A Borrower’s Math Skills Affect Chances Of A Forecosure
Borrowers with poor math skills made up a higher percentage of homeowners in foreclosure during the housing bust than those who were skilled at arithmetic.
According to a study released Monday, math-challenged borrowers were five times more likely to default on their loans.
“Whether you’re good with numbers predicts how likely you are to default,” said Stephan Meier, an associate professor of business at Columbia Business School, who authored the report along with economists from the Federal Reserve of Atlanta and the University of Lausanne.
The study examined several hundred borrowers who held mortgages issued in 2006 and 2007 — right before the mortgage meltdown. Of the study subjects, 25% of the borrowers who scored in the lowest bracket for math skills had defaulted on mortgage payments within five years of getting the loans. Meanwhile, only 5% of those in the top tier for math skills defaulted.
Related: Homebuyers clueless about mortgages
The survey sample included homebuyers from a variety of backgrounds, from blue collar workers to corporate professionals. Their math ability covered the gamut — from those with very limited abilities to a mathematician with a six-figure salary, according to Kristopher Gerardi, an economist with the Federal Reserve of Atlanta.
The researchers controlled for differences in overall intelligence by measuring for verbal and general IQs, as well as math skills, and controlled for socioeconomic factors, such as age, sex, income, ethnicity and local labor market conditions.
From CNN’s Bad At Math? You’re More Likely To Lose Your Home
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