The Chicago Tribune
By: Mary Ellen Podmolik
April 28, 2013
Sitting down in front of a pile of mortgage loan documents to sign at the closing, with a lending officer and maybe a real estate agent at your side, what do you look at first?
The eye typically latches on to the simplest things to read, namely the boxed information in the loan documents that confirms the basics like the amount to be borrowed and the loan's interest rate.
That may be human nature, but the easy-to-digest information that a homebuyer's eyes gravitate toward is exactly why more counseling and care need to be taken in the loan process, to make sure buyers don't venture into homeownership with their eyes half-closed, concludes new research by three local academics.
Eye-tracking technology has been used for various psychological experiments for many years, but never has it been used in relation to how people read government forms, according to Jessica Choplin, an associate professor of experimental psychology at DePaul University.
"We were thinking through these issues and trying to understand what was happening when the mortgage crisis hit, particularly the ability of mortgage lenders and brokers to mislead people," she said.
Choplin, along with Debra Pogrund Stark, a law professor at John Marshall Law School, and DePaul graduate student Mark LeBoeuf, conducted three eye-tracking experiments on 50 people to see if the various changes made to the government-mandated home loan disclosure forms made it easier for people to understand and retain critical information.
Their research found that the forms introduced in 2010 were generally better than the 2008 versions, so long as consumers are given the chance to read and digest what they're reading. Their findings showed that people are much less likely to recall the initial interest rate, the maximum interest rate and the maximum monthly payment if they are distracted.
In academic language, it's called dual-tasking.
"The problem is if people are talking over it," Choplin explained. "We believe mortgage brokers are initiating (the conversation)."
But even with silence and better forms, consumers still aren't protected from potentially predatory lending, the researchers concluded.
That's because they found that while better disclosure forms might alert consumers to changing interest rates and payment terms, none of the people in their study commented on how an adjustable-rate mortgage might affect the loan's future affordability.
Based on the results of their research, the three are calling for borrowers to be required to take a government-developed financial literacy test to determine whether they really understand real estate and financial terms and can adequately judge if a proposed loan is right for them, regardless of the type of loan, the size of the loan and whether they're a first-time or repeat homebuyer.
Those who fail the test would have to undergo mortgage counseling by a government-approved housing counselor, a step now only mandated for certain buyers and certain loans.
In addition, the researchers propose that the Consumer Financial Protection Bureau expand the role of counselors from education to also advising a consumer on whether the proposed loan is the best the borrower could receive. Counselors could also possibly help borrowers shop for a better loan, they suggested.