FTC: Current Mortgage Disclosures Inadequate

The FTC issued a press release late yesterday about a recent study by the Bureau of Economics which found that current mortgage disclosure forms do not adequately convey the cost of a mortgage to 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,� 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.�

…

The study’s key findings include:

• Current disclosures failed to convey key mortgage costs to many consumers, and better disclosures significantly improved this deficiency.
• With current disclosures, both prime and subprime borrowers misunderstood key loan terms, and both groups benefitted from better disclosures.
• For complex loans, where prime and subprime borrowers had the most difficulty understanding loan terms, better disclosures provided the greatest benefit.

The study was based on 36 in-depth interviews with recent mortgage customers and testing of disclosure forms with 819 mortgage customers.

The full study can be downloaded here. An executive summary is available here.

I’m glad to see this study, as it reinforces that while consumers might know what sort of loan they’re getting, they have no idea what that means in most cases. And, for what it’s worth, I personally think most GFEs, in their current form, aren’t worth the paper they’re printed on.