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Afternoon Session of Public Hearing on Home Equity Lending
August 4, 2000

                                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 

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          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 

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          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 

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          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 

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          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. 

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          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 

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          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 

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          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   
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          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 | Morning session | Complete transcript

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Last update: February 14, 2002