Would You Sign A Document Without Reading It?

The recent nationwide foreclosure moratorium brought about a new term used to describe people who sign documents without carefully reading them: robosigners. Although robosigning described bank employees who signed off on thousands of documents without reviewing them, they’re not the only ones blindly signing documents they haven’t thoroughly read. Consumers often do the same thing.

It is especially important that consumers don’t “robosign” on a new mortgage. When reviewing loan documents, consumers are advised to search for two particular terms: A prepayment penalty and the margin rate on adjustable mortgages.

A prepayment penalty – a fee for paying off a mortgage early – ranges from 1 percent to 3 percent of the total mortgage amount. Consumers who find this clause in their mortgage note and weren’t told about it are advised to ask to have it removed during the loan application process.

For borrowers with adjustable-rate mortgages (ARM), consumers should check how their rate will adjust after the first few years. The adjustment is based, in part, on the profit the lender makes when it sells the loan to an investor, which is called the “margin rate.” Buyers can find the margin rate on the second page of their mortgage note. If the number is higher than 3 percent, consumers should question the margin rate. Reasonable rates generally are considered to be in the 2.5 to 3 percent range.