Consumer Testing of the Good Faith Estimate Form (GFE)

by HUD USER

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

Visit PD&Rnull Web Site
www.huduser.org
to find this report and others sponsored by

HUDnull O ffice of Policy Development and Research (PD&R).

Other services of HUD USER, PD&Rnull Resear ch Information Service, include listservs;

special interest, bimonthly publications (best practices, significant studies from other sources);

access to public use databases; hotline 1-800-245-2691 for help accessing the information you need.

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

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%

80%

70%

60%

50%

40%

30%

20%

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%

6%

4%

2%

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%

70%

60%

50%

40%

30%

20%

10%

0%

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

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&rdquo; 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%

90%

80%

70%

60%

50%

40%

44
30%

20%

10%

0%

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%

90%

80%

70%

60%

50%

40%

45
30%

20%

10%

0%

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%

25%

20%

15%

10%

5%

0%

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%

80%

70%

60%

50%

40%

30%

20%

10%

0%

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%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
Round 2 T
est?ng

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

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&rsquo;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:
&#9660; 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

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

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

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
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&rsquo;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)
�

�

�

�

Formoreinformation,goto:www.hud.gov/RESPA
2

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