Financial Literacy Roundtable


Thank you for inviting me. And thank you for the work you do. It is so important to Americans.

I was at the Small Business Administration (SBA) before coming to Housing and Urban Development (HUD). There we provided training and counseling services to over one million people a year.

It is easy for those of us who have grown up in the financial world to speak the language of money and transactions. But for all of us who are privileged to be fluent in that language, it only takes a couple of conversations with those who are not to understand how disabling that lack of fluency can be, and how utterly helpless people are in making basic, but significant, life decisions in the absence of that fluency.

Like many of you, I have had my own experiences with family relations confronting retirement, or the death of a spouse, or wanting to purchase a home.

With a basic conceptual foundation - financial literacy - people find themselves empowered, stepping out of a place of frustration to a place where they can make decisions that put them on a sure footing.

And because it is empowering, it is appropriate to discuss financial literacy here, at this forum, because we are giving people the tools of life management for better choices.

And, it is appropriate to talk about linkages with faith-based efforts. In my view, empowering people through financial literacy is doing God's work and is a valuable public service.

There is no better example of the potential cumulative impact of poor financial judgment on people's lives than the housing and mortgage crisis we face today.

In my new job, I have parachuted into a turbulent situation, a whirlwind, with hundreds of thousands of people moving toward foreclosure, large credit write-offs by major financial institutions, exacerbated housing problems for builders and sellers, and other problems that may take another year or more to get through. Congress is now discussing whether or not the federal government should be more involved in the housing market, whether FHA should be enlarged, and whether or not there should be some form of financial assistance to the housing industry.
I have said that we are at a decisive moment in our economic history. The problems we face are enormous, with powerful and long-term national and international implications.

But at the root of all of this was the decision by an individual to buy a new home or refinance a home with a mortgage that they couldn't afford. This was a poor choice, multiplied by hundreds of thousands of people making such a choice, putting them on a path to financial crisis, even financial ruin.

That decision may have involved deceptive lending practices. It may have involved people speculating on price appreciation. It may have involved irresponsible behavior.

But in many cases, people just did not know what they were getting into and didn't have the foundation to make informed decisions.

And sadly, in many cases, there was no point of accountability beyond the borrower. And you see the absence of financial literacy play itself out.

Builders were pushing out inventory.

Originators were making loans to people to get them into homes they couldn't afford.

Originators were selling homes to investors who didn't understand what they were getting.

Some people just cannot afford to own the house they are in. Others, speculators, didn't want to.

Many people in foreclosure had the right house and the wrong mortgage. And they would have known it was the wrong mortgage if they had read the fine print. One estimate is that half of the people in foreclosure did not read their contracts before signing. Others were confused by the lack of simplicity and transparency. They didn't understand the hidden resets, the periodic balloon payments, and the harsh penalties.

Borrowers need to wise up. About half of those in trouble don't even pick up a phone and call their mortgage lender.

And we know it doesn't have to be this way. An analysis of Federal Housing Administration (FHA) borrowers found that FHA families with the lower incomes have higher FICO scores. These are hard-working American families who live within their means and pay their bills. These are people who know how to live on a budget and within their means. It can be done.

Well, we are here because we know that financial illiteracy is solvable and preventable.

In the housing market we can incorporate financial literacy training to some degree in the buying and financing decision. One simple and common sense answer is to get housing counseling pre-mortgage, before buying a home. We know that housing counseling works. People need help to understand their mortgages and the terms of the contract.

Clear information is power. It equals fiscal prevention and fiscal prudence. For example, we know that about 97 percent of those who completed our housing counseling program with a HUD-approved housing counselor avoided foreclosure in 2007. That is powerful evidence about the difference that housing counseling can make.

So the President has requested $65 million in his new budget for housing counseling. That is an increase of more than 150 percent since he assumed office. Housing counselors help prevent problems. They help the homeowner gain a better perspective about affordability and balanced expectations. Prospective homeowners must have a prudent mortgage, not a "suicide loan."

Clarity is also essential once the contract is offered. That is why the Administration is also taking steps to help homeowners understand the fine print when they agree on the mortgage and sign on the dotted line. We must make mortgage "language" understandable and simple. Recently, HUD announced new regulations which will bring much needed transparency and simplicity to the home-buying process for the 12.5 million Americans who buy or refinance a home every year. These regulations are an important step forward in changing the climate of the home buying process.

We are also working to modernize FHA and reform our Government Sponsored Enterprises (GSEs). This will allow them to respond to an ever changing marketplace. FHA will be competitive with other lenders. GSE's will have the kind of oversight demanded by their position in our capital markets and their critical importance to American homeowners.

And at HUD we are working to partner with faith-based organizations around the country to help prospective homeowners.

I know that Treasurer Anna Cabral outlined many of the federal efforts. Her leadership has been invaluable.

Our work extends well beyond current circumstances. We set the foundation for future stability in our financial and housing markets. We help with wealth creation and financial security in the future.

All of us gathered here today are committed to improving the financial literacy of Americans. It is a formidable task. But this is a formidable coalition, a powerful partnership. And I believe we can help Americans make the necessary changes in attitudes and behavior to make the complex understandable, to make the vague transparent. Together, working in harmony, we can rapidly elevate the financial literacy of our friends and neighbors, helping better protect them from financial misfortune.

Thank you for inviting me here today. I look forward to our work together.


Content Archived: January 25, 2012