FRB: Federal Reserve Bank of Philadelphia - June 9, 2006 - Transcript

Building Sustainable Homeownership:
Responsible Lending and Informed Consumer Choice

Federal Reserve Bank of Philadelphia
10 Independence Mall, Philadelphia, Pennsylvania 19106
June 9, 2006

Agenda | Transcript

Pages 1-25 | 26-50 | 51-75 | 76-100 | 101-125 | 126-150 | 151-175 | 176-200 | 201-221

Transcript	Line	Page
I think that that is our opinion too, that there	1	76
are losses that adhere to the lenders. The	2	76
question is whether or not the lenders' appetite	3	76
for not wanting to foreclose gets conveyed to the	4	76
servicers and whether or not the servicers are	5	76
using all available options to the borrower.	6	76
GOVERNOR OLSON: But I think that	7	76
that's not -- on behalf of those of us who have	8	76
been in the lending business -- I think that's not	9	76
fully appreciated. And I think in most states,	10	76
this is the case. There is significant consumer	11	76
protection, that the portfolio lender who	12	76
forecloses is going to lose money in that process.	13	76
So there is a strong incentive not to go through	14	76
that process. It seems to me that there ought to	15	76
be a conversion of interest, not only the	16	76
underwriting, but also the avoidance of	17	76
foreclosure, and there historically has been.	18	76
MR. GOLDSTEIN: I don't disagree with	19	76
that, at all. However, when you look at the	20	76
lenders who are the most active in the foreclosure	21	76
listings, not those that are foreclosing, but the	22	76
lenders who made the loans, that are subject to	23	76
the foreclosure, those are not, in the main,	24	76
portfolio lenders.	1	77
MR. DUNCAN: One technical point I'll	2	77
note, we classify states according to their	3	77
foreclosure laws by the state's judicial process,	4	77
which is typically more lengthy than those which	5	77
have a non traditional process, and it's a	6	77
consistent message that you want to talk to your	7	77
lender, as opposed to going with one of these	8	77
other folks.	9	77
MR. COLLINS: I think Governor Olson	10	77
talked a little bit about state foreclosures have	11	77
a more efficient and fair mortgage marketplace,	12	77
and I think Janice, you were saying, that a	13	77
perfectly educated borrower can't regulate the	14	77
market. There have been some changes in the laws,	15	77
for instance, one that allows consumers to get a	16	77
free copy of their credit report, to help shop for	17	77
credit. Maybe Ira or Janice, can you tell us	18	77
whether or not that's made any difference in	19	77
people's ability to shop, or are they taking	20	77
advantage of the credit report?	21	77
MS. BOWDLER: I am going to jump out	22	77
there and say I don't know if we know that yet,	23	77
because the free credit reports have only been	24	77
available for not very long, a year in some places	1	78
and less in others, because of the time release of	2	78
that. So I don't really know yet. I know that	3	78
through our counseling networks, all the clients	4	78
that come in are entitled to a credit report.	5	78
It's standard practice to pull their credit	6	78
reports and go through it with them. And our	7	78
experience has been that a family still needs help	8	78
going through that credit report. So, even once	9	78
they get it, if everything's fine, and they have a	10	78
great credit report, there's not much of a	11	78
problem. But if they have credit problems or if	12	78
they have errors, or identity theft, or any other	13	78
issues, then they need to seek out other help and	14	78
the counselors help them with that.	15	78
And this is especially true for	16	78
language minorities. And the system for -- if you	17	78
speak Spanish or if you prefer Spanish, I should	18	78
say, there are 800 numbers that are not fantastic,	19	78
but they're there. If you speak some other	20	78
language, you may or may not be able to get some	21	78
help. So I think I've heard a lot from Asian	22	78
immigrant communities that there's been problems	23	78
with accessing credit reports there.	24	78
So, I don't think that that's been	1	79
fully beared out yet. I wouldn't expect that just	2	79
having your free credit report is going to help	3	79
you shop for your mortgage. Hopefully, it will	4	79
lead to a better understanding of what your credit	5	79
score is and how to work within that context. But	6	79
I think that's still a step or two steps away from	7	79
shopping for your mortgages.	8	79
MR. DUNCAN: We just completed a	9	79
survey, which we released earlier this week, of	10	79
1200 households, which we did not classify by	11	79
racial or ethnic group, but we classified by	12	79
renter versus borrower, and we asked exactly that,	13	79
have you accessed your credit report. We were	14	79
quite surprised; 75 percent of both owners and	15	79
renters had accessed their credit report. We	16	79
asked them, how do you feel about your capability	17	79
of managing your credit? And owners were a little	18	79
higher than renters, but not much. They felt like	19	79
they were doing a good job with this. We also	20	79
asked them, did you find errors in your credit	21	79
report? And about 50 percent of those polled	22	79
found errors. And of those who had found errors,	23	79
did you correct them? A higher percentage of	24	79
owners got them corrected than renters.	1	80
Our objective was to look at who's	2	80
going to become an owner and what are their credit	3	80
characteristics as they approach the process. And	4	80
45 percent of those renters said that in the next	5	80
two years they want to buy a house. And that's,	6	80
kind of, what we were getting at to get to this	7	80
question.	8	80
GOVERNOR OLSON: Were the errors	9	80
misidentification or were they credits that had	10	80
been paid, but not recorded as paid?	11	80
MR. DUNCAN: We didn't get that	12	80
information.	13	80
MS. BRAUNSTEIN: In terms of -- getting	14	80
back, again, a little bit, to the shopping thing,	15	80
do you find, Janice, or others that may know the	16	80
answer to this, that people are more likely to try	17	80
to pre qualify -- if they know they're going to go	18	80
buy a house, do they go out first and look at	19	80
where they could potentially get a mortgage, how	20	80
much of a mortgage they could handle before they	21	80
go look for a house, or is it more, they go out	22	80
and look for a house and then, very quickly, try	23	80
to run around and get a loan in order to buy the	24	80
house that they identified before somebody else	1	81
buys it out from under them. Is there, you know,	2	81
a way that is better which may seem like the first	3	81
way to do that?	4	81
MS. BOWDLER: Again, all of my answers	5	81
are anecdotal and come from feedback that we get	6	81
from the counselors. The first thing is, I think	7	81
that tends to differ by market. In hot real	8	81
estate markets, like northern Virginia for	9	81
example, families are very aware of the fact that	10	81
they're competing for houses and that they need to	11	81
do something, even if they aren't exactly sure	12	81
what that is, to secure that house of their dreams	13	81
that they want. In slower markets, I don't think	14	81
that's necessarily the case.	15	81
I do think it introduces something we	16	81
haven't talked about yet, which is real estate	17	81
agents, that are also very relationship-based, and	18	81
now can do a pre-qualification for you. And so,	19	81
if you're relying on a real estate agent, which I	20	81
think a lot of people do, and that's true in the	21	81
Latino community as well, then they can do a	22	81
pre-qual there and give you an idea of what you	23	81
can afford.	24	81
Now, what I've heard from some places	1	82
is that a real estate agent will give you, not a	2	82
range, but the largest amount you could	3	82
possibility qualify for. So it's going to be on	4	82
the high end. And I've heard issues that once it	5	82
gets down to it, you can't quite afford that much,	6	82
and you might lose a house. There's issues there.	7	82
But I do think that people are getting access to	8	82
pre-qualification but they do it through realtors.	9	82
MR. CHANIN: Let me follow-up on this	10	82
notion of shopping. Do you see any difference in	11	82
consumer behavior, in terms of shopping for	12	82
purchase money transactions versus refinancings,	13	82
either in terms of things that work better for	14	82
those people, or if those people shop more or	15	82
less, either of those groups.	16	82
MS. BOWDLER: People who get refinances	17	82
are overwhelmingly more likely to receive	18	82
solicitations, and be approached, either by real	19	82
estate agents, by brokers, through the mail, on	20	82
the phone, and be solicited for these refinances.	21	82
And we did some survey data where we looked at why	22	82
people were refinancing.	23	82
It's interesting, because the Latino	24	82
community refinances less than other communities.	1	83
And from our perspective, that could be good and	2	83
that could be bad. It could mean that they are	3	83
staying put because it's not for them, or it could	4	83
mean that if they were seared on the front end,	5	83
that they're not taking advantage of money saving	6	83
opportunities by refinancing.	7	83
Those that refinanced were	8	83
overwhelmingly likely to respond to solicitations	9	83
to do so, and they were more likely to be cash out	10	83
refinanced than just rate re-fis. There is	11	83
solicitation in the purchase, but if you're a	12	83
renter, you're out there with that idea that I	13	83
want to be a homeowner, and I think it's more	14	83
common that you're solicited by a re-fi.	15	83
MR. CHANIN: In that re-fi scenario,	16	83
the push market so to speak, do you find that	17	83
people, typically, respond to those offers, or do	18	83
they make a decision and then go out and	19	83
affirmatively shop other lenders or other sources	20	83
or channels?	21	83
MS. BOWDLER: I don't think that	22	83
there's any more shopping in the re-fi level than	23	83
there is for purchases.	24	83
GOVERNOR OLSON: It's my perception	1	84
that the panel is losing some steam here. We	2	84
started early and we're ending early, presumably,	3	84
but I want to make sure, are there any other	4	84
comments that any of the four of you would like to	5	84
add as our panelists, and then I can ask my Fed	6	84
colleagues if there are any remaining questions.	7	84
MR. DUNCAN: I had one thing I wanted	8	84
to follow-up on that Ira made, which was a very	9	84
important point talking about the cluster	10	84
foreclosures, and the industry is thinking about	11	84
that because there is the expectation of a lot of	12	84
growth in reverse mortgages. For many of the	13	84
households in those neighborhoods, that's the bulk	14	84
of their equity. To the extent that those cluster	15	84
foreclosures weaken the ability of the market to	16	84
assess true value of that equity, it's going to	17	84
cut into the ability of those households to access	18	84
it in the reverse mortgage structure or some other	19	84
structure. So I didn't want us to lose sight of	20	84
that significant point.	21	84
MS. BOWDLER: I'd like to make a final	22	84
comment as well. A lot of my remarks, and some of	23	84
the questions, focused on profit motivations that	24	84
gear consumers to certain loans, and the question	1	85
of suitability, and also the role of mortgage	2	85
brokers, and I just wanted to be clear that we	3	85
understand that that's the nature of the market	4	85
and that those profit motivations are the things	5	85
that provide the mortgages to the families, and	6	85
that's an important role, and that the markets	7	85
intermediary is an important role. So we wouldn't	8	85
want to do anything that damages the industry for	9	85
being able to do what it is does, but that we need	10	85
something to offset and counteract those forces to	11	85
make sure that the consumers are adequately	12	85
represented as well.	13	85
GOVERNOR OLSON: It's a very good	14	85
point. Anybody else? We'll take a half hour	15	85
break and we'll get started at 10:45 with our next	16	85
panel.	17	85
(Whereupon, there was a 30-minute break	18	85
in the proceedings at 10:15 a.m.)	19	85
(Whereupon, the proceedings resumed at	20	85
10:45 a.m.)	21	85
GOVERNOR OLSON: Just as a reminder,	22	85
one of the important parts of the program are for	23	85
people who are not on the panels but would like to	24	85
make a statement. At 3 o'clock, we have an open	1	86
mike time for people that would like to make a	2	86
statement. If you would like to do so, there is a	3	86
sign-up sheet outside, and please indicate your	4	86
interest or your willingness so that we can give	5	86
you opportunity to speak.	6	86
We now have our panel in place for the	7	86
second panel. Let me remind everybody of our	8	86
ground rules. You will give a five-minute opening	9	86
presentation. You will see -- you will be spared	10	86
the ignominy of having the buzzer that we had in	11	86
Chicago. We have a sign that says one minute and	12	86
your time's up, but we have found, also, that that	13	86
allows for a significant opportunity, then, for	14	86
further discussion as a result of making that time	15	86
available.	16	86
I'd like each of you to identify	17	86
yourself, your group, and then make your opening	18	86
presentation, and we will go in the same order,	19	86
counterclockwise, starting with David Berenbaum.	20	86
MR. BERENBAUM: Good morning everyone.	21	86
I'm not going to spend a lot of time introducing	22	86
the National Community Reinvestment Coalition. I	23	86
think most of the folks in the room, it's a	24	86
collegial group, I think we've met each other on	1	87
many occasions, are familiar with the work that	2	87
NCRC does. I serve as the organization's	3	87
executive vice president, in particular, the areas	4	87
of policy, are direct service initiatives, and are	5	87
civil rights advocacy.	6	87
I'm going to spend my five minutes,	7	87
today, diving immediately into some work that	8	87
we've been doing, both through our Consumer Rescue	9	87
Fund Initiative, as well as through a mystery	10	87
shopping program that we've just completed in	11	87
partnership with the United States Department of	12	87
Housing and Urban Development. The information	13	87
that I'm about to share with you is included in	14	87
the remarks, which I believe are on the table	15	87
outside, and will also be on the Internet later	16	87
today.	17	87
NCRC is extremely troubled by how the	18	87
mortgage marketplace is not acting rationally with	19	87
regard to the wholesale marketplace and the role	20	87
of mortgage brokers. Let me qualify that by	21	87
saying to you that I believe that a majority of	22	87
mortgage professionals, although they work in the	23	87
financial service industry or the appraisal	24	87
industry, areas of focus today, are professionals	1	88
in acting responsibly. But that said, in the	2	88
recent year that we've taken a look at our	3	88
dataset, under our consumer rescue funding	4	88
program, a very successful remedial loan program	5	88
for victims of predatory lending or consumers in	6	88
hardship, 90 percent of the cases we have looked	7	88
at where fraud or where there is problematic	8	88
lending, involved a problematic broker, a broker	9	88
who was perpetuating the fraud.	10	88
That reality prompted us to place a	11	88
grant into the United States Department of Housing	12	88
and Urban Development, because we are tired of	13	88
hearing, it's not us, it's them. They originated	14	88
the loan. It's at wholesale marketplace, and in	15	88
fact, 70 percent of the marketplace loans are	16	88
being originated by mortgage brokers. They are	17	88
not being regulated appropriately, and that means	18	88
we have a problem in the system.	19	88
Quickly, with regard to our testing	20	88
results, we sent qualified African-American	21	88
mystery shoppers or testers and slightly less	22	88
qualified white counterparts into mortgage brokers	23	88
across the nation in six studies that are	24	88
identified in my statement. We control for	1	89
income. We have them control for credit as far as	2	89
describing their own situation. This is all	3	89
reapplication testing.	4	89
Here are some of the initial findings.	5	89
With regard to fees, 74 percent of the white or	6	89
control testers, were given very detailed	7	89
information about fees associated with the loan	8	89
programs that they were being offered. Only 30	9	89
percent of the African-American testers were being	10	89
given information about fees.	11	89
With regard to product choice,	12	89
African-Americans were given rate quotes or rate	13	89
product descriptions approximately for 1.3	14	89
products. These are averages over the 100 tests	15	89
that we conducted in the six areas. White testers	16	89
were given approximately 2.6 quotes, in other	17	89
words, close to 3 loans per site visit.	18	89
With regard to fixed-rate loans, 90	19	89
percent of the white testers had fixed-rate loans	20	89
discussed with them, while only 56 percent of	21	89
African-American testers had fixed-rate loans	22	89
discussed with them as well. Similarly, with	23	89
regard to adjustable rate mortgages, 37 percent of	24	89
white testers had those types of products	1	90
discussed with them, and only 13 percent of black	2	90
testers.	3	90
Terms and conditions varied greatly	4	90
between African-American and white testers. On	5	90
advise of counsel today, because we are filing	6	90
three complaints, the first being filed today, I	7	90
am not disclosing the information with regard to	8	90
pricing and terms, but there were significant	9	90
differences. 16 percent of the testers, white	10	90
testers, were referred to banks for loans. Only 8	11	90
percent of our testers who were African-American,	12	90
were referred to banks.	13	90
And last, with regard to -- two points	14	90
-- with regard to referral up, which came up on	15	90
the first panel, we found that 7 percent of our	16	90
white testers were told that they should apply	17	90
elsewhere or were referred up to a private product	18	90
by a mortgage broker. None of our	19	90
African-American testers, 0 percent, were referred	20	90
up in any of our 100 tests. 40 percent of the	21	90
African-American applicants for mortgages were	22	90
questioned about their credit history or if	23	90
they've ever had a foreclosure or bankruptcy.	24	90
Only 9 percent of our white testers were asked the	1	91
same question.	2	91
With regard to professional service, on	3	91
average, white testers spent 39 minutes with	4	91
brokers, and black testers spent 27 minutes with	5	91
brokers. I'll leave more discussion about this	6	91
testing to our colloquy, but I'd also like to	7	91
point out that predatory or problematic appraisal	8	91
is a major issue in the marketplace.	9	91
And to follow-up on the remarks that	10	91
the National Council of La Raza made about member	11	91
groups and partners, what we are finding is that	12	91
realtors, appraisers, and the entire financial	13	91
service marketplace, is changing as a result of	14	91
financial marketization. As a result of that,	15	91
there is needed change to ensure active	16	91
enforcement of existing law, as well as to take a	17	91
fresh look at HOEPA.	18	91
GOVERNOR OLSON: Thank you very much.	19	91
These are critical subjects, because what you're	20	91
describing is discriminatory and disparate	21	91
treatment, which are violations of the law. We	22	91
want to make sure that we give you a full	23	91
opportunity to address those.	24	91
Irv Ackelsberg.	1	92
MR. ACKELSBERG: That's my name, Irv	2	92
Ackelsberg. I want to welcome you to	3	92
Philadelphia, the cradle of liberty and ground	4	92
zero in the fight against abuse of subprime	5	92
mortgage lenders.	6	92
What I have to tell you is largely	7	92
anecdotal. I'm not a researcher, but this	8	92
anecdotal knowledge comes from my experience in	9	92
taking, what I believe to be the largest creditor	10	92
lending practice in the country, eight legal	11	92
services attorneys focusing primarily on defending	12	92
individual homeowners in foreclosure. I've	13	92
personally reviewed hundreds of loan files,	14	92
deposed numerous brokers, loan officers,	15	92
underwriters. I studied the practices of the	16	92
companies who once dominated the market and those	17	92
that are dominating now. In my few minutes, I'd	18	92
like to tell you about the typical and routine	19	92
abuses in the market today post HOEPA.	20	92
The subprime market today, at least as	21	92
it applies to low-income homeowners, remains	22	92
fundamentally broken as a result of the	23	92
institutionalization of a new generation of abuses	24	92
that are not addressed by HOEPA. The current	1	93
abuses are engineered, in large part, by mortgage	2	93
brokers, who, for the most part, have no	3	93
incentives to produce good loans and, instead,	4	93
contrary to the interest of borrowers and their	5	93
communities, are mass producing unnecessarily	6	93
risky loans.	7	93
But by pointing the finger at the	8	93
broker, I want to be clear that I do not believe	9	93
primary blame lies there. Brokers are, in my	10	93
mind, little more than sales agents for the	11	93
lenders who have been to Wall Street, designed the	12	93
mortgages they want to make, and depend on this	13	93
army of supposedly independent sales people to	14	93
sell their product.	15	93
I brought with me two illustrations to	16	93
show you from today's market leaders, Wells Fargo	17	93
and New Century. The first loan that I've given	18	93
you is an illustration of a loan that came into	19	93
our office very recently. It's a loan that was	20	93
made by Wells Fargo with a broker in March of this	21	93
year, two months ago. The facts are, this is a	22	93
very low-income homeowner. She only has $620 a	23	93
month in Social Security. She has a house that,	24	93
based on the comps I was able to get out of the	1	94
computer, are between -- the value of her house is	2	94
between 15 and $25,000. In March of this year,	3	94
she agreed to $17,000 in home improvements by a	4	94
suspicious dealer who told her he would arrange	5	94
the financing.	6	94
This is the loan that she got that	7	94
you're looking at. A $32,900 loan made possible,	8	94
I assume, by a fraudulent appraisal arranged by a	9	94
broker she never met, who was brought in by the	10	94
contractor. The difference between the amount of	11	94
credit she wanted and what she got includes	12	94
payoffs and special subsidized obligations from	13	94
state and local agencies that she had no interest	14	94
in paying off, and thousands of dollars in	15	94
settlement charges, including a fee to the broker	16	94
she never met. She had absolutely no ability to	17	94
pay this loan. The starting monthly payment of	18	94
$286, which does not include an escrow for	19	94
insurance and taxes, by itself, leaves her only	20	94
$334 to pay her utilities, her food, her	21	94
transportation and any other monthly expense.	22	94
And, if we look further, this was an adjustable	23	94
rate mortgage. It has a two-year rate of 9.8	24	94
percent and then it jumps up to 7 points over line	1	95
bar, as high as 15.875 percent. So the inability	2	95
to pay will worsen. Of no regarding Wells Fargo	3	95
decision to make this loan -- if you look you'll	4	95
see the application, it increased her $620 income	5	95
to $779, but even in so doing, they acknowledge --	6	95
the sixth page of the documents I'm showing you, a	7	95
document called Conditions of Loan Approval, they	8	95
acknowledge that she did not have the residual	9	95
income to pay the loan.	10	95
Now, this lack of general underwriting	11	95
that you're seeing in this example, is not	12	95
unusual, it's not in every single one, but	13	95
constantly, we're seeing loans like this, and made	14	95
by not bad apples but by market leaders.	15	95
I also gave you a summary of New	16	95
Century securitizations in the first quarter of	17	95
2006. Looking at it, the 1.4 billion dollars of	18	95
mortgage loans in that pool, of which only 10	19	95
percent are the 30-year fixed-rate loans that I	20	95
dare say most consumers believe they're applying	21	95
for, 45 percent of these mostly adjustable loans	22	95
are no docs; 45 percent. What Ira Goldstein	23	95
didn't mention this morning, is, that in the	24	95
research we have in Pennsylvania, 20 to 40 percent	1	96
of the subprime loans made in 1998 or '99 were in	2	96
foreclosure by 2003. So how much more of a crisis	3	96
are we, in Philadelphia, facing years from now,	4	96
when all these adjustable, no doc, no escrow, no	5	96
underwriting loans, start going bad.	6	96
We can't depend on the market to bring	7	96
down foreclosure rates and create incentives for	8	96
real underwriting, at least not over a reasonable	9	96
time frame. Too much will be lost. We need the	10	96
help of the Fed. Thank you.	11	96
GOVERNOR OLSON: Thank you, Irv. And	12	96
thank you for concluding right as the time	13	96
expired. David Bleicken, same drill, introduce	14	96
yourself, the group you represent and you have	15	96
five minutes.	16	96
MR. BLEICKEN: My name is David	17	96
Bleicken. I'm from the Pennsylvania Department of	18	96
Banking and it's a real pleasure for me to be here	19	96
and talk with you.	20	96
I have a longer statement that I will	21	96
be glad to offer for the record, so I'll focus my	22	96
remarks on two areas of concern to the Department	23	96
of Banking. The first deals with underwriting.	24	96
The factors that lead homeowners to	1	97
foreclosures are complicated. Some are sad, but	2	97
unavoidable, illness, job loss. Some are	3	97
criminal, forging documents, inflating appraisals,	4	97
deceiving advertisements, but some, which leads me	5	97
to my next point, are subtle. Otherwise	6	97
acceptable mortgages are being sold to families	7	97
who simply can't afford them. This is	8	97
irresponsible in lending.	9	97
Irresponsible lending is this: Making	10	97
a mortgage with no real effort to discern if the	11	97
borrower can repay the loan. I'm not talking	12	97
about whatever the first year monthly payment is,	13	97
I'm talking about making a reasonable effort based	14	97
on all of the terms over the life of the loan. It	15	97
seems like a simple concept, but one that's	16	97
increasingly absent in the structure of today's	17	97
marketplace. Too often, today, the salesperson	18	97
has little or no stake in the long-term success of	19	97
the loan.	20	97
When local bankers made loans 30 years	21	97
ago, there were natural consequences to their	22	97
underwriting. Even if they didn't expect	23	97
borrowers to be long-term customers of their	24	97
institutions, the basic soundness of their	1	98
portfolios was on the line. Today, someone can	2	98
make the sale, get a commission and never interact	3	98
with the borrower or loan again. Chances are,	4	98
that even the original lender won't hold the	5	98
mortgage for too long. They'll be included in the	6	98
pool and sold on a secondary market. Whoever ends	7	98
up pulling the defaulted paper is so far down the	8	98
line that they are all too frequently removed in	9	98
the consequences of the transaction.	10	98
The other thing I'd like to focus on	11	98
today is what the states are doing. The	12	98
Pennsylvania Department of Banking, we've licensed	13	98
just over 4,000 mortgage brokers, regulating them	14	98
under two laws passed by the general assembly. As	15	98
you may know, across the nation all but two states	16	98
regulate the mortgage industry. It has been	17	98
leadership provided by the states, after all, that	18	98
has resulted in landmark settlements. More	19	98
routinely, however, states have minimum financial	20	98
audit standards, conduct background checks,	21	98
require testing, order refunds, mandate continuing	22	98
education, and a host of other compliance	23	98
requirements.	24	98
In Pennsylvania, over the past three	1	99
years, we've seen explosive growth in the mortgage	2	99
industry. The Banking Department has restructured	3	99
itself within the powers already given to it,	4	99
reached out to the general assembly, and worked	5	99
with other state regulators as part of a national	6	99
effort. Part of our structuring includes doubling	7	99
the size of our consumers services staff, doubling	8	99
the number of our examiners that look at non	9	99
prospering institutions, like mortgage brokers,	10	99
creating an investigation unit, and enhancing the	11	99
scrutiny that we apply to our existing statutes to	12	99
people who apply to us for a license. In working	13	99
with both consumer advocates and industry leaders	14	99
to work on a new set of policy statements and	15	99
regulations to govern the proper conduct in the	16	99
business in Pennsylvania, and to define what is	17	99
illegal, unfair, and unethical.	18	99
We already started to see results from	19	99
our efforts. Last year, we levied $110,000 in	20	99
fines against mortgage brokers; this year, as of	21	99
the end of May, we have already eclipsed that	22	99
number. We also, currently, have 71 brokers under	23	99
investigation. These statistics are simply	24	99
products of our new presence in the marketplace.	1	100
Of particular concern, however, are	2	100
provisions focused on licensure. We are working	3	100
with the legislature on a legislative package that	4	100
would include, in part, the licensing of	5	100
individual loan officers. Part of that would	6	100
require pre-licensing testing and a battery of	7	100
background checks. To that end, though, we also	8	100
are working with the Conference of State Banking	9	100
Supervisors in the American Association of	10	100
Residential Mortgage Rates on a national licensing	11	100
database. You may have seen in the news yesterday	12	100
that the CSBS just signed with the National	13	100
Association of Security Dealers to host and create	14	100
this Web site. It should be up and running by	15	100
January 2008. We are remarkably excited about	16	100
this. It will enhance our ability to follow	17	100
people over state lines and to share information	18	100
with other states.	19	100
I do want to emphasize that we do not	20	100
believe that all mortgage brokers are bad. We	21	100
believe that the majority of them are honorable	22	100
people trying to make a decent living in the	23	100
world. But even one is too many. We are working	24	100

Class Act Reporting Agency, Philadelphia, Pennsylvania, 215-928-9760

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2006 Hearings

Building Sustainable Homeownership: Responsible Lending and Informed Consumer Choice

Federal Reserve Bank of Philadelphia 10 Independence Mall, Philadelphia, Pennsylvania 19106 June 9, 2006

Building Sustainable Homeownership:
Responsible Lending and Informed Consumer Choice

Federal Reserve Bank of Philadelphia
10 Independence Mall, Philadelphia, Pennsylvania 19106
June 9, 2006