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WASHINGTON With the explosion of financial choices, consumers must continually sharpen their assessments of whether certain mortgages or other investment products make sense for them, Federal Reserve Chairman Ben Bernanke recommended Wednesday.
"Some evidence, including recent Federal Reserve research on consumers holding adjustable-rate mortgages, suggests that awareness could be improved, particularly among borrowers with lower incomes and education levels," Bernanke said in prepared remarks to a conference here on community development.
As the credit market has grown and become more sophisticated, lenders have been able to extend credit to households and businesses that might previously have been considered uncreditworthy, he said.
In turn, the market for "subprime" borrowers people with weaker credit records who are considered higher risks has grown considerably over the years.
In 1994, fewer than 5 percent of mortgage originations were in the subprime market. But by 2005, about 20 percent of new mortgage loans were subprime, Bernanke said.
Against that backdrop Bernanke asked, among other things, whether borrowers are aware of the terms and conditions of their loans and if consumers are sufficiently well-informed to be wary of potentially misleading marketing tactics and whether they can shop effectively among lenders.
Further research to explore these questions and their possible connection to disparities in lending to members of minority groups would be highly worthwhile, Bernanke said.
A recent Fed study found that black and Hispanic home buyers pay more for their mortgages than do whites.
Bernanke also said that making sure that every American has a chance to improve his or her economic standing through hard work, saving, entrepreneurship and other activities, is essential to building economically healthy communities.
In his speech, Bernanke did not discuss the future course of interest rate policy in the United States.
With the economy slowing and energy prices retreating, the Federal Reserve last week held interest rates steady for the third meeting in a row. Economists believe the central bank will be on the sidelines for the rest of this year and probably into much of next year as well.
To combat inflation, the Fed since June 2004 hoisted rates 17 times, its longest string of increases in Fed history.
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