If your eyes cross when you start reading loan disclosures you aren’t alone. Many consumers would admit they don’t read or understand the majority of the language in the myriad of loan disclosure pages.
From the technical terms to the miniscule print--buying or refinancing a home is hard enough, why make it harder trying to translate pages of disclosures?
Although annoying and cumbersome, understanding the terms and conditions laid out in your loan disclosures is vital to understanding if you got a good deal on your mortgage--or not.
According to Elizabeth Warren, Assistant to the President and Special Advisor to the Secretary of the Treasury, not reading and understanding disclosures can cost you a tremendous amount of money.
"Buying a home is one of the biggest financial decisions most Americans will ever make.” She says that fully understanding your disclosures can help the consumer compare different mortgage offers to determine which one is best for them.
What’s a borrower to do if it takes a translator and an entire weekend to determine if you received the best deal?
Out with the Old, In With the New--Mortgage Disclosures
Although borrowers may currently wrestle with lengthy, dry disclosures, this may all change thanks to a group called Consumer Financial Protection Bureaus (CFPB). As a new initiative called, “Know What You Owe” CFPB has condensed the typical five-page form into an easy-to-read one pager.
Hopefully the days of not understanding mortgage disclosures will be in the past and consumers can be more informed of their choices. In fact Warren admits to having her own issues with mortgage disclosures.
She says that when it came to taking out her own mortgage, she didn’t fully understand all the fees involved. Warren and CFPB wants to change confusion and overall apathy for these important disclosures by breaking down the terminology and delivering the material in a more palatable form.
The proposed document will infuse two mortgage disclosure forms current in use--the federal Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) Good Faith Estimate.
On Wednesday, Warren told reporters, "Getting stuck with the wrong home loan can cost tens of thousands of dollars over the life of the loan. "[This form] is a clear, simple form so consumers can get better answers to two basic questions: Can I afford this mortgage, and can I get a better deal somewhere else?"
Along with the typical disclosures and loan components the CFPB hopes that the new form will allow consumers to make a more informed decision about lenders. Warren refers to the new form as the consumer “mortgage shopping sheet.”
The new form will display pertinent information including:
- Interest rate and monthly loan payment
- Closing costs and taxes
- APR payments over time
- Alerts about whether your payments will change or whether the loan comes with a pre-payment penalty
Test Drive and See For Yourself
CFPB has two drafts of the new, proposed disclosure form and is asking for your help. Consumers can log onto the CFPB website (http://www.consumerfinance.gov/knowbeforeyouowe/) and give their opinion about which form they like best.
At the site consumers can compare and contrast “Option A” and “Option B.” Both forms provide the same information and details, but are laid out and presented in different formats.
Once decided which form is preferable, consumers can vote for the form they like best and are asked why. Each area on the form is clickable, which allows the consumer to add comments.
The CFPB will continue to poll the public through the summer and hopes to release a final by September.