Luke Sparks Lake City and Gainesville Real Estate

Consumers are confused, concerned and craving more regulatory protection when it comes to home loans.

Nearly half of mortgage consumers who hold adjustable rate mortgages (ARMs) aren't very informed about their mortgage terms, 40 percent of high-income borrowers say the next interest rate adjustment could break the household budget and 77 percent want more government regulation for mortgage lending.

Peter D. Hart Research Associates, on behalf of the AFL-CIO, recently surveyed 500 homeowners with ARMs and found homeowners are grappling with a host of issues impacting their loans.

The "Homeowners Confused, Worried About ARMs" study has findings similar to those in Bankrate, Inc.'s "Mortgage Ignorance Rampant" study conducted earlier this year.

Mortgages continue to confound.

As in the Bankrate study, key findings in the AFL-CIO-commissioned study include evidence that ARM holders lack vital information about their loan and how it can affect the household budget.

• Nearly half, 49 percent, say they aren't very informed about their mortgage's terms and conditions.

   

• One in five, 18 percent, does not know their current interest rate.

   

• Most, 73 percent, don't have a clue how much their monthly mortgage payment will increase the next time their rate rises.

   

• Nearly half, 47 percent, don't know what factors determine the amount of their rate adjustment and only 20 percent correctly answered how their rate is determined.

   

• Fifty-six percent do not recall their lender telling them how much they would be paying with their rate resets.

The AFL-CIO study also found that many ARM holders foresee financial problems down the not-too-distant road.

• Households with incomes of $50,000 or less start off behind the eight ball with higher-than-average rates on their loans -- 57 percent have rates in excess of 6 percent, compared with 39 percent of borrowers with incomes of more than $50,000.

   

• Thirty-seven percent of higher-income borrowers say it is likely they will have to cut back on items such as groceries and gasoline once their rate increases. The same is true for 80 percent of lower-income borrowers.

   

• Also, 36 percent of lower-income borrowers may have to postpone a major health procedure, 38 percent will have to postpone college or other education, 37 percent say they may face foreclosure and 18 percent say they will have to give up health insurance because of monthly mortgage payment increases.

"What we have here is a tale of two communities," said AFL-CIO President John J. Sweeney.

"The trap door between the American Dream and the American Nightmare for these homeowners is the ARM adjustment. This survey shows that many homeowners simply are not prepared for the steep rise in mortgage payments that this market inflicts on ARM holders," Sweeney added.

Many homeowners continue to enjoy introductory rates, indicating current market conditions are just the tip of the proverbial iceberg.

• Most, 59 percent, of ARM borrowers interviewed have not experienced a rate increase. Of those, 59 percent have a rate that's lower than 6 percent, compared to just 9 percent of those whose rates have already reset.

   

• Sixty-four percent of those whose rates have reset do not recall their lender telling them how much more their payment would increase and 32 percent don't recall being told when their rate would increase.

   

• Forty percent of those surveyed say they do not know where to turn for help and guidance, if they had difficulty paying their mortgage.

  Homeowners also expect more regulatory oversight from the government and some sort of government bailout for those facing foreclosure.

   

• More than three in four, 77 percent, of ARM holders say the government should do more to regulate mortgage lending and protect consumers.

   

• Borrowers who obtained home loans through a mortgage broker are worse off than those who went directly to a lender.

Broker borrowers are less likely to feel informed about the conditions of their loans than bank customers, 45 to 61 percent. They are also more likely to say they do not know where to turn should there be a problem paying the mortgage, 42 percent to 31 percent. They are more than twice as likely to have an interest rate of 8 percent or higher, 24 percent to 10 percent. Also, broker borrowers are more likely to have been late making a payment, 28 percent to 16 percent and to have maxed-out credit cards, 25 percent to 18 percent.

Coinciding with the release of the study, the AFL-CIO's Union Privilege benefits provider for union families, announced a "Save My Home Hotline", 1-866-490-5361, to offer free, around-the-clock advice from U.S. Department of Housing and Urban Development-certified counselors. Face-to-face counseling is also available.

The AFL-CIO also sponsors a trust to assist union members with financial hardship due to disability or unemployment.

"Nearly four out of 10 homeowners in the poll say they wouldn’t know who to turn to for help if they had difficulty paying their mortgage," said Leslie Tolf, president of Union Privilege.

"Unions are at the forefront of closing that gap," she added.

Published: October 17, 2007