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Afternoon Session of Public Hearing on Home Equity Lending
July 27, 2000

 
                             FEDERAL RESERVE PUBLIC HEARING
                                      JULY 27, 2000

 
          1                     TABLE OF CONTENTS (Cont.)
 
          2                         AFTERNOON SESSION
                                                                  PAGE
          3
                  OPENING REMARKS BY PANELISTS:
          4
                     BY MR. SKILLERN  . . . . . . . . . . . . . .  174
          5
                     BY MS. LLOYD   . . . . . . . . . . . . . . .  178
          6
                     BY MS. MASSENBURG-BEASLEY  . . . . . . . . .  182
          7
                     BY MS. WARREN  . . . . . . . . . . . . . . .  185
          8
                     BY MS. MURRELL   . . . . . . . . . . . . . .  187
          9
 
         10       BOARD MEMBER AND PANELIST DISCUSSION  . . . . .  191
 
         11       OPEN-MIKE SESSION   . . . . . . . . . . . . . .  226
 
         12
 
         13
 
         14
 
         15
 
         16
 
         17
 
         18
 
         19
 
         20
 
         21
 
         22
 
         23
 
         24
 
         25
 
 

 
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          7               (A lunch recess.)
 
          8               MR. LONEY:   For those of you who just have
 
          9       joined us, I would like to welcome you.  This
 
         10       morning we heard very interesting and varied views
 
         11       on the way the Board might use its rule-writing
 
         12       authority under TILA and HOEPA.  This afternoon we
 
         13       will be discussing alternatives to regulation that
 
         14       might address predatory practices, such as consumer
 
         15       outreach and education and hear about studies or
 
         16       research on subprime or equity lending that would
 
         17       inform the Board in its deliberations.
 
         18               By way of introduction for those of you who
 
         19       weren't here this morning, my name is Glenn Loney;
 
         20       I'm deputy director of the Board's division of
 
         21       consumer and community affairs.  Joining me this
 
         22       afternoon on the panel are Adrienne Hurt on my far
 
         23       left, who is assistant director of the division, and
 
         24       Jim Michaels, who is managing counsel in the
 
         25       division.  They have responsibilities for truth in
 
 
 
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          1       lending matters in the division.
 
          2               On my immediate right is Sandra Braunstein,
 
          3       who is assistant director and community affairs
 
          4       officer for the Board in Washington.  To my far
 
          5       right is Jack Blanton, who is the vice president and
 
          6       community affairs officer at the Federal Reserve
 
          7       Bank of Richmond, which is the bank for this area
 
          8       and for which this is a branch, the Charlotte
 
          9       branch.
 
         10               I would like to go briefly over the rules of
 
         11       procedure, if we want to call it that, for this
 
         12       afternoon.  Once again we would like to ask -- we're
 
         13       going to have a tight time frame.  We want to get as
 
         14       many of the open-mike people in as we can and we'd
 
         15       also like to hear from our panelists as much as we
 
         16       can, and we'd also, frankly, like to catch our
 
         17       planes back to Washington if we can.  So I would ask
 
         18       you all to do what you can to accommodate those
 
         19       concerns.  Therefore we ask that the panelists
 
         20       confine their prepared remarks to the three minutes
 
         21       that they find most important for us to hear about,
 
         22       and then of course after that we would like to have
 
         23       a discussion similar to the one we had this morning,
 
         24       though not as long.
 
         25               At the conclusion of the panel discussion we
 
 
 
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          1       will break, around 2:45 or 3:00 or so, and then
 
          2       reconvene to hear from members of the public.  And
 
          3       again, anyone in the audience who wants to
 
          4       participate in the open-mike session later this
 
          5       afternoon that has not already signed up, you ought
 
          6       to do so before the break and we'll use the list to
 
          7       decide the order and help us gauge the length of
 
          8       time that each person can have.
 
          9               If it's all right with everybody, for
 
         10       opening remarks I thought I would start with Peter
 
         11       Skillern.  I'd ask each of you to introduce
 
         12       yourselves and tell who you are with as well as make
 
         13       your opening remarks, so if you would start.
 
         14               MR. SKILLERN:   I'm Peter Skillern,
 
         15       executive director of the Community Reinvestment
 
         16       Association of North Carolina.  Our mission is to
 
         17       build and protect community wealth.  As many of the
 
         18       lending institutions in the room can tell you, we've
 
         19       worked hard to try to increase the capital flowing
 
         20       into minority and low-income communities across the
 
         21       state of North Carolina.
 
         22               When we became involved in predatory lending
 
         23       it was realized that all credit is not good credit,
 
         24       and that much of the credit was being used as a tool
 
         25       to strip wealth and equity from our low-income
 
 
 
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          1       communities.  We started out our research one person
 
          2       at a time and started to put together our analysis.
 
          3               Today we are the recipient of a fair housing
 
          4       education and outreach grant.  We have a subcontract
 
          5       with the NAACP and El Pueblo, the Hispanic advocacy
 
          6       organization, to do outreach to their member
 
          7       constituencies to explain about fair housing and
 
          8       predatory lending.
 
          9               Here are some of the tools I'd like to
 
         10       submit for the record.  One is, Don't let the Grinch
 
         11       steal your holiday; we've got the Grinch whipping --
 
         12       this is for Christmastime when subprime lenders like
 
         13       to push products, and warning bells that you should
 
         14       look out for.  For someone who wants to study a
 
         15       little bit harder about how to read a loan document,
 
         16       this is probably appropriate for people just
 
         17       learning, including college graduates, how to read a
 
         18       loan document and what to watch out for of a
 
         19       predatory nature, such as single-premium credit
 
         20       insurance.
 
         21               From that, as we expanded into understanding
 
         22       the policy, we developed this introduction to
 
         23       predatory lending policy, and I'll submit this and
 
         24       give you all individual copies, to recommend how the
 
         25       whole system puts together and how community groups
 
 
 
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          1       can be involved in the social change work.
 
          2               I was asked to speak primarily around
 
          3       research.  I'd like to submit our article that was
 
          4       published in Neighborhood Works exposing the hidden
 
          5       problem of predatory lending, which discusses our
 
          6       method of identifying borrowers from the deeds of
 
          7       record at the courthouse and asking them to come in
 
          8       so that we can interview them and look at their loan
 
          9       documents and start to describe what's happening in
 
         10       the subprime mortgage industry.
 
         11               We've since evolved that to the community
 
         12       guide to predatory lending research, and I'd like to
 
         13       submit that also for the record, as a demonstration
 
         14       of how community groups can identify borrowers from
 
         15       a variety of sources and what to look for.
 
         16               For all of that I really want to say that I
 
         17       think my recommendations for the Federal Reserve
 
         18       have to be put into context for research and action
 
         19       around looking at how it can help provide greater
 
         20       consumer protections in the age of financial
 
         21       modernization.  With the passage of the financial
 
         22       modernization bill, it gave bank holding companies
 
         23       the opportunity to provide credit and monetary
 
         24       services through a wide spectrum, from payday
 
         25       lending to finance companies to subprime lenders to
 
 
 
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          1       mortgage companies, banks, and indeed secondary
 
          2       mortgage market opportunities; they're also now able
 
          3       to offer insurance.
 
          4               Along this spectrum of services that they're
 
          5       able to dole credit out to the public, people then
 
          6       enter into this system through different channels.
 
          7       The question is, at what point where you enter into
 
          8       that channel of credit often determines how you are
 
          9       treated, rather than being treated upon your merits
 
         10       or what your credit ability is.
 
         11               What does that say?  I'm not wearing my
 
         12       glasses.
 
         13               MR. LONEY:   Just wrap it up, Pete.
 
         14               MR. SKILLERN:   I'll quickly conclude with
 
         15       this one remark.  I think the Federal Reserve could
 
         16       do marvelous research that would be groundbreaking
 
         17       around this issue.  The Boston Federal Reserve study
 
         18       of mortgage lending discrimination, 1991, was the
 
         19       seminal research piece that changed regulation and
 
         20       bank lending activities and really helped to expose
 
         21       discrimination.
 
         22               I urge the Federal Reserve to do a study,
 
         23       just going and sampling -- you have access to the
 
         24       loan files -- sampling what is happening in the
 
         25       subprime market and then come back and describe to
 
 
 
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          1       the public what percent have prepayment penalties,
 
          2       what percent pay yield spread premiums, which
 
          3       percent had high fees, interest rates, what were the
 
          4       credit scores that went along with that, were there
 
          5       disparate impacts along rate-protected classes, and
 
          6       from that type of study -- study that we will never
 
          7       be able to get at from our community approach --
 
          8       you'll have the ability to better determine to what
 
          9       extent predatory practices are being undertaken.
 
         10       Thank you.
 
         11               MR. LONEY:   We'll have a little discussion
 
         12       and you can embellish on some of those points.
 
         13               MR. SKILLERN:  Oh, thank you so much.
 
         14               MR. LONEY:  Ms. Lloyd?
 
         15               MS. LLOYD:   My name is Jan Lloyd; I'm a
 
         16       family resource management specialist for the
 
         17       cooperative extension service affiliated with North
 
         18       Carolina State University.  I'm here to talk about
 
         19       the need for consumer education in a narrowly
 
         20       defined way and to make sure you are aware, which
 
         21       you perhaps already are, of the mechanism in place
 
         22       ready to help with the homebuyer and homeowner
 
         23       education throughout the entire country.
 
         24               For those of you who don't know, cooperative
 
         25       extension has been in existence since 1914.  It has
 
 
 
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          1       three levels of partners; we are primarily tax
 
          2       supported.  The federal partner is the Department of
 
          3       Agriculture.  In addition to the Ag and the 4H and
 
          4       the community and rural things, you may or may not
 
          5       know that the new name for home economics, family
 
          6       and consumer sciences, has a major program which of
 
          7       course includes housing and family finance.  I'm
 
          8       here for the family finance area and I have a close
 
          9       colleague who works with me in housing at the state
 
         10       level.
 
         11               Our national program leaders, both in family
 
         12       economics and in housing, work very closely with
 
         13       your division and with other appropriate partners on
 
         14       all kinds of issues.  They have in the past put
 
         15       together a national building a homebuyer education
 
         16       program, they have been partners to the most recent
 
         17       homeowner education and counseling effort trying to
 
         18       standardize and upgrade.  The Fannie Mae former CEO
 
         19       was the driving force behind this, and I'll share
 
         20       with you if anybody wants to look.  I think this is
 
         21       something, if you weren't aware of, the attempt to
 
         22       upgrade the content of homebuyer and home ownership
 
         23       education and to provide training for the people who
 
         24       deliver it out in the communities.  So that's at the
 
         25       federal level.
 
 
 
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          1               Those of us at the state level, at every
 
          2       land grant university in the country, we aren't
 
          3       professors; we are specialists in our subject area.
 
          4       We collect, develop materials, we train the field
 
          5       faculty for the university out in the counties.  So
 
          6       if you hear extension agent, you are hearing
 
          7       somebody probably with a master's degree who is
 
          8       field faculty.  My agents, the ones with whom I
 
          9       work, a hundred counties here plus the Cherokee
 
         10       reservation, do all kinds of family finance issues.
 
         11       And some of the same people, some of them it's two
 
         12       agents in a county, carry on homebuyer education,
 
         13       hopefully together.  So you have all over the
 
         14       country this mechanism already doing homebuyer
 
         15       education to which the HOEPA things that you're
 
         16       doing can be a supplement.
 
         17               What I'm hoping is that you will see the
 
         18       need for consumer education is enormous.  Kate
 
         19       Crawford this morning, I could have paid to say we
 
         20       need basic consumer education on finance.  If you
 
         21       were not aware, there was a major study done,
 
         22       released just a year ago, twelfth graders; there was
 
         23       an overall score on personal finance of 57 percent.
 
         24       And to illustrate to you how severe the challenge is
 
         25       to all of us at the grass roots level trying to do
 
 
 
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          1       consumer education, they thought that the primary
 
          2       best source of money, to earning income on that
 
          3       money, was a checking account.  That's the level of
 
          4       ignorance we are talking about, the challenge to try
 
          5       to help people understand what they're dealing with
 
          6       when we get into homebuyer and refinancing
 
          7       education.
 
          8               Obviously we can help at each level; the
 
          9       national, the state, and the local agents.  I would
 
         10       just like to say that we are already working with
 
         11       the individual development accounts; that extension
 
         12       is the recommended deliverer of the mandatory
 
         13       education for individual development account people,
 
         14       basic money management and the homebuyer folks, and
 
         15       a number of other things; I won't take your time on
 
         16       that now.
 
         17               I'd just like to say what we need is we need
 
         18       very brief items that capture the key components.
 
         19       We need brief fact sheets in plain language that
 
         20       refer them to more depth.  We need background
 
         21       information, visual materials -- you did a great
 
         22       thing on car leasing -- and promotional materials,
 
         23       and we need to be succinct without losing accuracy.
 
         24       And we'll be happy to work with you.
 
         25               MR. LONEY:   Thank you very much.
 
 
 
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          1       Ms. Massenburg-Beasley?
 
          2               MS. MASSENBURG-BEASLEY:   Thank you.  Good
 
          3       afternoon, everyone.  I'm Glyndola
 
          4       Massenburg-Beasley, executive director for the
 
          5       Consumer Credit Counseling Service of Durham.
 
          6               The topic of combating predatory lending is
 
          7       broad and my message this afternoon is, simply,
 
          8       we've got work to do.  I define predatory lending as
 
          9       a roaring lion that walketh about seeking whom he
 
         10       may devour.  We've got work to do both statewide and
 
         11       nationally in order to conquer the roaring lion.
 
         12               CCCS of Durham is a nonprofit community
 
         13       service organization.  It is also the host agency
 
         14       for the Hurricane Floyd initiative throughout the
 
         15       state of North Carolina.  A very large percentage of
 
         16       the families that we're working with are
 
         17       homeowners.  To date, we've worked with in excess of
 
         18       8,000 families.  A very large percentage of those
 
         19       families are victims of predatory and/or
 
         20       unscrupulous lending practices.
 
         21               For example, we have a father and mother who
 
         22       are illiterate; the mortgage lender allowed the 15-
 
         23       and 16-year-old son and daughter to consummate the
 
         24       loan.  The home was completely destroyed by
 
         25       Hurricane Floyd.  The insurance benefits were
 
 
 
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          1       received in the name of the family and the mortgage
 
          2       lender.  The mortgage lender of course received the
 
          3       funds and paid down the mortgage loan, leaving the
 
          4       family with no resources to replace the home.  There
 
          5       are no relatives living in the area and now there's
 
          6       no place for the family to live.
 
          7               After reviewing the loan documents we
 
          8       discovered that at least $7,000 of the loan of
 
          9       course was in the originating points, and today the
 
         10       mortgage lender is pursuing foreclosure.  We've got
 
         11       work to do.
 
         12               Consumer education and outreach should not
 
         13       be an option.  Consumer education should be a
 
         14       requirement for any mortgage and/or consumer
 
         15       lending.  The lack of knowledge and understanding
 
         16       eats away at the underpinning of our country, which
 
         17       is education, economic stability, and building
 
         18       wealth.  Unscrupulous lending has no respect of
 
         19       person.  I have seen the elderly, the
 
         20       hearing-impaired, the blind, and the illiterate
 
         21       become victims of unscrupulous lending practices.
 
         22               We must be as tenacious and as savvy as the
 
         23       unscrupulous lender, because they're about equity
 
         24       stripping, high-cost loans, prepayment penalties,
 
         25       loan flipping, financing of credit insurance, and
 
 
 
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          1       the list goes on.  Our people in the country are
 
          2       perishing because of the lack of knowledge and
 
          3       understanding.
 
          4               A national consumer education and financial
 
          5       education campaign is a must.  We must increase our
 
          6       partnering with high schools, junior high schools,
 
          7       and the universities.  At Consumer Credit Counseling
 
          8       Service we often see seniors who are graduating that
 
          9       are strapped with at least $20,000 to $30,000 worth
 
         10       of debt and no employment.  How am I going to pay
 
         11       the bill; Mom and Dad is usually the alternative and
 
         12       not always the answer.
 
         13               We must also increase our partnering with
 
         14       Fannie Mae and Freddie Mac and others who promote
 
         15       products such as Credit Works that require a
 
         16       structured program for counseling and education.  We
 
         17       must create additional tools that appeal to all and
 
         18       fund local community education programs so that we
 
         19       can prevent and stop the stripping of wealth that is
 
         20       so prevalent in this nation.  Our families are
 
         21       hurting, they're living in a vacuum and have no idea
 
         22       how to get out.  Consumer education and counseling
 
         23       is extremely important to the wealth and stability
 
         24       of this country.
 
         25               MR. LONEY:   Thank you.  Ms. Warren?
 
 
 
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          1               MS. WARREN:   Good afternoon.  Can everybody
 
          2       hear me?  I'm Debby Warren; I'm executive director
 
          3       of the Southern Rural Development Initiative, and my
 
          4       middle name is the Rural Nag.  That's what I'm here
 
          5       to do, to remind the Federal Reserve, the Board of
 
          6       Governors, that predatory lending is very much a
 
          7       rural issue.
 
          8               We are a collaboration of 33 organizations
 
          9       that work in the poorest counties of the rural
 
         10       south.  You can see the south here, you look at the
 
         11       orange and red, there's the black belt that is the
 
         12       Appalachia, it is a good part of the south; that's
 
         13       where our 33 members work.  They are both CDFI,
 
         14       self-help, community development organizations, and
 
         15       philanthropic organizations concerned about how
 
         16       little public and private affordable capital there
 
         17       is in these communities.
 
         18               We did an analysis, a HMDA analysis, of four
 
         19       states in the south -- Alabama, Arkansas, South
 
         20       Carolina, and Georgia -- for 1998, and particularly
 
         21       looked at subprime and manufactured housing
 
         22       lending.  What we found out was interesting.  That
 
         23       when you look at the national numbers for subprime
 
         24       lending, nationally, in that year, about 11 percent
 
         25       of the total market was subprime.  If you look at
 
 
 
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          1       the state of South Carolina, 22 percent; Georgia,
 
          2       15 percent; Alabama, 14 percent; Arkansas,
 
          3       16 percent.  It's just from a national perspective
 
          4       we have a higher proportion of subprime lending
 
          5       among the mortgage recipients.
 
          6               African-American market, that 19 percent of
 
          7       the national African-American market was subprime
 
          8       loans.  Georgia, 22 percent; Arkansas, 28 percent;
 
          9       and South Carolina, which is a few miles from here,
 
         10       42 percent.  42 percent of the African-American
 
         11       market that originated mortgage loans in 1998 were
 
         12       subprime loans.
 
         13               If you look at the low-income market, again,
 
         14       South Carolina, 34 percent; national, 13 percent.
 
         15       If you look at the rural market, we don't have
 
         16       comparable national numbers but we looked at it for
 
         17       the four states that we had information:  Alabama,
 
         18       20 percent of the rural market, subprime loans;
 
         19       Georgia, 27 percent.  So this is clearly an issue,
 
         20       and we can only assume that some of the subprime
 
         21       lending is predatory lending; how much, we don't
 
         22       know.
 
         23               What I have more are questions than
 
         24       answers.  There's enormous need for research.  If
 
         25       we're going to be clear about predatory lending
 
 
 
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          1       strategies we have to understand how these markets
 
          2       work in rural areas.  Questions like, How much of
 
          3       this is due to manufactured housing lending, and how
 
          4       much of our regulations, state and federal, are
 
          5       covering those particular markets.  50 percent of
 
          6       occupied manufactured housing units are in the
 
          7       south; 70 percent nationally of manufactured housing
 
          8       units are in rural communities.  So we need to
 
          9       understand the mechanisms and the dynamics of the
 
         10       manufactured housing industry and how it relates to
 
         11       the subprime markets in these states.
 
         12               We also need to understand why does a state
 
         13       like South Carolina have 46 percent of the
 
         14       African-American market being served by subprime
 
         15       lenders.  Final sentence:  Is it due to the fact
 
         16       that there is very little consumer regulation in
 
         17       this state?  Is it due to the fact that there used
 
         18       to be a Confederate flag hanging from the capitol?
 
         19       Is it due to the fact that there's very little
 
         20       housing, nonprofit infrastructure, and advocacy
 
         21       resources in this state?  What is the answer?  But
 
         22       we need to better understand that because I think
 
         23       that's an unacceptable figure.  Thank you.
 
         24               MR. LONEY:   Thank you.  Ms. Murrell?
 
         25               MS. MURRELL:   Good afternoon.  I'm Karen
 
 
 
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          1       Murrell, senior director of targeted outreach at the
 
          2       Fannie Mae Foundation.  I'd like to talk about the
 
          3       importance of institutionalizing financial literacy
 
          4       as an integral part of homebuyer education and
 
          5       counseling.  Fannie Mae Foundation has launched last
 
          6       fall a major effort, it's one of our top priorities,
 
          7       to address financial literacy needs.  Last fall we
 
          8       kicked off our financial literacy effort and I'd
 
          9       just like to talk a little bit about some of the
 
         10       things we're doing on that front, as well as some of
 
         11       the things we're doing with predatory lending.
 
         12               Our financial literacy effort really
 
         13       includes a three-point program, and one of the main
 
         14       things that we're doing is really having a strong
 
         15       emphasis and focus on supporting education and
 
         16       counseling programs that are helping consumers learn
 
         17       more about financial issues before they get into the
 
         18       home buying process.  We're doing that through grant
 
         19       relationships with nonprofit organizations that are
 
         20       doing this work on the ground.
 
         21               We're also doing this by developing
 
         22       educational materials that are specific to
 
         23       particular communities.  One of the things we're
 
         24       working on now is a financial literacy curriculum
 
         25       for the Native American community.  We've partnered
 
 
 
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          1       with First Nations Development Institute to develop
 
          2       a curriculum that is based on native values that
 
          3       will be implemented through a training of trainers
 
          4       process.
 
          5               We're also looking at ways to implement
 
          6       financial literacy in other venues, like through IDA
 
          7       programs.  We're working with CFED, Corporation for
 
          8       Enterprise Development, to make sure that there is a
 
          9       national curriculum, financial literacy curriculum,
 
         10       for IDA programs across the country.
 
         11               Then we've developed our own consumer
 
         12       materials, consumer materials on home buying as well
 
         13       as credit.  You're probably familiar with this
 
         14       guide, it's promoted through National Network and
 
         15       Advertising Cable, that discusses the home buying
 
         16       process.  We developed a new guide last fall that
 
         17       has a focus on credit.  Again, what we're trying to
 
         18       get across with this guide is we're trying to raise
 
         19       awareness of the importance of credit, help people
 
         20       to understand what it means to have good credit, how
 
         21       to maintain it, how to repair it if you've had
 
         22       problems.
 
         23               Later this month we're going to be unveiling
 
         24       a new guide on predatory lending; again, it's going
 
         25       to help in very easy-to-understand language explain
 
 
 
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          1       what predatory lending is and give some suggestions
 
          2       on things to do to avoid it.
 
          3               Through our consumer education we've reached
 
          4       10 million people since the program started in 1994,
 
          5       and one of the areas that we're focusing on now
 
          6       which is a new area is outreach to youth.  As we've
 
          7       heard in the panel discussion earlier, it's
 
          8       important for us to reach out earlier, so we're
 
          9       looking at ways to reach students at the high school
 
         10       and college levels and impart this information
 
         11       earlier.
 
         12               With predatory lending one of the things
 
         13       that we're doing is really through a three-part
 
         14       program.  The first is looking at policy and
 
         15       research initiatives.  We've tried to generate a
 
         16       dialogue to get a better understanding of the
 
         17       causes, the behaviors, and the consequences of
 
         18       predatory lending.  We're also going to be
 
         19       supporting consumer education efforts in local
 
         20       communities.  Again, through our grant relationships
 
         21       we have supported consumer education programs in the
 
         22       city of Chicago and also in Boston.
 
         23               And lastly, one of the things we're doing
 
         24       with predatory lending is supporting legal
 
         25       education.  We want to make sure that legal
 
 
 
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          1       advocates have the information that they need to
 
          2       work on behalf of disenfranchised citizens.  That is
 
          3       the Foundation's predatory lending and financial
 
          4       literacy efforts.
 
          5               MR. LONEY:   Thank you very much.  What I'd
 
          6       like to do now, as we did this morning, is to
 
          7       comport this into more of a round table discussion
 
          8       and people can embellish on what they've said before
 
          9       in the context of either answering questions or just
 
         10       jumping in.  Sandy, in particular, has some
 
         11       questions she'd like to ask, so we'll have Sandy
 
         12       kick it off.
 
         13               MS. BRAUNSTEIN:   I'd like to start by
 
         14       having -- something hit me during all the
 
         15       presentation; in particular Peter, Jan, and Karen.
 
         16       You all have prepared written materials on these
 
         17       issues and Fannie Mae is getting ready to come out
 
         18       with a guide on predatory lending, and I was just
 
         19       wondering -- one of the things we've been struggling
 
         20       with is how to reach the audiences that are preyed
 
         21       upon, and one of the things that we have heard from
 
         22       some folks is that written materials don't
 
         23       necessarily cover that waterfront, and I was just
 
         24       wondering how successful your written materials have
 
         25       been in this effort.
 
 
 
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          1               MR. SKILLERN:   I feel like our written
 
          2       materials have been of limited success, in all
 
          3       honesty.  People need to be willing to read it, it
 
          4       takes time, and we are battling for people's
 
          5       attention.  I would really look at -- they are
 
          6       useful tools, though, when we have people in small
 
          7       groups, in their churches, in their houses, in the
 
          8       neighborhood meetings to give out.
 
          9               The bigger effect has been -- I would point
 
         10       to Mike Easley, the attorney general for North
 
         11       Carolina, put I believe $180,000 into a media
 
         12       campaign across the state.  His advertisements were
 
         13       simple, they were clear, there was identifiable
 
         14       personality, and they generated hundreds of phone
 
         15       calls to his office regarding the loans.  That was
 
         16       serious.  That wasn't a small nonprofit using their
 
         17       Xerox machine trying to fight the problem; those
 
         18       were real resources with a professional media
 
         19       strategy.
 
         20               MS. BRAUNSTEIN:   What media did he use,
 
         21       Peter; radio, TV, what?
 
         22               MR. SKILLERN:   He used radio, TV, and
 
         23       newspapers, and he targeted towards those
 
         24       populations that are most often victimized, which
 
         25       are the minority community.
 
 
 
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          1               MS. LLOYD:   If I could just follow up, he
 
          2       also does regular news releases.  And the extension
 
          3       agents in every county and anyone else who asks is
 
          4       on that mailing list, so they get alerts each time
 
          5       they come out.  I commend -- he has followed suit
 
          6       that was launched in Minnesota actually, a
 
          7       partnership for consumer education.  He has a group
 
          8       of people coming together as a nonprofit; they've
 
          9       done videos, they've done lessons to go with them,
 
         10       so that in addition to the public audience there are
 
         11       ways to reach out into the communities and make this
 
         12       20 minutes instead of 30 seconds available to a
 
         13       larger audience.  It's been extremely helpful.
 
         14               MR. LONEY:   One element of Sandy's question
 
         15       I'd like to embellish on is, what really works?
 
         16               MS. LLOYD:   Could I just say that I think
 
         17       we really have to distinguish in this continuum of
 
         18       getting people ready, there have to be materials for
 
         19       awareness and those are the TV and the bookmarks and
 
         20       the really succinct things; then there has to be
 
         21       information targeted for different audiences,
 
         22       different reading levels, different perceptions,
 
         23       different languages, whatever.
 
         24               Education is the narrow niche where I am,
 
         25       where once you've got people's interest then you
 
 
 
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          1       have materials, which includes print, but it's not
 
          2       enough.  There have to be -- peer counselors is one
 
          3       of the mechanisms that Cornell used especially
 
          4       well.  Then you help people be aware that they need
 
          5       more information; self-study.  We're being told
 
          6       increasingly people will not come to meetings very
 
          7       much anymore; you've got to have things through
 
          8       existing organizations such as churches or
 
          9       neighborhood groups.
 
         10               You've got to find ways to reach them and
 
         11       you're not asking them to add something to their
 
         12       schedule, which is a challenge.  But once you get
 
         13       them aware that they can either through self-study
 
         14       or through groups and get a better prepared -- you
 
         15       tell them then that individual counseling is
 
         16       available.  We have to be prepared for that.  And I
 
         17       don't mean to insult you but I don't know what
 
         18       people do and don't know under both bills for
 
         19       bankruptcy reform.  One of -- you know, the
 
         20       compromise will eventually pass next year probably.
 
         21               In both those bills there is mandatory
 
         22       counseling required to determine whether or not
 
         23       bankruptcy is actually necessary.  We're going to be
 
         24       putting an incredible load for what you are wanting
 
         25       and what they will be wanting on the counselors in
 
 
 
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          1       this country, so we really need to look at how to
 
          2       recruit and train more counselors for that effort.
 
          3               MS. MURRELL:   Two things I'd like to add to
 
          4       your point, Sandra, about how do you reach the
 
          5       audiences that really need the information.  One of
 
          6       the things that the Foundation does is, first of
 
          7       all, we have information in nine different
 
          8       languages, so we make sure the information that we
 
          9       have is in languages and culturally appropriate for
 
         10       the audience that we're trying to reach.
 
         11               The second thing that we do is we develop
 
         12       marketing strategies that are specific to the
 
         13       audience that we're trying to reach.  For instance,
 
         14       we have a partnership with BET to reach the
 
         15       African-American community.  We advertise in five
 
         16       different languages.  So again, that's an excellent
 
         17       way to get the information out and at least to raise
 
         18       awareness, but I do agree that the information on
 
         19       its own is not enough.
 
         20               One of the things that we do as an
 
         21       additional component is to connect people to local
 
         22       programs in their community that can help them with
 
         23       additional information.  Whenever we send out the
 
         24       guides we also send out a list of counselors in
 
         25       their area that can help with one-on-one
 
 
 
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          1       counseling.  When we do events like our home buying
 
          2       fairs and we give out the guides, we also have
 
          3       counselors on site that can walk people through the
 
          4       credit report, answer any questions.  So the guide
 
          5       is the first step, I think, in raising awareness and
 
          6       giving people kind of a base level of understanding,
 
          7       but then working with nonprofit organizations is
 
          8       really the way to give people detailed, individual
 
          9       advice or recommendations about their own personal
 
         10       situation.
 
         11               MR. BLANTON:   I'm interested in the
 
         12       delivery mechanism from a practical standpoint for
 
         13       what the Federal Reserve can do in this arena,
 
         14       because all the Federal Reserves, the 12 reserve
 
         15       banks, have some degree of consumer education
 
         16       efforts and we're restudying that effort now to see
 
         17       what should be done.
 
         18               I'm personally convinced that a message like
 
         19       this has got to be delivered by somebody that the
 
         20       person you're trying to get the message to knows and
 
         21       trusts.  So from that standpoint, how do we get into
 
         22       this mix?  It can't be somebody from Washington or
 
         23       Richmond talking; it's got to be the grass roots
 
         24       effort.  It can't be somebody from the Department of
 
         25       Agriculture or the extension service per se.  You've
 
 
 
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          1       got to be part of the chain to supply the
 
          2       information, train the trainers, that sort of
 
          3       thing.  I'm really kind of interested in your views
 
          4       on how that can take place.
 
          5               MS. MASSENBURG-BEASLEY:   I would agree with
 
          6       your comments very much in the fact that it should
 
          7       be a familiar face.  What we're finding that's
 
          8       working at the consumer credit agencies is
 
          9       developing a relationship with the employee
 
         10       assistance programs.  We have in the past asked the
 
         11       groups that come in to us for training and now we're
 
         12       determining and have learned that our captive
 
         13       audience means that we must go where the audience is
 
         14       in existence and of course have an opportunity to
 
         15       participate and partner with that particular
 
         16       employer; for example, the state of North Carolina
 
         17       and the employee state employees.  We actually are
 
         18       making the rounds to the various sites where state
 
         19       employees are located and during the lunch hour we
 
         20       actually provide a brown-bag presentation on
 
         21       financial literacy, budgeting, money management,
 
         22       credit, and the home buying process.
 
         23               We also have developed relationships that
 
         24       other organizations in Durham have with the local
 
         25       churches.  We go into the actual congregation where
 
 
 
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          1       they are accustomed to being in their comfort zone
 
          2       and provide that information to them.
 
          3               We're finding that the pipeline so far as
 
          4       your realtors and other mortgage bankers, if we can
 
          5       have a very, very strong pipeline of referrals then
 
          6       of course we can work through that mechanism as
 
          7       well.  But I agree that it must be a familiar face
 
          8       and we need to go to the captive audience rather
 
          9       than requiring them to come to us.
 
         10               MS. WARREN:   I would just like to say one
 
         11       thing, which is about money.  Whenever we talk about
 
         12       who can deliver and what the infrastructure is --
 
         13       and I'm very sensitive to what that looks like and
 
         14       doesn't look like in the rural communities in the
 
         15       south.
 
         16               When we're talking about grass roots
 
         17       organizations we have to talk about resources for
 
         18       those grass roots organizations.  We have very, very
 
         19       limited resources available for home ownership
 
         20       counseling.  Because of leadership like Glynee -- in
 
         21       this state, this is probably what we were just
 
         22       talking about, it's the only state that probably has
 
         23       an association of home ownership counselors.  You
 
         24       look at the other states in the south, perhaps
 
         25       outside of Atlanta; there is almost nothing.
 
 
 
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          1       There's the extension service, but again, the
 
          2       ability to reach the grass roots can only be as much
 
          3       as the officers can do.  So we have to talk about
 
          4       resources for the grass roots organizations, which
 
          5       are the best way to reach people at the local level,
 
          6       if we're going to be serious about the literacy and
 
          7       the counseling.
 
          8               MR. BLANTON:   One model might be -- the
 
          9       Treasury, when it was promoting the electronic
 
         10       transfer of government payments, put together
 
         11       financial educational materials, offered those free
 
         12       to those -- our office at the Federal Reserve in
 
         13       Richmond, we contacted all the community
 
         14       organizations in our data base and told them about
 
         15       that, the availability of those materials, so they
 
         16       could get the materials for free.  So if there were
 
         17       a mechanism infrastructure there that support
 
         18       materials could be made to faith-based and other
 
         19       community groups, would that be helpful?
 
         20               MS. WARREN:   I think that's always
 
         21       helpful.  But then you say, well, who's going to
 
         22       take the materials and where are they going to take
 
         23       them and what are they going to do with it.  That
 
         24       requires people and time, which means staffing
 
         25       resources.  To have any kind of real impact with
 
 
 
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          1       materials we need money that's helping to go to
 
          2       these grass roots organizations.
 
          3               I do just want to say one thing which maybe
 
          4       will come up later:  The CDFI mechanism is also an
 
          5       important one.  If you look, for example, at the
 
          6       state of South Carolina -- and I think it's part of
 
          7       the general atmosphere.  South Carolina until very,
 
          8       very recently had no certified CDFIs; none
 
          9       whatsoever.  South Carolina also has extraordinarily
 
         10       high levels of subprime lending, particularly in the
 
         11       African-American community.
 
         12               CDFIs -- and I'm hoping some people in the
 
         13       open line later will talk about how credit unions
 
         14       and others are important alternative credit
 
         15       mechanisms.  We have to talk about if folks are not
 
         16       going to go to predatory lenders, where are they
 
         17       going to go.  I think CDFIs are a source of both
 
         18       alternative sources of credit and also some of this
 
         19       education and counseling that can come.  I think
 
         20       upping the resources we have for CDFIs is one
 
         21       critical strategy.
 
         22               MS. LLOYD:   Could I just go back to the EFT
 
         23       99 materials you were talking about.  Extension was
 
         24       a party to developing the materials.  Every single
 
         25       county was given a copy of those and they partnered
 
 
 
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          1       with the other groups and just -- extension is a
 
          2       grass roots organization.  I think the people in the
 
          3       counties are trusted, but they in turn do extensive
 
          4       train the trainer, and I think that's what we need.
 
          5       We need to partner in the communities so we aren't
 
          6       competing with each other.
 
          7               MR. BLANTON:   I was thinking of that as a
 
          8       model.
 
          9               MS. LLOYD:   I think it's a very good
 
         10       model.  Just add some visuals to go with it.
 
         11               MS. BRAUNSTEIN:   Switching topics a little
 
         12       bit, one of the things that we've heard about in
 
         13       terms of any possible changes that we would make to
 
         14       HOEPA would be about requiring that anyone who is
 
         15       going to get one of these high-cost loans go to
 
         16       counseling first before they sign the papers, for
 
         17       assistance, and I'd like to hear from some of you
 
         18       what you think about that.
 
         19               MS. MASSENBURG-BEASLEY:   I'd like to
 
         20       respond to that.  I understand that perhaps earlier
 
         21       this morning the comment relative to disclosure was
 
         22       mentioned, but that's where I'm going in response.
 
         23               For example, I, as a first-time homeowner,
 
         24       am coming in and you have the documents prepared and
 
         25       before me and you're disclosing all of the correct
 
 
 
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          1       or even unscrupulous information.  That means that I
 
          2       understand it only to my degree or level of
 
          3       understanding, so therefore disclosure is one thing
 
          4       but understanding what's in front of me is another.
 
          5               It's very, very important that there be
 
          6       counseling and/or education as a part of the lending
 
          7       element because of the fact what we're finding is
 
          8       that a very, very large percentage, particularly
 
          9       first-time home buyers, low wealth, very low wealth
 
         10       families, are emotionalized by the fact that I am
 
         11       purchasing a home, or a car.  Whether or not the
 
         12       interest rate is 29 percent or whether or not the
 
         13       interest rate is 8 percent, I want the house or the
 
         14       car and I'm going to sign on the dotted line.
 
         15               There needs to be a third party involved so
 
         16       that that person truly understands the cost of
 
         17       credit.  Understanding and knowing my credit
 
         18       capacity is also very, very important, because we're
 
         19       finding that the delinquency rate, the default rate,
 
         20       will increase if there is a minimum or no
 
         21       understanding as to what I've done other than
 
         22       purchase the home.
 
         23               MS. BRAUNSTEIN:   I'll let anybody else
 
         24       comment but I want to add to this a little bit based
 
         25       on what you said.  We've heard from some housing
 
 
 
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          1       counseling programs themselves that they have found
 
          2       it often very frustrating because people will come
 
          3       to them before signing on the dotted line for a
 
          4       HOEPA loan or high-cost loan, and even though
 
          5       they'll sit down in great detail and go over the
 
          6       terms of the loan and explain to that person that
 
          7       this is a bad deal, you shouldn't sign this loan,
 
          8       the people still will sign because I need that
 
          9       thousand dollars that I'm going to get.  And I was
 
         10       wondering if you've had any experience with that
 
         11       issue and what success you've seen or heard about in
 
         12       terms of having counseling actually stopping people
 
         13       from making these loans.
 
         14               MS. MASSENBURG-BEASLEY:   Yes, we've had
 
         15       some experience, and while I am not in a position to
 
         16       give you the actual percentages of success, I'd like
 
         17       to say that there is a model in existence called the
 
         18       community mortgage loan program offered by one of
 
         19       the local financial institutions.  The reason the
 
         20       program is so successful is because it is a very,
 
         21       very structured program.  Individuals who are
 
         22       interested in home ownership, no one is denied, and
 
         23       we know that's basically unheard of.  But the reason
 
         24       that it works is because there is a very thorough
 
         25       understanding and a program service plan designed
 
 
 
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          1       for that particular family.  Families oftentimes
 
          2       participate with a counselor for at least three to
 
          3       six to twelve months and they must come every 30
 
          4       days in order to graduate from that program.  So the
 
          5       more structured programs -- and I realize that
 
          6       appears to be a far more handholding type situation,
 
          7       but it turns out to be a very, very successful piece
 
          8       because of the fact that they are showing and
 
          9       demonstrating their willingness to commit to their
 
         10       education and to their future.
 
         11               MS. LLOYD:   Could I just add on the
 
         12       education preceding the counseling, if they haven't
 
         13       had adequate education they aren't going to
 
         14       understand what you say in the counseling.  They
 
         15       aren't going to listen.
 
         16               We find that some of our greatest success
 
         17       stories, if you wish to call them that, are the
 
         18       people who come to home buyer education, maybe
 
         19       they're ready to buy right now or maybe they're just
 
         20       trying to find out what they need to do in order to
 
         21       get their credit cleaned up and buy down the road,
 
         22       but there's a series of lessons so they have time to
 
         23       go back and actually see what the family financial
 
         24       situation is before they come back again, have time
 
         25       to get a credit report so they have something
 
 
 
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          1       tangible to look at and see what they're
 
          2       addressing.  But what we need to see then and what
 
          3       we have found is that they say I'm not ready yet,
 
          4       but two, three, four years later they will come back
 
          5       and say I am ready, I've gone through it and I have
 
          6       done it successfully.
 
          7               And the final thing I'd like to say on the
 
          8       education, many of the curricula I have seen
 
          9       elsewhere -- and there are many out there, as you
 
         10       know -- talk just about how to get into the house.
 
         11       Unless that initial home buyer education includes
 
         12       what do you need to do to stay in it, and that would
 
         13       include all these cautions, then we haven't done our
 
         14       job.
 
         15               MR. LONEY:   The anecdotal evidence or what
 
         16       you hear is that a lot of this happens in the
 
         17       context of a charlatan who comes around to the
 
         18       elderly person's house and offers to fix their front
 
         19       stoop and in the context of that scenario becomes
 
         20       this elderly person's best friend, trusted advisor,
 
         21       you know.  Is there anything -- I mean, I've heard
 
         22       it too often to think that there's not something to
 
         23       that.  But is there anything that counseling,
 
         24       education, other kinds of intervention, is going to
 
         25       do to address that sort of the most horrible of
 
 
 
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          1       horribles in these anecdotes?
 
          2               MR. SKILLERN:   I think the education is
 
          3       very important and I strongly support and helped to
 
          4       found the North Carolina Association of Housing
 
          5       Counselors and raise money for it, but it is a
 
          6       limited approach.  There is a real need to put this
 
          7       educational work into the context of enforcement,
 
          8       recognizing that it is not people's ignorance that
 
          9       is the blame, is the cause for them being
 
         10       victimized; the act or the cause of action is the
 
         11       lender.
 
         12               Again, education is very important.  I would
 
         13       really stress, you know, the Federal Reserve helping
 
         14       to support full appropriations from Congress to help
 
         15       pay for the housing counselors and legal services,
 
         16       people to do this type of work.
 
         17               So I guess to your question, no, I'm not
 
         18       sure that we can -- I mean, hopefully this flier
 
         19       will have them call.  Hopefully Mike Easley's
 
         20       announcement will have them call a friend and say
 
         21       will you look at this loan document with me; that
 
         22       there's a basic line of caution in the marketplace,
 
         23       that people will be more careful.  But let's also
 
         24       put education in context of what can be done.
 
         25               MS. MASSENBURG-BEASLEY:   I think it's also
 
 
 
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          1       important to keep in mind that predatory lending has
 
          2       several components, and certainly there are several
 
          3       solutions, one of which is legislature which will
 
          4       address the situation or the scenario that you just
 
          5       described, and the other of course is education.  It
 
          6       must be in partnership one with the other, where we
 
          7       control unscrupulous situations through legislature
 
          8       and the other that we educate the consumer who
 
          9       recognizes the transactions.
 
         10               MS. LLOYD:   I would just like to applaud
 
         11       the Fannie Mae approach.  I think the short takes
 
         12       and periodic changes so it's not just the same
 
         13       message over and over are helpful, and I look
 
         14       forward to seeing what you're doing on the HOEPA
 
         15       issues, the predatory lending in particular.
 
         16               You do not oversimplify and turn it into
 
         17       caricature, and I think that's important.  And
 
         18       there's a place to go, there's a place to get
 
         19       information.  The awareness is not great enough yet,
 
         20       just as -- you know, after each of our hurricanes
 
         21       that we have here in North Carolina, there has to be
 
         22       another round because we've got new people coming in
 
         23       or new people affected because of where they hit.
 
         24       They need to be on the alert for the post-hurricane
 
         25       attempts at fraud, and I think that's what we're
 
 
 
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          1       dealing with here.
 
          2               MS. MURRELL:   I think what I'm hearing is,
 
          3       you know, there's no one solution to this problem,
 
          4       that there really needs to be a comprehensive
 
          5       approach to raise awareness so people are aware of
 
          6       the issue early on, make sure that there's education
 
          7       so that people are fully informed and make wise
 
          8       decisions, that they know what they're getting into,
 
          9       and then there's also legislation.  So there's
 
         10       several different things that I think need to be
 
         11       addressed to get at this program and there's no one
 
         12       solution that's going to be a cure-all for this.
 
         13               MR. BLANTON:   How do you get a combination
 
         14       of awareness and intervention?
 
         15               I can give Glenn another story that happened
 
         16       to me.  Somebody knocked on my door and wanted to
 
         17       spray something on my slate roof to make it last
 
         18       longer.  Well, I told him where to go, but instead
 
         19       of going there he went next door to where there were
 
         20       three sisters in their eighties living on a fixed
 
         21       income.  I happened to see it so I called the
 
         22       police.  Well, they came and arrested him for not
 
         23       having a business license.  But I don't know whether
 
         24       he was tied in with any lender that he was going to
 
         25       give them a document to sign or not, but the whole
 
 
 
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          1       point is that's happenstance.  Is there a way to
 
          2       institutionalize some sort of awareness and
 
          3       intervention?
 
          4               MR. SKILLERN:   I would point to our model
 
          5       with CRA*NC in that we're working with other
 
          6       community groups, local NAACP chapters, to do
 
          7       outreach to their members, and to the churches.  So
 
          8       these fliers, beware, be cautioned, are getting out
 
          9       through that informal network.  And we have found
 
         10       that probably our biggest bang for our buck has been
 
         11       people talking with each other, the informal network
 
         12       of you calling your neighbor and the minister
 
         13       talking to his parishioners.
 
         14               MS. LLOYD:  We also have in North Carolina
 
         15       under the consumer protection section, Phil Lehman's
 
         16       group, a senior consumer fraud task force in which
 
         17       extension and AARP are the primary outreach folks
 
         18       and everybody else is law enforcement so that you
 
         19       have people meeting regularly and sending out
 
         20       materials, and it has to -- some things just have to
 
         21       filter out.  The money to do it on a public way and
 
         22       the less expensive ways to do it -- oh.  None of us
 
         23       have mentioned Web sites.  I think we do have to
 
         24       acknowledge that more and more people have access to
 
         25       the Internet.  Not necessarily our end audience, but
 
 
 
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          1       people who can reach the end audience.
 
          2               MR. SKILLERN:   I'd like to move the
 
          3       discussion a little bit towards other types of
 
          4       strategies.  I think education is important.  This
 
          5       the morning y'all focused on HOEPA regulations, but
 
          6       you also have other tools existing under the Federal
 
          7       Reserve that you could use.  One is I think that the
 
          8       HMDA data as a research tool could be strengthened.
 
          9       I'd like to enter into the record that many of the
 
         10       subprime lenders are not reporting race data, so
 
         11       that the data itself becomes a poor tool or
 
         12       ineffectual tool, or incomplete tool should I say,
 
         13       to measure what's happening in the market.  So
 
         14       enforcement of the HMDA requirements would be very
 
         15       helpful.
 
         16               MR. BLANTON:  Could you elaborate on that?
 
         17               MR. LONEY:  Why wouldn't they be in the HMDA
 
         18       data?
 
         19               MR. SKILLERN:  They are reporting under the
 
         20       HMDA data but race is not being reported, oftentimes
 
         21       because brokers are collecting it or because these
 
         22       are phone generated calls.  But nonetheless, there's
 
         23       just an increasing percentage of nonreporting of
 
         24       race, particularly among subprime lenders.  I'd be
 
         25       glad to give you data to back that up.
 
 
 
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          1               MR. LONEY:   If you assume that part of it
 
          2       is because of the increase in the phone applications
 
          3       and the Web applications, et cetera, where they
 
          4       don't have to note race, then that makes sense;
 
          5       right?  Are you saying they're doing it improperly
 
          6       or are you saying they're doing it properly?
 
          7               MR. SKILLERN:  I think there are probably
 
          8       legitimate reasons why there is an increase in the
 
          9       number of nonreported race.  I also think that when
 
         10       it starts to reach above a level of 50 percent, the
 
         11       data itself, means we need to look at that tool to
 
         12       be able to figure out how to make it more effective
 
         13       to collect the information.
 
         14               Race is just one issue under the existing
 
         15       regulation.  The other piece of this that is often
 
         16       being asked for is, is credit being priced according
 
         17       to risk and is there disparate impact and treatment
 
         18       of protected classes.  The office of thrift
 
         19       supervision came out with an estimate of about
 
         20       41 percent of subprime lending is being priced for
 
         21       people who have credit scores of 620 and above.
 
         22       Fannie Mae and Freddie Mac have both come out with
 
         23       estimates of between 30 and 50 percent of the
 
         24       subprime market are overpriced.  So we think that if
 
         25       the HMDA data was expanded to collect bar
 
 
 
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          1       characteristics such as credit score, we would then
 
          2       be able to do correlations to better determine how
 
          3       credit is being allocated.
 
          4               The HMDA data is notorious, we've all
 
          5       agreed, both lenders and advocates, that it's not
 
          6       complete enough to know, particularly with the
 
          7       evolution of the subprime market, whether a loan is
 
          8       subprime or not and whether it's for manufactured,
 
          9       and we need a better definition of that.  We need a
 
         10       type loan category for those.  We also need to
 
         11       expand the loan characteristics such as the interest
 
         12       rate or prepayment penalties or financed credit life
 
         13       insurance so there's a public data source for loans
 
         14       that we think have predatory elements to them.  So
 
         15       HMDA data itself, the Federal Reserve we would ask
 
         16       to look to both enforce it better as well as to
 
         17       expand the categories and types of data collection.
 
         18               The other thing as far as HMDA, a study that
 
         19       would be helpful, I referenced it earlier, is that
 
         20       we need to go into a large source of loan files of
 
         21       subprime lenders and simply characterize what type
 
         22       of loan terms, conditions, pricing, is happening so
 
         23       that we can get a large enough sample to do that,
 
         24       and I would again look to the Boston Federal Reserve
 
         25       as a pivotal example of the power of the research.
 
 
 
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          1               I also want to talk about CRA, the Community
 
          2       Reinvestment Act, on two fronts.
 
          3               MR. BLANTON:   Peter, before we leave HMDA
 
          4       I'd like to ask a question, particularly from
 
          5       Ms. Massenburg-Beasley, and that is, with respect to
 
          6       the HMDA disclosures, the reasons for loan denial
 
          7       are now voluntary, so -- it's voluntary, it's not a
 
          8       mandatory disclosure?
 
          9               MS. MASSENBURG-BEASLEY:   It is mandatory.
 
         10               MR. LONEY:   It's mandatory for certain --
 
         11       the 0CC and I think -- we don't.
 
         12               MS. BRAUNSTEIN:  We don't.
 
         13               MR. BLANTON:   When we're looking at a
 
         14       profile of the community and the HMDA lending we
 
         15       don't get a complete picture of why the credit was
 
         16       denied.  We suspect it's credit history but we're
 
         17       not too sure.  Would it help with respect to credit
 
         18       counseling activities to be able to target those
 
         19       activities if you had a clearer picture of that?
 
         20               MS. MASSENBURG-BEASLEY:   Relative to
 
         21       working with the person who has been denied?  Yes,
 
         22       it would help to be --
 
         23               MR. BLANTON:   Developing your curriculum
 
         24       and your materials and that sort of thing.
 
         25               MS. MASSENBURG-BEASLEY:   It would help to
 
 
 
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          1       know, yes, the trends for denial, and therefore in
 
          2       developing the curriculum materials, yes, we could
 
          3       tell that or target that to the direction of the
 
          4       actual identified trends and problems.  That would
 
          5       be helpful.
 
          6               MR. SKILLERN:   I would hope that depository
 
          7       institutions that are covered by CRA would not be
 
          8       given credit for making subprime loans that have
 
          9       practices that could be identified that seem to be
 
         10       unfair that deplete wealth, not create wealth, and I
 
         11       would look to the North Carolina model for better
 
         12       determining what a good CRA loan is, such as not
 
         13       having high fees.
 
         14               I'd also like to urge you to look at the
 
         15       fair housing law and we'll submit for the record the
 
         16       Department of Justice's AMICUS briefing in the
 
         17       Capital City case, which looked at whether predatory
 
         18       lending is a fair housing issue.  And to the extent
 
         19       that the Federal Reserve and its examination
 
         20       processes cover lenders who are doing subprime
 
         21       lending, to examine the implications of whether
 
         22       predatory lending or subprime lending is having a
 
         23       disparate impact on minorities.  It's a very
 
         24       technical and well argued document.
 
         25               You have the regulatory authority to examine
 
 
 
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          1       for fair housing through your examination process
 
          2       and it is a tool that you could already use.
 
          3               Another thing that I'd like to argue is that
 
          4       you go ahead and change your current policy of not
 
          5       examining affiliates of bank holding companies.  I
 
          6       think it very important that to the extent you have
 
          7       regulatory jurisdiction that you choose to exercise
 
          8       it in examining those loan files to determine that
 
          9       they're in compliance with existing laws.  We're
 
         10       very concerned about the dual system of being able
 
         11       to walk into a prime lender and get prime interest
 
         12       rate, credit insurance if you want to buy it on a
 
         13       monthly basis, and if you have a complaint be able
 
         14       to go to the OCC that regulates and file a
 
         15       complaint, versus walking into its affiliate just
 
         16       next door, getting an interest rate that is higher
 
         17       regardless of your creditworthiness, that has loan
 
         18       terms and conditions that are not equal to the prime
 
         19       loan, that may not be priced to your credit risk,
 
         20       and that if you have a problem you really don't have
 
         21       a regulator to go to except the FTC, which is
 
         22       understaffed and does not commit regular, periodic
 
         23       evaluations of the lender's performance.
 
         24               You have that jurisdiction and we would
 
         25       really urge you to go ahead and exercise it to
 
 
 
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          1       broaden the field of evaluation for fair housing and
 
          2       consumer compliance.  I would do that as a safety
 
          3       and soundness issue as much as an economic justice
 
          4       issue.
 
          5               MR. LONEY:   Just to clarify, you mean the
 
          6       non-bank subsidiaries of bank holding companies; is
 
          7       that right?
 
          8               MR. SKILLERN:   Yes, sir.
 
          9               MR. LONEY:   You don't have to call me sir,
 
         10       Peter.
 
         11               MR. SKILLERN:   That was the last five
 
         12       minutes of my three-minute speech.
 
         13               MR. LONEY:   I know, and I think you just
 
         14       cheated.  Somebody else have any questions?
 
         15               One thing that we came here for is to get
 
         16       somebody to tell us; we've been looking for data.
 
         17       When the Board engages in rule-making one of the
 
         18       things it likes to have at its fingertips is data.
 
         19       We've looked, and so far I'm not sure that I can
 
         20       tell you that we've been remarkably successful in
 
         21       finding data that will inform us about any of the
 
         22       aspects we've been talking about either this morning
 
         23       or this afternoon or any of the brief litany you
 
         24       just gave as to the prevalence of this or the
 
         25       implications of changing parts of this to something
 
 
 
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          1       else and what would happen.
 
          2               Then I think we even have some debates about
 
          3       the adequacy of the data that has been put out, that
 
          4       whether in fact what we're talking about with HOEPA
 
          5       lending is only 1 percent of the market and it would
 
          6       go up to 5 percent of the market and people take
 
          7       issue with whether the data that that assertion is
 
          8       based on has any validity.
 
          9               If there's anything that anybody knows of,
 
         10       we'd certainly like to hear about it, by way of data
 
         11       the Board can use in making the judgments it's going
 
         12       to have to make in addressing whether and how to
 
         13       change HOEPA, which is really what we're talking
 
         14       about sort of as a first matter.
 
         15               MS. WARREN:   I don't know of anything
 
         16       better than you've already heard.  I think it points
 
         17       to Peter's recommendation that the Fed is going to
 
         18       need to take some leadership in generating its own
 
         19       data.  That's going to be far better than anything
 
         20       else that's provided, and this data is essential to
 
         21       answering the questions that you've raised and we've
 
         22       all raised.  There's a real research need out there.
 
         23               MR. SKILLERN:   I think that you also might
 
         24       find sources for different types of practices but
 
         25       not necessarily how they are all put together in a
 
 
 
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          1       loan.
 
          2               For example, if you agree that high
 
          3       prepayment penalties are an unfair consumer
 
          4       practice, then the industry admits that there is
 
          5       about 80 percent of that on subprime loans and only
 
          6       about 2 percent on prime loans.  If you wanted to
 
          7       get an estimate for single-premium credit insurance,
 
          8       over $5 billion a year is sold in our country.  If
 
          9       you wanted to get an estimate for how loans are
 
         10       priced above credit risk, then I would refer you to
 
         11       the OTS report or the Fannie Mae or Freddie Mac
 
         12       evaluation.  By that you start to pick up different
 
         13       types of it, even though you've not been able to say
 
         14       the high interest rates of the 30 to 50 percent are
 
         15       then locked in by the prepayment penalties for
 
         16       80 percent of the loans, so you could make that
 
         17       correlation.  That's one recommendation I would make
 
         18       to you is to look for a published research on
 
         19       aspects of it even though, until we do a broader
 
         20       study, we can't see how they're all put together.
 
         21               MR. LONEY:   Certainly we've done some
 
         22       research on some aspects of it but you butt up
 
         23       against the problem of not having data that's
 
         24       reliable, and it's not always as easy as just saying
 
         25       we want it, to get it.  I mean, sometimes we want it
 
 
 
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          1       and nobody has it even to get.  That's always been a
 
          2       challenge what to do then.  Or if we have wanted to
 
          3       go and try to collect it, everybody that we had to
 
          4       get it from as a source collected it, you know, in a
 
          5       myriad different ways, so that even if you get the
 
          6       information it's not comparable one institution to
 
          7       the next.
 
          8               I don't want to tell you my sob stories but
 
          9       I will tell you those kinds of efforts have come a
 
         10       cropper no matter what we wanted, even if it was we
 
         11       who was doing it in the past.  We were hoping maybe
 
         12       somebody could send us down a better path than we've
 
         13       used so far.
 
         14               MS. HURT:   May I ask in terms of consumer
 
         15       education, I guess the basic question I'm asking is,
 
         16       what can the Board do?  For example, is there
 
         17       enough -- well, you talked a bit about written
 
         18       materials and that's sometimes useful and sometimes
 
         19       they're not, dependent upon how complicated, but do
 
         20       you get a sense that on a national basis there is
 
         21       enough materials out there and it's an issue of
 
         22       dissemination, or there may be materials for your
 
         23       constituents but the Board -- is there a role for
 
         24       the Board to create something along the lines of the
 
         25       car leasing initiative?  Would that be useful?  Do
 
 
 
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          1       you know what I mean?  That if the Board came out
 
          2       with a package of brochures, a video, something that
 
          3       could go on the Web site, would that be useful, or
 
          4       is there enough information out there already and
 
          5       it's just a matter that it's not reaching the right
 
          6       people?
 
          7               MS. LLOYD:   From my personal perspective
 
          8       with my organization there's not enough on HOEPA
 
          9       itself, and that we need the train-the-trainer type
 
         10       background material to make sure they're dealing
 
         11       with objective -- in my organization it must be
 
         12       objective, it must be research based, factual based;
 
         13       it can't be advocacy.  So we need more -- we have
 
         14       the general homeowner; I'm saying we need this
 
         15       supplement for it.
 
         16               I think that we always partner with other
 
         17       organizations and I'm assuming that they share, that
 
         18       they would like to have short-take information and
 
         19       background for whoever is going to actually be
 
         20       delivering the information.  But using the Web,
 
         21       we've got half a dozen I could name right away,
 
         22       professional organizations that share information.
 
         23       We need to get it out as soon as there is something
 
         24       available to update whatever they're already using.
 
         25       I'm seeing what you need especially is supplemental
 
 
 
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          1       to what we have.  Yes, we very much need it, and
 
          2       just to keep coordinating the groups that need to be
 
          3       talking to each other so that we aren't having a
 
          4       waste of resources by producing comparable things
 
          5       for the same audience.
 
          6               If we divvy up and say we'll do something
 
          7       for this audience and we'll do it for this, and then
 
          8       everybody use it all, that would be the ideal.
 
          9               MS. MASSENBURG-BEASLEY:   I'd like to
 
         10       magnify that and say that I believe there's a
 
         11       tremendous amount of information that's presently
 
         12       available and that will work extremely well.  The
 
         13       difficulty of the problem is the distribution
 
         14       system, and therefore there should be some capacity
 
         15       building for the distribution of the current
 
         16       information.  I'd like to think that the Federal
 
         17       Reserve could look at the information that is
 
         18       available, pull it together, and then of course
 
         19       support the local agencies and local initiatives
 
         20       through capacity building to get that information
 
         21       out.
 
         22               MS. MURRELL:   I'd like to echo that point.
 
         23       We talked a little bit about the whole issue of
 
         24       trust and that that's why it's so important to make
 
         25       sure that information is distributed through the
 
 
 
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          1       local organizations.  And in some cases these local
 
          2       organizations might be organizations that are not
 
          3       involved in financial literacy or credit, if you're
 
          4       talking about like the faith-based communities for
 
          5       example, so it is particularly important not only to
 
          6       have information but to make sure that there is the
 
          7       technical assistance piece that goes along with it.
 
          8               MS. MASSENBURG-BEASLEY:   I'd like to add to
 
          9       that also a model, an excellent model to take a look
 
         10       at, the housing council association group here in
 
         11       the state of North Carolina and to make contact with
 
         12       that particular organization.  There are at least --
 
         13       I want to say at least approximately 30 or more
 
         14       local counseling agencies who are members of that
 
         15       particular organization.  It would be a concerted
 
         16       effort and a very, very easy mechanism to work with
 
         17       that particular group to get the information out
 
         18       statewide.
 
         19               MR. LONEY:   Does anybody else have any
 
         20       questions or comments?
 
         21               MS. WARREN:   I just wanted to bring up the
 
         22       rural issue again because none of the questions
 
         23       dealt with that, and wonder if you have any
 
         24       questions about that or any interest or concerns.
 
         25       I'm not sure you're going to hear about it in the
 
 
 
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          1       other three hearings.  I hope you will, particularly
 
          2       in the midwest, but you can't count on it.
 
          3               MS. LLOYD:   We would certainly echo that,
 
          4       extension.  This is our toughest nut to crack is
 
          5       there aren't services, there aren't people to
 
          6       deliver it.
 
          7               MS. WARREN:   And the problems are more
 
          8       prevalent --
 
          9               MS. BRAUNSTEIN:   The questions I asked
 
         10       before about the consumer education, I also wanted
 
         11       to hear from you in terms of the specific issues
 
         12       that pertain to the rural areas.
 
         13               MS. LLOYD:   And our elder poverty is
 
         14       obviously the greatest there.
 
         15               MS. BRAUNSTEIN:   Seems what I'm hearing is
 
         16       a lack of resources and delivery systems.
 
         17               MS. WARREN:   In the south, North Carolina
 
         18       is exceptional in the kinds of delivery mechanisms
 
         19       it has.  We work in all the other states and are
 
         20       just trying to work with partners there to build up
 
         21       what we have here in North Carolina.  It's a very
 
         22       different place.
 
         23               MR. BLANTON:   We have some dealings that
 
         24       we're doing with the Appalachian Regional
 
         25       Commission, but how does that attack those out west,
 
 
 
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          1       for example?  As I would get it, the problem there
 
          2       you're talking about is in the delivery system; the
 
          3       infrastructure is not there.  So maybe you need to
 
          4       identify through the extension service and/or
 
          5       faith-based organizations something that would get
 
          6       to the consumers in the rural areas.
 
          7               MS. WARREN:   As Peter says, it's also
 
          8       looking at the bigger picture, that clearly
 
          9       manufactured housing is a major player in rural
 
         10       housing, quote, affordable housing, and the
 
         11       financing vehicles and mechanisms that go along with
 
         12       manufactured housing have to be, I think, looked at
 
         13       in this research and in any kind of regulatory
 
         14       structures.  So it's not only a supply of housing
 
         15       counseling in rural communities; it's also where are
 
         16       the rural banks, where are the conventional
 
         17       mechanisms for getting credit.  There are less even
 
         18       than in the inner cities.
 
         19               MS. BRAUNSTEIN:   I know at the Dallas Fed
 
         20       they're looking very closely at issues around
 
         21       manufactured housing because that's been a big
 
         22       concern in that area, and I can put you in touch
 
         23       with somebody.
 
         24               MR. LONEY:   Anything else you want to say
 
         25       about that?  All right.  Well, if not, I will thank
 
 
 
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          1       the panelists; thank you very much.  It was very
 
          2       interesting and I think it will ultimately prove to
 
          3       be very useful.
 
          4               Let's take about, I don't know, 15 minutes,
 
          5       and we'll check out the list of people who signed up
 
          6       for the open-mike, and we will begin the open-mike
 
          7       session at five minutes after 3:00.
 
          8               (A recess.)
 
          9               MR. LONEY:   It's time for us to open the
 
         10       open-mike session.  This is going to be tight,
 
         11       folks, getting it all in.  We'd like to get as many
 
         12       people in as we can and still allow those of us who
 
         13       have to leave to catch our plane, so I'd ask once
 
         14       again that we keep what we have to say down to three
 
         15       minutes.  And for those of you who have come as
 
         16       groups, I would very much appreciate it if you could
 
         17       orchestrate it to keep the time that you use down to
 
         18       something more reasonable than multiplying the
 
         19       number of people you have by three, because that
 
         20       sort of stacks the deck.  So, anyway, if you can
 
         21       accommodate me on that I would very much appreciate
 
         22       it.
 
         23               The first person who's on my list is Dick
 
         24       Boisky of Azalea Coast Mortgage, if you want to come
 
         25       up.  The timekeeper is this gentleman over here and
 
 
 
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          1       he will give you the one-minute signal and then
 
          2       he'll give you time-is-up signal, and if you will do
 
          3       what you can to accommodate us with that.  Before
 
          4       you start, Jane, do I have the final list?  Okay,
 
          5       Mr. Boisky.
 
          6               MR. BOISKY:  My name is Dick Boisky and I'm
 
          7       a mortgage broker.  I am president of a small
 
          8       business employing six people in Wilmington, North
 
          9       Carolina.  On previous trips to the Fed here while
 
         10       working at Brinks part-time going to NC State, I
 
         11       started working in the basement, delivering currency
 
         12       with Brinks down there.  Later as a national bank
 
         13       examiner I attended numerous consumer compliance
 
         14       seminars at the Fed here, and now I have this
 
         15       appearance.  I hope that on my next visit I'll be
 
         16       able to get to that executive level.
 
         17               A couple of the issues we're talking about
 
         18       here, truth in lending Regulation Z.  As a former
 
         19       national bank examiner while doing consumer
 
         20       compliance exams, I was really trying to recall -- I
 
         21       can't ever recall a violation related to APR on the
 
         22       mortgage side.  Retail side, car loans, we had them
 
         23       all the time, but the mortgage side.  It simply was
 
         24       because we weren't comfortable enough to go head to
 
         25       head with the banker who could stare us down.  We
 
 
 
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          1       just didn't feel confident enough.  I still don't
 
          2       feel that confident about it.
 
          3               The concept of APR and comparative shopping
 
          4       is a very good one.  However, even experienced real
 
          5       estate attorneys hold their breath when asked to
 
          6       explain how the APR is calculated.  No matter how
 
          7       well intended, for the average consumer this concept
 
          8       is very broad and nebulous, probably to the point of
 
          9       being lost.
 
         10               HOEPA applies to closed-end installment
 
         11       loans.  In placing additional disclosure
 
         12       requirements based on profit margins on these types
 
         13       of loans, please keep in mind the relatively small
 
         14       amount of the loan we're talking about and thus the
 
         15       small amount of profit to be earned.  By placing
 
         16       these additional disclosure requirements, you are in
 
         17       effect capping the loan, which could lead to
 
         18       disinterest in providing this service.  That
 
         19       ultimately deprives the consumer of a means of
 
         20       accessing their appreciation and equity.
 
         21               Balloon payments.  Balloon payments are not
 
         22       necessarily bad things.  For a person who expects to
 
         23       be relocated by their company or expects to buy a
 
         24       larger or smaller house in a few years, a mortgage
 
         25       with a balloon payment may be just the ticket.
 
 
 
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          1               Prepayment penalties.  Most homeowners stay
 
          2       in their house or mortgage an average of three to
 
          3       five to seven years, so for many borrowers even a
 
          4       three-year prepayment is not an issue.  North
 
          5       Carolina does not allow mortgages with a prepayment
 
          6       penalty.  Valid points could be made on either
 
          7       position; however, the bottom line is this:  Our own
 
          8       Charlotte-based Bank of America offers every state
 
          9       except North Carolina a one-year adjustable mortgage
 
         10       with a prepayment penalty currently at around
 
         11       7 percent.  Without that prepayment penalty, the
 
         12       rate would be 8 percent.  It amounts to $34,000
 
         13       additional expense over 30 years.
 
         14               A prepayment penalty is not de facto bad.
 
         15       It is merely one mortgage tool that, when used
 
         16       wisely with the advice and experience of a
 
         17       professional, can be used to a consumer's
 
         18       advantage.
 
         19               One last thing, registration or licensing.
 
         20       Every group or organization has a few bad apples
 
         21       that taint the entire group.  The mortgage industry
 
         22       is no different.  We readily admit to having some
 
         23       overzealous members, some might even say
 
         24       unscrupulous, but not all brokers operate that way.
 
         25       The majority don't operate that way.  I think we
 
 
 
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          1       could use some refinement of present laws -- I'm
 
          2       finished -- present laws or regulations that may be
 
          3       archaic, but I think also that if mortgage brokers
 
          4       are accounting for over 63 percent of mortgage
 
          5       transactions, as we are, we must be doing something
 
          6       right.
 
          7               Our trade association stresses continuing ed
 
          8       but not a major overhaul.  Maybe part of the
 
          9       solution is to have brokers licensed or registered
 
         10       similar to a stockbroker, insurance broker, and real
 
         11       estate brokers.  Thank you.
 
         12               MR. LONEY:   Thank you.  Let me just give
 
         13       you a bit of a list of who's coming up; I'll give
 
         14       you the next five, let's say.  Hayes Hyman, Jane
 
         15       Estes, Mark Lawrence, Tom Estes, and Mike Miciek,
 
         16       that's the next five.  So Hayes Hyman, if you want
 
         17       to come up.
 
         18               MR. HYMAN:  I'm not as prepared as
 
         19       Mr. Boisky was in terms of a written text to read
 
         20       from, but my name is Hayes Hyman, I work with First
 
         21       Financial Services in Carey, North Carolina.  I am a
 
         22       past president of the North Carolina Association of
 
         23       Mortgage Professionals and I currently am the
 
         24       cochair with Kate Crawford of the legislative
 
         25       committee, so as such I keep my finger on the pulse
 
 
 
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          1       of the regulatory and legislative goings-on in the
 
          2       mortgage related industry.
 
          3               But the main thing that I wanted to comment
 
          4       on is that I'm a loan officer first and foremost; I
 
          5       have been for 14 years.  Every day I meet with
 
          6       consumers just like those of us in this room to take
 
          7       loan applications, to counsel them about their
 
          8       credit, about the type of loan programs that are
 
          9       appropriate for their particular needs, because
 
         10       there's so many loan programs and everybody's needs
 
         11       are unique to them.  And the one thing that I've
 
         12       learned over the years of doing this is that, as
 
         13       Governor Gramlich commented on, the simplicity needs
 
         14       for the disclosures is that people, all people, want
 
         15       to know something very simple:  What does cost for
 
         16       me to do business with you.  And the costs are quite
 
         17       simple.  It's fees that they pay at closing and it's
 
         18       interest that they pay over the course of the loan,
 
         19       of course, the interest rate.  And as good as the
 
         20       intentions are of the Truth in Lending Act, that
 
         21       cost, simplicity, gets quite complicated with the
 
         22       level of disclosures, and so I urge the Board to
 
         23       look at simplicity ways of meeting those needs.
 
         24               I don't do Section 32 loans, high-cost
 
         25       loans, I don't do the North Carolina -- as described
 
 
 
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          1       under the new North Carolina Predatory Lending Act
 
          2       types of loans, and the majority of our members
 
          3       don't do that type of loan as well.  So we are proud
 
          4       to say that we support and supported the process and
 
          5       the final outcome of the Predatory Lending Act and
 
          6       we want to work with the Board and others in
 
          7       achieving the solutions to many of the problems that
 
          8       were discussed in this room.
 
          9               The one thing that I do want to say,
 
         10       however, is that it was great to hear some of the
 
         11       comments from Ms. Massenburg-Beasley and Ms. Murrell
 
         12       in terms of outreach and education and consumer
 
         13       credit counseling.  Every borrower I meet with,
 
         14       whether they're a first-time home buyer or they've
 
         15       done it many times, there's a counseling process
 
         16       that takes place.  And I think they would be willing
 
         17       to -- in fact, to perhaps even suggest a forum among
 
         18       industry and some of the counseling groups so that
 
         19       we can develop counseling at the point of sale; that
 
         20       is, the loan officer.
 
         21               With the ethical and scrupulous rather than
 
         22       the unscrupulous I think that most of the solutions
 
         23       could be achieved at the point of sale.  Thank you.
 
         24               MR. LONEY:   Thank you.  Ms. Estes?
 
         25               MS. ESTES:  My name is Jane Estes.  I am a
 
 
 
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          1       mortgage broker; I'm also a small business owner
 
          2       here in Charlotte.  My company has four people.
 
          3       We're part of the economy, we keep it going.  I
 
          4       think most of the mortgage brokers in this country
 
          5       range from two people to ten people, the majority of
 
          6       them.  We provide a valuable service.  We take time
 
          7       and we do a lot of education, take time to do loans.
 
          8               MS. BRAUNSTEIN:   They can't hear you in the
 
          9       back.
 
         10               MS. ESTES:  As a mortgage broker we can take
 
         11       time, because our overhead is not as high, to do
 
         12       loans that traditional lenders cannot.  I've had
 
         13       loans that have taken four and five months to close
 
         14       because of the process I've had to go through with
 
         15       the consumer to either correct something, help him
 
         16       get everything in order.  So that's a value that we
 
         17       provide.
 
         18               I hope we've established that not all
 
         19       brokers are predatory lenders and not all subprime
 
         20       is predatory lending.  Even though somebody may
 
         21       qualify for a conforming type loan, having a credit
 
         22       score over 620 does not necessarily mean that they
 
         23       are going to qualify document-wise for a conforming
 
         24       loan or that that is the product they want to choose
 
         25       that will meet their needs.  They may want a
 
 
 
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          1       nonconforming type of product.
 
          2               Everybody has heard the horror stories, but
 
          3       for all of those horror stories there's hundreds of
 
          4       success stories and we just don't get advertised as
 
          5       much because people are happy.  The squeaky wheel
 
          6       gets the oil.
 
          7               I do what I do because I get so much
 
          8       satisfaction out of helping people get into homes
 
          9       and also possibly getting back on the road to
 
         10       recovery if they have had a disaster in their
 
         11       family.
 
         12               Already in North Carolina I've seen the
 
         13       availability of credit begin to shrink, particularly
 
         14       to the credit-impaired, but also the conforming
 
         15       customers out there due to our new predatory lending
 
         16       law.  What I've heard from lenders is that the
 
         17       uncertainty of the law, particularly the reasonable
 
         18       net tangible benefit statement -- the ambiguity of
 
         19       this section is that it's not tried, there's no case
 
         20       law, and all the risks are very unknown.  Also, by
 
         21       limiting the prepayment penalties severely there is
 
         22       no certainty that a lender is either going to break
 
         23       even or make a profit.  These provisions have
 
         24       increased the cost of credit through interest rates,
 
         25       which affects each borrower's affordability and
 
 
 
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          1       buying power.
 
          2               Because of these issues that we're facing in
 
          3       North Carolina, I urge you to slowly take steps to
 
          4       make changes to HOEPA and consider the ramifications
 
          5       by getting input from the people that sit across the
 
          6       desk from these consumers.  One step would be a very
 
          7       simple disclosure form; if you can streamline that
 
          8       it would be great.  I have to make jokes in front of
 
          9       my customers because there is such a volume of
 
         10       paperwork that needs to be done.  If you can
 
         11       simplify that, it would be much easier.
 
         12               If the cost of credit increases nationwide
 
         13       as it has started to in North Carolina, I would
 
         14       think that it would hinder the percentage of home
 
         15       ownership that we're at right now.  Thank you.
 
         16               MR. LONEY:   Thank you.  Mr. Lawrence?
 
         17               MR. LAWRENCE:  Good afternoon.  Thank you
 
         18       for the opportunity and the forum in which to
 
         19       speak.  I have many more pages and a lot to say but
 
         20       I'll watch out for Pepper.
 
         21               MR. LONEY:   Why don't I interrupt for a
 
         22       second and say if you do, and for any of you who
 
         23       speak, you can submit those for the record.  So if
 
         24       you can just summarize, but you can send us what you
 
         25       like or give it to us.
 
 
 
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          1               MR. LAWRENCE:  The main thing that I wanted
 
          2       to try to relay to you as a board is what we do
 
          3       every day at our company and it's basically
 
          4       mandatory for our loan officers, and that is to
 
          5       explain the whole process of credit and to educate
 
          6       their customers.
 
          7               About 60 percent of our customers are
 
          8       refinances.  We have conforming and conforming and
 
          9       this happens in both segments.  They come in and
 
         10       they have this sickening sense every day when they
 
         11       wake up before their feet even hit the floor,
 
         12       they're tense and they're upset.  They're worried
 
         13       about the phone calls they might receive before work
 
         14       or at work.  They're afraid of having company over
 
         15       to their house for a get-together because somebody
 
         16       might come by their house.  They've made some bad
 
         17       decisions somehow, maybe bought a car that was too
 
         18       expensive or helped somebody else or maybe they're
 
         19       helping with the convalescence of an elder parent,
 
         20       but for whatever reason, not being judgmental, a lot
 
         21       of people in America have gotten themselves into
 
         22       circumstances in which they have bad credit.
 
         23               And what we do, when we do the loan for
 
         24       them -- hopefully we can do a loan for them.  If we
 
         25       can't, we tell them, but in the process we talk to
 
 
 
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          1       them about their credit reports, how to correct
 
          2       them.  We talk to them about what credit scoring
 
          3       means.  We talk to them that they need to have
 
          4       cancelled checks.  The whole process is to -- if
 
          5       they're going to be on a nonconforming loan in the
 
          6       very beginning we let them know the end result is to
 
          7       be in a conforming situation, that this is a
 
          8       transitional thing for them.  We talk to them about
 
          9       savings accounts, we talk to them about the
 
         10       ramifications of cosigning for somebody and not
 
         11       having them pay the check.  We talk to them about
 
         12       reading the publications of their industry.
 
         13               In the whole process that we do in the whole
 
         14       time we're doing the loan is to educate them and let
 
         15       them know that this is a temporary thing, that they
 
         16       can get from here and they can get over to the
 
         17       conforming side so 27 out of 30 years they are in a
 
         18       very good situation.  I thank you for your time.
 
         19               MR. LONEY:   Thank you.  Mr. Tom Estes?
 
         20               MR. ESTES:  I'm Tom Estes.  I am a board
 
         21       member of the North Carolina Association of Mortgage
 
         22       Professionals.  I also represent a wholesale
 
         23       mortgage lender that does subprime loans.
 
         24               There are two or three things that I wanted
 
         25       to say to you today.  First of all, with the Fed's
 
 
 
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          1       authority in what they can do, if this is exercised
 
          2       to its fullest extent it will be severely damaging
 
          3       to our business.  And business -- the nature of
 
          4       business is to make a fair profit, a fair and
 
          5       reasonable profit, not to take advantage of
 
          6       consumers.  But it will hurt if that happened.
 
          7               I would urge -- I would reiterate some of
 
          8       the things that have been said up here before.  I'd
 
          9       go very slowly, I urge you to go very slowly.
 
         10       You're asking for data; part of the data I think you
 
         11       need is going to be to take a look at what happens
 
         12       in North Carolina.  We don't know yet, we don't know
 
         13       the effect of what's happened here.  You've been
 
         14       urged today to go beyond that.  It's a very scary
 
         15       thought that we don't know yet what's happening and
 
         16       yet to go beyond it.
 
         17               While saying that, let me say that I've
 
         18       heard and I've read some of the horror stories that
 
         19       exist.  I don't doubt that those things happen.
 
         20       I've seen the proof that some of those things
 
         21       happen.  I rep 175 mortgage brokers in North
 
         22       Carolina and the brokers that I know are hardworking
 
         23       individuals that do just like people who have stood
 
         24       up here in front of me and told you, they work with
 
         25       their customers.  They have an end result in mind;
 
 
 
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          1       that end result is to help somebody who's in
 
          2       trouble.  Fortunately they're able to make a living
 
          3       by doing that, and that's a good thing.  I don't
 
          4       know any brokers who make $200,000 a month.  Most of
 
          5       my brokers I'd say are doing good to make $30,000 a
 
          6       year.
 
          7               While you're aiming at a market here that
 
          8       has been called the American dream, part of that
 
          9       American dream is not just wealth-building for the
 
         10       individual.  It has existed -- it's home ownership
 
         11       itself, to have something invested in myself.  But
 
         12       part of that investment in myself is
 
         13       self-responsibility.  One of the speakers earlier
 
         14       said that the problem was not the ignorance of the
 
         15       borrowers but lenders themselves.  There may be bad
 
         16       lenders in the market but I'm not aware of it; I'm
 
         17       not aware of a lot of it.  I've seen some of those
 
         18       things and I can't deny they happen.  But I don't
 
         19       know how you're going to go cautiously and keep the
 
         20       opportunity for people to do self-investment -- the
 
         21       ideas are there, and by self-investment I mean home
 
         22       ownership -- and still keep a healthy housing market
 
         23       out here and healthy opportunity for people to have
 
         24       access to their credit and cut out all of the abuses
 
         25       that are there; I don't know how that's going to be
 
 
 
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          1       done.  I don't envy you your task.
 
          2               But I would say, again, urge you to go
 
          3       slowly, look at the data from North Carolina, try to
 
          4       gather that.  And I would support what was said
 
          5       earlier about the HMDA data, that that does need to
 
          6       be more inclusive and more specific so that we have
 
          7       more facts.  Thank you.
 
          8               MR. LONEY:   Thank you, Mr. Estes.
 
          9       Mr. Miciek, did I get that right that time?
 
         10               MR. MICIEK close enough.
 
         11               MR. LONEY:  I do admire your tie.
 
         12               MR. MICIEK:  Thank you.  My name is Mike
 
         13       Miciek.  I've probably been in the business longer
 
         14       than you have, I'm not sure.  I started off in
 
         15       Detroit for an S&L, and in Detroit we had a guy
 
         16       called Friendly Bob Adams.  Bob Adams was a local
 
         17       finance company.  Everybody in blue collar went to
 
         18       Friendly Bob Adams because he'd smile at them, say
 
         19       hi to them, give them a 22 percent interest rate
 
         20       loan for whatever it was they wanted to buy.  They
 
         21       didn't go to the banks or the S&Ls because they were
 
         22       afraid, they were intimidated by the marble columns
 
         23       and the walnut desks and everything else, so they
 
         24       were willing to pay that higher interest rate.
 
         25               That market still exists out there, and that
 
 
 
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          1       market is what is being served by some of the
 
          2       predatory people that are doing it; not the banks
 
          3       and the other ones that are there.
 
          4               In 1973 I thought we got rid of the
 
          5       prepayment penalties when the Supreme Court decided
 
          6       you either have the prepayment penalty or the
 
          7       assumability; you can't have both.  Somehow the
 
          8       prepayment penalty has crept back into the equation
 
          9       and into our loans again, but in those days your
 
         10       loans were assumable or you had the prepayment
 
         11       penalty, one or the other, and that's the way the
 
         12       court ruled.  You might want to take a look at that
 
         13       again.
 
         14               You can't have a predatory lender unless you
 
         15       have prey.  No predator can survive without prey.
 
         16       That prey is either a buyer, a no-cash refi, or a
 
         17       cash-out refi.  All of them seem to have some kind
 
         18       of a desperate need in their background that causes
 
         19       them to be treated substandard.  They're financially
 
         20       disadvantaged and so they become prey, they're
 
         21       susceptible to the predators that are out there.
 
         22       Predators also often refuse to pay the people who
 
         23       work for them when they do it.
 
         24               Part of the reason these people are driven
 
         25       like sheep into the predator's fold is the fact that
 
 
 
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          1       they have FICA scores, and a FICA score, which you
 
          2       guys have some control over, and the reporting of
 
          3       credit report agencies.  I have files and files and
 
          4       files of credit reports that are just wrought with
 
          5       errors in them.  The CRAs refuse to correct any of
 
          6       those errors, each one of the credit report agencies
 
          7       refuses to correct any of the errors and deal with
 
          8       the lenders in those situations, and those all
 
          9       affect the FICA score that they will not respond
 
         10       to.  And when you get your 620 score cut, how many
 
         11       might have been 650s instead of a 600 cut; how many
 
         12       of them would have been able to get a normal loan
 
         13       and not have to go to a B or a C category.
 
         14               I'm really big on that, those credit report
 
         15       errors.  I mean stupid things likes dates being out
 
         16       of line.  I had a lady who had a bankruptcy in 1994,
 
         17       Chapter 13; she paid it off, and because she pulled
 
         18       her credit report it shows up in 1999.  It took me
 
         19       four months to get that off of her credit report
 
         20       because nobody wanted to be responsible and the
 
         21       agency says differently.  Thank you.
 
         22               MR. LONEY:   Incidently, I remember Friendly
 
         23       Bob Adams.  I spent a fair amount of my youth in
 
         24       Michigan.
 
         25               MR. MICIEK:  Did you really?
 
 
 
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          1               MR. LONEY:  Oh, yeah.  I heard those
 
          2       advertisements.  Next we have a couple of folks from
 
          3       the Coalition for Responsible Lending, and I spoke
 
          4       to Mr. Corbett I guess it was about you folks kind
 
          5       of getting your act together so we don't have four
 
          6       in a row.  Can we accommodate that?
 
          7               MR. STEIN:  I'll be the only one.
 
          8               MR. LONEY:  Who are you?
 
          9               MR. STEIN:  Eric Stein.
 
         10               MR. LONEY:   Thank you very much, I
 
         11       appreciate it.
 
         12               MR. STEIN:  Sure.  Anything we can do to
 
         13       help.
 
         14               MR. LONEY:   I was counting on it.
 
         15               MR. STEIN:  I'd like to just focus on the
 
         16       issue of prepayment penalties for subprime loans,
 
         17       because for subprime loans and not for conventional
 
         18       loans like they were talking about with the ARM,
 
         19       Bank of America loan.  For subprime loans, they're
 
         20       really, for two main reasons, a lose-lose
 
         21       proposition.  Either you're stuck in an interest
 
         22       rate that's too high or you have the equity stripped
 
         23       from your house by having to pay out the penalty.
 
         24               On the first point with being stuck, if your
 
         25       interest rate is too high and you're stuck in a
 
 
 
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          1       higher interest rate loan that you can't get out of,
 
          2       that's what often leads to foreclosure.  What
 
          3       subprime lending at its best should be is a bridge
 
          4       to conventional financing.  It's for people who have
 
          5       credit blemishes.  Things could happen to them, but
 
          6       at some point they get their act together and it's
 
          7       time to get a better loan.  It's time to pay less of
 
          8       their monthly income out because their credit
 
          9       history is fixed.  Prepayment penalties are designed
 
         10       exactly to stop that from helping.  In the subprime
 
         11       arena it's not allowed to provide its real function,
 
         12       which is being a bridge.  If you're paying a real
 
         13       market rate, you shouldn't need a prepayment penalty
 
         14       because the person should be happy with the loan.
 
         15               Secondly, with the equity being stripped,
 
         16       what prepayment penalties really are in subprime
 
         17       loans is a hidden, deferred fee.  A common
 
         18       prepayment penalty now is 5 percent for five years;
 
         19       that's very common these days.  On $150,000 loan,
 
         20       that's $7,500 that you have to pay, and that is
 
         21       greater than the median net worth for the
 
         22       African-American family in the United States, that
 
         23       one prepayment penalty, as of the 1990 census.  It
 
         24       will be higher in the --
 
         25               MR. LONEY:  Would you repeat that?
 
 
 
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          1               MR. STEIN:  Sure.  A 5 percent prepayment
 
          2       penalty, which is very common these days, in
 
          3       existence for five years, the 5 percent of a
 
          4       $150,000 loan size, reasonably average size loan of
 
          5       $150,000, is $7,500.  The median net worth for the
 
          6       African-American -- the average net worth for the
 
          7       median African-American family in the U.S. as of the
 
          8       1990 census is $4,400.  So you're talking about that
 
          9       one event of paying that prepayment penalty because
 
         10       your credit improves and you do what you're supposed
 
         11       to do, takes more than the total wealth than the
 
         12       median family, my goodness, has built up over their
 
         13       entire life.  That's extreme.  How many pay these?
 
         14       Greater than half.  Lehman Brothers' own data shows
 
         15       that greater than half of subprime borrowers pay
 
         16       that prepayment penalty of that size.  I mean,
 
         17       that's a lot of wealth that's being stripped.
 
         18               The two other reasons against it, first,
 
         19       it's the glue that enables racial steering.
 
         20       Minority neighborhoods have prepayment penalties
 
         21       five times more often than white neighborhoods.
 
         22       There's one example in the Coalition for Responsible
 
         23       Lending's data in our testimony that shows a
 
         24       Greentree borrower, she got an 11.5 percent loan;
 
         25       one month later through the help of a counseling
 
 
 
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          1       agency she got a 7.5 percent loan.  Would she have
 
          2       been able to get that if she had a prepayment
 
          3       penalty?  No.  She was steered into a loan probably
 
          4       because of where she lived, but she got out because
 
          5       there was not a prepayment penalty, because it was
 
          6       1998 when they were less common.
 
          7               And finally, borrower choice does not
 
          8       explain it.  2 percent of conventional borrowers
 
          9       have prepayment penalties; 80 percent, according to
 
         10       Duff & Phelps, have them in the subprime area.
 
         11       That's not because that market is not competitive.
 
         12       Thank you very much.
 
         13               MR. LONEY:   Thank you, and thank you for
 
         14       accommodating me on the schedule.  If you would like
 
         15       to submit your statement or anything -- let's see.
 
         16       Where were we.  We have Pauline -- well, Pauline
 
         17       Simuel, is she with the CHOPS group?  Jane Burts,
 
         18       Dorothy Gaines, Pauline Simuel, and Rosemary Hubbard
 
         19       I think were to come speak as a group.  And again, I
 
         20       appreciate your accommodating me on the timing and
 
         21       scheduling.
 
         22               MS. BURTS:  I'm Jane Burts.  I'm the
 
         23       director of CHOPS, Charlotte Organizing Project.
 
         24       You all have heard from us over times in the past.
 
         25       As part of our work we have participated with CRA*NC
 
 
 
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          1       in its surveys of persons -- can you --
 
          2               MR. LONEY:  I was just wondering if they
 
          3       ought to be seeing that.
 
          4               MS. BURTS:  Well, we'll do both.  Last
 
          5       summer we did a survey of people in this county
 
          6       whose names came off the real estate rolls and we
 
          7       got 20 who came in for interviews and one more came
 
          8       to see me day before yesterday.  Out of those
 
          9       interviews, 76 percent were African-American,
 
         10       61 percent were women.  The most surprising is that
 
         11       71 percent of them had attended some college, which
 
         12       shows you how well the subprime lenders do their
 
         13       job.  The four companies that showed up the most
 
         14       often, UC Lending, which is now bankrupt; Nations
 
         15       Credit and EquiCredit, subsidiaries of Bank of
 
         16       America; the Associates, which seems to end up as
 
         17       the catchall when other companies don't want
 
         18       something; and the Money Store, recently closed by
 
         19       First Union.
 
         20               Now, the woman who came to see me day before
 
         21       yesterday was too ashamed to come here because she's
 
         22       just lost her house to the Associates.  This
 
         23       happened because she and her husband got a flier on
 
         24       the front porch one day about home repairs and they
 
         25       wanted some siding, so they took out a loan to get
 
 
 
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          1       siding and the Associates ended up with that loan,
 
          2       and Rosemary is going to read you this woman's
 
          3       statement.  After that Dorothy is going to tell you
 
          4       what happened to her, Dorothy is feeling very
 
          5       nervous, and we're going to pass out into your hands
 
          6       a copy of her HUD loan document, and then Pauline
 
          7       will finish.
 
          8               MS. HUBBARD:  Thank you.  This is dated
 
          9       March 6, 2000, and the people wish to remain
 
         10       anonymous but I would be glad to show it to you.
 
         11       It's just that they are so ashamed; they felt they
 
         12       were taken in this situation.
 
         13               To whom it may concern:  My wife and I have
 
         14       lived at 2610 Springway Drive, Charlotte, for the
 
         15       last 12 years.  Except for some minor medical
 
         16       collections we always paid our bills as agreed.
 
         17       Until mid-1998 we have had a perfect mortgage
 
         18       history.  I have included a copy of my credit report
 
         19       to verify this.
 
         20               In December of 1995 we took out a second
 
         21       mortgage through Plaza Builders for siding and
 
         22       windows.  This, combined with our current first
 
         23       mortgage, gave us a total payment of $770.  We paid
 
         24       as agreed and were fine with that.  The loan was
 
         25       purchased by Associates and the servicing was
 
 
 
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          1       transferred to Associates Financial Services of
 
          2       Woodlawn Road, Charlotte.  We made our payments
 
          3       there in person monthly.
 
          4               We were solicited by this branch for a new
 
          5       mortgage to consolidate our first and second
 
          6       mortgage.  We thought this was a good idea as they
 
          7       were going to pay off all our outstanding debt and
 
          8       leave us with a total payment of $838.  They took us
 
          9       out of our VA loan which was at a good rate of
 
         10       10 percent and moved us to a rate of 13.99 percent.
 
         11       At closing we were told again that the second
 
         12       mortgage was included in the new payment, even
 
         13       though we did not see it listed anywhere.  Since we
 
         14       were told this was a new first mortgage we believed
 
         15       him.
 
         16               Associates did not pay off the second
 
         17       mortgage.  It moved into first position when our
 
         18       previous mortgage was paid.  That made our new first
 
         19       mortgage a second mortgage and that is not what we
 
         20       wanted or thought we had.  We feel that since the
 
         21       Associates held both loans out of the Woodlawn
 
         22       office this should not have happened.  The result
 
         23       was that we now had a total of $88,754 in liens
 
         24       against a home worth $70,000.  In addition, we found
 
         25       out they charged us over $6,700 in insurance
 
 
 
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          1       premiums for credit life insurance.  We feel we
 
          2       would have been better served with that money paying
 
          3       off the second mortgage.
 
          4               We understand we have an amount of
 
          5       responsibility here but we are not bankers or
 
          6       financial experts.  That is why we put our trust in
 
          7       the group at Associates, as they were
 
          8       professionals.
 
          9               Finally, to wrap up our story, the payment
 
         10       on our house to Associates each month totaled
 
         11       $1,058.  Remember, this is on a home of $70,000.  As
 
         12       you can see by the credit report, this coincides
 
         13       with the decline in our credit situation.  Finally
 
         14       the payment became too much to bear and forced us
 
         15       into declaring bankruptcy.  Associates has served us
 
         16       with a notice to vacate the property.  Our credit is
 
         17       now damaged to the point that we cannot get
 
         18       financing for another home.  Please advise us as to
 
         19       the best course of action.
 
         20               These people are unable to buy a home, their
 
         21       credit is ruined.  I would like to leave you with a
 
         22       short verse from the Psalms:  The Lord hears the cry
 
         23       of the poor.
 
         24               MR. LONEY:   Thank you.  Is it Ms. Gaines?
 
         25       Don't be nervous now.
 
 
 
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          1               MS. GAINES:  I am.  I just wanted to give a
 
          2       few facts from my loan with the UC Lending Company.
 
          3       The originating fee equals to approximately
 
          4       10 percent of the loan amount.  I got credit
 
          5       insurance of $3,000, which I didn't realize I had
 
          6       until two years ago when a friend was looking over
 
          7       my papers.  Also I have $33,000 in broker's fees.
 
          8       Total settlement agreement of $16,000, which is
 
          9       close to 20 percent of the loan amount, which is
 
         10       $76,500.  All because I was trying to redecorate my
 
         11       house also.
 
         12               MR. LONEY:   Thank you.  Is it Ms. Simuel?
 
         13               MS. SIMUEL:  Yes.  Thank you for allowing me
 
         14       to speak.  I am Pauline Simuel.  I too went into a
 
         15       loan to make my house look better.  I had a loan
 
         16       with UC Lending but I received phone calls for about
 
         17       a month from a company called Emerald Green.  I did
 
         18       not know who it was that kept coming up on my ID
 
         19       box, so I decided to return the call.
 
         20               When I returned the call a young man named
 
         21       William answered the phone and said that they had
 
         22       been downtown to the courthouse and saw that I had a
 
         23       high interest rate on my loan with UC Lending and
 
         24       they could make it smaller.  I thought, oh, really?
 
         25       Well, interest loans and things like this, I never
 
 
 
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          1       look at, I don't know what it's about.  And I didn't
 
          2       know what the interest was and I still don't know
 
          3       what the interest is, but they were going to make it
 
          4       smaller for me and I thought that was wonderful.
 
          5               At the time I was paying UC Lending $525 a
 
          6       month to pay off the loan.  I owed $37,000 on my
 
          7       house.  When Emerald Green came out, they told me
 
          8       that they could pay off that loan and also help fix
 
          9       my house.  I needed a roof, my roof was leaking; I
 
         10       wanted some storm doors and some gutters.  I wanted
 
         11       to make my house beautiful for me to live in.  I was
 
         12       15 years in my house and I felt like by the time I
 
         13       retired that would last me on up and I wouldn't have
 
         14       to do anything else to it.
 
         15               I went out to sign papers for this loan, I
 
         16       did not read over the material as I should have, and
 
         17       I had this lady to come out and make me such a
 
         18       wonderful deal.  On the deal she made I was supposed
 
         19       to borrow $65,000 to pay off the loan and to get my
 
         20       house remodeled and to do some extra things that I
 
         21       needed to do for my daughter.  I had no idea that
 
         22       when I finished doing the loan that I had come into
 
         23       a loan for $165,000 that I had no idea what it was
 
         24       about.
 
         25               He had two papers there he said that I could
 
 
 
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          1       sign, it was nothing significant, that he would fill
 
          2       it in later; at the top of the papers was blank.
 
          3       But when I received the papers and did not look at
 
          4       them -- I should have looked at them but it probably
 
          5       wouldn't have been in there.  This is where the
 
          6       balloon deal came in.  I heard someone else speak
 
          7       about balloon deal; that's the second time I've
 
          8       heard about a balloon deal.  I didn't know what a
 
          9       balloon deal was until I got in it.
 
         10               Now, for a house that's $65,000, I'm in a
 
         11       debt of $165,000.  At the end of 15 years they want
 
         12       me to pay $50,000 cash money because all I'm paying
 
         13       now is interest, which is $625 a month.
 
         14               I was taken.  I was made a fool of.  I feel
 
         15       bad about it, I don't appreciate it, and I think
 
         16       something should be done about it.  Thank you very
 
         17       much.
 
         18               MR. LONEY:   Thank you.  Next up is Dan
 
         19       Schline.  Let me ask before you speak,
 
         20       Mr. Schline -- is Linda Williams here?  You'll be
 
         21       after him, and Bert Green -- is Bert Green here?
 
         22       Okay, so you'll be after her.
 
         23               MR. SCHLINE:  Good afternoon.  My name is
 
         24       Dan Schline.  I'm assistant vice president of
 
         25       governmental affairs with the North Carolina Credit
 
 
 
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          1       Union League.  The North Carolina Credit Union
 
          2       League is the state trade association representing
 
          3       175 credit unions that serve over 2 million
 
          4       consumers in North Carolina.  North Carolina credit
 
          5       unions became involved in the predatory lending
 
          6       fight here at the state level as part of the
 
          7       Coalition for Responsible Lending in December of
 
          8       1998.  We were proud to be part of the effort that
 
          9       resulted in the passage of the nation's first
 
         10       predatory lending law.  In North Carolina credit
 
         11       unions have remained active and vocal on this issue
 
         12       now that the fight has progressed to the national
 
         13       level because such involvement is consistent with
 
         14       our people helping people philosophy.
 
         15               Credit unions are committed to providing our
 
         16       members with access to affordable financial
 
         17       services.  We are committed to ensuring that all
 
         18       consumers are treated fairly in the lending process,
 
         19       and we are committed to empowering our members by
 
         20       helping them build wealth and navigate the
 
         21       complexities of financial lending.
 
         22               Predatory mortgage lending flies in the face
 
         23       of the credit union philosophy.  Predatory lenders
 
         24       exploit financially vulnerable individuals for
 
         25       profit, and ultimately weaken our communities.  As
 
 
 
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          1       institutions designed to build and strengthen our
 
          2       communities, North Carolina credit unions remain
 
          3       committed to ensuring that consumers, regardless of
 
          4       age, race, or income, are treated fairly in the
 
          5       lending process.
 
          6               We thank the Federal Reserve Board for
 
          7       holding this hearing today and we believe that
 
          8       you're in a unique position to take positive steps
 
          9       to rein in predatory lenders and to protect
 
         10       homeowners who are increasingly at risk of losing
 
         11       their homes and their financial security.  So on
 
         12       behalf of North Carolina credit unions, we offer our
 
         13       support and we urge you to exercise your power as
 
         14       soon as possible.  Thank you for your time.
 
         15               MR. LONEY:   Thank you.  Linda Williams?
 
         16               MS. WILLIAMS:  My name is Linda Williams and
 
         17       I am a resident and president of the Optimist Park
 
         18       Community Association.  Optimist Park is the first
 
         19       neighborhood where Habitat for Humanity began
 
         20       building homes in 1986.  Those homes have certainly
 
         21       increased in value and the homeowners certainly have
 
         22       a lot of equity.
 
         23               I do agree with the remark that was made
 
         24       earlier by the gentleman:  Predators cannot prey if
 
         25       there is not prey to be preyed upon.  Charlotte is
 
 
 
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          1       one of the banking capitals of the world.  If that
 
          2       statement is true, why are there predatory lenders?
 
          3       Why is the banks not doing their job in providing
 
          4       loans for low-income families?
 
          5               If the banks launched an aggressive campaign
 
          6       as the predatory lenders, then I'm sure that
 
          7       hardworking people like myself and a lot of other
 
          8       people in my community that work hard for their
 
          9       poverty would more so be glad to go to a banking
 
         10       institution that is highly recognized than go to
 
         11       those predatory lenders.  Even not understanding the
 
         12       full financial outlook on all these financial
 
         13       questions and all the problems, we still know that
 
         14       we want to go to someone that is recognized and
 
         15       somewhat respectable.
 
         16               The Queen City must begin to treat all its
 
         17       citizens with respect, including those that are low
 
         18       income and work hard for their poverty.
 
         19               I'd like to leave you knowing that I
 
         20       attended a meeting last week and at the end of that
 
         21       meeting I was assured, Linda, all you have to have
 
         22       is an application and $50 and you too can be a
 
         23       mortgage broker.  Anyone in this room, regardless of
 
         24       your education, all you have to have is an
 
         25       application and $50 and you too can become a
 
 
 
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          1       predatory lender.
 
          2               MR. LONEY:   Thank you.  Bert Green,
 
          3       please.
 
          4               MR. GREEN:  Good afternoon.  My name is Bert
 
          5       Green, I'm the executive director of Habitat for
 
          6       Humanity here in Charlotte.  I'm going to abbreviate
 
          7       some of my remarks in light of some of the other
 
          8       testimony that you've had.
 
          9               Why is this of interest to our
 
         10       organization?  Because in addition to being
 
         11       homebuilders, we are lenders also.  Just like every
 
         12       other lender here, we perform background checks on
 
         13       our prospective homeowners, we perform routine
 
         14       credit checks, conduct pre-ownership financial
 
         15       counseling sessions.  We use many of the same ratios
 
         16       of evaluating the creditworthiness of our homeowners
 
         17       as would any banking institution in this state.  We
 
         18       sell our homes to our homeowners and we want to give
 
         19       them the financial education to be good stewards of
 
         20       the money that has been donated to us and in turn
 
         21       loaned to them.  We provide post-ownership financial
 
         22       counseling as required.
 
         23               Our homeowners are most vulnerable as they
 
         24       begin to accumulate equity almost immediately due to
 
         25       the sale of our homes at no profit and the financing
 
 
 
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          1       of our mortgages at zero percent interest.  The
 
          2       combination of assured equity agreement and a
 
          3       recently enacted second mortgage provision have
 
          4       given us the ability to counsel some of our
 
          5       homeowners regarding alternate financing options
 
          6       that protect their zero percent mortgages.
 
          7               With a recent increase in the number of
 
          8       lenders marketing subprime mortgages, we have seen
 
          9       very abusive lending practices, some of which you've
 
         10       already heard about.  In fact, the one I was going
 
         11       to share with you is not as bad as Pauline's, a
 
         12       Habitat homeowner, so I'll pass on sharing that with
 
         13       you.
 
         14               I applaud the work done by our general
 
         15       assembly because it sets the limits on fees charged,
 
         16       it sets a top mortgage rate for the loans of this
 
         17       type, and it limits financing of insurance premiums
 
         18       and it limits balloon features common to so many of
 
         19       these mortgages.
 
         20               We need to be able to demonstrate to
 
         21       borrowers there is a net tangible benefit to any
 
         22       loan they are considering.  We explain to our
 
         23       homeowners that are considering refinancing their
 
         24       zero percent mortgage that should we counsel against
 
         25       a specific loan we're doing so against the financial
 
 
 
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          1       benefit and interest of our organization.  When one
 
          2       is loaning money at zero percent interest, we would
 
          3       much rather get our money back now than in 15 or 20
 
          4       years, but not, and I repeat not, at the expense of
 
          5       our homeowners.
 
          6               Our donors' contributions to this
 
          7       organization are always protected and we feel that
 
          8       the legislation passed in North Carolina helps
 
          9       protect our homeowners' equity.  We thank you for
 
         10       including Charlotte in your road trip and pray that
 
         11       your work will bear fruit for all low-income
 
         12       borrowers throughout this country.  I'm going to
 
         13       paraphrase from a quote we probably all know and
 
         14       that is, that government governs best which governs
 
         15       justly.  And I pray that your work here will
 
         16       reinforce that.  Thank you.
 
         17               MR. LONEY:   Thank you.  I would have to say
 
         18       you probably wouldn't call this a road trip.  But
 
         19       let me ask you a question.  We've heard a number of
 
         20       horror stories, some of them I think coming out of
 
         21       North Carolina, about the refinancing of Habitat
 
         22       mortgages, zero percent mortgages, at 15, 16,
 
         23       20 percent or something.  How much of that have you
 
         24       actually seen?
 
         25               MR. GREEN:  My example that I would read and
 
 
 
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          1       that I will leave here is one refinanced at
 
          2       13.62 percent.
 
          3               MR. LONEY:   But how often does that
 
          4       happen?
 
          5               MR. GREEN:  Frequently.
 
          6               MR. LONEY:   Is that an isolated event?
 
          7               MR. GREEN:  No, it's not isolated.  In fact,
 
          8       I will be happen to share the data that we have
 
          9       regarding all the refinances we have here in
 
         10       Charlotte.
 
         11               MR. LONEY:   We'd like to hear about it.
 
         12               MS. HURT:   I would ask in your
 
         13       post-ownership counseling, is it after someone has
 
         14       taken that sort of loan or before?
 
         15               MR. GREEN:  Post-ownership counseling can
 
         16       occur at different times.  If a family is falling
 
         17       behind or consistently delinquent with mortgage
 
         18       payments, we will institute that counseling.  It may
 
         19       or may not be in association with a refinance.
 
         20               MR. LONEY:   Thank you very much.  Scott
 
         21       Schneider, are you here?
 
         22               MR. SCHNEIDER:  Thank you for having this
 
         23       public forum; I appreciate the chance for the
 
         24       divergent views to be aired.  I believe that when we
 
         25       look at some of the views we'll find that we're
 
 
 
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          1       probably not that far apart.  We probably all agree
 
          2       upon the objective, but it's the means to get
 
          3       there.
 
          4               I think that we all would like for borrowers
 
          5       to get credit they deserve at fair terms, to have
 
          6       the education and understanding of what exactly it
 
          7       is they are borrowing.  I think we can also
 
          8       acknowledge that there are people who for some
 
          9       reason or another fall behind on their payments and
 
         10       damage their credit and are no longer able to get
 
         11       the loan at the best interest rates.  It's those
 
         12       people that I'm concerned about today.
 
         13               My company specializes in making loans to
 
         14       people who have damaged their credit.  Many people
 
         15       are three, four, five payments past due on their
 
         16       mortgage, facing foreclosure; many of them are even
 
         17       served papers in foreclosure.  In the new North
 
         18       Carolina law that we have, while it does set limits
 
         19       that on the surface look reasonable, I want to talk
 
         20       about maybe the person who wants a $21,000 mortgage,
 
         21       a very small loan.  By the time that you take
 
         22       5 percent of that $21,000, and there's a lender who
 
         23       maybe charges a $400 or $500 commitment fee, maybe
 
         24       an attorney, now we've put in maybe the old
 
         25       mortgage's prepayment penalty, we're looking at very
 
 
 
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          1       little money left over for the broker to get.  And I
 
          2       think we all agree that everyone has a right to make
 
          3       a fair and disclosed profit, and that's -- otherwise
 
          4       these people would have no access to the credit from
 
          5       the brokers.
 
          6               I'd also like to address the idea of
 
          7       flipping.  Like the idea of predatory lending, it's
 
          8       jargon that sometimes can be confused.  In the
 
          9       history of mortgages since I've been a broker for
 
         10       ten years, originally -- if we had this meeting 20
 
         11       years ago the meeting would probably be about the
 
         12       banks who are not offering credit to consumers, and
 
         13       now we're having a meeting about the people who are
 
         14       getting credit as the problem.  Perhaps we need to
 
         15       find a happy medium for that.
 
         16               But ten years ago when I got into this
 
         17       business I frequently found people who had first
 
         18       mortgages at 15, 16, and 18 percent from the finance
 
         19       companies.  The brokers then came into business and
 
         20       started looking in the courthouse for these
 
         21       expensive loans and refinancing them at cheaper
 
         22       rates.  That's why you don't see that many
 
         23       16 percent interest rates anymore for first
 
         24       mortgages.  So I think that the way we should work
 
         25       towards lowering loan costs and making housing
 
 
 
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          1       affordable is through competition.  I wish that I
 
          2       could bring some of the people here that I've bailed
 
          3       out of foreclosure.
 
          4               My concern about what we call flipping is,
 
          5       as you can imagine, the interest rate for someone in
 
          6       foreclosure is ugly.  The risk is bad and the banks
 
          7       who make loans to those people need to have
 
          8       compensation to justify the risk.  Now, having put
 
          9       someone at 13-1/2 or 14 percent interest to bail
 
         10       them out of foreclosure, I think that I have an
 
         11       obligation or someone else has an obligation at the
 
         12       end of a year when that person qualifies for a
 
         13       better rate to get him one.  And so I just want to
 
         14       make sure we don't confuse refinancing for a better
 
         15       loan to be an abusive practice.  I appreciate your
 
         16       time today.
 
         17               MR. LONEY:   Thank you very much.  Next is
 
         18       Bethany Chaney.
 
         19               MS. CHANEY:  Good afternoon.  My name is
 
         20       Bethany Chaney and I am vice president of the North
 
         21       Carolina Minority Support Center, a nonprofit
 
         22       intermediary that provides technical assistance and
 
         23       financial assistance to community development credit
 
         24       unions in North Carolina.
 
         25               There are 16 such institutions in this
 
 
 
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          1       state, all of which were founded by and for
 
          2       residents of low-income, African-American, and
 
          3       Hispanic communities.  Combined, these institutions
 
          4       serve 25,000 members, have $120 million in assets,
 
          5       and offer a broad range of financial services.
 
          6               I'm here representing these CDCUs and to
 
          7       urge the Board to act now and to act firmly to
 
          8       protect our communities from the unconscionable
 
          9       greed, deception, and race-based green-lining of the
 
         10       predatory lending industry.  I am also here to ask
 
         11       the Board to find ways to support the growth and
 
         12       breadth of the community development financial
 
         13       institution industry.  CDFIs are viable alternative
 
         14       sources of credit for underserved and hard-to-serve
 
         15       individuals who need it.
 
         16               It used to be that in CDCU communities there
 
         17       wasn't a whole lot of competition in the lending
 
         18       business because there weren't a bank or other
 
         19       institution in the neighborhood to begin with.  That
 
         20       has changed dramatically in the past ten years, even
 
         21       in the past five, as now each CDCU I work with can
 
         22       count half a dozen to a dozen regulated and
 
         23       unregulated lenders which have moved into their
 
         24       areas, from payday loan shops to pawn shops, title
 
         25       loan companies, and general finance companies and
 
 
 
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          1       banks.
 
          2               The good news is that these lenders, or
 
          3       whatever you call them, have discovered a market.
 
          4       The bad news is that they are abusing this market.
 
          5       They have deliberately green-lined African-American,
 
          6       Hispanic, low-income, and fixed-income communities
 
          7       to prey on less sophisticated borrowers,
 
          8       credit-challenged borrowers, and in the case of home
 
          9       equity lenders, the only asset many in these
 
         10       communities have, which is their home.
 
         11               Not all CDCUs can compete against these
 
         12       lenders because, as regulated financial
 
         13       institutions, there are a series of capital
 
         14       requirements, liquidity issues, and even mortgage
 
         15       lending caps to address, which can limit small or
 
         16       rapidly growing institutions in their quest to
 
         17       provide home equity and mortgage services to credit
 
         18       union members.  About half of North Carolina CDCUs
 
         19       are providing some sort of equity lending to their
 
         20       members and the other half could do it but need your
 
         21       help.
 
         22               The Federal Reserve can do a better job of
 
         23       endorsing and promoting policies and incentive
 
         24       programs which help bring investments of capital and
 
         25       other resources to CDFIs and low-income
 
 
 
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          1       communities.  The result will be greater access to
 
          2       the kinds of fair, affordable lending which protect
 
          3       assets in vulnerable communities.
 
          4               In the context of predatory lending it is
 
          5       important that we at once restrict unfair lending
 
          6       practices and provide tools and investment that will
 
          7       bolster and expand a promising community-based
 
          8       financial industry.  For example, the CRA act, the
 
          9       Community Reinvestment Act, is a proven tool for
 
         10       delivering affordable capital to low-income
 
         11       communities.  It must be protected and
 
         12       strengthened.  Specifically, it should be extended
 
         13       to bank subsidiaries and affiliates.
 
         14               Our CDCUs currently benefit from grants and
 
         15       deposits provided by the banking industry, and CRA
 
         16       helps make those investments happen.  Similarly, the
 
         17       CDFI Fund of the U.S. Department of the Treasury has
 
         18       several programs which provide incentives for
 
         19       investments in CDFIs, and it could be more greatly
 
         20       and permanently capitalized.
 
         21               Thank you for your time and thank you for
 
         22       having us here today.
 
         23               MR. LONEY:   Thank you.  Incidently, you
 
         24       know that if there's going to be an expansion of CRA
 
         25       Congress is going to have to do that.
 
 
 
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          1               MS. CHANEY:  But you can be supportive.
 
          2               MR. LONEY:   She got me on that one.
 
          3       El Pueblo, is there somebody representing
 
          4       El Pueblo?  I don't have a name connected, I'm
 
          5       sorry.
 
          6               MS. POMERANS:  The name is Katie Pomerans.
 
          7       I don't know how it got lost but I did sign up.
 
          8               MR. LONEY:  I know you're signed up but
 
          9       there's no name, it just says El Pueblo, so
 
         10       introduce yourself.
 
         11               MS. POMERANS:  My name is Katie Pomerans.
 
         12       I'm a member of the Latino community and also on the
 
         13       board of El Pueblo, a Latino advocacy and public
 
         14       policy organization.  I want to say that we're new
 
         15       to housing issues as an organization.  We recently
 
         16       entered a partnership with CRA*NC and the NAACP to
 
         17       work on educating our community as far as housing
 
         18       issues because we feel it's of such importance to
 
         19       our community.  I don't have statistics to give you
 
         20       as you want to hear, but we do hear a lot of horror
 
         21       stories, and I hear them from friends, from people
 
         22       that I see the first time.  I hear them from people
 
         23       in rural communities and from people living in the
 
         24       neighborhoods in the cities.
 
         25               We realize we have to help and educate our
 
 
 
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          1       community.  At the same time, when you have people
 
          2       that have come to the United States with a dream,
 
          3       usually the centerpiece of the dream is owning their
 
          4       own home, and unfortunately, they don't have that
 
          5       many options.  People who come with no credit
 
          6       history -- and I know because I've been there.  It's
 
          7       like you just dropped in from Mars.  Your
 
          8       possibilities of getting a good loan, of somebody
 
          9       believing you, of treating you decently when you go
 
         10       with your request, are not that many when you have
 
         11       low income and you come from another country and
 
         12       have an accent and, you know, all things that stack
 
         13       up against an individual.
 
         14               So I'm here to ask you for the things that
 
         15       you can do for the community and for so many other
 
         16       communities that need your assistance.  I would like
 
         17       for you to extend reasonable protections and to stop
 
         18       predatory lending practices so that home ownership
 
         19       will be a reality.  If people cannot build equity in
 
         20       their homes, they don't have a home.
 
         21               I would like you to strengthen enforcement
 
         22       actions where you can do it.  Federal housing laws
 
         23       must address racial and ethnic steering into higher
 
         24       cost loans with different terms and conditions.
 
         25               And this is practically all I wanted to
 
 
 
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          1       say.  I will leave my notes for the things that I
 
          2       did not mention, and thank you for this time.
 
          3               MR. LONEY:   Thank you very much.  Next is
 
          4       Reverend Allison.  Is there a Reverend Allison
 
          5       here?
 
          6               AUDIENCE:  He's not here.
 
          7               MR. LONEY:  He's not.  Uh-oh.  Even the
 
          8       person that typed this has "SP" next to the name so
 
          9       I'll get this wrong.  Elizabeth Ouzts?
 
         10               AUDIENCE:  She's not here either.
 
         11               MR. LONEY:   Okay.  Octavia Raing?
 
         12               MS. RAINEY:  It's Rainey.
 
         13               MR. LONEY:  Say again?
 
         14               MS. RAINEY:  It's Rainey, R-A-I-N-E-Y.
 
         15               MR. LONEY:   That's my wife's maiden name, I
 
         16       should have got that right.  They had an "SP" next
 
         17       to your name too so they suspected they didn't have
 
         18       it right either.
 
         19               MS. RAINEY:  Tell them that's all right.  My
 
         20       name is Octavia Rainey and I'm president of the
 
         21       College Park-Idlewild Community Watch and I'm also
 
         22       employed with CRA*NC.
 
         23               I know you're wondering why a community
 
         24       watch is here talking about predatory lending.  The
 
         25       College Park-Idlewild community is a community that
 
 
 
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          1       was born out of slavery, so as you know, during this
 
          2       period of time African-Americans bought their homes
 
          3       at a higher interest rate as compared to whites.
 
          4               In our community watch neighborhood, we
 
          5       watch our neighbors, and one of the things that
 
          6       really bothers us now is predatory lending.  We call
 
          7       it economic violence, because you do strip the
 
          8       equity from their homes.  And we are concerned that
 
          9       the Federal Reserve is not doing their job in
 
         10       working in minority neighborhoods to stop predatory
 
         11       lending.
 
         12               One of the things that we would like to ask
 
         13       the Federal Reserve to do is to prohibit the
 
         14       practices that strip equity from homes; number two,
 
         15       increase consumer protection in the Home Ownership
 
         16       Equity Protection Act; number three, strengthen
 
         17       enforcement actions.  We are very concerned because
 
         18       everyone wants a piece of the American dream.  With
 
         19       predatory lending, it's the American nightmare,
 
         20       because you do end up losing your home.  I would
 
         21       like to say in closing to the Federal Reserve that
 
         22       if you're not part of the solution then you're part
 
         23       of the problem.  Please enforce what I've just
 
         24       recommended and be a part of the solution.  Thank
 
         25       you.
 
 
 
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          1               MR. LONEY:   Thank you.  Next is, let me
 
          2       give a few names, Marshall Schendk, then Jennifer
 
          3       Kilburn, then Melody White, then Bill Lynch.  Do we
 
          4       have Marshall Schendk?  Am I saying that right,
 
          5       S-C-H-E-N-D-K?
 
          6               MR. SCHENDK:  That's right.  Good evening.
 
          7       My name is Marshall Schendk, I represent Egypt the
 
          8       Temple of Christ Jesus Ministry in Shelby, North
 
          9       Carolina.  I've come up here today to voice my
 
         10       opinion about the matter of lending practices in the
 
         11       Carolinas.
 
         12               But I first must say that over the years our
 
         13       government has supported the administration of our
 
         14       presidents:  Under President Nixon we supported
 
         15       detente; under Reagan we supported perestroika, and
 
         16       under Bush we supported glasnost, and in all
 
         17       instances Russia failed, and now the government of
 
         18       Russia is in turmoil economically.
 
         19               Here I am standing before your Federal
 
         20       Reserve Board, asking for simply one thing:  To be
 
         21       able to forgive minorities for their debts.  If
 
         22       their debts are under $50,000 for two-parent
 
         23       families, they should be forgiven.  If we can
 
         24       forgive the country of Russia, surely we can give
 
         25       the citizens of this country, those minorities who
 
 
 
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          1       served in our armed forces since the American
 
          2       Revolution even to this day and serve in our armed
 
          3       services, cannot find decent housing.  That is a
 
          4       shame, and I'm ashamed sometimes, and being a
 
          5       veteran and a retired military person myself, for
 
          6       Americans not to be able to find decent housing
 
          7       without being stripped by these lenders or taking
 
          8       advantage of these minorities people.  Whether
 
          9       they're black, white, Hispanic, it doesn't matter.
 
         10       We have to set a new tone in the year 2000 and on,
 
         11       because it's bad business to practice financial
 
         12       slavery.  Thank you.
 
         13               MR. LONEY:   Thank you.  Jennifer Kilburn?
 
         14               MS. KILBURN:  I'd just like to say I'm
 
         15       delighted to be in the room with so many
 
         16       knowledgeable people, first of all.  I got this
 
         17       notice in my local newspaper on July 11th notifying
 
         18       me about the hearing today, and I left Rochester,
 
         19       New York, Monday, 12:30 in the afternoon, and I was
 
         20       the lone driver with a car full of children and I
 
         21       made it here 8:45 this morning.  My name is Jennifer
 
         22       Kilburn -- I'm tired so I'm going to talk fast.
 
         23       Here it said I have five minutes, but anyway, I was
 
         24       a consumer and a victim.
 
         25               MR. LONEY:   We may give you some latitude,
 
 
 
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          1       given what you've just done.
 
          2               MS. KILBURN:  Okay.  I was a consumer and a
 
          3       victim in the state of Georgia of what I believe to
 
          4       be a predatory lender, Long Beach, later Ameriquest,
 
          5       a mortgage company out of California.  At that time
 
          6       I was a low-wealth college graduate, had impaired
 
          7       credit, but I had a 20 percent down payment, okay.
 
          8       I was a well-informed borrower within my purview
 
          9       prior to the purchase; I bought and read many books
 
         10       to prepare for this huge responsibility.  However,
 
         11       nothing prepared me for the acts done to me by my
 
         12       lending company.
 
         13               April '96 is when I closed.  Up until May
 
         14       of '97, April '96 to May of '97, I was working at
 
         15       NationsBank in Georgia.  I only got paid twice a
 
         16       month.  At the beginning of the month I paid my
 
         17       water, my car note, all those bills.  After the 15th
 
         18       was when I paid my mortgage.  I always paid late
 
         19       fees included.  That was fine per Long Beach
 
         20       Mortgage Company, Nicholas Soza, who was the guy I
 
         21       always dealt with; that was the way it was, no
 
         22       problem.
 
         23               May of '97 -- and the jargon "flipping", I
 
         24       was confused, because I thought that flipping was
 
         25       what happened with me.  May of '97 Long Beach
 
 
 
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          1       Mortgage Company sold or -- I really don't know how
 
          2       it happened, but part of their accounts became
 
          3       handled or they became -- they were handled now by
 
          4       Ameriquest.  So Long Beach Mortgage Company handled
 
          5       all their accounts that were dated prior to '96
 
          6       or '95, something like that, and then Ameriquest
 
          7       took on the new accounts.  Same address, same phone
 
          8       number.  They never let me talk to Nicholas Soza
 
          9       ever again.  Okay.
 
         10               June of '97 was when the harassment
 
         11       started.  The woman -- names, I got everyone's
 
         12       names -- she insisted that I send them a postdated
 
         13       check, even though I explained from the time I
 
         14       closed on my house I always paid after the 15th,
 
         15       late fees included.  She's like, Send me a postdated
 
         16       check.
 
         17               Against my better judgment I did it.  They
 
         18       tried to cash it; I incurred $200 in bounced check
 
         19       fees.  Fine.  Right after that I started getting
 
         20       foreclosure notices.  We made arrangements over the
 
         21       phone, I'm constantly talking to them, I pay half of
 
         22       June with July, the other half of June with August.
 
         23       I send them my NSF charges and whatever from the
 
         24       bank for them to reimburse me my $200 bounced check
 
         25       fees.
 
 
 
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          1               So July, I send them half of June with
 
          2       July.  The end of August rolls around -- mind you,
 
          3       I'm always paying at the end of the month -- half of
 
          4       June with August.  However, I minus the $200 bounced
 
          5       check fees because I felt it may have been an
 
          6       oversight on their part, because the month prior I
 
          7       sent them all the banking statements.  Okay.
 
          8       September rolls around, they send me back my check
 
          9       for half of June with August, saying they're not
 
         10       going to accept partial payments, send them that
 
         11       money.  Okay, so I chalk that up as a loss, my
 
         12       bounced check fees, fine.
 
         13               So September, I send them half of June with
 
         14       August, September payment; they said they weren't
 
         15       going to accept any of my checks, it had to be a
 
         16       money order.  Fine, I did that.  Constant harassment
 
         17       still.  Okay.
 
         18               October rolls around, I'm relieved, finally,
 
         19       okay.  I send them a check, October, end of October,
 
         20       late fees included as usual.  Relieved, finally.
 
         21       Okay.  November, I get -- you know, I was getting
 
         22       foreclosure letters but I'm always constantly on the
 
         23       phone with them so I'm discarding that.  November I
 
         24       get a letter in the mail, I decided to open that
 
         25       one.  Good thing I did.  It was my money order with
 
 
 
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          1       half of June, August, September, because that was
 
          2       one money order; then my check for October.  They
 
          3       said now they're not accepting any payments without
 
          4       foreclosure fees included.
 
          5               I call my realtor, I'm like, Toni, are they
 
          6       kidding?  She was like, Jennifer, if they sent you
 
          7       your money back, your house is going into
 
          8       foreclosure.
 
          9               Okay, here I am, I'm pregnant, got a
 
         10       ten-month-old, my daughter was probably like six
 
         11       then at the time, okay; oh, my God, what am I going
 
         12       to do, my house is going to be on the market the
 
         13       second Tuesday of December.  This is the first week
 
         14       of November.  Okay.  These are my options per my
 
         15       realtor:  We can try to sell my home.  That was one,
 
         16       which we tried to do in that few weeks of time.
 
         17       Then I gave her $300 for her to try to fill out
 
         18       applications for her to try to purchase my home.
 
         19       That failed; the trying to purchase my home, that
 
         20       failed.
 
         21               Basically what I was faced with on
 
         22       Thanksgiving Day, to pack all my stuff up, put all
 
         23       my family in a car, I drove the U-Haul, I ended up
 
         24       being married, my husband drove my car, my mom came
 
         25       in town, my friend worked at Delta Airlines, my mom
 
 
 
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          1       flew my ten-month-old home.  On Thanksgiving Day we
 
          2       were all driving my stuff back to Rochester, New
 
          3       York, eating at the Waffle House Thanksgiving night,
 
          4       because they were telling me that my house was going
 
          5       to be at the courthouse, whatever, the second
 
          6       Tuesday of December.
 
          7               So basically why I came all the way here is
 
          8       because I felt that was a crime, and a crime against
 
          9       the voiceless is not a crime at all.  So that's why
 
         10       I came down here, for you guys to hear that, and
 
         11       then I just wanted to know if my lack of knowledge
 
         12       contributed to the loss of my home then maybe
 
         13       someone here could tell me how to teach another how
 
         14       to learn from my mistake, and if someone can tell me
 
         15       about the laws that are out here to protect the
 
         16       borrowers.  Because I just did not think that that
 
         17       was fair and that was right.
 
         18               And my father-in-law was going to pay the
 
         19       foreclosure fees.  I refused, I said they forced my
 
         20       house into foreclosure, there was no way I was going
 
         21       to pay them a nickel when they put my house into
 
         22       foreclosure.  I was not going to file bankruptcy, it
 
         23       didn't make sense to me, plus people were telling me
 
         24       that still wasn't a protection against them
 
         25       foreclosing on my house.
 
 
 
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          1               It just wasn't right.  That's my story.
 
          2               MR. LONEY:   Thank you very much.  Have a
 
          3       good trip back.  Melody White?  Not here?  Bill
 
          4       Lynch?  You'll have to wait until she changes her
 
          5       tape.
 
          6               MR. LYNCH:  My name is Bill Lynch.  I'm here
 
          7       because it seems to me that trust is at the heart of
 
          8       the lending process, and abuse of trust is at the
 
          9       heart of predatory lending.  That's what we've heard
 
         10       here.  When people aren't generally trusted, when
 
         11       they find somebody who listens to them, who seems to
 
         12       be listening to them, they'll trust that person.  If
 
         13       the person they trust is an unscrupulous loan
 
         14       representative, they're set up for trouble.
 
         15               The unscrupulous loan representative will
 
         16       lie to them about the terms of their loan.  He will
 
         17       produce a set of documents, loan documents, that
 
         18       look like they got all the disclosures they needed.
 
         19       He will backdate the disclosures, he will forge
 
         20       their signatures.  And I'm sure that in the HUD
 
         21       hearings and the previous Fed hearings you've seen
 
         22       enough evidence that unscrupulous loan
 
         23       representatives will do exactly that.
 
         24               The Federal Reserve Board bears some of the
 
         25       responsibility for making trust so necessary in the
 
 
 
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          1       lending process.  These rules are so obscure and so
 
          2       full of jargon that someone might think that they
 
          3       were written by an agency run by economists.  If a
 
          4       word appears in a regulation there's an assumption
 
          5       that it must be clear enough to provide people
 
          6       notice of what the law is that they have to obey,
 
          7       and therefore it must be clear enough to put in a
 
          8       loan document, so you get words like "negative
 
          9       amortization".  Why can't we say, what you owe can
 
         10       grow?
 
         11               If the people who are here in the consumer
 
         12       education group are still here, I hope that the
 
         13       Board will consider working with them to simplify
 
         14       the disclosures.  It should be possible to come up
 
         15       with a one- or two-page disclosure of fees and costs
 
         16       and to discard concepts that are artificial, like
 
         17       annual percentage rate; instead to look for words
 
         18       that people actually use and think how can we pour
 
         19       meaning into those words and not come up with jargon
 
         20       instead.
 
         21               If you have a short disclosure, then you can
 
         22       have things that focus attention on the disclosure,
 
         23       and you can give that disclosure perhaps at the time
 
         24       of the HUD-1 statement, before the closing, when it
 
         25       may enable comparison shopping.  You can provide it
 
 
 
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          1       with a 20-minute video on how to understand the
 
          2       statement and you can make the lender or the loan
 
          3       brokerage pay for the video.  Find a sports star who
 
          4       will be willing to talk to people in that video,
 
          5       because subprime lenders frequently use sports stars
 
          6       and all-stars in their videos and their television
 
          7       commercials.  But above all, admit that what you've
 
          8       done in the past has contributed to the problem and
 
          9       simplify, please.  Thank you.
 
         10               MR. LONEY:   Thank you, Mr. Lynch.  Next is
 
         11       Sandy McCurty.
 
         12               MS. McCURTY:  My name is Sandy McCurty and
 
         13       I'm owner of All Mortgage Connections, which is a
 
         14       broker, and I also sit on the board of directors of
 
         15       the North Carolina Manufactured Housing Institute.
 
         16               Unfortunately, we're not all made the same.
 
         17       So it requires different housing, and manufactured
 
         18       housing is one, and I would like to talk about that
 
         19       if I could, please.
 
         20               When you're talking about manufactured
 
         21       housing there is studies that have been done for the
 
         22       Manufactured Housing Institute for North Carolina as
 
         23       well as national that does state that manufactured
 
         24       housing, when set up on property as real property
 
         25       and brick underpinned, that it does appreciate as
 
 
 
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          1       does a stick-built home.  There was some comments
 
          2       made here today about the fact that manufactured
 
          3       housing did depreciate.  When you are taking these
 
          4       into account, the type of loans, you need to also
 
          5       consider that there are two types of manufactured
 
          6       housing loans.  There are what you call the chattel,
 
          7       the home-only loans, and there are the real estate.
 
          8       Please, I ask that you do take this into account.
 
          9               Also, North Carolina manufactured housing
 
         10       has many studies on the life of manufactured
 
         11       housing.  Manufactured housing, a recent study --
 
         12       these studies, by the way, have been done by ECU; I
 
         13       will be glad to give them to you if you would like,
 
         14       or I'm sure any of the institutes will be glad to
 
         15       furnish them for you.  But currently manufactured
 
         16       homes, and I'm talking about HUD homes -- and I
 
         17       suppose you do know the difference.  There is
 
         18       modulars and there are HUD homes.  The HUD homes,
 
         19       which are the true manufactured housing, the
 
         20       double-wides, previously known as trailers, do have
 
         21       a life of 55 to 60 years, which is exactly what I
 
         22       think you'll find the stick-built homes are.  So
 
         23       when you're considering the type of financing that
 
         24       is available for the manufactured housing, I would
 
         25       ask that you please take a look at the studies that
 
 
 
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          1       have been done.
 
          2               Also, unfortunately -- as a broker, I would
 
          3       like to have everyone that walks into my shop be
 
          4       able to buy that half-a-million-dollar house and be
 
          5       able to go Fannie Mae.  Well, we live in a real
 
          6       world and that's not possible.  So when you are
 
          7       looking at your studies please remember that
 
          8       everyone is not able to do like their neighbor or
 
          9       everyone doesn't make the money that the person down
 
         10       the street makes.  Please keep in mind that you do
 
         11       hold the future of public housing in your hands.
 
         12       Thank you.
 
         13               MR. LONEY:   Thank you.  Next is David Toy.
 
         14               MR. FOY:  My last name is Foy, F-O-Y.
 
         15               MR. LONEY:  F-O-Y, I'm sorry.
 
         16               MR. FOY:  Good afternoon to you.  I am a
 
         17       minister, and there is a national church called the
 
         18       United Church of Christ that has a commission that's
 
         19       called the economic and racial commission, and it's
 
         20       a national church in eastern North Carolina and
 
         21       Virginia; they have 127 churches.  I'm already doing
 
         22       some work with Peter Skillern of Durham, North
 
         23       Carolina.
 
         24               I think that the outreach to inform
 
         25       communities is best done through existing
 
 
 
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          1       organizations of churches, as it's been pointed out
 
          2       previously, and we extend ourselves.  If you would
 
          3       like the address, the national office of this
 
          4       church, the commission on racial justice is in
 
          5       Cleveland, Ohio, and we have -- through director
 
          6       William Land, who would be more than willing to
 
          7       connect with you to try to serve the communities,
 
          8       not only in eastern North Carolina but across the
 
          9       country in more effective ways to help with this
 
         10       predatory lending practice.  Thank you.
 
         11               MR. LONEY:   Thank you, Mr. Foy, and I
 
         12       apologize for getting your name wrong.
 
         13               Next is Jaqmohan Chadha.  Not here?  Irvin
 
         14       Henderson?
 
         15               MR. HENDERSON:  Good afternoon.  I see many
 
         16       people that I've met with before and I would like to
 
         17       extend wishes from the board of directors of the
 
         18       National Community Reinvestment Coalition, and I am
 
         19       also president of the Community Reinvestment
 
         20       Association of North Carolina for which Peter
 
         21       Skillern is our executive director.
 
         22               We're concerned about a couple of things but
 
         23       I want to make sure right up front that we say that
 
         24       we realize that there's got to be increased
 
         25       regulation and that there will be the need for some
 
 
 
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          1       legislation as well, so we'll speak to both.
 
          2               We certainly feel that the HOEPA triggers
 
          3       should be revised to define a high-cost loan as one
 
          4       with an annual percentage rate of 8 percent above
 
          5       current Treasury bill rates.  In addition, the
 
          6       definition of points and fees should be revised to
 
          7       include all the costs the borrower is required to
 
          8       pay in order to get the loan.
 
          9               Ultimately legislation should lower the
 
         10       interest rate trigger to four to five percentage
 
         11       points above Treasury bill rates.  As the recently
 
         12       released HUD-Treasury report on predatory lending
 
         13       documents, lowering the trigger to 8 percent from
 
         14       10 percent would increase coverage from 1 to
 
         15       5 percent.  We estimate that our recommended
 
         16       trigger, however, would cover 71 percent of subprime
 
         17       loans.  Now, this is important and a robust standard
 
         18       because approximately 70 percent of all subprime
 
         19       loans contain prepayment penalties, according to the
 
         20       HUD-Treasury report.
 
         21               We recommend that the Board investigate the
 
         22       correlation between high interest rates and
 
         23       prepayment penalties.
 
         24               The Federal Reserve Board can also conduct
 
         25       examinations, including fair lending examinations,
 
 
 
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          1       of any bank holding company subsidiary, including
 
          2       the subprime lenders.  In fact, late last year the
 
          3       GAO, general accounting office, released a report
 
          4       that urged the Board to begin doing such exams of
 
          5       bank holding companies' subprime lenders.  The Board
 
          6       to date has not acted on that recommendation.
 
          7               Another important way the Board has
 
          8       jurisdiction over the portion of the subprime market
 
          9       that is abusive and/or predatory is through its
 
         10       supervision of companies which underwrite, purchase,
 
         11       and service mortgage-backed securities based on
 
         12       subprime loans by nonbank lenders.  Clearly the
 
         13       Board can and should promulgate standards as a
 
         14       matter of fair lending and CRA compliance, but also
 
         15       as a safety and soundness matter for bank holding
 
         16       companies' involvement with subprime and predatory
 
         17       lenders.
 
         18               Finally, HMDA data should contain the annual
 
         19       percentage rate of loans made.  Disclosure of APRs
 
         20       would be vital for fair lending enforcement to
 
         21       ensure that minorities and/or women of similar
 
         22       income levels and buying homes of similar values are
 
         23       not charged significantly higher amounts than whites
 
         24       and/or males.
 
         25               HMDA data should also include the credit
 
 
 
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          1       scores of the borrowers, as well as information on
 
          2       loan pricing and terms, including discount points,
 
          3       origination fees, financing of lump-sum insurance
 
          4       premium payments, balloon payments, and prepayment
 
          5       penalties.  Financial institutions should also be
 
          6       required under HMDA to disclose the number and
 
          7       dollar amount of loans that were subprime and loans
 
          8       that were not subprime.
 
          9               Two years ago the Fed issued an advance
 
         10       request for comment on contemplated changes to
 
         11       Regulation C, implementing the Home Mortgage
 
         12       Disclosure Act.  Part of the request for comments
 
         13       solicited views on enhancing HMDA data, including
 
         14       increasing the accuracy of refinance reporting and
 
         15       of the reporting of appraised home values.  The
 
         16       report of annual percentage rates in HMDA data was
 
         17       also raised and supported by many community-based
 
         18       organizations.
 
         19               Also, HMDA data reporting for applications
 
         20       taken over the phone and other nonpersonal means
 
         21       such as the Internet must include the race, income,
 
         22       and gender of borrowers.
 
         23               The last comment I would say is that if the
 
         24       concerns you've heard from the mortgage industry are
 
         25       valid, perhaps they can pay for the consumer
 
 
 
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          1       education that's needed.  Thank you.
 
          2               MR. LONEY:   Thank you, Mr. Henderson.  Next
 
          3       is Robert Ipock.
 
          4               MR. IPOCK:  I'm Bob Ipock.  I'm from
 
          5       Gastonia, North Carolina, and I'm a North Carolina
 
          6       certified real estate appraiser and North Carolina
 
          7       certified real estate appraisal instructor.  I am
 
          8       not a public speaker at all but I've just --
 
          9               MR. LONEY:   I'm not either so don't worry
 
         10       about it.
 
         11               MR. IPOCK:  Part of the problem is, it's
 
         12       hard to police something when nobody is
 
         13       complaining.  I see an awful lot of cases where the
 
         14       homeowner is not going to complain because they're
 
         15       getting their loan, the mortgage broker is not going
 
         16       to complain because he's getting his commission, so
 
         17       everybody is happy.  The appraiser is not going to
 
         18       complain because he's getting his fee.  It's two or
 
         19       three years down the road when the problem comes in
 
         20       when people go to sell their home and they discover
 
         21       that they owe more on the home than it's worth.
 
         22               I have two appraisals here.  This one was
 
         23       done -- this house sold on 7/1 of '98 for $76,000.
 
         24       It sold the same day for $114,200 with nothing being
 
         25       done to it.  This was a flip.  The FBI is
 
 
 
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          1       investigating this now, the state attorney general's
 
          2       office is aware of it.  This house was set on fire
 
          3       twice in the last 60 days; arson, both cases.
 
          4               I have another one here that sold for
 
          5       $61,000 on 11/5 of '98, sold the same day for
 
          6       $104,000 with nothing being done to it; same house,
 
          7       same day.  Both of these cases involve the same
 
          8       mortgage lender, the same appraiser, the same
 
          9       mortgage broker, and the same closing attorney.  I
 
         10       turned all this over to the state attorney general's
 
         11       office some months ago and they have definitely
 
         12       looked into it.
 
         13               These are kind of random comments.  A lot of
 
         14       the loans that are being made would not have been
 
         15       made some years ago because a personal loan was
 
         16       made.  When somebody went in to the Associates or
 
         17       wherever and they needed $5,000, they got a personal
 
         18       loan at 18 percent or whatever and that was it.  Now
 
         19       they're not making a lot of those loans, they're
 
         20       making real estate loans.  If you've got real estate
 
         21       you're going to get a real estate loan, even if it's
 
         22       just for a few thousand dollars.
 
         23               I go back every year and appraise some of
 
         24       the houses again and again and again because they
 
         25       need $2,000 to go on vacation or they need a
 
 
 
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          1       thousand dollars to get their car repaired, and a
 
          2       lot of times they'll owe more money than they walk
 
          3       out the door with; their fees and charges will
 
          4       exceed what they're actually getting.
 
          5               I would suggest that no real estate loan be
 
          6       allowed to be made for less than $10,000, or $5,000
 
          7       or whatever; put some kind of minimum on it.  If
 
          8       it's less than that, it needs to be a personal
 
          9       loan.  If their credit won't allow it, then don't
 
         10       make the loan.
 
         11               There's too much of a rush being made.  A
 
         12       lot of times the closing is set before the appraisal
 
         13       is even done, because they know they can find an
 
         14       appraiser that will make it happen.  Thank you.
 
         15               MR. LONEY:   Thank you, Mr. Ipock.  Next is
 
         16       Hubert Jones.  Mr. Jones, Hubert Jones?
 
         17               Next is Patrick, is it -- I don't know if
 
         18       it's Tarren --
 
         19               MR. TURNER:  Turner.  My name is Patrick
 
         20       Turner and I'm going to raise an issue today that
 
         21       possibly you haven't looked at.  When banks buy out
 
         22       banks, they buy mortgages, and they're predatory and
 
         23       they don't always assume what deals or what
 
         24       agreements were made with the first mortgage company
 
         25       as valid on another.  I have run into that problem
 
 
 
                             FEDERAL RESERVE PUBLIC HEARING
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                                                                 289
 
 
 
          1       with a local bank.
 
          2               My suggestion to you, instead of having a
 
          3       one-person contract, that the Federal Reserve
 
          4       require when banks sell mortgages to different
 
          5       institutions or other banks that a two-party
 
          6       contract exist.  The way it is now, it's a single
 
          7       party contract.  They dictatorially tell you what
 
          8       you're going to do, what you're going to pay, and
 
          9       the whole nine yards, and they don't keep the
 
         10       previous agreements.  That's point one.
 
         11               Point two is another thing that I think is
 
         12       terribly, terribly wrong.  There are billions of
 
         13       dollars held in escrow funds throughout this country
 
         14       with no interest being paid on them.  This is
 
         15       abhorrent to anyone in the real estate and in the
 
         16       lending institutions.  They need to be strapped with
 
         17       paying interest on escrow funds.  Most banks require
 
         18       them but the Federal Reserve Bank hasn't taken any
 
         19       action on this and they really need to study this
 
         20       issue thoroughly.  I recommend that any escrow fund
 
         21       that is withheld for payments such as taxes or other
 
         22       revenue should be interest applied to them to the
 
         23       consumer of no less than the prime rate.  This will
 
         24       stop some of these uncalled-for escrow funds.
 
         25               And that's all the comment I have.  Thank
 
 
 
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                                                                 290
 
 
 
          1       you very much for hearing me.
 
          2               MR. LONEY:   Thank you.  Next is Darin
 
          3       Ayers.  Mr. Ayers?  He spoke to me and said he
 
          4       wouldn't get called, so he must have left.
 
          5               It seems to me this is the end of the list.
 
          6       If I've missed anybody that you think you've signed
 
          7       up, let me know.  Otherwise I would like to thank
 
          8       everybody for coming and for your patient and quiet
 
          9       attentiveness, and I want to thank the panelists
 
         10       once again who participated.
 
         11               We will continue this next in Boston,
 
         12       August 4th.  If anybody needs to send anything, you
 
         13       can send it in to Jennifer Johnson at
 
         14       regs.comments@federalreserve.gov, or to Jennifer
 
         15       Johnson, who is secretary of the Board, at
 
         16       20th Street and Constitution Avenue, Northwest,
 
         17       Washington, D.C.  20551.  That is in the
 
         18       announcement of the hearings if you need to do it.
 
         19       We're done.
 
         20                        END OF PROCEEDINGS
 
         21
 
         22
 
         23
 
         24
 
         25
 
 
 
                             FEDERAL RESERVE PUBLIC HEARING
                                      JULY 27, 2000


July 27 hearing on home equity lending | Morning session | Complete transcript

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