Comments on: For All Borrowers: Adjustable Rate Mortgages

By: Moderator

Moderator — Sun, 02 Sep 2012 12:46:33 +0000

Thank you for sharing your story, mark.homer.50, and welcome to Regulation Room. CFPB is certainly interested in giving ARM borrowers opportunities to refinance and more information about refinancing. Do you think that having earlier notice of the first rate change and more information regarding prepayment penalties would have helped people in the situation you described?

By: Mark Homer

Mark Homer — Fri, 31 Aug 2012 12:35:53 +0000

The wording does not get it right. When our family went through this, the people representing the lender told us: “don’t worry about ARM’s, you can always refinance later” Of course, once the collapse hit, refinancing became not an option for many. The wording should specifically say something like: “WARNING: you may not be able to refinance later, so you should expect to have to make the higher rate payments later”

By: Moderator

Moderator — Sun, 26 Aug 2012 20:20:30 +0000

Steve smith, here is a brochure containing more information on how the CFPB handles complaints. What also might be helpful is the information under "How Do You Handle Complaints" on CFPB's Consumer Complaint Database.

By: Steve Smith

Steve Smith — Sun, 26 Aug 2012 19:29:30 +0000

Thank you Moderator. Honestly, is there any value to filing a complaint at the CFPB’s website from a foreclosure that took place in 2009? I’ve contacted and filed a complaint with every office in this country and wound up with a response stating, ” Thank you for informing us but there’s nothing we can do. Go find a lawyer.”

By: Moderator

Moderator — Sat, 25 Aug 2012 23:15:37 +0000

Welcome to Regulation Room, steve smith. As you recognize, the Consumer Handbook on Adjustable Rate Mortgages is not at issue in this proposed rule. However, disclosures that consumers receive before getting a mortgage are at issue in another one of CFPB's proposals. You can read more about that rule and find a link to comment on it here. Also, if you would like to file a complaint with CFPB regarding how you didn't receive the handbook, you can do that on CFPB's website.

By: Steve Smith

Steve Smith — Fri, 24 Aug 2012 19:39:59 +0000

Slightly off topic but in my own adjustable loan. I never did see or receive the ‘Consumer Adjustable Mortgage Rate Handbook’. Was there a signature page of proof upon receiving this book?

By: Moderator

Moderator — Tue, 21 Aug 2012 21:26:07 +0000

Hi prestonsherwood, and welcome to Regulation Room! This rule only deals with what happens when people already have a mortgage. CFPB is proposing a separate regulation about pre-disclosure, which you can find here. For people who already have an ARM, do you think the information in CFPB's proposal makes sure homeowners get the information they need?

By: Moderator

Moderator — Tue, 21 Aug 2012 21:21:38 +0000

Hi Pamela, welcome to Regulation Room! Thank you for your thoughtful comment. Do you have any feedback on the proposed periodic statements you could share as well?

By: Pamela Wilson

Pamela Wilson — Tue, 21 Aug 2012 16:41:08 +0000

I think the form is a great start. I suggest (1) making the the items that propose the Alternatives i.e. refinance, modification etc. to be placed in bold as well because they are important options. (2) Reminding consumers that there are various websites, such as bankrate.com that can give them information about prevailing rates. (3) putting a representative pict of a posted libor rate from wsj. Also is giving the notice 2-4 month before increase really enough time to sale a home? Is it possible to allow consumers another 2-4 (for a total of 6 mos to sell) if they choose the sale option before the price increase takes affect?…. just a thought.
Finally I suggest putting as many explanatory items in bullet form instead of paragraph form. Thank you.

By: prestonsherwood

prestonsherwood — Fri, 17 Aug 2012 22:47:43 +0000

The additional communications, as proposed on this site, are a good thing, of and by themselves. However, I believe there is another problem that should be addressed, in addition.

I suspect that many people who take out an ARM do not fully consider the risk of future rate increases. Especially with the currently low rates (and potential for higher long-term inflation), ideally a prospective customer should perform a “stress-test” on their own financial situation, and ask realistically could they afford the loan if rates climb in the long term, and specifically how they would accomplish this. An alert is nice, but the options are far greater before the agreement is signed.

Therefore, my recommendation would be to put equal–or greater–emphasis on clear communication… more »

…and discussion of options before the loans are signed, with a focus on worst-case increases. e.g. “If rates do climb substantially, and your ARM rate goes to it’s highest allowed level of __X%__, your monthly payment would be __$xx,xxx__. In that scenario of higher rates (and likely higher inflation), what would you have to do to ensure you can still make payments?”

Even if the prospective customer doesn’t provide an answer to the loan officer, that might trigger some very useful discussions among spouses, co-signers, etc.

(I assume that lenders would detest such a requirement, but fundamentally we do need to enforce reality-checks at some stage: history and basic logic indicate that the people who are paid to generate loans are not the best guardians of long-term risk.)

Another way to make prospective customers more aware of the risks would be to ask “Assuming your loan payments do increase steadily if rates rise, at what level (of monthly payment dollars) would you need to either sell the house, allow foreclosure, or request modification of terms?” (i.e. how much of an increase could you really afford.) Requiring a prospective borrower do the math might be a useful reality check – even if the person fudges the numbers, at least the issue will have been implanted in their head. « less