Public Meeting Bank of America Corporation and Countrywide Financial Corporation
Held on Monday, April 28, 2008, at the Los Angeles Branch of Federal Reserve Bank of San Francisco
1
THE FEDERAL RESERVE BOARD
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PUBLIC MEETING REGARDING THE NOTICE OF
BANK OF AMERICA CORPORATION
TO ACQUIRE COUNTRYWIDE FINANCIAL CORPORATION
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Monday
April 28, 2008
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The public meeting came to order at 8:30
a.m. in Branch Conference Center, 950 South
Grand Avenue, Los Angeles, California, Sandra
Braunstein, Director, Federal Reserve Board,
presiding.
FEDERAL RESERVE SYSTEM PANEL:
SANDRA F. BRAUNSTEIN, Director,
Federal Reserve Board
PATRICIA ROBINSON, Assistant General Counsel,
Federal Reserve Board
MAC ALFRIEND, Senior Vice President,
Federal Reserve Bank of Richmond
SCOTT TURNER, Director,
Federal Reserve Bank of San Francisco
BANK OF AMERICA CORPORATION PANEL:
LIAM MCGEE, President,
Global Consumer & Small Business Banking
ANDREW PLEPLER, Senior Vice President,
Global Community Impact
JANET LAMKIN, California State President
2
T A B L E O F C O N T E N T S
Welcome
Director Braunstein . . . . . . . . . . .4
Bank of America Corporation Panel
Liam McGee. . . . . . . . . . . . . . . .9
Andrew Plepler. . . . . . . . . . . . . 26
Janet Lamkin. . . . . . . . . . . . . . 33
Panel 1
Congresswoman Maxine Waters . . . . . . 45
Adolfo Bailon . . . . . . . . . . . . . 65
Panel 2
Robyn C. Smith. . . . . . . . . . . . . 69
Butch Wing. . . . . . . . . . . . . . . 76
Panel 3
Roberto Barragan. . . . . . . . . . . . 87
Clarence Williams . . . . . . . . . . . 90
Sharon Kinlaw . . . . . . . . . . . . . 93
Kevin Stein . . . . . . . . . . . . . . 97
Alan Fisher . . . . . . . . . . . . . .107
Panel 4
Michael Rubinger. . . . . . . . . . . .111
Judy Kennedy. . . . . . . . . . . . . .115
Doris Koo . . . . . . . . . . . . . . .122
Carol Galante . . . . . . . . . . . . .129
Panel 5
Orson Aguilar . . . . . . . . . . . . .135
Pastor John Hunter. . . . . . . . . . .140
Denise Hunter . . . . . . . . . . . . .143
Faith Bautista. . . . . . . . . . . . .147
Martha Montoya. . . . . . . . . . . . .150
Steve Figueroa. . . . . . . . . . . . .155
George Dean . . . . . . . . . . . . . .158
Ortensia Lopez. . . . . . . . . . . . .160
Pastor George Thompson. . . . . . . . .163
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T A B L E O F C O N T E N T S (Con't.)
Panel 5 (Continued)
Claudia Viek. . . . . . . . . . . . . .166
Jorge Correlajo . . . . . . . . . . . .168
Larry Ortega. . . . . . . . . . . . . .170
Lynn Dangtu . . . . . . . . . . . . . .173
Joey Quinto . . . . . . . . . . . . . .175
Bob Gnaizda . . . . . . . . . . . . . .177
Panel 6
Lez Trujillo. . . . . . . . . . . . . .181
Angela Sanbrano . . . . . . . . . . . .185
Marvin Andrade. . . . . . . . . . . . .188
Mary Kaiser . . . . . . . . . . . . . .190
Panel 7
Sandra McNeill. . . . . . . . . . . . .197
Allen Baldwin . . . . . . . . . . . . .202
Gail Burks. . . . . . . . . . . . . . .207
Rudy Cavazos. . . . . . . . . . . . . .213
Panel 8
Ty Knolwes. . . . . . . . . . . . . . .220
Diane Knolwes . . . . . . . . . . . . .224
Angelica Rubio. . . . . . . . . . . . .228
David Lizarraga . . . . . . . . . . . .235
Panel 9
Mark Pinsky . . . . . . . . . . . . . .244
Marc Spencer. . . . . . . . . . . . . .255
Villy Wang. . . . . . . . . . . . . . .258
Panel 10
Gail Burks. . . . . . . . . . . . . . .207
Panel 11
Katrina Vizinau . . . . . . . . . . . .284
Gertrude Guillory . . . . . . . . . . .289
Donette Heard . . . . . . . . . . . . .302
Yolanda Clark . . . . . . . . . . . . .297
Adjourn
4
1 P-R-O-C-E-E-D-I-N-G-S
2 (8:34 a.m.)
3 DIRECTOR BRAUNSTEIN: Good morning
4 everybody and I am pleased to welcome you
5 today to this public meeting on the
6 application of Bank of America Corporation to
7 acquire Countrywide Financial Corporation.
8 And first, I will introduce
9 myself. I am Sandra Braunstein, Director of
10 the Division of Consumer and Community Affairs
11 of the Federal Reserve Board in Washington,
12 D.C. I am the presiding officer for this
13 public meeting.
14 Our other panelists are Patricia
15 Robinson, who is an Assistant General Counsel
16 in the Federal Reserve Board's Legal Division.
17 And to her right is Mac Alfriend, who is a
18 Senior Vice President in the Department of
19 Banking Supervision and Regulation from the
20 Federal Reserve Bank of Richmond. To my left
21 is Scott Turner, who is Director of Community
22 Development from the Federal Reserve Bank of
5
1 San Francisco. And Scott is also the
2 Community Affairs Officer.
3 We are here today because Bank of
4 America Corporation from Charlotte, North
5 Carolina, has applied for approval to acquire
6 Countrywide Financial Corporation, Calabasas,
7 California. When the Federal Reserve
8 considers an application, we look at a number
9 of factors under the Bank Holding Company Act.
10 These include financial issues, managerial
11 issues, competitive issues and the views of
12 the communities affected. In doing so, we
13 particularly look at the record of performance
14 of the parties under the Community
15 Reinvestment Act or the CRA. The CRA requires
16 the Board to take into account an
17 institution's record of meeting the credit
18 needs of its entire community.
19 The purpose of the public meeting
20 today is to receive information regarding
21 factors and to clarify factual issues related
22 to the application. We are pleased that so
6
1 many witnesses have come forward to testify at
2 this public meeting. We will have a total of
3 over 120 groups and individuals represented.
4 Let me make a few remarks about
5 the procedures. This is what is called an
6 informal public meeting. Members of the panel
7 may ask questions of those who were
8 testifying. This is not a formal
9 administrative hearing. So, we are not bound
10 by rules regarding evidence, cross-
11 examinations and some of the formal trappings
12 of that kind of a proceeding.
13 Because we have so many witnesses,
14 we need to stick to the schedule so that
15 everyone who has asked to offer testimony will
16 have a chance to do so. We are going to ask
17 the witnesses today and tomorrow to be mindful
18 of the needs of others and to help us stay on
19 schedule. The panels of witnesses will be
20 expected to keep within their allotted times.
21 We have a timekeeper. Melody, can you just
22 raise your hand just so? We have a timekeeper
7
1 up here. The timekeeper is going to give
2 people a signal, a sign when they have two
3 minutes left, and then signal them when their
4 times is up.
5 There may be some individuals who
6 did not have a chance to sign up in advance.
7 And to the extent possible, we want to give
8 them a chance to speak as well. At the end of
9 the meeting today, we will make available to
10 anybody who would like to make a presentation,
11 time permitting, we will have an open mike
12 session, we would ask that those who want to
13 speak at the open mike session sign up. And
14 there is, the registration table is outside.
15 MR. TURNER: Yes, right outside.
16 DIRECTOR BRAUNSTEIN: Right
17 outside the doors.
18 One more comment about the
19 testimony. Witnesses may submit a written
20 supplement to their oral testimony but must do
21 so by next Tuesday, May 6th and then the
22 record will be closed. Any written
8
1 supplements should be directed to Jennifer
2 Johnson, Secretary of the Board of Governors
3 of the Federal Reserve System in Washington,
4 D.C. and they must be received by 5:00 p.m.
5 Eastern Time on May 6th.
6 If you haven't turned in your
7 copies of your written testimony or you have
8 other written statements to put into the
9 record, you can also leave them with the
10 Federal Reserve Stamp at the registration
11 table. And it is very important that we get
12 this material for the record.
13 And there will be a hard copy of a
14 written transcript of these proceedings. We
15 have a court reporter here today and the
16 transcript will be available through the
17 Federal Reserve Bank of San Francisco and the
18 Board sometime next week. In addition it will
19 also be available next week on the Board's
20 public website.
21 And with that, we are going to
22 begin the proceedings. We will ask, as we
9
1 always do that for each speaker, please state
2 your name and your organization for the record
3 before you start giving your remarks.
4 And with that, I will recognize
5 our first panel. Liam McGee, Andrew Plepler
6 and Janet Lamkin. And we can start, Liam,
7 with you first.
8 MR. MCGEE: Thank you. Good
9 morning.
10 Good morning. My name is Liam
11 McGee. I am President of Global Consumer and
12 Small Business Banking for Bank of America.
13 Joining me, as was noted, are Andrew Plepler,
14 who is our Global community Impact Executive
15 and President of the Bank of America
16 Charitable Foundation and Janet Lamkin, who is
17 President of Bank of America, California. We
18 would like to thank the Federal Reserve for
19 the opportunity to discuss the benefits of
20 Bank of America's proposed acquisition of
21 Countrywide Financial Corporation.
22 But first, I am proud to announce
10
1 that late last week the Office of the
2 Comptroller of the Currency notified Bank of
3 America that we received an outstanding rating
4 in our recently completed Community
5 Reinvestment Act Exam. As you know, the
6 Community Reinvestment Act measures the Bank's
7 performance in meeting the needs of every
8 community we serve. This is our sixth
9 consecutive outstanding rating. We think it
10 is an appropriate recognition of our deep
11 commitment and service to the communities in
12 which we do business.
13 Our commitment to the communities
14 is ingrained in the Bank of America Culture
15 that holds all of our associates accountable
16 for doing the right thing for customers,
17 shareholders, communities, and one another.
18 That accountability also applies to the
19 acquisition of Countrywide. We believe the
20 financial strength, security and stability of
21 the combined company will allow us to enable
22 people to buy homes, and stay in homes, and to
11
1 assist many of those affected by the current
2 mortgage troubles.
3 Fundamental changes in the
4 marketplace also mean that we will govern key
5 aspects of the combined mortgage company
6 differently than in the past. What will not
7 change, however, is that our expectation that
8 all of our associates, as well as anyone who
9 does business with us will be held to the
10 highest standards of trust, integrity,
11 accountability, and business excellence. Bank
12 of America's values and business practices
13 will govern how we run the combined mortgage
14 business. So, we will operate under the Bank
15 of America brand. As with all acquisitions,
16 the brand change will not happen overnight,
17 but will be phased in as we integrate the
18 company over time.
19 Now California, in particular,
20 will benefit from this transaction. I am
21 pleased to announce today that Calabasas,
22 California will be the national headquarters
12
1 for the combined mortgage business. This
2 decision highlights the continued importance
3 of the California market to Bank of America
4 and our commitment to maintaining our
5 leadership position here.
6 We are also proud to announce
7 today that we are the first bank to support
8 Governor Schwarzenegger's Bank on California
9 Initiative. This is an ambitious effort to
10 bring under-banked individuals into the
11 financial mainstream. A critical step to
12 enable low income wage earners to begin a
13 banking relationship and build assets. We led
14 the Bank on San Francisco Initiative with the
15 City Treasurer there and learned a great deal.
16 We look forward to helping make the Governor's
17 program a tremendous success.
18 Let me turn now to home lending
19 and our plans for the combined mortgage
20 business. We are unwavering in our mission of
21 helping consumers achieve their dreams of home
22 ownership. Today, millions of Americans who
13
1 otherwise might not have been able to do so in
2 the past, have achieved home ownership because
3 of the efforts of Bank of America and
4 Countrywide. Bank of America will continue to
5 offer home loan products to those who can
6 afford them, while our lending practices will
7 evolve to reflect this dramatically different
8 mortgage environment.
9 We also recognize that some
10 consumers who are experiencing financial
11 challenges but who ultimately have the ability
12 to repay their loans need our help to keep
13 their loans and we are ready to help them. We
14 do so because no one benefits from a
15 foreclosed home. A customer's dreams are
16 shattered, communities are weakened, and it is
17 bad business for banks. So, we continue to
18 reach out to homeowners, community groups,
19 regulators, and legislators to better our
20 understanding of their concerns. And we are
21 listening and we are acting.
22 As America's largest home loan
14
1 provider, we will lead a new era of home
2 lending built on secure, transparent and fair
3 practices, easily understood and available to
4 all who can afford to own a home.
5 To accomplish this, we will
6 improve the mortgage origination process,
7 including products offered, sales and
8 underwriting standards, and channels of
9 distribution. We will reduce the number of
10 foreclosures. We will help the communities
11 hardest hit by foreclosures and continue to
12 make affordable mortgages available to those
13 traditionally under-served, including low and
14 moderate income, and minority households.
15 Customers tell us that they want
16 us to continue offering a broad array of
17 responsible home lending products and employ
18 sound underwriting criteria to ensure that
19 they can get in and stay in their homes. The
20 newly combined mortgage business will offer
21 mass market retail customers the following
22 types of first lien mortgage loans.
15
1 Conforming loans underwritten to
2 standard guidelines of the government and
3 government sponsored enterprises, including
4 expanded approval guidelines and FHA/VA
5 guidelines designed for low and moderate
6 income borrowers.
7 Nonconforming loans with terms
8 expected to produce no greater risk of default
9 than our conforming loans.
10 Interest-only, fixed rate, and
11 adjustable rate mortgage products subject to
12 a ten year minimum interest-only period that
13 removes to the possibility of short-term
14 payment shock. And fixed period ARMs that
15 provide borrowers low initial rates with the
16 security of fixed payments, subject to
17 protections against severe step-ups and
18 payment amounts.
19 Upon completion of the merger,
20 Bank of America will continue our long
21 established policy not to offer subprime
22 mortgage loans. We will not offer certain
16
1 nontraditional mortgages, including so-called
2 Option ARM Loans in which payments may not
3 cover accrued interest and cause negative
4 amortization. And we will significantly
5 curtail come other nontraditional mortgages,
6 such as certain low documentation loans.
7 Most importantly, we remain
8 committed to offering affordable mortgage
9 loans, particularly to low and moderate income
10 and minority households, subject to these
11 prudent lending standards.
12 Bank of America is equally
13 committed to enhanced consumer protection. We
14 wills strive to ensure that borrowers are
15 presented with appropriate product options for
16 which they qualify, understand the product
17 features and are able to make informed
18 choices, and are not deliberately steered to
19 products that are more costly or for
20 refinances that provide no tangible benefits.
21 We will adopt practices with regard to
22 prepayment penalties and escrows that are
17
1 responsive to consumer demands while
2 reflecting prudent risk management.
3 We will offer our customers
4 choices to have loans with or without
5 prepayment fees and we will offer prepayment
6 fees only if the customer receives the
7 benefits of a lower loan rate. Our fees will
8 be transparent and clearly disclosed, so that
9 our customers understand available product
10 options, features, rates, and terms that are
11 consistent with borrowers' qualifications.
12 We have listened to customers
13 share their fear and distress when faced with
14 delinquency and foreclosure. And like any
15 prudent lender, Bank of America avoids
16 customer foreclosures, if reasonably possible.
17 As you know, the industry is
18 experiencing increased foreclosure and
19 foreclosure sales as a consequence of
20 declining home prices but let's put
21 foreclosures in perspective. First, 12.8
22 million or 93 percent of the homeowners whose
18
1 mortgages we will service following the
2 acquisition of Countrywide pay their mortgages
3 on time every month. Of the remaining seven
4 percent, a fraction of those who miss their
5 payments are faced in foreclosure and fewer
6 still actually result in foreclosure sale.
7 These foreclosures are
8 concentrated in subprime borrowers while many
9 others are investors or speculators. In other
10 cases, borrowers simply cannot afford the
11 homes they bought and the current housing
12 slump makes it difficult for them to sell
13 their homes. As we subtract the speculators,
14 that leaves us with the borrowers for whom we
15 are seeking a solution. Those who want to
16 keep their homes and have the financial
17 wherewithal but are facing challenges making
18 their monthly payments. We are focused on
19 doing all we can to help those borrowers.
20 We will continue certain practices
21 already in place, improve these practices, and
22 introduce new efforts to help borrowers avoid
19
1 foreclosures, including robust processes for
2 identifying and contacting borrowers, special
3 strategies for subprime borrowers holding
4 hybrid adjustable rate mortgages, and
5 refinancing, loan modifications, and other
6 restructuring tools that make the borrower's
7 debt affordable. We will devote substantial
8 resources, financial and otherwise to these
9 important tasks. And through focused effort
10 and determination, we expect our combined
11 company over the next two years will
12 successfully modify or work out at least 40
13 billion dollars in troubled mortgage loans,
14 helping at least 265,000 customers remain in
15 their homes.
16 We will tailor our workout
17 strategies to a borrower's particular
18 circumstance. Once we have been able to make
19 customer contact, we work with the distressed
20 borrowers to match the customers' repayment
21 ability with the appropriate loss mitigation
22 option, using tools such as loan
20
1 modifications, forbearances, and repayment
2 plans, lower rates, and possibly principle
3 reductions. We will not assess new late
4 charges for customers in foreclosure and we
5 will waive prepayment or trustee fees, when
6 permitted.
7 In response to the needs of our
8 customers, both companies have already added
9 more staff and improved the experience,
10 quality and training of the professionals
11 dedicated to loss mitigation. Over the past
12 year, the combined loss mitigation staffs have
13 doubled to the current level of over 3,900
14 associates assisting customers. I would like
15 to announce that we will maintain no less than
16 this level for at least one year after the
17 acquisition.
18 We will continue to be proactive
19 in contacting customers with adjustable rate
20 mortgages who are facing significant rate
21 reset to provide assistance before a problem
22 hits and we will continue to educate borrowers
21
1 about risks and options available to them.
2 We will also improve our overall
3 loss mitigation efforts through self-
4 inspection and examination. For example, we
5 will establish at the Bank of America a loss
6 mitigation governance committee within the
7 bank, independent of the loss mitigation area,
8 to review and audit loss mitigation decisions
9 and performance.
10 We believe the key to helping
11 customers is outreach. At Bank of America,
12 collection and loss mitigation associates try,
13 on average, 17 times to reach a customer
14 between the time of delinquency and a
15 foreclosure sale on a first mortgage.
16 Countrywide, after three missed payments in
17 its subprime portfolio, sends an associate to
18 the customer's house to have a face-to-face
19 conversation about home retention options. At
20 both companies, loss mitigation outreach
21 efforts continue until the time of a
22 foreclosure sale. In addition, both companies
22
1 are leveraging industry and government
2 resources to help borrowers. Both are
3 founding members of the Hope Now Coalition and
4 are participants in the Project Lifeline
5 Initiative.
6 Now, while these efforts are
7 important, we recognize there is much more to
8 do. Both Bank of America and Countrywide will
9 continue to partner with community
10 organizations and programs such as NOCA,
11 ACORN, the California Home Ownership
12 Preservation Initiatives, Neighbor Works, and
13 New Vista to promote credit counseling and
14 financial literacy and to assist in home
15 retention and management of vacant properties.
16 We will continue to work with
17 community groups and government agencies to
18 identify new solutions for customers facing
19 foreclosure. Last week, we announced a new 35
20 million dollar Neighborhood Preservation
21 Program. Under this program, the Bank of
22 America Charitable Foundation together with
23
1 Countrywide will make 20 million dollars in
2 grants to national and local community
3 organizations specifically targeting loan
4 counseling, foreclosure prevention, and
5 support for purchase and management of vacant
6 properties.
7 Also, Bank of America will make 15
8 million dollars in program-related investments
9 to support these activities. We recognize
10 that foreclosures can have a ripple effect,
11 including communities with high levels of
12 vacant homes and tenants who lose housing when
13 their landlords default. This can also
14 increase the need for affordable rentable
15 properties. Many of these problems do not
16 have easy solutions. However, in addition to
17 our foreclosure prevention efforts, our
18 combined company will continue Bank of
19 America's policy of permitting tenants to
20 continue living in properties subject to
21 foreclosure for 60 days after the completion
22 of foreclosure proceedings. If the tenant
24
1 voluntarily leaves the property within 30 days
2 of the completion of foreclosure proceedings,
3 they will receive a $2,000 cash for keys
4 payment to help defray moving expenses. This
5 is an important issue and we are also
6 exploring other efforts.
7 Our continuing commitment to
8 community development will not waiver. As you
9 know, in 2004, we raised the bar when we
10 announced our ten year 750 billion dollar
11 community development goal. Today, we are
12 raising that bar. I am proud to announce Bank
13 of America's new and unprecedented ten year
14 goal of one and a half trillion dollars for
15 community development lending and investments.
16 This is the largest community development goal
17 ever by any company in America. In the coming
18 years, this goal is certain to enhance to
19 quality of life for millions of Americans in
20 need by helping finance the construction of
21 affordable housing throughout the country,
22 providing loans and other needed capital to
25
1 small businesses, supplying consumer loans,
2 including housing finance for low and moderate
3 income and minority borrowers, and financing
4 economic development for communities in need.
5 In addition, our charitable
6 foundation is raving its philanthropic giving
7 goal from one and a half billion dollars to
8 two billion dollars over the next ten years.
9 This is the most ambitious long-term corporate
10 philanthropic goal ever announced by any
11 company and we are setting this goal, despite
12 uncertain economic times.
13 We are optimistic about the future
14 prospects of the housing market and the
15 enhanced mortgage services Bank of America
16 will offer after its acquisition of
17 Countrywide. In announcing our new one and a
18 half trillion dollars community development
19 goal, industry leading mortgage loan
20 practices, and new foreclosure mitigation
21 strategies, we ensure that our customers will
22 continue to benefit from Bank of America's
26
1 responsible and principled approach to doing
2 business. We encourage others in the industry
3 to follow our lead.
4 Andrew Plepler will now give more
5 details in our community development and
6 philanthropic efforts.
7 MR. PLEPLER: Thank you, Liam. My
8 name is Andrew Plepler.
9 Bank of America's commitment to
10 strengthening the health and vitality of
11 communities stems from a deeply ingrained
12 philosophy and long tradition of demonstrating
13 corporate citizenship through community
14 development and philanthropy. In particular,
15 by partnering with nonprofits and community
16 leaders, we concentrate on improving the lives
17 of low and moderate income and minority
18 families and neighborhoods. Our record of six
19 consecutive CRA ratings, which Liam just
20 announced, is reflective of our community
21 development focus. In addition, the Bank of
22 America Charitable Foundation is the second
27
1 largest corporate donor in the world. And in
2 keeping with our community development work,
3 in excess of 50 percent of our charitable
4 grants are CRA qualified.
5 For many years, Bank of America
6 has been recognized for its community
7 development work. The vast majority of these
8 activities are the results of our line of
9 business products and services that we provide
10 to customers and communities. In more
11 specific areas of community development, we
12 have leveraged our knowledge and expertise to
13 become a national leader in affordable
14 housing, small business lending, and
15 neighborhood revitalization. And, we are
16 recognized for our results in creating
17 sustainable community and economic development
18 through public-private partnerships and public
19 policy advocacy on related issues.
20 Since 2004, our company has been
21 delivering on an ambitious ten year goal of
22 750 billion dollars for community development
28
1 loans and investments. And as you just heard
2 from Liam, with the completion of our merger
3 with Countrywide, we will double our community
4 development loans and investments.
5 To provide just a few prove
6 points, consider some of our 2007 results.
7 More than 100 billion dollars in community
8 development, loans, and investments to low and
9 moderate income and minority families, small
10 businesses, and communities, financing,
11 developing, and rehabbing nearly 22,000 units
12 of affordable housing; 25.6 billion dollars in
13 small business lending and number one SBA
14 lender for the tenth consecutive year;
15 investing more than 84 million dollars in
16 Community Development Financial Institutions
17 or CDFIs; and a three year cumulative total of
18 more than 273 billion dollars in community
19 development activity.
20 Because we also believe that
21 affordable quality rental housing is critical
22 to our national housing stock, we have been a
29
1 leader in providing financing to both non- and
2 for-profit developers. While others are
3 retrenching or exiting this business, Bank of
4 America remains and strong player in this
5 space and it has expanded its capability to
6 direct low income housing tax credit
7 investments to ensure continuity and capacity
8 in the market.
9 In addition to setting a new
10 community development goal, you also heard
11 Liam refer to our new two billion dollars in
12 philanthropic giving goal to begin in 2009.
13 Since 2004 we have invested more than 550
14 million dollars toward increasing the health
15 and vitality of the neighborhoods throughout
16 our franchise. Through signature programs
17 such as our Neighborhood Excellence
18 Initiative, we are increasing the capacity of
19 community organizations, developing the
20 current and the next generation of community
21 leaders and creating significant impact in the
22 communities we serve. By also supporting
30
1 organizations such as hospitals, universities,
2 and arts institutions, we are helping to
3 create jobs and stimulate economic development
4 to enhance the quality of life in diverse
5 neighborhoods. In addition, our employees
6 provide tremendous support as volunteers in
7 the communities where we live and work. We
8 exceeded more than 200 million dollars in
9 charitable giving in 2007 and our employees
10 contributed more than 650,000 volunteer hours
11 and more than 20 million dollars in charitable
12 foundations to help meet pressing community
13 leads.
14 Our community development and
15 philanthropic commitments begin with
16 engagement in active on-going conversations
17 with community and non-profit leaders at the
18 local, state, and national levels. We do this
19 in order to have an understanding of the needs
20 and priorities unique to each community, so
21 that our investments can be as relevant and
22 impactful as possible.
31
1 For me, personally, one of the
2 most rewarding parts of my role at the bank is
3 engaging in dialogue with these community
4 leaders through community forums and
5 individual meetings. Most recently, I was
6 pleased to participate in meeting with Bob
7 Gnaizda and Orson Aguilar from the Greenlining
8 Institute and Alan Fisher from the California
9 Reinvestment Committee and members of his
10 Board of Directors. These dialogues make us
11 a better company and we look forward to
12 continuing these conversations.
13 I would like to give two other
14 specific instances where Bank of America
15 serves as a good corporate citizen. First, to
16 supplier diversity. Bank of America is
17 committed to fostering diversity in our
18 communities and has incorporated that
19 commitment as a core value in our business
20 practices. We developed an aggressive program
21 of outreach and business development to
22 increase opportunities to support diverse
32
1 suppliers. We are proud that more 16 percent
2 of our companies sourceable spend in 2007 with
3 firms that majority owned by women,
4 minorities, or people with disabilities.
5 Second is the environment. Bank
6 of America is recognized as a leader for our
7 advocacy of efforts to reduce greenhouse gases
8 and support responsible sustainable
9 development. We have dedicated 20 billion
10 dollars over ten years for an environmental
11 initiative to support these efforts. We
12 recently announced that Bank of America has
13 adopted the carbon principles, guidelines for
14 lenders to promote cleaner energy
15 technologies. We are also very proud that our
16 Bank of America tower in New York City has
17 been recognized widely as one of the most
18 environmentally friendly buildings in the
19 world.
20 In short, Bank of America is and
21 will continue to be committed to communities
22 that we serve. By providing local, relevant
33
1 support to neighborhoods, we will continue to
2 create opportunities for our customers,
3 associates, and communities to grow and
4 prosper. We know that we are most effective
5 by partnering with nonprofit organizations and
6 community leaders to identify and address the
7 challenges that together we can overcome.
8 Now, I will turn to Janet Lamkin
9 to give you a local perspective of our
10 community leadership and activities.
11 MS. LAMKIN: Thank you, Andrew. I
12 am Janet Lamkin and I would like to focus on
13 how some of the programs that Liam and Andrew
14 that just mentioned will affect California,
15 specifically.
16 As Liam has announced, California
17 will be the headquarters of our combined
18 mortgage business. That amounts to an
19 extremely significant investment in California
20 and an ongoing commitment by our company to
21 this state.
22 One example of that commitment is
34
1 the increase in our philanthropic goal that
2 Andrew touched on. Here in California, we
3 plan to make 30 million dollars in charitable
4 contributions to nonprofits this year. That
5 is a four million dollar increase over 2007
6 and a doubling of our annual California grant-
7 making budget over the past five years. And
8 I would stress that this is occurring at a
9 time when some other companies are scaling
10 back through charitable contributions in
11 response to the current economic downturn.
12 As the largest provider of
13 financial services to consumers, businesses,
14 and government agencies and the largest
15 provider of SBA loans in California, Bank of
16 America is a key driver of the state's
17 economy. We are a major contributor to the
18 health and well-being of communities
19 throughout the state. And California
20 communities are home to 35,000 Bank of America
21 associates. This is where we live, where we
22 work, and where we rear our families. So like
35
1 all of us here today, we have a significant
2 stake in the economic vitality and the overall
3 quality of life in this state. For example,
4 our associates donated more then three million
5 dollars of their own money to nonprofits in
6 California last year, which was matched dollar
7 for dollar by our foundation. And they spent
8 more than 42,000 volunteer hours to help
9 improve their local communities.
10 In my role as Bank of America's
11 California President, I lead a statewide team
12 of 15 local market presidents. These
13 executives and their local leadership teams
14 routinely engage a cross-section of local
15 business, nonprofit, and government leaders to
16 discuss community needs, to establish
17 priorities, provide thought leadership,
18 identify solutions, and then allocate the
19 resources necessary to implement them.
20 Here are some of the results of
21 our activity in California for 2007. We made
22 more than 16.2 billion dollars in mortgage
36
1 loans to low and moderate income and minority
2 borrowers and borrowers in low tracks. We
3 provided more than 624 million dollars in debt
4 and equity financing for affordable multi-
5 family rental housing. We made 4.6 billion
6 dollars of home-related and other consumer
7 loans to low and moderate income borrowers.
8 We made 5.3 billion dollars in small business
9 loans. We completed the third year of our
10 neighborhood excellence initiative with 18
11 outstanding California nonprofits receiving
12 two hundred thousand dollars of operating
13 grants each, for a three year total of 10.8
14 million dollars. And, we spent 191 million
15 dollars purchasing goods and services for
16 minority and women-owned firms, fully 23
17 percent of the bank's total spending
18 statewide.
19 Now that we have doubled our
20 national community development lending and
21 investing goal and also substantially
22 increased our national philanthropic goal, we
37
1 will be taking a fresh look at our plans and
2 programs here in California so that we can do
3 even more. We will continue to meet with
4 community leaders, as we have in the past to
5 determine where we can be most effective.
6 In this vein, we are going to be
7 stepping up our efforts to support
8 Californians who have been hit by the fallout
9 by the implosion of the mortgage market. Liam
10 has provided a global view of how we will
11 manage that business, with the highest of
12 standards. Our neighborhood preservation
13 program, which Liam announced earlier, will
14 provide 1.5 million dollars in foreclosure
15 mitigation grants and program related
16 vestments to California nonprofits. This will
17 enable us to increase the service capacity of
18 more counseling programs and reduce
19 neighborhood deterioration due to
20 foreclosures. Particularly, those areas that
21 have been hard hit will get the concentration
22 of some of this effort. That will include
38
1 Fresno, Stockton, Oakland, Los Angeles, and
2 the Inland Empire.
3 As we all know, the Inland Empire
4 has proven to be particularly vulnerable to
5 the downturn in the housing market. Situated
6 just east of Los Angeles, where we sit today,
7 the once sparsely populated counties of
8 Riverside and San Bernardino now contain the
9 fastest growing bedroom communities in the
10 state with some of the highest foreclosure
11 rates. Sadly for too many who recently became
12 homeowners, the American dream is diminishing.
13 We want to help those homeowners hold on to
14 their dreams. So, at the suggestion of the
15 Greenlining Coalition, we are exploring
16 concentrated efforts in the Inland Empire to
17 provide a comprehensive solution to this very
18 complex issue.
19 We don't pretend to have all of
20 the answers to all of the problems caused by
21 the current mortgage environment but, as Bank
22 of America has so many times in the past been
39
1 in this state, we are committed to being a
2 leader in finding solutions and forging
3 productive partnerships to address this crisis
4 head-on.
5 Liam.
6 MR. MCGEE: Thank you, Janet and
7 Andrew. In conclusion, we encourage the
8 Federal Reserve Board to act swiftly to
9 approve Bank of America's application. Today,
10 we have outlined how the acquisition will
11 enable Bank of America to make it possible for
12 consumers to buy homes and stay in their home.
13 With approval of the merger, Bank
14 of America's values and business practices
15 will govern the combined mortgage company.
16 Our records demonstrates a strong history of
17 meeting and exceeding both internal and
18 external goals and at improving the
19 communities we serve with the highest
20 standards of trust, integrity, accountability,
21 and business excellence.
22 Thank you again for giving this
40
1 opportunity to speak with you.
2 DIRECTOR BRAUNSTEIN: Thank you
3 for your testimony. Does the panel have any
4 questions?
5 MS. ROBINSON: Yes, I do. We have
6 received comments indicating that the efforts
7 at Countrywide in working with borrowers
8 experiencing problems has experienced its own
9 problems and that there have been overly
10 aggressive collection practices, lack of
11 communication, sending emails to borrowers
12 without having the ability for the borrowers
13 to respond via email. Failure to work with
14 counseling groups who are working with
15 borrowers, taking months and months to even
16 reach a human being at Countrywide.
17 With that said, can you give us
18 more information as to what kind of training
19 efforts you are going to deploy? Because it
20 doesn't sound as though you will be able to
21 rely on the resources at Countrywide for your
22 new loss mitigation. And as well, more
41
1 specifics about the oversight that you are
2 going to put in place to make sure that that
3 process gets off the ground running
4 immediately and there is, you know,
5 verification that it is in fact working well?
6 MR. MCGEE: First all -- thank you
7 for the question. First of all, let me remind
8 everyone that Countrywide is still today an
9 independent company. Our plans are to
10 complete, upon approval of the Federal Reserve
11 and Countrywide shareholders, the transaction
12 in the third quarter.
13 Going forward, I hope I have made
14 it clear that first of all that the new
15 combined mortgage business will be managed
16 with a Bank of America set of values, ethics,
17 both collective and personal accountability in
18 business practices. We will continue to
19 invest the appropriate amount of training and
20 resources to address the perception that you
21 have created.
22 I will just make it very clear
42
1 that our purpose at the Bank of America today
2 and in the new combined mortgage business will
3 be to enable people who can afford it to buy
4 homes and stay in their homes that foreclosure
5 is an awful experience for consumers, for
6 neighborhoods, and for banks as well. And we
7 will do everything in our power as I have
8 described to minimize that as appropriate.
9 DIRECTOR BRAUNSTEIN: Any other
10 questions for this panel? Mr. Alfriend?
11 MR. ALFRIEND: No.
12 DIRECTOR BRAUNSTEIN: No, okay.
13 MR. TURNER: Sure, I have just got
14 one question. Mr. McGee, you spoke early on
15 about your commitment to assisting local
16 communities hit by the foreclosure crisis and
17 then mentioned a 20 million grant program for
18 both foreclosure prevention and something
19 about helping communities acquire vacant
20 properties. I was just curious if you could
21 elaborate a little more on the kinds of
22 programs and initiatives you will be
43
1 supporting them in that area.
2 MR. MCGEE: I would say that
3 Andrew and myself and Janet, as Andrew
4 mentioned in his testimony, spent time with
5 Greenlining and the CRC just a week and a half
6 to two weeks ago. And we were aware of the
7 tenant issue with speculators buying
8 properties and having tenants and some of the
9 unfortunate effects on those tenants if the
10 homes are foreclosed and secondly, and some
11 neighborhoods have a concentration of homes
12 that have been or might be foreclosed upon.
13 And we got a heightened sense of awareness
14 from both of those organizations about that.
15 I alluded to the fact that we know
16 those are issues. I was specific on some of
17 the efforts we are putting into place around
18 tenants. But we will be quite creative around
19 neighborhoods that have unusually high numbers
20 of foreclosed properties to see if there are
21 different things perhaps, that have ever been
22 done to create rental properties and be sure
44
1 those neighborhoods don't fall into a state of
2 disrepair or blight as a result of high levels
3 of foreclosure.
4 MR. PLEPLER: I would just add
5 there was a large meeting about two weeks ago
6 convened by NeighborWorks on this issue in
7 D.C. and they are grappling with what is a
8 very complex issue around the vacant and
9 abandon properties. And they convened LISC
10 and Enterprise, Housing Partnership Network in
11 NeighborWorks. We attended that meeting. We
12 are very anxious to participate in that
13 initiative. It is going to take them a little
14 while to get the planning process in the
15 works. There are a lot of local issues around
16 getting site acquisition and property
17 acquisition that need to be worked through but
18 we are very anxious to support those
19 initiatives.
20 Thanks.
21 DIRECTOR BRAUNSTEIN: Thank you
22 very much.
45
1 MR. MCGEE: Thank you.
2 DIRECTOR BRAUNSTEIN: Will the
3 next panel come forward, please?
4 DIRECTOR BRAUNSTEIN: -- repeat
5 our kind of ground rules here. Could you
6 please at the beginning of your statement,
7 state your name and organization for the
8 record? We have a court reporter and
9 transcript.
10 And we will start with
11 Congresswoman Waters.
12 CONGRESSWOMAN WATERS: Thank you.
13 I am Congresswoman Maxine Waters. I represent
14 the 35th Congressional District in the City of
15 Los Angeles and other surrounding areas.
16 I would first like to thank you
17 for the opportunity to provide testimony on
18 Bank of America's proposed purchase of
19 Countrywide Financial. This transaction
20 stands as one of the most important that the
21 Federal Reserve has reviewed in recent memory.
22 If completed, it will create the nation's
46
1 largest mortgage lender and mortgage servicer
2 and it will do so in the midst of a crisis.
3 Specifically, meltdown in the mortgage markets
4 that have led to a foreclosure waive unlike
5 any since the great depression, nearly toppled
6 a major investment bank, and resulted in a
7 credit crunch that threatens our entire
8 economy.
9 Therefore, it is absolutely
10 essential that the Federal Reserve get this
11 right. I would be less than candid, however,
12 if I said that I was filled with confidence
13 that it will do so, in light of the
14 institution's lackluster record during the
15 run-up to this crisis. There is plenty of
16 blame to go around the many, perhaps too many
17 federal regulatory agencies with oversight of
18 financial institutions in the subprime lending
19 and mortgage backed securities markets.
20 The Federal Reserve's role in the
21 years prior to the mortgage market meltdown
22 was especially distressing. First, then
47
1 Chairman Greenspan repeatedly underplayed or
2 outright denied the possibility that
3 skyrocketing housing prices. The only reason
4 the lax underwriting standards that pervaded
5 the subprime mortgage did not lead to disaster
6 sooner, might be symptomatic of an asset
7 bubble at risk of bursting. As a member of
8 the House Financial Services Committee for
9 over a decade, I certainly don't recall him
10 issuing forceful warnings of this possibility
11 in his biannual appearances before us as
12 mandated by the Humphrey-Hawkins Act.
13 Secondly, second and more
14 troubling, the Federal Reserve declined to
15 take even minimal steps to curb the deceptive
16 practices and outright fraud taking place in
17 the subprime lending market as it grew from
18 virtual nonexistence a decade ago to a 625
19 billion dollar industry, accounting for a
20 quarter of all mortgages in 2006. Former
21 Chairman Greenspan never pushed subprime
22 lenders for so much as a voluntary industry
48
1 code of conduct, despite a direct plea from
2 the Greenlining Institute and the ongoing
3 effort to elicit one, as it turned out, while
4 another major federal regulator stakeholder,
5 now FDIC Chairwoman Bair, who was in the early
6 years of this administration a senior
7 treasurer official.
8 Most glaringly, the Federal
9 Reserve declined to put into place
10 comprehensive protections for subprime
11 borrowers under the authority conferred upon
12 it under Regulation Z of the Federal Truth In
13 Lending Act and the Home Ownership Equity
14 Protection Act of 1994. While it issued a
15 rule in 2001 that required income
16 documentation for some HOEPA covered loans,
17 additional rule making under its broad
18 authority to regulate unfair, deceptive, and
19 abusive lending practices was not forthcoming
20 over the next seven years, even if so-called
21 no doc loans, exotic mortgage products like
22 2/28 ARMs and fraudulent sell practices
49
1 permeated the subprime lending industry. Not
2 until January of this year did the Federal
3 Reserve propose anything near the sort of
4 comprehensive protections of borrowers in both
5 the home purchase and refinancing context that
6 were clearly needed years ago.
7 So troubling a history compels me
8 to be very direct in stating that the Federal
9 Reserve bears a heavy responsibility to prove
10 its commitment and competence in the review of
11 the Bank of America/Countrywide transaction.
12 This is especially so, given the activist
13 crisis management role the Fed has assumed in
14 recent months under Chairman Bernanke, as well
15 as the prominent Treasury Secretary Paulson
16 gives the institution in the administration's
17 proposed plan for regulating the financial
18 market.
19 Simply put, if the Federal Reserve
20 continues to act as the primary watchdog over
21 financial crises in the contemporary economy,
22 then we must be sure that it will not assume
50
1 a stance of detachment and negligence when
2 mistakes for American consumers are high. We
3 have now learned the high way that failing to
4 vigilantly protect customers inevitably leads
5 to harm to the safety and soundness of
6 financial institutions and the economy as a
7 whole. The traditional realm of the Fed
8 hiding its head in the sand is no longer an
9 option.
10 What does this mean for the Federal
11 Reserve's review of this particular
12 transaction? Taking a page from Secretary
13 Paulson's approach of needing American
14 financial regulation in the direction of so-
15 called principle-based oversight of the
16 financial markets, I suggest that two
17 principles anchor the Federal Reserve's
18 assessment of this acquisition. These
19 principles can be articulated in the form of
20 questions.
21 First, is this transaction safe
22 for the financial markets and the American
51
1 economy? And second, does the acquisition put
2 in place a clear plan to ensure the best
3 possible outcome for the millions of
4 distressed Countrywide borrowers who face
5 possible foreclosure?
6 If the answer to either of these
7 questions is no, then the acquisition must be
8 stopped in its tracks. With respect to the
9 stability of the financial markets, I would
10 quickly observe that the entire course of this
11 crisis has followed a single troubling
12 pattern. Things look bad and then they turn
13 out to be worse than we thought. This has
14 particularly been the case with regard to the
15 exposure of large banks, hedge funds, and
16 other investors to mortgage backed securities
17 and other instruments that have suffered
18 plummeting values as the credit crunch
19 spreads, including leverage loans and
20 collateralized debt obligations or CDOs.
21 While it exited the direct
22 subprime lending market a number of years ago,
52
1 I am told, Bank of America recently reported
2 mortgage backed securities and related trading
3 losses in the first quarter of over 1.3
4 billion dollars and an 80 percent drop in
5 profit, compared to the same period last year.
6 It has now had to reserve six billion dollars
7 to cover potential credit losses and sits on
8 nearly 35 billion dollars in mortgage backed
9 securities, leverage loans to private equity
10 firms and CDOs. Clearly, the Federal Reserve
11 must do a careful analysis to ensure that
12 swallowing Countrywide will not make Bank of
13 America so sick that it soon needs the
14 emergency life support Bear Stearns received
15 a short while ago. The economy simply cannot
16 withstand many such events so close together,
17 especially given the enormous size of the
18 post-acquisition Bank of America, an entity
19 that will have a piece of well over one-third
20 of the mortgages in the United States.
21 I caution the Federal Reserve also
22 to examine very carefully the exposure that
53
1 Bank of America has to civil and even criminal
2 liability resulting from the recent behavior
3 of Countrywide executives. Countrywide CEO,
4 Angelo Mozilo sold in excess of 450 million in
5 stock in the months prior to the subprime
6 implosion, even as he continued to tout
7 Countrywide's subprime loan products to
8 consumers and the markets. He is now leading
9 the company with a golden parachute of 120
10 million, even after a voluntary reduction of
11 37.5 million. In my view, any reasonable
12 analysis of this transaction must focus on the
13 potential liability that Bank of America
14 faces, as potential Countrywide shareholder
15 lawsuits and civil and criminal inquiries are
16 already or may be launched by the SEC,
17 Department of Justice, and other federal or
18 state regulators come to fruition.
19 However, if a consummated
20 acquisition results in a Bank of America that
21 appears financially healthy, the transaction
22 should not be permitted to go forward in the
54
1 absence of a concrete transparent strategy for
2 ensuring that its many distressed Countrywide
3 borrowers will be able to stay in their homes
4 with mortgage payments they can afford for the
5 long-term. Without this, the Countrywide name
6 will be buried forever but the damage
7 inflicted by its employees and the mortgage
8 brokers it allowed to operate with little or
9 no oversight in communities across the state,
10 will continue to be felt far into the future.
11 In terms of evaluating the plan
12 that Bank of America will, I understand expand
13 upon in its testimony today, I would again
14 suggest that the Federal Reserve follow two
15 principles. With respect to the process for
16 executing loan workouts and other loss
17 mitigation activities, the operative question
18 should be, does this plan make it as easy for
19 a distressed borrower to get help from Bank of
20 America resolving problems with their loans,
21 as it was to get the loan from Countrywide in
22 the first place? To date, the answer to this
55
1 question has clearly been no.
2 As a threshold matter, I want to
3 point out that Countrywide is currently the
4 largest servicer of mortgages in the country
5 and its purchase by Bank of America will
6 create by far the largest institution of its
7 kind. I have been focused on mortgage
8 servicers since this beginning of this debacle
9 and it is now clear that within a generally
10 opaque and under-regulated mortgage market,
11 mortgage servicers represent by far the least
12 understood and overseen segment of the
13 industry, with no duty to report on their
14 activities to federal regulators or Congress
15 and no fiduciary obligation whatsoever to the
16 borrowers for whom they are the first and only
17 point of contact. Mortgage servicers have
18 acted in response to this crisis only as much
19 as they voluntarily wish to and total policy
20 holders and the public only as much as their
21 activities as they felt like. This must
22 change.
56
1 The first step is improved
2 outreach. While the industry touts as
3 comprehensive and effective strategies for
4 reaching delinquent and at-risk borrowers, its
5 direct mailings, toll-free Hope Now Alliance
6 phone number, and participation in local home
7 ownership preservation workshops, a different
8 story has been told by witnesses at this and
9 prior public hearings, as well as by
10 investigative journalists and broader gauged
11 analysis like the one recently conducted by
12 the California reinvestment coalition.
13 It is striking to me that while
14 Countrywide, Bank of America, and other
15 lenders who are also major mortgage servicers,
16 have one major television campaign during
17 recent sporting events such as the Super Bowl
18 and NCAA College Basketball tournament
19 encouraging prospective home buyers and
20 existing home buyers to take out new loans or
21 to refinance, no campaign of equal magnitude
22 has been targeted to borrowers seeking help
57
1 with workouts for the existing subprime and
2 other troubled loans. The Federal Reserve
3 must ensure that Bank of America's proposed
4 post-acquisition outreach strategies
5 significantly exceed the standard of more of
6 the same. This holds true as well for the
7 accessibility and authority of loss mitigation
8 personnel at Bank of America after the
9 transaction takes place.
10 In two hearings before my
11 Subcommittee on Housing and Community
12 Opportunity, I heard of the difficulties
13 borrowers and even their trained advocates
14 confronted in getting to an actual human to
15 address their problem, much less on authorized
16 to execute a long-term sustainable solution
17 such as a loan modification. Phone calls go
18 unanswered. Borrower inquiries are not
19 responded to for months. No real loss
20 mitigation offer is made until the borrower is
21 on the verge of foreclosure, if at all, and
22 then only if the borrower forfeits legal
58
1 rights. While Countrywide does not appear to
2 be the worst among servicers, again, it is
3 difficult to know since none of them are
4 providing data subject to outside audits. It
5 is simply not doing a stellar job as witnesses
6 at prior public hearings on this transaction
7 have testified.
8 Notably, like other servicers,
9 even as it has been forced by the magnitude of
10 the crises to expand its servicing operations,
11 Countrywide has tried to cut costs by
12 outsourcing these functions to India and Costa
13 Rica, which seems unlikely to enhance outcomes
14 for borrowers. Meanwhile, no such bell piping
15 seems to have taken place in providing rewards
16 to the mortgage brokers who originate their
17 loans, beneficiaries this year of an all-
18 expense paid trip to Aspen, Colorado. This
19 strikes me, at best, a misalignment of
20 priorities and resources that cannot be
21 permitted to survive this transaction.
22 Finally and most important, the
59
1 Federal Reserve must hold Bank of America
2 accountable for loss mitigation outcomes for
3 the Countrywide borrowers it inherits. Here,
4 the critical questions are will Bank of
5 America prioritize loss mitigation outcomes
6 that keep distressed borrowers in their homes,
7 whenever feasible and when a loan workout is
8 executed that achieves this goal? Does the
9 resulting repayment plan, loan modification,
10 or other strategy put in place a monthly
11 payment plan that is affordable and
12 sustainable for the borrower?
13 I have introduced legislation, the
14 Foreclosure Prevention and Sound Mortgage
15 Servicing Act which would codify this
16 reasonable standard and require servicers to
17 report data demonstrating they are meeting it
18 going forward. I was compelled to do so
19 because policy makers have no access to data
20 to assess definitively whether voluntary
21 industry efforts like the Hope Now Alliance
22 are adhering to it, while the limited data
60
1 disclosed by the industry coupled with the
2 anecdotal reports of counselors, consumer
3 attorneys and borrowers themselves, strongly
4 suggest they are not.
5 To provide two examples, at my
6 subcommittee's hearing on April 16th, Hope Now
7 revealed that fewer than four percent of total
8 loan workouts resulted in rate modifications
9 of five years or longer. Similarly, at the
10 same hearing, Countrywide reported an
11 increased pace of loan workout and
12 modification in comparison to its testimony at
13 a November 2007 subcommittee hearing.
14 Nevertheless, as little as 15 percent of total
15 loan workout in the six months ending March 31
16 consisted of rate reduction modifications of
17 five years or longer. I say as little as
18 because again, the data provided to me was
19 imprecise.
20 Step one in analyzing the proposed
21 outcomes of any strategy Bank of America
22 furnishes to the Federal Reserve then is to
61
1 insist upon a comprehensive audited data on
2 both Countrywide's and Bank of America's loss
3 mitigation activities to date. This minimum
4 standard is something that even Secretary
5 Paulson, no fan of comparing industry behavior
6 so far during this crisis, apparently took the
7 major servicers to task for failing to meeting
8 in a closed door meeting last week.
9 The most fundamental issue,
10 however, extends beyond the question of
11 forbearance versus repayment plans, versus
12 loan modifications, versus other loan workout
13 outcomes. It is the standards of
14 affordability that Bank of America will apply
15 to any workout. The bottom line criterion for
16 evaluating the workout is whether the payment
17 plan that results is affordable to the
18 borrower over the long-term. And neither Hope
19 Now, nor Countrywide, nor Bank of America are
20 willing to be clear about the affordability
21 standards that are being applied to most of
22 the distressed loans they are servicing. This
62
1 cannot be allowed within the plan that Bank of
2 America submits to the Federal Reserve.
3 One of the most striking findings
4 of my Subcommittee's hearings on mortgage
5 servicing, was that large services like
6 Countrywide and Bank of America service
7 mortgages originated subject to guarantees by
8 the VA, FHA, and the GSEs, Fannie Mae and
9 Freddie Mac, as well as large ALTA, that is A-
10 L-T-A and subprime portfolios which is where
11 many of the problems lie. The significant
12 portion of their portfolios subject to these
13 government or quasi-governmental guarantees
14 must adhere to strict loss mitigation guidance
15 issued by the guarantors, which mandate that
16 loss mitigation offers meet certain
17 affordability standards.
18 These standards typically require
19 that the borrower be left with the ratio of
20 debt to income that is not too high to be
21 sustained for the long-term. They also
22 require that after monthly expenses, including
63
1 debt service on the mortgage and all other
2 secured and unsecured debt, such as credit
3 cards and auto loans, are deducted from a
4 borrower's monthly income enough money is left
5 over that the borrower will be able to meet
6 unexpected expenses.
7 For example, Fannie Mae requires
8 that $200 in residual income be available
9 after making the monthly mortgage payment
10 under a proposed loan workout, while Freddie
11 Mac generally adheres to a residual income
12 standards of 20 percent of the borrower's
13 monthly income. In plain English,
14 Countrywide, Bank of America, and most other
15 large servicers are adhering to time-tested
16 affordability standards for a significant
17 portion of their portfolios, which tend to be
18 the safer products they service, due to strict
19 VA, FHA, and GSE underwriting guidelines,
20 while utterly failing to report to the public
21 or policy makers on the affordability
22 standards they are utilizing in serving the
64
1 ALTA subprimes and other riskier portions of
2 their portfolios, much less committing to
3 employing a uniform proven affordability
4 standard when servicing those loans.
5 In my view, the Federal Reserve's
6 assessment of this proposed acquisition must
7 be considered negligent if Bank of America is
8 permitted to implement a loss mitigation plan
9 for the borrowers it currently services and
10 for those it inherits from Countrywide that
11 perpetuates this lack of transparency and
12 uniformity with respect to the affordability
13 standard it applies to loans it services
14 falling outside of the purview of the VA, FHA,
15 and GSEs.
16 I conclude by stating that the
17 American people desperately need for the
18 Federal Reserve's assessment of this massive
19 mortgage market-related transaction to present
20 a triumph of hope over experience, a new
21 chapter in which the Fed ensures that major
22 mergers and acquisitions yield positive
65
1 outcomes for consumers and communities, as
2 well as the institutions involved. And I do
3 thank you for holding this hearing today.
4 DIRECTOR BRAUNSTEIN: Thank you.
5 (Applause.)
6 DIRECTOR BRAUNSTEIN: Thank you.
7 Mr. Bailon.
8 MR. BAILON: Yes, my name is
9 Adolfo Bailon. I am Senior Field
10 Representative for United States Senator
11 Barbara Boxer and I am here to present a
12 statement on her behalf.
13 Thank you for the opportunity to
14 comment on Bank of America's proposed
15 acquisition of Countrywide Financial. This is
16 an important transaction that has the
17 potential to rescue thousands of borrowers at
18 risk of losing of their homes, especially here
19 in California, which has been the epicenter of
20 the foreclosures crisis.
21 In the first quarter of this year
22 alone, the number of homes in California lost
66
1 to the foreclosure grew to an astonishing
2 47,171, more than four times as many as the
3 year earlier. Many of these loans were likely
4 originated by Countrywide, which was one of
5 the largest subprime and option ARM lenders in
6 the state.
7 Before any mergers is approved, I
8 believe Bank of America should present a
9 clear, specific plan on how it will handle
10 borrowers in Countrywide servicing portfolio
11 who are at risk of losing their principal
12 residence. This plan should, at a minimum,
13 include the following components.
14 One, Countrywide's existing loss
15 mitigation staff level must be maintained, if
16 not extended. Caseloads are growing, as is
17 the amount of time it takes to reach a
18 solution. A condition of the merger should be
19 a clear commitment by Bank of America to help
20 all legitimate homeowners who have been caught
21 in this crisis.
22 Two, Bank of America should adopt
67
1 a policy of full and speeding cooperation with
2 housing counselors while working tirelessly
3 with homeowners through the nonprofit sector
4 to award foreclosure.
5 Three, borrowers who can avoid
6 foreclosure through a loan modification should
7 be able to stay in their homes with loans that
8 match the current worth of the home and a
9 fixed rate mortgage they can afford.
10 Four, in the case of a tenant
11 occupancy and foreclosed properties, it is
12 critical not to punish tenants who have paid
13 their rent on time.
14 Thank you again for the
15 opportunity to comment on this important
16 transaction. The foreclosures crisis is
17 having a devastating affect on our families,
18 our communities, our economy, our state, and
19 our country. It will take all of us working
20 together in the months to come to address this
21 crisis. This merger is an opportunity to do
22 so.
68
1 Thank you.
2 DIRECTOR BRAUNSTEIN: Thank you
3 very much. Do the panelists have any
4 questions for --
5 MR. ALFRIEND: No.
6 CONGRESSWOMAN WATERS: Well, I
7 would be happy to take some questions.
8 (Laughter.)
9 DIRECTOR BRAUNSTEIN: I feel like
10 I should ask you a question, since you don't
11 hesitate to ask me questions.
12 (Laughter.)
13 CONGRESSWOMAN WATERS: That's
14 right. You have got me before you now. Thank
15 you very much.
16 DIRECTOR BRAUNSTEIN: Interesting
17 the way we word it.
18 MR. TURNER: Thank you.
19 MR. ALFRIEND: Thank you.
20 MS. ROBINSON: Thank you.
21 DIRECTOR BRAUNSTEIN: Thank you
22 very much. You're welcome.
69
1 Would the next panel come forward,
2 please?
3 Okay, just more ground rules.
4 Please state your name and organization at the
5 beginning of your statement. We will start
6 with Ms. Smith.
7 MS. SMITH: Good morning. My name
8 is Robyn Smith. I am a Deputy Attorney
9 General for the California State Attorney
10 General's Office.
11 Although we are not taking any
12 position on Bank of America's proposed
13 acquisition of Countrywide Financial, we
14 appreciate the opportunity to share a few
15 concerns. As the Chief Law Enforcement
16 Officer of the State of California, the
17 Attorney General is charged with protecting
18 the public interest. The Attorney General's
19 Office, therefore, has a substantial interest
20 in the mortgage lending practices and
21 financial soundness of and healthy competition
22 among the financial institutions that engage
70
1 in mortgage lending in California.
2 Both Countrywide and Bank of
3 America have a significant presence in
4 California, both as employers and as providers
5 of financial services. The financial status
6 of these companies and the outcome of their
7 merger are, therefore, of great consequence to
8 Californians and the communities in which they
9 live. The need to carefully examine both the
10 competitive impact of the proposed merger, as
11 well as the soundness of the mortgage lending
12 practices engaged in by the financial
13 institutions involved has never been more
14 acute. Just last week, DataQuick reported
15 that for the first quarter of 2008, the number
16 of California homeowners in default on their
17 mortgages was up 39.4 percent from the first
18 quarter of 2007. Even worse, the number of
19 actual foreclosures in California surged 327
20 percent from the first quarter of 2007,
21 reaching an average of over 500 foreclosures
22 per day.
71
1 DataQuick also reported that most
2 of these loans were originated between August
3 of 2005 and October 2006. This is not
4 surprising. During this time period, numerous
5 financial institutions engaged in unsound
6 underwriting and business practices that
7 greatly increased the risk that thousands of
8 families would lose their homes. The most
9 prevalent of these practices involved subprime
10 mortgage loans, hybrid adjustable rate
11 mortgage loans and non-traditional mortgage
12 loans, which the Board has defined as loans
13 that allowed the deferral of the payment of
14 interest, principal, or both. All such loans
15 are at great risk of default when lenders fail
16 to document the borrower's ability to repay
17 the loan. The likelihood that such loans will
18 end up in foreclosure is further compounded
19 when they carry hefty prepayment penalties and
20 high loan to valuations which effectively
21 prevent more and more families from
22 refinancing into affordable loans as the
72
1 housing values in California fall.
2 Such unsound business practices
3 engaged in by many financial institutions have
4 led to the current foreclosure crises. While
5 we do not suggest that there has been any
6 wrongdoing by any of the parties to this
7 proceeding, we urge the Board to carefully
8 consider the underwriting and lending
9 practices of the parties to this proceeding
10 and whether any potential ongoing, unsound
11 business practices outweigh any public benefit
12 that may result from the merger.
13 If the proposed acquisition is
14 approved, Bank of America will inherit a large
15 number of mortgage loans which are in or are
16 headed for foreclosure. According to publicly
17 available data, in the third and fourth
18 quarters of 2007, Countrywide reported
19 combined net losses of 1.6 billion dollars.
20 Such losses are not likely to abate. An
21 increasing number of adjustable rate mortgage
22 loans and home equity loans will reset in 2008
73
1 and 2009. And Countrywide has disclosed that
2 as recent as December 2007, the number of
3 foreclosures and late payments on its loans
4 rose to the highest on record.
5 The merger, therefore, raises
6 significant concerns regarding the
7 concentration of risk that will result from
8 the transfer of financial liabilities relating
9 to mortgage loans at-risk of default from
10 Countrywide to Bank of America. Bank of
11 America will also inherit the mortgage lending
12 practices that led to many of these high risk
13 loans. Again, we do not suggest that there
14 has been any wrong-doing by any of the parties
15 involved in the present proceeding. We hope,
16 however, in coming to a decision, the Board
17 considers such practices and is careful not to
18 impair or compromise the ability of borrowers
19 to assert their legal rights or the ability of
20 state law enforcement agencies or regulators
21 to address past or ongoing misconduct, if any.
22 Not only will the proposed merger
74
1 concentrate the risk of mortgage loan
2 foreclosures, it will also have a significant
3 impact on the mortgage loan options available
4 to California. According to a recent report
5 from the Housing and Economics Rights
6 Advocates and the California Reinvestment
7 Coalition, in 2004 and 2005, Countrywide
8 ranked number one in terms of its total share
9 of the California mortgage loan market.
10 According to the same report, Bank
11 of America ranked fourth in 2004 and fifth in
12 2005. The combined market shares of these
13 lenders was 11.85 percent in 2004 and 10.66
14 percent in 2005. These combined shares are
15 nearly twice the share of the nearest
16 competitor. In light of these statistics, we
17 are concerned that the merger of two of the
18 largest mortgage lenders in California will
19 reduce competition in the California mortgage
20 loan market and, therefore, reduce affordable
21 options available to borrowers.
22 Finally, because Bank of America
75
1 will inherit Countrywide's at-risk mortgage
2 loans, in the event the merger is approved, we
3 urge the Board to exercise its authority to
4 impose conditions in order to stem the rising
5 tide of foreclosures. The Board should
6 consider the effect of the merger on
7 foreclosure activity and the possibility of
8 requiring the parties to substantially
9 restructure loans, so that borrowers in
10 distress have a reasonable prospect of
11 modified home loans with affordable payments.
12 Conditioning the merger on loan modifications
13 would be particularly appropriate for home
14 loans made on terms that the Board itself
15 proposes to prohibit as unfair and deceptive
16 under the Board's pending rule-making
17 proceeding to revise Regulation Z.
18 Thank you for considering our
19 concerns and for the opportunity to testify at
20 today's hearing.
21 DIRECTOR BRAUNSTEIN: Thank you
22 very much. Mr. Wing?
76
1 MR. WING: Yes, my name is Butch
2 Wing. I am the California Coordinator for the
3 RainbowPUSH Coalition and I am testifying on
4 behalf of Reverend Jessie Jackson and
5 RainbowPUSH today. I want to applaud the
6 Federal Reserve Board for seeing to it to
7 request to hold these public hearings
8 concerning the proposed acquisition of
9 Countrywide by Bank of America.
10 Earlier this month, April 4th, the
11 nation and the world celebrated and
12 commemorated the 40th anniversary of the
13 martyrdom of Dr. King. The cameras of the
14 nation and the world were in Memphis. The
15 spotlight was on. The nation took hold of the
16 legacy of Dr. King.
17 A week later, April 11th, with the
18 40th anniversary of the signing of the Fair
19 Housing Act, the last significant civil rights
20 legislation of that era but unfortunately, the
21 cameras were off. The focus of a week earlier
22 had dissipated and we were left to evaluate
77
1 the legacy of Dr. King in a different light.
2 Forty years later, there is much
3 unfinished business that is left before us.
4 And what we are witnessing as a result of the
5 subprime and the subprime mortgage crisis is
6 a pattern of lack of funding, of civil rights
7 laws in the Fair Housing Act in particular,
8 lack of rules and regulation, lack of
9 oversight, or no oversight at all, and a
10 pattern of neglect and ignorance that has left
11 that legacy of Dr. King one that we must pick
12 up on today and challenge our government and
13 its agencies and the private sector to do
14 more. Solutions so far have focused on
15 bailing out the private sector but leaving the
16 victims without a parachute, without a
17 lifeline, and without adequate solutions.
18 Ken Lewis, the CEO of Bank of
19 America is a leader of distinction. We grew
20 up with him over the years and know him to be
21 a man of integrity. And so we appeal to him
22 and Bank of America today to help lead
78
1 America's families out of this crisis and to
2 meaningfully address the compelling challenges
3 that come with this proposed merger with
4 Countrywide. For all eyes of the world, they
5 are not just focusing on this merger, but on
6 the future of the financial services industry
7 and an economy that is collapsing before our
8 eyes not just here in the United States, but
9 worldwide and worldwide as witnessed just a
10 week ago when the Bank of England had to
11 universally announce guidelines to help bail
12 out all of England's banks. So, we know the
13 proportions of this crisis are not just
14 domestic but worldwide and quite obviously,
15 the worst is yet to come.
16 The proposed merger is well
17 documented. Bank of America is the nation's
18 biggest bank by market value and its proposed
19 acquisition of Countrywide will make it the
20 nation's largest mortgage lender. Countrywide
21 was once a high-flying corporation, the
22 nation's largest mortgage lender and servicer
79
1 but it is now the corporate symbol of all that
2 has gone wrong with Wall Street's financial
3 services firms that selfishly engaged in
4 predatory, in discriminatory lending practices
5 and the steering of subprime loans to minority
6 homeowners to maximize enormous and immediate
7 profits.
8 Countrywide is now the subject of
9 civil and criminal investigations and lawsuits
10 brought by homeowners by state attorneys
11 general, by federal agencies. Bank of America
12 then, by acquiring Countrywide, assumes these
13 enormous liabilities and exposure, financial,
14 legal and moral. How will it rectify the
15 legacy of Countrywide which, through its
16 practices, is synonymous with the nation's
17 whole foreclosure crisis? And the spillover
18 effect has wreaked havoc on the budgets of
19 states, counties and cities that depend on
20 property taxes, resulting in profound cutbacks
21 in social services and education for the
22 people. California, for example, now faces a
80
1 14 billion dollar shortfall and all of America
2 is hurting.
3 Bank of America's proposed
4 acquisition of Countrywide stands at this
5 crossroads a profound housing and overall
6 economic crisis. So we comment today not in
7 support of or in opposition to the proposed
8 merger, but to challenge the Federal Reserve
9 and Bank of America on how it will address the
10 myriad of liabilities that come with its
11 acquisition of Countrywide. How you handle
12 this Countrywide merger and Countrywide's
13 mortgage portfolio and its enormous
14 liabilities is critical.
15 But in every crisis there is
16 opportunity. And if bold leadership and
17 comprehensive solutions are sought, we have
18 the opportunity to provide relief for millions
19 of previously harmed homeowners around the
20 nation. Bank of America has the capability to
21 restore integrity and credibility to the
22 financial services industry and do its part in
81
1 riding the nation's economic ship. While
2 Countrywide's lending practices are turning
3 America's dreams into nightmare, Bank of
4 America has the challenging task of setting a
5 new path for the potential newly merged
6 company.
7 Our first recommendation is that
8 Bank of America place an immediate freeze on
9 all foreclosures pertaining to military
10 families. An article just recently published
11 in the USA Today has indicated an enormous
12 rise and increase in foreclosures and in debt
13 of our servicemen. Every Saturday and Sunday
14 in Chicago we do a home foreclosures seminar.
15 We met recently with a serviceman who is now
16 on his third tour going back to Iraq. And as
17 he was departing, he was hit with a home
18 foreclosure notice. This is not right and we
19 call on Bank of America to fulfill its duty to
20 the country to immediately announce a freeze
21 on foreclosures relating to military families.
22 As the nation's largest bank,
82
1 serving more than 59 million consumers and
2 small businesses, I believe they have the
3 responsibility to help lead the nation out of
4 the present mortgage crisis. Countrywide, up
5 to this point, has not set a stellar example
6 with regard to working out modifications and
7 other accommodations for homeowners in crisis.
8 While albeit they have adopted a relatively
9 constructive posture toward homeowners facing
10 foreclosure, Countrywide has been among the
11 most obstinate in refusing to come to terms
12 with its customers.
13 After the merger, the question is,
14 which philosophy will prevail? The fact that
15 David Sambol, Countrywide's President and
16 Chief Operating Officer will lead the combined
17 consumer mortgage business, once Bank of
18 America's planned purchase of Countrywide is
19 completed, is not reassuring in this regard.
20 The efforts of individual banks to
21 address the mortgage crisis are, right now,
22 leading to inconsistent results. Bank of
83
1 America and Countrywide should support
2 systemic industry changes, such as permitting
3 consumers who qualify to modify their
4 mortgages in bankruptcy, that will lead to
5 predictability and equal treatment of
6 homeowners facing foreclosure.
7 As it now stands, the
8 constitutionally guaranteed right to a fresh
9 financial start does most homeowners facing
10 foreclosure no good. We also call on Bank of
11 America and Countrywide to deploy and
12 compensate the armies of lawyers who represent
13 them in foreclosure proceedings to first offer
14 modification and other foreclosure prevention
15 measures as a matter of course.
16 The nation's attitude toward
17 foreclosure has changed over the past year as
18 American people have slowly and painfully
19 become aware of the size and scope of the
20 problem. More assistance is available today
21 than it was a year ago. We call on Bank of
22 America to establish a 50 million dollar fund
84
1 to reintegrate in the mainstream economy those
2 whose homes were lost in foreclosure. Without
3 targeted support, many of these former
4 homeowners will fade into the shadows and
5 never again become homeowners. It is
6 ludicrous that we can afford a $7,000 tax
7 credit for those who purchase foreclosed homes
8 but do very little for those who, in many
9 cases, were the victims of overzealous,
10 unregulated mortgage brokers and speculators.
11 We support the legislation that
12 Maxine Waters spoke about. We support the
13 Hope for Homeowners Act proposed by Barney
14 Frank and Senator Dodd. We reject the premise
15 that it is impossible to distinguish between
16 so-called deserving homeowners and profiteers
17 who should suffer when markets collapse, just
18 as they rode the crest to record real estate
19 values.
20 DIRECTOR BRAUNSTEIN: Mr. Wing?
21 MR. WING: Yes.
22 DIRECTOR BRAUNSTEIN: I'm sorry.
85
1 Your time is up. Can you wrap up quickly?
2 MR. WING: One more paragraph.
3 DIRECTOR BRAUNSTEIN: Okay.
4 MR. WING: An industry
5 sophisticated to devise no document loans,
6 negative amortization and adjustable rate
7 mortgages can surely divide standards to
8 separate the wheat from the tares now.
9 My last point is this. The one-
10 on-one approach to foreclosure prevention is
11 not enough. To call homeowners to do door
12 knocking one-on-one is insignificant relative
13 to the scope of the problem. The same amount
14 of advertising, marketing, and outreach that
15 is going into market new loans and refinancing
16 should go into home foreclosure prevention on
17 a comprehensive holistic basis. The one-on-
18 one approach is not good enough. We need
19 broader solutions. Bank of America stands at
20 this cross roads and the challenge is before
21 you in the Federal Reserve to make America's
22 homeowners safe and protected.
86
1 Thank you very much.
2 DIRECTOR BRAUNSTEIN: Thank you.
3 Have you any questions for this panel? No.
4 Okay. Could the next panel please
5 come forward?
6 Welcome to this panel. And just a
7 few housekeeping notes. For one thing, if you
8 have a BlackBerry on you, could you please
9 turn it off? Because I think we are getting
10 some feedback on the microphones from that.
11 And secondly, we have a timekeeper
12 here, Melody, do you want to just -- and she
13 will have signs telling you when you have two
14 minutes left and when your time is up. So,
15 kind of keep an eye out for her. And please
16 open your statement with your name and your
17 organization so that we can get it on the
18 record.
19 And, Kevin are you starting?
20 MR. STEIN: I think Roberto.
21 DIRECTOR BRAUNSTEIN: Oh, Roberto.
22 Okay. Mr. Barragan?
87
1 MR. BARRAGAN: Good morning. On
2 behalf of the California Reinvestment
3 Coalition and being Chairman of the Coalition,
4 I want to thank the Reserve for allowing these
5 hearings to proceed.
6 My name is Roberto Barragan. I am
7 President of Valley Economic Development
8 Center. We are the largest economic
9 development organization in the greater San
10 Fernando Valley, which includes Calabasas and
11 Simi Valley, headquarters for facilities of
12 Countrywide.
13 We serve over 7,000 business
14 annually, employing over 70,000 residents in
15 this area, over half of which are B of A
16 customers and many are Countrywide mortgage
17 holders.
18 VEDC is in support of Bank of
19 America's acquisition of Countrywide. VEDC
20 has been on record over the past six years of
21 being concerned regarding Countrywide's
22 lending and banking practices. By some
88
1 estimates, Countrywide has originated over 25
2 percent of first held mortgages in the San
3 Fernando Valley.
4 At the same time, VEDC enjoys a
5 long and productive relationship with Bank of
6 America. We have shared an outcome oriented
7 customer focused and needs-based program for
8 serving small businesses. VEDC supports the
9 B of A's acquisition with just that approach
10 in mind.
11 We support your approval with one
12 chief request, that the merger take place with
13 a clear and specific plan for Countrywide
14 borrowers that builds on what we have seen so
15 far and today B of A's proposed plan.
16 Countrywide is the biggest subprime lender
17 option ARM lender in the greater San Fernando
18 Valley. Foreclosures in the Valley are the
19 biggest in the LA basin and require that a B
20 of A plan include what we believe is important
21 that borrower residents, and I say borrower
22 residents to differentiate borrower
89
1 speculators, that borrower residents of all
2 Countrywide mortgages should be allowed to
3 stay in their homes at fixed mortgages that
4 they can afford. In addition, we ask that
5 adjustable rate mortgages should be fixed at
6 current rates and future resets canceled to
7 avoid continuing foreclosures.
8 Finally, I urge Bank of America to
9 take all steps possible to mitigate the
10 eventual layoffs to affect thousands of
11 Countrywide workers in Calabasas and Simi
12 Valley. While a weak sales market
13 necessitates a decrease in sales staff, we
14 believe that customer services teams and
15 counseling require even more staff over the
16 next two years and steps should be taken to
17 mitigate the impact of layoffs on employees as
18 well as San Fernando Valley communities that
19 they live in.
20 Thank you very much.
21 DIRECTOR BRAUNSTEIN: Thank you.
22 Mr. Williams?
90
1 MR. WILLIAMS: Good morning. My
2 name is Clarence Williams and I am President
3 of California Capital Financial Development
4 Corporation located in Sacramento, California
5 and a member of the California Reinvestment
6 Coalition Board of Directors.
7 For 25 years, California Capital,
8 an independent nonprofit corporation has
9 served 23 counties throughout northern
10 California providing financial literacy
11 education, business technical assistance,
12 micro loans and loan guarantees for small
13 businesses and residents within predominately
14 low and moderate income communities. In
15 addition, we have provided these services in
16 nine languages for our region's growing number
17 of immigrants and limited non-English speaking
18 individuals and business owners.
19 Nonprofit organizations like
20 California Capital exist because of historical
21 failures within the financial services
22 industry to meet the credit needs of our
91
1 constituent communities and their residents.
2 Although we, like many others, have been the
3 recipient of funding by Bank of America, much
4 of the positive impact of this funding is
5 being stripped away by the devastating affects
6 of foreclosures in the communities we serve.
7 I have testified at and participated in a
8 number of public hearings held by the Federal
9 Reserve Bank. I have testified enough times
10 that it has become a blinding glimpse of the
11 obvious, that the elegance of simplicity of a
12 recommendation to support or oppose fails to
13 take advantage of the opportunity that is
14 before this body in regard to the planned
15 purchase of Countrywide Financial Corporation
16 by Bank of America.
17 With all due respect, the
18 likelihood of Bank of America's petition to
19 acquire Countrywide will be granted is a
20 foregone conclusion. Notwithstanding, I am
21 compelled to urge the Federal Reserve Bank to
22 deny this application unless clear conditions
92
1 and a specific plan is agreed upon to mitigate
2 and prevent the further erosion of our
3 community's ability to build wealth and
4 assets. To protect Countrywide borrowers from
5 impending foreclosures, it is incumbent upon
6 the Federal Reserve Bank to be sure that this
7 agreement and the plan to execute the strategy
8 takes place prior to the approval of this
9 petition, not after the close of purchase and
10 oversight that guarantees transparency of Bank
11 of America's execution of its promised
12 commitment.
13 As a regulator, it should be the
14 responsibility of the Federal Reserve Bank to
15 see that financial institutions meet their
16 obligations to be responsible lenders. This
17 petition for merger represents an opportunity
18 to mitigate Countrywide's contribution to our
19 nation's devastating credit and foreclosure
20 crisis and provides us with lessons learned to
21 prevent this from ever happening again.
22 As a condition to the approval of
93
1 this application, I urge the Federal Reserve
2 Bank to include recommendations made by the
3 California reinvestment coalition, which will
4 be offered by Alan Fisher, CEO of CRC. Thank
5 you.
6 DIRECTOR BRAUNSTEIN: Ms. Kinlaw?
7 MS. KINLAW: My name is Sharon
8 Kinlaw. I am the Associate Director of the
9 Fair Housing Counsel of the San Fernando
10 Valley and a Board Member of the California
11 Reinvestment Committee. The Counsel is a 49
12 year old organization, a nonprofit whose
13 primary goal is to investigate and eradicate
14 all forms of illegal housing and lending
15 discrimination. I am here today to discuss
16 the plight of tenants in the unfolding
17 foreclosure fiasco.
18 Tenants are the collateral damage
19 in the foreclosure crisis and very little is
20 being done to emphasize or solve the
21 unintended quagmire that tenants find
22 themselves in through no fault of their own.
94
1 An estimated 20 to 25 percent of the
2 foreclosures that take place in California
3 involve properties that are not owner
4 occupied. Those numbers are exceeding higher
5 in some markets and lead to the instability of
6 families and communities. The tenants that
7 call our agency are mostly low income single
8 mothers with children, seniors, and persons
9 with disabilities who have few options. This
10 acquisition gives us an opportunity to work
11 together to aid families and individuals who
12 are caught in the crossfire of banks,
13 borrowers, and investors, unarmed, unprepared,
14 and mostly forgotten.
15 Tenants are harmed in a number of
16 ways. Many are thrust into homelessness after
17 having paid their rent timely. Many lose
18 thousands of dollars in the non-return of
19 security deposits. Some find themselves in
20 the dark with no electricity or running water
21 after the utilities are turned off. Some find
22 themselves in court facing eviction, which
95
1 damages their rental history for the next
2 seven years and makes it virtually impossible
3 for them to find safe and habitable housing.
4 And with landlords struggling to hold on to
5 their properties, some tenants oftentimes find
6 themselves with whopping rent increases
7 anywhere from $400 to $1,000 per month to
8 remain in their homes, only to pay it and then
9 to eventually find themselves on the street,
10 as a result of the property being foreclosed
11 on.
12 There are few proposed solutions
13 and we would ask that with this merger being
14 taken into account, the Federal Reserve would
15 look to Bank of America for specific
16 solutions. One would be to create an entity
17 or partner with a nonprofit to manage
18 foreclosed properties that are tenant occupied
19 enter into a short-term rental agreements with
20 tenants who are unable to move because of
21 disabilities, cash flow, or other mitigating
22 factors; refer tenants who may be able to
96
1 purchase housing to counseling agencies for
2 assistance with purchase; implement a lease to
3 own program for tenants which will provide a
4 credit towards the down payment for their
5 security deposits; voluntarily agree to give
6 tenants a 90 day notice and for disabled and
7 senior tenants, extend the notice to 120 days.
8 Sixty days is not enough in this market.
9 Provide grants to nonprofits to help tenants
10 relocate and also provide grants to nonprofits
11 to help tenants with relocation expenses;
12 lobby congress to grant a tax credit to
13 financial institutions that create innovative
14 programs such as lease to own or nonprofit
15 receivership as well as to owners of property
16 who will agree to rent to homeowners and/or
17 tenants; and honor existing leases.
18 And finally, with regard to
19 predatory and unfair lending practice, the
20 Federal Reserve should require that, as a
21 condition of this merger, the institutions
22 undertake a review or an audit of all at-risk
97
1 loans to determine if any fraud, steering, or
2 unfair lending practices occurred. For those
3 brokers whose names that show up frequently,
4 a host of scrutiny should be paid to their
5 portfolio and proper referrals to regulatory
6 and law enforcement agencies should be made so
7 that those individuals are not left to prey on
8 unsophisticated and unsuspecting borrowers.
9 Thank you.
10 DIRECTOR BRAUNSTEIN: Thank you.
11 Mr. Stein?
12 MR. STEIN: Good morning. My name
13 is Kevin Stein and I am with the California
14 Reinvestment Coalition. We are an advocacy
15 coalition of 250 community based organizations
16 throughout California. We believe the
17 proposed merger should not be approved without
18 substantial conditions. To do otherwise would
19 not produce benefits to the public that
20 outweigh possible adverse impacts and we do
21 not believe that the two institutions are
22 currently adequately meeting the community's
98
1 credit needs.
2 There are three main issues I want
3 to quickly address. One is fair lending
4 concerns at Countrywide Financial. Secondly,
5 Bank of America's offering and financing of
6 predatory mortgage loans. And third,
7 inadequate servicing practices that will not
8 guarantee that borrowers remain in their
9 homes.
10 On the first, on the fair lending
11 issues, a couple of years ago, the New York
12 Attorney General's Office looked at Home
13 Mortgage Disclosure Act data and saw that
14 Countrywide was roughly two times as likely to
15 be making subprime loans to Latino and African
16 American borrowers in that state and proceeded
17 with a fair lending examination investigation
18 and case that ultimately resulted in a