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Study Shows Mortgage Disclosures are Confusing

A study that tested more than 800 mortgage customers in 12 locations throughout the country on their understanding of mortgage disclosure forms discovered: 


20% couldn't correctly identify a loan's annual percentage rate (APR), which is one of the major points of comparison for mortgages


20% also couldn't correctly point out the amount of cash due at closing


20% couldn't correctly point out the monthly payment, including whether it included escrow for taxes and insurance


25% couldn't identify the amount of settlement charges


30% couldn't identify the interest rate or which loan was less expensive


30% also didn't recognize that the loan included a large balloon payment or that the loan amount included money borrowed to pay for settlement charges, according to the report


50% of participants couldn't correctly identify the loan amount on the current forms



The researchers were also surprised by how widespread the confusion was, affecting both prime as well as subprime borrowers.


"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 in a news release. "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."


New resources to address confusing disclosures and to better inform borrowers have recently come into existence to help solve this problem. Online companies such as gather details about potential loans for the borrower and provide information that is not available in mortgage disclosures in an easy-to-read format.



FTC Study and Results

Offer Angel, "The Honest to Goodness Truth About Your Mortgage Offers"


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  • Last edited November 12 2008
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