Over the past few years, regulators have been working to right the wrongs that occurred during the mortgage boom and subsequent bust to ensure history doesn’t repeat itself.
One focus has been on improving mortgage disclosures so homeowners can actually make sense of what they’re reading.
The latest development is a model form for mortgage statements, which came about thanks to the Dodd-Frank Act, spearheaded by the Consumer Financial Protection Bureau.
It amends the Truth in Lending Act by adding a section on “Periodic Statements for Residential Mortgage Loans.”
This is similar to the credit card overhaul, which has led to more transparent monthly statements that spell out your current balance, how much interest you will pay, when your payment is due, and more.
What’s On the New Mortgage Statement Form?
The new mortgage form, which is pending public comment (including yours if you want to get involved), specifies that the following items must be included:
– the principal loan amount
– the current interest rate
– the date when the interest rate may reset (if adjustable)
– description of any late fees
– description of any prepayment penalty
– phone number and e-mail address to obtain more info about mortgage
– information about housing counselors
The first item on the list specifies what your current loan balance is, which is pretty straightforward. It is also accompanied by a maturity date, which is when the mortgage will be paid off in full.
On the top right side of the form is your account number, payment due date, and amount due. It also includes an alternative amount if you pay late.
Below that, your monthly mortgage payment is broken down into principal, interest, and escrow, which includes taxes and insurance. It displays what you paid last month in each of these departments, and also what you’ve paid year to date.
I think the form should also include the total amount of interest and principal paid since loan inception as well, so hopefully they’ll include that.
This can help illustrate how much homeowners spend on interest versus principal over the years, and could lead to shorter-term mortgages.
The proposed form will also include transaction activity for the past month detailing what amount you paid, including any late fees if applicable. This can be handy as proof of payment if there are any disputes.
If it’s an adjustable-rate mortgage, there will be text that says, “until X date” next to the interest rate. This is helpful to ensure borrowers know how long their interest rate is fixed, as this date often gets lost in the shuffle.
Below that is information regarding a prepayment penalty, assuming one applies, including how much you will owe for prepayment.
Ensure Extra Payments Go Where You Want Them
My favorite part of the new form is the box pertaining to any overpayment. At the bottom of the new form, it allows you to designate where you want additional funds to be applied.
So if you want to make extra payments each month, you can specify that they be directed toward principal or escrow, to avoid the lender or loan servicer doing what they please.
There is also a large box toward the bottom of the form that provides information for those experiencing financial difficulty, including where to find a state or federally approved housing counselor.
All in all, it looks like a good improvement to the mix of mortgage statement forms currently used by loan servicers.
It will likely increase transparency and lead to a better understanding among homeowners, who are often in the dark when it comes to making sense of their mortgage.
This form should reduce homeowner abuses and perhaps even defaults.
What do you think of the new form? Is it missing anything important?
(photo: Sean MacEntee)