An intensified effort at promoting financial literacy among prospective homebuyers might be more effective than strict regulations to prevent another foreclosure crisis, a Federal Reserve official said Tuesday.

The president of the Federal Reserve Bank of Chicago, Charles Evans, said government rules to eliminate "nonstandard" mortgage products would prevent unqualified borrowers from obtaining risky loans. Yet eliminating products might leave qualified borrowers with fewer options, he said.

The Chicago Fed chief suggested that education efforts might be more effective in achieving a sustainable housing market than prohibiting high-risk mortgages.

"Such an approach might keep those who shouldn't be in exotic mortgages from getting them while leaving such mortgages available to the small group of people for whom they are appropriate," Evans said before the Indianapolis Neighborhood Housing Partnership, a nonprofit group aimed at preventing foreclosures.

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