Building Sustainable Homeownership:
Responsible Lending and Informed Consumer Choice
Federal Reserve Bank of Chicago
230 South LaSalle Street, Chicago, Illinois 60604
June 7, 2006
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Pages 1-25 | 26-50 | 51-75 | 76-100 | 101-125 | 126-150 | 151-175 | 176-200 | 201-225 | 226-250 | 251-267
| Transcript | Line | Page |
|---|---|---|
| role. Parties that have a financial interest in | 1 | 176 |
| originating loans dominate the home finance | 2 | 176 |
| process. It is clear, however, that no one wins in | 3 | 176 |
| a foreclosure except those investors who pick up | 4 | 176 |
| foreclosed properties cheaply. Borrowers and | 5 | 176 |
| neighborhoods lose greatly. | 6 | 176 |
| But lenders and investors in those | 7 | 176 |
| roles that hold the note also lose. They lose | 8 | 176 |
| financially and in reputation. The industry's | 9 | 176 |
| willingness to write off a certain number of valid | 10 | 176 |
| homeowners to originate more loans faster is | 11 | 176 |
| shortsighted and makes keeping people in their | 12 | 176 |
| homes secondary. | 13 | 176 |
| Today too often the focus is not on | 14 | 176 |
| finding an appropriate property, an affordable | 15 | 176 |
| property, but on constructing a deal that reduces | 16 | 176 |
| payments to what seems like affordable levels. The | 17 | 176 |
| borrower gets a surprise when the payments adjust | 18 | 176 |
| or the tax bills rise. | 19 | 176 |
| In Chicago after two consecutive | 20 | 176 |
| years, the reduction in foreclosures started. A | 21 | 176 |
| preliminary analysis of the 2005 data shows some | 22 | 176 |
| disturbing results. New foreclosures, for | 23 | 176 |
| instance, have rose 1 percent in 2005. The number | 24 | 176 |
| of foreclosures on newly-originated, low-cost | 1 | 177 |
| conventional loans has increased dramatically, | 2 | 177 |
| almost doubling from the 2004 number. While new, | 3 | 177 |
| high-cost loans have nearly disappeared from the | 4 | 177 |
| data. | 5 | 177 |
| The number of ARM and balloon | 6 | 177 |
| characteristics on these loans have nearly tripled | 7 | 177 |
| since the 2004 levels. These results raise | 8 | 177 |
| concerns about the changing face of predatory | 9 | 177 |
| lending. | 10 | 177 |
| A definition of predatory or abusive | 11 | 177 |
| lending which is geared only to interest rates or | 12 | 177 |
| fees charged will miss what is going on in the | 13 | 177 |
| market now. In order to get a small monthly | 14 | 177 |
| payment, brokers may be encouraging borrowers to | 15 | 177 |
| accept ARMs, interest-only payment option loans, | 16 | 177 |
| without the borrower fully understanding the | 17 | 177 |
| implications of terms. | 18 | 177 |
| In conclusion, I would like to | 19 | 177 |
| reiterate these points. Consumer education is only | 20 | 177 |
| as successful as it is comprehensive and ongoing. | 21 | 177 |
| Community groups bring commitment and expertise to | 22 | 177 |
| keep families in their homes. And industry | 23 | 177 |
| accountability and regulation must keep pace and | 24 | 177 |
| prevent the self-interest of the parties to | 1 | 178 |
| override and prevent sound borrower constituents. | 2 | 178 |
| GOVERNOR OLSON: David, thank you. It sounds | 3 | 178 |
| like you were pretty close to wrapping up. | 4 | 178 |
| MR. ROSE: I had one sentence, so I was close. | 5 | 178 |
| GOVERNOR OLSON: Whatever you've got left, | 6 | 178 |
| we'll come back to you. | 7 | 178 |
| Mike Shea. | 8 | 178 |
| MR. SHEA: Good afternoon. On behalf of | 9 | 178 |
| 200,000 family members of our sister organization, | 10 | 178 |
| ACORN, the 150 housing counselors and staff of | 11 | 178 |
| ACORN Housing Corporation, as well as our board of | 12 | 178 |
| directors, we would like to thank you for holding | 13 | 178 |
| these hearings. | 14 | 178 |
| These hearings were last held -- I've | 15 | 178 |
| actually done much more keeping of the trains | 16 | 178 |
| running on time in policy work. And so because of | 17 | 178 |
| that, I think I'm fond of certain individuals such | 18 | 178 |
| as Ben Wallace, the Center for the Detroit | 19 | 178 |
| Pistons. So I would like to start with some | 20 | 178 |
| reflections about Ben. Upon losing the NBA Eastern | 21 | 178 |
| Conference finals to Miami Heat, Ben was asked, | 22 | 178 |
| "Why, did you lose? The Pistons were a | 23 | 178 |
| prohibitive favorite, they should have won." So | 24 | 178 |
| Ben said, "It was not a matter of skill, it was not | 1 | 179 |
| a matter of smarts, it was not coaching. It boiled | 2 | 179 |
| down to a matter of will. We win when we impose | 3 | 179 |
| our will on our opponent and we lost this series | 4 | 179 |
| because the Heat imposed their will on us." | 5 | 179 |
| I think that is where we are at after | 6 | 179 |
| six, seven years of battling predatory lending and | 7 | 179 |
| disparate pricing that is racially based. We know | 8 | 179 |
| what works. It's five, six elements in the | 9 | 179 |
| package. | 10 | 179 |
| You need good laws. You need laws | 11 | 179 |
| like we have in New Mexico, New Jersey, | 12 | 179 |
| Massachusetts. You need very aggressive, tough | 13 | 179 |
| enforcement, such as the enforcement that happens | 14 | 179 |
| now in the state of Illinois with Lisa Madigan with | 15 | 179 |
| her assistants such as Tom James as well as other | 16 | 179 |
| states. You need suitable products. You need | 17 | 179 |
| products that are offered to low and moderate | 18 | 179 |
| income people and racial minorities that fit their | 19 | 179 |
| needs. And you need lenders who are committed to | 20 | 179 |
| offering only those products and not unsuitable | 21 | 179 |
| products. | 22 | 179 |
| You also need effective consumer | 23 | 179 |
| education, combined with one-on-one housing | 24 | 179 |
| counseling. And finally, you need good | 1 | 180 |
| post-purchase loan mitigation, such as the | 2 | 180 |
| Household Foreclosure Avoidance Program. | 3 | 180 |
| I'd like to zero in on what we do, | 4 | 180 |
| which is housing counseling. Our partnership with | 5 | 180 |
| Citibank and Bank of America, which we feel | 6 | 180 |
| delivers very suitable products to low and moderate | 7 | 180 |
| income and minority people and perform well. | 8 | 180 |
| Many of these products would in fact | 9 | 180 |
| be considered subprime products were they out in | 10 | 180 |
| the open market. Starting with Bank of America, | 11 | 180 |
| which is our oldest and most robust partnership, | 12 | 180 |
| through the end of 2005 over 50,000 of our clients | 13 | 180 |
| have taken out mortgages with Bank of America since | 14 | 180 |
| we began in 1991 with the old NCNB. Most of the | 15 | 180 |
| mortgages have been for first time purchasers, but | 16 | 180 |
| in recent years increasing numbers of refi's. | 17 | 180 |
| BMA retains most of our loans in | 18 | 180 |
| their portfolios. As of March 31, just 1.8 percent | 19 | 180 |
| of BMA's ACORN portfolio was delinquent 60 days or | 20 | 180 |
| more, and less than three-tenths of 1 percent were | 21 | 180 |
| in foreclosure. | 22 | 180 |
| What do these loans look like? They | 23 | 180 |
| are CRA bridge loans qualifying for CRA credit. | 24 | 180 |
| Virtually all of those loans come out of urban | 1 | 181 |
| areas, with the majority of the borrowers being | 2 | 181 |
| racial minorities. We estimate 37 percent of the | 3 | 181 |
| borrowers were African-American, 33 percent Latino, | 4 | 181 |
| 25 percent white, the remainder Asian and others. | 5 | 181 |
| Our newest multi-state partnership is | 6 | 181 |
| Citigroup, and that's only about a year and a half | 7 | 181 |
| old. We've generated around a thousand loans, | 8 | 181 |
| several in the pipeline. A sizable portion of | 9 | 181 |
| those loans are I-PIN loans under the innovative | 10 | 181 |
| pilot program, and here is the performance. | 11 | 181 |
| It's too early to judge the | 12 | 181 |
| performance, but here is what we have so far. Just | 13 | 181 |
| about 1.25 percent of the loans are 30 days or more | 14 | 181 |
| delinquent and just under two-tenths of 1 percent | 15 | 181 |
| of the loans are 90 days delinquent. The I-TIN | 16 | 181 |
| portion of the portfolio is performing even better, | 17 | 181 |
| with just three-tenths of 1 percent being | 18 | 181 |
| delinquent. | 19 | 181 |
| Now -- what does the yellow mean? | 20 | 181 |
| TIMEKEEPER: You're under two minutes. | 21 | 181 |
| GOVERNOR OLSON: We will get back to this | 22 | 181 |
| subject. I think that you're on a very interesting | 23 | 181 |
| subject, how you take us. I won't take any more of | 24 | 181 |
| your time, but the differentiation between you can | 1 | 182 |
| take a subprime borrower, bank them into a prime | 2 | 182 |
| performer. We would be very interested in how you | 3 | 182 |
| do that. | 4 | 182 |
| MR. SHEA: Then I won't brag on our | 5 | 182 |
| partnerships until later. | 6 | 182 |
| So when it comes to curbing predatory | 7 | 182 |
| lending on a national scale, we believe the real | 8 | 182 |
| question is does the Federal Reserve and other | 9 | 182 |
| federal banking agents and lenders have the will to | 10 | 182 |
| do so. We hope that coming out of this hearings we | 11 | 182 |
| see a new resolve on behalf of the Fed. If that's | 12 | 182 |
| the case, then we'd ask you to consider three | 13 | 182 |
| proposals. | 14 | 182 |
| First, we think the Fed needs to help | 15 | 182 |
| create a massive housing counseling industry | 16 | 182 |
| throughout the United States. There is only $50 | 17 | 182 |
| million in housing counseling funds available from | 18 | 182 |
| HUD. At most, another 15 million is made available | 19 | 182 |
| through state and local agencies. That is not | 20 | 182 |
| nearly enough. | 21 | 182 |
| Banking agencies should assess a fee | 22 | 182 |
| to all lenders to help create a pool of funds to | 23 | 182 |
| build a truly national nonprofit housing counseling | 24 | 182 |
| industry. | 1 | 183 |
| GOVERNOR OLSON: Give us the two topics so you | 2 | 183 |
| have all three of them in front of us. | 3 | 183 |
| MR. SHEA: The second is to amend HOEPA or bank | 4 | 183 |
| regulations to include a suitability standard. | 5 | 183 |
| GOVERNOR OLSON: Okay. | 6 | 183 |
| MR. SHEA: And a third is to stop worrying | 7 | 183 |
| about preemption and right of private action. | 8 | 183 |
| GOVERNOR OLSON: Bruce. | 9 | 183 |
| MR. GOTTSCHALL: My name is Bruce Gottschall, | 10 | 183 |
| I'm executive director of Neighborhood Housing | 11 | 183 |
| Services of Chicago. | 12 | 183 |
| What I would want to talk about is | 13 | 183 |
| our partnership, actually including a couple of our | 14 | 183 |
| later panelists and about 15 others other lenders | 15 | 183 |
| and servicers, to prevent foreclosure to troubled | 16 | 183 |
| borrowers. | 17 | 183 |
| The homeownership preservation issue | 18 | 183 |
| here in Chicago has been operating for about three | 19 | 183 |
| years, and we have assisted more than a thousand | 20 | 183 |
| troubled borrowers to stem foreclosure and correct | 21 | 183 |
| their situations and not be foreclosed on. So over | 22 | 183 |
| 4,000 borrowers we have assisted in terms of | 23 | 183 |
| individual counseling to work on preventing that. | 24 | 183 |
| We have a 24/7 hot line that people | 1 | 184 |
| can call in conjunction with the City of Chicago | 2 | 184 |
| where we counsel people in that regard, and our | 3 | 184 |
| partner is nationwide through the neighborhood | 4 | 184 |
| network in states like Ohio and other places. So | 5 | 184 |
| we have strong experience in that area. | 6 | 184 |
| I think I would just like to touch on | 7 | 184 |
| a few things. We have done some research and | 8 | 184 |
| surveys with people that we have assisted, and | 9 | 184 |
| there is some interesting comments around the | 10 | 184 |
| marketplace and where we are at today. | 11 | 184 |
| We know that 50 percent of the | 12 | 184 |
| borrowers that are foreclosed on never talk with | 13 | 184 |
| their lender. The lender calls them but they never | 14 | 184 |
| call back. It's a big problem. We found out that | 15 | 184 |
| more than 45 percent of the borrowers who contact | 16 | 184 |
| us but have not contacted the borrower say they | 17 | 184 |
| don't talk with the lender because they don't feel | 18 | 184 |
| they can be helpful. They don't understand that | 19 | 184 |
| the lender has some ways that they can cure the | 20 | 184 |
| faults and assist them. And even some borrowers | 21 | 184 |
| think if they call the lender they will foreclose | 22 | 184 |
| faster. There is a lot of misinformation out there | 23 | 184 |
| about what is going on. | 24 | 184 |
| If you look even further, those who | 1 | 185 |
| do contact the borrowers, 50 percent feel that the | 2 | 185 |
| lender really does not have much that they can do | 3 | 185 |
| for them. So there is a disconnect in terms of | 4 | 185 |
| that. | 5 | 185 |
| We find in our situation that more | 6 | 185 |
| than 70 percent of the borrowers who are troubled | 7 | 185 |
| and are in default and heading for foreclosure are | 8 | 185 |
| due to refinanced loans, so it's the refinance | 9 | 185 |
| marketplace that is really problematic. | 10 | 185 |
| We have also surveyed and looked at | 11 | 185 |
| those borrowers who contact us and work with us and | 12 | 185 |
| they find that the third party advisor, someone | 13 | 185 |
| like NHS, a counselor, is really valuable because | 14 | 185 |
| they can provide additional information. They can | 15 | 185 |
| provide the time to look through some solution. | 16 | 185 |
| They have other resources available for solutions, | 17 | 185 |
| and they don't have to cut through the various -- | 18 | 185 |
| sometimes a lender in collection is hard-nosed and | 19 | 185 |
| beats on the borrower. How then does the borrower | 20 | 185 |
| go back and talk to them about loss mitigation? So | 21 | 185 |
| we as counselors don't have that problem to deal | 22 | 185 |
| with. | 23 | 185 |
| We also found that a third of the | 24 | 185 |
| people that we work with, when they think about | 1 | 186 |
| where they are at and why they are in trouble, a | 2 | 186 |
| third of them thought they never should have been | 3 | 186 |
| approved for a loan now. They regret that they | 4 | 186 |
| didn't shop around for a loan, and many regret they | 5 | 186 |
| actually took out the loan. So the lack of | 6 | 186 |
| education in that situation I think really | 7 | 186 |
| demonstrates that. And 20 percent of those | 8 | 186 |
| borrowers felt that the terms of that loan was some | 9 | 186 |
| of the cause for that delinquency or default. | 10 | 186 |
| Looking at the future and where it's | 11 | 186 |
| at, and you probably talked about this, but what | 12 | 186 |
| you might call the boom in foreclosures upcoming. | 13 | 186 |
| Someone said if 500 billion of subprime ARMs are | 14 | 186 |
| out there and had been originated in the last few | 15 | 186 |
| years, those will be coming due in the next year or | 16 | 186 |
| two. Subprime borrowers to begin with, then, on | 17 | 186 |
| ARMs after that, rising interest rates, it's a | 18 | 186 |
| huge, huge problem going forward. | 19 | 186 |
| We find that there is a concentration | 20 | 186 |
| of that foreclosure and hot spots in certain | 21 | 186 |
| neighborhoods, certain cities. And that although | 22 | 186 |
| broadly speaking there is foreclosure across the | 23 | 186 |
| board, certain hot spots in Chicago and other | 24 | 186 |
| places clearly are there. So a concentration of | 1 | 187 |
| work in the targeted neighborhoods is important. | 2 | 187 |
| Looking at stemming the foreclosure | 3 | 187 |
| problem and things that need to be done. We are | 4 | 187 |
| looking at situations where you really need a | 5 | 187 |
| longer term foreclosure solution. People who have | 6 | 187 |
| lost a job or had some health issues, they're not | 7 | 187 |
| going to solve that in a month or two or a few | 8 | 187 |
| months. So finding new resources, new ways to | 9 | 187 |
| attack the situation where those borrowers who | 10 | 187 |
| could in a year or two be able to figure out how to | 11 | 187 |
| sustain that homeownership, how do we find that | 12 | 187 |
| kind of solution. | 13 | 187 |
| I think the other situation where we | 14 | 187 |
| now have these exotic products with no | 15 | 187 |
| documentation, ARMs, you know, interest-only, all | 16 | 187 |
| those kinds of problem loans that we feel are | 17 | 187 |
| problem loans out there, really also create a | 18 | 187 |
| disincentive for borrowers to actually take | 19 | 187 |
| advantages of counseling. You get a yes now, why | 20 | 187 |
| do you go through counseling? Even though long | 21 | 187 |
| term you're going to save money, you're going to be | 22 | 187 |
| able to be in a better situation. That whole | 23 | 187 |
| product mix today in the marketplace is extremely | 24 | 187 |
| problematic. | 1 | 188 |
| So that, again, I would reiterate the | 2 | 188 |
| need for that counseling industry to be | 3 | 188 |
| strengthened, the enforcement of both state and | 4 | 188 |
| federal legislation, and then getting at that whole | 5 | 188 |
| process of the new lending market place where | 6 | 188 |
| securities and other investors who are so far | 7 | 188 |
| removed from any negative impact of foreclosures, | 8 | 188 |
| how do you get at that investor, that system. That | 9 | 188 |
| creates a lack of accountability for economic | 10 | 188 |
| problems. | 11 | 188 |
| GOVERNOR OLSON: Two things. We will get back | 12 | 188 |
| to you, but in the essence of full disclosure, I'm | 13 | 188 |
| on the board of Neighbor Works, and I have a lot of | 14 | 188 |
| familiarity with what Bruce is talking about. | 15 | 188 |
| I was very surprised to learn with | 16 | 188 |
| the counseling support available to people facing | 17 | 188 |
| foreclosure, that the difficult, the most difficult | 18 | 188 |
| issue is finding the people who are facing | 19 | 188 |
| foreclosure. So that certainly points to the need | 20 | 188 |
| for greater education. | 21 | 188 |
| Ms. Heidi Coppola. | 22 | 188 |
| MS. COPPOLA: Yes, thank you very much. Thank | 23 | 188 |
| you for having a Citibank representative here | 24 | 188 |
| today. | 1 | 189 |
| My role at Citigroup is to work with | 2 | 189 |
| nonprofit and consumer groups to accomplish three | 3 | 189 |
| things. To understand the viewpoint and concerns | 4 | 189 |
| of nonprofit groups and consumer services, to | 5 | 189 |
| communicate their views and concerns with our | 6 | 189 |
| consumer businesses so that we have an opportunity | 7 | 189 |
| to assess our business practices in light of these | 8 | 189 |
| concerns and views. And to work with consumer | 9 | 189 |
| groups and nonprofits on pilot programs that serve | 10 | 189 |
| as a basis for gathering more information and | 11 | 189 |
| trying new ideas to serve the traditionally | 12 | 189 |
| underserved. | 13 | 189 |
| The partnership with Neighbor Works | 14 | 189 |
| America, which is what I was asked to speak about | 15 | 189 |
| today, is a great example of how this model works. | 16 | 189 |
| After about almost a decade of expanding | 17 | 189 |
| homeownership for low and moderate income | 18 | 189 |
| individuals, it became clear in discussions with | 19 | 189 |
| consumer groups and nonprofit partners, such as NHS | 20 | 189 |
| of Chicago, that there was a lot of problems. | 21 | 189 |
| While homeownership was readily attainable, its | 22 | 189 |
| sustainability was by no means guaranteed. | 23 | 189 |
| NHS had the vision to go to data of | 24 | 189 |
| those who study the problems in the mortgage market | 1 | 190 |
| which were leading to unprecedented foreclosure | 2 | 190 |
| rates with those of us originating and servicing | 3 | 190 |
| the mortgages so that we could see the impact of | 4 | 190 |
| the problem on particular neighborhoods. | 5 | 190 |
| And they did this in an amazingly | 6 | 190 |
| objective way. There was no finger pointing, there | 7 | 190 |
| was no focus on matters outside the control of the | 8 | 190 |
| servicing and loss mitigation teams. We sat around | 9 | 190 |
| the table and we focused on what the problem was | 10 | 190 |
| and how we could solve the problem. | 11 | 190 |
| At the NHS table, you didn't have to | 12 | 190 |
| be a researcher to see what the problem was. | 13 | 190 |
| Foreclosures are devastating for homeowners and | 14 | 190 |
| frequently result in loss for the lender or | 15 | 190 |
| servicer. This was the case, whatever the cause, | 16 | 190 |
| for the foreclosures, and we were there to fix the | 17 | 190 |
| problem. | 18 | 190 |
| If foreclosures individually are a | 19 | 190 |
| problem, you can imagine the problem foreclosure | 20 | 190 |
| clusters were having on whole neighborhoods. Home | 21 | 190 |
| appreciation declines generally, resale is | 22 | 190 |
| difficult, that impacts homeowners and lenders. | 23 | 190 |
| Basic community needs are challenged, small | 24 | 190 |
| businesses and related infrastructure suffer. | 1 | 191 |
| Local governments lose money by dedicated resources | 2 | 191 |
| to problems associated with poorly maintained or | 3 | 191 |
| abandoned homes. And even the process of | 4 | 191 |
| administration a foreclosure is costing the | 5 | 191 |
| government money. | 6 | 191 |
| At a minimum, we all saw that there | 7 | 191 |
| was an alignment of interest among the borrowers, | 8 | 191 |
| the lenders, the servicers and the local | 9 | 191 |
| governments. On average, the industry is quoted as | 10 | 191 |
| saying that there is a loss of about 50 cents on | 11 | 191 |
| the dollar in every foreclosure. With the servicer | 12 | 191 |
| input at the table, NHS of Chicago capitalizes on | 13 | 191 |
| this alignment of interest. And it became very | 14 | 191 |
| clear to many of us in the lending industry that | 15 | 191 |
| they were on to something. | 16 | 191 |
| As Bruce said, they use the 311 hot | 17 | 191 |
| line for the City, there is 24/7 counseling, there | 18 | 191 |
| is local advertising. The Mayor's committed to the | 19 | 191 |
| program. Lenders and servicers commit to pay for | 20 | 191 |
| the counseling, and NHS stands as a back up for | 21 | 191 |
| referrals for cases that are too difficult to be | 22 | 191 |
| handled through the 311 and 24/7 counseling. | 23 | 191 |
| Our experience personally with this | 24 | 191 |
| is that in the three years of the program we have | 1 | 192 |
| had 56 callers that have gone through counseling. | 2 | 192 |
| And out of that 56, we saved 26 homes. While those | 3 | 192 |
| numbers don't seem staggering, except if you look | 4 | 192 |
| at it as a percentage. These are customers who | 5 | 192 |
| never would have spoken to us. Before they called | 6 | 192 |
| the NHS hot line, they never reached out to us. So | 7 | 192 |
| 56 borrowers in the Chicago market actually reached | 8 | 192 |
| out for help that otherwise wouldn't have, and out | 9 | 192 |
| of that, over half were able to save their home. | 10 | 192 |
| Going forward, we continue to realize | 11 | 192 |
| that focusing on the 36 or so homeowners having | 12 | 192 |
| avoided foreclosure without ever having spoken to | 13 | 192 |
| their lender or servicer is really what we need to | 14 | 192 |
| focus on. | 15 | 192 |
| So we have been working with Neighbor | 16 | 192 |
| Works America, Chicago's parent, to build what I | 17 | 192 |
| call the national infrastructure. Essentially it's | 18 | 192 |
| this foreclosure avoidance programs looking at the | 19 | 192 |
| specific components. The idea is that it could be | 20 | 192 |
| replicated in various hot spots, foreclosure hot | 21 | 192 |
| spots around the country, either in whole or in | 22 | 192 |
| part. | 23 | 192 |
| So we have broken it down into three | 24 | 192 |
| different areas. Outreach and education. For this | 1 | 193 |
| part we are planning on relying on the Ad Council | 2 | 193 |
| of America in the hope that they can bring public | 3 | 193 |
| service announcements across the country to | 4 | 193 |
| foreclosure hot spots across the country with the | 5 | 193 |
| message being essentially that homeownership is | 6 | 193 |
| worth preserving and is not as hard as you think. | 7 | 193 |
| Reach out for help to a lender, a servicer or a | 8 | 193 |
| third party, there will be an 800 number to support | 9 | 193 |
| this as well a website. We hope that the Ad | 10 | 193 |
| Council brings instance credibility, and what we | 11 | 193 |
| are really hoping for a Smoky-the-Bear-type | 12 | 193 |
| character that will be associated with this | 13 | 193 |
| forevermore. | 14 | 193 |
| GOVERNOR OLSON: None of those people are young | 15 | 193 |
| enough to know what that means. | 16 | 193 |
| MR. SHEA: Young enough? | 17 | 193 |
| GOVERNOR OLSON: Old enough I mean. | 18 | 193 |
| MS. COPPOLA: 24/7 hot line counseling, again | 19 | 193 |
| with an 800 number who will connect the caller to a | 20 | 193 |
| trained credit counselor who will be prepared to | 21 | 193 |
| assist with budgeting recommendations. | 22 | 193 |
| GOVERNOR OLSON: Heidi, give me the last two | 23 | 193 |
| points. | 24 | 193 |
| MS. COPPOLA: 24/7 telephonic counseling and | 1 | 194 |
| community-based assistance, which is on the ground | 2 | 194 |
| referrals to a nonprofit organization that can | 3 | 194 |
| handle the more difficult situation. | 4 | 194 |
| GOVERNOR OLSON: A critical approach. We want | 5 | 194 |
| to come back and hear more about. | 6 | 194 |
| Loretta Abrams. | 7 | 194 |
| MS. ABRAMS: Thank you. It's my pleasure to be | 8 | 194 |
| here today. I'm Loretto Abrams, vice-president of | 9 | 194 |
| Consumer Affairs for HSBC North America. We have | 10 | 194 |
| 60 million customers in the United States and we | 11 | 194 |
| are doing business around five areas of business | 12 | 194 |
| from banking to consumer finance. And we are an | 13 | 194 |
| avid member in the communities where we do business | 14 | 194 |
| and we work hard to make a positive difference to | 15 | 194 |
| our neighbors and our customers. | 16 | 194 |
| I appreciate the opportunity to be | 17 | 194 |
| here today to share our views, experiences and | 18 | 194 |
| learnings around financial education. And I will | 19 | 194 |
| start out by sharing a couple of statistics with | 20 | 194 |
| you. | 21 | 194 |
| While we found that most Americans | 22 | 194 |
| aspire to homeownership and they see homeownership | 23 | 194 |
| as a sure path to financial stability and | 24 | 194 |
| accumulating assets, the pathway is not always very | 1 | 195 |
| clear. In a survey, we commissioned this last | 2 | 195 |
| March, one in four consumers told us that affording | 3 | 195 |
| a home is among their top ten financial concerns. | 4 | 195 |
| Of particular interest to me in this finding was | 5 | 195 |
| the fact that 72 percent of the consumers surveyed | 6 | 195 |
| stated that they understood how to become a | 7 | 195 |
| homeowner, but only 22 percent said that they | 8 | 195 |
| understood very well the process of applying for a | 9 | 195 |
| mortgage loan. | 10 | 195 |
| Now, at the opposite end of this | 11 | 195 |
| spectrum, 26 percent of the people who responded | 12 | 195 |
| said they didn't know anything at all about how to | 13 | 195 |
| apply for a mortgage loan. So when we have | 14 | 195 |
| statistics like that, is it any wonder that we hear | 15 | 195 |
| people all the time who are in a mortgage product | 16 | 195 |
| they don't understand or that isn't quite right for | 17 | 195 |
| them? | 18 | 195 |
| So we believe that we can address | 19 | 195 |
| that disparity through a combination of sound | 20 | 195 |
| business practices and financial education. And | 21 | 195 |
| I'm a strong proponent of financial education. We | 22 | 195 |
| know from many conversations that we have with | 23 | 195 |
| consumers that it's important that products be | 24 | 195 |
| helpful and affordable, and that consumers | 1 | 196 |
| understand the terms and features of their loan. | 2 | 196 |
| The good news is today there is more | 3 | 196 |
| product choice than ever before. The trade off is | 4 | 196 |
| that consumers don't always have all the | 5 | 196 |
| information they need to make the choices they need | 6 | 196 |
| for the product choice that is the best for them. | 7 | 196 |
| So we have been educating consumers | 8 | 196 |
| for over 75 years in one form or another on credit | 9 | 196 |
| and budget matters, and we are continuing this | 10 | 196 |
| tradition today. We have a financial education | 11 | 196 |
| platform called "Your Money Counts." Refund | 12 | 196 |
| programs for national and regional organizations | 13 | 196 |
| across the country. We conduct consumer surveys | 14 | 196 |
| and, I'm sure some of these results are with you | 15 | 196 |
| today, to make sure we understanding what consumers | 16 | 196 |
| are feeling and how they feel that their knowledge | 17 | 196 |
| level is and how we can impact it. We also sponsor | 18 | 196 |
| programs that focus on credit education, | 19 | 196 |
| homeownership, pre- and post-homeownership | 20 | 196 |
| counseling and foreclosure intervention. | 21 | 196 |
| Our programs reach kids in elementary | 22 | 196 |
| schools, college, university students, working | 23 | 196 |
| families, immigrants, elderly consumers, military | 24 | 196 |
| families, et cetera. | 1 | 197 |
| And I can speak to you a lot today | 2 | 197 |
| about the specifics of those programs and I will | 3 | 197 |
| share that in my written statement. But I wanted | 4 | 197 |
| to get to the fact that share a really quick story | 5 | 197 |
| about a family in Tucson. Mom and dad, three young | 6 | 197 |
| kids, all young boys below the age of five. They | 7 | 197 |
| were celebrating six months getting their first | 8 | 197 |
| home. She had gone through pre-homeownership | 9 | 197 |
| counseling and she was very proud and she announced | 10 | 197 |
| to the whole group of people who attended the fact | 11 | 197 |
| that she knew her FICO score, she knew what was | 12 | 197 |
| going to happen in the mortgage application process | 13 | 197 |
| and at the closing table, and she was able to craft | 14 | 197 |
| a loan that was right for her, saving money on her | 15 | 197 |
| mortgage that she's putting into savings to send | 16 | 197 |
| those boys to college. And she was very proud and | 17 | 197 |
| we had families in those rooms who were nodding | 18 | 197 |
| around the table. So they really do get it and | 19 | 197 |
| they want it. | 20 | 197 |
| Four things we learned. One size | 21 | 197 |
| does not fit all. The programs need to be | 22 | 197 |
| customized. Find a partner to work with. Partners | 23 | 197 |
| with community-based organization who understanding | 24 | 197 |
| the community and the needs and who have | 1 | 198 |
| credibility within the community. | 2 | 198 |
| Move the needle. Don't just screen | 3 | 198 |
| people. When they live that room, they need to | 4 | 198 |
| leave with a call to action. We need to tell them | 5 | 198 |
| what we want them to start doing differently so | 6 | 198 |
| they can start doing it tomorrow and keep on doing | 7 | 198 |
| it. | 8 | 198 |
| And finally, check back again. See | 9 | 198 |
| how they're doing. Keep doing surveys like this, | 10 | 198 |
| keep asking people what they need and how we can | 11 | 198 |
| help so we can keep on customizing programs and | 12 | 198 |
| keep on educating people so that they understand | 13 | 198 |
| their products and choices. | 14 | 198 |
| And I made it. Thank you very much. | 15 | 198 |
| GOVERNOR OLSON: That was very well done. | 16 | 198 |
| Thanks to everyone. | 17 | 198 |
| Let's come back, if we can, and I | 18 | 198 |
| think, David, something immediately leaps out from | 19 | 198 |
| your presentation is a fact that I absolutely agree | 20 | 198 |
| with. That when someone is emotionally involved in | 21 | 198 |
| the purchase, something like a home, that it is | 22 | 198 |
| very easy for a predator to prey on that emotion | 23 | 198 |
| and sell somebody something that shouldn't get to | 24 | 198 |
| them. And that education will take you part of the | 1 | 199 |
| way. | 2 | 199 |
| That emotional components is always | 3 | 199 |
| going to be there. So for the element of it that | 4 | 199 |
| you don't address through education, how do you | 5 | 199 |
| address it? | 6 | 199 |
| MR. ROSE: Well, that's where it comes down to | 7 | 199 |
| who is at the table when the decision is made. I | 8 | 199 |
| mean, it's a broker, it may be a contractor, if | 9 | 199 |
| it's a home improvement loan, that is acting as a | 10 | 199 |
| broker for the loan. They are going to use all of | 11 | 199 |
| those emotional buttons to get you to do the thing | 12 | 199 |
| that is in their best financial interest in a worst | 13 | 199 |
| case scenario. | 14 | 199 |
| So it's really a question of holding | 15 | 199 |
| these individuals accountable to a standard that | 16 | 199 |
| says, "Did you share the range of options with this | 17 | 199 |
| homeowner?" I mean, I had a heating and air | 18 | 199 |
| conditioning contractor in my house who wanted to | 19 | 199 |
| replace my air conditioner for $5000. He was going | 20 | 199 |
| to charge me 18 percent interest. Now, I knew that | 21 | 199 |
| I had credit cards at lower interest rates than | 22 | 199 |
| that, and that I could have charged the services | 23 | 199 |
| and not involve putting a lien on my house in order | 24 | 199 |
| to do it. Now, it turns out that another | 1 | 200 |
| individual that had come in and looked at my | 2 | 200 |
| heating and air conditioning told me it wasn't a | 3 | 200 |
| problem. He fixed it for about 50 bucks. | 4 | 200 |
| Now, those are the kinds of scams | 5 | 200 |
| that are out there. Those are the things that are | 6 | 200 |
| very difficult to train somebody to withstand. The | 7 | 200 |
| argument he was giving me was, "It's winter, I can | 8 | 200 |
| do this for you cheaply now. But if you wait when | 9 | 200 |
| it's hot and you're going to need this air | 10 | 200 |
| conditioning, it's going to be a lot more money." | 11 | 200 |
| Those were the kinds of arguments that are used. | 12 | 200 |
| So you're not going to be able to | 13 | 200 |
| prepare the general public to withstand every | 14 | 200 |
| variation of the scam that a predator is going to | 15 | 200 |
| come out with. | 16 | 200 |
| GOVERNOR OLSON: Mike, coming back to you, you | 17 | 200 |
| started talking about the need for housing | 18 | 200 |
| counseling, and we just had time to talk about your | 19 | 200 |
| other two points. So why don't you just complete | 20 | 200 |
| what you wanted to touch on on those points. | 21 | 200 |
| MR. SHEA: Sure. I'd like to make a short | 22 | 200 |
| comment, if I may, on the question you asked David | 23 | 200 |
| as well. | 24 | 200 |
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