Turbo Tax is adding the average balances together and applying the 750K limit: 750K / (408K + 720K) = 66.5% of your total interest is deductible. This is in accordance with the simplified method in Pub 936 and the only method Turbo Tax uses. However, it doesn't apply to you because the sum of your mortgages never exceeded 750K during the year (see the first paragraph under 'Table 1 Instructions' on page 10 of Pub 936).
Enter your 1098's without modification and continue on until you get to the 'Your deduction is being limited' screen. This is where you can enter your total interest paid.
