction Sheet. The

GFE. Because form length and YSP instruction sheet is formed by pages

language seemed to cause problems 3 and 4. These pages incorporate

during testing, continue to use the information from pages 1

Revised GFE. and 3 and information that HUD thought

▼ Add HUD logo. Add the HUD logo to would be useful to consumers.

the GFE. ▼ Address tolerance issue. Change the

▼ Add more space for email contact. format of the tolerance section into a

three-column table-format.

▼ Address date issues. To address the date issues, pull all the dates into one ▼ Address next steps issue. Add

158 section on page one. explicit language for “How to apply” to

▼ Label information more clearly. Label give more information on next steps.

pages 3 and 4 as “Instructions and

Important Information.”

Test 2 Settlement Script ▼ Edit language and design for clarity and consistency. Clarify language and terms as

much as possible, make the design consistent, and fill in blank boxes in table columns.

▼ Refine instructions for the Script to help consumer and closing agent know which

forms to look at in what order. This refinement will help minimize navigation errors across

documents.

▼ Include a script and chart for each—Loan Details and Settlement Charges. Including

both these components in each section of the Script allows for the maximum benefits

from both.

HUD-1 ▼ Consider redesigning the HUD-1 to more closely match the look and organization of

the GFE. This redesign will allow for easier cross-comparison between the two documents.

▼ Build on the look and functionality of the Settlement Script when considering

a HUD-1 redesign.

Round 6 T est?ng

The GFE Today The follow?ng pages ?llustrate the GFE as ?t appears after undergo?ng s?x rounds of qual?tat?ve and quant?tat?ve test?ng. Changes made to the GFE ?ncluded: ▼ Creating a fresher, more contemporary look for the GFE. Des?gn staff added color to

help consumers see more read?ly how the GFE groups loan offer ?nformat?on. Other des?gn

?mprovements ?ncluded add?ng the HUD logo to the header of page 1 and to the footers of

pages 2 through 4.

▼ Adding?instructional?information?to?the?first?page. Staff created a new Instruct?ons

sect?on on page 1 of the GFE.

▼ ?Adding?a?section?containing?important?dates?to?the?first?page. In order to help

consumers locate ?mportant dates more eas?ly, staff added a new sect?on to page one that

put all the ?mportant dates ?n one place.

▼ Providing a better layout for important information and instructions. On pages 3 and 4,

staff reorgan?zed content and added new sect?ons that would help consumers make better-

?nformed dec?s?ons. Some of the changes to pages 3 and 4 ?ncluded

― creat?ng add?t?onal ?nstruct?on on shopp?ng for a loan offer, 159 ― ?mprov?ng the layout of the charges that can and cannot change

at settlement (tolerances),

― creat?ng a more understandable layout for compar?ng trade-offs, and ― giving important information on the consumer’s financial responsibilities as a homeowner, ?nclud?ng est?mates on such ?tems as: (1) annual property taxes, (2) annual homeowner’s insurance, (3) annual flood insurance, (4) homeowner’s association/condominium fees, and (5) other annual fees and charges. ▼ Providing better-organized information and instruction for the consumer in ― apply?ng for the loan, ― gett?ng more ?nformat?on, ― us?ng the Mortgage Shopp?ng Chart, and ― know?ng what happens ?f the lender sells the loan ?n the future. Round 6 T est?ng

Good Faith Estimate (GFE) Date of GFE Name of Originator Originator Originator Phone Number Originator email • Added Originator email File or Loan Number • Added Instructions 3, Shopping for a loan offer Borrower Property AddressAddress • Removed • Added more space • Moved some information to pg. • Moved date information to new section on pg. 1, Important dates Instructions This GFE gives you an estimate of your settlement charges and loan terms if you are approved for this loan. See page 3 for more detailed instructions. actionable dates to About your GFE About your GFE 3, Proceeding with this application • Combined three emphasize their importance • Moved Item 1 from • Moved Item 2 from • Moved Item 3 from pg. Important dates 1. The interest rate for this GFE is available until . After that date, the interest rate, some of your Loan Origination Charges, and the monthly payment shown below can change until you lock your interest rate. 2. This estimate for all other settlement charges is available until . 3. If you proceed with this loan, you must go to settlement in days. You must lock the interest rate at least days before settlement. Summary of your loan terms go to settlement within this number of days to $ years % $ per month days Can your loan balance rise? Can your monthly amount owed for principal, Does your loan have a balloon payment? other obligations? c No c % c No c c No c c No c $ c No c $ due in years. c No c Your initial loan balance is Your loan term is Your initial interest rate is Your initial monthly amount owed for principal, interest, and any mortgage insurance is Your rate lock period is After you lock in your interest rate, you must guarantee this interest rate. Your Loan Details Can your interest rate rise? interest, and any mortgage insurance rise? Does your loan have a prepayment penalty? Does your loan include a monthly escrow payment for property taxes and, possibly, Yes, it can rise to a maximum of Yes, it can rise to a maximum of $ Yes, it can rise to a maximum of $ Yes, your maximum prepayment penalty is Yes, you have a balloon payment of Yes homebuyers know all costs • Added a row about escrow payments to help Summary of your settlement charges A B A sections on pg. 2 (Your Adjusted Origination Charges and Your Charges for All Other Settlement Services) • Added letters referencing Good Faith Estimate (GFE) 1 l ( l ) $ j ( l ) $ $ B+ to pg. 2 table Your Charges for All Other Sett ement Services Tab e B, page 2 Your Ad usted Origination Charges Tab e A, page 2 Total Estimated Settlement Charges • Improved references

Understanding your estimated settlement charges for selling loans after settlement to pg. 4, If your loan is sold in the future • Moved language about lenders receiving payments ( ) c l ( ) c c ( i ) ( ) A j $ 1. Our service charge These charges are for the services we provide when we get and process this loan for you. 2. Your credit or charge for the specific interest rate chosen points The credit or charge for the interest rate you have chosen is inc uded in “Our service charge.” See item 1 above. You receive a credit of $ for this interest rate of %. This credit reduces your upfront charges. You pay a charge of $ for this interest rate of %. This payment discount po nts increases your upfront charges. See the table on page 3 to see how you can change this charge or credit by choosing a different interest rate. Your Ad usted Origination Charges Your Loan Details 3. Service 4. 5. Service 6. 7. 8. until the first day of the next month or the first day of your normal mortgage payment cycle. For this loan, this amount is $ per day for days (if your closing date is ). 9. B l i $ $ A B+ Required services that we select These charges are for services we require to complete your settlement. We will choose the providers of these services. Charge Title services and lender’s title insurance This charge includes the services of a title agent, for example, and title insurance to protect the lender, if required. Required services that you can shop for These charges are for other services that are required to complete your settlement. We can refer you to providers of these services or you can shop for them yourself. Our estimates for providing these services are below. Charge Government recording and transfer charges This includes state and local charges on mortgages and home sales. Reserves or escrow This charge is held in an escrow account to pay recurring charges on your property, such as property taxes or insurance. Daily interest charges This charge is for the daily interest on your loan from the day of your settlement Homeowner’s insurance This charge is for the insurance you must buy for the property to protect from a loss, such as fire. 10. Optional owner’s title insurance This charge is for additional insurance you can choose to buy to protect yourself from title defects. Your Charges for All Other Settlement Services Your Charges for Al Other Settlement Serv ces Total Estimated Settlement Charges • Rewrote description Good Faith Estimate (GFE) 2

Important Information and Instructions About your GFE • Moved from pg. 1 Shopping for a loan offer Understanding which charges can change at settlement best loan. Use the table on page 4 to compare all the offers you receive. The GFE estimates your settlement charges. At your settlement, you will receive a HUD-1. Compare the charges on the HUD-1 with the charges on this GFE. Charges can change if you select your own provider and do not use the companies your lender suggests. at settlement: rate) i insurance (if we select them or us) shop for identified by us) by us) at settlement: shop for (if you do not use insurance (if you do not use identified by us) that can change at settlement These charges cannot increase • Our service charge • Your charge or credit for the specific interest rate chosen (after you lock in your interest • Government recording and transfer charges The total of these charges can ncrease up to 10% at settlement: • Required services that we select • Title services and lender’s title you use providers identified by • Required services that you can (if you use providers • Optional owner’s title insurance (if you use providers identified These charges can change • Required services that you can providers identified by us) • Title services and lender’s title providers identified by us) • Reserves or escrow • Daily interest rate charges • Homeowner’s insurance • Optional owner’s title insurance (if you do not use providers Only you can shop for the best loan for you. Compare this GFE with other loan offers, so you can find the The list below shows you how much the estimated charges on this GFE can change at your closing. • Reorganized charges to emphasize the the HUD-1 and their costs • Rewrote ﬁrst paragraph relationship of the GFE to • Moved tolerance information into a table format to emphasize three types of charges Looking at trade-offs • Moved section description before table to introduce the table In this GFE, we offered you a particular interest rate and estimated settlement charges. But, you could choose other loans to get a lower interest rate or lower settlement charges. g If you want to choose a loan with a lower interest rate, then you will have higher settlement charges. g If you want to choose a loan with lower settlement charges, then you will have a higher interest rate. The table below shows how the loan for this GFE compares to two other options. If you decide you want to make one of these trade-offs, you must ask us for a new GFE. ill l ly i l ill l i is i l i l ill The loan in this GFE $ % $ rate will lower your $ $ $ % $ less every month rate will raise your $ $ A loan with a lower A loan with lower $ % $ No Change No Change $ Your loan amount Your interest rate How much your monthly payment w be How much more or ess in month payments from th s GFE How much more or ess you w pay at sett ement w th th nterest rate How much your tota est mated sett ement charges w be You will pay $ more every month Your higher interest settlement charges by You will pay $ Your lower interest settlement charges by interest rate settlement charges If this loan offer is for an adjustable rate loan, the comparisons in the table are for the initial interest rate before any adjustments are made. Good Faith Estimate (GFE) 3

understand and identify other annual • Added a section to help homebuyers charges that affect their ability to afford a home Your financial responsibilities as a homeowner In addition to your monthly amount owed for principal, interest, and mortgage insurance, you may need to pay other required annual charges to keep your property. We must provide an estimate for annual property taxes along with homeowner’s, flood, and other required property protection insurance, but we are not required to provide estimates for the other charges. You may have to identify the other charges and ask for additional estimates from others. Different sources might use different techniques to estimate these charges, but the actual charges will be the same in the end. Therefore, do not use these estimates to compare settlement charges from different loan originators. Annual property taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___ Annual homeowner’s insurance . . . . . . . . . . . . . . . . . . . . . . . . . .___________ Annual flood insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .___________ Annual homeowners association/condominium fees. . . . . . . .___________ Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Other Annual Charges . . . . . . . . . . . . . . . . . . . . . . . . • Moved from pg. 3 of Revised GFE Applying for If you decide you would like to apply for this loan, contact us at . this loan You must pay a fee of $ . This fee will be subtracted from your settlement charges. Loan Originator Name Initial Loan Balance Initial Monthly Amount Owed Rate Lock Period Can Loan Balance Rise? Can Monthly Amount Owed Rise? Balloon Payment? publications about home buying. Use this chart to compare Good Faith Estimates (GFEs) from different loan originators. Fill in the information by using a different column for each GFE you receive. By comparing loan offers, you can shop for the best loan. Using the shopping chart Loan Term Initial Interest Rate Can Interest Rate Rise? Prepayment Penalty? • Added a section to refer homebuyers to government • Reduced the number of columns from 6 to 4 Getting more The type of loan you choose can affect your current and future monthly payments. You can ask us for more information information about loan types. You can also look at several government publications: HUD’s Special Information Booklet on settlement charges, your Truth-in-Lending Disclosures, and consumer information publications of the Federal Reserve Board. Loan 1 Loan 2 Loan 3 Loan 4 Total Estimated Settlement Charges If your loan is sold Lenders can receive additional fees by selling your loan at some future date after settlement. Once you have pg. 2, Your credit or charge for a speciﬁc interest rate chosen and • Moved lender sentence from added more information. in the future obtained your loan at settlement, however, your loan terms, adjusted origination charges, and total settlement charges cannot change. After settlement, any fees lenders receive in the future cannot change the loan you received or the charges you paid at settlement. Good Faith Estimate (GFE) 4

Appendices

165 Append?x A Round 1 Baseline Forms

Good Faith Estimate (GFE) with Settlement Charges Summary

169 Append?x A Round 1 Baseline Forms

Good Faith Estimate (GFE) Without Settlement Charges Summary

173 Append?x A Round 1 Baseline Forms

Guaranteed Mortgage Package Agreement (GMPA)

178 Append?x B Forms Revised for Round 2

Good Faith Estimate (GFE)

182 Append?x B Forms Revised for Round 2

Mortgage Package Offer (MPO)

178 Append?x B Forms Revised for Round 2

HUD-1

? Appendix B Forms Revised for Round 2

Crosswalk

186 Append?x C Forms Revised for Round 3

Good Faith Estimate (GFE)

190 Append?x C Forms Revised for Round 3

Mortgage Package Offer (MPO)

194 Append?x C Forms Revised for Round 3

Good Faith Estimate (GFE) Crosswalk

198 Append?x C Forms Revised for Round 3

Mortgage Package Offer (MPO) Crosswalk

? Appendix B Forms Revised for Round 3

Final Mortgage Package Offer (MPO)

_ Guaranteed Mortgage package Agreement #2 OMB Control No. xxxx __ ___ _______________________________________________ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _    ________ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ________ M o rtgage Package O ffer (MPO ) Name of Originator _____ ________________________ Phone _________________________________________ A d d ress _______________________________________ B o rrower ______________________________________

SSN ________ ___________________________________

P ro perty Address ________ _______________________

About Your What is an MPO? This MPO is an offer for a mortgage loan from us that includes:  A guaranteed price for a package that includes most of the settlement serv ces needed to get the loan. MPO i  iAn interest rate and points that are guaranteed if you accept th s offer and lock in by ____/____/____. lO t h e rwise, they wil float until you lock.  i iAn agreement that binds us to provide you the loan descr bed n this document if you are approved for this loan. i ly i , the value This MPO s based on your statements that your gross month ncome is $ of the pro p e rty is $ land on a credit ana ysis that we conduct. We will verify your monthly income, the pro p e rty value, your credit rating, and other information that you’ve provided to us. How should you use this MPO to shop for the best loan? We cannot guarantee that we are getting you ithe best poss ble loan costs or interest rates that are available. You should compare this MPO with those that you get from others. By comparing loan offers, you can shop for the best loan. lThis terms and conditions of this MPO are va id for 10 business days from this date _____/_____/_____. Keep this MPO to compare with your actual costs at settlement. Summary Your Loan Details of Your Loan Terms for This Estimate Your loan is  i . ) $ $  % $ $ for mortgage insurance     An Adjustable Rate Loan % initially, then t will adjust The interest rate adjustment will be based on the index and can change up to percentage points Your first adjustment will occur in (months or years years The maximum your monthly payment for principal, interest, and any mortgage insurance could be is A Fixed Rate Loan years days. After you lock in your interest rate, you must go to settlement within this number of days to be guaranteed this interest rate. Your loan amount will be: Your interest rate Your loan term Your monthly payment principal, interest, and any Your rate lock period Does your loan have Yes, your maximum prepayment penalty is $ a prepayment penalty? N o Does your loan have Yes, you have a balloon payment of $ due in years. a balloon payment? N o l iThe interest rate and monthly payment shown above can change unti you lock n your interest rate. Your Settlement Costs ( ) ( ) ( ) $ Charge for Your Guaranteed Mortgage Package item 1 on page 2 Charge or Credit for the Specific Interest Rate Chosen item 2 on page 2 Estimated Charges for Settlement Services Outside the Package items 3-6 on page 2 Total Estimated Settlement Charges 1

___ __ _ Guaranteed Mortgage package Agreement #2 OMB Control No. xxxx _ _ _ _ _ _             Mo rtgage Package O ffer (MPO) Understanding Charge for Your Guaranteed Mortgage Package Your Settlement Charges $ 1. Your guaranteed mortgage package i i i ill l i l i i i i l i l l i i l i i i l l Your guaranteed mortgage package s one f xed price for most of the serv c e s that you w need to get your oan. This price cannot change before settlement. This package nc udes the charges for the follow ng services, f needed: S e rvice charg e Th s charge s for the services we provide when we process this oan for you. Other re q u i red settlement serv i c e s This charge is for certain services we re q u re to comp ete your settlement, for example, an appraisal, credit re p o rt, or surv e y. We wil choose the providers of these serv c e s . Title services and lender’s title insurance This charge ncludes the services of a sett ement agent, for example, and title nsurance to protect the lender, if re q u re d . Taxes and fees This charge nc udes state and loca taxes and fees. Charge for Your Guaranteed Mortgage Package — — l l (di Charge or Credit for the Specific Interest Rate Chosen (Points) Charge or Credit for the Specific Interest Rate Chosen 2. Charge or credit for the specific interest rate chosen For a higher interest rate loan—the payment by the lender on your behalf that reduces the up-front charge you pay For a ower interest rate loan—the additiona up-front charge you pay the lender scount points) $ 3. Reserves or escrow l 4. Daily interest charges i i l l l i (i 5. i 6. i $ Estimated Charges for Settlement Services Outside the Package This charge is he d in an escrow account to pay rec urring charges on your p ro p e rt y, such as pro p erty taxes or insurance. Th s charge is for the da ly interest on your oan from the day of your settlement unti the first day of the next month or the first day of your n o rma mortgage payment cycle. For th s loan, this amount is $ per day for days f your closing date is ____/____/____). Homeowner’s insurance Th s charge is for the insurance you must buy for the pro perty to pro t ec t from a loss such as fire. Optional owner’s title insurance This charge is for nsurance you can choose to buy to protect yourself fro m title defects. Estimated Charges for Settlement Services Outside the Package Total Estimated Settlement Charges $ All of the charges isted above can change at settlement e x c e p t for the Charge for Your Guaranteed Charges That l M o rtgage Package. The Charge or Cred t for the Specific Interest Rate Chosen can change unti you lock Can Change in your interest rate. i l S e rvices That As part of this mortgage package, we will obtain certain services as indicated below. Will Be in This Ye s N o Ye s N o P a ck a g e Property Appraisal   Closing Services  Credit Report Title Search Pest Inspection Title Examination Survey Lender’s Title Insurance 2

___________ __ _ __________ _ Mo rtgage Package O ffer (MPO) Understanding the Trade-off Between the Charges for Your Loan and Your Interest Rate Accepting This Mortgage Package Offer $ % $ f $ $ f l $ % $ f f f f f f f $ $ % $ f $ $ You will pay $ less every month Your lower interest rate will raise your settlement costs by A loan with a lower interest rate The loan in this MPO A loan with lower settlement costs Your loan amount Your interest rate How much your monthly payment will be How much more or less in monthly payments from this MP O How much more or less you will pay at settlement with this interest rate How much your tota estimated settlement charges will be No Change No Change You will pay $ more every month Your higher interest rate will lower your settlement costs by We have offered you a particular interest rate and estimated settlement costs in this MPO. But, it is important that you see how this loan compares to others that you could choose.  If you want to choose a loan with a lower interest rate, then you will have higher settlement costs .  l .If you want to choose a loan with lower settlement costs, then you wil have a higher interest rate The table above shows how the loan that we’ve offered you in this MPO compares to these different options. The loan in this MPO is in the first column. In the middle column is a loan with a lower interest rate. In the last column is a loan with lower settlement costs . If you want one of these options, you can ask for a new MPO. lIf this loan offer is for an adjustable rate mortgage, the comparisons in the table are for the initia interest rate before any adjustments are made. What should you do if you want to accept this offer? 1. You will need to pay a fee of $ which will be applied towards your settlement charges. 2. You will need to decide to lock in an interest rate now or later. Check the option you would like:  I want to accept the offer by signing below and locking in the interest rate now.  I want to accept the offer by signing below and will wait to lock in the interest rate. I realize I must lock in the interest rate at least days before settlement. What happens once you accept this offer? We will verify your monthly income, the property value, your credit rating, and other information that you’ve provided to us. We may ask you for more information. Then we will complete the evaluation of your mortgage application. If you are approved, we will provide the mortgage loan and settlement services exactly as we’ve outlined in this offer. What if you are not sure you want to accept this offer? This offer of $ (Guaranteed Mortgage Package Charges ), (Interest Rate , and $ (Charge or Credit for ) the Specific Interest Rate Chosen ) is valid until _____/______/_____ date ( ). From _____/______/_____ until _____/______/_____ , the package price is still guaranteed, but the interest rate and points offered will float. The interest rate and points will stop floating when you lock them. You can find current interest rates and points options by going to: If you do not accept by _____/______/_____, this offer will expire. Our Signature Da t e iYour S gnature Da t e 3

201 Append?x D Forms Revised for Round 4

Good Faith Estimate (GFE) With Yield Spread Premium

218 Append?x E Forms Revised for Round 5

Good Faith Estimate (GFE) with 2-Option Yield Spread Premium

? Appendix B Forms Revised for Round 5

Good Faith Estimate (GFE) with 3-option Yield Spread Premium and Mortgage Shopping Chart

222 Append?x F Forms Revised for Round 6

Revised Good Faith Estimate (GFE) with 3-Option Yield Spread Premium

Guaranteed Faith Estimate #1 OMB Control No. xxxx __ _______________________________________________ _______________________________________________ �

Good Faith Estimate of Settlement Costs (GFE) Name of Originator _____________________________ Originator Address______________________________ Originator Phone Number________________________ Borrower ______________________________________

Property Address________________________________

File or Loan Number ____________________________ About What is a GFE? This GFE gives you an estimate of your settlement costs and loan terms if you are approved for this loan. Your GFE How should you use this GFE to shop for the best loan? You are the only one who can shop for the best loan for you. You should compare this GFE with other loan offers. By comparing loan offers, you can shop for the best loan. Use the table on page 4 to compare all the offers you receive. The interest rate for this GFE is available until ____/____/____. After that date, the interest rate, some of your Loan Originator Charges, and the monthly payment shown below can change until you lock your interest rate. This estimate of your charges for all other settlement services is available until ____/____/____. Keep this GFE to compare with your actual costs at settlement. Summary Yo u r Lo a n De t a ils of Your Loan Terms for This Estimate Your initial loan amount is $ Your loan term is years Your initial interest rate is % Your initial monthly amount owed for principal, interest, and any mortgage insurance is $ per month Your rate lock period is After you lock in your interest rate, you must go to settlement within this number of days to guarantee this interest rate. days Can your interest rate rise? � No � Yes, it can rise to a maximum of % Can your loan balance rise? � No � Yes, it can rise to a maximum of $ Can your monthly amount owed for principal, interest, and any mortgage insurance rise? � No � Yes, it can rise to a maximum of $ Does your loan have a prepayment penalty? � No � Yes, your maximum prepayment penalty is $ Does your loan have a balloon payment? � No � Yes, you have a balloon payment of $ due in years. The interest rate and monthly payment shown above can change until you lock your interest rate. Your Settlement Costs j ( )Your Ad usted Origination Charges see items 1 and 2 on page 2 ( )Your Charges for All Other Settlement Services see items 3 through 10 on page 2 Total Estimated Settlement Charges $ 1

_ Good Faith Estimate #1 OMB Control No. xxxx _ _ ___ __ _ _ _ �

Good Faith Estimate of Settlement Costs (GFE) Understanding Your Charges for Loan Origination Your Estimated Settlement Charges 1. Our service charge These charges are for the services we provide when we get and process this loan for you. ( ) � ( ) � � ( ) ( ) 2. Your credit or charge for the specific interest rate chosen points The credit or charge for the interest rate you have chosen is included in “Our service charge.” See item 1 above. Lenders may also receive an additional payment if they sell your loan after settlement. You receive a credit of $ for this interest rate of %. This credit reduces your upfront charges. You pay a charge of $ for this interest rate of %. This payment discount points increases your upfront charges. See the table on page 3 to see how you can change this credit or charge by choosing a different interest rate. j A Your Ad usted Origination Charges $ �

Your Charges for All Other Settlement Services

3. Required services that we select These charges are for services we require to complete your settlement. We will choose the providers of these services. Service 4. Title services and lender’s title insurance Cost This charge includes the services of a title agent, for example, and title

insurance to protect the lender, if required.

5. Required services that you can shop for These charges are for other services that are required to complete your

settlement. We can refer you to providers of these services or you can shop

for them yourself. Our estimates for providing these services are below.

Service Cost 6. Government recording and transfer charges This charge includes state and local transfer taxes and fees. 7. Reserves or escrow This charge is held in an escrow account to pay recurring charges on your

property, such as property taxes or insurance.

8. Daily interest charges This charge is for the daily interest on your loan from the day of your

settlement until the first day of the next month or the first day of your

days (if your closing date is ____/____/____). per day for 9. Homeowner’s insurance This charge is for the insurance you must buy to protect the property from

a loss, such as fire.

10. Optional owner’s title insurance This charge is for additional insurance you can choose to buy to protect

yourself from title defects.

normal mortgage payment cycle. For this loan, this amount is $

� Your Charges for All Other Settlement Services B $

A + B = Total Estimated Settlement Charges $ 2

f Good Faith Estimate #1 OMB Control No. xxxx f f f f f f f f f Good Faith Estimate of Settlement Costs (GFE) Understanding Which Charges Can Change at Settlement The charges listed on page 2 are all part of the total estimated amount that you will have to pay at settlement. Below we list which charges can change at settlement. Some of the charges can appear in more than one section, depending on who chooses the provider of the service. These charges cannot increase at settlement: � Our service charge � Your charge or credit for the specific interest rate chosen (after you lock in your interest rate ) � Government recording and transfer charges The sum of these charges cannot increase more than 10% at settlement: � Required services that we select � Title services and lender’s title insurance (if we select them or you use providers identified by us ) � Required services that you can shop for (if you use providers identified by us ) � Optional owner’s title insurance (if you use a provider identified by us ) These charges can change at settlement: � Title services and lender’s title insurance (if you do not use a provider identified by us ) � Required services that you can shop for (if you do not use a provider identified by us ) � Reserves or escrow � Daily interest rate charges � Homeowner’s insurance � Optional owner’s title insurance (if you do not use a provider identified by us ) settlement costs by more every month settlement costs by % % Understanding the Tradeoff Between the Charges for Your Loan and Your Interest Rate Your loan amount Your interest rate How much your monthly payment will be How much more or less in monthly payments from this GFE How much more or less you will pay at settlement with this interest rate How much your total estimated settlement charges will be $ $ $ The loan in this GFE No Change No Change $ % $ $ $ a $ $ $ $ You will pay $ less every month Your lower interest rate will raise your A loan with lower interest rate A loan with lower settlement costs You will pay $ Your higher interest rate will lower your We have offered you a particular interest rate and estimated settlement costs in this GFE. But, it is impor tant that you see how this loan compares to others that you could choose. � If you want to choose a loan with a lower interest rate, then you will have higher settlement costs . � If you want to choose a loan with lower settlement costs, then you will have a higher interest rate . The table above shows how the loan that we’ve offered you in this GFE compares to these different options. The loan in this GFE is in the first column. In the middle column is a loan with a lower interest rate. In the last column is a loan with lower settlement costs. If you would like one of these options, you can ask for a new GFE. jIf this loan offer is for an ad ustable rate mortgage, the comparisons in the table are for the initial interest jrate and monthly payment before any ad ustments are made. which Proceeding with If you would like to proceed with this mortgage application, you must pay a fee of $ This Application will be applied toward your settlement costs. The interest rate and points on this GFE are available until ____/____/____ days before settlement. . After that, they float until you lock. You must lock in the interest rate at least 3

Guaranteed Faith Estimate #1 OMB Control No. xxxx Mortgage Use this chart to compare Good Faith Estimates (GFEs). Fill out the information by using a Shopping Chart different column for each GFE. By comparing offers for similar loan products, you can shop for the best loan. Loan 1 Loan 2 Loan 3 Loan 4 Loan 5 Loan 6 Loan Originator Name Loan Details Loan #1 Loan #2 Loan #3 Loan #4 Loan #5 Loan #6 Initial Loan Amount $ $ $ $ $ $ Loan Term Years Years Years Years Years Years Initial Interest Rate % % % % % % Initial Monthly Amount Owed $ $ $ $ $ $ Rate Lock Period days days days days days days Can Interest Rate Rise? No Yes No Yes No Yes No Yes No Yes No Yes Can Loan Balance Rise? No Yes No Yes No Yes No Yes No Yes No Yes Can Monthly Amount Owed Rise? No Yes No Yes No Yes No Yes No Yes No Yes Prepayment Penalty? No Yes No Yes No Yes No Yes No Yes No Yes Balloon Payment? No Yes No Yes No Yes No Yes No Yes No Yes Total Estimated Settlement Charges � 4

227 Append?x F Forms Revised for Round 6

Alternate Good Faith Estimate (GFE)

Fixed at __ _______________________________________________ _______________________________________________ �

Good Faith Estimate of Settlement Costs (GFE) Name of Originator _____________________________ Borrower ______________________________________ Originator Address______________________________ Property Address________________________________ File or Loan Number ____________________________ Originator Phone Number________________________ How to Use This GFE This is a Good Faith Estimate of mortgage loan settlement charges and loan terms if you are approved for this mortgage loan from us. This estimate is based on information you provided to us. If you decide to use us for this mortgage loan, we may require additional information to determine if you qualify for this loan. You are the only one who can shop for the best loan for you. You should compare this GFE with other loan offers. At closing, you should compare your GFE with the HUD1 Settlement Statement. The interest rate for this GFE is available until ____/____/____. After that date, the interest rate, some of your Loan Originator Charges, and the monthly payment shown below can change until you lock your interest rate. This estimate of your charges for all other settlement services is available until ____/____/____. Comparisons among loans of different types can be complicated. The type of loan you choose can significantly affect your current and future monthly payments. For more information about loan types, ask your loan originator, and see HUD’s Special Information Booklet on settlement costs, your Truthin Lending Disclosures, and consumer information publications of the Federal Reserve Board. Summary Your Loan Amount: Your loan term: of Terms for This Estimate Type of Loan: Your interest rate is: � Fixed at _______% � _______% initially, then it will adjust Monthly mortgage insurance, if any: $ Your initial monthly amount owed for principal and interest: Your actual monthly payment may also include taxes and insurance. $ Can your monthly amount owed for principal and interest increase? If yes, this amount owed may first change in _____________ months, and your maximum amount owed could be $_________________. � Yes � No Can your loan balance rise? If yes, it can rise to a maximum of $___________. � Yes � No Does your loan have a prepayment penalty? If yes, your maximum prepayment penalty is $_________________. � Yes � No Does your loan have a balloon payment? If yes, you have a balloon payment of $_________________ due in _____________ years. � Yes � No After you lock your interest rate, you must go to settlement within _____________ days or the lock on your interest rate will expire and your interest rate may change. Your Settlement Costs

Total Adjusted Origination Charges (see Section A on page 2) Total for Third Party Charges and Other Charges (see Sections B and C on page 2) Total Estimated Settlement Charges (same as line 1400 on page 2) $

Good Faith Estimate #1 OMB Control No. xxxx Good Faith Estimate of Settlement Costs (GFE) Mortgage Loan Settlement Charges to Be Paid Compare these costs to Section L (Lines 800–1400) on the HUD1 Settlement Statement. Section A. Loan Originator Charges Note: Total Loan Origination Charges listed in A1 below should not vary at closing. Because any Discount Points and Yield Spread Premium amounts are based on your interest rate, they will vary until you lock your rate. “Discount Points” (A2) are paid by you to reduce the interest rate on your loan and are added to the Loan Originator’s Charges to calculate your upfront charges. The “Yield Spread Premium” (A3) is based on the interest rate for your loan, and is paid directly to the mortgage broker by the lender, and reduces your upfront charges at settlement. Lenders may also receive an additional payment if they sell your loan after settlement. � If you want to choose a loan with a lower interest rate, then you will have higher settlement costs. � If you want to choose a loan with lower settlement costs, then you will have a higher interest rate. 800. Adjusted Loan Origination Calculation A1 Total Loan Origination Charges for loan processing A2 Discount Points paid to reduce your interest rate A3 Yield Spread Premium paid to reduce your upfront charges at settlement Total for Section A. Adjusted Loan Origination Charges: Section B. Third Party Charges Note: At closing, the Total Third Party Charges listed in Section B should not vary by more than 10% if you used the service providers required by or recommended by the loan originator. 900. Credit Report, Appraisal, and Inspection Charges for credit reports, appraisals, pest inspections, lender inspections, and other charges required by the lender 950. Mortgage Insurance Charges to be paid in advance 1000. Title Charges for Lender’s Title Insurance, title related services and closing services (Note: If you are refinancing, you may be entitled to a reduced title insurance premium.) 1050. Optional Owner’s Title Insurance for this transaction Total for Section B. Third Party Charges: Section C. Other Charges Note: Charges listed in Section C may vary at closing, except for charges listed on line 1200. 1100. Flood Insurance Charges to be paid in advance 1150. Homeowner’s Insurance Charges to be paid in advance 1200. Government Recording and Transfer Charges for this transaction (These charges may not vary at closing.) 1250. Daily Interest Charges for this transaction 1300. Escrow Charges/Reserves to establish an escrow account for taxes, insurance premiums, and other charges Total for Section C. Other Charges: 1400. Total Estimated Settlement Charges (Sections A, B, and C) �

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230 Append?x F Forms Revised for Round 6

HUD-1

2D L. Settlement Charges 700. Total Sales/Broker’s Commission based on price $ @ 6 % = Di i i i ( ) l i i 125,000.00 7,500.00 vis on of Comm ss on line 700 as follows: 701. $ 3,750.00 to Bay Real Estate 702. $ 3,750.00 to Lake Rea Estate 703. Commiss on pa d at Settlement 7,500.00 704. i l i l Pa d From Borrower’s Funds at Sett ement Pa d From Se ler’s Funds at Settlement l800. Items Payabe In Connection With Loan i ( ) $ i i ( ) j igi i ( ) $ i ( ) i ( ) i ( ) l ( ) 801. Our serv ce charge from GFE #1 4,500.00 802. Your charge or cred t for the specific nterest rate chosen from GFE #2 $ –2,200.00 803. Your Ad usted Or nat on Charges from GFE A 2,300.00 2,300.00 804. Appra sal fee to from GFE #3 400.00 805. Cred t report to from GFE #3 25.00 806. Tax serv ce from GFE #3 75.00 807. F ood certification from GFE #3 808. 809. 810. 811. 900. Items Required By Lender To Be Paid In Advance i ( ) i i ( ) i ( ) $ 901. Daily nterest charges from GFE #8 from 1/21/08 to 1/31/08 @ $ 20.55/day 102.75 902. Mortgage nsurance prem um from GFE #3 or #5 for months to 903. Homeowner's nsurance from GFE #9 for years to 500.00 904. years to 905. 1000. Reserves Deposited With Lender 1001. Reserves or escrow (from GFE #7) 697.25 1002. Homeowner’s insurance months @ $ per month $ 1003. Mortgage insurance months @ $ per month $ 1004. City property taxes months @ $ per month $ 1005. County property taxes months @ $ per month $ 1006. Annual assessments months @ $ per month $ 1007. months @ $ per month $ 1008. months @ $ per month $ 1009. Aggregate Adjustment -$ 1100. Title Charges i l i ( ) itle i i $ i itle i ( ) itl li l li limi i i $ l titl i $ 1101. Title serv ces and ender’s title nsurance from GFE #4 1,200.00 1102. 1103. 1104. 1105. 1106. 1107. 1108. 1109. Lender’s t nsurance prem um 400.00 1110. Opt onal owner’s t nsurance from GFE #10 300.00 1111. Lender’s t e po cy imits $ 100,000.00 1112. Owner’s title po cy ts $ 125,000.00 1113. Agent’s port on of the total title nsurance premium 490.00 1114. Underwriter’s portion of the tota e insurance prem um 210.00 1115. 1200. Government Recording and Transfer Charges i ( ) i l i i $ 1201. Government Record ng and Transfer Charges from GFE #6 650.00 1202. Record ng fees: Deed $ 50.00 ; Mortgage $ 50.00 ; Re eases $ 1203. C ty/county tax/stamps: Deed $ 250.00 ; Mortgage $ 1204. State tax/stamps: Deed $ ; Mortgage $ 300.00 1205. Conservat on fee 1206. 1300. Additiona l Settlement Charges ( ) i li i i ( ) i i 1400. Total Settlement Charges (enter on lines 103, Section J and 502, Section K) 1301. Survey from GFE #5 to Stra ght ne Surveys 200.00 1302. Pest nspect on from GFE #5 to Cr tter R dder 50.00 1303. 1304. 1305. 6,500.00 7,500.00 The Undersigned Acknowledges Receipt of this Disclosure Statement and Agrees to the Correctness Thereof. Buyer or Agent Seller or Agent

232 Append?x F Forms Revised for Round 6

Settlement Script

These Are Your Loan Details 23 Main The following is a summary of many important details involving the mortgage loan for 1 Street, Anywhere, USA 12345. Let’s compare these important details with the Good Faith ( )Estimate GFE , loan documents, and other disclosures. Loan Amount Loan Term Loan Type j $100,000.00 30 year Conventional Ad ustable Payment Option Mortgage Adjustable Interest Rate with Initial Discounted Interest Rate Your initial interest rate is 1 .5 %. This is a discounted interest rate and will ad just to 6 .5 % in 3 3 days on M arch 1, 2008. jYour loan has an ad ustable interest rate which means that the interest rate can rise over the life of the loan. Your second change date will be A pril 1, 2009 and may change every 1 2 months thereafter. Your interest rate can increase or decrease by 2 .75% on every change date, but is guaranteed to never be lower than 4 .5% or higher than 1 0.5% over the life of the loan. Payment Your initial loan payment for principal and interest is $ 345.12 and can rise. Your initial loan payment for principal and interest and mortgage insurance is $ 345.12 and c an rise to a maximum of $1,180.23. (see page 1 of the GFE) You do not have an escrow account. Any and all items such as property taxes and homeowner’s insurance must be paid directly by you. 45.12.Your total initial loan payment is $3 Payment Option Mortgage This type of loan allows you to choose from three payment options; the traditional principal and interest payment, the interest-only payment, and the minimum interest payment. This is what your initial payment choice will look like: 1

Principal & Interest Payment at 6.5%: $742.97 (reduces loan balance) $110.90 principal, $632.07 interest Interest-Only Payment at 6.5%: $632.07 (will not reduce loan balance) $0 principal, $632.07 interest Minimum Interest Payment at 4.5%: $506.69, (will INCREASE loan balance) $0 principal, $506.69 interest AND $125.38 added to loan balance If you choose to pay the minimum payment amount, your loan balance will increase. This increase instead of a decrease in your loan balance is called negative amortization. If the loan balance increases, your monthly mortgage payment may also increase to cover the difference. 25%If your loan balance rises above 1 , as indicated in your Note, your lender has the right to f your loan is recalculated, it is likely that your loan payment will go recalculate your loan. I up a lot. Late Payment st 5th Your loan payment is due on the 1 of every month and is considered late after the 1 of 5thevery month. If your lender receives your mortgage payment after the 1 , your lender will %charge a late fee of 5 of the overdue payment of principal and interest. Loan Balance an rise to a maximum of $125,000. Your loan balance c Prepayment Penalty ave You h a pre-payment penalty. A prepayment penalty is an amount that you will be required to pay if you pay your loan off early une 1,such as through a refinance, or make significant additional payments to principal prior to J 2010 ,100.00.. Based on your initial loan amount, your prepayment penalty may be as high as $3 Balloon Payment o not have You d a balloon payment. Closing Costs Next we will review all of the HUD-1/1A charges and credits associated with your loan and compare them to the GFE you received when you applied for this loan. 2

GFE & HUD-1/1A Changes Comparison Chart Good Faith Estimate HUD-1/1A $ Increase Changes Cannot Increase Our service charge (HUD Line #801) $2,000.00 $2,300.00 + 300 Your credit or charge for the specific interest rate chosen (HUD Line #802) $0.00 $0.00 + 0 Your Adjusted Origination Charges (HUD Line #803) $2,000.00 $2,300.00 + 300 Government recording and transfer charges (HUD Line #1201) $600.00 $650.00 + 50 Charges Cannot Increase More Than 10% Appraisal (HUD Line #804) $300.00 $400.00 Credit Report (HUD Line #805) $25.00 $25.00 Tax Service (HUD Line #806) $75.00 $75.00 Title services and lender’s title insurance (HUD Line #1101) $900.00 $1200.00 Optional owner’s title insurance (HUD Line #1110) $300.00 $300.00 _______________________________________________ (HUD Line #____) Total $1,600.00 $2,000.00 + 400 Percent increase between GFE and HUD-1/1A Charges 25% Charges That Can Change Reserves or escrow (HUD Line #1001) $0.00 $0.00 Daily interest charges (HUD Line #901) $4.11 per day $20.55 $20.55 Homeowner’s insurance (HUD Line #903) $497.45 $497.45 Survey (HUD Line #1301) $165.00 $200.00 Pest Inspection (HUD Line #1302) $35.00 $50.00 _______________________________________________ (HUD Line #____) 3

Acknowledgement The undersigned hereby state that the Closing Script was read and the following information was provided and explained: 1. The comparison between the charges listed on the HUD-1/1A settlement form and the estimate of charges on the GFE; 2. Whether or not the tolerances have been met within the applicable categories between the GFE and the HUD-1/1A; and 3. Any inconsistencies between the loan documents (including the mortgage note) and the summary of the loan terms on the GFE, and between the HUD-1/1A settlement charges and the charges stated on the GFE. ________________ (Representative) Cube Settlements___(Company) ________________ (Borrower) ___________________(Borrower) ___01/26/2008_____ (Date) 4

237 Append?x F The GFE Today

Good Faith Estimate (GFE) Date of GFE Name of Originator Originator Originator Phone Number Originator email Borrower Property AddressAddress Instructions This GFE gives you an estimate of your settlement charges and loan terms if you are approved for this loan. See page 3 for more detailed instructions. Important dates 1. The interest rate for this GFE is available until . After that date, the interest rate, some of your Loan Origination Charges, and the monthly payment shown below can change until you lock your interest rate. 2. This estimate for all other settlement charges is available until 3. If you proceed with this loan, you must go to settlement in days. You must lock the interest rate at least days before settlement. . Summary of your loan terms go to settlement within this number of days to $ years % $ per month days Can your loan balance rise? Can your monthly amount owed for principal, Does your loan have a balloon payment? other obligations? c No c % c No c c No c c No c $ c No c $ due in years. c No c Your initial loan balance is Your loan term is Your initial interest rate is Your initial monthly amount owed for principal, interest, and any mortgage insurance is Your rate lock period is After you lock in your interest rate, you must guarantee this interest rate. Your Loan Details Can your interest rate rise? interest, and any mortgage insurance rise? Does your loan have a prepayment penalty? Does your loan include a monthly escrow payment for property taxes and, possibly, Yes, it can rise to a maximum of Yes, it can rise to a maximum of $ Yes, it can rise to a maximum of $ Yes, your maximum prepayment penalty is Yes, you have a balloon payment of Yes A ( ) $ B j ( ) $ $ A B+ Summary of your settlement charges Your Charges for All Other Settlement Services Table B, page 2 Your Ad usted Origination Charges Table A, page 2 Total Estimated Settlement Charges Good Faith Estimate (GFE) 1

Understanding your estimated settlement charges ( ) c ( ) c c ( ) ( ) A j $ 1. Our service charge These charges are for the services we provide when we get and process this loan for you. 2. Your credit or charge for the specific interest rate chosen points The credit or charge for the interest rate you have chosen is included in “Our service charge.” See item 1 above. You receive a credit of $ for this interest rate of %. This credit reduces your upfront charges. You pay a charge of $ for this interest rate of %. This payment discount points increases your upfront charges. See the table on page 3 to see how you can change this charge or credit by choosing a different interest rate. Your Ad usted Origination Charges Your Loan Details 3. Service 4. 5. Service 6. 7. 8. until the first day of the next month or the first day of your normal mortgage payment cycle. For this loan, this amount is $ per day for days (if your closing date is ). 9. B $ $ A B+ Required services that we select These charges are for services we require to complete your settlement. We will choose the providers of these services. Charge Title services and lender’s title insurance This charge includes the services of a title agent, for example, and title insurance to protect the lender, if required. Required services that you can shop for These charges are for other services that are required to complete your settlement. We can refer you to providers of these services or you can shop for them yourself. Our estimates for providing these services are below. Charge Government recording and transfer charges This includes state and local charges on mortgages and home sales. Reserves or escrow This charge is held in an escrow account to pay recurring charges on your property, such as property taxes or insurance. Daily interest charges This charge is for the daily interest on your loan from the day of your settlement Homeowner’s insurance This charge is for the insurance you must buy for the property to protect from a loss, such as fire. 10. Optional owner’s title insurance This charge is for additional insurance you can choose to buy to protect yourself from title defects. Your Charges for All Other Settlement Services Your Charges for All Other Settlement Services Total Estimated Settlement Charges Good Faith Estimate (GFE) 2

Important Information and Instructions Shopping for a Only you can shop for the best loan for you. Compare this GFE with other loan offers, so you can find the loan offer best loan. Use the table on page 4 to compare all the offers you receive. Understanding The GFE estimates your settlement charges. At your settlement, you will receive a HUD-1. Compare the which charges charges on the HUD-1 with the charges on this GFE. Charges can change if you select your own provider and do not use the companies your lender suggests. can change at The list below shows you how much the estimated charges on this GFE can change at your closing. settlement at settlement: rate) i insurance (if we select them or us) shop for identified by us) by us) at settlement: shop for (if you do not use insurance (if you do not use identified by us) These charges cannot increase • Our service charge • Your charge or credit for the specific interest rate chosen (after you lock in your interest • Government recording and transfer charges The total of these charges can ncrease up to 10% at settlement: • Required services that we select • Title services and lender’s title you use providers identified by • Required services that you can (if you use providers • Optional owner’s title insurance (if you use providers identified These charges can change • Required services that you can providers identified by us) • Title services and lender’s title providers identified by us) • Reserves or escrow • Daily interest rate charges • Homeowner’s insurance • Optional owner’s title insurance (if you do not use providers In this GFE, we offered you a particular interest rate and estimated settlement charges. But, you could Looking at trade-offs choose other loans to get a lower interest rate or lower settlement charges. g If you want to choose a loan with a lower interest rate, then you will have higher settlement charges. g If you want to choose a loan with lower settlement charges, then you will have a higher interest rate. The table below shows how the loan for this GFE compares to two other options. If you decide you want to make one of these trade-offs, you must ask us for a new GFE. The loan in this GFE $ % $ rate will lower your $ $ $ % $ less every month rate will raise your $ $ A loan with a lower A loan with lower $ % $ No Change No Change $ Your loan amount Your interest rate How much your monthly payment will be How much more or less in monthly payments from this GFE How much more or less you will pay at settlement with this interest rate How much your total estimated settlement charges will be You will pay $ more every month Your higher interest settlement charges by You will pay $ Your lower interest settlement charges by interest rate settlement charges If this loan offer is for an adjustable rate loan, the comparisons in the table are for the initial interest rate before any adjustments are made. Good Faith Estimate (GFE) 3

Your financial responsibilities as a homeowner In addition to your monthly amount owed for principal, interest, and mortgage insurance, you may need to pay other required annual charges to keep your property. We must provide an estimate for annual property taxes along with homeowner’s, flood, and other required property protection insurance, but we are not required to provide estimates for the other charges. You may have to identify the other charges and ask for additional estimates from others. Different sources might use different techniques to estimate these charges, but the actual charges will be the same in the end. Therefore, do not use these estimates to compare settlement charges from different loan originators. Annual property taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ___ Annual homeowner’s insurance . . . . . . . . . . . . . . . . . . . . . . . . . .___________ Annual flood insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .___________ Annual homeowners association/condominium fees. . . . . . . .___________ Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Other Annual Charges . . . . . . . . . . . . . . . . . . . . . . . . Applying for If you decide you would like to apply for this loan, contact us at . this loan You must pay a fee of $ . This fee will be subtracted from your settlement charges. Getting more The type of loan you choose can affect your current and future monthly payments. You can ask us for more information information about loan types. You can also look at several government publications: HUD’s Special Information Booklet on settlement charges, your Truth-in-Lending Disclosures, and consumer information publications of the Federal Reserve Board. Using the Use this chart to compare Good Faith Estimates (GFEs) from different loan originators. Fill in the information by shopping chart using a different column for each GFE you receive. By comparing loan offers, you can shop for the best loan. Loan Originator Name Initial Loan Balance Initial Monthly Amount Owed Rate Lock Period Can Loan Balance Rise? Can Monthly Amount Owed Rise? Balloon Payment? Loan 1 Loan 2 Loan 3 Loan 4 i Loan Term Initial Interest Rate Can Interest Rate Rise? Prepayment Penalty? Total Est mated Settlement Charges If your loan is sold Lenders can receive additional fees by selling your loan at some future date after settlement. Once you have in the future obtained your loan at settlement, however, your loan terms, adjusted origination charges, and total settlement charges cannot change. After settlement, any fees lenders receive in the future cannot change the loan you received or the charges you paid at settlement. Good Faith Estimate (GFE) 4