Afternoon Session of Public Hearing on Home Equity Lending
AFTERNOON SESSION 12 INTRODUCTORY REMARKS 13 Dolores Smith 192 14 OTHER INITIATIVES TO COMBAT PREDATORY LENDING 15 OPENING STATEMENTS 16 Norma Moseley: Director of Housing Programs, 17 Ecumenical Social Action Committee, Inc. 194 18 Nadine Cohen: Lawyers Committee for Civil Rights Under Law, Boston Bar Association 196 19 Leonard Raymond: Executive Director, 20 Homeowner Options for Massachusetts Elderly 198 21 Tom Callahan: Executive Director, Massachusetts Affordable Housing Alliance 201 22 Allen White: Supervising Attorney, 23 Community Legal Services 204 24 John C. Anderson: The Real Estate Analyst 207 0004 1 I N D E X (Continued) 2 SPEAKER: PAGE 3 CONSUMER OUTREACH EFFORTS, CONSUMER EDUCATION CAMPAIGNS 4 Dolores Smith 211 5 Sandy Braunstein 212 6 Discussion 212 7 PUBLIC PARTICIPATION 8 Tim Davis: City of Boston Department 9 of Neighborhood Development 264 10 Daniel Ramgeet: Massachusetts ACORN 266 11 Ed France 269 12 Leonard Alkins: Boston NAACP 271 13 Jim Campen: Associate Professor of Economics, U. Mass. Boston 273 14 Andrea Luquetta: Massachusetts Association of 15 Community Development Corporations 276 16 Bruce Fitzsimmons: Massachusetts Conveyancers Association 281 17 * * * * 18 19 20 21 22 23 24 0192 1 AFTERNOON SESSION 2 MODERATOR SMITH: I believe we're ready to 3 start, and so I will. I'm Dolores Smith. I'm the 4 Division Director for Consumer and Community Affairs 5 at the Federal Reserve Board, and I'll be moderating 6 for the hearing this afternoon. 7 For those of you who have just joined us, 8 we welcome you, especially the panelists, although I 9 was glad to see some of you here this morning. We 10 did hear some interesting things this morning. I 11 think they will be useful to us in our 12 deliberations, and we look forward to receiving your 13 views this afternoon. 14 Let me start by introducing the Board 15 Panel, and I will -- this morning Ned Gramlich, who 16 is a member of the Board and the Chairman of our 17 Oversight Committee for Consumer and Community 18 Affairs, was able to join us on the Panel. He has 19 left us for the afternoon, but I just wanted to let 20 you know that we did have him in attendance here. 21 And so on the panel this afternoon, I will 22 start at my extreme right with Richard Walker, who 23 is Vice-President here at the Federal Reserve Bank 24 of Boston. Then Sandy Braunstein from the Board, 0193 1 who is Assistant Director in charge of Community 2 Affairs. Then we have Jim Michaels, Managing 3 Counsel for Regulations, and Adrienne Hurt, 4 Assistant Director for the Regulations Program. 5 Adrienne and Jim are the ones who are most 6 closely associated with dealing with matters having 7 to do with the Home Ownership Equity Protection Act 8 and in developing whatever regulations will come out 9 of these hearings. So that's kind of who we are. 10 We have some rules of procedure for this 11 afternoon, as we did this morning. First of all, 12 our invited panelists who have joined us here will 13 have three minutes each to give opening statements 14 before we get into the more general discussion of 15 the issue for the afternoon, which has to do with 16 consumer outreach and consumer education. 17 And we have, in the first row in the 18 audience, timekeepers. They will be lifting up a 19 card that says "One Minute Remaining," and then 20 "Please finish" when you are approaching the three- 21 minute mark. There is also, I think, a little 22 musical beep that goes off when the three minutes 23 are up, which you may or may not hear. You may 24 confuse it with some of the cell phones that keep 0194 1 going off. 2 But aside from that, I said this morning, 3 although I didn't get around to using it, that if 4 perchance you are looking in this direction instead 5 of toward the timekeepers, that I would sort of give 6 you the time's up signal. But I think we'll do just 7 fine. 8 Then, at the conclusion of the opening 9 statements, then we will get into a more general 10 discussion where we are hopeful that, as in the case 11 this morning, it will be more of a round-table 12 discussion than just witnesses appearing before this 13 Panel. So that ought to be interesting. 14 So for the afternoon session, then, we will 15 start with the opening statements, and then we'll 16 go. 17 MS. MOSELEY: I want to thank the Board for 18 having us here. 19 MODERATOR SMITH: Would you state your 20 name. 21 MS. MOSELEY: Norma Moseley from the 22 Ecumenical Social Action Committee in Boston. I've 23 been working as a housing advocate for about 34 24 years, so I'm not the new kid on the block. And I 0195 1 have been watching the cycles of predatory lending 2 in the '80s and early '90s and now starting all over 3 again. 4 I'd like to make one comment that, based on 5 this morning's testimony, I heard from the lenders 6 in that group that there are very small percentage 7 of predatory lenders out there and the rest of the 8 subprime lenders are good guys. 9 Well, for a small number, they're having an 10 enormous impact. I think part of this is because of 11 the massive advertising that they are able to do 12 over television, mail solicitation, door-to-door 13 solicitation and phone solicitation. So, for a 14 small group, they're spending a lot of money, so 15 there must be some money in it. So when you say 16 there are only a small group of predatory lenders, 17 don't let that deceive you into thinking that there 18 isn't a whole lot of predatory lending going on out 19 there. 20 The other thing I want to say right at the 21 beginning is that this is the third panel I've been 22 on in three months dealing with predatory lending: 23 The FDIC, the National Consumer Law Center and the 24 Federal Reserve. And it seems to me that after this 0196 1 meeting the fact-finding should be complete, and 2 it's about time to get down to action. And action 3 isn't more disclosures, I can tell you that. Our 4 families don't even get through the disclosures that 5 they're given at the closing. 6 I'd like to talk with people about forming 7 some subcommittees or task forces and dealing with 8 it on parallel lines and levels as to how we can 9 come about getting some resolution to this problem, 10 not all regulation, not all disclosures, but what 11 can we do. There are a lot of people out there who 12 have a lot of good ideas, and I think that that 13 should be the next step. And I hope, at the 14 conclusion of this meeting, that there will be some 15 ongoing dialogue to really develop strategies and 16 not just talk about them any more. 17 MODERATOR SMITH: Thank you. 18 MS. COHEN: Hi. I'm Nadine Cohen from the 19 Lawyers Committee for Civil Rights Under Law of the 20 Boston Bar Association, and I hope I get Norma's 21 extra seconds there. So make sure. 22 Subprime loans grew in the greater Boston 23 area by 435 percent between 1994 and 1998, and 24 subprime lending in high minority areas in that same 0197 1 period grew by over 1000 percent. Subprime lending 2 in minority areas is three times greater than in the 3 general metropolitan area, and it's also greatest in 4 refinancing. 5 Now, while not all subprime loans are 6 predatory, it's clear we have a dual lending market 7 where low-income minority borrowers, who are most 8 vulnerable, are targeted by the unscrupulous 9 lenders, and they're targeted for high-interest, 10 high-fee loans that result in stripping homeowners 11 of color and communities of color of their wealth. 12 The word "sub "means below or beneath, and 13 we are accepting a dual market where people of color 14 are routinely given less favorable terms in loans 15 than whites, and often regardless of their ability 16 to pay back the loans or their credit history, and 17 they are thus relegated to a lower status. 18 Instead of helping people who have limited 19 incomes or past credit problems, by allowing the 20 predatory lenders, we are charging people of color 21 more than we charge wealthier white borrowers and 22 subjecting them to more onerous terms. The goal 23 should be to get all borrowers in the prime market 24 and get them loans at reasonable rates with 0198 1 reasonable terms. 2 While consumer education is extremely 3 important, the Federal Reserve Board must use its 4 regulatory and enforcement powers to stop the 5 unscrupulous lenders from taking advantage of 6 people. The Lawyers Committee would support 7 lowering the interest rate, prohibiting the 8 prepayment penalties, all the things that were 9 probably talked about this morning. 10 We also want to see expanded HMDA data 11 collection, and most importantly, I think in terms 12 of this panel, there has to be support for financing 13 of consumer counseling programs and consumer 14 education and enforcement programs by private fair 15 housing groups and by legal groups. One suggestion 16 for ensuring borrowers are protected is support 17 funding of attorneys or lay advocates who can 18 represent borrowers at the closings and review the 19 loan documents. We need to put low-income borrowers 20 in an equal position. 21 MODERATOR SMITH: Thank you very much. 22 MR. RAYMOND: Hi. I'm very pleased to be 23 here today. I thank very much the Board for 24 inviting me. I am Len Raymond. I'm the founder and 0199 1 director of Homeowner Options for Massachusetts 2 Elders. We are a 17-year-old statewide nonprofit 3 that works with older homeowners in terms of 4 sustaining their independence in their homes. 5 I would also like to, before I get into my 6 short substantive statements here, to congratulate, 7 because I think I have to do this, the Bank 8 Commissioner of Massachusetts and the Secretary of 9 Consumer Affairs, because I was very proud that they 10 were, quote-unquote, lowering the bar this morning 11 in terms of the announcement of their regulation, 12 which I think is much needed, especially in the area 13 of elder homeowners who are victims. 14 There is no question in my mind, and we can 15 certainly hopefully discuss this later on in more 16 detail, but those regulations will have a direct 17 impact in alleviating some of those problems or 18 difficulties. 19 I'm going to also quickly run through some 20 issues here which I would like to have us hopefully 21 elaborate and hopefully the audience will 22 participate in and the panelists later on as well. 23 But certainly, as has been noted already, 24 the availability of counseling I think is going to 0200 1 be a really critical issue in being able to make 2 things work for the clients that we're talking 3 about, the homeowners seeking the refinancing. 4 There are obviously questions of quality of that 5 counseling, its availability, the fiscal resources 6 to support it, and some sort of set of standards at 7 the same time. 8 I'm trying to reiterate Norma's point about 9 public awareness. Most people, I believe, by this 10 time have heard about the "Don't Borrow Trouble" 11 campaign, which was really started here in Boston, 12 and Norma had a lot to do with getting it off the 13 ground with MCBC and other folks. Now its 14 statewide. But that's an incredibly important 15 initiative there. Again, it shows the need for very 16 expensive, punchy, frequent and correctly timed 17 advertising on the other side of the issue here. 18 Education and outreach for the target 19 populations -- we're talking about on a long-term 20 basis -- is extremely important. Our program, the 21 HOME program, has been providing for some time now 22 and is continuing to refine it, but a program 23 designed specifically for senior homeowners that 24 deals with not only immediate financial questions, 0201 1 but also such important life issues as remainder 2 life planning and successful aging in place. 3 The last thing I would like to comment 4 about is that we really need to get out of the box, 5 I think. This is my fourth session, which 6 unfortunately I think -- America has this penchant 7 for 30-second attention spans. No offense to the 8 Board, but I think we really need to seize upon, as 9 I read here from the Board, the desire to have not 10 just the regulatory remedies discussed but to have 11 very much a broad spectrum of possibilities 12 discussed, and I hope we do that today. 13 MODERATOR SMITH: Thank you very much. Mr. 14 Callahan. 15 MR. CALLAHAN: Thank you. I thank you for 16 inviting us today. My name is Tom Callahan, 17 representing two organizations today: the 18 Massachusetts Affordable Housing Alliance, which I'm 19 Director of, and I'm the Co-Chair of the Mortgage 20 Committee of the organization called the 21 Massachusetts Community Banking Council, which is a 22 cofounder with the City of Boston of the "Don't 23 Borrow Trouble" campaign. 24 Consumer education is a very important 0202 1 piece, I think, in the predatory lending issue. 2 That's why the Massachusetts Community Banking 3 Council, which is a consortium of nine banks and 4 nine community organizations, was formed ten years 5 ago to try to identify and continue to work on 6 issues of concern to both community groups and banks 7 specifically in low and moderate income communities. 8 A couple of years ago it identified this 9 issue of high-cost lending, predatory lending, and 10 tried to attack it in a way -- in a couple of 11 different ways. One, we produced a foreclosure 12 counseling guide that told people where they could 13 get assistance, basically from which types of 14 nonprofit agencies. 15 Two, we tried to encourage and we're still 16 trying to encourage banks to offer alternative 17 credit products so that people have an alternative 18 to the high-cost subprime and predatory lenders out 19 there. 20 And three, we tried to develop a very 21 broad-based consumer education campaign that would 22 at least in some small way attempt to match the 23 marketing muscle of the subprime lenders, which has 24 been impressive, to say the least, in terms of their 0203 1 reach into specifically low and moderate income and 2 minority communities through the mail, through door 3 to door, through TV, through almost any medium you 4 can think of. 5 "Don't Borrow Trouble" is a campaign, like 6 I said, in partnership with the City of Boston and 7 now in partnership with the State Office of Consumer 8 Affairs and the Division of Banks that has developed 9 posters that will go in main streets, businesses, 10 mailings to homeowners, PSA, commercials for TV and 11 radio, ads on subway, the MBTA system and regional 12 transit systems throughout the state. 13 We think it's too new to judge its 14 effectiveness, but we think it will be a good 15 counter to, like I said, the marketing power of the 16 predatory and subprime lenders. 17 However, and I'll just finish with this -- 18 we can talk more about this -- education, as I think 19 Nadine said, should not be a substitute for tougher 20 regulations. And I think Congressman Leach called 21 the Fed AWOL on this issue of regulation of subprime 22 lenders. And while I don't pretend to take a 23 position on that, whether or not the Fed is AWOL, I 24 think that the Division of Banks here has provided a 0204 1 model for the Fed to follow into what can be done 2 within existing regulations to toughen up the 3 regulations on predatory lenders. Thank you. 4 MODERATOR SMITH: Thank you. Mr. White. 5 MR. WHITE: I would also like to thank the 6 Board for giving us this opportunity to participate 7 in your deliberations. My name is Allen White. 8 I've been a Legal Services attorney in Philadelphia 9 for about 17 years now and have been interested, 10 along with a few other people who are seeing the 11 anecdotal stories about predatory lending, in trying 12 to gather some data and some research to try and 13 look at some of the big questions about subprime and 14 predatory lending on a more empirical basis. 15 And recently Professor Mansfield and I 16 gathered some statistics through a fairly tedious 17 process of going through SEC filings on both the 18 interest rates charged by subprime lenders and on 19 foreclosures. 20 One of the definitions that's been offered 21 of predatory lending is a loan that's made that has 22 a substantial likelihood of being foreclosed on. 23 And I think frequently these type of hearings in the 24 last year have begun with some untested hypotheses, 0205 1 including the premise that a substantial portion of 2 the subprime mortgage lending that's being done is 3 somehow beneficial or providing useful -- or meeting 4 social needs, and there are a small group of 5 outliers who are harming consumers and homeowners. 6 And I think some of the data, the very 7 little data that are out there, suggests that there 8 is a serious problem. I think we handed out a 9 couple of slides that I brought with me, graphics, 10 that have the results of the tabulations that we 11 made about foreclosures and serious delinquencies, 12 and this was for about 15 or 20 lenders who reported 13 their data publicly. 14 Perhaps not surprisingly, subprime 15 foreclosures and serious delinquencies are 16 substantially greater than foreclosures and serious 17 delinquencies for conventional lenders. For 18 conventional lenders, it's a little over 1 percent, 19 and for the subprime industry, over 4 1/2. In fact, 20 the Mortgage Information Corporation is now 21 reporting for 1999 that those rates are approaching 22 5 percent. 23 But the other two slides that I brought 24 with me basically are intended to show that even 0206 1 that 4.6 or 5 percent rate of serious delinquencies 2 seriously understates the problem. First of all, 3 every subprime lender whose data we've looked at has 4 delinquencies and foreclosures increasing year after 5 year, partly because their volume is growing, partly 6 because the loans are seasoning. 7 So we have the example here of Equicredit, 8 probably the number one -- it is in fact the number 9 one originator of subprime loans, and you can see 10 three years in a row having mounting delinquencies. 11 And this is the pattern you will see with all 12 subprime lenders. 13 Finally what the third slide is intended to 14 illustrate, instead of looking at the foreclosures 15 for a single lender -- for a single point in time, I 16 should say, if you look at loans that are made and 17 originated in a period of time and follow them 18 longitudinally as a cohort of loans, a pool of 19 loans, the numbers are much more dramatic. 20 In this particular pool of loans, of the 21 6,000 loans we saw, over 1300 of those people who 22 got those loans are now in foreclosure. And this is 23 two years after the loans are originated. So it 24 raises an interesting question, whether you should 0207 1 disclose to people who are taking these loans out, 2 "You have a one-in-four chance of losing your home 3 if you take this loan out." 4 MODERATOR SMITH: Thank you. Mr. Anderson. 5 MR. ANDERSON: Thank you. While the 6 participants of this meeting will discuss the 7 minutia of subprime lending, maybe we can also 8 answer the question of how many angles can dance on 9 the head of a pin. 10 And if you will pardon me for being 11 cynical, but after being in the real estate business 12 for 22 years, a great deal of what is called 13 predatory lending is little more than good 14 old-fashioned fraud. 15 I only have three minutes, which I will go 16 over -- my apologies to you up front -- so I will 17 spare you the statistical analysis, which the Fed 18 ignores anyway. Instead I'll give you a few 19 examples to show how widespread mortgage fraud is. 20 Very few mortgages go bad in the first few 21 months. Knowing that, Yawu Miller, a reporter for 22 the Bay State Banner, asked me for a list of recent 23 mortgages that are already in default. We found 24 Aryan Wiley, an 80-something-year-old black woman 0208 1 in foreclosure on a loan from Advanced Financial 2 Services. The loan was originated after she had 3 previously defaulted on a loan to United Companies 4 Lending. 5 The story that Ms. Wiley told us, who was 6 clearly suffering from some sort of dementia, and 7 her grandnieces, who reeked of alcohol at ten 8 o'clock in the morning, told us something was very 9 wrong. She was referred to Ms. Moseley, who 10 uncovered more unseemly family finances. A few 11 months later she lost her home to foreclosure, and 12 no regulators did anything. 13 Surely the Fed can't be responsible for 14 every real estate transaction, so let's go back to 15 1990. As the New England real estate market was 16 collapsing, a condo developer develops several 17 new -- finishes several new developments. His first 18 eight sales go through Northeastern Mortgage 19 Corporation, a leading mortgage originator at the 20 time and a leader in originations that end in 21 foreclosure. Of those eight, all eight are 22 foreclosed. 23 When Northeastern Mortgage goes bankrupt, 24 Cawley has to come up with a new scam. He records 0209 1 phony deeds and phony mortgages and creates a paper 2 trail needed to get a refinance mortgage. Of the 30 3 units he sold this way, all but three have been 4 foreclosed. One of those that was not foreclosed 5 supplied us with the RESPA form clearly marked 6 "Refinance." All this fraud and foreclosure, and 7 the Fed does nothing. 8 Back to developer Richard Cawley. With all 9 the foreclosures, there are bargains to be purchased 10 and flipped. This time he has a major bank willing 11 to finance his business, because they need loans in 12 minority areas for CRA compliance requirements. 13 A Boston Globe article that was July 2 of 14 '95 showed seven properties that Cawley had built, 15 arranged financing on, sold, then bought back at 16 foreclosure, then flipped through Fleet Bank. Fleet 17 and the Boston Fed have told us that all these loans 18 have been taken care of. So why, of the seven, have 19 four been foreclosed? 20 And the one who wasn't foreclosed told us a 21 very different story. The owner of Unit 9 bought 22 her unit for $90,000 in 1993. Cawley bought it for 23 $25,000 a month earlier. But the new buyer told us 24 that she didn't have a down payment. So Cawley gave 0210 1 her a check at the day of closing to cover the 2 difference. Oh, those home buyer classes to make 3 sure inexperienced buyers don't get into trouble? 4 The Fleet originator told her it wasn't necessary 5 and checked it off on the form. 6 Did Fleet approach her to make sure there 7 were no problems with the mortgage, as they told the 8 Boston Globe and the Boston Fed they were going to 9 do? No. The owner said the only time she heard 10 from Fleet was when they came after her because she 11 stopped paying her condo fees because the common 12 electricity in the development was disconnected, and 13 there was a huge water and sewer bill. It seems 14 Cawley had omitted to tell her that the water and 15 sewer and the electric bills hadn't been paid in a 16 while. 17 With all this a matter of record testified 18 on this stage, did the Fed do anything? No. 19 But we were talking about subprime lending 20 and predatory lending. The owner of Unit 9, after 21 getting over the financial difficulties thanks to an 22 extra part-time job, was a bit short of money. 23 Since she overpaid for her condo six years earlier 24 and Fleet did nothing about her loan, she had no 0211 1 equity to borrow against and had to go to a subprime 2 lender. 3 So her $81,000 Fleet loan and her $15,000 4 subprime loan means a principal of $96,000. But 5 since Fleet stopped doing business with Richard 6 Cawley, the most expensive condo to sell in her 7 development was Unit 8, right next door. It sold 8 for $78,000 last year. After six years, in a red- 9 hot real estate market, her unit is still not worth 10 what she paid for it. 11 This is all a matter of public record, and 12 the Fed knows this. At previous hearings I gave the 13 Fed data on about 80 Fleet-financed Cawley and other 14 speculator loans, and what has the Fed done? 15 Nothing. 16 If past is prelude, then these hearings are 17 a sham. What difference does a few points on an APR 18 trigger mean when the Fed ignores solid evidence of 19 good old-fashioned fraud? Instead of these 20 hearings, the individuals in the Fed should be 21 telling us why they haven't done anything in five 22 years. 23 MODERATOR SMITH: Thank you very much. 24 We will now go on to the discussion phase 0212 1 of this session, and I'll say that -- there are a 2 couple of general questions that we would like to 3 focus on. One of them has to do with your views on 4 what techniques have been or might be most effective 5 in performing outreach to the targeted populations, 6 the vulnerable individuals that might fall prey to 7 predatory lenders. And another has to do with what 8 role can the Federal Reserve play in community 9 outreach and consumer education. Are there 10 sufficient materials available? Are there delivery 11 system issues. 12 And then, Sandy, do you have anything 13 specific to get us started on? 14 MS. BRAUNSTEIN: Well, actually, I would 15 kind of like to hear a little more about the "Don't 16 Borrow Trouble" campaign, since that's a big thing 17 up here, from either Tom or Norma, more about how 18 did you decide what techniques to use, do you have 19 any information at this point on how effective it's 20 been in the communities. 21 MS. MOSELEY: I'll start, Tom, and then you 22 can pick it up. It's a fairly recent campaign, and 23 I don't believe, unless it's on Boston cable TV, I 24 haven't seen the TV spots aired yet. Am I correct? 0213 1 MR. CALLAHAN: Correct. 2 MS. MOSELEY: But let me just say one thing 3 before we get into that specific thing. We're 4 talking about outreach to potential victims of 5 predatory lending, and yet the predatory lenders 6 call it "marketing." And there's a big difference. 7 Outreach is all squishy, fuzzy, see you at 8 a social gathering. Marketing is business driven 9 and profit driven. And until the same amount of 10 money can be put into marketing our solutions as 11 they can selling their product or marketing their 12 product, you're going to get nowhere. 13 These people are not easy to reach. I 14 mean, you can have billboards, you can have 15 newspaper articles like Yawu does. But when you 16 watch cable TV on any weekend or any evening, you 17 see ad after ad after ad, and they're talking about, 18 you know, "When the banks say no, we say yes," and 19 "The loans are out there," and "You can pay off 20 those high-interest credit card debts," and "You're 21 going to save $300 a month." And it's just one big 22 jolly thing. "We can do it over the phone." "We 23 close at your house." You bet they do. Boom, and 24 they're right there. 0214 1 I'm just saying, until there is that same 2 dedication to wanting to prevent predatory lending 3 as there is to making the loans, all the hearings 4 and all the regs aren't going to happen. Education 5 is a really slow process. It isn't the solution. 6 You've got to market your solutions with the same 7 vigor and the same dollars that are put into the 8 lending process. 9 That didn't answer your question at all. 10 MS. BRAUNSTEIN: No, actually it did -- 11 well, part of it. I want to follow up on that a 12 second. Where are the dollars coming from for the 13 "Don't Borrow Trouble" campaign? 14 MR. CALLAHAN: It's a collection of -- City 15 of Boston is putting in the most money, I believe. 16 The initial first-year contribution was $50,000 the 17 City of Boston is putting in. MCBC itself put in 18 $10,000. And then another $50,000 or so was raised 19 from Fannie Mae, Freddie Mac, the Mass. Bankers 20 Association, the Mass. Mortgage Bankers Association, 21 and I'm probably forgetting a couple. But it was a 22 team effort. The City of Boston went out and 23 recruited some of those folks, and MCBC helped in 24 that regard as well. 0215 1 I think that is one issue. We've been able 2 to do that for the launching of this campaign, but 3 to sustain this campaign, will that same type of -- 4 those same type of resources be there? I think the 5 City of Boston and the State have now committed to 6 this in terms of staffing hot lines in an ongoing 7 way for consumers to call. 8 I mean, I think that was one key element of 9 the "Don't Borrow Trouble" campaign. We wanted to 10 make sure there was a place where people just didn't 11 see a poster or get a brochure in the mail without 12 having a place to call that they could pursue the 13 issue and get questions answered and get help and 14 get referred to a counseling agency like Norma's, 15 which is part of the City of Boston's and will be 16 part of the State of Massachusetts's campaign. 17 But I'm worried about the ability to 18 sustain that type of funding over the long term, 19 because it needs to be a lot more than a one-shot 20 deal to compete with predatory lenders. 21 The other answer, just picking up a little 22 bit on what Norma said, I think the best outreach 23 method -- I think the best thing we can do from an 24 outreach perspective to low-income consumers is to 0216 1 put the predatory lenders out of business. 2 I think defining predatory loans and doing 3 things like lowering the APR trigger to 5 percent 4 above Treasury, prohibiting balloon payments, 5 prohibiting prepayment penalties, those types of 6 things that I'm sure were talked about this morning, 7 I think are going to be the things that really help 8 us in our outreach, because it will give us a 9 starting point where at least people are not getting 10 the most outrageous conditions and terms that you 11 can imagine. 12 There are other programs, I think, that 13 exist out there. We have a program called the Home 14 Safe Program, which is a homeowner resource center. 15 It really evolved out of our success in helping 16 people get into homes through home buyer counseling. 17 This is a program that's really designed to 18 reach people in the first year or two of home 19 ownership, before they have a crisis, before they 20 need an equity loan, before they have problems with 21 their home that they can't deal with, with 22 information and resources that are available to 23 homeowners. But it's really trying to reach folks 24 in this non-crisis situation. 0217 1 I think those types of things are key, 2 where you could talk to folks. Education up front 3 in the prepurchase about predatory lenders in the 4 prepurchase classes are important, but we find, 5 since the bulk of this problem is in equity-type 6 lending to homeowners, you don't really realize the 7 problems and the issues you're going to deal with as 8 a homeowner until you're actually in the door and 9 experiencing life as a homeowner. 10 So that's why the postpurchase classes, I 11 think, are so key. There is not a lot of support 12 for postpurchase classes out there. The banks fund 13 prepurchase classes because it's in their self- 14 interest. But postpurchase, not a lot of folks. 15 We've been able to scrap together some money to fund 16 that program, but there are only three programs that 17 I know of in the state, really, that do extensive 18 postpurchase counseling, largely because of a lack 19 of funding. 20 MODERATOR SMITH: Would you remind me when 21 the "Don't Borrow Trouble" was launched. 22 MR. CALLAHAN: Just in the last few -- 23 earlier this year, basically the last few months of 24 spring. And it's being rolled out in different 0218 1 phases. Many homeowners have already received the 2 initial mailing from the Mayor, but as Norma said, 3 the TV and radio spots are in production right now 4 and haven't aired yet. Posters are going up now in 5 community centers and in main street businesses 6 around the city. So it's just starting to produce 7 calls, and it's too early to track data from it. 8 MS. BRAUNSTEIN: Will you have any way of 9 being able to tell whether it's been successful? 10 MR. CALLAHAN: The call centers I think 11 will be our best way to track, both the State call 12 center that's going to be set up later this summer 13 and the City call center that's already fielding 14 calls. 15 I think we'll be able to tell, one, how 16 many people are calling, and, two, you know, what 17 level of assistance is needed for those folks. 18 There's going to be -- those folks answering the 19 phones will be trained to provide a certain level of 20 advice and assistance, but then for people that are 21 really in need of counseling and further assistance, 22 they will be referred to an agency like Norma's. 23 So I think there will be the ability to 24 tell what level of advice and assistance is needed, 0219 1 and then once we find out how many people need the 2 real in-depth counseling and foreclosure-prevention 3 type assistance, we'll be able to track that as well 4 and see how successful -- 5 MS. MOSELEY: It's already on the Banking 6 Commissioner's line. I think it's punch 4 or 7 something if you want the "Don't Borrow Trouble" hot 8 line. I know because I was trying to reach the 9 Commissioner's Office yesterday. 10 So it's already there. It's part of a 11 menu. It doesn't rise up and hit you in the face, 12 but it's part of a menu. 13 MS. BRAUNSTEIN: Can I just -- I'm sorry, 14 one more question on this. You mentioned, Tom, 15 letters going out. Who is getting -- is it just in 16 certain communities or every homeowner in the city? 17 MR. CALLAHAN: Mayor Menino in the City of 18 Boston is sending a letter to every homeowner in the 19 city. This is actually the second mailing. He did 20 last year send a general, just, letter, and then 21 this is a letter with the brochure which was 22 specifically designed for the "Don't Borrow Trouble" 23 campaign, which, I think, is more -- hopefully will 24 attract even more attention. 0220 1 MS. MOSELEY: It goes out with the tax 2 bills. 3 MODERATOR SMITH: Ms. Cohen. 4 MS. COHEN: I just wanted to add something 5 to that. I think any communication, and I don't 6 know if the Mayor's letter is being translated into 7 other languages, but I think that's a critical 8 piece, because many homeowners and borrowers are 9 immigrants, people for whom English is not the first 10 language. And I think that we have to ensure that 11 any outreach materials get translated. 12 I always worry about all the HOEPA 13 disclosures and the Truth in Lending disclosures. I 14 don't think they even say anything that our 15 utilities bill say, that "This is an important 16 document. You should bring it to someone to be 17 translated." 18 And I have had cases where I've had a 19 family who spoke no English, were Hmongs, and they 20 didn't understand what they were signing. The 21 lenders just took them through the whole thing, and 22 there was no one to explain anything to them. 23 That's always the danger in disclosures. 24 I also wanted to emphasize, when you talked 0221 1 about what techniques work, I think Tom really 2 identified it. I mean, we have to get rid of all 3 the balloon payments, the prepayment penalties, all 4 the indicators of predatory loans, and I think that 5 really helps. But short of that, I think you really 6 need people to be represented at these closings, 7 either by lay advocates like Norma and Len or from 8 Tom's group or by trained attorneys. 9 The Lawyers Committee is now working with 10 the National Consumer Law Center on a program to 11 train attorneys and later community people on how to 12 recognize predatory loans and what legal avenues 13 people have when they get involved in predatory 14 loans. 15 And I think that's critical. We're sending 16 people into these closings in a totally unequal 17 situation. It's hard enough -- I always tell the 18 story that I always thought it was easier to have a 19 nine-month pregnancy and have a baby than to buy a 20 house. I think I started the process around the 21 same time. And I as an attorney was overwhelmed by 22 the paperwork, by the numbers, by the whole process. 23 And we're sending in unsophisticated 24 borrowers, elderly people, people who don't always 0222 1 speak English, who are most vulnerable, and they're 2 not represented. I don't think there are many other 3 situations in life where you are risking so much 4 without any real protections. 5 So I would push that as part of an 6 education and a funding campaign. 7 MR. CALLAHAN: Actually, if I could ask 8 Norma to tell that story about the time you did show 9 up at the closing. I think that's instructive to 10 Nadine's point, if I may be so bold. 11 MS. MOSELEY: Well, I go to all my clients' 12 closings, by the way. But this was an elderly 13 couple in South Boston who had gotten into a 14 refinance -- I think this was going to be their 15 second refinance in about 18 months. And 16 interestingly enough, on the documents it indicated 17 that "If you are elderly, call the Elderly 18 Commission. You may want to have someone with you." 19 So, they did, and I did, and I was there. 20 And I had prepped these people. I had seen the 21 documents. It was clearly a ridiculous loan. They 22 were elderly, and the gentleman was also 23 handicapped. 24 The closing was at their home. So the 0223 1 lawyer came up, and just bit by bit he was asking 2 them to sign this, sign this, sign this. I said, 3 "Wait, wait, wait. Let's go over this." They had 4 been prepped. We had been over it. But they played 5 the part. 6 And so we did, and they would ask -- stop 7 and ask a question, "But I applied for a 30-year 8 fixed rate mortgage. Now you've got this as a 15- 9 year variable." "Oh, well, that must have been a 10 mix-up in the documents. But go ahead and sign it." 11 "No, we're not going to sign it." 12 And then, "So what does the rate go up to?" 13 And then they see all this LIBOR plus. "What does 14 that mean?" "It just means they base it on some 15 kind of prime rate in the market somewhere over in 16 London." I don't know what the hell it means 17 either. 18 But at each document, they HUD settlement 19 statement, "Where is the broker? What's this 20 broker's fee? We didn't pay a broker." "Oh, yes 21 you did. That gentleman who came to your house 22 wasn't from the bank. He was a broker." "Well, I 23 didn't know that. I thought I was applying to the 24 bank." 0224 1 Anyway, to make a long story short, they 2 didn't sign anything. So the lawyer said, "Could I 3 use your phone?" He got on the phone, and he 4 evidently called the broker and said, "This family 5 isn't going through with this loan." And the broker 6 said, "Give me a minute." 7 And he came back from the phone and said, 8 "Well, look, we can make this a 30-year fixed. We 9 can drop the interest from 14 down to 10. We can 10 knock off these broker's fees and put you in a 11 really good loan." 12 And I said to them, "Do you want to go with 13 a mortgage company that just like that can change 14 the terms? Because if you were eligible for them 15 now, you were eligible for them before." And they 16 said, "No." So we went out and got a prime loan 17 with somebody else. 18 But I was so delighted. They called back 19 for three weeks in a row, sweetening the pie every 20 time, saying, "You can't get it. You have lousy 21 credit." They already had been approved for their 22 loan somewhere else. 23 So, I mean, it does make a difference. It 24 does make a difference if you are there. You don't 0225 1 have to be a lawyer that can -- all you have to do 2 is ask the right questions, because the lawyer for 3 the lenders, they don't like to be asked the right 4 questions. And by the way, if you really want to 5 get a batch of scoundrels, get those lawyers who 6 close these loans. I don't know how they sleep 7 nights. They're sleazy. 8 MS. BRAUNSTEIN: To play devil's advocate 9 for a second, one of the things obviously we hear 10 everywhere is that one of the ways that the 11 predators operate most effectively is by gaining the 12 trust of their clients through all that personal 13 contact and even taking them to lunch, whatever. 14 Okay. So if there was a requirement that 15 people had to be represented at their closings, how 16 do we know that the trusted lender wouldn't say, 17 "Oh, don't worry about that. I'll get you 18 somebody"? 19 MS. MOSELEY: They do already, even though 20 their documents all say, "The attorney is 21 representing the lender. You have a right to an 22 attorney on your own," and it's there. You know, 23 disclosures aren't the issue. Everything is 24 disclosed. It's right out there. So what? 0226 1 MS. BRAUNSTEIN: I'm just saying, how would 2 you make that happen to make sure that everybody has 3 good representation at closing? 4 MS. MOSELEY: I think it has got to be 5 almost -- I don't know how you -- whether legally 6 you can require it, a third party, you know, an 7 independent third party there. But if there were a 8 way to do it legally, you would save a lot of people 9 from getting into bad loans. 10 MS. BRAUNSTEIN: Well, another thing that 11 we've heard is that possibly people who are getting 12 HOEPA loans should be required to go to housing 13 counseling first. That's another kind of take on 14 what you're talking about. 15 We have had some conversations, and I would 16 like some reaction from the whole panel on this, 17 we've had some conversations with some housing 18 counselors who have told us that even when they can 19 get to a client before they enter into a deal, and 20 they go over it with them and show them how this is 21 not a good deal for them, that oftentimes the 22 client, because they're in need of the money to pay 23 a doctor bill or something like that, will enter 24 into the deal anyway, that there has been a great 0227 1 deal of frustration with that. 2 And I don't know -- I was wondering if 3 that's been anybody here -- like Norma, I guess you 4 do more of it than anybody, or Leonard, your 5 experience, has that been the case? 6 MR. RAYMOND: Certainly that often is the 7 case. As I think, as Norma and I were sitting this 8 morning listening to the testimony, again, we 9 reiterate the issue that irrespective of the 10 substance and the length of the disclosures, that 11 oftentimes the people who are in these circumstances 12 are desperate, absolutely desperate. So they may 13 very well go through, although I would say our 14 experience, most of the time we see people post this 15 situation, not often previous. 16 If it's a situation where, indeed, we're 17 talking about, okay, three days before, pursuant to 18 the HOEPA regulations, we're going to get people 19 connected with a counselor, there might be some 20 possibility during some circumstances of making a 21 difference. I think a good number of people we 22 could perhaps make some difference. But there will 23 always be a minority of folks who, no matter what, 24 are going to go forward. 0228 1 MS. MOSELEY: What happens is people get 2 into a situation where they're delinquent on a loan. 3 Let's say it's even a decent loan. They're just 4 delinquent and foreclosure is imminent. And 5 because, you know, when you're in foreclosure, that 6 doesn't give you a very good credit score, so you 7 probably already decide on your own, you can't go to 8 a regular lender and refinance out of this. 9 Subprime lenders are right there, filling 10 the gap. And even though, you know, you can point 11 out, as Len said, all of these things, they say, "I 12 have to do it, because I'm going to lose my home 13 otherwise, and I've got to close." 14 We do explore with them the options, if it 15 sounds like it can work, a Chapter 13. And their 16 response is, "Oh, but that's going to ruin my 17 credit." Here they are in foreclosure. And I say, 18 you know, "At this point, your credit is the least 19 thing to worry about. Let's look at saving your 20 home and starting to rebuild your credit." 21 But you see the reasoning isn't, you know, 22 the way you might reason it or you might reason it, 23 but this is what is going on. This is what they 24 see. Chapter 13 ruins your credit. A foreclosure, 0229 1 being in foreclosure and then doing a subprime loan 2 somehow is going to keep your credit neat and clean 3 and dandy. I'm looking at the real world, the way 4 they see it. 5 MS. BRAUNSTEIN: Tom, you mentioned in your 6 opening statement working to try with lenders to 7 develop alternative products to subprime loans. I 8 was wondering how successful you have been at doing 9 that. 10 MR. CALLAHAN: I'll turn that back to 11 Norma, because she's actually been the agency 12 that's -- MCBC has tried to facilitate a little bit 13 of that, but Norma's agency has had the most 14 success. But it's been actually disappointing in 15 the overall response. We hosted a breakfast, MCBC 16 did, for some 30 lenders or so, and maybe one or so 17 has followed up with Norma to try to add -- Norma 18 has a list of four lenders that provide some 19 alternative financing in these, and I'll let her 20 describe that. 21 In response to your previous question, 22 though, I wanted to say, I think the later you see 23 people in the process, the more likely it is they're 24 going to go forward with that, maybe against their 0230 1 own interests, but with that subprime loan or 2 predatory loan. 3 That's why I think this maintaining -- 4 trying to maintain a relationship from prepurchase 5 to non-crisis postpurchase counseling to early 6 delinquency and foreclosure-prevention counseling, 7 we have had successful cases in our office of people 8 who have taken our non-crisis postpurchase workshops 9 and then have been marketed to by these, and just at 10 the very early stages of thinking about it call our 11 counselor, because they have a relationship with him 12 or her, and say, "This sounds attractive in one way, 13 but I have some questions," or "I'm a little leery 14 about it. Can you help me go through it." And they 15 come in, and our counselor sits down and we go 16 through it. 17 And more often than not, those folks who 18 are sort of at the beginning stages of thinking 19 about maybe they need some equity credit or for a 20 variety of reasons, those folks we can usually make 21 sure they don't fall into that trap and get them a 22 better deal, if they really do need that, or in some 23 cases work with them on budgeting issues. And one 24 of the goals of "Don't Borrow Trouble" is actually 0231 1 convincing people at times they don't need to borrow 2 more money. That's the worst thing they can do in 3 certain circumstances. 4 So it's really, you know, budgeting and 5 money management as much as trying to find a loan 6 for them. 7 I'll let Norma talk about -- 8 MR. RAYMOND: Actually, I wanted to 9 interject. I think it's very important for us to 10 get back, because that's a really critical question, 11 to those alternative products. But we've 12 participated in the "Don't Borrow Trouble" program 13 as well statewide, but I think that's a slice. 14 That's one slice. 15 I think there is another slice here that's 16 very important, that's more of a long-term kind of 17 prevention approach. Since we work exclusively with 18 people 50 and over, mainly elders, we are 19 continuously getting exasperated by the fact of 20 people coming to us late in the process, often in 21 foreclosure itself, and we're just mystified as to 22 why people made the choices that they did, et 23 cetera, how did they get trapped in these 24 situations. 0232 1 We became convinced that we had to spend 2 some time, some considerable time putting together 3 what we called an elder economic literacy product, 4 which goes out to the community. We have done this 5 in 30 communities across the state. We work with 6 Councils on Aging. We developed a set of manuals 7 that deal with not just refinancing issues, but 8 important life skills. 9 Remember, we're dealing with a population 10 that has particular needs. For us, most of our 11 clients who are elderly are widows. In an average 12 year, 85 to 86 percent of our clients will be single 13 women, average age of 80, average income of $10,000 14 to $12,000, all homeowners, nonetheless, and 15 experiencing all kinds of difficulties. 16 So it was very important for us to go into 17 the community, with the Councils on Aging, bringing 18 in other professionals from Legal Services, from 19 various housing and other kinds of elder services. 20 And we present this as a part of what we call 21 Remainder Life Planning. 22 It's a set of skills in terms of surviving 23 in your house long term, preserving as much equity, 24 getting your options, finding out ways to off-load 0233 1 your needs into various programs and services which 2 are low cost, no cost, preferably government 3 programs, et cetera. And we have been very 4 successful in that. 5 But that's, again, one slice of the pie. 6 It's one piece here, and I think we need -- 7 MS. BRAUNSTEIN: How are you reaching your 8 audience? Are you using existing -- 9 MR. RAYMOND: We go out to the Councils on 10 Aging. We have the Bank Commissioner's Office 11 working with us. They have been participating in 12 the program, the various AAAs, area agencies on 13 aging, housing advocates, as well as the Legal 14 Service folks who are working particularly with 15 senior citizens and their problems. It's scheduled 16 way ahead of time, so a lot of advertising. 17 One of the other techniques we have found 18 is we have what we call circuit rider counseling. 19 We actually have people who then show up post those 20 sessions at the designated times we'll announce. So 21 we have those wonderful situations where an elderly 22 gentleman will come in and say, "Well, I decided to 23 go by the COA today to pick up some information, and 24 by the way, I have this friend who has this 0234 1 problem," those situations. 2 It's a piece of the pie. It's a small one, 3 but nonetheless a very significant one. And we've 4 reached several thousand elders this way and want to 5 continue on doing that, again, giving people some 6 tools, tools in terms of really important written 7 materials, manuals on various issues, refinancing, 8 the dangers of certain kinds of financial 9 situations, what kind of scams are directed 10 particularly at elders, what kinds of options and 11 resources are available to them, et cetera. 12 One of the biggest issues we deal with is 13 the problems of credit cards, which has absolutely 14 exploded. One of the biggest reasons why people are 15 moving at this stage of life into looking at 16 refinancing is because they've run up credit cards. 17 15 years ago, when I got started in this business, 18 it didn't exist. Now we're talking an average of 19 $7,000 or $8,000 per elder. The recent record in 20 the office is $146,000, one senior, of credit card 21 debts. 22 There is no question that there is an 23 informal network out there where essentially when a 24 widow reaches $10,000 or $12,000 of credit card debt 0235 1 which she cannot maintain, and she gets harassed by 2 the collection agencies, interestingly enough the 3 question arises in those conversations with the 4 harassing collector, "Gee, do you have a home? Oh, 5 you don't have a mortgage? Oh, a small mortgage? 6 We can refer you out." 7 So, again, these are the kinds of things 8 we're trying to get people some basic skills, tools, 9 also very important for them to know that there are 10 places to go, numbers to call, et cetera. 11 Again, it's one basic piece, but it's a 12 significant one nonetheless. 13 MS. BRAUNSTEIN: Do you know if that kind 14 of thing is going on in other cities? Is AARP aware 15 of what you're doing? Do you work with them at all? 16 MR. RAYMOND: Well, certainly I think 17 they're aware of us and we're aware of them. But 18 this is a project -- we've essentially had a very 19 small grant from the Crossroads Foundation and a 20 small grant from the late, great Bank of Boston to 21 get this off the ground, but essentially we are 22 literally -- this is held together by baling wax, 23 strings and bubble gum, because we have to rely on 24 our community lenders to help defray some of the 0236 1 cost who participate in the program. 2 MS. HURT: May I ask, do you have any 3 thoughts on reverse mortgages as an alternative 4 to -- that you would like -- 5 MR. RAYMOND: Our organization basically 6 created reverse mortgages for this part of the 7 country some 17 years ago, and we have, last count, 8 I think, 68 community lenders, credit unions, mutual 9 savings banks, cooperatives, et cetera, who work 10 with us as. And we have created actually a whole 11 array of financial options for seniors, some of 12 which are equity conversions, some are not. 13 Our real strong feeling is that the real 14 success of aging in place successfully is preserving 15 as much equity as possible. Reverse mortgages can 16 be extremely good under some circumstances. They 17 can be the wrong thing for a heck of a lot of other 18 elders. 19 So we really take the maximum of equity 20 conservation, equity preservation, off-load it, and 21 only using loans as a last resort. That means any 22 kind of loan, but especially reverse mortgages, 23 because they are, pardon the expression, damnably 24 expensive, and they deplete equity. They can be 0237 1 good tools under some circumstances. 2 Because of that we created a product called 3 SELOC, which is a senior equity line of credit 4 product, which is designed specifically for elders. 5 Again, it's more of a prevention tool. It was 6 designed for elders who have little or no debt, but 7 again, that large group of elders who are just 8 basically surviving by their wits, month to month, 9 and all it takes is one major problem to bump them 10 off. And these are the folks that are, pardon the 11 expression, the raw meat for predatory lenders. 12 You know, when the ten-year-old car dies, 13 when the roof goes and there is no public program to 14 pay for it, when there is an in-home care problem or 15 an expense with the hospital that is not covered by 16 insurance, that's often when people are driven. 17 They go to the local bank. The bank will make the 18 correct decision that your income is too small, 19 especially given your credit card debt. 20 So what happens next is they pick up the 21 newspaper with the wonderful block ad, "No credit/ 22 bad credit?" Or they submit to that wonderful 23 advertisement which Norma alluded to. We won't name 24 them. Athletes should be selling underwear, not 0238 1 loans. But essentially that's when they get hooked 2 into this stuff. 3 So this was a tool which we provided for 4 them, because it's a loan design that doesn't depend 5 on credit criteria. It's purely the fact that they 6 own this house. But it's a qualified loan, which 7 means disbursements are made after a consultation 8 with the program, because we try to find other kind 9 of solutions and ways. 10 But in addition to that, which is very 11 important, we have been able to really intervene in 12 terms of home repair issues, so they don't hopefully 13 get hooked into the whole home repair scam 14 situation. And they have options of either 15 amortizing the loan, paying the interest only, or 16 they can defer payment altogether. But it's a way 17 for us to stretch things out. 18 MR. WALKER: I wanted to ask a question 19 with regard to credit, and actually maybe Jim or 20 Adrienne can answer this question. I have an 21 elderly mother who continues to get almost daily 22 solicitations from credit card companies with the 23 checks in them. Does that continue to be legal for 24 them to do that? 0239 1 MR. MICHAELS: Yes. 2 MR. CALLAHAN: Can the Fed do something 3 about that? 4 MS. COHEN: There is something the Fed can 5 do, perhaps. And it's not only elderly people. I 6 mean, I know I'm old, but I'm not that elderly yet, 7 and I get lots of those checks, and they're 8 tempting. 9 MR. WALKER: But for the elderly, 10 because -- well, for example, for my mother, I mean, 11 she has dementia, so to her it looks just like one 12 of her regular checks, and she has written herself 13 some credit loans as a result of that. 14 MS. MOSELEY: I wanted to talk about the 15 alternatives, going back to Tom's thing. We did 16 have a really neat program going with BayBank back 17 in the good old days when there was a BayBank. 18 We could bring troubled homeowners to 19 BayBank with a hardship letter explaining how they 20 got into their circumstances where they've got some 21 credit issues, you know, if there were extreme 22 catastrophic or unforeseen circumstances, so that 23 credit wasn't going to be the issue. 24 But we looked at LTVs of 80 percent, LTVs, 0240 1 and debt-to-income, with everything paid off, about 2 max 38 percent. That is a damn conservative loan, 3 and the bank liked it. It was a money maker. And 4 Fannie Mae was buying them, because they didn't see 5 anything other than the LTV and the debt-to-income. 6 They didn't investigate the credit. The bank took 7 that. 8 We did, oh, probably 80, 85 of those loans 9 because it was statewide lending, and BankBoston 10 continued it on a scaled-down basis when they took 11 over BayBank, and Fleet isn't doing it at all. 12 So I'm back sort of behind the eight ball 13 trying to reach out now to the smaller community 14 banks and sell this program literally on a 15 community-by-community basis statewide, because 16 you're never going to get a whole bunch of them. 17 They may get two or three a year. That is not going 18 to break the portfolio. And they're performing 19 loans. So I'm out there trying. 20 MS. COHEN: I just want to say that also in 21 some of the settlements we did early on in the late 22 '80s with some of the banks around some 23 discriminatory practices, we did get programs also 24 that were similar to what Norma said, which shows 0241 1 that the banks can do them. The mainstream prime 2 lenders can make loans to lower-income borrowers 3 that are successful loans. 4 I think when the Fed looks at -- does CRA 5 reviews and looks at banks' performances, you have 6 to look at how innovative are they in developing 7 products that can meet the credit needs of the 8 consumers. And I think too often we forget that. 9 I just want to add a few other things, 10 because unfortunately I have to leave at three 11 o'clock, but I think the mandatory reporting of 12 credit payments for borrowers who have high-interest 13 loans is critical, because for borrowers who do make 14 their payments on time, it's important that they 15 start establishing a good credit history. And if we 16 let lenders get away with not reporting them, I 17 think it's really a travesty. 18 I think in CRA and compliance review the 19 Fed really needs to look at the banks' subsidiaries 20 and affiliates and not just the banks, because 21 that's where a lot of the problems are. And, again, 22 in the regulatory field, when you do the CRA 23 reviews, to really not give CRA credit to lenders 24 who have all the balloon payments and the prepayment 0242 1 penalties and all the indicators of those predatory 2 loans. 3 And lastly, I think this is something we 4 probably all would support, is expanding HMDA data 5 collection to include types of loans and loan 6 characteristics, like fees, prepayment penalties, as 7 well as borrower characteristics around credits 8 scores. 9 So I think that it really is such a 10 multi-pronged approach from the regulatory end, the 11 CRA review end, the HMDA data collection end, and 12 the education and outreach end. But I think we need 13 financial support in the outreach and education end, 14 and that's critical. You know, the "Don't Borrow 15 Trouble" campaign can be great, but it could be 16 short-lived unless it's continuing and unless there 17 is funding for lawyers and lay advocates to be, one, 18 trained in how you recognize predatory loans and how 19 you work with consumers and actually to provide 20 attorneys. 21 I am pretty sure -- the Lawyers Committee 22 works with many of the big law firms in town. Now, 23 some of them I think I could get involved in a 24 program to provide some kind of pro bono 0243 1 representation, but I need some money to provide the 2 administration of a program, the training, the 3 resources, and that's not easy to find. 4 MS. BRAUNSTEIN: That kind of brings me 5 back to the question Dolores asked at the top that 6 we never really addressed, that taking aside the 7 regulatory answers to this, okay, just looking at 8 the outreach education piece of predatory lending, 9 what is it that we, the Fed, could do to help, in 10 the sense of we've heard various things from people, 11 you know, we see a lot of stuff going on around the 12 country, a lot of materials being developed. 13 I mean, is there really a need for more 14 materials, or is it more that there's a need for 15 better delivery mechanisms for the materials that 16 are out there? What is it that we could do to 17 facilitate this process? 18 MR. WHITE: Well, at the risk of diverting 19 the discussion a little, I would like to echo what 20 Professor Golann said this morning, which is -- and 21 I certainly don't want to take anything away from 22 community education and outreach efforts; a lot of 23 what is going on in Boston is wonderful -- but there 24 is a basic problem that you have with the complexity 0244 1 of these transactions on the one hand and adult 2 literacy on the other hand. 3 You have an American population about 40 4 percent of whom can't really realistically compute 5 with decimals and fractions. That's what the 6 national adult literacy survey tells. Probably 90 7 percent of people can't understand the trade-offs 8 between points and interest over the life of a loan. 9 So you're just not going to -- Professor 10 Golann talked about the Boston school system as 11 being the culprit. I'm not sure where the blame 12 lies exactly. I think part of it is just that these 13 transactions are so inherently complex, we can't 14 expect 100 percent of the population to be fully 15 equipped to deal with the difference between an 16 advantageous and a predatory loan. 17 So I get back to the most valuable thing 18 the Fed can do right now at this moment in history 19 is exercise its power to substantively regulate 20 these credit transactions. And let me just suggest 21 what I view as the two most important, although 22 there are certainly a lot of things you can do. 23 First is to really seriously look at this 24 question of no-benefit refinancing. And it's very 0245 1 difficult, it seems to me, for this industry to 2 defend a transaction in which you take somebody who 3 has a conventional 9 percent, 8 percent mortgage and 4 refinance it at 12 percent, and they get a minimal 5 amount of cash out, less than 10 percent of the 6 loan. They're paying an effective rate for that new 7 advance in the hundreds of percent. 8 Those are indefensible transactions, and 9 they should be outlawed. And there is a very 10 specific authority in Reg Z -- the Act, rather, for 11 the Board to do that. 12 The second substantive area I think the 13 Board really ought to look at is repayment ability, 14 which I think ties very directly to the foreclosure 15 numbers we've look at. 16 You know, you have this vast experiment 17 that's going on right now. It used to be, you know, 18 if a mortgage was going to be more than 41 percent 19 of your income, you weren't going to get that loan. 20 Now the standard in the subprime industry has crept 21 up from 50 percent to 59 or 60 percent 22 debt-to-income ratios, with very little regard to 23 residual incomes and serious problems with 24 verification of income. 0246 1 Those are all areas that it seems to me 2 there is very clear authority for the Fed to 3 regulate. And I think at least the Fed ought to set 4 some guidelines and say, "Those of you lenders who 5 are going to venture into the great beyond in taking 6 risks with people's ability to repay are going to be 7 subject to the possibility of being found in 8 violation of these HOEPA standards." 9 Remember, the idea of a subprime borrower 10 is somebody who has credit problems; in other words, 11 payment history problems. There is nothing inherent 12 about taking somebody, you know, who has problems in 13 the past with paying their bills, saying, well, you 14 should also give them a loan amount such that they 15 are over conventional debt-to-income standards. 16 For some reason that has just happened and 17 become kind of a norm, and one of the things the Fed 18 can and ought to do is bring those payment ability 19 norms back in line with the conventional market. 20 One other point about the counseling 21 information to borrowers, I do think the North 22 Carolina model where you take somebody who's about 23 to enter into a subprime loan and you divert them 24 and say, "You cannot sign up for that loan; that 0247 1 loan will not be valid or enforceable unless you 2 first go see a counselor," is probably one effective 3 technique of catching people, although obviously it 4 would be fairly late in the process at that point. 5 MS. MOSELEY: Is that legal? Does that 6 withstand the test of somebody exercising their own 7 independent rights to be -- I'm just playing devil's 8 advocate too. 9 MS. COHEN: It's in the North Carolina 10 legislation. So, unless it's challenged, it is 11 legal. I guess people could always waive it. My 12 concern is more of what John said, is the banks or 13 the lenders just go, "Oh, you know, you don't need 14 that," and you check it off. 15 MR. ANDERSON: That was exactly what I 16 was -- I think I'm a fish out of water with all of 17 these people discussing what we can do, because I 18 spoke with the people from whom the "Don't Borrow 19 Trouble" program comes from at the City, or at least 20 a person who was somewhat responsible for it, and at 21 the end of our conversation he said, "Well, how much 22 fraud do you think is in the market?" 23 And I said, "Well, I only know 24 intrinsically where I've been for the last 22 years, 0248 1 which is the Dorchester-Roxbury-Mattapan market, and 2 I peg it at about 25 percent." And he looked at me, 3 "25 percent of the market is fraudulent?" 4 And I started second-guessing myself, and I 5 went and spoke with Ada Focer, who I've done work 6 with in the past and whose opinion I trust 7 implicitly, and I told her, "I said 25 percent," and 8 she said, "It's probably more than 30 percent," from 9 work that she had done with a couple of MIT grad 10 students in the early '90s. 11 For example, when we're talking about debt 12 ratios and income ratios, if a person wants to 13 borrow X amount of money and they don't have the 14 money to qualify for that loan, when you get out in 15 the real world, the mortgage originator is going to 16 be under great pressure, because it's their income, 17 to say, "You make $35,000. You don't make $30,000. 18 Why is your income so low this year? Well, we'll 19 write a letter to explain." 20 I had a lawyer tell me one time that he got 21 out of the traditional mortgage lending business in 22 the -- or representing mortgage lenders in the '80s 23 because he was having nightmares about all the 24 letters that were written to the lenders about why 0249 1 there were problems. You just make them up as you 2 go along. 3 And the fact that, as I mentioned earlier, 4 there is so damn much fraud out there, which is so 5 obvious, which is recorded at the Registry of Deeds, 6 and you only have to go down and take a look at it, 7 and nobody does anything about it. 8 So of course this perfectly forthright 9 mortgage originator, who is a nice guy and has a 10 family with two kids and a dog and would never hurt 11 anybody, is all of a sudden under pressure to say, 12 "Well, Bill got away with it. Nothing happened to 13 Sue. Sure, I can puff those numbers a little bit." 14 And then you get the person who might be looking for 15 a perfectly legitimate loan who has now borrowed too 16 much, who is now in trouble. 17 How do you get rid of the fraud? You hang 18 a few lawyers. You put a mortgage company out of 19 business. You put a developer in jail. 20 When the developer that I made mention to, 21 when I was telling the Fed about all the nasty stuff 22 that he was doing, the Fed made such a small noise 23 about it that he was in court, in Federal Court plea 24 bargaining a mortgage fraud felony charge, and they 0250 1 knew nothing about it. His lawyer was saying, "He's 2 the nicest guy on the face of the earth. That was 3 years ago," while we were in this room talking 4 about the fraud that was going on. 5 So, I mean, argue about the minutia, but if 6 25 percent of the market is fraudulent, unless 7 you're going to do something about that, then my 25 8 percent of the market is not going to be affected by 9 any of this. And in fact if your regulations get 10 too strict, you'll push more people into the 11 fraudulent range. 12 MS. MOSELEY: John, wouldn't you say, just 13 by going down Banker and Tradesman -- 14 MR. ANDERSON: Oh, I don't use -- I use my 15 own data. It's better than Banker and Tradesman. 16 MS. MOSELEY: I read the Banker and 17 Tradesman each week, and under mortgages, I can put 18 a little X against those that are going to go bad 19 within five years or three years by name. 20 MR. ANDERSON: My kids can do it. 21 MS. MOSELEY: You don't even have to look 22 up anything. This is a bad one, this is a bad one, 23 and this is a bad one. 24 Then one of the techniques in trying to get 0251 1 around how much you can lend on a first mortgage, 2 there's one very prominent finance company that 3 will -- someone will apply for a loan, and they will 4 break it into two loans. One is a first mortgage 5 with reasonably good rates, 30-year first, no 6 prepayments, all of this. 7 Then the second mortgage is an equity line 8 of credit which has the prepayment penalties, which 9 is negative amortizing, and they're going to pay off 10 more when they pay this off, if they ever pay it 11 off, than they will have borrowed. But because it's 12 an equity line of credit, it isn't the same. So the 13 secured loan is only, you know, within the ratios 14 that they allow. 15 So they have all of these little 16 techniques, and the interest rate on the equity line 17 is 18 1/2 percent. Actually, she is going to pay it 18 off and pay the penalty, and then we're going to 19 refinance her at a 12 percent one. 20 MR. WALKER: I just want to ask John a 21 question. John, in your opening statement you went 22 back to 1990. We're in 2000 now. What are you 23 seeing right now? Are you seeing the same kind of 24 flips that you -- 0252 1 MR. ANDERSON: The same guys are in 2 business. Nothing happened to them. Not only are 3 the same guys in business, but they're still doing 4 business with the same banks. Of course there are 5 new people, because they can do arithmetic. You 6 don't have to be a brain surgeon. You just have to 7 know real estate and do arithmetic. 8 The same guys are in business. Richard 9 Cawley has a new condo development in Dorchester, 10 closed a deed the other day where somebody paid him 11 $176,000 in cash. It's possible. I don't think so. 12 I don't know what the story is there. 13 One of the guys that I mentioned in my 14 previous Fed testimony was Jeff Roche. He sold a 15 property on Westville Street recently in which, if 16 you looked at Banker and Tradesman, because Banker 17 and Tradesman doesn't do loans or sales under $100, 18 it looks like a sale from Jeff Roche to a buyer 19 using an FHA loan. But since I don't use Banker and 20 Tradesman's data, if you looked an hour later, there 21 was a $10 deed from that person to another person. 22 I don't know what the situation is. I 23 don't have the time to track down every one. But 24 it's no longer -- the property is no longer in the 0253 1 hands of the person who said that they were going to 2 live there for at least six months under the FHA. 3 Who is doing anything about it? Nothing. 4 Nobody. That's out there. It's as broad as day. 5 When I testified last year -- last time, 6 four years ago, I told you there was a property that 7 was owned for five minutes that was bought for 8 $35,000 and sold for $79,000 in five minutes, and I 9 submitted it to the Fed. The time stamps were on 10 it. 11 There was a property that sold recently, 12 bought for -- oh, geez, I can't remember the 13 address. It was bought for 79 and sold for 185 in 14 eight minutes. There was no renovation done. It 15 was just a pure flip, and it was done with a loan 16 with a small down payment loan from a major bank. 17 Since these guys didn't get hurt -- for 18 example, Jeff Roche went and originated a bunch of 19 loans through ACORN, several of which have gone bad. 20 Richard Cawley went to Capital Mortgage, which does 21 FHA funding, and several of those have gone bad. 22 There was an auction last week on Brunswick Street 23 in Dorchester. 24 I just spoke with Bruce Marks, who was on 0254 1 your panel this morning, and he said he hadn't seen 2 me in a while. I said, "I get tired tracking down 3 all the investors, the non-owner/occupant investors 4 who are using your loan programs." 5 With the help of Yawu Miller from the Bay 6 State Banner we found three. We weren't even 7 looking for them. We were just looking at mortgages 8 that went bad really fast. We found investors 9 buying properties through NACA and Fleet. You get 10 tired of seeing it all the time. It's not even 11 surprising. 12 MR. MICHAELS: This is for Mr. White. You 13 referenced before the research that you and 14 Professor Mansfield at Drake Law School had done 15 regarding -- I guess you said you used securities 16 filings to analyze pools of subprime loans and 17 categorize them by rate so you can see where the 18 distribution was. 19 Since you were here this morning, you 20 probably heard our discussion about the Board's 21 authority under HOEPA to adjust the APR triggers and 22 the rates and fees triggers. I guess I would 23 appreciate it if you could sort of elaborate on how 24 you think the Board could use your data, 0255 1 specifically what you think your data tells us about 2 how the Board should go about using its authority. 3 MR. WHITE: Well, one thing I think is very 4 helpful, in Professor Mansfield's article in the 5 South Carolina Law Review is a table with 6 distributions of interest rates from 1995 to 1999 7 charged by subprime lenders, the ones that are 8 publicly disclosed. And you can see the median rate 9 for mixed pools of loans is about 11 percent. Those 10 are the note rates, not the APRs. 11 And, you know, you can also see the 12 percentage, if you draw a line at any cutoff, of how 13 many loans in the market in those years you would 14 have excluded or included at any variety of 15 different triggers. I think all the proposals under 16 consideration for APR triggers would still only 17 affect a very small percentage of the loans. 18 But perhaps more significantly, if you 19 start with the idea that conventional rates have 20 been in the 7, 8 and 9 range, and the subprime 21 rates, the median rates, have been 10, 11 and 12 22 percent, and you look at the fact that these are 23 secured loans, so even if you have large numbers of 24 foreclosures -- some lenders may be 10 percent or 0256 1 more -- if they're recovering 80 percent of their 2 money in the foreclosure, the actual losses on these 3 loan pools will be very small, 2 or 3 percent per 4 year. And that would be very high. Typically it 5 would be more like 1 percent a year. 6 So even a very risky pool of subprime 7 loans, the pricing should not be much higher, 8 however far up the risk scale you want to go, unless 9 you are really making loans that are guaranteed to 10 go into foreclosure. 11 So it seems to me you can take from those 12 ranges of interest rates and from, you know, the 13 real credit -- the cost of credit losses, that when 14 you get beyond 13 or 14 percent in today's interest 15 rate environment, you're really talking about 16 pricing that's not risk based; it's just price 17 gouging, price discrimination. You're charging 18 people more than the credit risk warrants and the 19 current cost of funds warrants. 20 So there shouldn't be any reservation about 21 discouraging or making impossible to do lending at 22 those kinds of rates above 13, 14 percent. And, you 23 know, nobody in the industry has tried to make that 24 case. 0257 1 People in the industry have said, "Gee, you 2 know, we're worried you might start entrenching on 3 legitimate lending if you lower the triggers." But 4 I haven't heard a single member of the lending 5 industry come forward and say, "Let me show you a 6 loan product at 14 percent with 10 points or 7 7 points which is a beneficial, useful, appropriately 8 priced loan product," because they can't make that. 9 MR. MICHAELS: How do you think we can use 10 the data in your study to determine the percentage 11 of subprime loans covered by HOEPA now and the 12 percentage that might be covered if the triggers 13 were adjusted? Do you think we can use the data for 14 that purpose? 15 MR. WHITE: Certainly. I mean, it's not 16 comprehensive, because it's only the subprime 17 lenders who securitize, which is probably less -- a 18 little less than half of all the subprime loans that 19 are made. But as I say, there are tables in the 20 back of the South Caroline Law Review article that 21 will tell you the exact number out of the million or 22 so loans that were surveyed that were at 14-15, 23 15-16, 16-17. You can draw the cutoff anywhere you 24 like, and you can tell from those tables how many 0258 1 ought to be affected. 2 But I do also think, when you look at the 3 loss rates, that you can also draw the conclusion 4 that pricing above a certain point is really just 5 not risk-based pricing anymore; it is just price 6 gouging. 7 MR. MICHAELS: Did you draw a conclusion 8 about the percentage of subprime loans that were 9 covered by HOEPA in your study? 10 MR. WHITE: Well, it would be fairly easy 11 to figure out, I guess, with a 10 percent APR 12 trigger -- well, let me say this: The information 13 that's in the article, which I didn't participate in 14 putting together, is just about the rates. There is 15 no public information about points. 16 A lot of us who see these loans anecdotally 17 feel like there's a lot more price gouging and 18 exploitation happening on the points than on the APR 19 end and that anything that can be done to drive down 20 the cap on those points is probably a good thing. 21 As far as the interest rates, as I say, it 22 is probably fewer than 10 percent of the loans that 23 are above the existing APR trigger. And in fact 24 most HOEPA loans that are HOEPA loans now are HOEPA 0259 1 loans because of the points, not because of the 2 rates. If you lower the rate trigger from 10 above 3 Treasury to 8 above Treasury, you're still only 4 going to be capturing less than 20 percent, I 5 imagine, of the market, maybe less now. 6 MR. MICHAELS: When you say that most of 7 the loans covered by HOEPA now are covered by the 8 points and fees trigger as opposed to the rate 9 trigger, can you give me some idea of how you came 10 to that conclusion. 11 MR. WHITE: Well, I can't say I have a 12 statistical basis for that. I represent -- I've 13 litigated a number of cases under HOEPA, and I 14 represent a lot of clients who have HOEPA-covered 15 mortgages, and it's just been my experience, up 16 until about 1999, that charging 10 points was sort 17 of a standard in a given segment of the industry. 18 Lenders like UC Lending and FAMCO and a number of 19 others, sort of 10 points was the default number of 20 points they charged. 21 Now that HOEPA loans have become less 22 popular, it seems to be like 7 1/2 points seems to 23 be the standard that's being charged, you know, in 24 the high-risk end of the market, particularly for 0260 1 loans of less than $50,000. 2 MR. MICHAELS: Thank you. 3 MODERATOR SMITH: With that, I will adjourn 4 this portion -- did you have anything else? 5 MR. RAYMOND: Excuse me. I apologize. It 6 seems that you were begging the question earlier, 7 and that is that we would -- in terms of having the 8 Board work with community advocates, we feel very 9 strongly that we would like to issue a challenge. 10 The challenge would be, can we leave here 11 with hopefully a commitment to sitting down with 12 some lenders and attempting to -- Norma was talking 13 about it earlier. She is having difficulty in terms 14 of providing these alternative financial 15 instruments. We tried the same thing ourselves and 16 have had some success. 17 But the issue that we feel very strongly is 18 that, okay, it appeared to me, from reading 19 materials and preparing for this meeting, that you 20 weren't only talking about regulatory issues in 21 terms of addressing this problem, which is obviously 22 very diverse and has a lot of different aspects to 23 it. 24 But unequivocally to us there is certainly 0261 1 a large number of folks who are going to be victims 2 otherwise who, if we had a real program to provide 3 them with prime lending, despite the fact that they 4 may have some hardships or some extenuating 5 circumstance or, as was mentioned earlier today, 6 there was this whole issue of how many -- this large 7 number of folks, what is it, 40 percent of the folks 8 who, quote-unquote, are actually higher credit risks 9 than what they are ranked; they end up in the subpar 10 ranks, and in reality they are A credit. 11 These are the kinds of folks we think we 12 could provide for if we had a real alternative 13 program working with lenders, and we would like to 14 solicit the Fed to actually work with an actual 15 committee that's set up to deal with this. 16 MS. MOSELEY: How many banks do you hear, 17 mainstream banks, advertising on the radio for their 18 alternative mortgage products? No. They're talking 19 about their on-link -- I don't know. But, you know, 20 it's all that kind of technology stuff that they can 21 offer. 22 I'm suggesting that the predatory lenders 23 are out there selling their products. The banks are 24 out there selling technology. Why not have some of 0262 1 the banks, particularly with this "Don't Borrow 2 Trouble" campaign, but "Come see your friend at X 3 bank"? 4 It can't just be "Don't do something"; it's 5 "We can offer you something better." That's the 6 missing part, that "We can offer you something 7 better. We can offer you a hot line number. We can 8 send you to a Len Raymond or a Norma Moseley." 9 MR. RAYMOND: A counseling agency. 10 MS. MOSELEY: And after 50 come in in one 11 week, you say, "Shut them off, I can't handle them 12 all. I don't have anywhere to take them." 13 MR. WALKER: Well, we'll certainly be 14 willing to sit down and talk with you in any way we 15 can be helpful. 16 MS. MOSELEY: That would be really good. 17 MR. RAYMOND: Certainly we think a credible 18 partner could be set up. 19 MODERATOR SMITH: Thank you very much for 20 being here this afternoon and offering your views. 21 And we are ready to -- we're going to take about a 22 five- or ten-minute break, maybe five minutes, and 23 then go into the open mike session. 24 (Recess) 0263 1 MODERATOR SMITH: Okay. We are ready, and 2 I think the mikes are live. 3 What I'm going to do is to read the list of 4 the people who have signed up for this session, and 5 we will be going in this order. What I would like 6 to do is for you to alternate mikes. You will each 7 have three minutes apiece. We have two timers, so 8 that depending on which mike you are using, you will 9 be looking at our person here at each end of the 10 table. 11 The names that I have, if I can read them 12 all correctly, Mr. Davis. Is it Tim or Jim? 13 MR. DAVIS: Tim. 14 MODERATOR SMITH: Okay, Tim Davis, City of 15 Boston. Daniel Ram -- 16 MR. RAMGEET: Ramgeet. 17 MODERATOR SMITH: Ramgeet. All right. I 18 will ask you all, when you do come to the mike, both 19 to say your name and to spell it for our -- for the 20 record. 21 Willy Knight. Ed France. Lucille May or 22 Willy May? 23 FROM THE AUDIENCE: Willy May unfortunately 24 left. 0264 1 MODERATOR SMITH: Okay. Ruth Dillingham. 2 Leonard C. Akins? 3 MR. ALKINS: Alkins. 4 MODERATOR SMITH: Alkins. Okay. Jim 5 Campen. Andrea Luquette? 6 MS. LUQUETTA: Luquetta. 7 MODERATOR SMITH: Okay. And Bruce 8 Fitzsimmons. 9 So that's the order. We'll start with Mr. 10 Davis. And then if the next person can kind of be 11 ready to go on the other side. Sit close. 12 MR. DAVIS: Hi. My name is Tim Davis. 13 That's T-i-m D-a-v-i-s. I am a senior program 14 manager with the City of Boston Department of 15 Neighborhood Development, and I oversee the "Don't 16 Borrow Trouble" program for the City of Boston. 17 Just to talk very briefly about that program and 18 also on the issue of what we are seeing with 19 subordination requests in our department as well. 20 First of all, we are pleased that through 21 the many years of effort we've put into our first- 22 time home buyer program, we're beginning to see 23 that, probably more so in Boston than in many 24 cities, that first-time home buyers now see 0265 1 education as an integral part to the home-buying 2 process. And we're hoping that that will translate 3 with the "Don't Borrow Trouble" program to 4 homeowners as well. 5 And to give you some of the preliminary 6 results from the first couple of months of the 7 "Don't Borrow Trouble" program, from the calls and 8 inquiries we've received, 33 percent of our 9 inquiries have been general inquiries, people who 10 just want to know more about the program. Those are 11 the types of people that we hope that, when they are 12 looking to refinance, will call us later. 13 42 percent had specific questions about 14 loan terms. So hopefully those are people that we 15 are helping before they actually take the predatory 16 loan. 17 8 percent were behind in their mortgage, 18 but it was resolved by our staff without need for 19 further referral. 9 percent were referred to 20 foreclosure prevention services, specifically Norma 21 Moseley, who has been with you today. And 8 percent 22 were referred to our own City of Boston home repair 23 program, with an additional 1 percent with other 24 questions. 0266 1 What we are seeing with that is that there 2 are a lot of people who are beginning to call us 3 based on the notion of "Don't Borrow Trouble" and 4 "Call us before you sign." 5 The program is still in its youth. We have 6 done mostly print advertisements and things like 7 that. We're just starting the TV PSA. We'll know 8 that really in a little while. 9 To finish up, I would like to say something 10 quickly about subordination requests, which we get 11 for grants that we have done. We have mortgages on 12 the properties. We are seeing a lot of people 13 coming who want subordination requests who do want 14 to refi despite what we tell them, despite the 15 problems they might see with the loan, because they 16 want to consolidate debts. 17 MODERATOR SMITH: Thank you very much. I'm 18 not going to mangle your name again. I'll just say 19 Daniel. 20 MR. RAMGEET: Hi. My name is Daniel 21 Ramgeet. I'm a community organizer for ACORN, and I 22 am here to give testimony on behalf of my mother, 23 Sandra Ramgeet, R-a-m-g-e-e-t. She's the president 24 of Massachusetts ACORN. 0267 1 ACORN members applaud the Federal Reserve 2 for holding hearings and starting to move forward 3 against predatory loans that are destroying our 4 neighborhoods. ACORN thinks that the Federal 5 Reserve has the power to put an end to predatory 6 lending and should have done so long ago. Too many 7 families have already been robbed of their dreams of 8 home ownership and have become hopeless of ever 9 owning a home. 10 ACORN thinks that the Federal Reserve 11 should use its regulatory authority against 12 predatory lendings. These loans which are targeted 13 to low income and minority communities cheat the 14 American people out of tens of thousands of dollars 15 and in the worst cases force families out of their 16 homes. Our community needs the Federal Reserve to 17 live up to its responsibilities and to help protect 18 families against these wealth-stripping loans. 19 ACORN's recommendation are that you, the 20 Federal Reserve, will support the prohibition of 21 lending without consideration of repayment ability 22 and prohibit the common practice of providing 23 teasers, which the American families can't afford, 24 then the interest rate goes up and so does the 0268 1 monthly payments. 2 The practice of financing credit insurance 3 as part of loans is a deceptive practice. Predatory 4 lenders often finance high-cost credit insurance 5 into the loans, which also increase monthly 6 payments, even though the borrowers could get the 7 equivalent insurance from another carrier at a lower 8 rate without the additional interest. 9 The issue of loan flipping definitely needs 10 addressing. Loan flipping is where the lenders 11 refinance loans basically solely to generate extra 12 fees and to provide no benefits for the borrowers. 13 This often forces borrowers to either lose their 14 homes after years of paying their mortgage, and then 15 some borrowers refinance. 16 Predatory lenders are making a fortune from 17 our misery. ACORN president quotes, "There is 18 something very wrong when it is considered a 19 legitimate business practice to provide loans that 20 rob us from our life savings that we put in our 21 homes and leave us homeless." 22 I'd like to submit this on behalf of ACORN 23 members that have been victims of these predatory 24 lenders, and unfortunately they can't be here today 0269 1 because they have to work. 2 MODERATOR SMITH: Thank you very much. Why 3 don't you hand it to him, and he will give them to 4 us. 5 MR. RAMGEET: One other thing. Remember, 6 the people united will never be defeated. Thank you 7 very much. 8 MODERATOR SMITH: Thank you. Thank you for 9 coming. Mr. Knight. 10 FROM THE AUDIENCE: He left as well. 11 MODERATOR SMITH: Okay. Mr. France. 12 MR. FRANCE: My name is Ed France. I'm a 13 Brockton ACORN member. I am also a victim of the 14 predatory lenders, as was stated when we came back 15 there. 16 I have a mortgage through Equicredit. I 17 had a mortgage through RMC, and then they sold it to 18 IMC. The loan was for -- it was 13 percent. I went 19 with Equicredit because I got 2 points lower on 20 that. And with Equicredit I'm paying a $69,000 21 mortgage. I have a ten-year mortgage. I'm expected 22 to pay, at the end of the ten years, a $64,000 23 balloon payment. At that time I will have already 24 paid off my loan. And I try to pay as much as I can 0270 1 over and above my 654 that I owe. 2 Equicredit is constantly sending me letters 3 for insurance. They're telling me that I'm 4 eligible. They don't tell you how much it's going 5 to cost you. It's a constant, ongoing thing. I 6 just disregard them. I'm constantly getting letters 7 in the mail, you know, for other loan officers. 8 They keep getting information on me somehow. 9 With my loan through Equicredit I pay all 10 the insurance. I pay all my property taxes. And I 11 ask my -- the guy that did my mortgage, I says, 12 "Arthur, did you know about the $64,000 balloon 13 payment?" He says, yes, he did. He said that 14 Equicredit expects me to pay -- to refinance with 15 them within a three-year period, which is telling me 16 that I'm going to have to pay more brokerage fees 17 again, plus closing costs and everything else, to go 18 back with the mortgage with them. 19 This is very unfair and very unjust. I 20 wish we could put an end to this. 21 If I refinance in three years, I have a 22 prepayment penalty. And I wish you guys could do 23 something about, you know, putting an end to this. 24 We pray to a higher God up above, a spiritual God. 0271 1 These people that are doing these loans, they're 2 praying to a higher money called the color green. 3 I thank you for your time here. I really 4 hope you can help us out. 5 MODERATOR SMITH: Thank you very much. 6 Ruth Dillingham. 7 MS. DILLINGHAM: I'm going to cede my time 8 to Mr. Fitzsimmons. We're on the same topic. 9 MODERATOR SMITH: Mr. Alkins. 10 MR. ALKINS: Good afternoon. My name is 11 Leonard Alkins. That's A-l-k-i-n-s. I'm the 12 president of the NAACP Boston branch. 13 I thank you for having these hearings, but 14 at the same time I'm insulted that the NAACP was not 15 notified that these hearings were coming about, nor 16 were we invited to participate in a process that we 17 have been involved in since the mortgage scam here 18 in Massachusetts. 19 I don't know if you have involved the NAACP 20 in other cities that you have been in, but this 21 impacts people of color, and for us to be excluded 22 from the process leads me to wonder, is there going 23 to be any change in what has not been happening in 24 our community? 0272 1 The mortgage scams, the flipping of 2 mortgages have been a problem for a long time. They 3 never went away. The message that's being sent by 4 State Government, Federal Government and local 5 communities, meaning the City of Boston, sends the 6 message that it's business as usual. 7 We have elderly people in our community who 8 are being ripped off by irresponsible contractors 9 who work with the City of Boston to repair elderly 10 people's homes. There is no accountability. There 11 is no monitoring of these programs. 12 You have legalized loan-sharking going on 13 by banks charging outrageous points for mortgages, 14 outrageous fees, when you talk about credit cards. 15 And what is the Federal Reserve Bank doing? Does 16 anybody care about poor people and elderly people in 17 this country? People who have power and don't use 18 it are just as bad off as the people who don't have 19 power. 20 We ask the Federal Government, the Federal 21 Reserve Bank, to enforce the regulations that are on 22 the books today, deal with those individuals who are 23 violating the subprime market laws. Get rid of them 24 once and for all, prosecute them and prohibit them 0273 1 from getting back into the business. It's a 2 revolving door. And we must act. 3 These laws and regulations have been on the 4 books for a long time. Why has it taken us so long 5 to take a look at it again? And why are you only 6 giving the community three minutes to discuss the 7 frustrations that we have been putting up with for a 8 long time? You need to come into the community and 9 see firsthand what is going on, what is not being 10 done. Enough is enough. 11 MODERATOR SMITH: Thank you. Mr. Campen. 12 MR. CAMPEN: My name is Jim Campen, 13 C-a-m-p-e-n. I'm Associate Professor of Economics 14 at the University of Massachusetts in Boston. I'm a 15 former member of the Boston Fed's Community 16 Development Advisory Council. 17 I've done a number of studies on mortgage 18 lending in Boston and surrounding cities, and I'm 19 now under contract with the Massachusetts Community 20 Banking Council to do a study using 1999 HMDA data, 21 which should be available, and HUD's list of 22 subprime lenders to do a study of subprime lending 23 in the Boston area. 24 Preliminary analysis using 1998 data shows 0274 1 the same sort of thing in Boston that other people 2 have reported, I'm sure, this morning, when I wasn't 3 here, has been found in other cities. For example, 4 subprime lenders accounted for 9.4 percent of all 5 loans in the City of Boston -- that's refinance 6 loans in 1998; 24 percent of loans to blacks, but 7 only 5 percent of loans to whites; 32 percent of 8 loans in low and moderate income census tracts that 9 are more than 75 percent black and Hispanic, but 10 only 7 percent of loans in low and moderate income 11 tracks that are more than 75 percent white. So the 12 racial divide is a primary thing here rather than 13 the income issue, according to that data. 14 My comments have to be very brief, so I 15 want to make one point, which is that those of us 16 who do studies and people who look at the results of 17 studies and depend on the results of those studies 18 are hurting because of the lack of good data on 19 subprime lending. The situation now is that HMDA 20 data does not provide any information which allows 21 anybody to identify any particular loan as a 22 subprime loan. And of course they can't identify 23 any loan as a predatory loan. 24 The way that most studies are done is that 0275 1 HUD produces a list each year of subprime lenders; 2 that is, lenders that they have determined make -- 3 the majority of their loans consist of subprime 4 loans. But those lenders make other loans which are 5 not subprime loans, and there are many lenders who 6 make predominantly prime loans but also make 7 subprime loans. 8 So what we need, what I urge the Board to 9 do, using its existing authority under the existing 10 legislation and to push for additional legislation, 11 is to expand the Home Mortgage Disclosure Act to 12 include three different kinds of data: data about 13 loans, including interest rates, points, the 14 existence of prepayment penalties, balloon 15 penalties, balloon payments and so on; secondly, to 16 include information about borrowers to allow there 17 to be good data collected on the extent to which 18 subprime loans are going to prime borrowers who are 19 qualified for non-subprime loans; and third, since 20 there is a lot of evidence, a lot of anecdotal 21 evidence that there is a very large racial dimension 22 to the provision of subprime loans, it's important 23 to amend HMDA so that information on the race of 24 borrowers can be collected for all borrowers. 0276 1 As it is now, loans taken over the phone or 2 through the mail or over the Internet, borrowers do 3 not even have to request -- lenders do not have to 4 request the information about the race of the 5 borrower. In Boston, for example, in 1998, for 30.2 6 percent of the subprime loans that were made, there 7 was no information on race or ethnicity of the 8 borrower, compared to 10 percent of the prime loans. 9 So I urge the Federal Reserve Board to use 10 its authority to expand the HMDA data that is 11 collected and made available to the public. 12 MODERATOR SMITH: Thank you very much. 13 MR. WALKER: Excuse me, Dolores. Jim, do 14 you have that in written -- in terms of the 15 categories of information that you are suggesting? 16 MR. CAMPEN: I was planning to submit 17 written -- 18 MR. WALKER: Okay. Thanks. 19 MODERATOR SMITH: Andrea. 20 MS. LUQUETTA: Good afternoon. My name is 21 Andrea Luquetta. That's L-u-q-u-e-t-t-a. I'm the 22 Director of Housing and Community Reinvestment for 23 the Massachusetts Association of CDCs. Our members 24 are nonprofit community-based organizations that 0277 1 engage in a variety of community development 2 activities, often in partnerships with banks, often 3 under the CRA. 4 Over the past several years, MACDC and 5 allied organizations have successfully negotiated 6 with area banks commitments to increase CRA lending 7 by several billion dollars. We are motivated to 8 pursue such commitments in part because financial 9 institutions have not met the credit and capital 10 needs of LMI and minority communities. 11 However, we've also been motivated by 12 troubling instances where a bank or another lender 13 has created negative consequences as a result of 14 trying to originate CRA-qualified loans or to fill a 15 market niche through what has become known as 16 subprime lending. 17 Therefore, in addition to pursuing 18 commitments by the banks to lend at certain volumes 19 in LMI areas, we have also pursued mechanisms to 20 make sure that the loans are responsibly 21 underwritten and do not negatively impact the 22 borrower or community. 23 For example, several years ago one of our 24 members in Chelsea documented that a particular 0278 1 institution's bank and mortgage lending affiliates 2 had originated home-secured loans to LMI and 3 minority borrowers in that area at much higher 4 amounts than all other lenders in that area. 5 For example, a mortgage -- I'm sorry, a 6 loan to a low-income borrower from the mortgage 7 lending affiliate was more than $8,000 more than the 8 typical loan originated by all other lenders in the 9 same population. On average, an African-American 10 applicant to the bank received a loan worth 30 11 percent more than all the loans offered by all the 12 other lenders. And the average Asian applicant to 13 the mortgage lending affiliate received a loan worth 14 more than 65 percent more than all other loans 15 offered by all other lenders. 16 This is 1996 HMDA data. It is old, but the 17 case was still made. 18 In at least one case, this had a negative 19 effect on the ability of the borrower to maintain 20 their home. A Cambodian family that had borrowed 21 from this lender faced not being able to make 22 necessary repairs to their home, including repairing 23 major code violations, because this lender had lent 24 them 145 percent more than the property was actually 0279 1 worth, and this was confirmed by several appraisers. 2 In addition to the Chelsea examples, we 3 have also heard of similar activity, such as you 4 heard today from John Anderson, in the 5 Dorchester-Roxbury-Mattapan area. Thus some 6 lenders, in the name of helping to meet credit needs 7 of lower and moderate income and minority borrowers 8 and mortgage lending affiliates trying to fill a 9 market niche, have actually had negative 10 consequences and destabilized our communities. 11 For our part, we have negotiated with these 12 lenders mechanisms to ensure that folks do not get 13 in over their heads, that they use responsible 14 appraisers, and that they contract with community 15 organizations like Norma Moseley's -- I'm sorry, I 16 am going to go a little bit over -- like Norma 17 Moseley's to go through foreclosure counseling, 18 foreclosure prevention and postpurchase counseling. 19 However, the ability of community 20 organizations to document and address the activities 21 of lenders that destabilize our communities is 22 limited. The regulators, and specifically the 23 Federal Reserve Board, have many more resources and, 24 most importantly, the authority to regulate 0280 1 practices that are currently on the legal side of 2 HOEPA thresholds but are nonetheless harming our 3 communities. 4 And I just want to emphasize this point. I 5 understand that you spent the afternoon discussing 6 community outreach efforts, and I did come in the 7 morning where you were discussing changing the 8 triggers and doing regulatory activities. And I 9 think that the community outreach part is very 10 important and necessary, but that's not the area 11 that the Federal Reserve really stands to make an 12 important change. 13 It's really in your authority as a 14 regulator, rather than as a funder of community 15 outreach or even a supporter or cheerleader of 16 community outreach, where you have the power and the 17 ability to make dramatic, dramatic changes that will 18 help all of the community outreach to have a smaller 19 market to deal with. 20 So I'm going to just summarize the rest of 21 my testimony and just echo some of my colleagues in 22 encouraging you to use your authority to lower the 23 HOEPA triggers; make them more inclusive; to revise 24 the definition of points and fees to include all the 0281 1 costs a borrower is required to pay in order to get 2 the loan; to prohibit prepayment penalties, balloon 3 payments, frequent refinancing or flipping of loans 4 and lending without regard to the borrower's ability 5 to repay on all high-cost HOEPA loans, as well as 6 making changes, as Jim Campen said earlier, to the 7 HMDA data. 8 Finally, I would also urge that under CRA 9 examination procedures, that a lot of these issues 10 also be covered, including through the foreclosures, 11 because it's not enough that lenders are making and 12 originating these loans and therefore inflating 13 their origination numbers; it also has to be 14 reviewed what happens after the origination takes 15 place and what happens to the families and the 16 communities in order for the bank or the lender to 17 get CRA credit. Thank you. 18 MODERATOR SMITH: Mr. Fitzsimmons. 19 MR. FITZSIMMONS: Good afternoon. My name 20 is Bruce Fitzsimmons, F-i-t-z-s-i-m-m-o-n-s. I'm an 21 attorney practicing law in Boston. I'm also on the 22 Board of Directors of the Massachusetts Conveyancers 23 Association, a 3,000-member statewide real estate 24 bar. 0282 1 In the Commonwealth of Massachusetts, real 2 estate closings are conducted by attorneys. In most 3 cases, the closing attorney represents the lender 4 and also acts as the title insurance agent. 5 The MCA appreciates the concerns that have 6 led to the introduction of HR 4250 and 2415 and 7 related legislation. The concerns of the 8 Massachusetts Conveyancers Association relates to 9 technical issues with the proposed legislation. 10 First, the concerns raised about predatory 11 lending practices have related to refinances and 12 second mortgage transactions. There is no reason to 13 extend the Home Ownership and Equity Protection Act 14 to residential mortgage transactions in which the 15 loan is being used to acquire or construct the 16 dwelling. 17 Secondly, the MCA believes that the 18 provisions of HOEPA which exclude fees or premium 19 for title examination, title insurance, or similar 20 purposes, as long as the charges are reasonable, the 21 lender receives no direct or indirect compensation, 22 and the charges paid to a third party unaffiliated 23 with the lender, should be retained. In 24 Massachusetts in particular, affiliated business 0283 1 arrangements with lenders are exceptions rather than 2 the rule. The lender does not benefit from those 3 types of charges. 4 Thirdly, the MCA is concerned with the new 5 Provision 129K of the Truth in Lending Act which 6 states that "No creditor or other person may require 7 or allow the collection of a premium for credit 8 insurance or a debt cancellation contract on a 9 single-premium basis through an up-front charge paid 10 by the borrower at the initiation of the loan." 11 The objection here is with the words "No 12 creditor or other person may require or allow." 13 Members of the MCA are involved in the closing of 14 mortgage loans, and we believe it is an impractical 15 burden placed on the closing attorney, who might be 16 viewed as the "other person" who "allows" the lender 17 to obtain the single premium in connection with the 18 transaction, the role of policing the lender. 19 We're not aware of any other section of the 20 Truth in Lending Act or other consumer protection 21 statute that imposes such an obligation on third 22 parties. 23 Lastly, we note that HR 3901 contains a 24 provision that "A conforming home loan document in 0284 1 which blanks are left to be filled in after the 2 contract is signed shall not be enforceable under 3 federal or state law." 4 We believe that room should be left here 5 for correction of scrivener's errors in a mortgage 6 or for the filling in of recording information on an 7 instrument which will be recorded simultaneously 8 with the mortgage which requires the instrument 9 number from the mortgage. 10 Thank you very much for the opportunity to 11 present these comments. 12 MODERATOR SMITH: Thank you very much, Mr. 13 Fitzsimmons. And I thank everyone who signed up for 14 the open mike session. 15 Is there anyone else who did not sign up 16 but who would like to offer their views at this 17 time? (No response) 18 Well, if not, with that, we will adjourn 19 this hearing. But, again, I thank you in the 20 audience both who participated and who came here to 21 hear the presentations made by the invited panelists 22 and by the open mike presenters. 23 We have, I think, gained some important 24 perspectives offered here today and will be taking 0285 1 advantage of them in our analysis as we work to 2 develop proposals and recommendations to the Board 3 on measures that might be taken within the Board's 4 authority to amend the HOEPA provisions of the Truth 5 in Lending Act and to take other measures that might 6 be helpful in helping to eliminate predatory lending 7 practices. 8 So, with that, unless we have other 9 comments from the Panel, then we are adjourned, and 10 I thank you again. 11 (Whereupon the proceedings were 12 concluded at 4:00 p.m.) 13 14 15 16 17 18 19 20 21 22 23 24 0286 1 C E R T I F I C A T E 2 I, Carol H. Kusinitz, Registered 3 Professional Reporter, do hereby certify that the 4 foregoing transcript, Volume I, is a true and 5 accurate transcription of my stenographic notes 6 taken on August 4, 2000. 7 8 9 _____________________________ 10 Carol H. Kusinitz 11 Registered Professional Reporter 12 13 14 - - - -
August 4 hearing on home equity lending |
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Last update: February 14, 2002