Building Sustainable Homeownership:
Responsible Lending and Informed Consumer Choice
Federal Reserve Bank of Chicago
230 South LaSalle Street, Chicago, Illinois 60604
June 7, 2006
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Pages 1-25 | 26-50 | 51-75 | 76-100 | 101-125 | 126-150 | 151-175 | 176-200 | 201-225 | 226-250 | 251-267
| Transcript | Line | Page |
|---|---|---|
| There has to be a suitability | 1 | 201 |
| standard in our view. There will always be an | 2 | 201 |
| imbalance in knowledge between the typical consumer | 3 | 201 |
| and a professional like a broker. It's always | 4 | 201 |
| going to be the case. And we don't expect when one | 5 | 201 |
| has a medical problem that you have to read the New | 6 | 201 |
| England Journal of Medicine and get educated to | 7 | 201 |
| that level to be able to hold your own when you go | 8 | 201 |
| talk to a doctor. We expect that there are rules | 9 | 201 |
| and regulations that apply to a doctor so the | 10 | 201 |
| doctor is going to do right by the consumer. | 11 | 201 |
| We have to have that in mortgage | 12 | 201 |
| lending particularly. And the reason we favor | 13 | 201 |
| suitability standards is because the way the | 14 | 201 |
| industry has changed so fast in recent years. | 15 | 201 |
| I mean, we recently were looking at | 16 | 201 |
| the annual reports of large subprime lenders in New | 17 | 201 |
| Century, which is now the second largest subprime | 18 | 201 |
| lender in the country, now has 43 percent of all | 19 | 201 |
| their loans are stated income loans. Four years | 20 | 201 |
| ago the last time these kinds of hearings were | 21 | 201 |
| held, it was less than 10 percent. We have seen | 22 | 201 |
| subprime lender after subprime lender moving to | 23 | 201 |
| stated income loans. | 24 | 201 |
| So it's a very fluid, fast | 1 | 202 |
| environment where regulators have to have some | 2 | 202 |
| ability to rein in that kind of practice. You | 3 | 202 |
| can't expect that consumers on their own are going | 4 | 202 |
| to be able to hold their own against professionals. | 5 | 202 |
| GOVERNOR OLSON: Bruce, keep going on the | 6 | 202 |
| subject of the counseling you do for people facing | 7 | 202 |
| foreclosure. Because that was certainly | 8 | 202 |
| illuminating to me to understand the reticence of | 9 | 202 |
| people to come forward when they need help and the | 10 | 202 |
| role that you and others can play. Then we'll come | 11 | 202 |
| back to the partnership that you have with | 12 | 202 |
| financial institutions also. | 13 | 202 |
| MR. GOTTSCHALL: I think one of the main areas | 14 | 202 |
| is the whole getting people in contact with | 15 | 202 |
| somebody. So that is why I talk about the | 16 | 202 |
| third-party advisor and the ability through | 17 | 202 |
| relationships with the City of Chicago, | 18 | 202 |
| relationships with churches, block clubs, it's a | 19 | 202 |
| marketing kind of thing that we do to get people | 20 | 202 |
| calling either to the 311 number, which is the | 21 | 202 |
| City's service number and connecting them to the | 22 | 202 |
| counseling, or coming directly to us. And I think | 23 | 202 |
| that third-party advisor in a non-threatening | 24 | 202 |
| situation does, as we have seen, bring people in | 1 | 203 |
| that would not contact the lender directly. | 2 | 203 |
| Then the situation is how do you | 3 | 203 |
| provide the kind of understanding of their | 4 | 203 |
| particular situation, what kind of resources NHS | 5 | 203 |
| might have available in terms assistance in the | 6 | 203 |
| counseling, the ongoing budget counseling, as well | 7 | 203 |
| as other resources that the small loans, the | 8 | 203 |
| catch-up kind of resources that the lender would | 9 | 203 |
| not have. | 10 | 203 |
| And then also working with the loss | 11 | 203 |
| mitigation people at the servicers so that they are | 12 | 203 |
| proactively working on what resources, what kind of | 13 | 203 |
| loss mitigation tools they have. There has been a | 14 | 203 |
| shift over the last few years in terms of that | 15 | 203 |
| being a much more proactive effort on the loss | 16 | 203 |
| mitigation side in order to find solutions early | 17 | 203 |
| on. | 18 | 203 |
| We found earlier that there are so | 19 | 203 |
| many changes out here, that if you're not 60 days | 20 | 203 |
| past due, we can't really talk to you about any | 21 | 203 |
| solution. So the process then of the lender | 22 | 203 |
| collecting, which is the hard-nose-kind of thing, | 23 | 203 |
| then at 60 days and 90 days, well, now we can talk | 24 | 203 |
| to you about what loss mitigation there might be. | 1 | 204 |
| So tools that both the lenders and we are trying to | 2 | 204 |
| figure out where it's most appropriate to do those | 3 | 204 |
| loss mitigations resources and working through | 4 | 204 |
| problems rather than just the, "Hey, you need to | 5 | 204 |
| pay and this is what we need now." | 6 | 204 |
| So that is part of the process, then, | 7 | 204 |
| where the lender can see the value of using a | 8 | 204 |
| third-party resource referring somebody, if that's | 9 | 204 |
| a broker, but also then the third-party resources | 10 | 204 |
| to be able to contact people and get them into the | 11 | 204 |
| loss mitigation system and going through the | 12 | 204 |
| process. So it is a combination. | 13 | 204 |
| Truly, there are a lot of people that | 14 | 204 |
| we can't save. I mean, there are just many, many | 15 | 204 |
| situations, and part of that is just the lender | 16 | 204 |
| underwriting process up front. | 17 | 204 |
| We haven't talked a lot about the | 18 | 204 |
| fraud problem, but fraud is an increasing problem | 19 | 204 |
| through that whole area of mortgage lending, and | 20 | 204 |
| then the problem of now rescue fraud, where people | 21 | 204 |
| are in difficulty, in default, and they're being | 22 | 204 |
| approached with fraud around how to save their | 23 | 204 |
| home, and it just enhances their loss. So there is | 24 | 204 |
| that kind of activity. | 1 | 205 |
| So all of these I think call for kind | 2 | 205 |
| of both the public education, but then really also | 3 | 205 |
| the continuing enforcement and strong reinforcement | 4 | 205 |
| of what is on the books. As well as figuring out | 5 | 205 |
| how do you now, if it's not interest rate, what is | 6 | 205 |
| the loan characteristics that you look at more | 7 | 205 |
| closely and require disclosures or third-party | 8 | 205 |
| advisors to assist? Or something that creates the | 9 | 205 |
| capacity of that borrower to have some additional | 10 | 205 |
| reinforcement support to be able to counter what | 11 | 205 |
| might be the push marketing, or if not, clearly | 12 | 205 |
| incorrect advice that the mortgage broker may be | 13 | 205 |
| providing to that credit borrower. | 14 | 205 |
| GOVERNOR OLSON: Heidi, keep going on that | 15 | 205 |
| theme, because you are the partner on that. I'm | 16 | 205 |
| interested in your experience, but could you | 17 | 205 |
| elaborate on the 50 cents and the dollar loss that | 18 | 205 |
| you -- because I think that there is some real | 19 | 205 |
| savings available to financial institutions when | 20 | 205 |
| they get involved in that process early. And | 21 | 205 |
| clearly, at least from what I hear, that there are | 22 | 205 |
| some incentives all around to avoid the foreclosure | 23 | 205 |
| experience. | 24 | 205 |
| MS. COPPOLA: Well, I think the dollar amount | 1 | 206 |
| varies, but the point is that there are a lot of | 2 | 206 |
| different costs that get factored into it. | 3 | 206 |
| Maintaining that -- well, the person in the home is | 4 | 206 |
| not paying their bills, they are also not taking | 5 | 206 |
| care of their home. So there is a tremendous | 6 | 206 |
| deterioration factor. So if we do end up owning | 7 | 206 |
| the home and we have to sell the home, it's not | 8 | 206 |
| worth nearly what the home was worth when they took | 9 | 206 |
| out the mortgage. | 10 | 206 |
| In addition, we're paying the costs | 11 | 206 |
| once we get this home. We have to pay the costs | 12 | 206 |
| until the home is sold. So we have the cost of | 13 | 206 |
| maintaining this home. All of this gets factored | 14 | 206 |
| in, in addition to the fact that there are fixed | 15 | 206 |
| costs like the foreclosure process and the delay | 16 | 206 |
| that that, you know, legal costs and just all of | 17 | 206 |
| these costs add up. And I think that all of this | 18 | 206 |
| gets factored into this. And if we sell the home | 19 | 206 |
| at a fraction of what the market value is, it | 20 | 206 |
| doesn't reimburse us for these costs. | 21 | 206 |
| So that in addition to -- I have to | 22 | 206 |
| say this is more and more becoming relevant, in | 23 | 206 |
| addition to the reputational risk involved in | 24 | 206 |
| foreclosing on homes, particularly where you have | 1 | 207 |
| hot spots where there are multiple foreclosures | 2 | 207 |
| from your institution. It's just not only a | 3 | 207 |
| financial consideration, but all around what is | 4 | 207 |
| good for us financially is also good for the | 5 | 207 |
| community and good for us from a reputational | 6 | 207 |
| standpoint. | 7 | 207 |
| GOVERNOR OLSON: Heidi, you had a point that I | 8 | 207 |
| think the financial institutions are realizing, at | 9 | 207 |
| least among the more credible financial | 10 | 207 |
| institutions, is the importance of reputation | 11 | 207 |
| risk. And the reputation risk, I remember 15 years | 12 | 207 |
| ago as a counselor to financial institutions, was | 13 | 207 |
| very fuzzy, not very well understood or enforced -- | 14 | 207 |
| enforced is the wrong word -- managed the risks | 15 | 207 |
| exposures. | 16 | 207 |
| About three years ago a person came | 17 | 207 |
| to me and said -- and identified the bank she had | 18 | 207 |
| formally worked with, and said that bank would | 19 | 207 |
| still be around today if it were not for the | 20 | 207 |
| reputation risk exposures. So I think that that is | 21 | 207 |
| an important responsibility that management now | 22 | 207 |
| focuses on and clearly supports a lot of things | 23 | 207 |
| that ought to be happening in this field. | 24 | 207 |
| Loretta, come on back to your four | 1 | 208 |
| points, and especially I'm interested in how you go | 2 | 208 |
| about partnering. Because as you pointed out and | 3 | 208 |
| as we've seen, the community groups have access the | 4 | 208 |
| financial institutions don't. | 5 | 208 |
| MS. ABRAMS: Right. Well, there isn't one | 6 | 208 |
| way. We have a number of programs. One of our | 7 | 208 |
| programs we will talk about is our financial | 8 | 208 |
| education grant program. There is a million | 9 | 208 |
| dollars in grant funding every year that we provide | 10 | 208 |
| to organizations to help support the financial | 11 | 208 |
| education programs they're running in the | 12 | 208 |
| community, and there are very few strings. It's an | 13 | 208 |
| open sort of grant. RFP competitive bid process. | 14 | 208 |
| And what the community groups like | 15 | 208 |
| about that, we look for well-established community | 16 | 208 |
| groups who have existing programs, who have | 17 | 208 |
| sustainability, who have strong management. And we | 18 | 208 |
| just look to support them and not to tell them to | 19 | 208 |
| change the program or do anything differently. | 20 | 208 |
| Just to help them to keep what they are already | 21 | 208 |
| doing, which they decided is good for their | 22 | 208 |
| community. So that is one of the programs we | 23 | 208 |
| have. | 24 | 208 |
| Another is the adult financial | 1 | 209 |
| literacy workshop program, where we work with a | 2 | 209 |
| national organization out of Washington DC, and | 3 | 209 |
| they find grass roots, community-based | 4 | 209 |
| organizations who don't necessarily have a program | 5 | 209 |
| capacity or the capability or a curriculum, and we | 6 | 209 |
| work with them to submit and to produce workshops | 7 | 209 |
| using our curriculum. And we then fund those | 8 | 209 |
| workshops on a per-workshop basis with those | 9 | 209 |
| smaller community groups. And over time the | 10 | 209 |
| process of working with us in this program helps | 11 | 209 |
| them to develop capacity. They apply for other | 12 | 209 |
| grant funding, they get reputation, more | 13 | 209 |
| credibility and sustainability within their | 14 | 209 |
| communities. So that is two ways that we are doing | 15 | 209 |
| it. | 16 | 209 |
| MS. BRAUNSTEIN: I'd like to ask some follow-up | 17 | 209 |
| questions. One is we hear a lot about teachable | 18 | 209 |
| moments in financial education. In particular I | 19 | 209 |
| know -- and today we are focusing mainly on | 20 | 209 |
| homeownership education. | 21 | 209 |
| But in financial education in | 22 | 209 |
| general, there are a lot of programs out there that | 23 | 209 |
| teach people and then they administer afterwards | 24 | 209 |
| some type of test, and they usually score | 1 | 210 |
| themselves on how well they did based on how people | 2 | 210 |
| answer these tests. But in fact that may not mean | 3 | 210 |
| much, because really what we are looking for is | 4 | 210 |
| behavior change. And if six months later something | 5 | 210 |
| happens and people don't remember what they learned | 6 | 210 |
| six months earlier, what good was the financial | 7 | 210 |
| education? | 8 | 210 |
| I was just wondering in terms of what | 9 | 210 |
| you do, I guess particular the practitioners, | 10 | 210 |
| Michael, David, what can you tell us about what | 11 | 210 |
| you've learned about teachable moments, especially | 12 | 210 |
| in light of, David, what you talked about when | 13 | 210 |
| people get to the table and they are being | 14 | 210 |
| bombarded by, you know, whether it be the brokers | 15 | 210 |
| or the salespeople, how good is that education? | 16 | 210 |
| How is that holding them in stead? What have you | 17 | 210 |
| learned about that? | 18 | 210 |
| MR. ROSE: I think our approach may be a little | 19 | 210 |
| bit different. Because a lot of the groups we work | 20 | 210 |
| with have bank partners that they will help those | 21 | 210 |
| banks market their products, help them find | 22 | 210 |
| customers. And it's all part of the home buying | 23 | 210 |
| education and process. | 24 | 210 |
| So in a sense, the lines get kind of | 1 | 211 |
| fuzzy between who the broker is. In a situation | 2 | 211 |
| like that it may be that you can call it a | 3 | 211 |
| community group type of broker in some situations, | 4 | 211 |
| although they aren't a broker in any formal sense. | 5 | 211 |
| They are simply putting the homeowner together with | 6 | 211 |
| a loan officer at a bank. | 7 | 211 |
| So I don't have that kind of | 8 | 211 |
| experience in terms of doing an education program | 9 | 211 |
| that really withstands those kinds of pressures | 10 | 211 |
| when you go to a broker who will say anything he or | 11 | 211 |
| she can think of to originate the loan. | 12 | 211 |
| In 1999, just very quickly to follow | 13 | 211 |
| up, when we started working on predatory lending in | 14 | 211 |
| Chicago, you know, the conference. One of the | 15 | 211 |
| individuals we invited to speak at the conference | 16 | 211 |
| identified himself as a recovering loan shark. | 17 | 211 |
| What he was is a used cars salesman, from Minnesota | 18 | 211 |
| I believe, who had been recruited by a lender to be | 19 | 211 |
| a broker. And he explained how he had been shipped | 20 | 211 |
| off to California for a 30-day training program. | 21 | 211 |
| How he was taught this script inside and out. | 22 | 211 |
| And he began his presentation by | 23 | 211 |
| asking everybody in the room how many people would | 24 | 211 |
| like an extra $500 a month. And you can imagine | 1 | 212 |
| there were city officials, church people and | 2 | 212 |
| community groups and bankers, some housing | 3 | 212 |
| counselors. Everybody raised their hands. And he | 4 | 212 |
| said, "Would you agree that you want an extra $500 | 5 | 212 |
| a month, there isn't anything you can say that I | 6 | 212 |
| don't have an answer for?" | 7 | 212 |
| And that kind of arrogance, really, | 8 | 212 |
| but that kind of persistence in closing a deal is | 9 | 212 |
| what you may be up against in some cases. I don't | 10 | 212 |
| think you can prepare any homeowner to stand up to | 11 | 212 |
| somebody who has that kind of training. | 12 | 212 |
| MS. BRAUNSTEIN: Mike. | 13 | 212 |
| MR. SHEA: We have been looking at that | 14 | 212 |
| question quite a bit the last few years and where | 15 | 212 |
| we are zeroing in on are cash-out refi's. And | 16 | 212 |
| typically people get trapped in the subprime cash- | 17 | 212 |
| out refi because and emergency comes up, and | 18 | 212 |
| typically it's divorce, medical, the car breaks | 19 | 212 |
| down, or debt consolidation. | 20 | 212 |
| For the emergencies, we have to | 21 | 212 |
| deliver our message and our services almost in a | 22 | 212 |
| just-in-time fashion. When that emergency hits, | 23 | 212 |
| people are desperate to get cash. And that's when | 24 | 212 |
| they are most susceptible to the messages of the | 1 | 213 |
| predators. | 2 | 213 |
| We have tried a number of efforts to | 3 | 213 |
| copy what the predators do. We bought all sorts of | 4 | 213 |
| lists. You would be surprised what kinds of lists | 5 | 213 |
| you can buy. You can buy lists of recently | 6 | 213 |
| divorced people, so we have done mailings to those | 7 | 213 |
| folks. We have use automated dialers to those | 8 | 213 |
| folks to try to reach them and bring them in. | 9 | 213 |
| Mixed results. | 10 | 213 |
| For one thing, it's very expensive. | 11 | 213 |
| You have to keep doing this time after time, month | 12 | 213 |
| after month. And that's what the subprime lenders | 13 | 213 |
| do. We once had a subprime lender tell us they | 14 | 213 |
| spend $1500 in marketing, if you take their total | 15 | 213 |
| marketing and outreach and apportion to loans | 16 | 213 |
| closed, it's about $1,500 a piece. We can't | 17 | 213 |
| compete with that. | 18 | 213 |
| MS. BRAUNSTEIN: That's why they charge such | 19 | 213 |
| high fees. | 20 | 213 |
| MR. SHEA: I'm not sure that we can compete | 21 | 213 |
| with it. That's why as much as we do more consumer | 22 | 213 |
| education, I think, to more people than anybody the | 23 | 213 |
| country and it's invaluable, but we have to have | 24 | 213 |
| better regulation to stop this. | 1 | 214 |
| MR. CHANIN: Let me follow up on that, and | 2 | 214 |
| Loretta mentioned one size doesn't fit all. Are | 3 | 214 |
| there different strategies -- I'm interested in | 4 | 214 |
| your successes, but also your failures -- | 5 | 214 |
| strategies you have employed for different groups? | 6 | 214 |
| And if so, what is the demarcation among groups for | 7 | 214 |
| different products? | 8 | 214 |
| You mentioned cash-out refinancing | 9 | 214 |
| verse first time home buyers, different markets and | 10 | 214 |
| so forth. Have you gotten to the stage of learning | 11 | 214 |
| that certain strategies or educational approaches | 12 | 214 |
| work for some groups of consumers or certain | 13 | 214 |
| individuals versus others and certain products and | 14 | 214 |
| the like? And for anyone here actually. | 15 | 214 |
| MR. GOTTSCHALL: Well, if I can add just a | 16 | 214 |
| little bit here. One of the ideas of the 24/7 | 17 | 214 |
| counseling by phone was that if someone is thinking | 18 | 214 |
| of a loan and in the middle of the night they see | 19 | 214 |
| something, they have the brochure, that they can | 20 | 214 |
| actually call and talk to somebody right then | 21 | 214 |
| rather than folks getting the call back and the | 22 | 214 |
| moment is gone. So 24/7 counseling on the | 23 | 214 |
| programming side is a benefit that we find useful | 24 | 214 |
| for getting people into the system so then you can | 1 | 215 |
| follow up. | 2 | 215 |
| So we found that the City is actually | 3 | 215 |
| credible with a lot of people and that 311 number | 4 | 215 |
| is a number that most people feel okay calling. We | 5 | 215 |
| found that some of our marketing through churches, | 6 | 215 |
| we did a preservation Sunday and had churches doing | 7 | 215 |
| their brochures and doing the 311 calling and do | 8 | 215 |
| those kinds of things in those places. | 9 | 215 |
| I think the other piece in the | 10 | 215 |
| refinance is a critical area, and you describe 72 | 11 | 215 |
| percent of the people that we are seeing are people | 12 | 215 |
| that are in the loan that they are not in trouble | 13 | 215 |
| with as a refinance. I think typically in a | 14 | 215 |
| refinance situation people probably don't have a | 15 | 215 |
| lawyer, probably don't have a third party helping | 16 | 215 |
| them in that situation. Where with the first | 17 | 215 |
| mortgage, they may more likely have it. | 18 | 215 |
| So maybe there is some way there at | 19 | 215 |
| that closing moment to really have some requirement | 20 | 215 |
| or some system where people are getting that advice | 21 | 215 |
| and getting someone with them judging what can be | 22 | 215 |
| done. Because clearly that's a very teachable | 23 | 215 |
| moment. If at that time rather than at some | 24 | 215 |
| clients you say, well, if you get an 8 percent | 1 | 216 |
| loan, it will cost you this much, and you get a 11 | 2 | 216 |
| percent loan over 20 years you're going to save | 3 | 216 |
| this much. If they are at the closing table if you | 4 | 216 |
| live here, it's going to cost you $40,000 more in | 5 | 216 |
| payments. So there is a way at that point. | 6 | 216 |
| And I think on refinances, and the | 7 | 216 |
| cash-out is the place where people, they have a | 8 | 216 |
| problem. And they have someone got to them around | 9 | 216 |
| that problem and they did something, and then | 10 | 216 |
| later, as we see in the numbers, they regret having | 11 | 216 |
| done that. But they didn't have anybody to work | 12 | 216 |
| with right then. | 13 | 216 |
| So we're looking at whether this 24/7 | 14 | 216 |
| phone thing is how if one is thinking of refinance, | 15 | 216 |
| call here and describe your situation. So I think | 16 | 216 |
| there are those kinds of perhaps opportunities. | 17 | 216 |
| But then how do you market it? How | 18 | 216 |
| do you get it out enough? As you said, $1500 per | 19 | 216 |
| closed loan is a lot of money for marketing, and | 20 | 216 |
| competing with that is very, very difficult. | 21 | 216 |
| MR. SHEA: A couple of things we found don't | 22 | 216 |
| work. Direct mail, and actually a guy by the name | 23 | 216 |
| of David Hill used to be a marketing director of | 24 | 216 |
| Fannie Mae until recently, did some research on | 1 | 217 |
| this. And he found with statistics, what we found | 2 | 217 |
| that in our experience direct mail typically is | 3 | 217 |
| highly ineffective. It's almost as effective with | 4 | 217 |
| Latino families, more so than Mexican-American | 5 | 217 |
| families, but recent immigrants from Central | 6 | 217 |
| America in particular direct mail is a total | 7 | 217 |
| waste. | 8 | 217 |
| Radio works in conjunction with | 9 | 217 |
| events for African-Americans, particularly | 10 | 217 |
| church-based events. We found that that is a very | 11 | 217 |
| highly effective way to get folks to come to the | 12 | 217 |
| events, particularly if you're using radio ads to | 13 | 217 |
| spur that. Again, it's expensive and you can do | 14 | 217 |
| that in the little run, but the radio ads in | 15 | 217 |
| Chicago are very extensive, so it's very difficult | 16 | 217 |
| to sustain that over time. | 17 | 217 |
| MS. WILLIAMS: So as you talked about | 18 | 217 |
| education, and, Bruce, I heard you mention that you | 19 | 217 |
| have consumers that don't even talk to the lender | 20 | 217 |
| when they have the problem and some that even if | 21 | 217 |
| they talk to the lender, nothing will be done. | 22 | 217 |
| So what do you think fosters that | 23 | 217 |
| belief, that the lenders are not approachable or | 24 | 217 |
| they won't get the assistance that is needed to | 1 | 218 |
| help them when they have a problem? | 2 | 218 |
| MR. GOTTSCHALL: Well, I think, one, if you | 3 | 218 |
| look at the situation that someone is in default, | 4 | 218 |
| maybe they are stressed, what was their | 5 | 218 |
| relationship with the broker? The broker is the | 6 | 218 |
| lender is the servicer. So that relationship, | 7 | 218 |
| although it's unclear, sometimes the troubled | 8 | 218 |
| borrower is not going to a broker. But there is a | 9 | 218 |
| relationship there, and if they see the broker that | 10 | 218 |
| maybe gave them a loan that they now regret. | 11 | 218 |
| I think another piece is the | 12 | 218 |
| collection process is sometimes hard. You want to | 13 | 218 |
| make sure people are clear that you want to be paid | 14 | 218 |
| for what you owe me. So that that creates, then, a | 15 | 218 |
| beginning relationship that if then 60 or 90 days | 16 | 218 |
| later, they call you and say we really want to kind | 17 | 218 |
| of help you, how do you get over that? How do you | 18 | 218 |
| get through that? So it is a difficult kind of | 19 | 218 |
| relationship that a lender servicer, how do you | 20 | 218 |
| manage that needing to do both? | 21 | 218 |
| MS. BRAUNSTEIN: Excuse me, Bruce. I know that | 22 | 218 |
| when we talked about these kinds of issues four or | 23 | 218 |
| five years ago. And since then what we hear over | 24 | 218 |
| and over again is that the number one problem with | 1 | 219 |
| getting people in trouble to contact anybody for | 2 | 219 |
| help is that they are embarrassed. Initially, that | 3 | 219 |
| they are just ashamed that they are in this | 4 | 219 |
| problem, and by the time they get around to | 5 | 219 |
| contacting it's so late down the road. | 6 | 219 |
| MR. GOTTSCHALL: After the surveys that they | 7 | 219 |
| did with people who helped us, that was not as high | 8 | 219 |
| as not realizing that there was some hope. So if | 9 | 219 |
| there is the embarrassment and people not wanting | 10 | 219 |
| to -- and some people believe, well, I can solve it | 11 | 219 |
| myself. But we found actually it was more you have | 12 | 219 |
| a feeling about if I talk to somebody, that there | 13 | 219 |
| is nothing they can do for me. So the lack of hope | 14 | 219 |
| there was a bigger one than embarrassment. | 15 | 219 |
| Although embarrassment was in there. | 16 | 219 |
| So I think that was slightly | 17 | 219 |
| different. You have to deal with both of them in | 18 | 219 |
| thinking about how to approach it. | 19 | 219 |
| MS. COPPOLA: That confirmed the Freddie-Mac | 20 | 219 |
| survey in 2005. There is a survey about why | 21 | 219 |
| borrowers don't reach out to their lenders. And I | 22 | 219 |
| think the larger percentage is clearly that at this | 23 | 219 |
| stage at that time this point in time. | 24 | 219 |
| But can I address this range of | 1 | 220 |
| issues as well? I think that while there is no | 2 | 220 |
| silver bullet here, at City we are looking at this | 3 | 220 |
| and making sure there is a consistent message that | 4 | 220 |
| we get out in multiple ways. So we are relying on | 5 | 220 |
| the Ad Council, we're relying on our own financial | 6 | 220 |
| education curriculum and we have about 10 or 12 | 7 | 220 |
| partners that we provide our curriculum to. We | 8 | 220 |
| amend the curriculum every year and a half to two | 9 | 220 |
| years after a survey to find out what is relevant, | 10 | 220 |
| what is being received well, what people don't | 11 | 220 |
| understand, what needs to be done. We just did a | 12 | 220 |
| major revision on predatory lending and how to | 13 | 220 |
| avoid predatory lending. | 14 | 220 |
| I think the message has to be find | 15 | 220 |
| your own provider. If somebody is knocking on your | 16 | 220 |
| door, you should definitely shop around and you | 17 | 220 |
| should always ask for them if you feel you're not | 18 | 220 |
| in the best position to make a decision. And I | 19 | 220 |
| think those messages have to be communicated every | 20 | 220 |
| which way we can think of. | 21 | 220 |
| And ultimately, it's like a shifting | 22 | 220 |
| paradigm. We have to make sure that this gets out | 23 | 220 |
| there and public awareness is raised so that people | 24 | 220 |
| understand and that it clicks. When they see the | 1 | 221 |
| 800 number in their community, they say, "I do | 2 | 221 |
| remember seeing something. I do have to reach out | 3 | 221 |
| and call for help, this is probably the right | 4 | 221 |
| place." | 5 | 221 |
| MS. ABRAMS: We are working on some of the same | 6 | 221 |
| issues together, and educating the consumers just | 7 | 221 |
| to be aware that there are options and there are | 8 | 221 |
| certain places so that they know when that moment | 9 | 221 |
| does happen for them, and it happens with all of | 10 | 221 |
| us, we are going to hit that bump in the road. And | 11 | 221 |
| when the bump in the road happens, to know where to | 12 | 221 |
| go. | 13 | 221 |
| It's very difficult to regulate human | 14 | 221 |
| behavior. People who are going to cheat are going | 15 | 221 |
| to find a way to cheat. And people who are | 16 | 221 |
| behaving sort of in a certain manner that maybe | 17 | 221 |
| isn't always in their own best interests, sometimes | 18 | 221 |
| we don't know what we don't know. | 19 | 221 |
| And that's why education is so | 20 | 221 |
| important. Getting people in seminars and in | 21 | 221 |
| workshops to say did you know this. And we see | 22 | 221 |
| that a lot. We see it every day when just telling | 23 | 221 |
| people about FICO scores and how it works and how | 24 | 221 |
| certain behaviors are impacting FICO scores. You | 1 | 222 |
| hear people all the time about "I didn't pay that | 2 | 222 |
| $12 phone bill, it's not mine." So just telling | 3 | 222 |
| people, "Pay it. Still fight about it later, but | 4 | 222 |
| pay it for right now because it's effecting your | 5 | 222 |
| FICO scores." Just those kinds of awareness and | 6 | 222 |
| those kinds of "uh-huh" moments happen all the | 7 | 222 |
| time. And it might not be a problem for them | 8 | 222 |
| today, but they find somebody else in the family | 9 | 222 |
| who has a problem later on. | 10 | 222 |
| So as we spread the word, increase | 11 | 222 |
| awareness of about all of these financial issues | 12 | 222 |
| and everything that goes along sort of this | 13 | 222 |
| financial landscape is going to be helpful. | 14 | 222 |
| Because people will recall when they need it, they | 15 | 222 |
| will know where to go and get it. And it will be | 16 | 222 |
| all of these places. | 17 | 222 |
| MR. SHEA: Can I add one more thing on this? | 18 | 222 |
| One of Nathan Hill's most significant points they | 19 | 222 |
| found was the role of the trusted advisor and how | 20 | 222 |
| the trusted advisor varies from population group to | 21 | 222 |
| population group, particularly along racial lines. | 22 | 222 |
| So what he found and what we find in | 23 | 222 |
| our experience in the African-American communities, | 24 | 222 |
| the trusted advisor that the individuals go to | 1 | 223 |
| first is the real estate agent. When they need -- | 2 | 223 |
| definitely when they're buying a house, but also | 3 | 223 |
| when they're refinancing. In the white community, | 4 | 223 |
| it's parents and other family members, but | 5 | 223 |
| particularly parents. Latinos, his research I | 6 | 223 |
| believe showed that it was church, and church I | 7 | 223 |
| believe was the first place they would go. | 8 | 223 |
| So we've tried to gear our efforts, | 9 | 223 |
| we try to take that into effect so that we spend a | 10 | 223 |
| lot of time working with real estate agents. So | 11 | 223 |
| that when they get that call from a borrower that | 12 | 223 |
| needs cash and is in danger, they are going to | 13 | 223 |
| refer them to us or to another counseling agency. | 14 | 223 |
| MR. ROSE: I have one more thing. Partnerships | 15 | 223 |
| with City and SPS and ACORN, the local community | 16 | 223 |
| organizations that I think do the best work at | 17 | 223 |
| outreach, have been the ones that incorporate the | 18 | 223 |
| message into all of their meetings. So they might | 19 | 223 |
| be having an organizing meeting on crime and drugs | 20 | 223 |
| or some other issue, but this will be the message | 21 | 223 |
| that there is a place that they can call who will | 22 | 223 |
| come in and talk about preparing their credit, | 23 | 223 |
| repairing their loans is made a part of those | 24 | 223 |
| meetings. So it's another avenue of outreach. | 1 | 224 |
| GOVERNOR OLSON: We have had a couple comments | 2 | 224 |
| about the teachable moment, but also linking | 3 | 224 |
| education or financial literacy with the mortgage | 4 | 224 |
| process itself. | 5 | 224 |
| And, Mike, you started to talk about | 6 | 224 |
| your programs with two institutions. And I heard | 7 | 224 |
| you say something like -- and I'm not sure if I got | 8 | 224 |
| it right -- that these are loans that in a | 9 | 224 |
| different environment would have been subprime but | 10 | 224 |
| are not now. | 11 | 224 |
| Does that mean that the terms have | 12 | 224 |
| not subprime, the performance is not subprime | 13 | 224 |
| because of the additional application of | 14 | 224 |
| counseling? And I would be interesting in hearing | 15 | 224 |
| the same thing from the two lenders. | 16 | 224 |
| MR. SHEA: All of our partners -- the products | 17 | 224 |
| made available through our partnerships all have | 18 | 224 |
| several underwriting flexibility, but two in | 19 | 224 |
| particular that make them unique and that makes | 20 | 224 |
| them what I would call subprime if it was outside | 21 | 224 |
| of our program. | 22 | 224 |
| One is undocumented income. So with | 23 | 224 |
| Bank of America and Citibank partnerships, they | 24 | 224 |
| both accept undocumented income up to a certain | 1 | 225 |
| percentage of the total income that an individual | 2 | 225 |
| can have. The reason they accepted it is because | 3 | 225 |
| they know that our housing counseling will in fact | 4 | 225 |
| go verify that income as best they can. So if | 5 | 225 |
| somebody coming to us, we find out what their | 6 | 225 |
| undocumented income, we call the source or else we | 7 | 225 |
| make the clients go back and bring us some evidence | 8 | 225 |
| that that really is there. Furthermore, we make an | 9 | 225 |
| evaluation that it's going to continue before we | 10 | 225 |
| then refer that individual to the lender. | 11 | 225 |
| The second is underwriting based on | 12 | 225 |
| corrected information contained in the credit | 13 | 225 |
| report, but not on the credit score. We pull about | 14 | 225 |
| 30,000 credit reports a year, and we estimate that | 15 | 225 |
| 30 to 35 percent of them will contain significant | 16 | 225 |
| errors in the information and in the credit score | 17 | 225 |
| in particular. And it's our experience African- | 18 | 225 |
| American borrowers in particular are likely to have | 19 | 225 |
| many more errors in their credit report. | 20 | 225 |
| GOVERNOR OLSON: Is the source of the loans | 21 | 225 |
| that have been paid or is it confusion of one | 22 | 225 |
| borrower's experiences with an unrelated borrower? | 23 | 225 |
| MR. SHEA: Both. It's a whole gambit of | 24 | 225 |
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