[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
_____________________________________________________________________________
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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

                              ----------                              
                                                                   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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