Afternoon Session of Public Hearing on Home Equity Lending
July 27, 2000
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Afternoon Session of Public Hearing on Home Equity Lending |
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1 TABLE OF CONTENTS (Cont.)
2 AFTERNOON SESSION
PAGE
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OPENING REMARKS BY PANELISTS:
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BY MR. SKILLERN . . . . . . . . . . . . . . 174
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BY MS. LLOYD . . . . . . . . . . . . . . . 178
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BY MS. MASSENBURG-BEASLEY . . . . . . . . . 182
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BY MS. WARREN . . . . . . . . . . . . . . . 185
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BY MS. MURRELL . . . . . . . . . . . . . . 187
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10 BOARD MEMBER AND PANELIST DISCUSSION . . . . . 191
11 OPEN-MIKE SESSION . . . . . . . . . . . . . . 226
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7 (A lunch recess.)
8 MR. LONEY: For those of you who just have
9 joined us, I would like to welcome you. This
10 morning we heard very interesting and varied views
11 on the way the Board might use its rule-writing
12 authority under TILA and HOEPA. This afternoon we
13 will be discussing alternatives to regulation that
14 might address predatory practices, such as consumer
15 outreach and education and hear about studies or
16 research on subprime or equity lending that would
17 inform the Board in its deliberations.
18 By way of introduction for those of you who
19 weren't here this morning, my name is Glenn Loney;
20 I'm deputy director of the Board's division of
21 consumer and community affairs. Joining me this
22 afternoon on the panel are Adrienne Hurt on my far
23 left, who is assistant director of the division, and
24 Jim Michaels, who is managing counsel in the
25 division. They have responsibilities for truth in
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1 lending matters in the division.
2 On my immediate right is Sandra Braunstein,
3 who is assistant director and community affairs
4 officer for the Board in Washington. To my far
5 right is Jack Blanton, who is the vice president and
6 community affairs officer at the Federal Reserve
7 Bank of Richmond, which is the bank for this area
8 and for which this is a branch, the Charlotte
9 branch.
10 I would like to go briefly over the rules of
11 procedure, if we want to call it that, for this
12 afternoon. Once again we would like to ask -- we're
13 going to have a tight time frame. We want to get as
14 many of the open-mike people in as we can and we'd
15 also like to hear from our panelists as much as we
16 can, and we'd also, frankly, like to catch our
17 planes back to Washington if we can. So I would ask
18 you all to do what you can to accommodate those
19 concerns. Therefore we ask that the panelists
20 confine their prepared remarks to the three minutes
21 that they find most important for us to hear about,
22 and then of course after that we would like to have
23 a discussion similar to the one we had this morning,
24 though not as long.
25 At the conclusion of the panel discussion we
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1 will break, around 2:45 or 3:00 or so, and then
2 reconvene to hear from members of the public. And
3 again, anyone in the audience who wants to
4 participate in the open-mike session later this
5 afternoon that has not already signed up, you ought
6 to do so before the break and we'll use the list to
7 decide the order and help us gauge the length of
8 time that each person can have.
9 If it's all right with everybody, for
10 opening remarks I thought I would start with Peter
11 Skillern. I'd ask each of you to introduce
12 yourselves and tell who you are with as well as make
13 your opening remarks, so if you would start.
14 MR. SKILLERN: I'm Peter Skillern,
15 executive director of the Community Reinvestment
16 Association of North Carolina. Our mission is to
17 build and protect community wealth. As many of the
18 lending institutions in the room can tell you, we've
19 worked hard to try to increase the capital flowing
20 into minority and low-income communities across the
21 state of North Carolina.
22 When we became involved in predatory lending
23 it was realized that all credit is not good credit,
24 and that much of the credit was being used as a tool
25 to strip wealth and equity from our low-income
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1 communities. We started out our research one person
2 at a time and started to put together our analysis.
3 Today we are the recipient of a fair housing
4 education and outreach grant. We have a subcontract
5 with the NAACP and El Pueblo, the Hispanic advocacy
6 organization, to do outreach to their member
7 constituencies to explain about fair housing and
8 predatory lending.
9 Here are some of the tools I'd like to
10 submit for the record. One is, Don't let the Grinch
11 steal your holiday; we've got the Grinch whipping --
12 this is for Christmastime when subprime lenders like
13 to push products, and warning bells that you should
14 look out for. For someone who wants to study a
15 little bit harder about how to read a loan document,
16 this is probably appropriate for people just
17 learning, including college graduates, how to read a
18 loan document and what to watch out for of a
19 predatory nature, such as single-premium credit
20 insurance.
21 From that, as we expanded into understanding
22 the policy, we developed this introduction to
23 predatory lending policy, and I'll submit this and
24 give you all individual copies, to recommend how the
25 whole system puts together and how community groups
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1 can be involved in the social change work.
2 I was asked to speak primarily around
3 research. I'd like to submit our article that was
4 published in Neighborhood Works exposing the hidden
5 problem of predatory lending, which discusses our
6 method of identifying borrowers from the deeds of
7 record at the courthouse and asking them to come in
8 so that we can interview them and look at their loan
9 documents and start to describe what's happening in
10 the subprime mortgage industry.
11 We've since evolved that to the community
12 guide to predatory lending research, and I'd like to
13 submit that also for the record, as a demonstration
14 of how community groups can identify borrowers from
15 a variety of sources and what to look for.
16 For all of that I really want to say that I
17 think my recommendations for the Federal Reserve
18 have to be put into context for research and action
19 around looking at how it can help provide greater
20 consumer protections in the age of financial
21 modernization. With the passage of the financial
22 modernization bill, it gave bank holding companies
23 the opportunity to provide credit and monetary
24 services through a wide spectrum, from payday
25 lending to finance companies to subprime lenders to
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1 mortgage companies, banks, and indeed secondary
2 mortgage market opportunities; they're also now able
3 to offer insurance.
4 Along this spectrum of services that they're
5 able to dole credit out to the public, people then
6 enter into this system through different channels.
7 The question is, at what point where you enter into
8 that channel of credit often determines how you are
9 treated, rather than being treated upon your merits
10 or what your credit ability is.
11 What does that say? I'm not wearing my
12 glasses.
13 MR. LONEY: Just wrap it up, Pete.
14 MR. SKILLERN: I'll quickly conclude with
15 this one remark. I think the Federal Reserve could
16 do marvelous research that would be groundbreaking
17 around this issue. The Boston Federal Reserve study
18 of mortgage lending discrimination, 1991, was the
19 seminal research piece that changed regulation and
20 bank lending activities and really helped to expose
21 discrimination.
22 I urge the Federal Reserve to do a study,
23 just going and sampling -- you have access to the
24 loan files -- sampling what is happening in the
25 subprime market and then come back and describe to
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1 the public what percent have prepayment penalties,
2 what percent pay yield spread premiums, which
3 percent had high fees, interest rates, what were the
4 credit scores that went along with that, were there
5 disparate impacts along rate-protected classes, and
6 from that type of study -- study that we will never
7 be able to get at from our community approach --
8 you'll have the ability to better determine to what
9 extent predatory practices are being undertaken.
10 Thank you.
11 MR. LONEY: We'll have a little discussion
12 and you can embellish on some of those points.
13 MR. SKILLERN: Oh, thank you so much.
14 MR. LONEY: Ms. Lloyd?
15 MS. LLOYD: My name is Jan Lloyd; I'm a
16 family resource management specialist for the
17 cooperative extension service affiliated with North
18 Carolina State University. I'm here to talk about
19 the need for consumer education in a narrowly
20 defined way and to make sure you are aware, which
21 you perhaps already are, of the mechanism in place
22 ready to help with the homebuyer and homeowner
23 education throughout the entire country.
24 For those of you who don't know, cooperative
25 extension has been in existence since 1914. It has
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1 three levels of partners; we are primarily tax
2 supported. The federal partner is the Department of
3 Agriculture. In addition to the Ag and the 4H and
4 the community and rural things, you may or may not
5 know that the new name for home economics, family
6 and consumer sciences, has a major program which of
7 course includes housing and family finance. I'm
8 here for the family finance area and I have a close
9 colleague who works with me in housing at the state
10 level.
11 Our national program leaders, both in family
12 economics and in housing, work very closely with
13 your division and with other appropriate partners on
14 all kinds of issues. They have in the past put
15 together a national building a homebuyer education
16 program, they have been partners to the most recent
17 homeowner education and counseling effort trying to
18 standardize and upgrade. The Fannie Mae former CEO
19 was the driving force behind this, and I'll share
20 with you if anybody wants to look. I think this is
21 something, if you weren't aware of, the attempt to
22 upgrade the content of homebuyer and home ownership
23 education and to provide training for the people who
24 deliver it out in the communities. So that's at the
25 federal level.
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1 Those of us at the state level, at every
2 land grant university in the country, we aren't
3 professors; we are specialists in our subject area.
4 We collect, develop materials, we train the field
5 faculty for the university out in the counties. So
6 if you hear extension agent, you are hearing
7 somebody probably with a master's degree who is
8 field faculty. My agents, the ones with whom I
9 work, a hundred counties here plus the Cherokee
10 reservation, do all kinds of family finance issues.
11 And some of the same people, some of them it's two
12 agents in a county, carry on homebuyer education,
13 hopefully together. So you have all over the
14 country this mechanism already doing homebuyer
15 education to which the HOEPA things that you're
16 doing can be a supplement.
17 What I'm hoping is that you will see the
18 need for consumer education is enormous. Kate
19 Crawford this morning, I could have paid to say we
20 need basic consumer education on finance. If you
21 were not aware, there was a major study done,
22 released just a year ago, twelfth graders; there was
23 an overall score on personal finance of 57 percent.
24 And to illustrate to you how severe the challenge is
25 to all of us at the grass roots level trying to do
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1 consumer education, they thought that the primary
2 best source of money, to earning income on that
3 money, was a checking account. That's the level of
4 ignorance we are talking about, the challenge to try
5 to help people understand what they're dealing with
6 when we get into homebuyer and refinancing
7 education.
8 Obviously we can help at each level; the
9 national, the state, and the local agents. I would
10 just like to say that we are already working with
11 the individual development accounts; that extension
12 is the recommended deliverer of the mandatory
13 education for individual development account people,
14 basic money management and the homebuyer folks, and
15 a number of other things; I won't take your time on
16 that now.
17 I'd just like to say what we need is we need
18 very brief items that capture the key components.
19 We need brief fact sheets in plain language that
20 refer them to more depth. We need background
21 information, visual materials -- you did a great
22 thing on car leasing -- and promotional materials,
23 and we need to be succinct without losing accuracy.
24 And we'll be happy to work with you.
25 MR. LONEY: Thank you very much.
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1 Ms. Massenburg-Beasley?
2 MS. MASSENBURG-BEASLEY: Thank you. Good
3 afternoon, everyone. I'm Glyndola
4 Massenburg-Beasley, executive director for the
5 Consumer Credit Counseling Service of Durham.
6 The topic of combating predatory lending is
7 broad and my message this afternoon is, simply,
8 we've got work to do. I define predatory lending as
9 a roaring lion that walketh about seeking whom he
10 may devour. We've got work to do both statewide and
11 nationally in order to conquer the roaring lion.
12 CCCS of Durham is a nonprofit community
13 service organization. It is also the host agency
14 for the Hurricane Floyd initiative throughout the
15 state of North Carolina. A very large percentage of
16 the families that we're working with are
17 homeowners. To date, we've worked with in excess of
18 8,000 families. A very large percentage of those
19 families are victims of predatory and/or
20 unscrupulous lending practices.
21 For example, we have a father and mother who
22 are illiterate; the mortgage lender allowed the 15-
23 and 16-year-old son and daughter to consummate the
24 loan. The home was completely destroyed by
25 Hurricane Floyd. The insurance benefits were
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1 received in the name of the family and the mortgage
2 lender. The mortgage lender of course received the
3 funds and paid down the mortgage loan, leaving the
4 family with no resources to replace the home. There
5 are no relatives living in the area and now there's
6 no place for the family to live.
7 After reviewing the loan documents we
8 discovered that at least $7,000 of the loan of
9 course was in the originating points, and today the
10 mortgage lender is pursuing foreclosure. We've got
11 work to do.
12 Consumer education and outreach should not
13 be an option. Consumer education should be a
14 requirement for any mortgage and/or consumer
15 lending. The lack of knowledge and understanding
16 eats away at the underpinning of our country, which
17 is education, economic stability, and building
18 wealth. Unscrupulous lending has no respect of
19 person. I have seen the elderly, the
20 hearing-impaired, the blind, and the illiterate
21 become victims of unscrupulous lending practices.
22 We must be as tenacious and as savvy as the
23 unscrupulous lender, because they're about equity
24 stripping, high-cost loans, prepayment penalties,
25 loan flipping, financing of credit insurance, and
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1 the list goes on. Our people in the country are
2 perishing because of the lack of knowledge and
3 understanding.
4 A national consumer education and financial
5 education campaign is a must. We must increase our
6 partnering with high schools, junior high schools,
7 and the universities. At Consumer Credit Counseling
8 Service we often see seniors who are graduating that
9 are strapped with at least $20,000 to $30,000 worth
10 of debt and no employment. How am I going to pay
11 the bill; Mom and Dad is usually the alternative and
12 not always the answer.
13 We must also increase our partnering with
14 Fannie Mae and Freddie Mac and others who promote
15 products such as Credit Works that require a
16 structured program for counseling and education. We
17 must create additional tools that appeal to all and
18 fund local community education programs so that we
19 can prevent and stop the stripping of wealth that is
20 so prevalent in this nation. Our families are
21 hurting, they're living in a vacuum and have no idea
22 how to get out. Consumer education and counseling
23 is extremely important to the wealth and stability
24 of this country.
25 MR. LONEY: Thank you. Ms. Warren?
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1 MS. WARREN: Good afternoon. Can everybody
2 hear me? I'm Debby Warren; I'm executive director
3 of the Southern Rural Development Initiative, and my
4 middle name is the Rural Nag. That's what I'm here
5 to do, to remind the Federal Reserve, the Board of
6 Governors, that predatory lending is very much a
7 rural issue.
8 We are a collaboration of 33 organizations
9 that work in the poorest counties of the rural
10 south. You can see the south here, you look at the
11 orange and red, there's the black belt that is the
12 Appalachia, it is a good part of the south; that's
13 where our 33 members work. They are both CDFI,
14 self-help, community development organizations, and
15 philanthropic organizations concerned about how
16 little public and private affordable capital there
17 is in these communities.
18 We did an analysis, a HMDA analysis, of four
19 states in the south -- Alabama, Arkansas, South
20 Carolina, and Georgia -- for 1998, and particularly
21 looked at subprime and manufactured housing
22 lending. What we found out was interesting. That
23 when you look at the national numbers for subprime
24 lending, nationally, in that year, about 11 percent
25 of the total market was subprime. If you look at
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1 the state of South Carolina, 22 percent; Georgia,
2 15 percent; Alabama, 14 percent; Arkansas,
3 16 percent. It's just from a national perspective
4 we have a higher proportion of subprime lending
5 among the mortgage recipients.
6 African-American market, that 19 percent of
7 the national African-American market was subprime
8 loans. Georgia, 22 percent; Arkansas, 28 percent;
9 and South Carolina, which is a few miles from here,
10 42 percent. 42 percent of the African-American
11 market that originated mortgage loans in 1998 were
12 subprime loans.
13 If you look at the low-income market, again,
14 South Carolina, 34 percent; national, 13 percent.
15 If you look at the rural market, we don't have
16 comparable national numbers but we looked at it for
17 the four states that we had information: Alabama,
18 20 percent of the rural market, subprime loans;
19 Georgia, 27 percent. So this is clearly an issue,
20 and we can only assume that some of the subprime
21 lending is predatory lending; how much, we don't
22 know.
23 What I have more are questions than
24 answers. There's enormous need for research. If
25 we're going to be clear about predatory lending
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1 strategies we have to understand how these markets
2 work in rural areas. Questions like, How much of
3 this is due to manufactured housing lending, and how
4 much of our regulations, state and federal, are
5 covering those particular markets. 50 percent of
6 occupied manufactured housing units are in the
7 south; 70 percent nationally of manufactured housing
8 units are in rural communities. So we need to
9 understand the mechanisms and the dynamics of the
10 manufactured housing industry and how it relates to
11 the subprime markets in these states.
12 We also need to understand why does a state
13 like South Carolina have 46 percent of the
14 African-American market being served by subprime
15 lenders. Final sentence: Is it due to the fact
16 that there is very little consumer regulation in
17 this state? Is it due to the fact that there used
18 to be a Confederate flag hanging from the capitol?
19 Is it due to the fact that there's very little
20 housing, nonprofit infrastructure, and advocacy
21 resources in this state? What is the answer? But
22 we need to better understand that because I think
23 that's an unacceptable figure. Thank you.
24 MR. LONEY: Thank you. Ms. Murrell?
25 MS. MURRELL: Good afternoon. I'm Karen
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1 Murrell, senior director of targeted outreach at the
2 Fannie Mae Foundation. I'd like to talk about the
3 importance of institutionalizing financial literacy
4 as an integral part of homebuyer education and
5 counseling. Fannie Mae Foundation has launched last
6 fall a major effort, it's one of our top priorities,
7 to address financial literacy needs. Last fall we
8 kicked off our financial literacy effort and I'd
9 just like to talk a little bit about some of the
10 things we're doing on that front, as well as some of
11 the things we're doing with predatory lending.
12 Our financial literacy effort really
13 includes a three-point program, and one of the main
14 things that we're doing is really having a strong
15 emphasis and focus on supporting education and
16 counseling programs that are helping consumers learn
17 more about financial issues before they get into the
18 home buying process. We're doing that through grant
19 relationships with nonprofit organizations that are
20 doing this work on the ground.
21 We're also doing this by developing
22 educational materials that are specific to
23 particular communities. One of the things we're
24 working on now is a financial literacy curriculum
25 for the Native American community. We've partnered
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1 with First Nations Development Institute to develop
2 a curriculum that is based on native values that
3 will be implemented through a training of trainers
4 process.
5 We're also looking at ways to implement
6 financial literacy in other venues, like through IDA
7 programs. We're working with CFED, Corporation for
8 Enterprise Development, to make sure that there is a
9 national curriculum, financial literacy curriculum,
10 for IDA programs across the country.
11 Then we've developed our own consumer
12 materials, consumer materials on home buying as well
13 as credit. You're probably familiar with this
14 guide, it's promoted through National Network and
15 Advertising Cable, that discusses the home buying
16 process. We developed a new guide last fall that
17 has a focus on credit. Again, what we're trying to
18 get across with this guide is we're trying to raise
19 awareness of the importance of credit, help people
20 to understand what it means to have good credit, how
21 to maintain it, how to repair it if you've had
22 problems.
23 Later this month we're going to be unveiling
24 a new guide on predatory lending; again, it's going
25 to help in very easy-to-understand language explain
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1 what predatory lending is and give some suggestions
2 on things to do to avoid it.
3 Through our consumer education we've reached
4 10 million people since the program started in 1994,
5 and one of the areas that we're focusing on now
6 which is a new area is outreach to youth. As we've
7 heard in the panel discussion earlier, it's
8 important for us to reach out earlier, so we're
9 looking at ways to reach students at the high school
10 and college levels and impart this information
11 earlier.
12 With predatory lending one of the things
13 that we're doing is really through a three-part
14 program. The first is looking at policy and
15 research initiatives. We've tried to generate a
16 dialogue to get a better understanding of the
17 causes, the behaviors, and the consequences of
18 predatory lending. We're also going to be
19 supporting consumer education efforts in local
20 communities. Again, through our grant relationships
21 we have supported consumer education programs in the
22 city of Chicago and also in Boston.
23 And lastly, one of the things we're doing
24 with predatory lending is supporting legal
25 education. We want to make sure that legal
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1 advocates have the information that they need to
2 work on behalf of disenfranchised citizens. That is
3 the Foundation's predatory lending and financial
4 literacy efforts.
5 MR. LONEY: Thank you very much. What I'd
6 like to do now, as we did this morning, is to
7 comport this into more of a round table discussion
8 and people can embellish on what they've said before
9 in the context of either answering questions or just
10 jumping in. Sandy, in particular, has some
11 questions she'd like to ask, so we'll have Sandy
12 kick it off.
13 MS. BRAUNSTEIN: I'd like to start by
14 having -- something hit me during all the
15 presentation; in particular Peter, Jan, and Karen.
16 You all have prepared written materials on these
17 issues and Fannie Mae is getting ready to come out
18 with a guide on predatory lending, and I was just
19 wondering -- one of the things we've been struggling
20 with is how to reach the audiences that are preyed
21 upon, and one of the things that we have heard from
22 some folks is that written materials don't
23 necessarily cover that waterfront, and I was just
24 wondering how successful your written materials have
25 been in this effort.
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1 MR. SKILLERN: I feel like our written
2 materials have been of limited success, in all
3 honesty. People need to be willing to read it, it
4 takes time, and we are battling for people's
5 attention. I would really look at -- they are
6 useful tools, though, when we have people in small
7 groups, in their churches, in their houses, in the
8 neighborhood meetings to give out.
9 The bigger effect has been -- I would point
10 to Mike Easley, the attorney general for North
11 Carolina, put I believe $180,000 into a media
12 campaign across the state. His advertisements were
13 simple, they were clear, there was identifiable
14 personality, and they generated hundreds of phone
15 calls to his office regarding the loans. That was
16 serious. That wasn't a small nonprofit using their
17 Xerox machine trying to fight the problem; those
18 were real resources with a professional media
19 strategy.
20 MS. BRAUNSTEIN: What media did he use,
21 Peter; radio, TV, what?
22 MR. SKILLERN: He used radio, TV, and
23 newspapers, and he targeted towards those
24 populations that are most often victimized, which
25 are the minority community.
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1 MS. LLOYD: If I could just follow up, he
2 also does regular news releases. And the extension
3 agents in every county and anyone else who asks is
4 on that mailing list, so they get alerts each time
5 they come out. I commend -- he has followed suit
6 that was launched in Minnesota actually, a
7 partnership for consumer education. He has a group
8 of people coming together as a nonprofit; they've
9 done videos, they've done lessons to go with them,
10 so that in addition to the public audience there are
11 ways to reach out into the communities and make this
12 20 minutes instead of 30 seconds available to a
13 larger audience. It's been extremely helpful.
14 MR. LONEY: One element of Sandy's question
15 I'd like to embellish on is, what really works?
16 MS. LLOYD: Could I just say that I think
17 we really have to distinguish in this continuum of
18 getting people ready, there have to be materials for
19 awareness and those are the TV and the bookmarks and
20 the really succinct things; then there has to be
21 information targeted for different audiences,
22 different reading levels, different perceptions,
23 different languages, whatever.
24 Education is the narrow niche where I am,
25 where once you've got people's interest then you
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1 have materials, which includes print, but it's not
2 enough. There have to be -- peer counselors is one
3 of the mechanisms that Cornell used especially
4 well. Then you help people be aware that they need
5 more information; self-study. We're being told
6 increasingly people will not come to meetings very
7 much anymore; you've got to have things through
8 existing organizations such as churches or
9 neighborhood groups.
10 You've got to find ways to reach them and
11 you're not asking them to add something to their
12 schedule, which is a challenge. But once you get
13 them aware that they can either through self-study
14 or through groups and get a better prepared -- you
15 tell them then that individual counseling is
16 available. We have to be prepared for that. And I
17 don't mean to insult you but I don't know what
18 people do and don't know under both bills for
19 bankruptcy reform. One of -- you know, the
20 compromise will eventually pass next year probably.
21 In both those bills there is mandatory
22 counseling required to determine whether or not
23 bankruptcy is actually necessary. We're going to be
24 putting an incredible load for what you are wanting
25 and what they will be wanting on the counselors in
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1 this country, so we really need to look at how to
2 recruit and train more counselors for that effort.
3 MS. MURRELL: Two things I'd like to add to
4 your point, Sandra, about how do you reach the
5 audiences that really need the information. One of
6 the things that the Foundation does is, first of
7 all, we have information in nine different
8 languages, so we make sure the information that we
9 have is in languages and culturally appropriate for
10 the audience that we're trying to reach.
11 The second thing that we do is we develop
12 marketing strategies that are specific to the
13 audience that we're trying to reach. For instance,
14 we have a partnership with BET to reach the
15 African-American community. We advertise in five
16 different languages. So again, that's an excellent
17 way to get the information out and at least to raise
18 awareness, but I do agree that the information on
19 its own is not enough.
20 One of the things that we do as an
21 additional component is to connect people to local
22 programs in their community that can help them with
23 additional information. Whenever we send out the
24 guides we also send out a list of counselors in
25 their area that can help with one-on-one
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1 counseling. When we do events like our home buying
2 fairs and we give out the guides, we also have
3 counselors on site that can walk people through the
4 credit report, answer any questions. So the guide
5 is the first step, I think, in raising awareness and
6 giving people kind of a base level of understanding,
7 but then working with nonprofit organizations is
8 really the way to give people detailed, individual
9 advice or recommendations about their own personal
10 situation.
11 MR. BLANTON: I'm interested in the
12 delivery mechanism from a practical standpoint for
13 what the Federal Reserve can do in this arena,
14 because all the Federal Reserves, the 12 reserve
15 banks, have some degree of consumer education
16 efforts and we're restudying that effort now to see
17 what should be done.
18 I'm personally convinced that a message like
19 this has got to be delivered by somebody that the
20 person you're trying to get the message to knows and
21 trusts. So from that standpoint, how do we get into
22 this mix? It can't be somebody from Washington or
23 Richmond talking; it's got to be the grass roots
24 effort. It can't be somebody from the Department of
25 Agriculture or the extension service per se. You've
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1 got to be part of the chain to supply the
2 information, train the trainers, that sort of
3 thing. I'm really kind of interested in your views
4 on how that can take place.
5 MS. MASSENBURG-BEASLEY: I would agree with
6 your comments very much in the fact that it should
7 be a familiar face. What we're finding that's
8 working at the consumer credit agencies is
9 developing a relationship with the employee
10 assistance programs. We have in the past asked the
11 groups that come in to us for training and now we're
12 determining and have learned that our captive
13 audience means that we must go where the audience is
14 in existence and of course have an opportunity to
15 participate and partner with that particular
16 employer; for example, the state of North Carolina
17 and the employee state employees. We actually are
18 making the rounds to the various sites where state
19 employees are located and during the lunch hour we
20 actually provide a brown-bag presentation on
21 financial literacy, budgeting, money management,
22 credit, and the home buying process.
23 We also have developed relationships that
24 other organizations in Durham have with the local
25 churches. We go into the actual congregation where
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1 they are accustomed to being in their comfort zone
2 and provide that information to them.
3 We're finding that the pipeline so far as
4 your realtors and other mortgage bankers, if we can
5 have a very, very strong pipeline of referrals then
6 of course we can work through that mechanism as
7 well. But I agree that it must be a familiar face
8 and we need to go to the captive audience rather
9 than requiring them to come to us.
10 MS. WARREN: I would just like to say one
11 thing, which is about money. Whenever we talk about
12 who can deliver and what the infrastructure is --
13 and I'm very sensitive to what that looks like and
14 doesn't look like in the rural communities in the
15 south.
16 When we're talking about grass roots
17 organizations we have to talk about resources for
18 those grass roots organizations. We have very, very
19 limited resources available for home ownership
20 counseling. Because of leadership like Glynee -- in
21 this state, this is probably what we were just
22 talking about, it's the only state that probably has
23 an association of home ownership counselors. You
24 look at the other states in the south, perhaps
25 outside of Atlanta; there is almost nothing.
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1 There's the extension service, but again, the
2 ability to reach the grass roots can only be as much
3 as the officers can do. So we have to talk about
4 resources for the grass roots organizations, which
5 are the best way to reach people at the local level,
6 if we're going to be serious about the literacy and
7 the counseling.
8 MR. BLANTON: One model might be -- the
9 Treasury, when it was promoting the electronic
10 transfer of government payments, put together
11 financial educational materials, offered those free
12 to those -- our office at the Federal Reserve in
13 Richmond, we contacted all the community
14 organizations in our data base and told them about
15 that, the availability of those materials, so they
16 could get the materials for free. So if there were
17 a mechanism infrastructure there that support
18 materials could be made to faith-based and other
19 community groups, would that be helpful?
20 MS. WARREN: I think that's always
21 helpful. But then you say, well, who's going to
22 take the materials and where are they going to take
23 them and what are they going to do with it. That
24 requires people and time, which means staffing
25 resources. To have any kind of real impact with
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1 materials we need money that's helping to go to
2 these grass roots organizations.
3 I do just want to say one thing which maybe
4 will come up later: The CDFI mechanism is also an
5 important one. If you look, for example, at the
6 state of South Carolina -- and I think it's part of
7 the general atmosphere. South Carolina until very,
8 very recently had no certified CDFIs; none
9 whatsoever. South Carolina also has extraordinarily
10 high levels of subprime lending, particularly in the
11 African-American community.
12 CDFIs -- and I'm hoping some people in the
13 open line later will talk about how credit unions
14 and others are important alternative credit
15 mechanisms. We have to talk about if folks are not
16 going to go to predatory lenders, where are they
17 going to go. I think CDFIs are a source of both
18 alternative sources of credit and also some of this
19 education and counseling that can come. I think
20 upping the resources we have for CDFIs is one
21 critical strategy.
22 MS. LLOYD: Could I just go back to the EFT
23 99 materials you were talking about. Extension was
24 a party to developing the materials. Every single
25 county was given a copy of those and they partnered
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1 with the other groups and just -- extension is a
2 grass roots organization. I think the people in the
3 counties are trusted, but they in turn do extensive
4 train the trainer, and I think that's what we need.
5 We need to partner in the communities so we aren't
6 competing with each other.
7 MR. BLANTON: I was thinking of that as a
8 model.
9 MS. LLOYD: I think it's a very good
10 model. Just add some visuals to go with it.
11 MS. BRAUNSTEIN: Switching topics a little
12 bit, one of the things that we've heard about in
13 terms of any possible changes that we would make to
14 HOEPA would be about requiring that anyone who is
15 going to get one of these high-cost loans go to
16 counseling first before they sign the papers, for
17 assistance, and I'd like to hear from some of you
18 what you think about that.
19 MS. MASSENBURG-BEASLEY: I'd like to
20 respond to that. I understand that perhaps earlier
21 this morning the comment relative to disclosure was
22 mentioned, but that's where I'm going in response.
23 For example, I, as a first-time homeowner,
24 am coming in and you have the documents prepared and
25 before me and you're disclosing all of the correct
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1 or even unscrupulous information. That means that I
2 understand it only to my degree or level of
3 understanding, so therefore disclosure is one thing
4 but understanding what's in front of me is another.
5 It's very, very important that there be
6 counseling and/or education as a part of the lending
7 element because of the fact what we're finding is
8 that a very, very large percentage, particularly
9 first-time home buyers, low wealth, very low wealth
10 families, are emotionalized by the fact that I am
11 purchasing a home, or a car. Whether or not the
12 interest rate is 29 percent or whether or not the
13 interest rate is 8 percent, I want the house or the
14 car and I'm going to sign on the dotted line.
15 There needs to be a third party involved so
16 that that person truly understands the cost of
17 credit. Understanding and knowing my credit
18 capacity is also very, very important, because we're
19 finding that the delinquency rate, the default rate,
20 will increase if there is a minimum or no
21 understanding as to what I've done other than
22 purchase the home.
23 MS. BRAUNSTEIN: I'll let anybody else
24 comment but I want to add to this a little bit based
25 on what you said. We've heard from some housing
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1 counseling programs themselves that they have found
2 it often very frustrating because people will come
3 to them before signing on the dotted line for a
4 HOEPA loan or high-cost loan, and even though
5 they'll sit down in great detail and go over the
6 terms of the loan and explain to that person that
7 this is a bad deal, you shouldn't sign this loan,
8 the people still will sign because I need that
9 thousand dollars that I'm going to get. And I was
10 wondering if you've had any experience with that
11 issue and what success you've seen or heard about in
12 terms of having counseling actually stopping people
13 from making these loans.
14 MS. MASSENBURG-BEASLEY: Yes, we've had
15 some experience, and while I am not in a position to
16 give you the actual percentages of success, I'd like
17 to say that there is a model in existence called the
18 community mortgage loan program offered by one of
19 the local financial institutions. The reason the
20 program is so successful is because it is a very,
21 very structured program. Individuals who are
22 interested in home ownership, no one is denied, and
23 we know that's basically unheard of. But the reason
24 that it works is because there is a very thorough
25 understanding and a program service plan designed
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1 for that particular family. Families oftentimes
2 participate with a counselor for at least three to
3 six to twelve months and they must come every 30
4 days in order to graduate from that program. So the
5 more structured programs -- and I realize that
6 appears to be a far more handholding type situation,
7 but it turns out to be a very, very successful piece
8 because of the fact that they are showing and
9 demonstrating their willingness to commit to their
10 education and to their future.
11 MS. LLOYD: Could I just add on the
12 education preceding the counseling, if they haven't
13 had adequate education they aren't going to
14 understand what you say in the counseling. They
15 aren't going to listen.
16 We find that some of our greatest success
17 stories, if you wish to call them that, are the
18 people who come to home buyer education, maybe
19 they're ready to buy right now or maybe they're just
20 trying to find out what they need to do in order to
21 get their credit cleaned up and buy down the road,
22 but there's a series of lessons so they have time to
23 go back and actually see what the family financial
24 situation is before they come back again, have time
25 to get a credit report so they have something
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1 tangible to look at and see what they're
2 addressing. But what we need to see then and what
3 we have found is that they say I'm not ready yet,
4 but two, three, four years later they will come back
5 and say I am ready, I've gone through it and I have
6 done it successfully.
7 And the final thing I'd like to say on the
8 education, many of the curricula I have seen
9 elsewhere -- and there are many out there, as you
10 know -- talk just about how to get into the house.
11 Unless that initial home buyer education includes
12 what do you need to do to stay in it, and that would
13 include all these cautions, then we haven't done our
14 job.
15 MR. LONEY: The anecdotal evidence or what
16 you hear is that a lot of this happens in the
17 context of a charlatan who comes around to the
18 elderly person's house and offers to fix their front
19 stoop and in the context of that scenario becomes
20 this elderly person's best friend, trusted advisor,
21 you know. Is there anything -- I mean, I've heard
22 it too often to think that there's not something to
23 that. But is there anything that counseling,
24 education, other kinds of intervention, is going to
25 do to address that sort of the most horrible of
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1 horribles in these anecdotes?
2 MR. SKILLERN: I think the education is
3 very important and I strongly support and helped to
4 found the North Carolina Association of Housing
5 Counselors and raise money for it, but it is a
6 limited approach. There is a real need to put this
7 educational work into the context of enforcement,
8 recognizing that it is not people's ignorance that
9 is the blame, is the cause for them being
10 victimized; the act or the cause of action is the
11 lender.
12 Again, education is very important. I would
13 really stress, you know, the Federal Reserve helping
14 to support full appropriations from Congress to help
15 pay for the housing counselors and legal services,
16 people to do this type of work.
17 So I guess to your question, no, I'm not
18 sure that we can -- I mean, hopefully this flier
19 will have them call. Hopefully Mike Easley's
20 announcement will have them call a friend and say
21 will you look at this loan document with me; that
22 there's a basic line of caution in the marketplace,
23 that people will be more careful. But let's also
24 put education in context of what can be done.
25 MS. MASSENBURG-BEASLEY: I think it's also
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1 important to keep in mind that predatory lending has
2 several components, and certainly there are several
3 solutions, one of which is legislature which will
4 address the situation or the scenario that you just
5 described, and the other of course is education. It
6 must be in partnership one with the other, where we
7 control unscrupulous situations through legislature
8 and the other that we educate the consumer who
9 recognizes the transactions.
10 MS. LLOYD: I would just like to applaud
11 the Fannie Mae approach. I think the short takes
12 and periodic changes so it's not just the same
13 message over and over are helpful, and I look
14 forward to seeing what you're doing on the HOEPA
15 issues, the predatory lending in particular.
16 You do not oversimplify and turn it into
17 caricature, and I think that's important. And
18 there's a place to go, there's a place to get
19 information. The awareness is not great enough yet,
20 just as -- you know, after each of our hurricanes
21 that we have here in North Carolina, there has to be
22 another round because we've got new people coming in
23 or new people affected because of where they hit.
24 They need to be on the alert for the post-hurricane
25 attempts at fraud, and I think that's what we're
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1 dealing with here.
2 MS. MURRELL: I think what I'm hearing is,
3 you know, there's no one solution to this problem,
4 that there really needs to be a comprehensive
5 approach to raise awareness so people are aware of
6 the issue early on, make sure that there's education
7 so that people are fully informed and make wise
8 decisions, that they know what they're getting into,
9 and then there's also legislation. So there's
10 several different things that I think need to be
11 addressed to get at this program and there's no one
12 solution that's going to be a cure-all for this.
13 MR. BLANTON: How do you get a combination
14 of awareness and intervention?
15 I can give Glenn another story that happened
16 to me. Somebody knocked on my door and wanted to
17 spray something on my slate roof to make it last
18 longer. Well, I told him where to go, but instead
19 of going there he went next door to where there were
20 three sisters in their eighties living on a fixed
21 income. I happened to see it so I called the
22 police. Well, they came and arrested him for not
23 having a business license. But I don't know whether
24 he was tied in with any lender that he was going to
25 give them a document to sign or not, but the whole
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1 point is that's happenstance. Is there a way to
2 institutionalize some sort of awareness and
3 intervention?
4 MR. SKILLERN: I would point to our model
5 with CRA*NC in that we're working with other
6 community groups, local NAACP chapters, to do
7 outreach to their members, and to the churches. So
8 these fliers, beware, be cautioned, are getting out
9 through that informal network. And we have found
10 that probably our biggest bang for our buck has been
11 people talking with each other, the informal network
12 of you calling your neighbor and the minister
13 talking to his parishioners.
14 MS. LLOYD: We also have in North Carolina
15 under the consumer protection section, Phil Lehman's
16 group, a senior consumer fraud task force in which
17 extension and AARP are the primary outreach folks
18 and everybody else is law enforcement so that you
19 have people meeting regularly and sending out
20 materials, and it has to -- some things just have to
21 filter out. The money to do it on a public way and
22 the less expensive ways to do it -- oh. None of us
23 have mentioned Web sites. I think we do have to
24 acknowledge that more and more people have access to
25 the Internet. Not necessarily our end audience, but
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1 people who can reach the end audience.
2 MR. SKILLERN: I'd like to move the
3 discussion a little bit towards other types of
4 strategies. I think education is important. This
5 the morning y'all focused on HOEPA regulations, but
6 you also have other tools existing under the Federal
7 Reserve that you could use. One is I think that the
8 HMDA data as a research tool could be strengthened.
9 I'd like to enter into the record that many of the
10 subprime lenders are not reporting race data, so
11 that the data itself becomes a poor tool or
12 ineffectual tool, or incomplete tool should I say,
13 to measure what's happening in the market. So
14 enforcement of the HMDA requirements would be very
15 helpful.
16 MR. BLANTON: Could you elaborate on that?
17 MR. LONEY: Why wouldn't they be in the HMDA
18 data?
19 MR. SKILLERN: They are reporting under the
20 HMDA data but race is not being reported, oftentimes
21 because brokers are collecting it or because these
22 are phone generated calls. But nonetheless, there's
23 just an increasing percentage of nonreporting of
24 race, particularly among subprime lenders. I'd be
25 glad to give you data to back that up.
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1 MR. LONEY: If you assume that part of it
2 is because of the increase in the phone applications
3 and the Web applications, et cetera, where they
4 don't have to note race, then that makes sense;
5 right? Are you saying they're doing it improperly
6 or are you saying they're doing it properly?
7 MR. SKILLERN: I think there are probably
8 legitimate reasons why there is an increase in the
9 number of nonreported race. I also think that when
10 it starts to reach above a level of 50 percent, the
11 data itself, means we need to look at that tool to
12 be able to figure out how to make it more effective
13 to collect the information.
14 Race is just one issue under the existing
15 regulation. The other piece of this that is often
16 being asked for is, is credit being priced according
17 to risk and is there disparate impact and treatment
18 of protected classes. The office of thrift
19 supervision came out with an estimate of about
20 41 percent of subprime lending is being priced for
21 people who have credit scores of 620 and above.
22 Fannie Mae and Freddie Mac have both come out with
23 estimates of between 30 and 50 percent of the
24 subprime market are overpriced. So we think that if
25 the HMDA data was expanded to collect bar
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1 characteristics such as credit score, we would then
2 be able to do correlations to better determine how
3 credit is being allocated.
4 The HMDA data is notorious, we've all
5 agreed, both lenders and advocates, that it's not
6 complete enough to know, particularly with the
7 evolution of the subprime market, whether a loan is
8 subprime or not and whether it's for manufactured,
9 and we need a better definition of that. We need a
10 type loan category for those. We also need to
11 expand the loan characteristics such as the interest
12 rate or prepayment penalties or financed credit life
13 insurance so there's a public data source for loans
14 that we think have predatory elements to them. So
15 HMDA data itself, the Federal Reserve we would ask
16 to look to both enforce it better as well as to
17 expand the categories and types of data collection.
18 The other thing as far as HMDA, a study that
19 would be helpful, I referenced it earlier, is that
20 we need to go into a large source of loan files of
21 subprime lenders and simply characterize what type
22 of loan terms, conditions, pricing, is happening so
23 that we can get a large enough sample to do that,
24 and I would again look to the Boston Federal Reserve
25 as a pivotal example of the power of the research.
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1 I also want to talk about CRA, the Community
2 Reinvestment Act, on two fronts.
3 MR. BLANTON: Peter, before we leave HMDA
4 I'd like to ask a question, particularly from
5 Ms. Massenburg-Beasley, and that is, with respect to
6 the HMDA disclosures, the reasons for loan denial
7 are now voluntary, so -- it's voluntary, it's not a
8 mandatory disclosure?
9 MS. MASSENBURG-BEASLEY: It is mandatory.
10 MR. LONEY: It's mandatory for certain --
11 the 0CC and I think -- we don't.
12 MS. BRAUNSTEIN: We don't.
13 MR. BLANTON: When we're looking at a
14 profile of the community and the HMDA lending we
15 don't get a complete picture of why the credit was
16 denied. We suspect it's credit history but we're
17 not too sure. Would it help with respect to credit
18 counseling activities to be able to target those
19 activities if you had a clearer picture of that?
20 MS. MASSENBURG-BEASLEY: Relative to
21 working with the person who has been denied? Yes,
22 it would help to be --
23 MR. BLANTON: Developing your curriculum
24 and your materials and that sort of thing.
25 MS. MASSENBURG-BEASLEY: It would help to
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1 know, yes, the trends for denial, and therefore in
2 developing the curriculum materials, yes, we could
3 tell that or target that to the direction of the
4 actual identified trends and problems. That would
5 be helpful.
6 MR. SKILLERN: I would hope that depository
7 institutions that are covered by CRA would not be
8 given credit for making subprime loans that have
9 practices that could be identified that seem to be
10 unfair that deplete wealth, not create wealth, and I
11 would look to the North Carolina model for better
12 determining what a good CRA loan is, such as not
13 having high fees.
14 I'd also like to urge you to look at the
15 fair housing law and we'll submit for the record the
16 Department of Justice's AMICUS briefing in the
17 Capital City case, which looked at whether predatory
18 lending is a fair housing issue. And to the extent
19 that the Federal Reserve and its examination
20 processes cover lenders who are doing subprime
21 lending, to examine the implications of whether
22 predatory lending or subprime lending is having a
23 disparate impact on minorities. It's a very
24 technical and well argued document.
25 You have the regulatory authority to examine
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1 for fair housing through your examination process
2 and it is a tool that you could already use.
3 Another thing that I'd like to argue is that
4 you go ahead and change your current policy of not
5 examining affiliates of bank holding companies. I
6 think it very important that to the extent you have
7 regulatory jurisdiction that you choose to exercise
8 it in examining those loan files to determine that
9 they're in compliance with existing laws. We're
10 very concerned about the dual system of being able
11 to walk into a prime lender and get prime interest
12 rate, credit insurance if you want to buy it on a
13 monthly basis, and if you have a complaint be able
14 to go to the OCC that regulates and file a
15 complaint, versus walking into its affiliate just
16 next door, getting an interest rate that is higher
17 regardless of your creditworthiness, that has loan
18 terms and conditions that are not equal to the prime
19 loan, that may not be priced to your credit risk,
20 and that if you have a problem you really don't have
21 a regulator to go to except the FTC, which is
22 understaffed and does not commit regular, periodic
23 evaluations of the lender's performance.
24 You have that jurisdiction and we would
25 really urge you to go ahead and exercise it to
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1 broaden the field of evaluation for fair housing and
2 consumer compliance. I would do that as a safety
3 and soundness issue as much as an economic justice
4 issue.
5 MR. LONEY: Just to clarify, you mean the
6 non-bank subsidiaries of bank holding companies; is
7 that right?
8 MR. SKILLERN: Yes, sir.
9 MR. LONEY: You don't have to call me sir,
10 Peter.
11 MR. SKILLERN: That was the last five
12 minutes of my three-minute speech.
13 MR. LONEY: I know, and I think you just
14 cheated. Somebody else have any questions?
15 One thing that we came here for is to get
16 somebody to tell us; we've been looking for data.
17 When the Board engages in rule-making one of the
18 things it likes to have at its fingertips is data.
19 We've looked, and so far I'm not sure that I can
20 tell you that we've been remarkably successful in
21 finding data that will inform us about any of the
22 aspects we've been talking about either this morning
23 or this afternoon or any of the brief litany you
24 just gave as to the prevalence of this or the
25 implications of changing parts of this to something
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1 else and what would happen.
2 Then I think we even have some debates about
3 the adequacy of the data that has been put out, that
4 whether in fact what we're talking about with HOEPA
5 lending is only 1 percent of the market and it would
6 go up to 5 percent of the market and people take
7 issue with whether the data that that assertion is
8 based on has any validity.
9 If there's anything that anybody knows of,
10 we'd certainly like to hear about it, by way of data
11 the Board can use in making the judgments it's going
12 to have to make in addressing whether and how to
13 change HOEPA, which is really what we're talking
14 about sort of as a first matter.
15 MS. WARREN: I don't know of anything
16 better than you've already heard. I think it points
17 to Peter's recommendation that the Fed is going to
18 need to take some leadership in generating its own
19 data. That's going to be far better than anything
20 else that's provided, and this data is essential to
21 answering the questions that you've raised and we've
22 all raised. There's a real research need out there.
23 MR. SKILLERN: I think that you also might
24 find sources for different types of practices but
25 not necessarily how they are all put together in a
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1 loan.
2 For example, if you agree that high
3 prepayment penalties are an unfair consumer
4 practice, then the industry admits that there is
5 about 80 percent of that on subprime loans and only
6 about 2 percent on prime loans. If you wanted to
7 get an estimate for single-premium credit insurance,
8 over $5 billion a year is sold in our country. If
9 you wanted to get an estimate for how loans are
10 priced above credit risk, then I would refer you to
11 the OTS report or the Fannie Mae or Freddie Mac
12 evaluation. By that you start to pick up different
13 types of it, even though you've not been able to say
14 the high interest rates of the 30 to 50 percent are
15 then locked in by the prepayment penalties for
16 80 percent of the loans, so you could make that
17 correlation. That's one recommendation I would make
18 to you is to look for a published research on
19 aspects of it even though, until we do a broader
20 study, we can't see how they're all put together.
21 MR. LONEY: Certainly we've done some
22 research on some aspects of it but you butt up
23 against the problem of not having data that's
24 reliable, and it's not always as easy as just saying
25 we want it, to get it. I mean, sometimes we want it
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1 and nobody has it even to get. That's always been a
2 challenge what to do then. Or if we have wanted to
3 go and try to collect it, everybody that we had to
4 get it from as a source collected it, you know, in a
5 myriad different ways, so that even if you get the
6 information it's not comparable one institution to
7 the next.
8 I don't want to tell you my sob stories but
9 I will tell you those kinds of efforts have come a
10 cropper no matter what we wanted, even if it was we
11 who was doing it in the past. We were hoping maybe
12 somebody could send us down a better path than we've
13 used so far.
14 MS. HURT: May I ask in terms of consumer
15 education, I guess the basic question I'm asking is,
16 what can the Board do? For example, is there
17 enough -- well, you talked a bit about written
18 materials and that's sometimes useful and sometimes
19 they're not, dependent upon how complicated, but do
20 you get a sense that on a national basis there is
21 enough materials out there and it's an issue of
22 dissemination, or there may be materials for your
23 constituents but the Board -- is there a role for
24 the Board to create something along the lines of the
25 car leasing initiative? Would that be useful? Do
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1 you know what I mean? That if the Board came out
2 with a package of brochures, a video, something that
3 could go on the Web site, would that be useful, or
4 is there enough information out there already and
5 it's just a matter that it's not reaching the right
6 people?
7 MS. LLOYD: From my personal perspective
8 with my organization there's not enough on HOEPA
9 itself, and that we need the train-the-trainer type
10 background material to make sure they're dealing
11 with objective -- in my organization it must be
12 objective, it must be research based, factual based;
13 it can't be advocacy. So we need more -- we have
14 the general homeowner; I'm saying we need this
15 supplement for it.
16 I think that we always partner with other
17 organizations and I'm assuming that they share, that
18 they would like to have short-take information and
19 background for whoever is going to actually be
20 delivering the information. But using the Web,
21 we've got half a dozen I could name right away,
22 professional organizations that share information.
23 We need to get it out as soon as there is something
24 available to update whatever they're already using.
25 I'm seeing what you need especially is supplemental
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1 to what we have. Yes, we very much need it, and
2 just to keep coordinating the groups that need to be
3 talking to each other so that we aren't having a
4 waste of resources by producing comparable things
5 for the same audience.
6 If we divvy up and say we'll do something
7 for this audience and we'll do it for this, and then
8 everybody use it all, that would be the ideal.
9 MS. MASSENBURG-BEASLEY: I'd like to
10 magnify that and say that I believe there's a
11 tremendous amount of information that's presently
12 available and that will work extremely well. The
13 difficulty of the problem is the distribution
14 system, and therefore there should be some capacity
15 building for the distribution of the current
16 information. I'd like to think that the Federal
17 Reserve could look at the information that is
18 available, pull it together, and then of course
19 support the local agencies and local initiatives
20 through capacity building to get that information
21 out.
22 MS. MURRELL: I'd like to echo that point.
23 We talked a little bit about the whole issue of
24 trust and that that's why it's so important to make
25 sure that information is distributed through the
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1 local organizations. And in some cases these local
2 organizations might be organizations that are not
3 involved in financial literacy or credit, if you're
4 talking about like the faith-based communities for
5 example, so it is particularly important not only to
6 have information but to make sure that there is the
7 technical assistance piece that goes along with it.
8 MS. MASSENBURG-BEASLEY: I'd like to add to
9 that also a model, an excellent model to take a look
10 at, the housing council association group here in
11 the state of North Carolina and to make contact with
12 that particular organization. There are at least --
13 I want to say at least approximately 30 or more
14 local counseling agencies who are members of that
15 particular organization. It would be a concerted
16 effort and a very, very easy mechanism to work with
17 that particular group to get the information out
18 statewide.
19 MR. LONEY: Does anybody else have any
20 questions or comments?
21 MS. WARREN: I just wanted to bring up the
22 rural issue again because none of the questions
23 dealt with that, and wonder if you have any
24 questions about that or any interest or concerns.
25 I'm not sure you're going to hear about it in the
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1 other three hearings. I hope you will, particularly
2 in the midwest, but you can't count on it.
3 MS. LLOYD: We would certainly echo that,
4 extension. This is our toughest nut to crack is
5 there aren't services, there aren't people to
6 deliver it.
7 MS. WARREN: And the problems are more
8 prevalent --
9 MS. BRAUNSTEIN: The questions I asked
10 before about the consumer education, I also wanted
11 to hear from you in terms of the specific issues
12 that pertain to the rural areas.
13 MS. LLOYD: And our elder poverty is
14 obviously the greatest there.
15 MS. BRAUNSTEIN: Seems what I'm hearing is
16 a lack of resources and delivery systems.
17 MS. WARREN: In the south, North Carolina
18 is exceptional in the kinds of delivery mechanisms
19 it has. We work in all the other states and are
20 just trying to work with partners there to build up
21 what we have here in North Carolina. It's a very
22 different place.
23 MR. BLANTON: We have some dealings that
24 we're doing with the Appalachian Regional
25 Commission, but how does that attack those out west,
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1 for example? As I would get it, the problem there
2 you're talking about is in the delivery system; the
3 infrastructure is not there. So maybe you need to
4 identify through the extension service and/or
5 faith-based organizations something that would get
6 to the consumers in the rural areas.
7 MS. WARREN: As Peter says, it's also
8 looking at the bigger picture, that clearly
9 manufactured housing is a major player in rural
10 housing, quote, affordable housing, and the
11 financing vehicles and mechanisms that go along with
12 manufactured housing have to be, I think, looked at
13 in this research and in any kind of regulatory
14 structures. So it's not only a supply of housing
15 counseling in rural communities; it's also where are
16 the rural banks, where are the conventional
17 mechanisms for getting credit. There are less even
18 than in the inner cities.
19 MS. BRAUNSTEIN: I know at the Dallas Fed
20 they're looking very closely at issues around
21 manufactured housing because that's been a big
22 concern in that area, and I can put you in touch
23 with somebody.
24 MR. LONEY: Anything else you want to say
25 about that? All right. Well, if not, I will thank
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1 the panelists; thank you very much. It was very
2 interesting and I think it will ultimately prove to
3 be very useful.
4 Let's take about, I don't know, 15 minutes,
5 and we'll check out the list of people who signed up
6 for the open-mike, and we will begin the open-mike
7 session at five minutes after 3:00.
8 (A recess.)
9 MR. LONEY: It's time for us to open the
10 open-mike session. This is going to be tight,
11 folks, getting it all in. We'd like to get as many
12 people in as we can and still allow those of us who
13 have to leave to catch our plane, so I'd ask once
14 again that we keep what we have to say down to three
15 minutes. And for those of you who have come as
16 groups, I would very much appreciate it if you could
17 orchestrate it to keep the time that you use down to
18 something more reasonable than multiplying the
19 number of people you have by three, because that
20 sort of stacks the deck. So, anyway, if you can
21 accommodate me on that I would very much appreciate
22 it.
23 The first person who's on my list is Dick
24 Boisky of Azalea Coast Mortgage, if you want to come
25 up. The timekeeper is this gentleman over here and
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1 he will give you the one-minute signal and then
2 he'll give you time-is-up signal, and if you will do
3 what you can to accommodate us with that. Before
4 you start, Jane, do I have the final list? Okay,
5 Mr. Boisky.
6 MR. BOISKY: My name is Dick Boisky and I'm
7 a mortgage broker. I am president of a small
8 business employing six people in Wilmington, North
9 Carolina. On previous trips to the Fed here while
10 working at Brinks part-time going to NC State, I
11 started working in the basement, delivering currency
12 with Brinks down there. Later as a national bank
13 examiner I attended numerous consumer compliance
14 seminars at the Fed here, and now I have this
15 appearance. I hope that on my next visit I'll be
16 able to get to that executive level.
17 A couple of the issues we're talking about
18 here, truth in lending Regulation Z. As a former
19 national bank examiner while doing consumer
20 compliance exams, I was really trying to recall -- I
21 can't ever recall a violation related to APR on the
22 mortgage side. Retail side, car loans, we had them
23 all the time, but the mortgage side. It simply was
24 because we weren't comfortable enough to go head to
25 head with the banker who could stare us down. We
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1 just didn't feel confident enough. I still don't
2 feel that confident about it.
3 The concept of APR and comparative shopping
4 is a very good one. However, even experienced real
5 estate attorneys hold their breath when asked to
6 explain how the APR is calculated. No matter how
7 well intended, for the average consumer this concept
8 is very broad and nebulous, probably to the point of
9 being lost.
10 HOEPA applies to closed-end installment
11 loans. In placing additional disclosure
12 requirements based on profit margins on these types
13 of loans, please keep in mind the relatively small
14 amount of the loan we're talking about and thus the
15 small amount of profit to be earned. By placing
16 these additional disclosure requirements, you are in
17 effect capping the loan, which could lead to
18 disinterest in providing this service. That
19 ultimately deprives the consumer of a means of
20 accessing their appreciation and equity.
21 Balloon payments. Balloon payments are not
22 necessarily bad things. For a person who expects to
23 be relocated by their company or expects to buy a
24 larger or smaller house in a few years, a mortgage
25 with a balloon payment may be just the ticket.
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1 Prepayment penalties. Most homeowners stay
2 in their house or mortgage an average of three to
3 five to seven years, so for many borrowers even a
4 three-year prepayment is not an issue. North
5 Carolina does not allow mortgages with a prepayment
6 penalty. Valid points could be made on either
7 position; however, the bottom line is this: Our own
8 Charlotte-based Bank of America offers every state
9 except North Carolina a one-year adjustable mortgage
10 with a prepayment penalty currently at around
11 7 percent. Without that prepayment penalty, the
12 rate would be 8 percent. It amounts to $34,000
13 additional expense over 30 years.
14 A prepayment penalty is not de facto bad.
15 It is merely one mortgage tool that, when used
16 wisely with the advice and experience of a
17 professional, can be used to a consumer's
18 advantage.
19 One last thing, registration or licensing.
20 Every group or organization has a few bad apples
21 that taint the entire group. The mortgage industry
22 is no different. We readily admit to having some
23 overzealous members, some might even say
24 unscrupulous, but not all brokers operate that way.
25 The majority don't operate that way. I think we
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1 could use some refinement of present laws -- I'm
2 finished -- present laws or regulations that may be
3 archaic, but I think also that if mortgage brokers
4 are accounting for over 63 percent of mortgage
5 transactions, as we are, we must be doing something
6 right.
7 Our trade association stresses continuing ed
8 but not a major overhaul. Maybe part of the
9 solution is to have brokers licensed or registered
10 similar to a stockbroker, insurance broker, and real
11 estate brokers. Thank you.
12 MR. LONEY: Thank you. Let me just give
13 you a bit of a list of who's coming up; I'll give
14 you the next five, let's say. Hayes Hyman, Jane
15 Estes, Mark Lawrence, Tom Estes, and Mike Miciek,
16 that's the next five. So Hayes Hyman, if you want
17 to come up.
18 MR. HYMAN: I'm not as prepared as
19 Mr. Boisky was in terms of a written text to read
20 from, but my name is Hayes Hyman, I work with First
21 Financial Services in Carey, North Carolina. I am a
22 past president of the North Carolina Association of
23 Mortgage Professionals and I currently am the
24 cochair with Kate Crawford of the legislative
25 committee, so as such I keep my finger on the pulse
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1 of the regulatory and legislative goings-on in the
2 mortgage related industry.
3 But the main thing that I wanted to comment
4 on is that I'm a loan officer first and foremost; I
5 have been for 14 years. Every day I meet with
6 consumers just like those of us in this room to take
7 loan applications, to counsel them about their
8 credit, about the type of loan programs that are
9 appropriate for their particular needs, because
10 there's so many loan programs and everybody's needs
11 are unique to them. And the one thing that I've
12 learned over the years of doing this is that, as
13 Governor Gramlich commented on, the simplicity needs
14 for the disclosures is that people, all people, want
15 to know something very simple: What does cost for
16 me to do business with you. And the costs are quite
17 simple. It's fees that they pay at closing and it's
18 interest that they pay over the course of the loan,
19 of course, the interest rate. And as good as the
20 intentions are of the Truth in Lending Act, that
21 cost, simplicity, gets quite complicated with the
22 level of disclosures, and so I urge the Board to
23 look at simplicity ways of meeting those needs.
24 I don't do Section 32 loans, high-cost
25 loans, I don't do the North Carolina -- as described
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1 under the new North Carolina Predatory Lending Act
2 types of loans, and the majority of our members
3 don't do that type of loan as well. So we are proud
4 to say that we support and supported the process and
5 the final outcome of the Predatory Lending Act and
6 we want to work with the Board and others in
7 achieving the solutions to many of the problems that
8 were discussed in this room.
9 The one thing that I do want to say,
10 however, is that it was great to hear some of the
11 comments from Ms. Massenburg-Beasley and Ms. Murrell
12 in terms of outreach and education and consumer
13 credit counseling. Every borrower I meet with,
14 whether they're a first-time home buyer or they've
15 done it many times, there's a counseling process
16 that takes place. And I think they would be willing
17 to -- in fact, to perhaps even suggest a forum among
18 industry and some of the counseling groups so that
19 we can develop counseling at the point of sale; that
20 is, the loan officer.
21 With the ethical and scrupulous rather than
22 the unscrupulous I think that most of the solutions
23 could be achieved at the point of sale. Thank you.
24 MR. LONEY: Thank you. Ms. Estes?
25 MS. ESTES: My name is Jane Estes. I am a
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1 mortgage broker; I'm also a small business owner
2 here in Charlotte. My company has four people.
3 We're part of the economy, we keep it going. I
4 think most of the mortgage brokers in this country
5 range from two people to ten people, the majority of
6 them. We provide a valuable service. We take time
7 and we do a lot of education, take time to do loans.
8 MS. BRAUNSTEIN: They can't hear you in the
9 back.
10 MS. ESTES: As a mortgage broker we can take
11 time, because our overhead is not as high, to do
12 loans that traditional lenders cannot. I've had
13 loans that have taken four and five months to close
14 because of the process I've had to go through with
15 the consumer to either correct something, help him
16 get everything in order. So that's a value that we
17 provide.
18 I hope we've established that not all
19 brokers are predatory lenders and not all subprime
20 is predatory lending. Even though somebody may
21 qualify for a conforming type loan, having a credit
22 score over 620 does not necessarily mean that they
23 are going to qualify document-wise for a conforming
24 loan or that that is the product they want to choose
25 that will meet their needs. They may want a
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1 nonconforming type of product.
2 Everybody has heard the horror stories, but
3 for all of those horror stories there's hundreds of
4 success stories and we just don't get advertised as
5 much because people are happy. The squeaky wheel
6 gets the oil.
7 I do what I do because I get so much
8 satisfaction out of helping people get into homes
9 and also possibly getting back on the road to
10 recovery if they have had a disaster in their
11 family.
12 Already in North Carolina I've seen the
13 availability of credit begin to shrink, particularly
14 to the credit-impaired, but also the conforming
15 customers out there due to our new predatory lending
16 law. What I've heard from lenders is that the
17 uncertainty of the law, particularly the reasonable
18 net tangible benefit statement -- the ambiguity of
19 this section is that it's not tried, there's no case
20 law, and all the risks are very unknown. Also, by
21 limiting the prepayment penalties severely there is
22 no certainty that a lender is either going to break
23 even or make a profit. These provisions have
24 increased the cost of credit through interest rates,
25 which affects each borrower's affordability and
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1 buying power.
2 Because of these issues that we're facing in
3 North Carolina, I urge you to slowly take steps to
4 make changes to HOEPA and consider the ramifications
5 by getting input from the people that sit across the
6 desk from these consumers. One step would be a very
7 simple disclosure form; if you can streamline that
8 it would be great. I have to make jokes in front of
9 my customers because there is such a volume of
10 paperwork that needs to be done. If you can
11 simplify that, it would be much easier.
12 If the cost of credit increases nationwide
13 as it has started to in North Carolina, I would
14 think that it would hinder the percentage of home
15 ownership that we're at right now. Thank you.
16 MR. LONEY: Thank you. Mr. Lawrence?
17 MR. LAWRENCE: Good afternoon. Thank you
18 for the opportunity and the forum in which to
19 speak. I have many more pages and a lot to say but
20 I'll watch out for Pepper.
21 MR. LONEY: Why don't I interrupt for a
22 second and say if you do, and for any of you who
23 speak, you can submit those for the record. So if
24 you can just summarize, but you can send us what you
25 like or give it to us.
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1 MR. LAWRENCE: The main thing that I wanted
2 to try to relay to you as a board is what we do
3 every day at our company and it's basically
4 mandatory for our loan officers, and that is to
5 explain the whole process of credit and to educate
6 their customers.
7 About 60 percent of our customers are
8 refinances. We have conforming and conforming and
9 this happens in both segments. They come in and
10 they have this sickening sense every day when they
11 wake up before their feet even hit the floor,
12 they're tense and they're upset. They're worried
13 about the phone calls they might receive before work
14 or at work. They're afraid of having company over
15 to their house for a get-together because somebody
16 might come by their house. They've made some bad
17 decisions somehow, maybe bought a car that was too
18 expensive or helped somebody else or maybe they're
19 helping with the convalescence of an elder parent,
20 but for whatever reason, not being judgmental, a lot
21 of people in America have gotten themselves into
22 circumstances in which they have bad credit.
23 And what we do, when we do the loan for
24 them -- hopefully we can do a loan for them. If we
25 can't, we tell them, but in the process we talk to
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1 them about their credit reports, how to correct
2 them. We talk to them about what credit scoring
3 means. We talk to them that they need to have
4 cancelled checks. The whole process is to -- if
5 they're going to be on a nonconforming loan in the
6 very beginning we let them know the end result is to
7 be in a conforming situation, that this is a
8 transitional thing for them. We talk to them about
9 savings accounts, we talk to them about the
10 ramifications of cosigning for somebody and not
11 having them pay the check. We talk to them about
12 reading the publications of their industry.
13 In the whole process that we do in the whole
14 time we're doing the loan is to educate them and let
15 them know that this is a temporary thing, that they
16 can get from here and they can get over to the
17 conforming side so 27 out of 30 years they are in a
18 very good situation. I thank you for your time.
19 MR. LONEY: Thank you. Mr. Tom Estes?
20 MR. ESTES: I'm Tom Estes. I am a board
21 member of the North Carolina Association of Mortgage
22 Professionals. I also represent a wholesale
23 mortgage lender that does subprime loans.
24 There are two or three things that I wanted
25 to say to you today. First of all, with the Fed's
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1 authority in what they can do, if this is exercised
2 to its fullest extent it will be severely damaging
3 to our business. And business -- the nature of
4 business is to make a fair profit, a fair and
5 reasonable profit, not to take advantage of
6 consumers. But it will hurt if that happened.
7 I would urge -- I would reiterate some of
8 the things that have been said up here before. I'd
9 go very slowly, I urge you to go very slowly.
10 You're asking for data; part of the data I think you
11 need is going to be to take a look at what happens
12 in North Carolina. We don't know yet, we don't know
13 the effect of what's happened here. You've been
14 urged today to go beyond that. It's a very scary
15 thought that we don't know yet what's happening and
16 yet to go beyond it.
17 While saying that, let me say that I've
18 heard and I've read some of the horror stories that
19 exist. I don't doubt that those things happen.
20 I've seen the proof that some of those things
21 happen. I rep 175 mortgage brokers in North
22 Carolina and the brokers that I know are hardworking
23 individuals that do just like people who have stood
24 up here in front of me and told you, they work with
25 their customers. They have an end result in mind;
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1 that end result is to help somebody who's in
2 trouble. Fortunately they're able to make a living
3 by doing that, and that's a good thing. I don't
4 know any brokers who make $200,000 a month. Most of
5 my brokers I'd say are doing good to make $30,000 a
6 year.
7 While you're aiming at a market here that
8 has been called the American dream, part of that
9 American dream is not just wealth-building for the
10 individual. It has existed -- it's home ownership
11 itself, to have something invested in myself. But
12 part of that investment in myself is
13 self-responsibility. One of the speakers earlier
14 said that the problem was not the ignorance of the
15 borrowers but lenders themselves. There may be bad
16 lenders in the market but I'm not aware of it; I'm
17 not aware of a lot of it. I've seen some of those
18 things and I can't deny they happen. But I don't
19 know how you're going to go cautiously and keep the
20 opportunity for people to do self-investment -- the
21 ideas are there, and by self-investment I mean home
22 ownership -- and still keep a healthy housing mark