John Bryant is the founder and chair of Operation HOPE. Robert Gnaizda, former general counsel and a founder of Greenlining Institute, is general counsel for the National Asian American Coalition.

Ten years ago, non-profit organizations the Greenlining Institute and Operation HOPE convened fifteen major banks—including Countrywide Financial and World Savings Bank—to urge restraints on irresponsible adjustable-rate mortgages and interest-only loans. Three months later, we met with former Federal Reserve Chairman Alan Greenspan to discuss the issue. Greenspan argued that ARMs were the best way to save money for homeowners—although he admitted that he personally preferred the comfort and predictability of a 30-year fixed-rate mortgage.

Today, many major financial institutions no longer exist as a result of their dangerous alternatives to 30-year fixed rates. Regulators at the Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau far more fully comprehend the sweeping negative consequences of reckless mortgage instruments thrust at unsuspecting low- and moderate-income homeowners. Yet it appears that a number of financial institutions are considering or have already introduced potentially dangerous ARMs, including interest-only mortgage products.

Thirty-year fixed-rate mortgages remain an important product for low- and moderate-income homeowners. However, many potential homeowners from Black, Latino and Southeast Asian communities are being shut out of the present market. With that in mind, we believe that reforming ARMs and creating a new kind of qualified mortgage product could benefit millions of low- and moderate-income homebuyers.

The biggest problem with ARMs a decade ago is that they were thrust upon inexperienced first-time homebuyers who sought the American dream. This often unrealistic goal, combined with a highly combustible free-market desire for quick profits, helped create the worst economic crisis since the Great Depression. Mandatory financial education as a prerequisite for a quality mortgage for low- and moderate-income families might do more to prevent a future crisis than any other change—particularly if certain highly volatile ARMs products are carefully scrutinized and viable alternative prime products are available.

Read the complete article in the American Banker here.


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