Informed Consent Process for Mortgage Lending

Informed Consent Process

This UW link provides a brief explanation of the informed consent process in medicine.  Is it possible to use these elements to build an informed consent process for the practice of mortgage lending?

From the UW: 

What are the elements of full informed consent?

  • the nature of the decision/procedure
  • reasonable alternatives to the proposed intervention
  • the relevant risks, benefits, and uncertainties related to each alternative
  • assessment of patient understanding
  • the acceptance of the intervention by the patient

    • Many LOs and mortgage brokers tell me that they have already enacted some of these processes informally with their clients.  How can we begin to create a formal informed consent process?

    In order for a client’s consent to be valid, he or she must be considered competent to make the financial decision and his or her consent must be voluntary. It is easy for coercive situations to arise in real estate and mortgage lending.  For an example please read this story about Joe Six Pack.  In this story, Joe felt somewhat powerless and vulnerable. To help empower clients like Joe, mortgage brokers can make clear to their clients that they are participating in the decision, not merely signing the application and disclosure forms.  With informed consent, the mortgage broker would be obligated to provide a recommendation and share his or her reasoning process with the client. With informed consent, the broker/LO has a high duty to make sure the client understands the information provided.  This means the dialogue would be in layperson’s terms and the broker/LO stops periodically to check for client understanding during the dialogue.

    Questions for Brokers and LOs:

    How do you explain the differences between mortgage products? Example: Difference between a 30 year fixed and a 5 year interest only.  Yes, the 5 year IO loan has a lower payment but what are the possible consequences?

    Fiduciary duties and informed consent requires more than just handing over disclosure forms and collecting signatures.  How do you know that your client understands everything you’re saying?