Ward 3 D.C. Council Member Mary Cheh is expected to introduce a bill Tuesday aimed at providing protections to borrowers using nontraditional mortgages to purchase a home.
The legislation requires information on the size of monthly payments to be printed in large font and on red paper for all exotic mortgages. These include home loans with a subprime interest rate, loans that require no money down and mortgages with rates that readjust upward over time.
“Consumers need to have a clear and complete picture of the costs of a mortgage,” Cheh said. “Many predatory and subprime loans lure people in by offering low teaser rates for the first few years of the mortgage. However, once these teaser rates expire and the interest rate jumps, many borrowers find themselves unable to pay their increased bills. This can lead to financial ruin for borrowers, including seeing their homes go into foreclosure.”
Cheh’s bill will require lenders to provide all payment information up front, including when interest and principal payments are due, how the payment amount would change if the interest rate adjusts, and the cost of property taxes and other fees.
The jump in the number of foreclosures and increasing rate of late payments in the nontraditional mortgage market has unsettled investors in the last month. In the District in 2005, more than 12 percent of loans issued to homebuyers were subprime, compared with only 3 percent in 200.
