OAKLAND, Calif. — Bush administration officials visited a hotbed of foreclosure activity Thursday to make a case that one solution to the problems plaguing mortgage lending and housing markets is better education of borrowers.
Given that Oakland, Calif., has one of the highest foreclosure rates in the nation, you might think Treasury Secretary Henry Paulson and Treasurer Anna Escobedo Cabral would get a chilly reception trying to pitch financial literacy as a solution for the city’s woes.
While some said the government must do more to prevent foreclosures, the Treasury Department officials got a friendly reception from a banking industry crowd as they took to the stage for a "Financial Literacy Town Hall Meeting" in Oakland’s working-class Fruitvale District.
Paulson and Cabral were joined on a temporary stage erected for the benefit of nearly a dozen TV cameras by John Hope Bryant, the vice chairman of President Bush’s newly created Advisory Council on Financial Literacy, Charles Schwab Corp. founder "Chuck" Schwab, and BancWest Corp. Chief Executive Officer Don McGrath.
Joining the titans of finance on stage was Oakland Mayor Ron Dellums, whose presence at the event — which took place in a tent behind a Bank of the West branch office — provided credibility that might otherwise have been lacking.
Bryant and Cabral evoked their less-than-privileged childhoods — Bryant grew up in Compton and South Central Los Angeles, and Cabral’s family worked the fields in California’s Santa Clara Valley — to make a pitch for financial literacy programs.
Bryant said his father, a talented entrepreneur, was lured into a bad mortgage by the promise of low monthly payments. "My dad asked the wrong question — what was the payment, instead of the interest rate" on the loan, Bryant remembered. "He signed some documents he didn’t understand, and we lost our home."
Paulson said predatory lending practices and complex loan disclosures written by lawyers "trying to cover their behinds" rather than inform consumers helped create the current climate of defaults and foreclosures. He said the government will prosecute wrongdoers, and alluded to a forthcoming proposal by the Department of Housing and Urban Development to simplify mortgage disclosures through revisions to the Real Estate Settlement Procedures Act (RESPA).
Cabral recalled that whenever her father lost his job, he’d be afraid to check his mailbox or answer the phone because he didn’t want to confront bill collectors. She said more than half of families that lose their homes to foreclosure never contact their loan servicer, and urged troubled borrowers to call the hotline established by the HOPE NOW coalition of loan servicers, 1-888-995-4673.
"The bank doesn’t want your home," Cabral said, "They want to make money off the loan."
In addition to serving on the Bush administration’s Council on Financial Literacy, Bryant heads Operation Hope Inc. (not to be confused with HOPE NOW). Bryant founded Operation Hope after the 1992 Los Angeles riots as a "nonprofit social investment banking organization." Its programs today include teaching financial literacy to youth and adults.
The crisis in mortgage lending is not confined to poor and minority borrowers, Bryant said — it’s hitting the middle class, and financially illiterate borrowers regardless of income.
Financial literacy, Bryant said, is about more than getting borrowers into smart mortgages. It’s about opening a bank account to avoid check-cashing fees, cleaning up your credit to get better loan terms, and investing for the future. Operation HOPE has offices in 51 cities and claims to have educated more than 275,000 youths and 43,000 adults on the basics of credit, finance and investing.
Bank of the West has been involved in Operation HOPE Inc. for about eight years. McGrath serves on the organization’s board of directors, and the bank’s staff members have volunteered more than 485 hours educating students. An Operation HOPE financial counseling center at the bank’s Fruitvale branch is one the latest results of the collaboration.
Schwab was on stage to promote the President’s Advisory Council on Financial Literacy, which was launched in January to — surprise — promote financial literacy.
There was also talk of another financial literacy initiative, this one a volunteer network being organized by the USA Freedom Corps. The USA Freedom Financial Literacy Volunteer Initiative is looking for volunteers to share their expertise in financial services with homeowners seeking guidance. The initiative is also intended to help subprime borrowers access resources to refinance their home and avoid foreclosure.
When all was said and done, the event provided the Bush administration — and the banking and finance industry — an opportunity to parachute into a liberal stronghold hard hit by the housing downturn, and make a case that they are not out of touch with the situation.
Dellums touted a $1 million bridge loan program funded by a nonprofit foundation associated with OneCalifornia Bank. Oakland’s mayor suggested to Paulson that the federal government provide another $20 million to $30 million for that effort and create a national bridge loan program.
The OneCalifornia Home Loan Fund is a revolving fund used to encourage lenders to write down loan principal or reduce interest-rate adjustments by providing borrowers with up to $50,000 in additional equity through low- or no-interest second mortgages or other means.
During a brief question-and-answer session, San Francisco-based real estate broker Heidi Mueller challenged the idea that financial literacy (and calls to HOPE NOW loan servicers) will help stem the tide of delinquencies and foreclosures.
Mueller told Paulson that she "is in the trenches every day talking to people losing their houses." It’s too late for financial literacy programs to help them, she said. Despite all the talk about the willingness of lenders to work out solutions other than foreclosures, "In real life, they are not talking," Mueller said.
Regina Davis, chief executive officer of the San Francisco Housing Development Corp., told Paulson that resources at the nonprofit’s housing counseling center are "stressed to the max."
While many laid-off mortgage industry workers looking for work would make qualified housing counselors, Davis said she would need more funding to hire them.
Paulson acknowledged that many troubled borrowers won’t qualify for workouts and will end up losing their homes. But he made no promises to Dellums or Davis about providing more resources.
Paulson has made it clear in recent speeches that he is opposed to proposals by some Democrats that the government step in to buy mortgages at a discount from lenders. Paulson has said reductions in short-term interest rates have reduced the payment shock of interest-rate resets for ARM borrowers, and that loan servicers are doing a better job of engaging in workouts with troubled borrowers.
Federal Reserve Chairman Ben Bernanke, however, has argued that because falling home prices have left so many homeowners with little or no equity in their homes, in some cases lenders must start forgiving principal on loans and that the government could create programs that encourage them to do so.
After the meeting, Mueller said she is currently attempting to negotiate about 15 short sales, and reiterated her concern that officials are "not addressing what’s going on" with foreclosures.
Financial illiteracy may have put some borrowers in the predicament they are in now, Mueller said, and financial literacy programs may help some first-time home buyers take advantage of opportunities that are emerging now that prices are falling.
But Mueller said that from where she sits, the only thing that will stem the tide of foreclosures is for lenders "to let people out of their loans. Let them do short sales."
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