As noted last week, borrowers often make costly transactional mistakes because they know less than the loan providers they deal with, who are motivated to exploit their information advantage. A borrower who pays 5 percent -- when she could have gotten 4.875 percent if she had known what her loan provider knew -- has made a transactional mistake. Borrowers make lifestyle mistakes for the same reason, and also because lifestyle decisions are often complicated and borrowers tend to overweight short-term benefits and underweight long-term costs. A borrower who refinances to reduce her payment at the cost of owing substantially more after five years may have made a very costly lifestyle mistake. Lenders have no financial incentive to reduce borrower mistakes, and government efforts have been largely ineffective. This article will describe a private-sector initiative using a system based on advanced Internet technology that can eliminate the causes of borrower mistakes. I will ca...
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