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In Forum, Bernanke Says Fed Was Late Addressing Subprime Crisis

The third and final installment of a special forum with Federal Reserve chief Ben Bernanke, moderated by Jim Lehrer in Kansas City, Mo.

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  • GWEN IFILL:

    Now, part three of our NewsHour forum with Federal Reserve Chairman Ben Bernanke. Jim Lehrer moderated the conversation Sunday night with a group of citizens from in and around Kansas City, Missouri. We broadcast the first two sections, taped at the Federal Reserve Bank of Kansas City, on Monday and Tuesday.

    And now, the third and final installment of "Bernanke On the Record," beginning where the discussion left off last night, talking about home foreclosures.

  • JIM LEHRER:

    You've already touched on a lot of this already, some of the things that are in the works or are being debated about how we move from here to there, some reorganization, new legislation, et cetera.

    And let's start first with Elma Warrick, because it relates exactly to what we've been just talking about in terms of foreclosures and housing.

  • ELMA WARRICK:

    Good afternoon, Chairman Bernanke. I'm Elma Warrick. I'm the executive director for Home for USA, which is a housing counseling organization HUD-approved.

    You know, I've heard your responses, and I think they're wonderfully clear and lucid. But my question has to do with how do we, having been through this in the midst of this perfect storm, how do we protect the consumers going forward and make sure the consumer is served as they ought to be?

  • BEN BERNANKE:

    Good question. As I mentioned earlier, the Federal Reserve's — one of the Federal Reserve's functions is consumer protection. And we have addressed a number of issues in mortgage area, credit card areas, a bunch of other areas.

    As I've said before, we were late in addressing the subprime lending problem. There were a lot of loans made that were done without documentation, for example, that were done without clarity about prepayment penalties, that were done without clarity about escrow accounts.

    The Federal Reserve a few years ago addressed those issues, and we put together a set of rules which now apply to all lenders, not just banks, but all lenders, that will, I hope, solve those problems going forward. But they weren't in place early enough, and that is a — I think we have to take some heat for that. And I think that's appropriate.

    But going forward, we have set some rules. The administration, of course, as you may know, has yet a more ambitious plan. They want to create a separate consumer financial protection agency that will have its only mission protecting consumers.

    So whether the Federal Reserve does it or another agency does it, I hope that we'll learn some lessons from this episode and make sure the consumers can make good choices, but that the choices they have are clear, transparent, so that they can shop and not be fooled or deceived in terms of the kinds of financial products that they use.

  • ELMA WARRICK:

    Thank you.

  • JIM LEHRER:

    Erica Shackelford has a related question.

  • ERICA SHACKELFORD:

    Good afternoon, Mr. Chairman. Erica Shackelford. I'm affiliated with the Urban League of Greater Kansas City, and I'm also a full-time student.

    Thinking about the mortgage crisis, predatory lenders allowed people to get themselves into loans that they could not afford. What does the Federal Reserve plan to do to educate the public in the future so that this type of crisis does not reoccur? And also, would you support a mandatory education component as part of the mortgage-lending process?

  • BEN BERNANKE:

    Well, you know, first, as I mentioned, we have done the regulations, but we also are very much in favor of financial education, financial literacy.

    The Federal Reserve, including the Kansas City Federal Reserve, have numerous financial literacy programs. We provide — on our Web sites we provide courses. We work with all kinds of groups that provide financial training.

    I think it's very, very important that people have that kind of experience now, because everybody has to deal with complicated financial products in their everyday life.

    You mentioned predatory lending. We've also gotten to public education. We put out, for example, a public service announcement that's playing in movie houses. I don't know if you saw it or not.

    But there are a lot of scams out there now. There are people who are taking advantage of people who are afraid of losing their homes. And it's very important that if you are afraid of losing your home, if you have gotten a foreclosure notice and you're working with a bank, it's very careful — it's very important to be sure that if you have been approached by some counselor or someone who says they're going to help you, to make sure they're legitimate, because there are scams out there, and we have been working on those and trying to keep people alert to those.

  • ERICA SHACKELFORD:

    Thank you, Mr. Chairman.

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