Speech by SEC Commissioner:
Remarks at the President's Advisory Council on Financial Literacy
Subcommittee Meeting on the Future of Responsible Subprime Lending
Commissioner Paul S. Atkins
U.S. Securities and Exchange Commission
May 28, 2008
Thank you very much for your kind introduction, Dan [Iannicola]. It is a privilege to be here as a member of the Securities and Exchange Commission, although I must note that the views that I express today are my own and do not necessarily reflect those of the SEC or my fellow Commissioners.
Earlier this year, President Bush made financial literacy one of his top priorities. In creating the Advisory Council on Financial Literacy, President Bush said "if we want America to be as hopeful a place as it can be, we want people owning assets. We want people investing. We want people owning homes. But oftentimes, to be able to do so requires literacy when it comes to financial matters. And sometimes people just simply don't know what they're looking at and reading."1
I applaud the efforts of the Council's chairman Chuck Schwab, vice chairman John Hope Bryant, and the other members of the Council who have volunteered to provide their time and effort for this initiative. This is truly a partnership - one among the public and private sectors, for-profits and not-for-profits, and academia and business. Thanks also to Bob Steel and Dan Iannicola for their time and leadership.
One of my favorite volunteer activities as an SEC Commissioner is assisting with the SEC's investor education efforts. I have visited with military servicemen and women here and abroad, senior citizens, hurricane victims, students from grammar school to college, and others to talk about the importance of investing and ways to avoid some of the common investment scams and pitfalls. Individuals contribute not only to their own economic prospects, but to the growth of the economy as a whole, by making wise investment decisions. They provide capital for innovation, mortgages, dreams, and risk-taking. In turn, a strong economy means more jobs, more opportunities, and more chances for people to accumulate capital for a business venture, build a strong retirement, put money away for education, save for health issues, or provide the seeds to realize the dreams for their children's futures.
Congress gave the SEC three objectives for our mission: to protect investors; to maintain fair, orderly, and efficient markets; and to facilitate capital formation. Borrowers and lenders alike benefit from sound lending practices - that goes for any market, be it prime, near prime, or subprime. Today's lender is not necessarily a loan officer at a local bank with knowledge about a particular borrower and piece of property. Due to financial innovations such as securitization, today's lenders that supply funding for mortgages may be located across the globe. A loan may pass through several intermediaries before it finally comes to rest with the ultimate lender.
In recent years, we saw the supply of capital for subprime loans dramatically increase credit for people for whom a home mortgage was previously not available. But such credit can quickly disappear if the lenders have little or no confidence in the stated quality of those loans. Likewise, the soundness of the instruments that investors buy, and the disclosures and the ratings on those investments, depend on the quality of the lending practices in the first place. If borrowers do not understand what they are buying and cannot fulfill the terms of their agreement from the beginning, the disclosures may not be sufficient and the ultimate lender may not be pricing the risk of the instrument appropriately. Surprises to the ultimate lenders - the investors - can result in the lack of investor confidence. Capital consequently becomes more expensive or more difficult to obtain. We have certainly seen this situation in the past year or so.
The SEC is actively investigating a number of cases involving possible securities fraud stemming from inappropriate subprime lending practices and sales practices in the capital markets. Maintaining a healthy and active market for securities that fund the mortgage and other credit markets remains an important concern of the Commission.
I look forward to the discussion today, and I thank all of you for attending this important meeting. Thank you very much.