The Mortgage Crisis Lies in the Fine Print
Don’t ask, don’t tell. That was the unspoken motto of the mortgage mess that has now escalated out of control.
Home buyers didn’t ask questions they didn’t want the answers to because what they wanted was the big new house or the home equity loan.
And a mortgage broker didn’t tell the applicants about the consequences of the papers they were signing because each loan got them a fat fee.
The details of those mortgages were in the fine print of huge stacks of documents. And no one reads the fine print!
The rest is history now, revealed in the statistics that roil the financial markets and in the sad stories of people losing their homes.
Now a simple solution is being offered in Congress, offering hope that the next generation of homeowners might be spared this particular financial disaster. It’s part of a proposed amendment to the Truth-in-Lending Act.
H.R. 3012, or “The Fair Mortgage Practices Act of 2007,” would create a national system for registering mortgage loan originators.
And a key feature is that a “one-page disclosure form be required for all consumer credit plans secured by the consumer’s principal dwelling.”
The creator of this idea is Alex J. Pollock of the American Enterprise Institute and former CEO of the Federal Home Loan Bank of Chicago.
Pollock suggests that instead of imposing new and costly regulations on every mortgage lender, it would be far more practical to create a simple disclosure document that could be easily understood.
Says Pollock: “The key is to realize that complex, lengthy statements in legalese and regulatoryese do not achieve the goal.”
Amen.
The proposed one-page form, detailing all, would be given to every borrower three days before closing. The “fill in the blanks” approach is simple.
Lenders would clearly disclose the amount of the home loan, the appraised value of the property and the percentage of the appraised value of the property being borrowed.
Follow this link to continue reading this column by the Chicago Sun-Times‘ Terry Savage and his take on the troubled mortgage market …