Borrowers: What Do They Know? Less Than You Think.
July 13th, 2007
Related FHA Stories
- HUD Publishes New Closing Cost Study
- FHA Mortgage Appraisals Become Portable
- FHA Numbers On The Rise — More To Come
- Foreclosure Prevention Efforts Slow
- FHA Alternatives Harder To Find
Story Tools
How much do borrowers know about their loans?
According to a June study by the Federal Trade Commission, a lot of folks don’t have a clue. The study found that:
*About 20 percent could not identify the APR, the cash due at closing or the monthly payment.
*Almost 25 percent did not know how much they paid for settlement.
*About 33 percent “could not identify the interest rate or which of two loans was less expensive.”
*A third “did not recognize that the loan included a large balloon payment or that the loan amount included money borrowed to pay for settlement charges.
*Half could not correctly identify the loan amount.
*Two-thirds “did not recognize that they would be charged a prepayment penalty if in two years they refinanced with another lender (and a third did not even recognize that they “may” be charged such a penalty).”
*Three-quarters did not recognize that substantial charges for optional credit insurance were included in the loan.
*Almost four-fifths did not know why the interest rate and APR of a loan sometimes differ.
*Nearly nine-tenths could not identify the total amount of up-front charges in the loan.
Here’s the kicker: The study did not use everyday loan forms. Instead, the test was made easier by using better disclosures than borrowers normally receive.
Even so, the FTC found that “the results understate the problems faced by consumers who receive a GFE (Good Faith Estimate) that merely complies with the law. Many of the key costs examined in the tests would not be disclosed in a form that merely met the regulatory requirements.
These results are awful and demonstrate the need for better loan disclosures.
- |
- |
-
- |
This entry was posted on Friday, July 13th, 2007 at 1:01 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Listen to FHA Loan Pros columnist Peter Miller on American Public Radio: 
RSS Feed
