My first reaction to this was what a wacky thing to say. Is this what the American taxpayers subsidize, have they nothing else to do? Then I thought again. The complicated packages of American banks confuse the best of us. I gave up trying to reconcile my bank charges the other day… I decided to take a second look at this again.

Some time back in 2008, Columbia University Assistant Professor Stephan Meier woke up one morning and found himself wondering whether there was any relationship between ability do math and the likelihood of getting into trouble with a mortgage. The answer that he got was that they were twice as likely to.

The Professor and his assistants called 340 Americans in Massachusetts, Connecticut and Rhode Island who had signed for sub-prime loans during the previous two years. None were in any danger of foreclosure at that time. They were asked five questions, including please divide 300 by 2, and what is 10% of 1000? Approximately 16% of the respondents didn’t know the answers, and these tended to be spread all over the income and education ladders. I guess that proves that having your degree doesn’t mean you give the correct change? However that was not the main thrust behind the Professor’s questions.

When the researchers at the University followed up some time later, they discovered that, whereas just 7% of the most mathematically literate folk they spoke to had ended up in foreclosure, 21 % at the other end of the spectrum had followed suit.

This opened up an interesting line of reasoning for the Professor. Ought people with bad math ability to be turned away from loans? That’s like telling people with disabilities that life is tough. Maybe the banks should teach their customers basic math before they join the queue? I agree with the Professor that mortgages should not be taken lightly, especially when a bumpy road ahead may need recalculations … but, just as auto manufacturers fit airbags, should banks not also be required to provide financial seatbelts?

Needless to say, the Banks I spoke to claimed that they are doing this already. Some told me that the credit-record filter already detected those whose math had failed them. I wondered how this worked with first-time loans. Others claimed to do the math long-hand with clients, making sure they understood before approving loans. They weren’t sure whether this was also true a few years back.

I think the Professor has a point, although I’m less sure what to do with it. I’m inclined to think that social responsibility requires the mortgage industry to come up with a plan.

News feed by www.foreclosuredatabank.com – the foreclosure market place.

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