Outdated Mortgage Forms
Mortgage disclosures keep many clauses carefully confused. This is the opinion of Federal Trade commission’s Bureau of Economics. With changes here and there borrowers could get a much better deal.
A serious study was made of 800 mortgages covering 12 areas across the country. Half were given current mortgage disclosure forms and half given other forms, which were easier to understand. Participants were queried on two hypothetical fixed rate mortgage loans regarding costs, terms and comparison. Approximately a 5th of those who took the first set of forms could not pinpoint the annual percentage rate of the loan. This being the cornerstone of the issue how was it possible for them to compare? Another 5th could not calculate the exact amount of cash due at the time of closing or even the monthly instalments. Questions about escrowing for taxes and insurances remained unanswered. About a quarter couldn’t be definite about the settlement amount charges and a third was confused about interest rates. A third of the participants remained ignorant that the loan was inclusive of a huge inflated payment or that the loaned amount also carried with it settlement charges. As many as half failed to spot the loan amount itself in the current forms. In the other set of forms mortgage costs were clearly outlined while less important or confusing trivialities were left out. The language was easy and borrowers were able to distinguish clearly the various segments in costing.
The results were electrifying and hopeful of a fresh start. It was an eye-opener into the endemic confusion reigning in both the prime and sub-prime borrowers. Only 61% could give a correct answer to those questions related to the current form. But 80% were successful in those connected with the prototype forms. In every way the second lot looked pointed to a hopeful future in the world of loans.
This survey apart, 36 interviews were taken of customers who had recently undertaken mortgages. Most of them were not clear about costs and terms. The scenario is not surprising considering the fact that forms in circulation had been introduced as far back as 30 ago! No wonder even simple loans are not understandable! These forms do not take into account the modern complexities of mortgages. Better forms might not totally solve the problem of frauds but it will go a long way to forewarn the borrowers about the pitfalls.
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