California Mortgage Disclosure Designed to Avoid Foreclosures
By Sheryl LandrumMortgage Credit Problems Columnist
The Department of Real Estate, the regulatory agency for
Many Home Foreclosures May Have Been Prevented if Disclosures Were Read
Prior to this new disclosure, there were two mandated disclosures that were given to a borrower within three days of receipt of a signed mortgage application. The first is a Good Faith Estimate, or GFE, that shows the approximate cost of a borrower's mortgage loan and the second is the Truth-in-Lending Disclosure, or TIL, that shows the terms and conditions of the new mortgage. Many homeowners who took out mortgages did not look closely at the TIL, which contributed to the current mortgage foreclosure crisis.
How Does the Truth-in-Lending Disclosure Warn of Foreclosure Prone Mortgages?
Many borrowers with initial low interest rates did not read the TIL to see when their loan payment would adjust, what the new mortgage payment would be when it adjusted, how much potential negative amortization they would accumulate if they chose a minimum payment on an option ARM, and what the pre-payment penalties, usually six months of mortgage interest, would be should they try to refinance out of these loans prior to the end of the prepayment penalty period (up to three years). When the nice introductory period of these loans ended, many borrowers found they could not afford their mortgages and home foreclosures became rampant.
Our New Disclosure Shows You a Side-by-Side Comparison to Help You Prevent Future Foreclosures
The new disclosure form will do a side-by-side comparison for borrowers who choose an interest-only loan or option ARM mortgage; this should help borrowers understand the way these loans work and how their payment choices can impact the mortgage payment and balance in the future. Hopefully this can help borrowers avoid future home foreclosures. The loan balance scenarios illustrate how the various loan options can reduce or increase the loan balance, how much their minimum monthly payments will adjust after the fixed period, and how often and how much payment fluctuation occurs with the specific loan program chosen relative to other more conservative mortgages.
In a move designed to help borrowers to avoid mortgage foreclosures, the California DRE is trying to educate borrowers about the potential risks of interest-only and option ARM loans. If you are looking to refinance your home, or to purchase a new one, always make sure you are working with a licensed and reputable loan officer and make sure that you have these three mandated disclosures before you agree to your home loan. The foreclosure you prevent could be your own.
About the Author
Sheryl Landrum is a Loan Officer with General Mortgage Corporation in San Diego, California and a freelance writer specializing in mortgage issues.
About the Author
Sheryl Landrum is a Senior Loan Officer with Charter Funding in Carlsbad, California and a freelance writer specializing in the mortgage issues.
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