Mortgage Disclosures

Study claims borrowers don't understand Disclosures

This recent article in the LA Times reports on an interesting study completed by the FTC regarding mortgage disclosures.
The study found that a large percentage of today's borrowers don't understand the disclosures being provided for them.
From the study:


Half the borrowers couldn't correctly identify the loan amount.
Nine in 10 couldn't figure out the total upfront cost of the loan.
Two-thirds did not recognize that they would have to pay a penalty if they paid off the mortgage within two years. And 95% didn't know how much that penalty would be.
Three-quarters did not know when substantial charges for credit insurance had been included in the loan.

One in five couldn't correctly identify the annual percentage rate, the amount of cash due at closing or the monthly payment — or whether that payment included charges for property taxes and insurance.


The study only looked at dislosures for fixed rate mortgage products. One can assume that the results would be even worse for some more complicated loan products, like the Option ARM.
The Government and consumer groups are looking at revamping the disclosure requirements on loans, in an effort to better educate the consumer. However, these measures will inevitably take a long time to implement, and could still fall short of the mark.


As a mortgage professional, are you doing anything extra to educate your clients about the loan products you are providing? Are you confident in your ability to educate your clients as to their options?


Almost every originator I have ever spoken with has mentioned the time where a friend or family member has asked them to review a good faith estimate and other disclosures to determine if they are getting a "good loan" or not. But what is a "good loan"?
I like to define a "good loan" as any mortgage that provides the money needed, with payments the borrower can afford and terms they are comfortable with.


The best way to grow your origination business is via word of mouth referrals and repeat business. The originator that strives to completely educate their clients is the orignator that builds value with their clients. If the borrower feels comfortable with the loan documents they are signing, and they understand the terms of the loan, they will tell others how their originator helped them get a "good loan".

If you would like to take your origination activities to the next level, by becoming not only an expert in the products you provide, but also a better communicator of those products, or if you simply want to learn new strategies to grow your business, take a moment to contact your Account Manager.

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