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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| Transcript | Line | Page |
|---|---|---|
| trainings there. We try to keep on the go and | 1 | 251 |
| up-to-date with everything that is out there with | 2 | 251 |
| counseling. | 3 | 251 |
| Because it is a very important to sit | 4 | 251 |
| with a person and be able to explaining a product | 5 | 251 |
| that they are going to go into. So that they, you | 6 | 251 |
| know, they decide is this the right thing for you | 7 | 251 |
| or should you be looking at something better. | 8 | 251 |
| That's it. I am very afraid because | 9 | 251 |
| of what Brenda said, Fannie and HID both want to | 10 | 251 |
| pull out of no more counseling necessary. And | 11 | 251 |
| because of the openness and the guidelines being | 12 | 251 |
| changed in a lot of product, I think that's on the | 13 | 251 |
| contrary, more counseling is needed. | 14 | 251 |
| GOVERNOR OLSON: From the time that I was | 15 | 251 |
| nominated to the Federal Reserve Board, I have had | 16 | 251 |
| from everywhere and from all segments of the | 17 | 251 |
| community, including some of the most financially | 18 | 251 |
| sophisticated, a reminder of the growing need for | 19 | 251 |
| financial literacy and financial education. So I | 20 | 251 |
| certainly agree with your thrust. | 21 | 251 |
| Craig Basai, and I have it here. Am | 22 | 251 |
| I close? | 23 | 251 |
| MR. VARGA: Well, that is not even just an | 24 | 251 |
| pronunciation problem. It's a mispronunciation or | 1 | 252 |
| misspelling. It's Craig Varga, so it's my | 2 | 252 |
| handwriting. | 3 | 252 |
| GOVERNOR OLSON: If you can, if I can take that | 4 | 252 |
| squiggly letter and make an R out if it. | 5 | 252 |
| THE WITNESS: I apologize. Yes, Craig Varga. | 6 | 252 |
| I'm a practicing attorney here in | 7 | 252 |
| Chicago and I'm here in capacity as general counsel | 8 | 252 |
| for the Illinois Financial Services Association, a | 9 | 252 |
| broad spectrum of market funding lenders. We range | 10 | 252 |
| from large banks to small financial institutions. | 11 | 252 |
| I also have a practice as a private plaintiff's | 12 | 252 |
| counsel in defensive lenders in private action and | 13 | 252 |
| non-private action cases and have litigated many of | 14 | 252 |
| the issues here. And a few comments I wanted to | 15 | 252 |
| make about my observation. | 16 | 252 |
| I was an invited panelist the last | 17 | 252 |
| time around in 2000, which I heard some people say | 18 | 252 |
| was two or four years ago. It was actually six | 19 | 252 |
| years ago. Time passes quickly for us. | 20 | 252 |
| And one of the things I think we took | 21 | 252 |
| credit for here today was the elimination of single | 22 | 252 |
| premium credit insurance. I think that's what I | 23 | 252 |
| put in the category of a loan feature prohibition | 24 | 252 |
| or a rates/fees control item. I think there has | 1 | 253 |
| been great concern expressed here today about | 2 | 253 |
| furthering that course with the Fed in this process | 3 | 253 |
| because it has true access to credit dimensions to | 4 | 253 |
| it. | 5 | 253 |
| But once you get away from that, and | 6 | 253 |
| I think the success Brenda refer to here in | 7 | 253 |
| Illinois from Illinois state legislation is in the | 8 | 253 |
| nature of a loan feature prohibition or a fee | 9 | 253 |
| priced control matter. And once you get outside | 10 | 253 |
| those, and assuming that we're going to look at | 11 | 253 |
| matters outside that, keep in mind that the whole | 12 | 253 |
| fundamental of truth in lending rests with all the | 13 | 253 |
| federal consumer protection statutes. The | 14 | 253 |
| disclosures statute assumes that borrowers have the | 15 | 253 |
| capacity to understand what have been preordained | 16 | 253 |
| disclosures. Disclosures, which if not complied | 17 | 253 |
| with, have enormous exposure for lender in the | 18 | 253 |
| litigation context. | 19 | 253 |
| Further along that continuum of | 20 | 253 |
| disclosure is counseling. There has certainly been | 21 | 253 |
| support expressed for counseling here, but there | 22 | 253 |
| has also been recommendations from the consumer | 23 | 253 |
| group that counseling isn't sufficient and we need | 24 | 253 |
| to have other matters. | 1 | 254 |
| In particular, one I'm very concerned | 2 | 254 |
| about is what I heard from so many groups about is | 3 | 254 |
| the need for, quote, suitability. To me, and | 4 | 254 |
| seeing this from the litigation perspective, this | 5 | 254 |
| is an invitation to after-the-fact subjectivism, ad | 6 | 254 |
| hoc determinations of what amounts to a predatory | 7 | 254 |
| loan that no one has been able to define what it | 8 | 254 |
| is. | 9 | 254 |
| And I would caution people that what | 10 | 254 |
| will happen will be this will become a litigation | 11 | 254 |
| nightmare, a litigation trap, and can be asserted | 12 | 254 |
| for leverage in every single case for an after the | 13 | 254 |
| fact determination. And the dynamics of cost of | 14 | 254 |
| litigation and settlement and so forth will have | 15 | 254 |
| this be an enormous bludgeon at the head of | 16 | 254 |
| lenders. | 17 | 254 |
| I think it will also have protective | 18 | 254 |
| category dimensions because I think telling people | 19 | 254 |
| that they are simply not educated enough to | 20 | 254 |
| understand a particular loan product will possibly | 21 | 254 |
| raise a protective category of considerations that | 22 | 254 |
| follow along racial lines and education lines | 23 | 254 |
| potentially. | 24 | 254 |
| I think one other comment before I | 1 | 255 |
| close is I've heard support from some of the | 2 | 255 |
| consumers groups for there is nothing wrong with | 3 | 255 |
| private plaintiff cause of action enforcement. I | 4 | 255 |
| would differ with that. That huge wealth transfers | 5 | 255 |
| over hyper-technical problems are not good for | 6 | 255 |
| society or the housing market. And why the federal | 7 | 255 |
| banking agencies that employ safety and soundness | 8 | 255 |
| concerns have been so conservative about that, and | 9 | 255 |
| that has bothered consumer groups. | 10 | 255 |
| GOVERNOR OLSON: Craig, thank you very much. | 11 | 255 |
| Next is David -- Tanner? | 12 | 255 |
| MR. TANNER: I'm David Tanner. | 13 | 255 |
| GOVERNOR OLSON: I'm going to get one right. | 14 | 255 |
| Mr. Tanner. | 15 | 255 |
| MR. TANNER: Basically, just a consumer, small | 16 | 255 |
| business owner. And I think I have more questions | 17 | 255 |
| than I have comments. | 18 | 255 |
| Basically, if the consumer has lost | 19 | 255 |
| $9 billion, how much has the banking system lost? | 20 | 255 |
| GOVERNOR OLSON: Good question. I can't tell | 21 | 255 |
| you that I know the answer to that. | 22 | 255 |
| MR. TANNER: I mean, you have brought up that | 23 | 255 |
| when the consumer has lost 9 billion. Well, how | 24 | 255 |
| much has the banking system lost based on | 1 | 256 |
| consumers? | 2 | 256 |
| GOVERNOR OLSON: That wasn't our comment. | 3 | 256 |
| MR. TANNER: I'm just bringing that up. | 4 | 256 |
| I guess the real problem comes to | 5 | 256 |
| skimming of equity. I mean, I'm sitting in a | 6 | 256 |
| situation where I have gone through predatory | 7 | 256 |
| lending, the broker, the whole broker situation, | 8 | 256 |
| the Realtor teaming up with a broker, you name it. | 9 | 256 |
| So I'm out a sizable amount of money because of | 10 | 256 |
| it. | 11 | 256 |
| Who am I supposed to call? I've | 12 | 256 |
| talked to everybody and their brother, and I get | 13 | 256 |
| nowhere. Where is the information? That's why I'm | 14 | 256 |
| here today. | 15 | 256 |
| That is all the I have to say. | 16 | 256 |
| GOVERNOR OLSON: That is part of what these | 17 | 256 |
| hearings are for, to find answers to those | 18 | 256 |
| questions. | 19 | 256 |
| Carol Downs. Carol Downs has printed | 20 | 256 |
| her name in perfect lettering, so I'm fairly | 21 | 256 |
| confident I can introduce her as Carol Downs. | 22 | 256 |
| MS. DOWNS: Thank you, Governor. I appreciate | 23 | 256 |
| this opportunity. My name is Carol Downs, I'm the | 24 | 256 |
| fair housing coordinator with Interfaith Housing | 1 | 257 |
| Center of the North Suburbs, which is located out | 2 | 257 |
| in Winnetka. | 3 | 257 |
| A problem that I'm encountering as a | 4 | 257 |
| housing counselor that is trying to support | 5 | 257 |
| families that are in trouble with their mortgages, | 6 | 257 |
| whether it be their initial mortgage or trying to | 7 | 257 |
| refinance out of a bad mortgage, is that they just | 8 | 257 |
| don't know that they have got themselves in a bad | 9 | 257 |
| situation. And much of the outreach that some of | 10 | 257 |
| these families have received has been through the | 11 | 257 |
| telephone where some mortgage broker has contacted | 12 | 257 |
| them, found out their information, that they are in | 13 | 257 |
| trouble with that loan, and claimed that they are | 14 | 257 |
| going to help them out. | 15 | 257 |
| And it's been too many families that | 16 | 257 |
| have come to me when it's pretty much way too late | 17 | 257 |
| to try to do anything about it. And it is too hard | 18 | 257 |
| for any housing counselor to try to get someone out | 19 | 257 |
| of a situation after the fact. | 20 | 257 |
| We need to do something as far as | 21 | 257 |
| building the counseling, building that program | 22 | 257 |
| better. We are a small organization, a nonprofit | 23 | 257 |
| grass roots, that just does not have the resources | 24 | 257 |
| to fight this monster of a problem. | 1 | 258 |
| I can't tell you how many seniors | 2 | 258 |
| that I've worked with that have found themselves | 3 | 258 |
| trying to get into a mortgage where they can refi a | 4 | 258 |
| mortgage, where they can do some type of debt | 5 | 258 |
| consolidation or do some home improvement. And | 6 | 258 |
| they simply are in an ARM where that payment goes | 7 | 258 |
| up and they are on a fixed income and simply cannot | 8 | 258 |
| afford it. So the only option that they are given | 9 | 258 |
| is you need to sell your property. | 10 | 258 |
| Well, I'm working with a family now | 11 | 258 |
| where this is a grandmother who has adopted her | 12 | 258 |
| grandchildren. There are seven grandchildren in | 13 | 258 |
| this home. For one, even if she were to sell this | 14 | 258 |
| property, where would she go with seven | 15 | 258 |
| grandchildren? | 16 | 258 |
| So my hope is that we provide greater | 17 | 258 |
| funding for the housing industry as far as the | 18 | 258 |
| housing counselors. There is a major need for | 19 | 258 |
| that. The 311 factor in Chicago does not address | 20 | 258 |
| the homeowners in the suburban area. | 21 | 258 |
| And there needs to be laws in place | 22 | 258 |
| where mortgage brokers and lenders are not as -- | 23 | 258 |
| cannot approach people in any form or fashion and | 24 | 258 |
| rip them off. And as well as some way of | 1 | 259 |
| regulating these people from hurting families. | 2 | 259 |
| Because they just they can't win | 3 | 259 |
| after the fact. Litigation is not -- it's helpful, | 4 | 259 |
| but it's after the fact. And often, even with | 5 | 259 |
| litigation, there is not much that can be done for | 6 | 259 |
| that family. Thank you. | 7 | 259 |
| GOVERNOR OLSON: Carol, thank you. | 8 | 259 |
| Pamela Gilbert. | 9 | 259 |
| MS. GILBERT: Hi, my name is Pamela Gilbert and | 10 | 259 |
| I'm from the Southside Community Federal Credit | 11 | 259 |
| Union where I'm a housing counselor. | 12 | 259 |
| Just kind of piggybacking on what | 13 | 259 |
| everyone else has said, the main thing that we do | 14 | 259 |
| need is funding. And funding I believe comes from | 15 | 259 |
| there being certain legislation passed where there | 16 | 259 |
| are TV messages and magazine messages, et cetera, | 17 | 259 |
| et cetera, to let people know they should be | 18 | 259 |
| getting housing counseling and should be going out | 19 | 259 |
| and getting more information versus no | 20 | 259 |
| information. | 21 | 259 |
| Right now we have partnered with the | 22 | 259 |
| Westside NAACP, and also the City Colleges of | 23 | 259 |
| Chicago Dawson center where we offer a course of | 24 | 259 |
| the whole process, budgeting, savings, and the | 1 | 260 |
| whole process. | 2 | 260 |
| The whole process actually does go | 3 | 260 |
| together. If you know how to save, if you know how | 4 | 260 |
| to budget. If you know how to go out and chose a | 5 | 260 |
| mortgage person. You know, a lot of people think | 6 | 260 |
| the first person that comes along is the person I'm | 7 | 260 |
| supposed to take. If I can get a home, I can get | 8 | 260 |
| you in a home, you pay $1000 for rent, I can get | 9 | 260 |
| you in for 900. And they jump on the bandwagon. | 10 | 260 |
| But it's where you need to education | 11 | 260 |
| people and these people just don't know. They come | 12 | 260 |
| to the classes, we give them the one-on-one | 13 | 260 |
| counseling. And they're like I just didn't know | 14 | 260 |
| this. Or they don't know how to clear up their | 15 | 260 |
| credit. | 16 | 260 |
| But they need to be -- you know, it's | 17 | 260 |
| not a learning process, but it's a presses that | 18 | 260 |
| when you kind of I guess tell a person enough | 19 | 260 |
| times, then eventually they figure out I can go out | 20 | 260 |
| there and shop for a loan like I should shop for a | 21 | 260 |
| washing machine. I can go out there, I can look at | 22 | 260 |
| all the aspects of the washing machine in the same | 23 | 260 |
| way I can look at all the aspects of the loan. To | 24 | 260 |
| see are there prepayment penalties, what kinds of | 1 | 261 |
| interest rates these people are giving. Are they | 2 | 261 |
| first time home buyer programs. And also, you | 3 | 261 |
| know, is this a loan for me as far as if it's | 4 | 261 |
| fitting into what I need. | 5 | 261 |
| So all that comes away from the whole | 6 | 261 |
| I guess the top down process where, you know, HUD | 7 | 261 |
| and the ARISSA (phonetic) agencies are not funding | 8 | 261 |
| or there is not going to be enough funding, I guess | 9 | 261 |
| someone in Washington or the state level or | 10 | 261 |
| whatever gives us more money to get the word out. | 11 | 261 |
| To say to people you need to get this information | 12 | 261 |
| prior to trying to become a homeowner, to make | 13 | 261 |
| better informed decisions. Thank you. | 14 | 261 |
| GOVERNOR OLSON: Thank you very much. | 15 | 261 |
| Jeri? | 16 | 261 |
| MS. FOX: Yes. | 17 | 261 |
| GOVERNOR OLSON: Jerry Lynn Fox, if I have it | 18 | 261 |
| correct. | 19 | 261 |
| MS. FOX: Easy. Thank you. | 20 | 261 |
| I'm a broker/owner, a small mortgage | 21 | 261 |
| broker, and I guess that the reason I wanted to | 22 | 261 |
| talk is I feel a great sense of sadness. I've been | 23 | 261 |
| here since 8:30 this morning and I don't feel like | 24 | 261 |
| one of the partners at the table. | 1 | 262 |
| I'm working evenings, Saturdays and | 2 | 262 |
| Sundays, educating folks, trying to access 311 for | 3 | 262 |
| customers who have fallen behind because they have | 4 | 262 |
| lost a job, that the primary wage earner lost his | 5 | 262 |
| job. They want me to refinance them again. I'm | 6 | 262 |
| refusing to do that. I can't get anyone on 311. | 7 | 262 |
| I'm not in Chicago, I'm in Elmwood | 8 | 262 |
| Park. I've go on the website, I find your non-311 | 9 | 262 |
| number. I haven't gotten a call back yet. I have | 10 | 262 |
| now over to date over the course of five months | 11 | 262 |
| spent 20 hours directly with the consumers, and | 12 | 262 |
| over 2 hours arguing with the forbearance experts | 13 | 262 |
| at the lenders before we reached an agreement that | 14 | 262 |
| was anywhere near reality for those folks, that | 15 | 262 |
| they could keep this home, that in essence has been | 16 | 262 |
| in the family for a quarter of a century and who | 17 | 262 |
| didn't want to lose this home for a lot of | 18 | 262 |
| reasons. But on the practical matter, where is a | 19 | 262 |
| family of four going to find rent for $1100 a | 20 | 262 |
| month? There was some practical issues here. | 21 | 262 |
| When we got through all of the | 22 | 262 |
| screens and the hour and a half, because they don't | 23 | 262 |
| have a phone there, they can't call 311, they have | 24 | 262 |
| given up the cell phones, their phone has been | 1 | 263 |
| disconnected. They are coming in my office. They | 2 | 263 |
| won't go to families homes because they feel the | 3 | 263 |
| families are taking advantage of them. | 4 | 263 |
| So we're in my office two hours into | 5 | 263 |
| this conversation after I get everybody together, | 6 | 263 |
| the forbearance counselor, who has already | 7 | 263 |
| determined what their monthly payment is going to | 8 | 263 |
| be, because there are going to have a 12 month | 9 | 263 |
| repay and all of that, then they say $1500 is what | 10 | 263 |
| is affordable for you, but your payment is going to | 11 | 263 |
| be 1624. To which my customer responds, so you're | 12 | 263 |
| going to lower my payment, right? Because you say | 13 | 263 |
| I can't afford what you told me. No, we are not | 14 | 263 |
| going to lower your payment. You have to pay this, | 15 | 263 |
| but we are not too far off. | 16 | 263 |
| I could have used the assistance of | 17 | 263 |
| folks at 311. I could use the assistance of | 18 | 263 |
| tapping into some of those programs that are under | 19 | 263 |
| market interest rates, fixed rate for nonprime. I | 20 | 263 |
| do business with Citibank, Bank One, two of HSPCs | 21 | 263 |
| affiliates. Half of my loan officers are | 22 | 263 |
| Hispanic. We do I-TIN lending. We have to go to | 23 | 263 |
| lenders that have 10 percent interest rates because | 24 | 263 |
| I can't tap in. I'm just small, I can't tap in on | 1 | 264 |
| any of my large lenders pilot programs, because | 2 | 264 |
| they are controlled by nonprofit groups that I | 3 | 264 |
| can't be a member of because I'm a broker, not a | 4 | 264 |
| bank. | 5 | 264 |
| I'm offering myself, folks. I'll be | 6 | 264 |
| a partner. I will come in and do whatever | 7 | 264 |
| volunteer work you want. I just want to be able to | 8 | 264 |
| do a good job for the constituency that I get loans | 9 | 264 |
| for. | 10 | 264 |
| GOVERNOR OLSON: Jeri, thank you very much. | 11 | 264 |
| We have one more name here, and that | 12 | 264 |
| is Susan Ellis. | 13 | 264 |
| MS. ELLIS: Hi. I'm Assistance Attorney | 14 | 264 |
| General at the Illinois Attorney General's Office. | 15 | 264 |
| I just wanted to give my emphasis to | 16 | 264 |
| sort of anecdotally what we have seen in our office | 17 | 264 |
| the role that good or perhaps better underwriting | 18 | 264 |
| can do to stop gap some of the predatory lending | 19 | 264 |
| and abuses that we see. | 20 | 264 |
| And one example is we had sort of a | 21 | 264 |
| rash of foreclosure rescue scams here in Illinois | 22 | 264 |
| have come on the heels of increased foreclosures, | 23 | 264 |
| whereby someone in foreclosure, I think Tom James | 24 | 264 |
| mentioned they get bombarded with direct mailings | 1 | 265 |
| from people who say they will help save their | 2 | 265 |
| homes. And what they do is put them together with | 3 | 265 |
| either a friend or a straw buyer. But at the end | 4 | 265 |
| the day the person just walks away at the end of | 5 | 265 |
| the closing with all the equity out of the house | 6 | 265 |
| basically, and the person ends up losing the home. | 7 | 265 |
| But there is always a lender there | 8 | 265 |
| lending the money that gets turned into equity | 9 | 265 |
| dollars that gets taken away. And we have seen | 10 | 265 |
| lenders not realize until they have already funded | 11 | 265 |
| a dozen or so of those loans that all of these | 12 | 265 |
| loans the originator was giving them were for | 13 | 265 |
| properties in foreclosure, and they didn't really | 14 | 265 |
| look at that. And had they took note of that, they | 15 | 265 |
| may have look further into loans. | 16 | 265 |
| Typically the borrowers buying the | 17 | 265 |
| properties are also buying other properties, even | 18 | 265 |
| though they are telling the lender that they are | 19 | 265 |
| going to be using this property as a primary | 20 | 265 |
| residence. So even a little more looking could | 21 | 265 |
| have prevented some of these loans from being | 22 | 265 |
| funded. Which in these cases would have prevented | 23 | 265 |
| equity walking out the door. | 24 | 265 |
| We have also seen in conjunction with | 1 | 266 |
| these loans stated income loans, for an example, | 2 | 266 |
| the 81-year-old-woman who was supposedly making | 3 | 266 |
| over $5000 a month doing house cleaning. And | 4 | 266 |
| again, that was funded. | 5 | 266 |
| So I think a role of some better | 6 | 266 |
| underwriting could at least stop gap some of the | 7 | 266 |
| abuses that we go after. And we are suing these | 8 | 266 |
| people, but we can't sue them all, and we can't do | 9 | 266 |
| all that. | 10 | 266 |
| GOVERNOR OLSON: Thank you for your help and | 11 | 266 |
| thank you for your participation to everybody. | 12 | 266 |
| It's been a very worthwhile panel. A very worth | 13 | 266 |
| while day. And thank you all for coming. And | 14 | 266 |
| again, our very heart felt thanks to everybody at | 15 | 266 |
| Chicago Fed who provides the logistics and the room | 16 | 266 |
| and the food and everything. And thank you. | 17 | 266 |
| Again, if there are any remaining | 18 | 266 |
| comments you would like to make, that is open to | 19 | 266 |
| you until August 15. Thank you very much. | 20 | 266 |
| (Which were all statements | 21 | 266 |
| heard or offered at the meeting | 22 | 266 |
| of said cause.) | 23 | 266 |
| 24 | 266 | |
| STATE OF ILLINOIS ) | 1 | 267 |
| ) SS: | 2 | 267 |
| COUNTY OF C O O K ) | 3 | 267 |
| 4 | 267 | |
| April T. Hansen, being first duly sworn, | 5 | 267 |
| on oath says that she is a court reporter doing | 6 | 267 |
| business in the City of Chicago; and that she | 7 | 267 |
| reported in shorthand the proceedings of said | 8 | 267 |
| public meeting, and that the foregoing is a true | 9 | 267 |
| and correct transcript of her shorthand notes so | 10 | 267 |
| taken as aforesaid, and contains the excerpt of | 11 | 267 |
| proceedings given at said public meeting. | 12 | 267 |
| 13 | 267 | |
| ______________________________ | 14 | 267 |
| Certified Shorthand Reporter | 15 | 267 |
| 16 | 267 | |
| SUBSCRIBED AND SWORN TO | 17 | 267 |
| before me this______day | 18 | 267 |
| of________________2006. | 19 | 267 |
| 20 | 267 | |
| 21 | 267 | |
| _______________________ | 22 | 267 |
| Notary Public | 23 | 267 |
| 24 | 267 |
McCorkle Court Reporters, Inc., Chicago, Illinois, 312-263-0052
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