New Regulations Make Mortgage Terms More Clear

In light of the recent turmoil in the mortgage lending industry, consumers can expect some important changes to take shape with regards to the fine print on their mortgage loans. The measures come after it was discovered that too many borrowers did not fully understand the terms and conditions of their mortgage loans, leading to one of the worst collapses in the mortgage and housing industries in seven decades. It was discovered that many consumers that didn’t fully comprehend what they were signing bought homes they literally could not afford.

Since it was so difficult for consumers to determine which kind of loan terms were right for them, steps have been taken to ensure that consumers an better understand the fine print. Some of the new adjustments include better explanations of the more risk parts of the mortgage loan like penalties for prepaying the loan. There is a push that the wording of the loan terms be written in plain English. The loan information would also include a segment with frequently asked questions and their answers before the application for the loan is completed.

Other improvements include clarified information about disclosures concerning annual percentage rates, fees, and other costs that would be the responsibility of the borrower. On loans where the rates are adjustable, lenders are required to show borrowers how their payment could change, including showing the borrower the highest monthly amount they may be responsible for paying during the life of the loan. In the event a borrowers monthly payment would be changing, the lender must notify them 60 days in advance. In the recent past, lenders were only required to give 25 days notice. Lenders are also required to send a monthly statement that includes payment options when consumers have payments that do not cover the amount of the loan’s interest. The statement would also outline the different payment options and their effect on the balance of the loan.

Another plus the comes along with the recent changes is that payments to brokers and loan officers that were once based on the terms and conditions of the loan would now be banned. This helps to prevent third-parties from negotiating terms that are not in the best interest of the borrower but would net profits for the broker or loan officer.

One drawback to the changes in the mortgage proposals some in the financial world are considering is that while the terms may be simpler, the paperwork is larger. Some feel that while the terms and conditions are more clear, it doesn’t mean consumers will still read all the information, especially now that the information is much longer in page volume. The federal government does plan to reach out to consumers to get their input on what should be improved as well. They will work to find out what other information is perpetually confusing to borrowers.