How to Fix the Mortgage Industry
Consumer-oriented Ways to Avoid Deliquency and Default
A recent report order by the Ford Foundation found some unsettling trends and practices in the mortgage industry. Find out how you can avoid these pitfalls.
The mortgage industry is in flux. There has been a variety of solutions suggested to the mortgage industry’s issues, most providing more information to consumers. Realty Times writes a very informative article today that outlines the major problems and suggests some fairly good solutions.
Consumers Mortgage Issues
A report from the Ford Foundation outlines the following mortgage consumer issues…
- Consumers are confused about mortgages and the uniformed choices they make cost them their homes. Even the most sophisticated borrowers find it difficult to shop effectivevly in the complex mortgage market. Their confusion allows them to be easily swayed into signing for loans they can't afford.
- Consumers often struggle with the complexity of mortgage pricing, loan features, futures change in mortgage payments and other elements inherent to non-traditional loans.
- Consumers are vulnerable to "push marketing," as mortgage professionals prey upon their vulnerability to sell products that are not in their best interest.
Additionally, this report found that higher priced and more complicated mortgages were often inappropriately marketed to low income and low wealth individuals. These individuals typically were unable to understand how these loans worked and were more likely to take loans they could not pay for.
Cleaning Up the Mortgage Market
This report also suggested several ways to clean up the mortgage market.
- The mortgage industry and consumer advocacy groups should establish a trusted advisors network -- a third-party system including a sort of "buyer's broker" for mortgages who works for a flat fee and is legally required to represent the buyer's interests.
- Along with the network, a second-opinion hotline should be established by an organization like NeighborWorks America to help consumers navigate the mortgage morass and assess the risks associated with mortgages.
- Additionally, a Web-based pricing guide could assist advisors to understand and explain the costs and benefits of specific mortgage options.
- Homebuyers counseling organizations should use incentives, including pre-approval -- provided consumers attend counseling for a specific product -- to keep consumers focued on good loans.
While most of the ideas in this report could provide significant help to consumers, the problem with most Web-based solutions is that lower income people have far less access to the Internet. Additionally, getting this information to the consumers who really need it is a challenge. Finally, with all of the cold calling going on in the mortgage industry, consumers could be sucked into a loan before they even know they have additional options. These changes need to go one step further by creating some rules around contact with consumers and mandatory counseling for consumers under a certain credit rating.
Consumers need to educate themselves before shopping for a loan. Even if a cold call sounds enticing, do your own research before you accept a refinance or a mortgage loan from someone who calls. Lastly, read everything and ask questions if you don’t understand something. Be an informed consumer.
