Thursday Morning: Study Finds Mortgage Disclosures Are “Baffling,” Ineffective, Outdated

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Good morning. A new federal study finds that the required disclosure forms for home loans are ineffective, outdated, and ‘confusing even for simple loans.’ (Don’t ask about Option ARMs or other complicated loans: the federal study looked only at fixed-rate loans).

The study was conducted by the Federal Trade Commission, which has no jurisdiction over the loan disclosure requirements. Among the findings:
-- Half the borrowers couldn’t correctly identify the loan amount.
-- 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.

Is the government doing anything to make disclosure forms meaningful? The Times’ Kathy Kristof reports that the agencies that oversee mortgage disclosures -- the Federal Reserve and the Department of Housing and Urban Development -- said they were working on solutions.

(Sarcasm alert) No doubt with a great sense of urgency. Maybe, like California’s speedy effort to reform title insurance, they will drop everything and rush in new requirements that take effect in 2009.

Comments? Insights?
Photo Credit: Reuters