Education, counseling and other information-gathering preparations prior to navigating the mortgage maze and the home buying ordeal can save you thousands of dollars.

Instead, widespread ignorance about financial matters from credit scores to yield spread premiums are costing consumers a mint, according to law makers and consumer groups who testified recently during a two-day financial illiteracy hearing conducted by the U.S. Senate Committee On Banking, Housing and Urban Affairs.

And predatory institutions don't hesitate to prey upon vulnerable consumers who don't know any better.

The two-day hearing was rife with examples of how consumers lose money on mortgages, home buying and other financial endeavours simply because they haven't been schooled in sound financial principles, and the tricks of the trade.

Experts who didn't attend the hearings also offered examples of how consumers can spend more than is necessary on mortgage and home buying costs.

"Buyers need to be aware of a tactic that lenders are starting to use to increase profits. Lenders will increase your costs if you can get them paid for," said Las Vegas-based Jeff Treganowan, who along with his wife Susan authored "The Ultimate New-Home Buying Guide" (Maple Leaf Press, $15.95).

"Suppose you buy a new home and the builder is willing to pay 1 or 2 percent toward your closing costs as an incentive to buy. You think this is a great deal and you purchase the home. When it comes time to close on your home you notice that the loan charges that were stated on your original truth and lending statement are higher now that you are at closing. You ask why and your loan officer explains that the truth and lending statement is only an esitmate and these (charges on the settlement sheet) are your actual charges. The increase in charges can be very close to that extra 1 percent or 2 percent that you are recieving from your builder," Treganowan said.

"Buyers can refuse these extra costs or junk fees and demand that they be removed, but very few people understand that this option is available," he added.

Financial education's windfall

Hearing testimony, however, also revealed how a little education goes a long way toward overcoming slick lending tactics.

After one semester of personal finance instruction, including everything from borrowing money to estate planning, all of the senior year students at Washington, D.C.-based Woodrow Wilson High Shool's Academy of Finance passed the Americans for Consumer Education and Competition's (ACEC) 2001 Personal Financial Quiz, according to Susan Molinari, ACEC's national chairwoman.

"Whereas just 146 of the 801 seniors taking ACEC's 2001 personal financial quiz were able to achieve a passing grade, all of Wilson's12th graders passed," she testified.

Likewise, a survey of teens who completed the National Endowment for Financial Education's (NEFE) High School Financial Planning Program (HSFPP) found that 47 percent knew more about credit costs, 38 percent knew more about investments, 37 percent improved their skills for tracking spending, and 45 percent began saving to save or began saving more.

"Teachers can incorporate financial literacy curriculum into their applied math or economic courses simply by accessing the Internet," said Molinari.

ACEC has prepared a course, ACEC's Financial Lesson Plan, anyone can download from its Web site.

To help college students avoid the school of hard knocks, the state of California last year enacted a law designed to institute on-campus credit card lessons before students get into financial trouble.

Effective Jan. 1 "The Student Financial Responsibility Act" provides guidelines to help the Golden State's colleges and universities rein in on-campus credit card marketing campaigns. Authored as AB 521 by Assemblyman Paul Koretz (D-West Hollywood), the new law has several key provisions, including credit card and debt education and counseling sessions as a regular part of campus orientation of new students.

Adult home owners who have even more to lose also benefit from financial counseling.

Home owners who receive counseling have an average 19 percent lower 90-day delinquency rate, than those who don't receive counseling according to a Freddie Mac study, "A Little Knowledge Is a Good Thing: Empirical Evidence of the Effectiveness of Pre-Purchase Homeownership Counseling".

Mortgage holders who get personal counseling have a 34 percent reduction in delinquency rates, while classroom counseling imparts a 26 percent reduction in delinquencies, Freddie Mac says.

Unfortunately, no matter how informed some buyers may be, they can still get caught in the mortgage maze.

"Most of my first time homebuyers shop the banks and mortgage companies for rates. I am always shocked when I get the HUD statements, when I see at the origination fees charged by the institution with the lowest interest rates," said Dane Hahn, broker-owner of Exit 11 Real Estate in Stratham, NH.

"Maybe the administration and the Senators who want to protect the public with more regulations should simply suggest, there is no free lunch. If it seems too good to be true, it probably is," said Hahn.

See Part I: Financial Illiteracy Triggers Senate Hearing

Published: February 20, 2002

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Broderick Perkins parlayed a career in old-school journalism into a contemporary digital news service that really hits home. The award-winning consumer journalist, originally from Wilmington, DE, is founder, publisher and executive editor of the bootstrap DeadlineNews Group, a Silicon Valley-based editorial content and consulting service specializing in residential real estate, consumer news and related editorial consulting services. The DeadlineNews Group includes the website, DeadlineNews.com, offering real estate editorial content and consulting services, and its back shop, the Deadline Newsroom, an open house on news that really hits home. Perkins obtained his formal journalism education from University of Delaware and a journalism boot camp, the Institute of Journalism Education at the University of California-Berkeley. He went on to 20 years of service as a daily newspaper journalist at the Wilmington, DE News Journal and San Jose, CA Mercury News. Perkins covered housing on the San Jose Mercury News reporting team which earned a General News Reporting Pulitzer Prize in 1989 for coverage of the Loma Prieta earthquake. He has also produced real estate, consumer and small business content for the Wall Street Journal, Los Angeles Times, RealtyTimes.com, Nolo.com, Better Homes and Gardens, the National Association of Realtors, Homestore/Move and Intuit/Quicken among more than three dozen publications. In addition to managing the DeadlineNews Group, Perkins most recently served as chief editorial consultant for Nolo's Essential Guide To Buying Your First Home, Nolo, and writes real estate television scripts for RealtyTimes.com.