Plain English in Home Equity Agreements
By George H. Hathaway
Home-equity agreements can be separated into the two types shown in Figure 1.
According to the 1997 Home-Equity Lending Survey Report of the American Bankers Association, "The typical HELOC/HEL borrower is a two-income family earning $30,000 to $70,000, is 35 to 49 years old, has 5 to 15 years' home ownership, has less than $50,000 on the first mortgage balance, is using funds to consolidate debt, and owns a home worth $50,000 to $175,000."
The main differences between a home-equity line of credit and a home-equity loan is that the line of credit is not given out all at once and has a variable interest rate. Right now, interest rates are down. So most people are taking out lines of credit.
Home-equity agreements are made by the four different types of financial institutions (lenders) shown in Figure 2.
Mortgage lenders are regulated and licensed by the Consumer Finance Division of the Office of Policy and Consumer Affairs of the Financial Institutions Bureau of the Michigan Department of Consumer & Industry Services, Town Center, 333 South Capitol, Suite A, Lansing, (517) 373-7279.
Number of Agreements
The 1975 Home Mortgage Disclosure Act (12 USC 2801 et seq.) requires lenders to report information about mortgage loans that they have made. Beginning in 1980 the Federal Financial Institutions Examinations Council compiled aggregate data for each metropolitan statistical area. This information is now available on the internet at www.ffiec.gov/hmda. The information about the numbers of home-equity agreements is referred to as "home improvement loans, 1 to 4 family homes."
Line of Credit Documents
About a dozen different documents are typically associated with a line-of-credit agreement. These documents are shown in Figure 4.
To increase user-friendliness and ease of handling, this package or set of documents should all be on standard letter-sized paper. But most are not. Furthermore, the two most important documents (the agreement and the mortgage) should be written in plain English-but most are not.
and Disclosure Statement
Standard Federal has an excellent set of home-equity agreement forms. All except one of the forms are written on standard letter-sized paper. Furthermore, most of the forms (including the main form-Equity-Line Agreement and Disclosure Statement) are written in plain English in a user-friendly format. An excerpt from this form is shown in Figure 5.
One of the goals of the State Bar of Michigan is public understanding of and respect for the legal profession. We can support this goal by promoting plain English in home-equity agreements. Lawyers can write home-equity agreements in a clear style (reasonably plain English and user-friendly format) with content that meets all substantive legal requirements. The lawyers at Standard Federal have done this. We now want to find as many home-equity documents as possible from other banks, savings and loans, private mortgage companies, and credit unions that are also written in plain English on standard letter-sized paper. We are especially interested in finding an equity-line mortgage that is written in plain English.
"Plain Language" is a regular feature of the Michigan Bar Journal, edited by Joseph Kimble for the State Bar's Plain English Committee. The assistant editor is George Hathaway, chair of the Committee. The Committee seeks to improve the clarity of legal writing and the public opinion of lawyers by eliminating legalese. Want to contribute a plain English article? Contact Prof. Kimble at Thomas Cooley Law School, P.O. Box 13038, Lansing, MI 48901. For information about the Plain English Committee, see our website. George Hathaway is a senior real estate attorney at the Detroit Edison Company and chair of the Plain English Committee of the State Bar of Michigan.