[Federal Register Volume 68, Number 154 (Monday, August 11, 2003)]
[Notices]
[Pages 47566-47568]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-20373]


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FEDERAL TRADE COMMISSION


Agency Information Collection Activities; Submission for OMB 
Review; Comment Request

AGENCY: Federal Trade Commission (FTC).

ACTION: Notice.

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SUMMARY: The FTC has submitted to the Office of Management and Budget 
(OMB) for review under the Paperwork Reduction Act (PRA) information 
collection requirements in proposed consumer surveys designed to help 
the FTC examine: How consumers search for and choose mortgages; how 
consumers use and understand information about mortgages, including 
required disclosures; and whether more effective disclosures are 
feasible. To conduct the research, the FTC first seeks OMB clearance 
and additional public comment regarding this notice, which is the 
second of two notices required by the PRA for information collection 
requests of this nature.

DATES: Comments must be submitted on or before September 10, 2003.

ADDRESSES: Send written comments to Secretary, Federal Trade 
Commission, Room H-159, 600 Pennsylvania Avenue, NW., Washington, DC 
20580, or by e-mail to [email protected] as prescribed below, and to 
Records Management Center, ATTN: Desk Officer for the FTC, OMB, Room 
10102 NEOB, fax: (202) 395-6566. The submissions should include the 
submitter's name, address, telephone number and, if available, FAX 
number and e-mail address. All submissions should be captioned 
``Mortgage Disclosure Study--FTC File No. P025505.''

FOR FURTHER INFORMATION CONTACT: Requests for additional information 
should be addressed to Janis K. Pappalardo, Economist, Bureau of 
Economics, Federal Trade Commission, 601 New Jersey Avenue, NW., Room 
NJ-4136, Washington, DC 20580. Telephone: (202) 326-3380; e-mail 
[email protected].

SUPPLEMENTARY INFORMATION: Recent deceptive lending cases at the FTC 
and elsewhere suggest that consumers who do not understand the terms of 
their mortgages can be subject to deception, that deception can occur 
even when consumers receive the disclosures required by the Truth-in-
Lending Act, 15 U.S.C. 1601 et seq. (TILA), and that deception about 
mortgage terms can result in substantial consumer injury.
    Despite a long history of mortgage disclosure requirements and many 
new legislative and regulatory proposals regarding disclosures, little 
empirical evidence exists to document the effect of current disclosures 
on consumer understanding of mortgage terms, consumer mortgage shopping 
behavior, or consumer mortgage choice.
    The FTC proposes a research program designed to learn more about 
how consumers search for mortgages, what consumers understand or 
misunderstand about mortgage agreements, and how changes in the 
disclosure process might improve consumer understanding, consumer 
mortgage shopping, and consumers' ability to avoid deception. The 
research also may assist the targeting of the FTC's enforcement actions 
by identifying areas most prone to consumer misunderstanding and lender 
deception and may help refine disclosure remedies imposed on deceptive 
lenders.
    On April 22, 2003, the FTC sought public comments on the 
information collection aspects of the proposed surveys. See 68 FR 
19,825. The FTC received seven comments on the proposed information 
collection request.\1\ None of the commenters opposed the proposed 
information collection, and most of them

[[Page 47567]]

enthusiastically endorsed the research. All three community 
organizations expressed concern about predatory lending, and commended 
the Commission on its research objectives. See ESOP Comment at 1; 
O.N.E. Comment at 1; SUN Comment at 1. See also TAMB Comment at 3 
(``TAMB commends you for undertaking the study. It comes at a critical 
time.'').
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    \1\ American Land Title Association (ALTA) (described as the 
national trade association of the title insurance industry); East 
Side Organizing Project (ESOP) (a community-based grassroots 
organization in Cleveland, Ohio); Mortgage Bankers Association of 
America (MBA) (a trade association representing all aspects of real 
estate finance); The National Consumer Law Center (NCLC) (a non-
profit Massachusetts Corporation specializing in issues faced by 
low-income consumers); Organization for a New Eastside (O.N.E.) (a 
community group in Indianapolis, Indiana); Syracuse United Neighbors 
(SUN) (a grassroots community organization in Syracuse, New York); 
the Texas Association of Mortgage Brokers (TAMB) (a trade 
association of mortgage brokers in Texas).
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    Although some of the commenters suggested that particular concerns 
be addressed in the research, none expressed reservations about the 
general methodology. For example, MBA wrote: ``With regard to research 
design, MBA believes that the methodology summarized in the comments 
request is sound.'' MBA Comment at 2.
    Specific suggestions about the research generally reflect a desire 
to broaden the scope of the information collection. The NCLC, for 
example, requested that the research ``. . . incorporate all 
educational and income levels of consumers, as well as a variety of 
languages spoken by American consumers. Moreover, the sample should 
include enough of each type of borrower so that the sample can be 
stratified and the researchers can look at and compare subsets of 
borrowers.'' NCLC Comment at 5. TAMB recommended that the study be 
expanded to include more individuals and then grouped into transactions 
involving mortgage bankers, mortgage brokers, large banks and credit 
unions. TAMB Comment at 2. TAMB also recommended in-depth interviews 
with mortgage originators. TAMB Comment at 3.
    Commenters offered certain other survey refinements. For example, 
the NCLC recommended that research on current disclosures include study 
of TILA forms, Good Faith Estimates, and the HUD-1. NCLC Comment at 7. 
The NCLC also recommended that the research examine how consumers 
understand key disclosure terms, such as the annual percentage rate. 
NCLC Comment at 7. Moreover, the NCLC and ALTA believe it important to 
differentiate between refinancing transactions and purchase 
transactions. ALTA Comment at 1; NCLC Comment at 5.
    Recommendations of the commenters will be incorporated into the 
study to the extent possible. To illustrate, FTC staff intends to 
examine closely how consumers use and understand key mortgage terms. 
However, given budget limitations, it will not be possible to extend 
the sample size and study scope as was otherwise recommended. For 
example, although staff intends to survey consumers of many different 
demographic characteristics, the study will not necessarily yield 
meaningful comparisons across all of the groups the commenters 
recommend. Moreover, a survey of mortgage originators is beyond the 
proposed study's scope and available resources.
    Pursuant to the OMB regulations that implement the PRA (5 CFR part 
1320), the FTC is providing this second opportunity for public comment 
while seeking OMB approval to collect the information sought under the 
proposed consumer surveys.
    If a comment contains nonpublic information, it must be filed in 
paper form, and the first page of the document must be clearly labeled 
``confidential.'' Comments that do not contain any nonpublic 
information may instead be filed in electronic form (in ASCII format, 
WordPerfect, or Microsoft Word) as part of or as an attachment to e-
mail messages directed to the following e-mail box: [email protected]. 
Such comments will be considered by the Commission and will be 
available for inspection and copying at its principal office in 
accordance with Sec.  4.9(b)(6)(ii) of the Commission's rules of 
practice, 16 CFR 4.9(b)(6)(ii).

1. Description of the Collection of Information and Proposed Use

    The FTC proposes to conduct this study in two phases: (1) A 
qualitative research phase; and (2) a quantitative research phase. The 
qualitative research phase will include focus groups and in-depth 
interviews. The quantitative research will include copy tests of 
current and alternative disclosures. Results from the first phase will 
be used to refine the design of the second phase.
    The project will begin with 2 focus groups. Each group will include 
8-10 consumers who completed a mortgage transaction within the previous 
year. One group will be comprised of subprime borrowers. The second 
group will be comprised of prime borrowers. The purpose of the focus 
groups is to examine how well consumers understand mortgage terms, how 
consumers shop for mortgages, if consumers recognize features of a 
mortgage offer that may significantly increase the cost of the loan, 
and whether consumers use and understand required disclosures. Subprime 
and prime borrowers will be examined separately to examine possible 
differences between these groups of consumers.
    The focus group research will be followed by a series of 
approximately 36 individual, in-depth interviews with a different group 
of borrowers. Respondents will have completed a mortgage transaction 
within the previous two months and will be asked to bring their loan 
documents to the interview. The purpose of the interviews is to gain 
in-depth knowledge of the extent to which consumers use, search for, 
and understand mortgage information--including information about their 
own recent loans.
    The last phase of the study will consist of copy test interviews of 
800 consumers who entered into a mortgage transaction within the 
previous year. If possible, approximately half of the respondents will 
be subprime borrowers and half will be prime borrowers. The purpose of 
the copy tests will be to examine whether alternative disclosures can 
improve consumer understanding of mortgage terms and help to reduce 
potential deception about mortgage offers. The findings from the focus 
groups and interviews will be used in developing the alternative 
disclosures used in the copy tests.
    All information will be collected on a voluntary basis and 
consumers will receive usual and customary compensation for their 
participation. For the qualitative research the FTC has contracted with 
a consumer research firm to locate eligible borrowers, recruit 
respondents, moderate the focus groups, conduct the interviews, and 
write a report of the findings. For the quantitative research the FTC 
has also contracted with a consumer research firm to locate eligible 
borrowers and recruit respondents as well as to conduct the copy tests 
and write a brief methodological report. The results will assist the 
FTC in determining how required disclosures and other information 
affects consumers' ability to understand the cost and features of 
mortgages. This understanding will further the FTC's mission of 
protecting consumers and competition in this important market.

2. Estimated Hours Burden

Qualitative Research

    The contractor will recruit 12 consumers for each focus group, with 
the expectation that each group will be comprised of 8-10 participants. 
Participation by each focus group will require approximately two hours. 
Thus, the focus group research will impose a burden of up to 40 hours 
(2 groups x 10 participants per group x 2 hours per participant). 
Approximately 36 one-hour long, in-depth interviews will also be 
conducted. If all respondents are single decision makers, this would 
total 36 hours. However, some of the interviews may include couples.

[[Page 47568]]

Assuming that half of the interviews include couples (the upper bound 
offered by the contractor), the cumulative hours burden for the in-
depth interviews would increase to 54 hours ((18 x 2 hours) + (18 x 1 
hour)). Thus, the overall burden for the qualitative research will 
range from 76 hours to 94 hours.

Quantitative Research

    Approximately 800 consumers who engaged in a mortgage transaction 
during the prior year will participate in the quantitative phase of the 
research. Each copy test interview will be roughly 20-30 minutes long. 
The estimated hours burden for the quantitative research ranges from 
267 hours (800 respondents x \1/3\ hour per respondent) to 400 hours 
(800 respondents x \1/2\ hour per respondent).

Total

    The total estimated hours burden for both phases of the study 
ranges from 343 hours (76 hours + 267 hours) to 494 hours (94 hours + 
400 hours).

3. Estimated Cost Burden

    Participation is voluntary and will not require start-up, capital, 
or labor expenditures by respondents. Participants will be compensated 
financially for their participation, as recommended and budgeted for by 
the contractor.\2\
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    \2\ The contractor has budgeted for incentives to compensate 
recent mortgage customers for their participation in the study. 
Individual focus group participants will each receive $75. 
Individuals who participate in the in-depth interviews will receive 
$100, and couples who complete the in-depth interviews will receive 
$150. Participants in the quantitative phase of the study will 
receive a modest honorarium as budgeted for by the contractor.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 03-20373 Filed 8-8-03; 8:45 am]
BILLING CODE 6750-01-P