The Fed says its proposed changes to Truth in Lending Act (TILA) loan disclosure forms would make them more compatible with another set of disclosures mandated by the U.S. Department of Housing and Urban Development under the Real Estate Settlement Procedures Act (RESPA). But the Fed's revisions, if finalized, would still fall short of meeting calls by the lending industry and lawmakers for regulators to draw up a single loan disclosure form that meets both TILA and RESPA requirements.

The Fed's proposal to ban some types of incentive payments to mortgage originators may also prove controversial, as the ban goes beyond new restrictions on "yield-spread premiums" proposed by HUD under RESPA and set to go into effect Jan. 1 2010.

While the Fed and HUD appear to be moving closer to a long-standing industry desire to have a single set of loan disclosures, significant differences remain in the approaches taken to ensure lenders comply with TILA and RESPA.

In the past, the Fed has said its TILA disclosures are focused on helping consumers see the true cost of mortgage offers by comparing loan terms especially the annual percentage rate (APR) after lender fees are factored in. Until now, the Fed hasn't required lenders to include the cost of settlement services in calculating APR.

But HUD maintains that consumers need to consider the trade-off between the cost of settlement services and interest rates when choosing a loan package, and know that the loan with the lowest APR is not always the best deal.

HUD's proposed RESPA disclosure form does not even include APR, because HUD says that might distract consumers from the goal of choosing the best deal on a complete loan package.

In announcing that the Fed plans to require lenders to provide more extensive disclosures, Fed Chairman Ben Bernanke said the one-page TILA disclosure lenders currently use "is not adequate to convey the features and risks of today's complex products."

The Fed says its proposed changes to TILA disclosures would:

Capture most fees and settlement costs paid by consumers in the disclosed APR.
Require lenders to show how the consumer's APR compares to the average rate offered to borrowers with excellent credit.
Require lenders to provide final TILA disclosures at least three business days before loan closing.
Require lenders to show consumers how much their monthly payments might increase for adjustable-rate mortgage (ARM) loans.

Bernanke vowed that the Fed is working with HUD to make TILA disclosures "compatible and complementary" with HUD's RESPA forms, and potentially develop a single disclosure form that lenders could use to satisfy both laws.

If the Fed and HUD don't make progress in achieving that goal, one of the first tasks of the Obama administration's proposed Consumer Financial Protection Agency would be to develop a uniform mortgage disclosure form and put it forward for public comment within a year of the agency's creation.

But there's more to creating a uniform mortgage disclosure then deciding what information should be provided. The Fed and HUD have taken significantly different approaches on the issue of incentive payments to loan originators, whether they be independent mortgage brokers or bank loan officers