Fed official: More help needed for borrowers
An influential member of the Federal Reserve called for more financial education to help low-income mortgage borrowers Monday.
In a speech given at the National Interagency Community Reinvestment Conference in San Francisco, Janet Yellen, the president of the Federal Reserve Bank of San Francisco, said the mortgage crisis could hit lower income and minority communities the hardest.
"The foreclosure crisis is likely to have a profound impact on the communities you work in, with effects that go well beyond the housing sector," she said. A rise in foreclosures could drive down property values and increase crime, as well as draining local government revenues, she added.
The government needs to help low-income borrowers - "particularly those that may not have extensive financial knowledge - make better and more informed credit choices," she said.
Yellen also stated that Fed officials have begun to see an increase in foreclosures for borrowers with subprime fixed-rate mortgages and prime adjustable rate mortgages.
Poor underwriting standards and abusive lending have contributed to the problem, she said, mirroring a statement made by Federal Reserve president Ben Bernanke on March 14 payday loans application. She also said that shady lending practices have played a much greater role in fueling the crisis than loans with artificially low introductory rates.
Yellen praised the efforts of the HOPE NOW Alliance and the Mortgage Relief Fund, two programs designed to bring together regulators, banks and lenders to help prevent foreclosures.
Over the past several weeks, Congress has been debating measures designed to prevent a mass of foreclosures. And Treasury Secretary Henry Paulson presented a sweeping multi-year plan on Monday to overhaul the U.S. financial system, which included creating a federal regulator for the mortgage industry.
The Fed has already taken several steps to try and restore order to the housing and credit markets. The central bank has cut interest rates several times since last September and has been loaning money to banks through a series of new auctions.
And Yellen hinted that the Fed is not done either. She said she and her colleagues are "committed to acting in a timely manner to address new developments" as the Fed continues to monitor the impact of the credit crunch on the economy and financial markets.
Filed under: news by Wolf