Building Sustainable Homeownership:
Responsible Lending and Informed Consumer Choice
Federal Reserve Bank of Philadelphia
10 Independence Mall, Philadelphia, Pennsylvania 19106
June 9, 2006
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Pages 1-25 | 26-50 | 51-75 | 76-100 | 101-125 | 126-150 | 151-175 | 176-200 | 201-221
| Transcript | Line | Page |
|---|---|---|
| investment house. There were global real estate | 1 | 126 |
| securitizers, purchasers from everywhere around | 2 | 126 |
| the world. They have calculated the loss to their | 3 | 126 |
| mortgages. It affirms what Mr. Ackelsberg had | 4 | 126 |
| said. They were not worried about losses. They | 5 | 126 |
| were looking at their pool. I did not, sadly, get | 6 | 126 |
| their attention until I said the words, asimee | 7 | 126 |
| (phonetic) liability. And that is a fact of life, | 8 | 126 |
| and that is an unfortunate fact of life. | 9 | 126 |
| But that said, even in Ohio, where we | 10 | 126 |
| have a brand new state bill, a meaningful state | 11 | 126 |
| bill, just signed by the governor, it carves out | 12 | 126 |
| the entire wholesale marketplace. This is an | 13 | 126 |
| issue that the Fed needs to make some strong | 14 | 126 |
| recommendations about. Because we all have an | 15 | 126 |
| integrated marketplace. We all relate to each | 16 | 126 |
| other. When I work with a lender who's holding a | 17 | 126 |
| paper, a responsible lender, I can stall a | 18 | 126 |
| foreclosure for two years with the lender's | 19 | 126 |
| cooperation, and thank you to all of you in the | 20 | 126 |
| room who work with us to do that, to put a | 21 | 126 |
| consumer -- give them a fresh start. Often, | 22 | 126 |
| though, when I'm dealing with a Wall Street | 23 | 126 |
| investment house, that foreclosure proceeds, and | 24 | 126 |
| the reason that the servicer tells us, the | 1 | 127 |
| investor is not willing to wait any longer, even | 2 | 127 |
| if we're saying the consumer's getting a job, even | 3 | 127 |
| if we're saying there's a predatory appraisal, and | 4 | 127 |
| then it becomes the last resort of the attorneys. | 5 | 127 |
| We've got to bring this marketplace together. | 6 | 127 |
| MR. GUTTENTAG: The most important | 7 | 127 |
| source of information to borrowers is what they | 8 | 127 |
| get from mandatory disclosures. Because those | 9 | 127 |
| they get with every transaction, and the two sets | 10 | 127 |
| of mandatory disclosures come from the Federal | 11 | 127 |
| Reserve and from Truth in Lending. The Fed and | 12 | 127 |
| Truth in Lending, we'll leave that out for the | 13 | 127 |
| moment, because they are not represented here. | 14 | 127 |
| The mandatory disclosures under Truth in Lending | 15 | 127 |
| are an unmitigated disaster. There's a real | 16 | 127 |
| question as to whether or not they do more good | 17 | 127 |
| than harm. The Fed seems to be quite unresponsive | 18 | 127 |
| to the problems connected with Truth in Lending. | 19 | 127 |
| It's not a high priority issue for the Federal | 20 | 127 |
| Reserve. They have much more important fish to | 21 | 127 |
| fry than this responsibility. | 22 | 127 |
| So I've been railing about Truth in | 23 | 127 |
| Lending for years and years and years. The | 24 | 127 |
| deficiencies are glaring. They get worse all the | 1 | 128 |
| time, and nothing seems to be done. | 2 | 128 |
| MR. CHANIN: Let me respond to that. | 3 | 128 |
| The Fed is undertaking for open-end, revolving | 4 | 128 |
| credit, wholesale review of those disclosures, and | 5 | 128 |
| we are going to do the same for closed-end credit | 6 | 128 |
| sometime over the next couple of years. That will | 7 | 128 |
| include using focus groups, bringing consumers in | 8 | 128 |
| from various regions throughout the country. So I | 9 | 128 |
| can tell you, the Fed is very concerned about | 10 | 128 |
| that. We've talked with consumers, with lenders, | 11 | 128 |
| with state regulators, with other agencies, | 12 | 128 |
| etcetera, so we are going to look very closely at | 13 | 128 |
| all of those disclosures on Truth in Lending to | 14 | 128 |
| try to see if we can make them more simple, more | 15 | 128 |
| understandable and more usable by the consumers. | 16 | 128 |
| MR. ACKELSBERG: Mr. Chanin, in terms | 17 | 128 |
| of the question you asked, I actually have three | 18 | 128 |
| responses I'd like to make. The first is that you | 19 | 128 |
| listed fraud, discrimination, and the information | 20 | 128 |
| problem. I would list a fourth, which is, | 21 | 128 |
| basically, a structural conflict of interest. | 22 | 128 |
| It's not defined, who this person -- who is this | 23 | 128 |
| person? The borrower generally believes that this | 24 | 128 |
| is someone who's there, who has specialized | 1 | 129 |
| information that's going to help them. There | 2 | 129 |
| really is a fiduciary kind of understanding the | 3 | 129 |
| borrower has, to the extent the borrower even | 4 | 129 |
| knows that he's talking about a broker, because | 5 | 129 |
| that's the other side of the problem. | 6 | 129 |
| In Pennsylvania, a broker doesn't even | 7 | 129 |
| have to identify himself as a broker; that's not | 8 | 129 |
| part of the rules. And they all use the name | 9 | 129 |
| mortgage company in their name. | 10 | 129 |
| So who are you dealing with? Most | 11 | 129 |
| people think they're lenders, but to the extent | 12 | 129 |
| they think they're financial advisors of some | 13 | 129 |
| sort, there really is a kind of fiduciary | 14 | 129 |
| expectation, which, I believe, is exploited, and | 15 | 129 |
| until this is really pinned down, what the heck is | 16 | 129 |
| this broker doing there? Who is he representing? | 17 | 129 |
| I think we're going to have this problem. | 18 | 129 |
| The second thing I want to say, is that | 19 | 129 |
| I believe that this is, in the end, not simply a | 20 | 129 |
| problem with information. In fact, I would say, | 21 | 129 |
| in the end, that information isn't the biggest | 22 | 129 |
| problem. I hope, at some point, we'll get into | 23 | 129 |
| some differences between the purchase and | 24 | 129 |
| refinance market, but particularly in the | 1 | 130 |
| refinance market, you have to understand, people | 2 | 130 |
| really aren't shopping. That's not people's | 3 | 130 |
| understanding of what is happening. They're | 4 | 130 |
| getting windows. This is how you get the windows. | 5 | 130 |
| Or, this guy tells me somehow combining all my | 6 | 130 |
| bills is a good idea. Okay, I'll do it. They're | 7 | 130 |
| not shopping for a product. | 8 | 130 |
| So, the whole question of information, | 9 | 130 |
| I think, has to be really turned and looked at, | 10 | 130 |
| slightly differently than, I think, the | 11 | 130 |
| traditional Truth in Lending construct has us look | 12 | 130 |
| at it. I think what we really need are some | 13 | 130 |
| rules, because the market is out of control, and | 14 | 130 |
| some things, we have to agree, shouldn't happen. | 15 | 130 |
| A lady with $620 a month in income shouldn't end | 16 | 130 |
| up with the loan that I showed you. But even in | 17 | 130 |
| terms of information, certainly things could be | 18 | 130 |
| better. And I think that the interagency guide | 19 | 130 |
| started moving in the right direction because | 20 | 130 |
| there was an acknowledgment that, it's not just | 21 | 130 |
| what you say, but when you say it. You have to | 22 | 130 |
| understand that -- I mean, the loan application, | 23 | 130 |
| in almost all the cases I see, aside from the | 24 | 130 |
| closing, nobody's applying for this loan, really. | 1 | 131 |
| So how do you structure a meaningful -- | 2 | 131 |
| as meaningful as possible disclosure that will | 3 | 131 |
| reach some borrowers, and it's got to be early on. | 4 | 131 |
| But remember, state law here doesn't even require | 5 | 131 |
| the broker to have an agreement. People are | 6 | 131 |
| signing things at closing, I agree, you can pay | 7 | 131 |
| this money to the broker. They don't even know | 8 | 131 |
| what a broker is. | 9 | 131 |
| But, certainly, if there could be some | 10 | 131 |
| early on disclosure about what is actually | 11 | 131 |
| happening, that would help, but, again, when | 12 | 131 |
| someone is getting an unaffordable loan, they | 13 | 131 |
| don't need a disclosure saying, we believe you | 14 | 131 |
| can't afford this loan. That loan isn't being | 15 | 131 |
| made, and we need systems to make sure that that | 16 | 131 |
| loan's not being made and we've got to, echoing | 17 | 131 |
| David, focus on the secondary market because | 18 | 131 |
| unless -- we saw what happened with HOEPA. HOEPA | 19 | 131 |
| has worked. When I started seeing these crazy | 20 | 131 |
| loans, 10 points, 20 points, all of a sudden, the | 21 | 131 |
| secondary market is responsible for all borrower | 22 | 131 |
| claims and defenses. All of a sudden, we started | 23 | 131 |
| -- now, granted, some of them are Delta funding, | 24 | 131 |
| 7.9 percent in points, and I believe that if you | 1 | 132 |
| take the authority that you have, you can civilize | 2 | 132 |
| this market, because it's desperately in need of | 3 | 132 |
| civilizing, and once you impose standards that | 4 | 132 |
| will stick with those loans, just like HOEPA | 5 | 132 |
| sticks with the loans, the secondary market will | 6 | 132 |
| do the enforcing for you. | 7 | 132 |
| MR. FALK: I'm the only industry | 8 | 132 |
| panelist here, and I think sometimes I'm living in | 9 | 132 |
| an altered state, because I'm seeing the most | 10 | 132 |
| robust mortgage marketplace in the history of our | 11 | 132 |
| country. I'm seeing the highest level of | 12 | 132 |
| homeownership in the history of our country. I'm | 13 | 132 |
| seeing an incredible number of competitors, | 14 | 132 |
| competing forces, making mortgages loans and | 15 | 132 |
| providing consumer choice all over the country at | 16 | 132 |
| record numbers. If we have an ilk, is it such a | 17 | 132 |
| bad thing to have so many options? Yes, we need | 18 | 132 |
| to increase the disclosures and deal with | 19 | 132 |
| nontraditional products, but I would rather have | 20 | 132 |
| the problem of more disclosures and more | 21 | 132 |
| information with more products, than restricting | 22 | 132 |
| products, restricting access to data and | 23 | 132 |
| restricting the very options that an awful lot of | 24 | 132 |
| consumers need. | 1 | 133 |
| So, for an awful lot of products, I | 2 | 133 |
| think more products is good, and we as an industry | 3 | 133 |
| have to do a better job at disclosing them. I'm | 4 | 133 |
| all for more competition. Welcome to Florida. We | 5 | 133 |
| have 65,000 mortgage brokers in Florida. So, | 6 | 133 |
| many, many competitors in the marketplace on every | 7 | 133 |
| street corner. | 8 | 133 |
| I would share with you that adding a | 9 | 133 |
| fiduciary responsibility or an agency | 10 | 133 |
| responsibility to the mortgage broker community as | 11 | 133 |
| a whole, would more confuse the marketplace than | 12 | 133 |
| it is now. I think that it's healthy for the | 13 | 133 |
| consumer to understand that the mortgage broker, | 14 | 133 |
| the mortgage lender, whoever the outlet is, | 15 | 133 |
| whether it's the builder mortgage company, we are | 16 | 133 |
| mortgage companies. If you would like to shop for | 17 | 133 |
| a loan from us, that's great, but we owe you no | 18 | 133 |
| higher duty than to be honest and to be fair, to | 19 | 133 |
| follow the rules and regulations, and, of course, | 20 | 133 |
| follow the RESPA guidelines on Truth in Lending | 21 | 133 |
| and all of the other factors that are involved. | 22 | 133 |
| So, to me, listening to everybody | 23 | 133 |
| complain about the mortgage broker industry, it's | 24 | 133 |
| as if we were at a bad time in our economy and | 1 | 134 |
| distribution channel in the mortgage industry, and | 2 | 134 |
| I would venture to say we're in a very, very good | 3 | 134 |
| time with some limited problems. | 4 | 134 |
| MR. BLEICKEN: If your original | 5 | 134 |
| question was, how can we do better with our | 6 | 134 |
| disclosures, one -- in the proposed rules that | 7 | 134 |
| we're looking at, one thing I can talk about is, | 8 | 134 |
| we're trying to do the impossible and boil it down | 9 | 134 |
| to one page, in the simplest terms. | 10 | 134 |
| The second thing is, is there a role | 11 | 134 |
| for electronic media to play in the disclosure | 12 | 134 |
| process? People get buried in the paper. So | 13 | 134 |
| maybe there's a place to use visual, | 14 | 134 |
| computer-generated images and audio. In the | 15 | 134 |
| modern age, people will sit through a three-minute | 16 | 134 |
| audio-visual presentation as opposed to looking | 17 | 134 |
| through something in the paper. | 18 | 134 |
| MR. GUTTENTAG: I agree with Irv that | 19 | 134 |
| brokers should be mandated to be agents of the | 20 | 134 |
| borrower. Now, I don't take that position | 21 | 134 |
| lightly, but I think the major reason is that | 22 | 134 |
| borrowers cannot shop brokers effectively. I made | 23 | 134 |
| the point before that the only way to shop | 24 | 134 |
| effectively in this market is to shop online. You | 1 | 135 |
| can't shop brokers effectively, and you can't shop | 2 | 135 |
| lenders -- loan officers effectively. There's | 3 | 135 |
| just too many errors. | 4 | 135 |
| To begin with, the prices in this | 5 | 135 |
| market are volatile. They change every day. So | 6 | 135 |
| if you're going to get an apples to apples | 7 | 135 |
| comparison, you have to shop everybody on the same | 8 | 135 |
| day, which is very difficult. It's also very | 9 | 135 |
| difficult to get the correct price. The woods are | 10 | 135 |
| full of sunshine blowers who quote prices that | 11 | 135 |
| they have no capacity to deliver, and no intention | 12 | 135 |
| to deliver, for the sole purpose of getting the | 13 | 135 |
| buyer in the door and starting them on the | 14 | 135 |
| process. And then at a later stage, when it's too | 15 | 135 |
| late for them to go anywhere else, the price will | 16 | 135 |
| be raised, when the point is reached where the | 17 | 135 |
| price is locked. | 18 | 135 |
| If you try and get an accurate price by | 19 | 135 |
| calling up lenders on the telephone or calling up | 20 | 135 |
| brokers on the telephone, you'll get one of two | 21 | 135 |
| responses. Either, we don't quote prices on the | 22 | 135 |
| phone; come in and see us, or they quote the price | 23 | 135 |
| for the absolute most pristine instrument that | 24 | 135 |
| they have to offer and the probabilities are about | 1 | 136 |
| 95 percent that that price does not apply to the | 2 | 136 |
| person making the telephone call. | 3 | 136 |
| Those are just some of the reasons why | 4 | 136 |
| effective shopping in this market is impossible, | 5 | 136 |
| except online, as I indicated before. Since the | 6 | 136 |
| majority of people go to a broker and that's the | 7 | 136 |
| only broker that -- they may flit around from one | 8 | 136 |
| broker to another, but they're not really | 9 | 136 |
| shopping. They're looking for a broker, someone | 10 | 136 |
| that they feel comfortable with, and that is a | 11 | 136 |
| process that really calls for an agency | 12 | 136 |
| relationship, not for an independent contractor | 13 | 136 |
| model, where the broker is getting as much as he | 14 | 136 |
| possibly can out of that transaction. | 15 | 136 |
| MS. BRAUNSTEIN: Irv, I'd like to | 16 | 136 |
| follow-up with you for a second. You made a | 17 | 136 |
| statement that HOEPA worked, and I want to bask in | 18 | 136 |
| that. No, I would like to follow-up on you, but I | 19 | 136 |
| guess what I'm getting from your comments is, | 20 | 136 |
| since then, the market has evolved in such a way | 21 | 136 |
| that it no longer is taking care of all the issues | 22 | 136 |
| that it could have possibly taken care of six | 23 | 136 |
| years ago. | 24 | 136 |
| So, can you get a little more specific | 1 | 137 |
| with us, in terms of what kinds of things do you | 2 | 137 |
| think we should do, that we have not done with it, | 3 | 137 |
| to address the issues today. | 4 | 137 |
| MR. ACKELSBERG: First, let me start | 5 | 137 |
| with, just, point to the authority of the board, | 6 | 137 |
| which, it's funny, we get so caught up in the | 7 | 137 |
| HOEPA framework, that we sometimes lose sight with | 8 | 137 |
| the rather broad responsibility that Congress did | 9 | 137 |
| give the board. If you look at section 1639 of | 10 | 137 |
| HOEPA, and I didn't realize this until I pulled it | 11 | 137 |
| last night, that it's mandatory, the board | 12 | 137 |
| regulations, the word, "shall." That's pretty | 13 | 137 |
| strong. Usually, it's "may," but this says, | 14 | 137 |
| "shall prohibit extra practices in connection | 15 | 137 |
| with," and then there's two subdivisions. One is | 16 | 137 |
| evasions of HOEPA, but the other is, "the | 17 | 137 |
| refinancing shall prohibit acts or practices in | 18 | 137 |
| connection with refinancing of mortgage loans the | 19 | 137 |
| board finds to be associated with abusive lending | 20 | 137 |
| practices." It doesn't require that -- we're not | 21 | 137 |
| talking about HOEPA laws. This is a very broad | 22 | 137 |
| authority that Congress said, you shall perform. | 23 | 137 |
| I would say, we've come to the point, | 24 | 137 |
| given the fact that the market has evolved and | 1 | 138 |
| that big problems are no longer the amount of the | 2 | 138 |
| points or the size of the rate, it's the -- there | 3 | 138 |
| are structural issues here, in the loan terms, | 4 | 138 |
| suitability issues, whether this loan makes any | 5 | 138 |
| sense, or I would say, the real collapse of | 6 | 138 |
| underwriting, because I don't think this is -- | 7 | 138 |
| we're talking about a totally changed environment. | 8 | 138 |
| I think the board has to act where it should act. | 9 | 138 |
| I would say, first, within the HOEPA | 10 | 138 |
| world, the HOEPA framework, the whole question of | 11 | 138 |
| yield spread premiums needs to be looked at. In | 12 | 138 |
| particular, what I feel is the most abusive | 13 | 138 |
| situation, is when the broker is getting paid on | 14 | 138 |
| both ends. Because when the broker is paid by the | 15 | 138 |
| borrower, there is at least a monetary | 16 | 138 |
| reinforcement of the borrower's perception that | 17 | 138 |
| the broker is working for him. He's thinking, he | 18 | 138 |
| got me this loan, he's getting a fee, I'm paying | 19 | 138 |
| for that fee. But when the lender also pays a | 20 | 138 |
| fee, and the trade, in return for that fee, the | 21 | 138 |
| rate's going up, I believe that there has been a | 22 | 138 |
| fundamental interference with at least the | 23 | 138 |
| perceived obligations of the broker that the | 24 | 138 |
| borrower has. So one thing that you could do very | 1 | 139 |
| easily is include the YSP in the HOEPA | 2 | 139 |
| calculation, at least, where there is also a front | 3 | 139 |
| end broker fee charge. That's one thing I would | 4 | 139 |
| say within HOEPA. | 5 | 139 |
| Another thing I believe is, that you | 6 | 139 |
| have to really get a hand on ability to pay. And | 7 | 139 |
| by "ability to pay", I think we can -- it takes in | 8 | 139 |
| so many things, and again, I think the interagency | 9 | 139 |
| guidance is an important first step. Some of | 10 | 139 |
| these exotic products are completely inappropriate | 11 | 139 |
| for many of the people that are ending up with | 12 | 139 |
| them. Someone on a fixed income should not be in | 13 | 139 |
| an adjustable program, period. It just doesn't | 14 | 139 |
| make any sense. Maybe we can come up with some | 15 | 139 |
| example where the person is going to sell their | 16 | 139 |
| house in two years, but that's not the context of | 17 | 139 |
| most of these cases. It should not be adjustable. | 18 | 139 |
| The no docs are, I would say, a sin. | 19 | 139 |
| No doc loans, you depose people in the industry, | 20 | 139 |
| they call them liar loans. That's what they call | 21 | 139 |
| them. Stated income loans, no doc, why do we have | 22 | 139 |
| those? We are not talking about coming up with | 23 | 139 |
| alternative forms of verification. I believe in | 24 | 139 |
| that. I believe if someone has nontraditional | 1 | 140 |
| expenses or -- sure you have to find a way to | 2 | 140 |
| verify that, but verify it. Most of the stated | 3 | 140 |
| loans we have seen, go to people who can't afford | 4 | 140 |
| the payment so they make up a babysitting company, | 5 | 140 |
| or rental income, or something that just doesn't | 6 | 140 |
| exist, and, again, the applications that they're | 7 | 140 |
| signing that supposedly state this loan -- it's | 8 | 140 |
| signed at the closing after -- half the time -- | 9 | 140 |
| I've actually asked at depositions, do you sign | 10 | 140 |
| the mortgage first or do you sign the application | 11 | 140 |
| first? And believe it or not, the mortgage is | 12 | 140 |
| signed first. They get the mortgage signed, the | 13 | 140 |
| Truth in Lending signed, and then the application | 14 | 140 |
| signed. And that's where it states, babysitting. | 15 | 140 |
| GOVERNOR OLSON: Irv, the information | 16 | 140 |
| you handed out contradicts what you just said. | 17 | 140 |
| Because the information that you passed out said | 18 | 140 |
| that the stated documentation for the low doc -- | 19 | 140 |
| MR. ACKELSBERG: This is not a stated | 20 | 140 |
| loan. This particular example I gave you was a | 21 | 140 |
| fully documented loan. | 22 | 140 |
| MS. BRAUNSTEIN: He's talking about | 23 | 140 |
| the -- | 24 | 140 |
| GOVERNOR OLSON: There's another issue | 1 | 141 |
| that you raised that I think is a very important | 2 | 141 |
| issue that I think is worth talking about. And | 3 | 141 |
| that is, the difference between the purchase loans | 4 | 141 |
| and re-fi market. I think you raised -- that's an | 5 | 141 |
| issue that we should talk about. Let me start | 6 | 141 |
| with Joe and then come back to you. As we, in the | 7 | 141 |
| macro level, look at the mortgage product, and | 8 | 141 |
| people in this room would be surprised by the | 9 | 141 |
| amount of attention that the Federal Reserve pays | 10 | 141 |
| mortgage markets in the real estate industry; it's | 11 | 141 |
| an enormous engine of economic activity. From our | 12 | 141 |
| perspective, the re-fi volatility correlates with | 13 | 141 |
| interest rates in a very significant way, and when | 14 | 141 |
| interest rates are down, or dropping, the re-fi is | 15 | 141 |
| very fast. It accelerates during -- as it comes | 16 | 141 |
| up, and then it drops off dramatically. But I'm | 17 | 141 |
| interested in your perspective in what happens in | 18 | 141 |
| terms of the role of the brokers, the volume, if | 19 | 141 |
| you will, at that time, and Irv, I'd be interested | 20 | 141 |
| in your perspective, too, about what you see, and | 21 | 141 |
| the difference between -- if that same phenomena | 22 | 141 |
| occurs from your perspective. | 23 | 141 |
| MR. FALK: When interest rates go down, | 24 | 141 |
| there's a flurry of refinancing; as rates start to | 1 | 142 |
| go up, people in variable rate or hybrid loans, | 2 | 142 |
| 228s, 525s, ultimately, will try to refinance into | 3 | 142 |
| a fixed-rate loan. We're starting to see that | 4 | 142 |
| now. So activity in the small mortgage company | 5 | 142 |
| business will tend to reflect the macro statistics | 6 | 142 |
| of volume. As rates go down or go up, you will | 7 | 142 |
| see variations in refinancing opportunities. | 8 | 142 |
| GOVERNOR OLSON: Irv, and then we'll | 9 | 142 |
| come back to Jack. | 10 | 142 |
| MR. ACKELSBERG: First, let me say that | 11 | 142 |
| from the standpoint, even from the business | 12 | 142 |
| standpoint, I think that the purchase and re-fi | 13 | 142 |
| situation is different. I really believe that, in | 14 | 142 |
| a lot of ways, on the purchase side that what | 15 | 142 |
| we're seeing are just more and more clever, | 16 | 142 |
| ingenious ways, of enabling people to buy houses | 17 | 142 |
| they can't fundamentally afford. That's a lot of | 18 | 142 |
| what is going on in the marketplace. | 19 | 142 |
| In the re-fi, it's very different. I | 20 | 142 |
| think that the situation's different and the | 21 | 142 |
| possible solutions are different. I think that in | 22 | 142 |
| the home purchase situation, we have a better shot | 23 | 142 |
| at things like counseling having an impact. We | 24 | 142 |
| have, in the City of Philadelphia, a program of | 1 | 143 |
| neighborhood based, prepurchase counseling that's | 2 | 143 |
| been moderately effective. I think that if you | 3 | 143 |
| can get to the borrower early, and the hook is | 4 | 143 |
| that this city will pay a little bit of settlement | 5 | 143 |
| costs. And at one point, there was an inspection. | 6 | 143 |
| That disappeared, but there's still this $800 | 7 | 143 |
| settlement grant, a little bit of a hook. | 8 | 143 |
| The problem is a lot of times the | 9 | 143 |
| brokers, real estate and mortgages brokers, will | 10 | 143 |
| discourage going to the counseling, because | 11 | 143 |
| they're not eager about what the counselor might | 12 | 143 |
| tell them, but I still think counseling can help, | 13 | 143 |
| particularly at the purchase stage. The borrower | 14 | 143 |
| is in a kind of shopping mode. The difficulty, | 15 | 143 |
| and this is true whether -- as a consumer buying a | 16 | 143 |
| house or buying a car. People don't understand | 17 | 143 |
| that they're buying a thing and money at the same | 18 | 143 |
| time. They don't understand that you have to shop | 19 | 143 |
| for both and you're much better shopping | 20 | 143 |
| separately. People don't understand that. I | 21 | 143 |
| think when they're shopping for a house, you have | 22 | 143 |
| a shot at telling -- educating them that they | 23 | 143 |
| should be shopping for the best deal on the money. | 24 | 143 |
| But in the re-fi, you've got to | 1 | 144 |
| understand that most of these transactions that we | 2 | 144 |
| see are not people looking for a better rate. | 3 | 144 |
| That's the old world. That's what re-fi meant | 4 | 144 |
| before. Is still means that to some extent, but | 5 | 144 |
| the market that we're looking at here is not about | 6 | 144 |
| that. The purpose of the loan, every single | 7 | 144 |
| application that I've seen, says, cash out re-fi, | 8 | 144 |
| that's the purpose of the loan. The real purpose | 9 | 144 |
| of the loan, windows, or a broker came and said | 10 | 144 |
| you'd be better off consolidating your bills. I | 11 | 144 |
| mean, there's a problem and an offered solution, | 12 | 144 |
| really, much like financial advice, and I believe | 13 | 144 |
| that thinking in terms of information and | 14 | 144 |
| disclosures and education in that context is much | 15 | 144 |
| tougher, because people don't perceive that | 16 | 144 |
| they're in a shopping situation. This is what the | 17 | 144 |
| guy says I have to do to get my windows and it | 18 | 144 |
| will be good for me. So you really need a | 19 | 144 |
| different construct than the re-fi. | 20 | 144 |
| GOVERNOR OLSON: Jack you wanted to | 21 | 144 |
| comment on this subject. | 22 | 144 |
| MR. GUTTENTAG: I agree with everything | 23 | 144 |
| that Irv said about this. This is an area that is | 24 | 144 |
| fraught with bad decisions. I get letters about | 1 | 145 |
| these issues all the time, and the problem is that | 2 | 145 |
| the issues are very, very complicated. | 3 | 145 |
| Oftentimes, the people who are solicited to | 4 | 145 |
| refinance, and most of them are cash out | 5 | 145 |
| refinances, occasionally it's a payment reduction | 6 | 145 |
| refinance rather than a cash out, but, in either | 7 | 145 |
| case, you often have a very complicated situation | 8 | 145 |
| because the borrower may have a second mortgage in | 9 | 145 |
| addition to the first mortgage, and he often has | 10 | 145 |
| short-term credit card debt, which he wants to | 11 | 145 |
| refinance, to consolidate, and in fact, the pitch | 12 | 145 |
| that he gets from the solicitor may be a pitch to | 13 | 145 |
| consolidate everything. | 14 | 145 |
| So you have a very complex situation | 15 | 145 |
| that really requires a careful analysis of the | 16 | 145 |
| costs that he's now incurring and frequently | 17 | 145 |
| they're not even completely sure of what those | 18 | 145 |
| are, especially if they have an adjustable rate | 19 | 145 |
| mortgage, they don't know what the rate is likely | 20 | 145 |
| to be with the next adjustment. They're not quite | 21 | 145 |
| sure when the next adjustment is. They're | 22 | 145 |
| complicated situations, and the ones that I have | 23 | 145 |
| taken the time to look at and to run through my | 24 | 145 |
| calculators, and I forgot the number of | 1 | 146 |
| calculators designed to deal with these kinds of | 2 | 146 |
| problems, oftentimes, most of the time, the deals | 3 | 146 |
| that are proposed are not in the borrowers | 4 | 146 |
| interest. | 5 | 146 |
| MR. BERENBAUM: Very quickly. Back to | 6 | 146 |
| stated income for a moment, I think the attorney | 7 | 146 |
| general's settlement with Ameriquest gets a very | 8 | 146 |
| big guidance with regard to stated income and | 9 | 146 |
| could serve as something within 15USC1639. It's a | 10 | 146 |
| good approach to the issue. Relative to first | 11 | 146 |
| time mortgage versus re-fi, frankly, we're seeing | 12 | 146 |
| an explosion of problems with first-time | 13 | 146 |
| homebuyers, appraisals, a lot of other issues, | 14 | 146 |
| particularly target that Latino community, | 15 | 146 |
| first-time homebuyers emerging in the markets, and | 16 | 146 |
| we're very troubled by that. I think it's an area | 17 | 146 |
| of future focus for all of the regulators. | 18 | 146 |
| And then, I'd like to say, another | 19 | 146 |
| area, as we're looking ahead now, would be broader | 20 | 146 |
| steer protections. First, I will never accept, | 21 | 146 |
| nor do I believe anyone in our society should | 22 | 146 |
| accept, the fact that African-Americans, Latinos, | 23 | 146 |
| low-income communities, do not have the same | 24 | 146 |
| access to credit, are not afforded the same loans | 1 | 147 |
| that are viable, they're suitable, based on risk. | 2 | 147 |
| We should have zero tolerance on that. But it's | 3 | 147 |
| not simply limited to the race issue in this | 4 | 147 |
| nation. It is much broader than that, and we see | 5 | 147 |
| elderly and others being steered to products that | 6 | 147 |
| are very inappropriate. So we need a broader | 7 | 147 |
| standard and guidance with regard to what is | 8 | 147 |
| appropriate to all Americans, regardless of race | 9 | 147 |
| and society. | 10 | 147 |
| MS. BRAUNSTEIN: Can I just ask a | 11 | 147 |
| question. In terms of your testing study, David, | 12 | 147 |
| that you did, how did you choose the brokers that | 13 | 147 |
| you approached? Were they ones who advertised | 14 | 147 |
| heavily in the African-American communities? How | 15 | 147 |
| did you -- | 16 | 147 |
| MR. BERENBAUM: It was actually -- I | 17 | 147 |
| believe very seriously that any private | 18 | 147 |
| organization acting as a private attorney general | 19 | 147 |
| needs to be very objective in its approach. We, | 20 | 147 |
| in fact, polled government agencies, and not all | 21 | 147 |
| cooperated, but we did receive information from a | 22 | 147 |
| number. | 23 | 147 |
| We looked at fraud hot spots reported | 24 | 147 |
| by the FBI and other regulators. A number of | 1 | 148 |
| industry leaders, "responsible lenders," are still | 2 | 148 |
| frustrated over what they're seeing in the | 3 | 148 |
| marketplace, not really brokers, but overall in | 4 | 148 |
| the marketplace, they're turning over do not use | 5 | 148 |
| lists very openly, quite candidly, now. And these | 6 | 148 |
| lists are being openly shared by industry leaders. | 7 | 148 |
| And then, also, of course, based on our | 8 | 148 |
| 600 members, what they're seeing in the community, | 9 | 148 |
| who they suggest we look at. And then we also | 10 | 148 |
| looked at market share, when we had larger | 11 | 148 |
| companies. | 12 | 148 |
| MS. BRAUNSTEIN: It sounds like you | 13 | 148 |
| kind of targeted people that were identified as | 14 | 148 |
| bad actors. | 15 | 148 |
| MR. BERENBAUM: No, no, not in every | 16 | 148 |
| case. If there was something in a community that | 17 | 148 |
| people were very openly concerned about, we have a | 18 | 148 |
| responsibility to our membership to act on it. As | 19 | 148 |
| it turned out, a majority of our tests did | 20 | 148 |
| document problems and that's unfortunate. I hope, | 21 | 148 |
| through collaboration with regulators, states, the | 22 | 148 |
| industries -- as we began testing 20 years ago, | 23 | 148 |
| looking at lenders or realtors, I hope when it's | 24 | 148 |
| five years from now, if more people do mystery | 1 | 149 |
| shopping, and share in the enforcement of this, in | 2 | 149 |
| fact, the problem will go down. This is a first | 3 | 149 |
| impression study. | 4 | 149 |
| MR. GUTTENTAG: Have you done anything | 5 | 149 |
| to try and identify the good guys as opposed to | 6 | 149 |
| the bad guys. | 7 | 149 |
| MR. BERENBERG: We always celebrate the | 8 | 149 |
| good guys. And the NCRC is sometimes criticized | 9 | 149 |
| for too closely working with industry. So we work | 10 | 149 |
| with everyone. We want to see access to credit in | 11 | 149 |
| our communities. | 12 | 149 |
| MR. FALK: My experience with the | 13 | 149 |
| company that's listed in your circular that's | 14 | 149 |
| outside is that they're both mortgage bankers and | 15 | 149 |
| mortgage brokers, so I'm not quite sure what | 16 | 149 |
| channel of distribution they are, and I'm sure | 17 | 149 |
| we'll get into more specifics of that when we get | 18 | 149 |
| together. But on the purchase money market, we're | 19 | 149 |
| seeing an evolution in the last two or three years | 20 | 149 |
| with the rise of what I call abusive affiliated | 21 | 149 |
| business arrangements allowed under the Real | 22 | 149 |
| Estate Settlement Procedures Act. | 23 | 149 |
| What we're seeing in the marketplace | 24 | 149 |
| is, builders, developers, or sellers who have | 1 | 150 |
| affiliated mortgage companies. We're seeing | 2 | 150 |
| steering and/or required use of those in-house | 3 | 150 |
| mortgages companies. We're seeing other mortgage | 4 | 150 |
| companies being shut out for approaching consumers | 5 | 150 |
| who can, in that case particularly, purchase a | 6 | 150 |
| particular home, and of course, because they're | 7 | 150 |
| acting in a lending capacity, the yield spread | 8 | 150 |
| premium is hidden as an SRP, which ultimately | 9 | 150 |
| means that there is a premium being earned by the | 10 | 150 |
| home builders affiliated business arrangement | 11 | 150 |
| concept that's not being disclosed to the | 12 | 150 |
| consumer. | 13 | 150 |
| So these affiliated business | 14 | 150 |
| arrangements with home builders and developers and | 15 | 150 |
| other sellers of property, while fully legal, and | 16 | 150 |
| absolutely appropriate in many cases, there are | 17 | 150 |
| instances where these affiliated businesses do | 18 | 150 |
| cause problems because of required use and what I | 19 | 150 |
| consider to be hidden discounts. | 20 | 150 |
| MR. GUTTENTAG: It can't be required. | 21 | 150 |
| That would be a violation of RESPA. | 22 | 150 |
| MR. FALK: I'll share with you the | 23 | 150 |
| information we have, where it's absolutely | 24 | 150 |
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