Saturday, June 23, 2007
From The Baltimore Sun:
With mortgage delinquencies and foreclosures soaring, federal researchers have identified a key contributing factor: Large numbers of consumers simply do not understand their own mortgages - especially subprime loans that come with complex features and costly penalties.
As a result, too many people are ill prepared to handle jolting payment increases and rate reset deadlines.
In a study involving 819 recent prime and subprime mortgage customers in 12 locations around the country, the Federal Trade Commission found that using current "truth-in-lending" and "good faith estimate" disclosures:
• Nearly nine out of 10 borrowers could not identify the correct amount of up-front charges connected with a loan.
• Four out of five had trouble understanding why the stated interest rate on the loan note was different from the "annual percentage rate" (APR) highlighted in the truth-in-lending disclosure.
• Two-thirds did not spot a potentially dangerous snare lurking in the loan - a substantial penalty if they refinanced within the first two years.