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Are mortgage borrowers well informed?
At first look, the foreclosure epidemic that is currently roiling the home loan industry is clearly pointing in the direction that a good portion of buyers are relatively unconcerned about the mortgage program they signed for and that's why they are now in distress. The number of foreclosures, however, is only affecting about 4% of all mortgages outstanding, a very manageable percentage. Historically it's high, but in the big picture today it can still be considered minor.
It means then that most borrowers do actually understand relatively well what they are committing to. No one needs to be an expert in the finer details of a mortgage, but the basics seem to be clear. Not so fast, though. Enter the Federal Trade Commission and the study it conducted in 2007 on the issue and the results unfortunately prove otherwise.
For instance, 20% of mortgage applicants were unable to pinpoint the interest rate on the mandatory disclosure forms. A surprisingly high 44% failed to ascertain whether there was a prepayment penalty if refinanced within two years. And 30% couldn't figure out if the loan program had a balloon payment or not. 24% couldn't pick out the less expensive loan when comparing side-by-side ... more

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