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 |
|---|---|---|
| to look like years from now. We sort of have a | 1 | 201 |
| choice here, either we will let it continue on its | 2 | 201 |
| way on an aggressive sales force that sells a | 3 | 201 |
| limited range of products and doesn't care so much | 4 | 201 |
| about the customer, or it becomes more like what | 5 | 201 |
| the prime market has done, which is much more | 6 | 201 |
| customer focused and they want to retain the | 7 | 201 |
| customer. That means, then, your idea is not that | 8 | 201 |
| the loan -- you only have a loan for two years, | 9 | 201 |
| which is exactly what these people all talk about | 10 | 201 |
| when talking with the senior managers. Nobody | 11 | 201 |
| believes that their loans are going to be around | 12 | 201 |
| for more than two years. They think they'll all | 13 | 201 |
| be refinanced. But if they would use long term | 14 | 201 |
| loans, and the relationship with the customer was | 15 | 201 |
| long term, and you make your money on the length | 16 | 201 |
| of the loan servicing rights, as it is in the | 17 | 201 |
| prime market, you then have a much different | 18 | 201 |
| relationship with the customer and you're moving | 19 | 201 |
| forward in a more rational market. | 20 | 201 |
| GOVERNOR OLSON: But in fairness, it | 21 | 201 |
| isn't the loan that's long term for the prime | 22 | 201 |
| market, it's the customer that's long term. Isn't | 23 | 201 |
| that correct? I had one CEO of a major bank say | 24 | 201 |
| to me, many years ago, they were buying a mortgage | 1 | 202 |
| company, said, we don't care about the mortgage | 2 | 202 |
| product. There's a million mortgages out there. | 3 | 202 |
| We want a million customers. But in the prime | 4 | 202 |
| market -- but your point is still the same, that | 5 | 202 |
| it is the relationship that is critical as opposed | 6 | 202 |
| to the mortgage product, and to the extent that a | 7 | 202 |
| product is a one off, you never get repeated | 8 | 202 |
| opportunity, that's an entirely different | 9 | 202 |
| paradigm. Is that consistent with your view also? | 10 | 202 |
| MR. DORPALEN: When you say, "one off", | 11 | 202 |
| you mean exception, that they don't routinely do? | 12 | 202 |
| GOVERNOR OLSON: It is not focused on | 13 | 202 |
| the customer, it's focused on the transaction. | 14 | 202 |
| MR. DORPALEN: That changes everything, | 15 | 202 |
| absolutely. | 16 | 202 |
| MR. CHANIN: Let me follow-up. One | 17 | 202 |
| thing a number of you mentioned, and that is, kind | 18 | 202 |
| of, comparing the options out there today with | 19 | 202 |
| some more suitable product, the 30-year ARM, or | 20 | 202 |
| 30-year fixed-rate, and how you dealt with | 21 | 202 |
| consumers who have been approached with -- whether | 22 | 202 |
| it's for purchase money or refinancing | 23 | 202 |
| transaction, the fact that, oftentimes, they can | 24 | 202 |
| get more house, that is, if they qualify for an | 1 | 203 |
| ARM versus a 30-year, they're able to buy more | 2 | 203 |
| house, or two, they can have a lower payment with | 3 | 203 |
| an ARM, or three, maybe the time it takes to | 4 | 203 |
| process -- anecdotally we've heard, I can put you | 5 | 203 |
| in a loan by the end of the day, and if you have | 6 | 203 |
| counseling and so forth, it takes much more time. | 7 | 203 |
| So have you encountered consumer resistance | 8 | 203 |
| because of the time, or the payment amount, or the | 9 | 203 |
| amount of the loan they can get? How have you | 10 | 203 |
| dealt with those issues? | 11 | 203 |
| MR. DORPALEN: We do this routinely. | 12 | 203 |
| Our product's overwhelmingly a 30-year fixed rate | 13 | 203 |
| product. And we certainly have some people coming | 14 | 203 |
| in thinking they'd like to get an adjustable rate, | 15 | 203 |
| because they're thinking, I've got this payment. | 16 | 203 |
| They're not quite sure how it all works. We work | 17 | 203 |
| on a particular market. We are not an upper | 18 | 203 |
| middle-income program. We are a low to | 19 | 203 |
| moderate-income program. But we put product and | 20 | 203 |
| expenses and long-term expenses on parallel | 21 | 203 |
| columns and let people take a look at what choices | 22 | 203 |
| they're making. A few people have gone adjustable | 23 | 203 |
| rate, but it's very unusual for us. | 24 | 203 |
| Where we're feeling a lot of pressure | 1 | 204 |
| is in the California and the Boston markets, where | 2 | 204 |
| housing products have really skyrocketed, and, | 3 | 204 |
| frankly, we've had to raise our income ceiling of | 4 | 204 |
| who we can work with in order to use our program. | 5 | 204 |
| We've worked wonders about reducing rates. We | 6 | 204 |
| also have some, what we would say, not so bad | 7 | 204 |
| choices that we've worked out with people so that | 8 | 204 |
| they are not going to be hit with rate shock. We | 9 | 204 |
| have never -- pretty much it's our view that | 10 | 204 |
| adjustable rates in an up marketplace, if your | 11 | 204 |
| income's not going to be going up rapidly, it's | 12 | 204 |
| just too much of a gamble for the value of the | 13 | 204 |
| property. | 14 | 204 |
| MR. STEIN: Particularly with the | 15 | 204 |
| flatter yield curve, the argument about the lower | 16 | 204 |
| rates with ARM, really, is only because of the | 17 | 204 |
| teaser rate, and it's only a short term teaser | 18 | 204 |
| rate. So, if someone's entered into a long term | 19 | 204 |
| interest, then they can point out what's going to | 20 | 204 |
| happen in two years. Problem is, oftentimes, | 21 | 204 |
| there isn't an ACORN there to advise people. And | 22 | 204 |
| one other thing that subprime lenders, oftentimes, | 23 | 204 |
| do, is that they don't escrow back to the | 24 | 204 |
| insurance, so the payments are initially low, but | 1 | 205 |
| then every year there's two flipping | 2 | 205 |
| opportunities. People need a large lump sum to | 3 | 205 |
| pay their taxes or their insurances, where that's | 4 | 205 |
| a known cost that everyone knows you're going to | 5 | 205 |
| have to pay, but the technology's there in escrow, | 6 | 205 |
| it's just not done as a marketing ploy. | 7 | 205 |
| MR. COLLINS: Eric Eve and Loretta, | 8 | 205 |
| I'll address this question to you. This morning | 9 | 205 |
| we had a discussion about the role of mortgage | 10 | 205 |
| brokers in the subprime market, and I'm curious | 11 | 205 |
| about what you consider best practice is in your | 12 | 205 |
| institution in terms of the relationship with | 13 | 205 |
| brokers. How do you monitor them? How do you | 14 | 205 |
| measure the value that they bring? I think, Eric, | 15 | 205 |
| I heard you mention, you severed some | 16 | 205 |
| relationships over time with mortgage brokers. | 17 | 205 |
| Could you address the best practices in your | 18 | 205 |
| perspective? | 19 | 205 |
| MR. EVE: Sure. Within the Citi | 20 | 205 |
| Financial branch network and the Citi Financial | 21 | 205 |
| Mortgage Company we post our associates | 22 | 205 |
| acquisition. We went through a thorough review of | 23 | 205 |
| many of the mortgage broker relationships and set | 24 | 205 |
| up a series of criteria or standards that we felt | 1 | 206 |
| critical in order to sustain the integrity of the | 2 | 206 |
| brokerage process moving forward. Some brokers | 3 | 206 |
| Governor Olson mentioned earlier, some just walked | 4 | 206 |
| away. It's not a standard to which we wish to be | 5 | 206 |
| held, and some would urge -- but at the end of the | 6 | 206 |
| day, it's -- you walk with your -- in grave | 7 | 206 |
| detail, it's a combination of ongoing review, | 8 | 206 |
| regular quarterly review, of the performance of | 9 | 206 |
| those brokers' active loans, their rates, how | 10 | 206 |
| they're marketing, and the process by which | 11 | 206 |
| they're bringing loans to us. | 12 | 206 |
| And we feel, actually, very good. I | 13 | 206 |
| mean, I shouldn't only focus on the negative. | 14 | 206 |
| There are, again, many thousands of great brokers | 15 | 206 |
| with access to communities that we don't have. I | 16 | 206 |
| think, at the same time, it's critical on the one | 17 | 206 |
| hand, it's important to highlight and recognize | 18 | 206 |
| those that are providing access, providing | 19 | 206 |
| service, and doing it the right way. And so we | 20 | 206 |
| want to acknowledge those who are doing it well at | 21 | 206 |
| the same time. | 22 | 206 |
| MS. ABRAMS: I would say we do very | 23 | 206 |
| similar things, very aggressive compliance | 24 | 206 |
| reviews, audit reviews. We have a tangible | 1 | 207 |
| benefit requirement that the broker signs that he | 2 | 207 |
| says, he's not going to submit an application to | 3 | 207 |
| us, he's not going to take an application that is | 4 | 207 |
| not of benefit to the consumer. The consumer also | 5 | 207 |
| signs the statement that says, I understand that | 6 | 207 |
| this loan is going to be a benefit to me. | 7 | 207 |
| We track the licensing and follow | 8 | 207 |
| through and make sure that their licenses are | 9 | 207 |
| appropriately maintained. We have an ineligible | 10 | 207 |
| list that is public and posted on our Web site. | 11 | 207 |
| So we take the same approach and we're very, very | 12 | 207 |
| careful with making sure that we're doing business | 13 | 207 |
| with the very best of the brokers that are out | 14 | 207 |
| there. | 15 | 207 |
| MS. BRAUNSTEIN: Loretta, are you also | 16 | 207 |
| making sure that if you have brokers bringing in | 17 | 207 |
| customers to subprime products that if those | 18 | 207 |
| people are actually eligible for prime, that | 19 | 207 |
| you're upstreaming them for prime? | 20 | 207 |
| MS. ABRAMS: What we do, we don't have | 21 | 207 |
| a refer up or down process within our businesses. | 22 | 207 |
| Our mortgage business is all separate, but we do | 23 | 207 |
| have a full spectrum of products within each of | 24 | 207 |
| those distribution channels. So within the | 1 | 208 |
| consumer lending branch, for example, it's | 2 | 208 |
| automatically priced, and the pricing is automatic | 3 | 208 |
| and the consumer gets the best rate for which he's | 4 | 208 |
| qualified, based on the product type, credit score | 5 | 208 |
| etcetera, and that happens automatically. So that | 6 | 208 |
| is not a manual process. | 7 | 208 |
| It's a similar process; it's not as | 8 | 208 |
| automated in the other distribution channels, but | 9 | 208 |
| there is a full range of products available. So | 10 | 208 |
| we don't send a person from one office to a bank | 11 | 208 |
| office, but we have a host of products there, | 12 | 208 |
| available to them. | 13 | 208 |
| MS. BRAUNSTEIN: Everyone? You're | 14 | 208 |
| saying everyone? | 15 | 208 |
| MS. ABRAMS: I'm pretty sure. I'll | 16 | 208 |
| double check that. | 17 | 208 |
| MR. EVE: We have a similar process at | 18 | 208 |
| Citi. We tried a referral up initiative a number | 19 | 208 |
| of years ago and customers leaving to -- coming to | 20 | 208 |
| a Citi Financial branch, and we give you an 800 | 21 | 208 |
| number, or a Web site, or put you on the phone | 22 | 208 |
| with someone, or sent you down to the corner to | 23 | 208 |
| the prime channel, and the fall off, in terms of | 24 | 208 |
| customers, some people don't want to dial a | 1 | 209 |
| number, or they don't trust the Internet. They, | 2 | 209 |
| in fact, want to be able to go see someone who can | 3 | 209 |
| walk them through the process. So with our | 4 | 209 |
| referral up program, which was before I started, | 5 | 209 |
| four or five years ago, we just lost customers. | 6 | 209 |
| They either went to other institutions or just | 7 | 209 |
| went on. | 8 | 209 |
| MS. BRAUNSTEIN: Just one more | 9 | 209 |
| follow-up on that. Based on what we heard this | 10 | 209 |
| morning in terms of talking with brokers, if a | 11 | 209 |
| broker sends a customer to you for a particular | 12 | 209 |
| product, and the broker has underwritten that | 13 | 209 |
| person for that product and it is a subprime | 14 | 209 |
| product, do you second guess the broker's | 15 | 209 |
| underwriting? Even though you say you have all | 16 | 209 |
| those products available, but maybe the broker did | 17 | 209 |
| not underwrite this person for the prime product. | 18 | 209 |
| Do you second guess the broker's underwriting or | 19 | 209 |
| overwrite it and say, actually, they could get a | 20 | 209 |
| better deal in this other product? | 21 | 209 |
| MS. ABRAMS: I do not believe that | 22 | 209 |
| they're doing that in any of our distributions | 23 | 209 |
| from the brokers. | 24 | 209 |
| MS. BRAUNSTEIN: So you're still | 1 | 210 |
| depending on the broker to make that call? | 2 | 210 |
| MS. ABRAMS: Yes. | 3 | 210 |
| MR. EVE: It's dependent upon the loan | 4 | 210 |
| that we're involved with. If the loan's closed | 5 | 210 |
| before it's gotten to us, no, we're not involved | 6 | 210 |
| in the process. If we are involved in the | 7 | 210 |
| origination of the loan from the broker, then, | 8 | 210 |
| yes, we would overwrite it before the closing of | 9 | 210 |
| that loan so it can perform to our underwriting | 10 | 210 |
| criteria. | 11 | 210 |
| MR. DORPALEN: This broker question, | 12 | 210 |
| one of the things that we find is that people who | 13 | 210 |
| -- they end up one lender -- if the lender's | 14 | 210 |
| paying a lot of attention, then just simply go to | 15 | 210 |
| others. There still in business. And it would | 16 | 210 |
| probably be great if there was some way to have an | 17 | 210 |
| industry repository, but I don't know how all that | 18 | 210 |
| works. And I think the other is that I think that | 19 | 210 |
| the suitability issue is important and that | 20 | 210 |
| applies not just to the institution. | 21 | 210 |
| MR. COLLINS: Just to follow-up on the | 22 | 210 |
| broker question. There appears to be some | 23 | 210 |
| confusion over the roles that the numerous parties | 24 | 210 |
| play in the mortgage action. And if you have a | 1 | 211 |
| customer sign off, let's say, HSBC, if that loan | 2 | 211 |
| was a benefit to them, is there a sense about the | 3 | 211 |
| magnitude of benefit? Certainly, they get the | 4 | 211 |
| loan, but are they aware they could have gotten | 5 | 211 |
| the loan at a better price or a different price? | 6 | 211 |
| MS. ABRAMS: I can look into that. I | 7 | 211 |
| don't have all of those details. I can tell you | 8 | 211 |
| that the channel that I'm most familiar with, is | 9 | 211 |
| very specific about how much the benefit must be | 10 | 211 |
| in order to count. So can't be $5 on your monthly | 11 | 211 |
| payment. That wouldn't be enough. So there are | 12 | 211 |
| minimum standards, and I will check to see if | 13 | 211 |
| those are the same standards as the broker | 14 | 211 |
| channels. | 15 | 211 |
| MR. CHANIN: Eric, let me follow-up on | 16 | 211 |
| one of the comments you made. So if I understand | 17 | 211 |
| the way the process works, if the broker brings | 18 | 211 |
| you a loan, it's preconsumation, and they say | 19 | 211 |
| we've underwritten this. Let's say the person has | 20 | 211 |
| a relatively high credit score, 700 or something, | 21 | 211 |
| they've underwritten it for X, but under your | 22 | 211 |
| standards, the rates would be lower. So do I | 23 | 211 |
| understand that you will then push back to the | 24 | 211 |
| broker and say, we originate this at X rate, a | 1 | 212 |
| lower rate, which may or may not affect the | 2 | 212 |
| broker's revenue on that? | 3 | 212 |
| MR. EVE: Actually, in terms of the | 4 | 212 |
| process, I don't know if it is something we do for | 5 | 212 |
| each loan or during the course of the ongoing | 6 | 212 |
| review from our broker who found that he or she | 7 | 212 |
| had the number of prior loans originated outside | 8 | 212 |
| of our criteria, but it's something I can | 9 | 212 |
| follow-up on with, exactly, the process, the | 10 | 212 |
| timing which we intervene in the closing. | 11 | 212 |
| GOVERNOR OLSON: So you may or may not | 12 | 212 |
| be intervening with the flow, but your evaluation | 13 | 212 |
| of the broker is on going; is that right? | 14 | 212 |
| MR. EVE: Right. | 15 | 212 |
| MR. COLLINS: Just for all the | 16 | 212 |
| panelists, are there any best practices that | 17 | 212 |
| haven't worked? | 18 | 212 |
| MR. STEIN: I think that we helped | 19 | 212 |
| write and negotiate the North Carolina law and it | 20 | 212 |
| was associate brokers that led us into that. They | 21 | 212 |
| were quite egregious, and I do have to say that | 22 | 212 |
| the city really has cleaned up their broker act. | 23 | 212 |
| And the associates were notorious for flipping, | 24 | 212 |
| for continually doing refinancing that don't | 1 | 213 |
| benefit the borrower. And the formulation we came | 2 | 213 |
| up with is not great, although we couldn't think | 3 | 213 |
| it better than that tangible benefits considering | 4 | 213 |
| all the circumstances. The motivation for that is | 5 | 213 |
| exactly the same as in the investment suitability, | 6 | 213 |
| which are vague standards, unfair and deceptive, | 7 | 213 |
| it's a vague standard. A lot of people don't like | 8 | 213 |
| it because it's vague, but I'm not sure it's | 9 | 213 |
| really addressed to flipping. | 10 | 213 |
| I think a lot of it is broker driven, | 11 | 213 |
| but the average lives are just too short, of | 12 | 213 |
| loans, in people's interest, and I'm not really | 13 | 213 |
| positive how to go about doing it. I think it | 14 | 213 |
| helps that somebody has to think about it, and I | 15 | 213 |
| think HSBC, particularly -- and probably Citi, I'm | 16 | 213 |
| just not aware of Citi, of what, specifically, you | 17 | 213 |
| mean by they've done the best job that I know of | 18 | 213 |
| in terms of making sure the loan is right for the | 19 | 213 |
| person, but in terms of the market as a whole, I'm | 20 | 213 |
| not sure that that really explains -- | 21 | 213 |
| MS. BRAUNSTEIN: Because I wondered | 22 | 213 |
| about that, because if part of the tangible is | 23 | 213 |
| whether or not it's a lower payment, and even if | 24 | 213 |
| it's significantly lower, some of the products | 1 | 214 |
| that we hear the worst stories about -- it could | 2 | 214 |
| be an IO, that you moved somebody from a fixed | 3 | 214 |
| rate into an IO and their payment fell | 4 | 214 |
| significantly, but is that really a net tangible | 5 | 214 |
| benefit to the consumer. So how do you -- | 6 | 214 |
| MS. ABRAMS: For us, that's part of the | 7 | 214 |
| option too. We look at the product's life, and we | 8 | 214 |
| look at, for example, taking someone from a fixed | 9 | 214 |
| rate product into an adjustable rate product -- | 10 | 214 |
| there has to be more than one benefit of the | 11 | 214 |
| possibilities, and that would be one of them, so | 12 | 214 |
| it would have to be something else on top of that. | 13 | 214 |
| So we've sort of allowed for that, as well, in the | 14 | 214 |
| past. | 15 | 214 |
| MR. CHANIN: Please don't ask the Fed | 16 | 214 |
| to define that tangible benefit. | 17 | 214 |
| MR. DORPALEN: We were hoping to | 18 | 214 |
| improve -- that these hearings are, sort of, a | 19 | 214 |
| process to improve the strength on regulations in | 20 | 214 |
| the market and the problems you're addressing. Is | 21 | 214 |
| that the expectation? | 22 | 214 |
| MS. BRAUNSTEIN: We want to look at | 23 | 214 |
| what the issues are out there and how the issues | 24 | 214 |
| have changed and evolved over the last six years | 1 | 215 |
| and then make some determinations as to what we do | 2 | 215 |
| about them. I don't think any decisions have been | 3 | 215 |
| made, at all, as to exactly what we will do at | 4 | 215 |
| this point. That's why we're out gathering | 5 | 215 |
| information about the markets. | 6 | 215 |
| MR. PINSKY: My response to the | 7 | 215 |
| question about best practices, is that I think the | 8 | 215 |
| best practice we have was that if we couldn't do | 9 | 215 |
| this right, we didn't want to do it. And in some | 10 | 215 |
| ways, I think that was a mistake. This was years | 11 | 215 |
| ago, and it kept us from doing anything. And I | 12 | 215 |
| think that because of what Self Help has done and | 13 | 215 |
| or because of other partners and some of the | 14 | 215 |
| banks, in fact, things have moved forward. I | 15 | 215 |
| think the lesson in that is, don't let the broker | 16 | 215 |
| be the enemy in this, and I would say that, in | 17 | 215 |
| response to what you're saying, we need to keep | 18 | 215 |
| moving forward, as aggressively and responsibly | 19 | 215 |
| with regulation. Broker licensing laws in the | 20 | 215 |
| states are not a perfect tool. It doesn't mean we | 21 | 215 |
| shouldn't try to move forward. I know you will. | 22 | 215 |
| GOVERNOR OLSON: It seems to me, the | 23 | 215 |
| greater comfort level the secondary market | 24 | 215 |
| ultimately gets for the subprime product so that | 1 | 216 |
| the pricing disparities can go a long way and the | 2 | 216 |
| opportunities for pricing mischief can be | 3 | 216 |
| identified and dealt with and isolated. It seems | 4 | 216 |
| to me that will go a long way. There really is | 5 | 216 |
| discipline in the marketplace and it isn't | 6 | 216 |
| perfect. It's imperfect and that's why, sitting | 7 | 216 |
| at this table, we all have jobs. And that's part | 8 | 216 |
| of our role. It's that interaction to know when | 9 | 216 |
| to interfere with the market as it works, and when | 10 | 216 |
| to supplement what is happening in the market. | 11 | 216 |
| It's a very subtle but a critically important | 12 | 216 |
| distinction. | 13 | 216 |
| MR. PINSKY: We're glad you're doing | 14 | 216 |
| it. I think what I said earlier, that it's a | 15 | 216 |
| both/and solution, both policy and market, I think | 16 | 216 |
| that's right. I mean, part of our job is to | 17 | 216 |
| figure out how to feed that secondary market with | 18 | 216 |
| responsible, fairly priced mortgage financing in a | 19 | 216 |
| sense, so that there is a market, and the market | 20 | 216 |
| will come to that. | 21 | 216 |
| MR. DORPALEN: Some of the solution, I | 22 | 216 |
| think, is to figure out how to properly fund the | 23 | 216 |
| tools to the business, housing counseling, and | 24 | 216 |
| there are some interesting other pieces out there | 1 | 217 |
| that are really marketing pieces. A number of | 2 | 217 |
| lenders were participating and Neighbor Works are | 3 | 217 |
| participating in a program to get ad counsel to | 4 | 217 |
| advertising around foreclosure prevention and | 5 | 217 |
| alerting people that, when they have | 6 | 217 |
| delinquencies, that they should contact a housing | 7 | 217 |
| counseling agency or their lender. And I'm not | 8 | 217 |
| sure we figured out -- the problem with | 9 | 217 |
| delinquency counseling, which we do a lot of, is, | 10 | 217 |
| you get people in crisis, and you'd really like to | 11 | 217 |
| get it when people are at 60 days. If there's a | 12 | 217 |
| way to make that happen efficiently, that's really | 13 | 217 |
| valuable. | 14 | 217 |
| I think there's other things that we | 15 | 217 |
| mentioned earlier about getting people when | 16 | 217 |
| they're thinking about remodeling their bathroom | 17 | 217 |
| and not making a refinancing decision, and helping | 18 | 217 |
| people understand that moment. And I think it's | 19 | 217 |
| marketing not education. There has to be some | 20 | 217 |
| presence to that. | 21 | 217 |
| And the third piece, what I mentioned | 22 | 217 |
| earlier, that we really do need a much better | 23 | 217 |
| funding stream for paying for housing counseling. | 24 | 217 |
| Because what it does now, it's just inadequate | 1 | 218 |
| because there's not enough of it. | 2 | 218 |
| GOVERNOR OLSON: I wasn't part of the | 3 | 218 |
| efforts six years ago, but it would be interesting | 4 | 218 |
| to go back and look at the transcripts and look at | 5 | 218 |
| the summaries, but I think the issues that are | 6 | 218 |
| being discussed were not predictable six years | 7 | 218 |
| ago, because of the evolution of the marketplace | 8 | 218 |
| and how much it's changed. And my real concern, | 9 | 218 |
| why we're here, it is possible for to us look at | 10 | 218 |
| revisions in law and find that we've missed a | 11 | 218 |
| point. We're fighting the last war. I think that | 12 | 218 |
| the real challenge is the extraordinary knowledge | 13 | 218 |
| asymmetry in the marketplace today, given the | 14 | 218 |
| range of new products in the market, the | 15 | 218 |
| opportunities for new products, but also the | 16 | 218 |
| opportunities for all those new products to be | 17 | 218 |
| misused, or people who are not fully informed and | 18 | 218 |
| taken advantage of. It seems to me that I would | 19 | 218 |
| not have articulated it that way even six months | 20 | 218 |
| ago. | 21 | 218 |
| MS. BRAUNSTEIN: I think that's | 22 | 218 |
| absolutely right. Six years ago, we were hearing | 23 | 218 |
| about different issues, very different issues. | 24 | 218 |
| GOVERNOR OLSON: Eric, do you have | 1 | 219 |
| something you want to add? | 2 | 219 |
| MR. STEIN: I was just going to address | 3 | 219 |
| your points about pricing, because I think we have | 4 | 219 |
| objective underwriting and pricing in the subprime | 5 | 219 |
| market because of the secondary market. However, | 6 | 219 |
| the discretionary pricing of brokers was 60 to 65 | 7 | 219 |
| percent of the subprime market, and they have | 8 | 219 |
| those subjective boxes, but then they have the | 9 | 219 |
| ability to do yield spread premiums, which can be | 10 | 219 |
| limited or unlimited depending on the lender. | 11 | 219 |
| I don't know if you saw our HMDA | 12 | 219 |
| report, which came out last week, which builds on | 13 | 219 |
| the work that the Fed did, where it looked at the | 14 | 219 |
| disparities in the pricing among African-Americans | 15 | 219 |
| and Latinos versus whites on HMDA pricing | 16 | 219 |
| overlaying that the credit risks, LTB and FICO, | 17 | 219 |
| and there's documentation to that, but it still | 18 | 219 |
| exists. There's 30 percent greater likelihood | 19 | 219 |
| than many products. I think that's due to | 20 | 219 |
| discretionary pricing by brokers. If you look at | 21 | 219 |
| the car lending lawsuits, and they say -- they're | 22 | 219 |
| essentially yield spread premiums for cars when | 23 | 219 |
| dealer originates the loan and sells it, and they | 24 | 219 |
| get more money the higher the interest rate. If | 1 | 220 |
| you look at the impact of that group, it's | 2 | 220 |
| discriminatory by race, by affect, and I think | 3 | 220 |
| that's the pricing mischief that occurs just in | 4 | 220 |
| the market, because there aren't limits on the | 5 | 220 |
| discretionary pricing by brokers. Who can they | 6 | 220 |
| get more money from, and it tends to be people in | 7 | 220 |
| less financial sophistication, not all women, not | 8 | 220 |
| all minorities, but people they can get more money | 9 | 220 |
| from. | 10 | 220 |
| GOVERNOR OLSON: Thank you very much. | 11 | 220 |
| We thank each of you and thank everybody who is | 12 | 220 |
| here. We are 15 minutes ahead of time. We said | 13 | 220 |
| at 3 o'clock, but for people who wish -- let's | 14 | 220 |
| find out now if there's people who would care to | 15 | 220 |
| -- we thank everyone of you for being here. That | 16 | 220 |
| then concludes our program. Have a wonderful time | 17 | 220 |
| in Philadelphia. If I could hum the theme song | 18 | 220 |
| from Rocky, I would. You are spared. Thanks to | 19 | 220 |
| the panel, and Mike, thanks again for being a | 20 | 220 |
| host. | 21 | 220 |
| (Whereupon, the proceedings concluded | 22 | 220 |
| at 3:00 p.m.) | 23 | 220 |
| 24 | 220 | |
| C E R T I F I C A T I O N | 1 | 221 |
| 2 | 221 | |
| I, EMILIE S. PAKMAN, a Professional | 3 | 221 |
| Reporter and Notary Public, do hereby certify that | 4 | 221 |
| I reported the deposition in the above-captioned | 5 | 221 |
| matter; that the witness was duly sworn by me; | 6 | 221 |
| that the foregoing is a true and correct | 7 | 221 |
| transcript of the stenographic notes of testimony | 8 | 221 |
| taken by me in the above-captioned matter. | 9 | 221 |
| I FURTHER CERTIFY that I am not an | 10 | 221 |
| attorney or counsel of any of the parties, nor a | 11 | 221 |
| relative or employee of any attorney or counsel in | 12 | 221 |
| connection with the action, nor financially | 13 | 221 |
| interested in the action. | 14 | 221 |
| 15 | 221 | |
| 16 | 221 | |
| 17 | 221 | |
| 18 | 221 | |
| EMILIE S. PAKMAN | 19 | 221 |
| 20 | 221 | |
| 21 | 221 | |
| DATED: | 22 | 221 |
| 23 | 221 | |
| 24 | 221 |
Class Act Reporting Agency, Philadelphia, Pennsylvania, 215-928-9760
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