Survey discussion: Your mortgage documents

From January through March 2007, we asked visitors to HSH.com and HSHMarketTrends.com this question:

"Did you actually read the documents provided to you both before and after you got your mortgage?" (See a graph of the survey results).

We asked this question because it is likely that one of the centerpieces of any RESPA reform (which may happen in the near future) will hope to provide better, clearer, and probably more documentation presented to borrowers. As well, the recent subprime mortgage mess seems likely to throw off some new disclosure paperwork for any number of mortgage products, especially Pay-Option ARMs, 2/28 and 3/27 products and the like.

It's often said that the documentation for mortgages is confusing, oblique, or simply too much for a borrower to really read and understand, especially given the pressure to sign documents all in a rush, whether at application or at closing. The documentation process is probably flawed in any number of ways, but most likely in the timing and presentation of the differing documents and brochures. Some are 'global' documents which apply to all borrowers (HUD-required booklets and such), while others are specific to your individual loan, like the Good Faith Estimate of Closing Costs (GFE). Regardless, there is a lot of reading to do.

We received several hundred responses, and the results were telling.

On a straight 'yes' or 'no' basis, some 38% of the respondents said that they read all the documents which pertained to their loan -- but almost 9% said that they hadn't read any documents at all. About 4% said they didn't read the documents themselves but had had them reviewed by a lawyer or other party.

Those folks who blew off their responsibility shouldn't feign surprise if any onerous or less favorable terms come back to bite them at a later date. Having a review performed of the documents may ensure that they are correct and legal -- but that's not necessarily the same as favorable or without consequence.

The rest of the folks landed in the "muddy middle": about 16% said they read some docs when they applied, and another 28% claimed they read "some when I applied and some after closing".

A percentage of cautious people (about 12%) said that not only did they read them, but had them reviewed by a lawyer or other knowledgeable person.

Most Reviewed

The documents most reviewed were the Good Faith Estimate of Closing Costs (94%), followed by "Settlement Costs and Information". Both are usually provided at or near the time and application is made for a loan.

A full 81% read their mortgage Note, which spells out the actual base terms and conditions of the mortgage contract, while 64% read their final HUD-1 form, where all the costs of obtaining the mortgage are finally revealed when the loan comes to close. The Truth-in-Lending (TIL) form was culled by about 66% of borrowers, too.

About 46% looked through the Transfer of Servicing notice; that's where you discover that your loan may be sold to others after closing and how likely that it will be. Nearly the same amount (44.8%) reviewed any Privacy Statements which came along with their loan packet -- a good idea in these times of security breaches and such.

Some of our audience got a chance to review some of the 'conditional' documentation which can come along with the choice of product or the reason for obtaining a new mortgage. For refinancing, a "right of recission" form is provided for signature, which states that the new loan contract can be canceled for up to three days after the loan has closed. About 31% of respondents said they got a look at that one.

ARM Documents

Perhaps more important today are the documents provided to borrowers of ARMs. Only about 23% read the HUD-prepared Consumer Handbook on ARMs (up front), and only about 29% got an Adjustable Rate Rider to review (at/after closing). These numbers are probably most reflective of the percentage of the market actually selecting an ARM, probably not more than about 30% today.

Since it's not a well-publicized thing, we were surprised that full 80% of the people who took our survey knew they were entitled to see the appraisal the lender used on their property. For the 20% who didn't know, it's probably too late to get one now, but don't forget to ask for one next time. After all, you paid for it!

Thanks to all the respondents! Now... want to try our latest survey?