Mortgage Math Tests?

Who's got the math skills to get the mortgage?

Should you have to take a math test to qualify for a loan? Columbia University assistant business professor Stephan Meier thinks maybe you should, and he has the survey results to back up his question. According to a New York Times report on Meier’s survey, people with poor math skill are three times more likely to go into foreclosure.

Try these two problems to see how you stack up:

1. What is 300 divided by 2?
2. What is 10% of 1,000?

In 2008, Meier surveyed around 340 borrowers from Connecticut, Massachusetts and Rhode Island who had taken out subprime loans in 2006 or 2007. At that point, none of them were in foreclosure. 16% of them got one of those two questions wrong, and the answers were consistent across education and income levels.

21% of respondents with math abilities in the lowest quarter of the survey have gone into foreclosure. Only 7% in the top quarter have. So what does Meier think? “Maybe start adding math tests to the process, and screen them away,” he says. Unlikely. But it does imply that basic math may have something to do with handling your finances.

“There are a lot of financial decisions you have to make as a homeowner, but some of the more difficult decisions have to do with how to rebudget if you’re hit by an income shock, which a lot of people had to do during the recession.” – Stephan Meier

While there are computers that work out the math when figuring projections on a mortgage, there is something to be said for basic budgeting, and for knowing that the survey answers are 1) 150 and 2) 100.

Eileen Anderson, a senior vice president of the Community Development Corporation of Long Island, a nonprofit housing organization that counsels borrowers who are struggling through foreclosure-avoidance, says that no one is exempt.

As Anderson says, “People say they’re doctors, so they don’t really need it. So what? We see doctors who took out loans they didn’t understand, and who are in foreclosure now.”

Photo Credit: Sarunas B.

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