March 06, 2008 07:09 ET

Mortgage Calculators May Play Role in Mortgage Foreclosures and Defaults, Says MIFSP

ATLANTA, GA--(Marketwire - March 6, 2008) - Defective rent versus buy mortgage calculators found in all fifty states overstate the tax benefits of the mortgage interest deduction by more than 300%, creating false consumer expectations of housing affordability and suitability that may have impacted mortgage defaults and foreclosures, according to an updated study first made available by the Mortgage Institute For Financial Services Professionals, Inc. ( during 2006. The study tested the accuracy of mortgage calculators made available to consumers as an online financial tool by state and federally chartered banks as well as those found on or through websites of Ginnie Mae, HUD, Freddie Mac and the U.S. Financial Literacy and Education Commission and others. "All Rent v. Buy calculators tested were defective and they were not limited to banks," says Leon Morris, RMP®, ChFC, CLU, Executive Director of MIFSP.

"By grossly miscalculating and overstating the tax benefits of the mortgage interest deduction, consumers may be misled into applying for and obtaining mortgages that aren't in their financial best interest. Some banks touted the benefit of the calculators in converting consumers into 'interested and motivated' mortgage applicants," says Morris.

The report entitled "The Red Report, When Banks Don't Compete" identifies hundreds of banks, reflecting testing of mortgage calculators found on or through websites of banks with the largest market share of deposits in the largest metropolitan areas from all fifty states. The report also identifies a key financial benefit of homeownership that Morris believes is overlooked in favor of the mortgage interest deduction even though it provides homeowners a benefit that's four times greater. "There's an institutionalized bias toward the mortgage interest deduction that draws consumers toward a mortgage under the guise of being tax-wise. Deficient mortgage calculators exploit that institutionalized bias, which not only costs consumers millions of dollars in mortgage transactions annually, but it could be the marginal difference that costs them their homes. If sub-prime loans are the means by which millions of people are losing their homes, it's faulty information like that found in these mortgage calculators that provides the motive. This study further highlights the difficulty consumers have in distinguishing between marketing communications and objective mortgage advice," says Morris.

About MIFSP: The Red Report is available at MIFSP provides research, education and consultation services to the mortgage and financial services industry and offers the only educational program in Mortgage Based™ Financial Planning. Leon Morris is the author of the consumer guide, "Managing Your Mortgage To Financial Independence."