The Federal Trade Commission (FTC) is on a major offensive against predatory lending practices, which it gets complaints about all too often. One major concern that they’re pressing currently is with the present mortgage disclosures. The standard disclosures used in closings today were designed more than 30 years ago and have proven confusing for even experienced home purchasers and investors to understand at times.
FTC chair Deborah Platt Majoras recently made comments indicating that she’s aware that today’s loan products are much more complicated than those in use some 30 years ago, which adds to the importance of overhauling the documents.
Broderick Perkins cited a study in a recent Realty Times article in which 800 recent mortgage customers where polled, and among them he noted that:
“Approximately 20 percent could not identify the annual percentage rate (APR), the amount of cash due at closing, or the monthly payment and whether it included escrow (holding account) for taxes and insurance.
“About 33 percent could not identify the interest rate or which of two loans was less expensive.
“One-third also did not recognize that the loan included a large balloon payment or that the loan amount included money borrowed to pay for settlement charges.
“Half could not correctly identify the loan amount.
“Two-thirds did not recognize that they would be charged a prepayment penalty if in two years they refinanced with another lender.
“Nearly 75 percent did not recognize that substantial charges for optional credit insurance were included in the loan.
“Almost 80 percent did not know why the interest rate and APR of a loan sometimes differ.
“Approximately 90 percent could not identify the total amount of up-front charges in the loan.�
With results like those listed above, it’s clear that an overhaul is in deed badly needed, and new mortgage disclosure forms will benefit us all and help keep lenders honest.
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