Suppose after stating the monthly payments, and especially the maximum payments under an adjustable mortgage, what would happen if the disclosure statement explicitly asked “Are you sure you can make these payments on time? If you can’t, you may lost your home.” Or is that going from a nudge to an annoying nag–and if so, would that be bad? The late payment fee is already required to be in the “Federal Box” set of disclosures, and so won’t be far away from the statement of when payments are due, but the regulations could be amended to require that it be right next to the notice of when payments are due, just as with the credit card statement.
Before diving into the effects of one sentence’s construction or placement on a page, it’s worth stepping back for a minute. The point of Sovern’s comments, and other like them, is that clearer disclosure in the mortgage industry would be better. More disclosure would be nice too. More disclosure is one common refrain among mortgage industry reformers. And let’s not savage the government too much. Disclosure is an concept it has looked into. The question is what does better disclosure look like? To put the question another way: Should a mortgage, like a refrigerator, a car or even a box of cereal, come with a label? Is a label the best form of disclosure – as opposed to an Excel-style spreadsheet or a brief executive summary? The FTC has considered a hybrid of these two approaches already. See here for the prototype.
To Nudge blog readers: What information would you put on a mortgage label? How would you design it? Is the interest rate amount and structure the most important information? Perhaps conflicts of interest between broker and other parties?