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 |
|---|---|---|
| every step of the way: precredit, post credit, | 1 | 176 |
| through servicing in the event that there are any | 2 | 176 |
| credit problems down the road. | 3 | 176 |
| Second, the long term success of any | 4 | 176 |
| strategy like this has to ensure that customers | 5 | 176 |
| have access to the full spectrum of consumer | 6 | 176 |
| finance products and services going forward, not | 7 | 176 |
| just mortgage finance services. | 8 | 176 |
| Third, it's critical that we provide | 9 | 176 |
| the expert long term foreclosure mitigation and | 10 | 176 |
| prevention services. | 11 | 176 |
| Fourth, that our product will provide a | 12 | 176 |
| fixed-rate interest rate option at the lowest | 13 | 176 |
| possible rate. I'll talk a bit more about that | 14 | 176 |
| later if that comes up. | 15 | 176 |
| Fifth, we're going to provide fair | 16 | 176 |
| financial incentives to brokers and correspondents | 17 | 176 |
| that give them reason to pursue customers | 18 | 176 |
| aggressively but eliminate unfair incentives. | 19 | 176 |
| Sixth, we'll use a detailed prescribed | 20 | 176 |
| settlement fee that will prevent brokers and | 21 | 176 |
| others from taking advantage of customers. | 22 | 176 |
| Seven, we'll have no prepayment | 23 | 176 |
| penalties. | 24 | 176 |
| And eight, we will certify all of our | 1 | 177 |
| brokers and correspondents in a way that ensures | 2 | 177 |
| that their full product line is compliant. | 3 | 177 |
| GOVERNOR OLSON: Thank you. We want to | 4 | 177 |
| come back to those because I think those are -- | 5 | 177 |
| I'm interested to hear how you do some of those | 6 | 177 |
| because the trade off between following the | 7 | 177 |
| customer through every step of the process and the | 8 | 177 |
| disaggregation that allows for efficiencies seem | 9 | 177 |
| to me to be inherently contradictory so I think | 10 | 177 |
| we'll want to go back and see how you do that and | 11 | 177 |
| what that ultimately means in terms of pricing and | 12 | 177 |
| support. But that certainly is a great approach. | 13 | 177 |
| Bruce Dorpalen. | 14 | 177 |
| MR. DORPALEN: I'm Bruce Dorpalen. I'm | 15 | 177 |
| the Director of Housing Counseling for ACORN | 16 | 177 |
| Housing. We'll see 30,000 people this year in 40 | 17 | 177 |
| cities providing housing counseling to low and | 18 | 177 |
| moderate-income people. | 19 | 177 |
| So the current problems that we're | 20 | 177 |
| seeing in the subprime markets that are the most | 21 | 177 |
| common are: abuse by brokers, where they're only | 22 | 177 |
| offering an adjustable rate mortgage to people | 23 | 177 |
| even when they're asking for fixed loans; people | 24 | 177 |
| being offered teaser rates and not understanding | 1 | 178 |
| when the rate will jump up, and often, they can't | 2 | 178 |
| afford it when the loan reposts; selling option | 3 | 178 |
| ARMs and interest only to buyers when they don't | 4 | 178 |
| understand the negative amortization, and don't | 5 | 178 |
| understand the situation. Often these are being | 6 | 178 |
| sold in markets where there's slow growth markets, | 7 | 178 |
| Indianapolis, Philadelphia, Detroit and places | 8 | 178 |
| where there's much less likelihood of recovering | 9 | 178 |
| what their amount is; the stated income loans, we | 10 | 178 |
| regularly see stated income loans where brokers | 11 | 178 |
| have written into the application even though it | 12 | 178 |
| doesn't exist and the borrower is not aware of it; | 13 | 178 |
| and giving B and C credit to people who have A | 14 | 178 |
| credit, so they're getting a loan that's much more | 15 | 178 |
| expensive than what they need. | 16 | 178 |
| So, on to best practices. Strong | 17 | 178 |
| regulation is key to this. The industry will not | 18 | 178 |
| be able to do this all themselves, and we need to | 19 | 178 |
| create a level playing field. One of the | 20 | 178 |
| interesting things that subprime lenders routinely | 21 | 178 |
| tell us is that they can't do the elements we talk | 22 | 178 |
| to them about because brokers will go someplace | 23 | 178 |
| else. Well, if it's a regulation, they won't have | 24 | 178 |
| any other place to go. When HOEPA pricing was | 1 | 179 |
| dropped, percentages were dropped, the market, | 2 | 179 |
| then, went to meet the lower level. That's what | 3 | 179 |
| the pricing did. That's the kind of level playing | 4 | 179 |
| field that's important in this. | 5 | 179 |
| We have two signature programs, one | 6 | 179 |
| with Citibank, one with Bank of America, where we | 7 | 179 |
| have very flexible underwriting. We do 95 | 8 | 179 |
| percent, 97 percent, sometimes even lower LTV | 9 | 179 |
| loans, largely minority loans. We have credit | 10 | 179 |
| scores between 540 and 640 routinely, and we have | 11 | 179 |
| very low delinquency rates. | 12 | 179 |
| We routinely do what the industry calls | 13 | 179 |
| stated income, we call undocumented income, and we | 14 | 179 |
| go ahead and document the income. We make sure | 15 | 179 |
| it's real and that it can match what people's | 16 | 179 |
| needs are for meeting the loan terms. We feel | 17 | 179 |
| like solutions like that are what are needed in | 18 | 179 |
| stated income markets, so people don't end up | 19 | 179 |
| getting stuck with something they can't afford. | 20 | 179 |
| We do credit based on the credit report | 21 | 179 |
| rather than the credit scores, so letters of | 22 | 179 |
| explanations, mistakes can be corrected. We can | 23 | 179 |
| get an actual picture of what it is, and Citibank | 24 | 179 |
| has done an excellent job on this. We did | 1 | 180 |
| something similar to this with HSBC. | 2 | 180 |
| With HSBC, we have a subprime program, | 3 | 180 |
| the Foreclosure Avoidance Program, which is state | 4 | 180 |
| of the art, and essentially, what it is, is a | 5 | 180 |
| permanent solution for people who are having | 6 | 180 |
| affordability difficulties with their mortgage, | 7 | 180 |
| and if it's a rate reduction, to get it to the | 8 | 180 |
| point where it's affordable to people. This keeps | 9 | 180 |
| people in their houses and stops foreclosures. We | 10 | 180 |
| have done thousands of these now, and to the tune | 11 | 180 |
| of 85 million dollars in savings people have had | 12 | 180 |
| on their rates. It's highly successful, and we've | 13 | 180 |
| been doing it for two and a half years and 10,000 | 14 | 180 |
| borrowers who have gone through the program, who | 15 | 180 |
| owe 60 days or later, could qualify for it. | 16 | 180 |
| ACORN Housing has created a mortgage | 17 | 180 |
| servicing network with 21 of the largest servicers | 18 | 180 |
| of the United States, both prime and subprime. | 19 | 180 |
| The whole goal here was to take housing counselors | 20 | 180 |
| working on cases where there are easy solutions, | 21 | 180 |
| and instead of working through the front lines of | 22 | 180 |
| servicers and finding somebody with a very limited | 23 | 180 |
| authority, get them to a point where they're | 24 | 180 |
| talking to senior people who have the ability to | 1 | 181 |
| do loan modifications and payment agreements | 2 | 181 |
| quickly. This became crucial in the Hurricane | 3 | 181 |
| Katrina disaster, where we helped over 2,000 | 4 | 181 |
| homeowners, but also to define in the industry | 5 | 181 |
| what the best and worst practices were and be able | 6 | 181 |
| to change what was going on. | 7 | 181 |
| Critically, I think the issues that we | 8 | 181 |
| would like the Fed to address, one would be | 9 | 181 |
| suitability and benefit to make sure the loan | 10 | 181 |
| matches what people need. We think it's also | 11 | 181 |
| important that there's an adequate funding stream | 12 | 181 |
| for housing counseling in the United States. HUD | 13 | 181 |
| does its share at 41 million, though it's not | 14 | 181 |
| enough. State and local governments, many of the | 15 | 181 |
| lenders in this room, contribute to it, but the | 16 | 181 |
| Federal Reserve should aggressively contribute to | 17 | 181 |
| funding so we need a large infrastructure to move | 18 | 181 |
| demand. | 19 | 181 |
| Lastly, we think that there ought to be | 20 | 181 |
| support for the state legislation on predatory | 21 | 181 |
| lending in states and we should put aside this | 22 | 181 |
| conversation about preemption, and to protect the | 23 | 181 |
| private right of action and preserve the strengths | 24 | 181 |
| that have been worked out in the local states. | 1 | 182 |
| GOVERNOR OLSON: Very well done. For | 2 | 182 |
| those of you who didn't have a chance to see, he | 3 | 182 |
| ended just as the card went up. It also was a | 4 | 182 |
| very well done presentation. | 5 | 182 |
| Eric, let me come back to you. You | 6 | 182 |
| were the first, at least today, to talk about a | 7 | 182 |
| very important subject that we haven't focused on, | 8 | 182 |
| but it is fundamental to what we're doing here, | 9 | 182 |
| which is building and rebuilding the communities. | 10 | 182 |
| Could you talk about how you -- I would be | 11 | 182 |
| interested in how that goal, which is a very | 12 | 182 |
| important goal, but it's a huge goal, how that | 13 | 182 |
| gets incorporated or how you measure your progress | 14 | 182 |
| against that goal. | 15 | 182 |
| MR. EVE: You're correct. The goal is | 16 | 182 |
| huge and Eric Stein went through some pretty | 17 | 182 |
| daunting data that reminds me about the 10 to 1 | 18 | 182 |
| wealth disparity. If you spend enough time | 19 | 182 |
| thinking about it, you wouldn't want to touch the | 20 | 182 |
| problem because it is so overwhelming. | 21 | 182 |
| I think the first place that we start, | 22 | 182 |
| I spoke to it briefly with the partners here, we | 23 | 182 |
| partner with everyone sitting at this table and | 24 | 182 |
| we'll continue to in the months and years ahead. | 1 | 183 |
| And I think we're, Citigroup, has been able to -- | 2 | 183 |
| we've been able to distinguish ourselves as HSBC, | 3 | 183 |
| as trying to anticipate some of these risks. We | 4 | 183 |
| were talking months, if not years ago, about the | 5 | 183 |
| ARM recess, the potential that it would have in | 6 | 183 |
| the foreclosing space. And now, we're seeing | 7 | 183 |
| those rising foreclosure rates come to fruition in | 8 | 183 |
| the communities. I think that through these | 9 | 183 |
| partnerships, and it's just one example, we're | 10 | 183 |
| well positioned to address those issues, but it is | 11 | 183 |
| an evolutionary process. We created programs and | 12 | 183 |
| adopted solutions that we think will work and that | 13 | 183 |
| we've had to adjust along the way. | 14 | 183 |
| Your final part of your question, | 15 | 183 |
| metrics, that is, in fact, the most difficult | 16 | 183 |
| thing to do, to actually measure our performance. | 17 | 183 |
| GOVERNOR OLSON: It's difficult in the | 18 | 183 |
| short run; it's not particularly difficult in the | 19 | 183 |
| long run. And having moved to Washington, D.C., | 20 | 183 |
| for example in 1971 and still live there now -- | 21 | 183 |
| Theresa Stark who's here someplace, and Sandy, and | 22 | 183 |
| I were involved, recently, in celebrating the | 23 | 183 |
| extraordinary rejuvenation of one community in | 24 | 183 |
| Washington, D.C. There are other communities in | 1 | 184 |
| Washington, D.C., there's one I can think of, | 2 | 184 |
| overwhelmingly Latino, that has created a very | 3 | 184 |
| vibrant economic community in an area where it was | 4 | 184 |
| not sometime ago. So we can see that it can | 5 | 184 |
| happen, and it seems to me, that one of the keys | 6 | 184 |
| too, is recognition that the real support comes, | 7 | 184 |
| not through elaborate government programs, but it | 8 | 184 |
| comes one at a time through providing the | 9 | 184 |
| opportunity for individual initiative and | 10 | 184 |
| individual ownership and wealth building, broadly | 11 | 184 |
| stated, and I think that it would be interesting | 12 | 184 |
| in hearing more from some of the borrowers on that | 13 | 184 |
| subject. | 14 | 184 |
| Loretta, you mentioned something that I | 15 | 184 |
| would be interested in hearing more about, which | 16 | 184 |
| is, the process by which you assure, if you used | 17 | 184 |
| it that strongly, that a person is not put into an | 18 | 184 |
| inappropriate loan. The blizzard of applications, | 19 | 184 |
| the blizzard of opportunities that all of us get, | 20 | 184 |
| that's a daunting task that you said that you can | 21 | 184 |
| build into your product. How do you do that? | 22 | 184 |
| MS. ABRAMS: We have and we did. I've | 23 | 184 |
| managed to observe the people processes and paper | 24 | 184 |
| processes for more than 30 years, so I know that | 1 | 185 |
| you have to inspect what you accept because people | 2 | 185 |
| are going to make mistakes, and when you have a | 3 | 185 |
| lot of volume and a lot of people, there's a | 4 | 185 |
| greater likelihood. So we automated and spent the | 5 | 185 |
| time, hired the people, and spent the time in | 6 | 185 |
| developing the system to automate processes. So | 7 | 185 |
| when you say, we haven't that tangible benefit | 8 | 185 |
| test, we do, and nobody can override it. The | 9 | 185 |
| system calculates whether the loan proposed is | 10 | 185 |
| going to benefit the consumer and how those | 11 | 185 |
| benefits are going to be realized, whether there | 12 | 185 |
| are going to be payment reductions and how much of | 13 | 185 |
| a reduction, and etcetera. | 14 | 185 |
| So we make sure, electronically, that | 15 | 185 |
| the loan is appropriate and that it's a helpful | 16 | 185 |
| loan and it's an affordable loan, and then we | 17 | 185 |
| follow that up with a lot of compliance people, | 18 | 185 |
| going after the process and regular routine | 19 | 185 |
| audits, to just keep on checking and keep on | 20 | 185 |
| making sure. But the automation is a key. | 21 | 185 |
| And the second thing we did is | 22 | 185 |
| centralize as much as possible, and we automated | 23 | 185 |
| and centralized it to make sure that it's easier | 24 | 185 |
| for to us control and easier for to us audit. | 1 | 186 |
| It's important to us that we get it right. | 2 | 186 |
| GOVERNOR OLSON: Eric, one of the | 3 | 186 |
| subjects you touched on, I'm intrigued by hearing | 4 | 186 |
| how you did it and what you learned in the | 5 | 186 |
| evolution. You started as -- one part of your | 6 | 186 |
| presentation, as a credit union portfolio lender, | 7 | 186 |
| recognized that it was inadequate. The loans were | 8 | 186 |
| good but it was inadequate to address the problem. | 9 | 186 |
| So then you moved from there to developing a | 10 | 186 |
| secondary market capability. And of course, as | 11 | 186 |
| we've all seen, the growth of that marketplace was | 12 | 186 |
| contingent on the secondary market appetite for | 13 | 186 |
| the product. So, now, you're subject, if you | 14 | 186 |
| will, to the grim reality of secondary market | 15 | 186 |
| evaluation. | 16 | 186 |
| So, if your market is a low line | 17 | 186 |
| market, and you're competing in the market for | 18 | 186 |
| rate and terms in that market, what are you | 19 | 186 |
| learning in the process? | 20 | 186 |
| MR. STEIN: There's been a lot of | 21 | 186 |
| change in it, but when we first started the | 22 | 186 |
| partnership with Fannie Mae in '98, '99, there'd | 23 | 186 |
| be a package of loans that we wanted to buy that | 24 | 186 |
| we trusted, based on our experience as a direct | 1 | 187 |
| lender for, at that time, 14 years with virtually | 2 | 187 |
| no losses. It would be a portfolio that was high | 3 | 187 |
| on TB because people didn't have a lot of wealth | 4 | 187 |
| to put down, and then high ratios, because | 5 | 187 |
| people's incomes were low. So they had credit | 6 | 187 |
| loans just because there's really two aspects to | 7 | 187 |
| credit. There's the willingness to pay, which you | 8 | 187 |
| can't do much about. There's the ability to pay, | 9 | 187 |
| except they don't have a bank account. People | 10 | 187 |
| extend their payables if they have a divorce or | 11 | 187 |
| something. But these were first-time homebuyers | 12 | 187 |
| buying modest houses, where their mortgage | 13 | 187 |
| payments weren't much more than their rental | 14 | 187 |
| options. These are the type of people who we're | 15 | 187 |
| making loans to from the credit unions, so we had | 16 | 187 |
| trust in these loans. We didn't allow brokers and | 17 | 187 |
| we wanted to sell those loans to Fannie Mae and it | 18 | 187 |
| was a knock down, drag out, every single time. | 19 | 187 |
| Even though we were taking full recourse, the | 20 | 187 |
| answer was, no, we won't buy those even though | 21 | 187 |
| we're in a partnership. The market has changed | 22 | 187 |
| now, so we don't have those fights with Fannie Mae | 23 | 187 |
| for the most part. | 24 | 187 |
| GOVERNOR OLSON: Let me ask you this: | 1 | 188 |
| Fannie and Freddie, historically, their product is | 2 | 188 |
| a conforming product. Were you trying to sell a | 3 | 188 |
| nonconforming product, so it wasn't the | 4 | 188 |
| unwillingness so much, as you were outside of | 5 | 188 |
| their -- | 6 | 188 |
| MR. STEIN: That's right. But the | 7 | 188 |
| larger point I was making is that the market has | 8 | 188 |
| changed, in partly the congressional goals, partly | 9 | 188 |
| their experience with these loans, where we don't | 10 | 188 |
| have to have those fights because they're eager to | 11 | 188 |
| -- | 12 | 188 |
| GOVERNOR OLSON: I see. So what are | 13 | 188 |
| you finding now in terms of the access and the | 14 | 188 |
| appetite? | 15 | 188 |
| MR. STEIN: I think the access to | 16 | 188 |
| credit is wider than it's been and the appetite is | 17 | 188 |
| there. I think the challenge for these markets, | 18 | 188 |
| as I was pointing to, is really the type of | 19 | 188 |
| products. With the explosion of the subprime now | 20 | 188 |
| being 20 percent of the market, I think, to the | 21 | 188 |
| extent that people are shoehorned into the | 22 | 188 |
| conventional shops at banks, either through our | 23 | 188 |
| program, which is very small, or the other banks, | 24 | 188 |
| they're going to get a product that they're much | 1 | 189 |
| more likely to be able to stay in, because there's | 2 | 189 |
| plenty of liquidity now for conventional loans as | 3 | 189 |
| well as the subprime. | 4 | 189 |
| GOVERNOR OLSON: Mark, I'm interested | 5 | 189 |
| in the CDFI that you talked about -- well, | 6 | 189 |
| anything that would bring a suitable, if you will, | 7 | 189 |
| product into that market would have to be welcomed | 8 | 189 |
| and positive, but to the extent to which the | 9 | 189 |
| secondary market -- I'm interested in hearing more | 10 | 189 |
| about your experience in that regard. | 11 | 189 |
| MR. PINSKY: Well, as we go forward, | 12 | 189 |
| what we've found -- the goal is to build a | 13 | 189 |
| platform where we can offer multiple products. | 14 | 189 |
| Some of them we think will be suitable for the | 15 | 189 |
| secondary market and suitable for the consumer. | 16 | 189 |
| Some of them may not be; we may have to find and | 17 | 189 |
| create a liquidity, but what we've been able to | 18 | 189 |
| do, through a series of, sort of, structuring | 19 | 189 |
| issues, is created this product which is a high | 20 | 189 |
| level value product with a, sort of, a national | 21 | 189 |
| risk indication strategy CDFI delivery system, is | 22 | 189 |
| actually postured in a way that we actually think | 23 | 189 |
| that the 80 percent will, in fact, be of interest | 24 | 189 |
| to the secondary markets in our discussions so | 1 | 190 |
| far. The deal's not done, so we don't know that. | 2 | 190 |
| And the next tranche, the next risk tranche, is | 3 | 190 |
| something that we found of great interest among | 4 | 190 |
| socially motivated investors who are going to have | 5 | 190 |
| some appetite for looking to do something to | 6 | 190 |
| combat predatory lending. | 7 | 190 |
| GOVERNOR OLSON: Is there any tranche | 8 | 190 |
| of a mortgage bank that isn't appealing to | 9 | 190 |
| somebody the some price? | 10 | 190 |
| MR. PINSKY: Well, the pricing issue, | 11 | 190 |
| the structure that we have -- you asked about | 12 | 190 |
| pricing earlier -- the pricing on this lead | 13 | 190 |
| product, actually, over the blended price of this | 14 | 190 |
| is going to be, at most, about 80 basis points | 15 | 190 |
| over prime rates. So it's a very competitively | 16 | 190 |
| priced product. | 17 | 190 |
| GOVERNOR OLSON: Bruce, the partnering | 18 | 190 |
| you do, and which has obviously made -- I'm | 19 | 190 |
| interested in the extent to which, in that | 20 | 190 |
| partnering, does that partnering lend itself to | 21 | 190 |
| scale, or is it by definition, sort of, a one at a | 22 | 190 |
| time kind of approach that you need to take? | 23 | 190 |
| Another way of asking the question, is it -- you | 24 | 190 |
| have a solution that will be available broadly or | 1 | 191 |
| is it going to be available narrowly? | 2 | 191 |
| MR. DORPALEN: If scale is the number | 3 | 191 |
| of people that come for a program -- with Bank of | 4 | 191 |
| America we did 8900 mortgages last year. We'll do | 5 | 191 |
| 800 with the Citibank program so far. We'll at | 6 | 191 |
| least break a thousand this year, and that's a | 7 | 191 |
| relatively new program. And I think one of the | 8 | 191 |
| challenges that a counseling industry has, is to | 9 | 191 |
| be efficient in its own way and not hold up the | 10 | 191 |
| process and be there at the right time not just as | 11 | 191 |
| an add-on. And we've really worked very hard at | 12 | 191 |
| getting people through our system, so that you | 13 | 191 |
| come into a group intake session, run the basics, | 14 | 191 |
| we collect the paperwork. We call in and within | 15 | 191 |
| three days you have your first interview. And | 16 | 191 |
| with some people that may be the only time you see | 17 | 191 |
| us, those three sessions, and then we have some | 18 | 191 |
| follow-up classes you can attend or not attend. | 19 | 191 |
| Some people need more work. Our view | 20 | 191 |
| is that we need to automate the housing counseling | 21 | 191 |
| side, the correction, the evaluation of people, | 22 | 191 |
| but there's a manual component to our work, and | 23 | 191 |
| the underwriting at the banks has a manual | 24 | 191 |
| component as well. It is a more time consuming | 1 | 192 |
| process but also a higher value process. | 2 | 192 |
| GOVERNOR OLSON: Other people I know | 3 | 192 |
| have questions. | 4 | 192 |
| MS. BRAUNSTEIN: One of the things we | 5 | 192 |
| talked about this morning, in fact, Irv talked | 6 | 192 |
| about quite a bit, were some of the differences | 7 | 192 |
| between people looking for a loan to purchase a | 8 | 192 |
| home versus re-fis. One of the things that I | 9 | 192 |
| think was especially interesting, and we all know | 10 | 192 |
| this, when people are purchasing, and they're | 11 | 192 |
| going out and looking for a loan, they're more | 12 | 192 |
| likely to shop, whereas a lot of clients on | 13 | 192 |
| re-fis, they're not shopping because they're being | 14 | 192 |
| approached by others and told, you need to get | 15 | 192 |
| your roof fixed, you've got all these bills, and | 16 | 192 |
| we'll consolidate. And I was just wondering, | 17 | 192 |
| keeping those kinds of things in mind, I guess, | 18 | 192 |
| Mark, I would address this to you first, with this | 19 | 192 |
| platform you're setting up, how are the CDFIs | 20 | 192 |
| going to compete with the lenders, the subprime | 21 | 192 |
| lenders, who are out there ringing doorbells and | 22 | 192 |
| making phone calls, and aggressively push | 23 | 192 |
| marketing people. Is that part of what you're | 24 | 192 |
| planning to try to have people do? I'm just | 1 | 193 |
| trying to picture CDFIs going around to people's | 2 | 193 |
| homes and trying to push products on them and it | 3 | 193 |
| seems counter to what CDFIs do. So I was | 4 | 193 |
| wondering how you're going to... | 5 | 193 |
| MR. PINSKY: I can answer that in part. | 6 | 193 |
| One of the -- we started thinking about this years | 7 | 193 |
| ago, actually Mark Peets (phonetic) from Self Help | 8 | 193 |
| was one of the first people to say to us, it's | 9 | 193 |
| very hard to compete in those marketplaces for | 10 | 193 |
| exactly the reason you're describing. And we | 11 | 193 |
| think we're going to have to, sort of, transition | 12 | 193 |
| it to be able to compete on the re-fi side in | 13 | 193 |
| particular. It's going to be tough on the re-fi | 14 | 193 |
| side. | 15 | 193 |
| What we have going for us is CDFIs who | 16 | 193 |
| have presence in the a marketplace and are known | 17 | 193 |
| in some ways. We have a set of relationships, | 18 | 193 |
| often through churches or mosques or synagogues or | 19 | 193 |
| other communities of faith that allow us to get | 20 | 193 |
| into the marketplace where we want to get, and we | 21 | 193 |
| need to create a marketing presence. As I said, | 22 | 193 |
| if we can get the tail wagging the dog in this | 23 | 193 |
| market for a while, it will be a good thing. But | 24 | 193 |
| to the extent, yes, we need -- that's what we do | 1 | 194 |
| now. That's what a lot of CDFIs do now. If | 2 | 194 |
| you're in business lending, for example, you're | 3 | 194 |
| knocking on doors to businesses, trying to get to | 4 | 194 |
| know them, and find out what's going on. | 5 | 194 |
| That's why I said I can answer it in | 6 | 194 |
| part way. I don't have the full answer. I don't | 7 | 194 |
| know how far can you really go and do that in a | 8 | 194 |
| responsible way, and how you can, sort of, get | 9 | 194 |
| people who are in the clutches of a predatory | 10 | 194 |
| lender and bail them out before you get there. We | 11 | 194 |
| don't have that solution yet. | 12 | 194 |
| MR. DORPALEN: Can I jump in? | 13 | 194 |
| MS. BRAUNSTEIN: Sure. | 14 | 194 |
| MR. DORPALEN: I think we understand a | 15 | 194 |
| lot more how to do purchase marketing because | 16 | 194 |
| there's an infrastructure, there's real estate | 17 | 194 |
| agents, there's lenders. People have an idea | 18 | 194 |
| where to go, but for refinances, people don't have | 19 | 194 |
| an idea where to go. There's not a good marketing | 20 | 194 |
| approach to all this. | 21 | 194 |
| And ACORN goes door to door around | 22 | 194 |
| organizing issues, and sometimes people look at | 23 | 194 |
| people's loan papers and advise them to come in | 24 | 194 |
| and see a housing counselor. We do have large | 1 | 195 |
| community meetings. We do a range of pieces that | 2 | 195 |
| get us some volume to this. We are not scratching | 3 | 195 |
| the surface, and it's a big need. | 4 | 195 |
| I think one of the interesting things | 5 | 195 |
| of what Mark's talking about is, trying to create | 6 | 195 |
| a grant that says it's safe to come here, and | 7 | 195 |
| we're very interested in that. I think that that | 8 | 195 |
| helps. The real challenge though is, there needs | 9 | 195 |
| to be large visibility about what their options | 10 | 195 |
| are. | 11 | 195 |
| The other problem is, is that the | 12 | 195 |
| industry, the subprime industry, has designed a | 13 | 195 |
| product that doesn't match the need for many | 14 | 195 |
| people. What they are really selling is | 15 | 195 |
| adjustable rate mortgage loans, and what they | 16 | 195 |
| should be selling is a home equity loan. So, if | 17 | 195 |
| you want to get your bathroom fixed up, it's a | 18 | 195 |
| $6,000 job, and you end up with a subprime lender, | 19 | 195 |
| the product that they're offering you is to | 20 | 195 |
| refinance your entire mortgage, add the $6,000, | 21 | 195 |
| plus whatever fees they can, to your equity. | 22 | 195 |
| That's not what people needed. They just needed | 23 | 195 |
| to borrow $6,000. In some of the deals we see, | 24 | 195 |
| people spend more for fees than they are getting | 1 | 196 |
| for the bathroom. That's the lack of match | 2 | 196 |
| between customer and product. | 3 | 196 |
| MS. BRAUNSTEIN: I know, Loretta, you | 4 | 196 |
| wanted to comment. | 5 | 196 |
| MS. ABRAMS: I have to make a comment | 6 | 196 |
| about education and awareness and the importance | 7 | 196 |
| of that and finding those teachable moments and | 8 | 196 |
| making sure that when people think about the need, | 9 | 196 |
| that they think about those moments, and they know | 10 | 196 |
| where to go, and they know where the resources | 11 | 196 |
| are, much in the same way as when people are | 12 | 196 |
| thinking about, it's time for a car, they know, | 13 | 196 |
| just from awareness and that information being out | 14 | 196 |
| there, to be sure to check on the mileage, be sure | 15 | 196 |
| to take a look at the tires, be sure to check that | 16 | 196 |
| that car hasn't been in an accident. I think as | 17 | 196 |
| an industry, continuing to educate people, raising | 18 | 196 |
| general awareness about the whole mortgage and | 19 | 196 |
| loan process will help them to feel more empowered | 20 | 196 |
| and more informed, and they're better able to even | 21 | 196 |
| ask the right questions. I said this before, but | 22 | 196 |
| too often, you don't know what you don't know. | 23 | 196 |
| And if you haven't had any exposure, it's even | 24 | 196 |
| hard to ask the questions. So education, I think, | 1 | 197 |
| is really very, very important in everything that | 2 | 197 |
| we do. | 3 | 197 |
| MR. EVE: I was just going to add that | 4 | 197 |
| the solution, in part, is right here. When you | 5 | 197 |
| look at Bruce's ability to be on the ground, door | 6 | 197 |
| to door, in communities, if you ever come into | 7 | 197 |
| contact with any core organizer, they're it. When | 8 | 197 |
| you look at Mark's CDFI relationship -- | 9 | 197 |
| MS. BRAUNSTEIN: Our contact with them | 10 | 197 |
| is usually they're marching outside our door. | 11 | 197 |
| MR. EVE: It's just an unparalleled | 12 | 197 |
| relationship -- they come back too. Mark has | 13 | 197 |
| talked about a product or an offering is going to | 14 | 197 |
| be purchase focused, but his products, and his | 15 | 197 |
| scale, as Governor Olson mentioned earlier, and | 16 | 197 |
| Eric, the knowledge and experience with secondary | 17 | 197 |
| markets and the sophistication of the work that | 18 | 197 |
| they've done in the past, and none of us expected | 19 | 197 |
| to leave with more work, but if we could pick one | 20 | 197 |
| or two markets and partner together, and HSBC and | 21 | 197 |
| Citi have both the products and the experience and | 22 | 197 |
| other financial institutions as well, I think if | 23 | 197 |
| we pick one or two markets, we could, actually, | 24 | 197 |
| aggressively target the problem, given the skill | 1 | 198 |
| sets available. | 2 | 198 |
| MR. DORPALEN: One of the things that | 3 | 198 |
| we've experienced is that education is a valuable | 4 | 198 |
| piece of that, but that the process is too | 5 | 198 |
| complex, the documents are too complex, and you | 6 | 198 |
| need somebody looking at the paperwork and have to | 7 | 198 |
| be able to sort out if this is a right match for | 8 | 198 |
| them. That's why we've become pretty heavily | 9 | 198 |
| invested in the housing counseling piece. And I | 10 | 198 |
| think that the challenge, especially in a | 11 | 198 |
| refinance market, where there's not as much | 12 | 198 |
| infrastructure for it, is to figure out how to | 13 | 198 |
| have that conversation at the right time, at the | 14 | 198 |
| right moment. | 15 | 198 |
| MR. STEIN: I think your point, points | 16 | 198 |
| to the limits of disclosure identification solving | 17 | 198 |
| predatory lending problems, because you can, kind | 18 | 198 |
| of, focus, even if it's only for a week, focus on | 19 | 198 |
| buying a house and figure out how to do a mortgage | 20 | 198 |
| and get counseling, but nobody remembers -- I | 21 | 198 |
| mean, I forget what happened yesterday, but for a | 22 | 198 |
| refinance, you need to have that state of | 23 | 198 |
| awareness for your entire life for the moment | 24 | 198 |
| you're going to do the refinance. I think that's | 1 | 199 |
| why regulations are important, because it's simply | 2 | 199 |
| not going to be solved. 20 percent of American | 3 | 199 |
| adults are functionally illiterate and that's | 4 | 199 |
| another point altogether. | 5 | 199 |
| MR. PINSKY: Can I come back to your | 6 | 199 |
| question? | 7 | 199 |
| GOVERNOR OLSON: Sure. | 8 | 199 |
| MR. PINSKY: I think all of these | 9 | 199 |
| things you're hearing and probably some of the | 10 | 199 |
| other things you heard earlier today and hearing | 11 | 199 |
| other places, we simply have to be -- we need as | 12 | 199 |
| many solutions out there trying to make things | 13 | 199 |
| better in this marketplace as we can right now, to | 14 | 199 |
| the extent we can coordinate them and create | 15 | 199 |
| efficiencies, so we can offer better product at | 16 | 199 |
| better prices, but as I prepared for this, I | 17 | 199 |
| thought about a flight home from California that I | 18 | 199 |
| was on recently. I sat next to some guy who never | 19 | 199 |
| asked me what I did, who happened to be a very | 20 | 199 |
| senior person at a subprime mortgage company. I | 21 | 199 |
| said, what are you going to do, interest rates are | 22 | 199 |
| going up, no comment on that, interest rates are | 23 | 199 |
| going up and it's going to change your market, and | 24 | 199 |
| he said, man, subprime is rich. I mean, I had a | 1 | 200 |
| five hour lecture on this, on how you please | 2 | 200 |
| people in a subprime mortgage market. Frankly, it | 3 | 200 |
| scared the heck out of me. I mean, I know it's | 4 | 200 |
| going on, but to listen to someone, and this is a | 5 | 200 |
| big company, and how methodical they are about | 6 | 200 |
| understanding how to strip wealth out of those | 7 | 200 |
| communities in some ways. It's scary. | 8 | 200 |
| And so I think all of those things, and | 9 | 200 |
| the fact that -- work here, and there are so many | 10 | 200 |
| people now who are working on responsible mortgage | 11 | 200 |
| financing, and view that as an important strategy, | 12 | 200 |
| not just because it's a good thing for a grant or | 13 | 200 |
| not just because ACORN's knocking on your door or | 14 | 200 |
| anything like that, but because they understand | 15 | 200 |
| it's important for the economics of their business | 16 | 200 |
| and the economics of the country. We've begun to | 17 | 200 |
| make a little scratch -- to go back to your | 18 | 200 |
| question about impact -- the impact on the system, | 19 | 200 |
| the mortgage financing system, and I think we can | 20 | 200 |
| start to see some indications that, maybe, we have | 21 | 200 |
| some traction. | 22 | 200 |
| MR. DORPALEN: Well, and it's also | 23 | 200 |
| what's the subprime industry and what's it going | 24 | 200 |
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