Public Meeting Transcripts
Public Meeting Bank of America Corporation and Countrywide Financial Corporation
Held on Tuesday, April 29, 2008, at the Los Angeles Branch of Federal Reserve Bank of San Francisco
Unedited transcript
1
THE FEDERAL RESERVE BOARD
+ + + + +
PUBLIC MEETING REGARDING THE NOTICE OF
BANK OF AMERICA CORPORATION
TO ACQUIRE COUNTRYWIDE FINANCIAL CORPORATION
+ + + + +
Tuesday
April 29, 2008
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The public meeting came to order at 8:30
a.m. in Branch Conference Center, 950 South
Grand Avenue, Los Angeles, California, Sandra
Braunstein, Director, Federal Reserve Board,
presiding.
FEDERAL RESERVE SYSTEM PANEL:
SANDRA F. BRAUNSTEIN, Director,
Federal Reserve Board
PAT ROBINSON, Assistant General Counsel,
Federal Reserve Board
MAC ALFRIEND, Senior Vice President,
Federal Reserve Bank of Richmond
SCOTT TURNER, Director,
Federal Reserve Bank of San Francisco
2
1 P-R-O-C-E-E-D-I-N-G-S
2 (8:35 a.m.)
3 MS. BRAUNSTEIN: Good morning,
4 everyone. We're going to get started. I'd
5 like to welcome you all to the public meeting
6 on the application by Bank of America
7 Corporation to acquire Countrywide Financial
8 Corporation. And I just will make a few
9 housekeeping notes about this application, and
10 so some introductions for those of you who
11 weren't here yesterday.
12 My name is Sandra Braunstein, and
13 I am chairing this public meeting. And my
14 fellow panelists are to the right of me; Pat
15 Robinson, who is an Assistant General Counsel
16 at the Federal Reserve Board's Legal Division,
17 and next to her is Mac Alfriend, who's a
18 Senior Vice President in the Department of
19 Supervision and Regulation from the Federal
20 Reserve Bank of Richmond. And on my left is
21 Scott Turner, who's the Community Affairs
22 Officer from the Federal Reserve Bank of San
3
1 Francisco.
2 We're here today to hear comments
3 on the application of BofA and Countrywide.
4 Procedurally, this is an informal public
5 meeting, and members who are testifying, we
6 may ask them some questions, but this is not
7 a formal administrative hearing, so we're not
8 bound by the rules regarding evidence, and
9 cross examination, and some of the other
10 trappings of a formal process of that kind.
11 We are going to move ahead and try
12 to keep to the time table, because we have a
13 number of people testifying today, so people
14 will have five minutes for their comments. We
15 have a timekeeper right here, raised his hand,
16 and he will have signs to hold up when there's
17 two minutes left, and then when your time is
18 up. We would also ask that you begin your
19 statements by stating your name, and the
20 organization that you represent, if you
21 represent an organization, because we want to
22 make sure to get it on the record.
4
1 There is a transcript of this
2 hearing that is being made, and that will be
3 available at the Federal Reserve Bank of San
4 Francisco, and the Board, and also on our
5 Board's website sometime next week. And
6 people are welcome to get a copy of that.
7 And those who are testifying, if
8 you have additional written material that you
9 want to submit, the deadline for that is
10 Tuesday, May 6th at 5 p.m. Eastern time. And
11 you can submit that to the Federal Reserve
12 Board. And if you need the address, the
13 people at the registration table can help
14 you.
15 We also ask if you have a written
16 copy of your statement that you're making
17 today that you're able to leave with us, if
18 you could leave that at the registration
19 table, that would be helpful. And with that,
20 we will begin the testimony. Dr. Duvall.
21 DR. DUVALL: Thank you. And thank
22 you for inviting me to testify today on the
5
1 matter of Bank of America Corporation
2 acquiring Countrywide Financial Corporation.
3 I am Robert Duvall, the President and Chief
4 Executive of the National Council on Economic
5 Education, where I have served for 12 years.
6 Prior to that, I was President of Pacific
7 University in Oregon for 14 years, so my
8 contacts with Bank of America go long and
9 deep.
10 In January of this year, I was
11 appointed by President George W. Bush to the
12 16-member President's Advisory Council on
13 Financial Literacy that he created by
14 Executive Order, and which is chaired by
15 Charles Schwab.
16 On Tuesday, April 15 of this year,
17 I testified before the 70-member House
18 Financial Services Committee at the urging of
19 members, Judy Bigert of Illinois, and Ruben
20 Hinojosa of Texas, co-chairs of the
21 Congressional Caucus on Financial and Economic
22 Literacy. The House Financial Services
6
1 Committee Chairman, Barney Frank, called this
2 hearing so that the committee could examine
3 the effectiveness of private sector financial
4 education initiatives, as well as government
5 initiatives, and helping to better educate
6 people to make good decisions financially, the
7 kind of problems that we're wrestling with
8 now.
9 My organization, the National
10 Council on Economic Education, the NCEE, is a
11 champion of financial literacy and a leader in
12 the field. The NCEE is a unique non-profit,
13 non-partisan independent organization directed
14 by an outstanding governing board of national
15 volunteer leaders from education and business,
16 with a clear and compelling mission, vision,
17 and purpose of helping you people learn to
18 think, and choose responsibly, and
19 successfully. For 60 years, the NCEE has been
20 leading the charge to improve economical and
21 financial education in the nation's schools.
22 Bank of America and the NCEE share
7
1 a vision for improving economic and financial
2 literacy at all levels of society. Bank of
3 America has been tremendously supportive of
4 our efforts to get into the nation's schools,
5 particularly in under-served areas.
6 I understand that one of the
7 questions that you are considering is whether
8 Bank of America can be counted on to be a
9 responsible corporate citizen in giving back
10 in the areas that they serve. In my
11 experience, I can say an unqualified yes to
12 that question.
13 They are particularly interested
14 with us in reaching and teaching young people
15 the basics of practical and applied economics,
16 and personal financial decision making skills,
17 so when people come to apply for a mortgage,
18 or come to buy a home, or come to start a new
19 job, they will have the skill set to be able
20 to make good decisions.
21 We are especially pleased to have
22 the signature and strategic partnership with
8
1 Bank of America to produce then nation's
2 leading program in personal finance for the
3 nation's school, "Financial Fitness for Life",
4 a premier comprehensive K-12 curriculum in
5 personal finance. We began this endeavor
6 before financial literacy, or illiteracy was
7 a front page issue.
8 Funding from Bank of America has enabled the
9 NCEE to develop an assessment instrument to
10 make sure we're doing some good.
11 So, in sum, I am impressed by and
12 grateful for the Bank of America's commitment
13 to service. Many of our state affiliates have
14 local Bank of America officials serving as
15 volunteers on their advisory boards, and in
16 the outreach to schools. I'm impressed by and
17 grateful for the Bank of America's commitment
18 to reach under-served communities and groups.
19 And I'm proud to say that Bank of America has
20 been at the forefront of the national campaign
21 for economic and financial literacy, which the
22 NCEE launched in 1999. So as a parent, an
9
1 educator, and a citizen, I am pleased in this
2 testimony to vouch for what I see as Bank of
3 America's corporate integrity.
4 Thank you again for inviting me
5 here to testify, and I'd be glad to answer
6 questions.
7 MS. BRAUNSTEIN: Thank you very
8 much. Ms. Bethune.
9 MS. BETHUNE: Yes. Thank you for
10 inviting me. My name is Zina Bethune. I'm
11 the Artistic Director and Executive Director
12 of Bethune Theater Dance, which is a
13 multimedia dance theater. I'm not an expert
14 in economics, but I certainly can speak to the
15 impact of an unstable economy on an
16 organization such as our's.
17 We are 28 years old, and have
18 struggled like most art companies, which is a
19 very mercurial life. We have a program that
20 we began in America. We were the first
21 professional dance theater to create a program
22 for disabled children to learn to perform
10
1 dance and drama with the goal towards self-
2 sufficiency. And through these 28 years of
3 this program, we are -- have always been and
4 still are close to 90 percent dependent upon
5 dealers. We don't buy and sell widgets, don't
6 expect to.
7 And what that means in a very full
8 circle for us is -- where we look at it is if
9 an organization like Bank of America can help
10 stabilize an economy that is mercurial very
11 often, then that makes an immense difference
12 to us, just as when it becomes unstable. It's
13 sort of in logarithms for us because as an
14 arts organization, a non-profit organization,
15 we're the first hit by a lack of donors. And
16 what that means for our children is -- we have
17 over 7,000 graduates, and most of our kids,
18 fortunately, because of the programs we
19 provide are a part of our society, are part of
20 the workforce. They get to finally self-
21 sufficient at a level in which they can be
22 part of our society, so what happens in a very
11
1 full circle is, because the program -- many
2 people might think well, it's just dance and
3 drama, but what this gives a person with a
4 disability is a sense of themselves, a sense
5 of accomplishment, a sense of empowerment, so
6 that when they get to that place and thinking
7 about gee, could I hold a job, they are not so
8 distant from that possibility. And I think
9 that that has a very large impact in a long-
10 range view, because if those children are part
11 of our society, part of the workforce instead
12 of on the welfare system, which does affect
13 our economy, then we've made an impact
14 socially, economically, and culturally.
15 And the reason I think Bank of
16 America asked me here is because I'm not an
17 economics expert, and I can only speak to what
18 I feel is an important investment, which is
19 our children, and especially the disabled
20 children. There are -- most people aren't
21 aware of this, but one-fifth of our population
22 in America is disabled. That is a large
12
1 number. If you think of one-fifth or close to
2 it being on the welfare system, that's too
3 large a number for our economy, so we use
4 arts, we use dance, we use drama to try to
5 incorporate in these children a sense of
6 themselves, a sense of belonging to society.
7 And we're a member of the Bank of America
8 family. We're very thrilled with BOA support
9 of us now, and looking towards the future with
10 us. And I very definitely view their ability
11 to keep this economy a little more stable as
12 terribly important to what we can accomplish,
13 and what our children can accomplish, so I'm
14 very much in favor of whatever I can do to
15 help them create a more stable economy by this
16 acquirement. Are there any questions in terms
17 of what we do, and how that is affected?
18 MS. ROBINSON: No, I don't think
19 so.
20 MS. BETHUNE: Thank you very
21 much.
22 MR. DOWNEY: Good morning. My
13
1 name is Paul Downey. I'm the President and
2 CEO of Senior Community Centers. We're based
3 in downtown San Diego. We're a charitable
4 organization that provides permanent
5 supportive housing, transitional housing for
6 homeless seniors, nutrition healthcare, mental
7 healthcare and activities for seniors that are
8 primarily living at or below the poverty
9 level.
10 We see about 10,000 unduplicated
11 individuals annually, and 90 percent of them
12 live at or below the federal poverty level.
13 The other 10 percent are within 100 percent of
14 the poverty level.
15 I'm pleased to be here this
16 morning in support of Bank of America, who has
17 partnered with us to help seniors struggling
18 to survive. Both Senior Community Centers and
19 Bank of America are leaders in the San Diego
20 community in making an impact that change and
21 save the lives of seniors in need.
22 One of the key ways that this
14
1 partnership has flourished over the last 20
2 years has been the consistent representation
3 on my Board of Directors by senior-level bank
4 executives. Their business expertise and the
5 community contacts of these individuals has
6 enormously benefitted Senior Community
7 Centers, and has helped us dramatically expand
8 our ability to serve the seniors.
9 We've also been fortunate to have
10 top-level bank officers on three occasions to
11 chair our annual fund raising luncheon. In
12 fact, this year Joy Blount, the Senior V.P. of
13 Bank of America Private Wealth Management is
14 chairing the event, and we're anticipating
15 about 800 people a week from Friday, and we'll
16 raise over $300,000 largely due to Joy's hard
17 work. I'd add, tickets and tables are still
18 available.
19 (Laughter.)
20 MR. DOWNEY: All totaled, these
21 three fund raisers chaired by bank executives
22 have raised over $750,000 for Senior Community
15
1 Centers.
2 Philanthropically, the bank has
3 also been a tremendous investment partner.
4 Over the years, we've received over $400,000
5 in grants from the bank, and another $300,000
6 from the settlement funds that they helped
7 direct to us. Senior Community Centers was
8 honored to have been selected as one of the
9 San Diego area recipients of the Neighborhood
10 Builders Initiative in 2006. The bank
11 provided $200,000 in core operating support
12 and leadership training for two members of my
13 senior management team.
14 They also provide sweat equity.
15 Many of their associates regularly come over
16 and help serve lunch to our seniors, and have
17 done a whole array of different projects, from
18 painting, to cleaning, to building for us on
19 weekends, but the most important things that
20 I have seen them do is really interact with
21 these seniors.
22 Senior Community Centers was also
16
1 fortunate to have Bank of America when we
2 built Podiker Family Senior Residence in 2003.
3 Podiker is a 200-unit supportive housing
4 complex for very low income seniors, and it's
5 received numerous national awards. Most
6 recently, it was selected as the National Best
7 Practice by Shelter Partnership here in Los
8 Angeles. The bank provided all of the pre-
9 development funding, and the construction loan
10 for the project. And I deeply appreciate all
11 of the hard work that went into bringing this
12 project to fruition. It was our first foray
13 into the housing world. It was a very
14 complicated and difficult project, and not
15 only did the bank provide the dollars to make
16 it happen, but they also provided the
17 expertise to assist me and my board in making
18 the decisions that we needed to, to make sure
19 that the project got built. Simply put, I'm
20 convinced that Podiker would not have happened
21 without the bank and its support.
22 Bank of America is making profound
17
1 positive impact in San Diego, and I know
2 around the country. Therefore, I'm pleased to
3 be here this morning to support the bank, and
4 to provide an unqualified endorsement of their
5 acquisition of Countrywide. Thank you.
6 MS. BRAUNSTEIN: Thank you very
7 much. Ms. Hanson.
8 MS. HANSON: Good morning. I'm
9 Nancy Hanson, and I'm the Director for Lower
10 Valley Housing Corporation, a non-profit
11 affordable housing provider in far west Texas
12 in El Paso County. We are the largest
13 producer of mutual self-help housing in the
14 United States, as a grantee of both TDH, VA,
15 the Texas Department of Housing and Community
16 Affairs, and more importantly, the U.S.
17 Department of Agriculture, known as USDA Rural
18 Development. With that in mind, we've got a
19 lot of really good banking friends, most
20 especially Bank of America.
21 I have a prepared statement here,
22 but I wanted to tell you, several years ago
18
1 one of the bankers, when we were dedicating
2 one of our 350 lot subdivisions stood up and
3 said this, and I paraphrase. "Here came this
4 little old lady and sat in my office, and she
5 had a little presentation, and she wanted me
6 to put up 100 percent of the money to buy and
7 develop the land into residential lots out in
8 the county where there are no zoning codes.
9 Then she wanted me to provide 100 percent of
10 the financing to build the houses. And then
11 she wanted us to participate in the mortgages,
12 and then to top it off, the people were going
13 to build their own friggin houses".
14 (Laughter.)
15 MS. HANSON: "After she'd been
16 there two and a half hours, I decided she
17 wasn't going away, and after 10 years here we
18 are, her partner." So I thought it spoke a
19 thousand words.
20 Bank of America has been a true
21 partner of affordable housing in our area.
22 They have provided the money to develop two
19
1 large subdivisions, 240 lots, over $2 million.
2 They have provided almost $18 million for the
3 interim financing for about 380 houses.
4 Most importantly, though, they
5 have been a partner in mortgage financing for
6 190 families, over $5 million. They always
7 hold the first lien position. They are very
8 careful in scrutinizing the loans, and they
9 really do want these people to succeed.
10 We service all of the loans for
11 the bank, and for TDHDA, although we do not
12 service for USDA. We have about 750 loans in
13 our portfolio, and since 1994, we have only
14 found it necessary to buy seven loans, to
15 foreclose seven houses. That's an enviable
16 record, and that shows how carefully Bank of
17 America has made sure the very, very low
18 income people, like our families, are able to
19 maintain their property, and able to pay for
20 their mortgages.
21 Our average family is man and a
22 wife, two and a half kids, making $13,000 a
20
1 year, which is actually very, very low income,
2 at or below 30 percent of the area median
3 income. We have provided you all with
4 pictures, and a sample of what Rancho Los
5 Mesquitas, one of our 100-lot subdivisions,
6 the houses appraised at $78,000. The total
7 loan was $38,500. The average monthly payment
8 is $410 a month for principal, interest, taxes
9 and insurance. They're being taxed at $1,000
10 a year, and all of these houses belong to
11 very, very low income people.
12 We believe that Bank of America,
13 with its caring attitude towards the
14 community, provides very good partnership for
15 an organization like us. And they help people
16 to get into homes, they don't want them to
17 lose them. We believe that with their banking
18 experience under the Federal Regulations for
19 banks, would be a wonderful, wonderful asset
20 to any community that has had a Countrywide
21 presence. Thank you very much.
22 MS. ROBINSON: Thank you.
21
1 MS. BRAUNSTEIN: Thank you very
2 much. Will the next panel come forward. Good
3 morning and welcome, and just a few
4 housekeeping matters. We have a timekeeper
5 right there who will hold up time when you
6 have two minutes left, and when your time is
7 up. You have five minutes for your testimony.
8 And please begin your statement by stating
9 your name and organization so we can get it on
10 the record. And we'll start with Mr. Smith.
11 MR. SMITH: Yes. Good morning.
12 Frederick D. Smith, Operation Hope, Inc. Mrs.
13 Chairwoman, Regulators, and Participants, I am
14 pleased to represent Operation Hope, a Los
15 Angeles headquartered financial literacy and
16 empowerment organization. And our chairman,
17 John Bryant, who, along with Dr. Duvall served
18 on the President's Council, and is Vice Chair
19 with Charles Schwab being the chair.
20 My financial career includes the
21 private sector, the government agencies, the
22 State of California, owning a small business,
22
1 and Operation Hope. I am not here, and I have
2 never supported activities that are not in the
3 best interest of customers, stockholders,
4 investors, and the general public.
5 The two financial institutions
6 that are the subject of the discussions today
7 have long corporate histories, and their
8 current financial positions and public images
9 are well-known. These institutions are like
10 a Tale of Two Cities; one rich and reasonably
11 responsible, a democracy will all votes rise;
12 the other rich, and seemingly irresponsible,
13 at most, an economic democracy where
14 capitalism has become a win-lose situation, us
15 against them in a place where only yachts
16 rise.
17 We support Bank of America as we
18 have had a long multi-factored history with
19 their employees as volunteers teaching
20 financial literacy in schools across
21 California and Atlanta, New York. Currently,
22 we have over 200 Bank of America Hope core
23
1 volunteers, 29 of them are active in financial
2 literacy for school-age students in classes of
3 20-25 individuals. And, in fact, they have
4 taught over 1,000 students just this year.
5 Other volunteers from Bank of America assist
6 us in providing mortgage assistance to
7 homeowners.
8 Bank of America has a multi-year
9 financial commitment to support Operation Hope
10 since 2003, and they currently have a two-year
11 commitment to support the Mortgage Crisis
12 Hotline. This hotline was established in
13 February of last year to provide free
14 financial information and guidance to
15 homeowners facing challenges making mortgage
16 payments, or those who anticipate facing
17 challenges.
18 Through April of this year, with
19 the help of Bank of America and others, we
20 have received requests for assistance from
21 over 17,000 individuals. We are currently
22 assisting 4,626 homeowners, and our services
24
1 include examples, negotiating a 4.7, 5
2 percent, 30-year fixed loan for one client,
3 stopping a foreclosure and negotiating a
4 payment plan which has reduced the interest
5 rate from 8.5 percent to 7 percent fixed;
6 assisting a single mother of two children who
7 was $30,000 past due principal and interest in
8 negotiating a $20,000 past due principal and
9 interest to be paid when the loan matures,
10 and, of course, writing off the balance, and
11 reducing the rate from 8.9 percent to
12 approximately 7.5.
13 They've also converted several clients from
14 adjustable loans to fixed rate current rate
15 loans.
16 Our experience so far has been
17 that very few Bank of America clients come to
18 us with horror stories, yet far too many come
19 to us from Countrywide. We have little
20 corporate experience with Countrywide. They
21 have never expressed an interest in supporting
22 or getting involved in our work through our
25
1 partnership to improve communities. We
2 regularly meet with Bank of America, and have
3 never done so with Countrywide.
4 At Hope, we have asked ourselves
5 with respect to this proposed acquisition, if
6 not Bank of America, then what? In my view,
7 the relevant issue is how this acquisition
8 will affect homeowners with loans originated,
9 purchased, or serviced by Countrywide. Who
10 will hold the existing deposits? Who will
11 collect loan payments, and who will set
12 policies and negotiate requests for loan
13 modification?
14 Bank of America has requested
15 approval for this acquisition, and I can't
16 think of a better organization to be
17 responsible for this portfolio. Thank you.
18 MS. BRAUNSTEIN: Thank you very
19 much. Ms. Dunn.
20 MS. DUNN: Good morning, Madam
21 Chair and Panel. Thank you so much for asking
22 us to join you this morning. I'm pleased to
26
1 speak in support of the transaction for Bank
2 of America. My name is Lucy Dunn. I am the
3 immediate past Director of Housing and
4 Community Development for the State of
5 California, having worked under Governor
6 Schwarzenegger. Today, however, I represent
7 as President and CEO of the Orange County
8 Business Council, which advocates good public
9 policy on behalf of the major business
10 community, and economic development in Orange
11 County.
12 Most folks don't know Orange
13 County, little Orange County, is the fifth
14 largest county in America. We have more
15 population there than 21 states in the union,
16 in our business community, housing tends to be
17 the linchpin issue. It is a major issue that
18 is affecting every one of our businesses to
19 attract and retain the best workers. And,
20 yet, in the last five years, we've lost almost
21 13 percent of our 25-34 year olds who are
22 tending to leave Orange County because the
27
1 housing market is highly constrained there,
2 and one of the most expensive in the nation.
3 Bank of America has been a major
4 supporter of the Orange County Business
5 Council's top strategic initiative to increase
6 housing supply, affordability, and choices for
7 Orange County, and, frankly, for the entire
8 region. To that end, they were our major
9 partner and sponsor in an innovative approach
10 to look at housing in a different way in
11 Orange County, when in our research department
12 we came up with what's called the Inaugural
13 Workforce Housing Score Card.
14 No matter what you say at the
15 state level, at the regional level with regard
16 to housing production, the first step is when
17 the city council actually presses the button
18 to say yes, and approve housing at the local
19 level. And yet, sometimes our city council
20 members or cities don't understand the
21 importance with creating jobs and matching
22 housing with those jobs. So our housing score
28
1 card with major support and funding by Bank of
2 America enabled us to analyze all cities data,
3 each city's data within Orange County and show
4 the correlation between jobs creation and
5 housing production.
6 For example, the gold standard in
7 housing production is it's really one house
8 for every one and a half job, pretty much land
9 planners say that's the best. But in some
10 areas in Orange County, we've determined using
11 the city's own data that they have produced
12 one house for every 4.79 jobs projected to go
13 to one house for every 9 jobs. This is very
14 important planning data for cities to
15 understand as they take that look at where
16 their community is growing, because, clearly,
17 without housing they're not going away. Our
18 people are doubling and tripling up, or our
19 commutes are getting longer, and our freeway
20 congestion gets worse. So I just can't thank
21 Bank of America enough for this major
22 initiative. It has been so powerful with the
29
1 34 cities in Orange County as a tool for
2 looking at housing that our friends in San
3 Diego, God love them, actually stole the idea
4 from us, which we love. And Los Angeles
5 County actually, we're now doing L.A. County's
6 Housing Scorecard, analyzing I think there are
7 88 cities, to look at housing and jobs
8 creation in a very straightforward,
9 repeatable, good methodology way. This is a
10 wonderful partnership with Bank of America to
11 help with that.
12 In addition, they have
13 demonstrated an unmatched commitment to our
14 under-served communities with charitable
15 contributions topping $26 million, and 47,000
16 hours of volunteer service by bank employees
17 in 2007.
18 As the State's former Housing
19 Director, I can attest to the fact that they
20 were the first, as our organization was, but
21 one of the first organizations to stand up and
22 support the Statewide Ballot Initiative, Prop
30
1 1C, that actually helped create a funding
2 mechanism to leverage more affordable housing
3 in the state. And, in fact, Bank of America
4 has directly assisted the creation of over
5 110,000 units of low and moderate income
6 housing in California in the last three years.
7 Think about that for a minute,
8 when you know that our population in
9 California since 1950 grows by a half a
10 million people every single year, every single
11 year it's a straight line. And to meet that
12 population growth, we need 220,000 units of
13 new housing every single year. Bank of
14 America has directly participated in 110,000
15 units in three years time, a remarkable track
16 record, and a wonderful asset for our
17 community.
18 Their work in this regard, of
19 course, ultimately will help stabilize our
20 mortgage market. And they presented amazing
21 plans to offer a broad array of responsible
22 lending products, and employ sound
31
1 underwriting criteria to insure that buyers
2 can get in and stay in their homes.
3 We know we've got a blip here. We
4 also know that the market is tight, but at the
5 end of the day, California will continue to be
6 a major economic engine for all of the nation.
7 The last point I want to share is,
8 we're really thrilled to hear about their
9 announcement that they're newly remade
10 mortgage business will be headquartered in the
11 City of Calabassas, right here in southern
12 California, phenomenal economic engine for
13 southern California, and exactly the right
14 place for their excellent standards of
15 housing, when our home ownership rates in
16 California are 10 percent below the national
17 average.
18 So, again, thank you for the
19 opportunity to testify, and strong support
20 from the Orange County Business Council for
21 the application.
22 MS. BRAUNSTEIN: Thank you. Ms.
32
1 Kong.
2 MS. KONG: Good morning. My name
3 is Maria Kong. I am President, CEO of the
4 National Association of Real Estate Brokers.
5 It's the oldest minority trade organization in
6 the United States. As you know, we could not
7 be realtors before the `68 Fair Housing Act
8 was passed, and so we have been here, the only
9 organization advocating fair housing from long
10 before fair housing existed. And so I don't
11 take lightly my position in representing the
12 housing section in African American community
13 where we're responsible for originating and
14 selling billions and billions of dollars of
15 homes in the housing market throughout the
16 United States.
17 To get the opportunity for my five
18 minutes here is very important, and I don't
19 take it lightly. I don't testify lightly. It
20 has to be something I believe in, and I do
21 believe in the corporate culture of Bank of
22 America, because of the culture they have
33
1 exhibited to us, the concern, the caring,
2 their responsible lending, and their great
3 corporate culture, not just in embracing
4 diversity for diversity in words, but mainly
5 in action. And I'm going to tell you, Bank of
6 America has funded our affiliate, which is HUD
7 approved housing, and made it possible for
8 millions of first-time home buyers in African
9 segments to obtain home ownership. And that's
10 very important, because our segment is under-
11 served population in the United States, and
12 all people lot of time needs that counseling,
13 and the accountability to get through the
14 home ownership process. Bank of America have
15 made that possible.
16 They have also enveloped our theme
17 and mission of democrasing housing. They have
18 been there as one of our top partners, and
19 this is not a testimony because of the
20 partner, but a testimony of the caring they
21 have exhibited for them to be in our
22 communities doing their work, not just in the
34
1 communities, in their organization or making
2 a diverse job employment market in the
3 organization. It reflects people from all
4 culture and races that they represent in their
5 bank, that they serve.
6 Years ago, Bank of America had
7 revamped the housing products, and the
8 products that they have. They realized that
9 the products that they were giving was not
10 reflective of the members that were their
11 customers, and they realized they had to do
12 something. And they revamped the whole
13 lending process, and their products that they
14 provided so it would reflect more than 60
15 percent of the segment of the population that
16 they serve, that they will have opportunity
17 for democrasing houses, which is what our
18 mission, and what we support from back in the
19 40s.
20 And I embrace them on their work,
21 and the work that they have done. And, also,
22 as you know, in the housing landscape today,
35
1 that minorities has been the ones that have
2 been affected the most, and so they have made
3 their products sustainable products that
4 people that going in can maintain that
5 product, because right now, the African
6 American segment is looking to reverse their
7 numbers in getting home ownership. I embrace
8 Bank of America for their corporate culture,
9 their responsible lending, their true mission
10 and vision, and their diversity in housing.
11 They are one of the best -- this is the best
12 thing that could happen with Countrywide, and
13 I do support that they will be the person who
14 would be there continuing this work, and this
15 corporate culture that is so important in the
16 African American communities that I sit over
17 in housing.
18 Thank you, and I hope you
19 understand my passion in stating that I fully
20 support Bank of America in this merger.
21 MS. BRAUNSTEIN: Thank you very
22 much. Mr. Barrales.
36
1 MR. BARRALES: Thank you, Madam
2 Chair. Good morning, members of the Federal
3 Reserve. It's an honor to be here with this
4 panel, and thank you for your service.
5 I just want to make a few points,
6 the most important of which is, I'm here along
7 with the panelists agreeing that this merger
8 makes sense. But, most importantly, that the
9 Federal Reserve make a decision quickly. The
10 urgency of this is important, given the state
11 of the economy, and the crisis in the housing
12 market.
13 I am the President and CEO of the
14 San Diego Regional Chamber of Commerce, and I
15 think that Bank of America is the best option
16 to revise, if you will, Countrywide. Bank of
17 America knows California. Bank of America
18 understands San Diego markets, certainly, and
19 the rest of California. As you know,
20 California has the most markets with the
21 highest rate of foreclosures in the country
22 today, and Bank of America has, as you've
37
1 heard, and you will continue to hear, an
2 outstanding Rating for Community Investment
3 Act, Re-Investment, and the like. It is the
4 best brand, if you will, in terms of the
5 particular crisis that we're facing with
6 Countrywide.
7 Also, urgency I think is important
8 because of the commitments that Bank of
9 America has made regarding its new mortgage
10 lending guidelines, and its commitment to
11 modify or work out troubled mortgages that
12 could help over 250,000 families facing that
13 potential crisis, or facing a crisis now. And
14 I think the issue is important, and urgency,
15 I think, is the most important message that I
16 want to relate to you all. Thank you.
17 MS. BRAUNSTEIN: Thank you very
18 much. Thank you to the panel, and we'll bring
19 the next panel forward.
20 Welcome. Welcome back, Mr.
21 Fisher.
22 MR. FISHER: Actually, I'm --
38
1 MS. BRAUNSTEIN: I know.
2 Supporting somebody else today?
3 MR. FISHER: I am.
4 (Laughter.)
5 MS. BRAUNSTEIN: The rules are the
6 timekeeper will show you when there's two
7 minutes left, and then when your time is up.
8 And you have five minutes for your statement.
9 And I would ask that you start your statement
10 by stating your name and your organization so
11 we can make sure and get it on the record.
12 MS. BOWDLER: Good morning. My
13 name is Janice Bowdler. I'm the Associate
14 Director of Wealth Building Policy Project at
15 the National Council of LaRaza. NCLR is the
16 nation's largest Hispanic civil rights
17 organization. We've been working in Latino
18 communities for the last four years. For the
19 last ten years, we've been primarily focused
20 on wealth building and how can we help Latino
21 families gain access to assets that are going
22 to create long-term financial security.
39
1 Like you guys heard from a lot of
2 folks already here, equally concerned as
3 everybody else at the rising rates of
4 foreclosures, not to mention rising credit
5 card delinquencies, rising health that really
6 threaten to erode all of the work that we've
7 been doing for the last 10 years.
8 I got a chance to stop in
9 yesterday, if you will, on the previous day of
10 the hearing and so I know that most of what I
11 have to say to you today is actually not going
12 to be a surprise. I know you've heard a lot
13 of the same comments over and over, so I'm
14 just going to summarize why this merger is of
15 interest to NCLR, in particular, and
16 underscore a couple of areas of concern.
17 As I mentioned, we've been in the
18 business of building wealth with Latino
19 communities for the last 10 years. We do
20 research, we do policy analysis, and perhaps
21 most importantly we also provide housing
22 counseling. We see 30,000 families a year.
40
1 In the last 10 years, we've created over
2 30,000 new homeowners, first-time home buyers
3 in Latino communities. Yet, despite all of
4 the depth of the work that we do, we don't
5 regularly comment on mergers. And we only do
6 so when we see a clear and significant impact
7 on the Latino community. And this merger,
8 this acquisition clearly rises to that level.
9 Let me just give you three quick reasons why
10 that is.
11 Countrywide was the number one
12 lender to Latinos in terms of number of
13 originations. They were consistently in the
14 top three or four for the last few years.
15 Also, one of the number one lenders of Option
16 Arms, which I know has been a topic of
17 conversation over the last few days, so that
18 is -- and Option Arms were one of the most
19 popular products pushed in Latino communities
20 over the last few years, which is directly
21 linked to my second point, which is that
22 foreclosure rates in the Latino community we
41
1 expect to peak in 2009, and 2010, which is
2 when most of the Option Arms are expected to
3 reset.
4 By Countrywide's own numbers, 70
5 percent of their Option Arm borrowers are
6 paying at that minimum below interest rate
7 payment, which leads into my third point,
8 which is that the market really still
9 continues to struggle. These folks are going
10 to come out owing 120 percent loan to value on
11 a house in a declining market. And given the
12 fact that we're in California, I don't have to
13 tell you guys exactly the kind of impact that
14 that's going to continue to have on
15 neighborhoods.
16 In the interest of full
17 disclosure, NCLR has had a very robust
18 partnership with Bank of America. We've also
19 worked closely with Countrywide. They have
20 been a greater supporter of our housing
21 counseling network, and of our institution, as
22 a whole. We've seen them put out great
42
1 community lending products. They have also
2 been real innovators of terms of banking
3 immigrants and reaching immigrant communities.
4 However, that positive experience
5 notwithstanding, we also have three
6 substantive concerns with the merger.
7 One, I already mentioned,
8 Countrywide portfolio is in trouble. I won't
9 go over that again. But one that I do want to
10 take some time to walk through a little bit is
11 the fact that industry efforts to modify
12 mortgages are still falling short. And I know
13 a lot of people talked about this yesterday,
14 but I just want to stress that it's not a
15 California or Chicago-specific phenomenon.
16 This is going on across the country. Three to
17 six months to get an answer on a loan
18 modification, can't get a hold of staff, the
19 numbers are backed up. You can't get
20 approvals for even the most classic of loss
21 mitigation and loan modification techniques.
22 In fact, we just had a case in
43
1 north Georgia in Dalton, classic, classic loan
2 modification that should have been approved in
3 any circumstances. What the counselors didn't
4 know, while it took them six months to
5 negotiate the modification, is that the loan
6 was simultaneously sent over to legal. The
7 modification was approved on the same day that
8 the house went to auction. They called the
9 counselor at 9:00 in the morning and told him
10 that the family had until noon to get $2,000
11 to cover the legal expenses, or else they
12 couldn't save the home. They lost their home
13 to auction that day.
14 There's no reason why it should be
15 taking that long. And, unfortunately, we
16 think it's only going to get worse. So my
17 third point is just that minus intervention,
18 foreclosures are going to continue to rise.
19 What's most troubling about this
20 is that we have yet to hear a real plan, and
21 I'll wrap up by saying that NCLR really hopes
22 that as part of a condition of the approval of
44
1 this merger, that the Fed will require Bank of
2 America and Countrywide to submit a plan for
3 addressing these issues. Thank you.
4 MS. BRAUNSTEIN: Thank you very
5 much. Mr. Zahradka.
6 MR. ZAHRADKA: Good morning.
7 James Zahradka. I'm a senior trained with a
8 public interest law firm which is a product of
9 the Law Foundation of Silicon Valley. We're
10 a non-profit legal services provider over
11 three decades, and we used to be called Santa
12 Clara Valley. And I'm also a member of the
13 Board of CRC.
14 So I think that I'd just like to
15 make five points briefly here. And, again, I
16 don't want to be too repetitive with what
17 you've heard the last two days, why we can't
18 support the merger as it's currently couched.
19 We urge you to look into these and make sure
20 that they're addressed.
21 One is the fair lending point that
22 Ken Stein made yesterday, which is very
45
1 important. The clients that we see in our
2 fair lending practice are almost all Latino,
3 and Countrywide is one of the lenders that we
4 see most often, as you just heard. That's
5 also not surprising. Back when times were
6 good, Countrywide touted themselves as trying
7 to become the Home Depot of mortgage lending,
8 ubiquitous in every channel, I think maybe
9 Wal-Mart is a better parallel, but anyway,
10 they used Home Depot as their model, and so
11 they're everywhere, and they're in every
12 community. And as Kevin also mentioned
13 yesterday, the New York Attorney General had
14 at least prima facie evidence of some
15 discriminatory lending on Countrywide's part
16 in that state. And, of course, the obvious
17 question is is that happening here? Shouldn't
18 it be investigated on the front end? And if
19 it is happening, or did happen, shouldn't Bank
20 of America be required to have a plan to
21 address it?
22 So another issue that comes to
46
1 mind is that the wholesale channel is -- those
2 types of loans that came through the wholesale
3 channel are the ones that seem to be the most
4 abusive, by far. And even Angelo Moxilo
5 during a meeting we had with him in 2006
6 admitted that the brokers were causing him a
7 lot of problems. I think that was -- that's
8 paraphrasing, maybe an effort to deflect blame
9 a little bit, but in any event, he certainly
10 seemed to see that as an issue.
11 Many other lenders, as you know,
12 have abandoned the wholesale channel all
13 together, and now purely retail obviously gets
14 the more control over the types of loans they
15 issue, and is a way for them to make sure that
16 they live up to their commitments. You've
17 heard Bank of America say over and over again
18 that they have the highest standards of
19 integrity, and this is a way for them to make
20 sure that those are met, is to not go through
21 the intermediaries where we've seen so many
22 abuses take place. And I wonder if since
47
1 Countrywide is one of the largest, I think the
2 largest now wholesale lender out there, will
3 Bank of America just abandon that platform, or
4 will it go back to doing wholesale lending
5 with all the problems that seem to come out of
6 it?
7 I'd also like to mention that --
8 and this is a broader point, but it was
9 mentioned yesterday by the Rainbow Coalition
10 speaker, that the Countrywide President, David
11 Sambol, is being hired, has been hired already
12 by Bank of America to run its consumer
13 mortgage business. In fact, last month they
14 announced they're paying him $28 million to
15 stay with Countrywide after the acquisition.
16 Senator Shumer stated that it's
17 perverse for Bank of America to reward the
18 principal architect for the bad business
19 practices that caused this housing crisis.
20 That's what Senator Shumer said about that.
21 And one has to think that Bank of America's
22 declaration of its intent to apply more
48
1 stringent standards rings a bit hollow when
2 they're bringing over one of the architects of
3 this mess in the first place.
4 Also in that context, you recall
5 Mr. McGee's, I would call it somewhat non-
6 responsive response to your question about
7 having adequate staff for workouts after the
8 acquisition. The $28 million that they are
9 paying Mr. Sambol on the front end as sort of
10 a signing bonus would certainly enable them to
11 keep on a lot of those folks, but that money
12 has now been spent to keep this gentleman
13 employed.
14 Another aspect of this is that
15 they're headquartering their operations in
16 Calabassas, which is where Countrywide is
17 currently headquartered, of course. And I
18 don't know if they're going to be in the same
19 building, same offices, but it's just another
20 indicia to me of the real danger that the
21 corporate culture, the practices that caused
22 Countrywide to have so many issues, so many
49
1 problematic loans, and engage in some really
2 questionable practices are going to be carried
3 over, despite Bank of America's express
4 intentions otherwise.
5 Another issue that we see a lot
6 of, and this also relates to fair lending
7 issues is that we have many clients who are
8 non-English proficient, or limited English
9 proficient. Almost all of the clients that we
10 serve in our fair lending cases are. And one
11 case that we're litigating right now, and I
12 think that the litigation really brings out
13 kind of the true colors of a lot of these
14 actors. Countrywide has taken the stance that
15 it has no obligation under the Truth In
16 Lending Act, or under California's specific
17 law regarding translation of contracts
18 negotiated in a non-English language.
19 Countrywide's position is it has no obligation
20 to provide disclosures or translations of
21 contracts to those borrowers in a non-English
22 language, none. And I wonder if Bank of
50
1 America's stance will be similar or not.
2 It's entirely inappropriate for
3 what looks to be a diverse state and nation to
4 have that stance. It's illegal under the
5 Truth In Lending Act and California law, but
6 that's Countrywide's position, and I hope that
7 Bank of America will refute that, but we'll
8 see. I don't know if -- it's something that
9 should be looked into, certainly.
10 A final issue I'd like to mention
11 is the I'd say false dichotomy that Mr. McGee
12 set out between owner occupiers and
13 speculators. There's no bright line division
14 between these types of people. As we've seen
15 -- I'll wrap up real quickly here. We've seen
16 many of our clients who were hoodwinked into
17 purchasing their home that they were planning
18 to live in be then hoodwinked again, usually
19 by unscrupulous brokers, into pooling the
20 "equity" they had in that home, and buying
21 another house as an investment property. Of
22 course, the first house wasn't affordable, but
51
1 when the housing prices were going up, and up,
2 and up, they quickly acquired some equity.
3 The mortgage broker comes back to them, oh,
4 buy another house. You can now make an income
5 doing this. And so these folks are now losing
6 both of their houses because of the misconduct
7 that took place, and the utter failure of the
8 lenders to properly underwrite those loans.
9 And, also, of course, they were sometimes
10 encouraging this broker conduct by giving
11 kickbacks to them when they got these loans
12 issued to folks. So I think it needs to be
13 much more nuance determination of who is
14 worthy, not a great term to use, but who's
15 worthy of being helped. It's not just the
16 folks who are purely owner occupiers, by some
17 of these investors, as well. So thank you
18 very much for holding these hearings, I
19 appreciate it, and thanks for your time.
20 MS. BRAUNSTEIN: Thank you. Mr.
21 Strong.
22 MR. STRONG: Good morning, panel
52
1 members. My name is Howard Strong. I'm a
2 lawyer out in the San Fernando Valley, and why
3 am I here today? Well, I had the misfortune
4 of taking out a loan from Countrywide some
5 seven years ago. I didn't know at the time it
6 was a misfortune. It was only when the class
7 action notices started to arrive that I
8 realized there was a problem.
9 Initially, I received a notice in
10 the case Gonzalez v. Countrywide here in Los
11 Angeles County, a statewide class action. And
12 I looked over the notice, being a, at the
13 time, somewhat retired class action pro
14 consumer attorney who spent many years
15 teaching consumer protection classes and
16 published some books in the consumer
17 protection area, most recently, "What Every
18 Credit Card User Needs To Know", by Henry Holt
19 and Company.
20 I looked at it with a
21 knowledgeable eye, and I said this is a rip-
22 off, a scam. The class gets nothing, the
53
1 lawyers get a couple of hundred thousand
2 bucks, and Countrywide walks away with a lot
3 of fees that they stole from people. This
4 particular case, the Gonzalez case, involved
5 overcharges on credit reports, or what
6 Countrywide called up-charges, which as far as
7 I could tell is another word for stealing.
8 Well, that was bad enough. I
9 opposed that class action on behalf of some of
10 my neighbors without much result, as the panel
11 may know. It's darned near impossible for
12 objectors to come in and overturn a class
13 action approval. Nonetheless, I gave it a
14 shot, and one of the things that came out in
15 that particular case was that Countrywide did
16 not give Spanish notice, although it has a
17 Spanish website, and it had negotiated many,
18 many of the loans in Spanish. It has Spanish-
19 speaking offices, and that was their position
20 in the other three class actions I'm going to
21 tell you about. So they moved forward, no
22 Spanish class action, no Spanish notice.
54
1 The next notice I got in the
2 mailbox was Juden v. Countrywide Home Loans,
3 again in L.A. County, statewide class action.
4 This involved improper reconveyance fees.
5 And, as an aside, I paid off my Countrywide
6 loan after a while. I got tired of these
7 class action notices. I told them I wasn't
8 going to pay a reconveyance fee, because I
9 believed they were improper, and I got my
10 property reconveyed with no problem. But
11 other people who didn't have the knowledge
12 that I did, were ripped off again. Again, no
13 Spanish notice.
14 Then there was a statewide, or a
15 countrywide class action in Cook County,
16 Chicago, Illinois, Flaxman v. Countrywide,
17 overcharges for appraisals, and another class
18 action up in Alameda County, Nobles v.
19 Countrywide, and that was unlawful charges for
20 document preparation, particularly charging
21 for document preparation for compliance with
22 the Truth In Lending Act.
55
1 So what's my point here? I don't
2 believe this merger should be approved, or
3 takeover should be approved, and the reason
4 is, Countrywide is a corrupt, and I think some
5 would say criminal organization. It presents
6 a tremendous danger to the Bank of America,
7 and to the public fisc. I don't want to see
8 the Fed having to come in and bail out the
9 Bank of America because of the hidden
10 liabilities that Countrywide has.
11 And as my closing point, I'll just
12 say there are many other class actions I
13 believe which Countrywide has hidden. They
14 had a variety of tactics to keep these class
15 actions secret, and not open to public view.
16 I asked many times for them to disclose other
17 class actions. They refused to do so, and
18 some of their tactics to keep things quiet
19 were, one, no published notice, as the panel
20 may know. It's customary and generally
21 legally required for a published notice to
22 appear in USA Today, or the L.A. Times, or the
56
1 Wall Street Journal, so that the public at
2 least has some notice of these matters, and
3 the class members who do not receive the mail
4 notices.
5 The mail notices that Countrywide
6 did send out, again in English only, were
7 carefully designed, in my view, to look like
8 junk mail so people would throw them away.
9 And here's maybe the crucial point.
10 Countrywide, basically, as far as I can tell,
11 lied, claiming they did not know who the class
12 members were. This was their tool to require
13 an application so that anyone would get a
14 coupon or the minimal compensation that was
15 provided to the class members. And over and
16 over they argued they couldn't tell who had
17 been ripped off, so this required the mailing
18 out a notice, and then the people had to mail
19 back an application, which means that a very
20 small percentage of the class members receive
21 any compensation.
22 And it's my view that the legal
57
1 requirements for Countrywide would be that it
2 keep its records in an accurate fashion, and
3 that it's a regulated entity, and these
4 stories about how it doesn't know what was
5 going on in this branch office, and that
6 branch office, and its records are no good, is
7 really just either a lot of hooey, or it
8 indicates a screaming red signal rocket that
9 Countrywide does not have decent records, that
10 Bank of America can't know what's going on,
11 and the public fisc is at tremendous risk if
12 this merger is approved. Thank you.
13 MS. BRAUNSTEIN: Thank you. Mr.
14 Fisher.
15 MR. FISHER: Yes. Although it may
16 not look like it, I am Saaru Nafici from the
17 Neighborhood Economic Development Advocacy
18 Project. Thank you for holding today's
19 hearings, and for giving the public the
20 opportunity to raise material issues regarding
21 Bank of America's proposed acquisition of
22 Countrywide.
58
1 The Neighborhood Economic
2 Development Advocacy, NEDAP, strenuously urges
3 the Federal Reserve Board to deny the
4 application. NEDAP is a resource and advocacy
5 center in New York City that provides
6 community groups with legal, technical, and
7 policy support on economic justice and
8 community reinvestment issues. NEDAP has led
9 efforts to combat predatory lending in New
10 York City and State, and seen first-hand the
11 devastating effects of Countrywide's abusive
12 and discriminatory lending, and servicing
13 practices on New York homeowners and
14 communities.
15 Our comments concern both
16 Countrywide and Bank of America, and focus on
17 four main points. First, the Federal Reserve
18 should not approve the proposed acquisition
19 unless Bank of America provides a detailed
20 concrete plan in writing for modifying or
21 otherwise remedying Countrywide's abusive
22 loans. Countrywide's abysmal record as a
59
1 servicer is notorious among New York
2 homeowners and advocates. Countrywide is
3 widely unresponsive both to delinquent
4 borrowers and non-profit advocates who call on
5 their behalf, and routinely gouges customers
6 with late fees and other costs that make loss
7 mitigation more difficult.
8 Countrywide systematically refuses
9 to enter into affordable loan modifications
10 with borrowers, instead, pushing forbearance
11 agreements that are not affordable over the
12 long term. Specifically, the Federal Reserve
13 must require Bank of America to initiate an
14 immediate foreclosure moratorium on all
15 Countrywide loans, and make a detailed
16 assessment of each of the distressed loans,
17 including the borrower's ability to pay an
18 affordable modification where there were
19 abusive practices at origination, enter into
20 an affordable loan modification with all
21 distressed borrowers who can afford a fairly
22 priced loan. These modifications must be
60
1 based on realistic assessments of
2 affordability, and include both principal
3 reduction and interest rate reduction,
4 wherever necessary. Bank of America must
5 insure adequate staffing and other resources
6 to accomplish this.
7 Thirdly, drastically revamp and
8 retool Countrywide's servicing operations, and
9 provide monthly statistics to the public on
10 all defaults and actions taken by the
11 servicer, i.e., loan modification, short sale,
12 foreclosure actions. Two, it is absolutely
13 critical that Bank of America repudiate
14 Countrywide's abhorrent lending practices and
15 set an example for the industry going forward.
16 Bank of America must adhere to sound lending
17 practices, including, at a minimum, making
18 only affordable loans that are appropriately
19 priced for risk, and that provide borrowers
20 with a tangible net benefit. It should also
21 commit to making no loans with prepayment
22 penalties or mandatory arbitration clauses.
61
1 Third, groups working with
2 immigrants have reported a spate of recent
3 foreclosures on especially egregious loans
4 Countrywide has made to low-income immigrant
5 New Yorkers. The loans shock the conscience,
6 not only because of the terms, but also
7 because many of the borrowers had good credit
8 and were steered to high-cost loans. The
9 Federal Reserve Board should require Bank of
10 America to work with local organizations and
11 immigrant communities where Countrywide's
12 lending practices have been the most harmful,
13 to help borrowers exploited by Countrywide
14 based on language and other barriers.
15 Four, the Federal Reserve must
16 also examine abusive consumer lending
17 practices by Bank of America. A case recently
18 came to NEDAP's attention that raises serious
19 concerns regarding Bank of America's potential
20 targeting of low-income borrowers for abusive,
21 deceptively marketed consumer loan products.
22 Here's the example.
62
1 Mr. H., 85-year old retired
2 African American resident of Brooklyn, living
3 on his Social Security and pension, last year
4 Bank of America sent Mr. H. a solicitation for
5 a personal loan up to $25,000, offering him a
6 menu of rate and payment options. He chose
7 the option to borrow $20,000 payable in
8 monthly installments of $530 for four years.
9 The money was electronically deposited into
10 his bank account. He used it to pay off
11 several outstanding credit cards.
12 He realized after a year of making
13 his full monthly payments that his balance did
14 not seem to be going down, and contacted NEDAP
15 for assistance. Unbeknownst to him, Bank of
16 America had not approved him for a personal
17 loan at the interest rate indicated, but had
18 issued him a line of credit on which the
19 interest compounded daily at a rate of nearly
20 20 percent. Of the almost $6,000 that Mr. H.
21 paid toward his loan in the first year, only
22 $635 went to pay off principal.
63
1 Bank of America took advantage of
2 an 85-year old's age and lack of financial
3 sophistication to trick him into an
4 exorbitantly priced loan product he did not
5 need, and could not afford. The Federal
6 Reserve should require Bank of America to (a)
7 provide detailed pricing and race data on its
8 consumer lending program, and (b) make a firm
9 commitment that its consumer loans provide
10 tangible net benefit to borrowers. Bank of
11 America must not be allowed to violate the
12 public trust and engage in lending practices
13 that harm borrowers and communities. Thank
14 you for your consideration.
15 MS. BRAUNSTEIN: Thank you very
16 much. Thanks to this panel, and can the next
17 panel please come forward.
18 Good morning and welcome. We have
19 a few notes. We have a timekeeper who will
20 signal you when you have two minutes left, and
21 when your time is up. You have five minutes
22 for your statements, and please begin your
64
1 statements by stating your name and
2 organization so we can hear it on the record.
3 Mr. Taylor.
4 MR. TAYLOR: Good morning. My
5 name is Blair Taylor. I am the President and
6 the CEO of the Los Angeles Urban League.
7 Pleasure to be here this morning. As some of
8 you know, Los Angeles Urban League is one of
9 100 urban league affiliates throughout
10 America. We are the largest urban league in
11 the United States, with an 87-year track
12 record of serving African American and other
13 minorities in disenfranchised communities.
14 I've been at the helm of the urban
15 league for about the last three years, and
16 during that time I've had the distinction of
17 working on some of the city's largest
18 challenges. And, clearly, we face a myriad of
19 issues, high unemployment rates, significant
20 high school dropout rates, inadequate access
21 to healthcare, and the list goes on and on.
22 Certainly, there are many
65
1 challenges, but one of the things that we have
2 been very focused on at the urban league is a
3 solution orientation and trying to drive 21st
4 century solutions. And I am pleased to say
5 this morning that a partner in that forward-
6 thinking solutions orientation of the Los
7 Angeles Urban League has been the Bank of
8 America. And I am here this morning to
9 testify in support of Bank of America's
10 transaction.
11 I place Bank of America in the
12 highest regard as a corporate partner, as a
13 displayer of corporate philanthropy and
14 goodwill toward the communities of this city.
15 They have provided resources that have helped
16 rebuild our urban neighborhoods, and they've
17 not only put themselves in the mix
18 consistently, but they've shown a passion to
19 help solve the problems that plague our
20 community.
21 When I first assumed the helm of
22 the urban league several years ago, one of the
66
1 first meetings that I had was with then
2 President of Bank of America, Lynn Pike, and
3 she was one of the first commitments to my
4 early tenure, committing more than $200,000 in
5 resources to support the Los Angeles Urban
6 League, all of which goes to supporting our
7 communities and the programs that we provide,
8 spanning from daycare all the way through
9 secondary education, on into college,
10 university, workforce development, and the
11 like.
12 During my tenure and for the past
13 several decades, Bank of America has served
14 tirelessly on our Board of Directors, most
15 recently being taken over by a woman named
16 Gail Lenoi at the Bank of America, who has
17 been very, very active in resolving problems,
18 and solutions orientation for the Los Angeles
19 Urban League.
20 As an example of the Bank of
21 America's commitment to social sector
22 innovation, they're now considering a large
67
1 grant for a systemic change model called
2 "Neighborhoods at Work", which around
3 transforming inner city neighborhoods one at
4 a time, and is a model that has received
5 national accolades, and the Bank of America is
6 now getting involved in this holistic model
7 which is designed to scale neighborhood by
8 neighborhood, addressing educational
9 disparities, employment disparities, health
10 disparities across a number of different
11 disciplines simultaneously.
12 With the support of Bank of
13 America for innovative holistic initiatives
14 like Neighborhoods At Work, the bank is once
15 again revealing its commitment to building
16 21st century solutions, so whether it's
17 through the facilitation of these types of
18 solutions, or their commitment to the
19 development of winning strategies with boards
20 of directors and community-based
21 organizations, like the Los Angeles Urban
22 League, this bank's unwavering commitments,
68
1 financial and otherwise, have been the
2 embodiment of corporate responsibility.
3 I cannot be more pleased to have
4 their energy and their talents focused against
5 the issues that matter in our community, and
6 their service to our organization has been a
7 vital element in the success that we've had in
8 addressing many of the issues with which my
9 community, particularly the African American
10 community, is faced. I am here to testify
11 about the reality and the importance of Bank
12 of America's commitment to that community,
13 and, obviously, we must all proceed with
14 caution when the largest anything from any
15 industry seeks to expand further. But what I
16 can attest to this morning is this
17 institution's commitment to social justice,
18 and the well-being of the residents of this
19 city. I've seen it first-hand. I've seen it
20 displayed through their efforts with the Los
21 Angeles Urban League and other community-based
22 organizations for many decades. And what I
69
1 can do is support the expansion of this
2 institution. I do this without hesitation,
3 because in spite of being the nation's largest
4 bank, they've proven as they've grown that
5 their commitment is not only to making money,
6 but it's also to changing lives for the
7 better. You have my thanks for your allowing
8 me to testify this morning. Thank you.
9 MS. BRAUNSTEIN: Thank you. Mr.
10 Kwoh.
11 MR. KWOH: Good morning. My name
12 is Stewart Kwoh. I'm President and Executive
13 Director of the Asian Pacific American Legal
14 Center of Southern California. We are the
15 largest legal public interest group for Asian
16 Americans in the United States.
17 I want to thank the Federal
18 Reserve Bank for this opportunity to express
19 my support of Bank of America's proposed
20 acquisition of Countrywide Financial
21 Corporation. I would like to thank Bank of
22 America and their leadership at a critical
70
1 time in our history with the need for market
2 stability in the area of mortgage banking.
3 It is my long-term relationship
4 with Bank of America that leads me to support
5 this merger. I was estimating that I've had
6 some work relationship with Bank of America
7 for at least 20 years. I am highly confident
8 because of that, that Bank of America will
9 provide expanded assistance for distressed
10 mortgage holders, greater community
11 development efforts, and increased support of
12 community-based organizations. Bank of
13 America, in our community, has an excellent
14 reputation as a community bank that acts
15 locally, even though it is one of our
16 country's largest banks.
17 I wanted to share with you that
18 I've seen this commitment from a number of
19 different vantage points. Currently, I serve
20 on the Bank of America's National Community
21 Advisory Council, where I've seen their
22 innovative approaches to revitalizing
71
1 communities, and much of that is by listening
2 to advisors from the community. They have
3 listened to our ideas, and have acted on those
4 ideas.
5 Secondly, I've served on the Bank
6 of America's Selection Committee for the
7 Neighborhood Excellence Initiative here in Los
8 Angeles. Beginning four years ago, this has
9 become a model for corporate foundations in
10 which it provides general support for
11 community development organizations that have
12 genuinely made a difference in neighborhoods.
13 That general support comes in the form of
14 $200,000 grants, or $25,000 grants, but that
15 type of support really enables community
16 groups to do its work in a flexible way.
17 The Bank of America also has
18 strongly supported the Asian American Justice
19 Center, and the Asian Pacific American Legal
20 Center in its dissemination of census-based
21 demographic information on Asian Americans and
22 Pacific Islanders throughout the United
72
1 States. These demographic profiles have been
2 used by literally thousands of community
3 leaders throughout the United States on
4 crucial information.
5 I have also seen BofA provide
6 large investments in organizations that have
7 provided workforce development opportunities,
8 and these grants, especially in this period of
9 time, have really improved the vitality of
10 communities, and strengthened job
11 opportunities for many residents of the
12 community.
13 Finally, I've witnessed BofA
14 consistently uphold values of community
15 revitalization. Beginning, it was probably 15
16 years ago, I served on the Bank of America's
17 Social Policy Advisory Committee, and to the
18 present day, I have been continually impressed
19 with BofA's leadership locally and nationally.
20 In particular BofA not only provides financial
21 support through partnerships and investments,
22 but it also actively builds relationships with
73
1 communities.
2 In 2001, I received a call from
3 Liam McGee, who was then the President of Bank
4 of America in the Los Angeles region, who then
5 encouraged me to join the United Way Board to
6 insure that the United Way became more
7 responsive to community needs and community
8 institutions. Liam was the Board Chair from
9 2001 to 2003, and exhibited impressive
10 leadership. He successfully strengthened the
11 United Way by becoming more responsive to
12 pressing community problems, especially in
13 challenging poverty. Indeed, this kind of
14 partnership and leadership symbolizes BofA's
15 approach to the community.
16 I thank the Federal Reserve Bank
17 for the opportunity to provide my testimony
18 this morning, and I appreciate the time to
19 give my insights into why I believe BofA will
20 be a very responsible partner if this
21 acquisition is approved. Thank you very much.
22 MS. BRAUNSTEIN: Thank you very
74
1 much. Ms. Hogan-Rowles.
2 MS. HOGAN-ROWLES: Good morning.
3 How are you? I have to say a personal hello
4 to Sandy. How are you doing? Nice to see
5 you. Welcome to Los Angeles. We're glad we
6 have good weather for you. I hope that didn't
7 take any of my five minutes. Okay. Very
8 good.
9 Okay. My name is Forescee Hogan-
10 Rowles, and I'm President and CEO of Community
11 Financial Resource Center here in Los Angeles.
12 I also serve as a commissioner for the
13 Department of Water and Power here in the
14 city, and I also serve as a commissioner for
15 the California Commission for Economic
16 Development here in the State of California.
17 I also serve as a board member to the National
18 Board of the Opportunity Finance Network as a
19 CDFI, Community Development Financial
20 Institution, but I just said that to
21 acknowledge those roles, but I'm really here
22 representing Community Financial Resource
75
1 Center, my day job. The other jobs I serve as
2 a public servant, and we all do that in our
3 respective roles.
4 So I'm here to address you in
5 support of the merger between Bank of America
6 and Countrywide. And, first of all, who is
7 CFRC? Community Financial Resource Center
8 really wouldn't be here without the advocacy
9 of some of our local and statewide advocacy
10 groups, as well as we were led in our
11 formation with Bank of America, along with a
12 number of banks to start CFRC over 50 years
13 ago.
14 The idea was that we would
15 identify a community development organization
16 that would meet the needs and unmet credit
17 needs of low-income consumers starting in
18 south Los Angeles, at that time we called it
19 South Central. We've grown from that now, we
20 call it South L.A., and then to expand on to
21 low-income residents and business owners
22 throughout Los Angeles County, and we've
76
1 continued to do that.
2 Bank of America was a lead partner
3 with us. They continue to be a partner with
4 us, and it's not just a partnership that we
5 just say it in name. We've had board
6 leadership through their employees within the
7 bank, and when you get board leadership on a
8 growing non-profit, it becomes really critical
9 because you learn, and it helps to grow the
10 organization in a much more sound way.
11 We've also received grants from
12 Bank of America, but strategic grants, one to
13 establish what we call the BISTK, Business
14 Innovation Technology Center, when we
15 recognized that the information highway was
16 sailing right by our community. We went to
17 Bank of America and they did give us the
18 initial grant to start the BIZTK, which is an
19 opportunity for low-income residents and
20 business owners to come into the CFRC and do
21 online banking. They learn internet access.
22 They learn how to automate their businesses,
77
1 they can learn how to surf the web for homes,
2 and that becomes real important, so innovative
3 products that we come up with.
4 The other thing that I think is
5 really important about our innovative
6 partnership with Bank of America is they
7 actually helped us start LATMAP, which is, I
8 think, really focused right here with this
9 conversation. Los Angeles Teachers Mortgage
10 Assistance Program. It's very, very unique.
11 We've actually just been awarded -- - our
12 Board Member, Al Arguello from Bank of America
13 doesn't even know this - we were notified a
14 day and a half ago that our program was
15 awarded for innovation. We're going to
16 present to a conference in New Jersey next
17 month for our Los Angeles Teachers Mortgage
18 Assistance Program. It's an official
19 partnership with the L.A. Unified School
20 District, and it allows us to assist teachers
21 and district employees in becoming home
22 owners. And for many of them, they locate in
78
1 and around low-performing schools, which our
2 goal is to help stabilize local communities,
3 particularly with wealth creation through home
4 ownership. So I think their reputation is
5 there, with what we've done so far.
6 In addition, we are recipients of
7 the Neighborhood Excellence Award that was
8 awarded to us two years ago through Bank of
9 America. And so I say enough about that,
10 because I think they're a stellar institution
11 that continues to demonstrate leadership and
12 creative, and innovative products with CFRC,
13 but I also need to acknowledge Countrywide.
14 And, you know, when they came forward, I
15 recognize they did not invest with us. They
16 did come to us and try to do loans, and so
17 what I expect to see if this goes forward,
18 assuming - not assuming - asking you to
19 support the merger, that Bank of America will
20 continue its innovative leadership and
21 supporting non-profit organizations to
22 continue home ownership education, to expand
79
1 financial literacy.
2 In our LATMAP program, L.A.
3 Teachers Mortgage Assistance program, we
4 started that in 2000, and when I went to my
5 staff and said how many foreclosures have we
6 had, it was zero out of 1,494 families that we
7 have helped get into homes. Since 2000, not
8 one foreclosure. We did three years beef - I
9 asked our staff why - we beefed up our home
10 ownership education, the section on
11 foreclosures. We also beefed up our section
12 on lending and types of loan products, and we
13 chose not to assist borrowers that were
14 looking for sub-prime, prime-prime loans, and
15 just said we're just not going to do it. So
16 we had some people walk away that were upset,
17 but at the end of the day, now three years
18 later, we're seeing the evidence of what good
19 sound home ownership education and home
20 ownership counseling and financial literacy
21 really does do. So I will just encourage that
22 you support the merger with the understanding
80
1 that we get the support across the country of
2 non-profit institutions that will assist in a
3 continuation and an increase in home ownership
4 education and financial literacy. Thank you
5 very much.
6 MS. BRAUNSTEIN: Thank you very
7 much. Mr. Garcia.
8 MR. GARCIA: Thank you, ladies and
9 gentlemen. I appreciate your time. It's an
10 enjoyable time here in California, and I
11 thought New Mexico was hot. And yesterday I
12 think I should have been back in New Mexico.
13 Having said that, my name is
14 Robert Garcia. I'm the Executive Director for
15 Southwest Neighborhood Housing Services. We
16 are a non-profit organization that's been
17 around for about 31 years. Our primary
18 mission is actually home ownership, financial
19 literacy, and I'm just here in support of Bank
20 of America. And I'd like to read a quick
21 statement, and I've got some statistics here
22 that I'd like to leave, if at all possible.
81
1 Southwest Neighborhood Housing
2 Services' Board of Directors, and Robert
3 Garcia, Executive Director, all strongly
4 support Bank of America's acquisition of
5 Countrywide Mortgage. This statement is based
6 on the success shared by Bank of America and
7 Southwest Neighborhood Housing Services in
8 collaborating to meet the needs of low-income
9 individuals in our communities.
10 Southwest Neighborhood Housing
11 Services has successfully worked with Bank of
12 America in facilitating home ownership
13 opportunities for low to moderate income
14 families striving to obtain the American dream
15 of home ownership, especially for minorities.
16 The mortgage statistics show that
17 Bank of America's program has been partially
18 successful in addressing the needs of the
19 Hispanic market. A total of 1,539 loans
20 closed in 2005 through 2007, reflect about
21 $200 million worth of mortgage money. Now
22 having said that, that's not my -- not be very
82
1 much for larger cities, like in California, or
2 Chicago, or New York, but in New Mexico when
3 we have an average price home of 125 to 150,
4 that's quite a bit of success here. Of course,
5 this would be 70 percent of them would
6 actually be closed to Hispanics, additional 10
7 percent to other minorities, Asians and Native
8 Americans, and the remaining 20 percent for
9 whites.
10 In New Mexico, housing market Bank
11 of America initiatives have actively assisted
12 the Hispanic market to avoid falling victims
13 to predatory lending. We know that's a major
14 problem, and that's one of the reasons that
15 we've had all these foreclosures, and
16 delinquencies. Additional collaborations
17 displayed by Bank of America's requirement for
18 home buyers education training. The course
19 teaches first time buyers the basic of home
20 ownership, home buying process,
21 responsibilities of home ownership. The
22 course also includes financial literacy,
83
1 budget, as well as post purchase information.
2 The curriculum is based to assist the new home
3 owners in how to best meet the needs in a
4 reasonable approach that they can afford and
5 successfully a long-term relationship with
6 them.
7 Statistics have shown that home
8 buyers education completing -- home buyers
9 completing their workshops have historically
10 had low defaults and foreclosure rates. Class
11 attendance have increased ten-fold. At
12 Southwest Neighborhood Services from 99
13 graduates in 2001, to 1,023 in 2007. The
14 attached charts, and this is just as I show,
15 outlining the full class attendance relating
16 mortgage totals, and the success, program
17 informations that are part of the basis for
18 Southwest Neighborhood Housing's position in
19 supporting Bank of America's acquisition of
20 Countrywide Mortgage.
21 In summary, although there are
22 many capable lenders throughout the housing
84
1 market, Southwest Neighborhood Housing
2 Services' position to support the acquisition
3 of Countrywide Mortgage by Bank of America is
4 because of a continued strong commitment,
5 collaboration and partnerships with non-profit
6 organizations with the mission of housing
7 opportunities for low to moderate income,
8 which Southwest Neighborhood Housing Services
9 successfully done for well over 31 years.
10 Therefore, I would like to go on record on
11 behalf of myself and the Board of Directors in
12 support of Bank of America in acquiring
13 Countrywide Mortgage. Thank you.
14 MS. BRAUNSTEIN: Thank you very
15 much. Thanks to the panel, and we'll bring
16 the next panel forward.
17 Good morning. Just a couple of
18 housekeeping notes. We have a timekeeper that
19 will let you know when you have two minutes
20 left, and when your time is up. And you have
21 five minutes for your statement. Also, we
22 would ask that you begin your statements by
85
1 saying your name and organization, so we make
2 sure I get it on the record. Okay. And we'll
3 start with Ms. Gordon.
4 MS. GORDON: Thank you. My name is
5 Thyonne Gordon, and I'm with A Place Called
6 Home Youth Center in south Los Angeles.
7 In south Los Angeles, we often
8 reach out for help, and no one is there. And
9 it's not because people don't want to help. I
10 think people really do want to help in the
11 city. We have more initiatives to fight
12 crime, more schools being built, and more
13 programs to bring people together than ever
14 before; yet, the demand and the toll that
15 poverty takes on this community increasingly
16 exceeds the supply.
17 Gang activity, high school
18 dropouts, and graffiti laden communities are
19 growing at an almost unstoppable rate. It's
20 hard to see the good when there's so much
21 negativity that is popularized, but I'm lucky.
22 As the Executive Director of A Place Called
86
1 Home, I have a chance to see good every day.
2 We provide youth a safe haven where they're
3 inspired to grow into productive lifestyles.
4 We do this by asking people who have good
5 fortune to share with those that are less
6 fortunate, providing knowledge, time, and
7 financial resources.
8 We actually ask them to become a
9 part of our familia. It's hard to ask for
10 help, even from families. Sometimes we just
11 wish a magic genie would come down and just do
12 everything that the community needs. And
13 believe it or not, that wish came true for us
14 when we had an encounter with Bank of America.
15 In 2005, a Bank of America partner
16 visited A Place Called Home unsolicited, and
17 asked that we join other organizations in
18 sharing ideas about bettering the community.
19 In sessions we agreed that one way would be in
20 parent education. It was critical to help our
21 youth.
22 Bank of America provided funding
87
1 for us to do ESL and computer classes in the
2 Vernon Central Block. This Vernon Central
3 Block initiative graduated in its first
4 semester 38 parents. Since then, we have a
5 minimum of 25 parents that graduate every
6 semester.
7 Bank of America also seeded into
8 the community by bringing people together in
9 a positive setting. The adage, "It takes a
10 village to raise a child", rang true as the
11 Bank of America hosted Vernon Central block
12 party in 2006, which included live
13 performances, clothing and food distributions,
14 free health screening, and, of course, banking
15 basics from Team Bank of America. The event
16 uplifted our community, and Bank of America
17 positioned themselves as part of our community
18 familia.
19 As part of the family, Bank of
20 America shares their family of employees with
21 us. We are privileged to enjoy the volunteer
22 efforts from their downtown Los Angeles
88
1 banking team, and this past Saturday, a Bank
2 of America employee, Susie Oh, was honored
3 with the President's Volunteer Service award
4 for the time she spent tutoring youths.
5 All of this makes A Place Called
6 Home's experience with Bank of America very
7 magical, but the magic didn't stop there. In
8 2007, A Place Called Home was awarded with the
9 Bank of America Neighborhood Excellence award
10 granting the organization a $200,000
11 unrestricted gift, and the most phenomenal
12 year long management training program. The
13 funding helped keep our doors open.
14 The Neighborhood Excellence
15 Initiative is Bank of America's signature
16 philanthropic piece, as well it should be.
17 This program distinguishes Bank of America
18 from being a good corporate citizen to being
19 a great community-oriented family-focused
20 corporation.
21 Stop for a second and understand
22 the significance that Bank of America's family
89
1 connection has. Imagine 35 high school
2 dropouts, now imagine them walking across a
3 high school stage, 85 percent of them are
4 first generation high school graduates, all
5 received career and college counseling, 15
6 received scholarships to go to college, 4 work
7 in our internship program, 8 participate in
8 our 48 track recording studio, and 3 dance on
9 our dance team, 35 high school dropouts. They
10 didn't end up in gangs, no criminal activity,
11 and by most statistics, they should be dead.
12 That's the difference between good and great
13 corporate citizens. That's the difference
14 between giving a fish, and teaching how to
15 fish. That's the difference in having
16 familia.
17 Bank of America fosters familia.
18 And we're proud to endorse support, and in our
19 neighborhood stand up for anybody that's a
20 part of our family. We're proud that Bank of
21 America is part of our family, and support
22 their initiative. Thank you.
90
1 MS. BRAUNSTEIN: Thank you. Mr.
2 Park.
3 MR. PARK: Good morning. My name
4 is Jim Park. I'm the President and CEO of
5 Asian Real Estate Association of America. I
6 want to thank you for this opportunity to
7 present the views of the Association related
8 to this historic merger of these two important
9 financial institutions.
10 AREAA is a national business trade
11 organization focused on expanding housing
12 opportunities for Asian American and immigrant
13 communities throughout the country, with more
14 than 14,000 members nationwide, with the bulk
15 of our members here in California. Our
16 members are real estate and mortgage
17 professionals that have worked tirelessly to
18 serve the expanding and growing Asian American
19 immigrant communities.
20 Clearly, many factors, as you all
21 know well, have led to the greatest housing
22 crisis and mortgage credit withdrawal in
91
1 recent history. The home prices we're seeing
2 here in California are running up. Wall
3 Street's engagement, a lot of people getting
4 into the real estate business with very little
5 experience, people's unrealistic assumptions
6 about borrower's capability to repay these
7 loans. A lot of factors, and we've seen them
8 over and over again in the papers and other
9 analyses that have been done. And clearly the
10 problems that started in the sub-prime segment
11 have really tainted the whole entire industry.
12 And one of the most influential and biggest
13 lender in the country clearly was not immune
14 to this mortgage crisis.
15 So now what's the solution? How
16 do we move forward, how do we rebuild the
17 trust in the communities that we care so much
18 about? And I believe that Bank of America's
19 acquisition of Countrywide Financial
20 Corporation is really one of the critical
21 linchpin solutions to rebuilding that trust
22 and confidence.
92
1 I believe Bank of America's
2 actions helped to stabilize the market when it
3 needed it the most by giving one of the
4 largest lenders in the country the liquidity,
5 and really the solid footing it needed to
6 continue. And we talk about all the great
7 work that they do, but at the end of the day,
8 they are a lender, and we want them to lend.
9 And that's what's most important to all of us,
10 and I am sure Bank of America made this
11 decision, had a clear financial analysis and
12 decision they engaged in to acquire
13 Countrywide, but its action had a broader
14 market implication, and really, I think, a
15 tangible benefit for all of us who believe in
16 increasing housing opportunities for under-
17 served communities, and the growing multi-
18 cultural home buyers that is represented not
19 only here in California, but throughout the
20 country.
21 Bank of America and Countrywide
22 combined will become the largest lender to
93
1 minority and immigrant communities in the
2 country. While that honor of being the
3 largest clearly comes with some
4 responsibilities and obligations, I'm certain
5 that the management of those two institutions
6 will take that new position in the marketplace
7 very, very seriously. I hold this view
8 because I've seen the leadership of these two
9 organizations in action, and I have had a
10 chance to get to know them. And, indeed, the
11 management of these organizations have
12 consistently supported the needs of the
13 diverse community that we represent. Bank of
14 America had a long history of serving the
15 Asian American community with deep banking
16 roots right here in California, and more than
17 15 years ago, Countrywide was the first major
18 lender in this country who voluntarily
19 committed to meeting a national minority
20 lending goal.
21 So, at the end of the day, my view
22 is that these organizations will continue down
94
1 that track, and we have done a lot of great
2 things together, AREAA, Bank of America, and
3 Countrywide, in terms of education, supporting
4 communities, rolling out products that create
5 opportunities for a diverse set of population,
6 immigrant communities, and I expect that to
7 continue in the years ahead. And we believe
8 strongly that the acquisition will increase
9 the flow of capital over the long haul to
10 minority and immigrant communities, and I
11 think we need to stand behind them, and
12 support this merger, because I think our
13 community needs it, our future of the state,
14 as well as the country's, require a
15 respectable fine institution, and so I'm
16 pleased to be here to support the acquisition
17 and the merger of the two fine organizations.
18 MS. BRAUNSTEIN: Thank you very
19 much. Mr. Bohl.
20 MR. BOHL: Good morning. My name
21 is Jeffrey Bohl. I'm an investor and
22 entrepreneur. I'm here to endorse the merger
95
1 of Bank of America and Countrywide Financial.
2 I want to thank the Federal
3 Reserve Bank for providing this opportunity to
4 express my views of this pending merger. I
5 would also like to state for the record that
6 these public forums are essential to the free
7 market system, because the meetings allow the
8 public to participate in the process, and we
9 now know that our voices and thoughts will be
10 considered in the approval and the outcome of
11 the merger.
12 There are a number of thoughts I
13 would like to mention that I would hope to be
14 taken into account when the bank executives
15 and the regulators structure the new combined
16 entity. Number one, Bank of America must
17 return to basics; that is, to return to the
18 branch loan officer system, scale back ivory
19 tower financial analysis. In my opinion,
20 housing is a local market. It is very
21 important that the customer needs an ongoing
22 relationship with their local banker. I
96
1 emphasize this point.
2 In this age of high technology, we
3 sometimes forget about the human being
4 fundamentally. People need to have
5 relationships with local bank officers. This
6 important reality has been severely abused in
7 recent banking practice, and it needs
8 immediate attention. In an age of
9 securitization, we can build economic models,
10 make economic forecasts, and work diligently
11 to demonstrate our knowledge and expertise,
12 but banking must remember to share this
13 knowledge, and teach their customers how these
14 new programs work. And no matter what,
15 remember that models fail, and the Greenspan
16 and Bush model is cracking, and we're broken.
17 The bank must remember that even
18 in globalizing, or global capitalism,
19 financial limits are part of daily living.
20 Banking has become overly dependent on credit
21 lending agencies and credit scores. It lures
22 and is designed strictly to help the highest
97
1 credit scores. We live in an age where credit
2 has sometimes become more important than a
3 productive job itself.
4 When viewed in this economy, if
5 your credit score is not high enough, you can
6 effectively be eliminated from the economic
7 system, and we have all heard several times in
8 these testimonies that the inability of a
9 homeowner to achieve a high credit score can
10 force a family out of their house, and into
11 foreclosure.
12 The modern credit agencies and
13 bureaus are failing. I don't have to tell you
14 that. The sub-prime meltdown is, in part, a
15 story of delusional credit ratings by the
16 major rating services. Look at the
17 devastation in the model on bond insurers who
18 can barely raise capital, but continue to have
19 a AAA rating as their stock prices is
20 plummeting to record lows and face bankruptcy.
21 Banking here in Wall Street are
22 running in denial and have avoided
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1 transparency. We have failed to disclose
2 their dubious investment in mortgage bank
3 securities, CDOs, and the like. They were
4 demonstrative during the boom, but cowardly
5 during the downturn. So it is my hope that
6 the practice of ivory tower banking may come
7 to an end. It distorts the allocation of
8 resources, and skews the compensation levels
9 in favor of the elite. This reality does not,
10 in the long run, help the public, or the
11 shareholders.
12 Look at Bill Gates and Steve
13 Johns. They pay themselves a dollar per year,
14 but they have achieved their wealth by
15 building their companies. I read recently
16 that Bank of America is going to compensate
17 the head of its mortgage division, a number,
18 and I may not be right on th is number, but
19 I've heard that it could be as high as $28
20 million to run the mortgage division. In my
21 world, this is an outrage. In my world, this
22 person would be lucky to have a job at all.
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1 I would ask that Bank of America to explain
2 this decision to the shareholders.
3 In conclusion, I recommend that
4 every executive, every employee of Countrywide
5 and Bank of America review the testimony of
6 these hearings diligently. I challenge the
7 Bank of America to return to the fundamentals
8 established by A.P. Giannini, who based his
9 lending practices on the character of its
10 customers. I urge the Fed to get tough on the
11 financial companies that have shown poor
12 judgment, but still give them an opportunity
13 to correct their lending practices, and lead
14 our economy to the right path. And most
15 important, I hope the Federal Reserve will get
16 with it, reform the modern credit rating
17 services, and the credit bureaus, force public
18 companies to fully disclose information,
19 require investments relations departments in
20 our publicly held companies to more broadly
21 disclose information that shareholders need to
22 determine their investments. And, finally,
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1 provide a follow-up meeting in the future so
2 that the public can monitor and make sure the
3 Bank of America makes the right choices in the
4 future.
5 MS. BRAUNSTEIN: Thank you very
6 much. Ms. Golden.
7 MS. GOLDEN: Good morning,
8 everyone. I'm Dolores Golden, the CEO of the
9 Multi-cultural Real Estate Alliance for Urban
10 Change. We're based here in Los Angeles, and
11 we were formed in 1992 out of the Los Angeles
12 riots. Unfortunately, we were formed because
13 there was red lining of insurance, appraisers
14 were slashing the property values in our
15 neighborhoods, and here we are again with the
16 mortgage meltdown.
17 Our organization is non-profit,
18 and we're comprised of real estate
19 professionals, mortgage lenders, appraisers,
20 escrow people, all local people in the
21 neighborhood. And I have not a statement, but
22 I have some serious concerns and questions
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1 about the merger, because we've got a lot of
2 people that have a program that Countrywide
3 has to help save their homes, and right now
4 with this merger in the wings, it stopped
5 working.
6 We also want to know if people are
7 in a pipeline to get a mortgage workout, or a
8 loan mod with Countrywide, what's going to
9 happen when Bank of America takes over. The
10 other concern is that about a year or so ago,
11 we had a World Savings and Wachovia merger,
12 and we had people that were at loan doc stage
13 in escrow, and when they got to escrow to sign
14 their docs, they weren't World any more, they
15 were Wachovia, and the interest rate was high,
16 and the terms were changed. And they didn't
17 get their Reg Z that the Feds say they're
18 supposed to have. And we, the real estate
19 agents and brokers, we get a call to our
20 office all the terms are changed, the escrow
21 company didn't know, nobody knew. Somebody
22 knew, but we want to make sure this does not
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1 happen again. We want to make a clear path
2 that we're able to know, and we want Bank of
3 America and Countrywide, whatever happens, to
4 be able to reach out to the real estate
5 professionals in the community.
6 There are a lot of organizations
7 that are around all over the country that we
8 can have outreach on a nationwide basis, and
9 know what's going on, so that when we have the
10 call on the phone with the homeowner in
11 distress, we'll be able to help them.
12 The other concern is that right
13 now, Countrywide has branched out into
14 neighborhoods at risk, Compton, Watts, and
15 opened branches there. We want to know if
16 Bank of America takes over, are they going to
17 close these branches, are they going to keep
18 them up? We need to make sure that the people
19 in the hood, so to speak, have some support
20 and banking in their neighborhood, so they
21 don't have to get in a car and drive somewhere
22 in order to get good banking materials.
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1 We also want to make sure that
2 minorities are diverse within nationwide,
3 countrywide Bank of America, and in major
4 cities, people that look like the people that
5 are borrowing, are represented.
6 I'm not long-winded today. I just
7 wanted to make sure that we get straight to
8 the point and make sure that people in
9 foreclosure, or facing foreclosure, have a
10 clear-cut path that they're able to get their
11 way out of this mess. Thank you.
12 MS. BRAUNSTEIN: Thank you very
13 much. Thanks to this panel, and we'll bring
14 the next panel in.
15 MS. BURDETT: Good morning,
16 everyone. My name is Katherine Burdett. I'm
17 a realtor with Howard Realty Center in Los
18 Angeles. I'm also President Elect for the
19 Women's Council of Realtors for Southwest Los
20 Angeles, and I'm also an officer of the Multi-
21 Cultural Real Estate Alliance addressing the
22 predatory lending task force.
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1 My concerns are - I don't have a
2 statement, I have concerns. My concerns are
3 what policies and practices is Bank of America
4 going to have for the existing customers of
5 Countrywide. And, specifically, I have two
6 families who have excellent credit, who are
7 very much employed. I have a client,
8 specifically a family, Mr. and Mrs. Gilbert
9 and Eva Sorano. They have FICO scores in the
10 high 700s, and they're both school teachers in
11 the L.A. and Montebello Unified School
12 District for over 15 years.
13 Because of cutbacks and pay check
14 errors, their income has decreased. They have
15 two children, and they've been attempting to
16 refinance their home for several months now.
17 Now, they had an appraisal done. Countrywide
18 accepted the appraisal. They had loan docs
19 out, and then all of a sudden they were
20 required to have a second appraisal, in which
21 case the appraisal was cut by $85,000. These
22 people have excellent credit. They're trying
105
1 to keep their credit, but yet they're not
2 being assisted.
3 I have another couple who are both
4 self-employed. They've been homeowners for
5 over 15 years. They have three children.
6 Because of the economy cutbacks, they're
7 needing assistance or modification. However,
8 when we contacted the Home Detention
9 Department of Countrywide, Hope Now Alliance,
10 as well as the Home Preservation Department of
11 Countrywide, and some other VPs of that
12 company, we were told that Countrywide is only
13 working with people who are late and behind in
14 their payments.
15 What is going to be done when Bank
16 of America acquires Countrywide to assist
17 people, customers who are good as far as their
18 credit is concerned, but who need help and
19 assistance in modifying or forbearing their
20 existing mortgages because of a declining
21 market, as far as they can't get loans because
22 the appraisals are being cut. Those are my
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1 concerns.
2 Also, the community, they seem to
3 be cutting branches. They're changing the
4 reps. People are leaving in droves. How are
5 we supposed to help keep our people in homes,
6 and put new borrowers in homes in the future?
7 MS. BRAUNSTEIN: Thank you very
8 much. Mr. Toebben.
9 MR. TOEBBEN: Hi. Good morning.
10 My name is Gary Toebben. I'm President of the
11 Los Angeles Area Chamber of Commerce. Thank
12 you for this opportunity today.
13 I'm here in support, the business
14 community in support of this acquisition of
15 Countrywide by Bank of America. We believe
16 that our nation and our region are very
17 fortunate that a financial corporation like
18 Bank of America has stepped forward in this
19 time of tremendous need in our country. We
20 could be here talking about a bankruptcy. We
21 could be here talking about a federal buy-out,
22 or bail-out, but we're not. We're here
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1 talking about one corporate citizen who has
2 stepped forward, even started stepping forward
3 some six months ago with an initial injection
4 of capital into Countrywide, who has stepped
5 forward to buy Countrywide, because they know
6 how important Countrywide, and all their
7 mortgages are to the health of this nation.
8 As you probably have already
9 heard, Bank of America is the number one
10 market share in the Los Angeles market. You
11 know that they're the number one SBA lender in
12 the United States, that they're the number one
13 SBA lender to minority-owned small businesses.
14 I know you've heard from a number of other
15 panelists how generous Bank of America is, as
16 a corporate citizen in our community. They
17 support hundreds of community organizations.
18 You've heard about the $1.5 billion that
19 they've committed over a 10-year period in
20 non-profit organizations that are improving
21 communities and neighborhoods.
22 Simply said, our business
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1 community is relieved that an organization of
2 the caliber of Bank of America is acquiring,
3 or would like to acquire Countrywide. We
4 believe that it's in the best interest of the
5 many homeowners in our region who have
6 mortgages with Countrywide. WE believe it's
7 in the best interest of the many employees,
8 the thousands of employees in our region who
9 are employed by Countrywide. We urge your
10 approval of this acquisition. Thank you.
11 MS. BRAUNSTEIN: Thank you very
12 much. Mr. Sandos.
13 MR. SANDOS: Good morning. My
14 name is Tim Sandos. I'm the President and
15 Chief Executive Officer of the National
16 Association of Hispanic Real Estate
17 Professionals. I was also a former board
18 member, trustee, and chair-elect for the Omaha
19 Branch of the Federal Reserve. I'm real proud
20 of this institution. I carry this notebook
21 very affectionately, which has the brand of
22 the Federal Reserve. I appreciate the
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1 opportunity to be here before you today.
2 For those of you who are not
3 familiar with NAHREP, we have 16,000 members,
4 60 percent who are realtors, 30 percent who
5 are loan originators, the last 10 percent are
6 anyone else who touches the transaction, be
7 they title companies, insurers, loan
8 counselors. I have 63 chapters in 48 states,
9 23 of those 63 chapters are here in
10 California, 7 of which are in Los Angeles.
11 Last year my group did $65 billion in
12 origination, which means that we touched 25
13 percent of all Hispanic loans in America.
14 That for an 8-year old organization, who
15 started with few idealists in San Diego,
16 California, thinking about how they could make
17 a better opportunity for people.
18 Our mission statement from the
19 beginning has been to increase sustainable
20 Hispanic home ownership rates by working with
21 the professionals that serve that
22 constituency. And we believe sustainability
110
1 is the key in this merger, because we do no
2 one any favors by putting them into a home
3 that they lose two or three years from now.
4 Bank of America has an outstanding
5 record on how they have utilized wisely credit
6 underwriting valuations of homes that have
7 kept people in homes. And we think that this
8 is extremely important moving forward with
9 Countrywide, who made a significant commitment
10 early on to the Hispanic community.
11 We speak in favor, of course, of
12 these two mergers because we think that the
13 merger brings the two organizations with this
14 kind of significant history and supporting
15 professionals with ethically serving Hispanic
16 communities as trusted advisors. We believe
17 the merger will result in combining the
18 industry's best loan origination technology
19 and countrywide offers with the resources and
20 extensive bank footprint that Bank of America
21 provides throughout the United States, and
22 indeed in the State of California. Excellence
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1 in professional and consumer education that is
2 offered by these two institutions are most
3 essential, and they've been the hallmark of
4 our relationship with them over the years.
5 Jim Park mentioned earlier the
6 need to establish trust. Well, we've been
7 able to re-establish trust and confidence in
8 both the consumer market and the professional
9 market by working with education coming from
10 both Countrywide and Bank of America for our
11 members. Many of our members came into the
12 industry in the last five to seven years.
13 They've never had to be in an industry where
14 they had to go out earn the business, and do
15 it without the business walking through the
16 door. It's this kind of consumer education
17 that they provide for us, so that they can
18 reach out to the marketplaces we serve.
19 The combination is also going to
20 serve to address multiple number of consumers
21 in need of loan modification or refinance to
22 avoid foreclosure. One of the things that
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1 we're working with with both organizations is
2 retraining some of our professional members as
3 HUD-certified counselors so that this in the
4 market when it's down, they can act as
5 certified counselors helping keep people in
6 their homes, and then when the market
7 normalizes return to being realtors, loan
8 officers, or the other professions that
9 they've had.
10 The size and scope of the two
11 organizations should also provide capital for
12 minority and first-time home buyers, some with
13 non-traditional credit who can purchase the
14 RAO inventory that now is hitting our markets,
15 and be the replacement of the baby boomers to
16 purchase that inventory, but sometimes with
17 non-traditional credit. Hispanics have a
18 tradition of having non-traditional credit;
19 that is, that they have not established a FICO
20 score, if they've been filed. They have the
21 audacity to live within their means, didn't go
22 out and create credit, and so, therefore, that
113
1 serves to harm them when they go to purchase
2 a home.
3 Non-traditional credit models that
4 use predictive modeling to look at performance
5 for individuals who are so situated provide
6 the opportunity for them for first time home
7 ownership is going to be a clear need for how
8 we move out of this particular market, and
9 stabilize price in neighborhoods all across
10 the country.
11 Countrywide, as I said before, was
12 a founding sponsor for NAHREP in 1999. They
13 were the first major lender to make the
14 commitment to minority community home
15 ownership in their mission statement. They
16 did it before they had a CRA or a regulatory
17 reason to do it. They did it rather because
18 they believed in the opportunity in the
19 marketplace.
20 Now, they have most recently
21 partnered with two of our largest members at
22 NAHREP, Vista Asset Management, who is a
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1 company dedicated to turning RAO assets into
2 home ownership opportunities for minorities
3 and low to moderate income buyers. To-date,
4 the partnership in less than a year has
5 yielded 78 percent of the properties being
6 sold to owner occupied purchasers, and 65
7 percent of the properties sold were to
8 minority families.
9 Bank of America last year received
10 NAHREP's Founders award for Leadership for
11 their innovation in developing the
12 relationship with us. We think that, again,
13 the combination is going to be an outstanding
14 opportunity for minority communities. We urge
15 your support. Thank you very much.
16 MS. BRAUNSTEIN: Thank you very
17 much. Mr. Espinoza.
18 MR. ESPINOZA: Yes. First of all,
19 I would like to thank the Federal Reserve for
20 having these hearings. I think they're very
21 important, key, obviously, to our community.
22 The other is that Bank of America
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1 -- and I, by the way, submitted some written,
2 so I'm just going to touch on some of the
3 important pieces. Bank of America back nine
4 years ago, or ten years ago invested actually
5 the initial funding for Raza Development, and
6 I'm President and CEO of that corporation, and
7 help founded with a $1 million grant over a
8 10-year period, and a $10 million loan we were
9 able to now become the largest Hispanic
10 community development financial institution in
11 the country, and provided over $100 million of
12 capital to our community, and over half a
13 billion dollars in leverage, so we've had a
14 great partnership with Bank of America. And
15 it's been a relationship that now goes 10
16 years.
17 The concerns we presently have
18 right now with the market the way it is, one
19 of the first things that we're concerned with
20 is the foreclosure rates that obviously are
21 occurring across the country. And one of the
22 major challenges for us moving forward, in
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1 fact, working with Bank of America is going to
2 be trying to put our arms around this issue.
3 Now, obviously, they didn't create
4 it, and I doubt seriously that anybody in the
5 market, including Countrywide, could have
6 foresaw the crash we were going to have, but
7 we have one, and it's going to impact Hispanic
8 families, and families all across the country.
9 And probably the ones that will take the
10 hardest hit are going to be the lower income
11 and middle income families. And probably more
12 of the middle income families than anyone
13 else. So we're strongly suggesting in the
14 merger that's occurring between Countrywide
15 and Bank of America that the possibilities of
16 looking at history crashes - I hate to create
17 another RTC - but at the end of the day, that
18 vehicle, at least at the minimum, allowed
19 people to know where the assets were, and to
20 know how bad the assets were, and write them
21 down, and then obviously get them back out
22 into the community.
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1 I think this go-around, obviously
2 starting to date myself here, I think we have
3 an opportunity to actually hopefully help
4 families stay in the houses versus trying to
5 foreclose them. And I think that's really the
6 challenge in front of you, and I think the
7 challenge in front of all of us is how do we
8 manage a liquidity problem in the credit
9 community, a legal problem of who owns the
10 asset, or who owns the paper, and at the same
11 time work with existing partnerships across
12 the country, non-profit and, obviously, for-
13 profit to put our arms around these assets so
14 that we can at least figure out a way for
15 those families that can afford to stay, to
16 stay, and then those families that are not
17 going to be able to afford, to get them into
18 housing, because there still are families out
19 there that are going to need the assistance.
20 So we support our national partner, Bank of
21 America, and look forward to working with them
22 on this challenge. And I'm sure the Federal
118
1 Reserve is going to have to deal with this
2 issue, also, so thank you very much for your
3 time, and I'm glad we're able to get this over
4 quickly. Thank you.
5 MS. BRAUNSTEIN: Okay. Thank you
6 very much. Thanks to the panel. We will now
7 take a break, and reconvene at 10:45.
8 (Whereupon, the proceedings went
9 off the record at 10:31 a.m., and went back on
10 the record at 10:47 a.m.)
11 MS. BRAUNSTEIN: Welcome. We're
12 going to get started. Housekeeping, there's
13 a timekeeper there that will let you know when
14 you have two minutes left, and when your time
15 is up. You have five minutes. And please
16 begin your statement with your name and
17 organization so we can get it on the record.
18 And with that, Mr. Larson.
19 MR. LARSON: Well, good morning.
20 My name is Scott Larson, and I'm the Executive
21 Director for Home Aid, Orange County. Home
22 Aid is a local and national non-profit
119
1 organization that was established nearly 20
2 years ago by the local homebuilding industry,
3 and what's been unique is that the growth of
4 Home Aid has primarily occurred over the last
5 10 years.
6 Starting in Orange County, our
7 objective is to build dignified housing where
8 homeless individuals and families can rebuild
9 their lives. The unique role that Home Aid
10 plays is that we come in as a developer and as
11 a builder on behalf of other non-profit social
12 service groups in the community, and build
13 basically turnkey facilities, or renovate
14 turnkey facilities for them that are debt-
15 free. In Orange County alone we have
16 developed over 40 projects, and nationwide now
17 we have nearly 150 projects that have been
18 developed in cities across the country.
19 The unique role that I'm here
20 today is to speak on behalf of what Bank of
21 America has done through Home Aid in our
22 communities around the country. During the
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1 last 10 years, the primary growth of Home Aid
2 has occurred from a few chapters in the
3 southern California area. It's now over 22
4 chapters, and Bank of America has been with us
5 through that significant growth period.
6 Several things that they have
7 played a role in is placing members of the
8 Bank of America staff on Board of Directors of
9 organizations across the country. Currently,
10 right now, we have 30 Bank of America
11 employees involved with our organization in 16
12 chapters across the country, and locally we
13 employ a lot of their volunteers on our
14 projects. And I'll give you a couple of
15 examples of that.
16 On a national level, some of the
17 things that Bank of America has facilitated
18 for us, since we've had such an opportunity
19 for growth in our development, through our
20 national office they've developed with us
21 what's called The Knowledge Center. Since we
22 have a lot of new chapters that need to learn
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1 from each other, the Knowledge Center was
2 established so that way through our websites,
3 that our new chapters can come on and learn
4 from other chapters, and Bank of America has
5 helped us facilitate that.
6 They've also helped us, since
7 we've had such significant growth in our
8 organization, to develop accounting guidelines
9 for our new chapters so that they know proper
10 business practices as they establish a non-
11 profit in their community. And, also, has
12 allowed us to expand in our marketing and in
13 community awareness of what we're doing in
14 those communities. On a national level, they
15 have facilitated nearly a half million dollars
16 in direct support of our work, and indirectly
17 nearly -- over $1 million of support.
18 What I wanted to do is
19 specifically mention some of the work that
20 they have done on my behalf in Orange County.
21 In Orange County alone, we have worked on 40
22 developments ranging from small renovations to
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1 multi-million dollar ground-up construction
2 projects, and most recently, the role that
3 Bank of America has played is in a project
4 we're going to be dedicating next week called
5 Hope Family Housing Buena Park. This is 17
6 row town homes in the City of Buena Park, a $5
7 million project that will be developed debt-
8 free for the Orange County Rescue Mission.
9 The role that Bank of America has played, it's
10 facilitated $1 million through the Federal
11 Home Loan Bank. They were our sponsor, but
12 the role that they played was specifically
13 they do not have -- we do not have a loan on
14 this project, and so they were willing to step
15 in and be our sponsor, despite the fact that
16 there was not a loan that they were tied to.
17 And the Federal Home Loan Bank is anxiously,
18 or graciously participated, and funded $1
19 million of our project.
20 That project is geared towards
21 homeless families living in motels, and so
22 next week they're will be an ability for
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1 people to live in this transitional housing
2 community that will be debt-free through the
3 Orange County Rescue Mission.
4 In addition, we bring in a lot of
5 Bank of America volunteers to our projects
6 throughout the year. Most recently, they were
7 involved with landscape and renovation
8 projects on two of our communities, one for
9 pregnant women in the City of Orange, and one
10 called The Village of Hope, which is on the
11 formally closed Tustin Marine Base. So we've
12 deeply appreciated the role that Bank of
13 America has played on behalf of Home Aid, both
14 here locally in southern California, and
15 across the country. And I am proud to be here
16 to speak on their behalf. Thank you.
17 MS. BRAUNSTEIN: Thank you very
18 much. Ms. Duarte.
19 MS. DUARTE: Good morning. My
20 name is Patricia Garcia Duarte. I'm Executive
21 Director for Neighborhood Housing Services of
22 Phoenix. Let me start by thanking you,
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1 members of the Federal Reserve system, and the
2 members of the Bank of America Corporation
3 panel for this opportunity to speak in support
4 of the acquisition plans that Bank of America
5 has for Countrywide Financial Corporation.
6 I'm speaking to you this morning
7 on behalf of Neighborhood Housing Services of
8 Phoenix, and let me take just a few moments to
9 explain. NHS Phoenix is a not-for-profit, a
10 501(c)(3) mission-based organization. It was
11 established in 1975 in an effort to revitalize
12 Phoenix neighborhoods.
13 NHS Phoenix office provides an
14 array of different programs and services that
15 support, create, and promote home ownership
16 for low and moderate income families. NHS
17 Phoenix is also a chartered member of
18 NeighborWorks America.
19 As I speak to you from my position
20 as Executive Director, I also speak to you as
21 someone who has been in the banking and
22 housing industry for over 20 years, so when I
125
1 tell you that Bank of America has demonstrated
2 from its national boardroom to our cities its
3 support for local community programs and
4 services, I say it with confidence, because I
5 have witnessed this, not of recent, but over
6 the last 20 years.
7 Bank of America has excelled at
8 promoting and supporting home ownership
9 opportunities for low and moderate income
10 families nationwide, and in the Phoenix Metro.
11 Bank of America has generously delivered
12 through their -- has been very generous
13 through their delivery of their signature
14 philanthropy programs. In particular, I give
15 kudos to Bank of America for the Neighborhood
16 Excellence Initiative, also known as NEI.
17 Through NEI, Bank of America
18 targets critical needs in local communities,
19 and works with local community leaders to
20 direct funding where it will make the greatest
21 impact. It recognizes the strengths and the
22 shortcomings of being a non-profit. As a non-
126
1 profit, we serve many, but we're typically
2 funded annually, and long range planning is
3 difficult when you have to seek funding every
4 year. So NEI, Bank of America addresses that
5 issue, and provides substantial and multi-year
6 funding.
7 NHS Phoenix is a proud 2007
8 recipient of the Neighborhood Excellence
9 Initiative, and there are many other non-
10 profits in Phoenix, and throughout the country
11 that have benefitted from this NEI program.
12 The program provides $200,000 in
13 operating support over a two-year period, and
14 has been helpful to the recipient
15 organizations, especially as government
16 programs and corporate support has been in the
17 financial decline.
18 In addition, the grant also
19 focuses on leadership training for the
20 Executive Director and the emerging leader.
21 This type of support, in particular, helps to
22 stabilize, grow, and institutionalize the non-
127
1 profit, especially during times like this when
2 more people are in need of our programs and
3 services.
4 From our local experience, I can
5 also say that since we opened our
6 NeighborWorks Home ownership Center in 1999,
7 Bank of America has been a partner, a very
8 strong partner. We enjoy a collaborative
9 relationship through which Bank of America
10 sends their customers and borrowers to NHS
11 Phoenix for home ownership counseling and
12 education. Bank of America recognizes that an
13 educated consumer tends to make better
14 consumer choices. Our records prove that
15 families who have attended home buyer
16 education and housing counseling sustain home
17 ownership at a much higher rate.
18 Bank of America is also an active
19 member of the Arizona Foreclosure Prevention
20 Task Force. In an effort to be proactive,
21 many of us decided to forego territorialism
22 and decided to come together last summer, we
128
1 started to reform, and we formed this Arizona
2 Foreclosure Prevention Task Force. And it's
3 a group of more than 200 professionals from
4 across the state representing financial
5 institutions, non-profits, and municipalities,
6 just to mention a few. The task force goal is
7 to reduce the number of foreclosures in
8 Arizona so that that negative impact that
9 foreclosures cause on families and communities
10 is also reduced.
11 Considering the staggering number
12 of foreclosures, this is a big goal. That
13 task force has four committees and education
14 outreach funding, and political, and
15 regulations committee, and I'm happy to report
16 that Bank of America, which is not unusual, is
17 an active participant of the task force, and
18 usually among the first to commit financial
19 resources to help the goals and objectives of
20 the task force.
21 What I'm suggesting through my
22 remarks, and what I have witnessed first-hand
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1 is that Bank of America has instilled a
2 culture of service in its employees. Because
3 of this, NHS has benefitted from employees
4 serving on key committees and in voluntary
5 roles on the board of directors and on
6 committees. More importantly, non-profits
7 throughout the state, in general, benefit from
8 Bank of America's culture of serving and
9 giving, and supporting non-profits because our
10 mission aligns.
11 We all want to serve those who
12 have prepared themselves, and are ready to
13 take the next step towards home ownership. We
14 all want to make sure that consumers are on
15 solid foundation, and on the right path to
16 success as a homeowner through information,
17 education, and the right loan product. It is
18 not just enough to put someone in a home. We
19 want for them, as a new homeowner, to be
20 successful. We want the homeowner to build
21 equity over time, and to build wealth from
22 their home for their future. So on behalf of
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1 Neighborhood Housing Services of Phoenix,
2 thank you for allowing me to share our local
3 experience with Bank of America.
4 Let me finish my remarks by saying
5 that as someone who knows, and who has worked
6 with Bank of America, we support the
7 acquisition plan for Countrywide Financial
8 Corporation. Countrywide would benefit from
9 incorporating Bank of America's culture and
10 commitment to improving our communities. And
11 in coming together, Bank of America and
12 Countrywide, that culture could grow
13 throughout the United States. Thank you.
14 MS. BRAUNSTEIN: Thank you very
15 much. Thank you to the panel. We'll bring
16 the next panel forward.
17 Welcome. A couple of housekeeping
18 notes. We have a timekeeper who will signal
19 you when you have two minutes up, and then
20 when your time -- have two minutes left, and
21 when your time is up. You have five minutes
22 for your statement, and please begin your
131
1 statement with your name and organization so
2 we can get it on the record. We'll start with
3 Mr. Ruiz.
4 MR. RUIZ: Good morning. My name
5 is Michael Ruiz, and I'm the President of the
6 Northern California Supplier Development
7 Council, the regional affiliate in northern
8 California of the National Minority Supplier
9 Development Council. Our organization's role,
10 quite simply, is to promote minority business
11 development. We do this by certifying
12 minority-owned businesses, and looking to
13 connect them with procurement opportunities
14 with Fortune 1000 companies.
15 Bank of America is a strong
16 supporter of the network, both locally and
17 nationally, both through direct financing.
18 And, more importantly, through the provision
19 of economic opportunity for our certified
20 minority suppliers.
21 To give you a sense of the scope
22 of our organization locally, which can then be
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1 extrapolated nationally, in northern
2 California, the businesses that we've
3 certified represent 36,400 jobs, 23,700 of
4 which are held by minority persons. The
5 economic viability of our certified suppliers
6 is in excess of $1.6 billion annually in
7 revenue.
8 Bank of America's commitment to
9 working with our suppliers I think really
10 speaks to the issue of building sustainable
11 communities, and creating wealth in these
12 communities, be they of color, or not. I
13 think that as we look to bring diverse
14 suppliers together, one of the great
15 misconceptions about minority-owned businesses
16 is that they are all small, and that's not
17 necessarily the case. While 80 percent of our
18 portfolio does consist of businesses that have
19 $3 million or less in revenues annually, we do
20 have companies that do $500 million annually.
21 Our largest one does $1.2 billion annually, so
22 there's a definite sense of scope and
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1 sustainability.
2 I think that where Bank of America
3 really demonstrates much of its commitment to
4 the promotion of minority business development
5 is in looking to develop the capacity of
6 businesses so that they can begin to break
7 through a plateau that tends to occur right
8 around three to seven million dollars. That's
9 where businesses tend to begin to lose
10 traction in the marketplace. And without the
11 resources that Bank of America provides for
12 the continued development of these businesses,
13 our efforts, and in conjunction, their support
14 of our efforts in developing sustainable
15 communities, and in building wealth amongst
16 communities of color would fall short of where
17 it's at right now.
18 I think that in the grand scheme
19 of things, given the level of resources that
20 Bank of America consistently puts forth on
21 behalf of minority businesses and communities
22 of color, I think that our position is that we
134
1 are in support of the acquisition of
2 Countrywide, because there are some synergies
3 to be had there. I think there has been a
4 demonstrated commitment on behalf of Bank of
5 America to the creation of wealth and
6 sustainability in the community that it
7 serves.
8 MS. BRAUNSTEIN: Thank you very
9 much. Mr. Guevara.
10 MR. GUEVARA: Yes, ma'am. Thank
11 you very much. Thank you for the opportunity
12 to speak before you.
13 My name is Gil Guevara, and I'm
14 representing LULAC, League of United Latin
15 American Citizens. I bring greetings from our
16 President, and our Executive Director, and
17 greetings from the League of United Latin
18 American Citizens National Housing Commission.
19 The league was founded in 1929,
20 and is based in Washington, D.C. Our
21 organization's mission is to advance economic
22 condition, educational attainment, political
135
1 influence, health and civil rights of the
2 Hispanic population of the United States
3 through community-based programs. And we
4 operate in more than 700 local councils across
5 the United States, and Puerto Rico.
6 I'm testifying as a member of the
7 board of the National Housing Commission, and
8 Chair of the California LULAC Housing
9 Commission to present some suggestions
10 regarding Bank of America's proposed
11 acquisition of Countrywide Financial.
12 LULAC feels that the merger may be
13 a positive undertaking. I say this because I
14 understand that Bank of America did not
15 provide sub-prime lending loans, and we
16 certainly hope that Bank of America will work
17 closely with Countrywide to insure that their
18 customers, especially those that are behind in
19 their mortgage payments are treated honestly
20 and fairly.
21 Secondly, I would like to take
22 this opportunity to thank both Bank of America
136
1 and Countrywide for their support of LULAC
2 National organization, and the LULAC National
3 Housing Commission. We look forward to a long
4 and fruitful partnership with them. It is in
5 this vein that I am here to offer our insight
6 and suggestions.
7 The sub-prime mortgage squeeze has
8 been painful throughout the country, but the
9 pain has more acute here in California. We
10 urge that the Federal Reserve Bank continue
11 its diligent oversight, especially on this
12 merger.
13 Since the end of 2007, at least a
14 million borrowers that obtained sub-prime and
15 adjustable rate home mortgages from either
16 Countrywide or one of its subsidiaries are
17 either in foreclosure, or behind in their
18 payments. Given that this merger will have a
19 dramatic impact on those homeowners, the
20 Federal Reserve should insure a realistic plan
21 that is in place to prevent an ever-increasing
22 number of homeowners from losing their homes.
137
1 Based on Bank of America's current
2 community development lending and investment
3 goals, LULAC hopes that Bank of America will
4 continue these efforts in the new markets, and
5 with the future customers it will be absorbing
6 through this merger. We suggest the
7 following.
8 Bank of America should investigate
9 to see if a moratorium on certain Countrywide
10 mortgages is warranted, and if warranted, act
11 on it immediately to assist as many families,
12 as possible, to remain in their homes. This
13 effort does not only benefit the families, but
14 also benefits the neighborhoods, cities, and
15 states that are experiencing the high rate of
16 foreclosures. All efforts should be made to
17 explore all options available to help the
18 borrowers who are in danger of losing their
19 homes. To stay in their homes, whenever
20 possible, the priority should be to provide a
21 low fixed interest rate to eligible borrowers.
22 Those whose homes cannot be saved should be
138
1 assisted with self-lending short-sale or deed-
2 in-trust, deed-in-lieu of foreclosure, rather.
3 They should not have their credit score
4 damaged so they're able to rent a home for
5 their families. We're also concerned about
6 what happens to tenants who pay a rent and get
7 evicted because their landlord does not --
8 because the landlord goes into foreclosure.
9 Neighborhoods with occupied homes
10 are less likely to become eyesores and
11 dilapidated neighborhoods. Paying rent to the
12 bank while in the default process is a better
13 option than having vacant homes with broken
14 windows, unkept yards, and boarded up windows.
15 This will prevent distressed sales, and keep
16 home values from falling further.
17 As of the result of the
18 acquisitions over the past four years, Bank of
19 America has now had the most bank branches in
20 the U.S., and the most deposits. In 2007,
21 Bank of America reported $68.1 million
22 revenue, and an income of $15 billion.
139
1 Despite current yields or their decline in
2 earnings, Bank of America will continue to
3 make great gains in global markets. They will
4 be positioning themselves for rapid growth
5 when the current economic crisis abates.
6 Bank of America is bumping up
7 against the federal law prohibiting any bank
8 from controlling more than 10 percent of the
9 U.S. domestic deposits. The results of the
10 merger will create 11.8 percent of all bank
11 deposits nationally. Bank of America
12 dominance has not benefitted the consumers, as
13 is evidenced in their decision to be a leader
14 in raising consumer fees on ATM, check
15 cashing, overdrafts, and credit cards. It's
16 community development activities for
17 California's low income and Latino communities
18 are not reflected in the same proportional
19 numbers as their continued growth.
20 LULAC and other Latino-based
21 organizations serving the California low
22 income and Latino communities have not had a
140
1 very fruitful relationship with Bank of
2 America, but as a merger evolves and their
3 market experience, we look forward to
4 developing a more productive and strategic
5 partnership with Bank of America.
6 Any Federal Reserve Bank action
7 needs to look at not only helping the banking
8 industry and investors, but also to assist
9 families obtain sustainable home ownership.
10 Greater measures need to be instituted to help
11 the ground-level non-profit groups that are
12 working to help Latinos and low income
13 families stay in their homes. The outcomes
14 and conditions imposed by the Federal Reserve
15 and Congress need to reflect the urgency and
16 the massive impact of this crisis affecting
17 our families, neighborhoods. LULAC stands
18 ready to help in any way possible.
19 MS. BRAUNSTEIN: Thank you very
20 much. Thanks to the panel, and could the next
21 panel come forward, please. Good morning.
22 MR. EMERSON: Good morning.
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1 MS. BRAUNSTEIN: Just a few
2 housekeeping notes. We have a timekeeper, who
3 will show you signs when you have two minutes
4 left, and when your time is up. You have five
5 minutes for your statement, and please begin
6 your statement by stating your full name, and
7 your organization so we can get it on the
8 record. And with that, Mr. Emerson, do you
9 want to start?
10 MR. EMERSON: Thank you. I'll
11 keep it brief. Thank you for holding these
12 proceedings and allowing us the opportunity to
13 speak today. My name is Todd Emerson. I am
14 President and Chief Executive Officer of
15 Springboard Consumer Credit Management.
16 I'm here today in support of Bank
17 of America's application recently filed with
18 the Federal Reserve to acquire Countrywide
19 Financial. As a California 501(c)(3) non-
20 profit credit counseling agency, I feel I am
21 well-positioned to provide insight and a
22 unique perspective on Bank of America given
142
1 our past relationship.
2 I am aware that there are several
3 consumer-based organizations that are here in
4 opposition to this merger for various reasons,
5 but I would encourage you to look at all sides
6 of the argument before rendering your
7 decision.
8 Bank of America has been a
9 longstanding and trusted partner with our
10 organization, providing funding for our
11 programs with the sole purpose of providing
12 financial education to consumers in
13 California, as well as consumers on a national
14 level. They have been leaders in the industry
15 for several years in regards to financial
16 literacy programs and educating the consumers,
17 and have proven time and time again that the
18 consumers come first.
19 The most recent evidence of this
20 commitment to consumers was the grant of
21 $500,000 that Bank of America awarded the
22 California Reinvestment Coalition to help stem
143
1 foreclosure crisis of which my agency
2 benefitted. In addition to the grant money we
3 received from the California Reinvestment
4 Coalition, Bank of America also awarded my
5 agency an additional $65,000 in grant money to
6 help fund the opening of Springboard's new
7 foreclosure crisis center, known as the SHINE
8 Center, which stands for Sustaining Home
9 ownership In The Inland Empire. I am hopeful
10 that the Federal Reserve will see the benefit
11 of this acquisition, and will allow a smooth
12 transition that all consumers can benefit
13 from.
14 In conclusion, I would like to
15 point to the fact that Bank of America is a
16 very responsible lender, with by far the
17 lowest foreclosure rate in the industry. This
18 level of responsibility, oversight, and
19 professionalism would only benefit Countrywide
20 Financial when applied in a post-merger world.
21 Again, thank you for your time, and the
22 opportunity to speak.
144
1 MS. BRAUNSTEIN: Thank you very
2 much. Ms. Drayton.
3 MS. DRAYTON: Good morning. I am
4 Kim Drayton. I serve as the Director for the
5 Metroplex Economic Development Corporation, a
6 non-profit organization established by Bishop
7 T.D. Jakes to bridge the socio economic gap
8 that exists in historically under-served
9 communities. Once again, I'd like to thank
10 the Federal Reserve Board for the opportunity
11 provide comments in this public hearing. It
12 is truly an honor and a privilege to carry the
13 voice and the heart of the people to decision
14 and policy makers who have the power to make
15 a real difference.
16 As I did in the Chicago hearings,
17 I had an opportunity to sit through the
18 morning testimonies yesterday. I did this
19 because I believe that it is critical that in
20 order to provide effective solutions to
21 current economic crisis, we, in our individual
22 capacities, cannot operate in a vacuum. On a
145
1 day-to-day basis, I operate in a capacity that
2 allows me and my team to not only hear the
3 human reality of the crisis, but to have an
4 intimate perspective on the root causes of the
5 issues that are driving the crisis.
6 Based on the media coverage and
7 quite a bit of the testimony I've heard in
8 these proceedings, I would be inclined to
9 believe that the crisis is due to the
10 recklessness of lenders, and the victimization
11 of consumers. I contend that the reality lies
12 somewhere between the two.
13 While there is no doubt that many
14 lenders have acted in a reckless and
15 economically irresponsible manner contributing
16 to the current crisis, the more prevailing
17 issue impacting the crisis is the lack of
18 regulation and oversight to assure that
19 consumers, particularly in LMI communities are
20 properly equipped with the skills and tools
21 necessary to engage in a transaction as
22 sophisticated as signing a 30-year mortgage,
146
1 or maintaining a modified mortgage.
2 I hold a B.A. with a minor in
3 business, and a J.D., and I will assure you
4 that even with all of my skill and training,
5 there were many things that I needed to learn
6 prior to acquiring the mortgage on my home.
7 These are not skills that we learn in the
8 classroom, and for many of the LMI
9 constituents, they are not skills that are
10 learned at the dinner table, either. But this
11 does not mean that the LMI individuals and
12 families cannot achieve and maintain the
13 American dream of economic empowerment, or
14 responsible home ownership.
15 Behavioral scientists have
16 determined that it takes 21 days to form a
17 habit; however, many lenders only LMI and at-
18 risk borrowers to attend an eight-hour session
19 as a prerequisite to qualifying for various
20 loan programs. It appears that perhaps this
21 has not been the most effective strategy.
22 Based on the analysis of our
147
1 participants, which include LMI and minority
2 individuals and families, the changes are
3 behavioral. However, we have demonstrated
4 that these challenges can be overcome by
5 empowering and equipping them with practical
6 hands-on learn it today, use it today economic
7 life skills and strategies, and long-term
8 accountability that will help individuals and
9 families become overall good stewards of their
10 resources, and properly in the long run
11 responsible homeowners.
12 In 2006, our organization in
13 conjunction with Bank of America and Freddie
14 Mac piloted a one-day workshop to address the
15 home ownership gap in our community. Upon
16 evaluation of the outcome measurements, my
17 team determined that more substance follow-up
18 and evaluation were necessary to achieve real
19 results. In the second quarter of 2007, we
20 redesigned and reimplemented the initiative
21 and expanded it to five weeks, three hours per
22 session series, with follow-up and intensive
148
1 credit triage workshops that hold the
2 participant in our process until resolution.
3 That means until they achieve their goal.
4 In less than a year, our three-
5 person staff and a team of volunteers touched
6 over 1,000 individuals, produced 25 new home
7 owners responsibly, with another 20 currently
8 qualified, and dozens on track for potential
9 responsible home ownership in 2008. Over 52
10 percent of our attendees who desired to be
11 tracked have shown exponential improvement in
12 their credit performance, which is evidence of
13 improved personal financial management.
14 This program could not have been
15 possible without the leadership of Bank of
16 America's community impact executives, who
17 thought more of our vision than to simply
18 write a check. Their respect for and in
19 deference to our understanding of our
20 constituents, and their availability on every
21 level to provide hands-on resources to
22 participate in our sessions have yielded
149
1 results, and it is invaluable.
2 It is a model of partnership and
3 best practices that I pray Bank of America
4 duplicates whether they acquire Countrywide or
5 not. It is a model that I sincerely hope we
6 have an opportunity to introduce and unveil to
7 over 10,000 pastors and leaders as they
8 convene in Washington, D.C. in September.
9 This would be a tremendous opportunity to
10 present a platform for real change at the very
11 foundation of the issue. There is no doubt
12 that duplication of this model will multiply
13 the results, and positively impact the
14 economic well-being of individuals, and
15 families, which will ultimately impact LMI
16 communities, the economy, and the bottom line
17 in social responsibility of Bank of America
18 and Countrywide.
19 Finally, based on our experience
20 with Bank of America, I believe that they
21 possess the leadership and initiative to work
22 with community partners to devise innovative
150
1 solutions to proactively and retroactively
2 address the crisis, and the integrity to
3 evaluate, manage, and provide guidance to the
4 practices of Countrywide, if acquired. Thank
5 you.
6 MS. BRAUNSTEIN: Thank you very
7 much. Ms. Stanford.
8 MS. STANFORD: Hi. Millicent
9 Stanford, and I'm a member of Multi-cultural
10 Real Estate Alliance for Urban Change. I'm
11 also a real estate broker.
12 I am not staunchly against the
13 merger of Bank of America and Countrywide,
14 because that would be contrary to the benefit
15 of living in a capitalistic society. However,
16 in this wonderful society, we have such laws
17 as Anti-Trust. They prevent dangerous
18 monopolies. I'm concerned about a dangerous
19 monopoly. This would give Bank of America a 25
20 percent market share. I do not believe that
21 that would play well with inner city borrowers
22 that they, at this time, do not service in the
151
1 way of loans.
2 Now, I believe that without strict
3 safeguards, this merger would be akin to
4 McDonald's acquiring In and Out Burger, Burger
5 King, Wendy's, and Jack In The Box, and
6 starting to charge $25 for a burger. We
7 really need to have more information regarding
8 just exactly what Bank of America plans to do.
9 I have done research over the past
10 couple of days prior to this testimony, and my
11 opinion has swung back and forth as the media
12 has come out with the changes that Bank of
13 America plans for this merger. On yesterday,
14 I read an article that states they're going to
15 modify the loans of those Countrywide
16 borrowers who are in distress. That will
17 affect about 265,000 borrowers. Currently,
18 Countrywide has approximately 600,000
19 borrowers who will be in distress. And this
20 nation has an upcoming 2 million borrowers who
21 will be in distress.
22 I'm awfully concerned that the
152
1 borrowers are being demonized as
2 irresponsible, and that, in my experience and
3 my estimation, also as a loss mitigation
4 counselor, is not the case. That, in my
5 estimation and my experience is not the case.
6 What I'm really concerned about is taking a
7 step back and insuring that those borrowers
8 who have legitimate problems, those that are
9 borne out of the type of sub-prime loans that
10 were major to Countrywide's repertoire are
11 addressed, that we step back and give both of
12 those entities, both Bank of America and
13 Countrywide, time to look at it and come up
14 with a plan that will really look at what the
15 problems of the borrowers are.
16 We really need to back up and look
17 at that. So, therefore, I have a few
18 questions for you for Bank of America, and
19 Countrywide both. First of all, in the
20 interim period between the purchase, should it
21 happen, what will Countrywide do now about
22 their distressed loans? How are they
153
1 determining which people use their homes as a
2 piggyback or ATM machine, and drew all of the
3 equity out of it, did irresponsible things,
4 those borrowers have no business being helped.
5 They've already been helped. They helped
6 themselves to their equity, and they threw it
7 away.
8 The other thing is, knowing that
9 Countrywide has had such a almost unregulated
10 operation, who will insure that the plan that
11 Bank of America comes up with for this merger
12 will actually take place, or will it change to
13 being something other than what was proposed
14 to you? That's very important to me.
15 Also, I'd like to know what
16 exactly is Bank of America trying to do? Are
17 they attempting to extend their reach?
18 Because in the inner cities, the communities
19 that I serve, there are numerous Bank of
20 America branches, but will they be closed,
21 will the Countrywide branches be closed? Who
22 will serve the consumer? And because Bank of
154
1 America is so conservative, will they develop
2 programs and loans that will fit with the
3 responsible inner community borrowers? And
4 with that said, I would like to thank you for
5 allowing me to testify.
6 MS. BRAUNSTEIN: Thank you very
7 much, and thanks to the panel. We'll bring
8 the next panel forward. Okay. Mr.
9 Erlenbusch, it looks like you're by yourself.
10 MR. ERLENBUSCH: So that means I
11 get 20 minutes?
12 (Laughter.)
13 MS. BRAUNSTEIN: No, unfortunately
14 it doesn't work that way.
15 MR. ERLENBUSCH: Just thought I'd
16 try.
17 MS. BRAUNSTEIN: You get five
18 minutes, and the timekeeper will give you a
19 signal, and please begin your statement
20 whenever you're ready, and start by stating
21 your full name and your organization so we can
22 get it for the record. Thank you.
155
1 MR. ERLENBUSCH: Okay, thank you.
2 My name is Bob Erlenbusch. I'm the Executive
3 Director of the Los Angeles Coalition to End
4 Hunger and Homelessness. I'm also President
5 of the Board of Directors for the National
6 Coalition for the Homeless in Washington, D.C.
7 So I bring what I hope is a very unique
8 perspective after two days of hearing a range
9 of testimony, because I'm going to focus on
10 the link between foreclosures, the sub-prime
11 crisis, and homelessness.
12 The National Coalition for the
13 Homeless, about November, our Board of
14 Directors decided that 39 different states are
15 represented on the board, and that to the
16 persons, all our board members were seeing
17 shelters reporting an increase in homelessness
18 due to foreclosures, not only homeowners, but
19 particularly homeowners who are first time
20 home buyers, but increasingly people who,
21 through no fault of their own, were renters,
22 paid their rent on time, and unfortunately,
156
1 their landlord wasn't paying the mortgage, and
2 they became evicted. And shelters are
3 starting to fill up. I mean, it's no more
4 anecdotal any more. Sacramento Bee on Sunday
5 was filled with a story of shelters to
6 capacity, MPRs in a couple of stories in the
7 New York Times, et cetera.
8 The National Coalition completed a
9 survey, conducted a survey of national
10 breadth, 29 states, representatives from 29
11 states responded. Let me just give you a few
12 highlights. Sixty-one percent of the
13 respondents said that they saw an increase in
14 homelessness since the foreclosure crisis
15 began in 2007, so we, in Los Angeles, if you
16 don't know, just to put homelessness into
17 perspective, on any given night there's 80,000
18 homeless people who are homeless in L.A., in
19 California pushing 350,000, so what this has
20 done is add people to an already unbelievable
21 human crisis. Seventy-two percent of the
22 respondents provided multi-responses to the
157
1 question, "How do you know that there's been
2 an increase?" And was far from anecdotal.
3 Most of it was either media reports,
4 government reports, or clients coming in and
5 saying -- telling their stories.
6 The vast majority of the
7 respondents, 88 percent, almost 90 percent,
8 "Where were people staying after their
9 property had been foreclosed on?" Seventy-six
10 percent were people who were staying doubled
11 and tripled up with family and friends, as you
12 probably would suspect. Fifty-four percent
13 said that they were going to emergency
14 shelters, and an alarming 41 percent of
15 individuals and families said that after they
16 lost their homes, or their apartments, that
17 they were winding up on the streets of their
18 community. Over one-third said that people
19 were able to pay rent, which probably were
20 former homeowners, but a third said that they
21 were going to transitional shelter because
22 they had no money.
158
1 So the important thing about this
2 is that there's a clear link between the
3 foreclosure crisis, not only for homeowners,
4 but for renters and homelessness. And what I
5 would like -- I want to make three points,
6 briefly. One is that in this transaction, if
7 it moves ahead, that Bank of America must be
8 fully transparent. Unfortunately, I'm holding
9 a letter that was from the Federal Reserve
10 Bank of Richmond dated April the 10th, and I
11 can give this to you if you haven't seen it,
12 but I'm sure you have. Neither the Bank
13 Holding Company Act, nor the Board Regulation
14 Y requires any response from Bank of America.
15 That would be like telling presidential
16 candidates that they don't have to provide
17 their income tax returns on an annual basis.
18 It's not acceptable. In an era of skepticism,
19 Bank of America and Countrywide need to be
20 fully transparent.
21 Number two, a specific data
22 request, that we need to know, the community
159
1 needs to know, what are the loans held by
2 Countrywide that are now apartments. Before
3 you decide anything, we need to know what kind
4 of mess we're potentially getting ourselves
5 into. That banks are not, and have said over
6 and over again in many communities, banks are
7 not in the business of becoming landlords. I
8 would assume Bank of America is no exception;
9 but, nevertheless, they need to understand
10 what their portfolio is that has been brought
11 to them, and how many people potentially could
12 be evicted because Bank of America is not in
13 the business of being a landlord.
14 Number three, this is a request
15 from the National Coalition for the Homeless,
16 in conclusion, that Bank of America put up $25
17 million for a homeless prevention fund modeled
18 after the program in New York City, started by
19 the New York Times, for $1 million in New York
20 for first and last month's rent, security
21 deposits, and moving costs. Thank you.
22 MS. BRAUNSTEIN: Thank you very
160
1 much. We're going to adjourn for an early
2 lunch break until 12:15, and we will reconvene
3 at 12:15, and wrap up. Thank you.
4 (Whereupon, the proceedings went
5 off the record at 11:33 a.m., and went back on
6 the record at 12:21 a.m.)
7 MS. BRAUNSTEIN: All right.
8 Welcome, and thank you for coming today. A
9 few housekeeping notes. We have a timekeeper
10 that will show you when you have two minutes
11 left, and when your time is up. You have five
12 minutes for your statement. And please begin
13 your statement by stating your name and your
14 organization so we can get it on the record.
15 And we could start with you, MS. Lucey.
16 MS. LUCEY: Wonderful. Thank you.
17 Good afternoon. My name is Martha Lucey, and
18 I'm the President and CEO of By Design
19 Financial Solutions. By Design is a non-
20 profit organization with a mission of changing
21 lives through financial education. Founded as
22 Consumer Credit Counseling Service over 40
161
1 years ago, By Design provides credit and
2 housing counseling and education in 11 offices
3 throughout California.
4 By Design has a strong
5 relationship with Bank of America, and we've
6 worked collaboratively on numerous affordable
7 housing and financial education projects in
8 our various markets.
9 In early 2007, Bank of America was
10 the first major financial institution to
11 support the expansion of By Design's local
12 home ownership preservation in some of the
13 hardest hit markets in the nation, Stockton,
14 Modesto, Merced, Sacramento, San Bernardino,
15 Fresno, and Los Angeles. Bank of America
16 funded default housing counseling and outreach
17 to over 500 homeowners at a time when few
18 others were ready, willing, or able to do so.
19 In the fall of 2007, Bank of
20 America sponsored first time home buyer
21 classes targeted at low income buyers in the
22 Stockton area. And this helps to generate
162
1 interest and home purchases in a market that
2 is crippled by over-supply due to
3 foreclosures.
4 In the fall of 2007, Bank of
5 America sponsored two series of financial
6 firsts, delivered in conjunction with the
7 Fresno area Hispanic Chamber of Commerce, the
8 10-hour workshop series helps to educate at-
9 risk youth on how to navigate through their
10 first independent financial decisions.
11 In early 2008, Bank of America and
12 By Design began a targeted campaign to provide
13 financial education and workshops to the
14 Southeast Asian immigrant population in
15 Central California. This initiative includes
16 a live weekly one-hour radio show called Mong
17 Financial Solutions in the Mong language, and
18 is the only one of its kind in the nation to
19 provide financial information in the Mong
20 language.
21 Through these, and other joint
22 projects, Bank of America has displayed a
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1 commitment to understanding the needs of the
2 community at a local level. Bank of America
3 has also been instrumental in bringing
4 multiple partners together to work
5 collaboratively to develop impactful solutions
6 to address the need for more financial
7 knowledge in under-served communities.
8 The issues surrounding Bank of
9 America's servicing of Countrywide's clients
10 are certainly broad and complex. By Design's
11 experience with Bank of America's local
12 development efforts shows a community
13 commitment that will certainly be a crucial
14 part of reaching out to Countrywide's clients,
15 and to help them access the assistance that
16 they need. Thank you.
17 MS. BRAUNSTEIN: Thank you very
18 much. MS. Grajada.
19 MS. GRAJADA: It's a test.
20 MS. BRAUNSTEIN: Grajada.
21 MS. GRAJADA: Grajada.
22 MS. BRAUNSTEIN: Oh, okay. I was
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1 close.
2 MS. GRAJADA: Close, very close
3 but no cigar. My name is Anel Grajada, and
4 I'm the President of Local 721 of the Service
5 Employees International Union. And on behalf
6 of the 1.9 million SEIU members, their
7 families, and communities, I urge greater
8 scrutiny of Bank of America's proposed
9 purchase of Countrywide Financial Corporation.
10 The long-term implications of the
11 proposed deal raise serious policy and
12 regulatory questions that need to be
13 addressed. Regulators must insure that the
14 acquisition will benefit America's working
15 families, and the Bank of America and
16 Countrywide customers, in particular.
17 Countrywide's business practices
18 have already reeked havoc on America's
19 communities. Over 100,000 of Countrywide's
20 borrowers are currently in foreclosure, and
21 over 620,000 are delinquent on their
22 mortgages. The lender is the subject of many
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1 lawsuits, is being investigated by the FBI,
2 the U.S. Justice Department, and three
3 different State Attorney General offices in
4 Illinois, Florida, and California. And
5 according to the New York Times, Countrywide
6 is Exhibit A for the lax, and until recently,
7 highly lucrative lending that has turned a
8 once hot business ice cold, and has touched
9 off a housing crisis of historic proportions.
10 Bank of America must make
11 verifiable promises that it will not import
12 Countrywide's method of doing business as it
13 has indicated. While we welcome Bank of
14 America's recent pledge to help keep 265,000
15 troubled borrowers in their homes, this plan
16 still leaves out three out of five Countrywide
17 borrowers who are in danger of losing their
18 homes.
19 The announcement that BofA plans
20 to place Countrywide President and COO, David
21 Sambol, in charge of new mortgage lending unit
22 also raises some concern. Sambol is not
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1 merely a symbolic hire. He was the leader of
2 Countrywide's aggressive expansion in
3 adjustable rate mortgages, and other products
4 that facilitated the crisis. Rather than
5 repudiating one of the architects of the
6 crisis, what Bank of America has said is that
7 they offered him a $28 million retention
8 bonus. Bank of America must make commitments
9 to cleaning up Countrywide that can be
10 verified by independent community groups.
11 Working families have been
12 particularly hit hard by the foreclosure
13 crisis and the deteriorating economy.
14 Regulators have been very quick to point out,
15 excuse me, to bail out Wall Street firms like
16 Bear Stearns, but they've been slow to respond
17 to the needs of ordinary Americans.
18 I urge the Federal Reserve to
19 closely scrutinize this deal, and to insure
20 that Bank of America takes adequate protection
21 to protect the interests of working families
22 going forward. Thank you.
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1 MS. BRAUNSTEIN: Thank you very
2 much. MS. Goelzer.
3 MS. GOELZER: Thank you. Good
4 afternoon. My name is Mary Jo Goelzer. I'm
5 the Chief Operating Officer of Jamboree
6 Housing Corporation. Jamboree is a non-profit
7 provider of affordable workforce housing and
8 resident services with a corporate office in
9 Irvine, California, and regional offices in
10 Sacramento and San Diego.
11 Since 1990, with the help of our
12 many community partners, we have housed over
13 15,000 residents in more than 5,000
14 apartments, manufactured homes, and single-
15 family homes developed throughout the State of
16 California.
17 This past year, 20 million of our
18 46 communities, our resident services
19 division, Housing With Heart, has delivered
20 over 20,000 hours of free on-site programs and
21 services to approximately 3,500 residents.
22 None of this work is possible without the
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1 assistance of strong community partners, such
2 as Bank of America.
3 Over the past 18 years, Bank of
4 America has been instrumental in the growth of
5 Jamboree's portfolio to a market value of
6 almost $1 billion, and the fulfillment of its
7 mission to provide all Californians with the
8 opportunity to access affordable housing, and
9 resident services essential to improving the
10 quality of their lives.
11 Bank of America is more than just
12 a lender. Not only has Bank of America
13 provided Jamboree with construction loans,
14 permanent financing, and capacity-building
15 grants, they have provided us with volunteers,
16 leadership training for our senior staff
17 members, student interns we can mentor and
18 train to be the next generation of affordable
19 housing leaders, expert advice, and creative
20 solutions to the complexities of financing
21 affordable housing developments. And,
22 finally, services and programs for our
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1 residents, such as financial literacy classes
2 for adults and teens, and first time home
3 buyer programs.
4 Over the many years we have worked
5 with Bank of America, they've shown their
6 willingness to invest in neighborhoods where
7 others may fear to tread, and steely resolved
8 to live up to their financial commitments no
9 matter how difficult the situation.
10 During the course of a multi-year
11 neighborhood preservation program in Orange
12 County, Bank of America stayed the course when
13 one of our developments lost its general
14 partner and financial backer, failed to
15 complete its rehabilitation, and lost its
16 permanent financing. Bank of America played
17 a critical role and demonstrated great
18 patience during the year it took to
19 successfully restructure the existing
20 financing, reorganize the ownership, and
21 complete the development to everyone's
22 satisfaction. They clearly demonstrated that
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1 they were more than just a leader, they are a
2 good neighbor with a vested interest in the
3 success of that neighborhood. Thank you.
4 MS. BRAUNSTEIN: Thank you very
5 much. Mr. Song.
6 MR. SONG: Thank you. Jong Ho
7 Song, Executive Director of Korea Town Youth
8 and Community Center. Our mission is to serve
9 the need of Korea Town and provide multi-
10 services, including after-school programs,
11 mental health programs, environmental
12 programs, as well as low-income housing, and
13 community economic development, assistance to
14 small business owners in Korea Town.
15 I live in Burbank in 1998-1999,
16 that Bank of America funded $100,000 of -- the
17 start-up of API, Asian Pacific Islander Small
18 Business program, which is made up of five
19 different Asian Pacific Islander
20 organizations, and currently is still going
21 strong, serving thousands of small business
22 owners in technical assistance.
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1 Bank of America also created back
2 in the 80s, mid-80s, and they invested quite
3 a bit in Korea Town, and opened the doors for
4 a lot of young management. And they grew a
5 lot of young management teams where they
6 provide a lot of culturally and linguistically
7 sensitive customer service in Korea Town, when
8 they were very few Korean banks at the time.
9 I also believe that Bank of
10 America really understands the needs of the
11 community-based organizations. Currently,
12 they're providing a lot of technical
13 assistance, management training for many
14 different organizations, and I have no doubt
15 that Bank of America will continue to be very
16 responsible corporate citizen. Thank you.
17 MS. BRAUNSTEIN: Thank you very
18 much. Thank you to the panel.
19 MR. GORDON: So I get 20 minutes?
20 (Laughter.)
21 MS. BRAUNSTEIN: Unfortunately, it
22 doesn't work that way. But you do have your
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1 full five minutes. And please, when you
2 begin, state your name and organization so we
3 can make sure we get it on the record.
4 MR. GORDON: Sure. Do I start
5 now? Okay. Good. Good afternoon. My name is
6 Andrew Gordon, and I'm President of Arizona
7 Multi-Bank Community Development Corporation,
8 and we really appreciate the Federal Reserve
9 Bank conducting this public meeting. I'm here
10 to bring your attention to BofA's tremendous
11 leadership in creating and supporting Arizona
12 Multi-Bank, as well as strong involvement in
13 the community.
14 But before I get into my prepared
15 remarks, I thought I'd just talk a little bit,
16 because I don't want to lose it at the end.
17 I went to Countrywide's website. They have a
18 foreclosure section there, and it shows nearly
19 4,000 foreclosed properties in Arizona. And
20 Arizona has, as Patricia Duarte from NHS has
21 already discussed, Arizona's Foreclosure
22 Prevention Task Force, which the Fed has been
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1 really helpful to us. And they also helped us
2 on the Arizona RAO Non-Profit Coalition, and
3 these are for vacant foreclosed properties.
4 And what we're looking at is some way to
5 reverse engineer, if you will.
6 Now, we have foreclosed
7 properties, can we find people, the teachers,
8 the people working in hospitals, the people in
9 uniformed services and connect them to those
10 homes? In the past in Arizona, is was drive
11 until you qualify. But now we have all the
12 empty houses there, can we put houses in
13 connection with the people, the moderate
14 income people who really deserve that housing?
15 And that's what we'd like to do. It's kind of
16 a reverse engineered approach. It's a big
17 challenge, but that is the silver lining of
18 this crisis, in our opinion; is an opportunity
19 to connect people in their own communities
20 where their kids are going to schools, where
21 they're doing their shopping, to the houses
22 right there. And that's going to require some
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1 type of flexibility, I think, by the
2 regulators, as well as the banks, on how to do
3 that. And there are some suggestions that we
4 have locally, and we'd love to have that
5 conversation with BofA and Countrywide.
6 Countrywide has also already made
7 a commitment to local list in Arizona. I'm
8 Chairman of the Board for the Arizona office,
9 to look at these foreclosed properties, so we
10 appreciate that very much.
11 So now the rest is I just run
12 against the clock, don't I? Thank you.
13 Arizona Multi-Bank does not take exception to
14 the proposed acquisition. And, as you'll
15 hear, we have benefitted for over a decade and
16 a half from BofA's commitment to addressing
17 credit needs in the community that are
18 legitimate, but under-met by traditional
19 banks.
20 BofA's commitment to Arizona
21 Multi-Bank's efforts in the enterprise of
22 community development is above and beyond its
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1 substantial $3 million share of Arizona Multi-
2 Bank's total capitalization.
3 Furthermore, I've seen over the
4 years BofA play an increasingly significant
5 role in a wide variety of important community
6 development initiatives and forge meaningful
7 partnerships in the community.
8 By way of background, Multi-Bank
9 is a non-profit corporation certified by the
10 U.S. Department of Treasury as a CDFI.
11 Arizona Multi-Bank provides financing to small
12 businesses, affordable housing projects, non-
13 profit organizations. Our first loan in 1992
14 was to the development of a residential
15 facility for homeless families. Since,
16 Arizona Multi-Bank has directly provided
17 nearly $40 million to 369 projects throughout
18 the state. When combined with senior debt,
19 including BofA's, and equity from borrowers,
20 nearly $160 million has been invested in these
21 community development projects. Arizona
22 Multi-Bank's loans range from 500 bucks to a
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1 million dollars, 32 percent of the dollars go
2 to affordable housing, 28 percent to non-
3 profits, and 40 percent to small business.
4 Nearly two-thirds of our small business loans
5 are to minority and women-owned operations,
6 and over 70 percent of the small business
7 loans are $50,000 or less.
8 Multi-Bank also makes larger loans
9 to non-profit corporations, including those
10 serving affordable housing needs, charter
11 schools, special education programs, senior
12 citizens, and Native Americans. Several
13 strategic partnerships have enabled us to
14 reach into markets we might not otherwise
15 serve. Over the years, we have enjoyed
16 relationships with the Urban League, SBA
17 Supported Micro Lenders, Small Business
18 Development Centers, Arizona Loans for
19 Assisted Technology which serves folks with
20 disabilities, Habitat for Humanity, LISC, as
21 I mentioned, I'm the local chair, Fannie Mae,
22 Housing Trust Fund, and the CDFI Fund. These
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1 partnerships have complemented the powerful
2 resources of BofA and the other 17 banks that
3 have invested in Arizona Multi-Bank.
4 Since our founding, BofA has
5 played a central leadership role in shaping
6 the concept and development. And along with
7 the Arizona Bankers Association, pioneered our
8 equity equivalent capitalization that to this
9 day provides the financial muscle and
10 stability necessary for us to be effective in
11 our line of work over the long term. A
12 representative of BofA has been on our board
13 since our inception, and the current chair is
14 a BofA senior credit officer who has
15 volunteered first on our Investment Committee
16 when we started, and has now provided us
17 guidance for over 17 years.
18 In addition to representatives of
19 BofA volunteering for leadership positions on
20 our board and committees, many areas of
21 expertise have supported us, which include
22 loan executives, technical support, human
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1 resources, appraisals.
2 Now, earlier BofA actually
3 provided us our office space, and they are
4 still our largest in-kind contributor.
5 Arizona Multi-Bank also maintains operating
6 accounts with BofA, and their business banking
7 branch and clearinghouse support has been
8 totally essential to our operation.
9 Multi-Bank is proactive about
10 being reactive, and BofA has always been there
11 to expand Multi-Bank's financial products in
12 order to address and reach under-met needs in
13 the community. BofA has been there to work
14 with us on a range of important projects,
15 making the largest Boys and Girls Club in the
16 state, start-up lemonade stand at the Diamond
17 Back's baseball stadium, to hundreds of lots
18 for migrant farm workers for their homes in
19 the Mexican border community of San Luis, to
20 funding the first small business
21 administration, small business investment
22 company that had a new markets emphasis.
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1 BofA was there, and as one of the
2 largest banks in Arizona, I'm confident will
3 continue to be there. We are counting on
4 their commitment to Multi-Bank and the
5 community, and together with BofA and our
6 other financial community partners, we will do
7 more for the people and the economy of
8 Arizona. Is that it?
9 MS. BRAUNSTEIN: Yes.
10 MR. GORDON: Okay.
11 MS. BRAUNSTEIN: Thank you very
12 much.
13 MR. GORDON: Well, thank you for
14 the opportunity. We do have that, as they
15 call that silent tsunami of foreclosures in
16 Arizona.
17 MS. BRAUNSTEIN: Is that it?
18 MR. GORDON: That's it. Thank you
19 very much for the opportunity.
20 MS. BRAUNSTEIN: Well, thank you
21 for coming.
22 MR. GORDON: You bet.
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1 MS. BRAUNSTEIN: Okay.
2 MR. JOHNSON: Good afternoon,
3 everyone. My name is James Johnson, and I
4 represent Fed-Up USA.org. We are a grass
5 roots online group dedicated to restoring
6 truth in America's financial institutions.
7 We generally support merging
8 failing institutions with stronger rivals in
9 order to protect the banking industry. When
10 banking officials make bad investment
11 decisions that critically impair tier capital
12 requirements, the bank needs to be merged with
13 a stronger bank, or closed by regulators. The
14 bank's officers and senior executives should
15 be fired. Depositors' accounts can be moved
16 to another bank, subject to FDIC limitations.
17 The fear of banking officials losing their
18 jobs without the benefit of a golden parachute
19 is an effective means to insure that bankers
20 make sound loans.
21 We are adamantly opposed to any
22 taxpayer money being used to socialize the
181
1 losses when the previous profits were private.
2 And while it may be harsh, we are also opposed
3 to any bailouts for homebuilders, bond
4 insurers, investment banks, and yes, even
5 individual homeowners caught speculating in
6 the real estate market.
7 We are an equal opportunity
8 advocate of letting the makers of bad
9 financial decisions suffer the consequences.
10 If an individual lender, such as BofA, wishes
11 to renegotiate the loan terms with a
12 homeowner, we have no problem with that. But
13 neither the lender, nor the borrower should
14 receive any government incentive to do so.
15 BofA's proposed takeover of
16 Countrywide is only a symptom of a much larger
17 program, which is that after years of easy
18 money, we now have a massive credit crunch
19 triggered by real estate values plummeting.
20 The securitization of the mortgage industry
21 has allowed banks to underwrite a bewildering
22 array of toxic mortgages, including interest
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1 only and Option Arms, with little or no
2 downpayment required. Sound lending standards
3 have been destroyed by no docs, and stated doc
4 loans where fraud was so rampant that these
5 are routinely referred to as liar loans.
6 Real estate values have soared far
7 beyond the tried and true formula of three
8 times incomes. Yet, mathematically, we know
9 this is impossible for home prices to outstrip
10 income over the long term. Claims for prices
11 to rise 7 or 8 percent annually for years were
12 repeated by realtors, mortgage brokers, and
13 bankers in what can easily be described as a
14 Ponzi scheme. Now the bubble has burst.
15 The median price of an existing
16 single-family home in California decreased 29
17 percent from March 2007, to March 2008.
18 Notable economists, such as Robert Schiller,
19 are predicting even further decline. As a
20 result, defaults, walk-aways, jingle mail, and
21 foreclosures are rampant and growing.
22 In the first quarter of 2008,
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1 default notices nearly equaled all the
2 existing home sales in the State of
3 California. Massive losses by the financial
4 industry are clearly unavoidable. And don't
5 be fooled into thinking this is merely a sub-
6 prime problem. It will affect every mortgage
7 with little or no downpayment written in the
8 State of California since as early as 2004,
9 including Alt A and prime loans. The same is
10 true for many other states, such as Florida,
11 Nevada, and Arizona, as well.
12 This crisis will affect keylock
13 loans, it will also spill over into credit
14 card and auto loans. Commercial real estate
15 loans will not be immune, either.
16 The lack of transparency in the
17 current financial system makes it impossible
18 to know who is holding the losses, and how big
19 these losses will grow to be. Banks are
20 currently hiding losses through special
21 purpose entities, special investment vehicles,
22 and other off-balance sheet tricks. They are
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1 currently holding tens of thousands of
2 foreclosed homes on their balance sheets at
3 full loan value after sending them out for
4 sales with a reserve that was not met. Yet,
5 the value of these homes is not adjusted on
6 the bank's balance sheets to reflect an actual
7 market price, the highest bid offered.
8 Financial institutions are also
9 shifting hundreds of billions of dollars from
10 Level 2 to Level 3 asset characterization
11 solely because they do not like the market
12 price being quoted.
13 In addition, financial instruments
14 are being shifted from Held For Investment to
15 Held For Sale, simply to allow the bank in
16 question to avoid taking a mark-to-market on
17 that instrument. These securities that are
18 being marked model are really just being
19 marked up fantasies.
20 All of these actions overstate the
21 financial strength of banks resulting in
22 bloated and inaccurate tier capital ratios.
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1 This increases the risk of systemic collapse
2 by preventing banking regulators from either
3 directing that corrective measures be taken,
4 such as the suspension of dividends, and
5 raising of more capital, or in extreme cases,
6 closing the offending institution.
7 We currently do not know if BofA
8 is healthy enough to absorb Countrywide.
9 Therefore, we have no way of knowing whether
10 this merger is beneficial or not to the
11 public. What do both Bank of America and
12 Countrywide's balance sheet actually look
13 like? We just don't know.
14 There are many other details of
15 this merger that we simply do not know yet,
16 either. Many allegations of fraud have been
17 raised against Countrywide's loan origination
18 and servicing processes. Who gets that
19 liability if this merger goes forward? Is
20 BofA assuming that risk, or will they retain
21 the ability to send Countrywide, as a
22 subsidiary, into bankruptcy, if necessary,
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1 while retaining the servicing platform, and
2 taking none of that risk. How does BofA
3 justify retaining Mr. Sambol, given his
4 potential complicity in the alleged fraudulent
5 behavior by Countrywide when it was an
6 independent company?
7 What we do know is that we will
8 continue to see more meltdowns and implosions,
9 such as Bear Stearns, until we have full
10 disclosure potentially placing taxpayers on
11 the hook. The idea that the credit crunch is
12 over is pure fallacy. The Fed Fund's rate is
13 at 2.25 percent, Lieper is at 2.91; however,
14 Bank of America just sold 4 billion of
15 perpetual hybrid bonds that pay 8.1 percent
16 until 2018.
17 We also have Citi Group raising
18 money at 8.4 percent and Merrill Lynch raising
19 money at 8.6 percent, proving the crisis
20 continues. The array of --
21 MS. BRAUNSTEIN: Can you wrap up?
22 MR. JOHNSON: I'm almost finished.
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1 MS. BRAUNSTEIN: Okay.
2 MR. JOHNSON: The array of lending
3 programs, like the TAF, the TLSF, and the PDCF
4 have now burned through half of the Fed's
5 balance sheet in a failed attempt to restore
6 liquidity. The key to any banking system is
7 trust, and until this trust is restored
8 through fair dealing, transparent balance
9 sheets, and honest accounting, the credit
10 crisis will only get worse. Forced marriages
11 in the dead of night absent even a facade of
12 transparencies are appropriate for medieval
13 times, not 21st century America.
14 What we need is for the Fed to do
15 a better job regulating the banks, instead of
16 blindly cutting interest rates, and destroying
17 the dollar so we have fewer banks getting into
18 trouble initially.
19 I would also like to present a
20 White Paper written by Mr. Carl Denninger, one
21 of the founders of our organization, regarding
22 the mortgage mess, with 17 specific steps
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1 needed to restore confidence to our financial
2 system. Obviously, because of time, I have no
3 intention of going through these. I recognize
4 that --
5 mS. BRAUNSTEIN: You can leave
6 that at the table where you checked in, and
7 we'll make sure it's part of the record.
8 MR. JOHNSON: I would appreciate
9 that. If anyone else wants a copy of it, I
10 also have additional copies available. And I
11 would like to acknowledge that portions of
12 this speech were based on Mr. Denninger's work
13 with permission, and I do wish to acknowledge
14 that.
15 MS. BRAUNSTEIN: Thank you very
16 much.
17 Okay. Apparently, we have no
18 other speakers this afternoon, so we're going
19 to adjourn the meeting.
20 First, I just wanted to give a
21 both personal and professional thanks to the
22 Federal Reserve Bank of San Francisco, in
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1 particular, the L.A. Branch, for their
2 gracious hospitality, and for doing such a
3 good job on hosting this. It's a lot of work,
4 and we want to give a special thanks to Scott
5 Turner and Joy Hoffman and their team, and
6 John Olson, in particular. And also thank the
7 L.A. Branch, their security forces who have
8 done such a great job, and everyone here at
9 the branch who has done a good job of hosting
10 the public, and making everybody feel welcome.
11 And with that, we will adjourn.
12 (Whereupon, the proceedings went
13 off the record at 12:50 p.m.)
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Last Update:
March 15, 2017