January 01 2008
Operation HOPE Founder, and U.S. Presidents Advisory Council on Financial Literacy Vice Chairman John Hope Bryant, Issues Public Statement Commending HUD Action to Simplify HUD Mortgage â€œGood Faith Estimateâ€?
Los Angeles—Novemeber 24, 2008 --- On May 28th, 2008, the President’s Council on Financial Literacy, Committee on the Under-Served, held its first ever meeting at the U.S. Department of the Treasury around financial literacy and “the future of responsible mortgage subprime lending.” The result of these substantive deliberations at Treasury, inclusive of a broad cross-section of senior leaders from the state and federal government, banking regulatory agencies, non-profit organizations, academics, foundations and private sector bankers and credit union executives, was a Committee-approved report which outlined several “make sense” recommendations.
As a direct outgrowth of this Treasury meeting, the U.S. Department of Housing & Urban Development held a series of financial literacy roundtable discussions in Washington, D.C. led by HUD Secretary Steve Preston. As a result, HUD has recently issued a more simplified version of its federal mortgage “Good Faith Estimate” form, integrating many of the financial literacy oriented recommendations made in both the May 28th, and HUD meetings. I commend Secretary Preston, and HUD, for taking this first step.
While intelligent individuals can disagree with respect to the overall streamlining and simplification of the RESPA (the 30-year old Real Estate Settlement Procedures Act), and while much more certainly needs to be done here, after personally meeting with Secretary Preston last week in Washington, D.C., I believe that this (“Good Faith Estimate”) is a good initial step in the right direction, particularly with regard to the future of financial literacy and credit product integration.
In preparing to issue this statement my staff shared with me many of the diverse views, and outright criticisms, of and around the ongoing proposed reform process dealing with RESPA. Frankly, many make good points and have legitimate concerns; from insuring that HUD and the Federal Reserve are on the same page around any substantive reform, to making sure that the highly charged issue of “yield spread premiums” for mortgage brokers (income that mortgage brokers charge in addition to their flat fee, that borrowers may or may not be aware of) is adequately addressed.
This said, there should be no real controversy around the newly proposed HUD “Good Faith Estimate,” as it is “directionally correct.” Frankly, one of the things the market needs now is clear, simple and decisive action, particularly as it relates to addressing previously unheard “main street” consumer concerns.
In commending Secretary Preston, I would also like to further encourage him and the agency, as well as the incoming Obama Administration, to continue to refine and streamline this and other aspects of RESPA. The American people have made it clear that they want, and frankly they need, common sense, consumer-facing financial and loan documents, printed in plain English.
Important to me and the more than one million individuals served by Operation HOPE over the years, in the 68 low-wealth communities across the nation, this is one important component, part of a larger, more systemic need, to simplify sophisticated statements and presumptions associated with the mortgage lending process; statements and presumptions that have tripped up a many seemingly smart and intelligent individual, from the working class to the middle class.
- The difference between the interest rate and monthly payment;
- Whether the interest rate and principal balance can increase and by how much
- Whether the loan has a prepayment penalty or balloon payment
Not understanding the difference between a “loan amount” and the “real interest rate” for a loan, is one of the main reasons why so many low-wealth and middle class borrowers ended up obtaining loans that were wholly inappropriate for them, and one of the reasons for the economic crisis today. Financial literacy is the central gateway to greatly enhanced consumer confidence in financial-decision making.
This action by HUD is also a step in the right direction with regard to one of the key recommendations by the President’s Council, Committee on the Under-Served, with regard to the “full integration of practical financial literacy (education) into the future, responsible mortgage lending process,” particularly with regard to less than prime loans. Of course, the ultimate goal of all less than prime lending, echoed in the “guiding principles” later issued by the full President’s Council, is to “graduate individuals from subprime or less than prime lending, to prime lending.”
As HUD moves to implement the revised HUD “Good Faith Estimate” federal form by FY2010, I would strongly encourage them to bring in and integrate HUD’s invaluable network of HUD approved housing counseling programs from around the nation, as they are in touch with real people, in need of real assistance during the mortgage process.
The report on the “Future of Responsible Subprime Lending,” issued by the Committee on the Under-Served, has been endorsed by financial institutions such as Wells Fargo, U S Bank ,and Banco Popular, with statements of support issued by the U.S. Office of the Comptroller of the Currency, the U.S. Office of Thrift Supervision, and the Housing Policy Council of the Financial Services Roundtable. Based on the work of the Committee, , the full President’s Council on Financial Literacy subsequently approved a set “guiding principles,” around responsible less than prime mortgage lending and financial literacy.
For a direct link to the Committee-approved report on “Responsible Subprime Lending,” you can download it at the U.S. Department of the Treasury website here.
For a direct link to the full President’s Council approved “Guiding Principles,” around mortgage lending and financial literacy, you can download it at the U.S. Department of the Treasury website here.
The U.S. President’s Advisory Council on Financial Literacy is a bi-partisan Presidential Council chartered to serve two sitting U.S. presidents until 2010. The executive order creating the Council, and mandating financial literacy as the official policy of the U.S. federal government, was signed by U.S. President George W. Bush on January 22nd, 2008. The Council will soon issue its first annual report to the President of the United States, the Secretary of the Treasury, the Presidential transition team, and thereafter the Obama Administration.
Bryant is also chairman of the President’s Council Committee on the Under-Served