The National Association of Mortgage Brokers is urging the creation of financial literacy programs beginning in middle school as one way to address the growing problem of predatory lending.
During a Wednesday hearing before the Federal Reserve Board, NAMB President Jim Nabors said that while new regulation and legislation is being considered at the state and federal level, the only way to truly eliminate predatory lending is to empower consumers with knowledge from a very young age.
“We have a fundamental choice to make here,” said Nabors. “We can continue to layer additional laws and regulations on the lending industry that will eventually drastically restrict loan options for consumers, or we give consumers the knowledge they need to make informed financial decisions.”
NAMB supports both adult and student financial literacy courses throughout the nation. Nabors said he realizes that this solution will seem too long-term to some, but he said the problem of predatory and abusive lending is a long-term issue that needs a long-term solution.
Nabors offered several short-term suggestions to help curb predatory lending. He said a federal licensing standard for all mortgage originators that requires pre-employment certification and continuing education would help weed out opportunistic loan originators.
He also said that criminal background checks for all originators would stop predatory brokers with a history of this type of activity from remaining in the market.
From a customer perspective, Nabors noted that uniform, consistent and meaningful disclosure of all the costs involved in a mortgage transaction is important in helping buyers shop for the best price and make informed decisions.
Buyers currently are given a good faith estimate document when they begin the loan process listing all of their likely costs and fees, but NAMB points out that the document that discloses these same costs at closing, called the HUD-1, is a different document. NAMB has been encouraging the U.S. Department of Housing and Urban Development to create a unified disclosure document to lessen consumer confusion.
Nabors emphasized that while these short-term steps may help reduce predatory lending cases, they are secondary to the association’s vision to help develop informed consumers.
“Since the time of barter and trade we have grappled with issues of how to increase fair and equal access to affordable credit,” said Nabors. “Laws have been passed, enforced and forgotten as we have turned to new and different laws. We must focus on a solution that will stick. That solution is financial literacy.”
Wednesday’s hearing was the first in a series on mortgage issues. The Federal Reserve Board of Governors is also sponsoring hearings on June 9 in Philadelphia, June 16 in San Francisco and July 11 in Atlanta.
NAMB is an industry trade group with more than 27,000 members.