It seems that many people have strong opinions about the subprime mortgage fallout. One common thread was that people really do need to get better educated about the mortgage lending process. What wasn’t agreed upon was who should shoulder that responsibility – the lender, the borrower, or the government? My view was that better transparency is in order, and the FTC concurs:
The Federal Trade Commission today released a Bureau of Economics report presenting the results of a study that found that mortgage disclosure forms fail to convey key mortgage costs and terms to many consumers. The study also concluded that better disclosures can be created to help consumers understand the costs and terms of mortgages to enable them to make informed decisions about mortgage products.
?Mortgage disclosures designed more than 30 years ago can be confusing even for simple loans, and they do not address the variety and complexity of today?s mortgage products,? FTC Chairman Deborah Platt Majoras said. ?Although mortgage disclosures, alone, will not prevent deceptive lending practices, consumers who understand mortgage terms and choices are less likely to fall victim to these practices.?
Even if you disagree, the fact is that the government already does have some helpful information out there, and hopefully if we spread the word around the tax money already spent on making them won’t be wasted. 🙂 I sure wish Ms. Williams read a couple of these beforehand.
First up is the U.S. Department of Housing and Urban Development, whose mission is to “increase homeownership, support community development and increase access to affordable housing free from discrimination.” They have a whole section on Buying A Home, and even a brochure on finding the best mortgage [pdf]. Inside, it shows you how to compare all the costs involved in obtaining a mortgage. There is even a helpful Mortgage Shopping Worksheet included to help you out.
Shopping around for a home loan or mortgage will help you to get the best financing deal. A mortgage? whether it?s a home purchase, a refinancing, or a home equity loan?is a product, just like a car, so the price and terms may be negotiable. […] Shopping, comparing, and negotiating may save you thousands of dollars.
Next, you have a Guide to Mortgage Products [pdf] from the Federal Reserve Bank of Boston. It’s presented through a true/false question-and-answer format which makes it very digestible, and has a nice glossary of lending terms at the end.
What you should ask the lender:
? Which of your products offers the lowest interest rate?
? Will my interest rate be fixed or variable (change periodically)?
? If the interest rate can change, when will it change and how high or low can it go?
? If the lender offers an introductory or ?teaser? rate, ask, When does the rate expire and how will the new rate change my monthly payment amount?
? If the rate expires, what will the new rate be, and will it be fixed or variable?
Finally, check out these 12 others from the Federal Citizen Information Center:
– A Consumer?s Guide to Mortgage Lock-Ins
– A Consumer?s Guide to Mortgage Refinancing
– Buying Your Home: Settlement Costs and Helpful Information
– Consumer Handbook on Adjustable Rate Mortgages
– Guide to Single Family Home Mortgage Insurance
– Home Buyer?s Vocabulary
– Home Mortgages: Understanding the Process and Your Rights to Fair Lending
– How to Buy a Home with a Low Down Payment
– How to Dispute Credit Report Errors
– The HUD Home Buying Guide
– When Your Home Is on the Line
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The FTC is simply lying. If any contract failed to “convey key mortgage costs and terms” it would be unenforceable in a court of law because there is no meeting of the minds. The FTC’s suggestions amount to putting the interest rate in size 20 font in bold red letters on the front page to scare the mortgagor. Lastly, as these disclosure requirements grow so do the number of jobs at the FTC to regulate the required disclosures; they’re heavily biased.
In addition, if the U.S. Department of Housing and Urban Development wanted to help the average American it would stop pushing home ownership as good for everyone. For example, the young, elderly, highly mobile, and disabled should probably rent.
Regulations can’t prevent stupidity, and also preserve dumb luck. If the government bails these people out, then next time I’ll jump on the bandwagon.
I am agree with you that most of the time clients do not understand the complexity of the mortgage. However, they need an expert advisor to be able to get the best out of their mortgage.
I have a problem when the government doesn’t step in to disallow Heloc’s up to 125% of the value of a home. That should of never been allowed. This is the type of thing that needs regulation.
The government also needs to step in on mortgages so that the buyer can have a clear understanding of the type of loan they are applying for with the lender.
I don’t believe regulation is the total answer. Certainly people have a personal responsibility to know what their loan says. Isn’t that why we have lawyers?
wow~ my pleasure to be the first one responding. Well, I just wanna let first-time home buyers know that there are special loans for them! You can apply for the Federal type or the State type if your state has this. For example, California supports such loan and even offers lower interest rate than the Federal type. (it is also the LOWEST interest rate you can find in this market!!!!!!! TRUST ME!) However, one BIG disadvantage is that they set a limit on your house buying price. For instance, my income is $40,000 and I am a single guy. My limit set by State is $250,000 with 0 down and $300,000 with 20% down payment. WHERE in California can you find a house with such LOW prices!???!! But first-time home buyers can still try the Federal type. Lots of my friends miss this first-time-home-buyer benefits because none of their loan agents mentioned this to them. I asked my agent(s) and none of them know anything about it (or pretend not knowing anything?).
It’s funny — people are all mixed up on this issue. People seem to want MORE regulation, but not TOO much, as well as personal responsibility — but also lawyers! Haha!!
How about: Take responsibility for understanding the terms of your own loan, and don’t let the loan originator bamboozle you or make you feel stupid. I was guilty of this myself — and I was embarassed that I felt stupid. In hindsight, the stupidity was not taking the time to have all the terms explaines. It all turned out fine (nothing subprime or anything like that), but I should have not been afraid to ask more questions….
They are doing everything they can BUT increase regulations and penalities against predatory lending. It’s a shame really….
Having just closed on my first home last week, I can attest to the following:
1. Mortgage brokers are indeed often slimy, duplicitous scumbags.
2. It can indeed be difficult to keep track of all the forms you need to sign.
3. The very first form they showed me at closing is called the ‘Federal Truth In Lending Disclosure’. It displays, in a VERY LARGE POINT SIZE, your interest rate, your APR (including closing costs), and your monthly payment. It is impossible to miss, and damned difficult to misunderstand.
4. My attorney charged a flat $450 to review each of those forms, and explain to me exactly what each document said. $450 gets you a trained professional who lets you know exactly what you are getting yourself into.
5. My lender, the seller’s agent, the listing agent, and my home inspector each recommended I hire an attorney long before I signed my first document.
In conclusion, I stand by my conviction that (a) additional disclosure regulations may actually make loan terms more opaque by bombarding you with excess information (b) 99% of the problems would be solved simply by requiring the buyer hire an attorney, and (c) much as I despise mortgage brokers, both borrowers and lenders bear equal responsibility for believing them, and (d) a federal bailout of any sort would only cause another, bigger meltdown five years from now.
The Mortgage Industry is full of good and bad people.
From a consumer standpoint they are at the mercy of a loan officer or bank officers mercy.
I dont think its necessarily the governemnets job to police the industry. That would take away an industrys entreprenuiral spirit (the need to grow, create jobs…) There will always be unscrupulous characters in any industry.
The governement should do a better job at educating the consumers on the benefeits and dangers of financial products.
The Mortgage industry as well as other industries are doing a good job on marketing and advertising. Most people who are to busy to read between the lines of these advertisements. With the influx of information and demands of life most peoples attention is at a minumum or none at all.