Tuesday, April 21, 2009

Disclosure Rant

I’m working on refinancing my mortgage. I figure if I have to pay other people’s too, I better make mine as cheap as I can.

As expected the mortgage application is a half inch thick. Buried in it were 12 pages of State of Colorado Disclosures that weren’t there last time I applied for a loan larger than my gross yearly income. Some of the disclosures are quite specific, too. A few choice quotes:

You could lose your home, and any money you have put into it, if you do not meet your obligations under the loan.

… you should also remember that you may face serious financial risks if you use this loan to pay off credit card debts and other debts… and then later incur significant new credit card charges or other debt.

You should not accept any advice to ignore your regular payments to your existing creditors.

If the new loan is an ARM, I have considered how long the new monthly payments will be in effect before it adjusts.

I imagine those disclosures are forehead-slappingly obvious to most (hopefully all!) of you. But recent history shows that not everyone shares that knowledge, so I guess they’re worthwhile. It certainly doesn’t hurt to try to protect people from making bad decisions.

But reading that made me think about all the sob stories I’ve seen in the news about people that got burned doing financially stupid things. People that just accept every credit card they get, or whatever mortgage they’re offered, or whatever car loan they come across, because “they wouldn’t let me have it if I couldn’t afford it!”

What are the odds that people like that will actually bother to read and understand 12 pages of mortgage disclosures, and think through the implications? Not so good, I think. Ultimately, you can’t prevent people from doing stupid things, no matter how hard you try. But I guess it doesn’t hurt to try.


That last disclosure about the ARMs reminds me of something I heard on the radio in early 2008. The radio station was pitching a charity fundraiser. Trying to stir up sympathy for the beneficiaries, the announcer said, “Most of these people just hit some bad luck, like they got laid off from their job or had a health problem or their mortgage rate adjusted up.” (emphasis added)

That last bit left me speechless. In what world is your ARM adjusting considered bad luck? Any ARM with a teaser rate (ie, most of them) is practically guaranteed to adjust up! Even ignoring the teaser rate, mortgage rates had been at generational lows for several years. ARMs adjusting up was a near certainty – practically the opposite of bad luck.

I guess they hire those radio announcers for their voices and cool names like “The Spaz”, rather than for financial acumen. Good thing, too.


Anonymous said...

On Earth Day it especially important to celebrate the 18 pages of paper.

Anonymous said...

First the big cheese democrats (Clinton,Frank, Dodd, Obama) push for the loan of vast sums of money to people clearly unable to pay it back--but stupid enough to take it anyway--then seek to reverse the adage "life's tough for the stupid" by having the rest of us pick up the tab. And we do so. Kinda makes one wonder who's the most stupid in all this--though the answer seems rather obvious.

nicki0731 said...

Taxes and mortgages? Sheesh, as if I'm not already depressed enough... Weren't we supposed to get more New Mexico pictures?

BeaKeR said...

Yeah, I've been working on the New Mexico photos, but they're not really coming together that well. They'll show up someday... probably.