If you have ever been in the market for a home loan, you know that understanding all of the terms - including rates, fees and penalties - can be quite a challenge.
New proposals from the Federal Reserve are aimed at making the process of choosing a mortgage loan as transparent as possible.
The 600-page document contains a number of provisions that significantly tighten lending practices and change how mortgage brokers do business.
For example, lenders would be required to describe any potentially risky aspects of their home loan and provide them with a list of questions and answers before they sign on the dotted line.
Another proposal obligates lenders to give a detailed disclosure about the annual percentage rate of the mortgage loan so that borrowers can thoroughly understand fees and settlement costs.
Furthermore, consumers would be able to see how their APR compares to the average rates paid by borrowers with high credit scores.
And homebuyers with adjustable-rate mortgages would receive an explanation of how their payments could potentially increase.
"Consumers need the proper tools to determine whether a particular mortgage loan is appropriate for their circumstances," commented Federal Reserve chairman Ben Bernanke.
"It is often said that a home is a family's most important asset, and it is the Federal Reserve's responsibility to see that borrowers receive the information they need to protect that asset."
There is a 120-day comment period for the proposals, which may then be revised and voted upon.
New proposals from the Federal Reserve are aimed at making the process of choosing a mortgage loan as transparent as possible.
The 600-page document contains a number of provisions that significantly tighten lending practices and change how mortgage brokers do business.
For example, lenders would be required to describe any potentially risky aspects of their home loan and provide them with a list of questions and answers before they sign on the dotted line.
Another proposal obligates lenders to give a detailed disclosure about the annual percentage rate of the mortgage loan so that borrowers can thoroughly understand fees and settlement costs.
Furthermore, consumers would be able to see how their APR compares to the average rates paid by borrowers with high credit scores.
And homebuyers with adjustable-rate mortgages would receive an explanation of how their payments could potentially increase.
"Consumers need the proper tools to determine whether a particular mortgage loan is appropriate for their circumstances," commented Federal Reserve chairman Ben Bernanke.
"It is often said that a home is a family's most important asset, and it is the Federal Reserve's responsibility to see that borrowers receive the information they need to protect that asset."
There is a 120-day comment period for the proposals, which may then be revised and voted upon.
