Afternoon Session of Public Hearing on Home Equity Lending
7 STENOGRAPHIC REPORT OF PROCEEDINGS had in 8 the above-entitled matter held at the Federal 9 Reserve Bank of Chicago, 230 South LaSalle Street, 10 Chicago, Illinois, MS. DOLORES S. SMITH, Moderator. 11 12 PANELISTS: 13 MS. GALE CINCOTTA, National Training 14 Information Center 15 MS. LINDA CRANE, John Marshall Law School 16 MS. BETH LLEWELLYN, Partnership for 17 Homeownership, a Foundation of the 18 Illinois Association of Realtors 19 MR. JACK MARKOWSKI, City of Chicago, 20 Department of Housing 21 MS. ROCHELLE NAWROCKI, Neighborhood 22 Housing Services 23 MR. DAVID VOSS, First Bank of the Americas 24 197 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 (Whereupon, the following 2 proceedings commenced at 3 1:45 o'clock p.m.) 4 MODERATOR SMITH: I believe we're ready to 5 start. I will start by welcoming you to the 6 session; and for those of you who were not here 7 this morning, I will just go through some 8 information. 9 My name is Dolores Smith. I'm the 10 Division Director for Consumer and Community 11 Affairs at the Federal Reserve Board. I will be 12 the moderator for this session. 13 We had a very interesting morning. I know 14 we will have an interesting afternoon, and so I 15 will start by introducing our panel. I might 16 mention for those of you who were not here this 17 morning that we did have with us Ned Gramlich, who 18 is a member of the Board of Governors and who is 19 the Chairman of Oversight Committee on Consumer and 20 Community Affairs. He was not able to stay for the 21 afternoon, but he will be receiving a report and 22 then also will, I'm sure, be looking at the summary 23 of the afternoon's presentations. 24 We have, starting with my left, 198 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 Adrienne Hurt, who is Assistant Director, and 2 Jim Michaels who is Managing Counsel. Adrienne and 3 Jim are the two who are primarily responsible for 4 managing Truth in Lending matters of the Board. 5 To my right, I have Sandy Braunstein, who 6 is Assistant Director for Community Affairs and our 7 Community Affairs Officer for the Board. And then 8 next to her, Alicia Williams, Vice President from 9 the Federal Reserve Bank of Chicago. 10 The rules of procedure that we'll be 11 following this afternoon: The invited panelists 12 will have three minutes for introductory remarks. 13 We have time keepers who will be letting them know 14 when they have one minute to go and when their time 15 has expired. 16 The opening remarks is really just the 17 beginning session, section here. We will have an 18 opportunity for dialogue, so it's not the last 19 opportunity for people to make their contributions 20 to our discussion here this afternoon. 21 We will at the conclusion -- after we have 22 the opening statements, then we will start our 23 panel discussion. We will continue -- we will come 24 to a break some time in about an hour, I'd say, and 199 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 then after the break we will go to the open mic 2 session. So those of you in the audience who have 3 an interest in presenting an oral statement, please 4 sign up if you have not already done so. You do 5 this at the registration desk out in the lobby area 6 here. 7 So with that -- I might say that this 8 morning we focused on some of the more technical 9 questions about how might the Board use its 10 rule-making authority to address concerns about 11 predatory lending practices. 12 There was discussion this morning of the 13 fact that -- well, at least some people suggested 14 that disclosures which is what our regulations 15 primarily provide are not and cannot be the entire 16 answer to preventing vulnerable consumers from 17 getting into a situation where they are subjected 18 to predatory lending practices. 19 And so this afternoon, we will be talking 20 about ways in which consumer education and consumer 21 outreach might help along with whatever disclosures 22 and other -- and substantive protections might be 23 put in place. 24 So with that, I will ask Ms. Cincotta to 200 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 start us off, and we will be going in a clockwise 2 direction. 3 MS. CINCOTTA: Thank you very much. Glad you 4 are holding these hearings. 5 For those of you not familiar with NTIC 6 and NPA, National People's Action is a national 7 network of neighborhood groups across the country; 8 and the National Training Information center is the 9 group that works with getting information, getting 10 research, training staff and being involved in all 11 these kinds of meetings, bringing in data, 12 et cetera. 13 We fought for FHA reforms and we've been 14 dealing with the amount of foreclosures year by 15 year. We have just won again some reforms. And so 16 far we have got 56 of the mortgage bankers that 17 were doing these foreclosures cut off, you know, 18 one by one by one. So it's up to 58. 19 We won CRA nationally. And in just 20 Chicago alone with four banks that we've been 21 working with for 15 years, we got out a billion 22 dollars. What I'm trying to say by that is we're 23 dealing with all the different portions of funding, 24 et cetera, what's happening in the market. 201 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 What we've been hit with so hard is the 2 number of foreclosures which have tripled in the 3 Chicago area in the last five years. Subprime 4 lenders caused the explosion. Their share of 5 foreclosures went from 3 percent in 1993 to 6 38 percent in 1999. 7 So what we're trying to say is we're 8 trying to deal with the banking, the red lining, 9 any of that, FHA foreclosures. We have this thing 10 now that is hit. Lenders who would never lend 11 money in the area before, now that they found a way 12 to come up with horrendous interest rates, points 13 and fees, are like in droves. The amount of, as I 14 said, companies that are coming into Chicago or 15 into the state are unbelievable. So where you had 16 a couple companies locally, they're all coming in. 17 Couple things we think the feds could do 18 is modernize HMDA so that we can prove loans are 19 predatory. Disclose points and fees, interest 20 rates, credit score. Prevent financial 21 institutions from getting CRA credit for subprime 22 loans. 23 43 percent of Bank America's loans in 24 Chicago in 1998 were subprime. Most of the 202 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 subprime in minority neighborhoods. 2 And the changes in HOEPA that we see are 3 need to stop predatory lending: No credit 4 insurance premiums included in the loan. No 5 prepayment penalties. No flipping. No balloon 6 loans. Make whoever owns the loan responsible for 7 it. And lower the APR trigger to 5 percent. 8 And, finally, one caution. While we're 9 meeting here and while this is going on and we 10 debate with the industry and the Chicago city 11 ordinance, the state legislature, et cetera, the 12 industry has a bill in Washington called the Ney 13 bill, N-e-y, that if they get it through, it will 14 prohibit any city or state from doing anything. 15 So while they -- some of the industry 16 might come here and talk friendly, they're pushing 17 an industry bill that would stop us from doing 18 things. 19 MODERATOR SMITH: What does that mean? What 20 does it stand for? 21 MS. CINCOTTA: That's the name of the person 22 sponsoring it, N-e-y, the Congress person. 23 MODERATOR SMITH: Thank you. Mr. Voss? 24 MR. VOSS: Thank you. I appreciate being 203 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 invited here this afternoon and being asked to 2 comment on the latest threat to our community, 3 predatory lending. 4 First Bank has been operating for almost 5 three years, and we have refinanced many predatory 6 loans made by unscrupulous mortgage brokers and 7 lenders. Moreover, while home equity lending has 8 received the most recognition, I'm here to tell you 9 that predatory lending goes well beyond mortgages 10 and it includes consumer loans and life line 11 financial services. 12 At First Bank, we're reminded every day 13 that the practices of predatory lenders places a 14 tremendous burden on decent and hard-working 15 people. 16 First Bank was formed in the fall of 1997 17 and began operations in one office approximately 18 ten minutes southwest of the Chicago central 19 business district. We served the predominantly 20 Mexican/American Chicago communities of Pilsen, 21 Back-of-the-Yards and Little Village. 22 We are an FDIC-insured, for-profit bank. 23 We are also one of the four depository community 24 development financial institutions or CDFIs 204 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 designated by the U.S. Treasury in the Chicago 2 area. In fact, the U.S. Treasury is one of our 3 shareholders. 4 As a CDFI, First Bank's mission is to 5 provide financial services and to make loans and 6 investments to the underserved families and 7 businesses in our community. We have obviously 8 faced substantial obstacles in achieving our 9 mission. The Hispanics are distressed or, in many 10 cases, they're are unfamiliar with banks. 11 In a study done by the Metropolitan 12 Chicago Information Center, MCIC, 25 percent of the 13 Hispanics felt that their banking needs were not 14 being met at all or not too well. This compares 15 with 16 percent for African/Americans and 7 percent 16 for whites. 17 In addition, approximately two-thirds of 18 Hispanics compared to 40 percent of whites used 19 currency exchanges and check-cashing centers, in 20 effect, making them their financial institution. 21 Life line transactions are check cashing, 22 money orders, bill payment and money transfer. We 23 found that there were some companies in our 24 community that were charging outrageously high 205 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 prices for these services. By charging fair and 2 reasonable prices, we were able to establish 3 ourselves in the community and gain the trust of 4 potential customers. That is how we introduced 5 them to mainstream banking. 6 From September 1999 to now, we have 7 refinanced over 150 mortgages, home equity loans 8 and consumer loans. Some of these mortgages had 9 interest rates as high as 12 percent when market 10 rates were 8 percent. The borrowers are decent, 11 hard-working people, but they do not understand 12 personal finance. 13 I have got a couple of examples here, but 14 I know I am going to run out of time, so I will 15 just move along. If you want to talk about the 16 examples of some of the loans that we've 17 refinanced, I will be happy to do so. 18 While predatory practices around mortgage 19 and home equity loans have received major focus in 20 the past few months, I'm here today to tell you 21 that a significant problem also exists in consumer 22 loans. Shall I stop? My time up? 23 MODERATOR SMITH: We'll get -- we'll come 24 around to you again, and then you can continue. 206 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 Ms. Nawrocki. 2 MS. NAWROCKI: Thank you for the opportunity to 3 speak today on an issue that is dismantling years 4 of positive reinvestment. 5 I represent Neighborhood Housing Services 6 of Chicago. We are a non-profit, community-based 7 lender and certified community development and 8 financial institution. We were formed in 1975. 9 NHS brings about community reinvestment through a 10 partnership of residents, business and government. 11 Last year, NHS originated 15 million and 12 leveraged an additional 19 million in home 13 improvement and home mortgage loans. We also 14 provide hands-on homeownership counseling and 15 training through our Neighbor Works Homeonwership 16 Center, and we provide a comprehensive mortgage 17 delinquency program to help families remain in 18 their homes in times of financial difficulty. 19 NHS has becoming increasingly aware of 20 predatory lending and its negative effects on 21 families and neighborhoods over the last year as we 22 begin to see a dramatic increase in the number of 23 clients seeking assistance through our Foreclosure 24 Intervention Program. Through this program, we 207 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 offer mortgage delinquency counseling and 2 intervention and, in some cases, NHS is able to 3 provide small, low interest loans to help customers 4 become current. 5 Approximately 50 percent of all client 6 intakes are due to predatory lending. This year, 7 NHS will receive over 1200 requests for foreclosure 8 intervention services. The need for such services 9 is increasing at an alarming rate, and we are 10 struggling to keep families in their homes and 11 prevent others from obtaining financing from 12 predatory lenders. 13 Today, clients seeking assistance from the 14 NHS's Foreclosure Intervention Program are 15 radically different from clients of several years 16 ago. Today, the majority of clients have obtained 17 home refinance or home equity loans from subprime 18 lenders with excessive interest rates and fees. 19 Upon further examination of loan documents 20 by NHS staff, predatory lending practices such as 21 charging excessive yield spread premiums, balloon 22 payments, flipping and packing of unnecessary 23 credit insurance have been identified. The 24 widespread use of these practices has become so 208 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 apparent that NHS staff now regularly requests to 2 examine all mortgage documents of potential 3 customers even if they are interested in obtaining 4 a home improvement loan with NHS. 5 Today, NHS staff is spending approximately 6 a quarter of their time providing assistance to 7 clients who have fallen behind on their mortgage 8 due to predatory lending. 9 Predatory lending has and will continue to 10 dismantle 25 years of positive reinvestment by the 11 community, banks and government if it continues 12 unchecked and unregulated. 13 To put this into perspective, in the 14 Back-of-the-Yards neighborhood where we have one 15 office, just in the last year, there were 16 102 foreclosure cases initiated in an area that 17 measures 12 by 17 blocks. At least, 75 percent of 18 the foreclosures were direct results of financing 19 by predatory lenders. Most likely the majority of 20 these homes will end up vacant and further erode 21 the positive investment that has occurred to date. 22 Industry efforts to push mandatory 23 counseling, consumer education and increased 24 disclosures as a solution to predatory lending are 209 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 simply too little, too late and, frankly, are 2 unfair to the consumer. While counseling and 3 education can be very important tools to prevent 4 borrowers from obtaining predatory loans, NHS of 5 Chicago believes that counseling is only part of 6 the solution. 7 NHS's long history of working in 8 underserved neighborhoods convinces us that until 9 predatory lending practices are made illegal and 10 exorbitant fees and profits are restricted, lenders 11 will continue to engage in abusive lending 12 practices with or without mandatory counseling at 13 the expense of the homeowners and the neighborhoods 14 in which they reside. Thanks. 15 MODERATOR SMITH: Thank you. Mr. Markowski? 16 MR. MARKOWSKI: Thank you. I am 17 Jack Markowski. I'm the Commissioner of the City 18 of Chicago, Department of Housing; and along with 19 the people that you've heard already testify here, 20 we're concerned very much about the effect of 21 predatory lending on Chicago neighborhoods. 22 We're interested in this issue not only as 23 a consumer issue but for the impact it's having in 24 our neighborhoods, as Rochelle said, to reverse the 210 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 25 years of progress that good lending and good 2 community development has made in our 3 neighborhoods. 4 We're interested in this because of the 5 vacant buildings that are the remnants of predatory 6 lending that destroy the good work in the community 7 and destroy the value of the properties of the 8 folks who don't even have the predatory loans but 9 just live next door and pay their mortgages on the 10 properties, and they see buildings throughout their 11 neighborhood becoming vacated and properties 12 destroyed being sites for crime as a result of 13 predatory lending. 14 In spring of this year, the Mayor 15 announced a threefold initiative to combat 16 predatory lending. We call it our Foreclosure 17 Prevention and Community Stabilization Initiative. 18 The first part of this is to prevent abuse 19 by mortgage brokers and lenders. That was what -- 20 the panels before me talked about this and you said 21 that was your topic this morning. This is about 22 regulations and legislation to regulate the 23 practices surrounding this abusive lending 24 activities. 211 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 We are strongly in favor of those 2 initiatives, however, at the Federal Reserve Bank, 3 at the State of Illinois and with the federal 4 government. We are not ourselves in a position as 5 a city to regulate financial practices. We are in 6 a position to be able to state who we will and 7 won't do business with. And we've been developing 8 a series of criteria to state what we think abusive 9 lending practices are that says who the city won't 10 do business with. 11 But even if we -- when we get that passed, 12 most of the bad lenders are not doing business with 13 the city anyway. So we really need this strong 14 regulation and legislation at the state and federal 15 level. 16 The other two parts of our program are 17 assisting homeowners at risk of foreclosure and 18 expediting the acquisition and rehab of vacant 19 buildings. As I said, vacant buildings are what's 20 left behind, the ultimate result of the predatory 21 lending. 22 We've announced get-tough policies on 23 vacant building owners to make it less attractive 24 to own a vacant building in the city. Owners now 212 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 have to register their building with the building 2 department; purchase liability insurance for damage 3 the building may cause to other properties; and 4 they need to board it up in accordance with 5 standards promulgated by the building 6 commissioner. 7 We also are setting in place with 8 community organizations programs to obtain those 9 vacant buildings through forfeiture from the 10 parties that end up with them and expedite the 11 rehab of those so we can have a fast-track rehab. 12 Finally, we want to assist the consumers 13 with consumer education. We both are going to 14 intervene, and I will talk more later with regard 15 to Department of Consumer Services about class 16 action lawsuits that she will initiate; and we're 17 also with -- a number of lenders, brokers, 18 community organizations, religious institutions, 19 government officials throughout the city are 20 developing an aggressive public education campaign 21 to inform consumers about their credit options and 22 about the dangers of predatory lending and to 23 educate them on their consumer decisions. And I 24 would like to talk more about that later. 213 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 MODERATOR SMITH: Ms. Llewellyn? 2 MS. LLEWELLYN: I'm a little nervous. I hope I 3 can speak up here. 4 We're evidently a little bit different. 5 We are a non-for-profit foundation. We write 6 mortgage programs and then go out and get them 7 funded. We provide homeowner counseling. We 8 pre-screen the applicants ahead of time. When they 9 come to the class, they're given a certificate. 10 The money, according to what they're qualified for, 11 is removed theoretically from that dollar amount so 12 that they have a large period of time to shop, to 13 buy wisely. They're not encouraged to go in a fast 14 pace because the money is going to sit there for 15 the duration until that program ends. That's 16 usually five to six months although we have had 17 them as long as a year. 18 I told my board of directors yesterday 19 that evidently we are subprime lenders and that we 20 deal with very, very low-income people who have 21 either no credit history or who have had credit 22 problems in the past. 23 We look at two years of acceptable credit, 24 three years after a discharge of a bankruptcy. We 214 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 use no FICO scoring in our credit reports at all. 2 We have 18 counseling centers across the 3 state. Everyone uses the same material. Credit is 4 reviewed the same way. Local lenders are 5 participating in these programs -- and I am glad to 6 see some people here who have helped my 7 participants in a big way. 8 We have, according to what they reported 9 yesterday, a .14 percent default rate. It's pretty 10 darn good I guess. Excuse me. I will get control 11 here a little bit. We just are finishing about 12 50 million that we have done in the last year and a 13 half. It's a 5 percent interest rate with a 14 thousand and one percent down payment, whichever 15 was higher. 16 Now I will say something that we're really 17 firm on -- and I have to argue this every time we 18 go to get funding from either the mortgage 19 insurance companies or from another entity. We 20 keep our debt ratios at 36 percent. Flat out. 21 36 percent. In five years, we've made two 22 exceptions to that rule. That took a conference 23 call between the mortgage insurer, the funder as 24 well as myself and the lender who was originating 215 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 that loan. We've only done that twice. 2 1 percent. We have found that a down 3 payment is not indicative of default. We try to 4 make sure that there is 5 percent more residual 5 income left at the end of each month that will take 6 care of necessary expenses and emergencies. 7 We also find that the majority of these 8 people -- Mary Backus is 73 years of age. She made 9 $11,000 a year. We find that they have no medical 10 insurance; and, if they have any at all, they're 11 paying it monthly. Most of the collections I see 12 are medical collections. We look at how long it 13 took them to repay that. Any collection has to be 14 repaid, but we kind of wink at medical so to 15 speak. 16 I am a little bit alarmed at things I am 17 starting to see on credit reports. A lot of them 18 are very, very high cellular phone bills, and it's 19 coming from our younger people. And I will talk 20 maybe later a little calmer. 21 MODERATOR SMITH: Ms. Crane? 22 MS. CRANE: Thank you very much. I have been 23 working since at least 1996 on the MCAP Chicago 24 steering committee which stands for Mortgage Credit 216 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 Access Partnership, one of six such programs put 2 together by various regional Federal Reserve 3 Banks. 4 I am a law professor at the John Marshall 5 Law School here in Chicago where I teach property 6 law and commercial law. And I think I was invited 7 to join MCAP after someone at the fed saw me 8 purchase their program where I was talking about 9 some research I'm doing and had been doing, looking 10 into the history of mortgage lending generally as a 11 way of trying to get a handle on why it's so 12 impervious to -- at least discrimination in the 13 mortgage lending practice is so impervious to 14 attempts to ameliorate it. 15 I found that actually the history of 16 mortgage lending is one of exclusion right down to 17 the letter, and not one of inclusion; and, 18 therefore, it's perfectly consistent for it to 19 continue to be one of exclusion in the present 20 day. 21 When we started the MCAP and we picked the 22 four task forces, subjects to the task forces that 23 we're going to paying attention to in Chicago, one 24 of them was Professional and Consumer Education. I 217 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 raised objections to its inclusion because I 2 thought that it seemed to ignore the problem of the 3 role of racism and other motives that remains 4 unaddressed to some extent while we focus such 5 scarcely available energy on educating the public, 6 once again, producing another brochure. 7 It also seems to suggest that the public 8 was being harmed because it was uninformed, 9 slightly stupid. It was just too much like 10 blending the victim for my taste, and I objected. 11 It was included, and it was probably a good thing 12 that it was. But I would like to lend my voice and 13 say things that other people aren't saying. That's 14 what continuing to be a law professor allows you to 15 do. 16 When those original task forces completed 17 their work, the steering committee created a fifth 18 task force, Credit Scoring and, beginning in 19 December of '98, a sixth, Predatory Lending. 20 Credit scoring is still a huge problem and 21 clearly contributes to the development and 22 continuation of predatory lending practices. I'd 23 love to see some additional work done in that 24 area. 218 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 Because I am satisfied with the focus on 2 developing new regulatory restrictions during this 3 morning's program, I am willing to engage in 4 discussion about consumer education. And, in fact, 5 upon reflection, I find myself in favor of devoting 6 a lot more attention to the matter of consumer 7 education in this context of predatory lending than 8 I was in the context of mortgage lending 9 discrimination generally. 10 Why? I think I'll have to wait until 11 discussion if you guys actually go in to that; but, 12 without overstating the point, I am a little 13 uncomfortable with some of the hint of internalism 14 because some of it means to attacking predatory 15 lending head-on. Consequently, education has 16 greater substantial value and appeal to me in this 17 context to the extent that a more well-informed 18 consumer can potentially make better choices from 19 among a larger, not smaller, pool of borrowing 20 options. 21 MODERATOR SMITH: Thank you very much. I will 22 ask Sandy to start our dialogue on this session. 23 MS. BRAUNSTEIN: Okay. I heard a lot of 24 interesting things in people's opening statements 219 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 today, and it's good to have -- we got a mix of 2 folks on the panel, some of whom deal with the 3 consumer education, some of whom also deal with new 4 products for the subprime market or to serve 5 customers that are currently being served by 6 subprime markets. 7 But I thought I would start out and I 8 would like to discuss some -- all of that; start 9 out with some questions about the consumer 10 education piece of it. And, in particular, for 11 those of you that are doing consumer education and 12 counseling, I would like to hear some thoughts on 13 what techniques have been particularly useful in 14 outreaching the appropriate targeted populations 15 that the predators target. You know, are there 16 certain kinds of materials, media? What has been 17 most effective? What do you find has worked? Or 18 if you find something definitely hasn't worked, I 19 would like to hear about that, too. 20 MR. MARKOWSKI: I think the first thing to 21 realize is we're at the front end of this, so that 22 when we're talking about outreach campaigns, I 23 don't think there's across the country -- and maybe 24 Boston is perhaps the furthest ahead in terms of 220 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 having a well-established campaign in their Don't 2 Borrow Trouble; but across the rest of the country, 3 most of us came into this last year or so as 4 recognizing a problem and then beginning to deal 5 with it. 6 At the city, at least, we have a wide 7 ranging group of maybe up to 50 people from all 8 these various sectors that are coming together to 9 develop a comprehensive public education campaign; 10 and we're going over these same questions that you 11 are talking about: What is the best way to -- 12 who's reaching these people now from the predatory 13 side, from the abusive side, and how do you 14 counteract on the other side? 15 There's people like NHS and like Bank of 16 the Americas, David Voss, in the streets on a 17 day-to-day basis are reaching out to their 18 customers in the neighborhoods. 19 And what I think is that there has to be 20 embodied in a campaign -- we're developing an 21 overall campaign, but we're going to have large 22 scale media advertising, but it has to be 23 complemented by local messages and local messages 24 involving local approaches, local delivery vehicles 221 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 of the message whether it's in utility bills, 2 whether it's through their churches and religious 3 institutions, whether it's through centers for the 4 Department on Aging for senior citizens. There has 5 to be many, many different ways in the community to 6 reach people. 7 But also, I think, it's the kind of thing 8 it seems to me that not only you have to reach once 9 and many times with the message, you have to make 10 it so that it's something that they think about 11 when they're approached by the predatory lender 12 that they know, oh, this is the time I'm supposed 13 to call so and so. This is the time I am supposed 14 -- this is what they were warning me about. 15 Somehow that has to click and then they have to 16 have an alternative place to go for advice. 17 And we think as part of the overall 18 outreach campaign, one of the things we're going to 19 have with it, too, is an 800 number that we think 20 has to be manned and end up serving as a central 21 reference point to give people alternative advice. 22 MR. VOSS: That's a great idea. Financial 911. 23 MR. MARKOWSKI: Right. Maybe that's the 24 message. 222 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 MS. BRAUNSTEIN: Are you -- as a follow-up 2 question, are you participating with the 3 Freddie Mac expansion of Don't Borrow Trouble? 4 MR. MARKOWSKI: Freddie Mac is working with us 5 as is Fannie Mae, both supporting this, and we're 6 now approaching other institutions to participate 7 in the campaign. 8 We think that Don't Borrow Trouble -- 9 we're not convinced that that is the message for 10 Chicago. We think it's a very good message, and I 11 have been very impressed with the materials I have 12 seen from Boston; but I think our opinion right now 13 is we want to be a little more explicit about what 14 the problems are. 15 I think, in my own opinion, it's a 16 sophisticated message and it might be too 17 sophisticated; and I think we want to be a little 18 more explicit about what the problem is and what 19 you have to watch out for and then what the 20 alternatives are. 21 But, yes, we're working closely with them 22 and we're basing it on that experience. 23 MS. NAWROCKI: I would like to add to what Jack 24 said. Certainly, we are at the front end of the 223 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 public awareness and the consumer education 2 campaign. 3 NHS, we have taken a lead in trying to get 4 the word out to consumers in our neighborhoods. We 5 participate in community meetings. We're going to 6 be providing information to NHS loan customers 7 telling them what to watch out for. And we have 8 also incorporated a predatory lending module within 9 our home buyer education courses. 10 But I just want to be clear that there's 11 no way that an organization like NHS can compete 12 with the marketing efforts that are ongoing by 13 predatory lenders. People are being inundated by 14 mailings, phone calls, and I'm a little bit wary of 15 even what a public awareness campaign can do when 16 the predators are out there day in and day out just 17 inundating people with materials. 18 MS. LLEWELLYN: I would like to add that 19 there's a trust issue here, too, that when you are 20 doing counseling and you have spent a good deal of 21 time with them even before on the phone talking 22 credit, working out particular issues with them and 23 then following them all the way through to the 24 closing of that transaction, they do tend to trust 224 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 you more, but there has to be a voice at the other 2 end of this phone. 3 You know, when you call up a number and 4 you're told to push 1 if you want this and 2 if you 5 want this, it's pretty frustrating for these 6 people. 7 It's a difficult thing for people to 8 discuss credit. Credit is still a very private 9 issue with people. It can be caused because of a 10 divorce. It can be caused because of a 11 relationship with a boyfriend or girlfriend. It 12 could have been absolute stupidity. It could have 13 been an error. 14 But for them to come forth and actually 15 sit down and talk one on one with a strange person 16 that they've never seen before on credit issues and 17 things that happen to them in the past -- and 18 they're all related to emotional things -- it's 19 pretty difficult for them. 20 Now you're talking about solicitation by 21 mail, solicitation by door. That's difficult. And 22 those guys have to be pretty darn good to build 23 that level of trust when they knock on that door 24 and convince these people that they need to turn 225 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 over their life savings which is generally the 2 equity in the home. 3 MR. VOSS: Trust is extremely important, and 4 one of the things that has to be done, at least in 5 the communities that we serve, Pilsen, Little 6 Village and Back-of-the-Yards, is to develop a 7 trusting relationship. 8 That takes time. You have to work one on 9 one with the people and you have to bring the 10 people into your bank or into your business, 11 whatever that is, for some reason. Maybe it has 12 nothing to do with banking. To pay a utility bill, 13 to get their blood pressure checked, to buy their 14 rapid transit tokens, whatever it takes so that you 15 can get them accustomed to walking into your 16 business so you have an opportunity to talk to 17 them, so that over a period of time you can gain 18 their trust. 19 It's a very difficult issue. Traditional 20 marketing methods don't work in our community. 21 We've tried radio, TV, door stuffers and every kind 22 of thing you can think of. Mailers, contests. 23 People get their information in our community by 24 word of mouth. 226 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 So you got to get to the people and you 2 got to get them to trust you, and you got to give 3 them a comfort level in integrity in dealing with 4 them so they will come back to you and talk to 5 you. 6 Because the information in our 7 neighborhood spreads by word of mouth that that's 8 where the predators are really getting ahold of 9 these people. You can look down some streets in 10 our neighborhoods and see where the predators have 11 been because there will be a whole string of loans 12 that were done on a predatory basis because they 13 talked to somebody who said, I think you should 14 call my friend, my relative or whoever it is who 15 took care of me, and they do. And they're very 16 unsuspecting, very trusting, and they end up 17 getting ripped off. 18 So you got to do -- you got to turn the 19 predators into prey; and the only way we've been 20 able to do that, and we've done it successfully, is 21 to go one on one with the people by whatever means 22 it takes to gain their trust. 23 MS. BRAUNSTEIN: Do you actually, David, do 24 people from your bank actually go door to door in 227 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 the neighborhoods? 2 MR. VOSS: Absolutely. Not door to door in the 3 neighborhoods, but I'll tell you what we do, to 4 give you an example. 5 In the month of June and July, we opened 6 60 ETA accounts which are electronic transfer 7 accounts; and I understand from some of my spys 8 here at the feds that that's about 10 percent of 9 the total that were opened nationwide. 10 But we didn't open those accounts by 11 putting a sign in the lobby or taking out a 12 newspaper ad or going on the radio. We took actual 13 staff people and put them in our neighborhood 14 Social Security offices certain days of the weeks 15 to talk to the Social Security recipients -- 16 remember, those are the people who are coming in 17 with the problem -- and converting them to ETAs. 18 So you got to do that. You got to go to 19 the people, in many cases -- not door to door -- 20 but you got to go to Oxione (phonetic) Chicago, the 21 De Sosa security offices, to the churches, where 22 you can get before people. 23 And the second thing you have to do is get 24 them to come in your door to do some kind of 228 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 business with you. It may have nothing to do with 2 financial services. It may simply be to pick up 3 their light bulbs when they pay their utility bill 4 or to have their blood pressure checked or to talk 5 to a health care practitioner about wellness. 6 All of that stuff works. Ultimately, the 7 predator becomes the prey. 8 MS. BRAUNSTEIN: One of the things that's been 9 suggested to us sometimes when we talk about 10 amending HOEPA is that maybe everybody who gets a 11 HOEPA loan should be required to see a housing 12 counselor so many days before closing. I would 13 like to get some reaction from that. Do you think 14 would that work? Would that -- you know, what do 15 you think of that idea? 16 MS. CINCOTTA: I think counseling is a mixed 17 bag. I think there is good counseling, there's bad 18 counseling, in between; and there are people who go 19 through it who believe it or don't believe it or 20 get it but it doesn't translate when something 21 happens in their life. 22 And using an example of our group in 23 Cincinnati who did hands-on counseling with the 24 people to get them ready to buy homes, built the 229 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 homes, got them in there. They went through all 2 this for a good length of time, but if they didn't 3 have to sign off before those new homeowners took 4 another loan or did anything, they were prey to 5 predatory lenders. 6 It just was incredible where they have 7 gone through all this, but it took having that 8 where I can't get a bad loan from him without 9 signing -- him signing off on it. They got the 10 counseling. They know, but the allure or the sales 11 pitch on it is beyond that. 12 MR. MARKOWSKI: I think along those lines, I 13 think counseling is good, but if those of us have 14 ever been in any kind of consumer education program 15 or classes or anything we've learned, it's totally 16 different when you're actually in the midst of a 17 transaction. 18 I mean, whatever you know theoretically, 19 it's a different situation when you're being given 20 a pile of papers and being told to put your 21 signature in 15 different places in a loan closing, 22 and there absolutely has to be trust in that 23 scenario. 24 I mean, it's impossible, if anybody would 230 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 think that they would sit down and actually read -- 2 it's not expected in a loan closing that you're 3 going to sit down and read through all those papers 4 and understand everything that's there. That's 5 totally not expected and it can't be done in the 6 normal course of business. So, instead, there has 7 to be a trust that what's in there makes sense. 8 Now I myself, I don't need counseling, but 9 I would never go to -- I have enough counseling to 10 know that I would never sign a transaction like 11 that if I didn't have legal representation. So I 12 have my legal representation in the room with me if 13 I was going to enter into that transaction. 14 So if we're not going to provide that for 15 every person -- we could provide that for every 16 person so they have -- you need representation or 17 counseling right then in that instance. That's one 18 alternative. Or you have a framework where that's 19 not necessary because they have been protected by 20 the regulations. 21 MS. NAWROCKI: First of all, I don't believe 22 that counseling alone is going to stop any 23 predatory lending. I think that you got to couple 24 counseling with real prohibitions against abusive 231 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 lending practices such as flipping, improvident 2 lending. 3 Second, the volume of subprime lending 4 that's occurring, I don't know how counseling is 5 going to help all those people. Today I think I 6 know of four counseling organizations within the 7 City of Chicago where one of them was completely 8 under water. 9 There's not enough funding for counseling 10 organizations. Who's going to pay for the 11 counseling? Is the cost going to be borne by the 12 consumer? Is it right that this burden should be 13 placed on the consumer without placing any 14 responsibility on the lenders or the brokers? 15 And, thirdly, when is that counseling 16 going to occur? If it's going to occur after a 17 person has already been sold a loan or told that 18 this loan will definitely be in their best 19 interest, how good will the counseling -- how much 20 good will the counseling do? And who is going to 21 perform the counseling? 22 We've seen proposals put forth where the 23 lender or the broker could provide the counseling. 24 A VOICE: That's a good conflict of interest. 232 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 MS. NAWROCKI: Definitely. 2 MR. VOSS: You got to get to the people before 3 applying for the loan. I mean that's when the 4 counseling has got -- and the help and the trust 5 has to develop. It's too late once they've applied 6 for the loan because they probably got somebody 7 they know that got them the deal. You can trust 8 them, right, because that's my first cousin. 9 MS. LLEWELLYN: And if they think that someone 10 says to them, well, the loan is approved, but you 11 have to go to this class and have counseling prior 12 to coming, and they know that this is it, you get 13 down there to the end and they say, you either take 14 the counseling or you don't get the loan, and they 15 want the loan. That's all they know is that they 16 want the loan. So they'll go ahead and it's 17 already after the deal is approved. So you have 18 already put the carrot out there. 19 MS. BRAUNSTEIN: I should clarify that what I 20 was thinking of was counseling that would include 21 having somebody, a third party, go through the deal 22 with them. 23 MS. LLEWELLYN: In a right of rescission? 24 MS. BRAUNSTEIN: They haven't signed yet. 233 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 MS. LLEWELLYN: They paid an application fee. 2 MS. BRAUNSTEIN: Probably. 3 MS. LLEWELLYN: Probably. 4 MS. CRANE: What I wanted to try to add is that 5 I certainly do see the sort of problems associated 6 with giving counseling of certain sorts after a 7 certain point and the transaction has already past; 8 but, at the same time, I mean, if we're about the 9 business of sort of deconstructing this, figuring 10 out exactly when it's too late, then we should also 11 be able to figure out when it's not too late and -- 12 or if we're able to say who won't be able to get 13 through to the consumer, we should also be able to 14 figure out who could get through to the consumer 15 and when they might be able to be successful at 16 it. I don't have an answer to those questions. 17 MS. BRAUNSTEIN: That was going to be my next 18 question. 19 MS. CRANE: But I do think that given the level 20 of expertise and the understanding of these issues 21 that is present here including -- and I probably 22 could come up given time -- that these are not 23 insoluble problems if we treat them the same way we 24 treat other problems that they are successors to. 234 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 When we look at the unlawful 2 discrimination against persons in this very same 3 context using other means, we have, you know, DOJ 4 settlement agreements coming from left and right. 5 We have imaginative applications of existing law as 6 well as private initiatives to try to address them, 7 and I think that we could do the same thing here. 8 Now as far as it goes -- one of the things 9 I had prepared to say, been prepared to say was 10 that I think we should have mandatory education for 11 consumers for certain categories of loans; and 12 perhaps we even impose the duty to make those 13 disclosures on the lenders themselves, not 14 necessarily on the handful of consumer education 15 agencies that are outgunned who are trying to do it 16 now. And that even if it may be that, 17 logistically, the point in which this information 18 is shared might not be ideal, that doesn't in my 19 mind mean that we don't add that to the list of 20 things that are used as attempts to address the 21 problem. And there are some people, maybe not all, 22 maybe not half, but a bunch of people might, having 23 this information shared with them, even at late 24 stages of a transaction, may decide, whoa, you 235 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 know, I didn't know that. 2 Also, I think with respect to the content 3 of education, in my experience here, the content of 4 the disclosures being referred to primarily as 5 information about credit worthiness, readiness and 6 financial understanding, you know, issues, things 7 like that, so that they're more savvy borrowers 8 about the economics of the transactions and so 9 forth or a preparedness for going into certain 10 types of transactions. 11 Why can't the content of the education 12 also be about HOEPA and Truth in Lending? Why 13 can't we tell people, look, there are laws that are 14 -- regulations that are in existence that you may 15 not know about, your lawyer may not know about, and 16 that are serious; and if your transaction looks 17 like this, then those laws apply. 18 So that even though we sort of separated 19 out this discussion from the morning discussion 20 where there was more focus on regulation changes to 21 law this morning, I think that there could still be 22 -- you know, there's no need to totally divorce 23 this discussion from that idea as well, and I am 24 thinking we want to get tough because they are 236 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 tough issues. 2 MS. WILLIAMS: If I could ask a question about 3 counseling because sometimes you often hear there's 4 a question about the quality of that counseling 5 that people will receive. 6 And so along those lines, should there be 7 like minimum guidelines or standards that are set 8 so that when you are counseling an individual, you 9 know exactly what it is you are getting into? So 10 some reaction to that. 11 MS. NAWROCKI: Well, I think if we're going to 12 talk about counseling, we should put forward 13 regulation on high-cost loans; and that one way of 14 ensuring the quality of the counseling that 15 somebody receives is that you would -- a counselor 16 would go through the loan and, according to HOEPA, 17 according to hopefully new regulations against 18 high-cost loans, they would determine whether or 19 not somebody is getting a loan that they cannot 20 afford to repay. 21 So what are the guidelines for improvident 22 lending, looking at what a debt to income ratio 23 ought to be and using guidelines such as that. 24 Look to see if they have been a victim of loan 237 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 flipping as determined, and using those sort of 2 guidelines to mandate the standard of education 3 that somebody would receive. 4 Otherwise I don't know without -- you 5 know, without any sort of prohibitions against 6 those practices, how will you determine what 7 counseling they'll receive? 8 MS. BRAUNSTEIN: Gale? 9 MS. CINCOTTA: We don't just counsel people who 10 drive cars. We have rules, regulations, stop 11 lights, stop signs, jail terms, et cetera. And I 12 think we've taken homeownership which is so 13 important, such a big debt, and just say, 14 counseling. 15 Counseling is a mixed bag. Some is very 16 good. Some isn't. And other people, even if it's 17 good, they'll listen to it. 18 So I think there has to be -- like when we 19 talk about rules to stop predatory lending, no 20 credit insurance premiums included in the loan, I 21 don't have to look for it. They're breaking the 22 law if they do it. No prepayment penalties. No 23 flipping. No balloon loans. Make whoever owns the 24 loan responsible for it. You know, lower the APR 238 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 figure to 8 percent. 2 When you set rules, rather than we tell 3 everybody here, now you could get screwed over, so 4 maybe you go to a counselor, who has to hurry out 5 for a date, to help you with this most -- maybe one 6 of the most important decisions you make 7 financially in buying a home. 8 I think you have to build, I mean, these 9 kinds of rules to protect the people. Because, as 10 I said, we have it on stop signs. We have it on 11 all kinds of other places, but somehow here we're 12 going to go to these magical counselors. 13 MS. LLEWELLYN: Let's put the burden on us. 14 I would like to say that in doing 15 counseling, I do -- we do primarily pre-purchase 16 counseling -- the APR is the easiest thing to 17 explain. 18 When I sat here this morning listening to 19 what we would do with TILA, what we would do with 20 everything else, I thought what in the world -- how 21 would I explain this? What would I do? 22 Well, the APR is the easiest thing to 23 explain to a consumer. They can understand that. 24 They can compare that, and they understand that. 239 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 For us who do counseling -- here I am 2 taking sort of the easy shot out, but that is 3 true. But in doing the research for this and 4 reading the documents that you two put out in the 5 letter to us, I noticed that there's a high 6 percentage of these people who are in the predatory 7 issue that are elderly and minority. 8 Well, now how do you get to those 9 people? You get to those people through their 10 churches, and the only way you can get invited into 11 their house is through television because almost 12 everybody has a television. 13 So you would have to have some sort of way 14 of communicating to them an exact replica almost of 15 somebody coming to your door, beware, this is what 16 would happen to you. Many of our elderly, it's 17 difficult for them to read, but they can hear and 18 they watch television, and often that's the only 19 company that they have. I think that might be a 20 good avenue for you guys to look at. 21 MS. BRAUNSTEIN: One of the things -- I wanted 22 to change tracks a little bit to some of the 23 alternative products that I heard mention here 24 today. 240 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 Because one of the things, just to kind of 2 close out this counseling or piece of it, is that 3 we heard from some housing counselors who are in 4 the business is that when a borrower, consumer 5 comes in, even if they come in before they have 6 entered into what would be termed a predatory deal, 7 and if the counselor sits down and goes through the 8 paperwork with them and explains this is really not 9 a good deal, it's not in your best interest, that 10 oftentimes the counselor gets frustrated because 11 the consumer will go ahead the next day and sign 12 the deal anyway because they need that $600 or 13 whatever it is to pay a medical bill and there's no 14 alternative. At least, they feel at that point 15 there's no alternative and this is the only way 16 they're going to get that money. 17 So I was just wondering. I have heard 18 today -- and we've heard this expressed in some 19 other cities and the lack of alternatives, and I 20 hear today that it sounds like there are some 21 alternative kinds of products and programs around 22 the table, and I would be interested in hearing a 23 little bit more about that, especially David. And 24 I know, Beth, you mentioned you are doing loans 241 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 and, Rochelle, and you are actually refinancing 2 some of these deals. 3 MR. VOSS: Well, as an alternative product, I 4 think you got to find ways to bring people to you 5 or go up to them one on one such as we do with the 6 Social Security office on ETAs. 7 But let me give an idea that you might 8 want to think about. I think the ultimate solution 9 is to create more community bank offices in these 10 communities. I mean, I have not -- I don't know 11 any community bank that started in our neighborhood 12 except for us. Yet there are more currency 13 exchanges, more car title loan places, more Payday 14 Loan places opening every week, and they're the 15 financial institution of our community. 16 If the Federal Reserve Bank could create 17 some kind of an incentive because it cost a lot -- 18 we did this. We opened a 1200 square foot branch 19 in no man's land; and the idea would be that it 20 wasn't -- would not be intimidating and yet it 21 would give the mainstream banking services; but it 22 takes years of doing life line banking services to 23 people to get them to come to be bank customers. 24 You are losing money over this period of time and 242 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 we're for-profit banks. Shareholders don't like 2 that. 3 But if the Federal Reserve could guarantee 4 perhaps with a letter of credit a large deposit, 5 say, $3 million because the insurance of the 6 accounts will only go up to 100,000, if you would 7 give some kind of letter of credit so that a 8 community bank would establish itself in these 9 communities and automatically have this large 10 deposit that would be fully insured because of the 11 backing of the Federal Reserve System or a letter 12 of credit at a below market rate, that would cover 13 these four or five years it takes you to bring this 14 branch to the main line of banking as a profitable 15 operation. 16 That would encourage other banks and 17 financial institutions to open up offices in these 18 communities as rapidly as the Payday Loan Stores 19 and title loan companies and the currency exchanges 20 that are expanding today and provide an alternative 21 for people to go to. 22 I also think that the Federal Reserve Bank 23 could be kind of a conduit in putting together 24 large deposits that would be put into these branch 243 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 locations or perhaps even from CDFIs, working with 2 other community development financial institutions 3 to make this happen, and there may be other ways. 4 But I think that's a way that you can 5 develop some products and things and get banks and 6 savings and loans and other credit unions to open 7 up offices in these communities where they're not 8 doing it today. 9 MODERATOR SMITH: Gale? 10 MS. CINCOTTA: I think it's going in the -- it 11 should in that direction, more like S & Ls on every 12 corner; but what's happening, ATMs, people are 13 encouraged not to even go in the banks that exist, 14 to go outside and use the machine. People are 15 being charged five bucks if they walk in the door 16 to see a live person and talk to them. 17 So everything we're saying to get the 18 hands on so people have a relationship, everything 19 is moving to you don't -- what they're saying, you 20 don't have a lot of money. We don't want to bother 21 with you. Work the machine outside or pay five 22 bucks or don't come in at all. 23 It's the opposite of what you really need 24 for people to have access, you know, to credit and 244 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 not get into this trouble which is -- it's almost 2 hostile to the people. 3 So that when they see an ad or a predatory 4 lender knocks on their door, hi, I like you. Gee, 5 you look like you need a break. There's comes -- a 6 personal touch comes out, even though they're going 7 to scam them. They at least have that beginning of 8 we like you, we're going to help you that they 9 don't get from a regular bank who won't hurt them, 10 just won't do business with them. 11 MS. CRANE: That's where we see, at least, in 12 my view, where predatory lending really has 13 originated. 14 In at least, you know, my own maybe 15 somewhat cynical way of looking at things, we've 16 made it too tough for the lenders to refuse to do 17 business with certain communities. You know, the 18 heat was on. You could not just discriminate 19 openly as you had in the past and just refuse to do 20 business with someone because they were black or 21 because they were Latino or because they were 22 elderly. They couldn't do it. 23 And so that I think that what has 24 happened, the evolution of the predatory lending is 245 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 the result of new ways to continue to oppress 2 certain groups; and this is, I think, signified in 3 large part as well by the banks who have moved away 4 from providing personal service and so forth. 5 MS. LLEWELLYN: I think predatory lending 6 starts further back. I think you got to step 7 another step back. Some people heard me speak on 8 this before. 9 This credit scoring is just nuts. I just 10 pulled up an article. I think I sent it to you 11 guys from the U.S. Public Interest Research Group 12 in March of '98 that said nearly 30 percent of all 13 credit reports have serious errors that could cause 14 unfair denial of a car loan, a mortgage or even a 15 job and often go undetected. 16 That's pretty good because before you pass 17 the Fair Credit Reporting Act, it was 48 percent or 18 44 percent, as I remember. 19 But if 30 percent -- now if one out of 20 three of you have an error on your credit report -- 21 how many of you look at your credit report every 22 year? Once every year at the same time every 23 year? How many of you look at your credit report? 24 Well, you should. It's like 246 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 housekeeping. It's good business. You should. 2 Usually about March after all the new credit cards 3 are taken out for the Christmas holidays, you get 4 10 percent off of everything you buy. And you 5 should do that. 6 Of 35 people -- seriously -- of 35 people 7 in each class, I will have only one that has ever 8 seen her credit report or his credit report and 9 they didn't understand how to read it. So that's a 10 moot point. 11 We do pull their credit reports, put them 12 in a sealed envelope, give it to them at the 13 beginning of the class when they come in and the 14 lenders are there to talk to them about their 15 credit. I have already talked to them or some of 16 the others have on the phone before they even get 17 there. 18 I can't believe that we're using credit 19 scoring or any other kind of FICO, any kind of 20 scoring to determine whether somebody has a 21 willingness or an ability to repay because it 22 doesn't really -- 23 MS. BRAUNSTEIN: You said you don't use FICO 24 screening? 247 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 MS. LLEWELLYN: We do not. Absolutely do not. 2 MS. BRAUNSTEIN: And you have 36 percent debt 3 ratio. Is that front or back? 4 MS. LLEWELLYN: That's back. When we're 5 running their debts before they even -- when 6 they're filling out their application, if they got 7 more than 20 percent commercial debt, 20 percent 8 monthly commercial debt, then we sit down. We 9 don't deny them into the program, but we sit down 10 and talk to them about how to dump some of this 11 debt. 12 With 5 percent interest rate, we've never 13 done more than 6 and a quarter percent interest 14 rate, but the last -- we did about 50 million at 15 5 percent interest rate. For every 25 bucks a 16 month they dropped off their debt a month, they 17 jumped five grand on the purchase price of a home. 18 For every 50 dollars they dumped off that 19 commercial debt, they jumped $10,000 in the price 20 of a home. 21 So we spent a lot of time working with 22 them on debt reduction. And that's why we have to 23 take the money out at the beginning and hold it for 24 them because it takes a little while to do it. 248 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 These are people who sell boats. They 2 sell motorcycles. They sell stereo equipment, 3 anything they could come up with to come up with a 4 thousand dollars or 1 percent to put down on this 5 house. They have to have some sort of down 6 payment. 7 Now I'd give them the house with no money 8 down. I really would. I have a lot of confidence 9 in these people. But the other people who 10 participated with us in this program are adamant 11 that there has to be some cash in there. But 12 sometimes it takes them quite a bit. These are 13 people who consider this not just a house, but this 14 is a refuge. This is their home. 15 I brought with me -- we just had a survey 16 out to our buyers. And Sandy Tipes. She works at 17 Hardy's. She has four kids. And we asked her how 18 has owning your new home changed your life? She 19 was in Section 8, living in government housing. 20 How would you describe the difference? 21 The kids are the same but, otherwise, 22 everything has changed. I feel like a new person 23 again. Before, people looked down on us because we 24 were poor and in subsidized housing. We're still 249 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 in the same school district. We're within town 2 limits so that we can walk to the store if the car 3 breaks down. We are off Public Aid. I learned how 4 to budget and take care of ourselves. It gives me 5 a reason to go to work. Before, the more money I 6 made, the more my rent would be. There was no 7 incentive because we could never get ahead. 8 I plan on staying in this house forever. 9 It's our home. The kids always wanted to have a 10 family dinner together. We finally have a place 11 for a dining room table -- they ate in shifts 12 before -- where we can say grace and be thankful 13 for our new home. 14 I want to be helpful to others in the 15 program to answer some of the questions they may 16 have and be a support for others. 17 Well, one of the things she liked about 18 our program was that there was somebody there on 19 the end of the phone and that somebody would give 20 her a call within ten minutes. 21 And she did have some difficulties. That 22 one was a little bit tough, but we were really 23 proud of that. She got a really nice home, and 24 she's got great kids. 250 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 So I think you have to look at the credit 2 issue when you make your determination as to 3 whether you're going to move them into a A minus, a 4 B, a B minus, a C, whatever you are going to move 5 them into, and then you jack the interest rate. 6 I don't think that is -- I don't think 7 that that shows definitely their intent or their 8 willingness to repay. It could be medical issues. 9 It could have been a divorce. 10 We need to have a class on the proper way 11 to get a divorce. These kids come out of a divorce 12 and they assume that the divorce decree is law and 13 that when the divorce decree says he or she was 14 responsible for this and she was responsible for 15 that that he's going to pay that bill, she's going 16 to pay that bill; and often they have left where 17 they were living and gone back home where support 18 was. They have no idea that these creditors who 19 can't find them are filing collections against them 20 until we run a credit report. 21 The other one is young people who come to 22 class and have never discussed their financial 23 history before with each other; and, all of a 24 sudden, they're going to buy a house and a credit 251 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 report is run and she didn't know what it shows on 2 that credit report. He didn't know. They never 3 discussed it. 4 So education has to start a lot earlier 5 than where we are in the marketplace, but also 6 credit scoring. 7 MR. MARKOWSKI: On that credit scoring problem, 8 I acknowledge what Beth is saying about the credit 9 scoring as an issue. 10 But I also want to say that whatever 11 method you use to score, to rate your borrower with 12 respect to credit, there has to be an underlying 13 principle, too, that a borrower is entitled to the 14 best credit. They will get the best credit for 15 which they're entitled. 16 That is not an accepted principle in the 17 industry, and I think the Federal Reserve bank can 18 join with others and push that as a principle. To 19 anybody that hears that, it's outrageous to think 20 that responsible lenders would steer somebody 21 toward a lesser credit or, alternatively, if they 22 come to a subprime lender and they really qualify 23 for a better loan, in terms that they don't push 24 them upstream. 252 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 So I think that the Federal Reserve Bank 2 could help us in establishing that as a principle, 3 that you get the best credit for which you 4 qualify. You're entitled to that. That's a 5 borrower's -- one of their rights. 6 The other thing I would say is that -- and 7 I don't know if Rochelle wants to talk a little bit 8 about this -- with NHS, the Department of Housing 9 in the city, we do have an alternative financing 10 pool. It's not at the front end, although NHS has 11 a number of products at the front end for people to 12 rehab their homes. But we have one at the back end 13 for people that are in danger of foreclosure due to 14 predatory loans that they have gotten themselves 15 into. 16 This is a loan pool that NHS has developed 17 with the series -- with a number of banks in the 18 area that are investors, and the City of Chicago is 19 providing money both for NHS administration of the 20 program and for something of a loan insurance 21 funds. We have 6 percent loan insurance fund, that 22 that's basically what's inducing the banks. The 23 banks bear 94 percent of the risk, but that has 24 been enough to get them in the program, and we have 253 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 this pool that we're calling the normal loan pool 2 to refinance people out of predatory loans. 3 I don't know, Rochelle, if you want to say 4 anything anymore. 5 MS. NAWROCKI: I would just like to add, 6 there's 15 participating institutions in the loan 7 fund. It's a $2 million loan fund. It's a pilot 8 program, and we hope to do 20 to 25 loans this 9 year. So it is very small. 10 But, basically, the idea is -- or the 11 concept behind it was that we needed a way to 12 refinance people that had been victims of predatory 13 lending. Through our work with the Legal 14 Assistance Foundation, we were getting settlements 15 for people who had been victims of predatory 16 lending, and we needed to refinance them and we 17 didn't want to refinance them with that same lender 18 that had ripped them off previously. 19 This normal program is a result of that 20 need. We closed on one loan to a woman, 78-year 21 old woman who paid nearly $10,000 in fees to get a 22 70,000 finance loan. 23 We have a loan committee meeting tomorrow, 24 and we have eight loans to be presented. I just 254 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 spoke with one of our neighborhood directors this 2 week and, in a week, she has six new clients for 3 this program. So I'm sure that we're going to be 4 able to use up the money. 5 I guess I should say, that is, if we're 6 able to negotiate a settlement with the predatory 7 lenders because that is one of the key components 8 of the program is that we have to get a settlement 9 from the lenders so that we're not using the 10 investments in this fund to pay off the bad 11 lender. So that is one thing. 12 Another product that we have -- 13 MS. BRAUNSTEIN: I'm sorry. When you say 14 settlement, you mean they agreed to take a lesser 15 amount? 16 MS. NAWROCKI: Exactly. 17 And another product that we have is with 18 Freddie Mac and Harris. We call it our refi/rehab 19 product. It's a slightly alternative refinance 20 product where we'll be able to refinance people, 21 allow them to do a small amount of rehab, if they 22 need that. And we have more flexible underwriting 23 guidelines as far as credit history. 24 And then we also have a home improvement 255 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 product as well although I will say, due to the 2 overmarketing of predatory lenders, we are finding 3 it difficult to get to people on our own home 4 improvement loan product. 5 MS. BRAUNSTEIN: I know we're running out of 6 time, and I want to ask a question for us at the 7 fed. 8 We would like to know, aside from the 9 regulatory fixes which were discussed this morning 10 in great detail and were mentioned also this 11 afternoon, in the consumer education community 12 outreach field, what is it -- what role would you 13 see that the fed could play that could help what 14 you are already doing or what others are doing? 15 Is it developing materials? Is it 16 marketing? Is it either delivery systems? What 17 is it that the fed could do to be helpful in 18 that? 19 MS. CRANE: I think that one area -- again, 20 going back to the credit scoring. I'm not sure if 21 the fed has any kind of authority in this regard, 22 but I assume it can say whatever it wants to, at 23 the very least, and that is with going back to the 24 ground work that was laid for predatory lending to 256 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 be able to be so successful when we have people -- 2 everyone wants a home. There is -- it's part of 3 the human condition to want a home. The leverage 4 that it provides you and all those other kinds of 5 things. 6 And, yet, there's a scarcity of land, as 7 we know. And there are lots of incentives to 8 discriminate against people who are able to be 9 preyed upon with the goal in mind to prevent them 10 from achieving that homeownership. 11 With credit scores, not only is there not 12 a fundamental kind of a philosophy to give people 13 the best scores that they might be entitled to 14 under -- after the score is calculated, but we know 15 from the work that we tried to do in credit scoring 16 that there are lots of factors that go in to the 17 score that bear no resemblance whatsoever to 18 anything relevant to credit worthiness or credit 19 readiness. Absolutely nothing. 20 In fact, there are many things that can go 21 in to scores that are in fact proxies for rates in 22 the class and lots of other kinds of things which 23 then result in a lower score that are proprietary 24 so that we can find out what they were, but then 257 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 lead to borrower to being unable to qualify for 2 conventional loans; and then, of course, they 3 continue, because they do want a home like 4 everybody else, to look for money and they end up 5 in the hands of predators. 6 So that, again, as I said in my opening 7 statement, I think credit scoring has laid a big 8 part of the foundation for predatory lending, at 9 least in the mortgage area. God knows, it's not 10 only in the mortgage area where it's a big 11 problem. 12 But to the extent that the fed could in 13 fact do something to unbundle this credit scoring 14 mystery, the immunity that the credit scorers and 15 the institutions when they put together their 16 factors that go in to how they calculate their 17 credit scores, that would be very helpful. It 18 would be a start because you run into a wall -- and 19 I've been a part of the group here at the fed and 20 elsewhere of people who are really serious about 21 trying to unbundle this, and we ran into a wall. 22 Then we found ourselves, lo' and behold, 23 focusing on predatory lending which, again, was by 24 no means a coincidence considering the fact that 258 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 nothing had been done about credit scoring which 2 historically has never even been used in the 3 mortgage lending context; and why is it being used 4 in a mortgage lending context as soon as we make 5 greater strides toward eliminating discrimination 6 and mortgage lending and conventional loans I think 7 is because it's so useful for continuing and it's, 8 again, for some reason, apparently immune to that. 9 So to the extent that the fed could in 10 fact look in a comprehensive way at what is 11 involved with how institutions that do listen to 12 the fed calculate their credit scores and 13 scrutinize them and give them some guidance and 14 some demands on how they should not be used in 15 improper ways, I think that is one thing that could 16 be gone over. 17 MS. LLEWELLYN: I agree with her. And also, 18 again, as I said, I deal mostly in rural 19 communities which Illinois primarily is rural. 20 I would like to point out that in my small 21 rural towns -- and this comes up in 90 percent of 22 the cases -- many of the rural businesses in small 23 towns don't report to a credit bureau. 24 So these people who come up with, it shows 259 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 no credit history at all. You sit down with them 2 and you say, well, have you ever had any account 3 any place else? Well, I got an account at the gas 4 station down here. It's not a Shell. It's not an 5 Amoco. It's just a gas station. And he goes in 6 and pays it off every month. He's got an account, 7 over a couple years, different times at a local 8 furniture store, and it doesn't show up on a credit 9 report. 10 And I was thinking about this when you 11 sent out the information to us. If credit is a 12 determining factor in moving a consumer from a 13 prime loan to a subloan, then a copy of that credit 14 report and scoring should be given to that 15 applicant for review prior to processing a loan, 16 before it gets anywhere, at the very onset. 17 If that is what you are basing your 18 decision on moving them into a subprime product, 19 then they should be aware that that's the cause. 20 They should have time to review that. Often they 21 got to go home and talk to their wife, their 22 mother, their father, somebody, to figure out how 23 to read the thing. 24 There should be some sort of an 260 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 instruction and also a sheet in there that tells 2 them these are the avenues to correct. Something 3 that gives them some information. 4 These people are sometimes just caught 5 totally unaware. Totally unaware. 6 MR. VOSS: Since we're on credit reports, why 7 don't you make a regulation that says that lenders 8 have to report good credit payments? Because I 9 think there's a tendency to report those that don't 10 pay. But, oftentimes, there's little effort to 11 report -- 12 MS. LLEWELLYN: Or there's gaps. They look and 13 they report it every three months or every four or 14 every five. 15 MR. MARKOWSKI: I agree with that. So you're 16 going to have -- you talked this morning about 17 regulations. Now we're talking about stuff beyond 18 regulations. 19 I would say beyond the regulations, 20 wherever you end up going here, best practices and 21 standards is I think one of the roles for the fed 22 to play; that those things, whether it's about 23 credit reporting, whether it's about credit 24 scoring, whether it's about, what I said earlier, 261 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 about consumer being entitled to the best loan for 2 which they qualify, those are the kinds of best 3 standards and principles that the fed could help 4 promulgate for member institutions. 5 And with respect to consumer education, I 6 mean I think consumer education, this is such a big 7 task to go on so many different levels; and, on one 8 hand, when I think about consumer education 9 campaigns, I know we have some friends from 10 Fannie Mae here, but I think of the Fannie Mae 11 commercials that I see, the public interest 12 commercials at the Super Bowl that you see from 13 Fannie Mae about the family owning their home. 14 There needs to be that equivalent, I mean, of this 15 issue at a national level. 16 Now that's not going to come from the City 17 of Chicago or from local banks here, but there 18 needs to be a campaign that ends up being 19 underwritten at both -- and carried out. 20 And it's got to be coordinated in a sense, 21 too. The other thing I think about a PR campaign, 22 I mean, we need assistance and support for our 23 local campaign here. But I think we also need 24 coordination with everybody, whether it's the 262 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 Fannie, Freddie or the fed or local banks or big 2 banks, that I think we all have to work together to 3 be part of -- develop themes that hold everybody 4 together on so that you can carry it out with your 5 name on it, but it's still part of an overall 6 effort for this consumer education and, as I said, 7 so the fed can be involved in that national kind of 8 advertising. It can be local support. It can be 9 -- but we're going to have to have the 10 responsibility primarily through us or maybe 11 through your member institutions of carrying the 12 message locally and door to door in the 13 neighborhoods. 14 MS. WILLIAMS: If I can go back and ask Beth a 15 question. You talked about education and it should 16 start a lot earlier. How early were you thinking? 17 MS. LLEWELLYN: Thank you for that segue. I 18 got cards out there, stack of cards out there. 19 We have gotten funding that was funded by 20 Freddie Mac. We did a web site called 21 www.Credit-Power. A friend of ours at Microsoft 22 out in Redmond, Washington, gave us the name of a 23 company called Management Group that developed 24 this, and they hired a man named Bill Nye, The 263 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 Science Guy, who helped write the script for this. 2 It's for junior and high school. The site 3 itself is done. It's a very large site. It's very 4 interactive. It's a game. It's an E-Mail out to 5 the future for 15 years. There's a little envelope 6 up here flying. You can click on it. It goes out 7 15 years and tells you all the stupid things you 8 did and allows you to go back and make better 9 choices. 10 And at the end of that, there's a multiple 11 choice question and answer, and seniors can enter 12 into a thousand dollar cash scholarship. We give a 13 thousand dollars to a high school senior on the 14 first workday of every month. And those E-mails 15 are then dumped to my site to my office and a name 16 is drawn. 17 So it's easy to get funding for that. 18 Dog-gone-it. I wish it was easier to get funding 19 for counseling. It's easy to get funding for 20 scholarships. 21 But it's part of a program that's being 22 converted to Spanish right now. We'll have that 23 done in eight weeks. It's part of the program that 24 will be introduced into the school systems, we 264 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 hope, and also in other states as well. It will be 2 classroom material on credit responsibility and bad 3 choices you make and how it affects what you do in 4 your future. And it's pretty serious, but it's got 5 a good tone to it. 6 My mother was aghast. I had to 7 demonstrate this at the Freddie Mac both last fall, 8 and my mother was with me, and she was going 9 through it. I was practicing. I was just as 10 nervous then as I am now. And, at one point, she 11 was just aghast. She said, oh, my gosh, she was 12 living with this young man and he ran off with her 13 car. I said, I know, Mom, but it works out okay. 14 Watch this. 15 It's a good -- it's a good piece of work. 16 I'm really proud of it. I think that people that 17 worked on it did a marvelous job. I think it's 18 going to get better. When we are done with this 19 one, we're going to do a fair housing one. 20 You know, you look back on your life and 21 you say, what did you do that really made a 22 difference? I think this thing is great. I think 23 it's great. 24 So pick up a card out there. Give it to a 265 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 high school senior. Tell him to dial in and learn 2 something. 3 MR. VOSS: Great idea. I'll just take it back 4 one, even to a lower -- we've opened up banks in 5 grade schools and in high schools here in Chicago. 6 And these are just not banks that are run by us. 7 They're run by the kids. They elect their own 8 board of directors, their own president. They hire 9 their own tellers. The only thing we do is train 10 and mentor and audit. 11 That's one way that you can get the kids 12 -- I mean, the one grade school we're in, their 13 board of directors voted to open it up all the way 14 down to the third grade this year. So you're 15 getting kids whose parents probably have never been 16 in a bank or wouldn't use a bank. At least they're 17 going home and talking about it. 18 Let me give you an example. I had a 19 16-year old girl come in the other day and wanted 20 to know if I would lend her $1600. She works at 21 our high school bank. And I said, I don't think 22 so. You have to get somebody to cosign for you. 23 And I said, what do you want the money for? She 24 said, well, my dad has been studying to be an 266 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 electrician for two years or whatever, and he has 2 to get his license, and to join the union, it's 3 $600. I said, why don't you go get your dad and 4 bring him back over here? 5 We were able to give him -- the dad was 6 going to go to one of these Payday Loan Stores to 7 get the $600; but because she worked in our school 8 bank here in Chicago, she said, gee, dad, why don't 9 you go talk to this guy in the bank, and even 10 though he had never been in a bank, I'm sure, he 11 did; and instead of paying, I don't know, 12 200 percent for the loan, he paid 12 percent for 13 the loan. 14 So those kinds of things really work when 15 you get out there and get in there, even at the 16 grade school levels, certainly at the high school 17 level. 18 MS. BRAUNSTEIN: Gale? 19 MS. CINCOTTA: I think of getting information 20 out, warnings, people who need to get paid and 21 don't want anybody to go into foreclosure. 22 Ameritech, People's Gas, Bell Telephone, all these 23 places that send you bills, real estate, county 24 assessor, any of those places that depend on you 267 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 owning your home and being solvent, you get 2 mailings all the time. Mailings from banks, 3 whatever. Credit companies. There are envelopes. 4 All you need is maybe another piece of paper. 5 Eventually, you know, if you get enough of 6 those, you might start to warn them. Some of the 7 papers that you get from there have hardly anything 8 on them. You can turn them over and put the 9 warning on them. 10 But I think there's constant things that 11 touch people that you forget you can stick another 12 piece of paper in it and get it. Eventually it 13 gets to folks. 14 MODERATOR SMITH: Is there anything else you 15 would like to add before we -- 16 MR. KAYAM: Let me just jump in real quick. 17 My name is Jason Kayam. I'm with the TIC here with 18 Gale. 19 David, in his -- and I'm going to put you 20 on the spot here, Dave -- in his testimony offered 21 some profiles of people that they have been able to 22 refinance. And I, for one, would be kind of 23 interested. I don't know if we have time in this 24 forum to hear that because it's surprising that 268 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 there aren't more banks stepping up to the plate 2 and beyond the NHS pool; but here, I think there 3 are sorts of profiles or stories of folks. Do you 4 have time for that? 5 MR. VOSS: Well, we had a customer who is now 6 our mortgage customer who had come in and paid 7 12 percent for a mortgage in our neighborhood. His 8 credit score was north of 700 which is very good. 9 He paid 3 points to close and $2000 in 10 miscellaneous processing fees. 11 We refinanced that loan for 8 percent, 12 charged $200 for processing and no points, and 13 we're saving that family $300 a month in their 14 payments. That $300 a month is getting spent back 15 in our community and recycled many times creating 16 community wealth. 17 We've got a whole -- many more instances 18 of that. Jack knows some of these because he came 19 out to our bank and took a look at some of the 20 files one day. 21 Especially in the consumer loan area where 22 these people are paying just on consumer debt for 23 furniture or for appliances 48, 50 percent. We've 24 been able to refinance at bank rates for 12 to 269 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 15 percent. These are people with good credit 2 rating, and we can show you these files. 3 That money, again, is saving them maybe 4 $300 a year on a small $2000 consumer loan, maybe 5 900 or a thousand dollars over three years. That 6 money stays in the community. It gets spent in the 7 community, and it gets recycled. That's what 8 creates household wealth. That's what creates 9 community wealth. 10 That's something -- the key to that is to 11 get to the people before the predators get to them 12 because you can't get the points back. 13 And the other thing -- and that's through 14 education and all of the things that we talked so 15 much about here today. But the people that we've 16 been able to do that for are also telling the 17 people down the street and across the street and 18 their other friends and relatives. That's how 19 we're starting to build our business is by word of 20 mouth because we were able to help some people save 21 money every month. It's just as simple as that. 22 How much more money do they have every month to 23 spend or save or do whatever they want with. And 24 they tell their friends and they tell their 270 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 neighbors and they tell their relatives and they 2 come in. 3 MS. WILLIAMS: I have just one more question. 4 We were asking a little bit about things that we, 5 the fed, could do in relation to education. And I 6 heard a little bit about the credit scoring and 7 some of the best practices. But is there anything 8 that you can offer up that we can do in a very 9 short-term to make some real impact in regards to 10 education? 11 MR. VOSS: I think you could do an awful lot 12 because you have the resources to take on the very 13 sophisticated marketing techniques and repetition 14 of the predatory type organizations. 15 But, more than that, I think you could 16 start getting into, for instance, sponsoring some 17 of these school banks that are being set up or by 18 creating some incentives for other financial 19 institutions to start opening branches or community 20 banks in these neighborhoods. 21 They will do this because you could make 22 money in these communities charging fair rates, if 23 you can get the people to come in and use your 24 organization that they traditionally don't use. 271 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 So there's a lot that I think the fed can 2 do. But especially I would start with 3 co-sponsoring some of these school banks and 4 developing some programs to incent community banks 5 to either start up or to open offices in these 6 communities where there are no banks other than 7 currency exchanges and Payday Loan Stores. 8 And, certainly, if you can with your 9 resources do media advertising that's as 10 sophisticated and as repetitious as what the 11 predatory organizations do, that will help. 12 I think Jack's idea of having some kind of 13 a financial 911 or Gale's idea of a warning, you 14 know, enough times so people will -- you know, it's 15 like if you feel faint when you are walking down 16 the street. Maybe some time you will think if you 17 see it often enough times on the TV that you can go 18 to the doctor, somebody to talk to and get that 19 treated, you will. If that's what it takes. 20 That's where I think the fed can have a 21 good role and positive impact not only for our 22 communities but for the citizens that live there 23 and for the Federal Reserve System which is totally 24 misunderstood by the people of our community. They 272 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 don't have a clue what the Federal Reserve System 2 does. 3 MODERATOR SMITH: One of the things that I 4 would like for you to maybe think about is I think 5 that there are a lot of -- people look at the fed 6 and they think a lot of resources; but, in the end, 7 I wonder the extent to which you might be able to 8 achieve some of the same benefits by reaching out 9 to your colleagues in the banking industry. 10 There seems to be considerable interest on 11 the part of major financial institutions in doing 12 something to counteract predatory lending abuses 13 without regulation. So it seems that the time 14 might be quite right for making suggestions to what 15 the industry can do in supporting some of these 16 efforts. 17 MR. VOSS: The major institutions would be 18 happy to put 2 or 3 or $4 million into the branch 19 of a community-based bank that would like to serve 20 and open in these communities. 21 The Federal Reserve -- but they won't do 22 it because they have this $100,000 insurance of 23 accounts limitation and they are obviously, 24 regulatory wise and from a pure business 273 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 standpoint, concerned about going over it. 2 So if there would be some way to get a 3 letter of credit, it wouldn't cost the fed a dime, 4 or some kind of other guaranty that would ensure 5 those deposits. That would be one way without 6 spending a lot of resources you could get other 7 banks to make deposits and make it possible for 8 branches to be open in those communities. It 9 wouldn't cost you. 10 Or you could also be an consolidator 11 putting together a hundred thousand dollar amount 12 from major different organizations so that one 13 could be opened in these communities, and it would 14 have that four- or five-year period to develop its 15 own book of business as it's providing these life 16 line banking services to the community. 17 We've got an office. We've set up a model 18 office to do that. I could tell you exactly what 19 it costs us to run it every year. We've been at it 20 two years. 21 MODERATOR SMITH: It may be that we can -- that 22 you can help in setting this up as one of the best 23 practices that a bank could undertake, and we can 24 go on from there. 274 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 Well, I want to thank you very much for 2 being here this afternoon and sharing your views, 3 and we will take what you have said and take it 4 where we can from here. But we really thank you. 5 Now we were scheduled to take a break and 6 then go into the open mic session. What we would 7 like to do is go directly to the open mic session 8 if people don't mind. I understand we need a 9 separate mic. We can start with one of the mics 10 until we get the separate mic. 11 So we will move along. Thank you very 12 much. By all means, if you have written statements 13 now or if you can give us written statements in the 14 very near term, we would very much like to receive 15 them. 16 The order which people signed up, 17 Mark Lavery -- and forgive me if I am 18 mispronouncing your names, but you will be able to 19 say them correctly when you introduce yourselves. 20 Samuel Penczyk. Mark Reynolds. 21 Daisy Thompson. Onetta Cole. Eddie Clark. Laura 22 Stevenson. Lawrence Luther. Dan Edelman. And 23 John Lukehart. So we'll start with Mr. Lavery. 24 And here we have our mic. 275 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 We are going to ask the time keeper to 2 move over here so that you will be able to see when 3 you have one minute remaining, when your time is 4 expired. 5 MR. LAVERY: Good afternoon, ladies and 6 gentlemen. My name is Mark Lavery. I'm a lawyer. 7 I represent consumers, and I have come here today 8 to ask members of the Federal Reserve Board when 9 they sit down and make the rules that will be a 10 very important way to protect consumers in America, 11 that you remember that the rules are being made for 12 the borrowers, for their protection. 13 HOEPA was not passed as a way for the 14 credit industry to continue to avoid regulation. 15 They were given a very generous grant of 16 deregulation in 1980 when basically the usury laws 17 in this nation were destroyed. 18 So HOEPA is what we have today to protect 19 them. And it's a modest means of protection. 20 However, one way you can put some real 21 force into the law is by banning and prohibiting 22 deceptive and unfair practices. That's the rule 23 that you can make, just like it is here in Illinois 24 under the Consumer Fraud Act, that if a lender 276 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 commits an unfair, deceptive practice, and they are 2 found liable for that, the remedies of HOEPA would 3 apply. 4 And what that does in the strongest and 5 most real way is it gives people who are honest 6 victims of crime in the context of the home repair 7 fraud phenomenon which is taking over the country 8 in many areas a way to protect themselves in 9 foreclosure court. 10 We represent clients who are often victims 11 of home repair fraud; and the secondary lenders who 12 buy the paper are basically the market makers of 13 this destructive force. 14 You're going to hear later from 15 Eddie Clark and some members of his family. He was 16 solicited by a loan originator whose family member 17 was the home repair fraud artist. And it's not too 18 unlikely. They work hand in hand. And what they 19 do is they promise you services that they're never 20 going to deliver on. They get a loan secured by 21 your home. They really never often give you any 22 kind of real services. And then they sell the 23 loan. You can't pay it because it's too high to 24 begin with and you didn't get the services, and 277 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 they take your house. 2 You got another client, Mary Clifton, who 3 couldn't make it today, and she's also threatened 4 to lose her house right now. 5 If you give us the plaintiff's attorney -- 6 who aren't the enemy here. Don't let the defense 7 industry tell you that we're the enemy here, that 8 we're just out there to make a profit. We're just 9 there to help our clients try to save their homes 10 and let them live. 11 So please consider that when you make 12 these rules. Thank you very much. 13 MODERATOR SMITH: Thank you. Samuel Penczyk? 14 Mark Reynolds? 15 MR. REYNOLDS: Good evening. I am 16 Mark Reynolds with Chicago Loan Shark Task Force 17 and the Illinois Coalition. I got involved in the 18 predatory loans because there were neighbors coming 19 to my location with predatory loans, one of which 20 is now in foreclosure. 21 The Chicago Loan Task Force and the 22 Illinois Coalition, we came to the point that we 23 wanted to bring attention to these kind of things 24 across the state. Not only across the state, but 278 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 across the nation. We were working with Chicago, 2 the ordinance of -- the Chicago ordinance 3 predatory. We were also working with legislation, 4 state legislation. And may I say we've worked with 5 state regulations which some of us felt that they 6 were weak. 7 We want to stop these predatory loans 8 because they're deteriorating our community. These 9 kinds of loans are certainly increasing 10 foreclosures around this nation. They started out 11 with a certain small amount of foreclosures. Now 12 they're up in the thousands, and all of these homes 13 are closed down. 14 We want HOEPA to stop prepayment 15 penalties. You were asking about what can be 16 done? These banks that are going on, doing these 17 loans, a letter could be submitted to these banks 18 asking them to make recommendations to stop these 19 kind of practices even though the regulation has 20 not been earmarked. 21 You can write letters to the community: 22 Stop prepayment penalties, stop flipping. Stop 23 these balloon notes. Stop giving loans where 24 people cannot pay because sometimes -- thank you. 279 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 The time has expired, but we want you to know -- 2 MODERATOR SMITH: You have one minute. 3 MR. REYNOLDS: One minute. Thank you. 4 We want HOEPA to understand that you must 5 pass strong regulations, strong guidelines and set 6 enforcement so that the people who are not 7 following these guidelines are placed in some kind 8 of penalties. 9 Because here's what's going to happen: If 10 we set forth some weak guidelines, we are only 11 licensing predatory lending to be a legal 12 practice. 13 So I'm going to ask you to take the 14 leadership, not only for this state, but for the 15 nation so that the nation will adhere to what 16 you've done. Thank you kindly. 17 MODERATOR SMITH: Thank you very much. 18 Ms. Thompson? 19 MS. THOMPSON: My name is Daisy Thompson, and 20 I'm a member of the Chicago Loan Shark Task Force, 21 and I'm here to represent the homeowners of 22 Chicago. 23 I went to refresh my mortgage for $15,000 24 to improve my home. A friend told me about 280 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 Unlimited Financial Services. Unlimited Financial 2 Services was supposed to make me a loan -- a 3 mortgage of $44,000. Instead, the mortgage was for 4 $55,000. The fees was -- they give me fees on my 5 loan for 6000 -- over $6000. 6 I signed the papers, and when -- after I 7 signed the papers, I was told to go out and sit in 8 the lounge. And while I was sitting out there, the 9 loan officer came out and told me the bank had -- 10 the mortgage company had phoned and said I wouldn't 11 get that much money. Instead, I received $2,300. 12 They sold my mortgage to Aim Capital. I'm 13 fighting to stay out of foreclosure. 14 I ask that you stop the practice that 15 forces homeowners out of their home. Make 16 regulations now that stop the practice. Make loans 17 that people can afford. Make lenders responsible 18 for their loans. And also make payments that will 19 only take up half of their monthly payments that 20 they receive of their monthly -- like me, which I 21 only get $488 a month with a payment of 600 some 22 dollars for Aim Capital. Thank you. 23 MODERATOR SMITH: Thank you very much. 24 Onetta Cole? 281 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 MS. COLE: Good afternoon. My name is 2 Onetta Cole, and I'm a relative of Eddie Clark. 3 And basically what I want to say is just quick and 4 to the point. 5 Eddie's situation was that he had received 6 a solicitation by phone. We can help you with home 7 improvement. Nothing wrong. Okay. Fine. We'll 8 redo the porch. Redoing the porch, $3000. Loan 9 balance on the home, 60,000. Mortgage was 10 refinanced for 89. He got 3 in hand, 3 for the 11 porch; and, again, the construction worker was a 12 relative of the mortgage person. So the porch 13 never was done. Began, but not finished. 14 At the time, didn't know, but the mortgage 15 note had a three-tier prepayment penalty in it for 16 the first ten years of the loan with a 15-year 17 balloon payment of 89,000 plus. 18 So we do need assistance. It's just 19 curious to me that with the HMDA recording 20 practices that we do have in place, why isn't it 21 being looked at to see why are the developers or 22 why are these people just centralizing on these 23 type of people who are elderly, retired in certain 24 areas? Because once the homes are foreclosed upon, 282 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 who ends up owning the property? And then what 2 happens when those properties are foreclosed on? 3 The property is put into a certain condition that 4 is unliveable, torn down. The lots are then 5 there. Developers are on the lots. 6 You see what I'm saying? It could be 7 looked at as a conspiracy type of situation or just 8 totally desolation of the neighborhood. So we do 9 some need regulation on that. 10 And then absolutely I am looking at the 11 credit scoring. I personally work in the banking 12 industry, and there is a very big mystery with 13 credit scoring. That needs to be regulated across 14 the board just so the consumer has basic knowledge 15 of where they stand when they do try to get a 16 loan. Thank you. 17 MODERATOR SMITH: Thank you very much. 18 Eddie Clark? 19 MR. CLARK: Good evening, ma'am. I come by my 20 own. They charged me $7,000. Tore my porch down. 21 Left it like it was for two months. We didn't have 22 no porch to get out in the front. We had to go out 23 the back way. 24 So we called them. She said, nothing to 283 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 do about it. You have to wait until your time 2 come. 3 So they came and harass my wife, harass my 4 wife. She got sick. She called Onetta, told 5 Onetta, I'm tired of people harassing me. I said, 6 can you do something about this? She said, wait a 7 minute. She said, I will do something about it. 8 So she comes out there, and they called 9 the same night and harassed. Onetta said, who are 10 you? She said, never mind who I am. I said, I am 11 tired you harassing people because they owe. My 12 wife got sick behind there. She had to go to the 13 hospital, and she had a slight heart attack. And 14 that was it. Thank you. 15 MODERATOR SMITH: Thank you, Mr. Clark. 16 Laura Stevenson? 17 MS. STEVENSON: Good afternoon, everybody. My 18 name is Laura Stevenson. I live at 5819 South 19 Fairfield. We had a pretty little home. And not 20 only they appraise the loan, the lady that sell us 21 the house, get the loan for us, we bought the house 22 from, they don't want to fix the house. 23 My ceiling is coming in. The foundation 24 is falling in, in the basement, and they said 284 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 they're not going to fix my house. 2 I just move in there in November the 19th, 3 and we had a lot of problems. We had squirrels 4 come in the house. I have a five-year old child. 5 She can't sleep in her bed. Water come on her. 6 We need your help. And it's a good credit 7 loan from EquiCredit. I talked to EquiCredit. 8 They said, nothing they can do. We talked to the 9 lady lawyer. He said, that's the way we get the 10 house and that's the way we take it. 11 I just give some pictures -- I mean, some 12 tapes to the young man up there and the document. 13 The house is a $60,000 house. The house don't even 14 worth $25,000. I had CWSC come in and they see the 15 house. They said it don't worth it. We had 16 contractor come in there and see the house. They 17 said, it going to cost $85,000 to fix the house. 18 The house have to tore all the way down. 19 We got a violation already from the city. 20 They're supposed to come out next month again. 21 They said, if they come out, they're going to tore 22 the house down. If they tore the house down, we 23 still got to pay the loan. 24 So we need your help. Thank you. 285 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 MODERATOR SMITH: Thank you. 2 Lawrence Luther? 3 MR. LUTHER: My name is Lawrence Luther. I do 4 electrical contracting in log homes. 5 I got some pictures and some verifications 6 on things that took place that I would like to show 7 you. 8 This is pictures on advertising. I had a 9 log home that was -- it was to be supposedly 10 financed by MidCity Mortgage out of Green Bay; and, 11 when they came out, I was -- it was a second that 12 went for resale for -- for a home, and it was a log 13 home. It's an old-time log home out of Tennessee, 14 Nashville, and they're a HUD-rated log home. 15 What happened is that I started out in 16 February of doing it as a spec and had contractors 17 that worked with me without charging nothing until 18 it sells. But when I got so far along, Adam that 19 worked at MidCity Mortgage, he worked at TitleTone 20 in Green Bay, when he switched me, he said, hey, we 21 got some loans that you can work with that's no doc 22 because I couldn't show a profit in my electrical 23 contracting business because of union targeting. 24 So I says, okay. When I come along, he 286 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 said, you need about 85 percent done, according to 2 what his boss said. And his boss's name was B. J., 3 and she was a lady. 4 Well, when I got about 80 percent done, 5 she comes along and she comes out to the site, and 6 she says, for us to require you to have -- for me 7 to move in, that the septic system is in and the 8 well is working, and by May 19th I would have 9 financing. 10 Well, I get it done, get it all there. 11 And I took out an extra $5,000 on my insurance 12 policy because the cash value was worth that much 13 to be it because that was $65,000 coming in. I 14 walk in there. Where is Adam? No Adam is in 15 there. Well, he's out there. They get him on the 16 phone. How come you're not here? He says, well, I 17 hate to tell you this, but the loan fell through. 18 How come? Because it's a log home. 19 And here it was nothing else but -- they 20 put all the advertising that they're going to 21 finance it. And then I had an open house two weeks 22 later on Memorial Day, and I had another guy put in 23 an application in for it. We had 15 people on that 24 open house I did. They collected. 287 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 And you said about putting out phone 2 numbers like for lenders and that, that's what they 3 do. They have it out there that they're lending, 4 but where is the fair market for log homes on the 5 lending part? Is there any -- why is there 6 restrictions on log homes? This company was a 7 HUD-approved home, why did they deny the loan? 8 And also, here, I will give you that 9 picture -- and here is the Midwest City Mortgage. 10 It gives you the size of the home, everything 11 that's involved in it. And also I will give you a 12 little helpful information why I cannot make a 13 profit in the housing market. Here I will show you 14 the housing stats in the Green Bay/Brown County 15 area. It's a big drop. 16 I will read to you what's -- this is what 17 the union activity is doing out in the Green Bay 18 area and the Appleton area. They take 2 percent 19 off the guy's wages and private independent 20 contractors. I was offered a contract in 1994, and 21 I rejected it because it took 2 percent off the 22 guy's wages to put out independent contractors. 23 It reads, and this is how they do it. It 24 says, when a project is selected for the target 288 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 program, an estimate will be made of the number of 2 hours of electrical work to be performed on the 3 job. 4 Based on this estimate, calculation will 5 be made of a total amount of money which will be 6 designated by the target program. For the 7 particular project, the union will then make an 8 announcement that with respect to this project it 9 will make cash payment from the target program's 10 fund in the amount calculated to any contractor who 11 is awarded the work for the project and who has 12 either signed a contract with the union. 13 The cash payment will be made on the 14 perspective of whether they are party to a contract 15 with Local 577 at the same time they submit their 16 agreement with Local 577 or payments, the 17 determination to which projects are going to be 18 included in the target program; and the amount of 19 money to be granted for specific projects will be 20 surely developed by the employee. 21 You can read that over yourself. 22 MODERATOR SMITH: Thank you very much. 23 MR. LUTHER: The thing is what I'm saying about 24 this 2 percent is that it's in the residential 289 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 contracting area. Here it is. 10 percent 2 difference. 3 Instead of targeting an independent 4 contractor, we can put it towards housing. In 5 Green Bay, they got the packet referendum. They're 6 voting on 2 percent of $295 million. That's 7 $5 million to put out contractors. Why couldn't 8 they put it into low cost housing? Take a look at 9 that. 10 MODERATOR SMITH: Thank you very much. 11 Mr. Edelman? 12 MR. EDELMAN: Good afternoon. My name is 13 Dan Edelman. I am an attorney. I bring a lot of 14 Truth in Lending and related lawsuits on behalf of 15 borrowers. 16 I would like to bring to your attention a 17 number of technical issues which are necessary, I 18 think, to accomplish some of the reforms you want 19 to accomplish. I wasn't planning on speaking, but 20 some of the discussion -- I made some notes while 21 people were discussing various points. 22 First, credit insurance. Under current 23 law, there is no requirement that the creditor 24 forbear while a claim is made under a credit 290 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 disability or life policy. 2 I have seen multiple instances in which 3 the creditor will immediately declare a default, 4 accelerate the loan knowing full well that the 5 borrower is dead or disabled and probably has a 6 legitimate insurance claim, cancel the credit 7 insurance, because they have a security interest in 8 it, apply the premiums to the loan balance, the net 9 effect of which the credit insurance is utterly 10 worthless. 11 There is no requirement under current law 12 that the credit insurance actually protect the 13 borrower against anything. 14 I've taken this issue to the state 15 Appellate Court. They refused to imply such a 16 duty. I think the Federal Reserve Board ought to 17 at least as a condition of excluding the credit 18 insurance premiums from the finance charge. 19 Credit insurance industry suggested it 20 might be a good idea to send a letter out 21 describing the coverage and give you 30 days to 22 cancel. Does that do you any good? Only if the 23 check upon cancellation has to go to the borrower. 24 Most loan documents are written so that it goes to 291 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 the creditor and is applied to the loan balance. 2 In effect, they got the money one way or the 3 other. 4 The duty of the broker to give -- the duty 5 is to give the best terms for which somebody 6 qualifies. Current compensation systems for loan 7 brokers tend to do the exact opposite. If the 8 broker can be compensated, can receive additional 9 compensation in the nature of a yield spread 10 premium directly tied to an increase in interest 11 rate, the incentive is to get the highest rate that 12 the borrower can be sold upon, not the lowest 13 rate. 14 Something needs to be done to change that 15 compensation scheme even if you want a no-point 16 loan and the broker's compensation is funded out of 17 the payments. It should not be tied directly to 18 increased interest rates. 19 Loan advertising. A certain very large 20 subprime lender advertises on a web site that it 21 will not -- the law requires us to get income 22 information from you, but we won't verify it. I 23 don't know what legitimate purpose is served by 24 this. It appears to be an invitation to submit 292 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 inflated and bogus applications so you can get a 2 loan. 3 Home improvement. Let me just finish the 4 one thought. Home improvement financing. 5 Section 32 loans require either the borrower's 6 signature on a check or a completion certificate. 7 That requirement, at a minimum, should be extended 8 to any loan known to be used for home improvement 9 purposes. 10 In addition, it is all too easy to get a 11 borrower's signature on a completion certificate or 12 a check when in fact the work is not completed. I 13 had a case where somebody put a second story on. 14 The structural members were half the size required 15 by code. Nobody paid any attention to this until 16 the poor woman tried to sell the property and, of 17 course, it wasn't salable. 18 In home improvement financing, there 19 should be some requirement of certification of 20 compliance with local building requirements, any 21 required inspections by local authorities; and if 22 it's a significantly sized transaction, independent 23 inspection before the lender can disburse the 24 funds. I thank you for your time. 293 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 MODERATOR SMITH: Thank you very much. I 2 understand that Mr. Lukehart is not here. Is there 3 anyone else -- oh, you are here. No? Yes? 4 But if there's anyone else that would like 5 to make a presentation -- are you -- 6 MR. CULVER: Yes. 7 MODERATOR SMITH: Please. 8 MR. CULVER: Good afternoon. Something today 9 occurred -- 10 MODERATOR SMITH: Would you state your name? 11 MR. CULVER: I'm sorry. Todd Culver, for the 12 record. 13 County Mortgage, in which they pretty much 14 did a refinancing of my Godparent's house. Now one 15 question that I came up with is if they are on a 16 fixed income, the debt to ratio shouldn't be too 17 high to even qualify for this loan. And if you are 18 on a fixed income getting $500 a month, how is it 19 possible that you can afford a thousand dollar 20 mortgage? And I think there should be some 21 regulations on that. 22 And, second of all, you prey on 23 illiteracy, there should be some regulations on 24 that. I'm not saying you could determine whether 294 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 or not an individual can actually read or write or 2 understand; but you are looking at a person that -- 3 I'm not discriminating -- are ages 65 and 70, they 4 don't know the legal terminology. 5 Me, I'm in the collection field. I'm a 6 collection manager. So the FDCPA regulates us. We 7 got to abide by the rules. So I think they should 8 have to do the same. No way you can afford a 9 mortgage at $500 a month when what you are getting 10 in and your outtake is over $1500. It's not 11 possible. And, again, I don't even know how the 12 loan officer can even approve a loan in that 13 standard. Yet it's still being done, and these 14 poor innocent people are losing their homes. Thank 15 you. 16 MODERATOR SMITH: Thank you. Is there anyone 17 else who would like to have a turn at the mic 18 whether or not you have signed up since you have 19 not signed up? 20 If not, then I thank everyone who 21 participated. I also thank those of you in the 22 audience who have come to this because of your 23 interest. And so I thank you again, and we will 24 just take it from here. 295 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 Our next hearing, as I mentioned, is in 2 San Francisco and then I'll close by encouraging 3 you, if you have comments that you would like to 4 submit for the record, if you would get them to us 5 by -- what date did we way say? -- by September the 6 1st. And you can get -- the address is in the 7 notice that was published. It also can be made 8 available at the registration desk if you would 9 like to have it. So with that, we are adjourned, 10 and I thank you again. 11 (Whereupon, the Public Hearing 12 of the Federal Reserve Board 13 adjourned at 3:41 o'clock p.m.) 14 15 16 17 18 19 20 21 22 23 24 296 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 STATE OF ILLINOIS ) 2 ) SS: 3 COUNTY OF C O O K ) 4 5 ANNA M. MORALES, being first duly sworn, 6 on oath says that she is a court reporter doing 7 business in the City of Chicago; and that she 8 reported in shorthand the proceedings of said 9 public hearing, and that the foregoing is a true 10 and correct transcript of her shorthand notes so 11 taken as aforesaid, and contains the proceedings 12 given at said public hearing. 13 14 ______________________________ 15 Certified Shorthand Reporter 16 17 SUBSCRIBED AND SWORN TO 18 before me this______day 19 of________________2000. 20 21 22 _______________________ 23 Notary Public 24
August 16 hearing on home equity lending |
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