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Afternoon Session of Public Hearing on Home Equity Lending
August 16, 2000

          7            STENOGRAPHIC REPORT OF PROCEEDINGS had in
 
          8   the above-entitled matter held at the Federal
 
          9   Reserve Bank of Chicago, 230 South LaSalle Street,
 
         10   Chicago, Illinois, MS. DOLORES S. SMITH, Moderator.
 
         11
 
         12       PANELISTS:
 
         13            MS. GALE CINCOTTA, National Training
 
         14                 Information Center
 
         15            MS. LINDA CRANE, John Marshall Law School
 
         16            MS. BETH LLEWELLYN, Partnership for
 
         17                 Homeownership, a Foundation of the
 
         18                 Illinois Association of Realtors
 
         19            MR. JACK MARKOWSKI, City of Chicago,
 
         20                 Department of Housing
 
         21            MS. ROCHELLE NAWROCKI, Neighborhood
 
         22                 Housing Services
 
         23            MR. DAVID VOSS, First Bank of the Americas
 
         24
 
 
 
 
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          1                      (Whereupon, the following
 
          2                      proceedings commenced at
 
          3                      1:45 o'clock p.m.)
 
          4       MODERATOR SMITH:  I believe we're ready to
 
          5   start.  I will start by welcoming you to the
 
          6   session; and for those of you who were not here
 
          7   this morning, I will just go through some
 
          8   information.
 
          9            My name is Dolores Smith.  I'm the
 
         10   Division Director for Consumer and Community
 
         11   Affairs at the Federal Reserve Board.  I will be
 
         12   the moderator for this session.
 
         13            We had a very interesting morning.  I know
 
         14   we will have an interesting afternoon, and so I
 
         15   will start by introducing our panel.  I might
 
         16   mention for those of you who were not here this
 
         17   morning that we did have with us Ned Gramlich, who
 
         18   is a member of the Board of Governors and who is
 
         19   the Chairman of Oversight Committee on Consumer and
 
         20   Community Affairs.  He was not able to stay for the
 
         21   afternoon, but he will be receiving a report and
 
         22   then also will, I'm sure, be looking at the summary
 
         23   of the afternoon's presentations.
 
         24            We have, starting with my left,
 
 
 
 
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          1   Adrienne Hurt, who is Assistant Director, and
 
          2   Jim Michaels who is Managing Counsel.  Adrienne and
 
          3   Jim are the two who are primarily responsible for
 
          4   managing Truth in Lending matters of the Board.
 
          5            To my right, I have Sandy Braunstein, who
 
          6   is Assistant Director for Community Affairs and our
 
          7   Community Affairs Officer for the Board.  And then
 
          8   next to her, Alicia Williams, Vice President from
 
          9   the Federal Reserve Bank of Chicago.
 
         10            The rules of procedure that we'll be
 
         11   following this afternoon:  The invited panelists
 
         12   will have three minutes for introductory remarks.
 
         13   We have time keepers who will be letting them know
 
         14   when they have one minute to go and when their time
 
         15   has expired.
 
         16            The opening remarks is really just the
 
         17   beginning session, section here.  We will have an
 
         18   opportunity for dialogue, so it's not the last
 
         19   opportunity for people to make their contributions
 
         20   to our discussion here this afternoon.
 
         21            We will at the conclusion -- after we have
 
         22   the opening statements, then we will start our
 
         23   panel discussion.  We will continue -- we will come
 
         24   to a break some time in about an hour, I'd say, and
 
 
 
 
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          1   then after the break we will go to the open mic
 
          2   session.  So those of you in the audience who have
 
          3   an interest in presenting an oral statement, please
 
          4   sign up if you have not already done so.  You do
 
          5   this at the registration desk out in the lobby area
 
          6   here.
 
          7            So with that -- I might say that this
 
          8   morning we focused on some of the more technical
 
          9   questions about how might the Board use its
 
         10   rule-making authority to address concerns about
 
         11   predatory lending practices.
 
         12            There was discussion this morning of the
 
         13   fact that -- well, at least some people suggested
 
         14   that disclosures which is what our regulations
 
         15   primarily provide are not and cannot be the entire
 
         16   answer to preventing vulnerable consumers from
 
         17   getting into a situation where they are subjected
 
         18   to predatory lending practices.
 
         19            And so this afternoon, we will be talking
 
         20   about ways in which consumer education and consumer
 
         21   outreach might help along with whatever disclosures
 
         22   and other -- and substantive protections might be
 
         23   put in place.
 
         24            So with that, I will ask Ms. Cincotta to
 
 
 
 
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          1   start us off, and we will be going in a clockwise
 
          2   direction.
 
          3       MS. CINCOTTA:  Thank you very much.  Glad you
 
          4   are holding these hearings.
 
          5            For those of you not familiar with NTIC
 
          6   and NPA, National People's Action is a national
 
          7   network of neighborhood groups across the country;
 
          8   and the National Training Information center is the
 
          9   group that works with getting information, getting
 
         10   research, training staff and being involved in all
 
         11   these kinds of meetings, bringing in data,
 
         12   et cetera.
 
         13            We fought for FHA reforms and we've been
 
         14   dealing with the amount of foreclosures year by
 
         15   year.  We have just won again some reforms.  And so
 
         16   far we have got 56 of the mortgage bankers that
 
         17   were doing these foreclosures cut off, you know,
 
         18   one by one by one.  So it's up to 58.
 
         19            We won CRA nationally.  And in just
 
         20   Chicago alone with four banks that we've been
 
         21   working with for 15 years, we got out a billion
 
         22   dollars.  What I'm trying to say by that is we're
 
         23   dealing with all the different portions of funding,
 
         24   et cetera, what's happening in the market.
 
 
 
 
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          1            What we've been hit with so hard is the
 
          2   number of foreclosures which have tripled in the
 
          3   Chicago area in the last five years.  Subprime
 
          4   lenders caused the explosion.  Their share of
 
          5   foreclosures went from 3 percent in 1993 to
 
          6   38 percent in 1999.
 
          7            So what we're trying to say is we're
 
          8   trying to deal with the banking, the red lining,
 
          9   any of that, FHA foreclosures.  We have this thing
 
         10   now that is hit.  Lenders who would never lend
 
         11   money in the area before, now that they found a way
 
         12   to come up with horrendous interest rates, points
 
         13   and fees, are like in droves.  The amount of, as I
 
         14   said, companies that are coming into Chicago or
 
         15   into the state are unbelievable.  So where you had
 
         16   a couple companies locally, they're all coming in.
 
         17            Couple things we think the feds could do
 
         18   is modernize HMDA so that we can prove loans are
 
         19   predatory.  Disclose points and fees, interest
 
         20   rates, credit score.  Prevent financial
 
         21   institutions from getting CRA credit for subprime
 
         22   loans.
 
         23            43 percent of Bank America's loans in
 
         24   Chicago in 1998 were subprime.  Most of the
 
 
 
 
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          1   subprime in minority neighborhoods.
 
          2            And the changes in HOEPA that we see are
 
          3   need to stop predatory lending:  No credit
 
          4   insurance premiums included in the loan.  No
 
          5   prepayment penalties.  No flipping.  No balloon
 
          6   loans.  Make whoever owns the loan responsible for
 
          7   it.  And lower the APR trigger to 5 percent.
 
          8            And, finally, one caution.  While we're
 
          9   meeting here and while this is going on and we
 
         10   debate with the industry and the Chicago city
 
         11   ordinance, the state legislature, et cetera, the
 
         12   industry has a bill in Washington called the Ney
 
         13   bill, N-e-y, that if they get it through, it will
 
         14   prohibit any city or state from doing anything.
 
         15            So while they -- some of the industry
 
         16   might come here and talk friendly, they're pushing
 
         17   an industry bill that would stop us from doing
 
         18   things.
 
         19       MODERATOR SMITH:  What does that mean?  What
 
         20   does it stand for?
 
         21       MS. CINCOTTA:  That's the name of the person
 
         22   sponsoring it, N-e-y, the Congress person.
 
         23       MODERATOR SMITH:  Thank you.  Mr. Voss?
 
         24       MR. VOSS:  Thank you.  I appreciate being
 
 
 
 
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          1   invited here this afternoon and being asked to
 
          2   comment on the latest threat to our community,
 
          3   predatory lending.
 
          4            First Bank has been operating for almost
 
          5   three years, and we have refinanced many predatory
 
          6   loans made by unscrupulous mortgage brokers and
 
          7   lenders.  Moreover, while home equity lending has
 
          8   received the most recognition, I'm here to tell you
 
          9   that predatory lending goes well beyond mortgages
 
         10   and it includes consumer loans and life line
 
         11   financial services.
 
         12            At First Bank, we're reminded every day
 
         13   that the practices of predatory lenders places a
 
         14   tremendous burden on decent and hard-working
 
         15   people.
 
         16            First Bank was formed in the fall of 1997
 
         17   and began operations in one office approximately
 
         18   ten minutes southwest of the Chicago central
 
         19   business district.  We served the predominantly
 
         20   Mexican/American Chicago communities of Pilsen,
 
         21   Back-of-the-Yards and Little Village.
 
         22            We are an FDIC-insured, for-profit bank.
 
         23   We are also one of the four depository community
 
         24   development financial institutions or CDFIs
 
 
 
 
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          1   designated by the U.S. Treasury in the Chicago
 
          2   area.  In fact, the U.S. Treasury is one of our
 
          3   shareholders.
 
          4            As a CDFI, First Bank's mission is to
 
          5   provide financial services and to make loans and
 
          6   investments to the underserved families and
 
          7   businesses in our community.  We have obviously
 
          8   faced substantial obstacles in achieving our
 
          9   mission.  The Hispanics are distressed or, in many
 
         10   cases, they're are unfamiliar with banks.
 
         11            In a study done by the Metropolitan
 
         12   Chicago Information Center, MCIC, 25 percent of the
 
         13   Hispanics felt that their banking needs were not
 
         14   being met at all or not too well.  This compares
 
         15   with 16 percent for African/Americans and 7 percent
 
         16   for whites.
 
         17            In addition, approximately two-thirds of
 
         18   Hispanics compared to 40 percent of whites used
 
         19   currency exchanges and check-cashing centers, in
 
         20   effect, making them their financial institution.
 
         21            Life line transactions are check cashing,
 
         22   money orders, bill payment and money transfer.  We
 
         23   found that there were some companies in our
 
         24   community that were charging outrageously high
 
 
 
 
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          1   prices for these services.  By charging fair and
 
          2   reasonable prices, we were able to establish
 
          3   ourselves in the community and gain the trust of
 
          4   potential customers.  That is how we introduced
 
          5   them to mainstream banking.
 
          6            From September 1999 to now, we have
 
          7   refinanced over 150 mortgages, home equity loans
 
          8   and consumer loans.  Some of these mortgages had
 
          9   interest rates as high as 12 percent when market
 
         10   rates were 8 percent.  The borrowers are decent,
 
         11   hard-working people, but they do not understand
 
         12   personal finance.
 
         13            I have got a couple of examples here, but
 
         14   I know I am going to run out of time, so I will
 
         15   just move along.  If you want to talk about the
 
         16   examples of some of the loans that we've
 
         17   refinanced, I will be happy to do so.
 
         18            While predatory practices around mortgage
 
         19   and home equity loans have received major focus in
 
         20   the past few months, I'm here today to tell you
 
         21   that a significant problem also exists in consumer
 
         22   loans.  Shall I stop?   My time up?
 
         23       MODERATOR SMITH:  We'll get -- we'll come
 
         24   around to you again, and then you can continue.
 
 
 
 
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          1   Ms. Nawrocki.
 
          2       MS. NAWROCKI:  Thank you for the opportunity to
 
          3   speak today on an issue that is dismantling years
 
          4   of positive reinvestment.
 
          5            I represent Neighborhood Housing Services
 
          6   of Chicago.  We are a non-profit, community-based
 
          7   lender and certified community development and
 
          8   financial institution.  We were formed in 1975.
 
          9   NHS brings about community reinvestment through a
 
         10   partnership of residents, business and government.
 
         11            Last year, NHS originated 15 million and
 
         12   leveraged an additional 19 million in home
 
         13   improvement and home mortgage loans.  We also
 
         14   provide hands-on homeownership counseling and
 
         15   training through our Neighbor Works Homeonwership
 
         16   Center, and we provide a comprehensive mortgage
 
         17   delinquency program to help families remain in
 
         18   their homes in times of financial difficulty.
 
         19            NHS has becoming increasingly aware of
 
         20   predatory lending and its negative effects on
 
         21   families and neighborhoods over the last year as we
 
         22   begin to see a dramatic increase in the number of
 
         23   clients seeking assistance through our Foreclosure
 
         24   Intervention Program.  Through this program, we
 
 
 
 
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          1   offer mortgage delinquency counseling and
 
          2   intervention and, in some cases, NHS is able to
 
          3   provide small, low interest loans to help customers
 
          4   become current.
 
          5            Approximately 50 percent of all client
 
          6   intakes are due to predatory lending.  This year,
 
          7   NHS will receive over 1200 requests for foreclosure
 
          8   intervention services.  The need for such services
 
          9   is increasing at an alarming rate, and we are
 
         10   struggling to keep families in their homes and
 
         11   prevent others from obtaining financing from
 
         12   predatory lenders.
 
         13            Today, clients seeking assistance from the
 
         14   NHS's Foreclosure Intervention Program are
 
         15   radically different from clients of several years
 
         16   ago.  Today, the majority of clients have obtained
 
         17   home refinance or home equity loans from subprime
 
         18   lenders with excessive interest rates and fees.
 
         19            Upon further examination of loan documents
 
         20   by NHS staff, predatory lending practices such as
 
         21   charging excessive yield spread premiums, balloon
 
         22   payments, flipping and packing of unnecessary
 
         23   credit insurance have been identified.  The
 
         24   widespread use of these practices has become so
 
 
 
 
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          1   apparent that NHS staff now regularly requests to
 
          2   examine all mortgage documents of potential
 
          3   customers even if they are interested in obtaining
 
          4   a home improvement loan with NHS.
 
          5            Today, NHS staff is spending approximately
 
          6   a quarter of their time providing assistance to
 
          7   clients who have fallen behind on their mortgage
 
          8   due to predatory lending.
 
          9            Predatory lending has and will continue to
 
         10   dismantle 25 years of positive reinvestment by the
 
         11   community, banks and government if it continues
 
         12   unchecked and unregulated.
 
         13            To put this into perspective, in the
 
         14   Back-of-the-Yards neighborhood where we have one
 
         15   office, just in the last year, there were
 
         16   102 foreclosure cases initiated in an area that
 
         17   measures 12 by 17 blocks.  At least, 75 percent of
 
         18   the foreclosures were direct results of financing
 
         19   by predatory lenders.  Most likely the majority of
 
         20   these homes will end up vacant and further erode
 
         21   the positive investment that has occurred to date.
 
         22            Industry efforts to push mandatory
 
         23   counseling, consumer education and increased
 
         24   disclosures as a solution to predatory lending are
 
 
 
 
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          1   simply too little, too late and, frankly, are
 
          2   unfair to the consumer.  While counseling and
 
          3   education can be very important tools to prevent
 
          4   borrowers from obtaining predatory loans, NHS of
 
          5   Chicago believes that counseling is only part of
 
          6   the solution.
 
          7            NHS's long history of working in
 
          8   underserved neighborhoods convinces us that until
 
          9   predatory lending practices are made illegal and
 
         10   exorbitant fees and profits are restricted, lenders
 
         11   will continue to engage in abusive lending
 
         12   practices with or without mandatory counseling at
 
         13   the expense of the homeowners and the neighborhoods
 
         14   in which they reside.  Thanks.
 
         15       MODERATOR SMITH:  Thank you.  Mr. Markowski?
 
         16       MR. MARKOWSKI:  Thank you.  I am
 
         17   Jack Markowski.  I'm the Commissioner of the City
 
         18   of Chicago, Department of Housing; and along with
 
         19   the people that you've heard already testify here,
 
         20   we're concerned very much about the effect of
 
         21   predatory lending on Chicago neighborhoods.
 
         22            We're interested in this issue not only as
 
         23   a consumer issue but for the impact it's having in
 
         24   our neighborhoods, as Rochelle said, to reverse the
 
 
 
 
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          1   25 years of progress that good lending and good
 
          2   community development has made in our
 
          3   neighborhoods.
 
          4            We're interested in this because of the
 
          5   vacant buildings that are the remnants of predatory
 
          6   lending that destroy the good work in the community
 
          7   and destroy the value of the properties of the
 
          8   folks who don't even have the predatory loans but
 
          9   just live next door and pay their mortgages on the
 
         10   properties, and they see buildings throughout their
 
         11   neighborhood becoming vacated and properties
 
         12   destroyed being sites for crime as a result of
 
         13   predatory lending.
 
         14            In spring of this year, the Mayor
 
         15   announced a threefold initiative to combat
 
         16   predatory lending.  We call it our Foreclosure
 
         17   Prevention and Community Stabilization Initiative.
 
         18            The first part of this is to prevent abuse
 
         19   by mortgage brokers and lenders.  That was what --
 
         20   the panels before me talked about this and you said
 
         21   that was your topic this morning.  This is about
 
         22   regulations and legislation to regulate the
 
         23   practices surrounding this abusive lending
 
         24   activities.
 
 
 
 
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          1            We are strongly in favor of those
 
          2   initiatives, however, at the Federal Reserve Bank,
 
          3   at the State of Illinois and with the federal
 
          4   government.  We are not ourselves in a position as
 
          5   a city to regulate financial practices.  We are in
 
          6   a position to be able to state who we will and
 
          7   won't do business with.  And we've been developing
 
          8   a series of criteria to state what we think abusive
 
          9   lending practices are that says who the city won't
 
         10   do business with.
 
         11            But even if we -- when we get that passed,
 
         12   most of the bad lenders are not doing business with
 
         13   the city anyway.  So we really need this strong
 
         14   regulation and legislation at the state and federal
 
         15   level.
 
         16            The other two parts of our program are
 
         17   assisting homeowners at risk of foreclosure and
 
         18   expediting the acquisition and rehab of vacant
 
         19   buildings.  As I said, vacant buildings are what's
 
         20   left behind, the ultimate result of the predatory
 
         21   lending.
 
         22            We've announced get-tough policies on
 
         23   vacant building owners to make it less attractive
 
         24   to own a vacant building in the city.  Owners now
 
 
 
 
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          1   have to register their building with the building
 
          2   department; purchase liability insurance for damage
 
          3   the building may cause to other properties; and
 
          4   they need to board it up in accordance with
 
          5   standards promulgated by the building
 
          6   commissioner.
 
          7            We also are setting in place with
 
          8   community organizations programs to obtain those
 
          9   vacant buildings through forfeiture from the
 
         10   parties that end up with them and expedite the
 
         11   rehab of those so we can have a fast-track rehab.
 
         12            Finally, we want to assist the consumers
 
         13   with consumer education.  We both are going to
 
         14   intervene, and I will talk more later with regard
 
         15   to Department of Consumer Services about class
 
         16   action lawsuits that she will initiate; and we're
 
         17   also with -- a number of lenders, brokers,
 
         18   community organizations, religious institutions,
 
         19   government officials throughout the city are
 
         20   developing an aggressive public education campaign
 
         21   to inform consumers about their credit options and
 
         22   about the dangers of predatory lending and to
 
         23   educate them on their consumer decisions.  And I
 
         24   would like to talk more about that later.
 
 
 
 
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          1       MODERATOR SMITH:  Ms. Llewellyn?
 
          2       MS. LLEWELLYN:  I'm a little nervous.  I hope I
 
          3   can speak up here.
 
          4            We're evidently a little bit different.
 
          5   We are a non-for-profit foundation.  We write
 
          6   mortgage programs and then go out and get them
 
          7   funded.  We provide homeowner counseling.  We
 
          8   pre-screen the applicants ahead of time.  When they
 
          9   come to the class, they're given a certificate.
 
         10   The money, according to what they're qualified for,
 
         11   is removed theoretically from that dollar amount so
 
         12   that they have a large period of time to shop, to
 
         13   buy wisely.  They're not encouraged to go in a fast
 
         14   pace because the money is going to sit there for
 
         15   the duration until that program ends.  That's
 
         16   usually five to six months although we have had
 
         17   them as long as a year.
 
         18            I told my board of directors yesterday
 
         19   that evidently we are subprime lenders and that we
 
         20   deal with very, very low-income people who have
 
         21   either no credit history or who have had credit
 
         22   problems in the past.
 
         23            We look at two years of acceptable credit,
 
         24   three years after a discharge of a bankruptcy.  We
 
 
 
 
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          1   use no FICO scoring in our credit reports at all.
 
          2            We have 18 counseling centers across the
 
          3   state.  Everyone uses the same material.  Credit is
 
          4   reviewed the same way.  Local lenders are
 
          5   participating in these programs -- and I am glad to
 
          6   see some people here who have helped my
 
          7   participants in a big way.
 
          8            We have, according to what they reported
 
          9   yesterday, a .14 percent default rate.  It's pretty
 
         10   darn good I guess.  Excuse me.  I will get control
 
         11   here a little bit.  We just are finishing about
 
         12   50 million that we have done in the last year and a
 
         13   half.  It's a 5 percent interest rate with a
 
         14   thousand and one percent down payment, whichever
 
         15   was higher.
 
         16            Now I will say something that we're really
 
         17   firm on -- and I have to argue this every time we
 
         18   go to get funding from either the mortgage
 
         19   insurance companies or from another entity.  We
 
         20   keep our debt ratios at 36 percent.  Flat out.
 
         21   36 percent.  In five years, we've made two
 
         22   exceptions to that rule.  That took a conference
 
         23   call between the mortgage insurer, the funder as
 
         24   well as myself and the lender who was originating
 
 
 
 
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          1   that loan.  We've only done that twice.
 
          2            1 percent.  We have found that a down
 
          3   payment is not indicative of default.  We try to
 
          4   make sure that there is 5 percent more residual
 
          5   income left at the end of each month that will take
 
          6   care of necessary expenses and emergencies.
 
          7            We also find that the majority of these
 
          8   people -- Mary Backus is 73 years of age.  She made
 
          9   $11,000 a year.  We find that they have no medical
 
         10   insurance; and, if they have any at all, they're
 
         11   paying it monthly.  Most of the collections I see
 
         12   are medical collections.  We look at how long it
 
         13   took them to repay that.  Any collection has to be
 
         14   repaid, but we kind of wink at medical so to
 
         15   speak.
 
         16            I am a little bit alarmed at things I am
 
         17   starting to see on credit reports.  A lot of them
 
         18   are very, very high cellular phone bills, and it's
 
         19   coming from our younger people.  And I will talk
 
         20   maybe later a little calmer.
 
         21       MODERATOR SMITH:  Ms. Crane?
 
         22       MS. CRANE:  Thank you very much.  I have been
 
         23   working since at least 1996 on the MCAP Chicago
 
         24   steering committee which stands for Mortgage Credit
 
 
 
 
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          1   Access Partnership, one of six such programs put
 
          2   together by various regional Federal Reserve
 
          3   Banks.
 
          4            I am a law professor at the John Marshall
 
          5   Law School here in Chicago where I teach property
 
          6   law and commercial law.  And I think I was invited
 
          7   to join MCAP after someone at the fed saw me
 
          8   purchase their program where I was talking about
 
          9   some research I'm doing and had been doing, looking
 
         10   into the history of mortgage lending generally as a
 
         11   way of trying to get a handle on why it's so
 
         12   impervious to -- at least discrimination in the
 
         13   mortgage lending practice is so impervious to
 
         14   attempts to ameliorate it.
 
         15            I found that actually the history of
 
         16   mortgage lending is one of exclusion right down to
 
         17   the letter, and not one of inclusion; and,
 
         18   therefore, it's perfectly consistent for it to
 
         19   continue to be one of exclusion in the present
 
         20   day.
 
         21            When we started the MCAP and we picked the
 
         22   four task forces, subjects to the task forces that
 
         23   we're going to paying attention to in Chicago, one
 
         24   of them was Professional and Consumer Education.  I
 
 
 
 
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          1   raised objections to its inclusion because I
 
          2   thought that it seemed to ignore the problem of the
 
          3   role of racism and other motives that remains
 
          4   unaddressed to some extent while we focus such
 
          5   scarcely available energy on educating the public,
 
          6   once again, producing another brochure.
 
          7            It also seems to suggest that the public
 
          8   was being harmed because it was uninformed,
 
          9   slightly stupid.  It was just too much like
 
         10   blending the victim for my taste, and I objected.
 
         11   It was included, and it was probably a good thing
 
         12   that it was.  But I would like to lend my voice and
 
         13   say things that other people aren't saying.  That's
 
         14   what continuing to be a law professor allows you to
 
         15   do.
 
         16            When those original task forces completed
 
         17   their work, the steering committee created a fifth
 
         18   task force, Credit Scoring and, beginning in
 
         19   December of '98, a sixth, Predatory Lending.
 
         20            Credit scoring is still a huge problem and
 
         21   clearly contributes to the development and
 
         22   continuation of predatory lending practices.  I'd
 
         23   love to see some additional work done in that
 
         24   area.
 
 
 
 
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          1            Because I am satisfied with the focus on
 
          2   developing new regulatory restrictions during this
 
          3   morning's program, I am willing to engage in
 
          4   discussion about consumer education.  And, in fact,
 
          5   upon reflection, I find myself in favor of devoting
 
          6   a lot more attention to the matter of consumer
 
          7   education in this context of predatory lending than
 
          8   I was in the context of mortgage lending
 
          9   discrimination generally.
 
         10            Why?   I think I'll have to wait until
 
         11   discussion if you guys actually go in to that; but,
 
         12   without overstating the point, I am a little
 
         13   uncomfortable with some of the hint of internalism
 
         14   because some of it means to attacking predatory
 
         15   lending head-on.  Consequently, education has
 
         16   greater substantial value and appeal to me in this
 
         17   context to the extent that a more well-informed
 
         18   consumer can potentially make better choices from
 
         19   among a larger, not smaller, pool of borrowing
 
         20   options.
 
         21       MODERATOR SMITH:  Thank you very much.  I will
 
         22   ask Sandy to start our dialogue on this session.
 
         23       MS. BRAUNSTEIN:  Okay.  I heard a lot of
 
         24   interesting things in people's opening statements
 
 
 
 
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          1   today, and it's good to have -- we got a mix of
 
          2   folks on the panel, some of whom deal with the
 
          3   consumer education, some of whom also deal with new
 
          4   products for the subprime market or to serve
 
          5   customers that are currently being served by
 
          6   subprime markets.
 
          7            But I thought I would start out and I
 
          8   would like to discuss some -- all of that; start
 
          9   out with some questions about the consumer
 
         10   education piece of it.  And, in particular, for
 
         11   those of you that are doing consumer education and
 
         12   counseling, I would like to hear some thoughts on
 
         13   what techniques have been particularly useful in
 
         14   outreaching the appropriate targeted populations
 
         15   that the predators target.  You know, are there
 
         16   certain kinds of materials, media?  What has been
 
         17   most effective?   What do you find has worked?   Or
 
         18   if you find something definitely hasn't worked, I
 
         19   would like to hear about that, too.
 
         20       MR. MARKOWSKI:  I think the first thing to
 
         21   realize is we're at the front end of this, so that
 
         22   when we're talking about outreach campaigns, I
 
         23   don't think there's across the country -- and maybe
 
         24   Boston is perhaps the furthest ahead in terms of
 
 
 
 
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          1   having a well-established campaign in their Don't
 
          2   Borrow Trouble; but across the rest of the country,
 
          3   most of us came into this last year or so as
 
          4   recognizing a problem and then beginning to deal
 
          5   with it.
 
          6            At the city, at least, we have a wide
 
          7   ranging group of maybe up to 50 people from all
 
          8   these various sectors that are coming together to
 
          9   develop a comprehensive public education campaign;
 
         10   and we're going over these same questions that you
 
         11   are talking about:  What is the best way to --
 
         12   who's reaching these people now from the predatory
 
         13   side, from the abusive side, and how do you
 
         14   counteract on the other side?
 
         15            There's people like NHS and like Bank of
 
         16   the Americas, David Voss, in the streets on a
 
         17   day-to-day basis are reaching out to their
 
         18   customers in the neighborhoods.
 
         19            And what I think is that there has to be
 
         20   embodied in a campaign -- we're developing an
 
         21   overall campaign, but we're going to have large
 
         22   scale media advertising, but it has to be
 
         23   complemented by local messages and local messages
 
         24   involving local approaches, local delivery vehicles
 
 
 
 
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          1   of the message whether it's in utility bills,
 
          2   whether it's through their churches and religious
 
          3   institutions, whether it's through centers for the
 
          4   Department on Aging for senior citizens.  There has
 
          5   to be many, many different ways in the community to
 
          6   reach people.
 
          7            But also, I think, it's the kind of thing
 
          8   it seems to me that not only you have to reach once
 
          9   and many times with the message, you have to make
 
         10   it so that it's something that they think about
 
         11   when they're approached by the predatory lender
 
         12   that they know, oh, this is the time I'm supposed
 
         13   to call so and so.  This is the time I am supposed
 
         14   -- this is what they were warning me about.
 
         15   Somehow that has to click and then they have to
 
         16   have an alternative place to go for advice.
 
         17            And we think as part of the overall
 
         18   outreach campaign, one of the things we're going to
 
         19   have with it, too, is an 800 number that we think
 
         20   has to be manned and end up serving as a central
 
         21   reference point to give people alternative advice.
 
         22       MR. VOSS:  That's a great idea.  Financial 911.
 
         23       MR. MARKOWSKI:  Right.  Maybe that's the
 
         24   message.
 
 
 
 
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          1       MS. BRAUNSTEIN:  Are you -- as a follow-up
 
          2   question, are you participating with the
 
          3   Freddie Mac expansion of Don't Borrow Trouble?
 
          4       MR. MARKOWSKI:  Freddie Mac is working with us
 
          5   as is Fannie Mae, both supporting this, and we're
 
          6   now approaching other institutions to participate
 
          7   in the campaign.
 
          8            We think that Don't Borrow Trouble --
 
          9   we're not convinced that that is the message for
 
         10   Chicago.  We think it's a very good message, and I
 
         11   have been very impressed with the materials I have
 
         12   seen from Boston; but I think our opinion right now
 
         13   is we want to be a little more explicit about what
 
         14   the problems are.
 
         15            I think, in my own opinion, it's a
 
         16   sophisticated message and it might be too
 
         17   sophisticated; and I think we want to be a little
 
         18   more explicit about what the problem is and what
 
         19   you have to watch out for and then what the
 
         20   alternatives are.
 
         21            But, yes, we're working closely with them
 
         22   and we're basing it on that experience.
 
         23       MS. NAWROCKI:  I would like to add to what Jack
 
         24   said.  Certainly, we are at the front end of the
 
 
 
 
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          1   public awareness and the consumer education
 
          2   campaign.
 
          3            NHS, we have taken a lead in trying to get
 
          4   the word out to consumers in our neighborhoods.  We
 
          5   participate in community meetings.  We're going to
 
          6   be providing information to NHS loan customers
 
          7   telling them what to watch out for.  And we have
 
          8   also incorporated a predatory lending module within
 
          9   our home buyer education courses.
 
         10            But I just want to be clear that there's
 
         11   no way that an organization like NHS can compete
 
         12   with the marketing efforts that are ongoing by
 
         13   predatory lenders.  People are being inundated by
 
         14   mailings, phone calls, and I'm a little bit wary of
 
         15   even what a public awareness campaign can do when
 
         16   the predators are out there day in and day out just
 
         17   inundating people with materials.
 
         18       MS. LLEWELLYN:  I would like to add that
 
         19   there's a trust issue here, too, that when you are
 
         20   doing counseling and you have spent a good deal of
 
         21   time with them even before on the phone talking
 
         22   credit, working out particular issues with them and
 
         23   then following them all the way through to the
 
         24   closing of that transaction, they do tend to trust
 
 
 
 
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          1   you more, but there has to be a voice at the other
 
          2   end of this phone.
 
          3            You know, when you call up a number and
 
          4   you're told to push 1 if you want this and 2 if you
 
          5   want this, it's pretty frustrating for these
 
          6   people.
 
          7            It's a difficult thing for people to
 
          8   discuss credit.  Credit is still a very private
 
          9   issue with people.  It can be caused because of a
 
         10   divorce.  It can be caused because of a
 
         11   relationship with a boyfriend or girlfriend.  It
 
         12   could have been absolute stupidity.  It could have
 
         13   been an error.
 
         14            But for them to come forth and actually
 
         15   sit down and talk one on one with a strange person
 
         16   that they've never seen before on credit issues and
 
         17   things that happen to them in the past -- and
 
         18   they're all related to emotional things -- it's
 
         19   pretty difficult for them.
 
         20            Now you're talking about solicitation by
 
         21   mail, solicitation by door.  That's difficult.  And
 
         22   those guys have to be pretty darn good to build
 
         23   that level of trust when they knock on that door
 
         24   and convince these people that they need to turn
 
 
 
 
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          1   over their life savings which is generally the
 
          2   equity in the home.
 
          3       MR. VOSS:  Trust is extremely important, and
 
          4   one of the things that has to be done, at least in
 
          5   the communities that we serve, Pilsen, Little
 
          6   Village and Back-of-the-Yards, is to develop a
 
          7   trusting relationship.
 
          8            That takes time.  You have to work one on
 
          9   one with the people and you have to bring the
 
         10   people into your bank or into your business,
 
         11   whatever that is, for some reason.  Maybe it has
 
         12   nothing to do with banking.  To pay a utility bill,
 
         13   to get their blood pressure checked, to buy their
 
         14   rapid transit tokens, whatever it takes so that you
 
         15   can get them accustomed to walking into your
 
         16   business so you have an opportunity to talk to
 
         17   them, so that over a period of time you can gain
 
         18   their trust.
 
         19            It's a very difficult issue.  Traditional
 
         20   marketing methods don't work in our community.
 
         21   We've tried radio, TV, door stuffers and every kind
 
         22   of thing you can think of.  Mailers, contests.
 
         23   People get their information in our community by
 
         24   word of mouth.
 
 
 
 
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          1            So you got to get to the people and you
 
          2   got to get them to trust you, and you got to give
 
          3   them a comfort level in integrity in dealing with
 
          4   them so they will come back to you and talk to
 
          5   you.
 
          6            Because the information in our
 
          7   neighborhood spreads by word of mouth that that's
 
          8   where the predators are really getting ahold of
 
          9   these people.  You can look down some streets in
 
         10   our neighborhoods and see where the predators have
 
         11   been because there will be a whole string of loans
 
         12   that were done on a predatory basis because they
 
         13   talked to somebody who said, I think you should
 
         14   call my friend, my relative or whoever it is who
 
         15   took care of me, and they do.  And they're very
 
         16   unsuspecting, very trusting, and they end up
 
         17   getting ripped off.
 
         18            So you got to do -- you got to turn the
 
         19   predators into prey; and the only way we've been
 
         20   able to do that, and we've done it successfully, is
 
         21   to go one on one with the people by whatever means
 
         22   it takes to gain their trust.
 
         23       MS. BRAUNSTEIN:  Do you actually, David, do
 
         24   people from your bank actually go door to door in
 
 
 
 
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          1   the neighborhoods?
 
          2       MR. VOSS:  Absolutely.  Not door to door in the
 
          3   neighborhoods, but I'll tell you what we do, to
 
          4   give you an example.
 
          5            In the month of June and July, we opened
 
          6   60 ETA accounts which are electronic transfer
 
          7   accounts; and I understand from some of my spys
 
          8   here at the feds that that's about 10 percent of
 
          9   the total that were opened nationwide.
 
         10            But we didn't open those accounts by
 
         11   putting a sign in the lobby or taking out a
 
         12   newspaper ad or going on the radio.  We took actual
 
         13   staff people and put them in our neighborhood
 
         14   Social Security offices certain days of the weeks
 
         15   to talk to the Social Security recipients --
 
         16   remember, those are the people who are coming in
 
         17   with the problem -- and converting them to ETAs.
 
         18            So you got to do that.  You got to go to
 
         19   the people, in many cases -- not door to door --
 
         20   but you got to go to Oxione (phonetic) Chicago, the
 
         21   De Sosa security offices, to the churches, where
 
         22   you can get before people.
 
         23            And the second thing you have to do is get
 
         24   them to come in your door to do some kind of
 
 
 
 
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          1   business with you.  It may have nothing to do with
 
          2   financial services.  It may simply be to pick up
 
          3   their light bulbs when they pay their utility bill
 
          4   or to have their blood pressure checked or to talk
 
          5   to a health care practitioner about wellness.
 
          6            All of that stuff works.  Ultimately, the
 
          7   predator becomes the prey.
 
          8       MS. BRAUNSTEIN:  One of the things that's been
 
          9   suggested to us sometimes when we talk about
 
         10   amending HOEPA is that maybe everybody who gets a
 
         11   HOEPA loan should be required to see a housing
 
         12   counselor so many days before closing.  I would
 
         13   like to get some reaction from that.  Do you think
 
         14   would that work?   Would that -- you know, what do
 
         15   you think of that idea?
 
         16       MS. CINCOTTA:  I think counseling is a mixed
 
         17   bag.  I think there is good counseling, there's bad
 
         18   counseling, in between; and there are people who go
 
         19   through it who believe it or don't believe it or
 
         20   get it but it doesn't translate when something
 
         21   happens in their life.
 
         22            And using an example of our group in
 
         23   Cincinnati who did hands-on counseling with the
 
         24   people to get them ready to buy homes, built the
 
 
 
 
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          1   homes, got them in there.  They went through all
 
          2   this for a good length of time, but if they didn't
 
          3   have to sign off before those new homeowners took
 
          4   another loan or did anything, they were prey to
 
          5   predatory lenders.
 
          6            It just was incredible where they have
 
          7   gone through all this, but it took having that
 
          8   where I can't get a bad loan from him without
 
          9   signing -- him signing off on it.  They got the
 
         10   counseling.  They know, but the allure or the sales
 
         11   pitch on it is beyond that.
 
         12       MR. MARKOWSKI:  I think along those lines, I
 
         13   think counseling is good, but if those of us have
 
         14   ever been in any kind of consumer education program
 
         15   or classes or anything we've learned, it's totally
 
         16   different when you're actually in the midst of a
 
         17   transaction.
 
         18            I mean, whatever you know theoretically,
 
         19   it's a different situation when you're being given
 
         20   a pile of papers and being told to put your
 
         21   signature in 15 different places in a loan closing,
 
         22   and there absolutely has to be trust in that
 
         23   scenario.
 
         24            I mean, it's impossible, if anybody would
 
 
 
 
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          1   think that they would sit down and actually read --
 
          2   it's not expected in a loan closing that you're
 
          3   going to sit down and read through all those papers
 
          4   and understand everything that's there.  That's
 
          5   totally not expected and it can't be done in the
 
          6   normal course of business.  So, instead, there has
 
          7   to be a trust that what's in there makes sense.
 
          8            Now I myself, I don't need counseling, but
 
          9   I would never go to -- I have enough counseling to
 
         10   know that I would never sign a transaction like
 
         11   that if I didn't have legal representation.  So I
 
         12   have my legal representation in the room with me if
 
         13   I was going to enter into that transaction.
 
         14            So if we're not going to provide that for
 
         15   every person -- we could provide that for every
 
         16   person so they have -- you need representation or
 
         17   counseling right then in that instance.  That's one
 
         18   alternative.  Or you have a framework where that's
 
         19   not necessary because they have been protected by
 
         20   the regulations.
 
         21       MS. NAWROCKI:  First of all, I don't believe
 
         22   that counseling alone is going to stop any
 
         23   predatory lending.  I think that you got to couple
 
         24   counseling with real prohibitions against abusive
 
 
 
 
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          1   lending practices such as flipping, improvident
 
          2   lending.
 
          3            Second, the volume of subprime lending
 
          4   that's occurring, I don't know how counseling is
 
          5   going to help all those people.  Today I think I
 
          6   know of four counseling organizations within the
 
          7   City of Chicago where one of them was completely
 
          8   under water.
 
          9            There's not enough funding for counseling
 
         10   organizations.  Who's going to pay for the
 
         11   counseling?   Is the cost going to be borne by the
 
         12   consumer?   Is it right that this burden should be
 
         13   placed on the consumer without placing any
 
         14   responsibility on the lenders or the brokers?
 
         15            And, thirdly, when is that counseling
 
         16   going to occur?   If it's going to occur after a
 
         17   person has already been sold a loan or told that
 
         18   this loan will definitely be in their best
 
         19   interest, how good will the counseling -- how much
 
         20   good will the counseling do?   And who is going to
 
         21   perform the counseling?
 
         22            We've seen proposals put forth where the
 
         23   lender or the broker could provide the counseling.
 
         24       A VOICE:  That's a good conflict of interest.
 
 
 
 
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          1       MS. NAWROCKI:  Definitely.
 
          2       MR. VOSS:  You got to get to the people before
 
          3   applying for the loan.  I mean that's when the
 
          4   counseling has got -- and the help and the trust
 
          5   has to develop.  It's too late once they've applied
 
          6   for the loan because they probably got somebody
 
          7   they know that got them the deal.  You can trust
 
          8   them, right, because that's my first cousin.
 
          9       MS. LLEWELLYN:  And if they think that someone
 
         10   says to them, well, the loan is approved, but you
 
         11   have to go to this class and have counseling prior
 
         12   to coming, and they know that this is it, you get
 
         13   down there to the end and they say, you either take
 
         14   the counseling or you don't get the loan, and they
 
         15   want the loan.  That's all they know is that they
 
         16   want the loan.  So they'll go ahead and it's
 
         17   already after the deal is approved.  So you have
 
         18   already put the carrot out there.
 
         19       MS. BRAUNSTEIN:  I should clarify that what I
 
         20   was thinking of was counseling that would include
 
         21   having somebody, a third party, go through the deal
 
         22   with them.
 
         23       MS. LLEWELLYN:  In a right of rescission?
 
         24       MS. BRAUNSTEIN:  They haven't signed yet.
 
 
 
 
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          1       MS. LLEWELLYN:  They paid an application fee.
 
          2       MS. BRAUNSTEIN:  Probably.
 
          3       MS. LLEWELLYN:  Probably.
 
          4       MS. CRANE:  What I wanted to try to add is that
 
          5   I certainly do see the sort of problems associated
 
          6   with giving counseling of certain sorts after a
 
          7   certain point and the transaction has already past;
 
          8   but, at the same time, I mean, if we're about the
 
          9   business of sort of deconstructing this, figuring
 
         10   out exactly when it's too late, then we should also
 
         11   be able to figure out when it's not too late and --
 
         12   or if we're able to say who won't be able to get
 
         13   through to the consumer, we should also be able to
 
         14   figure out who could get through to the consumer
 
         15   and when they might be able to be successful at
 
         16   it.  I don't have an answer to those questions.
 
         17       MS. BRAUNSTEIN:  That was going to be my next
 
         18   question.
 
         19       MS. CRANE:  But I do think that given the level
 
         20   of expertise and the understanding of these issues
 
         21   that is present here including -- and I probably
 
         22   could come up given time -- that these are not
 
         23   insoluble problems if we treat them the same way we
 
         24   treat other problems that they are successors to.
 
 
 
 
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          1            When we look at the unlawful
 
          2   discrimination against persons in this very same
 
          3   context using other means, we have, you know, DOJ
 
          4   settlement agreements coming from left and right.
 
          5   We have imaginative applications of existing law as
 
          6   well as private initiatives to try to address them,
 
          7   and I think that we could do the same thing here.
 
          8            Now as far as it goes -- one of the things
 
          9   I had prepared to say, been prepared to say was
 
         10   that I think we should have mandatory education for
 
         11   consumers for certain categories of loans; and
 
         12   perhaps we even impose the duty to make those
 
         13   disclosures on the lenders themselves, not
 
         14   necessarily on the handful of consumer education
 
         15   agencies that are outgunned who are trying to do it
 
         16   now.  And that even if it may be that,
 
         17   logistically, the point in which this information
 
         18   is shared might not be ideal, that doesn't in my
 
         19   mind mean that we don't add that to the list of
 
         20   things that are used as attempts to address the
 
         21   problem.  And there are some people, maybe not all,
 
         22   maybe not half, but a bunch of people might, having
 
         23   this information shared with them, even at late
 
         24   stages of a transaction, may decide, whoa, you
 
 
 
 
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          1   know, I didn't know that.
 
          2            Also, I think with respect to the content
 
          3   of education, in my experience here, the content of
 
          4   the disclosures being referred to primarily as
 
          5   information about credit worthiness, readiness and
 
          6   financial understanding, you know, issues, things
 
          7   like that, so that they're more savvy borrowers
 
          8   about the economics of the transactions and so
 
          9   forth or a preparedness for going into certain
 
         10   types of transactions.
 
         11            Why can't the content of the education
 
         12   also be about HOEPA and Truth in Lending?  Why
 
         13   can't we tell people, look, there are laws that are
 
         14   -- regulations that are in existence that you may
 
         15   not know about, your lawyer may not know about, and
 
         16   that are serious; and if your transaction looks
 
         17   like this, then those laws apply.
 
         18            So that even though we sort of separated
 
         19   out this discussion from the morning discussion
 
         20   where there was more focus on regulation changes to
 
         21   law this morning, I think that there could still be
 
         22   -- you know, there's no need to totally divorce
 
         23   this discussion from that idea as well, and I am
 
         24   thinking we want to get tough because they are
 
 
 
 
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          1   tough issues.
 
          2       MS. WILLIAMS:  If I could ask a question about
 
          3   counseling because sometimes you often hear there's
 
          4   a question about the quality of that counseling
 
          5   that people will receive.
 
          6            And so along those lines, should there be
 
          7   like minimum guidelines or standards that are set
 
          8   so that when you are counseling an individual, you
 
          9   know exactly what it is you are getting into?  So
 
         10   some reaction to that.
 
         11       MS. NAWROCKI:  Well, I think if we're going to
 
         12   talk about counseling, we should put forward
 
         13   regulation on high-cost loans; and that one way of
 
         14   ensuring the quality of the counseling that
 
         15   somebody receives is that you would -- a counselor
 
         16   would go through the loan and, according to HOEPA,
 
         17   according to hopefully new regulations against
 
         18   high-cost loans, they would determine whether or
 
         19   not somebody is getting a loan that they cannot
 
         20   afford to repay.
 
         21            So what are the guidelines for improvident
 
         22   lending, looking at what a debt to income ratio
 
         23   ought to be and using guidelines such as that.
 
         24   Look to see if they have been a victim of loan
 
 
 
 
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          1   flipping as determined, and using those sort of
 
          2   guidelines to mandate the standard of education
 
          3   that somebody would receive.
 
          4            Otherwise I don't know without -- you
 
          5   know, without any sort of prohibitions against
 
          6   those practices, how will you determine what
 
          7   counseling they'll receive?
 
          8       MS. BRAUNSTEIN:  Gale?
 
          9       MS. CINCOTTA:  We don't just counsel people who
 
         10   drive cars.  We have rules, regulations, stop
 
         11   lights, stop signs, jail terms, et cetera.  And I
 
         12   think we've taken homeownership which is so
 
         13   important, such a big debt, and just say,
 
         14   counseling.
 
         15            Counseling is a mixed bag.  Some is very
 
         16   good.  Some isn't.  And other people, even if it's
 
         17   good, they'll listen to it.
 
         18            So I think there has to be -- like when we
 
         19   talk about rules to stop predatory lending, no
 
         20   credit insurance premiums included in the loan, I
 
         21   don't have to look for it.  They're breaking the
 
         22   law if they do it.  No prepayment penalties.  No
 
         23   flipping.  No balloon loans.  Make whoever owns the
 
         24   loan responsible for it.  You know, lower the APR
 
 
 
 
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          1   figure to 8 percent.
 
          2            When you set rules, rather than we tell
 
          3   everybody here, now you could get screwed over, so
 
          4   maybe you go to a counselor, who has to hurry out
 
          5   for a date, to help you with this most -- maybe one
 
          6   of the most important decisions you make
 
          7   financially in buying a home.
 
          8            I think you have to build, I mean, these
 
          9   kinds of rules to protect the people.  Because, as
 
         10   I said, we have it on stop signs.  We have it on
 
         11   all kinds of other places, but somehow here we're
 
         12   going to go to these magical counselors.
 
         13       MS. LLEWELLYN:  Let's put the burden on us.
 
         14            I would like to say that in doing
 
         15   counseling, I do -- we do primarily pre-purchase
 
         16   counseling -- the APR is the easiest thing to
 
         17   explain.
 
         18            When I sat here this morning listening to
 
         19   what we would do with TILA, what we would do with
 
         20   everything else, I thought what in the world -- how
 
         21   would I explain this?   What would I do?
 
         22            Well, the APR is the easiest thing to
 
         23   explain to a consumer.  They can understand that.
 
         24   They can compare that, and they understand that.
 
 
 
 
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          1            For us who do counseling -- here I am
 
          2   taking sort of the easy shot out, but that is
 
          3   true.  But in doing the research for this and
 
          4   reading the documents that you two put out in the
 
          5   letter to us, I noticed that there's a high
 
          6   percentage of these people who are in the predatory
 
          7   issue that are elderly and minority.
 
          8            Well, now how do you get to those
 
          9   people?   You get to those people through their
 
         10   churches, and the only way you can get invited into
 
         11   their house is through television because almost
 
         12   everybody has a television.
 
         13            So you would have to have some sort of way
 
         14   of communicating to them an exact replica almost of
 
         15   somebody coming to your door, beware, this is what
 
         16   would happen to you.  Many of our elderly, it's
 
         17   difficult for them to read, but they can hear and
 
         18   they watch television, and often that's the only
 
         19   company that they have.  I think that might be a
 
         20   good avenue for you guys to look at.
 
         21       MS. BRAUNSTEIN:  One of the things -- I wanted
 
         22   to change tracks a little bit to some of the
 
         23   alternative products that I heard mention here
 
         24   today.
 
 
 
 
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          1            Because one of the things, just to kind of
 
          2   close out this counseling or piece of it, is that
 
          3   we heard from some housing counselors who are in
 
          4   the business is that when a borrower, consumer
 
          5   comes in, even if they come in before they have
 
          6   entered into what would be termed a predatory deal,
 
          7   and if the counselor sits down and goes through the
 
          8   paperwork with them and explains this is really not
 
          9   a good deal, it's not in your best interest, that
 
         10   oftentimes the counselor gets frustrated because
 
         11   the consumer will go ahead the next day and sign
 
         12   the deal anyway because they need that $600 or
 
         13   whatever it is to pay a medical bill and there's no
 
         14   alternative.  At least, they feel at that point
 
         15   there's no alternative and this is the only way
 
         16   they're going to get that money.
 
         17            So I was just wondering.  I have heard
 
         18   today -- and we've heard this expressed in some
 
         19   other cities and the lack of alternatives, and I
 
         20   hear today that it sounds like there are some
 
         21   alternative kinds of products and programs around
 
         22   the table, and I would be interested in hearing a
 
         23   little bit more about that, especially David.  And
 
         24   I know, Beth, you mentioned you are doing loans
 
 
 
 
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          1   and, Rochelle, and you are actually refinancing
 
          2   some of these deals.
 
          3       MR. VOSS:  Well, as an alternative product, I
 
          4   think you got to find ways to bring people to you
 
          5   or go up to them one on one such as we do with the
 
          6   Social Security office on ETAs.
 
          7            But let me give an idea that you might
 
          8   want to think about.  I think the ultimate solution
 
          9   is to create more community bank offices in these
 
         10   communities.  I mean, I have not -- I don't know
 
         11   any community bank that started in our neighborhood
 
         12   except for us.  Yet there are more currency
 
         13   exchanges, more car title loan places, more Payday
 
         14   Loan places opening every week, and they're the
 
         15   financial institution of our community.
 
         16            If the Federal Reserve Bank could create
 
         17   some kind of an incentive because it cost a lot --
 
         18   we did this.  We opened a 1200 square foot branch
 
         19   in no man's land; and the idea would be that it
 
         20   wasn't -- would not be intimidating and yet it
 
         21   would give the mainstream banking services; but it
 
         22   takes years of doing life line banking services to
 
         23   people to get them to come to be bank customers.
 
         24   You are losing money over this period of time and
 
 
 
 
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          1   we're for-profit banks.  Shareholders don't like
 
          2   that.
 
          3            But if the Federal Reserve could guarantee
 
          4   perhaps with a letter of credit a large deposit,
 
          5   say, $3 million because the insurance of the
 
          6   accounts will only go up to 100,000, if you would
 
          7   give some kind of letter of credit so that a
 
          8   community bank would establish itself in these
 
          9   communities and automatically have this large
 
         10   deposit that would be fully insured because of the
 
         11   backing of the Federal Reserve System or a letter
 
         12   of credit at a below market rate, that would cover
 
         13   these four or five years it takes you to bring this
 
         14   branch to the main line of banking as a profitable
 
         15   operation.
 
         16            That would encourage other banks and
 
         17   financial institutions to open up offices in these
 
         18   communities as rapidly as the Payday Loan Stores
 
         19   and title loan companies and the currency exchanges
 
         20   that are expanding today and provide an alternative
 
         21   for people to go to.
 
         22            I also think that the Federal Reserve Bank
 
         23   could be kind of a conduit in putting together
 
         24   large deposits that would be put into these branch
 
 
 
 
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          1   locations or perhaps even from CDFIs, working with
 
          2   other community development financial institutions
 
          3   to make this happen, and there may be other ways.
 
          4            But I think that's a way that you can
 
          5   develop some products and things and get banks and
 
          6   savings and loans and other credit unions to open
 
          7   up offices in these communities where they're not
 
          8   doing it today.
 
          9       MODERATOR SMITH:  Gale?
 
         10       MS. CINCOTTA:  I think it's going in the -- it
 
         11   should in that direction, more like S & Ls on every
 
         12   corner; but what's happening, ATMs, people are
 
         13   encouraged not to even go in the banks that exist,
 
         14   to go outside and use the machine.  People are
 
         15   being charged five bucks if they walk in the door
 
         16   to see a live person and talk to them.
 
         17            So everything we're saying to get the
 
         18   hands on so people have a relationship, everything
 
         19   is moving to you don't -- what they're saying, you
 
         20   don't have a lot of money.  We don't want to bother
 
         21   with you.  Work the machine outside or pay five
 
         22   bucks or don't come in at all.
 
         23            It's the opposite of what you really need
 
         24   for people to have access, you know, to credit and
 
 
 
 
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          1   not get into this trouble which is -- it's almost
 
          2   hostile to the people.
 
          3            So that when they see an ad or a predatory
 
          4   lender knocks on their door, hi, I like you.  Gee,
 
          5   you look like you need a break.  There's comes -- a
 
          6   personal touch comes out, even though they're going
 
          7   to scam them.  They at least have that beginning of
 
          8   we like you, we're going to help you that they
 
          9   don't get from a regular bank who won't hurt them,
 
         10   just won't do business with them.
 
         11       MS. CRANE:  That's where we see, at least, in
 
         12   my view, where predatory lending really has
 
         13   originated.
 
         14            In at least, you know, my own maybe
 
         15   somewhat cynical way of looking at things, we've
 
         16   made it too tough for the lenders to refuse to do
 
         17   business with certain communities.  You know, the
 
         18   heat was on.  You could not just discriminate
 
         19   openly as you had in the past and just refuse to do
 
         20   business with someone because they were black or
 
         21   because they were Latino or because they were
 
         22   elderly.  They couldn't do it.
 
         23            And so that I think that what has
 
         24   happened, the evolution of the predatory lending is
 
 
 
 
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          1   the result of new ways to continue to oppress
 
          2   certain groups; and this is, I think, signified in
 
          3   large part as well by the banks who have moved away
 
          4   from providing personal service and so forth.
 
          5       MS. LLEWELLYN:  I think predatory lending
 
          6   starts further back.  I think you got to step
 
          7   another step back.  Some people heard me speak on
 
          8   this before.
 
          9            This credit scoring is just nuts.  I just
 
         10   pulled up an article.  I think I sent it to you
 
         11   guys from the U.S. Public Interest Research Group
 
         12   in March of '98 that said nearly 30 percent of all
 
         13   credit reports have serious errors that could cause
 
         14   unfair denial of a car loan, a mortgage or even a
 
         15   job and often go undetected.
 
         16            That's pretty good because before you pass
 
         17   the Fair Credit Reporting Act, it was 48 percent or
 
         18   44 percent, as I remember.
 
         19            But if 30 percent -- now if one out of
 
         20   three of you have an error on your credit report --
 
         21   how many of you look at your credit report every
 
         22   year?  Once every year at the same time every
 
         23   year?  How many of you look at your credit report?
 
         24            Well, you should.  It's like
 
 
 
 
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          1   housekeeping.  It's good business.  You should.
 
          2   Usually about March after all the new credit cards
 
          3   are taken out for the Christmas holidays, you get
 
          4   10 percent off of everything you buy.  And you
 
          5   should do that.
 
          6            Of 35 people -- seriously -- of 35 people
 
          7   in each class, I will have only one that has ever
 
          8   seen her credit report or his credit report and
 
          9   they didn't understand how to read it.  So that's a
 
         10   moot point.
 
         11            We do pull their credit reports, put them
 
         12   in a sealed envelope, give it to them at the
 
         13   beginning of the class when they come in and the
 
         14   lenders are there to talk to them about their
 
         15   credit.  I have already talked to them or some of
 
         16   the others have on the phone before they even get
 
         17   there.
 
         18            I can't believe that we're using credit
 
         19   scoring or any other kind of FICO, any kind of
 
         20   scoring to determine whether somebody has a
 
         21   willingness or an ability to repay because it
 
         22   doesn't really --
 
         23       MS. BRAUNSTEIN:  You said you don't use FICO
 
         24   screening?
 
 
 
 
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          1       MS. LLEWELLYN:  We do not.  Absolutely do not.
 
          2       MS. BRAUNSTEIN:  And you have 36 percent debt
 
          3   ratio.  Is that front or back?
 
          4       MS. LLEWELLYN:  That's back.  When we're
 
          5   running their debts before they even -- when
 
          6   they're filling out their application, if they got
 
          7   more than 20 percent commercial debt, 20 percent
 
          8   monthly commercial debt, then we sit down.  We
 
          9   don't deny them into the program, but we sit down
 
         10   and talk to them about how to dump some of this
 
         11   debt.
 
         12            With 5 percent interest rate, we've never
 
         13   done more than 6 and a quarter percent interest
 
         14   rate, but the last -- we did about 50 million at
 
         15   5 percent interest rate.  For every 25 bucks a
 
         16   month they dropped off their debt a month, they
 
         17   jumped five grand on the purchase price of a home.
 
         18   For every 50 dollars they dumped off that
 
         19   commercial debt, they jumped $10,000 in the price
 
         20   of a home.
 
         21            So we spent a lot of time working with
 
         22   them on debt reduction.  And that's why we have to
 
         23   take the money out at the beginning and hold it for
 
         24   them because it takes a little while to do it.
 
 
 
 
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          1            These are people who sell boats.  They
 
          2   sell motorcycles.  They sell stereo equipment,
 
          3   anything they could come up with to come up with a
 
          4   thousand dollars or 1 percent to put down on this
 
          5   house.  They have to have some sort of down
 
          6   payment.
 
          7            Now I'd give them the house with no money
 
          8   down.  I really would.  I have a lot of confidence
 
          9   in these people.  But the other people who
 
         10   participated with us in this program are adamant
 
         11   that there has to be some cash in there.  But
 
         12   sometimes it takes them quite a bit.  These are
 
         13   people who consider this not just a house, but this
 
         14   is a refuge.  This is their home.
 
         15            I brought with me -- we just had a survey
 
         16   out to our buyers.  And Sandy Tipes.  She works at
 
         17   Hardy's.  She has four kids.  And we asked her how
 
         18   has owning your new home changed your life?  She
 
         19   was in Section 8, living in government housing.
 
         20   How would you describe the difference?
 
         21            The kids are the same but, otherwise,
 
         22   everything has changed.  I feel like a new person
 
         23   again.  Before, people looked down on us because we
 
         24   were poor and in subsidized housing.  We're still
 
 
 
 
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          1   in the same school district.  We're within town
 
          2   limits so that we can walk to the store if the car
 
          3   breaks down.  We are off Public Aid.  I learned how
 
          4   to budget and take care of ourselves.  It gives me
 
          5   a reason to go to work.  Before, the more money I
 
          6   made, the more my rent would be.  There was no
 
          7   incentive because we could never get ahead.
 
          8            I plan on staying in this house forever.
 
          9   It's our home.  The kids always wanted to have a
 
         10   family dinner together.  We finally have a place
 
         11   for a dining room table -- they ate in shifts
 
         12   before -- where we can say grace and be thankful
 
         13   for our new home.
 
         14            I want to be helpful to others in the
 
         15   program to answer some of the questions they may
 
         16   have and be a support for others.
 
         17            Well, one of the things she liked about
 
         18   our program was that there was somebody there on
 
         19   the end of the phone and that somebody would give
 
         20   her a call within ten minutes.
 
         21            And she did have some difficulties.  That
 
         22   one was a little bit tough, but we were really
 
         23   proud of that.  She got a really nice home, and
 
         24   she's got great kids.
 
 
 
 
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          1            So I think you have to look at the credit
 
          2   issue when you make your determination as to
 
          3   whether you're going to move them into a A minus, a
 
          4   B, a B minus, a C, whatever you are going to move
 
          5   them into, and then you jack the interest rate.
 
          6            I don't think that is -- I don't think
 
          7   that that shows definitely their intent or their
 
          8   willingness to repay.  It could be medical issues.
 
          9   It could have been a divorce.
 
         10            We need to have a class on the proper way
 
         11   to get a divorce.  These kids come out of a divorce
 
         12   and they assume that the divorce decree is law and
 
         13   that when the divorce decree says he or she was
 
         14   responsible for this and she was responsible for
 
         15   that that he's going to pay that bill, she's going
 
         16   to pay that bill; and often they have left where
 
         17   they were living and gone back home where support
 
         18   was.  They have no idea that these creditors who
 
         19   can't find them are filing collections against them
 
         20   until we run a credit report.
 
         21            The other one is young people who come to
 
         22   class and have never discussed their financial
 
         23   history before with each other; and, all of a
 
         24   sudden, they're going to buy a house and a credit
 
 
 
 
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          1   report is run and she didn't know what it shows on
 
          2   that credit report.  He didn't know.  They never
 
          3   discussed it.
 
          4            So education has to start a lot earlier
 
          5   than where we are in the marketplace, but also
 
          6   credit scoring.
 
          7       MR. MARKOWSKI:  On that credit scoring problem,
 
          8   I acknowledge what Beth is saying about the credit
 
          9   scoring as an issue.
 
         10            But I also want to say that whatever
 
         11   method you use to score, to rate your borrower with
 
         12   respect to credit, there has to be an underlying
 
         13   principle, too, that a borrower is entitled to the
 
         14   best credit.  They will get the best credit for
 
         15   which they're entitled.
 
         16            That is not an accepted principle in the
 
         17   industry, and I think the Federal Reserve bank can
 
         18   join with others and push that as a principle.  To
 
         19   anybody that hears that, it's outrageous to think
 
         20   that responsible lenders would steer somebody
 
         21   toward a lesser credit or, alternatively, if they
 
         22   come to a subprime lender and they really qualify
 
         23   for a better loan, in terms that they don't push
 
         24   them upstream.
 
 
 
 
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          1            So I think that the Federal Reserve Bank
 
          2   could help us in establishing that as a principle,
 
          3   that you get the best credit for which you
 
          4   qualify.  You're entitled to that.  That's a
 
          5   borrower's -- one of their rights.
 
          6            The other thing I would say is that -- and
 
          7   I don't know if Rochelle wants to talk a little bit
 
          8   about this -- with NHS, the Department of Housing
 
          9   in the city, we do have an alternative financing
 
         10   pool.  It's not at the front end, although NHS has
 
         11   a number of products at the front end for people to
 
         12   rehab their homes.  But we have one at the back end
 
         13   for people that are in danger of foreclosure due to
 
         14   predatory loans that they have gotten themselves
 
         15   into.
 
         16            This is a loan pool that NHS has developed
 
         17   with the series -- with a number of banks in the
 
         18   area that are investors, and the City of Chicago is
 
         19   providing money both for NHS administration of the
 
         20   program and for something of a loan insurance
 
         21   funds.  We have 6 percent loan insurance fund, that
 
         22   that's basically what's inducing the banks.  The
 
         23   banks bear 94 percent of the risk, but that has
 
         24   been enough to get them in the program, and we have
 
 
 
 
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          1   this pool that we're calling the normal loan pool
 
          2   to refinance people out of predatory loans.
 
          3            I don't know, Rochelle, if you want to say
 
          4   anything anymore.
 
          5       MS. NAWROCKI:  I would just like to add,
 
          6   there's 15 participating institutions in the loan
 
          7   fund.  It's a $2 million loan fund.  It's a pilot
 
          8   program, and we hope to do 20 to 25 loans this
 
          9   year.  So it is very small.
 
         10            But, basically, the idea is -- or the
 
         11   concept behind it was that we needed a way to
 
         12   refinance people that had been victims of predatory
 
         13   lending.  Through our work with the Legal
 
         14   Assistance Foundation, we were getting settlements
 
         15   for people who had been victims of predatory
 
         16   lending, and we needed to refinance them and we
 
         17   didn't want to refinance them with that same lender
 
         18   that had ripped them off previously.
 
         19            This normal program is a result of that
 
         20   need.  We closed on one loan to a woman, 78-year
 
         21   old woman who paid nearly $10,000 in fees to get a
 
         22   70,000 finance loan.
 
         23            We have a loan committee meeting tomorrow,
 
         24   and we have eight loans to be presented.  I just
 
 
 
 
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          1   spoke with one of our neighborhood directors this
 
          2   week and, in a week, she has six new clients for
 
          3   this program.  So I'm sure that we're going to be
 
          4   able to use up the money.
 
          5            I guess I should say, that is, if we're
 
          6   able to negotiate a settlement with the predatory
 
          7   lenders because that is one of the key components
 
          8   of the program is that we have to get a settlement
 
          9   from the lenders so that we're not using the
 
         10   investments in this fund to pay off the bad
 
         11   lender.  So that is one thing.
 
         12            Another product that we have --
 
         13       MS. BRAUNSTEIN:  I'm sorry.  When you say
 
         14   settlement, you mean they agreed to take a lesser
 
         15   amount?
 
         16       MS. NAWROCKI:  Exactly.
 
         17            And another product that we have is with
 
         18   Freddie Mac and Harris.  We call it our refi/rehab
 
         19   product.  It's a slightly alternative refinance
 
         20   product where we'll be able to refinance people,
 
         21   allow them to do a small amount of rehab, if they
 
         22   need that.  And we have more flexible underwriting
 
         23   guidelines as far as credit history.
 
         24            And then we also have a home improvement
 
 
 
 
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          1   product as well although I will say, due to the
 
          2   overmarketing of predatory lenders, we are finding
 
          3   it difficult to get to people on our own home
 
          4   improvement loan product.
 
          5       MS. BRAUNSTEIN:  I know we're running out of
 
          6   time, and I want to ask a question for us at the
 
          7   fed.
 
          8            We would like to know, aside from the
 
          9   regulatory fixes which were discussed this morning
 
         10   in great detail and were mentioned also this
 
         11   afternoon, in the consumer education community
 
         12   outreach field, what is it -- what role would you
 
         13   see that the fed could play that could help what
 
         14   you are already doing or what others are doing?
 
         15            Is it developing materials?   Is it
 
         16   marketing?   Is it either delivery systems?   What
 
         17   is it that the fed could do to be helpful in
 
         18   that?
 
         19       MS. CRANE:  I think that one area -- again,
 
         20   going back to the credit scoring.  I'm not sure if
 
         21   the fed has any kind of authority in this regard,
 
         22   but I assume it can say whatever it wants to, at
 
         23   the very least, and that is with going back to the
 
         24   ground work that was laid for predatory lending to
 
 
 
 
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          1   be able to be so successful when we have people --
 
          2   everyone wants a home.  There is --  it's part of
 
          3   the human condition to want a home.  The leverage
 
          4   that it provides you and all those other kinds of
 
          5   things.
 
          6            And, yet, there's a scarcity of land, as
 
          7   we know.  And there are lots of incentives to
 
          8   discriminate against people who are able to be
 
          9   preyed upon with the goal in mind to prevent them
 
         10   from achieving that homeownership.
 
         11            With credit scores, not only is there not
 
         12   a fundamental kind of a philosophy to give people
 
         13   the best scores that they might be entitled to
 
         14   under -- after the score is calculated, but we know
 
         15   from the work that we tried to do in credit scoring
 
         16   that there are lots of factors that go in to the
 
         17   score that bear no resemblance whatsoever to
 
         18   anything relevant to credit worthiness or credit
 
         19   readiness.  Absolutely nothing.
 
         20            In fact, there are many things that can go
 
         21   in to scores that are in fact proxies for rates in
 
         22   the class and lots of other kinds of things which
 
         23   then result in a lower score that are proprietary
 
         24   so that we can find out what they were, but then
 
 
 
 
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          1   lead to borrower to being unable to qualify for
 
          2   conventional loans; and then, of course, they
 
          3   continue, because they do want a home like
 
          4   everybody else, to look for money and they end up
 
          5   in the hands of predators.
 
          6            So that, again, as I said in my opening
 
          7   statement, I think credit scoring has laid a big
 
          8   part of the foundation for predatory lending, at
 
          9   least in the mortgage area.  God knows, it's not
 
         10   only in the mortgage area where it's a big
 
         11   problem.
 
         12            But to the extent that the fed could in
 
         13   fact do something to unbundle this credit scoring
 
         14   mystery, the immunity that the credit scorers and
 
         15   the institutions when they put together their
 
         16   factors that go in to how they calculate their
 
         17   credit scores, that would be very helpful.  It
 
         18   would be a start because you run into a wall -- and
 
         19   I've been a part of the group here at the fed and
 
         20   elsewhere of people who are really serious about
 
         21   trying to unbundle this, and we ran into a wall.
 
         22            Then we found ourselves, lo' and behold,
 
         23   focusing on predatory lending which, again, was by
 
         24   no means a coincidence considering the fact that
 
 
 
 
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          1   nothing had been done about credit scoring which
 
          2   historically has never even been used in the
 
          3   mortgage lending context; and why is it being used
 
          4   in a mortgage lending context as soon as we make
 
          5   greater strides toward eliminating discrimination
 
          6   and mortgage lending and conventional loans I think
 
          7   is because it's so useful for continuing and it's,
 
          8   again, for some reason, apparently immune to that.
 
          9            So to the extent that the fed could in
 
         10   fact look in a comprehensive way at what is
 
         11   involved with how institutions that do listen to
 
         12   the fed calculate their credit scores and
 
         13   scrutinize them and give them some guidance and
 
         14   some demands on how they should not be used in
 
         15   improper ways, I think that is one thing that could
 
         16   be gone over.
 
         17       MS. LLEWELLYN:  I agree with her.  And also,
 
         18   again, as I said, I deal mostly in rural
 
         19   communities which Illinois primarily is rural.
 
         20            I would like to point out that in my small
 
         21   rural towns -- and this comes up in 90 percent of
 
         22   the cases -- many of the rural businesses in small
 
         23   towns don't report to a credit bureau.
 
         24            So these people who come up with, it shows
 
 
 
 
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          1   no credit history at all.  You sit down with them
 
          2   and you say, well, have you ever had any account
 
          3   any place else?  Well, I got an account at the gas
 
          4   station down here.  It's not a Shell.  It's not an
 
          5   Amoco.  It's just a gas station.  And he goes in
 
          6   and pays it off every month.  He's got an account,
 
          7   over a couple years, different times at a local
 
          8   furniture store, and it doesn't show up on a credit
 
          9   report.
 
         10            And I was thinking about this when you
 
         11   sent out the information to us.  If credit is a
 
         12   determining factor in moving a consumer from a
 
         13   prime loan to a subloan, then a copy of that credit
 
         14   report and scoring should be given to that
 
         15   applicant for review prior to processing a loan,
 
         16   before it gets anywhere, at the very onset.
 
         17            If that is what you are basing your
 
         18   decision on moving them into a subprime product,
 
         19   then they should be aware that that's the cause.
 
         20   They should have time to review that.  Often they
 
         21   got to go home and talk to their wife, their
 
         22   mother, their father, somebody, to figure out how
 
         23   to read the thing.
 
         24            There should be some sort of an
 
 
 
 
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          1   instruction and also a sheet in there that tells
 
          2   them these are the avenues to correct.  Something
 
          3   that gives them some information.
 
          4            These people are sometimes just caught
 
          5   totally unaware.  Totally unaware.
 
          6       MR. VOSS:  Since we're on credit reports, why
 
          7   don't you make a regulation that says that lenders
 
          8   have to report good credit payments?  Because I
 
          9   think there's a tendency to report those that don't
 
         10   pay.  But, oftentimes, there's little effort to
 
         11   report --
 
         12       MS. LLEWELLYN:  Or there's gaps.  They look and
 
         13   they report it every three months or every four or
 
         14   every five.
 
         15       MR. MARKOWSKI:  I agree with that.  So you're
 
         16   going to have -- you talked this morning about
 
         17   regulations.  Now we're talking about stuff beyond
 
         18   regulations.
 
         19            I would say beyond the regulations,
 
         20   wherever you end up going here, best practices and
 
         21   standards is I think one of the roles for the fed
 
         22   to play; that those things, whether it's about
 
         23   credit reporting, whether it's about credit
 
         24   scoring, whether it's about, what I said earlier,
 
 
 
 
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          1   about consumer being entitled to the best loan for
 
          2   which they qualify, those are the kinds of best
 
          3   standards and principles that the fed could help
 
          4   promulgate for member institutions.
 
          5            And with respect to consumer education, I
 
          6   mean I think consumer education, this is such a big
 
          7   task to go on so many different levels; and, on one
 
          8   hand, when I think about consumer education
 
          9   campaigns, I know we have some friends from
 
         10   Fannie Mae here, but I think of the Fannie Mae
 
         11   commercials that I see, the public interest
 
         12   commercials at the Super Bowl that you see from
 
         13   Fannie Mae about the family owning their home.
 
         14   There needs to be that equivalent, I mean, of this
 
         15   issue at a national level.
 
         16            Now that's not going to come from the City
 
         17   of Chicago or from local banks here, but there
 
         18   needs to be a campaign that ends up being
 
         19   underwritten at both -- and carried out.
 
         20            And it's got to be coordinated in a sense,
 
         21   too.  The other thing I think about a PR campaign,
 
         22   I mean, we need assistance and support for our
 
         23   local campaign here.  But I think we also need
 
         24   coordination with everybody, whether it's the
 
 
 
 
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          1   Fannie, Freddie or the fed or local banks or big
 
          2   banks, that I think we all have to work together to
 
          3   be part of -- develop themes that hold everybody
 
          4   together on so that you can carry it out with your
 
          5   name on it, but it's still part of an overall
 
          6   effort for this consumer education and, as I said,
 
          7   so the fed can be involved in that national kind of
 
          8   advertising.  It can be local support.  It can be
 
          9   -- but we're going to have to have the
 
         10   responsibility primarily through us or maybe
 
         11   through your member institutions of carrying the
 
         12   message locally and door to door in the
 
         13   neighborhoods.
 
         14       MS. WILLIAMS:  If I can go back and ask Beth a
 
         15   question.  You talked about education and it should
 
         16   start a lot earlier.  How early were you thinking?
 
         17       MS. LLEWELLYN:  Thank you for that segue.  I
 
         18   got cards out there, stack of cards out there.
 
         19            We have gotten funding that was funded by
 
         20   Freddie Mac.  We did a web site called
 
         21   www.Credit-Power.  A friend of ours at Microsoft
 
         22   out in Redmond, Washington, gave us the name of a
 
         23   company called Management Group that developed
 
         24   this, and they hired a man named Bill Nye, The
 
 
 
 
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          1   Science Guy, who helped write the script for this.
 
          2            It's for junior and high school.  The site
 
          3   itself is done.  It's a very large site.  It's very
 
          4   interactive.  It's a game.  It's an E-Mail out to
 
          5   the future for 15 years.  There's a little envelope
 
          6   up here flying.  You can click on it.  It goes out
 
          7   15 years and tells you all the stupid things you
 
          8   did and allows you to go back and make better
 
          9   choices.
 
         10            And at the end of that, there's a multiple
 
         11   choice question and answer, and seniors can enter
 
         12   into a thousand dollar cash scholarship.  We give a
 
         13   thousand dollars to a high school senior on the
 
         14   first workday of every month.  And those E-mails
 
         15   are then dumped to my site to my office and a name
 
         16   is drawn.
 
         17            So it's easy to get funding for that.
 
         18   Dog-gone-it.  I wish it was easier to get funding
 
         19   for counseling.  It's easy to get funding for
 
         20   scholarships.
 
         21            But it's part of a program that's being
 
         22   converted to Spanish right now.  We'll have that
 
         23   done in eight weeks.  It's part of the program that
 
         24   will be introduced into the school systems, we
 
 
 
 
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          1   hope, and also in other states as well.  It will be
 
          2   classroom material on credit responsibility and bad
 
          3   choices you make and how it affects what you do in
 
          4   your future.  And it's pretty serious, but it's got
 
          5   a good tone to it.
 
          6            My mother was aghast.  I had to
 
          7   demonstrate this at the Freddie Mac both last fall,
 
          8   and my mother was with me, and she was going
 
          9   through it.  I was practicing.  I was just as
 
         10   nervous then as I am now.  And, at one point, she
 
         11   was just aghast.  She said, oh, my gosh, she was
 
         12   living with this young man and he ran off with her
 
         13   car.  I said, I know, Mom, but it works out okay.
 
         14   Watch this.
 
         15            It's a good -- it's a good piece of work.
 
         16   I'm really proud of it.  I think that people that
 
         17   worked on it did a marvelous job.  I think it's
 
         18   going to get better.  When we are done with this
 
         19   one, we're going to do a fair housing one.
 
         20            You know, you look back on your life and
 
         21   you say, what did you do that really made a
 
         22   difference?  I think this thing is great.  I think
 
         23   it's great.
 
         24            So pick up a card out there.  Give it to a
 
 
 
 
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          1   high school senior.  Tell him to dial in and learn
 
          2   something.
 
          3       MR. VOSS:  Great idea.  I'll just take it back
 
          4   one, even to a lower -- we've opened up banks in
 
          5   grade schools and in high schools here in Chicago.
 
          6   And these are just not banks that are run by us.
 
          7   They're run by the kids.  They elect their own
 
          8   board of directors, their own president.  They hire
 
          9   their own tellers.  The only thing we do is train
 
         10   and mentor and audit.
 
         11            That's one way that you can get the kids
 
         12   -- I mean, the one grade school we're in, their
 
         13   board of directors voted to open it up all the way
 
         14   down to the third grade this year.  So you're
 
         15   getting kids whose parents probably have never been
 
         16   in a bank or wouldn't use a bank.  At least they're
 
         17   going home and talking about it.
 
         18            Let me give you an example.  I had a
 
         19   16-year old girl come in the other day and wanted
 
         20   to know if I would lend her $1600.  She works at
 
         21   our high school bank.  And I said, I don't think
 
         22   so.  You have to get somebody to cosign for you.
 
         23   And I said, what do you want the money for?  She
 
         24   said, well, my dad has been studying to be an
 
 
 
 
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          1   electrician for two years or whatever, and he has
 
          2   to get his license, and to join the union, it's
 
          3   $600.  I said, why don't you go get your dad and
 
          4   bring him back over here?
 
          5            We were able to give him -- the dad was
 
          6   going to go to one of these Payday Loan Stores to
 
          7   get the $600; but because she worked in our school
 
          8   bank here in Chicago, she said, gee, dad, why don't
 
          9   you go talk to this guy in the bank, and even
 
         10   though he had never been in a bank, I'm sure, he
 
         11   did; and instead of paying, I don't know,
 
         12   200 percent for the loan, he paid 12 percent for
 
         13   the loan.
 
         14            So those kinds of things really work when
 
         15   you get out there and get in there, even at the
 
         16   grade school levels, certainly at the high school
 
         17   level.
 
         18       MS. BRAUNSTEIN:  Gale?
 
         19       MS. CINCOTTA:  I think of getting information
 
         20   out, warnings, people who need to get paid and
 
         21   don't want anybody to go into foreclosure.
 
         22   Ameritech, People's Gas, Bell Telephone, all these
 
         23   places that send you bills, real estate, county
 
         24   assessor, any of those places that depend on you
 
 
 
 
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          1   owning your home and being solvent, you get
 
          2   mailings all the time.  Mailings from banks,
 
          3   whatever.  Credit companies.  There are envelopes.
 
          4   All you need is maybe another piece of paper.
 
          5            Eventually, you know, if you get enough of
 
          6   those, you might start to warn them.  Some of the
 
          7   papers that you get from there have hardly anything
 
          8   on them.  You can turn them over and put the
 
          9   warning on them.
 
         10            But I think there's constant things that
 
         11   touch people that you forget you can stick another
 
         12   piece of paper in it and get it.  Eventually it
 
         13   gets to folks.
 
         14       MODERATOR SMITH:  Is there anything else you
 
         15   would like to add before we --
 
         16       MR. KAYAM:   Let me just jump in real quick.
 
         17   My name is Jason Kayam.  I'm with the TIC here with
 
         18   Gale.
 
         19            David, in his -- and I'm going to put you
 
         20   on the spot here, Dave -- in his testimony offered
 
         21   some profiles of people that they have been able to
 
         22   refinance.  And I, for one, would be kind of
 
         23   interested.  I don't know if we have time in this
 
         24   forum to hear that because it's surprising that
 
 
 
 
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          1   there aren't more banks stepping up to the plate
 
          2   and beyond the NHS pool; but here, I think there
 
          3   are sorts of profiles or stories of folks.  Do you
 
          4   have time for that?
 
          5       MR. VOSS:  Well, we had a customer who is now
 
          6   our mortgage customer who had come in and paid
 
          7   12 percent for a mortgage in our neighborhood.  His
 
          8   credit score was north of 700 which is very good.
 
          9   He paid 3 points to close and $2000 in
 
         10   miscellaneous processing fees.
 
         11            We refinanced that loan for 8 percent,
 
         12   charged $200 for processing and no points, and
 
         13   we're saving that family $300 a month in their
 
         14   payments.  That $300 a month is getting spent back
 
         15   in our community and recycled many times creating
 
         16   community wealth.
 
         17            We've got a whole -- many more instances
 
         18   of that.  Jack knows some of these because he came
 
         19   out to our bank and took a look at some of the
 
         20   files one day.
 
         21            Especially in the consumer loan area where
 
         22   these people are paying just on consumer debt for
 
         23   furniture or for appliances 48, 50 percent.  We've
 
         24   been able to refinance at bank rates for 12 to
 
 
 
 
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          1   15 percent.  These are people with good credit
 
          2   rating, and we can show you these files.
 
          3            That money, again, is saving them maybe
 
          4   $300 a year on a small $2000 consumer loan, maybe
 
          5   900 or a thousand dollars over three years.  That
 
          6   money stays in the community.  It gets spent in the
 
          7   community, and it gets recycled.  That's what
 
          8   creates household wealth.  That's what creates
 
          9   community wealth.
 
         10            That's something -- the key to that is to
 
         11   get to the people before the predators get to them
 
         12   because you can't get the points back.
 
         13            And the other thing -- and that's through
 
         14   education and all of the things that we talked so
 
         15   much about here today.  But the people that we've
 
         16   been able to do that for are also telling the
 
         17   people down the street and across the street and
 
         18   their other friends and relatives.  That's how
 
         19   we're starting to build our business is by word of
 
         20   mouth because we were able to help some people save
 
         21   money every month.  It's just as simple as that.
 
         22   How much more money do they have every month to
 
         23   spend or save or do whatever they want with.  And
 
         24   they tell their friends and they tell their
 
 
 
 
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          1   neighbors and they tell their relatives and they
 
          2   come in.
 
          3       MS. WILLIAMS:  I have just one more question.
 
          4   We were asking a little bit about things that we,
 
          5   the fed, could do in relation to education.  And I
 
          6   heard a little bit about the credit scoring and
 
          7   some of the best practices.  But is there anything
 
          8   that you can offer up that we can do in a very
 
          9   short-term to make some real impact in regards to
 
         10   education?
 
         11       MR. VOSS:  I think you could do an awful lot
 
         12   because you have the resources to take on the very
 
         13   sophisticated marketing techniques and repetition
 
         14   of the predatory type organizations.
 
         15            But, more than that, I think you could
 
         16   start getting into, for instance, sponsoring some
 
         17   of these school banks that are being set up or by
 
         18   creating some incentives for other financial
 
         19   institutions to start opening branches or community
 
         20   banks in these neighborhoods.
 
         21            They will do this because you could make
 
         22   money in these communities charging fair rates, if
 
         23   you can get the people to come in and use your
 
         24   organization that they traditionally don't use.
 
 
 
 
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          1            So there's a lot that I think the fed can
 
          2   do.  But especially I would start with
 
          3   co-sponsoring some of these school banks and
 
          4   developing some programs to incent community banks
 
          5   to either start up or to open offices in these
 
          6   communities where there are no banks other than
 
          7   currency exchanges and Payday Loan Stores.
 
          8            And, certainly, if you can with your
 
          9   resources do media advertising that's as
 
         10   sophisticated and as repetitious as what the
 
         11   predatory organizations do, that will help.
 
         12            I think Jack's idea of having some kind of
 
         13   a financial 911 or Gale's idea of a warning, you
 
         14   know, enough times so people will -- you know, it's
 
         15   like if you feel faint when you are walking down
 
         16   the street.  Maybe some time you will think if you
 
         17   see it often enough times on the TV that you can go
 
         18   to the doctor, somebody to talk to and get that
 
         19   treated, you will.  If that's what it takes.
 
         20            That's where I think the fed can have a
 
         21   good role and positive impact not only for our
 
         22   communities but for the citizens that live there
 
         23   and for the Federal Reserve System which is totally
 
         24   misunderstood by the people of our community.  They
 
 
 
 
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          1   don't have a clue what the Federal Reserve System
 
          2   does.
 
          3       MODERATOR SMITH:  One of the things that I
 
          4   would like for you to maybe think about is I think
 
          5   that there are a lot of -- people look at the fed
 
          6   and they think a lot of resources; but, in the end,
 
          7   I wonder the extent to which you might be able to
 
          8   achieve some of the same benefits by reaching out
 
          9   to your colleagues in the banking industry.
 
         10            There seems to be considerable interest on
 
         11   the part of major financial institutions in doing
 
         12   something to counteract predatory lending abuses
 
         13   without regulation.  So it seems that the time
 
         14   might be quite right for making suggestions to what
 
         15   the industry can do in supporting some of these
 
         16   efforts.
 
         17       MR. VOSS:  The major institutions would be
 
         18   happy to put 2 or 3 or $4 million into the branch
 
         19   of a community-based bank that would like to serve
 
         20   and open in these communities.
 
         21            The Federal Reserve -- but they won't do
 
         22   it because they have this $100,000 insurance of
 
         23   accounts limitation and they are obviously,
 
         24   regulatory wise and from a pure business
 
 
 
 
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          1   standpoint, concerned about going over it.
 
          2            So if there would be some way to get a
 
          3   letter of credit, it wouldn't cost the fed a dime,
 
          4   or some kind of other guaranty that would ensure
 
          5   those deposits.  That would be one way without
 
          6   spending a lot of resources you could get other
 
          7   banks to make deposits and make it possible for
 
          8   branches to be open in those communities.  It
 
          9   wouldn't cost you.
 
         10            Or you could also be an consolidator
 
         11   putting together a hundred thousand dollar amount
 
         12   from major different organizations so that one
 
         13   could be opened in these communities, and it would
 
         14   have that four- or five-year period to develop its
 
         15   own book of business as it's providing these life
 
         16   line banking services to the community.
 
         17            We've got an office.  We've set up a model
 
         18   office to do that.  I could tell you exactly what
 
         19   it costs us to run it every year.  We've been at it
 
         20   two years.
 
         21       MODERATOR SMITH:  It may be that we can -- that
 
         22   you can help in setting this up as one of the best
 
         23   practices that a bank could undertake, and we can
 
         24   go on from there.
 
 
 
 
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          1            Well, I want to thank you very much for
 
          2   being here this afternoon and sharing your views,
 
          3   and we will take what you have said and take it
 
          4   where we can from here.  But we really thank you.
 
          5            Now we were scheduled to take a break and
 
          6   then go into the open mic session.  What we would
 
          7   like to do is go directly to the open mic session
 
          8   if people don't mind.  I understand we need a
 
          9   separate mic.  We can start with one of the mics
 
         10   until we get the separate mic.
 
         11            So we will move along.  Thank you very
 
         12   much.  By all means, if you have written statements
 
         13   now or if you can give us written statements in the
 
         14   very near term, we would very much like to receive
 
         15   them.
 
         16            The order which people signed up,
 
         17   Mark Lavery -- and forgive me if I am
 
         18   mispronouncing your names, but you will be able to
 
         19   say them correctly when you introduce yourselves.
 
         20            Samuel Penczyk.  Mark Reynolds.
 
         21   Daisy Thompson.  Onetta Cole.  Eddie Clark.  Laura
 
         22   Stevenson.  Lawrence Luther.  Dan Edelman.  And
 
         23   John Lukehart.  So we'll start with Mr. Lavery.
 
         24   And here we have our mic.
 
 
 
 
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          1            We are going to ask the time keeper to
 
          2   move over here so that you will be able to see when
 
          3   you have one minute remaining, when your time is
 
          4   expired.
 
          5       MR. LAVERY:  Good afternoon, ladies and
 
          6   gentlemen.  My name is Mark Lavery.  I'm a lawyer.
 
          7   I represent consumers, and I have come here today
 
          8   to ask members of the Federal Reserve Board when
 
          9   they sit down and make the rules that will be a
 
         10   very important way to protect consumers in America,
 
         11   that you remember that the rules are being made for
 
         12   the borrowers, for their protection.
 
         13            HOEPA was not passed as a way for the
 
         14   credit industry to continue to avoid regulation.
 
         15   They were given a very generous grant of
 
         16   deregulation in 1980 when basically the usury laws
 
         17   in this nation were destroyed.
 
         18            So HOEPA is what we have today to protect
 
         19   them.  And it's a modest means of protection.
 
         20            However, one way you can put some real
 
         21   force into the law is by banning and prohibiting
 
         22   deceptive and unfair practices.  That's the rule
 
         23   that you can make, just like it is here in Illinois
 
         24   under the Consumer Fraud Act, that if a lender
 
 
 
 
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          1   commits an unfair, deceptive practice, and they are
 
          2   found liable for that, the remedies of HOEPA would
 
          3   apply.
 
          4            And what that does in the strongest and
 
          5   most real way is it gives people who are honest
 
          6   victims of crime in the context of the home repair
 
          7   fraud phenomenon which is taking over the country
 
          8   in many areas a way to protect themselves in
 
          9   foreclosure court.
 
         10            We represent clients who are often victims
 
         11   of home repair fraud; and the secondary lenders who
 
         12   buy the paper are basically the market makers of
 
         13   this destructive force.
 
         14            You're going to hear later from
 
         15   Eddie Clark and some members of his family.  He was
 
         16   solicited by a loan originator whose family member
 
         17   was the home repair fraud artist.  And it's not too
 
         18   unlikely.  They work hand in hand.  And what they
 
         19   do is they promise you services that they're never
 
         20   going to deliver on.  They get a loan secured by
 
         21   your home.  They really never often give you any
 
         22   kind of real services.  And then they sell the
 
         23   loan.  You can't pay it because it's too high to
 
         24   begin with and you didn't get the services, and
 
 
 
 
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          1   they take your house.
 
          2            You got another client, Mary Clifton, who
 
          3   couldn't make it today, and she's also threatened
 
          4   to lose her house right now.
 
          5            If you give us the plaintiff's attorney --
 
          6   who aren't the enemy here.  Don't let the defense
 
          7   industry tell you that we're the enemy here, that
 
          8   we're just out there to make a profit.  We're just
 
          9   there to help our clients try to save their homes
 
         10   and let them live.
 
         11            So please consider that when you make
 
         12   these rules.  Thank you very much.
 
         13       MODERATOR SMITH:  Thank you.  Samuel Penczyk?
 
         14            Mark Reynolds?
 
         15       MR. REYNOLDS:  Good evening.  I am
 
         16   Mark Reynolds with Chicago Loan Shark Task Force
 
         17   and the Illinois Coalition.  I got involved in the
 
         18   predatory loans because there were neighbors coming
 
         19   to my location with predatory loans, one of which
 
         20   is now in foreclosure.
 
         21            The Chicago Loan Task Force and the
 
         22   Illinois Coalition, we came to the point that we
 
         23   wanted to bring attention to these kind of things
 
         24   across the state.  Not only across the state, but
 
 
 
 
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          1   across the nation.  We were working with Chicago,
 
          2   the ordinance of -- the Chicago ordinance
 
          3   predatory.  We were also working with legislation,
 
          4   state legislation.  And may I say we've worked with
 
          5   state regulations which some of us felt that they
 
          6   were weak.
 
          7            We want to stop these predatory loans
 
          8   because they're deteriorating our community.  These
 
          9   kinds of loans are certainly increasing
 
         10   foreclosures around this nation.  They started out
 
         11   with a certain small amount of foreclosures.  Now
 
         12   they're up in the thousands, and all of these homes
 
         13   are closed down.
 
         14            We want HOEPA to stop prepayment
 
         15   penalties.  You were asking about what can be
 
         16   done?   These banks that are going on, doing these
 
         17   loans, a letter could be submitted to these banks
 
         18   asking them to make recommendations to stop these
 
         19   kind of practices even though the regulation has
 
         20   not been earmarked.
 
         21            You can write letters to the community:
 
         22   Stop prepayment penalties, stop flipping.  Stop
 
         23   these balloon notes.  Stop giving loans where
 
         24   people cannot pay because sometimes -- thank you.
 
 
 
 
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          1   The time has expired, but we want you to know --
 
          2       MODERATOR SMITH:  You have one minute.
 
          3       MR. REYNOLDS:  One minute.  Thank you.
 
          4            We want HOEPA to understand that you must
 
          5   pass strong regulations, strong guidelines and set
 
          6   enforcement so that the people who are not
 
          7   following these guidelines are placed in some kind
 
          8   of penalties.
 
          9            Because here's what's going to happen:  If
 
         10   we set forth some weak guidelines, we are only
 
         11   licensing predatory lending to be a legal
 
         12   practice.
 
         13            So I'm going to ask you to take the
 
         14   leadership, not only for this state, but for the
 
         15   nation so that the nation will adhere to what
 
         16   you've done.  Thank you kindly.
 
         17       MODERATOR SMITH:  Thank you very much.
 
         18   Ms. Thompson?
 
         19       MS. THOMPSON:  My name is Daisy Thompson, and
 
         20   I'm a member of the Chicago Loan Shark Task Force,
 
         21   and I'm here to represent the homeowners of
 
         22   Chicago.
 
         23            I went to refresh my mortgage for $15,000
 
         24   to improve my home.  A friend told me about
 
 
 
 
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          1   Unlimited Financial Services.  Unlimited Financial
 
          2   Services was supposed to make me a loan -- a
 
          3   mortgage of $44,000.  Instead, the mortgage was for
 
          4   $55,000.  The fees was -- they give me fees on my
 
          5   loan for 6000 -- over $6000.
 
          6            I signed the papers, and when -- after I
 
          7   signed the papers, I was told to go out and sit in
 
          8   the lounge.  And while I was sitting out there, the
 
          9   loan officer came out and told me the bank had --
 
         10   the mortgage company had phoned and said I wouldn't
 
         11   get that much money.  Instead, I received $2,300.
 
         12            They sold my mortgage to Aim Capital.  I'm
 
         13   fighting to stay out of foreclosure.
 
         14            I ask that you stop the practice that
 
         15   forces homeowners out of their home.  Make
 
         16   regulations now that stop the practice.  Make loans
 
         17   that people can afford.  Make lenders responsible
 
         18   for their loans.  And also make payments that will
 
         19   only take up half of their monthly payments that
 
         20   they receive of their monthly -- like me, which I
 
         21   only get $488 a month with a payment of 600 some
 
         22   dollars for Aim Capital.  Thank you.
 
         23       MODERATOR SMITH:  Thank you very much.
 
         24   Onetta Cole?
 
 
 
 
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          1       MS. COLE:  Good afternoon.  My name is
 
          2   Onetta Cole, and I'm a relative of Eddie Clark.
 
          3   And basically what I want to say is just quick and
 
          4   to the point.
 
          5            Eddie's situation was that he had received
 
          6   a solicitation by phone.  We can help you with home
 
          7   improvement.  Nothing wrong.  Okay.  Fine.  We'll
 
          8   redo the porch.  Redoing the porch, $3000.  Loan
 
          9   balance on the home, 60,000.  Mortgage was
 
         10   refinanced for 89.  He got 3 in hand, 3 for the
 
         11   porch; and, again, the construction worker was a
 
         12   relative of the mortgage person.  So the porch
 
         13   never was done.  Began, but not finished.
 
         14            At the time, didn't know, but the mortgage
 
         15   note had a three-tier prepayment penalty in it for
 
         16   the first ten years of the loan with a 15-year
 
         17   balloon payment of 89,000 plus.
 
         18            So we do need assistance.  It's just
 
         19   curious to me that with the HMDA recording
 
         20   practices that we do have in place, why isn't it
 
         21   being looked at to see why are the developers or
 
         22   why are these people just centralizing on these
 
         23   type of people who are elderly, retired in certain
 
         24   areas?  Because once the homes are foreclosed upon,
 
 
 
 
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          1   who ends up owning the property?   And then what
 
          2   happens when those properties are foreclosed on?
 
          3   The property is put into a certain condition that
 
          4   is unliveable, torn down.  The lots are then
 
          5   there.  Developers are on the lots.
 
          6            You see what I'm saying?  It could be
 
          7   looked at as a conspiracy type of situation or just
 
          8   totally desolation of the neighborhood.  So we do
 
          9   some need regulation on that.
 
         10            And then absolutely I am looking at the
 
         11   credit scoring.  I personally work in the banking
 
         12   industry, and there is a very big mystery with
 
         13   credit scoring.  That needs to be regulated across
 
         14   the board just so the consumer has basic knowledge
 
         15   of where they stand when they do try to get a
 
         16   loan.  Thank you.
 
         17       MODERATOR SMITH:  Thank you very much.
 
         18   Eddie Clark?
 
         19       MR. CLARK:  Good evening, ma'am.  I come by my
 
         20   own.  They charged me $7,000.  Tore my porch down.
 
         21   Left it like it was for two months.  We didn't have
 
         22   no porch to get out in the front.  We had to go out
 
         23   the back way.
 
         24            So we called them.  She said, nothing to
 
 
 
 
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          1   do about it.  You have to wait until your time
 
          2   come.
 
          3            So they came and harass my wife, harass my
 
          4   wife.  She got sick.  She called Onetta, told
 
          5   Onetta, I'm tired of people harassing me.  I said,
 
          6   can you do something about this?  She said, wait a
 
          7   minute.  She said, I will do something about it.
 
          8            So she comes out there, and they called
 
          9   the same night and harassed.  Onetta said, who are
 
         10   you?  She said, never mind who I am.  I said, I am
 
         11   tired you harassing people because they owe.  My
 
         12   wife got sick behind there.  She had to go to the
 
         13   hospital, and she had a slight heart attack.  And
 
         14   that was it.  Thank you.
 
         15       MODERATOR SMITH:  Thank you, Mr. Clark.
 
         16   Laura Stevenson?
 
         17       MS. STEVENSON:  Good afternoon, everybody.  My
 
         18   name is Laura Stevenson.  I live at 5819 South
 
         19   Fairfield.  We had a pretty little home.  And not
 
         20   only they appraise the loan, the lady that sell us
 
         21   the house, get the loan for us, we bought the house
 
         22   from, they don't want to fix the house.
 
         23            My ceiling is coming in.  The foundation
 
         24   is falling in, in the basement, and they said
 
 
 
 
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          1   they're not going to fix my house.
 
          2            I just move in there in November the 19th,
 
          3   and we had a lot of problems.  We had squirrels
 
          4   come in the house.  I have a five-year old child.
 
          5   She can't sleep in her bed.  Water come on her.
 
          6            We need your help.  And it's a good credit
 
          7   loan from EquiCredit.  I talked to EquiCredit.
 
          8   They said, nothing they can do.  We talked to the
 
          9   lady lawyer.  He said, that's the way we get the
 
         10   house and that's the way we take it.
 
         11            I just give some pictures -- I mean, some
 
         12   tapes to the young man up there and the document.
 
         13   The house is a $60,000 house.  The house don't even
 
         14   worth $25,000.  I had CWSC come in and they see the
 
         15   house.  They said it don't worth it.  We had
 
         16   contractor come in there and see the house.  They
 
         17   said, it going to cost $85,000 to fix the house.
 
         18   The house have to tore all the way down.
 
         19            We got a violation already from the city.
 
         20   They're supposed to come out next month again.
 
         21   They said, if they come out, they're going to tore
 
         22   the house down.  If they tore the house down, we
 
         23   still got to pay the loan.
 
         24            So we need your help.  Thank you.
 
 
 
 
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          1       MODERATOR SMITH:  Thank you.
 
          2   Lawrence Luther?
 
          3       MR. LUTHER:  My name is Lawrence Luther.  I do
 
          4   electrical contracting in log homes.
 
          5            I got some pictures and some verifications
 
          6   on things that took place that I would like to show
 
          7   you.
 
          8            This is pictures on advertising.  I had a
 
          9   log home that was -- it was to be supposedly
 
         10   financed by MidCity Mortgage out of Green Bay; and,
 
         11   when they came out, I was -- it was a second that
 
         12   went for resale for -- for a home, and it was a log
 
         13   home.  It's an old-time log home out of Tennessee,
 
         14   Nashville, and they're a HUD-rated log home.
 
         15            What happened is that I started out in
 
         16   February of doing it as a spec and had contractors
 
         17   that worked with me without charging nothing until
 
         18   it sells.  But when I got so far along, Adam that
 
         19   worked at MidCity Mortgage, he worked at TitleTone
 
         20   in Green Bay, when he switched me, he said, hey, we
 
         21   got some loans that you can work with that's no doc
 
         22   because I couldn't show a profit in my electrical
 
         23   contracting business because of union targeting.
 
         24            So I says, okay.  When I come along, he
 
 
 
 
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          1   said, you need about 85 percent done, according to
 
          2   what his boss said.  And his boss's name was B. J.,
 
          3   and she was a lady.
 
          4            Well, when I got about 80 percent done,
 
          5   she comes along and she comes out to the site, and
 
          6   she says, for us to require you to have -- for me
 
          7   to move in, that the septic system is in and the
 
          8   well is working, and by May 19th I would have
 
          9   financing.
 
         10            Well, I get it done, get it all there.
 
         11   And I took out an extra $5,000 on my insurance
 
         12   policy because the cash value was worth that much
 
         13   to be it because that was $65,000 coming in.  I
 
         14   walk in there.  Where is Adam?  No Adam is in
 
         15   there.  Well, he's out there.  They get him on the
 
         16   phone.  How come you're not here?  He says, well, I
 
         17   hate to tell you this, but the loan fell through.
 
         18   How come?  Because it's a log home.
 
         19            And here it was nothing else but -- they
 
         20   put all the advertising that they're going to
 
         21   finance it.  And then I had an open house two weeks
 
         22   later on Memorial Day, and I had another guy put in
 
         23   an application in for it.  We had 15 people on that
 
         24   open house I did.  They collected.
 
 
 
 
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          1            And you said about putting out phone
 
          2   numbers like for lenders and that, that's what they
 
          3   do.  They have it out there that they're lending,
 
          4   but where is the fair market for log homes on the
 
          5   lending part?   Is there any -- why is there
 
          6   restrictions on log homes?  This company was a
 
          7   HUD-approved home, why did they deny the loan?
 
          8            And also, here, I will give you that
 
          9   picture -- and here is the Midwest City Mortgage.
 
         10   It gives you the size of the home, everything
 
         11   that's involved in it.  And also I will give you a
 
         12   little helpful information why I cannot make a
 
         13   profit in the housing market.  Here I will show you
 
         14   the housing stats in the Green Bay/Brown County
 
         15   area.  It's a big drop.
 
         16            I will read to you what's -- this is what
 
         17   the union activity is doing out in the Green Bay
 
         18   area and the Appleton area.  They take 2 percent
 
         19   off the guy's wages and private independent
 
         20   contractors.  I was offered a contract in 1994, and
 
         21   I rejected it because it took 2 percent off the
 
         22   guy's wages to put out independent contractors.
 
         23            It reads, and this is how they do it.  It
 
         24   says, when a project is selected for the target
 
 
 
 
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          1   program, an estimate will be made of the number of
 
          2   hours of electrical work to be performed on the
 
          3   job.
 
          4            Based on this estimate, calculation will
 
          5   be made of a total amount of money which will be
 
          6   designated by the target program.  For the
 
          7   particular project, the union will then make an
 
          8   announcement that with respect to this project it
 
          9   will make cash payment from the target program's
 
         10   fund in the amount calculated to any contractor who
 
         11   is awarded the work for the project and who has
 
         12   either signed a contract with the union.
 
         13            The cash payment will be made on the
 
         14   perspective of whether they are party to a contract
 
         15   with Local 577 at the same time they submit their
 
         16   agreement with Local 577 or payments, the
 
         17   determination to which projects are going to be
 
         18   included in the target program; and the amount of
 
         19   money to be granted for specific projects will be
 
         20   surely developed by the employee.
 
         21            You can read that over yourself.
 
         22       MODERATOR SMITH:  Thank you very much.
 
         23       MR. LUTHER:  The thing is what I'm saying about
 
         24   this 2 percent is that it's in the residential
 
 
 
 
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          1   contracting area.  Here it is.  10 percent
 
          2   difference.
 
          3            Instead of targeting an independent
 
          4   contractor, we can put it towards housing.  In
 
          5   Green Bay, they got the packet referendum.  They're
 
          6   voting on 2 percent of $295 million.  That's
 
          7   $5 million to put out contractors.  Why couldn't
 
          8   they put it into low cost housing?  Take a look at
 
          9   that.
 
         10       MODERATOR SMITH:  Thank you very much.
 
         11            Mr. Edelman?
 
         12       MR. EDELMAN:  Good afternoon.  My name is
 
         13   Dan Edelman.  I am an attorney.  I bring a lot of
 
         14   Truth in Lending and related lawsuits on behalf of
 
         15   borrowers.
 
         16            I would like to bring to your attention a
 
         17   number of technical issues which are necessary, I
 
         18   think, to accomplish some of the reforms you want
 
         19   to accomplish.  I wasn't planning on speaking, but
 
         20   some of the discussion -- I made some notes while
 
         21   people were discussing various points.
 
         22            First, credit insurance.  Under current
 
         23   law, there is no requirement that the creditor
 
         24   forbear while a claim is made under a credit
 
 
 
 
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          1   disability or life policy.
 
          2            I have seen multiple instances in which
 
          3   the creditor will immediately declare a default,
 
          4   accelerate the loan knowing full well that the
 
          5   borrower is dead or disabled and probably has a
 
          6   legitimate insurance claim, cancel the credit
 
          7   insurance, because they have a security interest in
 
          8   it, apply the premiums to the loan balance, the net
 
          9   effect of which the credit insurance is utterly
 
         10   worthless.
 
         11            There is no requirement under current law
 
         12   that the credit insurance actually protect the
 
         13   borrower against anything.
 
         14            I've taken this issue to the state
 
         15   Appellate Court.  They refused to imply such a
 
         16   duty.  I think the Federal Reserve Board ought to
 
         17   at least as a condition of excluding the credit
 
         18   insurance premiums from the finance charge.
 
         19            Credit insurance industry suggested it
 
         20   might be a good idea to send a letter out
 
         21   describing the coverage and give you 30 days to
 
         22   cancel.  Does that do you any good?   Only if the
 
         23   check upon cancellation has to go to the borrower.
 
         24   Most loan documents are written so that it goes to
 
 
 
 
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          1   the creditor and is applied to the loan balance.
 
          2   In effect, they got the money one way or the
 
          3   other.
 
          4            The duty of the broker to give -- the duty
 
          5   is to give the best terms for which somebody
 
          6   qualifies.  Current compensation systems for loan
 
          7   brokers tend to do the exact opposite.  If the
 
          8   broker can be compensated, can receive additional
 
          9   compensation in the nature of a yield spread
 
         10   premium directly tied to an increase in interest
 
         11   rate, the incentive is to get the highest rate that
 
         12   the borrower can be sold upon, not the lowest
 
         13   rate.
 
         14            Something needs to be done to change that
 
         15   compensation scheme even if you want a no-point
 
         16   loan and the broker's compensation is funded out of
 
         17   the payments.  It should not be tied directly to
 
         18   increased interest rates.
 
         19            Loan advertising.  A certain very large
 
         20   subprime lender advertises on a web site that it
 
         21   will not -- the law requires us to get income
 
         22   information from you, but we won't verify it.  I
 
         23   don't know what legitimate purpose is served by
 
         24   this.  It appears to be an invitation to submit
 
 
 
 
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          1   inflated and bogus applications so you can get a
 
          2   loan.
 
          3            Home improvement.  Let me just finish the
 
          4   one thought.  Home improvement financing.
 
          5   Section 32 loans require either the borrower's
 
          6   signature on a check or a completion certificate.
 
          7   That requirement, at a minimum, should be extended
 
          8   to any loan known to be used for home improvement
 
          9   purposes.
 
         10            In addition, it is all too easy to get a
 
         11   borrower's signature on a completion certificate or
 
         12   a check when in fact the work is not completed.  I
 
         13   had a case where somebody put a second story on.
 
         14   The structural members were half the size required
 
         15   by code.  Nobody paid any attention to this until
 
         16   the poor woman tried to sell the property and, of
 
         17   course, it wasn't salable.
 
         18            In home improvement financing, there
 
         19   should be some requirement of certification of
 
         20   compliance with local building requirements, any
 
         21   required inspections by local authorities; and if
 
         22   it's a significantly sized transaction, independent
 
         23   inspection before the lender can disburse the
 
         24   funds.  I thank you for your time.
 
 
 
 
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          1       MODERATOR SMITH:  Thank you very much.  I
 
          2   understand that Mr. Lukehart is not here.  Is there
 
          3   anyone else -- oh, you are here.  No?   Yes?
 
          4            But if there's anyone else that would like
 
          5   to make a presentation -- are you --
 
          6       MR. CULVER:  Yes.
 
          7       MODERATOR SMITH:  Please.
 
          8       MR. CULVER:  Good afternoon.  Something today
 
          9   occurred --
 
         10       MODERATOR SMITH:  Would you state your name?
 
         11       MR. CULVER:  I'm sorry.  Todd Culver, for the
 
         12   record.
 
         13            County Mortgage, in which they pretty much
 
         14   did a refinancing of my Godparent's house.  Now one
 
         15   question that I came up with is if they are on a
 
         16   fixed income, the debt to ratio shouldn't be too
 
         17   high to even qualify for this loan.  And if you are
 
         18   on a fixed income getting $500 a month, how is it
 
         19   possible that you can afford a thousand dollar
 
         20   mortgage?   And I think there should be some
 
         21   regulations on that.
 
         22            And, second of all, you prey on
 
         23   illiteracy, there should be some regulations on
 
         24   that.  I'm not saying you could determine whether
 
 
 
 
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          1   or not an individual can actually read or write or
 
          2   understand; but you are looking at a person that --
 
          3   I'm not discriminating -- are ages 65 and 70, they
 
          4   don't know the legal terminology.
 
          5            Me, I'm in the collection field.  I'm a
 
          6   collection manager.  So the FDCPA regulates us.  We
 
          7   got to abide by the rules.  So I think they should
 
          8   have to do the same.  No way you can afford a
 
          9   mortgage at $500 a month when what you are getting
 
         10   in and your outtake is over $1500.  It's not
 
         11   possible.  And, again, I don't even know how the
 
         12   loan officer can even approve a loan in that
 
         13   standard.  Yet it's still being done, and these
 
         14   poor innocent people are losing their homes.  Thank
 
         15   you.
 
         16       MODERATOR SMITH:  Thank you.  Is there anyone
 
         17   else who would like to have a turn at the mic
 
         18   whether or not you have signed up since you have
 
         19   not signed up?
 
         20            If not, then I thank everyone who
 
         21   participated.  I also thank those of you in the
 
         22   audience who have come to this because of your
 
         23   interest.  And so I thank you again, and we will
 
         24   just take it from here.
 
 
 
 
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          1            Our next hearing, as I mentioned, is in
 
          2   San Francisco and then I'll close by encouraging
 
          3   you, if you have comments that you would like to
 
          4   submit for the record, if you would get them to us
 
          5   by -- what date did we way say? -- by September the
 
          6   1st.  And you can get -- the address is in the
 
          7   notice that was published.  It also can be made
 
          8   available at the registration desk if you would
 
          9   like to have it.  So with that, we are adjourned,
 
         10   and I thank you again.
 
         11                      (Whereupon, the Public Hearing
 
         12                      of the Federal Reserve Board
 
         13                      adjourned at 3:41 o'clock p.m.)
 
         14
 
         15
 
         16
 
         17
 
         18
 
         19
 
         20
 
         21
 
         22
 
         23
 
         24
 
 
 
 
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          1   STATE OF ILLINOIS  )
 
          2                      )   SS:
 
          3   COUNTY OF C O O K  )
 
          4
 
          5            ANNA M. MORALES, being first duly sworn,
 
          6   on oath says that she is a court reporter doing
 
          7   business in the City of Chicago; and that she
 
          8   reported in shorthand the proceedings of said
 
          9   public hearing, and that the foregoing is a true
 
         10   and correct transcript of her shorthand notes so
 
         11   taken as aforesaid, and contains the proceedings
 
         12   given at said public hearing.
 
         13
 
         14                 ______________________________
 
         15                 Certified Shorthand Reporter
 
         16
 
         17   SUBSCRIBED AND SWORN TO
 
         18   before me this______day
 
         19   of________________2000.
 
         20
 
         21
 
         22   _______________________
 
         23       Notary Public
 
         24



August 16 hearing on home equity lending | Morning session | Complete transcript

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