Need for increased borrower education

The Bankrate survey which found that 34% of borrowers had no idea the type of mortgage they were in is getting a lot of play in the press. It should because it is very worrisome in my opinion and mortgage professionals need to give this some serious thought as they adapt to the new climate. In case you missed it, I linked to the survey yesterday here.

The results is a cause for concern (see story link below). While thinking of what possible actions the government can take, I think this is a good place for regulators to begin their investigation. They need to enforce more stringent borrower education requirements. Also, when obtaining a mortgage borrowers need to work with a qualified professional who understands the mortgage. They need to be responsible with who they work with. It is my firm belief that you can’t make the biggest purchase of your life with someone you “met” on the Internet! You need to get an endorsement from a live person. Not just on the company you’re working with but the particular loan person you’re dealing with.

With all my borrowers I make it a point to go over all the disclosures especially the ARM and Pre-payment disclosures. I want them to understand exactly what they are getting into. I explain it at the START of the process not when the loan is about to close.

First of all this is the right thing to do. Second of all the borrower has a chance to let the facts sink in while there is still a chance to make changes and look for a different program if the terms are not satisfactory. Discussing the details of a mortgage two days before close is not the time to do this.

Quick Take: Mortgage? What Mortgage? [Fool.com] March 27, 2007: “Worse yet, 58% of ARM borrowers had no idea what they were going to do when the rate ratchets upward. Thirty-six percent of respondents said they planned to refinance into a long-term fixed mortgage, but for many of these borrowers, that may be tough, given the new tightening of lending standards in the face of the fallout at subprimes “

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