Consumer Law

Nudging Mortgage Borrowers

By Jeff Sovern

Now that the Fed is moving closer to a libertarian paternalism Nudge-like approach to credit card statements (we blogged about it here; and there's more on the Nudge web site about it here), perhaps it will consider using a similar approach with closed end lending disclosure statements.  For example, suppose after stating the monthly payments, and especially the maximum payments under an adjustable mortgage, what would happen if the disclosure statement explicitly asked "Are you sure you can make these payments on time?  If you can't, you may lost your home."  Or is that going from a nudge to an annoying nag--and if so, would that be bad?  The late payment fee is already required to be in the "Federal Box" set of disclosures, and so won't be far away from the statement of when payments are due, but the regulations could be amended to require that it be right next to the notice of when payments are due, just as with the credit card statement.  It seems pretty clear that the existing closed end disclosures did not adequately warn subprime borrowers about their payment obligations so something more is called for.  Would a stronger nudge have kept some of the borrowers now being foreclosed upon from taking out their loans in the first place?

Full post as published by CL&P Blog on January 16, 2009 (boomark / email).