On May 24, the Federal Trade Commission will host a workshop, Protecting Consumers in the New Mortgage Marketplace, on consumer protection issues arising from the growth of “nontraditional” or “alternative” mortgage products in the residential mortgage marketplace.
As housing prices have soared in recent years, alternative mortgage products, such as “interest-only” loans and payment option adjustable rate mortgage (ARM) loans (or “pick-a-payment” loans), have grown increasingly prevalent. These types of loans were less than one percent of mortgages in 2000, yet they comprised up to half of new loans last year.
These mortgage products may provide benefits for many consumers. The products may help some people buy homes at prices they could not afford using traditional thirty-year, fixed rate mortgages, because the minimum monthly payments required during the initial periods of these loan products are much lower. Moreover, these mortgage products may especially benefit certain consumers, such as those with an uneven pattern of income or those anticipating a rise in income.
At the same time, these mortgage products may present unexpected risks for consumers. Consumers may not adequately understand that such mortgages could result in “payment shock,” when minimum monthly payment amounts jump by as much as 100 percent upon expiration of a loan’s initial period. They also may not understand that some of these loans may yield negative amortization (a rise in the loan balance because mortgage payments are less than the interest due). Because these products let borrowers defer repayment of principal, borrowers build no equity in their homes except to the extent that their homes appreciate in value. Therefore, such loans may be particularly risky under changing market conditions.
The workshop will explore various aspects of the home mortgage marketplace, including how these mortgage products have evolved, the benefits and risks they pose for consumers, how market forces shape the prevalence of particular mortgage products, and consumer understanding of the terms, features, risks, and benefits of these loans.
The FTC staff will identify and invite individuals with relevant expertise to participate as
panelists. The FTC staff also may invite self-nominees to be workshop panelists. Those interested in participating as panelists must notify the FTC in writing on or before April 12. For details on where and how to submit requests to participate as a panelist, visit: www.ftc.gov/bcp/workshops/mortgage/index.html.
The workshop is free and open to the public. You must show a valid form of photo ID, such as a driver’s license. The workshop will be on May 24, from 8:30 a.m. to 5:30 p.m., at the FTC’s Satellite Building Conference Center, 601 New Jersey Avenue, NW, Washington, DC.
For more information on the workshop, visit: www.ftc.gov/bcp/workshops/mortgage/index.html.
The Commission vote approving publication of the Federal Register notice was 5-0.
Copies of the Federal Register notice are available from the FTC’s Web site, http://www.ftc.gov, and the FTC’s Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. The Federal Register notice will be published shortly. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint in English or Spanish (bilingual counselors are available to take complaints), or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov.
(FTC Project No. P064812)