Question:

What is mandatory disclosure?

Answer:

Mortgage loan providers are demanded to reveal as much of the loan charges and terms to the borrower as possible. Any information that is required to be revealed and the suite of regulations can be referred to as mandatory disclosure.

Mortgage lenders are mandated to provide a Good Faith Estimate (GFE) and a Truth in Lending (TIL) disclosure statement (revealing the Annual Percentage Rate APR). However, many borrowers do not know how to read a GFE, or what is important to look for in the Truth in Lending disclosure.

For example, information about prepayment penalties is of great importance to subprime borrowers, or to anybody taking an ARM. However, few borrowers are prepared to read the mandatory disclosures contained in the mortgage documents, or are able to separate what is valuable to know from what is not. Prepayment penalties and demand clauses are important features of the loan.

Usually, a well-informed and experienced borrower does not need mandatory disclosure statements to find about what they need to know about the loan. They would simply ask the loan officer. Mandated disclosure is supposed to make less experienced and educated borrowers less vulnerable to predatory lending, but they, however, often find it difficult to make it through the high volume of information disclosed about the loan and find what is crucial about their loan application.

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