Building Sustainable Homeownership:
Responsible Lending and Informed Consumer Choice
Federal Reserve Bank of San Francisco
101 Market Street, San Francisco, California 94105
June 16, 2006
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Pages 1-25 | 26-50 | 51-75 | 76-100 | 101-125 | 126-150 | 151-175 | 176-200 | 201-225 | 226-250 | 251-254
| Transcript | Line | Page |
|---|---|---|
| on what the real costs are of these loans because so much, | 1 | 201 |
| you know, drives from the decisions that you make after the | 2 | 201 |
| loan is closed. | 3 | 201 |
| So I think it does speak to the importance of the | 4 | 201 |
| disclosure, and trying as our statement said to include some | 5 | 201 |
| of these ongoing fees that aren't fairly captured and this -- | 6 | 201 |
| in the current disclosure formula. So I think there is some | 7 | 201 |
| room for improvement there. | 8 | 201 |
| MR. CHANIN: Okay. | 9 | 201 |
| MR. AXELSON: One thing. One of the biggest | 10 | 201 |
| complaints I hear from my clients is that they need more and | 11 | 201 |
| better qualified counselors because they -- I mean, it's much | 12 | 201 |
| better for the lending community to get an educated consumer | 13 | 201 |
| who understands the product when they come back to them from | 14 | 201 |
| counseling. | 15 | 201 |
| I mean, most of the lenders do not -- you know, | 16 | 201 |
| don't want to shove this down someone's throat when they | 17 | 201 |
| don't understand what they're doing. That's not going to | 18 | 201 |
| help anybody. | 19 | 201 |
| MS. BELLING: And we need more funding to pay for | 20 | 201 |
| the counseling. Because HUD can mandate it, but there isn't | 21 | 201 |
| money behind it. And we have a real predicament with the | 22 | 201 |
| growth of the market now. | 23 | 201 |
| The origination fees are just a percentage of the | 24 | 201 |
| HUD limit or the home value, so they're ramping up every year | 25 | 201 |
| and that just drives the costs up. | 1 | 202 |
| And, you know, the average origination fee on these | 2 | 202 |
| loans now is $5,000 versus the average maximum claim amount | 3 | 202 |
| is $250,000. And yet we're struggling to get 100 a 125 or | 4 | 202 |
| $150 fee to pay for what in our case constitutes two to three | 5 | 202 |
| hours of in-depth personalized one-on-one counseling with a | 6 | 202 |
| homeowner. | 7 | 202 |
| So not only is the counseling important, but it has | 8 | 202 |
| to be supported in a way that's sustainable so that the | 9 | 202 |
| counselors who do this really important good work are | 10 | 202 |
| reimbursed appropriately for their efforts. | 11 | 202 |
| MR. CHANIN: Jim or Ruth? | 12 | 202 |
| MS. ROMAN: I just wanted to say that HUD is moving | 13 | 202 |
| in the direction of certifying counselors. We recognize that | 14 | 202 |
| we need to make sure that quality counseling is taking place. | 15 | 202 |
| And so we have a proposed rule that we're planning on putting | 16 | 202 |
| forth that would require all HECM counselors to take an exam, | 17 | 202 |
| to pass the exam in order to provide HECM counseling. And | 18 | 202 |
| also to have ongoing continuing education as well. | 19 | 202 |
| MS. BRAUNSTEIN: Peter. | 20 | 202 |
| MR. BELL: Yeah, two things. One, I'd like to | 21 | 202 |
| correct something for the record that was said that's | 22 | 202 |
| incorrect, which is the statement was made that there's -- | 23 | 202 |
| there is translation requirements under Civil Code in | 24 | 202 |
| California for mortgages but not for reverse mortgages. | 25 | 202 |
| Reverse mortgage is subject to the same Civil Code | 1 | 203 |
| on that. The exemptions under the Civil Code are for certain | 2 | 203 |
| types of licenses, and those exemptions exist for all | 3 | 203 |
| mortgages, whether they're reverse or not. | 4 | 203 |
| The pending legislation would take reverses and | 5 | 203 |
| treat them separately from other mortgages so there would no | 6 | 203 |
| longer be the exemptions that exist for the mortgages. But | 7 | 203 |
| we do currently come under the same Civil Code. | 8 | 203 |
| On the counseling issue, funding for counseling has | 9 | 203 |
| been very problematic. The state involved, AARP, the | 10 | 203 |
| department, the industry, the counseling community, have all | 11 | 203 |
| been working together to try and address this. | 12 | 203 |
| And my understanding is that HUD is close to issuing | 13 | 203 |
| a mortgagee letter that will allow a counselor -- I'm sorry, | 14 | 203 |
| a borrower to pay a fee for counseling out of the loan | 15 | 203 |
| proceeds. | 16 | 203 |
| And after the counseling session the -- basically | 17 | 203 |
| the counseling certificate will have details of the | 18 | 203 |
| counseling session and the fee to be paid and, upon closing, | 19 | 203 |
| the lender will remit that fee to the counseling agency to | 20 | 203 |
| cover that. | 21 | 203 |
| And that will provide a lot more financial support | 22 | 203 |
| for counseling than is available now. And my understanding | 23 | 203 |
| is that mortgagee letter is -- whatever this means in HUD | 24 | 203 |
| terms -- eminent. | 25 | 203 |
| MS. BELLING: The complication from our point of | 1 | 204 |
| view is that will apply to any HUD-approved housing | 2 | 204 |
| counseling agency and any HECM counselor. So it will allow | 3 | 204 |
| the person propped up watching the 30-minute video, now allow | 4 | 204 |
| that counseling agency to charge that fee to a borrower, | 5 | 204 |
| prospective borrower. They aren't a borrower at that time. | 6 | 204 |
| The consumer. So they really don't get anything for their | 7 | 204 |
| money and now they're having to pay for it on top of it. | 8 | 204 |
| So we're hopeful that HUD will move forward with the | 9 | 204 |
| exam requirement as quickly as possible. And we see this as | 10 | 204 |
| an interim solution that we support, but we really need to | 11 | 204 |
| close the loop and make sure that if people are required to | 12 | 204 |
| pay a fee for a service that they're getting a service | 13 | 204 |
| that's -- they're getting their money's worth. | 14 | 204 |
| MR. BELL: Right. Presumably once HUD implements | 15 | 204 |
| this exam, in order to get paid, the counselor will have to | 16 | 204 |
| have passed that exam and be on the roster. | 17 | 204 |
| MS. BELLING: Right. But they're not happening at | 18 | 204 |
| exactly the same time. | 19 | 204 |
| MR. MAHONEY: As one last comment, there are tools | 20 | 204 |
| in the marketplace already to support better counseling and | 21 | 204 |
| such and many of the counselors use them. | 22 | 204 |
| AARP developed model specifications for illustration | 23 | 204 |
| software that -- we developed our own proprietary software | 24 | 204 |
| used by all of our brokers as well as our retail loan | 25 | 204 |
| officers to illustrate the product. And that software is | 1 | 205 |
| used by almost 2,000 counselors in the marketplace today. | 2 | 205 |
| So the tools are out there. Getting the | 3 | 205 |
| certification and getting the funding is the two | 4 | 205 |
| primary issues. | 5 | 205 |
| MR. CHANIN: Jim, can I ask you a question? Do you | 6 | 205 |
| retain the mortgages you originate, your reverse mortgages, | 7 | 205 |
| or do you sell them? | 8 | 205 |
| MR. MAHONEY: We sell them into the secondary | 9 | 205 |
| market. | 10 | 205 |
| MR. CHANIN: And if you could tell me, does | 11 | 205 |
| Fannie -- or is there an active secondary market? Has it | 12 | 205 |
| developed or is it developing or -- other than Fannie Mae? | 13 | 205 |
| MR. MAHONEY: Historically all -- Fannie Mae has | 14 | 205 |
| been the only investor in the FHA, HECM and the Home Keeper, | 15 | 205 |
| which is their proprietary product. Lehman Brothers has been | 16 | 205 |
| the sole purchaser of our proprietary product, the Cash | 17 | 205 |
| Account, as such in recent years. That's changing and I | 18 | 205 |
| think you'll see new investors emerge this year. | 19 | 205 |
| MR. CHANIN: Okay. | 20 | 205 |
| MS. BRAUNSTEIN: Okay. I think we're going to wind | 21 | 205 |
| down here. Anybody want to make any last comments? | 22 | 205 |
| MR. AXELSON: I just have -- I have a problem with | 23 | 205 |
| these foreign language requirements. Because where do you | 24 | 205 |
| draw the line? | 25 | 205 |
| I mean, it certainly -- with Spanish, which is one | 1 | 206 |
| of the largest non-English speaking groups in the country. | 2 | 206 |
| But then, you know, I understand like in California, there | 3 | 206 |
| are I forget how many dialects of Asian. I mean, where do | 4 | 206 |
| you draw the line? | 5 | 206 |
| And how does the private market keep up with -- I | 6 | 206 |
| mean, how many sets of documents in how many languages are | 7 | 206 |
| you going to be required -- are you going to require in -- | 8 | 206 |
| you know, different states you have different minorities. | 9 | 206 |
| Where does that go? | 10 | 206 |
| MS. BRAUNSTEIN: Shirley. | 11 | 206 |
| MS. KROHN: No, I agree with you actually. The | 12 | 206 |
| Civil Code 1932 in California stipulates the six languages as | 13 | 206 |
| being Spanish, Chinese, Tagalog, Vietnamese, or Korean | 14 | 206 |
| because that represents the greatest population. May be | 15 | 206 |
| different in Nevada. I mean, if you're looking at a federal | 16 | 206 |
| statute about this, it could be different in Arizona. | 17 | 206 |
| Every state is going to have to -- if people agree | 18 | 206 |
| with the whole notion about doing counseling and having the | 19 | 206 |
| documents in the language that it's negotiated, we can't | 20 | 206 |
| assume that everybody is going to understand the English | 21 | 206 |
| version or you just -- you know, just not going to work. | 22 | 206 |
| But you're right. Every state is going to have | 23 | 206 |
| their own language requirements. And how does the statute | 24 | 206 |
| define Chinese? | 25 | 206 |
| MR. AXELSON: Right. That's what I'm saying. I | 1 | 207 |
| mean, how -- I mean, lenders dealing with state -- you know, | 2 | 207 |
| 54 jurisdictions between the territories and now they may | 3 | 207 |
| have different states are going to require disclosures in | 4 | 207 |
| different languages and different dialects? I mean, it's | 5 | 207 |
| not -- it's not workable. | 6 | 207 |
| MR. CHANIN: Sounds like you need to brush up on | 7 | 207 |
| those late-night language lessons there. | 8 | 207 |
| MR. AXELSON: You know, even the new immigration | 9 | 207 |
| bills are requiring that people learn English. At a certain | 10 | 207 |
| point I think you can't call on the lending community to | 11 | 207 |
| cater to every foreign language. | 12 | 207 |
| MR. BELL: There are provisions -- | 13 | 207 |
| MS. KROHN: All I can say is I would hope that every | 14 | 207 |
| potential borrower would have an equal opportunity at getting | 15 | 207 |
| information about a loan or about a product that they are | 16 | 207 |
| applying for, feel that it's -- it's a necessity in their | 17 | 207 |
| lifetime and that they understand the documents that they are | 18 | 207 |
| signing. And if that means putting them in that language, | 19 | 207 |
| then I think it's a no-brainer. But that's my opinion. | 20 | 207 |
| MS. BRAUNSTEIN: And I think we'll let that be the | 21 | 207 |
| last word. And I want to thank our panelists very much for | 22 | 207 |
| coming today and we really appreciate it. | 23 | 207 |
| We are going to take a short break. We're going to | 24 | 207 |
| take a ten-minute break. It's ten of 3:00. At 3:00 we will | 25 | 207 |
| reconvene for the open mic session. | 1 | 208 |
| If you have signed up, we would ask that during | 2 | 208 |
| those ten minutes you come forward to the front of the room | 3 | 208 |
| and identify yourself -- John, there you are. Okay. If you | 4 | 208 |
| have signed up for the open mic, if you would identify | 5 | 208 |
| yourself to John, right there who is waving. And we will | 6 | 208 |
| start at 3:00. | 7 | 208 |
| (Whereupon a recess was taken.) | 8 | 208 |
| MR. OLSON: Okay. We're going to get started now. | 9 | 208 |
| The sign-up is over. We're starting the session. | 10 | 208 |
| And we have a lot of people. We are -- as we said | 11 | 208 |
| this morning, each person will have three minutes to make | 12 | 208 |
| their statement. However, I want to reiterate the fact that | 13 | 208 |
| you can submit for the record a written statement as long as | 14 | 208 |
| you would like and you have until August 15th to do that. | 15 | 208 |
| So if you don't have it with you today, you can | 16 | 208 |
| submit it afterwards, anytime up until August 15th. And we | 17 | 208 |
| would like to hear from you. So feel free to do that. | 18 | 208 |
| But for purposes today of speaking, you have three | 19 | 208 |
| minutes. And Naomi, who is the timekeeper -- raise your | 20 | 208 |
| hand -- will give you a sign when you have one minute left | 21 | 208 |
| and then when your time is up and we'll move on to the next | 22 | 208 |
| person. | 23 | 208 |
| I would ask people -- I do have a sign-up list, but | 24 | 208 |
| I understand some people -- it's not perfect because some | 25 | 208 |
| people who signed up this morning aren't here and things like | 1 | 209 |
| that. | 2 | 209 |
| So I would ask, too, for the record, for purposes of | 3 | 209 |
| the court reporter, that you start by just giving your name | 4 | 209 |
| and the organization that you -- if you're representing an | 5 | 209 |
| organization. Some people may just be representing | 6 | 209 |
| themselves, which is fine, and then make your statement. | 7 | 209 |
| And we'll start -- Waiching, we'll start with you. | 8 | 209 |
| You I know. | 9 | 209 |
| MS. WONG: Okay. Thank you. | 10 | 209 |
| MS. BRAUNSTEIN: But introduce yourself for the | 11 | 209 |
| court reporter. | 12 | 209 |
| MS. WONG: Sure. My name is Waiching Wong and I'm | 13 | 209 |
| currently a program manager for economic development at the | 14 | 209 |
| Greenlining Institute. We're in Berkeley, California. And | 15 | 209 |
| we're a multi-ethnic public policy advocacy institute that | 16 | 209 |
| seeks to provide consumer protection to low-income minority | 17 | 209 |
| communities. | 18 | 209 |
| And currently there's about, we guess, $1 trillion | 19 | 209 |
| at least in the home equity market. And this market is | 20 | 209 |
| essentially unregulated, and not because it's unimportant to | 21 | 209 |
| regulate but because of substantial amount of subprime | 22 | 209 |
| lending that we're concerned about is done outside and to | 23 | 209 |
| those -- done by those who are outside the purview of | 24 | 209 |
| regulations. So we believe that the situation is much more | 25 | 209 |
| dangerous than most people suspect. | 1 | 210 |
| And one example that Greenlining has been involved | 2 | 210 |
| with is Ameriquest, an institution that had best practices in | 3 | 210 |
| place for subprime lending and that even testified on them, | 4 | 210 |
| but then they violated their own best practices because | 5 | 210 |
| people within the organization that had decision making power | 6 | 210 |
| also had huge financial incentives to violate them. | 7 | 210 |
| So with this history in mind, Greenlining has two | 8 | 210 |
| recommendations. First, we believe that the five or ten | 9 | 210 |
| largest regulated financial institutions with expertise in | 10 | 210 |
| home equity loans should, with strong community input, | 11 | 210 |
| develop a national standard that can be regulated yearly and | 12 | 210 |
| can inspire national confidence. | 13 | 210 |
| Once there is such agreement, many community groups, | 14 | 210 |
| including Greenlining's members, including Alan Temple | 15 | 210 |
| Baptist Church and West Angeles CDC just to name a few, would | 16 | 210 |
| support that federal legislation that would make it tougher | 17 | 210 |
| for nonregulated institutions to have lower standards. | 18 | 210 |
| And what we mean by that is the regulation would | 19 | 210 |
| enforce that and require that every unregulated lender put on | 20 | 210 |
| their applications, in bold letters, and in strong language, | 21 | 210 |
| language that informs potential borrowers that, A, this | 22 | 210 |
| institution is not regulated by federal regulations, that | 23 | 210 |
| this loan may not meet the high standards that are set forth | 24 | 210 |
| by the industry. | 25 | 210 |
| And also, as a result of that, all loans -- and | 1 | 211 |
| under this the loan notice cannot be final for 14 days and | 2 | 211 |
| the borrower be given 1-800 hotline that is staffed by | 3 | 211 |
| multilingual experts who can inform borrowers if the loan | 4 | 211 |
| meets federal standards, if there are alternative options | 5 | 211 |
| available, and can also refer the borrower to other | 6 | 211 |
| institutions that can offer them something better. | 7 | 211 |
| And this alternative has already been examined by | 8 | 211 |
| lawyers and deemed constitutionally valid. And Greenlining | 9 | 211 |
| will be presenting this idea again to the new Federal Reserve | 10 | 211 |
| chairman later this year at out annual meeting and also | 11 | 211 |
| expect to meet with Sheila Behr, the soon-to-be new chair of | 12 | 211 |
| the FDIC, and John Dugan, who is already taking action in | 13 | 211 |
| this regard. And we want to discuss those things with them. | 14 | 211 |
| And Greenlining believes that these recommendations | 15 | 211 |
| can greatly reduce the harm that ensues from the predatory | 16 | 211 |
| subprime lending and, you know, prevent that type of lending | 17 | 211 |
| altogether. | 18 | 211 |
| Thanks. | 19 | 211 |
| MS. BRAUNSTEIN: Thank you. | 20 | 211 |
| Next. | 21 | 211 |
| MR. KENNEDY: Thank you. Good afternoon. I'm Allan | 22 | 211 |
| Kennedy. I'm from the San Francisco District Attorney's | 23 | 211 |
| Office here on behalf of San Francisco District Attorney | 24 | 211 |
| Kamala Harris. | 25 | 211 |
| I work in the elder abuse unit and I also handle the | 1 | 212 |
| real estate fraud matters that our office prosecutes. And I | 2 | 212 |
| just want to basically put on the record for -- as far as | 3 | 212 |
| this hearing is concerned that DA Harris and our office are | 4 | 212 |
| very concerned about the use of predatory loans, particularly | 5 | 212 |
| in the San Francisco area, of course, since that's what we | 6 | 212 |
| prosecute. | 7 | 212 |
| Unfortunately, we have a very large number of | 8 | 212 |
| potentially vulnerable elders in our district, in our | 9 | 212 |
| jurisdiction here, that are homeowners, long-time homeowners, | 10 | 212 |
| who have been subject to very predatory or very onerous | 11 | 212 |
| conditions in terms of loans that have been made, either in | 12 | 212 |
| terms of reverse mortgages, in terms of second home | 13 | 212 |
| mortgages, or equity lines of credit. And unfortunately | 14 | 212 |
| they've been -- often take advantage of the vulnerabilities | 15 | 212 |
| of the elders in our community. | 16 | 212 |
| And we've had this -- we've had a number of cases | 17 | 212 |
| come to our attention in our office over the preceding years | 18 | 212 |
| involving elders who have very limited mental competency, and | 19 | 212 |
| that is made obvious when assessments are done by say | 20 | 212 |
| psychologists or psychiatrists and yet these people have | 21 | 212 |
| committed themselves to very difficult home loans that | 22 | 212 |
| unfortunately, in many instances, have resulted in | 23 | 212 |
| foreclosures and loss of their homes. | 24 | 212 |
| And it's a real concern of our office that whatever | 25 | 212 |
| tightening of regulation -- and I'm not one to be as good on | 1 | 213 |
| the specifics of that as many of the speakers here today are, | 2 | 213 |
| but any tightening of regulations in terms of the subprime | 3 | 213 |
| market, particularly as it relates to the elderly is | 4 | 213 |
| concerned, we are very much in support of because of the many | 5 | 213 |
| instances that we've seen over the years in which the senior | 6 | 213 |
| citizens in this area have been subject to these kinds of | 7 | 213 |
| loans. | 8 | 213 |
| With the high value of real estate in San Francisco | 9 | 213 |
| and the whole Northern California area, this is really a | 10 | 213 |
| problem because it's almost been a real magnet to people from | 11 | 213 |
| outside the area to come here to seek to make high | 12 | 213 |
| commissions on the -- on second or equity lines of credit on | 13 | 213 |
| our homes here. | 14 | 213 |
| And so I'm just here to say that we see this problem | 15 | 213 |
| a lot in our office. And we just hope that whatever further | 16 | 213 |
| regulation that can happen or requirements on counseling | 17 | 213 |
| or -- because we have a very diverse society -- very diverse | 18 | 213 |
| community here, the requirements that were discussed earlier | 19 | 213 |
| about language requirements, they're very much a problem for | 20 | 213 |
| our senior citizens in this community as well. | 21 | 213 |
| So thank you. | 22 | 213 |
| MS. BRAUNSTEIN: Thank you. | 23 | 213 |
| MR. ZAHRADKA: Good afternoon. My name is James | 24 | 213 |
| Zahradka. I'm a senior attorney with Public Interest Law | 25 | 213 |
| Firm, which is a project of the Law Foundation of Silicon | 1 | 214 |
| Valley in San Jose. Thanks for the opportunity to speak | 2 | 214 |
| today. | 3 | 214 |
| And at first I just think I need to say that I was | 4 | 214 |
| under the understanding that we get five minutes today based | 5 | 214 |
| on the press release. I'll limit my comments to three. But | 6 | 214 |
| I think that's unfortunate. | 7 | 214 |
| I just hope that the written comments are indeed | 8 | 214 |
| taken quite seriously and reviewed with perhaps even more | 9 | 214 |
| care given the limitations on time. | 10 | 214 |
| So I'll give you my three recommendations first and | 11 | 214 |
| then do as much detail as I can given the short time. | 12 | 214 |
| First, the Fed should bring more high-cost loans | 13 | 214 |
| within HOEPA's protections for borrowers against predatory | 14 | 214 |
| lenders. And specific ways to do that -- you've heard a | 15 | 214 |
| little bit about these already -- but you should include YSPs | 16 | 214 |
| and prepayment penalties in the points and fees calculation | 17 | 214 |
| and also lower the points and fees trigger from eight to | 18 | 214 |
| four, five percent of the loan amount. | 19 | 214 |
| Secondly, the Fed should protect consumers from | 20 | 214 |
| unscrupulous lenders and brokers who seek to take advantage | 21 | 214 |
| of borrowers who are not fluent in English. And you heard a | 22 | 214 |
| little bit about that, too. Modeling on Civil Code 1632 I | 23 | 214 |
| think is a good way to start. | 24 | 214 |
| And third, the Fed should protect borrowers from | 25 | 214 |
| being pushed into loans that are not suitable for them. And | 1 | 215 |
| one very key aspect of that is the abuse of no document or | 2 | 215 |
| low document loans. You also heard about that a little bit | 3 | 215 |
| earlier. And I'll hopefully have some time to give you a | 4 | 215 |
| little detail about that. | 5 | 215 |
| So our experience with this is based on my -- my | 6 | 215 |
| program and our sister program, Fair Housing Law Project, | 7 | 215 |
| representation of dozens of borrowers over the past five | 8 | 215 |
| years or so after our colleague, Heidi Li, started us in this | 9 | 215 |
| work some time ago when she was with our organization. We've | 10 | 215 |
| represented them on -- dozens of people who have been | 11 | 215 |
| victimized by predatory lenders. | 12 | 215 |
| Particularly we had two cases involving groups of | 13 | 215 |
| homeowners who were victimized based on their language | 14 | 215 |
| ability and/or ethnicity. And this gets to the issue in | 15 | 215 |
| the -- I think in the public request for comments about the | 16 | 215 |
| HMDA data, which shows indeed Latino home buyers are getting | 17 | 215 |
| costlier loans. These cases show very clearly that that was | 18 | 215 |
| based on factors not related to legitimate underwriting | 19 | 215 |
| criteria but it was based specifically on their ethnicity or | 20 | 215 |
| on their language abilities. | 21 | 215 |
| And that -- those cases, one was a purchase loan and | 22 | 215 |
| one was a refinance, which I think underlines Judy Zeigler's | 23 | 215 |
| point earlier that HOEPA should indeed be expanded to include | 24 | 215 |
| purchase loans. | 25 | 215 |
| So we've also advocated for some legislation in this | 1 | 216 |
| area. We were stymied on the local front by California | 2 | 216 |
| Supreme Court decision about Oakland's ordinance and we've | 3 | 216 |
| been stymied on the state level frankly by the financial | 4 | 216 |
| industry's very strong position in Sacramento. You might say | 5 | 216 |
| stranglehold. | 6 | 216 |
| So we really look to the Fed for leadership in this | 7 | 216 |
| area. We're not having a lot of luck in these other arenas. | 8 | 216 |
| So we hope you all will do something about this. | 9 | 216 |
| So getting to the YSP issue, the whole point of | 10 | 216 |
| these fees is to award the broker for getting a more | 11 | 216 |
| expensive loan. So to not include those in the calculation | 12 | 216 |
| when you're deciding when a consumer is getting into a | 13 | 216 |
| dangerous loan it seems unfair. | 14 | 216 |
| And I'm out of time, which is quite disappointing. | 15 | 216 |
| But I guess I will give the rest of my comments in writing. | 16 | 216 |
| MS. BRAUNSTEIN: Thank you very much. | 17 | 216 |
| Next. Mr. McCurdy? | 18 | 216 |
| MR. McCURDY: Yes. Thank you. My name is Jonathan | 19 | 216 |
| McCurdy. Thank you for coming. | 20 | 216 |
| MS. BRAUNSTEIN: Can you speak directly into the mic | 21 | 216 |
| so people -- | 22 | 216 |
| MR. McCURDY: Thank you for coming. Thank you for | 23 | 216 |
| coming. | 24 | 216 |
| I've been a lawyer in both public and private | 25 | 216 |
| practice for 30 years, working in low-income minority | 1 | 217 |
| communities. For at least the past ten years, I've been | 2 | 217 |
| working on behalf of victims of predatory loans or mortgage | 3 | 217 |
| brokers who sell them. | 4 | 217 |
| I am not here today, though, to talk on behalf of | 5 | 217 |
| the victims. I'm here today to offer you a perspective from | 6 | 217 |
| the elicit unscrupulous mortgage broker. | 7 | 217 |
| In California real estate and mortgage brokers | 8 | 217 |
| operate under the same license, and we as mortgage brokers | 9 | 217 |
| work very hard every day in the vineyards of the distressed | 10 | 217 |
| non-English homeowner. | 11 | 217 |
| Our message to you is that we really like the | 12 | 217 |
| regulation scheme and the -- and the effort put into this the | 13 | 217 |
| way it is. Through a dedicated team of language-sensitive | 14 | 217 |
| community runners, cooperative no CM lenders, flexible | 15 | 217 |
| closing day investors who can get as much as 400 percent | 16 | 217 |
| annual rate of return, entrepreneurial straw buyers who we've | 17 | 217 |
| been paying 3,000 a hit to act as purchasers -- but now we | 18 | 217 |
| found we can use stolen identities and eliminate that cost, | 19 | 217 |
| pocket it ourselves. | 20 | 217 |
| Through the use of this dedicated team, we're able | 21 | 217 |
| to resource underutilized and wasted equity -- I heard people | 22 | 217 |
| refer to this as skimming. I think that's a very bad word | 23 | 217 |
| for it -- we're able to resource this underutilized and | 24 | 217 |
| wasted equity from the low-income communities and release it | 25 | 217 |
| into the marketplace, where it will do some good for all of | 1 | 218 |
| us, not just the unfortunate homeowner who is probably going | 2 | 218 |
| to lose her house anyway. | 3 | 218 |
| My message is don't change a thing. But most | 4 | 218 |
| critically, if you're going to change some things, keep | 5 | 218 |
| income asset stated loans, yield spread premiums, English | 6 | 218 |
| only docs, real important asininity immunity. If the banks | 7 | 218 |
| were on the hook for all this elicit conduct, I just think | 8 | 218 |
| they'd stop it. | 9 | 218 |
| Unfettered underwriting discretion, don't tighten | 10 | 218 |
| that up, please. And of course -- this goes to an issue | 11 | 218 |
| brought earlier -- please don't spend any money on | 12 | 218 |
| enforcement because right now we can get away with anything. | 13 | 218 |
| If you change any of these things I've talked about, I'm out | 14 | 218 |
| of business. | 15 | 218 |
| Thank you. | 16 | 218 |
| MS. BRAUNSTEIN: Thank you. | 17 | 218 |
| MR. MORGAN: My name is Ian Morgan. I represent | 18 | 218 |
| AARP and the Community Action Volunteer Center, Santa Clara | 19 | 218 |
| county. And I'm also a volunteer in the San Jose Information | 20 | 218 |
| Center, which is rather unique. It's the only one in | 21 | 218 |
| Northern California. | 22 | 218 |
| Thank you. I learned a little today. I thought I | 23 | 218 |
| knew a little. Now I'm little confused. When I get a phone | 24 | 218 |
| call on anybody inquiring, we simply refer them to the | 25 | 218 |
| Council on Aging because we don't know how to do any better | 1 | 219 |
| than that. We know they've been very busy, particularly with | 2 | 219 |
| counseling for Medicare Part D. | 3 | 219 |
| Obviously counseling is very important. We think it | 4 | 219 |
| is essential, is mandatory. And my own personal view is I | 5 | 219 |
| think, like any other professional occupation, it should be | 6 | 219 |
| certified by examination. | 7 | 219 |
| That's all I have to say. Thank you. | 8 | 219 |
| MS. BRAUNSTEIN: Okay. Thank you very much. | 9 | 219 |
| UNIDENTIFIED SPEAKER: My name is Nuris (phonetic). | 10 | 219 |
| And I'm retired. I'm a volunteer for AARP and part of the | 11 | 219 |
| Community Presents Team for the Concord area. We generally | 12 | 219 |
| do have a lot of seniors and we do get feedback from them. | 13 | 219 |
| The thing that most of the people over there feel is | 14 | 219 |
| they want strong, meaningful consumer protections against | 15 | 219 |
| predatory lending. Having said that, AARP earlier expressed | 16 | 219 |
| a position of counselors, which makes absolute sense. The | 17 | 219 |
| counselors should not only be -- there should be funding | 18 | 219 |
| released. But not only should they be trained, tested, and | 19 | 219 |
| available, but they also should be held accountable for the | 20 | 219 |
| advice they give. And there must be some mechanism. | 21 | 219 |
| When we have these counselors advise an elderly lady | 22 | 219 |
| who is 70 years old and say, "Okay. Go ahead and do this," | 23 | 219 |
| and if that is a very wrong advice, then the counselor should | 24 | 219 |
| also be held responsible. So there should be mechanism to | 25 | 219 |
| get the elderly person the right, honest, good advice that | 1 | 220 |
| the person needs. It shouldn't be haphazard. It should be | 2 | 220 |
| carefully thought out when the person gives an advice. | 3 | 220 |
| The other thing was things should be in plain | 4 | 220 |
| English. If it is two percent, it should mean two percent | 5 | 220 |
| and not 2.3 percent. Because elderly people are real aligned | 6 | 220 |
| to figure that one out, you know. And if you advertise in | 7 | 220 |
| Spanish, then you should be able to give the document in | 8 | 220 |
| Spanish to a Spanish-speaking person because you have taken | 9 | 220 |
| the trouble to advertise in Spanish. So why can't you have | 10 | 220 |
| the documents for signature in same language? Otherwise | 11 | 220 |
| don't advertise in Spanish. | 12 | 220 |
| And the last but least is we need you, you people, | 13 | 220 |
| to look at how to reduce the closing costs. They are high. | 14 | 220 |
| Thank you. | 15 | 220 |
| MS. BRAUNSTEIN: Thank you very much. | 16 | 220 |
| MR. KRYSTOFIAK: Thank you very much for allowing me | 17 | 220 |
| the opportunity. Governor, I appreciate you being here, | 18 | 220 |
| along with the council. | 19 | 220 |
| My name is Steve Krystofiak and I am a mortgage | 20 | 220 |
| broker. I'm a mortgage broker that is sick to my stomach to | 21 | 220 |
| see how this industry is being used on a daily basis here in | 22 | 220 |
| California. | 23 | 220 |
| I'd like to start off with a question to Leonard. | 24 | 220 |
| Leonard, what is a subprime loan? | 25 | 220 |
| MR. CHANIN: I don't think we're responding to | 1 | 221 |
| questions. There is no definition that I'm aware of of a | 2 | 221 |
| subprime loan. | 3 | 221 |
| MR. KRYSTOFIAK: Exactly. And that's very scary | 4 | 221 |
| today that subprime loan -- I've heard that terminology | 5 | 221 |
| today easily over 50 times. And it's very scary that there | 6 | 221 |
| is no definition but yet it's been used 50 to 100 times | 7 | 221 |
| today. | 8 | 221 |
| I'll tell you another thing that is scary. I'm a | 9 | 221 |
| mortgage broker that has access to a loan where I can do 100 | 10 | 221 |
| percent financing, meaning no down payment, stated income. | 11 | 221 |
| That means the stenographer here could tell me she's | 12 | 221 |
| making $200,000 and I'll believe it. She could also tell me | 13 | 221 |
| that she has $500,000 in the bank. I'll believe that, too. | 14 | 221 |
| She could also have a FICO score of 620, where 680 is | 15 | 221 |
| average. So she could have a very low, low FICO score. And | 16 | 221 |
| I could get her a loan for $950,000. That is scary, also. | 17 | 221 |
| Banks are lying when they tell you that stated | 18 | 221 |
| income is only for people with high FICO stores. I think I | 19 | 221 |
| just proved that. Banks are also lying to you when they say | 20 | 221 |
| that stated income loans or stated asset loans are just for | 21 | 221 |
| people with low LTV. I think I just proved that as well. | 22 | 221 |
| I have taken an informal survey of account | 23 | 221 |
| executives from banks. And these are federally charted | 24 | 221 |
| banks, ones that would have their same names on baseball | 25 | 221 |
| stadiums, football stadiums, ones that everyone here in the | 1 | 222 |
| audience has heard of. And they said between 40 and 50 | 2 | 222 |
| percent of their loans in the Bay Area are stated income | 3 | 222 |
| loans. | 4 | 222 |
| I think that's a very strong answer to why incomes | 5 | 222 |
| in the Bay Area having been relatively flat over the last | 6 | 222 |
| four years but why home prices have doubled. There should be | 7 | 222 |
| a very strong correlation, and that is stated income loans. | 8 | 222 |
| The fed government has come up with an idea saying, | 9 | 222 |
| well, with subprime loans and nontraditional loans, DTI | 10 | 222 |
| limits should be higher. Well, why should DTI limits -- for | 11 | 222 |
| anyone who doesn't know, that's debt-to-income. It's a | 12 | 222 |
| ratio. Come and see me later if you want me to explain that | 13 | 222 |
| a little more. Debt-to-income limits should be a little | 14 | 222 |
| lower. Well, that won't do anything if I'm telling you I | 15 | 222 |
| make $200,000. I'll just say I make 250 instead. | 16 | 222 |
| Some people might say that there's a reason why | 17 | 222 |
| stated income -- it helps people get homes. It does. It | 18 | 222 |
| gets people homes who are on a cash business. I don't | 19 | 222 |
| believe that banks should be rewarding people who only make | 20 | 222 |
| cash, don't pay taxes, with easier ways to buy a home. I | 21 | 222 |
| also believe that that makes it an easier tool for people to | 22 | 222 |
| get homes that they truly cannot afford. | 23 | 222 |
| I'd like to audience to take a second to think | 24 | 222 |
| imagine if colleges -- Department of Education I'm sure would | 25 | 222 |
| like to have more people go to college. Imagine if when | 1 | 223 |
| you're 18 years old, 17 years old, filling out your college | 2 | 223 |
| application, imagine if you could just simply state your GPA, | 3 | 223 |
| state your SATs. Everyone would be wanting to go to Stanford | 4 | 223 |
| and would be qualified. | 5 | 223 |
| Everyone in America wants that American dream to own | 6 | 223 |
| a home. Through stated income loans, they are qualified with | 7 | 223 |
| a low or high FICO score. | 8 | 223 |
| Now, what would happen -- | 9 | 223 |
| MS. BRAUNSTEIN: Thank you, Steven. I think | 10 | 223 |
| that's -- we'll stop there. But we'll look forward to your | 11 | 223 |
| longer written comments being submitted into the record. | 12 | 223 |
| MR. KRYSTOFIAK: I don't write books very well but | 13 | 223 |
| okay. | 14 | 223 |
| MS. BRAUNSTEIN: Thank you. | 15 | 223 |
| MS. UPP: Thanks for having us here today. And I | 16 | 223 |
| appreciate the time to speak with the Federal Reserve Board | 17 | 223 |
| of Governors. | 18 | 223 |
| My name is Stephanie Upp and I'm vice president of | 19 | 223 |
| the San Francisco Earned Assets Resource Network, or EARN. | 20 | 223 |
| We help low-income families save money and invest in assets, | 21 | 223 |
| homeownership, small business, and college education. We do | 22 | 223 |
| that through a two-for-one savings account that's matched. | 23 | 223 |
| It is called an individual development account. | 24 | 223 |
| And what I want to talk about today -- I agree with | 25 | 223 |
| a lot of what's been said so far. One concern that I have | 1 | 224 |
| and I want to make sure that you all note this is that the | 2 | 224 |
| emphasis, especially in the last panel, on education and | 3 | 224 |
| counseling, by far we understand that education is important | 4 | 224 |
| component of building assets and homeownership and that we | 5 | 224 |
| want to give people the tools and the education and skills | 6 | 224 |
| that they need to make wise choices, but nobody out there is | 7 | 224 |
| going to make -- with all the education in the world is going | 8 | 224 |
| to make a wise choice if the only products they have | 9 | 224 |
| available to them is predatory products. | 10 | 224 |
| Again, what we didn't talk about at all on the last | 11 | 224 |
| session on reverse mortgages was the back end of those | 12 | 224 |
| products that were being offered. We talked about how they | 13 | 224 |
| operate, how you can enter into them, and then we had more of | 14 | 224 |
| half of our discussion was about education and counseling and | 15 | 224 |
| certifying counselors. | 16 | 224 |
| But just to echo what these two gentlemen said, | 17 | 224 |
| while it's important, we have no way, then, of certifying the | 18 | 224 |
| motivations of those counselors after the fact. And again, | 19 | 224 |
| if the only product available to our senior citizens, our | 20 | 224 |
| minorities, folks with low income and low credit scores are | 21 | 224 |
| predatory mortgages, then as a general society, as local | 22 | 224 |
| economies and state economies, we're just setting ourselves | 23 | 224 |
| up to fall. | 24 | 224 |
| And I just also want to express concern over zero | 25 | 224 |
| down loans, three and five year ARMs, especially now as | 1 | 225 |
| interest rates are starting to go up. We understand that our | 2 | 225 |
| low-income clients are investing in houses and buying them | 3 | 225 |
| and we're very concerned about the mortgages that they're | 4 | 225 |
| entering into. | 5 | 225 |
| And so we're starting to focus on housing | 6 | 225 |
| preservation measures and what kinds of tools and skills and | 7 | 225 |
| products can we develop to help our low-income -- low and | 8 | 225 |
| moderate income families stay in the houses that they're | 9 | 225 |
| purchasing today. | 10 | 225 |
| And we want to make a call now to all the bankers, | 11 | 225 |
| mortgage brokers, and realtors in the room to be socially | 12 | 225 |
| responsible, to join us and to build products, and to | 13 | 225 |
| advocate for a better and more responsible lending. | 14 | 225 |
| MS. BRAUNSTEIN: Thank you very much. Thank you | 15 | 225 |
| all. | 16 | 225 |
| And we'll have the next group of people come up, if | 17 | 225 |
| they're here. Pearl Caldwell, Eve Orton -- and by the way, I | 18 | 225 |
| totally apologize if I'm mispronouncing any names -- Don | 19 | 225 |
| Gerimonte, Peter Szego, Gerald DeRyan, Laura Baldwin, Moses | 20 | 225 |
| Diaz, and Celia Blanco. Those folks could come forward. | 21 | 225 |
| Same as before, we have a timekeeper who is right | 22 | 225 |
| there, Naomi, and she will signal you when you have one | 23 | 225 |
| minute left and then when your time is up. Everybody has | 24 | 225 |
| three minutes. | 25 | 225 |
Professional Reporting Services, Inc., Walnut Creek, California, 800-261-4814
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