A more financially literate consumer base might have helped lessen the blow of the subprime mortgage crisis, helping consumers understand the loans they were getting as well as helping them better understand the loss mitigation options available to them, according to remarks delivered Wednesday by Treasury Undersecretary Robert Steel. Speaking to the President’s Advisory Council on Financial Literacy, Steel said that financial innovation outstripped the understanding of the basic consumer, even while it helped push homeownership to new highs. “There are more financial products available now than ever, but these products have become more complex and challenging for all of us to understand,” Steel said. “And as consumers, we need to know more than our parents or grandparents did, if we are going to employ these financial products successfully.” Steel said that subprime borrowers, in particular, have found financial literacy hard to come by. “For the underserved, who by definition are not using many mainstream financial services, the barriers to understanding complex financial products are high,” he said. “Many lenders do not clearly explain the terms of their complex loans and borrowers have infrequent or no experience with these products.” Steel suggested that a “lack of financial education” is driving many subprime consumers to fail to reach out to their lender when facing trouble with their mortgage payment, and to instead blame the servicer for any problems they might face. “We can see the true value of financial education by observing what happens when it is absent, he said, noting that “too many Americans either chose or were put into mortgages that were not appropriate for their financial positions.” A joint study by Freddie Mac and Roper Public Relations, released in late January, found that a lack of contact between borrowers and servicers was one of the key reasons that kept troubled borrowers for obtaining available help. Fifty-seven percent of the nation’s late-paying borrowers indicated in the study that they didn’t know that their lenders may offer alternatives to help them avoid foreclosure. “A more financially literate consumer base – across all income levels and in prime and subprime markets alike – could have mitigated at least some of our current housing difficulties,” Steel suggested.

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