Mortgage customers don't know what they're doing
- 25% could not identify the APR on their mortgages.
- 25% didn't know how much they spent on settlement charges.
- 50% didn't even know much the loan was for.
- Two-thirds were unaware of any prepayment penalties.
- 75% did not recognize that the loans included charges for optional credit insurance.
This is the equivalent of assessing a second grader's competence in math by handing him a sheet of math problems with answers and asking him to sign that he understands. If he signs, he gets an A+!
One possible solution: to get a mortgage, borrowers should be handed a "quiz" with questions like "What is the APR on the loan?" and "Describe any pre-payment penalties." Then the borrower would have to rifle through documents -- and ask the lawyer -- to find the answers to those questions. If we did that, every home buyer would understand her mortgage.