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FTC study finds mortgage disclosure forms confusing

Better disclosures could prevent deceptive lending practices

Mortgage disclosure forms fail to convey key mortgage costs and terms to many consumers, according to a Federal Trade Commission study that tested forms with 819 mortgage customers. Both prime and subprime borrowers misunderstood key loan terms, and both groups benefited from better disclosures, the study found. Better disclosures provided the greatest benefit for complex loans in which borrowers had trouble understanding the terms. The potential for improving consumer understanding of mortgage costs was tested using prototype disclosures developed for fixed-rate loans -- including those with interest-only and balloon payments. The prototype disclosures used in the study could be extended to incorporate the key features of adjustable-rate, hybrid and payment-option loans, the study's authors said. The report, "Improving Consumer Mortgage Disclosures -- An Empirical Assessment of Current and Prototype Disclosure Forms," was authored by James M. Lacko and Janis K. Pappala...

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