Afternoon Session of Public Hearing on Home Equity Lending
August 4, 2000
|
Afternoon Session of Public Hearing on Home Equity Lending |
AFTERNOON SESSION
12
INTRODUCTORY REMARKS
13
Dolores Smith 192
14
OTHER INITIATIVES TO COMBAT PREDATORY LENDING
15
OPENING STATEMENTS
16
Norma Moseley: Director of Housing Programs,
17 Ecumenical Social Action Committee, Inc. 194
18 Nadine Cohen: Lawyers Committee for Civil
Rights Under Law, Boston Bar Association 196
19
Leonard Raymond: Executive Director,
20 Homeowner Options for Massachusetts Elderly 198
21 Tom Callahan: Executive Director,
Massachusetts Affordable Housing Alliance 201
22
Allen White: Supervising Attorney,
23 Community Legal Services 204
24 John C. Anderson: The Real Estate Analyst 207
0004
1 I N D E X (Continued)
2 SPEAKER: PAGE
3 CONSUMER OUTREACH EFFORTS,
CONSUMER EDUCATION CAMPAIGNS
4
Dolores Smith 211
5
Sandy Braunstein 212
6
Discussion 212
7
PUBLIC PARTICIPATION
8
Tim Davis: City of Boston Department
9 of Neighborhood Development 264
10 Daniel Ramgeet: Massachusetts ACORN 266
11 Ed France 269
12 Leonard Alkins: Boston NAACP 271
13 Jim Campen: Associate Professor of Economics,
U. Mass. Boston 273
14
Andrea Luquetta: Massachusetts Association of
15 Community Development Corporations 276
16 Bruce Fitzsimmons: Massachusetts Conveyancers
Association 281
17
* * * *
18
19
20
21
22
23
24
0192
1 AFTERNOON SESSION
2 MODERATOR SMITH: I believe we're ready to
3 start, and so I will. I'm Dolores Smith. I'm the
4 Division Director for Consumer and Community Affairs
5 at the Federal Reserve Board, and I'll be moderating
6 for the hearing this afternoon.
7 For those of you who have just joined us,
8 we welcome you, especially the panelists, although I
9 was glad to see some of you here this morning. We
10 did hear some interesting things this morning. I
11 think they will be useful to us in our
12 deliberations, and we look forward to receiving your
13 views this afternoon.
14 Let me start by introducing the Board
15 Panel, and I will -- this morning Ned Gramlich, who
16 is a member of the Board and the Chairman of our
17 Oversight Committee for Consumer and Community
18 Affairs, was able to join us on the Panel. He has
19 left us for the afternoon, but I just wanted to let
20 you know that we did have him in attendance here.
21 And so on the panel this afternoon, I will
22 start at my extreme right with Richard Walker, who
23 is Vice-President here at the Federal Reserve Bank
24 of Boston. Then Sandy Braunstein from the Board,
0193
1 who is Assistant Director in charge of Community
2 Affairs. Then we have Jim Michaels, Managing
3 Counsel for Regulations, and Adrienne Hurt,
4 Assistant Director for the Regulations Program.
5 Adrienne and Jim are the ones who are most
6 closely associated with dealing with matters having
7 to do with the Home Ownership Equity Protection Act
8 and in developing whatever regulations will come out
9 of these hearings. So that's kind of who we are.
10 We have some rules of procedure for this
11 afternoon, as we did this morning. First of all,
12 our invited panelists who have joined us here will
13 have three minutes each to give opening statements
14 before we get into the more general discussion of
15 the issue for the afternoon, which has to do with
16 consumer outreach and consumer education.
17 And we have, in the first row in the
18 audience, timekeepers. They will be lifting up a
19 card that says "One Minute Remaining," and then
20 "Please finish" when you are approaching the three-
21 minute mark. There is also, I think, a little
22 musical beep that goes off when the three minutes
23 are up, which you may or may not hear. You may
24 confuse it with some of the cell phones that keep
0194
1 going off.
2 But aside from that, I said this morning,
3 although I didn't get around to using it, that if
4 perchance you are looking in this direction instead
5 of toward the timekeepers, that I would sort of give
6 you the time's up signal. But I think we'll do just
7 fine.
8 Then, at the conclusion of the opening
9 statements, then we will get into a more general
10 discussion where we are hopeful that, as in the case
11 this morning, it will be more of a round-table
12 discussion than just witnesses appearing before this
13 Panel. So that ought to be interesting.
14 So for the afternoon session, then, we will
15 start with the opening statements, and then we'll
16 go.
17 MS. MOSELEY: I want to thank the Board for
18 having us here.
19 MODERATOR SMITH: Would you state your
20 name.
21 MS. MOSELEY: Norma Moseley from the
22 Ecumenical Social Action Committee in Boston. I've
23 been working as a housing advocate for about 34
24 years, so I'm not the new kid on the block. And I
0195
1 have been watching the cycles of predatory lending
2 in the '80s and early '90s and now starting all over
3 again.
4 I'd like to make one comment that, based on
5 this morning's testimony, I heard from the lenders
6 in that group that there are very small percentage
7 of predatory lenders out there and the rest of the
8 subprime lenders are good guys.
9 Well, for a small number, they're having an
10 enormous impact. I think part of this is because of
11 the massive advertising that they are able to do
12 over television, mail solicitation, door-to-door
13 solicitation and phone solicitation. So, for a
14 small group, they're spending a lot of money, so
15 there must be some money in it. So when you say
16 there are only a small group of predatory lenders,
17 don't let that deceive you into thinking that there
18 isn't a whole lot of predatory lending going on out
19 there.
20 The other thing I want to say right at the
21 beginning is that this is the third panel I've been
22 on in three months dealing with predatory lending:
23 The FDIC, the National Consumer Law Center and the
24 Federal Reserve. And it seems to me that after this
0196
1 meeting the fact-finding should be complete, and
2 it's about time to get down to action. And action
3 isn't more disclosures, I can tell you that. Our
4 families don't even get through the disclosures that
5 they're given at the closing.
6 I'd like to talk with people about forming
7 some subcommittees or task forces and dealing with
8 it on parallel lines and levels as to how we can
9 come about getting some resolution to this problem,
10 not all regulation, not all disclosures, but what
11 can we do. There are a lot of people out there who
12 have a lot of good ideas, and I think that that
13 should be the next step. And I hope, at the
14 conclusion of this meeting, that there will be some
15 ongoing dialogue to really develop strategies and
16 not just talk about them any more.
17 MODERATOR SMITH: Thank you.
18 MS. COHEN: Hi. I'm Nadine Cohen from the
19 Lawyers Committee for Civil Rights Under Law of the
20 Boston Bar Association, and I hope I get Norma's
21 extra seconds there. So make sure.
22 Subprime loans grew in the greater Boston
23 area by 435 percent between 1994 and 1998, and
24 subprime lending in high minority areas in that same
0197
1 period grew by over 1000 percent. Subprime lending
2 in minority areas is three times greater than in the
3 general metropolitan area, and it's also greatest in
4 refinancing.
5 Now, while not all subprime loans are
6 predatory, it's clear we have a dual lending market
7 where low-income minority borrowers, who are most
8 vulnerable, are targeted by the unscrupulous
9 lenders, and they're targeted for high-interest,
10 high-fee loans that result in stripping homeowners
11 of color and communities of color of their wealth.
12 The word "sub "means below or beneath, and
13 we are accepting a dual market where people of color
14 are routinely given less favorable terms in loans
15 than whites, and often regardless of their ability
16 to pay back the loans or their credit history, and
17 they are thus relegated to a lower status.
18 Instead of helping people who have limited
19 incomes or past credit problems, by allowing the
20 predatory lenders, we are charging people of color
21 more than we charge wealthier white borrowers and
22 subjecting them to more onerous terms. The goal
23 should be to get all borrowers in the prime market
24 and get them loans at reasonable rates with
0198
1 reasonable terms.
2 While consumer education is extremely
3 important, the Federal Reserve Board must use its
4 regulatory and enforcement powers to stop the
5 unscrupulous lenders from taking advantage of
6 people. The Lawyers Committee would support
7 lowering the interest rate, prohibiting the
8 prepayment penalties, all the things that were
9 probably talked about this morning.
10 We also want to see expanded HMDA data
11 collection, and most importantly, I think in terms
12 of this panel, there has to be support for financing
13 of consumer counseling programs and consumer
14 education and enforcement programs by private fair
15 housing groups and by legal groups. One suggestion
16 for ensuring borrowers are protected is support
17 funding of attorneys or lay advocates who can
18 represent borrowers at the closings and review the
19 loan documents. We need to put low-income borrowers
20 in an equal position.
21 MODERATOR SMITH: Thank you very much.
22 MR. RAYMOND: Hi. I'm very pleased to be
23 here today. I thank very much the Board for
24 inviting me. I am Len Raymond. I'm the founder and
0199
1 director of Homeowner Options for Massachusetts
2 Elders. We are a 17-year-old statewide nonprofit
3 that works with older homeowners in terms of
4 sustaining their independence in their homes.
5 I would also like to, before I get into my
6 short substantive statements here, to congratulate,
7 because I think I have to do this, the Bank
8 Commissioner of Massachusetts and the Secretary of
9 Consumer Affairs, because I was very proud that they
10 were, quote-unquote, lowering the bar this morning
11 in terms of the announcement of their regulation,
12 which I think is much needed, especially in the area
13 of elder homeowners who are victims.
14 There is no question in my mind, and we can
15 certainly hopefully discuss this later on in more
16 detail, but those regulations will have a direct
17 impact in alleviating some of those problems or
18 difficulties.
19 I'm going to also quickly run through some
20 issues here which I would like to have us hopefully
21 elaborate and hopefully the audience will
22 participate in and the panelists later on as well.
23 But certainly, as has been noted already,
24 the availability of counseling I think is going to
0200
1 be a really critical issue in being able to make
2 things work for the clients that we're talking
3 about, the homeowners seeking the refinancing.
4 There are obviously questions of quality of that
5 counseling, its availability, the fiscal resources
6 to support it, and some sort of set of standards at
7 the same time.
8 I'm trying to reiterate Norma's point about
9 public awareness. Most people, I believe, by this
10 time have heard about the "Don't Borrow Trouble"
11 campaign, which was really started here in Boston,
12 and Norma had a lot to do with getting it off the
13 ground with MCBC and other folks. Now its
14 statewide. But that's an incredibly important
15 initiative there. Again, it shows the need for very
16 expensive, punchy, frequent and correctly timed
17 advertising on the other side of the issue here.
18 Education and outreach for the target
19 populations -- we're talking about on a long-term
20 basis -- is extremely important. Our program, the
21 HOME program, has been providing for some time now
22 and is continuing to refine it, but a program
23 designed specifically for senior homeowners that
24 deals with not only immediate financial questions,
0201
1 but also such important life issues as remainder
2 life planning and successful aging in place.
3 The last thing I would like to comment
4 about is that we really need to get out of the box,
5 I think. This is my fourth session, which
6 unfortunately I think -- America has this penchant
7 for 30-second attention spans. No offense to the
8 Board, but I think we really need to seize upon, as
9 I read here from the Board, the desire to have not
10 just the regulatory remedies discussed but to have
11 very much a broad spectrum of possibilities
12 discussed, and I hope we do that today.
13 MODERATOR SMITH: Thank you very much. Mr.
14 Callahan.
15 MR. CALLAHAN: Thank you. I thank you for
16 inviting us today. My name is Tom Callahan,
17 representing two organizations today: the
18 Massachusetts Affordable Housing Alliance, which I'm
19 Director of, and I'm the Co-Chair of the Mortgage
20 Committee of the organization called the
21 Massachusetts Community Banking Council, which is a
22 cofounder with the City of Boston of the "Don't
23 Borrow Trouble" campaign.
24 Consumer education is a very important
0202
1 piece, I think, in the predatory lending issue.
2 That's why the Massachusetts Community Banking
3 Council, which is a consortium of nine banks and
4 nine community organizations, was formed ten years
5 ago to try to identify and continue to work on
6 issues of concern to both community groups and banks
7 specifically in low and moderate income communities.
8 A couple of years ago it identified this
9 issue of high-cost lending, predatory lending, and
10 tried to attack it in a way -- in a couple of
11 different ways. One, we produced a foreclosure
12 counseling guide that told people where they could
13 get assistance, basically from which types of
14 nonprofit agencies.
15 Two, we tried to encourage and we're still
16 trying to encourage banks to offer alternative
17 credit products so that people have an alternative
18 to the high-cost subprime and predatory lenders out
19 there.
20 And three, we tried to develop a very
21 broad-based consumer education campaign that would
22 at least in some small way attempt to match the
23 marketing muscle of the subprime lenders, which has
24 been impressive, to say the least, in terms of their
0203
1 reach into specifically low and moderate income and
2 minority communities through the mail, through door
3 to door, through TV, through almost any medium you
4 can think of.
5 "Don't Borrow Trouble" is a campaign, like
6 I said, in partnership with the City of Boston and
7 now in partnership with the State Office of Consumer
8 Affairs and the Division of Banks that has developed
9 posters that will go in main streets, businesses,
10 mailings to homeowners, PSA, commercials for TV and
11 radio, ads on subway, the MBTA system and regional
12 transit systems throughout the state.
13 We think it's too new to judge its
14 effectiveness, but we think it will be a good
15 counter to, like I said, the marketing power of the
16 predatory and subprime lenders.
17 However, and I'll just finish with this --
18 we can talk more about this -- education, as I think
19 Nadine said, should not be a substitute for tougher
20 regulations. And I think Congressman Leach called
21 the Fed AWOL on this issue of regulation of subprime
22 lenders. And while I don't pretend to take a
23 position on that, whether or not the Fed is AWOL, I
24 think that the Division of Banks here has provided a
0204
1 model for the Fed to follow into what can be done
2 within existing regulations to toughen up the
3 regulations on predatory lenders. Thank you.
4 MODERATOR SMITH: Thank you. Mr. White.
5 MR. WHITE: I would also like to thank the
6 Board for giving us this opportunity to participate
7 in your deliberations. My name is Allen White.
8 I've been a Legal Services attorney in Philadelphia
9 for about 17 years now and have been interested,
10 along with a few other people who are seeing the
11 anecdotal stories about predatory lending, in trying
12 to gather some data and some research to try and
13 look at some of the big questions about subprime and
14 predatory lending on a more empirical basis.
15 And recently Professor Mansfield and I
16 gathered some statistics through a fairly tedious
17 process of going through SEC filings on both the
18 interest rates charged by subprime lenders and on
19 foreclosures.
20 One of the definitions that's been offered
21 of predatory lending is a loan that's made that has
22 a substantial likelihood of being foreclosed on.
23 And I think frequently these type of hearings in the
24 last year have begun with some untested hypotheses,
0205
1 including the premise that a substantial portion of
2 the subprime mortgage lending that's being done is
3 somehow beneficial or providing useful -- or meeting
4 social needs, and there are a small group of
5 outliers who are harming consumers and homeowners.
6 And I think some of the data, the very
7 little data that are out there, suggests that there
8 is a serious problem. I think we handed out a
9 couple of slides that I brought with me, graphics,
10 that have the results of the tabulations that we
11 made about foreclosures and serious delinquencies,
12 and this was for about 15 or 20 lenders who reported
13 their data publicly.
14 Perhaps not surprisingly, subprime
15 foreclosures and serious delinquencies are
16 substantially greater than foreclosures and serious
17 delinquencies for conventional lenders. For
18 conventional lenders, it's a little over 1 percent,
19 and for the subprime industry, over 4 1/2. In fact,
20 the Mortgage Information Corporation is now
21 reporting for 1999 that those rates are approaching
22 5 percent.
23 But the other two slides that I brought
24 with me basically are intended to show that even
0206
1 that 4.6 or 5 percent rate of serious delinquencies
2 seriously understates the problem. First of all,
3 every subprime lender whose data we've looked at has
4 delinquencies and foreclosures increasing year after
5 year, partly because their volume is growing, partly
6 because the loans are seasoning.
7 So we have the example here of Equicredit,
8 probably the number one -- it is in fact the number
9 one originator of subprime loans, and you can see
10 three years in a row having mounting delinquencies.
11 And this is the pattern you will see with all
12 subprime lenders.
13 Finally what the third slide is intended to
14 illustrate, instead of looking at the foreclosures
15 for a single lender -- for a single point in time, I
16 should say, if you look at loans that are made and
17 originated in a period of time and follow them
18 longitudinally as a cohort of loans, a pool of
19 loans, the numbers are much more dramatic.
20 In this particular pool of loans, of the
21 6,000 loans we saw, over 1300 of those people who
22 got those loans are now in foreclosure. And this is
23 two years after the loans are originated. So it
24 raises an interesting question, whether you should
0207
1 disclose to people who are taking these loans out,
2 "You have a one-in-four chance of losing your home
3 if you take this loan out."
4 MODERATOR SMITH: Thank you. Mr. Anderson.
5 MR. ANDERSON: Thank you. While the
6 participants of this meeting will discuss the
7 minutia of subprime lending, maybe we can also
8 answer the question of how many angles can dance on
9 the head of a pin.
10 And if you will pardon me for being
11 cynical, but after being in the real estate business
12 for 22 years, a great deal of what is called
13 predatory lending is little more than good
14 old-fashioned fraud.
15 I only have three minutes, which I will go
16 over -- my apologies to you up front -- so I will
17 spare you the statistical analysis, which the Fed
18 ignores anyway. Instead I'll give you a few
19 examples to show how widespread mortgage fraud is.
20 Very few mortgages go bad in the first few
21 months. Knowing that, Yawu Miller, a reporter for
22 the Bay State Banner, asked me for a list of recent
23 mortgages that are already in default. We found
24 Aryan Wiley, an 80-something-year-old black woman
0208
1 in foreclosure on a loan from Advanced Financial
2 Services. The loan was originated after she had
3 previously defaulted on a loan to United Companies
4 Lending.
5 The story that Ms. Wiley told us, who was
6 clearly suffering from some sort of dementia, and
7 her grandnieces, who reeked of alcohol at ten
8 o'clock in the morning, told us something was very
9 wrong. She was referred to Ms. Moseley, who
10 uncovered more unseemly family finances. A few
11 months later she lost her home to foreclosure, and
12 no regulators did anything.
13 Surely the Fed can't be responsible for
14 every real estate transaction, so let's go back to
15 1990. As the New England real estate market was
16 collapsing, a condo developer develops several
17 new -- finishes several new developments. His first
18 eight sales go through Northeastern Mortgage
19 Corporation, a leading mortgage originator at the
20 time and a leader in originations that end in
21 foreclosure. Of those eight, all eight are
22 foreclosed.
23 When Northeastern Mortgage goes bankrupt,
24 Cawley has to come up with a new scam. He records
0209
1 phony deeds and phony mortgages and creates a paper
2 trail needed to get a refinance mortgage. Of the 30
3 units he sold this way, all but three have been
4 foreclosed. One of those that was not foreclosed
5 supplied us with the RESPA form clearly marked
6 "Refinance." All this fraud and foreclosure, and
7 the Fed does nothing.
8 Back to developer Richard Cawley. With all
9 the foreclosures, there are bargains to be purchased
10 and flipped. This time he has a major bank willing
11 to finance his business, because they need loans in
12 minority areas for CRA compliance requirements.
13 A Boston Globe article that was July 2 of
14 '95 showed seven properties that Cawley had built,
15 arranged financing on, sold, then bought back at
16 foreclosure, then flipped through Fleet Bank. Fleet
17 and the Boston Fed have told us that all these loans
18 have been taken care of. So why, of the seven, have
19 four been foreclosed?
20 And the one who wasn't foreclosed told us a
21 very different story. The owner of Unit 9 bought
22 her unit for $90,000 in 1993. Cawley bought it for
23 $25,000 a month earlier. But the new buyer told us
24 that she didn't have a down payment. So Cawley gave
0210
1 her a check at the day of closing to cover the
2 difference. Oh, those home buyer classes to make
3 sure inexperienced buyers don't get into trouble?
4 The Fleet originator told her it wasn't necessary
5 and checked it off on the form.
6 Did Fleet approach her to make sure there
7 were no problems with the mortgage, as they told the
8 Boston Globe and the Boston Fed they were going to
9 do? No. The owner said the only time she heard
10 from Fleet was when they came after her because she
11 stopped paying her condo fees because the common
12 electricity in the development was disconnected, and
13 there was a huge water and sewer bill. It seems
14 Cawley had omitted to tell her that the water and
15 sewer and the electric bills hadn't been paid in a
16 while.
17 With all this a matter of record testified
18 on this stage, did the Fed do anything? No.
19 But we were talking about subprime lending
20 and predatory lending. The owner of Unit 9, after
21 getting over the financial difficulties thanks to an
22 extra part-time job, was a bit short of money.
23 Since she overpaid for her condo six years earlier
24 and Fleet did nothing about her loan, she had no
0211
1 equity to borrow against and had to go to a subprime
2 lender.
3 So her $81,000 Fleet loan and her $15,000
4 subprime loan means a principal of $96,000. But
5 since Fleet stopped doing business with Richard
6 Cawley, the most expensive condo to sell in her
7 development was Unit 8, right next door. It sold
8 for $78,000 last year. After six years, in a red-
9 hot real estate market, her unit is still not worth
10 what she paid for it.
11 This is all a matter of public record, and
12 the Fed knows this. At previous hearings I gave the
13 Fed data on about 80 Fleet-financed Cawley and other
14 speculator loans, and what has the Fed done?
15 Nothing.
16 If past is prelude, then these hearings are
17 a sham. What difference does a few points on an APR
18 trigger mean when the Fed ignores solid evidence of
19 good old-fashioned fraud? Instead of these
20 hearings, the individuals in the Fed should be
21 telling us why they haven't done anything in five
22 years.
23 MODERATOR SMITH: Thank you very much.
24 We will now go on to the discussion phase
0212
1 of this session, and I'll say that -- there are a
2 couple of general questions that we would like to
3 focus on. One of them has to do with your views on
4 what techniques have been or might be most effective
5 in performing outreach to the targeted populations,
6 the vulnerable individuals that might fall prey to
7 predatory lenders. And another has to do with what
8 role can the Federal Reserve play in community
9 outreach and consumer education. Are there
10 sufficient materials available? Are there delivery
11 system issues.
12 And then, Sandy, do you have anything
13 specific to get us started on?
14 MS. BRAUNSTEIN: Well, actually, I would
15 kind of like to hear a little more about the "Don't
16 Borrow Trouble" campaign, since that's a big thing
17 up here, from either Tom or Norma, more about how
18 did you decide what techniques to use, do you have
19 any information at this point on how effective it's
20 been in the communities.
21 MS. MOSELEY: I'll start, Tom, and then you
22 can pick it up. It's a fairly recent campaign, and
23 I don't believe, unless it's on Boston cable TV, I
24 haven't seen the TV spots aired yet. Am I correct?
0213
1 MR. CALLAHAN: Correct.
2 MS. MOSELEY: But let me just say one thing
3 before we get into that specific thing. We're
4 talking about outreach to potential victims of
5 predatory lending, and yet the predatory lenders
6 call it "marketing." And there's a big difference.
7 Outreach is all squishy, fuzzy, see you at
8 a social gathering. Marketing is business driven
9 and profit driven. And until the same amount of
10 money can be put into marketing our solutions as
11 they can selling their product or marketing their
12 product, you're going to get nowhere.
13 These people are not easy to reach. I
14 mean, you can have billboards, you can have
15 newspaper articles like Yawu does. But when you
16 watch cable TV on any weekend or any evening, you
17 see ad after ad after ad, and they're talking about,
18 you know, "When the banks say no, we say yes," and
19 "The loans are out there," and "You can pay off
20 those high-interest credit card debts," and "You're
21 going to save $300 a month." And it's just one big
22 jolly thing. "We can do it over the phone." "We
23 close at your house." You bet they do. Boom, and
24 they're right there.
0214
1 I'm just saying, until there is that same
2 dedication to wanting to prevent predatory lending
3 as there is to making the loans, all the hearings
4 and all the regs aren't going to happen. Education
5 is a really slow process. It isn't the solution.
6 You've got to market your solutions with the same
7 vigor and the same dollars that are put into the
8 lending process.
9 That didn't answer your question at all.
10 MS. BRAUNSTEIN: No, actually it did --
11 well, part of it. I want to follow up on that a
12 second. Where are the dollars coming from for the
13 "Don't Borrow Trouble" campaign?
14 MR. CALLAHAN: It's a collection of -- City
15 of Boston is putting in the most money, I believe.
16 The initial first-year contribution was $50,000 the
17 City of Boston is putting in. MCBC itself put in
18 $10,000. And then another $50,000 or so was raised
19 from Fannie Mae, Freddie Mac, the Mass. Bankers
20 Association, the Mass. Mortgage Bankers Association,
21 and I'm probably forgetting a couple. But it was a
22 team effort. The City of Boston went out and
23 recruited some of those folks, and MCBC helped in
24 that regard as well.
0215
1 I think that is one issue. We've been able
2 to do that for the launching of this campaign, but
3 to sustain this campaign, will that same type of --
4 those same type of resources be there? I think the
5 City of Boston and the State have now committed to
6 this in terms of staffing hot lines in an ongoing
7 way for consumers to call.
8 I mean, I think that was one key element of
9 the "Don't Borrow Trouble" campaign. We wanted to
10 make sure there was a place where people just didn't
11 see a poster or get a brochure in the mail without
12 having a place to call that they could pursue the
13 issue and get questions answered and get help and
14 get referred to a counseling agency like Norma's,
15 which is part of the City of Boston's and will be
16 part of the State of Massachusetts's campaign.
17 But I'm worried about the ability to
18 sustain that type of funding over the long term,
19 because it needs to be a lot more than a one-shot
20 deal to compete with predatory lenders.
21 The other answer, just picking up a little
22 bit on what Norma said, I think the best outreach
23 method -- I think the best thing we can do from an
24 outreach perspective to low-income consumers is to
0216
1 put the predatory lenders out of business.
2 I think defining predatory loans and doing
3 things like lowering the APR trigger to 5 percent
4 above Treasury, prohibiting balloon payments,
5 prohibiting prepayment penalties, those types of
6 things that I'm sure were talked about this morning,
7 I think are going to be the things that really help
8 us in our outreach, because it will give us a
9 starting point where at least people are not getting
10 the most outrageous conditions and terms that you
11 can imagine.
12 There are other programs, I think, that
13 exist out there. We have a program called the Home
14 Safe Program, which is a homeowner resource center.
15 It really evolved out of our success in helping
16 people get into homes through home buyer counseling.
17 This is a program that's really designed to
18 reach people in the first year or two of home
19 ownership, before they have a crisis, before they
20 need an equity loan, before they have problems with
21 their home that they can't deal with, with
22 information and resources that are available to
23 homeowners. But it's really trying to reach folks
24 in this non-crisis situation.
0217
1 I think those types of things are key,
2 where you could talk to folks. Education up front
3 in the prepurchase about predatory lenders in the
4 prepurchase classes are important, but we find,
5 since the bulk of this problem is in equity-type
6 lending to homeowners, you don't really realize the
7 problems and the issues you're going to deal with as
8 a homeowner until you're actually in the door and
9 experiencing life as a homeowner.
10 So that's why the postpurchase classes, I
11 think, are so key. There is not a lot of support
12 for postpurchase classes out there. The banks fund
13 prepurchase classes because it's in their self-
14 interest. But postpurchase, not a lot of folks.
15 We've been able to scrap together some money to fund
16 that program, but there are only three programs that
17 I know of in the state, really, that do extensive
18 postpurchase counseling, largely because of a lack
19 of funding.
20 MODERATOR SMITH: Would you remind me when
21 the "Don't Borrow Trouble" was launched.
22 MR. CALLAHAN: Just in the last few --
23 earlier this year, basically the last few months of
24 spring. And it's being rolled out in different
0218
1 phases. Many homeowners have already received the
2 initial mailing from the Mayor, but as Norma said,
3 the TV and radio spots are in production right now
4 and haven't aired yet. Posters are going up now in
5 community centers and in main street businesses
6 around the city. So it's just starting to produce
7 calls, and it's too early to track data from it.
8 MS. BRAUNSTEIN: Will you have any way of
9 being able to tell whether it's been successful?
10 MR. CALLAHAN: The call centers I think
11 will be our best way to track, both the State call
12 center that's going to be set up later this summer
13 and the City call center that's already fielding
14 calls.
15 I think we'll be able to tell, one, how
16 many people are calling, and, two, you know, what
17 level of assistance is needed for those folks.
18 There's going to be -- those folks answering the
19 phones will be trained to provide a certain level of
20 advice and assistance, but then for people that are
21 really in need of counseling and further assistance,
22 they will be referred to an agency like Norma's.
23 So I think there will be the ability to
24 tell what level of advice and assistance is needed,
0219
1 and then once we find out how many people need the
2 real in-depth counseling and foreclosure-prevention
3 type assistance, we'll be able to track that as well
4 and see how successful --
5 MS. MOSELEY: It's already on the Banking
6 Commissioner's line. I think it's punch 4 or
7 something if you want the "Don't Borrow Trouble" hot
8 line. I know because I was trying to reach the
9 Commissioner's Office yesterday.
10 So it's already there. It's part of a
11 menu. It doesn't rise up and hit you in the face,
12 but it's part of a menu.
13 MS. BRAUNSTEIN: Can I just -- I'm sorry,
14 one more question on this. You mentioned, Tom,
15 letters going out. Who is getting -- is it just in
16 certain communities or every homeowner in the city?
17 MR. CALLAHAN: Mayor Menino in the City of
18 Boston is sending a letter to every homeowner in the
19 city. This is actually the second mailing. He did
20 last year send a general, just, letter, and then
21 this is a letter with the brochure which was
22 specifically designed for the "Don't Borrow Trouble"
23 campaign, which, I think, is more -- hopefully will
24 attract even more attention.
0220
1 MS. MOSELEY: It goes out with the tax
2 bills.
3 MODERATOR SMITH: Ms. Cohen.
4 MS. COHEN: I just wanted to add something
5 to that. I think any communication, and I don't
6 know if the Mayor's letter is being translated into
7 other languages, but I think that's a critical
8 piece, because many homeowners and borrowers are
9 immigrants, people for whom English is not the first
10 language. And I think that we have to ensure that
11 any outreach materials get translated.
12 I always worry about all the HOEPA
13 disclosures and the Truth in Lending disclosures. I
14 don't think they even say anything that our
15 utilities bill say, that "This is an important
16 document. You should bring it to someone to be
17 translated."
18 And I have had cases where I've had a
19 family who spoke no English, were Hmongs, and they
20 didn't understand what they were signing. The
21 lenders just took them through the whole thing, and
22 there was no one to explain anything to them.
23 That's always the danger in disclosures.
24 I also wanted to emphasize, when you talked
0221
1 about what techniques work, I think Tom really
2 identified it. I mean, we have to get rid of all
3 the balloon payments, the prepayment penalties, all
4 the indicators of predatory loans, and I think that
5 really helps. But short of that, I think you really
6 need people to be represented at these closings,
7 either by lay advocates like Norma and Len or from
8 Tom's group or by trained attorneys.
9 The Lawyers Committee is now working with
10 the National Consumer Law Center on a program to
11 train attorneys and later community people on how to
12 recognize predatory loans and what legal avenues
13 people have when they get involved in predatory
14 loans.
15 And I think that's critical. We're sending
16 people into these closings in a totally unequal
17 situation. It's hard enough -- I always tell the
18 story that I always thought it was easier to have a
19 nine-month pregnancy and have a baby than to buy a
20 house. I think I started the process around the
21 same time. And I as an attorney was overwhelmed by
22 the paperwork, by the numbers, by the whole process.
23 And we're sending in unsophisticated
24 borrowers, elderly people, people who don't always
0222
1 speak English, who are most vulnerable, and they're
2 not represented. I don't think there are many other
3 situations in life where you are risking so much
4 without any real protections.
5 So I would push that as part of an
6 education and a funding campaign.
7 MR. CALLAHAN: Actually, if I could ask
8 Norma to tell that story about the time you did show
9 up at the closing. I think that's instructive to
10 Nadine's point, if I may be so bold.
11 MS. MOSELEY: Well, I go to all my clients'
12 closings, by the way. But this was an elderly
13 couple in South Boston who had gotten into a
14 refinance -- I think this was going to be their
15 second refinance in about 18 months. And
16 interestingly enough, on the documents it indicated
17 that "If you are elderly, call the Elderly
18 Commission. You may want to have someone with you."
19 So, they did, and I did, and I was there.
20 And I had prepped these people. I had seen the
21 documents. It was clearly a ridiculous loan. They
22 were elderly, and the gentleman was also
23 handicapped.
24 The closing was at their home. So the
0223
1 lawyer came up, and just bit by bit he was asking
2 them to sign this, sign this, sign this. I said,
3 "Wait, wait, wait. Let's go over this." They had
4 been prepped. We had been over it. But they played
5 the part.
6 And so we did, and they would ask -- stop
7 and ask a question, "But I applied for a 30-year
8 fixed rate mortgage. Now you've got this as a 15-
9 year variable." "Oh, well, that must have been a
10 mix-up in the documents. But go ahead and sign it."
11 "No, we're not going to sign it."
12 And then, "So what does the rate go up to?"
13 And then they see all this LIBOR plus. "What does
14 that mean?" "It just means they base it on some
15 kind of prime rate in the market somewhere over in
16 London." I don't know what the hell it means
17 either.
18 But at each document, they HUD settlement
19 statement, "Where is the broker? What's this
20 broker's fee? We didn't pay a broker." "Oh, yes
21 you did. That gentleman who came to your house
22 wasn't from the bank. He was a broker." "Well, I
23 didn't know that. I thought I was applying to the
24 bank."
0224
1 Anyway, to make a long story short, they
2 didn't sign anything. So the lawyer said, "Could I
3 use your phone?" He got on the phone, and he
4 evidently called the broker and said, "This family
5 isn't going through with this loan." And the broker
6 said, "Give me a minute."
7 And he came back from the phone and said,
8 "Well, look, we can make this a 30-year fixed. We
9 can drop the interest from 14 down to 10. We can
10 knock off these broker's fees and put you in a
11 really good loan."
12 And I said to them, "Do you want to go with
13 a mortgage company that just like that can change
14 the terms? Because if you were eligible for them
15 now, you were eligible for them before." And they
16 said, "No." So we went out and got a prime loan
17 with somebody else.
18 But I was so delighted. They called back
19 for three weeks in a row, sweetening the pie every
20 time, saying, "You can't get it. You have lousy
21 credit." They already had been approved for their
22 loan somewhere else.
23 So, I mean, it does make a difference. It
24 does make a difference if you are there. You don't
0225
1 have to be a lawyer that can -- all you have to do
2 is ask the right questions, because the lawyer for
3 the lenders, they don't like to be asked the right
4 questions. And by the way, if you really want to
5 get a batch of scoundrels, get those lawyers who
6 close these loans. I don't know how they sleep
7 nights. They're sleazy.
8 MS. BRAUNSTEIN: To play devil's advocate
9 for a second, one of the things obviously we hear
10 everywhere is that one of the ways that the
11 predators operate most effectively is by gaining the
12 trust of their clients through all that personal
13 contact and even taking them to lunch, whatever.
14 Okay. So if there was a requirement that
15 people had to be represented at their closings, how
16 do we know that the trusted lender wouldn't say,
17 "Oh, don't worry about that. I'll get you
18 somebody"?
19 MS. MOSELEY: They do already, even though
20 their documents all say, "The attorney is
21 representing the lender. You have a right to an
22 attorney on your own," and it's there. You know,
23 disclosures aren't the issue. Everything is
24 disclosed. It's right out there. So what?
0226
1 MS. BRAUNSTEIN: I'm just saying, how would
2 you make that happen to make sure that everybody has
3 good representation at closing?
4 MS. MOSELEY: I think it has got to be
5 almost -- I don't know how you -- whether legally
6 you can require it, a third party, you know, an
7 independent third party there. But if there were a
8 way to do it legally, you would save a lot of people
9 from getting into bad loans.
10 MS. BRAUNSTEIN: Well, another thing that
11 we've heard is that possibly people who are getting
12 HOEPA loans should be required to go to housing
13 counseling first. That's another kind of take on
14 what you're talking about.
15 We have had some conversations, and I would
16 like some reaction from the whole panel on this,
17 we've had some conversations with some housing
18 counselors who have told us that even when they can
19 get to a client before they enter into a deal, and
20 they go over it with them and show them how this is
21 not a good deal for them, that oftentimes the
22 client, because they're in need of the money to pay
23 a doctor bill or something like that, will enter
24 into the deal anyway, that there has been a great
0227
1 deal of frustration with that.
2 And I don't know -- I was wondering if
3 that's been anybody here -- like Norma, I guess you
4 do more of it than anybody, or Leonard, your
5 experience, has that been the case?
6 MR. RAYMOND: Certainly that often is the
7 case. As I think, as Norma and I were sitting this
8 morning listening to the testimony, again, we
9 reiterate the issue that irrespective of the
10 substance and the length of the disclosures, that
11 oftentimes the people who are in these circumstances
12 are desperate, absolutely desperate. So they may
13 very well go through, although I would say our
14 experience, most of the time we see people post this
15 situation, not often previous.
16 If it's a situation where, indeed, we're
17 talking about, okay, three days before, pursuant to
18 the HOEPA regulations, we're going to get people
19 connected with a counselor, there might be some
20 possibility during some circumstances of making a
21 difference. I think a good number of people we
22 could perhaps make some difference. But there will
23 always be a minority of folks who, no matter what,
24 are going to go forward.
0228
1 MS. MOSELEY: What happens is people get
2 into a situation where they're delinquent on a loan.
3 Let's say it's even a decent loan. They're just
4 delinquent and foreclosure is imminent. And
5 because, you know, when you're in foreclosure, that
6 doesn't give you a very good credit score, so you
7 probably already decide on your own, you can't go to
8 a regular lender and refinance out of this.
9 Subprime lenders are right there, filling
10 the gap. And even though, you know, you can point
11 out, as Len said, all of these things, they say, "I
12 have to do it, because I'm going to lose my home
13 otherwise, and I've got to close."
14 We do explore with them the options, if it
15 sounds like it can work, a Chapter 13. And their
16 response is, "Oh, but that's going to ruin my
17 credit." Here they are in foreclosure. And I say,
18 you know, "At this point, your credit is the least
19 thing to worry about. Let's look at saving your
20 home and starting to rebuild your credit."
21 But you see the reasoning isn't, you know,
22 the way you might reason it or you might reason it,
23 but this is what is going on. This is what they
24 see. Chapter 13 ruins your credit. A foreclosure,
0229
1 being in foreclosure and then doing a subprime loan
2 somehow is going to keep your credit neat and clean
3 and dandy. I'm looking at the real world, the way
4 they see it.
5 MS. BRAUNSTEIN: Tom, you mentioned in your
6 opening statement working to try with lenders to
7 develop alternative products to subprime loans. I
8 was wondering how successful you have been at doing
9 that.
10 MR. CALLAHAN: I'll turn that back to
11 Norma, because she's actually been the agency
12 that's -- MCBC has tried to facilitate a little bit
13 of that, but Norma's agency has had the most
14 success. But it's been actually disappointing in
15 the overall response. We hosted a breakfast, MCBC
16 did, for some 30 lenders or so, and maybe one or so
17 has followed up with Norma to try to add -- Norma
18 has a list of four lenders that provide some
19 alternative financing in these, and I'll let her
20 describe that.
21 In response to your previous question,
22 though, I wanted to say, I think the later you see
23 people in the process, the more likely it is they're
24 going to go forward with that, maybe against their
0230
1 own interests, but with that subprime loan or
2 predatory loan.
3 That's why I think this maintaining --
4 trying to maintain a relationship from prepurchase
5 to non-crisis postpurchase counseling to early
6 delinquency and foreclosure-prevention counseling,
7 we have had successful cases in our office of people
8 who have taken our non-crisis postpurchase workshops
9 and then have been marketed to by these, and just at
10 the very early stages of thinking about it call our
11 counselor, because they have a relationship with him
12 or her, and say, "This sounds attractive in one way,
13 but I have some questions," or "I'm a little leery
14 about it. Can you help me go through it." And they
15 come in, and our counselor sits down and we go
16 through it.
17 And more often than not, those folks who
18 are sort of at the beginning stages of thinking
19 about maybe they need some equity credit or for a
20 variety of reasons, those folks we can usually make
21 sure they don't fall into that trap and get them a
22 better deal, if they really do need that, or in some
23 cases work with them on budgeting issues. And one
24 of the goals of "Don't Borrow Trouble" is actually
0231
1 convincing people at times they don't need to borrow
2 more money. That's the worst thing they can do in
3 certain circumstances.
4 So it's really, you know, budgeting and
5 money management as much as trying to find a loan
6 for them.
7 I'll let Norma talk about --
8 MR. RAYMOND: Actually, I wanted to
9 interject. I think it's very important for us to
10 get back, because that's a really critical question,
11 to those alternative products. But we've
12 participated in the "Don't Borrow Trouble" program
13 as well statewide, but I think that's a slice.
14 That's one slice.
15 I think there is another slice here that's
16 very important, that's more of a long-term kind of
17 prevention approach. Since we work exclusively with
18 people 50 and over, mainly elders, we are
19 continuously getting exasperated by the fact of
20 people coming to us late in the process, often in
21 foreclosure itself, and we're just mystified as to
22 why people made the choices that they did, et
23 cetera, how did they get trapped in these
24 situations.
0232
1 We became convinced that we had to spend
2 some time, some considerable time putting together
3 what we called an elder economic literacy product,
4 which goes out to the community. We have done this
5 in 30 communities across the state. We work with
6 Councils on Aging. We developed a set of manuals
7 that deal with not just refinancing issues, but
8 important life skills.
9 Remember, we're dealing with a population
10 that has particular needs. For us, most of our
11 clients who are elderly are widows. In an average
12 year, 85 to 86 percent of our clients will be single
13 women, average age of 80, average income of $10,000
14 to $12,000, all homeowners, nonetheless, and
15 experiencing all kinds of difficulties.
16 So it was very important for us to go into
17 the community, with the Councils on Aging, bringing
18 in other professionals from Legal Services, from
19 various housing and other kinds of elder services.
20 And we present this as a part of what we call
21 Remainder Life Planning.
22 It's a set of skills in terms of surviving
23 in your house long term, preserving as much equity,
24 getting your options, finding out ways to off-load
0233
1 your needs into various programs and services which
2 are low cost, no cost, preferably government
3 programs, et cetera. And we have been very
4 successful in that.
5 But that's, again, one slice of the pie.
6 It's one piece here, and I think we need --
7 MS. BRAUNSTEIN: How are you reaching your
8 audience? Are you using existing --
9 MR. RAYMOND: We go out to the Councils on
10 Aging. We have the Bank Commissioner's Office
11 working with us. They have been participating in
12 the program, the various AAAs, area agencies on
13 aging, housing advocates, as well as the Legal
14 Service folks who are working particularly with
15 senior citizens and their problems. It's scheduled
16 way ahead of time, so a lot of advertising.
17 One of the other techniques we have found
18 is we have what we call circuit rider counseling.
19 We actually have people who then show up post those
20 sessions at the designated times we'll announce. So
21 we have those wonderful situations where an elderly
22 gentleman will come in and say, "Well, I decided to
23 go by the COA today to pick up some information, and
24 by the way, I have this friend who has this
0234
1 problem," those situations.
2 It's a piece of the pie. It's a small one,
3 but nonetheless a very significant one. And we've
4 reached several thousand elders this way and want to
5 continue on doing that, again, giving people some
6 tools, tools in terms of really important written
7 materials, manuals on various issues, refinancing,
8 the dangers of certain kinds of financial
9 situations, what kind of scams are directed
10 particularly at elders, what kinds of options and
11 resources are available to them, et cetera.
12 One of the biggest issues we deal with is
13 the problems of credit cards, which has absolutely
14 exploded. One of the biggest reasons why people are
15 moving at this stage of life into looking at
16 refinancing is because they've run up credit cards.
17 15 years ago, when I got started in this business,
18 it didn't exist. Now we're talking an average of
19 $7,000 or $8,000 per elder. The recent record in
20 the office is $146,000, one senior, of credit card
21 debts.
22 There is no question that there is an
23 informal network out there where essentially when a
24 widow reaches $10,000 or $12,000 of credit card debt
0235
1 which she cannot maintain, and she gets harassed by
2 the collection agencies, interestingly enough the
3 question arises in those conversations with the
4 harassing collector, "Gee, do you have a home? Oh,
5 you don't have a mortgage? Oh, a small mortgage?
6 We can refer you out."
7 So, again, these are the kinds of things
8 we're trying to get people some basic skills, tools,
9 also very important for them to know that there are
10 places to go, numbers to call, et cetera.
11 Again, it's one basic piece, but it's a
12 significant one nonetheless.
13 MS. BRAUNSTEIN: Do you know if that kind
14 of thing is going on in other cities? Is AARP aware
15 of what you're doing? Do you work with them at all?
16 MR. RAYMOND: Well, certainly I think
17 they're aware of us and we're aware of them. But
18 this is a project -- we've essentially had a very
19 small grant from the Crossroads Foundation and a
20 small grant from the late, great Bank of Boston to
21 get this off the ground, but essentially we are
22 literally -- this is held together by baling wax,
23 strings and bubble gum, because we have to rely on
24 our community lenders to help defray some of the
0236
1 cost who participate in the program.
2 MS. HURT: May I ask, do you have any
3 thoughts on reverse mortgages as an alternative
4 to -- that you would like --
5 MR. RAYMOND: Our organization basically
6 created reverse mortgages for this part of the
7 country some 17 years ago, and we have, last count,
8 I think, 68 community lenders, credit unions, mutual
9 savings banks, cooperatives, et cetera, who work
10 with us as. And we have created actually a whole
11 array of financial options for seniors, some of
12 which are equity conversions, some are not.
13 Our real strong feeling is that the real
14 success of aging in place successfully is preserving
15 as much equity as possible. Reverse mortgages can
16 be extremely good under some circumstances. They
17 can be the wrong thing for a heck of a lot of other
18 elders.
19 So we really take the maximum of equity
20 conservation, equity preservation, off-load it, and
21 only using loans as a last resort. That means any
22 kind of loan, but especially reverse mortgages,
23 because they are, pardon the expression, damnably
24 expensive, and they deplete equity. They can be
0237
1 good tools under some circumstances.
2 Because of that we created a product called
3 SELOC, which is a senior equity line of credit
4 product, which is designed specifically for elders.
5 Again, it's more of a prevention tool. It was
6 designed for elders who have little or no debt, but
7 again, that large group of elders who are just
8 basically surviving by their wits, month to month,
9 and all it takes is one major problem to bump them
10 off. And these are the folks that are, pardon the
11 expression, the raw meat for predatory lenders.
12 You know, when the ten-year-old car dies,
13 when the roof goes and there is no public program to
14 pay for it, when there is an in-home care problem or
15 an expense with the hospital that is not covered by
16 insurance, that's often when people are driven.
17 They go to the local bank. The bank will make the
18 correct decision that your income is too small,
19 especially given your credit card debt.
20 So what happens next is they pick up the
21 newspaper with the wonderful block ad, "No credit/
22 bad credit?" Or they submit to that wonderful
23 advertisement which Norma alluded to. We won't name
24 them. Athletes should be selling underwear, not
0238
1 loans. But essentially that's when they get hooked
2 into this stuff.
3 So this was a tool which we provided for
4 them, because it's a loan design that doesn't depend
5 on credit criteria. It's purely the fact that they
6 own this house. But it's a qualified loan, which
7 means disbursements are made after a consultation
8 with the program, because we try to find other kind
9 of solutions and ways.
10 But in addition to that, which is very
11 important, we have been able to really intervene in
12 terms of home repair issues, so they don't hopefully
13 get hooked into the whole home repair scam
14 situation. And they have options of either
15 amortizing the loan, paying the interest only, or
16 they can defer payment altogether. But it's a way
17 for us to stretch things out.
18 MR. WALKER: I wanted to ask a question
19 with regard to credit, and actually maybe Jim or
20 Adrienne can answer this question. I have an
21 elderly mother who continues to get almost daily
22 solicitations from credit card companies with the
23 checks in them. Does that continue to be legal for
24 them to do that?
0239
1 MR. MICHAELS: Yes.
2 MR. CALLAHAN: Can the Fed do something
3 about that?
4 MS. COHEN: There is something the Fed can
5 do, perhaps. And it's not only elderly people. I
6 mean, I know I'm old, but I'm not that elderly yet,
7 and I get lots of those checks, and they're
8 tempting.
9 MR. WALKER: But for the elderly,
10 because -- well, for example, for my mother, I mean,
11 she has dementia, so to her it looks just like one
12 of her regular checks, and she has written herself
13 some credit loans as a result of that.
14 MS. MOSELEY: I wanted to talk about the
15 alternatives, going back to Tom's thing. We did
16 have a really neat program going with BayBank back
17 in the good old days when there was a BayBank.
18 We could bring troubled homeowners to
19 BayBank with a hardship letter explaining how they
20 got into their circumstances where they've got some
21 credit issues, you know, if there were extreme
22 catastrophic or unforeseen circumstances, so that
23 credit wasn't going to be the issue.
24 But we looked at LTVs of 80 percent, LTVs,
0240
1 and debt-to-income, with everything paid off, about
2 max 38 percent. That is a damn conservative loan,
3 and the bank liked it. It was a money maker. And
4 Fannie Mae was buying them, because they didn't see
5 anything other than the LTV and the debt-to-income.
6 They didn't investigate the credit. The bank took
7 that.
8 We did, oh, probably 80, 85 of those loans
9 because it was statewide lending, and BankBoston
10 continued it on a scaled-down basis when they took
11 over BayBank, and Fleet isn't doing it at all.
12 So I'm back sort of behind the eight ball
13 trying to reach out now to the smaller community
14 banks and sell this program literally on a
15 community-by-community basis statewide, because
16 you're never going to get a whole bunch of them.
17 They may get two or three a year. That is not going
18 to break the portfolio. And they're performing
19 loans. So I'm out there trying.
20 MS. COHEN: I just want to say that also in
21 some of the settlements we did early on in the late
22 '80s with some of the banks around some
23 discriminatory practices, we did get programs also
24 that were similar to what Norma said, which shows
0241
1 that the banks can do them. The mainstream prime
2 lenders can make loans to lower-income borrowers
3 that are successful loans.
4 I think when the Fed looks at -- does CRA
5 reviews and looks at banks' performances, you have
6 to look at how innovative are they in developing
7 products that can meet the credit needs of the
8 consumers. And I think too often we forget that.
9 I just want to add a few other things,
10 because unfortunately I have to leave at three
11 o'clock, but I think the mandatory reporting of
12 credit payments for borrowers who have high-interest
13 loans is critical, because for borrowers who do make
14 their payments on time, it's important that they
15 start establishing a good credit history. And if we
16 let lenders get away with not reporting them, I
17 think it's really a travesty.
18 I think in CRA and compliance review the
19 Fed really needs to look at the banks' subsidiaries
20 and affiliates and not just the banks, because
21 that's where a lot of the problems are. And, again,
22 in the regulatory field, when you do the CRA
23 reviews, to really not give CRA credit to lenders
24 who have all the balloon payments and the prepayment
0242
1 penalties and all the indicators of those predatory
2 loans.
3 And lastly, I think this is something we
4 probably all would support, is expanding HMDA data
5 collection to include types of loans and loan
6 characteristics, like fees, prepayment penalties, as
7 well as borrower characteristics around credits
8 scores.
9 So I think that it really is such a
10 multi-pronged approach from the regulatory end, the
11 CRA review end, the HMDA data collection end, and
12 the education and outreach end. But I think we need
13 financial support in the outreach and education end,
14 and that's critical. You know, the "Don't Borrow
15 Trouble" campaign can be great, but it could be
16 short-lived unless it's continuing and unless there
17 is funding for lawyers and lay advocates to be, one,
18 trained in how you recognize predatory loans and how
19 you work with consumers and actually to provide
20 attorneys.
21 I am pretty sure -- the Lawyers Committee
22 works with many of the big law firms in town. Now,
23 some of them I think I could get involved in a
24 program to provide some kind of pro bono
0243
1 representation, but I need some money to provide the
2 administration of a program, the training, the
3 resources, and that's not easy to find.
4 MS. BRAUNSTEIN: That kind of brings me
5 back to the question Dolores asked at the top that
6 we never really addressed, that taking aside the
7 regulatory answers to this, okay, just looking at
8 the outreach education piece of predatory lending,
9 what is it that we, the Fed, could do to help, in
10 the sense of we've heard various things from people,
11 you know, we see a lot of stuff going on around the
12 country, a lot of materials being developed.
13 I mean, is there really a need for more
14 materials, or is it more that there's a need for
15 better delivery mechanisms for the materials that
16 are out there? What is it that we could do to
17 facilitate this process?
18 MR. WHITE: Well, at the risk of diverting
19 the discussion a little, I would like to echo what
20 Professor Golann said this morning, which is -- and
21 I certainly don't want to take anything away from
22 community education and outreach efforts; a lot of
23 what is going on in Boston is wonderful -- but there
24 is a basic problem that you have with the complexity
0244
1 of these transactions on the one hand and adult
2 literacy on the other hand.
3 You have an American population about 40
4 percent of whom can't really realistically compute
5 with decimals and fractions. That's what the
6 national adult literacy survey tells. Probably 90
7 percent of people can't understand the trade-offs
8 between points and interest over the life of a loan.
9 So you're just not going to -- Professor
10 Golann talked about the Boston school system as
11 being the culprit. I'm not sure where the blame
12 lies exactly. I think part of it is just that these
13 transactions are so inherently complex, we can't
14 expect 100 percent of the population to be fully
15 equipped to deal with the difference between an
16 advantageous and a predatory loan.
17 So I get back to the most valuable thing
18 the Fed can do right now at this moment in history
19 is exercise its power to substantively regulate
20 these credit transactions. And let me just suggest
21 what I view as the two most important, although
22 there are certainly a lot of things you can do.
23 First is to really seriously look at this
24 question of no-benefit refinancing. And it's very
0245
1 difficult, it seems to me, for this industry to
2 defend a transaction in which you take somebody who
3 has a conventional 9 percent, 8 percent mortgage and
4 refinance it at 12 percent, and they get a minimal
5 amount of cash out, less than 10 percent of the
6 loan. They're paying an effective rate for that new
7 advance in the hundreds of percent.
8 Those are indefensible transactions, and
9 they should be outlawed. And there is a very
10 specific authority in Reg Z -- the Act, rather, for
11 the Board to do that.
12 The second substantive area I think the
13 Board really ought to look at is repayment ability,
14 which I think ties very directly to the foreclosure
15 numbers we've look at.
16 You know, you have this vast experiment
17 that's going on right now. It used to be, you know,
18 if a mortgage was going to be more than 41 percent
19 of your income, you weren't going to get that loan.
20 Now the standard in the subprime industry has crept
21 up from 50 percent to 59 or 60 percent
22 debt-to-income ratios, with very little regard to
23 residual incomes and serious problems with
24 verification of income.
0246
1 Those are all areas that it seems to me
2 there is very clear authority for the Fed to
3 regulate. And I think at least the Fed ought to set
4 some guidelines and say, "Those of you lenders who
5 are going to venture into the great beyond in taking
6 risks with people's ability to repay are going to be
7 subject to the possibility of being found in
8 violation of these HOEPA standards."
9 Remember, the idea of a subprime borrower
10 is somebody who has credit problems; in other words,
11 payment history problems. There is nothing inherent
12 about taking somebody, you know, who has problems in
13 the past with paying their bills, saying, well, you
14 should also give them a loan amount such that they
15 are over conventional debt-to-income standards.
16 For some reason that has just happened and
17 become kind of a norm, and one of the things the Fed
18 can and ought to do is bring those payment ability
19 norms back in line with the conventional market.
20 One other point about the counseling
21 information to borrowers, I do think the North
22 Carolina model where you take somebody who's about
23 to enter into a subprime loan and you divert them
24 and say, "You cannot sign up for that loan; that
0247
1 loan will not be valid or enforceable unless you
2 first go see a counselor," is probably one effective
3 technique of catching people, although obviously it
4 would be fairly late in the process at that point.
5 MS. MOSELEY: Is that legal? Does that
6 withstand the test of somebody exercising their own
7 independent rights to be -- I'm just playing devil's
8 advocate too.
9 MS. COHEN: It's in the North Carolina
10 legislation. So, unless it's challenged, it is
11 legal. I guess people could always waive it. My
12 concern is more of what John said, is the banks or
13 the lenders just go, "Oh, you know, you don't need
14 that," and you check it off.
15 MR. ANDERSON: That was exactly what I
16 was -- I think I'm a fish out of water with all of
17 these people discussing what we can do, because I
18 spoke with the people from whom the "Don't Borrow
19 Trouble" program comes from at the City, or at least
20 a person who was somewhat responsible for it, and at
21 the end of our conversation he said, "Well, how much
22 fraud do you think is in the market?"
23 And I said, "Well, I only know
24 intrinsically where I've been for the last 22 years,
0248
1 which is the Dorchester-Roxbury-Mattapan market, and
2 I peg it at about 25 percent." And he looked at me,
3 "25 percent of the market is fraudulent?"
4 And I started second-guessing myself, and I
5 went and spoke with Ada Focer, who I've done work
6 with in the past and whose opinion I trust
7 implicitly, and I told her, "I said 25 percent," and
8 she said, "It's probably more than 30 percent," from
9 work that she had done with a couple of MIT grad
10 students in the early '90s.
11 For example, when we're talking about debt
12 ratios and income ratios, if a person wants to
13 borrow X amount of money and they don't have the
14 money to qualify for that loan, when you get out in
15 the real world, the mortgage originator is going to
16 be under great pressure, because it's their income,
17 to say, "You make $35,000. You don't make $30,000.
18 Why is your income so low this year? Well, we'll
19 write a letter to explain."
20 I had a lawyer tell me one time that he got
21 out of the traditional mortgage lending business in
22 the -- or representing mortgage lenders in the '80s
23 because he was having nightmares about all the
24 letters that were written to the lenders about why
0249
1 there were problems. You just make them up as you
2 go along.
3 And the fact that, as I mentioned earlier,
4 there is so damn much fraud out there, which is so
5 obvious, which is recorded at the Registry of Deeds,
6 and you only have to go down and take a look at it,
7 and nobody does anything about it.
8 So of course this perfectly forthright
9 mortgage originator, who is a nice guy and has a
10 family with two kids and a dog and would never hurt
11 anybody, is all of a sudden under pressure to say,
12 "Well, Bill got away with it. Nothing happened to
13 Sue. Sure, I can puff those numbers a little bit."
14 And then you get the person who might be looking for
15 a perfectly legitimate loan who has now borrowed too
16 much, who is now in trouble.
17 How do you get rid of the fraud? You hang
18 a few lawyers. You put a mortgage company out of
19 business. You put a developer in jail.
20 When the developer that I made mention to,
21 when I was telling the Fed about all the nasty stuff
22 that he was doing, the Fed made such a small noise
23 about it that he was in court, in Federal Court plea
24 bargaining a mortgage fraud felony charge, and they
0250
1 knew nothing about it. His lawyer was saying, "He's
2 the nicest guy on the face of the earth. That was
3 years ago," while we were in this room talking
4 about the fraud that was going on.
5 So, I mean, argue about the minutia, but if
6 25 percent of the market is fraudulent, unless
7 you're going to do something about that, then my 25
8 percent of the market is not going to be affected by
9 any of this. And in fact if your regulations get
10 too strict, you'll push more people into the
11 fraudulent range.
12 MS. MOSELEY: John, wouldn't you say, just
13 by going down Banker and Tradesman --
14 MR. ANDERSON: Oh, I don't use -- I use my
15 own data. It's better than Banker and Tradesman.
16 MS. MOSELEY: I read the Banker and
17 Tradesman each week, and under mortgages, I can put
18 a little X against those that are going to go bad
19 within five years or three years by name.
20 MR. ANDERSON: My kids can do it.
21 MS. MOSELEY: You don't even have to look
22 up anything. This is a bad one, this is a bad one,
23 and this is a bad one.
24 Then one of the techniques in trying to get
0251
1 around how much you can lend on a first mortgage,
2 there's one very prominent finance company that
3 will -- someone will apply for a loan, and they will
4 break it into two loans. One is a first mortgage
5 with reasonably good rates, 30-year first, no
6 prepayments, all of this.
7 Then the second mortgage is an equity line
8 of credit which has the prepayment penalties, which
9 is negative amortizing, and they're going to pay off
10 more when they pay this off, if they ever pay it
11 off, than they will have borrowed. But because it's
12 an equity line of credit, it isn't the same. So the
13 secured loan is only, you know, within the ratios
14 that they allow.
15 So they have all of these little
16 techniques, and the interest rate on the equity line
17 is 18 1/2 percent. Actually, she is going to pay it
18 off and pay the penalty, and then we're going to
19 refinance her at a 12 percent one.
20 MR. WALKER: I just want to ask John a
21 question. John, in your opening statement you went
22 back to 1990. We're in 2000 now. What are you
23 seeing right now? Are you seeing the same kind of
24 flips that you --
0252
1 MR. ANDERSON: The same guys are in
2 business. Nothing happened to them. Not only are
3 the same guys in business, but they're still doing
4 business with the same banks. Of course there are
5 new people, because they can do arithmetic. You
6 don't have to be a brain surgeon. You just have to
7 know real estate and do arithmetic.
8 The same guys are in business. Richard
9 Cawley has a new condo development in Dorchester,
10 closed a deed the other day where somebody paid him
11 $176,000 in cash. It's possible. I don't think so.
12 I don't know what the story is there.
13 One of the guys that I mentioned in my
14 previous Fed testimony was Jeff Roche. He sold a
15 property on Westville Street recently in which, if
16 you looked at Banker and Tradesman, because Banker
17 and Tradesman doesn't do loans or sales under $100,
18 it looks like a sale from Jeff Roche to a buyer
19 using an FHA loan. But since I don't use Banker and
20 Tradesman's data, if you looked an hour later, there
21 was a $10 deed from that person to another person.
22 I don't know what the situation is. I
23 don't have the time to track down every one. But
24 it's no longer -- the property is no longer in the
0253
1 hands of the person who said that they were going to
2 live there for at least six months under the FHA.
3 Who is doing anything about it? Nothing.
4 Nobody. That's out there. It's as broad as day.
5 When I testified last year -- last time,
6 four years ago, I told you there was a property that
7 was owned for five minutes that was bought for
8 $35,000 and sold for $79,000 in five minutes, and I
9 submitted it to the Fed. The time stamps were on
10 it.
11 There was a property that sold recently,
12 bought for -- oh, geez, I can't remember the
13 address. It was bought for 79 and sold for 185 in
14 eight minutes. There was no renovation done. It
15 was just a pure flip, and it was done with a loan
16 with a small down payment loan from a major bank.
17 Since these guys didn't get hurt -- for
18 example, Jeff Roche went and originated a bunch of
19 loans through ACORN, several of which have gone bad.
20 Richard Cawley went to Capital Mortgage, which does
21 FHA funding, and several of those have gone bad.
22 There was an auction last week on Brunswick Street
23 in Dorchester.
24 I just spoke with Bruce Marks, who was on
0254
1 your panel this morning, and he said he hadn't seen
2 me in a while. I said, "I get tired tracking down
3 all the investors, the non-owner/occupant investors
4 who are using your loan programs."
5 With the help of Yawu Miller from the Bay
6 State Banner we found three. We weren't even
7 looking for them. We were just looking at mortgages
8 that went bad really fast. We found investors
9 buying properties through NACA and Fleet. You get
10 tired of seeing it all the time. It's not even
11 surprising.
12 MR. MICHAELS: This is for Mr. White. You
13 referenced before the research that you and
14 Professor Mansfield at Drake Law School had done
15 regarding -- I guess you said you used securities
16 filings to analyze pools of subprime loans and
17 categorize them by rate so you can see where the
18 distribution was.
19 Since you were here this morning, you
20 probably heard our discussion about the Board's
21 authority under HOEPA to adjust the APR triggers and
22 the rates and fees triggers. I guess I would
23 appreciate it if you could sort of elaborate on how
24 you think the Board could use your data,
0255
1 specifically what you think your data tells us about
2 how the Board should go about using its authority.
3 MR. WHITE: Well, one thing I think is very
4 helpful, in Professor Mansfield's article in the
5 South Carolina Law Review is a table with
6 distributions of interest rates from 1995 to 1999
7 charged by subprime lenders, the ones that are
8 publicly disclosed. And you can see the median rate
9 for mixed pools of loans is about 11 percent. Those
10 are the note rates, not the APRs.
11 And, you know, you can also see the
12 percentage, if you draw a line at any cutoff, of how
13 many loans in the market in those years you would
14 have excluded or included at any variety of
15 different triggers. I think all the proposals under
16 consideration for APR triggers would still only
17 affect a very small percentage of the loans.
18 But perhaps more significantly, if you
19 start with the idea that conventional rates have
20 been in the 7, 8 and 9 range, and the subprime
21 rates, the median rates, have been 10, 11 and 12
22 percent, and you look at the fact that these are
23 secured loans, so even if you have large numbers of
24 foreclosures -- some lenders may be 10 percent or
0256
1 more -- if they're recovering 80 percent of their
2 money in the foreclosure, the actual losses on these
3 loan pools will be very small, 2 or 3 percent per
4 year. And that would be very high. Typically it
5 would be more like 1 percent a year.
6 So even a very risky pool of subprime
7 loans, the pricing should not be much higher,
8 however far up the risk scale you want to go, unless
9 you are really making loans that are guaranteed to
10 go into foreclosure.
11 So it seems to me you can take from those
12 ranges of interest rates and from, you know, the
13 real credit -- the cost of credit losses, that when
14 you get beyond 13 or 14 percent in today's interest
15 rate environment, you're really talking about
16 pricing that's not risk based; it's just price
17 gouging, price discrimination. You're charging
18 people more than the credit risk warrants and the
19 current cost of funds warrants.
20 So there shouldn't be any reservation about
21 discouraging or making impossible to do lending at
22 those kinds of rates above 13, 14 percent. And, you
23 know, nobody in the industry has tried to make that
24 case.
0257
1 People in the industry have said, "Gee, you
2 know, we're worried you might start entrenching on
3 legitimate lending if you lower the triggers." But
4 I haven't heard a single member of the lending
5 industry come forward and say, "Let me show you a
6 loan product at 14 percent with 10 points or 7
7 points which is a beneficial, useful, appropriately
8 priced loan product," because they can't make that.
9 MR. MICHAELS: How do you think we can use
10 the data in your study to determine the percentage
11 of subprime loans covered by HOEPA now and the
12 percentage that might be covered if the triggers
13 were adjusted? Do you think we can use the data for
14 that purpose?
15 MR. WHITE: Certainly. I mean, it's not
16 comprehensive, because it's only the subprime
17 lenders who securitize, which is probably less -- a
18 little less than half of all the subprime loans that
19 are made. But as I say, there are tables in the
20 back of the South Caroline Law Review article that
21 will tell you the exact number out of the million or
22 so loans that were surveyed that were at 14-15,
23 15-16, 16-17. You can draw the cutoff anywhere you
24 like, and you can tell from those tables how many
0258
1 ought to be affected.
2 But I do also think, when you look at the
3 loss rates, that you can also draw the conclusion
4 that pricing above a certain point is really just
5 not risk-based pricing anymore; it is just price
6 gouging.
7 MR. MICHAELS: Did you draw a conclusion
8 about the percentage of subprime loans that were
9 covered by HOEPA in your study?
10 MR. WHITE: Well, it would be fairly easy
11 to figure out, I guess, with a 10 percent APR
12 trigger -- well, let me say this: The information
13 that's in the article, which I didn't participate in
14 putting together, is just about the rates. There is
15 no public information about points.
16 A lot of us who see these loans anecdotally
17 feel like there's a lot more price gouging and
18 exploitation happening on the points than on the APR
19 end and that anything that can be done to drive down
20 the cap on those points is probably a good thing.
21 As far as the interest rates, as I say, it
22 is probably fewer than 10 percent of the loans that
23 are above the existing APR trigger. And in fact
24 most HOEPA loans that are HOEPA loans now are HOEPA
0259
1 loans because of the points, not because of the
2 rates. If you lower the rate trigger from 10 above
3 Treasury to 8 above Treasury, you're still only
4 going to be capturing less than 20 percent, I
5 imagine, of the market, maybe less now.
6 MR. MICHAELS: When you say that most of
7 the loans covered by HOEPA now are covered by the
8 points and fees trigger as opposed to the rate
9 trigger, can you give me some idea of how you came
10 to that conclusion.
11 MR. WHITE: Well, I can't say I have a
12 statistical basis for that. I represent -- I've
13 litigated a number of cases under HOEPA, and I
14 represent a lot of clients who have HOEPA-covered
15 mortgages, and it's just been my experience, up
16 until about 1999, that charging 10 points was sort
17 of a standard in a given segment of the industry.
18 Lenders like UC Lending and FAMCO and a number of
19 others, sort of 10 points was the default number of
20 points they charged.
21 Now that HOEPA loans have become less
22 popular, it seems to be like 7 1/2 points seems to
23 be the standard that's being charged, you know, in
24 the high-risk end of the market, particularly for
0260
1 loans of less than $50,000.
2 MR. MICHAELS: Thank you.
3 MODERATOR SMITH: With that, I will adjourn
4 this portion -- did you have anything else?
5 MR. RAYMOND: Excuse me. I apologize. It
6 seems that you were begging the question earlier,
7 and that is that we would -- in terms of having the
8 Board work with community advocates, we feel very
9 strongly that we would like to issue a challenge.
10 The challenge would be, can we leave here
11 with hopefully a commitment to sitting down with
12 some lenders and attempting to -- Norma was talking
13 about it earlier. She is having difficulty in terms
14 of providing these alternative financial
15 instruments. We tried the same thing ourselves and
16 have had some success.
17 But the issue that we feel very strongly is
18 that, okay, it appeared to me, from reading
19 materials and preparing for this meeting, that you
20 weren't only talking about regulatory issues in
21 terms of addressing this problem, which is obviously
22 very diverse and has a lot of different aspects to
23 it.
24 But unequivocally to us there is certainly
0261
1 a large number of folks who are going to be victims
2 otherwise who, if we had a real program to provide
3 them with prime lending, despite the fact that they
4 may have some hardships or some extenuating
5 circumstance or, as was mentioned earlier today,
6 there was this whole issue of how many -- this large
7 number of folks, what is it, 40 percent of the folks
8 who, quote-unquote, are actually higher credit risks
9 than what they are ranked; they end up in the subpar
10 ranks, and in reality they are A credit.
11 These are the kinds of folks we think we
12 could provide for if we had a real alternative
13 program working with lenders, and we would like to
14 solicit the Fed to actually work with an actual
15 committee that's set up to deal with this.
16 MS. MOSELEY: How many banks do you hear,
17 mainstream banks, advertising on the radio for their
18 alternative mortgage products? No. They're talking
19 about their on-link -- I don't know. But, you know,
20 it's all that kind of technology stuff that they can
21 offer.
22 I'm suggesting that the predatory lenders
23 are out there selling their products. The banks are
24 out there selling technology. Why not have some of
0262
1 the banks, particularly with this "Don't Borrow
2 Trouble" campaign, but "Come see your friend at X
3 bank"?
4 It can't just be "Don't do something"; it's
5 "We can offer you something better." That's the
6 missing part, that "We can offer you something
7 better. We can offer you a hot line number. We can
8 send you to a Len Raymond or a Norma Moseley."
9 MR. RAYMOND: A counseling agency.
10 MS. MOSELEY: And after 50 come in in one
11 week, you say, "Shut them off, I can't handle them
12 all. I don't have anywhere to take them."
13 MR. WALKER: Well, we'll certainly be
14 willing to sit down and talk with you in any way we
15 can be helpful.
16 MS. MOSELEY: That would be really good.
17 MR. RAYMOND: Certainly we think a credible
18 partner could be set up.
19 MODERATOR SMITH: Thank you very much for
20 being here this afternoon and offering your views.
21 And we are ready to -- we're going to take about a
22 five- or ten-minute break, maybe five minutes, and
23 then go into the open mike session.
24 (Recess)
0263
1 MODERATOR SMITH: Okay. We are ready, and
2 I think the mikes are live.
3 What I'm going to do is to read the list of
4 the people who have signed up for this session, and
5 we will be going in this order. What I would like
6 to do is for you to alternate mikes. You will each
7 have three minutes apiece. We have two timers, so
8 that depending on which mike you are using, you will
9 be looking at our person here at each end of the
10 table.
11 The names that I have, if I can read them
12 all correctly, Mr. Davis. Is it Tim or Jim?
13 MR. DAVIS: Tim.
14 MODERATOR SMITH: Okay, Tim Davis, City of
15 Boston. Daniel Ram --
16 MR. RAMGEET: Ramgeet.
17 MODERATOR SMITH: Ramgeet. All right. I
18 will ask you all, when you do come to the mike, both
19 to say your name and to spell it for our -- for the
20 record.
21 Willy Knight. Ed France. Lucille May or
22 Willy May?
23 FROM THE AUDIENCE: Willy May unfortunately
24 left.
0264
1 MODERATOR SMITH: Okay. Ruth Dillingham.
2 Leonard C. Akins?
3 MR. ALKINS: Alkins.
4 MODERATOR SMITH: Alkins. Okay. Jim
5 Campen. Andrea Luquette?
6 MS. LUQUETTA: Luquetta.
7 MODERATOR SMITH: Okay. And Bruce
8 Fitzsimmons.
9 So that's the order. We'll start with Mr.
10 Davis. And then if the next person can kind of be
11 ready to go on the other side. Sit close.
12 MR. DAVIS: Hi. My name is Tim Davis.
13 That's T-i-m D-a-v-i-s. I am a senior program
14 manager with the City of Boston Department of
15 Neighborhood Development, and I oversee the "Don't
16 Borrow Trouble" program for the City of Boston.
17 Just to talk very briefly about that program and
18 also on the issue of what we are seeing with
19 subordination requests in our department as well.
20 First of all, we are pleased that through
21 the many years of effort we've put into our first-
22 time home buyer program, we're beginning to see
23 that, probably more so in Boston than in many
24 cities, that first-time home buyers now see
0265
1 education as an integral part to the home-buying
2 process. And we're hoping that that will translate
3 with the "Don't Borrow Trouble" program to
4 homeowners as well.
5 And to give you some of the preliminary
6 results from the first couple of months of the
7 "Don't Borrow Trouble" program, from the calls and
8 inquiries we've received, 33 percent of our
9 inquiries have been general inquiries, people who
10 just want to know more about the program. Those are
11 the types of people that we hope that, when they are
12 looking to refinance, will call us later.
13 42 percent had specific questions about
14 loan terms. So hopefully those are people that we
15 are helping before they actually take the predatory
16 loan.
17 8 percent were behind in their mortgage,
18 but it was resolved by our staff without need for
19 further referral. 9 percent were referred to
20 foreclosure prevention services, specifically Norma
21 Moseley, who has been with you today. And 8 percent
22 were referred to our own City of Boston home repair
23 program, with an additional 1 percent with other
24 questions.
0266
1 What we are seeing with that is that there
2 are a lot of people who are beginning to call us
3 based on the notion of "Don't Borrow Trouble" and
4 "Call us before you sign."
5 The program is still in its youth. We have
6 done mostly print advertisements and things like
7 that. We're just starting the TV PSA. We'll know
8 that really in a little while.
9 To finish up, I would like to say something
10 quickly about subordination requests, which we get
11 for grants that we have done. We have mortgages on
12 the properties. We are seeing a lot of people
13 coming who want subordination requests who do want
14 to refi despite what we tell them, despite the
15 problems they might see with the loan, because they
16 want to consolidate debts.
17 MODERATOR SMITH: Thank you very much. I'm
18 not going to mangle your name again. I'll just say
19 Daniel.
20 MR. RAMGEET: Hi. My name is Daniel
21 Ramgeet. I'm a community organizer for ACORN, and I
22 am here to give testimony on behalf of my mother,
23 Sandra Ramgeet, R-a-m-g-e-e-t. She's the president
24 of Massachusetts ACORN.
0267
1 ACORN members applaud the Federal Reserve
2 for holding hearings and starting to move forward
3 against predatory loans that are destroying our
4 neighborhoods. ACORN thinks that the Federal
5 Reserve has the power to put an end to predatory
6 lending and should have done so long ago. Too many
7 families have already been robbed of their dreams of
8 home ownership and have become hopeless of ever
9 owning a home.
10 ACORN thinks that the Federal Reserve
11 should use its regulatory authority against
12 predatory lendings. These loans which are targeted
13 to low income and minority communities cheat the
14 American people out of tens of thousands of dollars
15 and in the worst cases force families out of their
16 homes. Our community needs the Federal Reserve to
17 live up to its responsibilities and to help protect
18 families against these wealth-stripping loans.
19 ACORN's recommendation are that you, the
20 Federal Reserve, will support the prohibition of
21 lending without consideration of repayment ability
22 and prohibit the common practice of providing
23 teasers, which the American families can't afford,
24 then the interest rate goes up and so does the
0268
1 monthly payments.
2 The practice of financing credit insurance
3 as part of loans is a deceptive practice. Predatory
4 lenders often finance high-cost credit insurance
5 into the loans, which also increase monthly
6 payments, even though the borrowers could get the
7 equivalent insurance from another carrier at a lower
8 rate without the additional interest.
9 The issue of loan flipping definitely needs
10 addressing. Loan flipping is where the lenders
11 refinance loans basically solely to generate extra
12 fees and to provide no benefits for the borrowers.
13 This often forces borrowers to either lose their
14 homes after years of paying their mortgage, and then
15 some borrowers refinance.
16 Predatory lenders are making a fortune from
17 our misery. ACORN president quotes, "There is
18 something very wrong when it is considered a
19 legitimate business practice to provide loans that
20 rob us from our life savings that we put in our
21 homes and leave us homeless."
22 I'd like to submit this on behalf of ACORN
23 members that have been victims of these predatory
24 lenders, and unfortunately they can't be here today
0269
1 because they have to work.
2 MODERATOR SMITH: Thank you very much. Why
3 don't you hand it to him, and he will give them to
4 us.
5 MR. RAMGEET: One other thing. Remember,
6 the people united will never be defeated. Thank you
7 very much.
8 MODERATOR SMITH: Thank you. Thank you for
9 coming. Mr. Knight.
10 FROM THE AUDIENCE: He left as well.
11 MODERATOR SMITH: Okay. Mr. France.
12 MR. FRANCE: My name is Ed France. I'm a
13 Brockton ACORN member. I am also a victim of the
14 predatory lenders, as was stated when we came back
15 there.
16 I have a mortgage through Equicredit. I
17 had a mortgage through RMC, and then they sold it to
18 IMC. The loan was for -- it was 13 percent. I went
19 with Equicredit because I got 2 points lower on
20 that. And with Equicredit I'm paying a $69,000
21 mortgage. I have a ten-year mortgage. I'm expected
22 to pay, at the end of the ten years, a $64,000
23 balloon payment. At that time I will have already
24 paid off my loan. And I try to pay as much as I can
0270
1 over and above my 654 that I owe.
2 Equicredit is constantly sending me letters
3 for insurance. They're telling me that I'm
4 eligible. They don't tell you how much it's going
5 to cost you. It's a constant, ongoing thing. I
6 just disregard them. I'm constantly getting letters
7 in the mail, you know, for other loan officers.
8 They keep getting information on me somehow.
9 With my loan through Equicredit I pay all
10 the insurance. I pay all my property taxes. And I
11 ask my -- the guy that did my mortgage, I says,
12 "Arthur, did you know about the $64,000 balloon
13 payment?" He says, yes, he did. He said that
14 Equicredit expects me to pay -- to refinance with
15 them within a three-year period, which is telling me
16 that I'm going to have to pay more brokerage fees
17 again, plus closing costs and everything else, to go
18 back with the mortgage with them.
19 This is very unfair and very unjust. I
20 wish we could put an end to this.
21 If I refinance in three years, I have a
22 prepayment penalty. And I wish you guys could do
23 something about, you know, putting an end to this.
24 We pray to a higher God up above, a spiritual God.
0271
1 These people that are doing these loans, they're
2 praying to a higher money called the color green.
3 I thank you for your time here. I really
4 hope you can help us out.
5 MODERATOR SMITH: Thank you very much.
6 Ruth Dillingham.
7 MS. DILLINGHAM: I'm going to cede my time
8 to Mr. Fitzsimmons. We're on the same topic.
9 MODERATOR SMITH: Mr. Alkins.
10 MR. ALKINS: Good afternoon. My name is
11 Leonard Alkins. That's A-l-k-i-n-s. I'm the
12 president of the NAACP Boston branch.
13 I thank you for having these hearings, but
14 at the same time I'm insulted that the NAACP was not
15 notified that these hearings were coming about, nor
16 were we invited to participate in a process that we
17 have been involved in since the mortgage scam here
18 in Massachusetts.
19 I don't know if you have involved the NAACP
20 in other cities that you have been in, but this
21 impacts people of color, and for us to be excluded
22 from the process leads me to wonder, is there going
23 to be any change in what has not been happening in
24 our community?
0272
1 The mortgage scams, the flipping of
2 mortgages have been a problem for a long time. They
3 never went away. The message that's being sent by
4 State Government, Federal Government and local
5 communities, meaning the City of Boston, sends the
6 message that it's business as usual.
7 We have elderly people in our community who
8 are being ripped off by irresponsible contractors
9 who work with the City of Boston to repair elderly
10 people's homes. There is no accountability. There
11 is no monitoring of these programs.
12 You have legalized loan-sharking going on
13 by banks charging outrageous points for mortgages,
14 outrageous fees, when you talk about credit cards.
15 And what is the Federal Reserve Bank doing? Does
16 anybody care about poor people and elderly people in
17 this country? People who have power and don't use
18 it are just as bad off as the people who don't have
19 power.
20 We ask the Federal Government, the Federal
21 Reserve Bank, to enforce the regulations that are on
22 the books today, deal with those individuals who are
23 violating the subprime market laws. Get rid of them
24 once and for all, prosecute them and prohibit them
0273
1 from getting back into the business. It's a
2 revolving door. And we must act.
3 These laws and regulations have been on the
4 books for a long time. Why has it taken us so long
5 to take a look at it again? And why are you only
6 giving the community three minutes to discuss the
7 frustrations that we have been putting up with for a
8 long time? You need to come into the community and
9 see firsthand what is going on, what is not being
10 done. Enough is enough.
11 MODERATOR SMITH: Thank you. Mr. Campen.
12 MR. CAMPEN: My name is Jim Campen,
13 C-a-m-p-e-n. I'm Associate Professor of Economics
14 at the University of Massachusetts in Boston. I'm a
15 former member of the Boston Fed's Community
16 Development Advisory Council.
17 I've done a number of studies on mortgage
18 lending in Boston and surrounding cities, and I'm
19 now under contract with the Massachusetts Community
20 Banking Council to do a study using 1999 HMDA data,
21 which should be available, and HUD's list of
22 subprime lenders to do a study of subprime lending
23 in the Boston area.
24 Preliminary analysis using 1998 data shows
0274
1 the same sort of thing in Boston that other people
2 have reported, I'm sure, this morning, when I wasn't
3 here, has been found in other cities. For example,
4 subprime lenders accounted for 9.4 percent of all
5 loans in the City of Boston -- that's refinance
6 loans in 1998; 24 percent of loans to blacks, but
7 only 5 percent of loans to whites; 32 percent of
8 loans in low and moderate income census tracts that
9 are more than 75 percent black and Hispanic, but
10 only 7 percent of loans in low and moderate income
11 tracks that are more than 75 percent white. So the
12 racial divide is a primary thing here rather than
13 the income issue, according to that data.
14 My comments have to be very brief, so I
15 want to make one point, which is that those of us
16 who do studies and people who look at the results of
17 studies and depend on the results of those studies
18 are hurting because of the lack of good data on
19 subprime lending. The situation now is that HMDA
20 data does not provide any information which allows
21 anybody to identify any particular loan as a
22 subprime loan. And of course they can't identify
23 any loan as a predatory loan.
24 The way that most studies are done is that
0275
1 HUD produces a list each year of subprime lenders;
2 that is, lenders that they have determined make --
3 the majority of their loans consist of subprime
4 loans. But those lenders make other loans which are
5 not subprime loans, and there are many lenders who
6 make predominantly prime loans but also make
7 subprime loans.
8 So what we need, what I urge the Board to
9 do, using its existing authority under the existing
10 legislation and to push for additional legislation,
11 is to expand the Home Mortgage Disclosure Act to
12 include three different kinds of data: data about
13 loans, including interest rates, points, the
14 existence of prepayment penalties, balloon
15 penalties, balloon payments and so on; secondly, to
16 include information about borrowers to allow there
17 to be good data collected on the extent to which
18 subprime loans are going to prime borrowers who are
19 qualified for non-subprime loans; and third, since
20 there is a lot of evidence, a lot of anecdotal
21 evidence that there is a very large racial dimension
22 to the provision of subprime loans, it's important
23 to amend HMDA so that information on the race of
24 borrowers can be collected for all borrowers.
0276
1 As it is now, loans taken over the phone or