[Senate Hearing 108-453]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-453

                           PREDATORY LENDING:
    ARE FEDERAL AGENCIES PROTECTING OLDER AMERICANS FROM FINANCIAL 
                              HEARTBREAK?

=======================================================================

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                           FEBRUARY 24, 2004

                               __________

                           Serial No. 108-29

         Printed for the use of the Special Committee on Aging



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                            WASHINGTON : 2003
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                       SPECIAL COMMITTEE ON AGING

                      LARRY CRAIG, Idaho, Chairman
RICHARD SHELBY, Alabama              JOHN B. BREAUX, Louisiana, Ranking 
SUSAN COLLINS, Maine                     Member
MIKE ENZI, Wyoming                   HARRY REID, Nevada
GORDON SMITH, Oregon                 HERB KOHL, Wisconsin
JAMES M. TALENT, Missouri            JAMES M. JEFFORDS, Vermont
PETER G. FITZGERALD, Illinois        RUSSELL D. FEINGOLD, Wisconsin
ORRIN G. HATCH, Utah                 RON WYDEN, Oregon
ELIZABETH DOLE, North Carolina       BLANCHE L. LINCOLN, Arkansas
TED STEVENS, Alaska                  EVAN BAYH, Indiana
RICK SANTORUM, Pennsylvania          THOMAS R. CARPER, Delaware
                                     DEBBIE STABENOW, Michigan
                      Lupe Wissel, Staff Director
             Michelle Easton, Ranking Member Staff Director

                                  (ii)

  
?

                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator Larry E. Craig......................     1
Statement of Senator Debbie Stabenow.............................    23

                                Panel I

David Wood, director, Financial Markets and Community 
  Investments, U.S. General Accounting Office, Washington, DC....     2
John C. Weicher, assistant secretary of Housing/Federal Housing 
  Commissioner, U.S. Department of Housing and Urban Development, 
  Washington, DC.................................................    24
Howard Beales, director, Bureau of Consumer Protection, U.S. 
  Federal Trade Commission, Washington, DC.......................    33

                                Panel II

Gavin Gee, director, Idaho Department of Finance, Boise, ID......    51
Lavada E. DeSalles, member, Board of Directors, American 
  Association of Retired Persons, Washington, DC.................    65
Veronica Harding, Philadelphia, PA...............................    73

                                APPENDIX

Statement of George Brown, senior vice president of the Center 
  for Responsible Lending........................................   107
Statement of the American Securitization forum...................   116
Statement of the Bond Market Association.........................   125
Testimony of the Coalition for Fair and Affordable Lending (CFAL)   131
Testimony submitted by the Consumer Mortgage Coalition...........   149
Consumer Protection Report submitted by GAO......................   179

                                 (iii)

  

 
PREDATORY LENDING: ARE FEDERAL AGENCIES PROTECTING OLDER AMERICANS FROM 
                         FINANCIAL HEARTBREAK?

                              ----------                              --



                       TUESDAY, FEBRUARY 24, 2004

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:02 a.m., in 
room SD-628, Dirksen Senate Office Building, Hon. Larry Craig 
(chairman of the committee) presiding.
    Present: Senators Craig and Stabenow.

       OPENING STATEMENT OF SENATOR LARRY CRAIG, CHAIRMAN

    The Chairman. Good morning, everyone. The Senate Special 
Committee on Aging will be convened. Our ranking member, 
Senator Breaux wanted to be here, but he had a conflict in his 
committee schedule, which is quite typical this hour of the day 
with many of our colleagues.
    Anyway, I want to thank you all for attending the Special 
Committee on Aging hearing this morning. Four years ago, this 
Committee held a hearing on equity predators, which treated 
this type of lending fraud in a very broad context. However, 
since then, we felt this subject merited further sustained and 
comprehensive inquiry, particularly in the context of home real 
estate assets belonging to our nation's seniors. To that end, 
in the fall of 2002, we commissioned a bipartisan study by the 
General Accounting Office into the problems presented by this 
type of fraud. The study was to include the Federal and State 
efforts in enforcement and education in this area as well as 
the effectiveness of such efforts, particularly on senior 
citizens.
    This study has taken a year to complete and represents only 
the initial step in this oversight endeavor. Accordingly, 
today, we narrow the focus on the ruthless stripping of seniors 
of their lifelong, hard-earned equity in homeownership by 
unscrupulous brokers and lenders. Senior citizens seek to live 
comfortably in their advancing years but also must meet the 
rising financial costs of medical care and everyday living 
expenses. To meet these expenses, they often tap into the 
equity of their homes. In so doing, all too often, through are 
taken advantage of by those types of predators.
    Today, we explore the types of Federal agency efforts as 
well as State efforts and their effectiveness in addressing the 
problems under the myriad of laws already in place. We will 
begin with witnesses from the General Accounting Office and two 
Federal agencies involved in the noble combat of this kind of 
fraud.
    The Chairman. Our first witnesses will be David Wood, 
director of Financial Markets and Community Investment of the 
General Accounting Office. He will be joined by John Weicher, 
assistant secretary for Housing, Federal Housing Commissioner 
at HUD and Howard Beales.
    Mr. Beales. Beales.
    The Chairman. Beales; thank you, Director, FTC's Bureau of 
Consumer Protection.
    Our second panel will be that of Gavin Gee, past-president 
of the National Association of State Bank Examiners and Lavada 
DeSalles, member of the Board of Directors, AARP and Ms. 
Veronica Harding of Philadelphia, PA, a victim of such a 
predator who has come here today to share her important 
message.
    We thank you all for joining us. We will start with our 
first panel. Again, to all of you thank you for being here. Mr. 
Wood, if you would proceed, please.

   STATEMENT OF DAVID WOOD, DIRECTOR, FINANCIAL MARKETS AND 
    COMMUNITY INVESTMENTS, U.S. GENERAL ACCOUNTING OFFICE, 
                         WASHINGTON, DC

    Mr. Wood. Thank you, Mr. Chairman. As we note in our report 
to you and Ranking Member Breaux, predatory home mortgage 
lending has no precise definition, rather, it refers to a range 
of unsavory practices. Our report, which you are releasing 
today, addresses five aspects of this complex issue: first, how 
elderly homeowners, in particular, may be susceptible to 
abusive or predatory lenders; second, the actions of Federal 
agencies to address predatory lending practices; third, an 
overview of State laws on the subject, with case examples from 
two States; fourth, how the secondary market for home mortgage 
loans can affect predatory practices; and fifth, the roles of 
consumer education, mortgage counseling and disclosure 
requirements in fighting such practices.
    In the interests of time, I will focus my remarks on the 
first two aspects. A number of factors may make the elderly 
especially susceptible to predatory or abusive lenders. First, 
older homeowners on average have more equity in their homes, 
making them inviting targets to lenders looking to strip equity 
from unsuspecting borrowers. Second, elderly homeowners often 
live in older homes and are more likely to need someone to do 
repairs for them. This makes them particularly vulnerable to 
lenders and home improvement contractors who collaborate to 
swindle. Third, physical impairments associated with aging such 
as declining vision, hearing or mobility can restrict elderly 
consumers' ability to obtain and compare credit information. 
Finally, some elderly people lack social and family support 
systems, potentially increasing their susceptibility to 
unscrupulous lenders who market loans through home visits.
    In response to concerns about predatory lending, Federal 
agencies have taken a number of actions that generally fall 
into three categories. First, Federal agencies have conducted 
or funded education initiatives to increase consumers' 
financial literacy. Some of this effort is focused on the 
elderly population; for example, the Department of Justice 
offers guidance warning about financial crimes against the 
elderly.
    However, Federal consumer protection laws that have been 
used to address predatory lending generally do not have 
provisions specific to elderly persons. Accordingly, the other 
two types of actions by Federal agencies: first, revising 
regulations or guidance applicable to lending institutions; and 
second, undertaking enforcement actions against certain lenders 
are designed to protect all consumers.
    We asked eight Federal agencies involved in oversight or 
law enforcement among mortgage lending institutions to identify 
actions they have taken to address predatory lending. These 
eight agencies included the five financial institution 
regulators, that is, the Federal Reserve, the Office of the 
Comptroller of the Currency or OCC, the Office of Thrift 
Supervision, the Federal Deposit Insurance Corporation and the 
National Credit Union Administration. The others were the 
Federal Trade Commission, the Department of Justice and HUD.
    The five banking regulators reported little evidence of 
predatory lending activities among the institutions they 
supervise. Accordingly, only one, the OCC, reported taking a 
formal enforcement action. The regulators have, however, issued 
guidance to their institutions about predatory lending and 
subprime lending in general. Further, the Federal Reserve 
tightened its regulations implementing the Home-Ownership and 
Equity Protection Act, the only Federal law specifically 
directed at predatory lending practices, and revised other 
regulations to require that lenders provide more data with 
which to analyze lending patterns.
    The Federal Reserve also oversees financial and bank 
holding companies, some of which own non-bank mortgage lending 
subsidiaries. Because these companies are engaged in subprime 
lending, our report recommends that the Congress clarify the 
Federal Reserve's authority to monitor and examine their 
lending activities.
    Among the remaining three Federal agencies, the Federal 
Trade Commission has filed about 20 complaints since 1998 
against mortgage lenders or brokers. HUD has taken steps to 
avoid abuses involving mortgages insured by the Federal Housing 
Administration, or FHA. While abuses such as flipping FHA 
properties, that is, repeatedly reselling them at escalating 
prices, are ultimately directed at bilking the lender or 
insurer, they may also harm innocent homebuyers. Finally, the 
Department of Justice has taken two major enforcement actions 
against lenders under the fair lending laws.
    Mr. Chairman, that concludes my prepared statement, and I 
will be happy to respond to any questions you have. Thank you.
    [The prepared statement of Mr. Wood follows:]

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    The Chairman. Mr. Wood, thank you very much for that 
statement.
    We have been joined by another of our colleagues and a 
member of this Committee, Senator Stabenow. So, Secretary 
Weicher, before we go to you, I am going to ask if the Senator 
has any opening comments, and then we will proceed.

          OPENING STATEMENT OF SENATOR DEBBIE STABENOW

    Senator Stabenow. Thank you. I first welcome our panelists 
and want to particularly thank you for this hearing. This is a 
very important topic. I sit on the Banking, Housing and Urban 
Affairs Committee and since coming to the Senate 3 years ago 
have spent a great deal of time on this issue, and recognize, 
in fact, it was one of the first issues brought to me after 
becoming a member of that Committee from the people of 
Michigan.
    I would appreciate if I could put a statement, my prepared 
opening remarks into the record.
    The Chairman. Certainly.
    Senator Stabenow. I would just add that I think there are a 
number of things that we can do together, and one of the 
positive steps that has already been taken is that in the Fair 
Credit Reporting Act, which we passed overwhelmingly last fall, 
a title of mine that I cosponsored along with Senator Enzi in 
the Committee is on financial literacy, and we specifically 
placed that in the new law to focus on a coordinated effort on 
financial education, specifically to help address some of the 
issues of predatory lending.
    I realize it is a larger issue. It is complicated. There is 
a lot that needs to be done on the enforcement end, but we also 
know that good consumer information, consumers being able to 
ask the right questions and being able to get good answers 
before they make decisions is a part of the whole issue.
    So, I am hopeful that this section, this new title of the 
act, will be enforced quickly, and we will be able to use that 
as part of the way we begin to address this very serious issue. 
Thank you.
    [The prepared statement of Senator Debbie Stabenow 
follows:]

             Prepared Statement of Senator Debbie Stabenow

    Thank you, Senator Craig, for convening this hearing on 
predatory lending. Americans have a right to expect their 
national legislators to be concerned about and take action to 
thwart abusive lending practices.
    We know that home ownership provides basic financial 
security for Americans at all income levels. Homeowners hold an 
asset that most often increases in value, that provides 
stability in uncertain times; and that can be bequeathed to 
heirs. We also know that most mortgage lenders and brokers are 
upstanding businesspeople. But there are some unscrupulous 
lenders who prey upon naive consumers and take advantage of 
their limited financial understanding, ultimately jeopardizing 
consumers' basic financial security.
    Sadly, predatory lending is a practice that 
disproportionately targets older adults. Victims of this type 
of financial abuse often find themselves paying much higher 
interest rates, losing their equity through unnecessary and 
repeated refinancings. Many even end up losing their homes.
    Members of Congress have heard horror stories from victims 
of predatory lendings as well as potential solutions from 
different representatives of the lending industry. As a member 
of the Banking and Housing Committee, I have pushed for greater 
financial education, enhanced enforcement of existing anti-
predatory laws, and strong new protections against unethical 
yet technically legal practices. I will continue to do so.
    Thank you again, Senator Craig, for holding this important 
hearing. I look forward to hearing testimony from these 
knowledgeable witnesses and to working toward ending the unfair 
practice of predatory lending.

    The Chairman. Senator, thank you for your leadership in 
this area. We hope you will take this study over to the 
Committee along with the record that I think we can build here 
that will advance these issues for you.
    Thank you very much. Now, let us turn to John Weicher, 
assistant secretary for Housing. Welcome before the Committee, 
John.

 STATEMENT OF JOHN C. WEICHER, ASSISTANT SECRETARY OF HOUSING/
 FEDERAL HOUSING COMMISSIONER, U.S. DEPARTMENT OF HOUSING AND 
               URBAN DEVELOPMENT, WASHINGTON, DC

    Mr. Weicher. Thank you, Mr. Chairman and thank you, Senator 
Stabenow for the opportunity to testify this morning on the 
efforts of the Department of Housing and Urban Development to 
combat predatory lending and protect senior citizens and, 
indeed, all Americans against unfair and deceptive lending 
practices.
    Meeting the housing needs of senior citizens while 
protecting them from predatory lending practices is a high 
priority at the Department. I would like to submit my prepared 
statement for the record and just discuss a few aspects of our 
efforts with you this morning.
    The Chairman. All full statements will become a part of the 
record. Thank you.
    Mr. Weicher. HUD's authority to address predatory lending 
essentially extends only to FHA loans and FHA lenders, so I 
would like to start by describing our mortgage insurance 
activity.
    Our typical homebuyer is a young, first-time homebuyer, 
often a minority household. In fiscal year 2003, FHA insured 
600,000 home purchase mortgages. Of these 80 percent were to 
first-time homebuyers, and 40 percent were to minority 
households. About 1 percent of FHA's home purchase borrowers 
are elderly.
    But FHA does have one important insurance program that 
specifically serves the elderly. This is the home equity 
conversion mortgage program. HECMs are also known as reverse 
mortgages. They let elderly homeowners convert the equity into 
their homes into income that can be used to pay for living 
expenses. FHA accounts for about 95 percent of the reverse 
mortgage market.
    The HECM program started as a demonstration in 1990. We now 
have insured 90,000 loans overall. In each of the last 2 years, 
we have set records. We endorsed over 13,000 loans in 2002 and 
then set another record in 2003 with over 18,000 loans. Three-
quarters of the borrowers are aged 70 or over. There are even 
some borrowers older than 90. We recognize that seniors with 
considerable equity in their homes can be prime targets for 
predatory lending. FHA-insured HECMs give seniors an 
alternative. We require that seniors considering a HECM loan 
receive counseling, and we have worked hard to ensure that the 
counseling they receive is of high quality.
    During the housing counseling session, the senior learns 
how a HECM works, how much he or she would receive through a 
HECM, how much the transaction will cost, what are the 
financial alternatives and what are the tax and estate 
consequences, among other things.
    One of HUD's major partners in our effort to educate 
seniors about reverse mortgages is the AARP Foundation. The 
foundation sponsors the reverse mortgage education project, 
which has been the leading consumer voice in the reverse 
mortgage market for over a decade, providing in-depth, 
objective consumer information and promoting high quality 
independent consumer counseling on reverse mortgages and other 
alternatives.
    During 2003, the project doubled the size of its counseling 
network, and this year, the project has received a 150 percent 
increase in funding from HUD, from $750,000 in 2003 to $1.9 
million this year. HUD funds AARP through our Housing 
Counseling Grant Program. Housing counseling funds have doubled 
in this administration, from $20 million to $40 million, and 
President Bush is proposing to increase our Housing Counseling 
Grant Program to $45 million in this year's budget, another 
12.5 percent increase.
    We know that housing counseling works. Families who receive 
counseling are better able to select the best mortgage for 
their needs and better able to manage their finances so they 
can remain in their homes. Housing counseling has proven to be 
an extremely important activity to educate consumers on how to 
avoid abusive lending practices.
    In my formal statement, I discuss other HUD activities to 
combat predatory lending, including new regulations, some 
addressing the HECM program specifically and others addressing 
all of our borrowers, and also vigorous enforcement of FHA 
procedural violations by lenders and others. They protect all 
FHA homebuyers, elderly and non-elderly alike.
    In the interests of time, I will skip over these at this 
point, but I would like to mention that HUD works closely with 
State and local governments to carry out enforcement actions 
against business partners engaged in predatory lending. We also 
work with coalitions of community groups to help FHA-insured 
borrowers who have been victimized by predatory practices.
    We have tripled our enforcement staff over the last year. 
On a national level, HUD's Inspector General continues to work 
closely with law enforcement in many States, notably New York, 
New Jersey, Pennsylvania, Illinois and Arizona, to target 
unscrupulous lenders and better combat abusive lending 
practices.
    HUD also works closely with the FTC to prosecute lenders 
who engage in illegal practices. Some of these cases are 
described in both my prepared testimony and the statement of 
Mr. Beales and also in the GAO report.
    I hope this discussion of our efforts and accomplishments 
has made clear that the Department is aggressively policing 
program participants and imposing significant sanctions on 
business partners found to be violating our procedures or 
otherwise engaged in abusive or deceptive behavior. The 
administration remains firmly committed to protecting seniors 
and all consumers against predatory lending practices.
    We are happy to have this opportunity to discuss our 
activities and look forward to working with you to strengthen 
consumer protections against predatory lending.
    [The prepared statement of Mr. Weicher follows:]

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    The Chairman. Mr. Secretary, thank you very much. Now, let 
us turn to Howard Beales, director, FTC'S Bureau of Consumer 
Protection. Director Beales, welcome.

   STATEMENT OF HOWARD BEALES, DIRECTOR, BUREAU OF CONSUMER 
   PROTECTION, U.S. FEDERAL TRADE COMMISSION, WASHINGTON, DC

    Mr. Beales. Thank you very much, Mr. Chairman and Senator 
Stabenow.
    I appreciate the opportunity to appear before you today on 
behalf of the Commission to discuss our efforts to combat 
unfair and deceptive practices in the subprime mortgage lending 
industry.
    The damage that dishonest and unscrupulous lenders can 
cause to consumers of all ages, loss of one's life savings or 
even one's home, is potentially catastrophic. The Commission 
has maintained a vigorous enforcement program, achieving 
notable successes in halting illegal practices and returning 
hundreds of millions of dollars to defrauded borrowers. At the 
same time, the agency has been careful to avoid discouraging 
honest subprime lenders from making credit available to 
consumers.
    My testimony today will discuss the subprime lending market 
and the Commission's enforcement and education efforts. In 
recent years, the subprime mortgage lending market has grown 
dramatically as part of a trend in this country toward greater 
availability of credit to credit-impaired consumers. This 
development has been fueled by the use of risk-based pricing, 
through which creditors fine-tune the terms of a loan offer to 
a consumer's specific credit history.
    No longer are credit-impaired consumers shut out from the 
credit market. Instead, they are offered credit, albeit on 
terms less favorable than those offered to consumers with 
stronger credit histories. The expansion of credit availability 
that risk-based pricing makes possible greatly benefits 
consumers, providing more choices at more reasonable rates. 
Subprime borrowers can now obtain needed credit when previously 
they did not qualify at all.
    Of course, subprime loan terms are less favorable than 
those available to prime borrowers, but higher rates are 
appropriate when commensurate with the risks involved. For the 
subprime market to operate effectively, it is critical that it 
be free of illegal practices. As this market has emerged, 
however, some lenders and loan servicers deceived or defrauded 
consumers. The Commission, working with its Federal and State 
partners, has used its law enforcement tools successfully to 
stop such illegal conduct.
    The Commission has jurisdiction over lenders and servicers 
other than banks, savings and loan institutions and Federal 
credit unions. Our primary enforcement tool is the FTC act, 
which broadly prohibits unfair or deceptive practices. In 
recent years, we have settled or prosecuted cases against 20 
subprime mortgage companies of various sizes and located in 
different parts of the country. Several of these cases have 
resulted in large monetary judgments.
    Let me highlight three of the Commission's most recent 
enforcement efforts. In September 2002, we reached a settlement 
with the Associates and its successor, Citigroup. At one time, 
the Associates was the largest subprime lender in the United 
States. The Commission alleged that it lured consumers into 
high rate loans by deceiving them about their true costs and by 
deceptively packing single premium credit insurance into the 
loan.
    At the time, the $215 million settlement was the largest 
redress order in FTC history, by far. In another recent 
settlement with First Alliance Mortgage Company, the FTC and 
others, including six States, private plaintiffs and the AARP 
alleged that the company promised consumers loans with no up 
front fees. In reality, the companies charged exorbitant 
origination fees, typically 10 percent but sometimes 20 percent 
of the amount of the loan.
    Most recently, last November, the Commission and the 
Department of Housing and Urban Development announced a 
settlement with Fairbanks Capital Corporation, one of the 
country's largest third-party subprime loan servicers. Among 
other things, the Commission charged that Fairbanks did not 
post payments until after the payment deadline had expired and 
then imposed late fees and other charges as a result.
    The Commission also alleged that Fairbanks charged 
borrowers for homeowners' insurance even when they already had 
insurance in place. FTC redress funds for these three 
settlements alone amount to $345 million, a remarkable 
achievement on behalf of aggrieved borrowers. Enforcement is 
important, but the first line of defense against fraud and 
deception is educated consumers who shop for the best deal. The 
Commission has implemented extensive programs to educate 
consumers about financial literacy generally and subprime 
borrowing specifically.
    In October 2003, the Interagency Task Force on Fair 
Lending, of which the Commission is a part, published a 
brochure called Putting Your Home on the Loan Line is Risky 
Business. This brochure discussed the risks of home equity 
loans and makes recommendations to help borrowers avoid those 
risks. Also, earlier this month, when we mailed over 800,000 
redress checks to borrowers in the Associates case, we included 
a bookmark containing tips on shopping for a home equity loan.
    We recognize that the American population is aging, and 
issues facing older consumers are therefore a priority for the 
agency. A recent study found that the population of subprime 
borrowers tends to be older than the population of prime 
borrowers. Therefore, while older Americans may have benefited 
more from the expansion of the subprime market, they may have 
also suffered more from illegal lending practices.
    At the FTC, we are committed to preserving the increased 
access to credit that the subprime market has made possible 
while illegal practices that deceive or defraud consumers. 
Through our enforcement and consumer education, we continue to 
work to protect consumers of all ages.
    Thank you and I would be happy to answer questions.
    [The prepared statement of Mr. Beales follows:]

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    The Chairman. Director, thank you very much for that 
statement.
    We will now turn to questioning.
    Mr. Wood, in the efforts of the General Accounting Office, 
did you find a central data base for information containing 
government investigations, enforcement actions and other 
efforts to combat predatory lending?
    Mr. Wood. There is no central data base of enforcement 
actions that we are aware of.
    The Chairman. As a result, your report was a matter of, if 
you will, fanning out and investigating all of those areas 
where Government has that authority.
    Mr. Wood. Right, we contacted each agency separately.
    The Chairman. Given GAO's recommendation and what the State 
of Georgia experienced, has the agency done any serious 
investigation of the possible adverse effects upon subprime 
lending markets among providers and consumers?
    Mr. Wood. I am not sure I understand your question with 
respect to the Georgia law.
    The Chairman. In looking at that law----
    Mr. Wood. Yes
    The Chairman [continuing.] I guess what I am saying have 
you investigated the possible adverse effects upon a subprime 
lending market, both for providers and consumers?
    Mr. Wood. We provide some information in our report about 
the Georgia law and what happened there and the changes that 
occurred. I do not know that we have a section specifically on 
the impact, and we certainly did not assess any impacts on our 
own.
    The Chairman. You did no assessment there.
    Mr. Wood. That is correct.
    The Chairman. OK; that is fine.
    How closely have the Federal regulatory agencies 
coordinated their campaign in educating the public in general 
and seniors in particular about predatory lending, especially 
in matters of real estate? Obviously, we have heard an effort 
now going on at the FTC and others.
    Mr. Wood. Right.
    The Chairman. Has there been an overall coordinated effort, 
in your analysis?
    Mr. Wood. There has not been a single overall coordinated 
effort. Each of the agencies is doing different things. 
However, there are certain mechanisms that provide for 
coordination. There is an Interagency Fair Lending Task Force 
that established a working group on predatory lending 
specifically, and just recently, that group published a 
brochure. I think it is called Putting Your Home on the Line is 
Risky Business.
    The Chairman. Just mentioned, yes.
    Mr. Wood. That came out of a cooperative effort among the 
agencies.
    The Chairman. Good, good. Well, thank you very much.
    Secretary Weicher, what is HUD's view on the newly created 
Financial Literacy and Education Commission chaired by the 
Secretary of the Treasury?
    Mr. Weicher. Well, we are certainly active participants in 
that commission, Mr. Chairman, and I am Acting Secretary 
Jackson's alternate on that Commission, and I attended the 
first meeting a month ago at his request, and the Commission 
has established subcommittees to address issues of publicizing 
and making information public, a Website, an 800 number, and 
those committees are starting to meet.
    We are also very active as members of the Interagency Task 
Force on Fair Lending that Mr. Beales mentioned and that Mr. 
Wood mentioned. So we are participating in both of those 
efforts.
    The Chairman. OK; what is HUD's view of the recommendation 
that GAO has made regarding the monitoring of the subprime 
lending market by the Board of Governors of the Federal 
Reserve?
    Mr. Weicher. Well, we have not taken a position on that, 
but we certainly think that the subprime market, as Mr. Beales 
said and I think the GAO report says, embraces more than 
predatory lending. The important procedure is to attack 
predatory lending without limiting the ability of borrowers to 
obtain mortgages which are not predatory but which reflect the 
risks that they are imposing on lenders.
    The Chairman. OK; Director Beales, you have cited examples 
of enforcement. Does the FTC have an estimate of how much 
predatory lending in the real estate markets is costing the 
citizens of this country today?
    Mr. Beales. We do not. We do not have any reliable basis on 
which to estimate either the total or the total for any age 
group.
    The Chairman. In the kind of investigative work you have 
done and those settlements that you have arrived at, how long 
did it take to put that kind of effort together and bring it to 
completion?
    Mr. Beales. It varies by case. Some of them are more 
straightforward than others. Stewart Financial was probably 4 
or 5 months before we filed, something like that. Other cases, 
like the Associates, were much more complicated cases; probably 
took a year or more to put together before we were ready to 
file a complaint.
    The Chairman. So they vary, of course, as you have said, 
depending on the character of the case.
    Mr. Beales. Depending on the character, yes, and depending 
on how clear--what we typically see in our enforcement actions 
is misrepresentations about the terms of the loan.
    The Chairman. Yes.
    Mr. Beales. Sometimes, those are clear. There are scripts 
that tell people to misrepresent, and those are relatively 
straightforward cases. Other times, we have to talk to 
consumers; we have to figure out what kinds of representations 
were actually made. We have to build the evidentiary record 
sort of consumer by consumer of what was actually happening and 
what the salesman was actually selling. Those are more 
complicated, and, you know, they just take longer to build our 
case.
    The Chairman. You mentioned that in the subprime market, 
that group tended to be an older group of people. Is it 
possible to obtain reliable data on what percentage of seniors 
make up settlements spoken to in your testimony?
    Mr. Beales. No, we have not collected that information as 
part of the settlements. We are typically asking for a lot of 
information that we need in order to administer the redress 
program, and we try to make it as simple as possible and ask 
for as little as possible that we do not absolutely need in 
order to administer the programs.
    The Chairman. Sure; well, thank you very much. Let me turn 
to my colleague, Senator Stabenow, please.
    Senator Stabenow. Thank you, Mr. Chairman. Thank you again 
to each of you.
    I would first indicate that my personal conversations with 
people in Michigan and the hearings that I have had back home 
in Michigan have persuaded me that this is a very serious issue 
and that even though there may not be specific information that 
this is targeted to seniors, certainly in the information that 
I receive from people in my State, it is very clear that it 
appears that seniors are very highly targeted, I think 
particularly because they may have a home that is paid for or a 
great deal of equity built up in their homes, and I have had 
numerous examples brought to my attention of people who need a 
new furnace or a new roof on the home who have been talked into 
loans that ended up with extremely high points and fees and 
interest rates, getting very little out of the loan. In a 
couple of cases where the home was entirely paid for, and they 
were into totally refinancing their homes again in order to be 
able to meet certain needs in terms of home improvements and so 
on, really outrageous situations.
    One case, there was a situation where a gentleman was 
following seniors home from church on Sunday morning, getting 
to know them, building a rapport with them and then asking 
them, gee did they need any home improvements; did they need a 
new furnace? Could he help them with anything? Then, talking 
them into, again, situations and loans that took away their 
life savings or took away their homes. So I think it is a very, 
very serious issue.
    Having said that, I also believe a majority of lenders are 
reputable and that we are talking about a few bad actors, but 
they are definitely out there. I am very pleased to see that 
the Commission is up and running, the Financial Literacy 
Commission; again, as the sponsor of the provisions requiring a 
Website and a 1-800 number and so on, I am very pleased to see 
things are moving as quickly as they are.
    One of the things that we found in looking at the financial 
education piece is that there are a lot of good things going 
on, FTC or HUD or Federal Reserve or all kinds of different 
agencies, but it was very difficult from a consumer's 
standpoint to find out what is going on and to be able to 
access that. So I think that is a very important part of 
addressing this, Mr. Chairman, is to be user-friendly for 
people so that they can find out information.
    My questions really go to the enforcement end, and I also 
would add though, first, that I want to thank Freddie Mac, who 
has been involved in a program called Don't Borrow Trouble, 
which we brought to Detroit, a very successful consumer 
education program and Fannie Mae and many others who have been 
involved as well in these efforts.
    But there has been a lot of discussion about whether or not 
we should pass a Federal law. In the absence of a Federal 
definition of predatory lending from a statutory standpoint, we 
are seeing communities, city councils, passing ordinances. We 
are seeing States passing laws to address the legitimate needs 
and concerns in their States. The question is whether or not we 
ought to be addressing this and, if so, how to make sure that 
we are providing adequate consumer protections as well as 
addressing the question of a national definition.
    I am wondering, Mr. Wood, if you looked at all at this 
issue from the standpoint of not just individual enforcement, 
and I would ask each of the other panelists as well to address 
this, but not just individual enforcement within existing 
regulations but whether or not there is a need for a national 
definition or set of definitions around which we would then 
enforce on predatory lending.
    Mr. Wood. As we always do, we look for areas in which we 
can make a useful recommendation. One of the things in this 
area that we looked at clearly was, ``Is there a gap in the 
current Federal laws in some area?'' The one that we identified 
is the one that we raised in our matter for consideration. The 
difficulty, I guess, in coming up with a single definition, and 
this is one of the things that we wrestled with early, is how 
do you strike that balance in crafting a law that does not 
eliminate or cutoff credit to people who otherwise would not 
have it while at the same time preventing the most egregious 
abuses. We do not have an answer for exactly where that balance 
should be.
    Senator Stabenow. Thank you. I share that ambivalence or 
concern about how we strike that balance, but--yes, Mr. 
Weicher?
    Mr. Weicher. Senator Stabenow, as I think both of my 
colleagues mentioned, there is no generally accepted definition 
of predatory lending. What we have done at HUD is to establish 
regulations that address individual practices which we consider 
to be abusive, unfair, deceptive, and to establish a regulation 
prohibiting that particular practice. The body of those 
regulations becomes, in our judgment, a comprehensive attack on 
predatory lending.
    In my prepared statement, I mention a number of 
regulations. One, in particular, is an anti-flipping rule, 
whereby we will not insure a mortgage if the home has been sold 
twice within a 90-day period unless there is evidence that this 
is a reasonable transaction and not a flip and that for 
transactions that occur between 90 days and 270 days, whether 
insurance is automatic depends on how much the price has 
increased over that period of time.
    This has been a particular problem in some of the larger 
cities. We have a particular problem in Baltimore, which has 
been brought under control----
    Senator Stabenow. Right.
    Mr. Weicher. By a variety of local efforts, and our anti-
flipping rule contributes to fighting that problem in a number 
of larger cities. That is an example of the approach we have 
been taking, and we think it has been successful.
    Senator Stabenow. Are you indicating, then, that you think 
that is enough in terms of giving you the authority and the 
definitions that you need, or if you had a preference, would 
you prefer to see a more standardized definition?
    Mr. Weicher. As I said, we deal essentially with FHA, 
almost exclusively with FHA-insured loans and FHA lenders, and 
we believe that we have authority to address the problems that 
we see in the FHA-insured market. We have not felt that we 
needed to come to you with a request for additional legislative 
authority nor have we felt it necessary to develop a definition 
of predatory lending in general when we think we can target the 
individual practices that we see and go at them specifically.
    Senator Stabenow. Thank you.
    Yes, Mr. Beales?
    Mr. Beales. Senator, what we have seen in our enforcement 
experience is really more of a problem of the claims that are 
made than of the loans themselves or the practices themselves. 
They may be perfectly legitimate kinds of loan approaches in 
the right circumstances, but if consumers do not know what they 
are getting into, that is the source of the problem.
    For example, in the case we did jointly with HUD that 
involved Mercantile Mortgage, there were loans with balloon 
payments. Now, that is a fairly common instrument and perfectly 
appropriate, but the borrowers were told no balloon payment. 
That is a problem. But it is a problem of deception rather than 
of the particular practices, and we feel like we have the 
authority to go after those practices wherever we find them.
    Senator Stabenow. Thank you, Mr. Chairman.
    The Chairman. Thank you. Thank you very much, Senator.
    Let me also echo what the Senator did, and I think it is 
appropriate to be said that while the vast majority of our 
lenders out there are reputable, highly professional, skilled 
people who educate their consumers, we are after those who are 
not, obviously, and the phenomenal destruction that they raise 
against an individual or a couple when a life savings is 
oftentimes eliminated by that.
    It appears from the GAO effort and others that accumulating 
the data, grasping it or being able to bring it together in a 
way that is definable for our use is still a problem as it 
relates to age groups and those areas where there may be 
vulnerable communities of people that are being preyed upon. We 
will continue to make that effort, gentlemen.
    We appreciate all the efforts that you have made and the 
work that is now underway, and we will stay current on this 
issue with you and monitor it. As I have said in my opening 
statement, we believe that this will is one of many that we 
will be having over time as we review this and watch its 
process. Thank you very much. We appreciate it.
    The Chairman. Now, let me invite our second panel forward.
    Well, again, we thank our second panel for being with us. 
Let me start with Mr. Gavin Gee, who is the past-president of 
the National Association of State Bank Examiners and director 
of the Idaho Department of Finance. Gavin, welcome before the 
Committee.

STATEMENT OF GAVIN GEE, DIRECTOR, IDAHO DEPARTMENT OF FINANCE, 
                           BOISE, ID

    Mr. Gee. Thank you, Mr. Chairman. My name is Gavin Gee. I 
am the director of the Department of Finance for the State of 
Idaho and appear here today on behalf of the Conference of 
State Bank Supervisors. We thank you for this opportunity to 
testify on the States' efforts to protect senior citizens and 
other consumers from fraudulent and predatory lending 
practices.
    Through CSBS, State regulators of banks and non-bank 
lenders meet to share information and share solutions to 
problems such as predatory lending. Predatory lending is a 
complex issue, and I want to begin my statement by 
distinguishing between predatory and subprime lending. Subprime 
lending is not necessarily predatory lending. As described in 
the prior panel, subprime lending products are loans that are 
priced according to risks associated with a particular 
borrower, and the availability of subprime mortgage loans in 
particular has made homeownership a reality for thousands of 
low and moderate income families.
    Predatory lending can be hard to define, but it is all too 
obvious when we see the harm it does to our most vulnerable 
citizens. Over the past several years, the States have learned 
a great deal about where the problems lie and how best to 
address them. We have learned that a single set of rules and 
remedies is not necessarily appropriate for every lender or for 
every group of borrowers.
    Our challenge and yours is to prevent abuses without 
reducing the availability of credit or stifling innovation in 
new lending products such as reverse mortgages, which have been 
a boon to many older Americans when appropriately marketed and 
underwritten.
    As you seek to understand the options for State and Federal 
Government action on this problem, I ask that you consider this 
point: Federal preemption of State consumer protection laws 
can, for all intents and purposes, deny consumers the real 
protection that State laws would give them. The explosion of 
the mortgage industry created a new class of lenders for 
nonprime borrowers, and in some cases, these lenders have 
engaged in predatory and fraudulent practices.
    Many States sought remedies through enforcement of existing 
laws, new legislation and financial education efforts. Our 
efforts have reached thousands of borrowers and potential 
borrowers, punished and discouraged predatory lenders and 
brought a national spotlight to this program and this problem. 
I would mention that the States have the largest enforcement 
action on record to date against a particular predatory lender.
    Even small States like Idaho have their share of predatory 
lenders. Idaho has found its existing laws sufficient to take 
action against predatory lenders, and we have not seen a need 
to enact separate anti-predatory lending legislation. A 
priority for my agency under this law has been to establish a 
program of routine examinations of mortgage brokers and 
mortgage lenders. Routine examinations allow our examiners to 
identify and address violations of consumer protection laws 
before these violations harm large shares of the population.
    Education is also a key element of our consumer protection 
mission. We are actively involved in the Idaho Financial 
Literacy Coalition, which provides educational resources and 
instructions to educators, youth leaders, the elderly and 
others who are in need of assistance or at financial risk.
    Over the past 3 years, our Department has processed 617 
complaints related to non-depository lenders and 247 complaints 
relating to national banks or their operating subsidiaries. In 
the same period, we returned over $3.5 million to Idaho 
consumers as a result of resolved consumer complaints against 
mortgage brokers, mortgage lenders and finance companies and 
charged an additional $216,000 in fines and penalties.
    Under regulations recently issued by the Comptroller of the 
Currency, we would not have been able to take these actions if 
these businesses were operating subsidiaries of national banks. 
The OCC began by exempting national banks from specific State 
laws against predatory lending and has in recent weeks vastly 
expanded that exemption. The OCC now claims that national banks 
and their thousands of nonbank operating subsidiaries are 
exempt from virtually all State consumer protections and 
licensing requirements in the area of mortgage lending.
    The OCC has also said that the States have no authority to 
enforce a vast number of laws affecting national banks and 
their State-chartered subsidiaries, including consumer 
protections and laws against unfair and deceptive practices. 
Taking the States out of enforcement for a large and growing 
segment of the industry can have serious consequences. The 
Comptroller's recent regulations would displace much of the 
investigative and enforcement network States have created for 
responding to consumer complaints, many related to the 
operating subsidiaries and affiliates of national banks.
    This network has been working, with millions even hundreds 
of millions of dollars, being returned to mistreated consumers. 
This issue of preemption is a critical obstruction to our work 
against the threat predatory lenders pose to senior citizens. 
Over the past 3 years, our small agency conducted 618 routine 
examinations of nondepository lending institutions doing 
business in Idaho. These examinations are the ones that will be 
left undone if Idaho's mortgage brokers, mortgage lenders and 
finance companies continue to surrender their State licenses to 
us under the claim of OCC preemption.
    With limited resources at both State and Federal levels, we 
should be talking about sharing responsibilities, not 
preempting valuable resources. Most consumers shopping for a 
mortgage do not understand that different sets of laws apply to 
different lenders. As in most States, Idaho borrowers call our 
Department if they have a problem with their bank, their 
mortgage broker or finance company.
    For the elderly, a local contact is critical, and consumers 
rightly expect that their State officials can go to bat for 
them when they have been wronged. We want to be able to respond 
to these calls effectively. If you lose the States as a 
laboratory for consumer protections and other innovations, you 
lose two great attributes of our Federalist system: the ability 
to find out what does and does not work and the ability to 
tailor the response to the problem.
    Predatory lending is an insidious practice that turns the 
American dream into the American nightmare. It steals not only 
the victims' money and homes but their confidence in our 
financial system. We at the State level are the first line of 
defense against these unscrupulous businesses. A long-term 
solution to predatory lending requires three elements: consumer 
education, clear and consistent laws and effective enforcement. 
For the States, enforcement is becoming the weakest link. 
Federal preemption continues to hinder our enforcement efforts 
and has created incentives for businesses to seek the 
regulatory structure that guarantees the fewest consumer 
protections. This hurts the citizens of Idaho; this hurts the 
citizens of the United States.
    We stand ready to work with the Congress and with our 
Federal counterparts on a coordinated stand against predatory 
lending. Our experience should create a valuable foundation for 
solutions as we go forward.
    That concludes my testimony, Mr. Chairman. I would be happy 
to answer any questions the Committee may have.
    [The prepared statement of Mr. Gee follows:]

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    The Chairman. Director Gee, thank you. I will be back to 
you with questions. You have made a very profound statement 
this morning that I want to pursue with you.
    Now, let us turn to Lavada DeSalles, member of the Board of 
Directors of the AARP. Thank you so much for being with us this 
morning.

 STATEMENT OF LAVADA E. DeSALLES, MEMBER, BOARD OF DIRECTORS, 
    AMERICAN ASSOCIATION OF RETIRED PERSONS, WASHINGTON, DC

    Ms. DeSalles. Thank you for inviting us. My name is Lavada 
DeSalles.
    The Chairman. Lavada, thank you.
    Ms. DeSalles. Certainly. As you mentioned, I am a member of 
AARP's Board of Directors.
    I appreciate this opportunity to testify, Chairman Craig, 
on a matter of concern to us; that is, the practice of 
predatory mortgage lending. The types of loans that are being 
made available to today's borrowers have expanded well beyond 
the prime credit products traditionally offered at banks. 
Subprime credit lending has grown and grown rapidly. In 1984, 
the $35 billion in subprime mortgages represented less than 5 
percent of all mortgage originations. By 2002, subprime lending 
had increased to $213 billion or 8.6 percent of originations.
    AARP's concern regarding the growth of the subprime market 
is based on numerous studies that indicate that older 
homeowners are more likely than younger borrowers to receive a 
subprime loan. This is a concern because the subprime market 
appears to be the primary source of predatory lending 
practices. Loan-skimming practices appear to most often occur 
when a subprime loan is refinanced.
    Additionally, AARP is concerned that push marketing, often 
conducted by subprime lenders, leads to loans that are sold and 
not sought. AARP continues to be concerned by research findings 
that the percentage and volume of foreclosures associated with 
subprime mortgages appears to be increasing. For older persons, 
the impact of foreclosure can be devastating, representing not 
only a loss of a lifetime of savings but the loss of one's home 
and a lifetime of memories, even one's independence.
    AARP has seen the devastation wrought by predatory loans 
upon older homeowners. We have been active in working to 
eliminate predatory lending through litigation, advocacy, and 
education. In my written statement, I provide two examples of 
the financial problems faced by borrowers receiving predatory 
loans and the efforts made by our litigators to provide relief 
for those who have been victimized.
    AARP has also been active at the Federal level, supporting 
antipredatory lending legislation and regulation. We have 
testified before numerous House and Senate committees as well 
as the Departments of Housing and Urban Development and 
Treasury, expressing our concerns about predatory lending and 
the need for stronger protections. AARP's efforts have also 
included an educational campaign entitled ``They Didn't Tell Me 
I Could Lose My Home.'' Educational materials, tips on shopping 
for mortgages and media messages are among the resources we 
offer to educate homeowners about predatory mortgage lending.
    AARP is pleased to report that as a result of our efforts 
and the efforts of many others, including leading lenders, 
Fannie Mae, Freddie Mac and other stakeholders, significant 
market changes have occurred. But clearly, more needs to be 
done.
    In summary, assuring that older, refinanced borrowers 
obtain appropriate loans is critical to ensuring the current 
and future financial security of millions of older Americans. 
Predatory lending harms both homeowners and legitimate lenders.
    We look forward to working with you, Chairman Craig, and 
with the other members of this Committee. Together, we must 
strive to find effective and appropriate methods for 
eliminating these exploitative lending practices. These 
practices have proven to be very devastating to older persons 
and their families. I would be happy to answer any questions 
that you may have. Thank you.
    [The prepared statement of Ms. DeSalles follows:]

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    The Chairman. Ms. DeSalles, thank you very much for that 
testimony, and we are pleased to hear that the AARP is as alert 
on this as you are. I will pursue some of your efforts with you 
in a moment.
    Now, let us turn to Veronica Harding of Philadelphia, PA. 
She was the victim of such predatory lending, and Veronica, we 
are anxious to hear your story.

        STATEMENT OF VERONICA HARDING, PHILADELPHIA, PA

    Ms. Harding. First, I would like to say good morning. My 
name is Veronica Harding. I will be 75 years old next month. I 
am a retired machine operator and domestic worker. I now 
support myself on Social Security and a small pension. I live 
in a Philadelphia row house that I purchased back in 1980.
    I paid $7,500 cash for my home in 1980. I guess it is worth 
now about $30,000. I love my home, and it is all I have to show 
for my lifetime working. I almost lost my house through a 
combination of being taken advantage of and not knowing what I 
was doing. I appreciate the opportunity that you give me today 
to tell my story. What I did, you know, when I woke up and 
found out what had really happened to me behind this terrible, 
disgraceful thing called predatory lending, I felt ashamed when 
I first found out what had happened to me.
    I was ashamed to talk about it. But then, I realized that 
if I could help just one person to keep them from getting mixed 
up and getting into trouble with this predatory lending, then I 
would have done something good.
    The first thing I would like to say, ``I have learned the 
hard way that debt is like drugs. They start sending you credit 
cards in the mail, making you believe that instantly you can do 
the things, buy the things that you want to buy, that you could 
not really afford to do in the beginning, and you think they 
are doing something good for you.''
    Before you know it, you are in a debt that is too big for 
you to handle. They sent me credit cards. I used the cards, and 
I would occasionally borrow a couple thousand dollars to do 
small jobs on my home. Then, here comes the big stuff, the hard 
stuff. One day, a man came to my house, and he said he could 
get me a steel door. He told me that he thought the best thing 
for me to do would be to consolidate all my bills into one 
payment that I could pay off the door.
    Well, that started off with one big mortgage company, one 
big mortgage. It was $17,000. But within a couple of months of 
taking that mortgage, I started getting calls from many 
companies, from that company and other companies. They all told 
me that they would lower my payments if I would consolidate my 
bills. I was not looking for anybody. They looked for me. They 
found me.
    After refinancing my house three or four times, by 1997, 
the mortgage debt on my house was over $38,000. Now, remember, 
I have only a little money to live on. My house was all paid 
for. It is not even worth the $38,000 I now owe.
    I really do not remember too much about the loan in 1997. I 
remember a nice man calling me on the telephone. He seemed to 
know something about me and told me that he could make it easy 
to pay my bills. I remember him saying, ``You got the coffee, I 
got the danish.'' Honestly, I thought he was really doing me a 
favor. It is embarrassing to admit that I never understood what 
I was signing. But, you know, there are so many papers 
involved; these sales people, they are smooth talkers.
    In fact, I realize that I did not know what I was doing. 
Certainly, I did not know that they were burying me alive. 
Attached to my written testimony are copies of my loan 
documents from that last loan. First of all, I want to point 
out the name of the company that made me the loan, the American 
Mortgage Reduction. Senators, do not bother looking for that 
company, because they went out of business soon after my loan. 
I think American Mortgage Reduction sold out to Conti Mortgage 
Company. I never even heard from that one, even though I paid 
them for a couple of years. Then, afterwards, I found out that 
I was turned over to a company named Fairbanks Capital.
    That is who I have my loan with now. My point in telling 
you this is that you have to pay attention not only to the 
people who are making the loans but also to the people who are 
buying these loans. In my written testimony, I have given these 
loan documents one by one.
    This morning, I want to summarize a few key points: first, 
I now realize that I was putting over $38,000 of mortgage debt 
on my house. We never talked about the amount of the loan. 
Remember, I was not even trying to borrow anything. They found 
me. This loan would make it easier for me to pay my bills. 
These people who come to our houses selling these mortgages 
never talk about how much we are borrowing or the fees we are 
paying. They talk mainly about the monthly payments, about how, 
if you will take out this loan, you will make things better for 
yourself. Who does not want to do that?
    Second, a very big part of the debt is just fees. Of the 
$38,000 I was supposed to be borrowing, over $5,600 was just in 
fees. Third, the really scary part of the loan for me was the 
balloon, the balloon payment that they put on me. Now, the way 
that worked, I was supposed to pay $308 for 15 years, and then, 
in December of 2011, when I am 82 years old, I am supposed to 
make a payment of $29,000. Now, tell me where anybody at 82 
years old is going to have money, $29,000, and have to make 
this payment in one lump sum. If I do not have that $29,000, 
they take my house.
    The other thing that is amazing about it is after 15 years 
of paying $55,400 in payments from my Social Security, I would 
still owe them the amount of the last mortgage company in 1997 
when they refinanced me.
    It is a funny thing that just like the predatory lenders, 
the people who first helped me wake up to what had happened to 
me came knocking on my door. They were like my angels: Ira 
Goldstein and Rebecca Cook of The Reinvestment Fund and Paul 
Davies of the Philadelphia Daily News. They came separately, 
told me they were doing some researching on predatory lending, 
and they discovered me. They asked me for my loan documents, 
and I showed them.
    They sent me to my lawyer, Irv Ackelsberg at Community 
Legal Services. He is the one who is fixing my problem and 
saving my house for me. He filed bankruptcy for me. He sued the 
company that has my loan and saved my house. Now, the $38,000 
mortgage problem has been reduced to a $20,000 obligations that 
I can afford. My picture was on the front page of the Daily 
News in 2001, and then, I started giving talks at my church, 
around the city. The Mayor came to my house for a press 
conference, and also, I spoke at a press conference at City 
Hall for the graduating housing counselors for the predatory 
lending training program.
    The last page of my testimony shows a flier with my picture 
on it that the city was putting into water bills, inviting 
people to call the predatory lending hotline and send people to 
the housing counselors.
    Now, you have asked me for suggestions about what 
government agencies can do about this problem of predatory 
lending. Here are five things I think you should think about. 
First, stop acting like credit is always good. The more I have 
gotten involved, I have heard it said that we need to be 
careful about what we are doing about predatory lending, 
because it might dry up credit. Truth is, some kind of credit 
loans need to be dried up. Loans are just like food. Some food 
is good for you, and some food is not.
    Second, stop blaming people like me for getting into 
trouble and start protecting us from predatory lending. For a 
long time, I was really ashamed about what happened to me. But 
now, I realize what happened to me did not happen because I was 
a dumb person. It happened because you are letting people like 
those operate in our communities. Right in my block, believe it 
or not, we had 19 other families caught up in the loans that 
the researchers who found me told me about.
    I think that the loan that I have, that was sold to me 
should have been illegal. All of those fees, the balloon 
payment, they really--I was not really looking for a loan. They 
talked me into these loans. They are dangerous products like 
cigarettes, unsafe cars. Sure, we need education, but we also 
need protection.
    Third, beware of this thing called preemption. I learned 
the word preemption about 3 years ago. In Philadelphia, we had 
a City Council hearing. We cried for help, and they heard us. 
They answered us with a new law against predatory lending. Two 
months later, some of the companies got angry. They went to 
Harrisburg, and they preempted it. The legislature preempted 
it. It seems like because the State government is higher than 
the city government, they can undo the things that the city has 
done.
    Now, I hear that the Federal Government, which is higher 
than the State, is talking about preempting some of the good 
things other States have done in protecting their people. I 
think that is terrible. Instead of spending so much time trying 
to pull each other down, I think the governments should get 
together and work together to make a difference about these 
things and put protection on us.
    Fourth, senior citizens need more counselors, lawyers, like 
we have in Philadelphia. I was just one of the lucky people 
who--people who helped me with what happened to me to fix my 
problem. Philadelphia has housing counselors, the legal 
services lawyers, who know about predatory lending. I hear that 
if I was in a different city, where they don't have these 
services I would probably have lost my house by now. My lawyer 
has explained to me that Community Legal Services actually has 
had to give up Federal funding in order to continue doing the 
work because of restrictions that Congress placed on legal 
service lawyers. This is a real shame. We need more lawyers and 
housing counselors, and we need to let them do their job.
    Fifth, spend less time talking to the big fellows, and 
spend more time talking to the little people like us, like me. 
I feel that predatory lenders can come here, hire fancy 
lobbyists, and tell you how wonderful they are. You probably do 
not get many opportunities to talk to people like me. But you 
should do more of that. Come to Philadelphia. I will have the 
coffee, and you bring the danishes. [Laughter.]
    I can show you over, over hundreds, hundreds of retired, 
churchgoing Americans who are in real trouble and need help, 
and this predatory lending--and I thank you so very much for 
the opportunity of letting this grandmother speak a piece of 
her mind.
    [The prepared statement of Ms. Harding follows:]

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    The Chairman. Well, Ms. Harding, thank you very much. If 
you are a little person, that is a pretty loud voice, and I 
think it is being heard outside Philadelphia today, and we 
thank you for that testimony.
    Now, let me turn to all of you with questions.
    Gavin, you just heard Ms. Harding talk about preemption, 
and you spoke pretty forcefully about preemption and the 
Comptroller of the Currency. Does your association have any 
further views about the role of Federal regulations in general, 
especially, we are talking about in regard to GAO's 
recommendation for further empowering the Board of Governors of 
the Federal Reserve? If you would speak to that and also your 
frustration again about what is happening to preempt States 
from the kind of enforcement authority that you have had?
    Mr. Gee. Yes; thank you, Mr. Chairman. Well, as I 
understand, the GAO recommendation is to empower the Federal 
Reserve to grant them more authority over essentially 
subsidiaries of holding companies.
    The Chairman. That is correct, yes.
    Mr. Gee. Nonbank entities that engage in lending. Let me 
say, Mr. Chairman, that we work very closely with the Federal 
Reserve. They are our partner in State-chartered Federal 
Reserve member banks and also with bank holding companies, we 
work closely with them. We have a very good working 
relationship with the Federal Reserve.
    We believe that it is appropriate, certainly, to have more 
regulators and more cops on the beat, if you will, with respect 
to predatory lending. I believe our concern in this area is 
that based on the OCC preemption, what you will have by 
empowering the Federal Reserve is with nonbank entities, you 
will have jurisdiction shared by the FTC, the Federal Reserve 
and the States, whereas, because of OCC preemption, national 
banks and their subsidiaries will only have a single regulator, 
and you will not have that oversight; you will not have 
examination that is currently being provided by the States. You 
will not have that in the Federal Reserve. I assume they will 
not have jurisdiction also over those subsidiaries of national 
banks.
    The Chairman. That is what I was just going to ask. That 
would include the subsidiaries of national banks within the 
national banks' holding companies, would it not?
    Mr. Gee. It would include the subsidiaries of the national 
banks. Quite frankly, that is our major concern is those 
subsidiaries of the national banks. There are hundreds and 
hundreds, if not thousands, of those companies. We are seeing 
those companies turn in their licenses where they are currently 
licensed by the State. These are entities that are actually 
chartered by the States; have historically been chartered by 
the States.
    Most States, like we do in Idaho, examine those entities. 
We license many of those entities, and it is those entities now 
that we are being preempted from exercising not only any kind 
of licensing or regulatory authority over, but our office and 
the Attorney Generals' offices in our States are being 
preempted from taking any kind of enforcement action against 
those entities. We do not have the ability to respond to 
consumer complaints and inquiries. As you probably know, 
Senator, in our State, the OCC has no office, no presence in 
Idaho.
    When consumers, particularly elderly folks, have complaints 
or concerns, they like to come in; they like to visit with us. 
Often, we will go out to their homes. We have five people on my 
staff dedicated to dealing with those kinds of consumer 
complaints and inquiries, whereas, the OCC has no presence in 
our State. You have to call an 800 number in Houston. That 
number is not even listed in our phone books to my knowledge. 
So, all of that is being preempted by this recent action of the 
OCC in dealing with national bank subsidiaries and national 
banks themselves.
    Let me just mention, in our State, Idaho may be somewhat 
unique. We only have one national bank actually headquartered 
in Idaho, a community bank. But national bank branches in Idaho 
represent about 70 percent of the market share in Idaho. So, a 
lot of the complaints and inquiries we receive are against 
national banks and national bank subsidiaries.
    So to take the States out, to take our ability to respond 
to our own consumers, just seems to me to be a huge policy 
mistake.
    The Chairman. Well, I believe I concur with you on that. 
You know, having once been a State legislator, but also 
understanding what the average person thinks when they think of 
government and when they think of help from government, they 
think local and State almost always at the beginning of that 
thought process, who can they reach the quickest, or who do 
they know or know someone who might know. Sometimes, our 
Federal Government agencies are--I will not say inaccessible 
but say daunting to access, maybe, is a better word for it.
    Mr. Gee. Well, absolutely, and we believe at the State 
level, we are the first line of defense.
    The Chairman. Yes.
    Mr. Gee. We are the first ones people call. They know to 
call the State banking departments. They know to call the State 
financial regulators. They look to us for help and assistance, 
and for us, now, to be preempted by this very large class of 
potential mortgage lenders, mortgage brokers, finance 
companies, virtually anybody in the lending business, now, that 
is a subsidiary of a national bank, we are preempted. Our 
ability to help those people, our ability to examine, license, 
regulate in any way has been preempted by this most recent OCC 
ruling.
    The Chairman. All right; thank you for that statement and 
that response. We will pursue that with the Comptroller, and, 
as I am sure, others are. I think when we see the impact of 
that kind of regulation, we get more State examiners and more 
finance directors like you coming forward in that area, that is 
something that I think Congress is going to want to take a look 
at. So I thank you very much for being here.
    Mr. Gee. Thank you, Mr. Chairman.
    The Chairman. Ms. DeSalles, what do you think the Federal 
Government should do to obtain the necessary data about how 
this particular fraud impacts our nation's seniors? It sounds 
like AARP is attempting to gain a grasp of the impact of it; 
obviously, your educational outreach and all of that. Have you, 
yourself, polled the membership of the AARP specific to this 
area of concern? Of course, my question is how the Federal 
Government might gather that kind of information.
    Ms. DeSalles. I am not aware of any specific polling. 
Certainly, we have heard about numerous situations as was so 
eloquently described by Ms. Harding. It has been brought to our 
attention in reports from all of our States. People look to 
AARP for assistance in this area. But to be more specific, I am 
not aware of any specific polling of our membership on this 
issue.
    As far as the Federal Government's data collection, I have 
not read, of course, the GAO report. I just got a copy of it 
today.
    The Chairman. Right.
    Ms. DeSalles. But we have a very well-respected research 
arm at AARP, and we are fully in support of any effort to add 
to the body of knowledge through data collection. I do not have 
a specific recommendation to offer, Senator Craig.
    The Chairman. Well, we might challenge AARP to look at its 
membership and maybe do some information gathering in this 
area. I will have to tell you that we had the CEO of AARP in 
Idaho last week testifying at a health conference, and a 
comment was because a young man in the audience had turned 50, 
they said the reason we had not caught Osama bin Laden was 
because he had not yet turned 50, and AARP had not gone out to 
find him. [Laughter.]
    Ms. DeSalles. That sounds like Bill Novelli.
    The Chairman. So I suspect that we might look to you, also, 
as a way of finding out reaction from an older community of 
Americans as it relates to this impact. So we will be engaging 
you and AARP as it relates to that.
    Any other--go ahead.
    Ms. DeSalles. I will ask staff to see if we have done--it 
is possible that we have done some polling on that issue that I 
am unaware of.
    The Chairman. Well, what often happens, and as I turn to 
Ms. Harding, the thing that she said so clearly often happens 
in these situations: elderly people I guess--I can use a 
Western phrase--hunker down, or they are quiet about something 
they did because they are embarrassed about it.
    Ms. DeSalles. Absolutely.
    The Chairman. They will not come forward and speak up, or 
they do not know where to go to speak up. So, they walk away 
maybe having lost a home or a large chunk of their equity or 
their assets simply because they are embarrassed. They feel 
they were taken. I am thinking of you and a way to access an 
information base that might tap that kind of concern or 
response that we might not otherwise be able to gain.
    Ms. DeSalles. I will have my staff get back to you on that.

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    The Chairman. Great. Thank you very much.
    Well, Ms. Harding, your testimony is important to this 
Committee. I think it exemplifies the very kind of thing that 
we are pursuing here. We have high-quality professional people 
in the lending business, and some of them, most of them, are 
very credible. There are others who are not, and of course, 
that is where we are looking. Your experience, I think, clearly 
speaks to that.
    I think your recommendation, your five recommendations 
really are very critical to us. You have heard Senator Stabenow 
and myself and others talk about educating and outreach and an 
effort to educate people to beware, to ask the questions, or to 
know what to ask, or to know who to ask to be able to get the 
right questions asked. All of that becomes important.
    I am pleased that you have mentioned preemption. We do 
think local as it relates to government, because that is where 
we access it the quickest, and it is the most obvious to most 
every citizen. So I think all of those recommendations are 
important, and we thank you very much for that.
    Your testimony today certainly adds to the overall work 
this Committee does. We do not authorize. By that, I mean we do 
not write legislation. That is not the role of this Committee. 
The role of this Committee is to build a record and to hand it 
to the Banking Committee or the Finance Committee, to be 
advocates for people like you who found yourself in a very 
difficult situation and to be able to build a record around 
that and to make recommendations to these committees as to what 
they might do.
    So before I close this hearing, let me ask if you have any 
further comment you would like to make.
    Ms. Harding. The further one that I would like to say is 
that what bothered me was that when I read in the paper last 
month that we had in Philadelphia, there were 1,120 homes up 
for sheriff's sale. It made me feel that some of these people 
who were losing their homes had gotten caught up in these bad 
loans, this predatory lending. My heart just goes out for these 
people. It is so sad.
    The Chairman. Surely.
    Ms. Harding. It is really sad what we are going through.
    But like I said before in my testimony, I am so glad that I 
have met good people. But the only way that you meet good 
people, you have got to be a good person yourself.
    The Chairman. Well, thank you very much. I think you fill 
that category. I do not often get to Philadelphia, but when I 
do, I will bring the danish. [Laughter.]
    Ms. Harding. I will have the coffee.
    The Chairman. All right; if you will have the coffee, I 
will bring the danish.
    To all of you, thank you very much for your testimony and 
your active involvement in this area. We appreciate it. The 
Committee will continue to pursue, to identify the numbers. 
Gavin, we are going to take a very serious look at these new 
regulations coming out of the OCC and the impact they are 
having on State regulators and the role that you are not being 
allowed to play now.
    So I will also be quizzing my colleagues on the Banking 
Committee as to the whys and the wherefores of those 
regulations. Thank you all very much, and the Committee will 
stand adjourned.
    [Whereupon, at 11:24 a.m., the Committee adjourned.]

                            A P P E N D I X

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