Mortgage Broker Trade Group: Borrowers Need Better Information

Lawmakers should compel mortgage companies and mortgage brokers to walk prospective home buyers through both immediate and long-term costs of a home loan in order to avoid trouble down the road, mortgage broker trade association members said Thursday.

The proposed mandatory payment disclosure form “would go a long way in helping borrowers understand the true costs of a home mortgage loan and avoid payment problems,” said Joe Falk, who heads the National Association of Mortgage Brokers‘ legislative affairs committee.

“We will be working with members of Congress to implement this new disclosure form,” said Falk.

The NAMB represents 25,000 mortgage brokers throughout America who act as intermediaries between borrowers and the mortgage lenders.

In the call, Falk said the association would also fight for more regulation of mortgage “triggers” sold by the country’s credit rating companies as red flags for prospective borrowers.

Brokers who request a credit check for a client often find that the credit rating companies have tipped off another broker and/or mortgage lender about the possible borrowers, he said.

When that happens, consumers dealing with one mortgage broker may be inundated with unsolicited credit offers soon after a credit check.

“We do not believe that, in the context of mortgage applications, any creditor should simply purchase a credit lead and make a firm offer of credit,” he said.

Norm Magnuson, a spokesman for the Consumer Data Industry Association, which represents credit bureaus, defended the practice Thursday by saying that most consumers would actually see great benefit from receiving (loan) offers from more than one home loan lender.

Falk said the mortgage disclosure program is needed now that borrowers have a a wide variety of complicated home loan products to choose from.

The new disclosure form would include information about prepayment penalty clauses, interest rate caps and how much of the borrower’s payments would go to pay down the principal balance of the mortgage.

Many borrowers, especially in inflated markets, relied on flexible mortgages (such as interest only mortgages) with low early payments to afford a home during a five-year housing boom that ended in the summer of 2005.

Now, mortgage rates on many of those more-exotic mortgages have reset to a higher level, delivering a payment shock to homeowners. Foreclosures rose 42 percent in 2006 as many rates reset.

The disclosure should help consumers prepare for the possible shock of upwardly adjusting mortgage payments, the trade association said.

SOURCE: Reuters