FBI CRACKS DOWN ON MORTGAGE FRAUD
In response to concerns over mortgage fraud, the Federal Bureau of Investigation (FBI) has released a model notice. The FBI Mortgage Fraud Notice (VMP-554) advises consumers of the penalties for mortgage fraud. According to FBI statistics, mortgage fraud has increased 237 percent over the past five years at a cost of nearly $3 billion. With statistics this staggering, many states are expected to take action in upcoming legislative sessions. Texas and Nevada have recently passed measures informing consumers of the penalties of mortgage fraud. Wolters Kluwer Financial Services will continue to monitor this issue to provide you with the most current compliance solutions.
AGENCIES CLARIFY NONTRADITIONAL GUIDANCE
Federal agencies responsible for publishing the nontraditional mortgage guidance booklet (VMP-12) recently released illustrations to supplement the consumer protection portion of the booklet. However, these illustrations are not required and lenders may provide the same information in a format of their choosing.
Wolters Kluwer Financial Services will be offering all three of the new illustrations in electronic and paper forms as VMP-12A, PVMP-12B, and VMP-12C. Please contact Wolters Kluwer Financial Services compliance or your sales representative with any questions or orders.
FTC STUDY RAISES CONCERNS OVER CLARITY OF MORTGAGE DISCLOSURES
The Federal Trade Commission’s (FTC) Bureau of Economics has released a study investigating the confusion many consumers experience with current mortgage disclosures. The study discovered a large percentage of consumers do not understand current disclosures. The study also discovered ways to change disclosures to increase consumer comprehension.
Two methods were used to determine the clarity of current disclosures. The first method included in-depth interviews with 36 recent mortgage consumers regarding their experience. These consumers explained that they did not have a clear understanding of many key terms of their transactions. They were also confused about the costs of their loans and the content of the disclosures.
The second method involved 800 consumers; half were given current compliant disclosures completed on a model loan transaction, the other half were given the same loan data on prototype disclosures designed to be clearer to consumers, but did not meet current compliance standards. Both groups were quizzed on the terms of the loans.
The study discovered that roughly 90 percent could not identify the up-front charges associated with the loan, nearly 80 percent of consumers did not understand why the interest rate and the APR differed, and almost half could not correctly identify the actual loan amount when given the current disclosure.
However, consumer comprehension improved when using the prototype disclosure forms. There was a 66 percent increase in the number of consumers who could correctly identify the up-front charges associated with the loan, a 37 percent increase in the number of consumers who could correctly identify the actual loan amount, and a 21 percent increase in the number of consumers who could identify why the APR and interest rate differed.
The age of disclosures may explain why they are difficult to understand. Current disclosures were drafted 30 years ago when many of the current mortgage products did not exist. Additionally, consumer education has not kept pace with the changing marketplace.
While the study gives lenders and regulators something to think about, it also raises some questions. For example, are the prototype disclosures the best way to communicate and disclose mortgage terms to consumers, or is there an even better format? And what about the differences between states? Many states have unique disclosure requirements and their own model forms. When these questions are considered in conjunction with the model forms drafted by federal agencies, how difficult will it be to affect any real change in the way the industry discloses mortgage terms to consumers?
One obvious conclusion of the study is that current model forms and disclosures are too ambiguous. However, any changes to disclosures should be considered in conjunction with consumer testing to ensure that consumers are actually able to understand what they’re agreeing to. While the FTC study does not answer every question, it provides a good baseline for future disclosure development and consumer education.
“SECURING CUSTOMER DATA AND YOUR BUSINESS”—A NEW ONLINE PRESENTATION
Check out our latest online presentation, “Securing Customer Data and Your Business,” presented by Art Tyzska, Director of Product Management at Wolters Kluwer Financial Services, and RJ Schlect, Director of Industry Technology at the Mortgage Bankers Association. This presentation covers:
- Security Risks—State of the Industry
- Architecting for Data Security—Best Practices
- Mortgage Bankers Association's Support—Initiatives and Education
To view the presentation, visit our SDX web page and click on the “Securing Customer Data and Your Business” link.
REMINDERS
- Check out ComplianceHeadquarters™, your free online resource for additional real estate compliance information.
- Want to take a closer look at SDX Secure Document Exchange but missed the live demonstrations? It’s never too late to watch the recorded version.
- Missed an issue of the VMP® Information Newsletter? Access previous issues in the archive.
