Simplifying Complex Disclosures: Evidence from Disclosure Regulation in the Mortgage Markets

The Accounting Review forthcoming

51 Pages Posted: 17 Nov 2020 Last revised: 17 Nov 2022

See all articles by Patrick Kielty

Patrick Kielty

Ohio State University (OSU) - Fisher College of Business

K. Philip Wang

Fisher School of Accounting, University of Florida

Diana Weng

Baruch College-CUNY

Date Written: August 1, 2022

Abstract

Complex disclosures have long been a major source of borrowers’ poor understanding of mortgages. We examine the effect of simplifying mortgage disclosures in a difference-in-differences design around a significant disclosure rule mandated by the CFPB in 2015. We find that inexperienced borrowers pay significantly lower interest rates after the disclosure regulation relative to experienced borrowers, suggesting that simplifying these disclosures reduces interest costs. Additional tests show that the reduction in interest costs is not accompanied with more upfront non-interest costs paid by borrowers. Our cross-sectional analyses reveal two mechanisms by which simplifying disclosures lowers interest costs: curbing predatory lending and facilitating borrower shopping. We further find that disadvantaged borrowers benefit more from simplified disclosures. Last, we do not find that simplifying disclosures affects loan performance.

Keywords: disclosure processing costs, disclosure regulation, mortgage, TRID, simplification

JEL Classification: G21, G5, G18, M4

Suggested Citation

Kielty, Patrick and Wang, Philip and Weng, Diana, Simplifying Complex Disclosures: Evidence from Disclosure Regulation in the Mortgage Markets (August 1, 2022). The Accounting Review forthcoming, Available at SSRN: https://ssrn.com/abstract=3725912 or http://dx.doi.org/10.2139/ssrn.3725912

Patrick Kielty

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Philip Wang (Contact Author)

Fisher School of Accounting, University of Florida ( email )

Gainesville, FL 32611-7166
United States

Diana Weng

Baruch College-CUNY ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

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