Afternoon Session of Public Hearing on Home Equity Lending
September 7, 2000
|
Afternoon Session of Public Hearing on Home Equity Lending |
1:40 p.m.
MS. SMITH: We're ready to launch the afternoon
session.
Thank you, for being here. If you were this
morning, then you know that this is the fourth in a series
of four public hearings that the Federal Reserve Board is
holding on predatory lending, well, will home-equity
lending, with a focus on predatory lending, and on looking
at what uses the Board, the Federal Reserve Board, can
make of its authority under HOEPA, and other regulations,
for addressing some of the abusive practices that have
been reported in the media, and in other forums, in recent
months and weeks, and maybe going back years.
This morning, we focused on regulatory
initiatives in terms of authority that the Board can
exercise under the Home Ownership and Equity Protection
Act. This afternoon, we will take a slightly different
focus on consumer, on community and consumer outreach and
education. So this afternoon, as in the case of this
morning, we have invited panelists who will, first of all,
make opening statements; and, then, will engage with us on
some suggestions for dealing with ways to inform consumers
on how to avoid predatory lending practices in the first
place.
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My name is Dolores Smith. I'm the division
director for Consumer and Community Affairs at the Federal
Reserve Board in Washington. I will be the moderator for
the afternoon session.
For those of you who have just joined us, and we
welcome you, this morning we did have a very interesting
presentation of views, with differing perspectives, from
our panelists. And, then, as in the case of this morning,
we hope to learn from the panelists about any studies or
research on the subprime or equity lending that would
inform the Board in its deliberations.
I'm going to start by introducing our panel, our
Federal Reserve panel. I'm going to start with my extreme
right, Joy Hoffman Molloy, who is the Public Information
Officer and Community Affairs Officer for the Federal
Reserve Bank of San Francisco.
Then, to right, Sandy Braunstein, from the
Board, who is assistant director and also the Community
Affairs Officer for the Board.
To my left, Jim Michaels, who is managing
counsel; and Jane Ahrens, senior counsel, both of whom
work on Truth In Lending Act matters at the Board.
I'll say a little bit about the rules of
procedure that we will be following, which will be
following, which will be -- which will parallel the ones
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that we used this morning. We will have opening
statements from each of the panelists. They are asked to
keep their remarks to three minutes, with the clear
understanding that there will be an opportunity, as we
engage in dialogue, for them to cover points that perhaps
they can't encompass within the three-minute limitation.
We do have a time keeper, Georgette -- and I
have your name written down, and I -- Blathena, which I
can spell but I didn't write down. Georgette will be
giving you -- if you will sort of keep an eye on her -- a
one-minute time warning; and, then, she will also will
hold up a sign letting you know when your time has
expired. If she holds the sign up and you're in the
middle of a sentence, please complete your thought, but do
bring it to a conclusion.
So, with that, we will -- well, I'll also say
that, the afternoon's agenda, we will be discussing these
issues until 3:00 o'clock, at which time we're going into
our open-mic session. And, again, we invite members of
the audience, if you have not signed up to speak this
afternoon, but do have an interest in doing so, then you
can register -- you can probably, rather than going all
the way downstairs -- check with one of our Federal
Reserve people here in the room.
Do we have anyone here now from the Federal
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Reserve Bank? Well, yes, at the back of the room. So if
you have an interest, if you will just speak with one of
them, then it'll save you a trip downstairs.
So with that, we will turn to Alan Fisher. I'll
ask each panelist to introduce themselves with your full
name, for the record; and, also, the name of the
organization that you represent.
STATEMENT OF
ALAN FISHER, EXECUTIVE DIRECTOR
CALIFORNIA REINVESTMENT COMMITTEE
MR. FISHER: Thank you. My name is Alan Fisher.
I'm the executive director of the California Reinvestment
Committee. We're a coalition of more than 200 nonprofits
in the state of California.
I appreciate very much the Federal Reserve
holding these hearings. I think this is another
opportunity to highlight the sort of predatory practices
that destroy neighborhoods in California, and that ruin
the one asset that many people have.
I think consumer education plays an important
role. And I think some of that was talked about this
morning. I think that The Fed can continue to play a good
role with that, within its conferences, and really maybe
bringing consumer activists there. People like some of
the folks who are on panels, and others, to talk about
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what they're seeing in the community, and educate many of
the bankers.
VOICE: Speak into the mic.
MR. FISHER: I thought I was, sorry. That's
better? Get closer?
But I think, at the same time, I wanted to talk
a lot more about The Fed's role, and about the kinds of
things that I think The Fed could do beyond HOEPA.
From my own experience in talking to people,
consumer education is very useful, but many people don't
take advantage of it. And for many elderly people, some
charming person on the phone, who assures them this solves
their problems, it's only later that they find out they're
losing their home.
So I think that The Fed, you know, it's very
good that these hearings are happening, but the next step
really should be, I think, a study, that The Fed has the
ability to do with subsidiaries of the holding companies:
Bank of America, US Bank, Wells Fargo, and now, I guess,
this week, we now have City Group owning Associates. The
Fed should really look at those practices because I think
what you're hearing over and over today is: No one knows
all of the details.
CRC is embarking on a small study, doing
interviews with a few hundred people around California
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this year. But I think, really, The Fed can go in and
play an historic role in the way you did in 1982 in
Boston, with the HMDA research, and really show what's
going on.
I also think that HMDA needs other categories
that would reflect subprime lending. Something that shows
whether it's subprime or not, whether it's the FICA score,
whatever, foreclosures, fees, things like that, insurance.
And I think that you need also to expand the definition of
unfair and deceptive practices. I think that's some of
what people are getting, a further definition of what
subprime is, what predatory is.
CRC has negotiated with a number of large banks,
which have subprime subsidiaries' referral agreements,
where, because there are many people who should be
conventional borrowers, who get lumped into subprime,
either because of the neighborhood they live in, or
because of their color, their age, or the broker they run
into. But none of these have yet been implemented. So
it's very nice wording, but I think that's another thing
that The Fed could look at. I mean, on top of all the
other things that are being talked about, people who could
get conventional loans are not getting them.
I think the other couple things, quickly, are
that -- I mean, I just got, I just got an equity line for
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myself. I wanted the money right away. But I couldn't
get it right away because that wasn't how the bank
operated. So to blame these things on HOEPA it seems to
me to sort of skews the discussion.
I also think -- we haven't heard as much here,
but my colleagues across the country have said that, in
other situations, mortgage lenders are saying that they'll
pull out. And I think is that predatory lenders pull out,
yes; that'll be great for the state.
Thank you.
MS. SMITH: Ms. McKinney.
STATEMENT OF
FRANCINE MC KINNEY, PRESIDENT
HOME BUYER ASSISTANCE CENTER
MS. MC KINNEY: Good afternoon. My name is
Francine McKinney. I'm the president of Home Buyer
Assistance Center. And I just appreciate the fact that I
was invited to participate here on the panel today,
particularly to talk about such an important issue that's
affecting many of the families here in the Bay Area.
My organization primarily provides education and
counseling for the community related mostly the initial
home purchase. But what we are finding is that there are
predatory lending practices, of course, in refinances; but
also in the initial home buying process.
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One of the things I think should change about
the law is that it should also include the home purchase,
as well. What we're seeing is clients of ours who have
blemishes on their credit report that aren't serious.
But, when they meet with the lender or a mortgage broker,
they are told that, because they have these blemishes on
their credit report, the only type of loan they can apply
for is a high-cost loan. So that's a pattern that I'm
seeing that's been going on for some time now. And
because they don't have the education in advance, they
think those are the only loans they can actually qualify
for.
So one thing is, I know there was, in some of
the notes that I received, the point about counseling
being applied, being provided a few days prior to closing
on some of these loans. I really think that counseling
should start at the application. Because, if the
applicant is not educated when they start the process,
when it's time for the loan to close, they're going too
far in it and too anxious to get the money that they've
actually applied for. So it's more likely that they're
going to go ahead and accept that loan at that point,
versus, if they were educated early on in the process and
were really aware that that was not a good loan for them
to apply for.
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The other thing is, when we talk about
counseling being provided for these applicants, there are
several nonprofit organizations around the country that do
counseling. The problem is we're always looking for
funding. So we cannot do the kind of marketing and
outreach that really needs to take place in the
communities to reduce some of the problem that we're
seeing. Some of these mortgage brokers are going
door-to-door. They're sending out regular mailings all
the time. We don't have the funding to do that. So
marketing really needs to be increased so that people can
become more aware of what's going on and become more
educated about the types of loans that they might be
applying for. But, then, just in terms of being able to
provide the service to counsel some of these victims of
predatory lending there aren't enough resources available
for the organizations to be able to do that.
MS. SMITH: Thank you very much.
Mr. Carl.
STATEMENT OF
CHESTER CARL, CHAIRMAN
NATIONAL AMERICAN INDIAN HOUSING COUNCIL
MR. CARL: Thank you. Chester Carl, Chairman,
National American Indian Housing Council.
Before I begin with my statement, I'd like to
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introduce three guests that I have with me. I have two
members of the Navajo Housing Authority Board Commission,
the Chairman, Mr. Johnny Naize; the secretary of the
Board, Gill Arviso; and Jane DeMarines, who directs the
mortgage program at National American Indian Housing
Council.
Members of the Federal Reserve Board, honored
speakers and guests, I am here today as chairman of the
National American Indian Housing Council, representing
Native Americans, one of the groups with the severe
housing needs in the country, and of the most with the
greatest potential risk for predatory lending.
First of all, I'd like to applaud the Federal
Reserve for undertaking this hearing, to five the public
and groups, such as mine, an opportunity to tell our
story. As undeniably the most underhoused and the most
undermortgaged group in the United States, we're glad you
want to hear our comments. We also know that our members
are victims of abuse. We have conducted a study a survey
of our membership, and we'd like to provide some of that
information and examples of predatory lending practices.
Let me summarize some of these results, which
includes roughly 10 percent of the tribes. Some of the
tribes that we surveyed did not respond because they have
yet to experience mortgage lending.
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Sixty-five percent of the respondents said their
members were victims of predatory lending practices, most
notably specific examples, such as this.
Respondents reported examples of housing
interest rates as high as 25 percent. They reported that
tribes within their state cannot get conventional loans
and they can only get HUD loans. And they do not
anticipate getting conventional home loans for 10 to 15
years.
Many lending institutions do not even consider
working with Indian people. Most home loans, or mortgage
home loans, are offered at interest rates of 18 to 24
percent. Home improvement loans were offered at 25
percent.
Behind the stories and behind the data are
stories that are more revealing. There was a parent of a
double amputee who owned his home outright after payments
of 30 years; but, then, lost it through abusive practices
and predatory lending.
The survey paints a grim picture that we know to
be true. As head of the Navajo Housing Authority, I have
watched my reservation seek banking services that others
take for granted. The Navajo Reservation spans an area
the size of the state of West Virgina and has a population
of a quarter-million people. But we only have four banks
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and one credit union.
My point is that Indian Country already suffers
neglect of the nation's financial system and is
undercaptialized and misunderstood. The lack of banking
services creates fewer credit options, and this leads to
predatory lending practices. We know in Indian Country we
have 38,000 qualified home buyers right now. But, often,
the families, because of few financing options, fall
victim to mobile home dealers selling homes at high
interest rates. If some of our people are poor, well,
then, they deserve the same housing benefits and the
financial services as urban poor.
There are things that we're doing, and I'd like
to share those with you. One of them is in the program of
homebuyer education, where we train approximately 100
tribes per year. We do this through workshops, training
staffs so others can also be provided that same training.
We also provide downpayment assistance for families to get
involved in home ownership programs.
Before I finish with some of the opportunities
that I have to speak before you, I'd like to also provide
some recommendations. These recommendations are: To
provide greater enforcement of lenders to meet
requirements of the Home Ownership and Equity Protection
Act in Indian Country. Enforcement to require lenders to
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provide fair rates, repayment terms and reasonable
insurance does not happen in Indian Country.
The Federal Reserve Board, to seriously consider
a study specific to geographic Indian areas to determine
whether lenders actually work with Native American
communities.
Recognition that Indian Nations have sovereign
rights to enact laws. I also urge this Board to assist
with a pilot program and resources to insure compliance.
Create rewards for banks who provide fair
lending to Indian County, provide incentives.
Assist banks in creating consortia for lending
to Indian Country, and to provide technical assistance to
new banks on and near the reservations.
The tribes are not unsophisticated. Our dream
of a home is, to an individual, is our long-held
traditional belief that the home is the center of our
lives. We hope the Federal Reserve Board will use their
powers to help interrupt the cycle of abuse that has
manifest itself in predatory lending.
Thank you very much.
MS. SMITH: Thank you very much.
Ms. Lamberti.
//
//
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STATEMENT OF
CHRIS LAMBERTI, MEMBER
BOARD OF DIRECTORS, AARP
MS. LAMBERTI: Good afternoon. I am Chris
Lamberti, a member of the AARP Board of Directors.
I'm here today to discuss consumer education and
counseling options that may help borrowers to protect
their self-interest when obtaining home-equity loans.
Getting or refinancing a home-equity loan can be a trying
experience for borrowers. It may also pose a significant
risk to their ownership. The investment in home ownerhsip
among older Americans is substantial. For many, it's the
largest financial asset they have.
Before we begin our panel discussion, I would
like to make three basic points regarding risk to
homeowners that are associated with high-cost home-equity
loans.
First, more work needs to be done in defining
and measuring home-equity loans that are priced at
interest rates and contain fees that cannot be justified
by the borrower's credit risk. It is for those who
already have been, or will be, victimized that enhanced
legislative protections and tighter regulatory enforcement
are important. Sttutorily-based consumer protections have
a sentinel effect on lenders, but a consumer's right to
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secure relief and restitution are premised on them.
The second point I wish to make is that consumer
education and housing finance counseling would probably
benefit us all, but are particular importance services for
those who are the most vulnerable to high-cost lending.
Those victimized are often the older, less affluent, less
well educated, whose primary financial asset is the equity
in their home. We need not wait for additional research
to do something beneficial, but do need additional
appropriations. It is already possible to identify from
an examaintion of existing HOEPA case proceedings and
settlements an array of lending circumstances and
practices that can represent substantial risk to a
potential borrower. AARP believes in consumer education
and counseling, and invests in them, for its members and
for the broader community of mid-life and older American
we serve.
I hope to talk more during our discussions about
a consumer education program AARP has been developing for
a particular type of home-equity loan designed
specifically for older Americans, called a reverse
mortgage. The efforts that the Association has made in
partnership with HUD, and others, to provide effective
counseling to borrowers may be adaptable elsewhere. I
have attached some additional materials regarding this
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program to my written statement.
And third, however useful education, counseling,
community outreach may be, these efforts alone are not
sufficient to curtail the problem linked with the
high-cost equity loans. Many of the individuals and
families, who have suffered the most from the disruptive
financial practices commonly referred to as predatory
lending, are also those with the weakest public policy
voice.
I'm looking forward to our panel discussion.
MS. SMITH: Thank you. Mr. Hornburg.
STATEMENT OF
STEVEN HORNBURG, EXECUTIVE DIRECTOR
RESEARCH INSTITUTE FOR HOUSING AMERICA
MR. HORNBURG: Hi! I'm Steven Hornburg. I'm
the executive director of the Research Institute for
Housing America. I'll try to talk very fast, because I
know what it's like on both sides.
[Laughter.]
I'm hell on transcribers.
I appreciate the opportunity to release some
preliminary findings from a national study that the
Institute is going to be publishing soon. It really asks
the question: Who is using the subprime market, and why
are they using it? Why are they there? We have submitted
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a copy, an advanced copy, for the record.
There's very little in terms of national
studies. We've heard a lot of on-the-ground evidence
today. But in terms of the national look at the
statistics, I'm only aware of one other study that's been
done by Freddie Mac on this question.
So, what was done in this study we're going to
publish is that it looks at home purchase fixed-rate
mortgages below the FHA limit, and segments of market into
prime FHA and subprime. It uses a standard mortgage
choice estimation model, but the real innovation is the
inclusion of HUD-defined subprime lending and the actual
credit histories and scores of the borrowers. And in
plain English, the model takes the data and essentially
mimics the underwriting decision to predict the
probabilities of borrowers using each of the market
segments that are discussed. The data is drawn from HUD
databases that they use to update their FHA actuarial
model.
The findings are two: First of all, based on
the study, it looks like the market essentially is
working. Credit scores and histories, downpayment
constraints and income explain the mortgage choice and the
use of a particular market or product type. So, for
instance, for the subprime market, credit scores and
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histories and non-real-estate debt are really the most
important determinants for use in the subprime market. So
there, you find credit and compare borrowers that have
bankruptcies, legal claims or judgments against them,
there are excessive delinquencies.
For the FHA market, the most important
determinant seems to be downpayment and income. So that
essentially means borrowers with low income, low wealth
but adequate credit scores utilize that market
predominantly. Which these findings essentially echo the
Freddie Mac findings, and I quote: "Risk is clearly the
single most important determinant of why borrowers end up
with subprime loans."
Now this leads into the second finding, and that
is: Contrary to the stereotype of all subprime lending
that sometimes seems to exist, the distribution of the
market in terms of income roughly parallels the entire
mortgage market. So about half subprime loans go to
households with income over 80 percent of area and median
income, while about half of all loans, all mortgage loans
in the entire market go to that same household population.
This aggregating the overall sample, though,
there are some unexplained differences that have been
found. For instance: compared to the overall sample
probability, non-White Hispanic, and Hispanics, also are
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less likely to use subprime, slightly less likely to use
subprime market, while African-Americans and
Asian-Americans are slightly more likely to use the
subprime market. Differences between similarly situated
borrowers could very well be technical issues. These types
of studies have always had missing variable problems. So,
for instance: While the borrower with an income may look
like a prime borrower on paper, their lack of willingness
to permit verification of their income could lead to
low-doc, no-doc subprime products and put them into the
subprime market. And while downpayments may appear large
and therefore suggest a prime market allocation, the
source of the downpayment, such as family gifting or
out-of-country sources, could lead to use of a subprime
product.
So, the history of this literature is as more
sophisticated studies, with more complete data are done,
these unexplained differences tend to go away. But,
nevertheless, such differences could suggest that
borrowers may not be in the right market. So it's very
important that we get a handle on this. These technical
problems have to be addressed before any remaining
unexplained differences can be properly interpreted. But
the bottom line, again from this study, is clear: Risk
dictates market assignment, which suggests that, overall,
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the market is generally working.
Thank you.
MS. SMITH: Thank you very much. And with that,
I will ask Sandy Braunstein to lead our discussion, lead
off our discussion.
MS. BRAUNSTEIN: Thank you.
I'd like to extend my welcome to everybody, and
thank you all for being here. And I'd like to start out
by asking some questions about our major stated topic for
this afternoon, which was consumer education and community
outreach. And I know we've got a variety of folks here
from a variety of groups.
I would ask you, first of all, what we would
like to know at the Board is: Have you observed any
methodologies that have been particularly effective or
useful in terms of outreaching to the preyed upon
populations in terms of getting information and education
out there? Because, what we have been hearing during the
hearings, and also private meetings we're having, is that
this is very difficult and it's hard to compete with the
predatory lenders. We'd like to know if you've heard any
successes or you've had any successes in this area.
Chester, you look like you were going to say
something?
MR. CARL: Not necessarily at this point. But I
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still can't -- the issue that's tabled for discussion is
twofold, where my communities are at the level where the
literacy of not only banking services, but also mortgage
lending, has to start at grade level, high school level,
to educate our Indian families the dos and don'ts of
actually anything from checking book to what actually
mortgage means. So we have encouraged other programs, and
I would also encourage the Federal Reserve Board to
support us in developing the literacy program that starts
at that level.
Beyond that, we have gone to home ownership
programs to outreach through several nonprofits. What we
find is that, a lot of times, when we worked with a
nonprofit, they're very exclusive, for example:
NeighborWorks Program. They're only catering to their
employees to provide these types of certifications. So we
have gone out there and pursued the curriculum program
with the National American Indian Housing Council to
provide this education. Also, at the same time, provide
certification to the counselors, to educate them on
mortgage financing.
So we're basically doing that at this point.
MS. BRAUNSTEIN: I'd just like to add something
and we can discuss it later, but I don't know if you're
aware that the Federal Reserve Bank of Minneapolis has
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been working with First Nations to develop a financial
literacy curriculum for Native Americans and that they've
implemented at some of the tribal colleges. And I can
talk to you more about it later, if you need information
on it.
Francine.
MS. MC KINNEY: I think there are a couple of
forms of outreach that tend to be effective. One is the
community meeting. And by "community," I mean the
neighborhood association meetings, meetings at the senior
centers, and then community meetings that would vary
depending on the locality in different areas.
The other is really door-to-door. People
knocking on doors to make sure that they are actually
communicating with the potential victims of, or victims
of, predatory lending. Because that's how some of them
mortgage brokers actually operate, going around knocking
on the doors. It's hard to get seniors to come out many
times, or others who might be victims to come out, and
really admit what's actually going on. But if someone
knocks on the door, many of -- particularly the elderly
like to talk, because perhaps they're living alone, or
they don't get visitors very often, and they like to spend
time talking. And, so, many times that's really a way to
start to connect with some of the people in the community.
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But it's certainly intensive and it's going to take a lot
of effort in order to do that.
MS. BRAUNSTEIN: Have you found -- we heard
similar kinds of things in Boston where they're doing --
MS. MC KINNEY: Right.
MS. BRAUNSTEIN: -- and they said that that kind
of effort seemed to work the best. And we were wondering,
do you find that written materials are helpful? Or how
helpful are written materials?
MS. MC KINNEY: I don't think written materials
are that helpful unless you get someone into a room where
you're particularly focused on some consumer education
program, where you're educating specifically about a
particular product or program. But I think, if you're
mailing out literature or leaving literature at their
door, I don't think it's been effective at all.
MS. BRAUNSTEIN: Chris.
MS. LAMBERTI: I understood that we were talking
about two different ways. There was the education part,
as well as the counseling. So let me just address first
educational part.
As I made the statement before, AARP does
heavily invest in it. So I'm just giving you samples of
it, and there's no one cure, definitely, for the nature of
the beast here. So I'm giving an example of the material
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we have developed.
For home-equity loans, we have particular
guidelines for avoiding scams. I think that's what we are
trying to target first: Avoiding the problems and curing
it later on.
Fraud prevention kits for people, for borrowers,
who want to get into home-improvement loans. We have
developed videos which have been used by our counselors.
At the moment, we also trying to -- we're in the process,
actually, of producing a Spanish version of it. We have
expanded quite a bit of the AARP web site in making more
information available about home repair financing, which
is particularly something the older people are interested
in, as they have built up the equity in their homes, but
repair needs to be done.
Again, examples here, one web site is focused on
the basic steps, so it's really written for consumers in
easy language, easy to understand, making decisions.
There are many different types of loans so it helps them
to make a decision if they're using the home as an equity,
which particularly something the elderly is looking into.
And, then, which is really the main subject
here, is understanding predatory lending. We have, at the
very moment, we are working on the consumer guidelines on
reverse mortgages, which I want to get into later when we
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talk about the counseling. For the next year, we have
already put aside a budget for this. So our side, having
34 million-plus members, plus the entire society, we are
really working hard on it.
MS. BRAUNSTEIN: When we talked about --
Francine had a comment about written materials. I was
just wondering -- because I know AARP does put out a lot
of written material -- do you find that beneficial for
your members?
MS. LAMBERTI: Again, I do not see that there's
only one solution to it. Written material is supporting.
We do have AARP chapters, where we get the word out. We
have this -- that would be on one-to-one, more or less.
As I said, this subject, later on, as we go into
counseling, there's one-to-one again. So there are many
vehicles how it could be done. One way alone is not
enough.
MS. BRAUNSTEIN: Steve.
MR. HORNBURG: It depends upon what you want to
do. And I'm a firm believer that there has to be some
type of effect from homeowner counseling. Unfortunately,
from a research standpoint, there has never been any good,
rigorous analysis showing any kind of impact on, for
instance, defaults or sustaining home ownership. I know
that the NeighborWorks Program has a longitudinal study
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that's going on that hopefully will be able to demonstrate
some social benefits, as well as mortgage performance.
I think, if your thinking of doing something
under this specific focus of the HOEPA, you need to figure
out are you looking to encourage fraud prevention, or are
you looking to encourage general education about how to
look for a mortgage? Or are you looking to help somebody
sustain home ownership? Because, one of the big problems
is that there are many variations on what homeowner
education and counseling is. And the market has not been
sorted out. There's actually a national organization that
I hope that you're talking to at some point, the American
Home Owner Education --
MS. BRAUNSTEIN: AHECI.
MR. HORNBURG: AHECI, thank you.
MS. BRAUNSTEIN: Yes.
MR. HORNBURG: And they're doing a very
admirable job to try to organize the market and
rationalize it, and get to a point to understand what
works and what doesn't, for what purposes. I don't think
they're there yet, either. But they have developed some,
you know, basic standards of practice and some model
curricula that they're trying to dissemminate more
broadly, to try to get to a point where it's more
standardized.
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MS. BRAUNSTEIN: Steve, let me do just one
follow-up, and then Alan.
You said that there's been no research to really
show the benefits of this. Has there been, in your
knowledge, research that shows that it's not? And the
reason I ask this is because conventional wisdom I think
has been that counseling is beneficial. I know that's why
Fannie and Freddie instituted products where they required
it. And, you know, other banks have instituted products
where they've required some kind of counseling at some
time. There was a general feeling that that would help the
performance. I was just wondering if you've heard
anything differently.
MR. HORNBURG: I have not heard of public work,
nor proprietary studies, that have done that. In fact, we
did our annual conference on housing opportunity just this
last year in partnership with AHECI. And just for further
background, you can look on our web site at
housingamerica.org, because there's actually video clips
from the conference.
The basic -- one of the studies that we released
there answered questions that have been nagging me for
quite awhile, and that is: In the absence of any type of
research that specifically shows that mortgage performance
is enhanced -- okay? -- why is there such an investment?
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You mentioned Freddie and Fannie, you mentioned banks, et
cetera. And the researchers came back to me and basically
said; We can't answer the question in terms of mortgage
performance; but looking at it, the counseling and the
partnerships it entails, gives some non-economic benefits
to financial institutions. No. 1, it helps satisfy CRA
and affordable housing requirements. It brings people,
who are creditworthy and mortgage-ready to their loan
officers, basically, so that they reduced screening costs.
It helps them access communities better, working in
partnerships with nonprofits that have the trust of the
communities to get to some of these underserved markets
where they haven't been traditionally able to get access
or loans to go out and work on it.
So it really has some non-economic benefits to
expanding the market. And that they attribute to the
reason for heavy investment in it. Not the mortgage
performance.
MR. FISHER: I don't know if I'm understanding
Steve correctly or not. But I would agree that I think
just consumer education is not enough, and there really
needs to be oversight of the institutions.
But I think on the consumer education, I think
it's there's so much variety in what takes place. I mean,
I know that Fannie Mae had a four-hour training, but we
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heard that, in many cases, people just had to fill out the
test. They never really had it. And that wasn't the
fault of Fannie Mae. That was the financial institutions.
So think that, you know, you really, to do a
study like, you know, in this sort of case, you would
really need to look at what's going on.
I think there were two quick things I wanted to
say, and one is: Since you're in California, there are a
tremendous variety of people in California and cultures.
And so to do something properly here, there are a variety
of languages that need to be used. If I remember
correctly, LA General Hospital, they have to be able to
supply translators for 30, or so, languages, and there are
a lot of cultural issues. So I think it's -- I mean,
that's something else that needs to be in there,
particularly for California, but lots of other places.
And I think that also there is the issue of
scope. As Francine was saying earlier, there isn't enough
funding to really do this, the consumer education, in the
way it needs to happen. Many financial institutions are
cutting back and saying to consumer counselors: If you
aren't referring to me, then I'm not giving you funding.
And, so, I think that, you know, this may be something The
Fed wants to look at, as well, as sort of what is the
scope of this and what are the terms. Because, to me,
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grant making shouldn't be marketing money. You know, it
should be one or the other.
MS. HOFFMAN MOLLOY: Francine, may I ask you a
question about those community meetings that you hold? Do
you actually target current home owners?
MS. MC KINNEY: When we do the --
MS. HOFFMAN MOLLOY: Yes.
MS. MC KINNEY: What we're doing right now is
primarily only attending meetings that are held in the
different communities, well in Oakland, which is where we
primarily work, and different communities making
presentations. And, so, typically, you're having home
owners from those particular communities that are
attending those meetings.
MS. HOFFMAN MOLLOY: Okay. The questions is,
then: How do we actually get to those individuals who are
most vulnerable? I know a lot of organizations are
starting to work directly with churches and different
forums.
MS. MC KINNEY: Right.
MS. HOFFMAN MOLLOY: Just another question about
the issue of post-loan counseling. So we heard a lot this
morning, despite the fact that we were focusing very much
on the technical aspects of the HOEPA regulation, we heard
a lot about, you know, the fact that people are so
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desperate to get the loans that they don't care to be
educated. They resent the fact that there are even ties
to some kind of formal counseling. And I'm sure that
you've experienced that. In your -- you know, I know
you've been doing this for a long time. How do you get
people motivated to not only go through the process of
home-purchase counseling, but once they own their home,
how do you get them motivated to understand all of the
aspects that follow the actual signing of the documents?
How do you keep them hooked in?
MS. MC KINNEY: Well, part of our pre-purchase
education process includes a pretty thorough review of
documents that they would be signing that show where the
costs are for the loan that they're applying for. So we
educate them in advance so they'll know when they're
applying for the initial loan. But, then, we also talk to
them about if they want to refinance later on, or if they
want to get a home-improvement loan. So they already know
how to read those documents, where certain fees are going
to show up in the event that that happens. But we also
keep in contact with all of our clients as part of our
post-purchase program.
We call clients every 90 days during the first
two years of home ownership, for a couple of reasons: (1)
because, once escrow closes, they're going to get letters
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from many different companies, not only pre-approved
credit card offers, but offers to get equity lines, 125
percent loans, equity loans on the property. So we want
to make sure that, if we're in close contact with them,
that if some of those things come in the mail, they're
talking to our counselors about it. We want them to know
that we're available for them to ask questions if they
need any help, or if they run into any financial
difficulties.
So one is to be available in the event that
something does come up where they are experiencing some
problems; but the other is to keep the line of
communication open so they'll know that, if they have any
questions, they can contact us.
MS. HOFFMAN MOLLOY: Can I ask one other quick
question? With the increase in home values, let's use the
Bay Area as an example we all know well, with people being
able to buy in places in Oakland, for instance, and they
are seeing equity, are you seeing -- are they somehow
specifically targeted by a lot of these companies we're
talking about with marketing materials? We're hearing
that they're sort of tapping into that equity early on.
Is there any counseling going on around that?
MS. MC KINNEY: Well, I think probably everybody
is getting something in the mail from some of these
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companies.
MS. HOFFMAN MOLLOY: Oh, yeah.
MS. MC KINNEY: And many of the clients that we
work with have also used some kind of assistance program.
And if they've used some kind of assistance program, they
can be limited in terms of getting additional loans on the
property, or taking out new loans.
MS. BRAUNSTEIN: I'm sorry, Chris.
MS. LAMBERTI: Allow me to make a statement.
MS. BRAUNSTEIN: Sure.
MS. LAMBERTI: Your question about education
here, what is the best type of education. And I think in
terms of I'm wearing a size 4 to 6, and, once in awhile,
I'm supposed to wear one size fits all. It just doesn't
fit. So when it comes to education, I would say most
likely the well-educated will pick up on education much
faster. But what we are concerned, particularly in AARP,
is the group of people who are low-income, who have a
harder time and who really need additional counseling. So
education, by its own, would not be enough, definitely
not. Plus regulation and legislation. But, anyway,
education itself wouldn't do it.
MS. BRAUNSTEIN: Have you, those of you who were
actually doing counseling, or associated with counseling
programs, do you find -- we've heard a lot about
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counseling and trying to get to somebody before they get
caught up in one of these deals. But have you found cases
where you've been able to reach somebody before they've
signed papers, and, even though you've gone over a
detailed explanation of why maybe this is a bad loan, that
somebody enters into it anyway, possibly because of lack
of alternatives, or, you know, needing the money? Is that
a big problem around here?
Francine?
MS. MC KINNEY: I have had that experience. And
even though this person had gone through our whole
education program, we did one-on-one counseling with them
several times, helped them get their credit cleaned up,
and two years after they got into the home they were
approached, and they were going to end up with about
$20,000. And, so, we actually had loaned them some
downpayment assistance. And the company contacted us
because they wanted us to subordinate ours when they were
refinancing the first loan, and I wouldn't agree to do
that. And, so, since I wouldn't agree to subordinate,
they just put me in first position and put their loan in
second position, because mine was going to go away after
five years.
I talked to our client and I actually had the
lender fax me a copy of the good-faith estimates so I
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could see what all the costs were. There was a
single-premium life insurance. Three thousand dollars for
that. And they had convinced this woman that she -- it
was absolutely necessary because she had a daughter and
she wanted to make sure she was taken care of in the event
that something happened to her. The fees were
astronomical. So the entire cost for the loan -- it was
$20,000 she was actually going to be applying for, getting
cash out technically, but she was going to get $9,000. So
the other $11,000 was for fees and insurance. But she
went ahead with it anyway, because she wanted some money.
So that's the thing. And she was unemployed at
the time. She was on disability. So they were giving her
a loan on the property, where she was off from work. She
was disabled, and she needed some cash. So she was just
willing to sign.
MS. BRAUNSTEIN: Chester.
MR. CARL: The story that Francine provides is a
picture that we often experience. Not necessarily through
mortgage refinance, but more in an entity like a finance
company. Not only is life insurance, credit life
insurance, a part of that, but disability insurance is a
part of that. Then you also find that it's anywhere from
32 percent, 25 percent interest rate. And only because
the opportunity to have banks provide loans in Indian
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Country, no; it's not there. And that's the basic type of
loans families have to undertake to provide renovation for
their homes.
MS. BRAUNSTEIN: Chris.
MS. LAMBERTI: It's quite obvious that you are
looking for data, and I've always supporting having date
on hand to make decisions, or whatever. In this
particular case, if we were having another meeting two
years from now, I could assure you that I probably would
come with data in a different type of format, and that's
about the reverse mortgages.
As you may be all aware, new standards have been
developed there, and that's really the benchmark. Before
you have any standards, it's hard, really, to measure
anything. So the standards have been developed and AARP
has been very successful in being the leader there, and
making sure that there are exams that we have for
certified counselors in the future. And I think once we
have all this in place here, then we can really determine
the number of applicants who were just desperate to get
their loan because they wanted it, rather than being able
to afford it, that they made a decision based on
knowledge. Maybe they decide, then, if I cannot afford
it, I'd rather wait.
So we are talking in terms of a transition
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period. Although the reverse mortgage is rather a small
portion of that, again, it's something we can learn from.
In general, that program has been rather successful.
There's some data now available, and this is something you
may want to look into that could be adopted into HOEPA
loans. It's just some kind of idea I wanted to share with
you here.
MS. BRAUNSTEIN: One of the things that we would
like to learn, our real, kind of bottom line here I think,
is: We'd all like to hear what basically you think The
Fed can do in regard to consumer education. We've heard,
you know, a lot of talk this morning about the different
kinds of things we can do with our regulatory authority.
But we're trying to hear something here this afternoon as
to what our role would be in the consumer education,
community outreach area.
So, who would like to go first? Steve.
MR. HORNBURG: I would certainly encourage you
to work with AHECI. I think that they're really tilling
the soil to try to answer some of the basic questions
about what works, what doesn't work, what ought to be
required as a minimum, so you don't have, you know, a
20-minute phone conversation qualifying as counseling, and
you get an idea, you know, of what purposes you're trying
to address, what goals you're trying to address. Again, I
201
go back to are you trying to address fraud prevention?
Are you trying to address general financial literacy, et
cetera?
The other thing I suggest is: You all have a
great research capacity. I think it's -- I know the
Philadelphia Fed, for instance, a researcher there I
worked with before came by and talked to me the other day.
They're doing some exploration into what's known and
what's not known about counseling with an eye cast towards
possibly doing some research in the area to get a better
handle on it. The Fed's research has always been
fantastic. You've got the capacity. I think, working in
partnership with the community that's doing the
counseling, you can make some real strides there, too.
MS. BRAUNSTEIN: Thank you. Francine.
MS. MC KINNEY: I did want to agree. Working
with AHECI I think is a good idea, because they are moving
towards standardized guidelines for counseling. And I
think that's correct, a four-hour, a two-hour -- whatever
it is -- conversation should not be considered counseling.
But, then, also, AHECI is trying to come up with a
standard for counseling; however, the lenders still have
to buy in. And, so, I know initially, when certain --
when Fannie Mae came out with their guidelines for
home-buyer education, and just as Alan was mentioning,
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someone could complete four worksheets in the back of the
Fannie Mae workbook and they could still issue a
certificate.
So I think the work that AHECI is doing is good
work, but if the lending community is not going to buy in,
then the work is all in vain. And I know the lenders I've
been working with have been working with AHECI, too. I
know lenders are all involved, they're all on board. But
I asked the question at one of the AHECI meetings, does
this now mean that that is going to be the certification
that lenders are going to require? And no one could
answer that question. So I do have some concerns about
that.
Marketing, I think, just as Chris mentioned,
there are different types and methods of reaching people.
I think marketing is still important. Just as community
education is, one-on-one counseling is; but I think one
way that The Fed might be able to help is with marketing.
And, then, also, supporting additional funding for
counseling. And by counseling, I generally mean not
workshops, but I mean one-on-one counseling. It's one
thing to do workshops where you're educating in a large
group, but it's really the one-on-one counseling that
really helps people. Because they get a clear
understanding of their particular situation and the things
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that they actually need to be looking at.
MS. BRAUNSTEIN: Chester.
MR. CARL: In regards to consumer education, I
know banks do a tremendous job of marketing equity loans,
and so on. But on the same token, there's not a whole lot
of marketing that goes on against predatory lending. And
I think that's one that should be pursued by The Fed, as
far as protection the consumer may have in regards to
predatory lending.
Also, with regard to that is knowing the
specifics of predatory lending abuses that happen in
regards to Indian Country. I don't believe there's
information that's available to put on the table to say
this is actually what's happened.
One of my encouragements to the Federal Reserve
Board is to create a partnership with other bank
regulators to create a CRA Task Force specific to Indian
Country. Oftentimes, I'm sure that the assessments that
are done for CRA enforcement are done excluding Indian
Country. So a lot of that information does not get out
to the public, or out to the policy makers, as far as some
of these shortfalls that are happening in Indian Country.
MS. BRAUNSTEIN: Thank you. Alan.
MR. FISHER: When I think about consumer
education with The Fed, I usually think about your
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research, like Steve was saying, and also the conferences.
And it does seem to me, like I was saying before, that you
have the opportunity here to really, you know, delve into
the files of some of these banks and see what's going on
and educate people. But, as well, it seems to me that a
best practices approach -- with the consolidation of the
industry, there's going to be more and more banks, like
Bank of America, that are going to own equicredits, where
their marketing, their sales, and their whole way of doing
things is very different.
What is the right way? To have cross-referral?
What's the right way for the bank to look at the subprime
entities so that it is not predatory. You know, what are
examples of that?
I think in your conferences, and maybe with this
kind of research, those are kinds of things that are the
way things work.
MS. BRAUNSTEIN: Thank you. Chris.
MS. LAMBERTI: I just want to point out that
AARP did submit a special paper, a written document,
addressing what The Fed could do. I want to make sure
that it's available to you.
MS. BRAUNSTEIN: Thank you.
MS. LAMBERTI: Since there is no question --
MS. BRAUNSTEIN: Yes.
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MS. LAMBERTI: -- let me expand a little bit
about what we're doing at AARP. Our Public Policy
Institute has a role, a model, on how the rate, high-cost
rates can be better compared. And based on this, now,
software had been developed. So, in the future, as
there's no requirement right now to have one-to-one
counseling, which is rather difficult, particularly in
rural areas, we think, as technology allows us in the
future, that software makes it somewhat easier where you
would enter certain data and either an expert or even a
layman could handle this most likely over the internet.
So that is one additional avenue.
Again, there is no one way one size fits all.
There's another possibility to prescreen. And when we, in
particular we think that there are two target areas where
there's counseling necessary. That's the group that most
likely cannot repay the loans, where their situation is
rather fragile, so they can really make a better consumer
decision. And the second group, which is not unusual that
someone takes out a loan and they put a qualified, they
could qualify for a better rate or a different type of
loan. So those are the two groups we think would really
benefit from counseling. You can't counsel everyone.
Most likely, it's too expensive, but you could definitely
target the groups.
206
MS. BRAUNSTEIN: With internet programs, do you
have a concern about people's access to the proper
equipment to utilize it?
MS. LAMBERTI: Well, at first, it seems like.
But my own experience, since I'm working with the elderly
all the time, it is usually they relatives who have
access, to the public libraries now they have access.
There's bound to be someone, and the counselor himself who
has access. So, again, it's not the one and only way, but
it will help definitely as we move forward to the future.
MS. BRAUNSTEIN: One of the things I just
thought of, because, when Francine was talking, I thought
of this, and again when Chris was, is that we -- one of
the dilemmas that we face at the Board in terms of even
getting regulatory changes, and this was alluded to this
morning I think in conversation, is that, if we were --
it's an option that's been talked about to us, which is
that we do require some type of counseling for anybody
entering into a HOEPA loan. And I know, this morning, the
panel discussed people's negative reactions to that. That
was one side of the issue. And I was -- we were just
wondering, too, about that. How -- do you have any
suggestions as to how that would be worded? Because, as
Francine mentioned and hearing Chris talk, there's
counseling and then there's counseling. And it seems
207
that, if we wanted to insure that there was some type of
real quality counseling, I mean, how? Do you have any
suggestions as to how that could be addressed? Because,
otherwise, if we put something in there and it just meant
somebody could fill out three worksheets, I'm not sure
that that would be beneficial.
MS. MC KINNEY: I think it might be something
that you would want to work with AHECI on. Because, since
they are establishing standards for counseling --
MS. BRAUNSTEIN: And certification.
MS. MC KINNEY: -- and certification, then I
think it should be based on the --
MS. BRAUNSTEIN: HUD also has certification.
MS. MC KINNEY: I know HUD is working along with
AHECI, so --
MS. BRAUNSTEIN: Are they planning to combine
them?
MR. HORNBURG: I can't tell you. They are
working in concert. I think they are trying to.
MS. BRAUNSTEIN: Okay
MS. MC KINNEY: And then the other thing I just
wanted to mention, in terms of people being resistant to
education, we found that to be the case, also, until they
come in and they go through a workshop, or they sit down
with someone and we seek one-on-one counseling. Then they
208
learn to appreciate what the benefits are. But initially
it is difficult. Usually, we don't have anyone saying:
Gee, what a waste of time.
MS. HOFFMAN MOLLOY: Can we go back to -- I'm a
little bit haunted by your story of the $9,000 from the
$20,000 loan. I keep -- I'm sort of processing that and
thinking, you know, I think about it. A brochure
certainly wouldn't have solved her problem. And I heard
recently that, if we could solve the world's problem with
brochures, we would have done that a long time ago. We
probably don't need a lot more brochures. But what is
sticking with me is that, despite the fact that she went
through the home-buyers counselings, and despite the fact
that you intervened and sat down with her and said,
"Here's the information," she still made the decision to
take the $9,000 of the $20,000.
MS. MC KINNEY: Right.
MS. HOFFMAN MOLLOY: What I want to understand
is, in your estimation, was that really the lender of last
resort for her, given her disability payments and income,
the cash-flow issues, was that really all she could have
gotten?
MS. MC KINNEY: I think that was the lender of
last resort. And the reality is she probably should not
have been borrowing on her home because her -- I went back
209
and looked at her credit report. She really had very
little debt. And she had gotten an excellent deal, along
with the down-payment assistance, when she purchased her
home. So her house payment was very low. It was only
about five-something. So her disability payment actually
covered her house note and her other expenses. But
someone came along and knocked on her door and said: Gee,
you need a new fence around your house. So part of the
money was going to build a new fence.
The reality is that we aren't going to be able
to help everyone. There are some people that are going to
decide that they just want the money regardless of what it
costs, and there's not going to be much that we can do.
So we have to try and figure out how we can get to those
that we actually can help.
MS. HOFFMAN MOLLOY: Okay.
MR. FISHER: I'd like to speak to that. I
think, and I sense this point in this discussion, the
strengths and weaknesses of the consumer counseling. You
know, the consumer counseling lays it on the individual to
make that decision, rather than a systematic kind of
thing. We sort like -- you know, not that this is exactly
right; but I mean that people have vices, like gambling.
And, if gambling was not available, they wouldn't gamble.
So, I mean, I hope that you look at systemic
210
issues and regulation, because there's never going to be
enough consumer counseling to reach out to all the
individuals. And even when it does, sometimes, it's
different than what we really hope to do. So, hopefully,
there will be regulation that can look at things and start
judging what's really going on and limit the predatory,
not all the subprime, but the predatory portion of it.
MR. HORNBURG: I also go back to, again, to
where the goals of the counseling, and you just spoke very
eloquently. The goals of counseling aren't always to the
borrower who, with the right terms, can become a home
owner. It's empowering the consumer to make the right
decision for themselves. And, sometimes, the decision is:
I shouldn't borrow; I shouldn't become a home owner right
now.
The other side of the coing is: I know I made
some dumb decisions in my life before, but there's got to
be some role for consumers here without going too far to
take that away. Because we all might look at somebody's
individual circumstance and say: Gee, I wouldn't do that.
Okay? But I know some people look at some decisions I
made and say: I wouldn't do that. So just a little bit
of rationality on the part of some.
MS. LAMBERTI: This seems like a sidestep. I
didn't notice on the bio it said that I was still with the
211
Tax-Aide Program as a volunteer. Well, I haven't been
there for the last two years. However, allow me to just
share with you some experience there. Because there, we
have strict standards in the Tax-Aide Program, and we know
that we help 1.6 million there, people. We definitely
have numbers and how many penalties. We have maybe
sometimes even divorces.
So the point I want to make here is: If I look
back, the program was started 30 years ago, with ten
counselings, and now they're 1.6. So it takes a number of
years, really, to get hold. If the counseling program is
established, with standards, and qualified, the
counselors, it would take a number of years. You can do
all the advertisements in the world, but not everyone will
appreciate it. That's the nature. However, if we can
reach more and prevent more damage, then that's what we
want to do.
MR. MICHAELS: Chris, I think you raised this
earlier, and I just want some support a little bit because
of some things I've heard over the last couple years as
we've talked about abusive lending and predatory practices
in the traditional mortgage market.
What do you think, generally, of the idea of
user of first mortgages as a wider basis to avoid some of
the predatory lending that goes on in the traditional
212
market?
MS. LAMBERTI: Well, AARP doesn't believe that
we should go back to it. We think it's very important
that credit is available to anyone who can afford it.
It's really the -- any kind of policy we establish that we
want it to be fair. So when we refer to predatory and
abusive lending, it's really abusive, though. That's what
we want to do. We do not want to limit the lending.
MR. MICHAELS: I guess what I was trying to get
at is there's been some, I guess, belief that there are
less, there are fewer opportunities for abuses in the
reverse mortgage market. Maybe some of the people who are
getting abused in the HOEPA mortgage market may be better
off with reverse mortgages, depending on the
circumstances.
MS. LAMBERTI: Exactly, depending on the
circumstances. It partly might be the reason because,
first of all, the reverse mortgage market is rather small.
As you know, it's about 1 percent only. And there, there
is mandatory counseling. And we know, for a fact, that
one out of three only will apply for a reverse mortgage.
However, there's slightly a drawback on it because of the
general reputation, because of predatory lending, there's
some borrowers out there, potential borrowers, who would
be eligible for a reverse mortgage and would help them,
213
but they're not going for it. So that's where we're
concerned, too. It's not just only the one who had been
victimized by the abusive lending, but also the ones who
will be eligible and stay away from it. As you said
before I made the statement, it's circumstances.
MR. MICHAELS: You alluded earlier to something,
and I guess AARP was doing in terms of reverse mortgages.
And I don't remember exactly what you said about it. It
was something about a program established and it would
create more data. Could you elaborate on that?
MS. LAMBERTI: Well, you're always -- when was
it? About a year ago, they were trying to establish
standards, first of all. And, so, we supported this. We
said, well, you can only do qualified counseling if there
are certain standards in place. And at that moment, we
were inviting counselors to participate in a test to see
if they qualified, and only about 300 to 400 did actually
qualify. And we, in AARP, tried to call a small group,
like 20 or 30 out of this group, train them and make them
available for networking, to be trainers of someone else
for consumer hotlines and 800 numbers. So we think it's
important to have certified, qualified counselors, because
the result really depends on the quality of the counselor.
And we have noticed there's not a wide
understanding of what reverse mortgages are. And, for
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some, they're good; and for some, they are not. And if
someone is over 62 and takes out a reverse mortgage, it
would also be eligible for another type of loan. They may
want to take another loan. So counseling would bring this
out, and it gives them the option to decide what's the
best one.
MR. MICHAELS: You had said something about in
two years, we'll have better data. What specifically were
you referring to?
MS. LAMBERTI: Now that we have established
standards here, and we have qualified counselors, then,
this was more or less a benchmark that we could say, okay,
from here on the number of qualified counselings, how many
did not take the loan out based on this. So, it's a
different understanding now that we have standards.
MS. BRAUNSTEIN: Chester, you wanted to say
something?
MR. CARL: Yes. I would strongly support the
encouragement to have standards in counseling, but also
policies to support that. But in addition to that, I
still need to note, for the record, that in Indian
Country, not only do we need to provide education to
consumers, but also education to financial institutions.
That's something we're in dire need of.
I would also, along that line, encourage
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financial institutions to partnership with tribes to
identify the consumer education programs that's relevant
to each sovereign nation. I think that's the only way we
reach the people that are in dire need of housing in
Indian Country.
MS. BRAUNSTEIN: Thank you.
MS. SMITH: Any other comments or observations
from any members of our invited panel?
(No response.)
Well, if not, we thank you very much for coming
here this afternoon to offer us your views. And we thank
also members of the audience who have taken an interest in
this area.
We're going to -- shall we take a break, or do
we continue? Why don't we take a 10-minute break, and
then we will reconvene with the open-mic session.
[Recess.]
MS. SMITH: Okay. I think we are ready now for
our open-mic session. And I'll read the order of the
names, and then you can approach the mic, and we'll call
the name again in case there's any confusion.
I have Terry Macken, Stephen Cogswell, Barrett
Bates, George Duarte, Louis Bruno, Milton Hodge, Linnie
Cobb, Howard Beckerman, Jim Bleisner and Shanelle Coleman.
So Terry Macken, if you are in the room.
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Let me mention that our timekeeper has moved up
here so that we can -- so that the speakers will be able
to see the one-minute and the time's-up mark. We have John
Olson taking over as timekeeper.
So, with that, if you will introduce yourself
and start your three minutes.
STATEMENT OF
TERRY MACKEN
MR. MACKEN: Good afternoon. My name is Terry
Macken. I'm a mortgage broker, for 30 years. We do
asset-based lending, and have for 30 years. We do not
check credit and income, nor do we charge a pre-pay.
Everyone talks about how lowering the triggers
on APR, on the points and fees section, is valuable
because it will bring more loans under HOEPA coverage.
That's nonsense. That is not the solution. Almost all
the cases complained about today, and in the earlier
hearings, were probably illegal in one form or another.
We wouldn't be having these hearings if the various
regulators would enforce the laws, existing laws. That's
what discourages these things. Lowering the triggers
won't decrease the fraud. What it will do, as many
speakers here have acknowledged, is cut down on the number
of loans available to folks who need them the most. These
things are illegal, but the actions only decrease when the
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enforcement increases.
The biggest single deterrent to a lot of these
problems is adequate disclosure of what a loan is and is
not. Some of these disclosures should be on the
application, right above where the borrowers signs there
names. Then, if there is something a borrower doesn't
like, they don't sign the application and can go
elsewhere. We have submitted proposals on what we feel
would help in this area.
As a broker for 30 years, making pure equity
loans, where we don't check credit or income, what
concerns me most is a blatant discrimination in so many of
these proposals. Why are you treating subprime lenders as
second-class citizens? Why are so many things verboten
for subprime lenders that are universally accepted when an
A-paper lender does them? Things, such as stated income,
where everyone knows that the income is questionable, or
wouldn't be done that way. Take such as negative
amortization loans. Many home owners wouldn't be if it
weren't for this type of loan. They'd still be paying
rent somewhere instead of getting on board with inflation
through home ownership.
Interest-only loans keep payments down on
short-term loans where the borrower needs some money for a
short term, and the investor is unwilling to loan for more
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than one to five years. We look at these as interim
loans. We make a lot of them to help people over a rough
spot, for whatever reason, until they qualify for a 3-year
loan at its lower rates. And what's wrong with making more
than one loan to a person? It's not impossible, you know,
that their situation might change and they may need money
again before they thought they would. Is there no one
here that's ever had to refinance a loan?
There seems to be a number of myths being
bandied about on the subject of predatory lending that
would have one believe all sorts of things that are not
true. I hear a lot of people talk about the higher
foreclosure rates on subprime loans by the same people
that the rates are too high. Folks, the rates are higher
because of the foreclosures. No lender wants
foreclosures. They mean a loss of time and money. The
higher rates are an offset to the risk.
Now many of the speakers today, and in other
hearings, want to penalize the broker for not giving an
unemployed person, with bad credit, the same rate as
A-paper lenders do. Incredible. You need to walk a mile
in my shoes.
People say you should check a borrower's income.
A-paper lenders don't have to, so why should subprime?
The reason many people are subprime is because they've
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lost their job. Some people are out of work for quite
awhile because of their specialty or even their age. Is
there something wrong with helping these people? Or would
you prefer they lose their homes to a foreclosure?
Balloon payments are verboten for subprime
lenders. Why, if they're okay for A-paper lenders? The
business about not being able to rewrite your own loans is
180 degrees opposed to the American idea of doing such a
good job that a client will want to come back to you.
That applies to any business, phones, computers,
eyeglasses, doctors, et cetera. Why say loan brokers
can't do the same thing? Many of these proposals are so
discriminatory as to be un-American.
In closing, I'd like to say that no one would
object to disclosures if it weren't for the discrimination
that accompanies them. They are discriminatory and unfair
to mortgage brokers. They're discriminatory and unfair to
borrowers. People are entitled to know about their loans,
just like other things they buy. But you shouldn't try to
put the people out of business that do the disclosures.
Thank you.
MS. SMITH: Thank you very much. Mr. Cogswell.
STATEMENT OF
STEPHEN COGSWELL
MR. COGSWELL: My name is Steve Cogswell. I'm
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with Sentinel Fair Housing. We're a housing counseling
agency in Alameda. We're also do fair housing enforcement
in the same area. We're aligned with the National Fair
Housing Alliance and we're also involved in with the
California Reinvestment Committee in their predatory
lending project.
Just want to make several comments, very
quickly, I hope.
We found ACORN published a study a couple of
years ago, say 1998, with market share for subprime
lenders representing about 2 percent of the lending in
Oakland. We've gone through with those lenders and taken
a look at their foreclosure rates, and they represented
about 13 percent of the foreclosures that are currently
going on, or at least occurred in the first six months of
this year in the county of Alameda, actually. This is
preliminary data, and actually grossly understates the
actual share of both the market share subprime lending
within the area because we were able to identify a number
of non-reporting subprime lenders that are current, that
are doing business in Oakland and Alameda, but are not
reporting their market share analysis that ACORN did.
Relative to the recommendations here, and
specifically I want to speak to enforcement, we very
strongly support the idea that subprime lenders be
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included and be required to do underreporting so that we
can actually get some market share data that is of a
reasonable nature.
Secondly, I would strongly recommend that people
look at the FHA foreclosure reporting requirements of the
Cranston-Gonzales Bill, and the data that comes out of
that, which is very similar to HMDA data, but includes the
foreclosure statistics for FHA loans. It's available by
Census Tracks. But it has a model for reporting of
foreclosure data. And that, then, also goes to the
enforcement. If you know who these folks are, we can
take a look at that.
Earlier today, one of the lenders who was here
was a lender that I looked at very closely with that data,
because it appeared to me that they were doing predatory
lending. And, indeed, on a closer look, they were not.
Okay? I have to say that. But it does raise a red flag
and give you at least the initial capacity to be able to
look at these things for enforcement.
Thank you.
MS. SMITH: Thank you very much.
Mr. Bates.
STATEMENT OF
BARRETT R. BATES
MR. BATES: Hello! My name is Barry Bates, and
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I'm a 28-year veteran of the mortgage industry in
appraisals. But, also, in the last 15, working for major,
regional and national lenders engaged both in prime and
subprime lending. And I thought I'd share a little
experience that I've had along these lines with regard to
predatory lending and the rate and fee triggers in HOEPA.
The rate and fee triggers seem to address
primarily the issue usury, high rates, high fees, that are
unconscionably high, and drive a borrower into
foreclosure. But I would submit that it really is about
the inadequate controls over the front-end,
incentive-commissioned loan originators. And I would
argue that, as these agents, it's really a breach of sound
business practices and a structural problem in the
mortgage industry, rather than it is a breach of trust at
the point of origination.
Predatory lending may indeed be. Instances of
it may be anecdotal. But I believe that either through
the SEC and through the securitization of subprime loans
it is possible to gather evidence through that conduit in
order to determine, for example, whether, what percent of
loans are covered by HOEPA; and, also, what foreclosed
loans resulted from these types of practices.
On the prime lending side, the Office of the
Comptroller of the Currency, the NCUSA, the FDIC, OTS,
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Fannie and Freddie, the Federal Home Loan Bank, all have
the ability to examine these types of loans. But it does
little good because they're looking at the federally
regulated lending industry, primarily engaged in prime
lending, and which have been adequately overseen since the
S&L debacle in the 1980s, and the inculcation of the
Federal Financial Institutions Recovery Reform and
Enforcement Act of 1989.
I would submit that two questions only need to
be asked in order to determine whether a loan is
predatory. But I'd say the definition of predatory
lending is any business practice related to the
origination of a mortgage which creates economic benefit
for the originator at the actual or probably expense of
the borrower's financial stability. And I think that
those things can be concretely determined (1) by asking
the question did the borrower gain a tangible benefit from
this loan? If it's a debt-consolidation loan, did their
gross net ratio go up or down after the mortgage was
instituted? If it was home improvement, were the monies
released to the contractor instead of to the borrower? If
it's a cash-out mortgage, what is the LTV and what is the
highest LTV that this borrower could stand?
The other major question from my perspective is:
Who controlled the valuation of the property? As long as
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incentive-loan originators are controlling the hiring of
appraisers, are controlling the transmittal of the credit
report to an underwriter, or the transmittal of some of
the underwriting rules prepared up front, this is a
predatory lending and will not be a problem that will be
resolved in the near future. So I don't see the
necesssity to reduce the triggers at this point because I
think the overriding problem is really in business
structure. Thank you.
MS. SMITH: Thank you very much. Mr. Duarte.
STATEMENT OF
GEORGE DUARTE
MR. DUARTE: Good afternoon, ladies and
gentlemen. Thank you for allowing this opportunity.
My name is George Duarte, and I own a mortgage
brokerage company here in the Bay Area, Fremont. And I'm
the immediate past-chairman of the Legislative Committee
for the California Association of Mortgage Brokers. And
I'm glad that you're having this hearing today, and I'm
glad to be able to participate.
I just wanted to go over a few points that I've
observed and that are important to our Association of
Mortgage Brokers. One is that we are absolutely against
predatory lending practices. Second is that we feel that
a consistent enforcement of existing state and federal
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regulations and laws would go a long way towards -- as
part of alleviating the process.
The definition of predatory lending is a very
important situation, and would go a long way towards,
again, addressing the situation in that, first, you need
to define what the problem is, and then be able to
quantify it to see to what extent to remove the
emotionality out of the debate.
I was very impressed with the definition from
the state of Washington of predatory lending: Deceptive
and fraudulent practices in mortgage loan origination.
And, ultimately, it doesn't really matter how many laws
and regulations there are, if you have a license and who
you work for. If you're an individual or a company that
has the intent of creating an illegality and taking
advantage of a consumer, then you're a bad person and
you're going to do that whether there are laws against it
or not. So what's important is to create an environment
so that those activities will be able to be found out and
will be enforced.
We also advocate plain English disclosures.
This would go a long way in alleviating the problem.
Again, as the gentleman from Washington alluded to earlier
today, to get those plain English disclosures out at the
beginning of the loan process very clearly so that the
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borrower would understand what the terms are of the loan
in nice, big print, so it would make it much more
difficult to obfuscate what the consumer is getting, so
that they'll know what they get at the end of a loan
process.
We would encourage that the Federal Reserve
encourage and assist industry efforts at self-policing,
elimination of dishonest loan originators and current
consistency of disclosure requirements for all mortgage
loan originators regardless of what industry group they
belong to -- be it banks, mortgage brokers, finance
companies, home-equity lending. Have the same rules and
regulations apply to all originators to the consumers,
that the consumer will be consistently understanding
what's happening.
I would also urge that you do not reduce the
consumer's choices by eliminating different features of
loan programs, prepayment penalties, balloon payments.
These can all be useful tools in providing services to
individual consumers being able to tailor a loan to an
individual consumer.
In terms of counseling, where counseling and
education is very good, but we're very concerned that
counselors be properly educated. That somebody just
doesn't read a pamphlet, fill out a form, and then, all of
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a sudden, they're a counselor. Mortgage loans can be
quite complex, especially when applied to a particular
individual; and, therefore, the people doing the
counseling should be properly educated.
Thank you very much for the opportunity.
MS. SMITH: Thank you. Mr. Bruno.
STATEMENT OF
LOUIS BRUNO, ESQ.
MR. BRUNO: Good afternoon. My name is Lou
Bruno. I'm a private attorney in Escondido, California.
I have a couple of quick observations and nine points I
thought I would try and raise in response to the questions
by the Board.
There's been a long question as to the
effectiveness, as discussed in terms of HOEPA here.
There's been articles on the effectiveness of TILA. I
think one of the problems you all have in finding the
benefit of TILA at this time, and HOEPA, is your looking
at the consumer at the beginning of the transaction. It
would be nice if the consumers understood enough about the
loan process and they felt and realized what options they
had that they could go into the deal fairly, squarely, and
understand it.
I think the key benefits we've had from TILA,
and that we are seeing from HOEPA, come at the end,
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especially the power to rescind. Testimony given here
this morning, by Countrywide, made it very clear that
damages are not sufficient. The testimony was: We have a
lot of frivolous actions where we pay the attorneys fees.
If you paid the attorneys fees, he had the violations. He
didn't believe that he had any substantive violations.
To address the questions of the panel, the first
question was on education. Based on what I've just said,
I would recommend that this panel has to understand the
tremendous advantage you have. You know TILA exists. I
have had real estate brokers tell me: You don't mean you
can actually rescind? I have had a federal judge ask me:
Do you, are you serious that TILA allows you to rescind
alone? That's the kind of background that you're trying
to educate consumers in. They go to a counseling and, if
they go for a second opinion, where are they going to go?
The National Association of Consumer Attorneys? I have
checked through their directory and there are some stated
that have absolutely no attorneys that are members that
are listed. How do you find the attorney who knows what
TILA is and how to enforce it, and even evaluate it?
I would suggest that increased news coverage of
enforcement efforts by the different enforcement agencies
will help build awareness, as well.
Certifying attorneys as specialists also gives
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-- it creates a heading in the listings where boards will
know where to refer.
Statute of Limitations, as far as applying this
is one of the keys. Beach v. Ocwen is currently being
interpreted by many federal judges to mean that you must
both rescind and file your lawsuit within three years.
They don't understand the philosophy. They don't
understand the limitations of Beach v. Ocwen. A
clarification by the Board, in that point alone, would
help.
Furthermore, a clarification of the Board
supporting Beach v. Ocwen as to the application of state
remedies would also be helpful.
As to the triggers, the other problem we've come
into is: While you are putting limitations, it is often
interpreted as a license. Anecdotal evidence that I have
indicates that there is -- if I can have leave to finish,
I'll rush? I'm sorry.
Anecdotal evidence I have indicates -- I have
one expert on a totally different case, who is attempting
to prove a HOEPA violation. He has to prove 21 percent.
The highest he can go is 20.5. That has to be
dramatically above whatever the state regulation is. But
because he can't quite get to the limit you have drawn, he
is ready to look at no violation. I think one of the
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remedies to that would be a differentiation recognized by
the Board of a de facto violation, and then per se
violations being defined by specific numbers in the
triggers. That would allow any attorney, who is
attempting to defend a foreclosure, to say: I've got
issues of fact. I cannot get a summary judgment based on
actual, clear-cut violation. But there is still an issue,
especially as some of the testimony you had today. The
borrower doesn't believe they have a choice. How can you
actually say they had fair disclosure?
One of the things I would suggest that should be
added to the form is the credit rater. You are A paper,
you are B paper, you are C paper. Let them know what
their rating is, and is there any other source that they
are likely to be able to go to? If that's required to be
shown to them, they will understand yes, I do have a
choice, or not. They do understand when they've been
abused at the end.
As to the rescission, the testimony that there
is a SWAT Squad that rushes into avoid foreclosures, I've
never seen it. I've never met anybody that has. It would
help if lenders were required, or were given, direction.
If you want to avoid the effect of rescission, here's
where you go for judicial relief. At the current time,
1635, and the regs, are totally silent as what to happen
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if the lender ignores the rescission.
Also, on the definition of tender. I've had a
lender actually try and tell me that I need to surrender a
$750,000 home to tender on a $400,000 note that was
rescinded after 3 years. Proper rescission amount should
have been about $290,000.
MS. SMITH: What number are you on?
MR. BRUNO: Six.
MS. SMITH: Can you just read the rest?
MR. BRUNO: Basically, as far as -- I think I
may have -- one final request, I would make -- and I think
the rest of it may be by implication -- is the statutory
damages provided in TILA. It would be helpful if the
Board were to clarify that statutory damages are not a
replacement for a prohibition of punitive damages. Even
those few modifications that can be addressed either in
comments or rules would give the few attorneys that do
know what is involved with TILA a chance to have a fair
shot at presenting their case.
Thank you.
MS. SMITH: Thank you very much. Mr. Hodge.
STATEMENT OF
MILTON HODGE
MR. HODGE: Good afternoon, folks. I'm here
from ACORN, as a member of the ACORN Association. And I
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would like to take this opportunity to invite all of you
here to join ACORN. You're all very knowledgeable, and we
welcome you. We have three young ladies back there that
will be glad to write you up. No question about it. Now
to get down to business here.
I am interested in the predatory lending
associated business here. Because, when my wife was
living, we got involved with a finance company. We had a
balloon payment at the end of what we thought was the
final payment. So my wife went in to pay it. When she
came out, she came out crying. So I said to her, "What
happened?"
She said. "We owe fifteen hundred dollars more."
So I parked the car. I was double-parked. I parked the
car and I went in. The people told me that we had to come
up with fifteen hundred dollars in a hurry. Well, we
didn't know where we were going to get it. But,
overnight, we thought about it, so we mortgaged the house
through the Bank of America. They came to our aid and we
got out of that.
We learned from experience. From then on, we
watched everything we did. Not that we were that
intelligent. I'm not an intelligent man; I'm an old man.
See, I wasn't that either. But the facts was that we
learned from that experience. And if you could open this
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to a point where the lender would have to specify that
there is a balloon payment, that he would be flipping the
loan. So we want to get this on record now. Bring it
into focus where the simple people can deal with it. All
of you here are very knowledgeable, but, as I say, if you
want to join ACORN, I don't want you over 80, because I
don't want nobody telling me: Sit down, Boy! You don't
know what you're talking about.
[Laughter.]
Thank you.
MS. SMITH: Thank you very much. Linnie Cobb.
STATEMENT OF
LINNIE COBB
MS. COBB: Good afternoon, each and everyone of
you. I'm very happy to be here, to be able to speak on
behalf of our community.
I'm Linnie Cobb, and I am a member of Oakland
ACORN. And I'm here today on behalf of the California
ACORN. We are a community organization of low- and
moderate-income people, and we are coming together to make
changes in our neighborhoods in Oakland, San Jose,
Sacramento and Los Angeles.
We have been working hard to keep our
neighborhoods safe from predatory lenders, or subprime
mortgage lenders who prey on our communities by convincing
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residents to sign up for bad loans, which result in our
neighbors losing their homes.
We call on the Federal Reserve to take action
against predatory lenders that are destroying our dreams
of home ownership. At ACORN, our knowledge of predatory
lending comes directly from the community. We organize our
neighborhoods house by house, and block by block.
Unfortunately, we have found far too many of our neighbors
who have become victims of predatory lending practices.
I would like to share with you just a couple of
the reasons why this is so important to us. The first of
these reasons is: Estella Padenas, of Salinas,
California. Estella heard about the company, Beneficial,
through a neighbor. She got her loan in 1994 at an
interst rate of 8.5 percent. The loan agents made some
mistakes on the papers, and had her sign several blank
pages, promising that they would fill in the correct
numbers. Estella began to suspect a problem last year
when Household Finance took over her loan and payments
jumped from $1,200, to $1,800 per month. She soon
realized that her interest rate was adjustable and had
risen to 14.5 percent. Worse still, her original loan had
a balloon payment of $89,000 at the end of the 15-year
loan.
There's another one. Eddie Moore, of
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Sacramento, is another reason that predatory lending must
be stopped. She got her loan with Beneficial to pay off
some bills. She had missed a house payment and needed to
pay her house. Her credit was not perfect because her
husband had leukemia. When she went to Beneficial, she
ended up with a 25 percent interest rate on the $20,000
that she originally borrowed. The loan required $76,000
to get it paid off. This was as much as the original
value of the house. Since then, Mrs. Moore has refinanced
and has been flipped to American Loan, Ameriquest and
Aurora. Victims of predatory lending often find
themselves being flipped faster than can even keep track
of.
And, finally, I want to share just a few words
with you about Rodina Tucker, a resident of Oakland.
Rodina's original loan was with Universal. She needed
$7,100 to pay off her taxes. The agent convinced her to
include $7,500 in debt consolidation, bringing the loan to
$15,000. Then they insisted on $5,000 for pocket money
and household bills. Rodina had a previous loan of
$15,000 from the city, and Universal wanted her to fold
this into her loan. Even though Rodina said, "No," the
lender contacted the city anyway and said they could add
it to her loan and subordinate the loan for 30 years.
Now, several years and numerous flips later, Rodina owes
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more than ten times what she originally borrowed. Her
loan was with one company, for such a short time, that she
didn't even get to make one payment on it before it was
sold to somebody else, and her payments went up again.
These are just a few of the reasons that
predatory lending must be stopped. ACORN calls on the
Federal Reserve to make immediate action to protect our
neighborhoods. There is no time to waste. We must take
action before even one more victim falls prey to the
dangerous tactics of these lenders. And we must take
action to protect the American dream of owning a home.
And I thank you very much for listening.
MS. SMITH: Thank you very much for appearing.
MS. COBB: Thank you.
MS. SMITH: Mr. Beckerman.
STATEMENT OF
HOWARD BECKERMAN
MR. BECKERMAN: Good afternoon, ladies and
gentlemen.
My name is Howard Beckerman. I am a mortgage
broker, loan originator in California. I'm with the
California Association of Mortgage Brokers. I work in the
East Bay, although I do loans throughout the state. I
have been doing loans for about 8 years.
I'm also a consumer. I own my home in
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California. I owned my first home in California 15 years
ago. I needed a negative amortization loan to get that
home. I needed a prepayment penalty to bring the rate
down. I was very happy to get it. It was disclosed to
me, and it's worked out quite well.
I'm here to talk about what we perceive as
predatory lending, what modifications in HOEPA can do for
it or can not do for it, and what we can do as an
industry. What the Federal Reserve, as an industry, can
do to help people get reasonable loans at terms that they
can live with, that they can keep in their home.
I've got to tell you that my license is by the
Department of Real Estate here in California. That means
I have a fiduciary responsibility to my client. Many
originators, many banks, many finance companies do not
have that license. They do not have the responsibility to
the client that I do. Because of that, as part of my job,
I provide counseling. If the client comes to me early
enough in the process, we can get them what would be
called an A-paper or prime loan. If they come to me a
little bit later in the process, unfortunately, subprime
is the alternative. And we get them the best loan that we
can.
As far as predatory lending, I've heard a lot of
different examples, and all the examples you've heard
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recently are examples of predatory lending. But to define
it, it's tough. I think there was a United States Supreme
Court Justice who, to paraphrase, said: I'll know it when
I see it. And I have seen some very bad loans, and I've
seen some loans that horrify me, both on the subprime and
the prime area, where clients were charged higher rates
then they needed to be charged -- whether it be at 7
percent or 15 percent. What had benefitted consumers the
best is competition.
HOEPA itself has been ineffective in my
experience. In the years that I've been doing loans, I've
done 2 HOEPA loans. The only thing that HOEPA has done
has been to delay the process three extra days. The
client changed no terms. HOEPA does not attack the
predatory lenders. They find ways to commit fraud no
matter what the triggers are going to be. So lowering the
triggers will not prevent fraudulent predatory loans to
happen. They will work either within the laws to extend
clients out too far, or they will simply commit crimes.
Then it's up to enforcement to find them.
The solutions to the problems that we've heard
is: I advocate registration and licensing of every loan
originator in the country. If we all have a fiduciary
responsibility, then, when we sign a loan application as
the originator, we are putting our license, we are putting
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our livelihood on the line. That will make a big
difference.
I'd also like to see credit counselors
certified. There are a lot of good credit counselors out
here today. But I have met some who, even though they are
trying to do good, give inaccurate information to
customers, and wind up causing them to pay higher rates.
The second most important thing would be to
simplify disclosures. The gentleman, who was here this
morning from Washington State, had a two-page form which
goes a long way to simplifying disclosures to consumers so
they understand what their rate is, what their payment is
going to be. TILA and APR, which were very good 30 years
ago, are antiquated in today's mortgage market. They are
difficult to understand, compute and really do not help
consumers.
I'd also ban any form of credit life insurance,
especially the single pay, from being packaged with the
mortgage. In fact, if you wanted to do it right, you
would ban any ancillary service from being packaged with a
mortgage, whether it be a free credit card, whether it be
any kind of home-improvement possible. Leave the mortgage
as it is. Let the consumer make the decision about other
items after the loan has closed.
I see my time is up. I will submit written
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discussions on other things. I'd like to thank you for
listening.
MS. SMITH: Thank you very much.
Mr. Bliesner?
(No response.)
Ms. Coleman.
STATEMENT OF
SHANELLE COLEMAN
MS. COLEMAN: Good afternoon. My name is
Shanelle Coleman, and I'm a member of ACORN, community
organizations.
We are fighting against predatory lending
because we've seen what it's done to the people in our
neighborhoods, to the families who've been ripped off for
tens of thousands of dollars, and to others who have lost
their homes. We're pushing our campaign in the Bay Area
and across the country to rid our communities of predatory
lenders. We're targeting problem lenders with actions,
pushing them to improve their practices, and urging Wall
Street to show some responsibility. We're supporting
legislation at local, state and national levels to crack
down on predatory lending.
We're here today because our neighborhoods need
the Federal Reserve to do its part against predatory
lending. It's been six years, since HOEPA passed, and The
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Fed is only starting to look at using its authority under
the law. But this is definitely a case of better late
than never.
We call on The Fed to live up to the
responsibilities to our community and take the following
steps:
First: Change the fee threshold to better
reflect the subprime industry works. The Fed should count
yield spread premiums and excessive prepayment penalties
as fees.
Second: To lower the APR threshold to Treasury
plus 8 to cover more high-cost loans.
Third: To provide a strong definition of unfair
and deceptive practices. The Fed should outlaw enormous
rip offs of single-premium credit insurance. It should
prevent loan flipping, and prohibit lenders from making
any loans that they know borrowers cannot repay.
These changes will strengthen the consumer
protections of HOEPA, and provide those protections to
more borrowers in higher coat loans. We are counting on
The Federal Reserve to help protect more home owners and
the neighborhoods from abusive loans.
We also need The Fed to push banks to be more
active in our community so that people have more choices.
We will continue to organize and take action in order to
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protect our communities and provide our neighborhoods with
decent loan so that all families can have a chance to buy
a home and the ability to keep it.
Thank you.
MS. SMITH: Thank you very much.
That is -- that's the end of the list that I was
given of people who had signed up previously. Is there
anyone in the audience who has not signed up but who would
like to take advantage of our open-mic session? If so,
would you raise your hands?
(No response.)
If not, I thank very much everyone who has
participated in our open-mic session. Again, thanks to
everyone else who came to listen.
The comment period on our proposal officially
closed on September 1. But if any of you have comments
that you would like to submit for consideration, then we
invite you to do so as soon as possible. The comments
will be considered to the extent that we can.
So, with that, we are adjourned and, again,
thank you very much.
(Whereupon, at 3:45 p.m., the hearing was
concluded.)
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C E R T I F I C A T E
I hereby certify that this is the transcript of the
proceedings held before the
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
on Thursday, September 7, 2000, at San Francisco,
California, and that this is a full and correct
transcription of the proceedings.
JAMES W. HIGGINS, CVR
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