[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                COMMUNITY SOLUTIONS FOR THE PREVENTION

                   OF AND MANAGEMENT OF FORECLOSURES
=======================================================================


                             FIELD HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                   HOUSING AND COMMUNITY OPPORTUNITY


                                OF THE

                   COMMITTEE ON FINANCIAL SERVICES

                    U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                            SECOND SESSION

                               ----------                              

                            AUGUST 23, 2006

                               ----------                              

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-116



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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              WM. LACY CLAY, Missouri
GARY G. MILLER, California           STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio              CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota           JOE BACA, California
TOM FEENEY, Florida                  JIM MATHESON, Utah
JEB HENSARLING, Texas                STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina   ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida            AL GREEN, Texas
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania            MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin,
TOM PRICE, Georgia                    
MICHAEL G. FITZPATRICK,              BERNARD SANDERS, Vermont
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California

                 Robert U. Foster, III, Staff Director
           Subcommittee on Housing and Community Opportunity

                     ROBERT W. NEY, Ohio, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California
    Chairman                         NYDIA M. VELAZQUEZ, New York
RICHARD H. BAKER, Louisiana          JULIA CARSON, Indiana
WALTER B. JONES, Jr., North          BARBARA LEE, California
    Carolina                         MICHAEL E. CAPUANO, Massachusetts
CHRISTOPHER SHAYS, Connecticut       BERNARD SANDERS, Vermont
PATRICK J. TIBERI, Ohio              STEPHEN F. LYNCH, Massachusetts
GINNY BROWN-WAITE, Florida           BRAD MILLER, North Carolina
KATHERINE HARRIS, Florida            DAVID SCOTT, Georgia
RICK RENZI, Arizona                  ARTUR DAVIS, Alabama
STEVAN, PEARCE, New Mexico           EMANUEL CLEAVER, Missouri
RANDY NEUGEBAUER, Texas              AL GREEN, Texas
MICHAEL G. FITZPATRICK,              BARNEY FRANK, Massachusetts
    Pennsylvania
GEOFF DAVIS, Kentucky
CAMPBELL, JOHN, California
MICHAEL G. OXLEY, Ohio

                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    August 23, 2006..............................................     1
Appendix:
    August 23, 2006..............................................    35

                               WITNESSES
                       Wednesday, August 23, 2006

Fratantoni, Michael, Senior Director, Single-Family Research and 
  Economics, Mortgage Bankers Association........................    17
Oakley, Deborah, Senior Vice President, National City Bank.......    20
Randolph, Vanessa, Director, Fannie Mae's Northern Ohio Community 
  Business Center................................................    21
Rush, Daryl P., Director, Department of Community Development....     6
Tisler, Lou, Executive Director, Neighborhood Housing Services of 
  Greater Cleveland..............................................    23
Wiseman, Mark, Director, Cuyahoga County Foreclosure Prevention 
  Program........................................................     8
Wolfe, Bryan, Vice President, Ohio Farmers Union.................    25

                                APPENDIX

Prepared statements:
Kucinich, Hon. Dennis J..........................................    36
LaTourette, Hon. Steven C........................................    37
Jones, Hon. Stephanie Tubbs......................................    41
Fratantoni, Michael..............................................    49
Oakley, Deborah..................................................    73
Randolph, Vanessa................................................    82
Rush, Daryl P., with inserts.....................................    88
    Foreclosure Identification and Prevention....................   190
    A Report From Policy Matters Ohio 2004.......................   205
    Building a New Framework for Community Development in Weak 
      Market Cities..............................................   231
    Cleveland Mortgage Bulletin 2006.............................   261
Tisler, Lou,.....................................................    98
Wiseman, Mark, with inserts......................................   107
    Foreclosure Prevention Program...............................   122
    Chart depicting Ohio Foreclosure Filings.....................   126
    Chart depicting a Broken Mortgage Market.....................   127
    A Report From Policy Matters Ohio 2006.......................   128
    Unfair Lending: The Effect of Race and Ethnicity on the Price 
      of Subprime Mortgages, by Center for Responsible Lending...   138
Wolfe, Bryan.....................................................   145

              Additional Material Submitted for the Record

    Vacant Houses in Garfield Heights............................   147
    Combating Problems of Vacant Houses..........................   160
    Statement of Mayor David S. Pocek, City of Bedford, Ohio.....   177
    Letter from Judge Raymond L. Pianka, Housing Division, 
      Cleveland Municipal Court..................................   178
    Foreclosure Prevention Summary, January to July 2006.........   182
    Banks Warrant Capias List, July 31, 2006.....................   185
    Statement of Anne M. Juterbock representing the Department of 
      Consumer Affairs of the City of Cleveland..................   187


                      COMMUNITY SOLUTIONS FOR THE



                      PREVENTION OF AND MANAGEMENT



                            OF FORECLOSURES

                              ----------                              


                       Wednesday, August 23, 2006

             U.S. House of Representatives,
                        Subcommittee on Housing and
                             Community Opportunity,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10 a.m., at 
the Super Conference Room, Cuyahoga County Community College, 
Corporate College Eastern Campus, 4400 Richmond Road, 
Warrensville Heights, Ohio, Hon. Steven C. LaTourette, 
presiding.
    Present: Representatives LaTourette and Tubbs Jones.
    Mr. LaTourette. [presiding] Good morning. The subcommittee 
will come to order.
    I want to thank everyone for being here today. I want to 
thank, from the full committee, Chairman Michael Oxley of Ohio, 
and Ranking Member Barney Frank of Massachusetts, for 
permitting us to conduct this hearing today.
    I want to thank my colleague, Stephanie Tubbs Jones, for 
suggesting we convene this hearing. I want to thank Tri-C and 
the president, Jerry Sue Thornton, whom I believe to be one of 
the best educators in the country. We're honored to be at the 
Corporate College here today.
    A couple of housekeeping matters. When Congresswoman Tubbs 
Jones was elected, she served with us on the Financial Services 
Committee, and then she got a promotion. She became the first 
African-American woman to serve on the Ways and Means 
Committee, and so the housekeeping matter is that she is a 
member of the Financial Services Committee, and she has been 
permitted to participate and ask questions and that is so 
ordered.
    In addition, we have had a number of elected officials come 
up and provide information to us that they would like to have 
made a part of the record today. We'll do that by unanimous 
consent as well.
    I would also indicate that by unanimous consent, the record 
will be kept open for 30 days not only for additional questions 
that Members of Congress may have, but if other folks have 
things they would like to submit for the record of this 
hearing, we would be glad to review them and receive them.
    But initially, with unanimous consent that Stephanie, my 
colleague, or Congressman Kucinich has a statement that they 
would like submitted into the record, Mayor Longo of Garfield 
Heights has a study called Vacant Homes in Garfield Heights. I 
received a letter from Judge Raymond Pianka, who was the 
housing judge at the Cleveland Municipal Housing Division, and 
Mayor Pocek of the City of Bedford also provided me with a 
statement.
    And I ask by unanimous consent that all of those be 
included in the record of today's proceedings. So ordered.
    Mrs. Tubbs Jones. Along that line, Congressman LaTourette, 
I know that there are other elected officials in the audience 
who would like to have statements submitted for the record, and 
I would ask that since we have this 30-day window to have those 
records submitted, I know that we would want the county 
treasurer, Jim Rokakis, to submit a statement; I know that Jay 
Westbrook from the Cleveland City Council would like to submit 
a statement; Anne Juterbock, a lawyer with the City of 
Cleveland, Department of Consumer Affairs, would like to submit 
a statement; and I'm confident that a couple of other members 
of the council who would have wanted to, but because of our 
requirement, I would like for the record to have my staff get a 
list of all of the other people who would like to submit a 
statement. Thank you.
    Mr. LaTourette. Again, I want to welcome everybody to this 
hearing which focuses on the growing problem affecting many 
areas across the country, and especially here in northeastern 
Ohio, and that is the problem of foreclosures.
    Back in 1995, Cuyahoga County experienced 2,582 
foreclosures. In contrast, last year that number surpassed 
12,000. The cost of foreclosures is hard for everyone involved. 
The homeowner must struggle with the financial and 
psychological impact of losing their home, and borrowers and 
lenders face economic costs such that not only the State and 
local governments will feel the impact, but the surrounding 
real estate market, as well.
    The State of Ohio ranks among the highest in foreclosure 
rates nationwide, and that is definitely not a category or 
statistic that we should be proud of. In my mind, first and 
foremost the question is, is enough being done to prevent or 
mitigate consumers from going into the foreclosure situation?
    When a homeowner is struggling to pay his or her bills, the 
prospect of missing a single payment will sometimes cause that 
person to seek help from a financial counselor. Helping people 
through financial difficulties is important work, and many 
people on our two panels do that work on a daily basis.
    One of the key issues that I hope our panelists will 
discuss with us today is what to do about those whose objective 
isn't to help but to take advantage.
    Another consequence of high foreclosure rates is the cost 
of foreclosure to the community and the surrounding real estate 
market. These costs end up being absorbed by State and local 
governments, making it that much harder to help generate new 
economic development in these economically stressed parts of 
town.
    When the foreclosure rates start to climb in the community, 
homes nearby begin to lose value, and the ensuing chain 
reaction is that more people are losing their homes.
    Local governments don't collect taxes to help in 
development of the projects and must flip the bill on the 
foreclosed property and fix them up to save them. We're told 
that the City of Cleveland alone spent $1 million this year to 
board up and secure vacant houses. Those are funds that could 
be used in economic development and other infrastructure needs.
    We will also see today that foreclosure problems facing the 
Nation in our region extend beyond what we think of as the 
traditional homebuyer out there in the country, particularly 
family farms.
    In Ohio, one in seven people is involved in some aspect of 
agriculture, and believe it or not, Cuyahoga County, home of 
the great City of Cleveland, has about 4,000 acres of farmland. 
In my district, which begins just a few miles east of where 
we're sitting today, family farms are the mainstays of many 
people in the local economy and a buffer against unfettered 
sprawl.
    There are over 5,000 farmers who work in the Congressional 
district and will annually sell agricultural products with a 
market value of $212 million.
    Family farmers struggle with credit challenges unfamiliar 
to the average homeowner, such as having to turn to local 
lenders for short-term financing to get through a difficult 
season, a drought, or a bad harvest.
    Our farmland is dwindling, and once it goes, it is forever 
lost to development because the land is so valuable. We need to 
ensure that both the farmers and lenders are on the same page.
    Our panelists today represent a variety of distinguished 
organizations, local groups, and private lenders that help 
individuals and families get through difficult times without 
losing their homes.
    In fact, Congresswoman Tubbs Jones and I both are involved 
in the Cuyahoga County Foreclosure Crisis Program, and I look 
forward to hearing from Mr. Wiseman telling me about the good 
work that his organization has undertaken to educate folks on 
the ins and outs of financing a home.
    My first panel consists of witnesses who will be able to 
provide us with a better scope of the problem nationwide, and 
specifically in Cuyahoga County.
    On the first panel, I want to welcome Mr. Daryl Rush, 
director of the Department of Community Development for the 
City of Cleveland, and Mr. Mark Wiseman, director of the 
Cuyahoga County Foreclosure Prevention Program.
    Our second panel is here on behalf of community 
organizations and private lenders, and they're working to 
mitigate the foreclosure effects in our area.
    We will welcome Ms. Vanessa Randolph, the director of the 
Northern Ohio Community Business Center for Fannie Mae, Mr. Lou 
Tisler, the executive director of Neighborhood Housing Services 
of Greater Cleveland, which is a charter member of the 
NeighborWorks Program, Mr. Michael Fratantoni, the senior 
director of single-family research and economics at the 
Mortgage Bankers Association, and Ms. Deborah Oakley, the 
senior vice president of homeownership preservation for 
National City Corporation, testifying on behalf of the Housing 
Policy Council of the Financial Services Roundtable.
    And lastly I'm pleased to welcome the panelist, Mr. Bryan 
Wolfe, who is here today in his capacity as vice president of 
the Ohio Farmers Union. I don't know how many farmers you have 
in your district, Stephanie.
    Mrs. Tubbs Jones. More than you.
    Mr. LaTourette. Nobody works harder than Mr. Wolfe, and 
nobody works harder than a farmer.
    I want to thank my colleague, Congresswoman Stephanie Tubbs 
Jones, for her participation today, and for her outstanding 
work as an advocate to find solutions to reduce the impact of 
foreclosures on communities, lenders, and borrowers in 
northeastern Ohio. And, again, I want to thank her for having 
us in her district today.
    Mrs. Tubbs Jones. Thank you.
    I want to, first of all, thank Chairman Oxley and Ranking 
Member Barney Frank for agreeing to allow us to have this 
official Congressional hearing in the 11th Congressional 
District of Ohio.
    I want to thank my colleague, Steve LaTourette, a member of 
Financial Services Committee. And I still have links to the 
Financial Services Committee, even though I'm now on the Ways 
and Means Committee. There are a lot of issues that impact the 
11th Congressional District which come before the Financial 
Services Committee.
    A lot of my banking friends say, ``We wish you were back on 
Banking so we can do something.'' But I'm there through Steve 
and through all these other folks.
    I would like to say that it was very important to have the 
hearing here in Cleveland to address the growing problem of 
foreclosures, both in Cuyahoga County and across the State of 
Ohio.
    I would also like to thank Cuyahoga County Corporate 
College and Dr. Jerry Sue Thornton for hosting us today.
    Thanks also needs to be extended to the Cuyahoga County 
commissioners, Jimmy Dimora, Tim Hagan, and Peter Lawson Jones; 
the county sheriff, Gerald McFaul; the county recorder, Patrick 
O'Malley; the county auditor, Frank Russo; the county 
treasurer, Jim Rokakis; and many of our county judges because 
they're responsible for the processing of foreclosures.
    I did see my former colleague, Judge Thomas Pokorny, in the 
audience. I would like to thank Judge Raymond Pianka of the 
Cleveland Municipal Housing Court, and the Honorable Mayor 
Marcia Fudge of Warrensville Heights, because we sit in the 
City in which she has jurisdiction, as well as the Honorable 
Mayor Daniel Pocek for his interest in this issue, and all the 
panelists who join us today.
    The issue of foreclosures has reached a critical state in 
Ohio, and particularly in Cuyahoga County. In 2005, we had an 
estimated 2,000 foreclosures, 4 times more than 1998, and among 
the highest in the Nation.
    According to a recent study, there was an average of 
463,996 foreclosure filings in 2005. Throughout the State of 
Ohio, there was an increase of 8.45 percent from 2004.
    Just as a backup, I remember when I was a Cuyahoga County 
prosecutor, I worked very closely with my colleagues who were 
county-elected officials trying to figure out how we could 
speed up the foreclosure process because one of the impacts of 
a huge number of foreclosures is the impact on the tax base of 
Cuyahoga County, which has an impact on the ability of the 
county to obtain dollars for bonding, etc.
    A loss of a home is devastating both to the family and to 
the community, since a family owning a home is often their only 
piece of the American pie. The equity from owning a home is 
often the only means to secure funding for a new business, 
college tuition, or retirement.
    As a community, increased foreclosures often turn 
neighborhoods that were once vibrant into neglected areas which 
ultimately could raise costs for local government.
    This problem disproportionately affects African-Americans 
here in Cuyahoga County. A number of indicators show that 
African-Americans received a greater portion of subprime loans 
and were denied home loans more frequently than whites in 
Cuyahoga County.
    As a Member of Congress, I've been at the forefront of 
issues regarding homeownership. I'm the former Chair of the 
Congressional Black Caucus Housing Task Force and host of the 
CBC Housing Fund with ownership wealth problem in Cleveland.
    For the last three Congresses, I've introduced the 
Predatory Lending Practice Reduction Act, and the Community 
Economic Development Expertise Act, also known as CEDEA. A 
reduction act calls for Federal certification of mortgage 
brokers and the CEDEA act provides for support for the 
community development corporation that have done such a great 
job in northeast Ohio in building new homes, and I want to 
salute them as well.
    I'm pleased to join with Cuyahoga County Freddie Mac 
earlier this year in support of a recent expansion of, ``Don't 
borrow trouble,'' a campaign to compact predatory lending.
    It is my hope that today's hearing will help us determine 
solutions to the foreclosure issue and identify ways to combat 
unscrupulous predatory lending practices.
    One of the first steps toward creating wealth is 
homeownership, and I want to make sure that everyone is open to 
the opportunity to realize their dream.
    One of the dilemmas we always have when we start talking 
about predatory lending is that all the bankers are not 
predatory lenders, and we end up in the process of trying to 
get to the predatory lenders and at the same time we seem to 
put a mark on the great lenders who are out there.
    For all of the lenders who are here in this audience, we 
thank you for the good work that you do, and we hope that you 
will join us in this effort to reduce predatory lending in 
Cuyahoga County.
    I want to thank my colleague for giving me this opportunity 
to make a presentation, and I also want to recognize Ruth 
Clevenger from the Federal Reserve Bank, who is here in our 
audience today. Thank you.
    Mr. LaTourette. I thank you very much, Congresswoman Tubbs 
Jones.
    We'll now proceed with our first panel, and those of you 
who don't follow the Congress on a regular basis, and I don't 
know why anybody would, we operate under the 5-minute rule.
    All of the witnesses who are testifying here today have 
submitted written testimony, and we have reviewed those 
testimonies.
    There's a series of lights that counsel is holding. There's 
a green light, a yellow light, and a red light. The green light 
means go, the yellow light means you have about a minute left, 
and the red light means that your 5 minutes has expired.
    In all of the hearings that I have chaired, I have never 
done anything bad to somebody who went over the 5 minutes. But 
so that we can move through the hearing in an orderly fashion, 
I would ask you to stay within the time limitation.
    It is now my pleasure to welcome my first panel today. The 
first witness here is Daryl P. Rush, who, as I indicated 
earlier, is the director of the Department of Community 
Development for the City of Cleveland, Ohio, and the second 
witness on the first panel will be Mr. Mark Wiseman, who is the 
director of the Cuyahoga County Foreclosure Prevention Program.
    I welcome you both, and I thank you for your written 
submissions before the hearing commenced. Mr. Rush, you're 
first.

 STATEMENT OF DARYL P. RUSH, DIRECTOR, DEPARTMENT OF COMMUNITY 
                          DEVELOPMENT

    Mr. Rush. Thank you.
    Good morning, Mr. Chairman, Congresswoman Tubbs Jones, 
public officials, elected officials, residents, fellow 
panelists, and guests.
    I'm honored to represent Mayor Frank G. Jackson, the Mayor 
of the City of Cleveland, before you this morning.
    I will speak from the perspective of local city government. 
First of all, I would like to begin by saying it is important 
to consider in the context of predatory lending foreclosures 
that Cleveland is a weak market city. What that means is that 
we have a declining population base, and we are struggling with 
marginal economic growth, and a declining city core.
    The dynamics of weak market cities augment and heighten the 
effects of predatory lending and foreclosures. With that 
backdrop, the City of Cleveland has been primed for its 
residents to either find themselves in unfortunate financial 
circumstances or to fall victim to unscrupulous conduct by 
conspirators involved in predatory lending.
    The State of Ohio, during the most recent recession, lost 
236,700 jobs. Most of those were in the manufacturing sector. 
Northeast Ohio was over-represented by those job losses in 
losing over 7,000 jobs in a 2-year period.
    During that same period there was an increase in subprime 
lending in the city. Even though not every subprime loan is 
predatory, studies have discerned that subprime loans are 3 
times more likely to result in foreclosure than prime loans.
    The combination of the economic downturn and the influx of 
well-marketed subprime loans, particularly to susceptible 
population segments in the City of Cleveland, has led to our 
local crisis.
    Mr. Chairman, you mentioned some of the rates of the 
foreclosures. Studies have indicated some of the reasons for 
foreclosures. At the top of the list is loss of employment, 
lower employment, and a weak economy, followed closely by 
predatory lending, which includes flipping, divorce, or family 
break-up.
    Currently there are over 7,000 foreclosure cases pending in 
the City of Cleveland. It increases between 875 to 1,000 per 
month. The rate of foreclosure indicates that 67 percent of the 
foreclosures had at least one of the top characteristics of a 
predatory loan. My written comments list the most common 
characteristics for predatory loans.
    In addition, African-American neighborhoods have a much 
higher level of subprime lending than majority neighborhoods, 
even after controlling for resident's credit history or income.
    Other groups targeted by subprime and predatory lenders 
include seniors, Latino communities, and other communities 
where English is a second language.
    I mentioned flipping. It must be noted that flipping is 
closely related to predatory lending. Cleveland has had a high 
degree of flipping, particularly in neighborhoods where there 
is improvement in the housing stock because it creates a value 
range where vultures can suck the equity out of people's houses 
by not making improvements to the property or making 
superficial improvements and then selling the property to an 
unsuspecting homeowner and the property ultimately gets 
foreclosed on.
    Loan flipping is defined as refinancing the property, 
particularly over a short period of time, without any 
improvement to the property or economic gain for the borrower.
    It is also noted that even though we talk about predatory 
lending and foreclosures with the acquisition of a home, people 
frequently end up in a foreclosure situation as a result of 
home improvement or home repair loans.
    The City Housing Program, designed to improve the housing 
stock and provide affordable housing, has also been adversely 
affected by rising foreclosure rates. Homes supported by second 
mortgages provided by the City, and home repair loans granted 
to homeowners by the City are experiencing high foreclosure 
rates due to foreclosure borrowed by the primary lender.
    The City does not initiate foreclosures, but we suffer a 
loss through the foreclosure initiated by the principal lender. 
In order to address that, we have examined our programs to make 
sure that there are no predatory loans.
    The foreclosures that our programs and the residents that 
utilize our programs indicate that they are generated by 
adverse economic conditions. The City is undertaking several 
actions and activities to try to reduce the flow of 
foreclosures by Cleveland homeowners.
    Notwithstanding our efforts to try to strive to alleviate 
the symptoms of weak market cities and improve the quality of 
life of our residents, we struggle with the effects of 
predatory lending.
    Mr. Chairman, you mentioned that we spend $100,000 per 
month on boarding up houses. We increased the funding for 
board-ups and demolition by $145,000 this year. We also, as 
this morning's paper indicated, alleviate nuisance of vacant 
and boarded houses by clearing debris and cutting grass. We 
increased the funding for that activity by $190,000 this year.
    These funds from community public block grant funds could 
be used for other purposes, to try to increase the quality of 
life in Cleveland's neighborhoods. Instead they're being 
directed to alleviate the woes of foreclosures.
    One of the things that we would like for Government to do 
to assist us in this effort would be to maintain or increase 
funding from HUD. CDBG and HOME funds are the tools that we use 
for our efforts to combat predatory lending.
    We've lost 21 percent of our CDBG funding over the last 5 
years. An additional 10.4 percent was lost last year. We've 
lost 28 percent of our HOME funds over the past 5 years. This 
greatly hampers our ability to put forth our agenda for our 
distressed neighborhoods in the City of Cleveland.
    To help to battle predatory lending and foreclosures, it 
would also help to change the HOME and CDBG value lines to 
enable us to participate in weak financing predatory loans.
    Furthermore, I would like to maintain CRA regulations. Last 
year oversight guidelines were reduced for thrifts. A change 
for banks would undercut the progress we've made to increase 
the volume and quality of lending by banks in the city.
    We have a program by which we negotiate investment 
guidelines for banks in the City, and this has been very 
effective in making loan products that are not predatory 
available for our residents.
    We would like to increase oversight for mortgage brokers 
and appraisers on a national level. We would also like to 
increase funding for municipalities to improve data gathering 
and technology systems.
    As evidence of what we're trying to do, the chart over to 
your right is a chart of foreclosure filings in the City of 
Cleveland for 2006.
    The ability to increase our technology to collect and 
utilize data to show trends would be very important in trying 
to combat the effects of predatory lending.
    The assistance financially to municipalities and government 
entities to increase their technology and utilization capacity 
would be beneficial. Thank you.
    [The prepared statement of Mr. Rush can be found on page 88 
of the appendix.]
    Mr. LaTourette. Thank you very much, Mr. Rush, for your 
excellent testimony.
    Mr. Wiseman, we welcome you this morning, and we look 
forward to hearing from you.

     STATEMENT OF MARK WISEMAN, DIRECTOR, CUYAHOGA COUNTY 
                 FORECLOSURE PREVENTION PROGRAM

    Mr. Wiseman. Thank you, Congressman. I would first like to 
thank Congressman LaTourette and Congresswoman Tubbs Jones for 
calling this hearing and for putting in all the effort you did 
to make it a reality.
    There are 1,000 new foreclosures a month, which means 1,000 
times a month somebody in Cuyahoga County wakes up and thinks, 
``Is the sheriff going to put me out of my house tomorrow?'' It 
takes a long time, but most borrowers don't know that, so the 
County has a created program called the Foreclosure Prevention 
Program, which can assist borrowers at all phases of the 
process.
    The main thing we do is put borrowers in touch with 2-1-1, 
which is United Way's first call for help hotline to get sent 
to the appropriate agency to help them during this process.
    When we set this up, we assumed that about 60 percent were 
going to be people in foreclosure and about 40 percent were 
going to be people wondering what to do to get credit, or 
wondering other things about the lending industry.
    About 95 percent of the calls we have received so far--and 
so far we've gotten about 1,700 calls in a 4-month period--are 
from people in foreclosure who are fighting for their homes. So 
the main thing that the Foreclosure Prevention Program can do 
is hook these people up with their lender and get them in touch 
with the loss mitigation department that's going to help them 
work through the process.
    Now, it seems counterintuitive that there has to be a 
governmental program that can help a borrower make a phone call 
to call their lender, but something this committee needs to 
understand and something everybody needs to understand about 
what a borrower can face when they call the servicer of the 
lender to try to work out a loan.
    What would testimony from an attorney be without a 
disclaimer in his mind. I don't mean to say that all servicers 
are bad or that any particular servicer is bad, but if we 
continue to ignore what's going on and how borrowers are 
treated, this problem will never solve itself and the next 
hearing we have will be what to do with Cleveland, which has 
nothing but empty homes.
    From the moment the borrower calls their lender, or some 
borrowers or most borrowers, they're berated, they're 
threatened with eviction, they're threatened with homelessness, 
they're called things, and they're insulted.
    I know how collections work; I used to work at a collection 
agency. Don't kid yourself, the loss mitigation people are nice 
and just want to work things out. Some of them do it to be sure 
and a lot of the national banks have loss mitigation phone 
numbers and they're doing a lot of work and they work with us.
    The program has so far supplied about 65 loss mitigation 
contact names from different lenders to our nonprofit partners 
to help the borrowers, but a lot needs to be done.
    By the time a borrower gets a letter from a lender that 
says, ``Hey, call us, we have a new department that's handling 
your file. We want to help you work this out,'' they think, 
``This is the same guy that called me a deadbeat and told me he 
was going to take my house and put me out on the phone, why 
should I call him back.''
    In fact, in 2005 Freddie Mac did a study where they showed 
that the overwhelming majority of borrowers didn't call the 
lender because they were afraid or they didn't know what the 
borrower had to offer or they didn't know that they had 
options.
    It doesn't make any sense. Every borrower wants to stay in 
their home, every borrower wants to work things out, and every 
borrower obviously knows that the lender calling them on the 
phone is the only person on the globe that can help them work 
things out. Yet the borrower has a stack of loss mitigation 
letters in their drawer, and they leave the house as soon as 
they can.
    So far the Foreclosure Prevention Program has sent out 
about 18,000 postcards to specific addresses that are in 
adverse neighborhoods in Cuyahoga County. We've developed a Web 
site that shows people what the foreclosure process means for 
them and answers frequent questions. We've had about 2,000 
visitors to that Web site. This is just in 4 months, and we've 
multiplied the number of phone calls at first call for help for 
foreclosure assistance by ten.
    That's without marketing the program. So far the only 
marketing we have is me talking in public, the paper doing a 
couple of articles, and the Web site that we have. I have no 
idea what's going to happen once we start getting billboards 
and paying for radio and TV spots. There's going to be a lot of 
people calling, and there's a lot that needs to be done.
    It's too easy. I'm not going to talk about the damage that 
this caused because everybody talked about that so well. It's 
too easy to get a loan. It's too easy to get a fake appraisal. 
It's too easy to get a loan product that can give anybody money 
no matter what the terms are, and this is something that needs 
to be looked at.
    I'm going to skip right to what I think Congress might be 
able to do unless I get the red light while I'm speaking. I 
know that the Federal legislation can take years to take shape 
and I know that once it's submitted it looks way different than 
the animal it comes out with.
    It would help in immeasurable ways, and this hearing 
certainly is a good start. It would help in immeasurable ways 
if our representatives could start talking in Washington, D.C., 
about what's going on and what has to be done and the fact that 
the situation is very dire.
    I don't think Cuyahoga County is the only one that's going 
to look like this and that's going to have 1,000 foreclosures a 
month. I just think we're the first or one of the first.
    And for the people who think that unemployment is the 
biggest cause of foreclosure rates, I submitted a graph today 
with my testimony that shows that even as the unemployment rate 
goes down in Ohio, although it's not what the metro section 
said today, but even as unemployment rate has done down in the 
late 1990's and early 2000's, foreclosures have gone up and up 
and up. We're way above national averages, and it's not 
unemployment that's causing it.
    The time has come to stop arguing about whether there's a 
problem and what the solutions are. Ohio did that this year 
when they passed Senate Bill 185. Now the argument in Columbus 
will be whether 185 is efficient enough and whether the 
Consumer Sales Practices Act can help.
    Second, the laws that help direct the national servicing 
industry need a serious checkup. There are too many players who 
only help borrowers, who only ask the borrowers, and who only 
make more money if the case is in foreclosure than if the 
borrower works out a deal.
    Second, there are two loan products that I think should be 
either abolished or greatly curtailed. The first is the no 
documentation loan. This loan is called openly by mortgage 
brokers a liar's loan because the only thing that the lender 
requires is what the mortgage broker says that the borrower 
makes.
    There was an article yesterday in the Wall Street Journal 
that described how the Mortgage Bankers Association looked at 
some loans; 60 percent of them were inflated over 50 percent by 
the income, and 90 percent of them were inflated 5 percent.
    In my mind, there is no reason why a loan where the lender 
doesn't even look at what the borrower makes, or whether they 
can pay it back, should be legal.
    I've heard some of the lending institutions talk about this 
as a limited consequence, but certainly not in a finance 
situation and not when somebody is buying a house and that's 
where they're most popular.
    The need for financial literacy education for our children 
has never been more apparent; 16 year-olds get credit card 
applications in the mail, and college kids get credit card 
applications in the mail. These kids are deciding something 
that's going to ruin the rest of their lives if they fall in 
that credit card and make it impossible for them to borrow 
money and save money, and the high schools are not giving them 
any guidance in terms of what they have to get and what they 
have to look out for.
    Lastly, Congress can empower States to enact laws that 
curtail predatory lending. The Center for Responsible Lending 
did a study, and that's attached to my remarks, that showed 
that 28 States--they looked at millions of loans, and they 
showed that these 28 States had lower foreclosure rates and 
subprime products were able to flourish and do well after they 
had strong anti-predatory lending laws.
    I would like to ask that my remarks be entered into the 
hearing record today, the testimony and packets that I have, 
and also there's a late entry to the remarks, which is the 
January to July update from the 2-1-1 first call for help that 
details the calls that they received for the Foreclosure 
Prevention Program.
    Thank you.
    [The prepared statement of Mr. Wiseman can be found on page 
107 of the appendix.]
    Mr. LaTourette. Thank you very much.
    Without objection, your late entry will be added to the 
record as well as your complete statement.
    Again, I want to thank both of you for your excellent 
testimony.
    Mr. Rush, has the City put together any statistics to 
determine whether or not the majority of residents who are 
engaged in foreclosure proceedings are doing so as the result 
of defaults on the first mortgage loans or refinancing? Is that 
more of a problem with refinancing than with first loans, or is 
it equally bad in both?
    Mr. Rush. Mr. Chairman, I don't have figures on that. 
That's one of the things that as we have looked harder at 
foreclosures and both within the City and in working with the 
county we see sets of data that we would like to segregate out 
and be able to examine more closely.
    We don't have those figures right now.
    Mr. LaTourette. Mr. Wiseman, you targeted in your written 
testimony and also your oral testimony two types of products, 
no document loans and adjustable rate mortgages.
    Mr. Wiseman. That's correct.
    Mr. LaTourette. Do you have any experience with working in 
your organization as to whether or not there's a greater 
problem with refinancing or first loans?
    Mr. Wiseman. Before I came to the county, I worked for a 
program assisting Cleveland City residents with foreclosure 
problems, and I looked at hundreds of loans when I was there.
    Most of those are refinance loan first mortgage on the 
property that the borrower has, and the majority of those were 
ARM loans because in the subprime market an adjustable rate 
mortgage is tied to usually the liable index, another index 
that's not the U.S. prime lending rate.
    Although the prime rate goes down, the subprime ARM almost 
always goes up and will never be at the same place it was when 
the borrower got the loan.
    Mr. LaTourette. One product to begin with that's of 
interest to me, that's so new, are these interest only loans. I 
have to tell you I know a lot of young people who are buying, 
in my opinion, more house than they can afford, and they're 
buying more house than they can afford because they're only 
paying interest and the principal just sits there forever until 
there's a balloon payment.
    We saw in the Washington area, where Stephanie and I spend 
so much of our time, a balloon just recently burst because I 
think people are engaged in flipping properties and are engaged 
in speculation.
    Are you seeing any impact on the interest only product?
    Mr. Wiseman. Not from what we can tell yet. As far as I 
know, the interest only loan is at prime rate annual, not a 
subprime annual, so it's going to be more popular with the 
communities that are more affluent.
    Of the calls that 2-1-1 has received, only about 55 percent 
have come from Cleveland. We're seeing numbers close to 5 
percent in a lot of the suburbs where traditionally you would 
not see foreclosures in the past.
    And I think that's an indication of just what you're 
talking about, that people are buying more house than they can 
afford.
    They don't realize what's on the other end.
    Mr. LaTourette. There was an article on June 6, 2006, that 
indicated that the hardest hit zip code in the area was the 
44105, and it includes Cleveland's Slavic Village neighborhood. 
Councilman Anthony Brancatelli said that a large number of 
older people are scammed into moving in the neighborhood. This 
is obviously clear evidence of the foreclosure problem.
    You mentioned education in your statement. Can you just 
talk a little bit about whether or not you believe more 
education could be provided that would help the Slavic Village 
residents.
    Mr. Wiseman. I think more education can and should be 
provided. I think it can help. How much it will help is 
anybody's guess.
    I think a lot of people have no earthly idea that they have 
to look at money coming in versus money going out and what's 
going to happen with the interest rate.
    I talked to a woman yesterday who couldn't even make two 
payments on her loan and the first payment--the payment was 
$800. And I said to her, ``Did you know when you signed the 
loan what the payment was?'' And she said, ``Well, they told 
me''--``They asked what I could afford and I told them $650 and 
they said okay,'' and she signed loan papers anyway.
    There's a big problem for borrowers who don't know that you 
have to look at the loan papers and see what the loan amount is 
and not just listen to what the loan officer is saying.
    So, yes, I think education is a very, very important piece 
of the puzzle.
    Mr. LaTourette. When people call your hotline, do they talk 
to a person?
    Mr. Wiseman. That's correct.
    Mr. LaTourette. You mentioned that when people get these 
notices that they're getting in trouble, they're slamming them 
into a drawer. Aside from embarrassment, have you gotten into 
what it is in the human behavior that causes people to just 
ignore them and not reach out for help that is available?
    Mr. Wiseman. This is what causes me to put a pile on the 
end of my desk and not look at the files for as long as I can. 
I cannot imagine what it's like to think that the sheriff could 
be at my house at 8:00 the next morning to put everything on 
the front lawn.
    I think it's too overwhelming for people to deal with. The 
letter you get has the amount you couldn't pay, plus another 
month's payment, plus $5,000 in attorney's fees. Most people 
look at that and say, ``I can't do it so why even bother.''
    During our kick-off Sam Miller, who gave money to the 
program, stood up and said, ``Who's been foreclosed?'' Nobody's 
hand went up but Sam's. Sam's in his 90's, and he recounted in 
detail coming home from school when he was 6 and seeing his 
mother on the lawn with everything they owned.
    I can't imagine what it does to somebody to be in 
foreclosure or worried about losing their house.
    Mr. LaTourette. My last question before turning it over to 
my colleague, in your written testimony you discuss in detail 
sort of the danger of secondary lending.
    And I just want to be clear that you're not indicating only 
the secondary market can provide--and can do a better job at 
regulating the product.
    Mr. Wiseman. That's correct. Nothing could be further from 
the truth. I think the secondary market serves a purpose and 
serves a great purpose.
    I think that the question is, at some point in this country 
the game became signing as many loans as you possibly can and 
getting money out of it.
    Once that happens, the incentive for the person signing the 
loan, a lot of times the loan officer doesn't care whether the 
borrower can make the first payment, the fifth payment, or the 
last payment. That's where the trouble starts.
    Mr. LaTourette. Thank you very much. Stephanie.
    Mrs. Tubbs Jones. Mr. Wiseman, when you speak of the loan 
officer, who do you speak about?
    I say that, and I'm not trying to be defensive of any 
industry at all, but that's a very broad term to use and it's 
not always the banking institution that you put your hand on. 
And I think that most of the dilemma that we find in Cuyahoga 
County are banking institutions that have no land at all or 
location in the area where people have some relief.
    You call up, you pick up the phone like you say, and 
they'll say, ``Okay, if you want so-and-so, press 1, if you 
want so-and-so, press 2,'' and you stay on the line and you 
flip and flip. Answer my question, please.
    Mr. Wiseman. When I say loan officer, I'm talking about the 
person who sits at the table with the borrower and should 
explain the loan terms with them and sees their financial 
information.
    This happens in one or two ways. A great many loan officers 
in this State are free agents. They work for their particular 
lender, they have a brokerage, and they pick a lender off of 
their shelf.
    Mrs. Tubbs Jones. That was part of the reason I pushed so 
much for legislation to require brokers to provide the same 
Federal guidelines and information to borrowers that they're 
not required to do currently, and a lot of borrowers don't 
realize that a mortgage broker is not related. They think this 
is the guy that's looking out for their interests, when, in 
fact, the mortgage broker doesn't have any obligation to do 
that.
    What do you suggest to Congress that we do to address the 
``loan officer'' situation?
    Mr. Wiseman. I think national background checks is a help. 
I think there is a connection that is lost between the loan 
officer and the borrower once the loan is closed.
    And perhaps Congress needs to look at the nationally non-
regulated industry that's doing business. Some lenders do 
business with only independent loan officers who don't work for 
that particular lender, so in 2 years, the loan officer is 
going to be with another lender.
    Mrs. Tubbs Jones. And the lender is no longer even around. 
The loan has been bought by seven different other companies.
    Mr. Wiseman. That's correct. It makes it impossible to hold 
anybody responsible then if the loan officer is gone. So maybe 
if, at some point, that connection gets lost down the line, 
then maybe some increased scrutiny needs to happen at the 
beginning of the process.
    Mrs. Tubbs Jones. Mr. Rush, good morning. How are you 
doing?
    Mr. Rush. Fine.
    Mrs. Tubbs Jones. Always nice to see Mr. Rush. We live in 
the same neighborhood.
    What's the City of Cleveland's legislation or the things 
that you're doing to--what does it do to address the mortgage 
broker or loan officer?
    Mr. Rush. There are several things that we are trying to 
do. One is that the City has an ordinance that requires 
notification and recording. That ordinance was under court 
challenge. Currently it's before the Supreme Court, but it is 
geared to try to provide an opportunity for better explanation 
of the loan product to the borrower and enforcement of the 
ordinance is authorized to the Department of Consumer Affairs, 
which is the point department within the City for predatory 
lending problems.
    Mrs. Tubbs Jones. Since the legislation is--or there's a 
lawsuit pending, what are you able to do in the City of 
Cleveland, through your department, to assist with mortgage 
situations?
    Mr. Rush. Congresswoman, as Mark mentioned, we believe and 
agree with the county that a part of alleviating foreclosures 
and predatory lending is increase in financial literacy. 
Turning off the spigot by making people better informed at the 
front end on borrowing decisions.
    The City of Cleveland spent $4.2 million of CDBG funding 
over the past 5 years to provide funding to agencies that 
provide either financial literacy counseling, pre-purchase, 
post-purchase, or foreclosure counseling.
    Those agencies include the agencies that are participating 
in the United Way 2-1-1 line. So when a resident calls, they're 
referred to one of those agencies. We also participate with 
the--
    Mrs. Tubbs Jones. I'm running out of time. I'm almost done.
    Thank you for that response. I wanted, for the record, Mr. 
Chairman, to acknowledge that Councilman Brancatelli, who you 
mentioned was actually in the audience. Councilman, how are 
you? I see Councilwoman Phyllis Cleveland from Cleveland in the 
audience as well.
    Let me go on to something else. Mr. Rush, in your testimony 
you used the term flipping. What do you see--is there any 
industry responsibility for the volume of flipping that we see.
    Mr. Rush. Congresswoman, I referred to the flippers as 
vultures. 44105 is the zip code that includes Councilman 
Brancatelli's ward. We had a flipper--I guess our poster child 
flipper was a man named Jeff Cruise, who after he was evicted, 
was convicted, but a part of the flipping scenario is due to 
the success of redevelopment activity in neighborhoods.
    In the Slavic Village neighborhood, for example, the 
Community Development Corporation has expended a lot of effort 
to redevelop rehabbed homes in the neighborhood, so you end up 
with two housing markets. A rehabbed home with a quality 
thorough rehab could appraise for between $75- and $85,000. An 
unimproved home may appraise for $40,000.
    So the scavengers or the vultures will come in and prey 
upon that difference. They will approach seniors with an 
opportunity to write a check to them for $40,000 or $50,000. 
These well-marketed campaigns are hard to resist by somebody 
who does not have a high level of financial literacy. So they 
will take that loan out, and then they'll end up in 
foreclosure.
    Mrs. Tubbs Jones. Has the bankruptcy act, Mr. Wiseman, 
enacted in 2005, affected rates of foreclosure to your 
knowledge?
    Mr. Wiseman. Man, that's a tough question.
    Mrs. Tubbs Jones. Not for you, Mr. Wiseman.
    Mr. Wiseman. I have not tracked bankruptcy trends. I know 
that before the Act went into effect there was a flood of new 
bankruptcies because the bankruptcy bar considered it more 
favorable to file beforehand than after.
    I will say a great many borrowers who go into bankruptcy 
are very misinformed. They think bankruptcy is a magic wand and 
it's going to get them the house and it doesn't.
    There needs to be a very specific set of circumstances to 
get you that house, such as paying the lender back, and I don't 
think the bankruptcy attorneys, they're wonderful people, but 
sometimes I don't think they explain this to borrowers. And I 
think it makes it a lot worse in terms of vacant properties 
because sometimes it just adds 6 or 8 months to the situation.
    I can't speak to whether or not there were more, but I will 
tell you that I've had a number of borrowers say, ``But I filed 
bankruptcy.'' And I say, ``That doesn't get you a home.''
    Mrs. Tubbs Jones. Earlier you were talking about what 
Members of Congress needed to do to make a difference, and many 
of the things that you spoke to are things that many Members of 
Congress have been advocating for a significant period of time.
    If there was one thing that you wanted me to take back to 
my colleague, Barney Frank, the ranking member of the Committee 
on Financial Services, what would be that one thing you would 
want me to tell him?
    Mr. Wiseman. Congresswoman, most genies give three wishes
    Mrs. Tubbs Jones. I'm the genie of the genies. I give one.
    Mr. Wiseman. I think the non-regulated lending industry 
needs a serious looking at. They make a lot of money, and they 
don't have to follow the rules that everybody else does.
    Mrs. Tubbs Jones. Let's be a little more specific. When you 
speak of the non-lending portion of the industry, tell me who 
those people are.
    Mr. Wiseman. Well, I can't list them all for you now, but 
there are a great many national lending institutions that do 
not have to submit to most of the government--
    Mrs. Tubbs Jones. You said--I thought you said the non-
lending, you said the national lending. Repeat what you said.
    Mr. Wiseman. Nationally non-regulating lending industry, 
such as Ameriquest, for instance. That's just an example. But 
when you asked Mr. Rush about flipping, too many times flipping 
is caused by the lender just not looking at any of the 
information.
    Everybody can find out whether a house went into sheriff's 
sale 2 months ago for half of what it's going for now. Anybody 
can find out whether repairs were actually done to the house. 
Anybody can find all this out except for a lender who only 
wants to close as many loans that they can and sell them in 
trust on Wall Street.
    Mrs. Tubbs Jones. Same question, Mr. Rush.
    Mr. Rush. Congresswoman, in addition to Mr. Wiseman's 
comments, again, with flipping, flipping could not occur 
without the participation of the appraiser.
    Mrs. Tubbs Jones. So we should have greater regulation of 
appraisers?
    Mr. Rush. Yes.
    Mrs. Tubbs Jones. Is that the one thing you want me to take 
back?
    Mr. Rush. Ditto to Mr. Wiseman.
    Mrs. Tubbs Jones. Mr. Chairman, thank you.
    Mr. LaTourette. Thank you very much. I want to thank both 
of you for your testimony, and your suggestions today. We'll 
take them back with us when we return in September.
    And, Mr. Rush, please extend my thanks to the Mayor for the 
fine work that he's doing.
    Just by way of housekeeping, some members may have 
additional questions for the panel which they may submit in 
writing, but the actual hearing record will remain open for 30 
days. The members may submit written questions to these 
witnesses and place their responses in the record, and those 
would include Congresswoman Tubbs Jones, and Congressman 
Kucinich, who have asked to participate in this hearing. Thank 
you for coming, gentlemen.
    Mr. Wiseman. Thank you.
    Mrs. Tubbs Jones. Look forward to working with both of you. 
Let me know how I can help.
    Mr. LaTourette. If I could ask our second panel to make 
their way to the table.
    Before we welcome the second panel, I need to clarify some 
earlier comments according to counsel.
    According to rule 8 of the standing rules of the committee, 
only statements submitted before the close of the hearing can 
be included in the official record.
    So I think Mrs. Tubbs Jones mentioned a number of people 
whose statements she would like to see included in the record. 
If you would hop up out of your chairs and go find a fax 
machine, and we'll attempt to talk slowly so we can accommodate 
as many of you as we can through the course of the hearing.
    Mrs. Tubbs Jones. Can I repeat that just in case some of my 
colleagues didn't hear you clearly?
    Those of you who wanted to have your statements in the 
record, I need them before the end of the hearing.
    All of my colleagues and good friends who wanted to have 
something to say, I need those statements by the close of the 
hearing. I'll talk really slow.
    Mr. LaTourette. I would like to welcome our second panel 
here today. We are joined in the second panel by Mr. 
Fratantoni, the senior director of single-family research and 
economics for the Mortgage Bankers Association; Ms. Deborah 
Oakley, the senior vice-president of homeownership preservation 
with the National City Corporation, testifying on behalf of the 
Housing Policy Council of the Financial Services Roundtable; 
Ms. Vanessa Randolph, the director of Fannie Mae Northern Ohio 
Community Business Center; Mr. Lou Tisler, the executive 
director of Neighborhood Housing Services of Greater Cleveland; 
and, lastly, Bryan Wolfe, the vice president of the Ohio 
Farmers Union.
    I don't know if you were in the room during the first 
panel, but again counsel has a box with some red lights. We 
have received your written testimony, and Congresswoman Tubbs 
Jones and I have reviewed it, and we appreciate those of you 
who submitted that in a timely fashion.
    We are operating under a 5-minute rule, and when you get 
the red light, if you could sort of sum up, we would appreciate 
it. But as you saw with the first panel, we didn't do anything 
bad to anybody. But if you would take care of that for us, I 
would appreciate it. Welcome to all of you.
    Mr. Fratantoni, you're first.

STATEMENT OF MICHAEL FRATANTONI, SENIOR DIRECTOR, SINGLE-FAMILY 
      RESEARCH AND ECONOMICS, MORTGAGE BANKERS ASSOCIATION

    Mr. Fratantoni. Thank you. Thank you for inviting me. I'm 
Mike Fratantoni, and I'm an economist with the Mortgage Bankers 
Association.
    Let me start by making four key points from my written 
testimony. First, the same economic factors that have caused 
mortgage delinquencies and foreclosures throughout history 
continue today.
    At a national level, foreclosure and delinquency rates are 
currently low, but in Ohio and the Midwest, more generally, 
these rates have been elevated due to a weakened regional 
economy and the resulting job losses.
    Second, mortgage lenders stand to lose financially when 
loans do not perform and thus have significant incentives to 
prevent foreclosures. According to our data, on a national 
basis mortgage lenders' loss mitigation efforts have helped 
three out of four borrowers who enter the foreclosure process 
to avoid a foreclosure sale.
    Third, a fundamental fact regarding mortgage pricing is 
that different borrowers get different mortgage rates that are 
based upon objective credit criteria.
    The Federal Reserve, in its last analysis of Home Mortgage 
Disclosure Act data, confirmed that objective credit criteria 
account for the overwhelming majority of pricing disparities. 
Studies that attempt to paint the industry with a broad brush 
regarding unlawful discrimination are flawed and do not stand 
up to scrutiny.
    Furthermore, legislative efforts to restrict lending 
practices or credit standards invariably reduce credit 
availability.
    Finally, I would like to stress the importance of financial 
education regarding the mortgage process. Prospective owners 
need to educate themselves about the process and about the 
range of available mortgage products, and they need to learn to 
take advantage of the highly competitive nature of the mortgage 
industry today.
    Let me start by reviewing trends in mortgage delinquencies 
and foreclosures. As shown in chart 2 of the appendix to my 
testimony, on a national basis foreclosure rates on loans that 
are available are seen during a recession in 2001, but they've 
increased somewhat due to a number of factors, including high 
interest rate, aging in the loan portfolio, and higher energy 
prices.
    In addition to the national level trend, the two maps in 
the appendix show how delinquency and foreclosure rates varied 
across the country in the first quarter of 2006.
    With respect to the delinquencies, the Gulf Coast continues 
to experience the highest rate in the country. With respect to 
foreclosures, States in the Midwest had the highest rates due 
to the continuing slow pace of job growth and weak housing 
markets.
    The foreclosure trends in Ohio, specifically Cuyahoga 
County, are quite troubling. As I noted with respect to the 
Midwest, the reason for these trends include a decline in the 
number of jobs in the county and a weakened housing market.
    Loss of employment is one of the most common unanticipated 
shots to consumer finances. All of the States in the Midwest 
are continuing to suffer job losses from their peak employment 
prior to the recession of 2001.
    In addition, these States are among the most concentrated 
with respect to manufacturing employment in the Nation. Due to 
the ongoing productivity growth and increasingly strong global 
competition, it's likely that manufacturing employment will 
remain soft in the coming years.
    Another factor impacting the foreclosure rate is the 
homeownership rate. Homeownership rates in the Midwest are 
considerably higher than the national average. A high level of 
homeownership is a sign of strength for a local economy.
    However, in the midst of a regional downturn, homeowners, 
who are typically less mobile than renters, may have difficulty 
making their mortgage payments, leading to delinquency and 
potentially foreclosure.
    Let me turn now to a brief discussion regarding the 
foreclosure process, loss mitigation, and foreclosure 
prevention. There are many false claims about mortgage lenders 
profiting from foreclosures. In reality, every party to a 
foreclosure loses; the borrower, the community, and the 
mortgage lender.
    It's important to understand that profitability for the 
industry rests in keeping a loan current and, as such, the 
interests of the borrower and lender are aligned.
    Now I would like to spend a minute addressing mortgage 
pricing. Over the past few years, States and localities have 
enacted over 30 widely different anti-predatory lending 
standards to protect borrowers.
    While MBA recognize that these initiatives are well-
intended, legislative efforts to artificially tighten lending 
or credit standards will invariably reduce credit availability.
    Let me be clear. There is no perfect model to underwrite 
all borrowers. Two lenders will evaluate the same borrower and 
come to different assessments regarding the risks of that 
borrower. A one-size-fits-all model imposed on the industry 
would stifle innovation with respect to the measurement and 
pricing of risk, and that would be to the detriment of 
consumers.
    The innovation of this industry has benefited borrowers and 
increased the supply of credit, ultimately resulting in a 
higher level of homeownership.
    Finally, I would like to discuss borrower education. If the 
goal is to ensure that a borrower is getting a good deal, there 
is no better approach than to empower the borrower to make that 
determination for himself or herself.
    Borrowers would be far better off if they educated 
themselves about the mortgage process and shopped among lenders 
for the best loan product to meet their needs before they begin 
the process of finding a home. The MBA is devoting considerable 
resources to support the consumer education programs.
    I urge you and your staff to view our consumer Web site at 
HomeLoanLearningCenter.com and take a look at the type of 
information that we believe a prospective homeowner should 
understand preferably before they even start shopping for a 
house.
    Thank you again for inviting me to present the views of the 
MBA before the committee, and I look forward to answering your 
questions.
    [The prepared statement of Mr. Fratantoni can be found on 
page 49 of the appendix.]
    Mr. LaTourette. Mr. Fratantoni, thank you very much.
    Ms. Oakley, you're next.
    Thank you for coming.

 STATEMENT OF DEBORAH OAKLEY, SENIOR VICE PRESIDENT, NATIONAL 
   CITY BANK, ON BEHALF OF THE HOUSING POLICY COUNCIL OF THE 
                 FINANCIAL SERVICES ROUNDTABLE

    Ms. Oakley. Thank you, Congressman LaTourette, and 
Congresswoman Tubbs Jones. My name is Deborah Oakley, and I'm 
vice president for homeownership preservation with National 
City Bank.
    Thank you for the opportunity to speak today. I am 
testifying on behalf of the Housing Policy Council of the 
Financial Services Roundtable.
    The Housing Policy Council represents 22 of the leading 
mortgage finance companies in the Nation. On behalf of the 
Council, I'm here to tell the committee about what actions 
responsible lenders are taking to prevent foreclosures, 
including a new national initiative to help homeowners who are 
experiencing difficulties.
    My testimony follows Mike's testimony quite a bit, so I'm 
going to cut some of it out as I go.
    First of all, there are two popular misperceptions that I 
would like to address.
    The first is that lenders benefit from foreclosure. As Mike 
has testified, we don't. We lose on average $30,000 to $50,000 
on a foreclosed loan through deferred maintenance, property 
devaluation, advances for tax and insurance, foreclosure fees, 
and costs.
    The second is that lenders do not have, and have no wish to 
offer, work-out options to homeowners facing foreclosure. The 
opposite is absolutely true.
    Over the last 10 years, the mortgage industry, in 
conjunction with the GSE and HUD investors and guarantors, have 
established numerous work-out options that are available to 
homeowners to help them keep their homes.
    One of the most frustrating things that lenders face in 
working with homeowners is the lack of response. Typically what 
we find when we take back the property is all of the letters 
that we've sent in the kitchen drawer unopened. We also find, 
at the same time, letters from creditors offering rescue scams 
and schemes to help people keep their homes.
    We are judged by our investors as to how well we work at 
engaging in work-outs. We are scored, we are rated by rating 
agencies, and our operations are looked at. We are studied to 
make sure that we are offering homeowners every opportunity to 
keep their home.
    I would like to address something that was raised in 
earlier testimony. I've managed default operations for 22 
years, and I can tell you that the responsible lenders do not 
engage in good cop/bad cop behavior with the loss mitigation 
people being the good cops.
    We incentive our loan counselors to engage in work-outs. 
They have options to offer--that is done in the collection 
arena where repayment plans and forbearances are offered to 
homeowners. In addition to that, we record calls. We listen for 
behavior that we consider unacceptable, unfriendly, or not 
helpful.
    The work-out options are pretty much the same throughout 
the industry. There are repayment plans, forbearances, loan 
modifications, and for homeowners who can no longer keep their 
home, we have pre-foreclosure sales and deeds-in-lieu.
    We all operate pretty much the same. We take financial 
information from the borrower, figure their excess income, if 
there is any, and their motivation, and then we come up with a 
sensible plan that helps them keep their home.
    We work with counseling agencies. And I would like to 
stress here that this is a paradigm shift. It may have been 20 
years ago that you wouldn't have seen the partnerships being 
formed now between counseling agencies, local governments, and 
community groups to get borrowers into counseling.
    We recognize that good financial counseling helps people 
keep their homes, and it's something that we want to see 
happen. The counseling agencies that are out there, the 
national reputable counseling agencies, are in a unique 
position of trust with homeowners.
    They can talk to them in an objective fashion that they may 
not feel they'll get from their lender, so we welcome these 
partnerships.
    I want to address the national initiative that the Housing 
Policy Council, NeighborWorks, and members of the HPC have 
embarked upon.
    We are working with NeighborWorks and the Homeownership 
Preservation Foundation to publicize a toll-free number, 888-
995-HOPE, in which anybody can call and get free telephone 
counseling. This free telephone counseling is available 24 
hours a day, 7 days a week.
    If a homeowner needs additional assistance, face-to-face 
counseling is available through local NeighborWorks agencies. 
These are all HUD accredited counselors. There's intensive 
training involved in this.
    The HPC members recognize that there are certain hot spots 
in the country, such as Ohio, that need additional attention. 
So we started our national initiative in April in Ohio, and 726 
homeowners in Ohio have been counseled.
    Part of this initiative also includes an Ad Council 
campaign that will be released at the beginning of 2007, that 
will publicize the availability of counseling to anyone in Ohio 
who calls in, and we'll be expanding to Michigan, Georgia, and 
Texas.
    I see the red light blinking so I will stop talking.
    [The prepared statement of Ms. Oakley can be found on page 
73 of the appendix.]
    Mr. LaTourette. Thank you very much, Ms. Oakley, for your 
testimony.
    Ms. Randolph, we're up to you.

STATEMENT OF VANESSA RANDOLPH, DIRECTOR, FANNIE MAE'S NORTHERN 
                 OHIO COMMUNITY BUSINESS CENTER

    Ms. Randolph. Thank you, Chairman LaTourette. Good morning, 
Congresswoman Tubbs Jones. And to all of you in the audience, I 
also say good morning.
    My name is Vanessa Randolph, otherwise known as Van, and I 
am the director of Fannie Mae's Northern Ohio Community 
Business Center.
    In that capacity I act to help emphasize or impact 
affordable housing across the entire State of Ohio, but with an 
emphasis on northern Ohio.
    I am a native Ohioan and currently reside in Cuyahoga 
County. I have over 16 years of mortgage lending experience, 
and I care about reducing the number of foreclosures here in 
Ohio.
    I am pleased to be here today to discuss foreclosures, 
foreclosure prevention, and to share with you the steps that 
Fannie Mae is taking to help keep people in their homes.
    Ohio does have the highest rate of defaults, and this is a 
distinction we could very easily live without. According to a 
recent report, Ohio's foreclosure rates have doubled since 1998 
and have increased more than 31 percent since 2001.
    Ohio was first in the number of mortgage defaults in 2004 
and 2005. The Mortgage Bankers Association reports that in 
2005, the number of prime Ohio loans in foreclosure was 1.48, 
which was 3 times the national rate of .42 percent. Fannie 
Mae's rates on foreclosures tend to confirm this trend.
    But we are not here today to dwell on our problems but to 
discuss what we can do to reduce the number of foreclosures in 
our community.
    Fannie Mae's objectives are two-fold.
    First, we must do everything we can to assure that 
borrowers are not put into situations where they cannot afford 
these payments over long periods of time.
    It is Fannie Mae's desire to avoid purchasing loans from 
lenders who demonstrate the use of predatory or abusive lending 
methods, and in 2001, we developed a set of anti-predatory 
lending standards that lenders must adhere to in order to sell 
loans to Fannie Mae.
    These standards include not purchasing or securitizing 
mortgages with excessive points and fees, including loans 
subject to the Homeownership and Equity Protection Act of 1994, 
and mortgages where the lenders did not adequately assess the 
borrower's ability to repay the loan.
    Fannie Mae's second objective is to do everything feasible 
to keep people in their homes. First and foremost, Fannie Mae 
believes in financial literacy, and we believe that is the key 
to success. The more families know and understand about the 
economics of homeownership, the more likely that they will 
become successful homeowners.
    Let's discuss what can happen when families cannot make 
their mortgage payment. Fannie Mae has developed a home saver 
solution initiative consisting of several creative approaches 
that help financially troubled borrowers stay in their homes 
where possible or avoid the stigma of foreclosure.
    These approaches, collectively known as work-outs, consist 
of forbearances, repayment plans, modifications, assumptions, 
pre-foreclosure sales, and deeds-in-lieu of foreclosure.
    The key to success of this initiative is early 
intervention. We also, therefore, encourage borrowers 
experiencing financial difficulties to contact their lender/
servicer at the first sign of trouble, and we ask that our 
seller/servicer do likewise.
    Since 1997, an increased number of Fannie Mae borrowers 
have been able to work out delinquencies instead of losing 
their homes to foreclosure. Repayment plans and modifications 
have increased, enabling most borrowers to remain in their 
homes.
    And as of year-to-date 2006, Fannie Mae has entered into 
work-outs aimed at saving borrowers' homes for approximately 
one-third of Ohio loans that have become seriously delinquent.
    Work-out options are based largely on the borrower's 
financial situation, the type of mortgage they have, and the 
investor holding the loan.
    Alternatives to foreclosure are two major categories, short 
term and long term. Again, the short term would be forbearance 
agreements and repayment plans, and the longer term would be 
modifications, assumptions, pre-foreclosure, deeds-in-lieu, 
etc. My written testimony does describe these in more detail, 
and it also tells the benefits of these options.
    Unfortunately, despite the best efforts of Fannie Mae and 
loan servicers, not all borrowers are able to avoid 
foreclosure. Again, borrowers are encouraged to notify the 
servicer at the first sign of difficulty. By being proactive 
borrowers can not only avoid foreclosure but also avoid 
possible long-lasting damage to their credit reports.
    Fannie Mae feels so strongly about helping Americans 
sustain homeownership that we expect our servicers to pursue 
alternatives to foreclosure, and we provide for servicers to 
earn additional compensation from us for pursuing alternatives 
to foreclosure.
    However, when the borrower does not meet the mortgage 
obligation or when the work-out attempts fail, foreclosure is 
unavoidable. If foreclosure becomes necessary, it will be done 
in the most cost-efficient manner possible and within the 
guidelines of the State.
    I want to again thank you for your leadership and your 
commitment to addressing the foreclosure problems on behalf of 
all Ohioans. You have been, Congressman and Congresswoman, 
champions in developing affordable housing.
    We look forward to working with you and to making progress 
on this issue. Thank you.
    [The prepared statement of Ms. Randolph can be found on 
page 82 of the appendix.]
    Mr. LaTourette. Thank you very much, Ms. Randolph.
    Mr. Tisler, welcome to you.
    You're next.

   STATEMENT OF LOU TISLER, EXECUTIVE DIRECTOR, NEIGHBORHOOD 
             HOUSING SERVICES OF GREATER CLEVELAND

    Mr. Tisler. Thank you.
    Good morning, Chairman LaTourette, Congresswoman Tubbs 
Jones, and members of the committee. Thank you for bringing 
this hearing to the State that is the epicenter of the 
foreclosure crisis.
    I'm here today to testify regarding the local and national 
strategies that have been developed to attack rising 
foreclosures, including homeownership counseling and education, 
both before and after a purchase.
    Neighborhood Housing Services of Greater Cleveland is a 
not-for-profit community development corporation incorporated 
in 1975 as one of the charter organizations of NeighborWorks 
America, also known as Neighborhood Reinvestment.
    Our mission is to enhance the quality of life in 
Cleveland's neighborhoods and inner-ring suburbs by promoting 
homeownership, increasing economic development, and developing 
housing that is affordable through education and home repair 
programming.
    Our commitment to the community and to these issues also 
include relocating our offices into the Slavic Village 
neighborhood and bringing our education center to Slavic 
Village.
    Neighborhood Housing Services of Greater Cleveland's 
program lines include the homeownership promotion program, 
which consists of educational classes and loans for people 
interested in becoming homeowners, and the homeownership 
preservation program, which consists of loan products, post-
purchase counseling, and foreclosure assistance to those 
residents who are interested in maintaining and preserving not 
only the physical structure of their home but also the ability 
to retain ownership.
    We have all witnessed the dramatic increase in 
foreclosures. Ohio is ranked number one in the country for the 
rate of foreclosures. This is not something new.
    Reasons for this growth in foreclosures include life crises 
such as unemployment, divorce, and medical problems, as well as 
ease of access to credit. In Cuyahoga County, and Cleveland 
specifically, the top reasons are predatory lending and the 
addition of these life crises.
    Neighborhood Housing Services of Greater Cleveland's 
homeownership preservation program includes a post-purchase 
program which provides homeowners with counseling and education 
in areas of mortgage delinquency, foreclosure, predatory 
lending prevention, credit and budget counseling, and home 
maintenance and refinance workshops.
    Also, locally to dovetail the Cuyahoga County foreclosure 
prevention program 2 weeks ago in Washington, D.C., the 
program, with our involvement, received the third place award 
for innovation of homeownership across the Nation in the 
NeighborWorks network.
    We have also been working with local community development 
corporations, national partners throughout the State of Ohio, 
and one of our most invaluable partnerships has been the 
Federal Reserve Bank of Cleveland, of convening, researching, 
and providing innumerable and invaluable resources to our 
effort.
    NeighborWorks America is a congressionally funded national 
nonprofit that has established the Neighborhood Center for 
Foreclosure Solutions in partnership with the private sector to 
preserve homeownership by coordinated foreclosure intervention 
strategies in communities nationwide.
    In Ohio, in particular, 10 NeighborWorks organizations, 
including Neighborhood Housing Services of Greater Cleveland, 
are collaborating with lenders, State and local government, and 
other partners with support from NeighborWorks America 
initiating the statewide foreclosure effort to address the 
rising foreclosures across the State, as Ms. Oakley has 
indicated.
    This also includes a recently funded statewide rescue fund 
of approximately $1 million to do work-outs and rescues of up 
to $3,000 per homeowner.
    As an example of our local foreclosure prevention programs, 
one of our clients purchased her home with her mother. Her 
mother moved away leaving her to continue with the mortgage 
payments but with only half the income, since the home was 
originally supported by two incomes.
    Our client found herself thrown into a situation that 
forced her to work three jobs, and yet she still found herself 
in foreclosure. She came to the Neighborhood Housing Services 
of Greater Cleveland offices not knowing what her options were. 
Her lender was very unresponsive to providing a work-out.
    Our HUD-approved housing counselor worked with the client 
to prepare and address a budget to show her how she would be 
able to afford her regular monthly payments as well as make 
additional payments to keep her home.
    The housing counselor contacted the lender who, again, 
originally would not work with our client, and we were able to 
get them to agree to allow our client to be placed into a 
reasonably affordable repayment agreement. Through cooperation, 
education, and determination, this client will be able to keep 
her home.
    In order to address foreclosures more broadly through a 
partnership with the Homeownership Preservation Foundation, as 
Ms. Oakley has indicated, NeighborWorks America is promoting a 
national hotline to assist homeowners in distress, helping them 
contact the mortgage servicers and providing them with 
referrals to local NeighborWorks organizations such as 
Neighborhood Housing Services of Greater Cleveland for face-to-
face counseling, rescue funds, and to help navigate local 
resources.
    Since its kickoff on April 11th, the Ohio foreclosure 
hotline, 888-995-HOPE, received a total of more than 2,000 
calls; 871 counseling sessions were completed; and 40 percent 
of these clients were more than 120 days late on their 
mortgage.
    Again, stressing the educational aspect that our borrowers 
need to speak to their lending institutions. So as you can see, 
Mr. Chairman, there's no one solution to rising foreclosures, 
but we are working on several fronts to help families protect 
their most precious asset, their home.
    Thank you for convening this very important hearing in our 
community, and I look forward to answering any questions the 
members of the committee may have.
    [The prepared statement of Mr. Tisler can be found on page 
98 of the appendix.]
    Mr. LaTourette. Thank you very much for your written 
testimony and also your oral testimony today.
    Mr. Wolfe, welcome to you. I thank you for providing your 
written testimony, and we look forward to hearing from you.

  STATEMENT OF BRYAN WOLFE, VICE PRESIDENT, OHIO FARMERS UNION

    Mr. Wolfe. Thank you for inviting me, Congressman 
LaTourette, and Congresswoman Tubbs Jones.
    My name is Bryan Wolfe. I'm a dairy farmer from Ashtabula 
County, Ohio, and I would like to thank you for this 
opportunity to speak concerning the farm credit issues.
    People need food, which is another way of saying people 
need farmers. Farmers need access to credit in order to produce 
food. Credit is a growing problem for farmers. According to the 
Federal Reserve data, 31 percent fewer non-real estate loans 
were made to farmers than were made 10 years ago.
    From a banker's perspective this makes sense. Farming no 
longer demonstrates that hard work pays.
    Take milk, as an example. Ohio dairy farmers were paid 
$11.74 per hundred weight for milk produced in June. The USDA 
economic research service shows the total cost of producing 
milk in Ohio to be $24.31 for June 2006.
    When our milk is priced below the cost of production 
through a Federal pricing system, something is wrong. There's 
something wrong when the value of farmland is determined by 
non-farm purchasers.
    A recent USDA report stated cropland and pasture values 
rose by 13 and 22 percent respectively since January 1, 2005. 
The Dow Jones Industrial average rose just 3.7 percent in the 
same period. The report continues, ``The increase in farm real 
estate values continues to be driven by a combination of mostly 
non-agricultural factors, including relatively low interest 
rates and strong demand for non-agricultural land uses. Demand 
for farm real estate as an investment continues to be a strong 
market influence.''
    This combination of artificially low farm prices and 
artificially high farmland prices becomes a deadly combination 
when farmers need to restructure farm loans. In many cases, a 
farmer's credit problem could be resolved with a simple loan 
restructuring. Although the equity might be there, the equity 
is not based on agricultural use.
    Farmers may then be driven to foreclosure. At that point, 
all too often, the farmer is trapped in a system of lender 
corruption which he has neither the time nor the resources to 
adequately fight.
    Even where there is no obvious corruption, lenders have no 
incentive to work with farmers. With the rise in farmland 
value, the lender is likely to sell the assets in a foreclosure 
for several times the amount owed.
    Complicating all of this is bank consolidation. Just a 
generation ago, farm loans were mostly a financial activity 
between people from the same community. Today those setting 
farm loan policy at some remote central office, and the farmer 
needing credit, are strangers.
    That might not seem to be an important point, but if you 
drive through rural America, it looks like a war zone. Rural 
poverty is climbing faster than urban poverty. Farm towns are 
losing businesses and population.
    Of all the population loss, the most devastating is the 
loss of our youth. The average age of farmers is growing each 
year. An article in the July issue of the Fedgazette published 
by the Federal Reserve Bank of Minneapolis says, ``The outlook 
for 2006 is negative throughout the district, as 39 percent of 
lenders expect net farm income to decrease. This pessimism is 
due mostly to high production costs, such as the continued 
increased costs of inputs, fuel, chemicals and machinery 
repairs, according to a South Dakota banker. Pessimism and a 
poor lending environment will not attract youth to farming.''
    A logical question then is: Who will feed America in the 
future? America's agricultural trade surplus is virtually gone. 
However, with rising fuel costs, food imports will no longer be 
a solution for the American public.
    We are back to where we began. We are talking about food. 
If the American public's interest is to be served, farmers need 
both a fair farm price and access to farm credit which 
realistically serves their needs. Homeland security ultimately 
begins at the farm.
    That's my statement, and I thank you again for the 
opportunity to be here today.
    [The prepared statement of Mr. Wolfe can be found on page 
145 of the appendix.]
    Mr. LaTourette. Mr. Wolfe, I want to thank you for coming, 
and also for your testimony. Basically, it's not your testimony 
that I want to begin with. But, Ms. Oakley, in a previous 
conversation I had with Mr. Wolfe, it ties into when you were 
talking about the lengths that National City goes through to 
try to find some accommodation with people involved with trying 
to work this problem out.
    Bryan would come and tell me that--it sounds foreign to 
those of us that live in the city--but he said, ``We're having 
a bad year.'' He may not even make enough money to feed his 
family. He might like to buy two or three cows.
    And in order to do that, he would go in town and he would 
go to the bank, and he would shake hands with the banker and 
the banker, who had known him for years and knew his family, 
would give him the money to buy two or three cows.
    I grew up in Cleveland Heights, and I knew the teller at 
the bank. And I think when we heard Mr. Wiseman, the difficulty 
that some of us have isn't with National City. It's when--and 
we all recognize the value of the secondary market, but it's 
when that mortgage is sold again and again and again.
    The person who is on the phone with the person about to go 
into foreclosure might not be as friendly as the folks at 
National City on your recorded telephone call. It is some 
person who has bought the note, and they're not too nice.
    I never worked in the collection business, as Mr. Wiseman 
has, but I've gotten collection telephone calls, and these 
people aren't very friendly.
    I'm just wondering how we got away from not necessarily the 
neighborhood banker, but how we got away from--how do we ensure 
that everybody is sort of moving ahead? I'm very impressed with 
what Fannie Mae is doing, what the bank is doing. How do we get 
back to protecting the consumer who has fallen prey to this 
tertiary person trying to collect.
    Ms. Oakley. I think, in answer to your question, we are 
moving in that direction. The national lenders meet constantly 
to share best practices. We are encouraged and penalized for 
not engaging in work-outs, not dealing with borrower issues.
    It is sometimes like pushing a string to get people to 
change behavior, but people do what they are rewarded for, 
which we find in working with our staff.
    And as far as the national lenders, our goal is to work 
with our customers to improve homeownership retention rates, to 
make sure that people have every opportunity. It's one of the 
reasons why we're entering into these partnerships with local 
agencies.
    There is something else, if I can add, that national 
lenders are doing. We're trying to improve the communication 
between us, the local government, and the nonprofit agencies by 
providing key contact lists for those people who are getting 
frustrated in trying to identify who to reach.
    That includes property preservation contacts. We just 
provided Judge Pianka with a list that identifies the key 
contacts and the escalated contacts for major lenders.
    We're also trying to get out there in the communities and 
understand the problem better.
    Clearly if you sit in your office and you never sit down 
face to face with people who are facing foreclosure, you really 
don't understand the scope of the problem.
    But your question is a good one. I don't think there's an 
easy answer for it.
    Mr. LaTourette. I thank you.
    Mr. Fratantoni, I believe Mr. Wiseman was testifying, and 
he talked about what he saw as things in the secondary market 
and even with the original lender adjustable rate mortgages and 
no document loans. And I heard what you said, and I believe 
that one-size-fits-all mortgage policy in the country is not 
best.
    Different consumers come to borrow money with a different 
set of circumstances and different products are required.
    But any mortgage that I've ever taken out, again, I knew my 
banker, I had to supply tax returns, I had to supply W-2's and 
one asked for my firstborn, but I had to give them a lot of 
stuff to get a loan.
    Would you please respond from a mortgage banker's 
perspective on Mr. Wiseman's observation that one of the 
reasons we find ourselves in this mess are these no document 
loans.
    Mr. Fratantoni. I think it would probably help to talk a 
little bit about the history and about the development of these 
loans. They were designed with the self-employed borrower in 
mind who might have difficulty or it might be time consuming to 
document income or highly variable income from year to year.
    This program would enable them to state what their average 
income might be in a given year just as a time period and for 
that time they get a higher rate to avoid some difficulty of 
pulling all the documents together.
    If you looked at the performance of stated income loans 
from Wall Street, they typically perform fairly well relative 
to full documentation loans and, in fact, a substantial 
proportion of all loans today are now reduced documentation 
loans. You don't need all of the documentation.
    Now, obviously, we should be extremely concerned about 
fraud. There was a report Mr. Wiseman mentioned, and he also 
noted that since 1999 the FBI reports of mortgage fraud have 
increased sevenfold. There were 22,000 suspicious activity 
reports that were mortgage related in Fiscal Year 2005.
    Federally regulated institutions reported over $1 million 
in fraud-related losses in 2005. So this is an enormous issue 
for the industry. It obviously impacts lenders and certainly 
affects borrowers as well.
    Mr. LaTourette. I have to say that I was impressed by Mr. 
Wiseman's testimony.
    Ms. Randolph, I just wanted to ask, Fannie Mae doesn't do 
business with consumers directly?
    Mrs. Tubbs Jones. For the record I would like to state that 
a wonderful gentleman, Gerald Fuerst, the clerk of courts of 
Cuyahoga County is here. Thank you, very much.
    Mr. LaTourette. Thank you, very much.
    Fannie Mae doesn't do business with the consumer directly. 
Could you give us some details on the types of lenders that 
Fannie Mae does do business with? And then we'll also talk 
about the anti-predatory lending procedures and regulations in 
place at Fannie Mae, and those are restricted in most States, 
could you just comment on that as well.
    Ms. Randolph. Certainly.
    It is indeed a fact that Fannie Mae does not deal directly 
with consumers because, by our charter, we are not allowed to. 
So we need to partner with as many entities that are out in the 
community interacting with the consumers as possible. We do 
that by way of lenders, nonprofit developers, counseling 
agencies, and the like.
    We certainly look to lenders who have a reputation for 
being credible, and Ms. Oakley has pointed out we don't do it 
in a vacuum. We identify lenders and then we watch lenders, and 
we monitor their activities, we monitor what types of loans are 
delivered to us.
    We monitor them for early defaults and that type of thing 
so we can check and make sure they understand the quality of 
loan we're looking for because we don't want to put borrowers 
at risk.
    Our anti-predatory lending initiatives, you are correct, we 
have them in certain States and not throughout the entire 
country. Fortunately, we have four of those initiatives here in 
Ohio. The cities would include Toledo, Dayton, Cincinnati, and 
the last that was introduced was here in Cleveland.
    And the overall objectives of those initiatives is to help 
our nonprofit partners to go through documentation with 
potential victims of predatory lending prior to them entering 
into the foreclosures.
    So our objective here is to keep them in their homes by 
putting them in touch with folks that can help them before it's 
too late.
    Mr. LaTourette. You mentioned that Fannie Mae incentivizes 
lenders who actually work things out, and we've said for 
purposes of this hearing the open observation that the lenders 
lose on average $30- to $50,000 on foreclosures.
    Can you describe what--do you give them cash to say nice 
job?
    Ms. Randolph. Actually we do that, too. We incent them 
monetarily. We also provide for their benefit a Web-based 
product called risk profiler. And what that risk profiler is 
intended to do for our lenders, it's a free service to them, 
but it is to help them determine trends of an individual 
borrower, to look at the trends of a product and give us 
feedback around those borrowers and that product.
    And that will help them to detect at an early stage if--
let's say your normal payment pattern is that you pay your 
mortgage on the first of the month but here you're at the fifth 
day of the month. Risk profiler would even pick up that this is 
out of character for that borrower, and that lender may very 
well pick up the phone at that point and just reach out to the 
borrower or try to reach out to the borrower to ask if there's 
anything they can do to assist.
    So there are several different things we do to try to help 
the process before it gets to be too late.
    Mr. LaTourette. Thank you, very much.
    My last question before I open it to my colleague. Ms. 
Oakley, today it would be my observation that we sort of moved 
in a positive direction, and we no longer have the discussions 
we used to have about which consumer can foreclose, and I think 
there is a valid discussion now as to the terms in which 
consumers get home loans and some of the concerns about which 
consumers would enter them continue on.
    From the banking perspective, to what would you attribute 
the fact that minority borrowers receive on average a higher 
rate of subprime loans than white Americans?
    Ms. Oakley. I think the MBA testimony addresses some of 
those issues, which is that those decisions are based on the 
credit profile and the documentation submitted by the homeowner 
which is not race based--we use automated underwriting tools 
that look at credit scores, credit history, pay histories, 
length of employment, and things of that nature.
    Those are all ingredients in the automated underwriting. So 
I don't have a good answer for you as to why that observation 
is out there.
    Mr. LaTourette. Thank you, very much.
    Mrs. Tubbs Jones. It's more than observation, Ms. Oakley. I 
love National City Bank, they do a great job in Cleveland, but 
it's more than an observation that African-Americans receive 
greater points.
    We've got studies from the Federal Reserve and all over the 
place. I'm not intending to be accusatory, but it's a reality 
and part of the reason that so many people are alarmed about it 
is because it's fact and we know it's fact. It is nothing 
personal, but it's fact, and we need to deal with that.
    Let me go on to a couple of other things. To my colleague, 
Mr. LaTourette, this hearing is so important to so many of my 
colleagues in Cuyahoga County that they continue to show up in 
droves.
    We've got two city council people from Warrensville 
Heights, Deborah Hill and Ruby Nelson. We also have the Mayor 
of the City of South Euclid, who has joined us as well, 
Georgine Welo. And I just want you to know for the record how 
many people in our county in my Congressional district are 
concerned about this and thankful that you would choose this 
hearing.
    Let me ask about exotic mortgages for a moment. In a study 
of 2006, based on review of 2001 data, the Federal Reserve 
concluded that even with simple ARM's, 35 percent of borrowers 
could not discern how much their interest rate could jump at 
any one time; 41 percent were not sure of the maximum rate they 
could be charged. Non-white borrowers were twice as likely than 
white borrowers to not understand their loan terms.
    Isn't this further evidence that lenders may bear some 
responsibility that loans should be made in the best interest 
of the borrower, Mr. Fratantoni?
    Mr. Fratantoni. I think it gets back to a portion of my 
testimony with respect to borrower financial education, and I 
certainly agree that the industry has a major role there to 
provide all of the resources prospective homeowners need to 
understand the loan they're signing up for.
    Our guidance to borrowers is that the first thing they 
should do before they go out shopping for a home is sit down, 
Mr. Wiseman suggested, and get their family budget in order. 
You don't go shopping for the home first. First you figure out 
what you can live with. And then you go to the lender, look at 
the range of available mortgage products that are available, 
understand the mortgage products, and then you go shop for a 
home.
    Mrs. Tubbs Jones. I understand the educational pieces. It 
sounds great for all of us seated here, but everyday people, 
they're berated.
    I'm a late TV watcher sometimes, and I've reduced how much 
cable I have in Washington, D.C., just because it's starting to 
cost too much. So I'm watching the regular TV station, and it's 
unbelievable, ``Are you in debt?'' ``I could get you out of 
debt.'' ``How do I get you out of debt, just call my number and 
you'll be out of debt.''
    There's some company called Great Consumer or some name, 
and I'm trying to figure out who is paying them to do this, to 
get people to go into an agreement that they must be getting a 
percentage of. Can you help me with that?
    Mr. Fratantoni. Absolutely. In 2004, there were 8,800 
lenders who originated more than 100 loans. There are a lot of 
people out there who are hungry for business.
    And that's why we emphasize the borrower education so much 
because they have to get armed with the knowledge they need to 
reduce that competition for the banks.
    Mrs. Tubbs Jones. How do the good people in industry help 
us regulate the bad people? I've been talking about this for 
the 8 years that I've been in Congress. There's got to be a way 
in which all you good folks who do the right thing, write loans 
and let everybody borrow, how do we kick them out of the 
country?
    Mr. Fratantoni. I think you put them out of business. If 
you can offer someone a 7 percent loan and they're being 
offered a 9 percent loan by someone else, you need the borrower 
to understand how to shop between the two loans, to choose the 
one that's best for them, to choose the best deal for that 
borrower.
    Mrs. Tubbs Jones. Do you believe the industry is willing to 
expend greater dollars to help us educate people who are 
applying for loans, is that possible?
    Mr. Fratantoni. Absolutely. We are doing that. We have a 
consumer Web site, HomeLoanLearningCenter.com, and we are 
putting substantial resources into that.
    Mrs. Tubbs Jones. I'm going to legislate that you have to 
spend more money. I want you to agree with me that we have to 
do this collectively in some fashion.
    I'm going to talk with my colleague, Mr. LaTourette, about 
us corresponding about exotic mortgages and see if we can do 
something in that area.
    Ms. Randolph. Congresswoman Tubbs Jones, if I may just add 
a bit to that. I think we need to put a foot patrol to some of 
what we're doing. You mentioned earlier that it's a known fact 
that minorities tend to end up more at risk than others.
    I believe very strongly that the reason for that has to do 
largely with the fact that they are still not comfortable 
walking through some of our lenders' doors. And if that, in 
fact, is tested, I think you will find it to be a situation 
where we need to go sideways maybe to go forward, meaning we 
need to identify other trusted advisors who folks are more 
comfortable talking with and then bring in the expertise.
    If that means we go through the churches, if that means 
that we go through even some of the health care facilities, 
that is what we need to do here in Cuyahoga County because 
there is still a great deal of distrust amongst our African-
American and Hispanic communities.
    We try to partner with those kinds of entities to get that 
message across because we know that folks--they don't pick up 
the phone and call Fannie Mae, and when they do, what do we 
have to do, we have to refer them back to a list of lenders or 
a list of competent agencies.
    Mrs. Tubbs Jones. Let's huddle my advocacy as well to be on 
behalf of the Spanish-speaking community, the Hispanic 
community. What's happening, what are we doing in that area 
trying to address the issue of predatory lending, Mr. Tisler, 
Deborah?
    I'm going to come to you, Mr. Wolfe, in a minute, too. My 
grandfather used to have a farm. I didn't know much about it, 
but I want to ask you a couple of questions.
    Mr. Tisler. At this point, with our agency, we have two 
people who are bilingual, English as a prior, Spanish as a 
first language.
    We really do outreach and education that is outside of our 
programs and services, so if somebody calls, we really make 
sure that they feel comfortable in moving forward.
    We have Fannie Mae and Freddie Mac publications in Spanish, 
in Polish, and in Russian that we're able to sit down with a 
client and be able to walk them through.
    What we find is that with the Hispanic community and a lot 
of the immigrant communities that people are as hungry for 
business as sharks are hungry for food, so we want to make sure 
that doesn't happen.
    Mrs. Tubbs Jones. Mr. Wolfe, what would you suggest that 
Congress do to assist farmers with foreclosures? I gave the 
other people only one wish, I'm going to give you two wishes 
because I like to eat.
    Mr. Wolfe. I think, first of all, something that you folks 
can do in Washington, D.C., is the old FSA offices or FHA, 
Farmers Home Administration, they get a monetary reward for 
selling farmers out once they get in trouble instead of working 
with them.
    So the old FHA used to be a source of last credit for 
farmers, and the paperwork right now is unbearable to get a 
loan and the amount that you can borrow from them, direct 
borrowing money is really not very much in today's world, a 
couple hundred thousand, and they do also guarantee loans.
    But in our area nobody wants to do any business with them 
on the guarantee loans because the commercial banks can't do 
the paperwork to keep up with the 90 percent guarantee.
    So the old Farmers Home Administration, as far as I'm 
concerned, is just in total disarray and it's not out there to 
help farmers at all. But I do know for a fact that the district 
people, when it comes time to foreclose on a farmer, they do it 
with the monetary reward.
    Mrs. Tubbs Jones. But you said they get incentives to help 
you go through foreclosure versus expenses to help you stay out 
of foreclosure.
    Mr. Wolfe. Right.
    Mrs. Tubbs Jones. Second request.
    Mr. Wolfe. I think overall because there is such a small 
margin of profit in agriculture, whether it's commercial banks 
or farm credit service or FHA, we need a totally different set 
of guidelines to deal with us.
    You go through a bank and we get commercial loans which are 
probably 3, maybe 4 times higher interest rates than a 
homeowner would get for their home, and so that's what farmers 
live on, that amount of money.
    A lot of the banks in our area will say they don't do 
agricultural loans or other rural community loans because they 
don't have the expertise to do them, and so they walk away from 
farm loans because of that.
    There's really no simple answer, but I think we need to sit 
down with you folks in D.C.
    Mrs. Tubbs Jones. There are other things, as well. This is 
a Federal hearing, but maybe at some juncture I would like to 
hear from you what you think that the State of Ohio could do on 
behalf of the farmers.
    I would like to connect you with that gentleman right 
there, even though you're out of my district, he won't mind, 
but I want to help you do something, in this district we have 
Michael Taylor to figure out what we could do.
    Mr. LaTourette. I advised you of that.
    Mrs. Tubbs Jones. Sounds like a plan. Actually I used to 
have--I didn't foreclose, I just stopped leasing.
    For the record, I want to submit a listing of bank fraud 
capiases that were provided to us by Judge Pianka as some of 
the corporations that he found most in foreclosure giving him 
difficulty with the court. I won't read them for the record, 
but I'd like to submit them, if possible.
    Mr. LaTourette. Certainly. Without objection.
    Anything else.
    Mrs. Tubbs Jones. Of course, I can go on, but I'm good.
    Mr. LaTourette. I want to thank all of our witnesses on the 
first panel and also on the second panel.
    I'll ask unanimous consent to include for the record the 
testimony of Anne Juterbock on behalf of the Department of 
Consumer Affairs for the City of Cleveland, as well as the 
attachments that were referenced in Ms. Randolph's and Mr. 
Rush's testimony, and the poster he referenced as well.
    I want to thank my colleague, Stephanie Tubbs Jones, for 
asking us to be here again today, and I want to thank Tri-C for 
letting us come to your facility, I want to thank all of our 
witnesses and I want to thank all of you who attended today.
    No further business coming before the subcommittee, we're 
adjourned.
    [Whereupon, the hearing was adjourned.]
                            A P P E N D I X



                            August 23, 2006
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