[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
THE EFFECT OF PREDATORY LENDING AND
THE FORECLOSURE CRISIS ON TWIN CITIES'
COMMUNITIES AND NEIGHBORHOODS
=======================================================================
FIELD HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
AUGUST 9, 2007
__________
Printed for the use of the Committee on Financial Services
Serial No. 110-57
U.S. GOVERNMENT PRINTING OFFICE
38-397 WASHINGTON : 2007
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
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HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California RICHARD H. BAKER, Louisiana
CAROLYN B. MALONEY, New York DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois MICHAEL N. CASTLE, Delaware
NYDIA M. VELAZQUEZ, New York PETER T. KING, New York
MELVIN L. WATT, North Carolina EDWARD R. ROYCE, California
GARY L. ACKERMAN, New York FRANK D. LUCAS, Oklahoma
JULIA CARSON, Indiana RON PAUL, Texas
BRAD SHERMAN, California PAUL E. GILLMOR, Ohio
GREGORY W. MEEKS, New York STEVEN C. LaTOURETTE, Ohio
DENNIS MOORE, Kansas DONALD A. MANZULLO, Illinois
MICHAEL E. CAPUANO, Massachusetts WALTER B. JONES, Jr., North
RUBEN HINOJOSA, Texas Carolina
WM. LACY CLAY, Missouri JUDY BIGGERT, Illinois
CAROLYN McCARTHY, New York CHRISTOPHER SHAYS, Connecticut
JOE BACA, California GARY G. MILLER, California
STEPHEN F. LYNCH, Massachusetts SHELLEY MOORE CAPITO, West
BRAD MILLER, North Carolina Virginia
DAVID SCOTT, Georgia TOM FEENEY, Florida
AL GREEN, Texas JEB HENSARLING, Texas
EMANUEL CLEAVER, Missouri SCOTT GARRETT, New Jersey
MELISSA L. BEAN, Illinois GINNY BROWN-WAITE, Florida
GWEN MOORE, Wisconsin, J. GRESHAM BARRETT, South Carolina
LINCOLN DAVIS, Tennessee JIM GERLACH, Pennsylvania
ALBIO SIRES, New Jersey STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota TOM PRICE, Georgia
RON KLEIN, Florida GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida PATRICK T. McHENRY, North Carolina
CHARLES WILSON, Ohio JOHN CAMPBELL, California
ED PERLMUTTER, Colorado ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida KENNY MARCHANT, Texas
JIM MARSHALL, Georgia THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma
Jeanne M. Roslanowick, Staff Director and Chief Counsel
C O N T E N T S
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Page
Hearing held on:
August 9, 2007............................................... 1
Appendix:
August 9, 2007............................................... 43
WITNESSES
Thursday, August 9, 2007
Abed, Wade, President, Minnesota Mortgage Association............ 33
Bridges, Dorothy J., CEO & President, Franklin National Bank,
Minneapolis, Minnesota......................................... 22
Coleman, Hon. Christopher, Mayor, St. Paul, Minnesota............ 7
Glover, Sharon, Golden Valley, Minnesota......................... 16
Gugin, Julie, Executive Director, Minnesota Home Ownership Center 31
Hanson, Patricia L., President, Community Development and
Specialized Lending, Wells Fargo............................... 25
Johnson, Barb, President, Minneapolis City Council............... 5
Marx, Timothy E., Commissioner, Minnesota Housing Finance Agency, 30
Rivera, Dante, St. Paul, Minnesota............................... 18
Satriano, Paul, ACORN National Treasurer, and Minnesota ACORN
State Board Member............................................. 24
Sullivan, Sherrie Pugh, Executive Director, Northside Residents
Redevelopment Council, Minneapolis, Minnesota.................. 27
Swanson, Hon. Lori, Attorney General, State of Minnesota......... 9
Todd, Richard M., Vice President, Federal Reserve Bank of
Minneapolis.................................................... 11
APPENDIX
Prepared statements:
Bridges, Dorothy J........................................... 44
Coleman, Mayor Christopher; and Rybak, Mayor R.T............. 52
Glover, Sharon............................................... 60
Gugin, Julie................................................. 64
Hanson, Patricia L........................................... 72
Marx, Timothy E.............................................. 81
Rivera, Dante................................................ 85
Satriano, Paul............................................... 88
Sullivan, Sherrie Pugh....................................... 92
Swanson, Hon. Lori........................................... 96
Todd, Richard M.............................................. 102
THE EFFECT OF PREDATORY LENDING AND
THE FORECLOSURE CRISIS ON TWIN CITIES'
COMMUNITIES AND NEIGHBORHOODS
----------
Thursday, August 9, 2007
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 6:19 p.m., in the
Minneapolis Central Library, Pohlad Room, 300 Nicollet Mall,
Minneapolis, Minnesota, Hon. Barney Frank [chairman of the
committee] presiding.
Members present: Representatives Frank and Ellison.
Also present: Representative McCollum.
The Chairman. This hearing of the Committee on Financial
Services will come to order.
This is an official hearing of the Committee on Financial
Services, House of Representatives. My name is Barney Frank and
I am the chairman of the committee. Accompanying me, as you
well know, are two members of the House from here: Congressman
Keith Ellison, who is a member of the committee; and
Congresswoman Betty McCollum, who is someone with a great
interest in the subject.
We will proceed to opening statements from the two
Minnesota Members, and we will then go to the witnesses.
Our procedure will be to hear from the witnesses. We have
three panels of witnesses. The witnesses will make their
statements and submit for the record any additional material
they want to submit, and then at the conclusion of each panel,
we will have questions from the three members. I also will ask
if we have unanimous consent, and on the assumption that there
is no objection, that will be permitted.
With that, I will turn to Congressman Ellison, who has been
a very active member of the committee and a strong advocate for
action to deal with the crisis in predatory lending, and in
fact, is a sponsor of a very important piece of legislation
that I am confident will be--much of which will be incorporated
in our final product. Congressman Ellison.
Mr. Ellison. Thank you, Mr. Chairman. First of all, Mr.
Chairman, I'd like to thank you for devoting your time and
resources and the resources of the Financial Services Committee
to come to Minneapolis tonight to highlight the devastating
effects of predatory mortgage lending and the mortgage
foreclosure crisis on neighborhoods in the community of the
Twin Cities. I would also like to point out that our mayor,
R.T. Rybak, is not at our hearing tonight only because there
are a number of our fellow Minnesotans whose remains are being
taken out of the river as we speak, and he has to be there with
the families. I hope everybody understands that; I'm sure that
you do. I also want to point out that Congresswoman Michelle
Bachmann wanted to be here tonight, and expressed to me the
desire to be here. She is away in the Middle East right now,
but very much wanted to be present.
I want to highlight--I want to welcome tonight's hearing my
colleague and good friend from St. Paul, Congresswoman
McCollum, as well as Mayor Rybak, Mayor Coleman, and other
elected officials in the Twin Cities area. I would like to
welcome all of the members of the public who found time in
their busy schedules to be at this hearing.
As Congress begins to address the issue of predatory
lending, it's important to me that we hear directly from the
people in the communities who have been affected most. I want
these voices to be heard in Washington. Mr. Chairman, the
hearing tonight represents one important step in making sure
these critical community voices are heard, and I applaud your
leadership for making this happen.
Predatory lending foreclosures have torn holes in the
fabric of neighborhoods not only in Minneapolis and St. Paul,
but across the State of Minnesota, and the Nation as a whole.
There are both personal and community consequences of housing
foreclosure called predatory lending. In addition to ruining a
family's dream of homeownership, housing foreclosures can have
devastating impacts on local neighborhoods and communities.
Boarded-up homes drive down local property values and are the
locus of crime and other illegal activities.
Displayed on the screen before you is a map of the mortgage
foreclosures currently listed in North Minneapolis. The red
dots represent foreclosures. The sheer number of concentration
of these foreclosures is still shocking to me, even though I
viewed this slide numerous times. I live in North Minneapolis,
and you're looking at my neighborhood. I look forward to
hearing the testimony of our distinguished panelists tonight
which include elected officials, advocates and community
representatives who have been generous enough to share their
time and experience with us tonight.
And so, Mr. Chairman, I look forward to working with you
and the entire committee and the whole Congress to address this
housing foreclosure crisis facing us today.
Thank you, and I yield back my time.
The Chairman. Thank you. And you set a good example,
because we're going to have a time problem. I do notice two
things, people standing, and a row of seats in front of me that
say ``reserved.'' By the power vested in me as chairman, I
unreserve them. Come on. There are still some seats too.
This hearing could last a couple of hours. There are still
some more seats. There are some fill-in seats, so please feel
free to take those seats. If a State representative had to
wait, I wonder who they were reserved for.
And I will now recognize our colleague, and a great
supporter of trying to have us do the right thing,
Congresswoman Betty McCollum.
Ms. McCollum. Thank you, Chairman Frank, and Congressman
Ellison for extending the opportunity for me to be here. And I
want to thank all of you from Minneapolis who didn't vote St.
Paul out of the room when the chairman asked if I could be part
of the committee and the panel today.
Minnesota, as we know, has one of the highest homeownership
rates in the Nation. It has been an innovator in promoting
opportunities for its residents to achieve the dream of
homeownership. And we in Minnesota know we still have a lot to
do.
Minnesota has also been a leader in creating opportunities
for homeownership for members of our community who are
disadvantaged, low-income, single-owner households, or
communities of color. Our community banks and some of our
larger banks in the Twin Cities have stepped up to the plate
when they have been asked to participate, and subprime loans
have been used as a mortgage tool to provide borrowers with a
weak or limited credit history.
Now, the subprime loans now have been used to take away
opportunity for many families because of the lack of
regulation. But I want to focus for a second just here in
Minnesota. Jeff Crump's report, ``Subprime Lending and
Foreclosure in Hennepin and Ramsey Counties,'' as Keith has
shown with the map, shows how many foreclosures are just here
in one area. But Jeff Crump goes on to speculate that the
problem of foreclosures starts with predatory lending
practices, and their goal is to remove the equity for the homes
by refinancing multiple times. The equity that has been
stripped from all these homes that we're seeing here and the
homeowners have forced them into foreclosure. We're here today
to find out what we can do to stop that from happening and
still allow people with limited means or people who have had
past problems in obtaining equity still achieve the American
dream.
A little bit about what's going on in the Fourth District,
Mr. Frank. The Fourth Congressional District, at our best
estimate right now, has 796 homes that are involved in
foreclosure. A Ramsey County estimate said that there will be
1,900 homes forced to foreclose by the end of 2007. That's a 30
percent increase over last year's number, but nearly a 500
percent increase over foreclosures since 2003. Right now nearly
1,200 homes are vacant in St. Paul, and it's mostly due to
foreclosures. Many of these now have severe code violations and
they have become unhabitable. I know my mayor, Mayor Coleman
from St. Paul, is committed, and you'll hear from him later, to
ensuring that these vacant homes are a priority for
redevelopment.
But this is also happening in the first rank suburbs. Out
of the foreclosures though again in St. Paul, approximately 45
percent of them are home equity loans. These delinquencies and
foreclosures harm our neighborhoods and our communities, and
they place an unfair burden on local and State governments to
address the social and financial costs, and they also have an
impact of people feeling that there are lenders in the
community who they can trust, who they can't trust to be honest
with them. So the financial services community, I know, has
demonstrated great leadership on this issue by working on it in
many, many different ways, and I know we'll hear more about
that, Mr. Frank. But I want to tell each and every one of you
that I'm so proud to be a co-sponsor of Congressman Ellison's
bill, H.R. 3081, the Fairness for Homeowners Act of 2007, and
the Twin Cities stand jointly together in Congress to make sure
that everyone has an opportunity for shelter--shelter that
can't be taken away.
I yield back.
The Chairman. Thank you, Congresswoman McCollum. I just
want to make a brief statement.
The Financial Services Committee, which I chair, will pass
legislation this year which prevents--if we are successful in
it being adopted--the degree of problems we see with subprime
loans. And I want to address a couple of the reasons why we are
doing this. One argument we get from people is well, why is the
government interfering? After all, nobody put a gun to peoples'
heads to make them take out a loan.
There are of course circumstances in which people were
unfairly pressured and given inadequate information, but there
is an overriding one, and this is--the map shows it. Predatory
loans that get foreclosed are not randomly distributed
geographically, they are concentrated in neighborhoods, which
means that the victim of this set of practices, the victims
include people who may have saved every penny and maybe not
even taken a mortgage, but bought a home and then find that the
home next door has been foreclosed, and the home two doors down
is vacant, and the home across the street is vacant. And pretty
soon that hard-working individual's property is deteriorating
in value and the physical deterioration around causes
neighborhood deterioration. So the justification here is that
we are not talking about little houses on the prairie 200 miles
apart, we are talking about our neighborhoods where what in
fact happens in one set of homes affects others.
Secondly, people said well, why are you regulating? There
are two sets of mortgage lenders, of originators or people who
originate mortgages in this country. One set, banks of various
kinds, are fairly heavily regulated because they have deposit
insurance and the Federal Government says if we're going to pay
off your depositors if you screw up we're going to try and get
you not to screw up because we're not going to pay off the
depositors.
So the regulated institutions, the banks, have not been the
major part of this problem. If only regulated banks had made
mortgage loans as the originators of the loans we would not
have the problem we now have. It is largely a problem of the
unregulated segment. That is an argument that said that
sensible regulation can be useful, and we plan to do that. One
of the factors that I want to throw in that is relevant, part
of the problem has been the housing policy in this country for
years has equated home and homeownership. Homeownership is a
good thing. We want to encourage people to be homeowners, but
not everybody given his or her economic circumstance is able to
do it.
And one of the problems that has exacerbated things has
been the absence of decent rental housing at affordable levels
for people. So a comprehensive plan will be to prevent abusive
subprime lending, to go forward with the right kind of--by they
way, one of the things we plan to do is to make the Federal
Housing Administration, the FHA, better able to make subprime
loans. We're not trying to shut people out of this market. We
have some legislation going forward, Congressman Ellison has
voted for, that's going to make the FHA more available. So
that's the package. It is very helpful to us to have this kind
of testimony from people who are feeling this impact from the
efficacy groups, from the elected officials who have to try to
cope with these kinds of questions from some of the responsible
institutions. So I very much appreciate the initiative that
Congressman Ellison took in putting this hearing together.
Obviously, this turnout is an example of the extent to
which we have a problem here. Of course, it would be impossible
to come to the Twin Cities and not express the deep grief of
the Nation which we share with you in that terrible tragedy,
and I hope that we will be learning from the problem to the
subprime market, from the tragedy of this bridge, that there is
a positive role for a sensible set of public policies that we
may have lost sight of, but we believe the time has come to
revive.
With this I will now--I ask you to please withhold your
applause because, well, you know, we have about 20 witnesses
and the rule of 10 minutes set. Our first witness, Congressman
Ellison, explained that the Mayor, understandably, has
obligations elsewhere, and we fully understand those and why he
is honoring those, and he certainly should be there. And
instead, we will hear from Barb Johnson who is the president of
the Minneapolis City Council and our close official here.
STATEMENT OF BARB JOHNSON, PRESIDENT, MINNEAPOLIS CITY COUNCIL
Ms. Johnson. Thank you, Chairman Frank, Congressman
Ellison, and Congresswoman McCollum. We very much welcome you
to Minneapolis, and thank you for inviting us to testify on the
effects of foreclosures and predatory lending on our community.
Like many cities across the country, Minneapolis is facing
a mortgage foreclosure crisis. The rate of foreclosures has
more than doubled in the last year. In the first quarter of
2006, we experienced 320 foreclosures. In the first quarter of
2007, we had 678 in our City. Foreclosure affects all parts of
our City, but the hardest hit are our poorest neighborhoods, as
the Congressman pointed out, our map showing the impact in
North Minneapolis. North Minneapolis people do not have big
stock portfolios or cushy retirement systems; they only have
their homes.
And when foreclosures happens it devalues--first of all, if
it happens to them, it's a tragedy. But if it happens in their
neighborhood, as the Congressman said, it devalues the property
of that valuable asset that they have. So it's a big hit for
people who are on the margins.
The victims of foreclosures are not just the homeowners
themselves, but the whole community. Hand-in-hand with
foreclosures, when you see a big impact like this in a
community, you also see a rise in crime. North Minneapolis is
home this year to the City's largest number of homicides; we
have more homicides in North Minneapolis than all the rest of
the City combined. The fact that we have all of these
foreclosures and vacant buildings is no coincidence.
City response to the foreclosure crisis has been
innovative, comprehensive, and in partnership with community
partners. We are involved in prevention. We've expanded the
successful mortgage foreclosure prevention services that we
have in partnership with community groups, including
advertising through ``Don't Borrow Trouble,'' in providing help
to people to avoid risky mortgages. We have increased our
support for mortgage foreclosure prevention in partnership with
our community partners.
We've expanded our Minneapolis 311 system to encourage
people to report and ask for assistance through our new 311
system. We've been getting the word out in our community
through expanded programs, through postcards that you can find
at the front, community groups and notices in community papers.
We are acting in intervention. The North Side Home Fund
Strategy is working with neighborhood organizations to identify
and redevelop critical clusters. We have identified over 300
addresses so far, and have 6 clusters currently in progress.
The approach starts with housing, but includes a comprehensive
approach around street design, crime, and health impacts. We
have one in Cottage Park which includes donated renovation of a
park, Hawthorne Echo Village, in partnership with the Home
Depot Foundation, to create a sustainable community, and on our
Penn Avenue cluster which for me is the most distressing, we
are addressing 8 homes in a half block that are boarded and
vacant.
The City is acting in a multitude of ways through community
partnerships as well as the use of eminent domain. Our work
also supports community partners doing great work such as Urban
Home Works, a faith inspired community development partner. We
are acting on remediation. We have a $12 million strategic
acquisition fund that allows us to purchase and rehabilitate
the highest impact housing and resell them to stable
homeowners. We have a $10 million loan from the State Housing
Finance Agency and a million dollar grant from Minnesota
Housing and Business from our local Wells Fargo Bank and US
Bank. The Regional Foreclosure Prevention Founders Council, led
by our own city director of housing policy and development, is
allowing us to expand this comprehensive strategy in
partnership with housing funders and foreclosure specialists,
including the City of St. Paul, Hennepin County, Ramsey County,
Dakota County, Minnesota Housing, the Family Housing Fund, the
Greater Metropolitan Housing Corporation, Housing Link, Fannie
Mae, the Minnesota Home Ownership Center, and the Emerging
Market Homeownership Initiative. Now we need Federal help to be
able to take this work to the next level.
From the testimony that Mayor Coleman and I will submit, I
will highlight three points.
First, quality renters are preferable to vacant properties.
Currently renters living in foreclosed homes are evicted at the
end of the redemption period when the property ownership often
goes back to the lender. Providing credit through the Community
Reinvestment Act could be established to provide lenders the
incentive to allow quality renters to reside in properties that
would otherwise sit vacant.
Second, sometimes the best option for a homeowner facing
foreclosure is to sell their home. Currently there are Federal
tax consequences to selling a home. Federal tax consequences
should be eliminated or capped for homeowners facing
foreclosure because sale is often the best option for
distressed homeowners, and the quickest way to getting the
housing back into stable use. Sometimes the best option for a
homeowner is to redesign the terms of the mortgage with the
lender. Mortgage officials should be required to modify a
mortgage with a homeowner as a mandatory first step to assist a
distressed homeowner when the homeowner can financially
qualify.
Finally, we have been working with the State of Minnesota,
the Federal authorities, the FBI, the Postal Inspection
Service, and the county attorney to investigate irregular
lending purchases and sales, particularly in North Minneapolis.
And I want to thank the attorney general for allowing me to sit
on the Foreclosure Prevention Council that developed really
strong legislation in our State. In our neighborhoods right
now, we are seeing flipping schemes. We have one particular
landlord group that has over 200 properties. They have
thousands of inspection orders, unpaid water bills, thousands
of 911 calls, and now many boarded-up and foreclosed
properties.
This is a severe problem, and we thank you so much for
letting us tell you our story.
The Chairman. Thank you. Next, we have the Mayor of St.
Paul, Chris Coleman. Mr. Mayor.
STATEMENT OF THE HONORABLE CHRISTOPHER COLEMAN, MAYOR, ST.
PAUL, MINNESOTA
Mr. Coleman. Thank you, Chairman Frank. I appreciate your
presence here, Members of Congress. I don't know what that note
is, but I'm going to ignore it for right now because I have
much to say and little time to say it.
As Council President Johnson said, there are a tremendous
number of efforts that are going on right now in the Twin
Cities in partnership with the State, with the counties, and
with municipal and nonprofit partners across the region to try
to respond to this crisis in our community, and it is a crisis.
We recently launched a program called ``Invest St. Paul,''
which is an effort for us to coordinate resources in four
target neighborhoods in the City of St. Paul. You have before
you a map of those targeted areas. They are areas that have
suffered from this investment for decades.
We are trying to be smarter about how we are responding to
the needs of those communities: We focus the delivery of city
services to residents; we have planted trees; we have fixed
cracks in sidewalks; we have changed the way we police those
neighborhoods; we have asked our libraries and our health
professionals to reach out to those neighborhoods; we have
increased inspections in one- and two-bedroom units in those
neighborhoods; we made it easier for citizens to log complaints
so that we can deal with the challenges that we face; and we
have done over 1,200 inspections of one- and two-bedroom units
just in the months between March and June of this year. We are
doing everything that we can to revitalize these key
neighborhoods in our community. We like to think of St. Paul as
a city of neighborhoods, but it isn't a strong city of
neighborhoods unless all neighborhoods are prospering.
If you look at the overlay of foreclosures and vacant
buildings in the City of St. Paul, you can see that there are
very heavy concentrations of foreclosures in vacant buildings
in those four key neighborhoods in the City. In January of
2006, we had 546 vacant homes in the City; today there are
nearly 1,200 vacant buildings in the City of St. Paul. Most of
these are residential buildings. We believe it's clear that
foreclosure is hitting already distressed neighborhoods the
hardest, and we know that we need to turn these neighborhoods
around. But unless we do something about the issue of
foreclosures we are not going to be able to do what we need to
do.
We are striving to make things better, but the rate of
foreclosures and vacancies is working against us. Throughout
this country we should all fear that home foreclosures and the
disruption of life in neighborhoods will cause what is known as
a disinvestment domino effect. Home foreclosures and vacancies
will lead to neighborhood property values declining, which will
lead to remaining neighborhoods having less incentive to invest
in their homes, which will lead to fewer people moving into the
neighborhoods and concentrating poverty. It will result in
local businesses having fewer customers and lending industries
will be less willing to work in these communities, which
ultimately will result in further deterioration, more crime,
and all the troubles that we see associated with some of these
inner city neighborhoods.
The costs to the City of St. Paul are very high. We
obviously have a tremendous number of increased police
expenses. We have thieves who are breaking into the houses to
steal the copper metal in the vacant buildings, and it is
creating a very dangerous, hazardous situation where
firefighters and emergency responders are going into homes
where the gas has been left on, but the copper piping has been
taken out. It is the crisis that I think you know it to be, and
we really welcome your participation and help as cities across
America deal with this issue.
We believe that we are doing everything that we can, and we
would like some assistance, and we have a few recommendations
what we think could be very helpful for us. Council member
Johnson outlined some ideas. We think that there are three
things that could be looked at.
The first one is to repurpose the Tax Exempt Mortgage
Revenue Bond Program. Look at refining existing tools to allow
cities to address current problems. One opportunity that I
would like to bring to your attention specifically is the Tax
Exempt Mortgage Revenue Bond Program. Presently Minneapolis,
St. Paul, and other cities use this program for first-time home
buyer programs. Mortgages can be used to finance or purchase--
purchase or rehabilitate homes in federally designated target
areas. Updates to this program will allow us to have more
flexibility with respect to financing home mortgages and allow
cities more authority to define targeted areas. It would be an
extremely helpful tool if we could make these changes.
The second is requiring re-registration of mortgages after
sieged sales. One of our biggest hurdles in redeveloping a
vacant home is trying to track down who owns the property.
Mortgage originators usually sell a mortgage to a banker
finance company. The mortgage may be packaged with another
mortgage or sold as part of a larger investment pool. Our
planning and economic development staff, they are great people,
but they can spend weeks and weeks simply trying to figure out
who owns a piece of property that has been foreclosed upon. It
makes it very difficult for us to move forward in terms of
rehabilitation.
The third is the reinvestment in community development
block grants. In 1975, in inflation unadjusted dollars, we
received $18 million in the City of St. Paul to reinvest in our
community. Today we receive less than $8.2 million, again in
actual dollars. If you look at the level of funding that we
used to have, we had the tools, we had the resources to
reinvest in our community. Those tools and resources are
significantly drawn down upon, or they don't exist at all.
We need your help. We know that you understand this issue.
We appreciate your time here today. We thank you for taking
this issue up, and we will work side-by-side with you in any
way that we can to fix this problem.
The Chairman. Thank you, Mayor.
[The joint prepared statement of Mayor Coleman and Mayor
Rybak can be found on page 52 of the appendix.]
The Chairman. Next, the Attorney General of the State of
Minnesota, the Honorable Lori Swanson.
STATEMENT OF THE HONORABLE LORI SWANSON, ATTORNEY GENERAL,
STATE OF MINNESOTA
Ms. Swanson. Good evening. I'm Lori Swanson, Attorney
General of Minnesota. Chairman Frank, Congressman Ellison, and
Congresswoman McCollum, thank you for holding this very
important hearing tonight.
You know, over the years, the American dream of
homeownership really has been the way that most middle-income
and low-income Americans built a nest egg, and saved for the
future. Yet today, instead of being a savings vehicle, the home
has been turned into a financial liability for far too many of
our neighbors. In the Attorney General's Office, we receive 500
to 700 calls a day, and 200 letters a day, from people in
Minnesota who have problems, and paying attention to that tells
me that many of our neighbors are living paycheck-to-paycheck.
College tuition is rising, healthcare costs are rising,
gasoline is up, utilities are up, and at the same time here in
Minnesota, the unemployment rate is also up and good paying
jobs are more scarce. As a result, many of our neighbors are
borrowing, borrowing not to get ahead, but borrowing just to
get by. And in fact, if you look at the statistics, in 2006,
over 88 percent of the people who took out mortgage refinancing
loans did it in part to take cash out of their home and pay off
other bills like healthcare debt and credit card debt. Because
so many middle-income and low-income Americans are squeezed,
they are vulnerable to default when they see surprises in their
mortgage due to undisclosed rates, undisclosed fees, predatory
terms, and so on and so forth. And here in Minnesota, we have
seen many mortgage loans sold with little or no regard for the
borrower's ability to repay the loan, and which are completely
unsuitable for the borrower's situation.
What has that meant for Minnesota? Well, the number of
foreclosures in Minnesota has nearly doubled in the last year,
and nearly quadrupled in the last 2 years. It is a statewide
issue. In 2006, there were over 11,000 foreclosures in
Minnesota, up from 6,000 in 2005. In rural Minnesota, the
number of foreclosures rose from about 2,700 in 2005 to over
4,100 in 2006. It's expected to reach 8,700 this year. And in
fact, in some rural Minnesota counties, nearly half of all
loans in 2005 were subprime loans. Those borrowers are going to
see big surprises when they see their interest rates reset
upward after the teaser rate ends on their adjustable rate
mortgages. And the impact of foreclosures is highly
destructive. It's destructive for the families and homeowners
involved to end up either losing their homes or being trapped
in unsustainable products. And families forced from their homes
face a lack of stability that affects all aspects of their
lives, their kids' education, and their own jobs. They face
damaged credit which makes it harder for them to then buy other
products or even hold a job or get a job, and it really results
in a downward financial spiral for these people, and it pushes
them into other predatory products like payday lending, which
is problematic for obvious reasons.
Congress can do a lot to help in this area. First, with
regard to the future, Minnesota did pass a law this year, a
bill that became law on August 1st, to reign in predatory
lending practices. I see that State Representatives Davnie and
Mullery--the authors of that law-- are here, but through that
leadership, it requires brokers and lenders to verify a
borrower's ability to repay the loan and other expenses, not
just at a teaser rate, but at the full rate using reliable
documentation, and places a duty on the broker to act in the
best interest of the borrower. While States have shown
leadership in addressing the issue, the Supreme Court has tied
our hands as it relates to national banks and their operating
subsidiaries, and so we do need the Federal Government's help
here in Minnesota to close that loophole. Congressman Ellison's
bill would do that, the bill that he has announced.
Second, with regard to the past, I think that Congress
plays an incredibly important oversight role, and it's a role
that we in Minnesota very much appreciate. You have put
pressure on financial regulators to responsibly address this
crisis, and Congress should continue to do that. As much as we
can talk about prospective legislation, we do have a lot of
people in a boatload of trouble today, and Congress can and
should continue to press Federal regulators to use their
leverage over the lenders they regulate to help reach effective
loan restructuring for the people who are in crisis today.
So thank you for your leadership and for holding this
hearing.
[The prepared statement of Attorney General Swanson can be
found on page 96 of the appendix.]
The Chairman. Thank you. Finally, the vice president of the
Federal Reserve Bank of Minneapolis. Mr. Todd, thank you for
representing the Federal Reserve.
STATEMENT OF RICHARD M. TODD, VICE PRESIDENT, FEDERAL RESERVE
BANK OF MINNEAPOLIS
Mr. Todd. Thank you. Mr. Chairman, Representative Ellison,
and Representative McCollum, I appreciate this opportunity to
discuss the impact of foreclosures and abusive lending in the
Twin Cities. And I thank Representative Ellison for arranging
the hearing.
Foreclosures are a rapidly escalating problem in Minnesota.
The Community Affairs Unit in the Federal Reserve Bank of
Minneapolis provides technical assistance to foreclosure
mitigation efforts. As a result, I know that the issues before
us are urgent in the Twin Cities, where our foreclosure rates
have more than tripled in recent years. Because our other
witnesses have more more direct knowledge of the resulting
impacts, I am going to focus on some research findings. The
views I present, however, are my own and not necessarily those
of the Fed of Minneapolis or the Federal Reserve System.
In the Twin Cities, foreclosure rates are highest in our
core cities. Research conducted by my staff and Dr. Laura Smith
of Macalester College found that when multiple factors were
considered, the strongest relationship in 2002 was between
foreclosure rates and the percentage of adults in the
neighborhood with impaired credit histories. The next most
important factor was the increase in minority home ownership
between 1990 and 2000. In short, foreclosures were high in low-
to moderate-income areas where minority and young families,
often with a history of financial stress, were transitioning to
homeownership.
And foreclosure rates are still highest in these
neighborhoods. For example, in Hennepin and Ramsey Counties,
and adjacent portions of the Fifth Congressional District,
there are about 40,000 first-lien, subprime, and Alt-A
mortgages right now, according to the staff at the Board of
Governors in Washington. About 2,200, or 5.5 percent, of these
mortgages are in foreclosure now, and the highest percentages,
8 to 14 percent, are in North Minneapolis and some
neighborhoods near downtown St. Paul.
However, foreclosures are rising rapidly throughout the
area. Among the subprime and Alt-A mortgages discussed above,
5,200 are delinquent. Monthly payments on about 15,000, or 37
percent of the total, are scheduled to reset to significantly
higher amounts before 2010. And we'll be sharing information
like this with local counseling organizations to help them
target their efforts.
Concerning the impact of foreclosures, I will briefly cite
two findings. First, as documented by Macalester's Dr. Smith,
between 2005 and 2007, the number of owner-occupied dwellings
declined in Minneapolis neighborhoods with high foreclosure
rates. This undercuts Minnesota's Emerging Markets
Homeownership Initiative and its objective to close racial and
ethnic homeownership gaps.
Second, investor-owned properties need to be considered. In
Ramsey and Hennepin Counties, as many as 40 percent of
foreclosure sales involve properties that are not owner-
occupied. In hard-hit North Minneapolis, the percentage of
mortgages to non-occupant borrowers surpassed 31 percent in
2005.
I hope the findings I have presented here and in my written
statement are informative. On October 4th, the Minneapolis Fed
will hold a workshop to consider how to improve access to data
on foreclosures, and to address the overall functioning of the
foreclosure system, such as the re-registration issue that
Mayor Coleman spoke on.
I hope we can share outcomes from that event. Thank you.
[The prepared statement of Mr. Todd can be found on page
102 of the appendix.]
The Chairman. Thank you, Mr. Todd. And we'll begin the
questions with Mr. Ellison.
Mr. Ellison. Mr. Todd, my question to you is this: When you
look at the data that you just shared with us, you indicated
that two of the most important factors are the frequency of
minority and young homeowners. How do you factor in the
predatory nature of some of the loans that we see out there?
Are these folks making bad decisions, or are they being sold on
products that are actually exotic or predatory products?
Mr. Todd. I think that there are many things that go on. I
think that there are clearly cases, it has been well-
documented, I believe, in the Twin Cities, that there are many
cases where high pressure tactics were used without good
disclosure and full information to borrowers, but there are
other ways that this happens as well, and I think it's
important that we do recognize that not all foreclosures are
the same. It still can be the case that people get into
foreclosures for old-fashioned reasons like losing a job or
getting sick. And sometimes people get into a subprime loan
having had other problems first that led them to refinance into
subprime. So we have a wide range of things going on that
include abusive lending, but it's not limited to that.
Mr. Ellison. Does the Fed have a role to play here locally
in regulating some of these lending products that we've seen
that are so-called exotic products, prepayment penalties, no
doc, low doc, those kind of loans, what is the regulatory role
that the Fed can play?
Mr. Todd. The Federal Reserve has a role in writing
regulations that apply nationally, so it would not be this
local Federal Reserve Bank, it would be more the Board of
Governors in Washington, D.C., doing it for the whole country.
We do have authority to write rules that apply to, in some
cases, all mortgage lenders, but we do not have the authority
to enforce those rules on all. I think Chairman Frank was
alluding to some difference in outcomes between the federally
regulated institutions and some of the other institutions, and
I think there is an area where we can write the rules for all,
but we cannot enforce them for all.
Mr. Ellison. Attorney General Swanson, one of the things
that has been bandied about in this national debate is whether
we should preempt States or whether we should continue to make
sure that we have an active role from our State regulators.
What are your views on the subject?
Ms. Swanson. Well, I would be very much opposed to any type
of preemption on the part of the Congress. I think that in area
after area, the States have been the ones that have shown
leadership and stepped up to the plate when it comes to
protecting their patients, their financial customers, their
workers, and their citizens, and there has been a trend too
often, I think, in Congress over the last 10 years, where
either Congress or Federal agencies have preempted the State's
power to do better for their citizens, not because the Federal
Government really wants to regulate these industries, but
because they want to deregulate these industries and want to
tie the State's hands.
I think that States are close to their citizens. We have
the ability sometimes to act swiftly and move to address
uniquely local issues. And in this case I think it's a great
example where the Minnesota legislature has done that. It moved
forward to pass, I think, really very good and strong anti-
predatory lending legislation. There is that small area that we
can't address because of the U.S. Supreme Court ruling, but I
think it would very much be in the citizens' best interest to
not have any type of preemption and let the States be the
laboratory for the democracy that they traditionally have been
and let them do better for their citizens. I think that's very,
very important.
Mr. Ellison. Mr. Mayor, as you try to develop your City of
St. Paul, and I'd actually like to see if our council president
can chime in here too, how important is housing as a focal
point of economic development? We all want to do start-ups, we
all want to promote businesses coming in, but what role does
housing play in stabilizing and developing a community?
Mr. Coleman. I don't think that there is enough time,
Congressman, to tell you all of the reasons why that's
critical. You know, without housing, you start off life, from
the very beginning--we have kids who are transferring schools
five or six times during the course of the year. There are some
schools where 60 or 70 percent of the kids in there are moving
during the course of the year so that it's destabilizing our
classrooms. It's making it very hard to track those kids to
make sure that they have the resources that they need.
From a crime prevention standpoint, when you have this kind
of a vacancy rate and you have a neighborhood that is falling
to further decline because of these foreclosures and vacant
buildings it makes it very difficult to police our
neighborhoods. It makes it very difficult for us to try to
attract businesses into our neighborhoods, and to attract
residents into our neighborhood. I really could go on and on
because, you know, it's just--it's such a fundamental,
fundamental piece of our community from so many different
angles that we have to handle this. And when you look at our
``Invest St. Paul'' initiatives to say, you know, we're
prepared to do everything that we can to redeliver public
services in a different way, to work with partnerships across
the City in the for-profit and nonprofit sectors, but if every
time we take a step forward, we go two steps backwards because
of situations like this, then everything that we're doing will
go for naught, and all of our efforts to try to revitalize
these neighborhoods won't work.
Ms. Johnson. Thank you Congressman Ellison. What I would
just like to say is something that I've always said about my
particular community, North Minneapolis. North Minneapolis's
strength has always been its housing stock. We don't have big
employers there. We have a fantastic housing stock that has
provided homes for working people throughout the City's
history. We are in danger of losing this, and this would be a
tragedy for our City.
Mr. Ellison. Thank you.
The Chairman. Congresswoman McCollum.
Ms. McCollum. Thank you, Mr. Chairman. I want to thank the
panel for its testimony. Just when you think you have read and
kept up with the devastation that's going on with foreclosures,
you hear more, and it makes you realize that we're playing
catch up as my Mayor from St. Paul said, and we keep getting
further behind while doing it.
But I would like to talk a little more about marketing
practices. Attorney General Swanson, you pointed out that
Minnesota has passed some legislation addressing marketing
practices, and I'll speak as a person who has a home mortgage
in St. Paul. I'm still receiving through the mail, I thought to
bring them with me but I would have had two large garbage bags
to hold it all, and they are garbage, what I'm sent about
refinancing my home--``Last chance, do it before, literally
before August 1st.'' It comes in very official looking mail.
And they have even taken to soliciting my son, who doesn't hold
a mortgage, and whohas been living in Japan for the past year
teaching over there.
What were you able to do here, and then what do we need to
look at doing with postal inspectors and others as we move
forward?
Ms. Swanson. Well, there are a number of things that can be
done. The Minnesota legislation really sort of legislated some
common sense that lenders haven't applied and brokers haven't
applied, which is making sure that people can pay it back. If
you make a loan, can they pay it back? And you know, what we
have seen is a lot of problems where lenders were making these
no documentation loans and they weren't even looking at a tax
return to see if the income stated on the application was in
the ballpark of what the person really made. And so the
Minnesota legislation curbed that and said the lenders ought to
look at documentation because of the so-called ``liar loans''
where the broker can put down anything at all on the
application. The legislation says that can't be the case
anymore. Lenders now look at verifiable documentation, and it
does place a duty on mortgage brokers to act in the borrower's
best interest.
You know, a mortgage is the largest financial transaction
any American consumer will enter into. It's also the biggest
financial transaction an American consumer will enter into, and
it makes great sense to treat a mortgage, therefore, more like
you treat an insurance product or securities or like a duty a
Realtor has or a lawyer has, as opposed to that you're just
selling a television set. There are a lot of problems with
abusive marketing practices, no doubt. I mean, a lot of the
people who have been put into some of the most predatory
products already had a home, they already had the American
dream, and somebody, you know, some advertiser on late night
television said, ``If you have credit problems, don't worry,
you can refinance. Come with us. Take cash out. Pay off your
credit cards.'' And that is a problem, the advertising no
doubt. But hopefully with the legislation putting in place more
prudent underwriting standards, that should really curb the
kind of abusive loans that we've been seeing.
Ms. McCollum. I have a question for the Federal Reserve as
for going through with re-authorization of leave no child
behind. One of the things that I've heard from social studies
teachers, and I'll be honest, I heard from a former social
studies teacher, is the amount of time that's being taken out
of the class curricula for teaching social sciences, which
includes economics. And I know many of our lenders are our
community banks and that some of our large banks try to go into
the classroom and do financial literacy, but they have to be
asked in, and with more and more emphasis on testing, we're
seeing some of these life skills being lost. Could you maybe
speak to, if you could, the importance of financial literacy
and maybe if we need to be offering it in community education
classes and figuring out a more creative way to get people up-
to-speed.
Mr. Todd. I'd be happy to. That is an area that I
personally work in a lot, and I've thought about it quite a
bit. It is very important. On the issue you raise, I am often
asked if I support making it mandatory to teach it in the
schools, and I try to be very careful about that, and I think
teachers do have lots of mandates now, and I do not necessarily
feel that I know enough to say that I'm going to add another
one.
But I think we do need to get the job done somehow. And you
can try to get it into the math classes and integrated into
some of the classes. I think we can also attempt sometimes to
get it into summer camps. We're doing work with some Native
American summer camps ourselves, one here in Minneapolis as
well as elsewhere around the country. I think that you're
right, that it continues in adult life. Sometimes I think that
before you graduate from high school, you don't always
understand the importance of it. It's good to have the basics,
then you need to reinforce as an adult when you start to see
the decisions you're actually making. We have good
homeownership counseling here in Minnesota. We need to keep
that organization strong.
I will just relate also that I have found in terms of some
of the high school programs I have been involved in that we
were impaired in our ability to move forward with the financial
education in certain circumstances where the schools were
behind on their testing. They simply had to devote so much time
to catch up that they were not able to do much with the
financial education.
The Chairman. Thank you. I have a couple more questions for
Attorney General Swanson. You write about the trend to cancel
State law, or as we call it, preemption. You were just a little
under on the time. You said 10 years; it has actually been 12
years. Random selection people think about what happened in
1994 and that's over.
Ms. Swanson. Thank you, Chairman Frank.
The Chairman. There are differences. Now to--Ms. Swanson,
let me say first of all, people, you see the influence of great
masters, and politician Tip O'Neill said that all politics is
local. We tend sometimes to be behave a little differently at
home. I will say to you, Mr. Todd, that by telling you Mr.
Ellison treated you far more gently than he treated the
chairman of the system. But that's appropriate.
Mr. Todd. I appreciate that.
The Chairman. But I want to thank you in particular for
mentioning the race factor. One of the things that Congress did
over the objection of some people, frankly even in the affected
industry, was to pass a bill of which my former colleague, Joe
Kennedy, was the main sponsor, called the Home Mortgage
Disclosure Act (HMDA). HMDA continues to reveal one of the
great ongoing shames of America that there is a very
significant racial disparity in peoples' availability and stuff
that we ought to keep working on.
I appreciate your mentioning that, that this is something
that we as regulators very much have to deal with. That is very
important.
The other thing that was new to me, I must say, was the
reference to ``investor-owned.'' Would you say that
foreclosures among investor-owned, is that disproportionate to
the number of investor-owned, or just a significant factor?
Mr. Todd. I don't know if it's disproportionate--I see
there are people in the audience--Alan Malkis is doing research
on this in North Minneapolis--but I do know that it's an
important part of the foreclosures.
The Chairman. I appreciate that. And I certainly believe
that renting--this a new thing that I will take away from this.
We've tended to think about the tragedy of the individual, but
from the economic and social impact we will look at that.
And then also we need to thank you, Mayor, for the second
item referred to, the importance of helping people unravel the
ownership chain, to see who is the ultimate owner. We did in
our committee press the Securities Exchange Commission to get
the Financial Accounting Standard Board fairly obscure, but
they have now ruled that the servicer of the secondary mortgage
held markets can--doesn't have to be just an automaton. And Ken
said you know what, we'd all be better off if instead of
foreclosing we did some flexibility. But that doesn't help if
you don't know who to go to.
And I will ask the staff of the committee tomorrow to begin
to make available--we will look into this question. The other
issues on the revenue bonds, I very much agree with the
mortgage fund, those are not our committee, but we will pass
that along. And on community throughout the fund grant, you're
right, we're way below, but you will see in the budget, again
12 years, you will see that the budget that will come forward
on October 1st will have the first real increase over inflation
at CDBG in 12 years.
I thank the panel, and we will dismiss this panel and ask
our second panel to come up.
The Chairman. Our second panel consists of: Ms. Sharon
Glover from Golden Valley, Minnesota; and Mr. Dante Rivera from
St. Paul, Minnesota.
The room will come to order. Will people please take their
seats so that we can begin?
Our first witness is Ms. Sharon Glover from Golden Valley.
Ms. Glover, thank you for joining us, and please proceed.
STATEMENT OF SHARON GLOVER, GOLDEN VALLEY, MINNESOTA
Ms. Glover. Thank you. My name is Sharon Glover. My late
husband, Gleason Glover, was the head of the Minneapolis Urban
League for 25 years. He passed away in late 1994. And I have
worked for many years in the education field, and I always had
a job until recently.
Gleason and I bought the house in 1984, and our mortgage
was with Homeside in Florida. We paid $94,000 for the house,
and our payments were $1,200 a month. The problem came when I
refinanced in 1999. I really wasn't seeking to refinance, I was
thinking about it, but if I did refinance, I wanted lower
payments than the $1,200 I was paying.
Well, one day a man came to my door, I say he danced into
my house, saying all kinds of wonderful things about Gleason,
singing my husband's praises. I, of course, was still in the
grieving stage at that time, so I trusted him because he
respected my husband. He called me, and I said, ``I'm ready to
close.'' Again, I trusted him. I signed the papers believing
him. And it was only much later that I found that my payments
were no longer--they went from $1,200 a month to $1,550 a
month.
Also, I never got copies of the loan documents from him. In
fact, I've only gotten them very recently through the lawyers
who are pro bono working with me. But the loan balance went
from $94,000 to $162,000 and I never understood why. I didn't
get any cash back, and they paid a few bills, but I certainly
didn't have $70,000 in bills. And as I said, I just got a copy
of the paperwork sent to me recently. And I know it's too late
now, but legally maybe they don't have to do anything, but I
still want to go back and ask them to tell me where that money
went and who got paid.
So since 1999, I have made those payments of $1,550 a
month. I worked and paid this even though I realized I had been
taken. Then a few years ago I got a call from Ocwen saying that
they were my new mortgage company, and that was when the
troubles really started. Ocwen told me that they were going to
pay my taxes and insurance although I was current on
everything. They increased my payments by $400 a month, so now
I have gone from $1,200, to $1,550, to $1,945.
Then in 2003, I became ill, and had a total hip replacement
on the right leg and a total knee replacement on the left.
After my surgery I couldn't go back to work, so I went through
all the money I had and kept paying my mortgage. Then I got
another little part-time consulting job, but I still hadn't
healed and so we were--I couldn't stand up and sit down. We
were in a conference with someone and I was trying to stand up
to shake the donor's hand, and I fell onto the owner of the
school's feet. So I was let go that very day because, as they
said, I was a liability to them. So I didn't run into any
problems until I no longer was working.
Then as now, I'm living on the Social Security check that
doesn't come until the third Wednesday of the month, and a
small annuity check from my husband, my deceased husband, which
comes the last week of the month. But I still have never missed
a payment. But the payments were always made at the end of the
month because that's when I get the money. Because my payments
increased to the $1,945 a month, that left me only with $200 a
month then to pay all my bills including food and medical, so I
just stopped taking my medicine so that I could make my
mortgage payment.
Starting from the time when I wasn't able to work, if Ocwen
didn't get the payment during the first 5 days of the month
they would call me 4, 5, 6, 7, and 8 times a month harassing
me. I told them, and I also put it in writing, that they would
have their money every month, but it would be at the end of the
month because of when I got Social Security, and when I got the
annuity. They could have adjusted everything to change the
payment due date, but they refused to do that.
Now, I have all of these records and documentation showing
that all of the months were paid. Not only that, on the wire
when I wired the money every month, on the wire I would put to
be used for mortgage June 2007 only, payment only, with only
being in big letters, but still they went ahead and used the
money any way they wanted to. Ocwen had my June 2007 payment. I
wired it with the statement, ``Oly to be used for mortgage,''
when on July 3rd, a sheriff knocked on my door, and said you
are served. I don't know what happened. I just got this letter
saying that they were going to foreclose on August 7th. I was
so ashamed. Ashamed that I, as a bright woman, had let this
happen to me and didn't see it coming because I had made the
payments and thought that if you pay every one of your payments
they can't take your house from you. The sad thing about this
is that I was going to move anyway because the house had become
too much for one person, but I had not planned to lose
everything as I am now.
Ocwen told me recently, in fact on the 2nd of August, that
for $12,000 they would prevent the foreclosure sale. And then
they said that after--if I gave them $12,000, and they stopped
the foreclosure sale, I would have to give them another $12,000
as soon as the mortgage was reinstated. And they said that the
other $12,000 would include things like foreclosure costs and
fees, property valuation, title report fees, $2,325 in late
fees, etc., etc., in addition to continuing to pay the $1,945
every month.
My home was up for auction, or sheriffs sale as you say,
for Tuesday, August 7th, which meant that after that, I
wouldn't be able to get the title to my house without paying a
redemption fee of $200,000, and I never in my life expected
this to happen to me.
Well, I went to the sheriffs sale, and thank goodness the
Urban League went with me too so I wouldn't be alone, and my
house didn't come up and so we asked the sheriff what was the
matter, why wasn't my house up for sale? We learned from them
that Ocwen had pulled it at 10 a.m., that very morning.
Now, the reason they had pulled it is because my lawyers,
my pro bono lawyers, Seymour Mansfield and Richard Fuller, had
filed a class action suit against Ocwen here in the Federal
Court because of their predatory mortgage practices and piling
on junk fees. I have a copy of the complaint with me. I
understand that my action will be transferred to the Federal
Court in Chicago as a consolidated multi-district action with
hundreds and hundreds of other cases against Ocwen. This has
been going on for years, and still Ocwen continues to get away
with these predatory practices. But whatever happens, Ocwen has
already done its damage to me.
[The prepared statement of Ms. Glover can be found on page
60 of the appendix.]
The Chairman. Mr. Rivera.
STATEMENT OF DANTE RIVERA, ST. PAUL, MINNESOTA
Mr. Rivera. Hello, my name is Dante Rivera. I am from
Texas, but I have lived in Minnesota for almost 12 years. I
live in East St. Paul, and I work in North Minneapolis for a
roofing company. My wife works in St. Paul for the school. I
have three kids: my oldest daughter is 11 years old; my middle
daughter is 9 years old; and my youngest daughter is 2 years
old.
I bought my house almost 8 years ago. I used to live in an
apartment, but one day the new owner came to my apartment, and
said we had to move; they only gave us 2 days to get out. So my
wife and I went to look for another apartment, and I saw a
house for sale. I told my wife that I was tired of renting, and
I wanted to buy something better. When I bought the house, my
mortgage payment was $760 a month. One year later they sent me
a letter telling me that we had to start sending our payments
to a different mortgage company, Option One, and that my
payments would now be $1,025 a month.
In 2004, at that time, I got a little behind on my
payments, so somebody told my wife about a broker. I don't
speak English, so I felt very uncomfortable about refinancing
the house because maybe something would go wrong, but we had to
do something to catch up the mortgage, so my wife called the
broker to make an appointment.
We told the person over there that we don't want any money
back; the only thing we want is to lower the payment. But the
person over there told us we have to get some money back, and
if everything goes right for one year, we can go back until we
get the payments lower. Later I found out that I have an
adjustable rate mortgage where payments started at $950, but
went up to $1,150. The price of my house was when I bought it
was $86,000. When they refinanced it, it wnet up to $160,000.
They charged a lot of money to refinance the house.
I have a lot of problems with this loan company, Option
One. One time we sent the money Western Union, and then about 2
months later, I sent out a payment, and one time Option One
called me to say that I was 2 months late. I told them I sent a
payment from Western Union, but they sent it back, so I lost
the money because I lost the receipt. Also it's very difficult
to communicate with them. When I call, I get an answering
machine. They say, ``Press 1 to make a payment,'' but there is
no person there.
Other times I call, the person says you have to speak with
somebody else, and then they put me on hold 30 or 40 minutes,
and then nobody answers the phone and I have to hang up. And
everyone only speaks English. Only one time did I call there
and talk to someone who spoke Spanish. She said she could help
me, and then put me on hold again.
My company shuts down every year in December, so every time
in January, I have a hard time sending my payments. I just want
to catch up in February, but my electricity and gas are very
expensive. Sometimes I have to pay between $400 and $700 a
month in the winter, so me and my wife, we have to make a
decision to send the mortgage payment or the bills or they will
cut off the electricity and we'll be cold. I also had to go to
out-of-State this year because my grandfather was sick.
When I got behind in my payments, I tried to call Option
One to explain, but there was no answer. We sent the payment
for January and February late, but this time they sent them
back. They didn't want to take them late, so they sent me a
foreclosure notice.
In June, we tried to speak with somebody to fix the
problem. We wanted to send $4,000 and make an agreement with
them, but nobody answered the phone. Over 2 weeks ago, this guy
from Option One called me that tried to refinance my house, but
I told him I was working with ACORN, and they told me not to
talk to anybody else. And he wanted to make me make a decision
right away; they told me, say this, and we can go over and do
another refinancing.
The sheriff came last week to give a letter to my wife that
they're going to put the house up for sale on September 12th.
When the sheriff came over, my wife was very scared. She was
crying and she came to my job. I told her that I'm very tired
of living in this house. Maybe we can move to an apartment to
save more money because this house is too old.
When I bought this house, it was the biggest mistake of my
life. I was in a hurry because this guy, the owner of the
apartment, said we had to move out. If I had more time to find
somebody who spoke Spanish who could help me understand, maybe
I could have bought a better house, and provided a better
future for my wife and my kids. Thank you.
[The prepared statement of Mr. Rivera can be found on page
85 of the appendix.]
The Chairman. Congressman Ellison.
Mr. Ellison. First of all, let me say that I'm very
concerned, and very about what you had to go through. It's the
kind of thing that we're here to try to address. Could you talk
about what you learned about this company, Ocwen? As I did some
research on them, I understand that there is already some
pending litigation against them before you got into the
litigation. What can you tell us about this?
The Chairman. Does the reporter have the spelling of the
company?
Mr. Ellison. O-C-W-E-N. Is that right?
Ms. Glover. That's right.
Mr. Ellison. What can you tell us about this company?
Ms. Glover. All I can tell you is that they've been
terrible to deal with. My blessing is that these lawyers,
Seymour Mansfield, stepped up to help me pro bono, because
otherwise there is no way I could have done this on my own. But
we have the documentation. I mean, we can prove that every
payment has been made. They have four notebooks of materials
from me, and still they're just holding out. But I guess ACORN
has a big lawsuit too going with Ocwen. So I understand that
there are hundreds and hundreds of people in the suit. And the
only thing that stopped this thing on Tuesday is I guess the
lawyers sent a copy of the complaint over to them to tell them
it had already been filed. But again, neither Ocwen, nor
Shapiro, the lawyer that represents Ocwen, ever notified me or
the law firm that they had pulled it. And we know it isn't
pulled for good; it's only a matter of time.
Mr. Ellison. Let me ask you this: Do you feel as though
these companies treated you in a fair way?
Ms. Glover. I have to laugh at that.
The Chairman. I don't do audience participation. You go
ahead.
Ms. Glover. Of course I didn't. No. No. I mean, even the
calling and harassing me 7 or 8 times a month, and me
repeatedly saying that my Social Security check doesn't come
until the third Wednesday of each month, and my husband's
annuity check comes the last week, but as soon as his check
comes, then I will wire it to you. I mean, they could have
made--as stated in the paper the lawyers drew up--a change;
they could have changed the date, but they refused.
Mr. Ellison. Thank you.
Ms. McCollum. When--and I really appreciate the courage it
takes to talk about. We don't talk about finances very well as
a Nation. We don't even talk about it within our families, and
here you are sharing something that's very personal to both of
you with everyone, but thank you for coming forward.
When you found--you have an attorney now and you called
ACORN, sir, what--tell me what you felt like when you found
that you were having all these legal problems. Did you think,
``Oh, I can call the Better Business Bureau.'' ``I can call the
Attorney General.'' ``This can't be happening to me.'' Tell me
a little bit about, if you feel comfortable, what was going
through your mind and how you felt that there were no resources
available to you.
Ms. Glover. Let me tell you, you know, United Way puts out
a list, and it's either United Way or the county, and they say
call 311, and then there are a number of other numbers they say
to call. I got the list and I called everyone on the list. Now,
I live in Golden Valley which is first suburban tiered
Minneapolis, and so after calling everybody on the list there
are only two on the list well known that deal with foreclosures
in Golden Valley. I went to each of them, each of them, and I
said to them can--will you help me? I said, if you will lend me
$1,945, one months payment, I can make it on the first, and
then when my check comes I will be on time every time after.
And these are people who are listed. And I was listening to
the--well, let me not say that. But okay. These are people who
are listed as who will help. When I went to, let me just call
it ``X,'' they said right out, ``No.'' Now, the woman there
really wanted to help, but her boss told--she told me off the
record, pulled the staff together and they said no.
The other agency that I went to, and this is before it
reached the foreclosure point, had me come back four times. The
last time I went, I thought to myself, you have to take
somebody with you, Sharon, because this makes no sense. So I
took a young man, an African-American man from our community--
I'm not going give his name, but all of you know it--who
reaches out and helps people when he can. And I said,
``blank,'' will you come with me and just listen. So he went
with me to this other--to this group. We sat and they said
well, let us think about it. Come back again.
On the day that I was supposed to come back for the fifth
time, I got a call from this particular office saying that the
woman who would be dealing with me wasn't able to come in that
day and that she would call me when she was feeling better and
could come in. So I didn't go. So this list that we put out
really didn't help at all. And I didn't know--I thought to
myself, since they say they're foreclosure prevention programs
and they get money to help, who can I go to?
But the people whom I turned to, I went to the Urban
League, and the president of the Urban League helped me. That's
who helped me and stood with me. And then I went to ACORN.
Their league also had this big thing on foreclosures, and I
went to that conference. And at that conference I met a number
of organizations, of which ACORN was one, and then I went in to
see ACORN. And then right at that time these lawyers took me on
said they would help me, and they knew me through my--
The Chairman. How did you meet those lawyers? Who connected
you to those lawyers?
Ms. Glover. Well, the lawyers at one time were on the Urban
League board many, many years ago, and they also, the lawyers,
were personal friends, or knew my husband very well.
The Chairman. So is that through the Urban League
foreclosure conference that you met them, or separate?
Ms. Glover. No, I knew them over years, but I don't know
who called them. Somebody called them about me, and I think it
was my sister, and they called and said come in. And then when
they looked at my income they said, ``Oh, no, you can't afford
to pay us anything, this is pro bono.'' And they're the ones
who have really gotten on top of this and stopped it. But if
not for them and the Urban League, and ACORN, I don't know
where I'd be.
The Chairman. Let me ask Mr. Rivera, how did you get to
ACORN? What was the connection there?
Mr. Rivera. Well, at that time my wife was very nervous, so
she went to her friend's house, and her friend's husband called
me and gave me the number for ACORN. And then I was very scared
because I don't want to call companies; they are only looking
for records. And I think to myself, these guys who came to my
house, lenders and everything like that, I feel like they are
sharks. They want to attack me. You know, like take something
from my pocket.
And then, well, my friend explained to me, and told me
about ACORN, so he made the appointment for me and then I came
over.
The Chairman. Thank you.
Mr. Rivera. You're welcome.
The Chairman. Thank you both. No further questions.
I echo Congressman Ellison, that to share your own personal
pain in the hopes of helping other people avoid it is really
about as generous a thing as you can do. So we very much
appreciate both of you sharing in this way to try and help
others.
The Chairman. We will now take the next panel. Will the
next panel please come forward: Ms. Bridges, Mr. Satriano, Ms.
Hanson, Ms. Sullivan, Mr. Marx, Ms. Gugin, and Mr. Abed.
We will begin. Are we ready?
We will begin with Ms. Dorothy Bridges, who is the
president of the Franklin National Bank in Minneapolis.
STATEMENT OF DOROTHY J. BRIDGES, CEO & PRESIDENT, FRANKLIN
NATIONAL BANK, MINNEAPOLIS, MINNESOTA
Ms. Bridges. Chairman Frank, Congressman Ellison, and
Congresswoman McCollum, my name is Dorothy Bridges, and I am
the CEO and president of Franklin National Bank of Minneapolis.
I am pleased to be here today, and I want to thank you for
taking time out of your busy schedules to be in our community.
This community is very important to me and to all the great
people who work at Franklin Bank. It is our home, and our
livelihood is intimately connected to its economic wellbeing.
I've learned throughout my life that people are a part of their
community and their community is a part of them. This is why
our vision at Franklin Bank is to be the leader in improving
our urban community. Every day we work hard to find new ways to
use our resources to improve life in urban Minneapolis. We
believe social responsibility based on solid partnership is
vital to this effort. We embrace diversity and support the
individuals, businesses, and nonprofit organizations that work
tirelessly to create jobs, build affordable housing, help
individuals reach their goals, and improve our overall quality
of life.
While our focus at Franklin Bank is on local business
lending, the recent rise in home foreclosures has had a direct
impact on us due to our involvement and work with nonprofit
community development organizations like Project for Pride and
Living, and many of the others that are located in this room.
PPL helps lower- to moderate-income people become self-
sufficient. We recently loaned them money to build 14 single-
family homes on the old school site in North Minneapolis. While
the project is complete and the homes are for sale, the number
of foreclosures in the area has made it very difficult for PPL
to find interested, qualified buyers. Most people are reluctant
to buy a home on a street where a lot of other homes are for
sale or boarded-up due to foreclosures. And since the loan we
made to PPL does not get repaid until the homes are sold, our
ability to work on future projects of this nature is hampered.
There is no question that the rise in foreclosures will
hurt other businesses in our area as well, therefore, we must
be a part of the solution as a banking institution.
A variety of factors are responsible for the current
situation, but I cannot say strongly enough that predatory
lending has no place in our financial system. The vast majority
of predatory lending practices are engaged in by unregulated
lenders that are not subject to the same strong oversight and
examination that the banking industry is subject to. While many
of these non-bank lenders lend responsibly and hold themselves
accountable, many do not. But all should lend responsibly and
be held accountable for not doing so. They should be subject to
the same strong consumer protection laws that apply to banks.
Today there is no regulatory system for ensuring that they
comply even with the laws that they are subject to, such as
RESPA. All of us should be required to abide by high ethical
standards whether you are a banker, a mortgage broker, a
mortgage lender, or anyone else involved in real estate and
homeownership. High ethical standards should be the norm, not
the exception.
Thank you for your time, and I'm happy to address any
questions you may have.
[The prepared statement of Ms. Bridges can be found on page
44 of the appendix.]
The Chairman. Thank you, Ms. Bridges.
Next we'll hear from Mr. Paul Satriano, who is the national
treasurer of ACORN and a State board director for ACORN. Mr.
Satriano.
STATEMENT OF PAUL SATRIANO, ACORN NATIONAL TREASURER, AND
MINNESOTA ACORN STATE BOARD MEMBER
Mr. Satriano. Thank you, Chairman Frank.
My name is Paul Satriano, and I am a board member for
Minnesota ACORN and I also serve as treasurer on ACORN's
national board. I want to thank you, Chairman Frank, for coming
to Minnesota and for all of your work in Washington holding
hearings to shine a spotlight on predatory lending, putting the
mortgage industry under a microscope, and pressing the Federal
Reserve to do their job and issue rules to protect consumers
from abusive lending practices. I also want to thank
Representative Ellison for holding this hearing and for
fighting for credit justice, amd Representative McCollum for
being here.
I was in danger of losing my own home to a predatory loan
when I first joined ACORN 7 years ago. Since then I've been
working with ACORN to fight predatory lending. I'm proud of
what we have accomplished and the progress that ACORN and
others have made. But new problems have developed. More and
more subprime loans had adjustable rates. More and more loans
were made where the borrower fell behind the first few months.
More and more homeowners found out too late that their mortgage
payments didn't include taxes and insurance.
In Minnesota, when we see a problem, we like to do
something about it. Just this year, legislation was passed with
the help of Representatives Daphne and Mullery, who are here
with us today, and we passed the strongest law in the country
against predatory lending. We were excited when Congressman
Ellison introduced a similar bill in Washington. This was the
second time in recent years that ACORN, the Minnesota Attorney
Generals Office, AARP, and legal services have passed landmark
legislation to protect innocent homeowners.
In 2004, with the help of then-State Representative Keith
Ellison, we passed the first State law in the country against
foreclosure rescue scams. It became a model law for other
States.
We know that your committee will be looking at Federal
predatory lending bills and that the mortgage industry wants
one national bill that will preempt all the State laws. We also
want to see a national law, and are committed to working with
you throughout the process. But we don't want a national law to
take away the protections we worked so hard to pass or take
away our State's ability to address new problems that come up
like we did with the foreclosure rescue scam. And while we need
to pass laws to protect homeowners from predatory loans, we
also need to help families who have already fallen prey to
these loan sharks and who are facing foreclosure. We believe
that this crisis can be addressed, but there are specific
things that need to happen.
In Minnesota we are fortunate to have an excellent network
of foreclosure prevention counseling agencies, including our
sister organization, ACORN Housing. However, our programs are
not able to keep up with the demand for our services, much less
expand to really address the need that is out there, and many
homeowners don't know that there is help available. We need to
educate them. I repeat, we need to educate them. The Senate
Appropriations Committee recently approved $150 million for the
HUD Housing Counseling Program with $100 million of this
specifically designated for foreclosure prevention counseling
and outreach. But the House has approved less than $50 million,
with no money directed to foreclosure prevention. We need the
House to support the $150 million in funding. But no matter how
good the foreclosure prevention program is, we still need the
lenders to do their part in cleaning up the mess they created,
and we need them to do something quickly. That's why we are
calling on subprime lenders and services to agree immediately
to a voluntary foreclosure moratorium for 3 months on loans
here in Minnesota, and during these 3 months, we want the
mortgage companies to back up their talk with action.
We keep hearing from the lenders how they don't want to
foreclose on people, and how they only want to do it as a last
resort, but homeowners say that the largest companies are still
only giving them two options, sell or pay extra every month to
catch up. Mortgage companies need to agree to do more loan
modifications, not just on a case-by-case basis, but on a large
scale to help families stay in their homes with an affordable
mortgage.
For people with adjustable rates who can't afford their
payments because the rate went up, mortgage companies need to
lower the interest rate and make it fixed on loans made before
August 1st. In so-called stated income loans where the broker
or loan officer lied about the borrower's income, the mortgage
company has a duty to reduce the interest rate or principal or
both so that it is affordable.
And in cases where the homeowner fell behind because they
had to pay their taxes and insurance separately, lenders need
to redo their loans and include the taxes and insurance in the
monthly payments.
During the 3-month foreclosures moratorium, we are willing
to do our part and conduct a large scale outreach program to
reach homeowners who are facing foreclosure. According to
Freddie Mac, half of all foreclosed homeowners never talked to
their lender during the foreclosure process. In many cases this
is because they don't think the lender is willing to do
anything to help them. We will go door-to-door to find
homeowners and make sure they know about the second chance they
are getting through the moratorium and urge them to contact
their lender or housing counseling agency. We need your help
now. Thank you.
[The prepared statement of Mr. Satriano can be found on
page 88 of the appendix.]
The Chairman. Next we'll hear from Patricia Hanson, who is
the president of community development and specialized lending
at Wells Fargo.
STATEMENT OF PATRICIA L. HANSON, PRESIDENT, COMMUNITY
DEVELOPMENT AND SPECIALIZED LENDING, WELLS FARGO
Ms. Hanson. Chairman Frank, and Congressman Ellison, thank
you for the invitation to testify today.
My name is Pat Hanson, and I am the president of community
development and specialized lending for Wells Fargo. In
addition to my professional community development work, I also
serve on the board of Junior Achievement of the Upper Midwest,
and also as vice president and treasurer of the Family Housing
Fund.
I have been a foreclosure lender for over 15 years, which
means ensuring borrowers have an appropriate mortgage that they
can repay because we keep the risk of these loans on our books.
My years of experience have proven to me that no one benefits
or wins in a foreclosure situation. In the Twin Cities of
Minneapolis and St. Paul, we work daily with the communities to
understand the needs of our customers. In 1990, Wells Fargo was
the first bank in Minnesota to introduce a portfolio product
which is now called the Community Development Mortgage Program
(CDMP). CDMP was created to meet the needs of low- and
moderate-income borrowers here in the Twin Cities. Since that
time we have originated and held in our portfolio over half a
million dollars of loans to low and moderate income individuals
in the State of Minnesota.
In 2006, the average borrower income in our program was
just over $38,000, 90 percent of our customers were first-time
home buyers, and over 50 percent of our customers had either a
low credit score or no credit score. CDMP in Minnesota allows
100 percent loan-to-value ratio with no mortgage insurance
required, making it more affordable to achieve the dream of
homeownership.
We have also resisted the market temptations when rates
were low to do ARMs with this product because we understand
that our borrowers could have been at risk if interest rates
had in fact rose and a reset occurred.
Mr. Chairman, Congressman Ellison, as we have previously
testified in Washington, Wells Fargo formally adopted
responsible mortgage lending principles in 2004, and we have
implemented responsible servicing principles as well. We work
hard to help customers who encounter financial difficulties and
to prevent foreclosures where possible because doing so is in
the best interest of our communities, our customers, our
investors, and our company. Wells Fargo believes that it's
important to have an outreach plan to work with borrowers early
and often. It is also important to have a plan for orderly
transfer of homes to further improve our borrowers as well as
ensure integrity of our neighborhoods.
Some of our practice steps include making repeated attempts
to contact customers with delinquencies in order to find a
workable solution. All our of prime and non-prime ARM customers
in our servicing portfolio have been identified, and we have
begun contacting these customers to ensure that they receive a
communication from us at least 6 months before their reset
date. I would emphasize that it's critical that the borrower
communicate with their lender as you've heard from others, or
recommend a nonprofit who can work with the borrower.
We have a dedicated Wells Fargo expert staff trained to
work with borrowers seeking ARM reset assistance, including an
office right here in Minneapolis. Once a borrower contacts us,
we will work with the customers on a case-by-case basis.
As mentioned, we believe collaboration with nonprofits is
very important to assist borrowers. As a part of this
collaboration, I want to thank Mayors Rybak and Coleman for
their support in the creation of the Twin Cities Prevention
Funders Council. We are an active participant of the council's
lender subcommittee. As part of this group we are working to
find solutions for homeowners facing foreclosures in the Twin
Cities, specifically to ensure that homes that are in
foreclosure are properly maintained and taxes and assessments
are paid on a timely basis until that home can be put back into
service. We have a designated contact person that our Minnesota
nonprofit partners can contact regarding inquiries about vacant
properties and how to once again make them available for new
homeowners. We are one of the founding members of the Minnesota
Home Ownership Center, whom you will hear from in a minute.
They do excellent work in pre and post-purchase counseling, as
well as mortgage foreclosure assistance.
We have established a dedicated toll-free number for
foreclosure counselors assisting customers who are delinquent,
which is included in my remarks.
In closing, let me reiterate that Wells Fargo is firmly
committed to continuing to lead the industry in advocating and
conducting fair and responsible lending and servicing. We know
that it can work. As part of our long-standing commitment to
the communities of Minneapolis and St. Paul we will remain
committed to working with borrowers to find alternatives for
each of their individual situations.
Thank you again, Chairman Frank, and Congressman Ellison,
for the opportunity to testify today.
[The prepared statement of Ms. Hanson can be found on page
72 of the appendix.]
The Chairman. Thank you. Can we ask the--we want to
accommodate everybody at the table, we increased the panel. So
let's work at it. Maybe we can move around the corner.
And next, as we're doing this, we're going to hear from Ms.
Sherrie Pugh Sullivan.
STATEMENT OF SHERRIE PUGH SULLIVAN, EXECUTIVE DIRECTOR,
NORTHSIDE RESIDENTS REDEVELOPMENT COUNCIL, MINNEAPOLIS,
MINNESOTA
Ms. Sullivan. Thank you, Chairman Frank, Congressman
Ellison, and Congresswoman McCollum. My name is Sherrie Pugh
Sullivan, and I am the executive director of the Northside
Residents Redevelopment Council (NRRC). NRRC is a 35-year-old
community based organization established by residents in North
Minneapolis in 1970 after the rebellion. The Northside
Residents Redevelopment Council is committed to the rebuilding
of the fabric of our neighborhood which began its efforts
around civic engagement and a deliberate strategy focus that
redevelopment of affordable housing for homeownership.
In the 1970's, the homeownership rates in our community to
target neighborhoods were less than 25 percent. With nonprofit
partners such as Project Pride and Living, Greater Minneapolis
Housing Corporation, and NHS, in over a 30-year period we
rehabbed homes, built new homes on abandoned lots in our
communities, and changed that fabric. We increased
homeownership by 2000 to almost 60 percent in the Willard Hays
neighborhood and 35 percent in the near north neighborhood.
But all of that has changed. Our community has been battled
in sustaining housing homeownership. Where we try to build
wealth and family sustainability we have encountered
foreclosures and egregious attacks by the lending institutions.
In the late 1980's, NRCC was part of creating what is now
called statewide the Mortgage Foreclosure Prevention Program.
We were that first pilot project. And every year we see
hundreds of families who are facing foreclosure. In 2006, we
assisted over 325 families who were facing foreclosures. We
provided intensive counseling to over 117 in providing those
loans as well.
Who are the clients? Their median income is about $31,000,
and their average principal, interest, and taxes total $1,206 a
month. The average month that they're past due when we see them
is about 5 months, and their average amount past due is $6,000.
We know that many of the reasons for these delinquencies are
not because people are bad; it's because they've had a family
crisis. They've lost a job. They've had a health incident. But
what is egregious to us is that they've been the victims of
predatory products.
As consistent with our community's demographics and what
you, Mr. Chairman, have pointed out, we are a minority
community; 65 percent of the residents in near North Willard
Hays and in greater parts of North Minneapolis is about 65
percent. Yet when you looked at the map that was up, and I'm
glad it's down, you see that we are the place where we're at
ground zero. As a matter of fact, it used to be that people
would say look at all the dots for foreclosures on the north
side, and now they say, look at the big blob.
We have experienced mortgage flipping--well, we've
experienced redlining from the 1960's. No one even knows what
that is anymore. We experienced mortgage flipping in the
1990's. We're now experiencing the predatory subprime loans and
those wonderful ARMs. It is eroding the fabric of our
community. We've lost value.
In 2000, values jumped about 30 percent in our community.
We thought we were catching up with the rest of the cities,
only to find out that this year people have lost $30- to
$50,000 in value in their homes, and along with that loss,
because we appreciate that in 2000 they got hit with the new
tax bill, which was a 10 percent increase, the number of
foreclosures have skyrocketed unreasonably. In 2004, there were
228 foreclosures in North Minneapolis. That increased to 487 by
2005, and in 2006, there were 693. I can tell you that we are
already almost to that point now, in 2007.
What is most egregious to us as a community of color,
people trying to obtain that Minnesota dream--a mentor of mine
to a director said homeownership, Minnesota really likes
homeowners. But that's not true in our communities, and in a
study recently published by the National Community Reinvestment
Council called ``Income is no Shield Against Racial Differences
in Lending,'' it rings so true for our community.
There is no mistake that North Minneapolis has been
egregiously attacked and targeted by predatory lending,
mortgage flipping, and adjustable rates. We have been seeing
dangerously overpriced lending products. They are flipping our
neighborhoods. The success we made from the 1960's and
increasing homeownership has taken a sharp dive. We also know
that this has affected our families. And Dan Shrads, an
activist for the poor, talks about how the way in which you
build family wealth is threefold: education; business; and
owning a home. Those things have been taken from our residents.
The foreclosures impact our families in so many ways. Shame,
guilt, embarrassment, and feeling that they weren't smart
enough. How could I be so stupid, people say. Families are
taking on the responsibility, but is it really theirs? They
were seeking the American dream, the Minnesota dream, where
homeownership is the highest in the country. But now we are
under attack. African Americans and Latinos are the most at
risk in our community for subprime lending products, and that
is a shame. Our community--I'm going to skip some notes here.
The Chairman. Please turn off the cell phones.
Ms. Sullivan. What happens in our communities with
foreclosures is that the foreclosures end up resulting in a
vacant property, and those vacant properties are purchased by
investors. Those investors then try to flip those homes
quickly, and when they don't make their money, they abandon
them. The foreclosed properties have resulted in huge numbers
of vacant properties. I said this will be controversial--while
our President is in Iraq fighting a war, in North Minneapolis,
we're under siege.
Vacant properties become targets for the copper strippers
as they take their found copper and make money from that. The
vacant properties become opportunities for criminal activities.
The vacant properties become health nuisances. The vacant
properties make us all depressed as we walk the streets, come
out of our homes, and see all the boarded-up and abandoned
properties. And most of all, it decreases the value.
So for those who still hang onto the community and want to
keep their investment, all they see is dropping prices.
In Minnesota the subprime mortgage default rates by a
national study when you looked at February 2005 and the
subprime market we represented 7.8 percent of those subprime
mortgages and foreclosures. In February 2007, Minnesota
represented 16.8 percent. We are above the national average.
That is horrifying to me to think that Minnesota could be above
the average, which is 12.4 percent.
In closing, I just want to say that one of the things that
we feel needs to be addressed is, and we talked about this
earlier, Mr. Chairman, and that is there needs to be new life
put into HUD and FHA programs. At one time, FHA loans were the
predominant loan in our community. Right now, they only
represent 9 percent; 80 percent are conventional subprime loans
predominantly. So please look at giving us FHA back and a new
vigorous way of addressing the needs of low-income buyers in
communities where there is existing housing stock.
Putting a stop to the predatory and subprime lending
market, we have to have regulations to control this industry,
and putting upon the regulators to take strong positions in
regulating lenders and holding them accountable. And also the
CRA bill for 2007 desperately needs to be passed. We need that
too as communities to hold our lenders accountable.
And then last, I'd like to say that everyone talks about
economic literacy, but it always has amazed me that so often
everything we do, someone asks us to pay, so they can pull our
credit score. Somehow we never get a copy of that credit score.
So something has to be done. Economic literacy, we're
always paying other people to learn about our credit and we
never see the credit score. So we need to really rethink how
credit scores are handled, how people are informed about their
credit scores. Homeownership is important in our communities.
The Chairman. Please wrap up.
Ms. Sullivan. It is a building of the fabric of the
community.
And thank you very much for allowing me to speak.
[The prepared statement of Ms. Sullivan can be found on
page 92 of the appendix.]
The Chairman. Mr. Tim Marx.
STATEMENT OF TIMOTHY E. MARX, COMMISSIONER, MINNESOTA HOUSING
FINANCE AGENCY
Mr. Marx. Thank you, Mr. Chairman, Representative Ellison,
and Representative McCollum for holding this hearing here in
Minnesota, and for the opportunity to testify.
I serve as the commissioner of the Minnesota Housing
Finance Agency, the State's affordable housing financial
institution. Minnesota Housing is a finance agency and not a
regulatory body, so my testimony would relate to financial
tools that we use, and community development issues, not to
regulatory matters such as lending practices. I will summarize
my written testimony by making four points.
First, Mr. Chairman, Minnesota is very proud of the long
term and bipartisan record that we have established among
government at all levels with local government partners, with
faith communities, with private foundations, and with the
private sector to affordably house low- and moderate-income
Minnesotans. This partnership, which is well-represented here
this evening, has produced the highest homeownership rate in
the Nation and the 12th lowest percentage of households among
the States which confront severe housing cost burdens.
However, the dramatic increase in foreclosures experienced
throughout the entire State, and particularly in the Twin
Cities, concentrated in lower income neighborhoods, is making
it very difficult to maintain and improve this performance. We
are particularly proud of our emerging market homeownership
initiative where the homeownership industry and the community
have come together on a specific plan to address the minority
homeownership gap, which in Minnesota is the fifth worst in the
Nation. We will not be able to realize the promise of that
initiative unless we address aggressively this foreclosure
crisis.
Second, as Mayor Coleman did, we ask that you consider
strengthening the Tax Exempt Mortgage Revenue Bond Program for
providing low- and moderate-income home buyers with low-cost
mortgages. The MRB program is a responsible, well-run, and
high-performing program that offers a superior alternative to
predatory and other unsound lending practices by focusing on
long-term sustainable homeownership often coupled with
homeownership counseling and foreclosure prevention services.
As the subprime market has contracted over the last several
months, the demand for our MRB program has increased
dramatically. The number of loans purchased, and the dollar
volume of purchases by Minnesota Housing in July 2007,
increased 41 percent and 66 percent, respectively, over July of
2006. To meet this growing demand we need to be able to have
the authority to issue more bonds, to provide more mortgages,
and to recycle loan repayments.
Third, we ask that you provide funding and other incentives
to support homeownership training and foreclosures prevention.
An example would be Representative Ellison's bill, to provide
incentives to financial institutions to fund counseling through
the Community Reinvestment Act.
In Minnesota, we are doing our part. The legislature just
recently funded $1.7 million of foreclosure prevention and
homeownership counseling resources, and Commissioner of
Commerce Glenn Wilson and I announced today an additional
$500,000 of State resources for a particularly targeted
foreclosure relief effort that will reach out using the
resources of the Federal Reserve to try to predict where
foreclosures are likely to happen to provide relief.
Fourth and finally, we ask that you increase appropriations
for the Home Investment Partnership Program and the Community
Development Block Grant Programs as Mayor Coleman and others
stressed. We need to acquire, rehabilitate, and get homes back
on the market once they are in foreclosure and prevent
abandoned properties from causing blight in our neighborhoods.
The Funders Council which has been referenced here this evening
has been a very effective institution to develop plans we
provided through Minnesota Housing, our largest award ever, $11
million to the City of Minneapolis effort. We are prepared to
do more throughout the State, but the magnitude of this issue
really requires a significant Federal response as we move
forward.
Mr. Chairman, thank you for your time.
[The prepared statement of Mr. Marx can be found on page 81
of the appendix.]
The Chairman. Next, Ms. Julie Gugin.
STATEMENT OF JULIE GUGIN, EXECUTIVE DIRECTOR, MINNESOTA HOME
OWNERSHIP CENTER
Ms. Gugin. Chairman Frank, Congressman Ellison, and
Congresswoman McCollum, thank you for this opportunity. My name
is Julie Gugin, and I am the executive director of the
Minnesota Home Ownership Center. The Center's mission is to
promote sustainable homeownership for low- and moderate-income
Minnesotans through the development and delivery of quality
standardized education, counseling, and related support
services. To this end, the Center provides key services to a
network of 50 community-based agencies throughout Minnesota.
These agencies in turn deliver pre-purchase, post-purchase, and
foreclosure education and counseling programs to low- and
moderate-income households.
Each year the Center and its network of agencies offer
15,000 low- and moderate-income households the tools they need
to purchase and sustain their homes. Our statewide model is
unique. No other State has this centralized, standardized
approach to what we believe is the most important element of
homeownership--education and counseling.
Homeownership is an exhilarating goal. It is also a complex
venture. We believe that all home buyers should be empowered
with education to enter homeownership through the right door.
Homestretch is the Center's pre-purchase education and
counseling curriculum that is provided to home buyers by our
network partners. Education is offered in a workshop setting,
providing the knowledge that home buyers need to create a
realistic plan to buy and sustain a home. We think that pre-
purchase counseling is one of the best preventors of
foreclosure. However, we also emphasize the work of our
foreclosure prevention network.
Foreclosure prevention counseling is available in every
county in Minnesota through the Center's network of nonprofit
or government agencies. These providers help families facing
foreclosure through in-depth counseling, budgeting and
financial management, intervention and advocacy, emergency
financial assistance, and referrals.
Counselors also help homeowners develop and negotiate a
recovery plan with their lenders and other creditors. The
foreclosure services supported by the Center and its network
offer a cost-effective solution to the current foreclosure
crisis. A study recently conducted by the Family Housing Fund
found that the cost of preventing foreclosures through
foreclosure prevention counseling was a small fraction of the
cost compared to those incurred by the multiple stakeholders
impacted by foreclosures. The study found that while program
costs amounted to $1.6 million to help close to 500 homeowners
reinstate their mortgages, the averted losses to mortgage
insurers alone were an estimated $9.6 million.
Other studies have found that foreclosures resulted in
costs as high as $34,000 per foreclosure for local government
and $59,000 per foreclosure for the mortgage industry.
As Commissioner Marx mentioned, the primary source of
funding for the statewide Foreclosure Prevention Assistance
Program is the Homeownership Education Counseling and Training
Fund. This fund is sponsored annually certainly by Minnesota
Housing, but also by the Family Housing Fund, the Greater
Minnesota Housing Fund, and the Home Ownership Center. Last
year, it provided $1 million to support foreclosure prevention
in the State.
Our foreclosure prevention counseling offers a proven
method of helping families stay in their homes. Current data
shows that 60 percent of families who receive foreclosure
prevention counseling through the network are still current on
their mortgages 2 years after receiving services. The Center is
adamantly committed to the critical role that foreclosure
prevention counseling plays in addressing the complex issue of
foreclosures. We are continually working to add capacity within
our system that is currently taxed to its limits.
Minnesota's model of offering a consistent standardized and
professional approach to education and counseling has proven
its effectiveness.
The success of the model is attributable to three primary
factors. First, a localized approach. We believe that
homeownership education and counseling is optimally delivered
locally through providers who understand the nuances of the
local housing market, local lending tools, and who can identify
trusted industry partners.
Second, the support from our industry partners. Our network
is sustained through the sponsorship of our generous lenders,
our State housing finance agency, and numerous other affordable
housing stakeholders, including our local officials.
And finally, the patience, perseverance, and compassion of
our educators and counselors, many of whom are here tonight,
while their work is frequently gratifying, the challenges can
be daunting. And their creativity and spirit helps deliver a
high-quality, critical program to the communities they serve.
Thank you.
[The prepared statement of Ms. Gugin can be found on page
64 of the appendix.]
The Chairman. Thank you.
And finally, Wade Abed who is the president of the
Minnesota Mortgage Association. Mr. Abed.
STATEMENT OF WADE ABED, PRESIDENT, MINNESOTA MORTGAGE
ASSOCIATION
Mr. Abed. Thank you. Chairman Frank, Congressman Ellison,
and Congresswoman McCollum, thanks for having me. I appreciate
it.
You know, I guess I'd like to start by saying trusted
partners, that's what the Minnesota Mortgage Association,
that's what we are. I'd also like to say right off the bat that
we are absolutely and always have been against predatory
lending. It makes me sick as president to get some of the phone
calls that I get. It makes me sick to read some of the things
that I read, not just about North Minneapolis, but about my own
neighborhood. It makes me sick because I see it every day.
So trusted partners, that's what it's going to take to make
this stop. And we're all partially responsible, we're all
partially involved, and we're absolutely all the solution.
The Minnesota Mortgage Association and my role within it is
that it's a voluntary organization of which I'm the president,
and my role is to promote what we believe. And what we believe
is to raise the bar of professionalism in the mortgage
industry. We believe we do that through education, as you've
heard from many here, and we've been doing that for many years.
We've worked with our department of Congress. We've worked with
many of our other agencies, Commissioner Marx, and other folks
who testified here to find solutions to problems that we know
exist.
And personally, I'd like to see the dirty scoundrels who
practice this kind of behavior out of this marketplace as
quickly as possible--quicker than we're seeing them go now.
This crisis is not only about getting homeownership back,
it's about keeping homes. It's about keeping people in their
homes for the length of their lives in many cases, even though
we move a lot in America. It's also about the businesses that
lend those funds to folks to get them into homes and we cannot
destroy that model, at the same time when we try to correct
what we know is a crisis. We as individuals need to do, we as
industries have to do, we as elected officials have to do
whatever it takes to get this fixed.
We at the Association promote the prevention of fraud
through education, financial literacy in our high schools, and
we work with our legislators, the gentlemen in front of me.
We've worked with our attorney general. We've wanted regulation
and have been to our government at a State level many times
looking for it. And over the years, they've been very
cooperative. We've been able to get background checks in. We've
been able to get now, this year, mandatory education. I'd like
to see licensing in the next session. But we did get
registration which will help track people and we can make sure
we have a vehicle to get rid of some of these bad actors. They
come from all places, not just the mortgage brokers or the
bankers or the real estate folk, it's a lot of places. It's in
all businesses, and I'd like to see all of it gone. But I'm
only responsible for this Association, and the way I conduct my
business, and that's really what we'd like to continue to do.
Our legislative agenda is to get licensing for every
individual originator in the State of Minnesota regardless of
if they work for a bank, a credit union, a pass-through lender,
or whatever it is you want to call them. A mortgage broker, a
loan originator, we believe all should be licensed. We believe
they should all have a standard which we live by as an
Association is a requirement of membership. We teach business
law.
We teach business ethics with regard to the laws in the
State of Minnesota as well as the Federal regulations required
under RESPA. We want more done and we want vehicles put in
place so we can find out who these perpetrators are and remove
them from this place, and especially North Minneapolis. Our
agenda is to continue to promote education, to help craft
regulation that works for the consumer and for business, and
really to do the right thing.
Thank you very much for the time. I know I went over. If
you have any questions, I'd be glad to answer them.
The Chairman. Mr. Ellison.
Mr. Ellison. Mr. Abed, you talked about standards for
mortgage originators. What sort of requirements for licensure
would you envision? What sort of things do you think members of
your industry should have to abide by before they can be
licensed?
Mr. Abed. Thank you for the question, Congressman Ellison.
I believe, and with our Association proposed this in 2003, that
there be pre-licensing requirements and education. Today we now
have 15 hours. I believe, and we do have that now, that they
have to go through criminal background checks. I do believe
that the owners of these companies have a financial net worth
that is of a reasonable amount. I believe as we have in many
industries the continuing education is required.
And I believe every one of them should be individually
licensed and tracked so they cannot go from one place to
another. I also believe that out-of-State servicers, people who
offer these types of products, should have to comply with the
laws of the State of Minnesota.
You know, thanks for letting me talk again. I also believe
you need to get FHA done.
Mr. Ellison. Let me ask this: Is there ever any good reason
to have a prepayment penalty on an adjustable rate mortgage?
Mr. Abed. Congressman Ellison, I think that there is--
Mr. Ellison. Other than just getting money from people.
Mr. Abed. That would not be the good reason. And the way I
practice, and the way that our Association believes, there is a
place for prepayment penalties within the market that we work
in, and that market is the secondary investor pooled saleable
trust loans and Wall Street. And the reason for that is to
guarantee those are on their books for ``X'' amount of time,
and in doing so, with that guarantee, we are able to offer a
lower rate.
And for us, we can pass that to the consumer. And for that
reason, and probably that reason alone, that is why there is a
good reason for it.
Mr. Ellison. Is there ever a reason for a no document or
low document mortgage to be sold to a consumer?
Mr. Abed. Congressman Ellison, there absolutely is a reason
for that product. For instance, entrepreneurs who start
businesses start with their savings, their 401Ks or whatever it
is that they come up with to get that money put together to
start their businesses. And we all know that the first few
years of any business are a struggle.
Mr. Ellison. Well, let me ask you this: Is there ever any
reason, excluding entrepreneurs?
Mr. Abed. I believe in emerging markets and other
nontraditional places where income is difficult to verify, yes,
it is. I believe that a--people who get commission, I believe
waitresses who get tips, I believe those things are hard
sometimes to document. But it is their income.
Mr. Ellison. Wait a minute. Waitresses have to document
their income to the IRS. I mean, shouldn't your industry--
The Chairman. Can we please have quiet in the audience so
this can go forward?
Mr. Ellison. Shouldn't your industry be required to ensure
that people can pay the loans that the people you represent
issue to them?
Mr. Abed. I would absolutely agree.
And they do, I hope, report all of it. But the fact is when
they write it all down it doesn't necessarily mean it's--they
don't have the capacity to pay, it means their accountant is
very good at them to have less of a tax burden.
Mr. Ellison. Yes, but isn't it the case that the burden
really is being relieved by the mortgage originator, not the
consumer? If the consumer wants a loan they will verify their
income or they will come up with the information they need to
show how much they make. But really the no doc requirement just
gets you guys off the hook.
Mr. Abed. Well, you know, I think the no doc purpose, and
the one that I wanted to really make--hit home with is that we
write these things down and we can only add back through
standard accounting practices in how we can say and verify this
is what you make even though we know that it is not the case.
Mr. Ellison. Is there--now--well, let me move on from here.
Ms. Hanson, what percentage of the loans that Wells Fargo
issues are prime loans and what percentage are subprime?
Ms. Hanson. I am responsible for community development, and
I'm going to have to say that we will respond to you in
writing.
Mr. Ellison. Thank you. Do you know what percentage of the
subprime result in foreclosure?
Ms. Hanson. No, I do not. But we will get you that
information.
Mr. Ellison. Do you know, do your subprime loans include
adjustable rate mortgages that also include penalties?
Ms. Hanson. I would anticipate that's true, but again
that's not my area of expertise. I work in community
development versus the mortgage.
Mr. Ellison. Okay. That's it then.
And what do your subprime loans require? Do you have--what
are your document requirements for issuing those loans?
Ms. Hanson. I can answer based on my programs that I run,
and we have full doc with all our programs.
Mr. Ellison. And you know, when you look at the HMDA data,
you know, the data that is collected based on race and
ethnicity data for homeownership, home lending, how do you--
what do you--how do you think we end up with this racial
disproportion in this data? What is your sort of thinking about
how we end up there?
Ms. Hanson. We have done--tried to do extensive outreach in
our minority communities, and it is a difficult issue. Since, I
would say, the mid 1990's we've been studying what the primary
reasons are for denial on our loans. And the two primary
reasons are debt-to-income are too high, and also that their
credit score is not good or that their credit is not good.
Those are two things you only solve through education with
partners such as the Home Ownership Center and counseling
people on what their credit score should look like or what
their credit should be before they come in for an application,
as well as understanding that if you have too much debt
compared to the income that you have you probably won't qualify
for a loan.
So we have put a lot of time and energy into education
within Wells Fargo and with our partners across the country to
try to address those issues because it really concerns us as a
company.
Mr. Ellison. With the Chair's indulgence could I--Mr.
Satriano, the comment was made by one of our witnesses today
that I believe that when a mortgage ends up in foreclosure, no
one wins. But somebody wins. Who wins? How do we get these
mortgages in foreclosure if nobody wins? I mean, if nobody won,
they wouldn't happen, so how do they happen? Who wins? We know
the consumers don't win.
Mr. Satriano. The predatory lender wins.
Mr. Ellison. Is it the case that when someone, for example,
if a mortgage originator after they do the deal with the
homeowner, after that they send that on, that's not kept in
their--
Mr. Satriano. Well, most of them do. Yes, most of them do.
But they have to sell them to somebody. But when a house goes
from $84,000 to 160,000, somebody has that money. I mean, it's
already taken out, so who has it? Not the person who owns the
home, so someone has to have it.
But can I ask one thing? I know this is a Federal panel,
but I want to ask a question to this panel.
The Chairman. The witnesses can't ask each other questions.
Mr. Satriano. I don't want to ask a question, I just want
to ask--I just want to say we are all here together. We can do
locally while you're doing in Washington--who here, right here
would be willing to get a panel together to try to work on this
thing?
The Chairman. And after the hearing, you'll get that
answered.
Mr. Ellison. Thank you very much, Mr. Satriano.
Ms. McCollum. Thank you, Mr. Chairman.
For those of you who are involved, both lending and
nonprofits, that are involved in helping people with mortgages
when they come forward and say, I have a problem with my
mortgage, and 5 months is, you know, getting to be a little
late and that's part of getting out public service
announcements, how many of you, if you could speak briefly
because I have a couple of other questions, are open evenings
and weekends, open--I worked third shift for many, many years
so I had to sleep during the day and that.
The Chairman. You worked third shift all last week in the
House.
Ms. McCollum. But I didn't have to go outside and catch a
bus in sub-zero weather. And people have daycare and that. And
then the issue of language and culture because I know I'll
speak to our community's banks and our major banks here, they
have people on staff who are culturally able to communicate
whether it's language or even with our Somali refugees with how
to work out homeownership.
Who do you have on staff? When are you available? And I
would also like the gentleman from the mortgage association to
answer that question.
Ms. Sullivan. For the Northside Residents Redevelopment
Council, we currently have three staff members who work what
you would call normal office hours. However, you can catch them
at our office many nights up until about 8 p.m., so they do
flex for our clients. They do a lot of work on the phone for
people, but most of the work is done with individual clients
one-on-one, so they will meet with them in the evenings. If
there are language issues, barriers, we have translators that
are available to us.
But we began to look at reassessing our delivery system and
we have some pretty exciting ideas around utilizing our fellow
neighborhood councils in North Minneapolis to help us do
outreach and intake and to gain greater diversity among our
staff.
Ms. Gugin. If I may, Counselor McCollum, I think what
Sherrie has characterized in terms of availability of services,
hours of operation is consistent across our network. I also--
the Home Ownership Center and our counseling agencies are key
players in the emerging markets homeownership initiative. So
for the last couple of years we have really stressed culturally
competent programming throughout the State of Minnesota.
Right now we're operating with four agencies in greater
Minnesota under a past building grant actually from the USDARD
to offer services to Spanish speaking residents. One of our key
partners, Neighborhood Development Alliance which is located in
St. Paul, offers Spanish speaking services throughout
Minneapolis, St. Paul, and just recently was awarded some
dollars to provide the service in Hennepin County as well. One
of our other key partners is the African Development Center
here in the Twin Cities, and they're doing a great job not just
here, but they're trying to reach out to greater Minnesota
areas as well.
Ms. McCollum. Well, if you could provide me the evening--
your hours. You know, how many hours you were open on evenings
and weekends that aren't continual. And another question
before, and I noticed Mr. Marx, and I did ask Mr. Abed to
respond, but out of the 60 percent of the foreclosures that you
kept from happening, Ms. Sullivan, how many of them were
subprime?
Ms. Sullivan. I'd have to get you that number.
Ms. McCollum. I believed it was--
Ms. Sullivan. I'm Sullivan. Do you mean Julie?
Ms. McCollum. I might have it in my notes--I was trying to
take notes.
Ms. Sullivan. I mean, we do work with a lot of subprime
families who've had subprime products. I couldn't give you the
exact statistic. Last year we wrote over 100 loans in our
community. Out of those granted, the majority of them are
probably subprime products. But I'd have to get you the
specific breakdown.
Mr. Marx. Mr. Chairman, Ms. McCollum, I wanted to address
your earlier question. One of the things that we are
discovering of those who are confronting foreclosure is that
oftentimes they will not respond to phone calls or letters, and
that's why we are initiating, with the additional resources
that we're freeing up, a much more targeted approach to
foreclosure prevention. Actually thinking and really working
with the community we want all your ideas to knock on doors, to
go to churches so that people, before the letters come, before
the calls come, we can predict generally what neighborhoods,
very clearly, are going to be impacted, and we want to have
that type of very targeted specific outreach to get to a
problem before it is a significant problem and, hopefully
resolved.
Ms. McCollum. Mr. Abed, if you could answer my question,
and then could you tell me, are you professionally bonded?
Mr. Abed. Yes, Congresswoman McCollum, everyone in my
office is.
Ms. McCollum. Just in your office?
Mr. Abed. You asked me--in the State as of 8/1/2007, they
are required, or to meet a net worth through a audited
financial and tangible liquid asset, yes. To answer your
question from an association point of view regarding being able
to service the different folks that we have to, we are
currently seeking partnerships out with a variety of outside
vendors because we are a volunteer organization and do not have
that capacity ourselves. And so we are currently seeking those
services as recently as this week actually.
Ms. McCollum. Thank you.
The Chairman. Let me follow up, Mr. Abed. You said that
people should be held to a standard. Could you describe the
standard to which you think people should be held?
Mr. Abed. You know, we're total--
The Chairman. No. No. Just tell me what the standard is you
think people should be required to abide by.
Mr. Abed. I think a reasonable ability to pay is a good
standard.
The Chairman. So you would say that we should--that people
should not make loans to people if they could not figure out
that they had a reasonable ability to pay, that banning loans
that people were unlikely to be able to pay them back would be
a reasonable statutory standard?
Mr. Abed. I think it's irresponsible to lend to people that
you knowingly and willingly, you know they cannot pay.
The Chairman. I appreciate that, because that's been
somewhat controversial. That's very helpful, because I think
that is one of the things we've talked about, and I think
putting that in the loan would be a useful thing.
Mr. Abed. Can I add one thing?
The Chairman. Yes.
Mr. Abed. You know, I hope people understand that I know
they believe things when they buy their first home and they buy
any home they go to a point that may be an uncomfortable place
for them, and one of the things we teach is it's about the
payment.
The Chairman. Get to the point.
Mr. Abed. It's about the payment, not how much we could
qualify you for. So the important part through the education
process we believe is, it's about the payment.
The Chairman. That's right. And that payment should
include--
Mr. Abed. Taxes and insurance. And we believe that.
The Chairman. I understand that. And it also--and what the
payment will be 3 years from now, not just what the payment
will be for the first year. That's very important and I
appreciate that. The one thing you said that puzzled me though,
you said with regard to documentation I thought I heard you say
that people can tell you something, and you have to go by
standard accounting procedures, even if you know that's not
true. I don't think it's true that you have to go by that if
you know it's not true. Would you elaborate?
It seems to me that you were saying that sometimes you feel
you have to accept income statements that you know aren't true.
I don't know why you would have to accept those.
Mr. Abed. No, we would not accept those.
The Chairman. Well, what were you saying then? Did I
misunderstand you?
Mr. Abed. Some of the documents that we have from
nontraditional income sources, it has to be a similarly
reliable document that we could actually validate income,
because sometimes that becomes very difficult.
The Chairman. I thought you were saying that there were
times when you had to, because of standards of accounting,
accept things that--
Mr. Abed. No. No. I think there are allowable things that
are added back as far as that goes.
The Chairman. I misunderstood.
Mr. Abed. Thank you for clarifying that.
The Chairman. Ms. Sullivan, with regard to the clerical
report, my recollection is that now legislatively you can get a
free copy of your credit report. Now, the point is that people
have to resist when you get the free copy--don't buy all the
extras. They want to throw in all these extra things. But you
are now by statute, which our committee passed under a public
issue, and it was bipartisan, people are entitled to their
credit report.
We do have just one problem. If you get your credit report
currently, and it shows that you owe a particular vendor
something that you believe you don't really owe, there is no
procedure by which you can challenge that other than to ask the
vendor to do his or her paperwork. And we are currently working
with the Federal Trade Commission to get procedures in place
for that.
So it's one thing to get your credit report, right now if
you get it, and there is something on it you know is wrong, you
don't now have adequate access to a procedure, but you will
have access pretty soon.
The only other thing, let me make kind of a frontal
statement summing up because I am impressed--well, let me say,
that we can't come to the Twin Cities without expressing our
solidarity with you in your grief over this terrible tragedy
that has befallen you, and it does seem to me that the common
theme today is that the people here in Minneapolis and St. Paul
have been the victim of two government failures.
But government failures are to some extent collective
failures. These are not mistakes made by one government
official. These are mistakes made by our public in how we have
approached things because we have been, in my judgement, not
sufficiently aware of our capacity to come together to improve
the quality of our lives. And when we do that, sometimes it's
called government. Government is, after all, the way in which
we can act together.
And let's look at two examples. There are inadequate
resources for maintaining our infrastructure, so a bridge
collapses and people die. There is also inadequate regulation
and financing to help people in lower income brackets, so we
have the physical blight of the bridge and the economic blight
of subprime, which in turn can lead to some physical blight.
And I am struck by the commonality of the theme frankly
bipartisan appointing to the governor, democratic mayors, this
is the case where we may need some more government. Our friends
in the mortgage practice want licensing. Who licenses? The
Kiwanis Club doesn't license you. The Boy Scouts don't license
you. The government licenses you. That's an expansion of a
government function.
We heard from the commissioner that we need more money for
Home and CDBG. That's not voluntary contributions, that's tax
dollars. That's the Federal Government spending tax dollars. I
completely agree. And when the President vetoes our bill
because we have too much money for Home and CDBG, I hope you
guys will be there to help us override that veto. What we are
talking about is that we have underestimated collectively our
capacity to come together to make our lives better, and that
sometimes means what we call government. Keith Ellison's bill
is an expansion of the government, and what Betty does in the
Education and Labor Division is an expansion of the government.
Yes, it is.
And you know what, you cannot have a whole that is smaller
than the sum of the parts. We want an increased role for the
FHA, we were told that. As Ms. Sullivan heard me say earlier,
our committee going forward has already voted out of the
committee a bill to make the FHA what it used to be with more
counseling, with it being a place where subprime loans can be
gotten where you don't need adjustable rates and prepayment
because a settlement of the secondary market because you have
FHA the mortgage guarantee. But that's more government. The FHA
is a government agency. CDBG is government tax dollars. Home is
government tax dollars.
Fixing a bridge is government tax dollars. That says the
government should do everything. But you have to understand,
you cannot be against government in general and cheer every
time somebody says we'll have less government and then expand
the FHA and increase licensing requirements and ban loans that
shouldn't be banned and have more money for Home and more money
for CDBG. So what we need to do is to better understand, I
think, our collective capacity to improve our life.
That's the message I take away from this, and I thank you
all very much for participating.
Mr. Ellison. Mr. Chairman, before we adjourn, I just want
to--on behalf of everybody here in Minnesota, thank you for
coming out, and thanks for your work here.
[Whereupon, at 8:39 p.m., the hearing was adjourned.]
A P P E N D I X
August 9, 2007
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