The Federal Reserve Board released data Wednesday showing that consumers rely heavily on the annual percentage rate when choosing a mortgage, even though few understand the figure.

Ninety-two percent of consumers said they use the APR to comparison shop, ranking it third behind the interest rate and whether the rate is fixed or variable.

Yet only 11% knew that a simple interest rate is lower than the APR. More than half thought the two terms were identical, and one-third thought the simple rate would be higher.

The data, unveiled Wednesday at a Fed forum on reforming the mortgage disclosures laws, was seized upon by lenders to support their call to drop or simplify the APR as part of an overhaul of the Truth-in-Lending and Real Estate Settlement Procedures acts.

"The survey results support our position that the APR needs to be looked at and possibly eliminated," said Nessa Feddis, senior federal counsel at American Bankers Association. "If most people are using it but not understanding it, then we have big problems."

"This is what we expected all along," said Karen Bennett, vice president at Bank of America. "Consumers just don't understand the APR."

Consumer advocates urged policymakers not to overreact to the data.

"It raises more questions than it answers," said Jean Constantine-Davis, a lawyer for the American Association of Retired People. "These kind of results are important to look at but are not conclusive."

Federal Reserve Board Governor Laurence H. Meyer, who chaired the meeting Wednesday, said he is concerned that so few people grasp the APR. "If consumers don't understand it, then it loses its value," he said.

Mr. Meyer said the percentage of consumers who comparison-shop using the APR may be inflated.

"Everyone is embarrassed to say they don't understand the APR, because they know they are supposed to use it," he said.

The data, culled from the 1997 Survey of Consumers and the 1995 Survey of Consumer Finance, also showed that:

Seventy-eight percent of consumers shop for credit, contacting roughly four lenders and comparing seven terms.

When asked to identify which set of items are most important when shopping, nearly one-third chose interest rates and up-front costs, while 10% picked the interest rate and the monthly payment.

Consumers overwhelmingly rely on lenders for loan information, with 76% getting data from banks, 48% from mortgage companies, and 17% from ads placed by financial institutions.

By far, consumers prefer to have fees expressed as dollar amounts rather than as percentage rates.

The Fed will hold a second forum Aug. 8 to discuss the data in depth. The sessions are part of a joint project by the Fed and the Department of Housing and Urban Development to draft streamlined mortgage disclosure laws by yearend.

At this forum, lenders, real estate agents, and consumer advocates all expressed support for overhauling the laws. Bankers generally favored replacing the APR with a requirement that lenders disclose the interest rate and an itemized list of fees.

"The survey shows people want a simple disclosure and not a mathematical figure," said Earl Jarolimek, vice president for corporate compliance at Community First Bancshares, Fargo, N.D.

Consumer advocates repeated their call for a suitability requirement, saying lenders should not extend credit to consumers who cannot afford to repay.

But both sides favored cutting back the disclosures required early in the lending process.

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