(5/23/2011) Chronic confusion about home loans has prompted a new federal
consumer agency to attempt what has been impossible -- create mortgage
disclosures that clearly explain the true cost of borrowing.
The consumer watchdog agency is asking you, consumers, and mortgage
professionals to participate in getting it right. This is a sterling example
of social networking at its finest. The agency wants you to take a look at the two forms and provide feedback,
telling the government exactly what you think.
"Know Before You Owe," is an example of the new consumer watchdog's
effort to put true clarity in "transparency" when it comes to financial
disclosure forms.
Mortgage disclosures are a top priority for many reasons.
• Buying a home is the most expensive acquisition or investment most
consumers will ever undertake. A home is often a consumer's or family's most
valuable asset. You have a right to know what your home truly will cost.
• Ignorance, due to poor disclosures (in addition to outright
deception, as well as consumers' own lack of due diligence) gets some of the
blame for housing's crash and the worst recession since the Great
Depression.
"Most consumers have a tough time wading through all the fine print
typically found on mortgage documents and other financial disclosure forms,"
said Norma Garcia, senior staff attorney for Consumers Union, the nonprofit
publisher of Consumer Reports.
Among other elements, CFPB's forms include a clear statement, explaining
that the borrower is under no obligation to choose a loan product. That
helps take away undue influence which has been common in the mortgage
lending process.
"This statement will help encourage consumers to shop and compare
products, which will have the added benefit of increasing competition among
lenders for borrowers' business," Garcia said.
Chronic confusion
A litany of studies reveal just how little consumers know about
mortgages.
The AFL-CIO found 73 percent of adjustable rate mortgage (ARM) holders,
didn't have a clue how much their monthly mortgage payment will increase or
decrease the next time their rate adjusts. Nearly half, 49 percent, said
they weren't very informed about their mortgage's terms and conditions. One
in five did not know their current interest rate.
Bankrate.com found more than one in three homeowners didn't even know
what kind of mortgage they had, a fixed-rate mortgage (FRM) or an ARM.
• A November 2010, Consumer Reports national poll found that 76
percent of respondents wanted the CFPB to make clearer mortgage and
financial disclosures a priority. The majority, 84 percent who had applied
for or received a loan or credit card in the past 12 months indicated
difficulty with financial disclosures; 31 percent described the disclosures
as not clear or easy to understand.
• Early this year a MortgageMatch survey noted the mortgage application
process was so excruciating, 21 percent said the ordeal was more stressful
than waiting to hear if they got a job. Technical jargon was too much for
21.6 percent of those surveyed and 20.7 percent said it was a challenge to
find a lender who was easy to work with. More than 32 percent of survey
respondents ranked the application process more challenging than getting the
mortgage itself (23 percent) or negotiating the sale price on the home (25.3
percent).
The Zillow-surveyed group was wrong 46 percent of the time
when asking basic questions about mortgage information. More than half, 57
percent of prospective home buyers did not understand how ARMs work. Nearly
half, 45 percent, believed they should always buy mortgage discount points.
More than one third, 34 percent, did not understand that lender fees vary by
lender and are negotiable.
"The draft mortgage disclosure forms prepared by the CFPB will help
borrowers compare loans more easily and help eliminate surprises at closing
and during the life of the loan. But it's important to remember that
consumers need strong protections against shady mortgage practices not just
improved disclosure," she added.
