[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                    MORTGAGE LENDING DISCRIMINATION

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

                             FIELD HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 15, 2007

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 110-69



                                     
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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             STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York           DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas                 WALTER B. JONES, Jr., North 
MICHAEL E. CAPUANO, Massachusetts        Carolina
RUBEN HINOJOSA, Texas                JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York           GARY G. MILLER, California
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
STEPHEN F. LYNCH, Massachusetts          Virginia
BRAD MILLER, North Carolina          TOM FEENEY, Florida
DAVID SCOTT, Georgia                 JEB HENSARLING, Texas
AL GREEN, Texas                      SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin,               JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee             STEVAN PEARCE, New Mexico
ALBIO SIRES, New Jersey              RANDY NEUGEBAUER, Texas
PAUL W. HODES, New Hampshire         TOM PRICE, Georgia
KEITH ELLISON, Minnesota             GEOFF DAVIS, Kentucky
RON KLEIN, Florida                   PATRICK T. McHENRY, North Carolina
TIM MAHONEY, Florida                 JOHN CAMPBELL, California
CHARLES WILSON, Ohio                 ADAM PUTNAM, Florida
ED PERLMUTTER, Colorado              MICHELE BACHMANN, Minnesota
CHRISTOPHER S. MURPHY, Connecticut   PETER J. ROSKAM, Illinois
JOE DONNELLY, Indiana                KENNY MARCHANT, Texas
ROBERT WEXLER, Florida               THADDEUS G. McCOTTER, Michigan
JIM MARSHALL, Georgia                KEVIN McCARTHY, California
DAN BOREN, Oklahoma

        Jeanne M. Roslanowick, Staff Director and Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    October 15, 2007.............................................     1
Appendix:
    October 15, 2007.............................................    41

                               WITNESSES
                        Monday, October 15, 2007

Adams-Heath, Acia, President, Massachusetts Affordable Housing 
  Alliance.......................................................    28
Alkins, Leonard, President Emeritus, NAACP Boston Branch.........    31
Browne, Lynn E., Executive Vice President and Senior Economist, 
  Federal Reserve Bank of Boston.................................    33
Campen, Jim, Executive Director, Americans for Fairness in 
  Lending........................................................    23
Coakley, Hon. Martha, Attorney General, Commonwealth of 
  Massachusetts..................................................    12
Hamilton, Ginny, Executive Director, Fair Housing Center of 
  Greater Boston.................................................    26
Kennedy, Thomas B., Senior Vice President, Sovereign Bank New 
  England........................................................    32
Menino, Hon. Thomas M., Mayor, City of Boston....................     9
Patrick, Hon. Deval L., Governor, Commonwealth of Massachusetts..     7
Taylor, Chuck, City Councilor, City of Boston....................    18
Yoon, Sam, At-Large Boston City Councilor........................    20

                                APPENDIX

Prepared statements:
    Adams-Heath, Acia............................................    42
    Alkins, Leonard..............................................    46
    Browne, Lynn E...............................................    48
    Campen, Jim..................................................    55
    Coakley, Hon. Martha.........................................    84
    Hamilton, Ginny..............................................    92
    Kennedy, Thomas B............................................   105
    Menino, Hon. Thomas M........................................   112
    Patrick, Hon. Deval L........................................   119
    Yoon, Sam....................................................   116

              Additional Material Submitted for the Record

Frank, Hon. Barney:
    Letter from Action for Boston Community Development, Inc.....   130
    Article from the Boston Globe, ``As foreclosures widen, a 
      neighborhood erodes''......................................   132
Alkins, Leonard:
    Information on NAACP lawsuit.................................   136
Adams-Heath, Acia:
    ``Expanding Homeownership Opportunity II, The SoftSecond Loan 
      Program, 1991-2006''.......................................   137


                    MORTGAGE LENDING DISCRIMINATION

                              ----------                              


                        Monday, October 15, 2007

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 11 a.m., in 
Roxbury Community College, Reggie Lewis Track and Athletic 
Center, 2nd floor, 1350 Tremont Street, Boston, Massachusetts, 
Hon. Barney Frank [chairman of the committee] presiding.
    Members present: Representatives Frank, Capuano, and Lynch.
    The Chairman. This hearing of the Financial Services 
Committee will come to order. This is an official hearing of 
the Financial Services Committee of the U.S. House of 
Representatives. I would note, as chairman of the committee, 
that there are three members present--myself, and my 
colleagues, Mr. Capuano and Mr. Lynch--which is a quorum for an 
official committee hearing, so this is an official hearing.
    We have limited time. We go into session later today, and 
my two colleagues and I have to go to Washington to cast a 
vote.
    We have a panel of officials. We have a panel of citizens. 
I have already received a statement from Deborah Rhoderick on 
behalf of Mass Acorn, and if there are any other statements, 
this will be made part of the official record. If there are any 
other statements that others would like to have entered into 
the record, let's have a staff member-- Ms. Rightguard here 
will accept them. We will make note publicly of their having 
been submitted, and they will all be part of the official 
record, which will read better than it sounds, apparently.
    To begin, I want to acknowledge the gracious hospitality of 
this very important institution. We are enjoying the 
hospitality of Roxbury Community College, a very important 
institution educationally, economically, and culturally in the 
City, and, indeed in the greater Boston area, and I want to now 
introduce President Gomes, who is going to welcome us and 
express our appreciation on behalf of the Congress and the 
citizens for hosting this event.
    Mr. President.
    Mr. Gomes. Good morning, and thank you, Chairman Frank.
    On behalf of the trustees, the faculty, staff, and students 
of Roxbury Community College, I want to welcome you, Chairman 
Frank, and also the distinguished members of the House 
Committee on Financial Services.
    As a college, we pride ourselves on being of service to the 
members of this community, and we certainly appreciate your 
bringing this important matter, having this hearing here at the 
college today. Mayor Menino and Attorney General Coakley, thank 
you for coming as well, and I want to extend a thank you to 
those who will be giving testimony this morning. I know 
Governor Patrick is showing up shortly as well. I just want you 
to know, this is in keeping with our spirit and effort to serve 
the members of this community, and again, we thank you for 
being here and want you to know, Chairman Frank, that you are 
welcome here at this point in time.
    Thank you.
    The Chairman. Thank you, Mr. President.
    We will now have opening statements. Let me begin with 
mine.
    This hearing really has a dual focus. We are, in part, 
talking about the sad record of discrimination in the granting 
of mortgages. We have a piece of legislation known as the Home 
Mortgage Disclosure Act. That is a statistics-gathering device. 
It was amended about 15 years ago, under the leadership of my 
former colleague, Mr. Capuano's predecessor, Joe Kennedy, who 
was a devoted fighter for fairness and against discrimination. 
And, with Joe Kennedy in the lead, the Congress explicitly 
mandated the collection under the Home Mortgage Disclosure Act 
of statistics involving the racial and ethnic identity of 
people who receive mortgages.
    Not surprisingly, but unfortunately, the data shows that 
racial and ethnic discrimination persists, and no matter what 
other economic figures you throw in, it still turns out that if 
you are African American or Hispanic in this country, and, 
unfortunately, particularly so if you are in Boston, you are 
less likely to get a mortgage, and more likely, if you do get a 
mortgage, to have to pay more for it than you should.
    Part of what we want to address here is the persistent 
pattern of discrimination, and we need to acknowledge that 
years of racism in this country, hundreds of years, have 
obviously not disappeared. We have made great progress in 
fighting racism but these statistics are a sad confirmation of 
the fact that it still exists.
    Secondly, this merges into the problem of subprime 
mortgages and the foreclosures that come, and part of the 
connection is that people who are put into subprime mortgages 
who should not have had to be there, because those mortgages 
are more expensive are more likely to find themselves in 
trouble if an economic downturn hits them.
    The fact that subprime mortgages are disproportionately 
given to people who are African American or Hispanic merges 
into, as we say, the problem of the foreclosure rate.
    Now let me address one question right away. I don't know 
why I say, ``let me,'' because no one would stop me. I don't 
know why we say those things, but I do want to address one 
question, which is, well, some people say, you know, they made 
their own mistake, the people who took out those mortgages, so 
why are you intervening?
    Well, for two reasons. First of all, if you read today's 
New York Times, and yesterday's, you will see that the urging 
of the Secretary of the Treasury, and I believe also the 
president of the New York Federal Reserve, the three largest 
banks in this country have come together to form a consortium 
to help bail each other out. That is, the notion that there 
needs to be some government intervention to help out is not 
restricted to people who took subprime mortgages.
    Secondly, as we just said, the subprime mortgages were not 
randomly given. There are people who because of their race or 
ethnicity got subprime mortgages when they would have qualified 
by any reasonable standard for a regular mortgage.
    Third, there was, to some extent, some deception. Now, most 
of the people who grant mortgages are honest. Part of our 
problem has been that because of a lack of regulation in one 
sector of our economy, there were mortgages granted by the 
unscrupulous minority of people who originated mortgages with 
no regulation to protect people. So, people, in fact, were put 
upon, they were misled, they were deceived.
    Finally, and this goes back again to the discriminatory 
aspect in part, subprime mortgages, and the foreclosures that 
result therefrom were not, and are not, randomly distributed. 
What that means is that the foreclosures hit particular 
neighborhoods harder than other neighborhoods.
    I represent a variety of communities, as do my two 
colleagues. Subprime foreclosures are not a serious problem in 
Wellesley, but they are a serious problem elsewhere, but here's 
the problem. If you are a hard-working woman, making $40,000 a 
year in this economy, and doing everything you can as 
scrupulously and as carefully as you can to pay your mortgage, 
but the house across the street goes into foreclosure, and the 
house four doors down goes into foreclosure, pretty soon you 
have a problem. And, I would salute the Boston Globe, there was 
a very good article on the front page of the Globe, I think, a 
week ago Sunday about what is happening in Lawrence, and it is, 
unfortunately, not the only city in which this happens, where 
foreclosures have negatively affected not just those whose 
houses were foreclosed upon but others as well.
    So, we are dealing here with the dual problems of 
discrimination and of foreclosures.
    I would just make one announcement before I turn to my 
colleagues. We will be meeting--and I have been working with 
Mayor Menino on this, and with Governor Patrick; I know the 
Governor has made some announcements about some efforts to try 
to help out with the foreclosures--a week from Friday, and 
we'll have more details on that, at the Federal Reserve Bank, 
and we have arranged this with Jim Siegel, my special counsel, 
who will be working on this. We are going to ask, not too 
politely, all of the lenders, all of the servicers, all of the 
people who hold the mortgages, to come to meet with various 
neighborhood advocate groups. We will have the FHA there. We 
will have Fannie Mae and Freddie Mac there. We will have 
officials from the city and the State there, and from the 
Attorney General's office, who has been taking a very active 
role here, and we hope that out of that meeting a week from 
Friday will come some concrete agreements and some concrete 
steps people will know they can take to alleviate this kind of 
problem, because the foreclosure issue is one that threatens, 
as I said, not just those upon whom the foreclosures will hit, 
and they deserve some help, many of them, but others as well.
    I did save one last point. A year ago, there was a lot of 
talk in the country about the need to deregulate. We were told 
that if we didn't cut back on regulation every corporation in 
America would go to England, where they would be more nicely 
treated. By the way, in England they just raised the taxes on 
private equity, so maybe they are not going there so much.
    But, we have had mortgages originated by two groups in this 
country. Mortgages have been originated traditionally by 
regulated entities, banks and credit unions, and if only banks 
and credit unions regulated by the FDIC and the State Bank 
Commission, or the National Credit Union Administration, etc., 
etc., if they were the only originators of mortgages we would 
not have a crisis, because the rules under which they operated 
prevented many of these abuses.
    We have a wholly unregulated sector--the mortgage brokers. 
Now, most mortgage brokers are perfectly honest and decent 
people. It's not that they have more people who want to cut 
corners, it is that for the minority who might want to cut 
corners, they were subject to no checks and balances, and so 
what we had were mortgages originated by an unregulated sector, 
and then in turn sold in an unregulated way into a secondary 
market, so that the concerns people had with the payments not 
being made got dissolved.
    And, one of the things we will be doing on this committee, 
my colleagues and I have been working on this, going forward we 
plan to adopt a law, a Federal law, that will cover all 
mortgage originators with the same set of rules that have 
applied to those regulated entities, and we will also be 
putting some rules on those who syndicate these into the 
secondary market.
    Essentially we are saying that there are mortgage loans 
that shouldn't be made, a very exotic concept--don't lend 
people money if they can't possibly pay it back. Apparently, 
that's surprising to some people, but that's going to be a 
rule. And then to the servicers, don't sell into the secondary 
market mortgages that never should have been made in the first 
place.
    Those are the rules we are going to enact.
    So, with that, let me welcome our officials, and let me 
turn to my colleague, in whose district we now sit, the 
gentleman from Massachusetts, the former Mayor of Somerville, 
who is very well aware of these problems. He has been a leading 
advocate in fighting for the housing needs of the Commonwealth, 
Mike Capuano.
    Mr. Capuano. Thanks, Barney.
    First of all, I want to thank you all for being here today. 
This is an important step in the process. In Congress, we don't 
do anything until we have a sufficient number of hearings, and 
we get enough people convinced to actually take action.
    I'm not going to reiterate what Barney said about the 
substance of the issue, and I also know that there are many 
people in this room who actually know the details of the issue 
more than I do, but I do want to say one thing very, very 
clearly. In the last 9 months, a lot of my friends in this 
district have said to me, well, what's the difference, Congress 
hasn't changed, Washington hasn't changed, we voted for 
Democrats and what happened.
    Well, here's what happened. We are here today making 
another step in the right direction on an important issue that 
affects people at the bottom end of the socio-economic scale. I 
guarantee you, on my father's soul and on my childrens' souls, 
this hearing, this issue, would not be on the table, would not 
be making progress, if there wasn't change in Washington last 
November that you helped to bring.
    And, I understand that some people want more change, as I 
do, as I will speak for my colleagues, as all three of us here 
do, but we do what we can, and we cannot do anything unless the 
voters of America stand up and say they want a government that 
is activist, they want a government that watches out for the 
interests of regular people.
    Now, we take it for granted here in Massachusetts, 
particularly in the greater Boston area, we take it for granted 
that all of our public officials care about that. Well, I will 
tell you, I'm sure you have been watching Washington over the 
last dozen years, and that has not usually been the case. There 
are those of us in the minority who voice it strongly that we 
want these things to happen. We did not talk about subprime 
loans on the Financial Services Committee in any serious way 
last year, when Republicans were running the Congress. This 
year, with Barney Frank as the chairman, not only are we 
talking about it, but we are taking action and we are going to 
make a difference this year. That is a major, major change in 
Washington, because you and the rest of the American people 
stood up and said, ``Enough is enough.''
    So, for me, we are here today to learn a few more details, 
but I'm here today, really, to say thank you and to remind you 
all of the actions that you took to make this change possible, 
to make this progress possible, and, please, in any way, it 
will probably never be enough, but in any way, if you don't 
recognize the dramatic change that has happened in Washington 
in the last year, and, hopefully, will continue to happen over 
the foreseeable years, is major and will make our lives better.
    Thank you for being here.
    The Chairman. Next, another very strong advocate for the 
housing needs of the citizens of both his district and the 
whole Commonwealth and, indeed, the country, Representative 
Steve Lynch.
    Mr. Lynch. Thank you, Mr. Chairman.
    First of all, I want to thank Barney for holding this 
hearing on mortgage lending discrimination in the City of 
Boston. The pattern of discrimination revealed by the Home 
Mortgage Disclosure Act data requires our utmost attention.
    Just so you know, the 2005 HMDA data, like the 2004 data, 
did reveal that Blacks and Hispanic borrowers in the City of 
Boston are more likely to obtain loans with prices above the 
pricing thresholds than are non-Hispanic Whites. And sadly, in 
greater Boston and throughout Massachusetts we have 
discrimination numbers that are much higher than the national 
average.
    I was disturbed to learn from Mr. Campen's testimony at a 
previous hearing, and his written testimony today, that from 
2003 to 2005, 77 percent of the loans provided to Blacks in 
greater Boston were concentrated in a small number of 
communities, not only in the City, but also in three other 
districts--three other towns in my district, Milton, Randolph, 
and Stilton. At the same time, we have seen a dramatic decrease 
in CRA loans, Community Reinvestment Act loans, that require a 
diversity of outreach by the lenders and actually scores the 
lenders on their ability and their willingness to spread to 
non-traditional employees the benefits of fair mortgage 
lending.
    I am particularly pleased to have a constituent of mine 
here to testify on the second panel, Ginny Hamilton. She is the 
executive director of the Fair Housing Center of Boston, a 
group that does great work in fighting illegal housing 
discrimination in Essex, Middlesex, Norfolk, Plymouth, and 
Suffolk Counties in Massachusetts.
    As part of their mission, the Fair Housing Center 
researches the documents and nature and extent of housing 
discrimination, as well as fair housing impacts on public 
policies.
    Ms. Hamilton will testify today--she has a report that is 
available, ``The Gap Persists: A Report on Racial and Ethnic 
Discrimination in the Greater Boston Home Mortgage Lending 
Market.'' And I think it is very telling, her report; it 
indicates that there were differences in the treatment of 
disadvantaged minority home buyers in 9 out of 20 matched pair 
sets, so what the Fair Housing Office does is sends out people 
with, basically, the same criteria, going in to lenders to see 
if they are being treated differently because of the color of 
their skin.
    And, what's going on, and what this report has shown, is 
that when Latino and Black applicants walk in, 9 out of 20 
cases, it is showing a positive correlation to their race, in 
terms of getting a mortgage at fair terms.
    So, that's an alarming statistic, and I think it serves as 
a basis for the work that we are doing--45 percent of the time 
we are seeing a discriminatory impact based on race in the 
availability of mortgages in the City of Boston.
    Lastly, I would say, as Chairman Frank has already 
indicated, we have a couple of things that we are trying to do 
here today. Number one is to make sure that we can provide some 
relief for people who have found themselves in this position, 
who are at risk of foreclosure, and who have no place to turn. 
I compliment the Governor on his work with the Mass Fair 
Housing Agency to help address part of that problem.
    The other problem is a moral hazard that we have, and the 
chairman has talked about this before. We want to provide 
relief for the families who have been victims here. We do not 
wish to provide relief for mortgage companies that came in and 
tried to take advantage of these families. So, we have to make 
sure that the tools that we provide to correct this imbalance, 
that the relief goes to the families who have been most 
affected.
    And, with that, I'll yield back the balance of my time.
    The Chairman. Thank you, Mr. Lynch.
    Mr. Lynch makes one point that I want to just announce. One 
of the things that we have seen happen over these 20 years or 
so is that the Community Reinvestment Act has been diminished, 
not by anybody's deliberate action. When the Community 
Reinvestment Act was first passed, most of the lending was done 
by banks. In the years since then, a number of other financial 
institutions have stepped in, and one of the things this 
committee will be doing next year is to begin some hearings, 
and I hope write some legislation, that will extend the reach 
of the Community Reinvestment Act so that we will get back to 
the percentage of economic activity that it was originally 
supposed to cover.
    With that, I'm going to begin with our panel of witnesses. 
I am very grateful to these three very busy and important 
officials for taking the time to come and join us today. All 
three have been leaders, not just here, but nationally, in 
addressing these various problems, and we will begin with the 
Governor of Massachusetts, Governor Patrick.

    STATEMENT OF THE HONORABLE DEVAL L. PATRICK, GOVERNOR, 
                 COMMONWEALTH OF MASSACHUSETTS

    Governor Patrick. Thank you very much, Mr. Chairman.
    Is that all right? Can everybody hear me who needs to?
    The Chairman. Well, I can, but I'm 10 feet in front of you. 
I don't know about the people 200 feet back here.
    Governor Patrick. How's that, is that better? Okay.
    Mr. Chairman, thank you very much, to you, and Congressman 
Lynch, and Congressman Capuano, and the members of your 
committee who are not here, for caring about this issue, and 
for convening here in Boston so that we can talk about the 
challenges and what we are trying to do to help meet them.
    First of all, if you will permit me, I'll just submit my 
written testimony for the record.
    The Chairman. Without objection, all of the written 
statements submitted by any of the witnesses, as well as 
members of the audience, will be made part of this official 
record.
    Governor Patrick. Great.
    And, I'll just try to focus on some of the things that we 
are trying to do at the State level here in Massachusetts to 
address the issue.
    You know what the issue is, foreclosure rates are up 76 
percent in just the last 12 months here in Massachusetts, 
25,000 foreclosures have been initiated in the last 12 months 
here in Massachusetts. It's a serious challenge, and it's a 
primary concern of our administration.
    Although the complex issues surrounding foreclosure and 
abuses within the mortgage lending industry are national in 
scope, as you and your colleagues have laid out, there are 
important steps that can be taken at the State level to protect 
consumers, while maintaining a viable, competitive mortgage 
lending industry in Massachusetts.
    I want to thank you for allowing me to share with you some 
initiatives we are undertaking to provide comprehensive short-
term solutions to assist homeowners, and to develop long-term 
strategies to prevent foreclosure crises and address potential 
disparities in loan access and pricing.
    First of all, in April of this year, I directed our 
Division of Banks to seek, on a case-by-case basis, brief stays 
for consumers who were facing imminent foreclosures. The goal 
was to provide some time, allowing the division to refer 
homeowners to reputable homeownership counseling firms, and 
encourage mortgage lenders and services to use this time to 
work with homeowners who are unable to make their mortgage 
payments.
    To date, through a hotline we established to help 
homeowners gain access to our services, the Division has 
fielded over 1,000 Massachusetts residents' calls, who are 
either in the foreclosure process or having difficulty 
maintaining their mortgage obligations, and we've secured 
voluntary stays in half of those cases so far.
    Mass Housing, in collaboration with Fannie Mae, and I 
appreciate your calling attention to this, Congressman Lynch, 
has designed and implemented one of the most aggressive 
foreclosure prevention programs in the country. The program 
includes $250 million, a commitment that includes $190 million 
in funds from Fannie Mae, and $60 million in a contribution 
from Mass Housing through the sale of bonds. In other words, no 
taxpayer money is used for this program.
    Through the program, borrowers may be up to 60 days 
delinquent with credit scores as low as 560 and still be able 
to refinance their existing mortgage loans under manageable 
terms. That's 1,000 homes--1,000 homes--and we ought to be 
doing more of this.
    Through our Division of Banks, Massachusetts will be one of 
the first States in the country to implement a nationwide 
database of mortgage professionals. Nearly 4 years in the 
making, the system goes live on January 1st of next year, to 
provide a uniform application process for mortgage lenders and 
brokers operating across State lines, and will be a central 
repository of information about licensing and enforcement 
actions. The database will substantially improve the existing 
regulatory framework and reduce fraud on a nationwide basis.
    We have also filed legislation in June of this year to 
criminalize mortgage fraud, prohibit abuse of foreclosure 
rescue schemes, and update various provisions of the laws that 
currently govern the foreclosure process here in the State. The 
bill also establishes a central repository of foreclosure 
information at the Division of Banks to allow us to track 
foreclosures by product, geographic region, originator, broker, 
and lender, so that we can watch for patterns and anticipate 
where trouble may come.
    Furthermore, the legislation prohibits a lender from making 
an adjustable rate subprime loan unless a consumer 
affirmatively opts out of a fixed-rate product, and completes a 
home buyer counseling program, and we look forward to working 
with the legislature to enact this legislation. It was 
submitted and heard in a public hearing just last month.
    In addition, we continue to support legislative initiatives 
to license mortgage loan originators and extend provisions of 
the Massachusetts Community Reinvestment Act to certain 
licensed mortgage lenders. The establishment of a CAR-like 
requirement for non-bank mortgage lenders will result in public 
evaluations and ratings summarizing non-bank lenders' 
performance in meeting housing credit needs in compliance with 
State and Federal fair lending laws.
    I believe this increased level of scrutiny will 
significantly decrease the impact of the disparities in 
mortgage pricing.
    Finally, my staff and I have held ongoing meetings with 
lenders, industry trade groups, community and housing 
advocates, and others, to discuss possibilities to assist home 
buyers, and homeowners, and housing counselors. It's clear that 
a comprehensive response to the complexity of these problems of 
foreclosure and mortgage lenders lending abuses will require 
the ongoing participation of mortgage lending industry members 
and other non-governmental entities, as well as our State 
government. We continue to work with all participants in the 
mortgage lending process to discuss and determine what further 
steps can be taken at the State level.
    In an effort to expand on some of these initiatives, we 
will later this week announce six municipalities who will take 
part in a pilot program designed to cover a range of possible 
needs for homeowners, especially vulnerable homeowners. We've 
developed a five-point plan to bring together government, 
lenders, homeowners, and nonprofits to develop and raise 
awareness about alternatives to foreclosure, to create support 
systems for transition assistance where necessary, and keep 
neighborhood homes occupied. The plan is based basically on 
outreach, best practices, rescue products, neighborhood 
stabilization--a very key point that you raised in your opening 
remarks, Mr. Chairman--and transition assistance. The six 
cities and towns will be selected based on number and 
concentration of foreclosures to date, as well as the overall 
fiscal needs of the region.
    Through that program, we'll be able to implement and refine 
strategies to help homeowners stay in their homes and keep 
communities stable, sound, and safe.
    I want to thank Secretary Dan O'Connell, our Secretary of 
Housing and Economic Development, and Undersecretary for 
Housing, Community, and Community Development, Tina Brooks, for 
their leadership within our government.
    I also want to acknowledge and thank the cooperation and 
partnership we have had with the Mayor and with the Attorney 
General, who have been just wonderful on these subjects.
    We have been fortunate to work in collaboration with 
various concerned members of the Massachusetts legislature as 
well, and we are making a coordinated effort in Massachusetts 
and look forward to working with Federal authorities in any way 
that we can to keep people in their homes, and to keep families 
and communities as stable as possible.
    Thank you very much for having us participate today.
    [The prepared statement of Governor Patrick can be found on 
page 119 of the appendix.]
    The Chairman. Thank you, Governor. I just want to echo your 
last point, it is important that all levels of government--
Federal, State, and local--work together. That is why I am 
particularly glad that we have this panel, and I am very 
pleased to welcome the Mayor here, both as a sign that we all 
work together, and also for those people who frequently confuse 
me and the Mayor, I want to dissuade them. We are two separate 
people, but we are both working on the same project.
    Your Honor.

STATEMENT OF THE HONORABLE THOMAS MENINO, MAYOR, CITY OF BOSTON

    Mr. Menino. Well, thank you, Mr. Chairman.
    You and I think alike on issues, that's one thing, and I 
thank Congressman Lynch and Congressman Capuano for being here. 
This is a very important meeting this morning. I appreciate 
your leadership on these lending issues, especially when those 
lending issues affect the consumer.
    Before I begin, Congressman Frank, let me congratulate you 
for your tremendous success in passing the National Affordable 
Housing Trust Fund in the House. It's a tremendous opportunity 
for us.
    I hope you get your Senate colleagues to move this bill in 
just half the time that it took to get it through the House. I 
know with your determination and drive you will show the Senate 
how to do this, and it's very important that we do this on a 
national level.
    We are here today to discuss discrimination in mortgage 
lending. I can't tell you how frustrating it is, after all 
these years, and after so much work on the part of government, 
consumer organizations, and corporate America that we even have 
to have a hearing like this. So, here we are, truly part of a 
marathon, not a sprint, to bring equality to all Americans.
    I want to acknowledge the important work of the 
Massachusetts Community and Banking Council, the academic 
community, and people like Joe Cappan and Bill Abgar. Their 
years of research have quantified for us disparities in 
lending, so let's listen to some of their findings.
    In Boston, in greater Boston, throughout the Commonwealth, 
high-priced loans account for over half of the home mortgage 
loans of both Blacks and Latinos, and Congressman Lynch also 
took note of that.
    In Boston, the four neighborhoods with the highest 
percentage of minorities--Hyde Park, Mattapan, Roxbury, and 
Dorchester--received more high-cost loans than the other 
neighbors in our City.
    Borrowers are grouped by race and income level, and the 
proportionate share of high-cost mortgage loans is constantly 
higher for Blacks and Latinos than for Whites at the same 
income level.
    One last piece of information from the Mass Community and 
Banking Council, here are the lenders who are among the highest 
providers of high-cost loans to the neighborhoods of Boston: 
Ameriquest; Fremont Investment and Loan; Countrywide; New 
Century; and Option 1. I really get angry when I look at these 
data, not just because families who are affected are paying 
more than they should, but also because I see the impact these 
high-cost loans have on our residents and our neighborhoods. 
When foreclosures increase, properties are often left vacant, 
as investors and their services refuse to acknowledge market 
realities. They hold out with sales prices that are not 
realistic. That has happened in Hyde Park, Mattapan, Roxbury, 
and Dorchester, the very area where high-cost loans prevail.
    Now, who are the top lenders--I mentioned them before--who 
are doing the damage in Boston? They are the ones who have the 
very high-cost lenders.
    In the past, we have seen them board up properties, 
bringing down the value of other homes in the area. We don't 
want to slide back to where we were in 1992 when housing values 
hit the skids for 3 decades of selling for less than $100,000. 
The lending industry has changed since the 1990's. Our lenders, 
the banks, have a much lower share of the market, about 20 
percent. In their place have come non-traditional lenders 
offering teaser rates, expensive loans that rely on the promise 
of future refinancing, and high fees.
    No one at the front end cares about the long-term 
performance of these loans. It's all about short-term gains, 
taking the fees and sending the high-cost mortgage forward. Now 
it seems like Boston, Brockton, Lawrence, and hundreds of 
communities across the country are paying the price for these 
lending malpractices which are out of control with little 
oversight.
    Foreclosures have increased in Boston, but our City has 
fewer foreclosures than any other city in the State. I 
attribute our relatively good numbers to the efforts that are 
put into home buyer education and foreclosure prevention.
    Our foreclosure prevention program, Don't Borrow Trouble, 
has been helping homeowners since 1999. Ten years ago, I 
established a Home Center, a one-stop shopping place for home 
buyers. We offer information on mortgage products and sponsor 
home buying education classes, and require home buyers to take 
part in certified classes in order to receive city down-payment 
assistance. More than 4,400 people have participated in this 
program, predominantly, low and moderate income, have bought 
homes in Boston, after completing our classes and receiving our 
financial help.
    Notably, the foreclosure rate for this group is less than 1 
percent, compared to the market foreclosure rate in Boston of 
2.5 percent.
    Now, who receives our financial assistance? 40 percent are 
Black, 20 percent are Hispanic. Our graduates are proof that 
minority families can succeed at homeownership. Our classes 
teach people to become savvy buyers, choosing reputable 
lenders, and asking the right questions.
     Based on our experience, I recommend the following. The 
mortgage lending industry must re-commit itself to home buyer 
education, so every time buyers--first-time buyers have the 
opportunity to complete a certified course, much like those 
offered through the Home Care Center.
    Congress must do everything in its power to continue to 
shed light on disparities in lending by non-traditional 
lenders, much like we are doing today with this hearing. I urge 
Congress to support more natural efforts, such as Freddie Mac's 
Credit Smart Program which provides families with the 
competence and knowledge to succeed financially, because 
poverty should not be a life sentence.
    I further recommend that the Massachusetts State 
Legislature support pending legislation that requires mortgage 
companies, licensed in Massachusetts, to comply with laws that 
require them to meet local credit needs.
    For many years, I have supported this legislation. It has 
become more important now that non-bank mortgage lenders 
provide most of the home mortgage loans in the State.
    Finally, I recommend that our community organizations 
become proponents of consumer education, all aspects of 
consumer lending. This means that financial literacy would be 
as common as driver's education for new drivers, with 
information offered through workshops, public service 
announcements, and adult education.
    Thank you for your thoughts on this issue, and I want to 
say that this issue, once again, plagues the most vulnerable in 
our society. There are folks who go out there and sell these 
mortgages to these individuals with a blue note, you know, low 
down payment, no interest, and 5 years later you get whacked.
    Mr. Chairman, and your committee, thank you for listening 
to us today. It's an important issue and it affects all our 
neighborhoods.
    [The prepared statement of Mayor Menino can be found on 
page 112 of the appendix.]
    The Chairman. Thank you, Mayor. I just want to emphasize to 
the Governor, the Mayor, the Attorney General, local officials, 
and others Members of Congress that this hearing is not a one-
track deal. This is part of a sustained cooperative effort at 
all levels to make this thing work.
    Next, another official who has taken a real lead in this, 
in setting a national example, the Attorney General of the 
Commonwealth, Martha Coakley.

 STATEMENT OF THE HONORABLE MARTHA COAKLEY, ATTORNEY GENERAL, 
                 COMMONWEALTH OF MASSACHUSETTS

    Ms. Coakley. Thank you, Chairman Frank, Congressmen Lynch 
and Capuano, and my colleagues, Governor Patrick and Mayor 
Menino, for your comments today and for your ongoing efforts in 
this State to address what we can.
    I appreciate the opportunity today to address the critical 
issue of mortgage lending and foreclosure crisis, and, 
particularly, the issue of racial and ethnic disparities in 
mortgage lending.
    I had the privilege of taking office to serve as Attorney 
General in January of this year, with the rising wave of home 
foreclosures that continue to have a devastating impact on the 
people and communities across Massachusetts. And, if the 
statistics are true, we'll continue to in the next few years. 
We have not seen the worst of this in some respects.
    We began to take a multi-faceted approach consistent with 
my role as Attorney General that has four prongs. We began 
investigations and enforcement actions, civil litigation, to 
hold accountable those who engage in unlawful predatory lending 
or foreclosure conduct, including lenders, brokers, closing 
attorneys, appraisers, foreclosure rescue scam artists, and 
others who cross the line of fair, lawful lending practices.
    After hearings across the State this summer, we are 
promulgating, very shortly, more comprehensive and finely-tuned 
mortgage broker and lender regulations, based upon our 
authority under the Massachusetts Consumer Protection Act, 
Chapter 93A.
    Working with the National Consumer Law Center, the Boston 
Bar Association, and others, we created a pro bono lawyer 
referral service, so those facing foreclosure, potentially, 
could have access to legal advice that otherwise would be 
unavailable, and we appreciate the Governor's incentives and 
initiatives in this area where we have cooperated trying to 
provide legal assistance to people who can get it under the 
current law.
    We continue to work with State and Federal legislators, 
regulators, and law enforcers to seek solutions for the present 
lending and foreclosure crisis, and our role also is to look at 
preventing a recurrence in the future.
    I want to commend Mayor Menino for his work in the 
financial literacy area. I think that's extremely important 
that we able to focus on that.
    We did, as a result of what we thought was an immediate 
crisis, issue an emergency regulation that under Chapter 93A 
bans foreclosure rescue schemes that are unfair and deceptive. 
We just recently made that a permanent regulation, and we will 
shortly issue, not only a report as a result of our hearings 
this summer, which the Mayor attended, many other legislators 
and individuals in Massachusetts, but four additional 
regulations under Chapter 93A, one of which may help address 
the issues that we're talking about today, because it will 
prohibit mortgage lenders from steering borrowers to loan 
products that are more costly than those the borrower qualified 
for, and it prohibits lenders from discriminating between 
similarly situated borrowers, one of the reasons that we face 
the problem we do, particularly, in our minority communities 
today.
    In our efforts this summer, we have gone across 
Massachusetts. We have talked with victims of unfair, 
deceptive, and illegal lending practices, as well as those who 
have been victimized, doubly victimized, by the foreclosure 
rescue scams.
    And, we have had, we've seen in the last 180 days in Boston 
1,000 home foreclosures. They've been clustered in low-income 
and minority neighborhoods, particularly, in Dorchester, East 
Boston, Mattapan, Hyde Park, and Roxbury. For example, in 
Mattapan, which is 77 percent African American and 13 percent 
Latino, from January of 2006 to May of 2007, there were 164 
closures out of a total 479 loans.
    The disproportionate impact of foreclosures on minority 
communities may be a predictable, but no less disturbing 
reflection of the fact that African American and Latino 
borrowers are more likely to get high APR adjustable percentage 
rate loans than their White counterparts, regardless of their 
income level. This fact has been confirmed by the Federal 
Reserve Board, with its release last month of mortgage lending 
data under the Federal Home Mortgage Disclosure Act, or HMDA as 
referenced earlier.
    Before addressing that 2006 data, I just want to 
acknowledge the work, and I know you will hear from him later, 
Professor Jim Campen and the Mass Community Banking Council, 
analyzing that information, as he mentioned earlier this year, 
year after year, in a way that may have seemed fruitless, but, 
certainly, is extremely important to the work we do today and 
the work we will do tomorrow, on this issue of lending and 
racial disparities.
    In greater Boston, the high APR share for African Americans 
is nearly 4 times greater than the share for Whites with 
respect to home purchase loans, and 3 times greater for finance 
loans. Among Latino borrowers, the share of high APR home 
purchase loans is 4 times higher than for White borrowers, and 
the share of high APR refinance loans is 3 times higher.
    These patterns are present at all income levels, with the 
racial disparities becoming more pronounced among higher income 
borrowers. In Boston, only 9.4 percent of the highest income 
White home purchase borrowers received high APR loans. In 
contrast, 71.1 percent of the highest income Black home 
purchase borrowers received high APR loans. The figure was 56.2 
percent for the highest income Latinos.
    The 2006 HMDA data released in September indicates similar 
nationwide trends, and the analysis revealed substantial 
differences across racial and ethnic lines in the incidence of 
higher-priced mending, and in denial rates. Further, it showed 
that such differences could not be fully explained by factors 
in the HMDA data.
    The fact of racial and ethnic disparities in mortgage 
lending and in foreclosures is clear. The reason for these 
disparities are less clear, I will acknowledge that, but the 
complexity of this issue should not be underestimated. We 
cannot ignore economic factors, but neither can we ignore a 
history of housing discrimination and resulting segregated 
housing patterns, imbalanced and unequal access to financial 
services, and discriminatory lending practices.
    Let me just give you two quick illustrations of the people 
behind these numbers. We just recently brought a civil suit 
against Fremont. It is pending. The allegations are just that, 
but we have alleged that Fremont, who originally approximately 
originated approximately 15,000 loans to Massachusetts 
borrowers since 2004, and it's set forth in that complaint, 
Fremont used a network of brokers and sales people to sell 
unduly risky loans that were designated to fail, including loan 
products with 100 percent financing, stated income loans and 
adjustable rate mortgages with dramatic increases in monthly 
payments after 2 or 3 years.
    Borrowers were qualified for adjustable rate mortgages 
based upon the initial teaser low interest rate without regard 
to their ability to pay the higher adjustable rates which would 
increase every 6 months.
    One Fremont customer lives in Dorchester. She's a single 
mother of three children, and a mortgage broker steered her to 
Fremont to finance the purchase of two multi-family homes. 
Fremont approved her for two loans, despite the fact that her 
total monthly income was $1,800. Her broker promised her that 
she'd be able to reduce her mortgage payments through 
refinancing, and induced her to sign a blank loan application 
which the broker used to submit false information about her 
employment and monthly income. She was discouraged from hiring 
counsel by her broker. She learned for the first time at 
closing that her monthly mortgage payments would be more than 
$7,000 a month, and could adjust from her initial interest rate 
up to 14.65 percent.
    Although Fremont, obviously, should have known she did not 
qualify for the mortgage, Fremont paid the broker over $7,000 
for arranging that mortgage. Fremont then passed this cost on 
to her.
    Another Fremont borrower resides in Dorchester, and 
purchased a multi-family house by taking out a Fremont loan. 
Although she filled out a loan application listing her salary 
of $2,000 a month, she received letters from Fremont stating 
her mortgage payments would be more than her entire monthly 
salary. She called her broker to say she could not afford the 
mortgages and did not want to go forward. Her broker told her 
the letters were wrong, her monthly payments would be lower. 
When she attended the closing and saw the fees, she initially 
refused to sign the papers, but Fremont's lawyer told her it 
was too late to back out and she would owe the money anyway. In 
her efforts to pay her mortgages, she depleted her entire life 
savings and then lost her home to foreclosure.
    These are just two of the thousands of people in 
Massachusetts who have lost their homes and their savings as a 
result of irresponsible and in some cases illegal lending 
practices in recent years.
    I want to make an additional request to our panel today, 
and I would like to address the issue of Federal preemption, 
respectfully ask this committee to consider whether a return to 
the well-tested dual enforcement roles of the State and Federal 
Government would better serve both consumers and responsible 
lenders.
    Increasingly, the traditional and critical role of the 
States in ensuring fair lending is challenged by those who 
argue the rule is preempted by Federal law. In fact, recently, 
when New York, the New York Attorney General began an 
investigation, the OCC, the Office of the Comptroller of the 
Currency, argued that he could not do that because he was 
preempted by Federal law. A recent Supreme Court decision 
upholds those findings and said that the New York Attorney 
General could not issue subpoenas or inspect books and records, 
because it was not within the scope of his responsibility 
anymore to institute actions in the Court of Justice against 
national banks to enforce State fair lending laws.
    It is increasingly important, I think, that we be allowed 
to do the kinds of enforcement that we have done so far, but we 
are stopped. As Mayor Menino noted, of the five top lenders in 
Massachusetts for subprime mortgages, only one of them, Fremont 
Investment and Loan, against whom we have filed suit, is under 
our jurisdiction. The other are nationally chartered banks and 
we have no authority to investigate or to bring lawsuits 
against them.
    In order to best address this, we would ask that the 
committee give serious consideration to restoring the effective 
dual Federal and State enforcement role by limiting in certain 
circumstances Federal preemption.
    Finally, Congressman Frank, I appreciate your efforts to 
expand reporting under HMDA. Unless we have the data, we can't 
know where this is going. We see the statistics. We see the 
impact. We need the data.
    We also know that credit scores are one of the several 
variables that logically should be reported by lenders to the 
Federal Reserve Board for inclusion in that data.
    Finally, we understand that the public has not had 
information about how interest rates below the threshold are 
distributed. Banks do not report points, pre-payment penalties, 
loan to value ratios, or the debt to income ratios. All of 
these variable and more could help enforcement authorities to 
better understand the critical issue of racial and ethnic 
disparity in mortgage lending.
    We must act at the State and Federal level to address these 
abuses now and going forward. I will continue to do so in my 
role as Attorney General. I know I will have the cooperation of 
my colleagues today, the Governor and Mayor Menino, and we 
appreciate that you and the members of this committee are 
taking this so seriously.
    Thank you for your opportunity to testify today.
    [The prepared statement of Attorney General Coakley can be 
found on page 84 of the appendix.]
    The Chairman. I want to assure you, Attorney General, first 
of all, that many of us on the Democratic side were very 
unhappy with the degree of pre-emptiveness which the 
Comptroller of the Currency and has engaged in.
    As a practical matter, we would not be able to totally undo 
that. I can give you two encouragements. First of all, we will, 
in the legislature and our committee, have dual relationships. 
We will have a set of rules that will apply to brokers, but 
where the States have good rules in place we will defer to 
them, that is, we will set a Federal floor.
    And secondly, there's a very important case now pending 
that you are probably familiar with out of Ohio, where the 
Office of Peer Supervision was overruled on a preemption case, 
and allowed the State to regulate the mortgage broker, was 
upheld, and we are in the process of urging the Office of Peer 
Supervision not to appeal that case, but to allow that and 
continue that.
    Mr. Capuano.
    Mr. Capuano. Mr. Chairman, I don't have any questions, I 
just want to thank the three panelists. I mean, I'm familiar 
with all their work, and it's not just now. I want to make it 
very clear that the three of them that I know of have been 
working at this stuff for a long time.
    And, I can't tell you how proud it makes me to come from 
Massachusetts and the greater Boston area to have people like 
this representing me, and working on our behalf, because as we 
all know, I want to draw a nice big bold line under this, we 
will get through pretty much whatever legislation Barney wants 
us to get through with the House. And, people need to 
understand that. And, I can't tell you how beneficial that is 
for all of us. But, we will have difficulties probably in the 
Senate, and we will have significant difficulties in the White 
House for another 18 months or so.
    So, therefore, some of the things, typically, like 
preemption, I don't know whether we'll actually succeed in 
doing some of the things that we want to do. We'll get them 
through the House with no question, but I just don't know how 
far they are going to go. And, it becomes very important that 
the three of you and others are doing this as well, actually 
continue to proceed as strongly and as vehemently as you can, 
and we will do everything we can to help you and support you.
    I also want to, again, reiterate what I said earlier. I was 
talking about the Congress, but I want to point out very 
clearly that the Governor is a representation of significant 
change. Many of the people in this room know that the concern 
about subprime loans is not new. Now, some of the results of 
that concern have only been seen in the last 6 to 9 months, or 
a year, but the concern has been there for many, many years, 
for those of us who have watched this issue grow.
    And, I will tell you, unequivocally, that last year, and 
the year before that, and the year before that, the Governor's 
office and all his appointees really didn't react, and the fact 
that this Governor is new and reacting so strongly, and so 
positively, I think is a great thing for all of us and I want 
to thank the Governor for participating like this.
    Governor Patrick. Thank you.
    The Chairman. Representative Lynch.
    Mr. Lynch. Thank you, and again, thank you for your 
willingness to come here and help the committee with its work.
    One of the frustrating parts about this, the whole problem 
with the foreclosures, and the subprime market, is the speed of 
response. Now, we heard on our committee from the Bush 
Administration about things they are going to do in the future, 
but all of the relief that we've heard them talk about has been 
prospective. They speak nothing about the families who have 
already been hurt, and that's very troubling.
    In fact, the only, I think, real-time response that we've 
seen in this has been from the three of you, in terms of legal 
action against Fremont, the work with HMFA, the Mass Housing 
Finance Agency, coming up with that money, and the work that 
the Mayor has done.
    One of the frustrating parts of this is that the time that 
it's taking to help the families who are going under is 
maddening, it's frustrating, and are there tools that we might 
be able to provide to you, are there things that we could be 
doing to help you on the local level, since it's taking so long 
to convince this current Administration of the urgency of this 
matter, are there things that we could help the three of you 
with in terms of freeing you up?
    I know, Attorney General, you mentioned some of the 
reporting requirements, and those are good once they are in 
place, but are there things that we could be doing now to help 
you step in in a quicker fashion to save some of these 
families' homes?
    Governor Patrick. Well, I just thank you for the opening, 
Congressman. First of all, on the rescue fund and Mass 
Housing's contribution, that would not be possible or as 
effective without Fannie Mae's participation, and I know that 
the chairman was helpful in getting Fannie Mae to pony up and, 
frankly, it would be helpful to get them to pony up some more. 
We'll be working with Mass Housing to do that, because the 
refinancing opportunity, creating terms that allow families to 
stay in their homes, seems to me to be the first order of 
business.
     Now, not all of that has to be done by rescue funds like 
the Mass Housing Fund. Some of that has to be taken on by 
lenders themselves, willing to refinance the terms.
    And so, I congratulate the chairman and all of you for 
calling together the various stakeholders at the Fed soon to 
start to juggle around that. But, there's no doubt about the 
fact that having funds available to help with refinancing, or 
your additional pressure on some of the lenders together with 
us to refinance those loans so people can stay in their homes 
is very, very effective and helpful.
    The Chairman. Mayor?
    Mr. Menino. The Governor is correct. Several months ago, I 
brought several of the lending institutions to my office, 
talking about the mortgage issue, and they've set up a pool of 
resources together.
    We, as elected officials, have that opportunity to bring 
those individuals, they don't want us to be talking to them in 
public, they want to help us when they see the problem out 
there, because they are afraid of the press they are going to 
get, and it's important we use our usability pulpit to make 
sure that these lending institutions know that we are watching 
them.
    The mortgage companies need some regulations now. We can't 
wait 6 months, 9 months, or 10 months.
    The Chairman. Well, I appreciate that. We put in the 
usability pulpit, and if necessary we may be a little stronger 
to bully all week on the pulpit. But, we do plan to be as 
persuasive as we can.
    I thank the panel. We will dismiss them now.
    The next panel we are going to hear consists of City 
Councilors Sam Yoon and Chuck Turner, if they want to come 
forward, and we'll take a brief recess while our three 
officials depart.
    [Recess]
    The Chairman. We will resume the hearing, and we have two 
City Councilors, Councilor Yoon and Councilor Turner. I 
understand Councilor Yoon is an At-Large Councilor, but we are 
in Councilor Turner's district, and he's my college classmate.
    So, on grounds of seniority, we are going to begin with 
Councilor Turner, Councilor Chuck Turner who is our host here 
at RCC.
    Chuck?

   STATEMENT OF CHUCK TAYLOR, CITY COUNCILOR, CITY OF BOSTON

    Mr. Taylor. Thank you very much, Congressmen Frank, Lynch, 
and Capuano.
    I'm going to try to be very brief and hold my comments 
within 2 minutes, so that you can have time to hear all the 
other speakers.
    I want to begin just by saying that I really appreciate the 
way Congressman Frank framed the issue in terms of pointing out 
the discrimination against potential homeowners of color, and 
how that discrimination has led to the development of the 
predatory lending practice which in the last 2, 3, or 4 years 
has grown to a level of greed and financial obscenity that I 
have never seen in my 67 years.
    I'm a member of an organization that was recently formed to 
fight back. Obviously, there are other organizations, but we 
thought that given the situation we are facing there needed to 
be a coming together of organizations, so we formed the Mass 
Alliance Against Predatory Lenders.
    On Thursday, last Thursday, we held a press conference and 
set of demonstrations, a press conference to announce the 
formation of the Mass Alliance, but also to give an opportunity 
to Countrywide mortgage holders, as well as mortgage holders 
from other predatory lenders, so that the press could begin to 
understand what I think the Attorney General so clearly pointed 
out, and that is that the vast majority of these foreclosures 
are not because people have been irresponsible, it was because 
the mortgage companies were irresponsible and criminal in terms 
of setting up mortgages that were designed not to succeed.
    Because of that, we sent a letter, the Alliance sent a 
letter to the head of Countrywide, who, interestingly enough, 
just sold all his stock, saying that he and his company had a 
responsibility as the largest of these predatory lending 
companies in this country to restructure the loans in terms 
that people could afford, that is, that they had to do what 
they should have done before, and that is make sure that these 
loans are affordable, and that our only alternative, as the 
people of this City, and State, and country, if they aren't 
willing to do that, is to shut them down, shut them down 
through a boycott.
    And so, I'm just using this opportunity to, one, announce 
that there is a boycott that has been launched against 
Countrywide and other lenders who refuse to restructure the 
loans in ways that are affordable and appropriate.
    Secondly, we are going to ask the State to move beyond the 
suggestions that were put forward today. We believe that the 
State needs to have a law that would require a financial 
institution to go to court in order to exercise a foreclosure.
    When you look at these loan agreements, when you hear 
homeowners who are facing these horrendous situations talk 
about how this situation was created with these mortgage 
companies, it becomes clear that the courts need to be looking 
at each and every one of these agreements.
    The National Bankers Association has come out with a set of 
principles that they feel should guide the writing of these 
mortgages. They are not being adhered to by many of these 
companies, but we believe that a law needs to be passed 
immediately in Massachusetts that would require each and every 
foreclosure to go before a judge, and the judge to have a set 
of standards to use to determine whether that foreclosure is, 
in fact, a fair one, and if not, to take action to prevent the 
company from moving forward.
    Thirdly, in terms of Federal actions, we applaud the action 
to bring all companies, mortgage companies, financial service 
companies, under the provisions that are now covering the 
State--covering banks that are chartered by the Federal 
Government. However, we think you need to move beyond that. We 
think there needs to be Federal protection of the tenants and 
resident homeowners in buildings that are foreclosed. You know, 
and I know, that once the building is foreclosed, the next step 
is to go into court and clear the building so that these 
institutions can then put them back on the market to make even 
more illegal profits, from my perspective.
    The Federal Government could play a major role in stopping 
this action by having a provision that stops these companies 
from clearing the buildings. Tenants are paying their rent, and 
only because of the actions of the bank to foreclose are they 
being evicted. These financial institutions need to be stopped 
from being able to do that.
    And finally, we would call on Congress, particularly the 
House, to appoint a special prosecutor to investigate what we 
think is a ``Mortgagegate,'' that is, we think that this is a 
situation where a group of institutions have worked to misuse 
our financial system, and misuse people in this country, and 
that we need to, in fact, as a country, and, particularly, the 
Federal Government, step forward and acknowledge that this 
isn't just irresponsible lending, it's criminal action, appoint 
a special prosecutor. If Milliken could go to jail for selling 
junk bonds, then certainly the Wall Street people and these 
bankers, who put together these packages of subprime lending, 
should be sent to jail for selling junk mortgages to investors, 
when they knew the mortgage was going to fail.
    Thank you.
    The Chairman. And, now, Councilor Sam Yoon.

     STATEMENT OF SAM YOON, AT-LARGE BOSTON CITY COUNCILOR

    Mr. Yoon. Mr. Chairman, members of the committee, thank you 
very much for this opportunity. I think it's in line with what 
has been said at this hearing, to extend the level of 
cooperation from Federal, State, local, and even the local city 
council level, I think is tremendously important, and I thank 
you for this opportunity.
    As Chair of the City Council's Housing Committee, I 
recently held hearings on the subprime mortgage foreclosure 
crisis, which is one of the topics that you are looking at 
today.
    A lot of the folks who are testifying today had testified 
at this City Council hearing as well, too, and I want to thank 
you for taking the step of having a field hearing on this 
issue, bringing it to the community, so that people in the 
community can bear witness to the way the government is working 
together and paying attention to this issue. It's vitally 
important.
    The City of Boston, while we are not doing as badly in a 
proportional sense to other cities in the State, has, 
nevertheless, been hard hit by this crisis, by the foreclosure 
crisis, and that's largely to do with our size. You know, based 
on our size and the size of our minority communities.
    I mean, you are going to hear testimony from experts on 
this today.
    During the hearing that I sponsored on May 7th, it became 
clear to me and my Council colleagues that out-of-State 
mortgage companies were developing business models that feature 
these aggressive marketing--featured aggressive marketing of 
high-cost, exotic mortgages, to unsuspecting consumers.
    And, as the Attorney General laid out, in many cases there 
was outright fraud. The idea of these rescue mortgages is 
something that is just blatantly wrong and predatory.
    And, I support the Attorney General's efforts to 
criminalize this kind of mortgage fraud and predatory lending 
practice.
    It's great to hear Councilor Turner's perspective on this 
as well. I think that he's always been a strong ally for us on 
the City Council, and going to court even to exercise a 
foreclosure, I think, is something that's worth raising as an 
issue.
    Currently, record numbers of foreclosures and auctions are 
threatening the stability of Boston's neighborhoods, and that's 
a large part of the reason why I wanted to have a hearing at 
the city level. Stable homeownership and tenancy is an 
important part of the city's ongoing efforts to combat violent 
crime. Stable homeownership, tenancy, it's an important part of 
our efforts to reform and improve the schools. Homeownership, 
stable tenancy, is basic to economic stability of neighborhoods 
at that level, at a neighborhood and community level. The 
presence of homeowners is an anchor that creates stability for 
future generations.
    In order to address this crisis, as we are saying here 
today, legislative remedies are needed at the State and 
Federal, and even at the local levels.
    I want to thank you, originally, my testimony said I urge 
you, but I want to thank you that what you are looking at seems 
to be extending community reinvestment-like requirements on all 
mortgage brokers and lenders, similar to the requirements that 
exist for banks.
    It was great to hear Governor Patrick's testimony that 
shows clearly that this is being looked at on the State level, 
and maybe legislatively the path to success to some sort of 
realization will be sooner, here at the State level.
    We have to have comprehensive reporting requirements for 
all mortgage lenders in order to review and rate lenders on 
their performance. The fact that this was triggered in Chairman 
Frank's mind and his office by HMDA data, the Home Mortgage 
Disclosure Act, look at what it's done in order to just be able 
to say, we need to have a hearing on this, because the numbers 
make it clear that there's something wrong going on.
    So, a CRA style rating system for all mortgage lenders has 
to be put into place, and those results must be published every 
year.
    We must also establish annual licensing requirements for 
mortgage brokers, and require that brokers who are offered 
high-cost loans, or borrowers who are offered high cost loans, 
receive in-person counseling with a qualified nonprofit. We 
have some of the best housing nonprofits and advocates in our 
city, I think nationally. We should take full advantage of that 
and, in fact, require it.
    We also have to require fuller disclosure of terms for 
mortgage advertising, and here again, at a communications 
level, leadership at the Federal level for this is going to be 
essential to realizing it.
    Further legislative remedies are needed to round out 
comprehensive solution to the crisis. I think Congressman Lynch 
has mentioned this, that there are families who are going 
through this right now, or are about to go through it, and we 
need additional consumer protection for those facing 
foreclosure and eviction.
    I believe lenders have to give borrowers at least a 90-day 
period in which they can correct any ``delinquency'' and 
reinstate the loan before imposing attorney fees.
    I think borrowers should have the right to cure mortgage 
defaults up to the very date of the foreclosure auction.
    I think it's encouraging to hear that you are, basically, 
going to call the lenders, mortgage lenders, and even banks, to 
the carpet at the Federal Reserve, and I think 2 weeks, as you 
mentioned, Congressman Frank, Mr. Chairman.
    We should require lenders to work with our housing 
advocates and nonprofits, many of which are in this room. As I 
said, we have some of the best in Boston. We should provide 
that relief to borrowers who are facing economic--yes, we'll 
wrap up.
    In summary, we do need to look for creative solutions to 
this problem, and again, cooperation among all levels of 
government is absolutely essential.
    My office, just to wrap up, has been getting calls from 
families who are facing foreclosure every week, and I want to 
thank the Mayor, who has been working with us at the city to 
provide money to counseling services, referred families to the 
Mattapan Multi-Service Center, to ESAC, to Urban Edge, and what 
I've heard anecdotally is that the workers there who are 
counseling need to--
    Yes, and thank you very much.
    [The prepared statement of Mr. Yoon can be found on page 
116 of the appendix.]
    The Chairman. Let me say to Councilor Turner, on the 
question of tenants being evicted, I will confess that I was 
not aware of that. I was out in August in Minneapolis, at the 
request of our colleague, Keith Ellison, and heard that. We 
have been looking at it.
    Unfortunately, there does not appear to be a Federal remedy 
now. We have written letters which are going out from our 
committee to State officials and others urging banks and others 
who foreclose not to make that an automatic eviction. The order 
can stop them, but it doesn't make them do it either.
    Secondly, and I had this conversation with members of our 
staff who were drafting our subprime bill, we are going to 
write into the draft of the legislation some protection for 
tenants. We do want to make it clear that foreclosures should 
not eviscerate leases, and we are going to try to provide some 
protection for tenants going forward.
    So, I thank you for that.
    Mr. Capuano.
    Mr. Capuano. I'm glad you pointed that out, Mr. Chairman, 
because I would, basically, say the same things. Right now 
there's no Federal hook into the tenancy issues, except some 
minor things on the side.
    If you can find something that maybe could stand up in 
court, we'd be more than happy to work with you, because we 
understand fully well it's a serious issue.
    The Chairman. I'd just say, the other one is a constitution 
issue--there's nothing we can do about a special prosecutor. I 
mean, the courts have made that very clear. We can investigate, 
but we can't even hold anybody in contempt of Congress, because 
the courts have held that if Members of Congress summon a 
witness, and the witness declines to testify, even if Congress 
would have voted a contempt citation, the Justice Department 
could decline to prosecute.
    But, we will do the other things.
    Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman.
    I have no questions, I just want to thank both Councilor 
Turner and Councilor Yoon for their work. You have been right 
out in front on this with tenants and with people who are being 
affected immediately on this. I want to thank you both for your 
great work on it.
    And, we, as a committee, will continue to work with you.
    I yield back.
    The Chairman. Thank you.
    Next, we'll have our final panel: Mr. Campen, Ms. Hamilton, 
Ms. Adams-Heath, Mr. Alkins, Mr. Kennedy, Mr. Clements, and Ms. 
Browne.
    I want to repeat that if there are any members of the 
audience, and I want to repeat again, that we have the 
statement from ACORN that Ms. Rhoderick gave us, and I will 
reassure that one of our key points about no preemption is 
going to be--we plan on that. If there are other organizations 
or individuals who have statements they would like to submit 
for the record, please feel free, and if you came prepared to 
say something orally, and you are not ready to hand it in 
writing, submit it to my office in Newton by the end of the 
week and it can be incorporated in the record. So, we'll keep 
the record open. Anyone who wanted to submit anything further 
in writing feel free to do that.
    And, let's begin appropriately with Mr. Jim Campen, who is 
executive director of Americans for Fairness in Lending, and 
one of the leading students of this, one of the people whose 
work has brought this so much to the forefront.
    Mr. Campen.

  STATEMENT OF JIM CAMPEN, EXECUTIVE DIRECTOR, AMERICANS FOR 
                      FAIRNESS IN LENDING

    Mr. Campen. Thank you.
    Chairman Frank, Representative Capuano, and Representative 
Lynch, I want to thank you for holding this field hearing, as 
others have done today, and for the opportunity to share with 
you some of the results of my research.
    My name is Jim Campen, and I am now, since October 1st, the 
executive director of Americans for Fairness in Lending, AFFIL. 
AFFIL is an umbrella organization that was created by and works 
with its partners, 17 national and regional consumer and 
grassroots organizations, including the Center for Responsible 
Lending, ACORN, the Consumer Federation of America, Consumers 
Union, and the National Consumer Law Center.
    AFIL's mission is to shine a spotlight on the egregiously 
unfair practices that are common across the entire spectrum of 
consumer lending, in order to build public understanding and 
outrage that may translate into broad grassroots pressure on 
lawmakers to bring about effective regulation of the lending 
industry.
    I am also professor emeritus of economics at UMASS Boston. 
I have concentrated for the last 15 years on researching 
patterns of mortgage lending.
    My testimony today will highlight three of the most 
significant findings that have emerged in the most recent 
reports in two annual series of reports that I do for the 
Massachusetts Community and Banking Council--Changing Patterns 
13, about home purchase lending, and Borrowing Trouble 7, about 
subprime lending.
    First, there are enormous racial and ethnic disparities in 
mortgage lending here. Second, there have been dramatic changes 
in the types of lenders who are making mortgage loans. And 
third, it is the nature of the lending done by the expanding 
sector of the industry, independent mortgage companies who are 
largely unregulated by anyone, that underlies the enormous 
racial and ethnic disparities in higher cost lending.
    So first, the enormous disparities. Blacks and Latinos and 
their neighborhoods receive disproportionate shares of higher-
cost loans. As you know, HMDA data now include limited 
information on loan pricing, making it possible to identify 
what the Fed calls higher-price loans. These are loans for 
which the annual percentage rate, APR, is at least 3 percentage 
points greater than the current interest rate on U.S. Treasury 
bonds of the same maturity.
    For brevity, I like to refer to these high APR loans as H-
A-Ls, or HALs. The statistics that I would give you to 
illustrate these dramatic enormous racial and ethnic 
disparities have been also referenced earlier today, so I won't 
spend much time on that. Blacks and Latinos are 4 times more 
likely in the City, in greater Boston, to get high-cost loans 
when they make home purchases. 71 percent of all the Blacks in 
the highest income category, more than double the area median 
income, over $152,000 of income, 71 percent of these Black home 
buyers received HALs, compared to just 9 percent of White home 
buyers. There is great geographical disparity, for example, not 
only among cities and towns, but also among Boston 
neighborhoods. The share of home purchase loans that were HALs 
was 58 percent in Mattapan, 12 times higher than the 5 percent 
share in Charlestown.
    And, if you look at individual lenders, the three biggest 
overall lenders in Boston each had substantial disparity ratios 
for their high APR lending. That is, the share of their loans 
to Blacks that were HALs compared to the share of their loans 
to Whites. The Black/White disparity ratios were 3.5 at 
Countrywide, 6.0 at Wells Fargo, and 3.8 at Washington Mutual.
    Secondly, the dramatic changes in the nature of the 
lenders, the types of lenders making loans. In my research, I 
placed each lender into one of three categories, reflecting the 
extent to which lending is subject to Federal and State 
regulation.
    CRA lenders are defined as all banks that have one or more 
branches in the State, plus State-chartered credit unions. 
Lending in Massachusetts by these lenders is covered by the 
Federal and/or State Community Reinvestment Act. Out-of-State 
banks, consisting, primarily, of banks with no branches in 
Massachusetts, they are subject to CRA evaluation of the 
lending they do in the areas where they have branches, but 
their lending in Massachusetts is not covered by the CRA. And, 
the third category is licensed mortgage lenders, LML lenders, 
defined as those who require a license to make mortgage loans 
in Massachusetts. These are, primarily, independent mortgage 
companies, not affiliated with any bank. These lenders are not 
subject to any kind of regulation by Federal Bank regulators.
    My research shows that the mortgage loan share accounted by 
CRA lenders has fallen precipitously, while the share accounted 
for by licensed mortgage lenders has risen dramatically. In the 
City of Boston, where I have data going back to 1980, the share 
of all home purchase loans accounted for by CRA lenders plunged 
from almost 4/5, 78 percent, of the loans in 1990 to just 1/5 
of the loans in 2005.
    Statewide, the share of total home purchase and refinance 
loans accounted for by CRA covered lenders, which I've tracked 
for only 5 years, shrank from 37 percent in 2001 to 22 percent 
in 2005, while the loan share of licensed mortgage lenders 
doubled, from 24 percent to 48 percent.
    The linkage between these first two findings, huge 
disparities and a changing mix of lenders, is that LML lenders, 
the fastest growing and least regulated category, are 
responsible for the great majority of high APR loans, the loans 
that are directed very disproportionately to Black and Latino 
borrowers and communities.
    On the other hand, CRA lenders, whose share of total 
lending is rapidly shrinking, have by far the best record of 
making prime loans to those same borrowers and neighborhoods.
    In Massachusetts in 2005, CRA lenders accounted for just 1 
percent of the total Massachusetts HALs, while LML lenders, 
licensed mortgage lenders, totally unregulated by the Federal 
Bank examiners, were responsible for 71 percent of all the HALs 
in the State. In 2005 in Massachusetts, none of the 20 biggest 
high APR lenders were covered by the CRA, while 16 of the top 
20, including 4 of the top 5, were licensed mortgage lenders.
    In 2000, Boston's lower-income, predominantly Black and 
Latino census tracts received 13 percent of all the loans made 
by CRA-covered lenders, twice the share that they got from 
prime, out-of-State banks, and licensed mortgage lenders, but 
far below the 31 percent share of all the loans made by 
subprime lenders, none of whom were CRA lenders.
    These findings are highly suggestive of reverse redlining 
by subprime lenders, that is, targeting the same highly-
minority neighborhoods that were previously covered from 
redlining by prime mortgage lenders.
    In conclusion, I want to emphasize two principles that I 
believe should underline Congress' response to the enormous 
racial disparities in mortgage lending, things that I believe 
you, members of this committee, understand well. First, the 
playing field really needs to be level, so that all mortgage 
lenders are subject to similar laws and regulations, so it will 
protect consumers from unfair and predatory practices, promote 
wealth building by households and communities, and prevent a 
race to the bottom where lenders who choose to maintain 
responsible lending practices face loss of market share to 
unscrupulous competitors. Part of that is a comprehensive anti-
predatory lending legislation, but I think that my research 
findings underline, in particular, the need for modernizing the 
CRA, so that banks receive CRA performance evaluations 
everywhere that they account for a substantial share of total 
lending, not just where they have branches, so that CRA 
evaluations are formed on a comprehensive, corporate-wide 
level, rather than separately for each lending institution, 
each depository institution and affiliate or subsidiary, and 
that independent mortgage companies and credit unions will be 
subject to regulations, performance evaluations and ratings 
analogous to those that the CRA imposes on banks.
    Secondly, it's important to enforce the laws that exist. 
It's not true that all the lenders who aren't licensed mortgage 
lenders do well, but some of the worst performers, including 
Fremont, which the Attorney General has lawsuits against, is a 
bank in California. And, in spite of this, it is a predatory 
lender that was allowed to run unchecked, basically, at least 
to the end of 2006.
    In an important respect, the current subprime mortgage 
lending crisis reminds me of the savings and loan crisis that 
was in full swing when I first began to focus my research on 
banking and mortgage lending in 1989. Then, as now, 
irresponsible lending on a massive scale had resulted in 
serious hardship for many borrowers and neighborhoods, failures 
for numerous large financial institutions and significant 
impacts on the overall economy. The response then included new 
legislation to promote--
    The Chairman. Let's stick with this one. We are running out 
of time, so let's forget the S&L crisis and stick with the 
current crisis.
    Mr. Campen. Okay, then, as now, then my Representative took 
the lead in that, Joe Kennedy. His successor, my 
Representative, is now taking the lead in this, along with you, 
who represents an adjacent district, and I'm proud of that.
    And, thanks again for the opportunity, I'll answer any 
questions.
    [The prepared statement of Mr. Campen can be found on page 
55 of the appendix.]
    The Chairman. Thank you. We will be addressing the need to 
expand CRA next year, and we will be inviting you down to 
Washington to particularly focus on how best to reshape the 
CRA.
    Next, Ms. Ginny Hamilton, has already been introduced by 
her Congressman, Congressman Lynch. Ms. Hamilton is the 
executive director of the Fair Housing Center of Greater 
Boston.
    Ms. Hamilton.

 STATEMENT OF GINNY HAMILTON, EXECUTIVE DIRECTOR, FAIR HOUSING 
                    CENTER OF GREATER BOSTON

    Ms. Hamilton. Thank you, Mr. Chairman, and members of the 
committee, including my Representative, for summarizing my 
comments quite well.
    My name is Ginny Hamilton. I work with the Fair Housing 
Center of Greater Boston, and we work to eliminate housing 
discrimination and promote open communities throughout the 
greater Boston region. We do this by providing education and 
training, community outreach, testing, research, policy 
advocacy, and case advocacy for people who have experienced 
housing discrimination.
    Approximately half of our funding comes from the Department 
of Housing and Urban Development, Fair Housing Initiatives 
Program, and we are active members of the National Fair Housing 
Alliance.
    My comments today are about our use of paired testing to 
document racial discrimination in lending in Boston and eastern 
Massachusetts.
    I come to you today because commentary on the foreclosure 
crisis regularly includes statements about African American and 
Latino borrowers posing more of a credit risk to lenders than 
White borrowers. Therefore, the logic goes, these buyers are 
more likely to end up with a subprime or potentially risky 
loan. This scenario may describe one piece of the problem, but 
it is not a complete accounting of the situation. Our testing 
shows evidence of discrimination against African American, 
Latino, and Asian home buyers, with good credit histories, 
sufficient savings, and solid income to secure prime market 
loans.
    During the 4 months from October 2005, to January 2006, we 
conducted testing to determine the extent and nature of 
discrimination in our region. We used racially matched pairs of 
trained volunteers to visit 10 banks and 10 mortgage lenders, 
and to report in detail on their experiences. Not low-income 
borrowers, all our testers inquired about a $475,000 mortgage, 
with $25,000 to put down as a downpayment. Ten pairs of testers 
were assigned credit scores of approximately 750, and ten pairs 
assigned credit scores of approximately 650. In all pairs, the 
African American, Latino, and Asian testers were assigned 
slightly higher credit scores in income, slightly lower debt 
compared to their White counterpart, so that in a 
discrimination free environment the tester of color would have 
been slightly better qualified for the home loan.
    Even so, as Congressman Lynch referred, we found 
differences in treatment which disadvantaged the home buyer of 
color in 9 of the 20 matched pair tests which were conducted, 
45 percent. Three specific examples to highlight, in 7 of the 
20 tests, the White loan seeker received substantially more 
information from the lender about loan products and services, 
the financial literacy piece discussed earlier. In 4 of the 20 
tests, the lender contacted the White tester after their 
meeting to follow up, but did not contact the tester of color. 
However, this never happened in reverse. And in 5 out of 20 
tests, the White tester was offered a discount on closing 
costs, which was not offered to the tester of color, or was 
quoted a substantially lower closing cost than the tester of 
color, and these differences ranged from $500 to $3,600.
    In the first stages of shopping for a mortgage, limited 
product information, lack of follow-up, and quotes with high 
closing costs can discourage home seekers of color from 
pursuing homeownership at all, and if such specials, follow-up 
contact, and detailed product information are made available to 
Whites, but not to loan seekers of color, the lender is 
pursuing White customers, while allowing non-White potential 
customers to walk away.
    It's important to note that none of the testers of color or 
the Whites were aware of their relative advantage or 
disadvantage. No individuals were subjected to overt 
discrimination, but this simple fact underscores the need for 
testing as a means of gauging discrimination, particularly in a 
lending industry characterized by such large differences and 
outcome as Jim and his data has described.
    If a loan seeker can't detect these differences, and is 
going to a lender who is disadvantaging them, they may end up 
paying more for a loan, either within the main-line lending 
institution, or by turning to a subprime lender or a predatory 
lender who welcomes his or her business. And, when African 
American and Latinos pay substantially more per month than 
similarly-situated White people, these costs perpetuate the 
wealth vat between Whites and other racial groups, despite 
rising incomes and rates of homeownership amongst people of 
color.
    These higher costs also expose African American and Latino 
home buyers to higher risk of foreclosure than their White 
counterparts, who are welcomed into the prime market.
    Currently, most of the fair lending cases are brought by 
private fair housing organizations and individual attorneys, 
and while these private efforts are important the full 
engagement of responsible Federal Government agencies is an 
essential component of any serious effort to combat lending 
discrimination. If the Government fails to pursue such cases, 
or does not engage in competent effort to uncover 
discrimination, then most lending discrimination goes 
unchecked, and, indeed, for the entire history of our country 
it has.
    Increased and expanded regulation is important. However, 
enforcement is key as well. The lack of Federal enforcement 
actually provides a form of safe harbor for those in the 
industry engaging in discriminatory practices.
    This summer, HUD established fair lending enforcement 
offices, and recently announced funding for enforcement in 
eight of its regional partners, including the Massachusetts 
Commission Against Discrimination. We believe that this HUD 
office, and its State and local affiliates, should be given 
appropriate resources, especially including in-depth training, 
to proactively investigate fair lending violations, and we 
welcome this increased enforcement capacity locally and have 
begun conversations with the staff at MCAD and the Attorney 
General's office to utilize testing to assist with their 
enforcement proceedings.
    As you have heard all morning, Massachusetts is at the 
forefront of the foreclosure crisis, but also at the forefront 
of efforts to remediate the problem, and we see today the State 
and local officials are engaged with community groups to 
enforce existing laws, strengthen oversight, and assist 
communities and consumers in duress.
    Congressional efforts to solve this problem nationally 
should not undermine efforts in the State to do so, and we 
appreciate your commitment, Mr. Chairman, to having Federal 
legislation be a floor, not a ceiling.
    To wrap up, I want to offer just a few recommendations. 
Congress should move to regulate all financial institutions 
active in lending, and many of the details of that have been 
shared by others today. That should not preempt the ability of 
State governments to enforce stricter consumer protection 
standards.
    Congress should require Federal enforcement in regulatory 
to undertake more aggressive, effective and expansive oversight 
and enforcement activities, and should make more extensive use 
of paired testing in their own enforcement activities, by 
contracting and working directly with qualified fair housing 
enforcement organizations.
    Congress and Federal agencies should provide an exemption 
to qualified fair housing organizations to allow mortgage 
lending testing beyond the pre-application phase of the 
mortgage lending process, which is all that we can test at this 
moment.
    Thank you for this opportunity to testify, and I'm happy to 
answer questions or share more details of our work.
    [The prepared statement of Ms. Hamilton can be found on 
page 92 of the appendix.]
    The Chairman. Thank you.
    I do want to note that we have been joined by another one 
of our hosts, State Representative Gloria Fox. Representative 
Fox, thank you for joining us.
    Ms. Fox. Good afternoon.
    The Chairman. And next, we will hear from Ms. Acia Adams-
Heath, who is the president of the Massachusetts Affordable 
Housing Alliance.

    STATEMENT OF ACIA ADAMS-HEATH, PRESIDENT, MASSACHUSETTS 
                  AFFORDABLE HOUSING ALLIANCE

    Ms. Adams-Heath. Good afternoon, and thank you, everyone.
    Chairman Frank, Congressman Capuano, and other members of 
the committee, I just wanted to thank you for holding this 
field hearing, just to echo Sam Yoon, in Roxbury today. My name 
is Acia Adams-Heath, and I am president of the Massachusetts 
Affordable Housing Alliance and a resident of Dorchester.
    MAHA is a nonprofit organization that works to increase 
public and private sector investment in affordable housing, and 
to break down the barriers facing low- and moderate-income 
first-time home buyers.
    MAHA's signature achievement has been the establishment and 
expansion of the SoftSecond Mortgage Loan Program, which, with 
the support of the Massachusetts Housing Partnership, has 
helped 10,000 families buy their first home.
    In today's testimony, I wanted to summarize how the 
SoftSecond Program came to be and detail some of the remarkable 
statistics that make the program a model homeownership 
initiative.
    Finally, I will offer some recommendations for updating 
State and Federal laws regarding a lender's responsibility to 
borrowers and to communities, but I will summarize in the 
interest of time.
    To understand how the SoftSecond came into play such an 
important role in the Boston area mortgage lending, you need to 
go back to 1989. On January 11, 1989, the Boston Globe front 
page had a lead story on a leak draft study from the Federal 
Reserve Bank of Boston. The study found racial disparities in 
bank mortgage lending patterns in Boston neighborhoods. That 
leak draft kicked off a 2-year effort to address these racial 
disparities that included protests, confrontations, 
negotiations, and ultimately collaboration.
    The centerpiece of these negotiations was a mortgage 
program that MAHA hoped would address these patterns of racial 
disparities and we call that the SoftSecond.
    The SoftSecond works because it is smartly designed and 
affordable over the long term for lower-income, first-time home 
buyers, and it gets its name from the fact that each borrower 
receives two loans, a 77 percent first mortgage and a second 20 
percent mortgage that is interest only for 10 years before 
becoming a fully amortized loan over the last 20 years. Both 
loans are originated as slightly below market interest rates, 
and come with a small public subsidy that acts as a loan loss 
reserve for the lender and a further interest rate subsidy for 
the borrower.
    In the City of Boston, the SoftSecond program has become 
the leading anti-redlining program. From 1991 to 2006, 3,546 
people received a SoftSecond loan. Over the last 3 years, the 
Black loan share in the program was 33 percent, while Black 
households account for just 21 percent of the City households. 
Latino share was nearly 27 percent, while they account for just 
under 11 percent of the households in the City, and the Asian 
share loan was 8.5 percent, while they account for just under 7 
percent of the City's households.
    Statewide, the numbers are just as impressive, with Black, 
Latino, and Asian loan shares anywhere from 2 to 5 times higher 
than these groups shares of total households in the State. The 
program is clearly worked to help bank lenders reverse patterns 
of racial disparities, and it has been a significant program in 
terms of its impacts as well.
    SoftSecond loans total $1.4 billion in private sector 
lending to low- and moderate-income Massachusetts residents.
    In the City of Boston alone, in 2005, SoftSecond loans 
accounted for 20 percent of all home purchase loans to low- and 
moderate-income borrowers.
    The delinquency rates in the program still remain low, even 
with the growing foreclosure crisis in many of our 
neighborhoods. Our SoftSecond Statewide delinquency rate as of 
the end of 2006 is 2.2 percent compared to an overall Statewide 
delinquency rate on all mortgages of 2.8 for prime mortgages, 
and 15.4 percent for subprime. We have attached a complete 
report of the SoftSecond loan program offered by Professor 
Campen for the MCBC to our testimony today. It's called, 
``Expanding Home Ownership Opportunities to the SoftSecond Loan 
Program, 1991 to 2006,'' and it provides many more details 
about this incredible program.
    Lastly, the policy recommendations that those of us at MAHA 
have learned a lot over the past 20 years, we have seen the 
negative effects of not enough lending in our neighborhoods, 
have participated in the rise of homeownership levels for many 
of our fellow Black, Latino, and Asian neighbors, as the 
SoftSecond Program has grown, and now are fighting the impact 
of too many bad lending by largely unregulated institutions.
    Our State and Nation's laws have simply not kept pace with 
the rapid change in our mortgage lending industry, and we urge 
the following policy changes. As has been said before, we 
support comprehensive anti-predatory lending legislation that 
would apply to all mortgage lenders. What Massachusetts did in 
2004 is just not enough, and the current crisis is ample 
evidence of that.
    We need anti-predatory language that strikes at the heart 
of the business model used by many subprime lenders, language 
that makes it impossible for lenders to give a borrower a loan 
they know the borrower cannot pay back. It requires them to 
clearly market the terms and conditions of such loans in all 
advertising.
    Second, we need to do more than just stop bad lending. We 
must encourage good lending in all our neighborhoods. We 
support extending CRA or CRA-like requirements to all mortgage 
lenders wherever they lend. We believe this can be best done 
with States acting to impose CRA-like requirements on State 
license mortgage lenders, similar to Massachusetts Senate Bill 
No. 2299 that's currently under consideration in the House of 
Representatives.
    In addition, we believe Congress should move to, one, 
extend bank CRA performance evaluations, not only for lending 
and assessment areas defined around the location of bank 
branches, but also for bank lending in every geographical area 
in which they have significant market share. In Boston, that 
would mean Wells Fargo and Washington Mutual, which have the 
same CRA responsibilities as Bank of America and Sovereign.
    Again, I'd like to thank you for the opportunity to testify 
today, and I will be happy to answer any questions you have.
    Thank you.
    [The prepared statement of Ms. Adams-Heath can be found on 
page 42 of the appendix.]
    The Chairman. Thank you, Ms. Adams-Heath. Let me say that I 
note that we have also been joined by another member of the 
legislature, State Representative Liz Malia, our neighbor from 
Jamaica Plains is here.
    Next, the president emeritus of the Boston Chapter of the 
NAACP, Mr. Lenny Alkins.

 STATEMENT OF LEONARD ALKINS, PRESIDENT EMERITUS, NAACP BOSTON 
                             BRANCH

    Mr. Alkins. Thank you. Mr. Chairman, Congressman Capuano, 
Congressman Lynch, I want to thank you for the opportunity to 
address this prestigious committee on a very important issue 
which has destroyed the hopes and desires of families and 
individuals working to achieve the American dream.
    As it was said, I am Leonard Alkins, the former president 
of the Boston branch of the NAACP, which is the oldest branch 
of the National Association of the Advancement of Colored 
People established in 1911.
    Over the last century, the NAACP has been an agent for 
change in some of the key civil rights activities of our time: 
housing; banking; and economic development, to name a few.
    The perpetual drive of equality led the NAACP to fight 
against the practices of redlining and to challenge financial 
institutions to reinvest in the community. How ironic is it 
that we are now faced with a different side of the problem? 
Today, many of those same families that we fought with to 
become homeowners are witnessing the curdling of their American 
dream.
    On July 11th of this year, the National Association for the 
Advancement of Colored People in Baltimore, Maryland, filed a 
Federal class action lawsuit against 14 of the country's 
largest subprime mortgage lenders including: Ameriquest; 
Fremont; Option One; WMC Mortgage; Long Beach Mortgage; BNC 
Mortgage; Accredited Home Lending; Encore; First Franklin; 
HSBC; and Washington Mutual. The lawsuit is designed to bring 
about equitable lending practices that do not adversely affect 
borrowers based on their race.
    In 2004, Chapter 268 of the Acts of 2004 was enacted to 
address predatory lending here in Massachusetts, by forbidding 
anyone from arranging a high-cost mortgage unless he or she 
``reasonably believes'' that the borrower will be able to repay 
it. State consumer protection regulations also prevented 
brokers from withholding information that might cause potential 
borrowers to back off. However, many brokers ignored that 
provision. What does this tell us?
    We need legislation that is strong and has the necessary 
consequences for anyone who is found guilty of violating the 
law. Congress and the President of the United States must 
commit to passing and signing a bill that ensures 
accountability with substantial fines and potential 
incarceration for anyone who violates the law. Only then will 
we begin to see the fruits of our labor.
    Mr. Chairman, as well as members of this distinguished 
committee, let me caution you that anything short of what I am 
suggesting will have us addressing the same issue again within 
the next decade.
    In closing, let me remind you of the words of a great drum 
major in the struggle for equality and justice for all people, 
the late civil rights leader, Ms. Fannie Lou Hamer, who 
eloquently stated, ``I'm sick and tired of being sick and 
tired.'' Our community is calling on this Congress to create 
lasting protection for the many people who attempted to own 
their homes and fulfill that American dream.
    I humbly suggest that you take all of the testimony that is 
offered here today, as well as other testimony you may have 
received from individuals and organizations from around the 
country, and use this information to build a bipartisan 
coalition to redraft a strong bill that will address all the 
problems of predatory lending. The time is now for the Congress 
to stand up and speak for the people, to tell the special 
interest groups that too many individuals and families have 
been harmed or destroyed by these illegal practices. Enough is 
enough.
    Thank you, Mr. Chairman, and members of this committee, for 
taking the time to travel to Roxbury in the City of Boston to 
listen to our concerns.
    [The prepared statement of Mr. Alkins can be found on page 
46 of the appendix.]
    The Chairman. Next we will have Mr. Thomas Kennedy, the 
senior vice president of Sovereign Bank.

    STATEMENT OF THOMAS B. KENNEDY, SENIOR VICE PRESIDENT, 
                   SOVEREIGN BANK NEW ENGLAND

    Mr. Kennedy. Thank you, Mr. Chairman. I'm honored to be 
here to testify before you and your committee, Representative 
Lynch, and Representative Capuano. I have to say that 
Congressman Frank has been my Congressman now ever since he has 
been in Congress, a fact of which I'm very proud, and I am 
especially pleased to be here to testify.
    I have submitted written testimony. I will not recite all 
of that here. I would just give you some highlights from my 
perspective, in terms of an $81 billion bank that has a 
significant presence, not only in Massachusetts, but throughout 
the northeast, and the Mid-Atlantic States begin by saying that 
community reinvestment and community development starts at the 
top of the house, and we are very fortunate in that we have 
leadership, first when Sovereign came to New England in March 
of 2000, with John Hamill, who remains as chairman of the bank 
in New England, and now Joseph Camponelli, who is president and 
CEO of the bank, to lead our commitment in terms of 
reinvestment in terms of, not only this community, but 
throughout our footprint.
    We see that community development, indeed, is good business 
and, indeed, mortgage lending is very good business as well.
    We have demonstrated that through significant commitments 
that we have made over an extended period of time. We are 
currently in a commitment of some $16 billion to reinvest in 
the communities in which we have a principal banking presence, 
including mortgage lending. This gets reflected in local 
agreements that we have signed here, first with the Community 
Advisory Committee here in the Commonwealth of Massachusetts, 
and, specifically, with Massachusetts Affordable Housing 
Alliance with the SoftSecond Mortgage Program, has already been 
testified the most successful first-time, low-income mortgage 
program in the Commonwealth of Massachusetts, and we are now 
the leading mortgage originator of that product here in the 
Commonwealth.
    One of the reasons I believe for the success of what we 
have learned as a banking institution in this community has 
come about as a result of collaboration, not only with State 
and local government, but community groups as well. And, this 
has led to significant commitments and has led to success in 
terms of our being a banking institution in this community.
    I'd also like to say that this has led to significant 
demonstration of personnel, of product, of program--
    The Chairman. Kenny, we really are here for a very specific 
point, so let's not get way beyond--personnel, we'll get to it 
in another hearing. We are here about subprime and we are here 
about housing mortgage discrimination.
    Mr. Kennedy. All right. In terms of subprime, that is not a 
product that we are participating in, that's not--we have some 
35--
    The Chairman. Well then, you can just move on to the next--
then the question would be discrimination in home mortgages, 
would the other issue be relevant to it?
    Mr. Kennedy. The other issue, we do analyze very carefully 
the mortgage denial rate disparity that when you do the 
analysis of our 206 mortgage lending data, there is a disparity 
there that we notice, and has been, that we are attempting to 
address with these particular programs, that is something that 
we are not proud of, but it is something that we, as an 
industry, have been working on through the Massachusetts 
Community and Banking Council, attempting to address those 
issues, to put in programs and policies that would address and 
bring that closer to parody.
    And, in my testimony, I've demonstrated what we've 
attempted to do in terms of trying to address that, in terms of 
our continuing outreach to the community, per se.
    [The prepared statement of Mr. Kennedy can be found on page 
105 of the appendix.]
    The Chairman. Ms. Browne, Lynn Browne, is executive vice 
president and senior economist, Federal Reserve Bank of Boston.

   STATEMENT OF LYNN E. BROWNE, EXECUTIVE VICE PRESIDENT AND 
        SENIOR ECONOMIST, FEDERAL RESERVE BANK OF BOSTON

    Ms. Browne. Chairman Frank, Representative Capuano, and 
Representative Lynch, I'm very pleased to be here and share my 
views on housing patterns in the greater Boston area.
    I am responsible for community affairs and consumer 
education at the Federal Reserve Bank of Boston. The past 10 
years have seen dramatic changes in housing and mortgage 
markets, both nationally and here in the Boston area. Until 
quite recently, housing prices were rising rapidly, and 
homeownership was rising, especially, for minorities.
    There were, as you've heard from others, negative 
developments, in particular, it was apparent with the HMDA data 
that Blacks and Latinos were disproportionately likely to get 
high-rate loans, and disproportionately likely to be served by 
mortgage lenders specializing in high-rate loans.
    While these were certainly disturbing developments, many 
people took comfort from the fact that homeownership was 
rising. With housing prices rising, presumably, many households 
were accumulating housing equity and wealth.
    That situation has changed dramatically in the past year. 
We have seen housing prices level off, and in the greater 
Boston area by some measures they have declined. We have seen 
foreclosure initiations increase sharply. Here in 
Massachusetts, they have gone from way below the national 
average to about the national average. Foreclosure initiations 
are also rising nationally, but not quite as sharply because 
there were parts of the country like the Great Lake States that 
had pretty high foreclosure rates for some time.
    The rise in foreclosure initiations has been particularly 
pronounced for subprime loans with adjustable rates. Although 
these account for only about 10 percent of mortgages, in 
Massachusetts, they account for about 50 percent of the 
foreclosure initiations. But, it is not just those categories 
of loans. We are also seeing pick ups in foreclosure 
initiations among subprime fixed loans and prime adjustable.
    I think the problem is going to get worse before it gets 
better. In particular, in the recent past, with housing prices 
rising rapidly, borrowers who faced difficulties or faced the 
prospect of a reset in their adjustable rate mortgages could 
refinance. Now that housing prices have leveled off or are 
declining, that option is much less likely to be available.
    Additionally, many recent subprime borrowers do, indeed, 
face the prospect of substantial increases in their interest 
rates. What are commonly called 2/28 and 3/27 mortgages have 
been quite popular recently. These have an initial teaser rate 
that holds for about 2 or 3 years before resetting, and these 
were quite prevalent in 2005 and 2006. So we are coming up--
have been coming up on the resets.
    In fact, and this is relevant as we think about what to do 
going forward, that teaser rate is not all that low. We have 
had some Boston Fed researchers looking at loans in the 
Middlesex County area, and they find that the teaser rate for 
2/28s originated in 2005 was about 7 percent, and 8 percent for 
2/28s originated in 2006. These rates are going to reset to 
about 11 percent. But, it is relevant that the initial rate is 
actually quite high.
    Now, as Representative Lynch has already said, the options 
for dealing with the foreclosure problem in the here and now, 
as opposed to looking forward, are frustratingly limited, and 
we hope that one message gets out, that borrowers have to be 
very active in seeking help. They have to go to their servicers 
if they expect any difficulty with their mortgage payments. 
They need to shop around. And, I acknowledge that they have to 
be very persistent, because most servicers are not staffed to 
cope with the volume of problems that they are currently 
handling.
    We think it is possible that some subprime borrowers might 
have the opportunity to transition from a subprime loan into a 
better product, either a prime product or, perhaps, a subprime 
fixed product, before their interest rates reset. Although 
subprime loans are generally regarded as loans to individuals 
with weak credit histories, Boston Fed researchers again, just 
looking at Middlesex County data, have found that a significant 
fraction of the Middlesex County borrowers with subprime loans 
have pretty decent FICO scores. Now, why they are in the 
subprime mortgage, I don't know, in some cases maybe a high 
loan to value, in some cases they may have been misplaced, in 
some cases it was just easy to go to that lender. But, it's 
conceivable that those borrowers, by shopping around, might be 
able to refinance.
    Additionally, as I pointed out, the actual teaser rates for 
some of these subprime loans aren't all that low. In fact, if 
you made your mortgage payments on a regular basis for the past 
year or so, you might be a promising candidate for a better 
mortgage product.
    And finally, some subprime borrowers have been in their 
house long enough that they have accumulated equity, so that 
they, again, might be able to refinance into a better product, 
because of their large equity.
    The whole subprime market is predicated on borrowers being 
able to refinance. It is quite important that responsible 
subprime lending continue, because otherwise people are going 
to be stuck with these quite sharp increases in rates. But, it 
is also possible that there may be an opportunity for banks and 
thrift institutions to play a larger role than they have done. 
We've already heard that they have lost market share to 
mortgage banks. Eric Rosengren, president of the Federal 
Reserve Bank of Boston, has been trying to reach out to bankers 
in New England to explore the possibility for commercial banks 
to play a more active role in providing liquidity to this 
market. Most commercial banks and savings banks at the local 
level are not in the subprime market, many of them don't want 
to be, but there are, potentially, customers there who might be 
eligible for prime products.
    We are trying to get out the word, both to bankers, but 
also to the consumer. We are developing a Web site, and 
developing some brochures, to try and spread the word that 
borrowers need to shop around. They need to act now before they 
are in trouble.
    And we, at the Boston Fed, hope to work with financial 
institutions, community groups, government officials, and other 
regulators to address what really is a very, very difficult and 
unfortunate situation.
    [The prepared statement of Ms. Browne can be found on page 
48 of the appendix.]
    The Chairman. Thank you, Ms. Browne.
    Let me say, and you have been very responsive, but, 
frankly, one of your comments sort of underlined the problem 
when you said, well, there were people who have good credit and 
they are in subprime, and you listed possible reasons why they 
were there. You didn't mention racial discrimination, and I 
think it's clear that discrimination is one of the reasons, and 
we just have to get our minds around that.
    I mean, you said maybe they had too high a debt to loan 
value, and maybe this, and maybe this, and undeniably 
discrimination, and that's--and I have to ask you, and Mr. 
Kennedy, you say in your testimony that the denial rate 
disparity we are talking about from your testimony was more 
than double for minorities, 25 percent versus 11 percent for 
Whites. White originations, 38 percent, minority originations, 
55, the denial rate between Whites 14, minorities, 28, and it 
is not entirely due, as you acknowledge, to creditworthiness.
    My question is this, and I don't know if you'll know this 
off the top of your head: Has anybody at Sovereign Bank ever 
been disciplined for not treating people fairly? Has there 
ever, and I would also ask, look, here's the problem, we've 
been working on this in our committee, where is the enforcement 
record? We have this on the books, Ms. Hamilton has talked 
about this, you have to start taking it seriously, there has to 
be, and we are going to keep pushing this, and it has to be, 
here's the terrible facts, we have an enormous disparity, some 
of which clearly is racial and ethnic discrimination. That's 
the only explanation for it. And, we have, virtually, no record 
of any discipline, virtually, no record of any enforcement, and 
that cannot continue, and I say that to the banks, who should 
be disciplining people, and to the regulators who will be 
enforcing?
    Mr. Kennedy, I'd be interested, you know, I don't expect 
you know it off the top of your head, but has anybody ever been 
disciplined by the bank for this?
    Mr. Kennedy. Congressman, I do not know that they have. I 
know that we look at that, all denials that come through we 
have a Second Look Committee. We examine the terms and 
conditions of the loan, the background, etc. Sometimes those 
denials have been overturned by that process. I do not know, 
and I do not believe that anyone has specifically been 
disciplined in that regard.
    The Chairman. But, with all the effort, you do say the 
denial disparity rates have increased in recent years.
    Mr. Kennedy. Yes.
    The Chairman. It has gotten worse rather than better.
    Mr. Kennedy. Well, I agree, that is something that has 
disturbed us as well. One of the reasons, as we have expanded 
our efforts here in Massachusetts, continued to add staff, 
reach out further, work more closely with community groups, 
have expanded the pool of applicants as well, and, you know, 
that's one of the conundrums that we've looked at.
    The Chairman. Well, I can see that would account for 
everything else being equal for an increase in the absolute 
number of denials.
    Mr. Kennedy. Yes.
    The Chairman. But not for an increase in the disparity 
rate.
    The only other thing I would ask is, Ms. Browne, I was 
struck, and I appreciate it, because the quality of the 
research has been very helpful, as has Mr. Campen's, you said 
that the servicers are not well staffed to be able to redo 
this.
    Now, we are going to be dealing with legislation, and one 
of the things that we have in mind is to put some restrictions 
on the servicers and some liability, and they are telling us 
that this would be a bad thing.
    I want to serve notice now, if the servicers can't do a 
much better job than they are doing, of trying to provide some 
relief, then their argument against restrictions on them is 
going to be weakened. There's some relationship here.
    And, people are telling us, leave us alone, who aren't able 
to deliver, let me just say this, it's a very important part of 
legislation. I know we have Representative Fox, Representation 
Malia, we've been joined by Councilor Yancey, my colleague, 
every legislator knows, we can't compel people to be flexible, 
but they can't compel us to write the bill they want us to.
    And, I think everybody ought to remember a very important 
piece of legislation is that the ankle bone is connected to the 
shoulder bone, and we intend to look at this as we make our 
judgments.
    Mr. Capuano.
    Mr. Capuano. Thank you, Mr. Chairman.
    Mr. Chairman, I just want to, first of all, thank our 
panelists. I mean, I've dealt with pretty much all of you at 
one level or another, and, you know, you have been doing this a 
long time, and you are doing a great job with it. So, I really 
appreciate you being here today.
    But, I also--I need to ask for help as we go forward. Most 
of you know how legislation is made, and again, as I've said 
earlier, you know, the fact that we have Barney Frank as our 
chairman and overseeing the staff is very, very helpful and 
very beneficial. At the same time, you are the people on the 
front lines, and sometimes we do have difficulty in Washington 
connecting the rubber and the road, and it's not because of 
lack of trying or lack of desire, it's just sometimes we don't 
always see some of the things that happen. So, I'm encouraging 
you, and asking you, and begging you, as we go forward with 
this legislation, please let us know if we are missing 
something, if there are some holes in it that we can fill in, 
also understanding, you know, limitations that we have, which 
you'll be told if we think that, well, it's a good idea but we 
can't get it done.
    But, that's of great interest to me, because that's usually 
where the holes are. I'm never concerned with Barney as the 
chairman and with the staff that he has, I'm never concerned 
that the big picture issue is going to be missed or the intent 
is going to be missed, but sometimes there are holes here and 
there that you will see, because you are living it, more than 
we will see it.
    I encourage you to let us know that.
    I guess I'll stop there. That's the most important thing. 
You guys are doing a great job. I appreciate you letting us 
know numbers. Numbers are important, but what's more important 
is individuals.
    I also want to be clear that, you know, on the legislation 
that we draft, we will not be able to help everyone. We'd like 
to. I think that would be a wonderful goal and a wonderful 
desire, but it's just not going to be possible. There are going 
to be people, some people, who got loans who can't carry those 
loans, that we just can't help. But, we can, hopefully, do the 
best we can to prevent it from happening again, and that's 
where I encourage you to help us look. That's the thing that I 
think we are the best at, and, you know, I just want to make 
sure that whatever we do do fills all the holes that are 
possible.
    So, thank you.
    The Chairman. I thank the Representative for saying that, 
because that is a very important point, not to raise false 
hopes for a lot of people.
    Mr. Alkins. Mr. Chairman, could I just interject, the 
important thing here is that people who are arrested for 
shoplifting have more chance of going to jail than somebody who 
is found guilty of predatory lending.
    And, if we don't put some teeth into the legislation to 
hold people accountable, we have to recognize that lives are 
being destroyed. Some will rebound, but many more will not.
    So, I ask you to work with us as the community, we will 
work with you and fight for you to get the network out there to 
get whatever you put, as long as it is a strong and meaningful 
piece of legislation, we will work with you and fight with the 
other Members of Congress to put it forward.
    The Chairman. Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman.
    One of the most troubling aspects of Ms. Hamilton's report 
was that even in some of the instances where she found 
discrimination occurring, that data would not be picked up 
under current disclosure, under the Home Mortgage Disclosure 
Act, a lot of that criteria is missed.
    If you go back to 1977 when the Community and Reinvestment 
Act was passed, it was passed in response to urban decay in a 
lot of the minority neighborhoods that are served by the CRA 
today.
    The problem is that when it was passed the vast, vast, 
vast, vast majority of mortgages originated with either banks 
or thrift institutions. Today, you know, you fast forward and 
today it looks like almost 70 percent of mortgages are written 
by private mortgage companies that are not subject to coverage 
of the CRA. So, we are losing the focus of the CRA by 
attrition.
    Now, Mr. Kennedy, you testified today, and I read your 
rating, I went on line and checked out Sovereign's CRA, you got 
an outstanding rating, so I'll put that out there, but what can 
we do, what can we do to bring back all those people who are 
right now writing mortgages, underwriting mortgages, the 
brokers, the mortgage companies, who aren't subject to CRA, how 
can we make them more accountable? I know that they don't have 
some of the advantages that were sort of the quid pro quo for 
the original CRA application, but what can we do to make them 
live up to what I think is a responsibility that they have to 
the communities that they serve, to make sure that credit is 
democratic throughout the communities that they do serve?
    Mr. Kennedy. I guess, Congressman, I would respond to your 
question by saying that when CRA was passed in 1997, indeed, 
you are correct, it was trying to address the issues of 
disinvestment in our urban areas.
    We had the Great Society Program, and billions of dollars 
poured in, and things seemed to be getting worse, and this was 
an attempt to bring focus to those assessment areas where 
financial institutions had their principal banking presence.
    It took, as we know, a while for banks to fully understand 
what that meant.
    I guess I would address that question by saying, banks, I 
think, on the whole, have stepped up to the plate and have come 
to a very mature understanding as to what that is, and to 
realize there is an affirmative responsibility when one is 
dealing with capital and putting it back into the community, 
and being able to do business there.
    We are a chartered financial institution, and so we are 
obligated, as a result of that.
    I think the proof is in the pudding, as to what has 
happened there for the financial institutions. We've seen, just 
what I've seen in the 18 years that I've been directly involved 
with this here in New England, and, specifically, Massachusetts 
and Boston, it is a significant transformation. There is a 
tremendous amount of work that still needs to be done, and yet 
as other financial institutions have come in we have had to, 
you know, obviously, meet that competition.
    Regulation, I think that's something that has to be 
seriously explored.
    The Chairman. Let me just, a closing note here on this, 
yes, one of the several sets that was here, but that 
intelligent, and thoughtful, and flexible regulation is 
essential, not because we are anti-market, but because we 
understand the market works better in that situation.
    The problem with subprime loans was much worse in the 
totally unregulated sector than in the regulated sector. CRA is 
a very important and thoughtful regulation, and there's a great 
deal to be said here for that, as is, of course, fair lending.
    We've come to a time, let me say, I know we've been joined 
by Representative Fox, City Councilor Yancey, and 
Representative Malia, we do not have time for further 
testimony, we will be glad to acknowledge that all of them are 
people who have a great deal of concern about this. We've 
discussed it, I've talked with all three of them about it. I 
know that they share these concerns.
    We will leave the record open and written statements will 
be accepted up until the end of the week. So, I apologize, but 
we did run out of time. I do know that Representative Fox, City 
Councilor Yancey, and Representative Malia have all been in the 
forefront of this; they have been collaborators with us, and 
will continue to be.
    The hearing is now adjourned.
    [Whereupon, at 1:12 p.m., the hearing was adjourned.]


                            A P P E N D I X



                            October 15, 2007


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