The HOPE Financial Dignity Center held its grand
opening yesterday and hosted Federal Reserve Chairman Ben S. Bernanke as its
speaker. The Center, located next door
to Ebenezer Baptist Church in Atlanta, is designed to equip community members
with tools to manage finances and build lasting financial security through
programs such as a 10-week Kaplan University course on personal financial
The Fed Chairman's speech focused on the recent
history of housing, the fallout from the recent crisis and what government is
doing to move forward. He told the
audience that the burdens of a weak economy and the benefits of economic growth
are not always equally shared. To be
truly effective, policymakers must take into account how their decisions affect
the least advantaged, not just the economy as a whole.
The housing boom and bust was among the principal
causes of the financial crisis and the following recession, Bernanke said, and
continued weakness in the sector with low rates of construction and continuing
foreclosures has provided a powerful headwind to recovery. There are improvements in housing markets but
we are far from being out of the woods. Among continuing problems are construction
activity, home sales, and prices, 20 percent of mortgages underwater, and 7
percent seriously delinquent or in the process of foreclosure. Meanwhile, the national homeownership rate has
slipped nearly 4 percentage points from its 2004 high of 69 percent, and it now
stands at a 15-year low.
and minority communities have, as often happens, be disproportionately affected
by problems in the national economy, Bernanke said. "Indeed, as a result of the crisis, most or
all of the hard-won gains in homeownership made by low-income and minority
communities in the past 15 years or so have been reversed. For example, among
all income groups, between 2007 and 2010 homeownership
rates fell the most for households with income of $20,000 or less." "Over the period from 2004 to 2012, the
homeownership rate fell about 5 percentage points for African Americans,
compared with about 2 percentage points for other groups."
Homeownership rates fall when
homeowners lose or leave their properties or barriers to homeownership
increase; in recent years both have happened.
Foreclosures continue with lower-income and minority homeowners and
communities often the hardest hit.
Communities suffer with reduced tax bases and increased vandalism and
crime. Homeownership rates have also
declined because fewer households have chosen to been able to become
homeowners. Lending for first-lien
purchase mortgages fell by more than half from 2006 to 2011 to its lowest level
since 1995 with the contraction particularly severe for minority and
lower-income groups. Since the peak in
2006, the number of home-purchase loans extended to African Americans and
Hispanics has fallen more than 65 percent contrasted to a 50 percent decline in
lending to non-Hispanic whites. Home-purchase
originations in lower-income neighborhoods have fallen about 75 percent,
compared with around 50 percent for middle- and upper-income neighborhoods.
Some of the drop in originations is
due to a weakness in demand because of unemployment, income loss and concerns
about the future. The fall in home
prices keep many homeowners from using equity to move up or, if their mortgages
are underwater, from selling their homes. But, Bernanke said, tight credit remains
an important factor as well. Lenders
began tightening mortgage credit standards in 2007 and have not significantly
eased them since.
Lenders say they originate fewer
mortgages because of worries about the economy, the outlook for house prices
and existing real estate loan exposures. They also mention increases in servicing
costs, fear they will have to repurchase delinquent loans, difficulty obtaining
private mortgage insurance, and some program-specific issues for FHA loans. There are also indications that mortgage
originations for new purchases may be constrained by processing capacity
because of high levels of refinancing.
Importantly, Bernanke said, restrictive mortgage lending conditions do
not seem to be linked to any either lack of bank capital or to a general
unwillingness to lend.
While some tightening of credit
standards was an appropriate response to the housing crash, it seems likely at
this point that the pendulum has swung too far the other way, Bernanke said,
and that overly tight standards might be preventing creditworthy borrowers from
buying homes, thereby slowing the recovery in both housing the economy as a
Bernanke named a number of public
and private efforts that have been initiated to mitigate the housing crisis such
as programs to modify mortgages, refinance underwater mortgages, facilitate
short sales and reduce the impact of vacant foreclosed homes. Policymakers have
also taken steps to remove barriers to the flow of mortgage credit such as new
rules to lessen lenders concerns about mortgage repurchases and regulators have
worked with lenders to try to achieve an appropriate balance between reasonable
prudence and ensuring that qualified borrowers are not denied access to credit.
To strengthen the overall economic
recovery the Federal Reserve has sought to keep both short-term and longer-term
interest rates historically low and recently announced it would continue to put
downward pressure on longer-term interest rates until the outlook for the job
market improves substantially. The resulting
historically low mortgage rates are directly supporting the housing market by
putting homeownership within the reach of more people.
While the economic recovery and
regulatory policy affect access to credit for all households, Bernanke said some
potential borrowers may face the added burden of discrimination and two types
continue to have particular significance to mortgage markets: redlining, in
which mortgage lenders discriminate against minority neighborhoods, and pricing
discrimination where minorities are charged higher loan prices than comparable
nonminority borrowers. The Federal Reserve has been vigilant in identifying and
stopping such abuses, the Chairman said, and remains committed to vigorous
enforcement of the nation's fair lending laws.
Bernanke said that homeowners also have
a role to play in the larger housing picture.
Effective financial education--aimed at both youths and adults--can
provide people with the knowledge they need to become effective homeowners. "Some
of the skills that prospective homeowners need are relatively basic--for
example, knowing how to shop for the lowest interest rate and fees, understanding
the difference between a fixed-rate and an adjustable-rate mortgage, and, very
importantly, knowing how to find trustworthy information and advice. More
generally, the decision to buy a home must be consistent with a family's
longer-term objectives, needs, and resources. Good financial
planning--including effective budgeting, adequate saving, and sensible
investing--can help families maintain homeownership while also pursuing other
important objectives, such as preparing for retirement or financial emergencies.
And financially informed households will have a better chance to build wealth,
reducing--in the case of minority households--the large wealth gap that exists
between minorities and other groups." He
pointed to the role of HOPE and similar organizations in helping people gain
Acquiring basic information and
skills about managing their money is important, he said, but there is another
important advantage of financial education; an economy with financially
knowledgeable households is likely to be stronger, more equal, and more stable.
"As such, we all gain from efforts to increase financial literacy."
Still, it is not practical for
everyone to be a financial expert. Sometimes
it is appropriate for an individual to seek professional advice. "For example,
an individual may be involved in buying a home--a complex and intimidating
experience for many people--only once or twice in a lifetime. That's why advice
from a housing counselor at the right point in the process can make all the
difference." Nonprofit organizations can
help prospective homeowners assess their readiness to purchase, provide useful
information about how to search for a home, apply for financing, handle home
maintenance, and prevent delinquency. "We have also seen that counseling can
help consumers who are facing delinquency or default. Borrowers in trouble who
receive foreclosure counseling are relatively more likely to subsequently
become current on their mortgage, receive a loan modification, and, ultimately,
keep their home.
Financial preparedness is not just
for prospective homebuyers. It should be a lifelong undertaking, starting with
children and teenagers. "Organizations around the country--including Operation
HOPE--help people across a range of ages develop their skills. Despite, or
perhaps because of, the broader economic challenges we face, it now seems to be
a time of creativity and innovation in this field. We are seeing
experimentation, knowledge sharing, public-private collaborations, 'bottom up'
community-driven approaches, and state- and local-government efforts to promote
family financial security and opportunity."
After a long and difficult period,
Bernanke said, we are seeing welcome signs of improvement in the housing market
which will in turn aid the economic recovery while strengthening neighborhoods
and increasing the financial well-being of families. Our recovery must be broadly
felt to be complete, and families and communities that were already struggling
before the crisis must be included in that recovery. As Dr. King is widely
quoted to have said, "We may have all come on different ships, but we're
in the same boat now."