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
very hard to protect consumers from those that can	1	101
do harm. I will end my remarks with that.	2	101
GOVERNOR OLSON: Thank you very much,	3	101
David. Joe Falk.	4	101
MR. FALK: Good morning. My name is	5	101
Joe Falk, and I'm the mortgage broker. I'm	6	101
chairman of the legislative committee, the	7	101
National Association of Mortgage Brokers and thank	8	101
you for allowing us to participate.	9	101
NAMB is the voice of the mortgage	10	101
broker industry. We offer educational courses and	11	101
certification programs. We adhere to a strict	12	101
code of ethics and best lending practices. The	13	101
rise of the mortgage broker industry has expanded	14	101
product choice distribution channels, adding	15	101
robust competition and great pricing options for	16	101
many consumers. We go where others will not.	17	101
Unfortunately, this expansion has led	18	101
to a rise in the number of uneducated and	19	101
unlicensed originators, bankers, brokers, lenders,	20	101
all. While states are increasing requirements for	21	101
brokers -- thank you, Pennsylvania -- they	22	101
continue to exempt officers of banks and lenders	23	101
for these important standards. I make this point	24	101
because consumers do not know the difference	1	102
between a mortgage banker, a mortgage broker, even	2	102
a depository banker. There is little substantive	3	102
difference between them. We're all competing	4	102
distribution channels.	5	102
There are numerous players in the	6	102
market today. There are many types. There's the	7	102
mortgage banker type, the mortgage lender type,	8	102
the broker type, the credit union type, the banker	9	102
type, the home builder type, the real estate agent	10	102
type, and the Internet type, and the list goes on	11	102
and on and on. And sometimes, companies act in	12	102
multiple capacities, even within their own	13	102
companies. So I believe that we compete directly	14	102
with one another. Consumers are best served when	15	102
all disclosures are the same, no matter what type	16	102
of company they go to, a consumer goes to, for	17	102
their individual mortgage loan.	18	102
A topic of great debate is	19	102
compensation. And the truth is, that all	20	102
originator types receive direct compensation,	21	102
indirect compensation, or a combination of both.	22	102
Regrettably, only mortgage brokers currently	23	102
disclose both direct and indirect payments. With	24	102
other types, the back end compensation is not	1	103
disclosed. This gagged approach has created	2	103
nothing but consumer confusion. To make	3	103
comparison shopping meaningful, all channels	4	103
should provide the same disclosures.	5	103
As discussed before, we need to focus	6	103
on the three parties involved in this arrangement:	7	103
government, industry, and consumers. We have to	8	103
remember, of course, that consumers are the	9	103
ultimate decision makers, not the mortgage	10	103
provider. Brokers do not represent every loan	11	103
product available, nor do we have the best loan	12	103
available in any one market. I want to emphasize	13	103
that point. There is no best result for any	14	103
individual consumer. It depends upon price,	15	103
product, and availability, and focusing only on	16	103
price may not yield the best result for the	17	103
consumer. Only the consumer can determine what is	18	103
best for them, and that's why NAMB rejects the	19	103
concept of fiduciary or agency suggestions that	20	103
we've heard debated here today.	21	103
As for decision making, the role of the	22	103
consumer is to take advantage of the competitive	23	103
marketplace place, shop, shop, shop, compare,	24	103
compare, compare, and ask questions. And if they	1	104
don't get answers to their questions, go somewhere	2	104
else.	3	104
The rule of government is to provide	4	104
rules and regulations and, most notably, enforce	5	104
them. There's a clear lack of enforcement effort	6	104
and money on the federal level and on the state	7	104
level. Sadly, enforcement is lacking. The	8	104
government should also encourage and fund	9	104
financial literacy. The consumer has a role to	10	104
play.	11	104
The government should also ensure that	12	104
the consumer is not exposed to crooks and	13	104
incompetent people, and it's a privilege, not a	14	104
right, to be a mortgage broker and participate in	15	104
our great industry. And as part of that	16	104
privilege, we believe that all originators should	17	104
be licensed, educated, and submit to a criminal	18	104
background check. This is what's called for in	19	104
NAMB's model state statute initiative, which we	20	104
have been proposing all across the country. It	21	104
calls for all originators, not just mortgage	22	104
brokers, to be licensed, educated and screened for	23	104
bad acts.	24	104
Lastly, the role of the industry is to	1	105
remain innovative, competitive and knowledgeable.	2	105
The industry must also be vigilant to comply with	3	105
appropriate state and federal laws, follow best	4	105
practices, be honest, and treat people with	5	105
respect. Thank you.	6	105
GOVERNOR OLSON: Joe, thank you very	7	105
much. Jack Guttentag.	8	105
MR. GUTTENTAG: I'm Jack Guttentag.	9	105
It's a pleasure to be here this morning. I'm a	10	105
retired and then unretired university professor.	11	105
My information may be of some interest to you. I	12	105
run a Web site that provides mortgage information	13	105
to borrowers. It's mggprofessor.com,	14	105
mggprofessor.com. I also do an active	15	105
correspondence with borrowers, and I estimate that	16	105
since 1998, when I started my Web site, I fielded	17	105
from 25,000 to 30,000 letters to mortgage	18	105
borrowers with concerns about one problem or	19	105
another.	20	105
I also started an operation that I call	21	105
Up Front Mortgage Brokers, which are mortgage	22	105
brokers that are committed to disclosing their	23	105
fees to the borrower up front, their total fee,	24	105
including whatever the broker is paid by the	1	106
lender, and there's about 150 up front mortgages	2	106
brokers at the present time.	3	106
Now, the philosophy underlying that, is	4	106
that, as far as borrower welfare is concerned,	5	106
what's important is that they should be encouraged	6	106
it visit loan providers that they have good reason	7	106
to believe will treat them fairly and honestly.	8	106
It's like the principle of picking wild mushrooms.	9	106
It's very difficult for an aficionado of wild	10	106
mushrooms like me to identify all the bad ones out	11	106
there, because new bad ones keep rising. What we	12	106
do is, identify the good ones and you stick to	13	106
those. And that's the principle that borrowers	14	106
should be encouraged to use when they select a	15	106
loan provider.	16	106
The motto ought to be, don't be	17	106
selected. Don't allow yourself to be solicited.	18	106
Do your own selection and go someplace, such as my	19	106
Web site, and find out the names of loan providers	20	106
that you have good reason to believe will treat	21	106
you fairly.	22	106
Now, in the case of the subprime	23	106
market, there are two dimensions of this market or	24	106
two aspects of it. There's the inside market and	1	107
there's the retail market. The inside market is	2	107
where wholesale lenders deliver their prices to	3	107
brokers and also to small correspondent lenders,	4	107
who, from this standpoint, are pretty much the	5	107
same as brokers. This part of this market works	6	107
very well. It's extremely competitive because the	7	107
brokers have a financial interest in getting the	8	107
best possible price from the lenders. The better	9	107
the price they get, the more money they make on	10	107
the transaction.	11	107
The problems arise at the second level,	12	107
at the retail level, where the borrower or	13	107
correspondent lender interfaces with the broker or	14	107
correspondent lender interfaces with the borrower.	15	107
Now, there are some bad apples, and you've heard	16	107
about them. My comments are not about them. My	17	107
comments are about most of the industry, most	18	107
mortgage brokers. And my experience with mortgage	19	107
brokers, and I've corresponded and spoken to	20	107
dozens, if not hundreds, of them over the last six	21	107
years, is that the great majority of them are what	22	107
I call, equal opportunity mark-up maximizers.	23	107
That's another way of saying that they try to make	24	107
as much as they can on every individual	1	108
transaction.	2	108
Now, they make more on some than on	3	108
others. They make more on the naive non-shopping	4	108
borrower, than they do on the shopper and the	5	108
well-informed borrower. They make more on	6	108
African-American borrowers. Not because they are	7	108
discriminatory, but because in the process of	8	108
trying to maximize their mark-up, they are more	9	108
successful in doing it with African-Americans.	10	108
The reasons for that are pretty well known; I'm	11	108
not an expert on that.	12	108
Not all brokers fit this description of	13	108
maximizing the market. There is this set that I	14	108
mentioned at the outset. Up front mortgage	15	108
brokers, they may be mark-up maximizers, but they	16	108
will negotiate their fee up front with the	17	108
borrower. And there's also one correspondent	18	108
lender, with whom I made a special deal, that also	19	108
discloses all fees to the borrower, and you can	20	108
find that on my Web site. Thank you.	21	108
GOVERNOR OLSON: Thank you very much,	22	108
Jack. There's ample substance for to us get back	23	108
and dialogue on that. That's very interesting.	24	108
Coming back to David, you were	1	109
beginning to talk about a subject that we have not	2	109
discussed much in our discussions, either, today	3	109
or on Wednesday, and that's the role of prices.	4	109
And I know that in previous legislation and	5	109
previous issues regarding mortgage abuses, if you	6	109
will, there are mortgage practices. The role of	7	109
appraisers has been key and sometimes	8	109
controversial, and could you just amplify what	9	109
some of your findings are in that regard.	10	109
MR. BERENBAUM: Again, as a result of	11	109
our work, working with consumers through our	12	109
rescue fund initiative, we first became aware of	13	109
what was happening to consumers. Historically, 15	14	109
years ago, when I first became involved with the	15	109
fair housing movement, the issue was under	16	109
evaluation of African-American and low,	17	109
moderate-income communities. There's still some	18	109
of that. There has not been the same level of	19	109
depreciation, but, clearly, the issue now in the	20	109
marketplace has switched to, in fact, over	21	109
evaluation, equity theft, and other issues.	22	109
And again, I'll qualify my remarks by	23	109
saying the role of the professional appraiser is	24	109
to ensure the integrity of the transaction, or a	1	110
lender, who, also, ultimately, is the securitizer	2	110
for the consumer against the safety and soundness	3	110
of the entire marketplace. There's clear guidance	4	110
and other laws, as well as guidance, and the issue	5	110
is pressure in the marketplace, a changing	6	110
marketplace, once again, as well. Because we see	7	110
more use of ABMs, for example, which are not	8	110
always as accurate as they need to be for the	9	110
transactions. I can't tell you the number of	10	110
situations that we see where we're dealing with a	11	110
manipulated appraisal, square footage is adjusted,	12	110
a major problem with the house is omitted, or a	13	110
condition is not included in the report.	14	110
Our appraisers, 70 percent of whom have	15	110
been polled by October Research, one of the major	16	110
think tanks in this area, a publication,	17	110
approximately 55 percent of the appraisal industry	18	110
says they have been pressured to meet a mark.	19	110
This destabilizes the marketplace. It creates	20	110
problems where consumers are in upside down	21	110
mortgages. This is an issue that's very common.	22	110
Our members -- I know the legal service community	23	110
in Pennsylvania has been very active on this	24	110
issue, but there are hot spots of appraisal fraud	1	111
across the country, from Las Vegas and Denver to	2	111
Baltimore and areas of the West Coast.	3	111
Our response has been a best practices	4	111
approach for our new center for responsible	5	111
appraisal and evaluation. We're signing up	6	111
appraisers and realtors and mortgage brokers and	7	111
lenders and securitizers to be part of the	8	111
process, but, in essence, we're asking people to	9	111
change the way they've been doing business.	10	111
Because if they get the deal done, and to some	11	111
extent, the market is motivated by profit, and	12	111
often the larger the transaction, the more fees	13	111
people receive, and we've got to take a hard look	14	111
at this issue.	15	111
GOVERNOR OLSON: Let me shift now to	16	111
Irv, but let me slide over to the short-term	17	111
profit maximization, which, I think, was obviously	18	111
very clear, Irv, in the application that you	19	111
showed us, and it's the sort of activity that we	20	111
hear anecdotally is happening, but we also have	21	111
had, historically, checks and balances in the	22	111
marketplace that isolate that behavior because	23	111
there is, in fact, a reckoning. People that	24	111
cannot pay the obligations that they have to pay	1	112
ultimately are in financial difficulty in the	2	112
mortgage and whoever is the portfolio owner of the	3	112
that mortgage has a loss on their hands.	4	112
So, what has happened, in your	5	112
judgment, to the balance in the marketplace and,	6	112
number two, you're sitting right next to a guy	7	112
representing the State of Pennsylvania, why isn't	8	112
behavior like that simply reported and dealt with?	9	112
MR. ACKELSBERG: It's reported. I	10	112
guess, Governor Olson, the first thing I'd like to	11	112
respond to, is, this assumption that there is this	12	112
reckoning, and it was obviously touched on in the	13	112
last panel, that nobody wants to foreclose and so,	14	112
obviously, that's not -- we're all trying to avoid	15	112
that. I think that yes, foreclosures tend to be a	16	112
loss in that one little case, but that's not the	17	112
way it's really looked at, because these are	18	112
little cases in huge pools, and the question is	19	112
not, are you losing money on this foreclosure, but	20	112
really, in the aggregate, what kind of losses are	21	112
you suffering. Because, really, if you're pricing	22	112
up, and most of the people are paying -- so you're	23	112
not necessarily losing money. In fact, you can	24	112
have very high foreclosure rates and make a whole	1	113
lot of money. This is part of the mystery of	2	113
securitization that was, really, an amazing	3	113
discovery for me, because I've been doing this for	4	113
30 years.	5	113
I come from the days when you got a	6	113
loan from a local mortgage company or bank, the	7	113
foreclosure firm was local. It was portfolioed in	8	113
house. There were all sorts of relationships, all	9	113
sorts of accountabilities built into that market.	10	113
And now, I believe that securitization has turned	11	113
everything upside down and, really, made a lot of	12	113
the incentives very perverse.	13	113
A colleague and I, just yesterday, were	14	113
looking at the losses, the actual losses, on the	15	113
subprime pool -- you know, now that there is this	16	113
data available, we were looking at it. Just out	17	113
of the blue, we picked a New Century 2001 pool,	18	113
and what it says, is, that after five years, they	19	113
foreclosed on about 10 percent of the houses,	20	113
another 5 percent were in REO, and another 5	21	113
percent were in serious default. So basically,	22	113
you're looking at, roughly, a 20 percent failure	23	113
rate. But if you look at the cumulative losses,	24	113
it's only 1.8 percent of the original pool, or	1	114
about 44 percent a year. So it really is possible	2	114
to do a lot of foreclosing and make a lot of	3	114
money.	4	114
GOVERNOR OLSON: I can't let that	5	114
alone. I doubt that that's the case, but	6	114
nonetheless, there is -- but your fundamental	7	114
point is exactly right. There is so many changes	8	114
in the marketplace. There are opportunities for	9	114
profit maximization at the front end of the	10	114
process and the intermediate steps, and we're	11	114
discovering, now, that there are product	12	114
maximization opportunities in the foreclosure	13	114
process. All of which is very different; you're	14	114
correct.	15	114
I'm looking at the data that you have	16	114
in your second handout, and I'd like to have you	17	114
respond to this if you would. Under the	18	114
documentation types of the mortgages loans, the	19	114
stated doc, which would be the lowest doc product,	20	114
is the group that has the highest weighted average	21	114
credit score. So presumably the borrowers who	22	114
have worked and been able to develop the best	23	114
credit score are the most apt to have low doc	24	114
products. Is that consistent with -- what does	1	115
that tell you about the total securitization	2	115
package?	3	115
MR. ACKELSBERG: Well, echoing what	4	115
happened before, by the grace of God, I'm not	5	115
burdened with an economic or finance degree. I'm	6	115
just a small town, humble lawyer.	7	115
But I should say that from the	8	115
standpoint of the real people, and, again, you get	9	115
into that debate about what reasonable people do	10	115
from the economist standpoint, and not just what	11	115
people are doing, but what is happening to them in	12	115
the marketplace, because, really, our clients are	13	115
not shoppers. They are people who are being --	14	115
things are being done to them in somewhat of a	15	115
passive way. I can't really explain this.	16	115
I can tell you that we have seen loans	17	115
where the broker is offered, as an option, full	18	115
doc, no doc. It's a difference of a point. And	19	115
what it appears is that when a broker doesn't want	20	115
to be bothered with getting the verification, he	21	115
can simply agree to a no doc, because what's it to	22	115
him? I mean, if you have a broker, and we have	23	115
asked in depositions, in hearings, who do you	24	115
represent? Who do you represent? Do you	1	116
represent the lender? Do you represent the	2	116
borrower? They'll say, no, we represent only	3	116
ourselves. In that context, I don't know what	4	116
that means, but no doc just becomes another thing	5	116
that is put on people whether it's appropriate or	6	116
not.	7	116
GOVERNOR OLSON: I think that is a real	8	116
issue, but that is reinforced -- if you go down to	9	116
the second part of that page, types of mortgages	10	116
loans, again, the adjustable rate IOs, in both	11	116
cases, are also the loans that have the highest	12	116
weighted average credit score. So in the main,	13	116
what we're seeing is, the most sophisticated, if	14	116
you can use that as a proxy, borrowers are in the	15	116
low doc and the adjustable rate IO mortgages. But	16	116
that still doesn't -- your point is still valid,	17	116
that the wide range of product has allowed, at	18	116
least in some part, for abuses. We'll come back.	19	116
Moving on to David. Let me talk about	20	116
the disaggregation of the mortgage product. In my	21	116
day, which is considerably before your day, you're	22	116
right, mortgages were all portfolio products, and	23	116
you, probably, as of the time you made your final	24	116
payment, you may well have submitted that to the	1	117
person who initiated the mortgage. Over time, the	2	117
automated process has allowed every part of the	3	117
mortgage product to be disaggregated, priced, and	4	117
sold. The net effect of that has been to bring	5	117
tremendous efficiencies into the product and to	6	117
make that product available to a wider range of	7	117
the mortgage process.	8	117
It also, as you pointed out, has	9	117
allowed for profit maximization or for a lack of	10	117
holistic look, if you will, at the overall	11	117
implication of that product. I would be	12	117
interested in your reaction to that trade off.	13	117
Whether or not -- what that trade off has allowed	14	117
and the extent to which that trade off has	15	117
negative ramifications from your perspective.	16	117
MR. BLEICKEN: I think the answer to	17	117
that, sir, would be, it's like anything else in	18	117
life. We're trying to strike the right balance.	19	117
We studied mortgage foreclosures in Pennsylvania	20	117
for the last few years. The Reinvestment Fund did	21	117
a couple of studies for us.	22	117
In response to that, what we're trying	23	117
do, a couple of things come to mind. Number one,	24	117
we are putting the final touches on an examination	1	118
process. To take a look at the default rates of	2	118
our licensees, both lenders and brokers. The	3	118
tough nut to crack on that one is the brokers,	4	118
because some do, but most do not, keep track of	5	118
the default data. And the trick there is to	6	118
identify what is a good default rate, what's a bad	7	118
default rate, and then list a consequence. The	8	118
incentives approach to that would be initial	9	118
contact and then, finally, if there's no risk	10	118
solution to that, revocation.	11	118
The other part to that, as I mentioned	12	118
in my comments, we're working on some draft	13	118
documents, draft regulation on the proper time to	14	118
do business, and a draft statement policy. We	15	118
haven't disclosed it yet, so I'm not at liberty to	16	118
talk about it in detail, but the issue of	17	118
providing a rule for what should be done at the	18	118
front end to avoid the consequence at the back	19	118
end.	20	118
GOVERNOR OLSON: It will be interesting	21	118
to see that as it unfolds.	22	118
Joe, one thing is really clear, that	23	118
there are bad actors in the mortgage broker	24	118
business. I think everybody in your panel has	1	119
suggested that that is not typical. But it is a	2	119
fact. From the Washington perspective,	3	119
occasionally the Washington perspective has value,	4	119
especially when dealing with perception, it takes	5	119
only a few bad actors to generate a legislative	6	119
response by the Congress. We see this many times,	7	119
certainly, in the banking industry and in many	8	119
other industries. So what are you doing in the	9	119
way of trying to work within your own industry to	10	119
develop standards to make sure that the bad actors	11	119
don't spoil -- don't put us in the barrel, if you	12	119
will, for everybody else.	13	119
MR. FALK: First, we do believe that	14	119
there is a positive role for government to play.	15	119
We believe that licensing of originators, all	16	119
originators, not just mortgages brokers, bankers,	17	119
lenders, any one who touches a loan application,	18	119
should have minimum standards of education, submit	19	119
to criminal background checks, a barriered entry	20	119
if you will, and continuing education requirements	21	119
to maintain minimum competencies.	22	119
We've been out in the states -- I	23	119
believe we've been working with the Pennsylvania	24	119
Association of Mortgage Brokers to help the	1	120
states, or entice the states, into understanding	2	120
that the rise of this industry, this massive	3	120
explosion of loan originators of all types, has	4	120
brought with it some folks who may not have the	5	120
right motive, who ultimately do not follow	6	120
existing rules and regulations, and David, you	7	120
briefly talked about it, and quite candidly I'm	8	120
shocked and concerned about it. And I pledge to	9	120
work with your group to ferret out the co-issues	10	120
of fair credit and equal opportunity and fair	11	120
pricing.	12	120
We do believe that there should be a	13	120
registry of all originators. We've been pushing	14	120
for this for many years, but only if it's all	15	120
originators, because the problem in our industry,	16	120
because it's so fluid, as soon as you identify one	17	120
production channel for specific rules and	18	120
regulations or different disclosures, those very	19	120
distribution channels who seek to take advantage	20	120
of the underserved, will flip to a different	21	120
distribution model, will become from a mortgage	22	120
broker to a net branch operator, or flip to	23	120
working for a depository institution or a lender.	24	120
So our view is, all origination companies should	1	121
have the same disclosure statutes. We endorse	2	121
licensing of all originators, and we endorse some	3	121
kind of a multi-state process to ferret out the	4	121
bad actors, so they cannot go from state to state.	5	121
GOVERNOR OLSON: That's very broad, but	6	121
within your own industry, do you have expectations	7	121
for your own industry for what the mortgage broker	8	121
should or should not do? Do you have a standard	9	121
of conduct, for example, in the industry?	10	121
MR. FALK: Yes, we have a Best	11	121
Practices Guide for all of our members.	12	121
GOVERNOR OLSON: Jack, you are part of	13	121
the solution, it appears to us, because the	14	121
opportunity is to shop, to do comparative	15	121
shopping. Overwhelmingly, what we're hearing is	16	121
that education and financial literacy is probably	17	121
the number one defense to a lot of practices, for	18	121
all the reasons that we were talking about. What	19	121
kind of a -- number one, are you exclusively on	20	121
the Internet, and is the Internet, does that, by	21	121
definition, leave out a portion of the market that	22	121
you might be able to serve, and is your example	23	121
being replicated in other markets, for example, or	24	121
in other groups?	1	122
MR. GUTTENTAG: When the federal	2	122
borrowers ask me where to go, how to get along, I	3	122
think in terms of two possible channels. One	4	122
channel is the Internet, and the Internet -- I	5	122
send them to the Internet because the Internet is	6	122
the one part of the market where you can shop	7	122
effectively, get accurate prices that lenders will	8	122
stand by as opposed to come-on prices, and where	9	122
they provide information up front about lender	10	122
fees, third party fees, and the rest of it.	11	122
Now, there are a lot of Web sites that	12	122
do that. There are probably, if you count up all	13	122
the mortgage Web sites run by mortgage loan	14	122
providers in the country, they would probably be	15	122
on the order of 30 or 40 or 50,000. I identified	16	122
17 on my Web site that are worth shopping at, in	17	122
the sense that they provide the information that	18	122
allows people to identify their own price online.	19	122
Now, shopping online requires a certain	20	122
amount of knowledge, ability, access to a	21	122
computer, ability to understand some things, so	22	122
it's not for everybody.	23	122
So the second channel has to do with	24	122
sending people to a trusted loan advisor, someone	1	123
they can deal with and have some confidence that	2	123
the loan advisor will treat them fairly. These	3	123
are the people that I send to up front mortgage	4	123
brokers. Now, I can't guarantee the effectiveness	5	123
of all of these brokers. What I can guarantee is	6	123
that the brokers will sit down with them and	7	123
discuss their fee as part of their initial	8	123
discussions, and a fee will be arranged between	9	123
the broker and the customer which will cover all	10	123
the broker services and will include any extra	11	123
premium that the broker receives from the lender.	12	123
So, at that point, the transaction	13	123
swings from the, kind of, independent contractor	14	123
model, which in the mortgage broker industry is	15	123
standard, to a type of agency relationship where	16	123
the broker is now operating in the interest of the	17	123
borrower and passes through the best wholesale	18	123
price that he can find in the market.	19	123
MR. CHANIN: Let me follow-up on that	20	123
in a little bit. Directly or indirectly, the	21	123
panel has seemed to identify three issues of	22	123
problems with mortgage brokers. One is, what I'll	23	123
call, fraud, overstating income appraisal problem	24	123
and the like; the second is potential	1	124
discrimination in terms of providing different	2	124
information to borrowers on a prohibited basis	3	124
based on race; and third, is this last one that	4	124
Jack mentioned, and that is, different information	5	124
being received by a consumer from a broker.	6	124
I'd like to focus on that last one.	7	124
Other than the Internet and these trusted	8	124
advisors, what other processes can be developed to	9	124
try and ensure that consumers get, either more	10	124
information or better information about loan	11	124
products, different products that might be best	12	124
for them, and so forth, when they go to a mortgage	13	124
broker, since, at least, two-thirds or more	14	124
consumers go to mortgages brokers to get their	15	124
loan products.	16	124
MR. BERENBAUM: I'd like to jump in on	17	124
that. First, let me say that I think the Federal	18	124
Reserve can play a very important role in	19	124
addressing this issue. I have spoken with many	20	124
state regulators, many professionals in the	21	124
mortgage industry, in the appraisal industry,	22	124
everyone universally acknowledges that both	23	124
federal regulators and state regulators are	24	124
underresourced and underfunded for enforcement	1	125
even of existing laws. And we fully support the	2	125
efforts of all the federal agencies to enforce	3	125
fair lending laws, to enforce consumer protection	4	125
laws, but this is a major issue that the Federal	5	125
Reserve could report this issue out to Congress,	6	125
that there's a need for more resources as a result	7	125
of financial marketization.	8	125
As well, let me say that lenders,	9	125
meaning originators, service corporations, and	10	125
banks, play an important role in this process.	11	125
Because, in fact, they are the ones, in many	12	125
cases, working with the wholesale marketplace,	13	125
with mortgage brokers. Some lenders have placed	14	125
parameters on the type of product that they will	15	125
originate with mortgage brokers to control for the	16	125
compliance issues, whether it be fair lending,	17	125
predatory lending, or fraud issues that they are	18	125
seeing in the marketplace. Other lenders are	19	125
pulling out of markets, altogether. Some are	20	125
leaving it to Wall Street to buy certain types of	21	125
credit.	22	125
I'll share a quick story. I was	23	125
recently invited to speak at a Wall Street	24	125

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