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Feditorial: What We're Learning from the Subprime Mortgage Crisis


Robert J. Schenk
Tuesday, July 1, 2008

Few public policy issues have burst onto the American scene so rapidly and with such intensity as the subprime mortgage crisis. Over the past several months, we have seen an ever expanding quagmire of those caught up by such causal factors as poor underwriting standards, inaccurate financial information, over-speculation in a very hot real estate market or simply people assuming new financial obligations for which they were not adequately prepared.

In addition to the widespread media coverage, there has been an unprecedented response by a wide variety of federal, state and local agencies, as well as innumerable social service and nonprofit organizations. Yet, we continue to hear and see advertising and marketing campaigns striving to lure prospective homeowners with teaser rates, promises of 100 percent financing or pledges to overlook poor credit.

While the dream of homeownership is one of the strongest threads in the fabric of American society, the latest tear reflects a crisis beyond the current issues in the mortgage and credit markets. What is apparent is the continuing lack of financial education at all levels of society and of efforts to address issues related to household finances and personal financial literacy.

However, the Federal Reserve System is helping homeowners, prospective buyers, bankers, community groups and related organizations get a better handle on understanding the myriad issues of subprime and foreclosure.

In the Eighth District, we're providing more information and knowledge about these issues to bankers, lenders and consumers through a variety of briefings, speeches and Bank publications. In St. Louis, we partnered with a local agency to convene nearly 60 different organizations working together to share resources and knowledge. We have dozens of additional public forums scheduled in the coming months to address mortgage issues.

We also have a Foreclosure Resources web site, which includes a section dedicated to financial institutions and lenders. It contains some of our latest mortgage and foreclosure research; several years' worth of articles from our publications, including Central Banker; news on pending regulations, forums and tools; as well as links for consumers and community groups. Zone-specific information is also available for Louisville and Little Rock. (Memphis will be added soon.)

Over the coming months and years, the St. Louis Fed will continue to muster resources to provide leadership on subprime and foreclosure issues (as well as on a wide variety of other District and national issues) and to foster financial literacy and economic education as the underpinnings of our community outreach.