For thousands of citizens, the answer is probably yes. Reading, combined with some math and careful consideration of future possibilities could have prevented both the mortgage crisis and the credit card crisis.
Certain mortgage companies and their representatives were notorious for burying complex terms and expensive restrictions well into the fine print. And, since loan documents are both lengthy and ponderous to read, most borrowers did not read them.
Loan closers, anxious to get the signatures and get on to the next closing, did not encourage that reading, but assured buyers that there was “nothing out of the ordinary” in the documents.
Further, buyers who were not confident in their abilities to read and understand the documents went along with it rather than stop the process and demand time to read.
In other cases, buyers raised concerns that were brushed aside by mortgage lenders. Phrases like “You can refinance before the rate increases,” and “Inflation will let you refinance in a couple of years without mortgage insurance” lured many into seeing the rosy glow of the future rather than the reality of what they were signing.
And in some cases, they really didn’t know what they were signing. I remember one seller who had no idea that his loan carried a pre-payment penalty until he was ready to close and realized he had to contribute money. What a shock!
Credit card agreements were just as bad, or possibly worse. Their fine print was written in type so small that many card holders needed a magnifying glass just to read it.
New federal regulations are doing away with some of the problem. Credit card issuers will now be required to disclose fees, interest rates, and other terms in print large enough and prominent enough for consumers to find and read.
Home buyers are also getting some protection, but will still need to use common sense to determine whether they should sign loan documents.
The new regulations from Fannie Mae require that borrowers be given an accurate Truth in Lending statement at least 3 days before closing. The Truth in Lending statement discloses the annual percentage rate, finance charges, amount financed, total payments, payment schedule and other loan terms. Hopefully, this will include the existence of pre-payment penalties, and the existence or non-existence of caps on variable rate interest.
Proposed future reforms include the requirement that lenders give borrowers a one-page outline of all their loan terms – including the risky ones.
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