Building Sustainable Homeownership:
Responsible Lending and Informed Consumer Choice
Federal Reserve Bank of Atlanta
1000 Peachtree Street N.E., Atlanta, Georgia 30309
July 11, 2006
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Pages 1-25 | 26-50 | 51-75 | 76-100 | 101-125 | 126-150 | 151-175 | 176-200 | 201-226
| Transcript | Line | Page |
|---|---|---|
| MS. BRAUNSTEIN: Thank you very much. Ms. Brown? | 1 | 201 |
| MS. BROWN: Thank you. My name is Karen Brown. | 2 | 201 |
| I'm a staff attorney at the Home Defense Program of the | 3 | 201 |
| Atlanta Legal Aid Society. I want to tell you about one of | 4 | 201 |
| my clients, who's sitting here with me today, Ms. Eloise | 5 | 201 |
| Manuel. Ms. Manuel is 66 years old. She's African- | 6 | 201 |
| American. She's lived in her home in DeKalb County, | 7 | 201 |
| Georgia, for 33 years. | 8 | 201 |
| Until she retired four years ago, Ms. Manuel | 9 | 201 |
| worked primarily in food service, preparing salads and | 10 | 201 |
| working as a line server. Other jobs she held included | 11 | 201 |
| making picture frames and cleaning office buildings. In | 12 | 201 |
| 2000 Ms. Manuel paid off her original purchase money | 13 | 201 |
| mortgage. Her home was free and clear. | 14 | 201 |
| A few years later, she decided to apply for a | 15 | 201 |
| mortgage loan to pay her bills. When she made her | 16 | 201 |
| application, the mortgage broker pulled her credit and found | 17 | 201 |
| that her FICO credit score was 703. The broker was | 18 | 201 |
| surprised, but she wasn't because she knew she had always | 19 | 201 |
| paid her bills on time. | 20 | 201 |
| Ms. Manuel told them, I need a payment I can | 21 | 201 |
| afford, and I want a fixed interest rate. She told them she | 22 | 201 |
| was on Social Security and received only $541 a month. They | 23 | 201 |
| told her she was getting the lowest interest rate and that | 24 | 201 |
| her monthly payments would be $120. | 25 | 201 |
| So what loan did she get? Well, this loan was a | 1 | 202 |
| HELOC, a home equity line of credit. The loan amount | 2 | 202 |
| 25,000. The loan proceeds paid off almost $20,000 in third | 3 | 202 |
| party unsecured debt. She received about $3,000 in cash | 4 | 202 |
| proceeds and was charged more than $2,200 in closing costs. | 5 | 202 |
| Unbeknownst to Ms. Manuel, the interest rate was | 6 | 202 |
| not fixed, but adjustable. The loan had an initial teaser | 7 | 202 |
| rate of 3.875% for the first month. Beginning in the second | 8 | 202 |
| month, the interest rate was set at prime plus two | 9 | 202 |
| percentage points. Prime then was four points. | 10 | 202 |
| According to the terms of the note, the first ten | 11 | 202 |
| years is the draw period and the monthly payments are | 12 | 202 |
| interest only. The remaining ten years is the repayment | 13 | 202 |
| period, during which her mortgage payments will | 14 | 202 |
| substantially increase. The interest rate and monthly | 15 | 202 |
| payments have increased dramatically over the past two | 16 | 202 |
| years, with the increase of the prime rate. Her initial | 17 | 202 |
| monthly payment was about $100. But it's more than doubled | 18 | 202 |
| to the current payment of $215. Now, who is the lender? | 19 | 202 |
| The lender is IndyMack Bank, a federal savings bank. | 20 | 202 |
| Now, how is this loan underwritten? Although she | 21 | 202 |
| told them she was getting only $541 per month in Social | 22 | 202 |
| Security, the loan application in the lender's file falsely | 23 | 202 |
| states that her monthly income was 1100 in Social Security. | 24 | 202 |
| IndyMack -- I got a copy of the loan file from the lender. | 25 | 202 |
| IndyMack Bank issued a conditional approval letter -- | 1 | 203 |
| approval notice to the mortgage broker. | 2 | 203 |
| Among the conditions was an instruction that the | 3 | 203 |
| mortgage broker obtain a copy of the Social Security letter | 4 | 203 |
| with the income blacked out. In the lender's loan file is a | 5 | 203 |
| copy of a Social Security award letter with the income, | 6 | 203 |
| indeed, blacked out. IndyMack didn't just ignore the | 7 | 203 |
| information about her actual income, it actively instructed | 8 | 203 |
| that the information be concealed. | 9 | 203 |
| This loan never should have been made. No lender | 10 | 203 |
| should make an ARM, much less an exploding ARM to someone on | 11 | 203 |
| a fixed income. Given her FICO score of 703, no lender | 12 | 203 |
| should have charged her an interest rate of prime plus two. | 13 | 203 |
| No lender should have done a no doc loan or stated income | 14 | 203 |
| loan to someone on a fixed income, especially when the | 15 | 203 |
| source and amount of her income can be easily documented. | 16 | 203 |
| Finally, no lender should instruct the mortgage | 17 | 203 |
| broker or anyone to black out or mark out the proof the | 18 | 203 |
| borrower's income. And although the lender was very careful | 19 | 203 |
| not to document her actual income but was careful to | 20 | 203 |
| document the value of her home with the home's evaluated at | 21 | 203 |
| 84,000, this lender knew that when she inevitably defaulted | 22 | 203 |
| on the loan, it could proceed with foreclosure and profit | 23 | 203 |
| enormously. She's struggling to pay her ever increasing | 24 | 203 |
| mortgage payments, facing possible foreclosure, the loss of | 25 | 203 |
| her home, and all the equity in it. | 1 | 204 |
| She wanted you to hear her story today because | 2 | 204 |
| she's upset about what happened. She's never been in this | 3 | 204 |
| situation before. She's worked hard her whole life, always | 4 | 204 |
| paid her bills on time, and has never faced the possible | 5 | 204 |
| loss of her home. | 6 | 204 |
| We're going to do everything we can to make sure | 7 | 204 |
| she doesn't lose her home. We're here today to ask that you | 8 | 204 |
| do everything you can, including using your authority under | 9 | 204 |
| section 1639 to prevent other lenders from doing the same | 10 | 204 |
| thing that IndyMack did to Ms. Manuel. | 11 | 204 |
| MS. BRAUNSTEIN: Thank you. | 12 | 204 |
| MS. BROWN: Thank you for this opportunity to let | 13 | 204 |
| her story be told. | 14 | 204 |
| MS. BRAUNSTEIN: Thank you. Okay. Ms. Ashby? | 15 | 204 |
| MS. ASHBY: Thank you, Madam Chair. Good | 16 | 204 |
| afternoon. My name is Adrienne Ashby. I'm an attorney with | 17 | 204 |
| the Senior Citizens Law Project at Atlanta Legal Aid | 18 | 204 |
| Society. I have with me today my client, Ms. Agnes Martin. | 19 | 204 |
| Ms. Agnes Martin is a 76-year-old senior citizen | 20 | 204 |
| who is disabled. Her only source of income is from Social | 21 | 204 |
| Security. She's a foster mother, and she has custody of her | 22 | 204 |
| seven-year-old grandson. Before Ms. Martin retired, she | 23 | 204 |
| worked as a hotel maid. Ms. Martin has owned her home in | 24 | 204 |
| Forest Park, Georgia, for the last 27 years. | 25 | 204 |
| In November 2003, Ms. Martin took out a loan with | 1 | 205 |
| Freemont Investment and Loan Company. This mortgage loan | 2 | 205 |
| refinanced a previous mortgage. Ms. Martin took out this | 3 | 205 |
| loan because she needed money to bury her father who had | 4 | 205 |
| recently died. Ms. Martin had cared for her ailing father | 5 | 205 |
| for the past 21 years until his death in 2003. | 6 | 205 |
| Ms. Martin was referred to a mortgage broker. She | 7 | 205 |
| told the broker that her monthly income was only $904 from | 8 | 205 |
| Social Security. She also told the broker that she received | 9 | 205 |
| $844 in foster care assistance payments for the two foster | 10 | 205 |
| children in her home. Ms. Martin made it clear to the | 11 | 205 |
| broker that she wanted a fixed interest rate loan. | 12 | 205 |
| Unfortunately, Freemont did not give Ms. Martin | 13 | 205 |
| the fixed rate mortgage that she wanted. Instead, Ms. | 14 | 205 |
| Martin received an adjustable rate loan in the amount | 15 | 205 |
| $85,000. Her starting interest rate was 8.3 percent. The | 16 | 205 |
| loan was structured so that Ms. Martin's interest rates | 17 | 205 |
| would only increase, possibly to as high as 15.3 percent and | 18 | 205 |
| would never go below the initial rate of 8.3 percent. | 19 | 205 |
| The loan proceeds paid off Ms. Martin's previous | 20 | 205 |
| mortgage and paid off unsecured debt in the amount of | 21 | 205 |
| $3,900. Ms. Martin received five hundred -- excuse me -- | 22 | 205 |
| $5,336.11 in cash proceeds from the loan. She used this | 23 | 205 |
| money to pay for her father's funeral and burial. | 24 | 205 |
| The initial monthly payments on this mortgage | 25 | 205 |
| comprised 71 percent of Ms. Martin's monthly income. After | 1 | 206 |
| she paid her monthly mortgage, she had only $262.43 | 2 | 206 |
| remaining from which to pay her utilities, property taxes, | 3 | 206 |
| homeowner's insurance, food, medicine, and other necessities | 4 | 206 |
| for daily living. After two years, Ms. Martin's monthly | 5 | 206 |
| payments increased to $751, even though her monthly income | 6 | 206 |
| was only $933 per month. Ms. Martin's current monthly | 7 | 206 |
| mortgage payment is $930. This leaves Ms. Martin with $3 | 8 | 206 |
| each month after she's made her monthly mortgage payments. | 9 | 206 |
| In an attempt to make it look like Ms. Martin's | 10 | 206 |
| income was higher than it actually was, the broker | 11 | 206 |
| considered the foster care payments that Ms. Martin received | 12 | 206 |
| as part of her monthly income, even though the lender knew | 13 | 206 |
| that these payments were for the benefit of the foster | 14 | 206 |
| children. The lender also knew that Ms. Martin would only | 15 | 206 |
| receive these foster care benefits until the children turned | 16 | 206 |
| 18 years old. At the time Ms. Martin got her loan, the | 17 | 206 |
| children were 12 and 15. | 18 | 206 |
| This loan should have never been made to Ms. | 19 | 206 |
| Martin. The lender showed utter disregard for Ms. Martin's | 20 | 206 |
| ability to repay the loan. Even under the initial interest | 21 | 206 |
| rate, Ms. Martin's income was insufficient to keep up her | 22 | 206 |
| monthly payments and to maintain her household. Moreover, | 23 | 206 |
| an adjustable rate loan should have never been given to | 24 | 206 |
| someone living on a fixed income. It was inevitable that | 25 | 206 |
| Ms. Martin would default on her loan because her income | 1 | 207 |
| would not keep pace with the increases in the amount of her | 2 | 207 |
| monthly mortgage payment. | 3 | 207 |
| Ms. Martin is now two months and $1900 behind on | 4 | 207 |
| her mortgage payment, and she worries every day about | 5 | 207 |
| whether she'll be able to keep the home she has lived in for | 6 | 207 |
| almost 30 years. Ms. Martin is here today asking that you | 7 | 207 |
| do everything in your power to require stricter underwriting | 8 | 207 |
| standards for mortgage lenders so that what happened to Ms. | 9 | 207 |
| Martin does not happen to anyone else. Thank you. | 10 | 207 |
| MS. BRAUNSTEIN: Thank you. Ms. MacLeod? | 11 | 207 |
| MS. MACLEOD: Good afternoon. My name is Nancy | 12 | 207 |
| MacLeod. I'm a housing counselor, and I work with the Home | 13 | 207 |
| Defense Program at the Atlanta Legal Aid Office in Decatur. | 14 | 207 |
| I'm here to share my perspective with you because I may be | 15 | 207 |
| the only housing counselor in attendance, and I feel like I | 16 | 207 |
| have a unique perspective on consumer education and | 17 | 207 |
| providing disclosures to potential borrowers. | 18 | 207 |
| Consumer education has been an effective tool in | 19 | 207 |
| protecting senior homeowners who are considering a reverse | 20 | 207 |
| mortgage, but it has not been as effective in protecting | 21 | 207 |
| home buyers or in protecting homeowners who are considering | 22 | 207 |
| whether or not to take out a home equity loan. Consumer | 23 | 207 |
| education works for reverse mortgages because there are | 24 | 207 |
| relatively few loan products, the interest rates do not vary | 25 | 207 |
| from lender to lender, the underwriting requirements are | 1 | 208 |
| virtually the same from product to product, there are few | 2 | 208 |
| costs that can vary, and reverse mortgage counseling is | 3 | 208 |
| mandatory before a consumer can actually apply for the loan. | 4 | 208 |
| Counselor can show a senior homeowner the direct | 5 | 208 |
| benefits and costs for each loan available on the market. | 6 | 208 |
| The disclosures provided in the counseling session include | 7 | 208 |
| the reverse mortgage analyses and the total annual loan cost | 8 | 208 |
| disclosure, and they allow consumers to compare these | 9 | 208 |
| products side by side. So seniors leave that counseling | 10 | 208 |
| session knowing which reverse mortgage product is their best | 11 | 208 |
| option. They're given information on how the loan will | 12 | 208 |
| impact their financial situation, the long term effect on | 13 | 208 |
| the equity left in the home, other financial alternatives, | 14 | 208 |
| and their responsibility should they take the loan out. | 15 | 208 |
| Consumer education for first time home buyers is | 16 | 208 |
| effective if you're trying to teach the basics of home | 17 | 208 |
| ownership. But it's not effective in teaching consumers how | 18 | 208 |
| to evaluate a complex array of financing options. Each | 19 | 208 |
| lender has a different set of financing products, each with | 20 | 208 |
| their own special pricing and underwriting standards. Non- | 21 | 208 |
| profit agencies are ill equipped to teach consumers how to | 22 | 208 |
| evaluate this many loan products. And consumers, many of | 23 | 208 |
| which have less than a high school education, are ill | 24 | 208 |
| equipped to make an informed decision when presented with so | 25 | 208 |
| many different financing options. | 1 | 209 |
| Reverse mortgage counseling works because | 2 | 209 |
| counselors have access to the underwriting guidelines for | 3 | 209 |
| each loan product. They have a Web-based software with -- | 4 | 209 |
| that updates regularly for all loan products at their | 5 | 209 |
| disposal, and they use the software to print out side by | 6 | 209 |
| side comparisons of costs and benefits for the loans. The | 7 | 209 |
| borrower receives the information before they proceed with a | 8 | 209 |
| lender if they decide to actually apply for the loan. | 9 | 209 |
| If you're seriously interested in protecting home | 10 | 209 |
| buyers and homeowners from unscrupulous mortgage lenders and | 11 | 209 |
| brokers, you might first consider reducing the number of | 12 | 209 |
| purchase mortgages and home equity loan products on the | 13 | 209 |
| market, prime and subprime. For the loan products that are | 14 | 209 |
| truly beneficial to consumers, standardize the underwriting | 15 | 209 |
| requirements and then the allowable costs, return to the | 16 | 209 |
| practice of lending to consumers based on their ability to | 17 | 209 |
| pay during the term of the loan, and provide your housing | 18 | 209 |
| counselors with a Web-based software that can access | 19 | 209 |
| information from locally based lenders for their loan | 20 | 209 |
| products and pricing. And then consumers can use this | 21 | 209 |
| information to provide the side by side comparisons for | 22 | 209 |
| consumers. | 23 | 209 |
| Make consumer education mandatory. I know that's | 24 | 209 |
| controversial. Or actually, make consumer education a | 25 | 209 |
| normal step in the process of buying or refinancing a home. | 1 | 210 |
| Under these circumstances, consumer education for forward | 2 | 210 |
| mortgages could provide valued information. | 3 | 210 |
| MS. BRAUNSTEIN: Thank you very much. Okay. | 4 | 210 |
| We'll bring the panel up. Thank you all. Richard Brown, | 5 | 210 |
| William Vatavuk, Nicole Cotton, Dave Hall, Paula Harrison, | 6 | 210 |
| and Stella Adams. This is like boys on one side, girls on | 7 | 210 |
| the other. All right. We'll start with Richard Brown. | 8 | 210 |
| MR. BROWN: I want to thank the Federal Reserve -- | 9 | 210 |
| MS. BRAUNSTEIN: Please -- I'm sorry. Introduce | 10 | 210 |
| yourself when you start for the court reporter. | 11 | 210 |
| MR. BROWN: Okay. All right. Yeah. My name is | 12 | 210 |
| Richard Brown, and I am -- I'm speaking on behalf of the | 13 | 210 |
| Community Reinvestment Association of North Carolina. I | 14 | 210 |
| want to thank the Federal Reserve for having this and giving | 15 | 210 |
| the community a chance to speak out on some of these issues. | 16 | 210 |
| North Carolina has a group of seven that has come down -- | 17 | 210 |
| driven down this morning to speak, and we have several | 18 | 210 |
| people sitting here on the panel. So I will lead, and then | 19 | 210 |
| they will follow up on the various specifics. I have a | 20 | 210 |
| written statement that I want to read from. | 21 | 210 |
| But before I do that, one of the things that | 22 | 210 |
| strikes me on the things I've heard here is that the | 23 | 210 |
| disclosures are dealing with the benevolent lenders. And | 24 | 210 |
| then there's another set of lenders. And part of what you | 25 | 210 |
| will be hearing as it relates to consumers, at least in | 1 | 211 |
| North Carolina, is that these lenders aren't benevolent. In | 2 | 211 |
| fact, what they are doing is actively going out and taking | 3 | 211 |
| advantage of consumer after consumer. And so let me start | 4 | 211 |
| with my written statement with those thoughts in mind. | 5 | 211 |
| The Community Reinvestment Association, acronym | 6 | 211 |
| known as CRANC, promotes social and financial justice | 7 | 211 |
| through creative advocacy, television, and radio production. | 8 | 211 |
| For the record, I am submitting our report, Paying More and | 9 | 211 |
| Getting Less, an analysis of the 2004 mortgage lending in | 10 | 211 |
| North Carolina. Our key finding is that disproportionately | 11 | 211 |
| there is a ratio of more than four to one African-Americans | 12 | 211 |
| paying more interest in home loans than whites do in North | 13 | 211 |
| Carolina. This finding has also been reached by a number of | 14 | 211 |
| other HMDA analysis. | 15 | 211 |
| We applaud the Federal Reserve for holding these | 16 | 211 |
| hearings and for the chairman's position that while | 17 | 211 |
| financial literacy and consumer awareness are important in | 18 | 211 |
| preventing predatory lending. However, it is a regulatory | 19 | 211 |
| responsibility to ensure fair lending. CRANC supports | 20 | 211 |
| financial literacy through various means, and we continue to | 21 | 211 |
| insist that more can be done through existing enforcement | 22 | 211 |
| mechanisms and authority of the regulatory bodies. | 23 | 211 |
| Let me talk a little bit about an example. In the | 24 | 211 |
| recent years, popular adaptations of traditional mortgage | 25 | 211 |
| loans varying in term as short of 15 or as long as 40 years | 1 | 212 |
| are available. The structure of these loans are -- have | 2 | 212 |
| also grown more heterogeneous. In fact, HMDA data's current | 3 | 212 |
| structure encourages all loans of the same terms or -- is | 4 | 212 |
| erroneous. Only 72 percent of mortgages -- borrowers | 5 | 212 |
| actually get 30-year fixed rate mortgages according to Wall | 6 | 212 |
| Street Journal. And that lower -- That number is actually | 7 | 212 |
| even lower in western United States. | 8 | 212 |
| Adjustable rate mortgages are now a popular choice | 9 | 212 |
| for many consumers, as are interest only products. And many | 10 | 212 |
| people are using what they call these pay option ARMs. | 11 | 212 |
| Amortization varies in these products, as well. Fixed rate | 12 | 212 |
| interest only loans account for eight percent of loans | 13 | 212 |
| according to UBS. | 14 | 212 |
| In many cases, interest only products bear balloon | 15 | 212 |
| payments. And in each case, HMDA data is insensitive to the | 16 | 212 |
| presence of these types of products. So let me get to the | 17 | 212 |
| recommendations that CRANC would like to offer humbly to the | 18 | 212 |
| Federal Reserve. | 19 | 212 |
| MS. BRAUNSTEIN: Is it possible that one of the | 20 | 212 |
| other speakers will do that because you're -- | 21 | 212 |
| MR. BROWN: I'm already out of time? | 22 | 212 |
| MS. BRAUNSTEIN: -- out of time. | 23 | 212 |
| MR. BROWN: Wow. Okay. All right. Well, I | 24 | 212 |
| will -- | 25 | 212 |
| MS. BRAUNSTEIN: You can submit it for the record. | 1 | 213 |
| MR. BROWN: Yes, I would like to submit those for | 2 | 213 |
| the record. Thank you. | 3 | 213 |
| MS. BRAUNSTEIN: Thank you very much. William | 4 | 213 |
| Vatavuk? | 5 | 213 |
| MR. VATAVUK: Good afternoon. My name is William | 6 | 213 |
| Vatavuk, and I've been working as an intern at the North | 7 | 213 |
| Carolina Fair Housing Center this summer. Economy.com | 8 | 213 |
| estimates that at least one million homeowners will see | 9 | 213 |
| their house payments double in the next two years. Now, | 10 | 213 |
| this study suggests that one in seven borrowers have | 11 | 213 |
| recently taken out adjustable rate mortgages will have | 12 | 213 |
| trouble making their payments. | 13 | 213 |
| According to your own study, many Americans are | 14 | 213 |
| confused about the terms their adjustable rate home | 15 | 213 |
| mortgages and underestimate the amount by which their loan | 16 | 213 |
| payments could jump. You report that 35 percent of people | 17 | 213 |
| with adjustable rate mortgages don't know how much their | 18 | 213 |
| rate could increase at any one time. And 41 percent weren't | 19 | 213 |
| sure of the maximum rate or payments they could face. | 20 | 213 |
| The study further found that people with low | 21 | 213 |
| incomes and less education are more likely to be unsure of | 22 | 213 |
| the terms of their mortgages. The North Carolina Fair | 23 | 213 |
| Housing Center has found that borrowers often believe that | 24 | 213 |
| they are told by mortgage brokers -- We often hear borrowers | 25 | 213 |
| say that they were not to worry about the terms of their | 1 | 214 |
| adjustable rate mortgage because they'd be able to refinance | 2 | 214 |
| before the adjustment hit. But that isn't always possible | 3 | 214 |
| for the borrowers we see who have heavy debt loads and | 4 | 214 |
| little to negative equity in their homes. | 5 | 214 |
| Therefore, I encourage the board to use its power | 6 | 214 |
| to regulate the mortgage market to create a suitability | 7 | 214 |
| standard for mortgage brokers who are currently responsible | 8 | 214 |
| for the origination of 70 percent of the mortgage loans but | 9 | 214 |
| for whom there's no national guidance or standards. | 10 | 214 |
| MS. BRAUNSTEIN: Thank you. Nicole Cotton? | 11 | 214 |
| MS. COTTON: Hello. My name's Nicole Cotton. | 12 | 214 |
| I've been working as a legal intern with the North Carolina | 13 | 214 |
| Fair Housing Center this summer. The North Carolina Fair | 14 | 214 |
| Housing Center strongly believes that lowering the fee | 15 | 214 |
| trigger to five percent is appropriate and necessary extra | 16 | 214 |
| protection. Both Fannie Mae and Freddie Mac adopted | 17 | 214 |
| guidelines as early as 2000 stating that they would not | 18 | 214 |
| purchase high cost loans with fees in excess of five | 19 | 214 |
| percent. | 20 | 214 |
| Many major financial institutions in the industry | 21 | 214 |
| have, therefore, recognized that loans with fees in excess | 22 | 214 |
| of five percent are prone to abuses if not executed | 23 | 214 |
| properly. Ms. Bennett is one of our clients. Ms. Bennett, | 24 | 214 |
| one of our clients, was charged a one percent origination | 25 | 214 |
| fee and three percent yield spread premium. The center | 1 | 215 |
| strongly urges the board to include yield spread premiums in | 2 | 215 |
| the point and feature in the calculation. Thank you. | 3 | 215 |
| MS. BRAUNSTEIN: Thank you very much. Dave Hall? | 4 | 215 |
| MR. HALL: My name is Dave Hall. I'm also a | 5 | 215 |
| summer legal intern with North Carolina Fair Housing Center. | 6 | 215 |
| And the North Carolina Fair Housing Center typically | 7 | 215 |
| receives four to five inquiries a day related to loan | 8 | 215 |
| default and delinquency. Ms. Bennett is a typical -- is | 9 | 215 |
| typical of the types of calls we receive. | 10 | 215 |
| Ms. Bennett originally had a fixed rate loan with | 11 | 215 |
| First Union Bank in 1999. At that time her interest rate | 12 | 215 |
| was 7.875 percent. Her payments were 725.07 per month. Ms. | 13 | 215 |
| Bennett sought to refinance her loan in August 2002 in order | 14 | 215 |
| to take advantage of the lower interest rate environment and | 15 | 215 |
| wanted a fixed rate loan. | 16 | 215 |
| According to the August 23, 2002, weekly survey by | 17 | 215 |
| Freddie Mac, 30-year fixed rate loans were at 6.27 percent | 18 | 215 |
| at the time she closed her loan. Ms. Bennett, enticed by | 19 | 215 |
| the mortgage broker, entered into a 327 ARM without | 20 | 215 |
| understanding the consequences. The mortgage broker | 21 | 215 |
| received a $1600 YSP for placing her in this loan product. | 22 | 215 |
| In 2005 when the loan reset, the same mortgage broker placed | 23 | 215 |
| her in an ARM that adjusts on a monthly basis and the | 24 | 215 |
| payments are creeping up at a rate that will soon be beyond | 25 | 215 |
| her ability to pay. | 1 | 216 |
| Ms. Bennett has a credit score that would qualify | 2 | 216 |
| as A credit, and she also has an excellent employment | 3 | 216 |
| history. She initially sought to reduce her house payments | 4 | 216 |
| so that she could complete college and improve herself. | 5 | 216 |
| Were it not for the mortgage broker who presented herself as | 6 | 216 |
| a financial counselor, Ms. Bennett could have refinanced to | 7 | 216 |
| a lower interest fixed rate mortgage with either First | 8 | 216 |
| Union/Wachovia or the State Employees Credit Union. | 9 | 216 |
| She was totally unaware of her options throughout | 10 | 216 |
| this process. She kept referring to the mortgage broker as | 11 | 216 |
| a counselor, saying I went to her for counseling, and this | 12 | 216 |
| is what she told me to do. The counselor made about three | 13 | 216 |
| percent off each loan transaction half -- transaction, half | 14 | 216 |
| of which were YSPs for placing her in these inappropriate | 15 | 216 |
| products. Thank you. | 16 | 216 |
| MS. BRAUNSTEIN: Thank you very much. Paula | 17 | 216 |
| Harrison? | 18 | 216 |
| MS. HARRISON: Good evening. I'm Paula Harrison. | 19 | 216 |
| I came down as a consumer with North Carolina Fair Housing. | 20 | 216 |
| I contacted them regarding my loan but actually found relief | 21 | 216 |
| through another entity. But I have to ask the question, | 22 | 216 |
| being a consumer, and I'd ask everyone in this room. What | 23 | 216 |
| would you do if you had eight hours to save your home? I | 24 | 216 |
| had to deal with that question because my journey into | 25 | 216 |
| predatory lending started in 2001 when I refinanced from a | 1 | 217 |
| comparable loan into a financial nightmare. | 2 | 217 |
| It took four years to rectify the situation. | 3 | 217 |
| Going through the guidelines that I found through HUD, I | 4 | 217 |
| actually contacted the lender at the time that I was laid | 5 | 217 |
| off, and nothing was done. At that point, I realized I was | 6 | 217 |
| in tremendous problems because of the problems and | 7 | 217 |
| understanding talking with another non-profit, identified my | 8 | 217 |
| loan, based on excessive fees that that was the problem. I | 9 | 217 |
| had excessive fees, and that was what targeted into | 10 | 217 |
| predatory lending. | 11 | 217 |
| After making a complaint with the North Carolina | 12 | 217 |
| Banker Commission, that was the only reason my broker even | 13 | 217 |
| talked with me -- my lender talked with me regarding | 14 | 217 |
| reducing the rate. They reduced the rate from 12 percent to | 15 | 217 |
| 11.5 percent. Not understanding the nature of the loan, I | 16 | 217 |
| contacted another entity, National Training Information Tech | 17 | 217 |
| Center in Chicago who had an agreement with my particular | 18 | 217 |
| lender. | 19 | 217 |
| After talking with -- And I asked the person I | 20 | 217 |
| spoke with, I said, let me talk with the compliance manager | 21 | 217 |
| myself. At that point I gave all the findings through North | 22 | 217 |
| Carolina Housing, all the non-profits that I found, and | 23 | 217 |
| actually became my own advocate. I feel that once you | 24 | 217 |
| empower yourself, you can make a difference. Everyone in | 25 | 217 |
| this room can make a difference to these abuses that's | 1 | 218 |
| happening. | 2 | 218 |
| After speaking with the compliance officer, he | 3 | 218 |
| reduced the mortgage from 11.5 percent to 7.5, without an | 4 | 218 |
| attorney, just a consumer who educated herself, not because | 5 | 218 |
| I wasn't educated, not because I did all the steps that all | 6 | 218 |
| financial books said you should do. At that point dealing | 7 | 218 |
| with that and to this predatory loan, the credit has been | 8 | 218 |
| demolished because I had A-1 credit based on the Center for | 9 | 218 |
| Responsible Lending at the time I took the loan. And now | 10 | 218 |
| I'm dealing with fighting a $13,000 balloon payment at the | 11 | 218 |
| end that the broker found. And actually, the company that I | 12 | 218 |
| dealt with got 5,000 and then the broker got another 5,000. | 13 | 218 |
| So what protection does this committee, this panel | 14 | 218 |
| have to do to protect the consumers? So I ask the question | 15 | 218 |
| again, what would you do if you had eight hours to save your | 16 | 218 |
| home? | 17 | 218 |
| MS. BRAUNSTEIN: Thank you. Stella? | 18 | 218 |
| MS. ADAMS: Every day consumers across this nation | 19 | 218 |
| are facing tremendous obstacles. Financial literacy is not | 20 | 218 |
| the answer. It's part of the solution, but it is not the | 21 | 218 |
| panacea that all would have it. Disclosures in and of | 22 | 218 |
| themselves are not the answers. In many cases the | 23 | 218 |
| disclosures we have today are licenses to steal because if | 24 | 218 |
| people don't understand the disclosures, they can't react. | 25 | 218 |
| They don't know what they're signing away, and they're often | 1 | 219 |
| signing away their rights. | 2 | 219 |
| It is critical that the Federal Reserve use its | 3 | 219 |
| power to regulate and to put in place suitability standards. | 4 | 219 |
| We have to stop piling on the responsibility on the | 5 | 219 |
| borrowers to learn when the market changes every day. And | 6 | 219 |
| it is an unlevel playing field. They are not equal players | 7 | 219 |
| in the transaction. The lender has the control. It is not | 8 | 219 |
| an equal situation where two people with equal knowledge sit | 9 | 219 |
| down and negotiate. It is an unfair -- They are at an | 10 | 219 |
| unfair advantage. | 11 | 219 |
| Mortgage brokers are now originating the majority | 12 | 219 |
| of loans in this country, and they are not a part of the | 13 | 219 |
| transaction. The lender can say, oh, we have the | 14 | 219 |
| disclosures in here, and we asked for the information, and | 15 | 219 |
| we can't help what the broker did. And that doesn't help | 16 | 219 |
| the borrower. | 17 | 219 |
| It's the -- The risk is covered on -- It's spread | 18 | 219 |
| out amongst all the investors and the risk is covered for | 19 | 219 |
| everyone but the consumer, and it's the responsibility of | 20 | 219 |
| the Federal Reserve to manage the risk for the borrower, | 21 | 219 |
| just as the markets are managing the risk for the investor. | 22 | 219 |
| And how you can do that is to use your power to regulate the | 23 | 219 |
| mortgage market, to put in place a suitability standard, and | 24 | 219 |
| to put in place safeguards that protect the consumer from an | 25 | 219 |
| unfair burden of risk. We thank you for allowing us to come | 1 | 220 |
| and speak to you today. | 2 | 220 |
| MS. BRAUNSTEIN: Thank you very much for making | 3 | 220 |
| the trip. Thank you to everybody. And Larry Cherry? Is he | 4 | 220 |
| here? Okay. And Derrick Bozeman? Mr. Cherry, would you | 5 | 220 |
| like to go first? | 6 | 220 |
| MR. CHERRY: My name is Larry Cherry. I came all | 7 | 220 |
| the way from Chicago because I didn't hear about them when | 8 | 220 |
| they were in Chicago. But I thought it was important. I'm | 9 | 220 |
| with the organization called the University of Life Itself. | 10 | 220 |
| And I've seen both parts because I was a former | 11 | 220 |
| real estate broker, and I owned a mortgage company, and I | 12 | 220 |
| invested in a lot of property. When I realized that I was | 13 | 220 |
| buying a lot of property that were being foreclosed, I | 14 | 220 |
| stopped buying property and I set up a not-for-profit | 15 | 220 |
| organization. And since that time, we've been instrumental | 16 | 220 |
| in saving hundreds of houses from foreclosure. | 17 | 220 |
| The problem is something we haven't talked about | 18 | 220 |
| today. The credit system really does not give borrowers a | 19 | 220 |
| fair play and opportunity. Since credit scoring has been | 20 | 220 |
| introduced, many people who are people who have good income | 21 | 220 |
| don't have the credit to be able to get the right type of | 22 | 220 |
| interest rate, so they're paying 12 percent, 13 percent. In | 23 | 220 |
| addition, mortgage brokers get paid for charging a lot of | 24 | 220 |
| interest. The larger they charge interest the more yield | 25 | 220 |
| service premium they get. | 1 | 221 |
| So the Federal Reserve, who is in control of all | 2 | 221 |
| the money, certainly has the power to influence the credit | 3 | 221 |
| system so that people who are poor borrowers and low income | 4 | 221 |
| borrowers don't lose their homes simply because they had a | 5 | 221 |
| credit -- a telephone, cellular phone, and their credit is | 6 | 221 |
| low because they had a contract cancel or because they had a | 7 | 221 |
| medical bill and now they're in a whole other rating. Seven | 8 | 221 |
| years that they're punished with bad credit because they | 9 | 221 |
| didn't have any money in the first place. | 10 | 221 |
| So it's kind of a system that implodes on itself | 11 | 221 |
| and punishes those individuals who have the least. And for | 12 | 221 |
| minor infractions, I now throw into loans that cause a lot | 13 | 221 |
| of problems. In addition to predatory lending, a whole | 14 | 221 |
| other process of predatory foreclosures is introduced when | 15 | 221 |
| you have foreclosure mill attorneys that are doing | 16 | 221 |
| everything they can, illegally in many cases, to take away | 17 | 221 |
| the rights of borrowers as they move with their home. | 18 | 221 |
| In Chicago and most judicial states, you can | 19 | 221 |
| actually buy a house for 50,000 or 100,000, pay for it for | 20 | 221 |
| 15 years, owe 20,000. Your house is improved to 150,000, | 21 | 221 |
| and you can lose the house. And the lender gets to keep all | 22 | 221 |
| the money, the house, and sell it and make all the profit. | 23 | 221 |
| How can that be fair? | 24 | 221 |
| So you know, it's a time to wake up and realize | 25 | 221 |
| that we have a lot to change in the system. The credit | 1 | 222 |
| system needs to be changed totally around. Credit scoring | 2 | 222 |
| does not work. It's arbitrary. People who are making | 3 | 222 |
| 50,000 a year, if they only have one credit card that they | 4 | 222 |
| 800 on that's a $1,000 limit can have a score reduced 30 | 5 | 222 |
| points. So the credit system doesn't even take into | 6 | 222 |
| consideration because they don't even know how much money | 7 | 222 |
| the person is making. So it's a computer model that really | 8 | 222 |
| is totally unfair, and it's another way of discriminating | 9 | 222 |
| against those who have the least. | 10 | 222 |
| So it's time to make a change in that, as well as | 11 | 222 |
| in the entire foreclosure process where the laws allow | 12 | 222 |
| foreclosure mill attorneys to get richer. In Chicago, Cook | 13 | 222 |
| County, over 100,000 foreclosures in the last six years, and | 14 | 222 |
| most of them -- many of them were predatory loans where | 15 | 222 |
| people have no rights. There are probably less than 20 | 16 | 222 |
| attorneys in the whole state of Illinois who have any idea | 17 | 222 |
| of how to defend a foreclosure victim. So our organization | 18 | 222 |
| is about training attorneys to begin to -- assist those | 19 | 222 |
| attorneys to begin to learn some of the procedures involved | 20 | 222 |
| in helping somebody who might be in foreclosure. Thank you. | 21 | 222 |
| MS. BRAUNSTEIN: Thank you very much. Mr. | 22 | 222 |
| Bozeman? | 23 | 222 |
| MR. BOZEMAN: Thank you. I'm Derrick Bozeman, a | 24 | 222 |
| former member of the Atlanta City Council here in the city | 25 | 222 |
| and served two terms, and I worked very closely with Senator | 1 | 223 |
| Fort and the Atlanta Legal Aid. And I wanted to just | 2 | 223 |
| disabuse any notion of predatory lending has gone away in | 3 | 223 |
| the state of Georgia. | 4 | 223 |
| In fact, when the new governor came in to make | 5 | 223 |
| sure that the law that Senator Fort had worked so hard to | 6 | 223 |
| author and had worked in response to what he was seeing from | 7 | 223 |
| neighborhoods and constituents that we both serve, this | 8 | 223 |
| governor made sure that what he did, Sonny Perdue, was to go | 9 | 223 |
| to every bank in Georgia, it appeared, and got the senior | 10 | 223 |
| most staff -- I mean, his chief operating officer was the | 11 | 223 |
| highest ranking official at the local bank. So you can -- | 12 | 223 |
| What did you expect to come out of that kind of set up? You | 13 | 223 |
| expected every kind of consumer advocate entity essentially | 14 | 223 |
| to be gutted. You would have thought that there would have | 15 | 223 |
| been a greater sensitivity. | 16 | 223 |
| Let me just say this. Predatory lending in its | 17 | 223 |
| pernicious nature is very serious. You've heard what some | 18 | 223 |
| would say, well, these are just anecdotal inferences that | 19 | 223 |
| the people you see, hopefully, an aberration of what really | 20 | 223 |
| happens. But no, they are the people who represents too | 21 | 223 |
| many and too often of the folks that we see on a daily | 22 | 223 |
| basis. | 23 | 223 |
| I just left a few minutes ago from a 60-story | 24 | 223 |
| tower Bank of America building, two blocks up from this one. | 25 | 223 |
| You know why I was there? Because a church in south | 1 | 224 |
| Atlanta, not too far from where I live, has a predatory loan | 2 | 224 |
| -- had been extended -- a church, the house of God, the | 3 | 224 |
| house of worship has a predatory loan. What makes it | 4 | 224 |
| predatory? One, they did not have the ability to repay it. | 5 | 224 |
| It was a loan that was extended to them by Bank of America, | 6 | 224 |
| which basically called for them to make a $6,000 payment on | 7 | 224 |
| a $1.5 million loan for the first three months. Then it | 8 | 224 |
| went up to $12,000, with a balloon payment of now 138,000 | 9 | 224 |
| after 15 years. And so that's what's happening in Georgia | 10 | 224 |
| today. | 11 | 224 |
| And so, if they will do it to a church after the | 12 | 224 |
| legislation that Senator Fort put forth -- I also authored | 13 | 224 |
| legislation because we know that all politics is local. I | 14 | 224 |
| authored legislation that even put in penalties when we | 15 | 224 |
| found banks -- and these are main line banks that oftentimes | 16 | 224 |
| do this -- engage in those practices that they couldn’t do | 17 | 224 |
| business with the city of Atlanta where we deposit of | 18 | 224 |
| hundreds of millions of the taxpayer's dollars. | 19 | 224 |
| It was in place every bit of two weeks before a | 20 | 224 |
| general assembly put in place a preemption from local | 21 | 224 |
| governments to put any kind of regulatory legislation in as | 22 | 224 |
| it relates to banking. So the Federal Reserve do have a | 23 | 224 |
| responsibility. You are the vanguard to keep these kinds of | 24 | 224 |
| -- to regulate property because states have shown, if given | 25 | 224 |
| an opportunity, certainly here in Georgia, what they will do | 1 | 225 |
| everything that they can to help predatory lending flourish. | 2 | 225 |
| We didn't run anybody out. The people who should have been | 3 | 225 |
| ran out are still here. They're doing a disservice to this | 4 | 225 |
| community, and it often explodes in the lives of people in | 5 | 225 |
| very rare ways. | 6 | 225 |
| We've been able to reform some loans, but | 7 | 225 |
| oftentimes it's after the hearse have driven that person to | 8 | 225 |
| the cemetery. They're still living under conditions of | 9 | 225 |
| pressure and stress that oftentimes these loans put them | 10 | 225 |
| under. So we thank you for the opportunity to make a | 11 | 225 |
| statement. | 12 | 225 |
| MS. BRAUNSTEIN: Thank you very much. And I'd | 13 | 225 |
| like to thank everybody for today. And I especially want to | 14 | 225 |
| extend our deep appreciation to the Federal Reserve Bank of | 15 | 225 |
| Atlanta and their staff, in particular, Joan Buchanan, Juan | 16 | 225 |
| Sanchez, Jennifer Grier and everybody -- and Wayne Smith, | 17 | 225 |
| and everybody else who helped make this happen today. And | 18 | 225 |
| with that, we are adjourned. | 19 | 225 |
| (Whereupon, the meeting was adjourned at 3:46 | 20 | 225 |
| p.m.) | 21 | 225 |
| 22 | 225 | |
| 23 | 225 | |
| 24 | 225 | |
| 25 | 225 | |
| C E R T I F I C A T E | 1 | 226 |
| 2 | 226 | |
| 3 | 226 | |
| STATE OF GEORGIA ) | 4 | 226 |
| ) | 5 | 226 |
| COUNTY OF FAYETTE) | 6 | 226 |
| 7 | 226 | |
| 8 | 226 | |
| 9 | 226 | |
| I, CHARLENE M. HANSARD, being a Certified Court Reporter in | 10 | 226 |
| 11 | 226 | |
| and for the State of Georgia, do hereby certify that the | 12 | 226 |
| 13 | 226 | |
| foregoing transcript, consisting of 226 pages, was reduced to | 14 | 226 |
| 15 | 226 | |
| typewriting by me personally or under my direct supervision, and | 16 | 226 |
| 17 | 226 | |
| is a true, complete, and correct transcript of the aforesaid | 18 | 226 |
| 19 | 226 | |
| proceedings reported by me. | 20 | 226 |
| 21 | 226 | |
| I further certify that I am not related to, employed by, | 22 | 226 |
| 23 | 226 | |
| counsel to, or attorney for any parties involved herein; nor am I | 24 | 226 |
| 25 | 226 | |
| financially interested in this matter. | 26 | 226 |
| 27 | 226 | |
| This transcript is not deemed to be certified unless this | 28 | 226 |
| 29 | 226 | |
| certificate page is dated and signed by me. | 30 | 226 |
| 31 | 226 | |
| WITNESS MY HAND AND OFFICIAL SEAL this _____ day of | 32 | 226 |
| 33 | 226 | |
| ____________, 2006. | 34 | 226 |
| 35 | 226 | |
| 36 | 226 | |
| 37 | 226 | |
| 38 | 226 | |
| 39 | 226 | |
| 40 | 226 | |
| 41 | 226 | |
| ____________________ _______ | 42 | 226 |
| CHARLENE M. HANSARD, CCR-CVR | 43 | 226 |
| CCR No. B-2341 | 44 | 226 |
| 45 | 226 | |
| [SEAL] | 46 | 226 |
| 47 | 226 | |
| 48 | 226 | |
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Nancy Lee & Associates, Atlanta, Georgia, 404-315-8305
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