Mortgage Shopping, Made Easier - Economic View

The following is an excerpt from an article in 

The New York Times
Sunday, August 19, 2012

Mortgage Shopping, Made Easier - Economic View

By RICHARD H. THALER

MORTGAGE rates are very low, but some people who could qualify for cheap refinancing are procrastinating. That may be because shopping for a mortgage can make root canal surgery seem fun.

Choosing a home and mortgage is probably the largest financial decision that most Americans ever make. Yet perhaps because the loan process is so onerous and opaque, many take the first quote they are offered. In fact, research shows that people typically spend more time shopping for a car or vacation than for a mortgage, and I suspect that many families spend as much or more time picking out a microwave oven.

Shirking on mortgage shopping is a costly type of sloth. Other research, done for the Department of Housing and Urban Development, finds that most borrowers could save several thousand dollars by getting just one more quote.

Now is a propitious time for raising these issues because the new Consumer Finance Protection Bureau is undertaking a Congressionally mandated revision of some disclosure forms that are required by law. (Disclosure: Along with John G. Lynch Jr., a professor at the University of Colorado, I met with bureau staff members last month to discuss this proposal from a behavioral science perspective.)

The bureau’s goals should be to make mortgage shopping easier and more efficient, and to make the industry more transparent and competitive, all while reducing the kinds of bad loans that helped create the financial crisis.

One form is of particular importance. It’s the “loan estimate,” a paper copy of which must go to borrowers within three days of application for a loan.

The bureau’s research team did extensive testing to decide what data should be included on this new form. It proposed a three-page version containing more than 100 pieces of information, including the interest rate, charges for various services and whether features like prepayment penalties or balloon payments were part of the deal.

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