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.
Matt,
Great post! Too many times credit unions are being lead by compliance (or the fear of not complying). We need to get over that and make sure we are marketing driven organizations. Here’s a thought: turn your disclosures into marketing pieces.
Mark
So true! Mark makes a great point as well.
This concept shouldn’t be for just disclosures it’s copywriting 101 as well. Use simple language. If you have to re-explain your copy than you need to rewrite it
Mortgage relief information on BofA website has the same clear language approach. Much more helpful than my local mortgage holder.
This just got more pertinent with a plan to allow foreclosed on customers to stay in homes as tenants. Any thoughts on this plan?
Bank of America’s mortgage-to-lease plan allowing borrowers to avoid foreclosure by turning them into renters is interesting. While I give B of A a lot of credit for giving consumers one last chance to stay in their house, I have serious doubts that it will ultimately be successful. The main problem is that there’s little incentive for the underwater borrower to take the offer (I’d even argue that, depending on the situation, it could be a disincentive). In the plan the borrower must deed back the property to B of A and sign a long-term rental agreement. At the end of the agreement, as far as I can tell, the bank has no obligation to sell the property back to the original borrower.
Still, I commend them for trying a different approach. If borrowers end up taking B of A up on the offer, there are many benefits to be enjoyed regarding surrounding home values, reduced legal fees, and public relations. And for a borrower who simply loves their house, even though it’s underwater, it’s great to all your family to stay put…and perhaps a chance at lower monthly housing costs (unclear at this point).
Matt,
What a fantastic blog! I could not agree with you more! Do you know what the great news is? Credit Unions HAVE been doing exactly what you are talking about here for over 10 years in a cooperative effort. The original concept was to design technology to improve the borrower experience, taking what was a rigid, inefficient and paper bound process and turning it into a member focused, paperless, and web based solution. Credit Unions put the focus back on the member with an easy and transparent mortgage process all while pioneering the online mortgage. Credit Unions did this before the banks and they did it with old school dial up modems when everyone told them they were crazy, yup, that’s right Credit Unions. This was a concept that over 17 CU bought into when it was mocked up on poster board, but you know what, they pulled it off!!! What is even cooler is what is coming next!!!! Bank of American might have something in the works but don’t loose focus on what we as an industry can and in many cases have accomplished!
I work for BAC card services, and before that, FHA/VA loan servicing.
I was surprised when I started at the Bank of how much they really prioritize being up-front with borrowers.
We are bird-dogged with everything we say, everything we do. They really are very concerned with making sure that all disclosures are UNDERSTOOD by the borrowers.
Mark is right, in the past, even people working in the particular lines of businesses could not understand the disclosures being issued!
We go to GREAT lengths and are working very hard to make lending and borrowing easy for all involved to understand.
It is our opinion if we can make things more understood and easy to understand that in the long term, we will be trusted and we will then be people’s Institution of choice!
Max