It's
not
that
too
much
or
too
little
is
disclosed
about
home
loans.
It's
that
the
disclosures
themselves
need
a
disclosure
form
alerting
consumers
to
the
fact
they
are
old,
outdated
and
not
very
revealing.
That
irony
recently
appeared
on
the
front
lines
of
the
war
against
predatory
lending
when
the
Federal
Trade
Commission
released
a
report,
"Improving
Consumer
Mortgage
Disclosures
--
An
Empirical
Assessment
of
Current
and
Prototype
Disclosure
Forms".
In
plain
language,
the
report
says
today's
outdated
mortgage
disclosure
forms
fail
to
convey
key
mortgage
costs
and
terms
to
most
consumers.
"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,"
according
to
FTC
chair
Deborah
Platt
Majoras.
"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,"
she
added.
Consumer
education
has
long
been
heralded
as
key
to
acquiring
the
best
deal
on a
home
loan,
to
acquiring
a
loan
that
best
fits
the
household
budget
and,
ultimately,
to
homeownership
survival.
Unfortunately,
today's
disclosures,
supposedly
designed
to
enlighten
consumers
at a
crucial
point
in
the
home
purchase
transaction,
do
just
the
opposite.
Some
change
is
coming.
A
final
provision
in
the
"Interagency
Guidance
on
Nontraditional
Mortgage
Product
Risks",
which
federal
monetary
agencies
adopted
to
strengthen
mortgage
consumer
protection
late
last
year,
is a
voluntary
mortgage
disclosure
form.
The
forms
are
designed
to
ensure
that
consumers
have
clear
and
balanced
information
about
nontraditional
mortgages
before
choosing
a
mortgage
product
or
before
selecting
a
payment
option
for
an
existing
mortgage.
Lenders
can
choose
from
among
three
types
of
new
disclosures,
which
the
federal
agencies
provided
in
illustrations;
a
narrative
explanation
of
nontraditional
mortgage
products;
a
chart
comparing
interest-only
and
payment
option
adjustable
rate
mortgages
(ARMs)
to a
traditional
fixed-rate
loan;
or a
table
that
could
be
included
with
monthly
statements
for
a
payment
option
ARM
showing
the
impact
of
various
payment
options
on
the
loan
balance.
Lenders
can
opt
to
provide
information
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based
on
the
disclosure
illustrations
or
provide
the
consumer
information
described
in
the
guidance
in
an
alternate
format.
The
FTC
found,
that
by
using
an
updated
disclosure
prototype
in
its
report,
disclosures
can
be
designed
to
do
what
they
are
supposed
to
do
--
inform,
rather
than
baffle.
A
test
of
more
than
800
recent
mortgage
customers,
half
of
whom
read
current
disclosure
forms,
found
among
those
reading
current
mortgage
disclosures:
Approximately
20%
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.
More,
25%,
could
not
identify
the
amount
of
the
settlement
costs.
About
33%
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%
did
not
recognize
that
substantial
charges
for
optional
credit
insurance
were
included
in
the
loan.
Almost
80%
did
not
know
why
the
interest
rate
and
APR
of a
loan
sometimes
differ.
Approximately
90%
could
not
identify
the
total
amount
of
up-front
charges
in
the
loan.
Those
in
the
study
who
used
prototype
disclosures
were
much
less
baffled.
Respondents
viewing
the
current
disclosure
forms
answered
an
average
of
61%
of
the
test
questions
correctly,
compared
to
an
80%
correct
rate
for
those
using
the
prototype.
Only
29%
of
those
reading
current
disclosures
managed
to
get
70%
or
more
of
the
questions
correct,
compared
to
80%
of
the
respondents
viewing
the
prototype
form.
The
prototype
performed
better
than
the
current
disclosures
in
17
of
the
21
questions
in
the
simple-loan
scenario
and
23
of
the
25
questions
in a
complex-loan
scenario.
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