Loan terms may not seem very hard to understand for people like you. Chances are you work in financial services. Lingo like points, APR, balloon, FHA, piggyback, PMI, and escrow rolls off of your tongue. You can compare mortgage offers quicker than Snooki can spray on a tan.
Want to know a secret? Most people can’t.
Want to know something else? It’s our fault.
Financial institutions in general offer way too many different loan products, confusing terms, and hard-to-understand (and inflexible) closing costs. The result is the opposite of what credit unions should be seeking to provide consumers: an easy and transparent way to compare and understand loan packages. While Truth in Lending guidelines sought to remedy this problem, the reality is that finding the best mortgage deal is an exhausting, if not impossible, process. It’s easy to blame the lawyers, regulators, and GSEs for this, but we are all responsible. We’ve let legalese, industry jargon, and actuarial tables reign supreme over quality design.
Fortunately, some people are taking action. Maybe the most surprising reformer is Bank of America. While it is far from pretty, BofA’s Clarity Commitment Mortgage documents attempt to improve their customers’ understanding of loan options.
The Consumer Financial Protection Bureau (CFPB) is similarly trying to rethink the way mortgage documents are designed. The CFPB’s “Know Before You Owe” initiative has gone a long way toward making it easier to understand mortgage disclosures (see below).
This of course is only a start. I think it’s ridiculous that we are waiting for others to lead with better designed documents and disclosures. I’d expect innovation in consumer-friendly disclosures to come from credit unions….not Bank of America or a government agency.
The good news is that it’s not too late. There’s much work left to do. Start with your rate sheet. Next, look at the complexity of your offerings (do you need 25 different types of mortgage loans?). Last, but not least, watch as many consumers as possible hunt for a mortgage online…it’ll be eye-opening for sure.