[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
FORECLOSURES AT THE FRONT STEP OF THE FEDERAL RESERVE BANK OF CLEVELAND
=======================================================================
HEARING
before the
SUBCOMMITTEE ON DOMESTIC POLICY
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
MAY 21, 2007
__________
Serial No. 110-36
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.oversight.house.gov
______
U.S. GOVERNMENT PRINTING OFFICE
40-152 WASHINGTON : 2008
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
COMMITTEE ON OVERSISGHT AND GOVERNMENT REFORM
HENRY A. WAXMAN, California, Chairman
TOM LANTOS, California TOM DAVIS, Virginia
EDOLPHUS TOWNS, New York DAN BURTON, Indiana
PAUL E. KANJORSKI, Pennsylvania CHRISTOPHER SHAYS, Connecticut
CAROLYN B. MALONEY, New York JOHN M. McHUGH, New York
ELIJAH E. CUMMINGS, Maryland JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio MARK E. SOUDER, Indiana
DANNY K. DAVIS, Illinois TODD RUSSELL PLATTS, Pennsylvania
JOHN F. TIERNEY, Massachusetts CHRIS CANNON, Utah
WM. LACY CLAY, Missouri JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts DARRELL E. ISSA, California
BRIAN HIGGINS, New York KENNY MARCHANT, Texas
JOHN A. YARMUTH, Kentucky LYNN A. WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of VIRGINIA FOXX, North Carolina
Columbia BRIAN P. BILBRAY, California
BETTY McCOLLUM, Minnesota BILL SALI, Idaho
JIM COOPER, Tennessee JIM JORDAN, Ohio
CHRIS VAN HOLLEN, Maryland
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
Phil Schiliro, Chief of Staff
Phil Barnett, Staff Director
Earley Green, Chief Clerk
David Marin, Minority Staff Director
Subcommittee on Domestic Policy
DENNIS J. KUCINICH, Ohio, Chairman
TOM LANTOS, California DARRELL E. ISSA, California
ELIJAH E. CUMMINGS, Maryland DAN BURTON, Indiana
DIANE E. WATSON, California CHRISTOPHER SHAYS, Connecticut
CHRISTOPHER S. MURPHY, Connecticut JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts CHRIS CANNON, Utah
BRIAN HIGGINS, New York BRIAN P. BILBRAY, California
BRUCE L. BRALEY, Iowa
Jaron R. Bourke, Staff Director
C O N T E N T S
----------
Page
Hearing held on May 21, 2007..................................... 1
Statement of:
Anderson, Barbara, treasurer, Empowering & Strengthening
Ohio's People.............................................. 28
Braunstein, Sandra, Director, Division of Consumer and
Community Affairs, Federal Reserve System.................. 55
Bromley, Charles, adjunct faculty, Levin College of Urban
Affairs.................................................... 38
Engel, Kathleen, professor, Marshall School of Law........... 190
McCarty-Collins, Marianne, senior vice president, Insight
Bank....................................................... 215
Pianka, Raymond, judge, Cleveland Municipal Housing Court.... 90
Pollock, Alex, resident fellow, American Enterprise Institute 196
Rokakis, James, treasurer of Cuyahoga County................. 17
Letters, statements, etc., submitted for the record by:
Anderson, Barbara, treasurer, Empowering & Strengthening
Ohio's People, prepared statement of....................... 30
Braunstein, Sandra, Director, Division of Consumer and
Community Affairs, Federal Reserve System, prepared
statement of............................................... 57
Bromley, Charles, adjunct faculty, Levin College of Urban
Affairs, prepared statement of............................. 41
Engel, Kathleen, professor, Marshall School of Law, prepared
statement of............................................... 192
Kucinich, Hon. Dennis J., a Representative in Congress from
the State of Ohio:
Followup questions and responses............................. 86
Prepared statement of........................................ 5
McCarty-Collins, Marianne, senior vice president, Insight
Bank, prepared statement of................................ 217
Pianka, Raymond, judge, Cleveland Municipal Housing Court,
prepared statement of...................................... 93
Pollock, Alex, resident fellow, American Enterprise
Institute, prepared statement of........................... 198
Rokakis, James, treasurer of Cuyahoga County, prepared
statement of............................................... 20
FORECLOSURES AT THE FRONT STEP OF THE FEDERAL RESERVE BANK OF CLEVELAND
----------
MONDAY, MAY 21, 2007
House of Representatives,
Subcommittee on Domestic Policy,
Committee on Oversight and Government Reform,
Cleveland, OH.
The subcommittee met, pursuant to notice, at 10:30 a.m., at
the Carl B. Stokes Federal Court House, 801 West Superior
Avenue, Cleveland, OH, Hon. Dennis J. Kucinich (chairman of the
subcommittee) presiding.
Present: Representatives Kucinich and Issa.
Staff present from the Subcommittee on Domestic Policy:
Jean Gosa, clerk; and Jaron R. Bourke, staff director.
Present from the Office of Mr. Kucinich: Joseph Benny,
district director; Marty Gelfand, JD, staff counsel; Marian
Carey, MBA, deputy district director; Patricia Vecchio, MSN,
Steve Inchak, MSSA, Luis Gomez, Laurie Rokakis, MSW, Christine
Miles, Betty Rodes, and Lynn Vittardi, congressional staff; and
Lisa Casini, scheduler.
Mr. Kucinich. The committee will come to order.
Good morning. I'm Dennis Kucinich, chairman of the
Subcommittee on Domestic Policy of the Committee on Oversight
and Government Reform, and with me today is the ranking member
of the committee, Mr. Issa. Mr. Issa, by the way, is a native
Clevelander, and it's particularly meaningful to have him here
today to join in co-chairing this committee. I want to say that
we would be joined by Congresswoman Stephanie Tubbs Jones, but,
unfortunately, Congresswoman Jones' father passed away. The
funeral is today. My wife and I just returned from the wake,
and Congresswoman Tubbs Jones has a representative here, I
believe, or will have a representative from her office here,
and she is, therefore, represented. I just want to make that a
matter on the record.
I also want to say, before I begin, that we're very pleased
to have had the cooperation of the chief judge of the Federal
court here from the Northeastern Ohio District, Judge Carr, and
creating the opportunity for us to have these facilities. So, I
just want to express the gratitude of the committee for Judge
Carr making available what is a beautiful hearing room.
And in addition to that, for me it's an honor to be here in
a building that is named after someone who was a very dear
friend of mine, and someone who gave outstanding service to
this committee on so many different levels, legislative,
executive and judicial, Judge Carl Stokes. The memory of Carl
Stokes, a very powerful force in this community and this
country, and to be in a Federal court house that's named after
him is certainly an honor. Today's hearing is going to examine
the subprime mortgage industry and the problem of foreclosure,
the pay day lending industry and the enforcement of the
Community Reinvestment Act. The hearing will also examine
alternatives to foreclosures and to pay day lending. Now,
without objection, the chair and the ranking minority member
will have 5 minutes to make opening statements followed by
opening statements not to exceed 3 minutes by any other Members
who may join us. Without objection, Members and witnesses may
have 5 legislative days to submit a written statement or
extraneous materials for the record.
Our first panel today, which we'll get to in a minute, but
I want to acknowledge their presence, includes Charles Bromley,
an adjunct faculty member of the Levin College of Urban
Affairs. Jim Rokakis, the treasurer of Cuyahoga County and
Barbara Anderson, as a member of the Eastside Organizing
Project.
Yesterday my wife and I and Councilman Santiago and other
members of the community went throughout a neighborhood on the
southeast side around our Lady of Lourdes Parish, and we went
up and down streets, and what we saw was something that really
is heartbreaking because there was street after street, row
after row of boarded up houses. Many of them representing the
shattering of a dream. Many people bought these homes with the
full intention of being able to meet the mortgages but ended up
in conditions and payments that were onerous and lost the
house.
And, of course, the community has lost an opportunity for
productive citizens to participate in not just home ownership,
but participate in this process of community.
It turns out that Cleveland is at the epicenter of the
Nation's foreclosure problem. Major American cities are bracing
themselves for a wave of foreclosures. The Center for
Responsible Lending projects that one out of every five
subprime mortgages that originated during the past 2 years will
end in foreclosure. These foreclosures will cost homeowners as
much as $164 billion, the exact cost of urban America is
unknown.
And when you look at this map that we've prepared, and
Gelfand, our chief counsel, will have the opportunity to,
perhaps, demonstrate it, you will see a sideways V that is
highlighted in light green. Let me tell you what the
geographical area represents. It is the area in the city where
depository banks made very few prime loans. And if you look at
the next map highlighted in reds and oranges, if you look at
the same V in the same place, this geographical area represents
where the highest number of subprime mortgage loans were made
during the same year. And if you look at the following map,
again, the same V pattern and the same place, here the red dots
indicate the number of foreclosures.
These maps tell you there is a clear and self-enforcing
correlation between the low number of prime loans, the high
number of subprime loans and the high number of foreclosures.
Now, finally, the last map, again, the familiar sideways
line V shape. For here, the foreclosures indicated by blue dots
are superimposed on the neighborhoods, red, indicates
predominantly African American neighborhoods, again, a perfect
match. Lack of access to prime loans, high frequency of
subprime loans and a high rate of foreclosures, are by no means
specific to any racial group, but the pattern certainly carries
a whiff of America's dark past.
Now, how did our city get to this point? The Domestic
Policy Subcommittee initiated an examination of the predatory
mortgage and subprime lending industries and the Federal
regulators overseeing the Nation's banking industry. As part of
that effort, we held a hearing on March 21, 2007, in which we
heard from Leading Consumer on academic and industry
representatives. The very next day the Domestic Policy
Subcommittee wrote a letter to the Cleveland Fed in reference
to the proposed merger of Huntington Bank and Sky Financial.
We asked the Cleveland Fed to extend the public comment
period and to hold a public hearing. And the public hearing--
and in view of the--to hold a hearing in view of the lack of
the depository lending and the explosion of subprime lending
and foreclosures. The Fed wrote back a letter, and I believe we
have it here, and their response was, no, they will not extend
the public comment period, and, no, they would not give a
commitment to holding a public hearing. They only said that
they would consider doing so.
Now, I have wondered how serious--and without objection, I
would like to submit this letter for the record. I wondered how
serious is the consideration given to holding public hearings.
According to one of our witnesses today, the last time the
Cleveland Fed held a public hearing in a bank merger case was
nearing 30 years ago.
I will say at the outset that this hearing will not delve
into the details of the Huntington/Sky merger because it is a
pending matter before the Fed. And I ask that members of the
subcommittee understand that we shall not influence any
particular outcome of the proposed merger, nor will we pursue
any questioning about it, or the Fed to hold a public hearing
itself.
The matter could be fully discussed by all stakeholders.
However, unless the Cleveland Fed holds a public hearing, that
conversation will not take place as is beyond the scope of
today's congressional hearing. The purpose of today's hearing
is to examine the situation facing Cleveland, specifically
Cleveland, but Ohio generally, and to hear from the chief
regulator of banking mergers in this region, Cleveland Fed.
Ohio leads the Nation in the rate of foreclosures.
Ohio's foreclosure rate, 3.3 percent, is about three times
the national rate and has the second highest percentage of
loans and serious delinquencies according to the Mortgage
Bankers Association. Cuyahoga County, which includes Cleveland,
had 11,000 foreclosures in 2005, more than tripled the number a
decade ago and 13,610 foreclosures in 2006.
Subprime lending is associated with significantly higher
levels of foreclosure than prime lending. Foreclosure rates are
20 to 30 times greater than subprime loans. This finding is
reflected in Cleveland's experience with a rapid growth in the
subprime lending market in the rising number of the
foreclosures.
In Cleveland, in 1995, the local depositories were about 60
percent of the market share of mortgages. By 2005 that number
dropped to 20 percent. The Federal Reserve of Cleveland
oversees the Fourth Federal Reserve District, which comprises
Ohio, Kentucky and northern West Virginia and western
Pennsylvania. It is one of 12 regional reserve banks that, in
conjunction with the Board of Governors in Washington, DC, make
up the Federal Reserve System.
The Fed has the primary responsibility of supervising and
regulating the activities of State and local banks and bank
holding companies. In the case of an acquisition, the Fed is
required to take into account the likely effects of acquisition
on competition, the convenience and needs of the communities to
be served, the financial and managerial resources and future
prospects of the companies and banks involved, and the
effectiveness of the companies' policies to combat money
laundering.
I think one question, the maps I referred to a moment ago,
raises this: How well have the convenience and the needs of the
communities been served over the last 30 years, especially in
the last 10 years as the predatory lending and foreclosure
problems have exploded? I think one of the few questions raised
by the magnitude of the foreclosure crisis in Ohio includes:
What was the Cleveland Fed doing to lessen the problem? What
enforcement tools were the Cleveland Fed advocating for? Was
the Cleveland Fed acting proportionately with the foreclosure
problem? What recognition did the Cleveland Fed show that it
had a foreclosure crisis at its front step? Did the Fed
adequately use its considerable power to curve an industry that
preyed upon borrowers, distort the market and reeked havoc not
just on borrowers but on their neighborhoods, cities and
regions. I hope that we may begin to get answers to that and
other questions today.
At this point I would like to--at this point I would like
to recognize the ranking member of the committee, Darrel Issa
of California. I want to thank Mr. Issa for being with me this
morning as we conduct this hearing. The chair recognizes Mr.
Issa.
[The prepared statement of Hon. Dennis J. Kucinich
follows:]
[GRAPHIC] [TIFF OMITTED] T0152.001
[GRAPHIC] [TIFF OMITTED] T0152.002
[GRAPHIC] [TIFF OMITTED] T0152.003
[GRAPHIC] [TIFF OMITTED] T0152.004
[GRAPHIC] [TIFF OMITTED] T0152.005
[GRAPHIC] [TIFF OMITTED] T0152.006
[GRAPHIC] [TIFF OMITTED] T0152.007
[GRAPHIC] [TIFF OMITTED] T0152.008
[GRAPHIC] [TIFF OMITTED] T0152.009
[GRAPHIC] [TIFF OMITTED] T0152.010
Mr. Issa. Thank you for holding this very important hearing
as a followup to what we've already done in Washington.
I am fortunate to serve. This is the second go-around. In
the last Congress we did a lot of hearings that we did together
on a bipartisan basis and are continuing to. And I hope that
everyone here today understands that's a spirit in which we
come here, that when you look at the numbers, you look at
Cuyahoga County, OH as a whole versus the Nation.
There's clearly a problem in this region, and understanding
the problem of this region before it spreads or to discover
whether it will spread to other parts of the country, will
certainly, for me, be part of the focus here today. As the
chairman very much said, we're not here to discuss a pending
merger, but I think we will be listening appropriately to some
of the concerns that Chairman Kucinich raised about
competition. I, for one, come from California now, even though
I'm a native of Cleveland. As a result, I come from an area
that has almost the reverse of what's going on here in Ohio.
Unemployment is at a historic low. Home prices have risen more
than double on the average in California in the same period in
which they were pretty flat here in Ohio.
As a result, if you had a subprime loan and still have one
in California, but you didn't refinance, you probably have 50
percent plus equity in your home in California. Well, here you
may have exactly the same equity that you originally bought
your house with. So, there are things that are different.
Certainly, I believe that we're going to look at that today.
We're going to look at whether the Fed exercised what it
could exercise under the HOEPA, the Home Ownership Protection
Act, which as I understand and we'll hear more today, gives
authority, but limited enforcement, and that's something,
perhaps, that we'll see and hear more when the Fed has their
chance.
I must admit, I took a little nostalgic tour of Cleveland,
Cleveland Heights, Shaker, the whole east side yesterday, and
perhaps because I haven't been here much longer than the
chairman, I saw the part of the cup that was half full. I saw
the areas of Hough and going up Chester and Carnegie. I saw
brand new homes where I remember only, to be honest, ancient
homes that were boarded up. I still saw some boarded up homes.
But I see the promise for Ohio if, in fact, we can keep
home ownership alive. I think the chairman and I will work
together in Washington to take what we learn here today and
make sure that, at a minimum, Congress is doing what it can to
continue promoting home ownership.
I also think that we're going to have to look beyond banks,
and beyond banks, the regulatory authority of banks. As a
Californian, where California has the right, as Ohio has the
right to regulate mortgage brokers, I believe that both States
have done, at best, a limited job of doing so.
As I'm sure the chairman and those testifying today will
agree, mortgage brokers are the people that actually talk the
consumer into making that loan. It is very seldom, if ever, a
federally regulated bank.
As Members of Congress, we, in fact, zealously guard our
oversight ability, and I believe today is just a splendid
example of good oversight, coming out here and looking beyond
what we would normally see in Washington and with constituents
to have an opportunity to see that Washington is not all about
Washington.
My hope today is that we cannot only get to the root of
many of the problems that plague the subprime industry
nationally, but that we can effectively differentiate what's
going on nationally from regional and local problems. This is
particularly important because, we as Federal regulators, have
limited authority, but we can grant additional authority to
ourselves as we see fit. But often the thing we need to do most
is to say, what are we doing? Are we doing enough. Should we do
more? And if the answer is, we are doing enough, then the next
question is are the State and local areas empowered to do
enough?
Is it clear that, for example, mortgage brokers are the
responsibility of the States, and if, in fact, they are
untruthful or predatory in their lending practices, no amount
of enforcement directly from the Fed is going to have the same
effect as the State attorney general and the State legislature.
So, Mr. Chairman, I want to once again thank you for
holding this important hearing. I think I've contrasted a
little bit of what I'm hoping to see here today, but I think at
the end of the day it's what we both want to see that's going
to make us effective when we return to Washington, and I yield
back.
Mr. Kucinich. I thank the gentleman from California.
Without objection, the members of this committee will have 5
legislative days to submit a written statement or extraneous
materials for the record. Without objection, the members of the
Ohio Delegation who have the desire to submit a written
statement or extraneous materials for the record, will be able
to do so.
Without objection, the public officials who are here today
who will not be testifying, but, nevertheless, represent
constituencies such as a Councilman Brancatelli, Councilman
Santiago and others, will be able to submit written statements
and extraneous materials. And the community groups, including
those from Slavic Village who were able to walk with us
yesterday and from North East Side Community, will be able to
submit written statements and provide extraneous materials for
the record, Mr. Issa.
OK. So, at this point we are now going to be hearing from
the witnesses, and I want to start by introducing our first
panel. I'll begin by introducing Mr. Rokakis. Now, Mr. Rokakis
took office as the Cuyahoga County treasurer in March 1997
after serving for over 19 years on the Cleveland City Council,
and I had the honor in serving with Mr. Rokakis.
Mr. Rokakis brought sweeping reform to the treasurer's
office. He spearheaded House Bill 294, which streamlines
foreclosure process for abandoned properties. He was
instrumental in creating Cuyahoga County's Don't Borrow Trouble
Prevention Foreclosure Program.
Mr. Rokakis developed nationally recognized link deposit
loan programs to help revitalize the county's housing stock.
Additionally working past Ohio House Bill 293, that allowed
senior citizens to defer property tax payments.
Governor Ted Strickland has appointed Mr. Rokakis to Ohio's
recently formed task force on foreclosures in Ohio. And I just
wanted said, Mr. Issa, that Mr. Rokakis has really been an
important leader on this issue, and we're very grateful for his
presence here today.
Ms. Barbara Anderson is the treasurer of the Predatory
Lending Action Committee of ESOP, Empowering and Strengthening
Ohio's People. ESOP was founded in 1993 to create organized
leadership around issues that impact neighborhood life in
Cleveland. Ms. Anderson is a long-time community leader in
Cleveland's Slavic Village.
And, finally, the last witness of our first panel will be
Mr. Charles Bromley, who is an adjunct faculty member at the
Levin College of Urban Affairs. He is a Presidential scholar in
the SAGES Program at Case Western Reserve University and chair
of the Ohio Fair Lending Coalition. He's led the first
organizations to document the relationship between foreclosures
and predatory lending and unfair lending practices and their
impact on Greater Cleveland neighborhoods.
I want to thank the witnesses for appearing before the
subcommittee. It is the policy of the committee on Oversight
and Government Reform to swear in all witnesses before they
testify. I'm going to ask that the witnesses rise and raise
your right hands.
[Witnesses sworn.]
Mr. Kucinich. Thank you. Let the record reflect that the
witnesses answered in the affirmative.
Now, I'm going to ask each of the witnesses to now give a
brief statement, a brief summary of their testimony and to keep
this summary under 5 minutes in duration.
I want you to bear in mind that your complete written
statement will be included in the hearing record. I'd like to
begin and have the chair recognize Mr. Rokakis, the treasurer
of Cuyahoga County. Welcome. Please proceed.
STATEMENT OF JAMES ROKAKIS, TREASURER OF CUYAHOGA COUNTY
Mr. Rokakis. Thank you, Chairman Kucinich. And Congressman
Issa, welcome home. Our baseball team is better than it was
when you left, but I'm afraid to say that our football team may
be worse.
Mr. Issa. But we got rid of Modell, didn't we?
Mr. Rokakis. Thank you, Mr. Chairman and members of this
committee for allowing me the opportunity to speak here today.
The crisis of foreclosures and the meltdown in the subprime
lending market has dominated the news the past 6 months, but is
a problem we have been struggling within northeast Ohio and
Cleveland, in particular, since the mid 1990's when our
foreclosure rate took off here. From a low of 3,500 private
mortgage foreclosures in 1995, our foreclosure rate climbed
steadily in the 90's to over 7,000 foreclosures filed by 2000.
Undoubtedly, a weak economy played a role in the doubling of
the foreclosure rate, but other forces were at work. The
development of the secondary mortgage market and great access
to capital markets had created an insatiable demand for
mortgages and an increase in reckless lending practices, local
governments struggling to deal when this explosion cried out
for help.
In March 2001, my office co-hosted, along with CSU School
of Urban Affairs, a conference at the Cleveland Federal Reserve
Bank on the topic of foreclosures. In 2002, three Ohio cities,
Cleveland, Toledo and Dayton, passed anti-predatory lending
ordinances in an attempt to fill the void created by an
oblivious State government and a Federal reserve that failed to
recognize the crisis. These local laws were preempted by State
laws passed by the Ohio Legislature within 60 days of their
package.
An especially bold industry became even greedier and more
reckless, and our foreclosure rate continued to climb to over
13,000 private mortgage foreclosures filed last year. And sadly
we predict, based on first-quarter filings in 2007, to over
16,000 foreclosures this year, the equivalent of foreclosing on
every owner-occupied unit in the cities of Garfield Heights,
Middleburg Heights and Olmsted Falls.
The Federal Reserve Bank has the authority under the Truth
in Lending Act and the Home Ownership Protection Act to ban all
of the practices that have fed this mortgage craze and led to
this foreclosure frenzy. They can ban no-document loans, but
have not. They can ban loans that are not fully indexed to a
borrower's income, but have not.
They can ban the practice known as risk layering where
borrowers with the weakest credit are offered multiple gimmicks
to qualify them for a loan, but they have not. They can require
that all subprime loans provide for the escrow of taxes and
insurance in their payments, but they do not.
They continue to hide behind the need to protect the
subprime industry, but this argument fails to recognize that
almost 90 percent of subprime loans are financed and nearly all
of those are adjustable rate mortgages that will, with a
considerable degree of certainty, double the payment within 5
years and cost that borrower their home. I am stunned at the
number of elderly homeowners who have refinanced their homes
late in life, stripping their equity out of the property and
saddling them with a debt level they cannot afford.
In 1983, the average 65-year-old homeowner had $11,000 in
debt on their primary residence. By 2004, that number had
climbed to 47,000. Yesterday's New York Times had an article
that zeroed in on unscrupulous telemarketers, people who focus
their efforts on the elderly and target them for products they
don't need and can ill afford.
This practice has been going on in the mortgage refinance
business for years. We see evidence of it on people who have
been refinanced and promised that their property taxes were
part of their monthly payment, only to find out they had been
lied to, and they found their names in the newspaper because
they had failed to pay their property taxes.
Last week, Federal Reserve Chairman Ben Bernanke, spoke to
an audience in Chicago on the topic of the subprime mortgage
market. He spoke of a foreclosure and/or delinquency rates of
more than 60 days as approaching 11 percent in the subprime
market. I wish that were the case in Cleveland.
In January, Larry Litton, CEO of Litton Loan Servicing,
shared his Cleveland numbers with me, 11.41 percent already
foreclosed in their portfolio, 16 percent in foreclosure for a
total of 27.41 percent. If you add their loans that were 30
days late, which were another 18.5 percent, a stunning 46
percent of their loans in Cleveland were underwater or sinking
fast, 46 percent. Let me read from Chairman Bernanke's
conclusion in Chicago last week: ``Markets can overshoot, but
ultimately, market forces also work to rein in excesses. For
some, the self-correcting pull back may seem too late and too
severe, but I believe the long-run markets are better than
regulators at allocating credit. We must be careful not to
express responsible lending or eliminate refinancing
opportunities for subprime borrowers.''
In the mid 1970's, New York City was facing a bankruptcy
and looked to the Federal Government for a bailout. Gerald Ford
was President and said no. New York Daily News headline read,
``Ford to NYC: Drop dead.'' The position of the Fed on this
issue, their failure to regulate their unwillingness to
recognize the severity of this crisis should elicit a new
headline: Fed to Cleveland: Drop dead. Fed to Dayton, Toledo,
Detroit, Buffalo, Cincinnati: Drop dead.
Members of this committee, I don't believe the Federal
Reserve Bank will take the measures they need to take. Frankly,
you could argue it's too late. Congress must act on the various
measures under consideration in the house and Cincinnati to
rein in the excesses of the mortgage industry, because the
market has proven itself to be greedy and unreliable in
protecting the assets of its investors and willing to destroy
cities like Cleveland. Act now.
[The prepared statement of Mr. Rokakis follows:]
[GRAPHIC] [TIFF OMITTED] T0152.011
[GRAPHIC] [TIFF OMITTED] T0152.012
[GRAPHIC] [TIFF OMITTED] T0152.013
[GRAPHIC] [TIFF OMITTED] T0152.014
[GRAPHIC] [TIFF OMITTED] T0152.015
[GRAPHIC] [TIFF OMITTED] T0152.016
[GRAPHIC] [TIFF OMITTED] T0152.017
[GRAPHIC] [TIFF OMITTED] T0152.018
Mr. Kucinich. Thank you very much, Mr. Rokakis.
Next we're going to hear from Ms. Barbara Anderson. You may
proceed.
STATEMENT OF BARBARA ANDERSON, TREASURER, EMPOWERING &
STRENGTHENING OHIO'S PEOPLE
Ms. Anderson. Thank you, Mr. Chairman, and certainly, thank
you, Mr. Issa, and members and representatives of this
committee.
Good morning, my name is Barbara Anderson, and I appear
before you today as the treasurer and member of the Predatory
Lending Action Committee of the Empowering and Strengthening
Ohio's People [ESOP]. ESOP was formerly known as the East Side
Organizing Project.
ESOP is a community organization whose roots are in the
southeast side of Cleveland, OH, but whose growth has been
fueled by abusive lending and now includes the entire northeast
Ohio region, as ESOP's work is widely recognized and requested.
I also serve as the treasurer of the Empowerment Center of
Greater Cleveland, president of the Bring Back the 70's Street
Club. I'm the past president of Community Assessment and
Treatment Services and serve on the boards of the Ohio State
University Extension Program, Vision Advocacy Council of
MetroHealth Center for Community Health and Co-chair of
MetroHealth Center for Community Health and Co-chair of the
Slavic Village Development Abandoned and Vacant Housing
Committee.
I could give you documentation regarding the devastating
impact of predatory lending and foreclosure, however, that's
included in my full statement. I'm a survivor of personal
predatory lending in the past. I am yet a victim of predatory
lending as is my entire neighborhood.
I have lived at 3435 East 76th Street for over 25 years.
That address is in the Slavic Village neighborhood. That is
today widely seen as the epicenter of the foreclosure crisis
facing Cleveland and the Nation.
I want to thank you, Mr. Kucinich, for holding this hearing
as the city of Cleveland is now experiencing a crisis as a
result of years of neglect by local banks and regulators.
Without question, cities like Cleveland were ripe for the
picking. The steel industry was leaving, their secondary
industries went belly up and we continue to have brain drain.
While these facts are staggering, what I see in my neighborhood
is even more tragic.
There are ten houses on my street. Five of them are
currently vacant, and in most cases are owned by a lender who
made an abusive loan that the homeowner could not afford. My
street is not unusual. You can walk up and down virtually any
street in my neighborhood, as you did yesterday, Mr. Kucinich,
and you will find a similar situation.
In our street club's targeted area, which includes the
streets from East 70th to East 78th, south to Edna Avenue and
north of Morgan, there are over 100 vacant, abandoned or
condemned homes. Obviously, this scenery has reduced the value
of my own home. While that is devastating by itself, what is
most devastating is that I cannot allow my grandchildren to
play outside because of squatters, usually high on drugs, are
now occupying some of those houses as they sit wide open.
Today organizations like ESOP are fighting an uphill battle
to clean up these costly measures. We have written agreements
with about a dozen lenders and services that allow us to serve
as the middle person between the homeowner and lender in order
to help negotiate a workout to their problem loan.
This year ESOP is projected to assist about several hundred
families get out of foreclosure. While we are proud of our
efforts, Cuyahoga is expected to see upwards of 15,000
foreclosures in 2001. While some of these foreclosures are due
to unforeseen, economic hardships, the vast majority are the
results of abusive lending. I take this personally.
Irresponsible lenders preying on unsophisticated borrowers is a
match made in financial hell. It is the residents that are left
behind that must shoulder the burden of the potential health,
crime and nuisance of these properties.
Once left vacant, they become an eyesore. No one comes to
clean or to maintain the property. It is simply left alone and
continues its almost certain decline. The banks and the
lobbiests will tell you that the problem is a lack of financial
education on the part of the consumer. While, actually, it's a
lack of accountability by the lender and greed to increase
revenue on the backs of those that can least afford and have
very few options.
ESOP sees this hearing as an important first step to
changing the job description of the regulators, and I wish to
conclude by thanking you again, Congressman Kucinich, for your
leadership on this issue and would be happy to take any
questions.
[The prepared statement of Ms. Anderson follows:]
[GRAPHIC] [TIFF OMITTED] T0152.019
[GRAPHIC] [TIFF OMITTED] T0152.020
[GRAPHIC] [TIFF OMITTED] T0152.021
[GRAPHIC] [TIFF OMITTED] T0152.022
[GRAPHIC] [TIFF OMITTED] T0152.023
[GRAPHIC] [TIFF OMITTED] T0152.024
[GRAPHIC] [TIFF OMITTED] T0152.025
[GRAPHIC] [TIFF OMITTED] T0152.026
Mr. Kucinich. Thank you very much for your testimony, Ms.
Anderson. Mr. Bromley.
STATEMENT OF CHARLES BROMLEY, ADJUNCT FACULTY, LEVIN COLLEGE OF
URBAN AFFAIRS
Mr. Bromley. My name is Charles Bromley. I've had an
extensive, professional career including advocacy, research,
and organizing on the issue of fair lending, and I'm presently
serving as adjunct faculty at the Levin College of Urban
Affairs, and I hope to contribute to the knowledge and academic
role of regarding urban diversity and creating learning
opportunities for those of us who seek a stronger and more
vital community. Several weeks ago, the Ohio Fair Lending
Coalition brought a challenge regarding the merger of the
Huntington and Sky Banks, both Ohio lenders. The community
awaits a response to challenge the Federal Reserve Bank, with a
significant physical presence in Cleveland, housed on two city
blocks in the heart of Cleveland's financial district is
reviewing the challenge. The Federal Reserve Bank, is a
formidable national historic landmark with an impressive pink
and sienna marble facade within its hollowed walls has a 100-
ton vault door, the largest in the world, which protects the
massive bank vault.
Cleveland is fortunate to have one of the regional Federal
Reserve Banks. Unfortunately, the political presence of the
Federal Reserve Bank has not matched its physical presence in
tackling the persistent problems of discrimination and lending,
and the most recent crisis is predatory lending that has
affected every community in Cuyahoga County. The rich history
of the Federal Reserve Bank and the Renaissance architecture
remind life-long Clevelanders of one of its many jewels.
In 1973, having graduated from the Levin College of Urban
Affairs with a masters degree and working with the Cleveland
Heights Community Congress, I embarked on a community research
project with the League of Women Voters Community. We
documented, by hand, and tracked and compared disparate lending
patterns that exist between the city of Lakewood and the city
of Cleveland Heights.
Our research findings were substantial, and we submitted
our study results to the Senate Banking Committee chaired by
William Proxmire. Other researchers and community-minded
individuals submitted similar study results, which led to the
passage of the Home Mortgage Disclosure Act of 1975 and
ultimately the Community Reinvestment Act of 1977.
The Ohio Fair Lending Coalition filed the action against
Huntington/Sky Bank's merger and many colleagues said to us,
why bother? The Federal Reserve Bank will do anything for the
community. We reminded them that following the passage of the
14th amendment after the Civil War, it took our country until
1954, in the Brown decision, to recognize the importance of the
equal protection clause. Similar issues and obstacles presented
themselves relative to the Home Mortgage Disclosure Act and the
Community Reinvestment Act. Now, these acts represent important
tools for our communities and cannot be dismissed as
unimportant.
HMDA data that was once transparent has been transformed
into an online nightmare that no individual citizen can easily
comprehend. It's imperative that the Federal Reserve Bank make
this data transparent and easily available to community groups
who would use this data.
The Federal Reserve Bank has only conducted one study in
1992, conducted by the Federal Reserve Bank of Boston, to
examine the relationship between race and credit scores. It is
time for the Federal Reserve Bank of Cleveland to undertake
such a study and determine what role race plays in the
declination of prime credit. They have the resources, the
knowledge and data to carry this out expeditiously.
It has been over 30 years since the Federal Reserve Bank
held a public hearing in Cleveland. The wealth-robbing
activities of lenders has exacerbated predatory lending
problems in communities, not only in historically underserved
city neighborhoods, but in encroaching first-ring suburbs,
which leaves a trail of impoverishment and debt.
During the years since the last public hearing, Greater
Cleveland has been devastated by high-cost loans and predatory
lending. At each hearing on proposed legislation to curb the
effects of predatory loans at the State level, and the
multitudes of meetings that occurred in Greater Cleveland, the
important leadership of the Federal Reserve Bank has been
missing.
The President of the Federal Reserve Bank of Cleveland has
been absent from all public discourse on this issue. At the
hearings on anti-predatory lending law in Columbus, OH, at the
countless summits on predatory lending, and the numerous
meetings leading up to creation of the Cuyahoga County
Foreclosure Prevention Program, the highest office of the
Federal Reserve Bank was absent. It is significant that in the
2006 Annual Report, the current president of the Federal
Reserve Bank of Cleveland highlighted the immense cost that
concentrated poverty has placed on this community.
There is little doubt that predatory lending has put at
risk billions of dollars of real estate for Greater
Clevelanders.
For more than a decade many civil rights advocates pressed
for changes in lending practices that would have been an
antidote to the explosion of predatory lending. The
Metropolitan Strategy Group, a nonprofit which I led,
documented this and presented this information.
A proposed statement on subprime lending. For the last
decade, the Federal Reserve Bank in Cleveland has not been at
home. The private dining rooms of the Federal Reserve Bank have
been filled with lenders while the community has been outside,
looking in, trying to determine if someone will open the door
to hear from those among us who have been devastated in the
community. The litany of abuse is well documented.
First and foremost, there must be a discussion of no
document loans or liar loans. The Federal Reserve Bank
regulators had a moral and legal responsibility to stop this
behavior the second that these indiscretions were documented,
along with other loan products that damage communities, and
they should not have waited until, ``a crisis in mortgage
markets.'' It's well known that the Federal Reserve Bank holds
the highest regard for its examiners who review safety and
soundness.
These values are represented for all to see with two
larger-than-life statues, one entitled Security and the other
entitled Integrity. Sculpted in New York City, they guard the
main entrance of the Federal Reserve Bank on East 6th and
Superior. These statues are a symbol of trust that the
community instills in the Federal Reserve Bank.
One commentator, Eddy Ross, said recently in the Dayton
Daily News, these agencies, bank regulatory agencies, have
enormous power, direct and indirect, over the financial
services market. They could set the tone. By aggressively and
creatively pushing lending institutions to offer credit in
lower and middle-income communities--including by enforcing the
Community Redevelopment Act--they could have given consumers a
reasonable alternative to the predators by beefing up the Home
Mortgage Disclosure Act, regulators, could have given
policymakers and police agencies real-time data about who was
making predatory loans and where and what actions could be
taken.
It's time to revive an honest debate about these issues as
the Greater Cleveland community attempts to resurrect its
housing market and its financial institutions. The mighty
facade of the Federal Reserve Bank needs to be matched with a
new political will to take on difficult issues related to
disinvestment and predatory lending in Cuyahoga County. It's
time to knock on the door and find out that somebody is home
and that public hearings will occur. Thirty years is too long
to wait. It is now time to act.
William Proxmire was fond of saying about lenders, he said,
the former chairman said, I asked myself how is it that so many
neighborhoods are continuing to fail while so many lending
institutions are continuing to pass. I hope that we can move
ahead and have a hearing in Cleveland and get the truth out
about lending.
[The prepared statement of Mr. Bromley follows:]
[GRAPHIC] [TIFF OMITTED] T0152.027
[GRAPHIC] [TIFF OMITTED] T0152.028
[GRAPHIC] [TIFF OMITTED] T0152.029
[GRAPHIC] [TIFF OMITTED] T0152.030
[GRAPHIC] [TIFF OMITTED] T0152.031
[GRAPHIC] [TIFF OMITTED] T0152.032
[GRAPHIC] [TIFF OMITTED] T0152.033
[GRAPHIC] [TIFF OMITTED] T0152.034
Mr. Kucinich. Thank you very much, Mr. Bromley. We'll be
moving quickly to questions of the first panel. For those who
have just joined us, the definition of terms is very important
here. We're talking about prime loans. We're talking about the
standard loan given to a borrower with a good to excellent
credit rating. Subprime loans are higher interest rates often
with financial penalties and are made for people who are often
deemed to be higher risk.
Also, there's evidence that this committee is looking at
that African Americans are more likely to have subprime loans
even if their financial information would justify a prime loan.
These loans are often made by affiliates of banks specializing
in subprime loans, and there are frequently abusive practices
associated with these loans and including at the appraisal
level or no-document loans. I just want to make sure that as we
proceed here, that everyone understands the terms of the
discussion.
Let's begin with questions of the first panel. Would Mr.
Issa like to ask the questions first.
Mr. Issa. I'd be glad to.
Mr. Kucinich. Thank you. Please go ahead.
Mr. Issa. Thank you, Mr. Chairman. This is sort of--when
you see bipartisan, this is a great example of it.
Well, you covered a lot, and I appreciate you doing it. Ms.
Anderson, you've been nationally--your organization has been
nationally recognized for intervening in the process in order
to renegotiate or to save failing loans. Could you tell us, in
a sense, how many loans that you discover are savable through
intervention out of the total?
In other words, we look at the failed rate in Cleveland,
which you've helped reduce, but when we're looking at
intervention--and to be honest, grants and funding for
organizations to help with people who have gotten over their
head, what percentage can you say in your experience?
Ms. Anderson. Well, let me answer a couple ways. First of
all, it's been very successful, and one of the reasons has been
because of the relationship that develops after the partnership
is made.
ESOP has been able to, as I've said before, go into
partnerships with the ones that we deal with such as a Litton,
such as an Aquin [phonetic]. Because of that partnership and
the relationship, they are more willing to negotiate or to
help, not just predatory loans, but also hardship loans. And,
so, yes, well over 70 percent are able to be negotiated, some
kind of negotiation where it is possible to save.
Mr. Issa. And you brought up a good point that I'd like to
followup on. Because of Cleveland's economy, when you break
those down, can you give us a feeling for how many, that you
may recall, is the direct result of predatory lending and how
many you would say are hardship? People have lost their jobs or
they've lost a good-paying job, and now one or both members are
working for less.
Ms. Anderson. I would say that the impact of losing jobs
has had a devastating effect, which you well know. And if
you're already in a predatory loan, even that predatory loan
that you may have been able to afford while you had that good
job by making other sacrifices, that once you get into a
predatory loan and lose your job, then it becomes even more
complicated.
There is--depending on the lender, there is a higher amount
with some lenders, maybe even of 50 percent, 60 percent, are
hardship loans. While some lenders, 80 and 90 percent of them
are predatory lending.
Mr. Issa. It pretty much depends on how aggressive the
broker was that sold the packages?
Ms. Anderson. Yes, it does.
Mr. Issa. Mr. Bromley, HB185, which has now been signed
into law, how much of an effect do you believe it will have in
the future, stemming future incidents the way we're seeing
here?
Mr. Bromley. Well, I think all laws--I mean, it's like the
Community Reinvestment Act. It depends upon how well it's
enforced, how effectively, how comprehensively. You know, we
have a State law here to prevent, you know, predatory activity.
And I have found over the years that when you put a law in a
book, you better be sure that you're going to enforce the law
and make sure that it occurs.
We have had some wonderful things, and we documented early
on in this crisis that 70 percent of the people going in
foreclosures had problems with predatory characteristics in
their mortgages. It was well known, well documented. There are
an abundance of laws. I mean, it's a question of enforcing
those laws and speaking out in a way that makes sure that these
laws are effectively enforced throughout the community.
Mr. Issa. I guess I'll switch to one of the authors of the
bill. I was interested because HB185, if enforced, Mr. Rokakis,
I assume you believe will dramatically reduce this.
Mr. Rokakis. It will. As you know though, 185 is the lame
duck session between the election of the new Governor and the
end of that term was, in my opinion, gutted by 117. But the
damage provision was limited so substantially, that I really
feel it took away from the enforceability of the strength that
185 might have had. Certainly, putting fiduciary duties on
brokers and licensing, all very important, but what was so
unsettling to us is that 117, we really feel gutted it, and, of
course, it's in limbo now because there was that period of time
this Governor vetoed this. It was a 10-day layover. They've
sued it for the Ohio Supreme Court. So, it's unclear as to what
185's standards are, though the attorney general is going
forward as if it's in full effect.
Mr. Issa. And the followup, and sometimes we call this the
punch, assuming that 185, if left ungutted and implemented,
would have really changed the lay of the land going forward,
particularly as to enforcement of mortgage brokers, lending
policies, criminal sanctions and so on, assuming that's all
true, then when we're weighing--I'll just be a second, Mr.
Chairman. Thank you.
If we're weighing the Fed, who will be up here next, and
what we expect them to do, and Ohio's effective or ineffective,
but belief that they can respond, they can regulate as Federal
officers, wouldn't it be reasonable to say that you should send
185 back through, put the teeth in it, enforce it and clean up
the act unique to Ohio's problems so that you will not be in a
catchall of what works in California being what you get told to
do here in Ohio, which, by the way, as now a Californian, I
know won't work. The regulatory needs are undoubtedly different
here in Ohio. I don't believe you have walk-away loans. In
California you can walk away from your mortgage, not go
bankrupt and no one chases you. We have non-recourse loans.
And so as an Ohioan moved to California, I'll close and
say, in a sense, isn't it the important thing to come out of
this hearing, that if Ohio can't make 185 a proper enforcement
reality, that your legislation needs to pick it back up, put
teeth in it and bring it back through if Ohio's going to have a
custom solution for themselves?
Mr. Rokakis. I agree. I think we have to partner in this.
And as you know, one of the comments made by Chairman Bernanke
was that unfortunately this is a patchwork quilt. So, we can't
do this alone. Clearly, we can't expect the Fed to do all of
this.
But, unfortunately, and I hate to be such a cynic, I've
spent many an afternoon traveling to the Ohio Legislature.
The power of the mortgage broker industry, the power of the
mortgage bankers, the appraisers, the people that are all
integral parts of this not so pleasant situation have
incredible power at that legislature, and I've watched them--
and time after time--2002 is a good example. Cleveland, Dayton
and Toledo said nobody is going to help us. We'll do it on our
own. You know, within 60 days they preempted those three
cities, they promised action, 11 meetings, 63 witnesses, no
action came until 2006 only because it was an election year,
then they started to gut it 3 months later. Forgive me for
being a cynic, but I've spent too much time in Columbus.
Mr. Issa. Thank you, Mr. Chairman.
Mr. Kucinich. Thank you very much, Mr. Issa, my colleague
from California. This discussion that you're having with Mr.
Rokakis, since we do have a member of the legislature in the
audience, State Representative Foley, and if there's any other
members of the legislature in the audience, I would ask that
you let the staff know, because this is certainly a discussion
that is relative to your level.
We've also been joined by Congresswoman Tubbs Jones'
representative, Mr. Taylor. Would you stand and be recognized.
Let Congresswoman Tubbs Jones know that she has our love and
support at this time. We know that she would be here except for
this tragedy in her family. So, thank you, Michael Taylor, for
being able to represent Congresswoman Tubbs Jones. And,
finally, I want to acknowledge the presence of another mayor
that's in the room, Mayor Thomas O'Grady, of North Olmsted.
I'd like to move on to questions, and I'd like to go to
this question of public hearing, Mr. Bromley, that you raised.
What's your understanding of the purpose of holding public
hearings? And, generally speaking, I'm not talking about a
specific case now with respect to merger reviews.
Mr. Bromley. Well, it's an opportunity. The Community
Reinvestment Act has a mechanism that allows the public to
comment on a proposed merger of lenders, and the public hearing
is part of that process where the public, meaning individuals,
community groups such as Barbara's, can comment on the impact
of a merger on a community.
Mr. Kucinich. And when was the last time a hearing was held
by the Cleveland Fed.
Mr. Bromley. 30 years ago.
Mr. Kucinich. How would you explain that 30 years have
passed without a public hearing.
Mr. Bromley. I think that this Federal Reserve Bank decided
after one hearing that they were never going to have another
hearing in Greater Cleveland, that it was unfortunate, and that
the weight, as Jim has indicated, the weight of the lenders
weighed in and said we are not going to have any more public
exposure to these kind of issues. And the result has been 30
years of silence in the public square, and the public square
needs to have a vigorous dialog in the Democratic institution.
Mr. Kucinich. Mr. Rokakis, you quoted from Chairman
Bernanke, and, of course, you're aware that last week he
promised that the Fed is going to do all, ``We'll do all we can
to prevent fraud and abusive lending and to ensure that lenders
employ sound underwriting practices.''
Now, preventing a reoccurrence of the problem is very
important, but what efforts should be made and what role will
the Fed play in solving the problem of foreclosures for
existing homeowners.
Mr. Rokakis. Mr. Chairman, I also read their statements
urging banks and mortgage companies throughout the company to
cooperate in workout efforts. I'm a part of the Governor's task
force that's putting together a State-wide network to help try
to work through this foreclosure morass. As you know, September
of this year and next year we're going to see an explosion of
these subprime ARMS resetting, about $20 billion worth in this
State. So, we're going to see more foreclosures than we've
already seen, which is hard to believe.
But I think what's important is that we must find a way,
the Fed, the Congress, we have to bring these lenders to the
table early. They say they want to work out these loans, and I
know they have with ESOP and we have a foreclosure effort here,
but until, as an industry, they set up practices that offer
uniform solutions, it's going to be a one by one by one by one
hand-to-hand combat on renegotiating millions of mortgages.
Mr. Kucinich. Well, since you're on the Governor's task
force, of course, you know the stock market has taken a notice
of the rising in cost in subprime loans has helped to reduce
the amount of capital available for future predatory lending.
Of all the conferences and guidance from the Fed, can you
point to anything that the Fed has done to prevent the bad
loans from being made? Are you aware of any?
Mr. Rokakis. No. Other than the statement of those last
week urging the banks to cooperate on workout efforts, but it
was nothing more than an invitation to do so.
Mr. Kucinich. Mr. Bromley, are you aware of any of this.
Mr. Bromley. I'm not aware of any, and at this level of the
crisis--that's the point about the Cleveland Fed. The Cleveland
Fed is very aware of what's been going on in Ohio and
specifically here in Greater Cleveland. I think they have
played a very important role in lifting this issue up.
Mr. Kucinich. Thank you. I'd like to ask Ms. Anderson,
because you're working at the community level, tell this
committee about the impact of people in the neighborhood where
you have all these homes boarded up--and you're still living
there and you have a home there.
Ms. Anderson. That's right.
Mr. Kucinich. I talked to some people yesterday, but I'd
like you to tell the committee, how does this affect people.
People put time and effort into their property to try to keep
it up, and, all of a sudden, a house gets boarded on the
street.
Ms. Anderson. It's not just devastating to just the people
who live there, but especially to the children. I mean, you
play with these people, you work with people, you talk with
people. They become your neighbors, and then, all of a sudden,
in the middle of the night they're gone, and several days later
the house is boarded up, trash is sitting outside and it's not
as though it's moved. This is your window every day, is that
you go out to see these vacant, abandoned, boarded-off homes
that just devastates the entire community. It's heart breaking.
It's an uphill battle.
We have had many community groups go door to door to try to
make a difference with our painting on the houses, as you saw
yesterday, Mr. Kucinich. We have people there now who are
cleaning up the property, who are sweeping. We have people from
Habitat who volunteered their time today who are doing that. It
is a never-ending battle. You can only clean up so much. It's
like trying to clean up America and all you have is a staff of
four.
Mr. Kucinich. I want to thank the members of the panel, and
just ask my colleague, Mr. Issa, when we look at California,
and your having an understanding of both Cleveland and
California, is it possible that it's only working in California
because the housing level right now, and that might also be
related to the lending practices and also--you know, yesterday
over on, I think, it was Blanche Avenue I saw a house that was
appraised for like $68,000, and there's no way that this house
was worth that much.
Now, it's boarded up, but when it was first bought, it was
$68,000. And I'm wondering, you know, when you have an economic
decline that's undercut, does that have an impact.
And could it be that there's a housing level in California
that's not here?.
Mr. Issa. Mr. Chairman, you're exactly right. Actually, if
anything, we probably have more predatory loans in California
because you buy a house, you pay $300,000 for a starter home in
some California communities, and 2 years later you take another
$100,000, $150,000 out in a second because the appreciation has
been that great. A typical capital investment in 2000 in
California doubled by 2005, doubled.
So--and when you start with a base of $2, $3, $4, $500,000
on what we as Clevelanders would call a middle class home, and
$190 to $200 for that base housing, just for what we would call
affordable housing, and then it doubles. What happens is the
mischief that these mortgage brokers--and they sprung up out of
nowhere unregulated in California--were able to do was amazing.
The only thing keeping California going is, first of all, you
can sell your house and get out today because they still
appreciated it, and, two, to be quite candid, we have an
incredibly low unemployment rate in most of California that is
holding it up. It's not that we don't have some cracks in the
subprime mortgage programs. It's just that it's so much smaller
because we have full employment.
Mr. Kucinich. And I suppose it's fair to say that, you
know, God forbid that there was an economic decline in
California, but if there was an economic decline, you would
probably see some problems.
Mr. Issa. The financial landslide, when you're looking at
homes that cost so much more, will ripple throughout the
country. It's one of the reasons that your hearing here is so
important, is as does Cleveland, maybe not so goes the rest of
the country. But if what we see here, because of a doubling or
so of a historically low unemployment were to happen in
California, the default rate would be in the hundreds of
billions of dollars, and it clearly would have an effect on the
national economy.
Mr. Kucinich. See, I think that having Congressman Issa
here is so important because we're looking at kind of the
parentheses of this matter. You know, Cleveland, with a
tremendous wave of foreclosures, State of Ohio, with the
economic decline, California with a housing bubble, crisis
rising, it's really great that we can do this together.
We want to thank the first panel for testifying. Any
additional statements that you have or information by the
unanimous consent of the committee is able to be submitted to
the record. Thank you for being here, and we're now going to
move to the second panel, Ms. Sandra Braunstein, who is the
Director of the Division of Consumer and Community Affairs for
the Federal Reserve. I want to thank her for being here.
Ms. Braunstein, good morning.
Ms. Braunstein. Thank you.
Mr. Kucinich. I want to thank you very much for being here.
I want to introduce, to those who are in attendance, Ms. Sandra
Braunstein. She is the Director of the Division of Consumer and
Community Affairs at the Board of Governors of the Federal
Reserve System. She supervises the board's Community
Reinvestment Act Examination Program and coordinates the
development of policy recommendations relating to consumer
protection including the Community Reinvestment Act. She also
plays a significant role in analysis and merger and acquisition
applications. She was appointed in March 2004 and joined the
Federal Reserve Board in 1987.
Ms. Braunstein, it is the policy of the Committee on
Oversight and Government Reform to swear in all witnesses
before they testify, and I would ask you at this moment to rise
and to raise your right hand.
[Witness sworn.]
Mr. Kucinich. Thank you, witness. Let the record reflect
that the witness answered in the affirmative.
Now, as panel 1, I'm going to ask Ms. Braunstein to give an
oral summary of her testimony, to keep this summary under 5
minutes in duration, and I want you to bear in mind that your
written statement will be included in the hearing record. So,
at this point, the floor is yours, and I want to welcome you to
this subcommittee hearing.
STATEMENT OF SANDRA BRAUNSTEIN, DIRECTOR, DIVISION OF CONSUMER
AND COMMUNITY AFFAIRS, FEDERAL RESERVE SYSTEM
Ms. Braunstein. Thank you. Chairman Kucinich, Ranking
Member Issa, I appreciate this opportunity to appear in
Cleveland to address a number of issues that are of interest to
you and your constituents. My written testimony describes the
Federal Reserve System's role in evaluating the bank's
performance under the Community Reinvestment Act, how the
Federal Reserve analyzes applications from banking
organizations proposing mergers or acquisition and discusses a
number of matters relating to subprime mortgage lending.
I would now like to make a few major points on these
issues. As you may know, the Federal Reserve has supervisory
authority for State-chartered banks that are members of the
Federal Reserve System. These institutions total approximately
900 banks and represent 12.4 percent of total domestic assets
of all U.S. banks and thrift. In Ohio, the Federal Reserve has
supervisory authority, including conducting examinations for
CRA for 33 banks comprising of only 6 percent of banking assets
in Ohio.
The Federal Reserve also has responsibility for expansion
applications for State-member banks and banking financial
holding companies. During our analysis, we review the
competitive effects of the proposal in the relevant markets,
the financial and managerial resources and future prospects of
the bank holding company, and its banking subsidiaries, the
convenience and needs of the communities affected. The public
is notified when applications are filed and interested parties
may comment on any of the statutory factors.
Promoting the availability of credit through the banking
system and protecting consumers are important roles for the
Federal Reserve. In regards to these objectives, I will address
the subprime mortgage lending. The subprime market has grown
dramatically over the past decade. In 1994, subprime loans
accounted for fewer than 5 percent of mortgage originations,
but by 2006 about 20 percent of new mortgage loans were
subprime.
While the expansion of the subprime mortgage market over
the last decade has increased access to credit, the market has
more recently seen increased delinquencies and foreclosures.
The board is troubled by these performance issues and
understands the significance of the matter to regional markets,
communities and families.
The board believes that mortgage market problems need to be
addressed in a matter that curves unfair and abusive practices
while preserving incentives for responsible subprime lenders.
Accordingly, it is important that any actions we take are
well calibrated and do not have the unintended consequences. We
want to encourage, not limit, mortgage lending to qualified
borrowers our responsible lenders.
I will briefly touch on several means we have used and are
using to address subprime lending issues. First, over the past
several years the Federal Reserve System has monitored
development in the subprime lending industry and has taken
steps to address emerging problems. In response to weaknesses
in underwriting and risk management at the institutions we
supervise, we have issued guidance in concert with other
Federal banking agencies. This includes the recent proposed
guidance on subprime lending.
Second, in 2001 the board revised the HOEPA rule in
response to renewed concerns about predatory lending. In this
rulemaking, the board utilized its authority to prohibit unfair
and deceptive practices for high-cost loans. For example, the
board issued rules that prohibit a HOEPA lender from
refinancing one of its own loans with another HOEPA loan, or
flipping, within the first year unless the new loan is within
the borrower's interest. At the same time the board revised the
rules implementing the Home Mortgage Disclosure Act to better
track developments in the higher-priced market.
The board is currently conducting a major review of
Regulation Z, which implements the Truth in Lending Act of
which HOEPA is a part. The board held four public hearings in
2006 on home equity lending and mortgage markets. On June 14th
the board will hold a fifth public hearing focussed on how the
board might use its rulemaking authority to curve abusive
lending practices in the home mortgage market, including the
subprime sector.
Third, the board is actively engaging representatives from
the mortgage lending, servicing and capitalization arena as
well as from borrower and community support organizations to
learn about opportunities for borrower intervention and
foreclosure mitigation. And, fourth, collaborations to further
community development. Consumer and financial education have
long been a part of the Federal Reserve System's approach to
facilitate solutions to matters that may be most effectively
addressed in a local or regional level. In my written
testimony, I discuss some of the efforts of the Federal Bank of
Cleveland in this regard.
The impact of mortgage delinquency and foreclosure on
consumers and communities is of great concern to the Federal
Reserve, and we have worked to respond to the issue in both the
national and regional levels. We will continue to pursue
opportunities to help borrowers and to preserve the access to
responsible lending.
[The prepared statement of Ms. Braunstein follows:]
[GRAPHIC] [TIFF OMITTED] T0152.035
[GRAPHIC] [TIFF OMITTED] T0152.036
[GRAPHIC] [TIFF OMITTED] T0152.037
[GRAPHIC] [TIFF OMITTED] T0152.038
[GRAPHIC] [TIFF OMITTED] T0152.039
[GRAPHIC] [TIFF OMITTED] T0152.040
[GRAPHIC] [TIFF OMITTED] T0152.041
[GRAPHIC] [TIFF OMITTED] T0152.042
[GRAPHIC] [TIFF OMITTED] T0152.043
[GRAPHIC] [TIFF OMITTED] T0152.044
[GRAPHIC] [TIFF OMITTED] T0152.045
[GRAPHIC] [TIFF OMITTED] T0152.046
[GRAPHIC] [TIFF OMITTED] T0152.047
[GRAPHIC] [TIFF OMITTED] T0152.048
[GRAPHIC] [TIFF OMITTED] T0152.049
[GRAPHIC] [TIFF OMITTED] T0152.050
[GRAPHIC] [TIFF OMITTED] T0152.051
[GRAPHIC] [TIFF OMITTED] T0152.052
[GRAPHIC] [TIFF OMITTED] T0152.053
[GRAPHIC] [TIFF OMITTED] T0152.054
[GRAPHIC] [TIFF OMITTED] T0152.055
[GRAPHIC] [TIFF OMITTED] T0152.056
Mr. Kucinich. I want to thank you, Ms. Braunstein, for
being here to represent the Fed.
Now, in your testimony you cite two public hearings. In
your prepared testimony you cite two public hearings involving
Ohio banks in the last 10 years. Now, for the record, will you
state which Federal Reserve Bank convened those hearings?
Ms. Braunstein. Those hearings--actually, public hearings
are convened by the board, and that's one of the things that I
wanted to correct a bit. There are a number of items you
discussed in the first panel where the actual decisionmaking is
in Washington as a board, not in the local Federal Reserve
Bank.
Mr. Kucinich. Weren't those hearings held by the Federal
Reserve Bank that came out of Chicago.
Ms. Braunstein. Those hearings were held in Chicago, yes.
Mr. Kucinich. Thank you. Now, for the record, will you
state the last time the Cleveland Fed held a public hearing
on----
Ms. Braunstein. The last time we held a public hearing in
Cleveland, it was in 1981.
Mr. Kucinich. Would the staff correct the record? Is it not
1979 or 1981? OK. Our information shows 1979.
So, if you could provide this committee with information on
the year, we would appreciate it.
Now, can you explain, in any event, why so much time has
passed without another public hearing?
Ms. Braunstein. Well, first of all, we make decisions, the
board makes decisions on public hearings, and there have been--
since 1990, there have been 13 public meetings related to
applications.
Mr. Kucinich. Not in the Cleveland area, though, right.
Ms. Braunstein. Not in the Cleveland area. There's been two
in the Cleveland area, the one you keep referring to in 1979
and one in 1981. There have been--when we decide to hold a
public meeting on an application, the reason we do that is
because we cannot get sufficient information to make a decision
on a case without holding the public meeting.
Every application has a public comment process, and it's
not unusual for us to receive hundreds of comments.
Mr. Kucinich. In other words, if you feel you have
sufficient information, you don't hold a public hearing.
Ms. Braunstein. Correct. That is correct.
Mr. Kucinich. So, all of these other mergers have taken
place over the past 25 or so years, 27 to 30 years. You just
didn't need the extra information; is that what your position
is.
Ms. Braunstein. We did not feel we needed--in order to get
what information we needed to make a decision, it was not
necessary to hold a public meeting.
Mr. Kucinich. Now, we've been hearing that important data
maintained by the Fed pursuant to the Home Mortgage Disclosure
Act is not easily useable even by skilled researchers. Is the
Fed aware of the difficulties experienced by users of the Home
Mortgage Disclosure Act data, and when can we expect the Fed to
include the usability of this data.
Ms. Braunstein. I know that the people who are in charge of
the HMDA data work with consumers and community groups all the
time to try to help them with this data. If there are specific
problems associated with that, we would like to know about
them, and we will see what we can do to address them. I'm not
aware of specific problems.
Mr. Kucinich. Will you explain how such a high percentage
of banks are receiving passing Community Reinvestment Act
rates, maybe 97, 99 percent at the same time that one out of
every five subprime mortgages originated in the past 2 years
will end up in foreclosure? How can that happen.
Ms. Braunstein. Well, first of all, over 50 percent of the
subprime mortgages that are made, and even higher in Ohio, it's
in the 60 percent range, are made by independent mortgage
companies that are not federally regulated and, therefore, not
subject to CRA, so that is one part of it.
Mr. Kucinich. Have you----
Ms. Braunstein. And I know for the banks--I can only speak
to the banks that we supervise. We have, as I mentioned, 33
banks, and in 2005 HMDA data our State-member banks made 17
high-cost loans. So, they are not engaged in subprime lending.
Mr. Kucinich. Now, we know that there are financial
institutions who have created secondary products in the
subprime markets, correct.
Ms. Braunstein. Yes.
Mr. Kucinich. So, if these financial institutions, you
know, with whom you have oversight create those products, what
stops the Fed from being able to monitor the creations of these
financial institutions? Why would you not be able to do that.
Ms. Braunstein. Well, it's likely that the secondary market
products may be created at the cooperate holding company level,
and our responsibilities with regard to that are to make sure
that those companies are safe and sound, and that is what we
do.
Mr. Kucinich. You don't look at their practices. You don't
look at whether they're----
Ms. Braunstein. Well, an affiliate of a holding company
would not be subject to CRA, just the deposit. CRA applies to
depository institutions only. And those are State-member banks,
and, as I said, our State-member banks are not----
Mr. Kucinich. Here's what I don't get. You at the Fed,
you've just told me that you don't need to have these community
hearings as long as you get sufficient information. That's on
one hand. On the other hand, you see an avalanche of defaults
in the subprime housing market.
Are you aware that's happening? Are you aware of the level
of defaults?
Ms. Braunstein. We certainly are, and we're taking, as I
mentioned, a number of steps to address that. Those--our
applications process is somewhat separate and apart from what
we're doing in terms of foreclosures.
Mr. Kucinich. Are you helpless to do anything about this
avalanche of defaults? Because, see, here's the problem that I
have--and, Mr. Issa, this is something that motivates the cause
of this hearing. We have people in the community who are really
screaming out, crying out for help in getting recognition of
the problem. If the Fed won't hold hearings--and on the other
hand you say, well, we have sufficient information. We don't
have to hold a hearings. If you do not take responsibility for
monitoring the activities of the subprime one way or another
and you don't hear from the people, you will not hear from the
people because you say you have sufficient information, then
how in the world, other than a hearing like this, would you
ever get an opportunity? Will the people ever get an
opportunity to be heard in neighborhoods that are falling apart
because of this avalanche of foreclosures? Can you help us with
that?
Ms. Braunstein. We are monitoring the circumstances of
foreclosures around the country, and we have taken several
steps in that regard. We have issued guidance on non-
traditional mortgages. We have issued guidance on subprime
lending. We have issued guidance to lenders in terms of doing
workouts. We are heavily engaged in meeting with people both in
consumer groups and industry people to talk about the problems
that exist and how workouts can be done and how people can keep
their homes. We are heavily engaged in a number of activities.
And here locally the Federal Reserve Bank of Cleveland is
heavily engaged in the community. They held a foreclosure
summit in 2005 and 2006 on a local basis, and they're working
in partnership with a lot of local community organizations on
foreclosure mitigation and education projects.
So, we are heavily involved in activities around
foreclosure, and it is a huge concern for us. We are doing what
we can.
We are examining our rulemaking to see if we can do
something under HOEPA. We have already held four public
hearings on this matter, and we are holding a fifth one on June
14th in Washington, as I said, in particular to focus on unfair
and deceptive borrowing.
Mr. Kucinich. And are you also looking at these deceptive
and sharp lending practices in the subprime mortgage industry
so that neighborhoods, such as in Cleveland, OH, are not going
to be crushed by these unfair practices? Are you looking at
that.
Ms. Braunstein. Yes. We definitely are looking at that, but
the one thing that we all have to keep in mind is that we can
write rules that can address some of these practices, but we
are not the enforcement agency for most of the lenders. In
fact, we have very little subprime lenders under our direct
enforcement. That is done by other regulators.
Mr. Kucinich. I want to go to Mr. Issa after this question.
One of our witnesses today remarked that one of the failings of
the Community Reinvestment Act is this, and this is a quote. If
a bank purchases predatory loans, it may be fulfilling its
obligation under the lending test. Similarly, a bank that
purchases securities backed by predatory loans may be able to
claim credit under the investment test. In other words, the
quality of a loan is not considered in the Community
Reinvestment Act examination. Only where the loan was made
large banks can own subprime lending affiliates to make
predatory loans in low-income minority areas, and the bank can
get rewarded under the Community Reinvestment Act.
And in connection with the statement that you just made,
how long is the Fed going to allow this twisting of the intent
of the Community Reinvestment Act, and when is the Fed going to
issue new regulations denying Community Reinvestment Act
credits for financing predatory loans and lenders? I would
appreciate your answer.
Ms. Braunstein. If we know that a bank is making loans that
are predatory in nature, there will not be Community
Reinvestment Act credit for those, and, in fact, we would look
further into that.
Mr. Kucinich. Mr. Issa, thank you very much.
Mr. Issa. Thank, Mr. Chairman. I think you've gotten us off
to a good start. I want to sort of stay on that same line.
Let me characterize a little bit of what I'm hearing.
Basically, you're damned if you do and you're damned if you
don't. If you, in fact, have to make these loans, but if you
make these loans and they're high risk and they default, then
it's your fault. And in your case, if I understand, Ms.
Braunstein, that banks are not doing it directly. They're doing
it by impact. As you said, there were only 17 loans made by
banks in a direct relationship.
But to the extent that we are holding both of these, I want
to followup on something the previous panel, Ms. Anderson, said
when a home is boarded up and the neighborhood goes down and
there are one after another, these homes are owned by banks,
and the bank is getting zero on them.
So, I'm trying to understand, because you oversee banks,
this is a huge hit to the banks who own these portfolios of
non-performing purchases of portfolio, and, in fact, can't even
liquidate the underlying assets in some cases. So, on that
$68,000 home that wasn't worth $68,000, they get a goose egg,
isn't that, right?
Ms. Braunstein. Yes. That would be--absolutely. I mean in
our safety and sound examinations, if banks have large
portfolios of loans that are defaulted, that is certainly going
to impact them.
Mr. Issa. The earlier panel, one of the things I didn't
followup with them, but it stuck in my mind, is that the vast
majority of defaults are refies. So, it's not the original
mortgage on the home, but, in fact, a refinancing. Is that your
understanding also?
Ms. Braunstein. I think it's more than half. My--I think my
statistics are not quite what the panel had before.
What we've heard in Ohio, I think from the HMDA data, it's
more like 60 percent are revised versus about 40 percent are
purchase money in Ohio.
Mr. Issa. So, I'm trying to understand this specifically
for Ohio because, as you know, my heart is here even though my
car is out in California. Now, it just works that way, everyone
has to have cars in California.
I find this interesting because if, in fact, you make these
loans and then you have refies, then that means there was money
taken out. Where did the money go?
In other words, you had a performing loan and a loan that,
when we're looking back, went to being predatory, to use the
term. I don't like the term because the truth is some of these
are high risk and some may be predatory, but when they went
from being purchase money to being recollateralized as a
second, is probably when these things tipped over. At least 60
percent of them might have tipped over being what the consumer
couldn't afford.
But my question to you is, where did the money go? Where
does typically that money go when they take it out? Does it go
into the stock market? Does it go into other areas or is it a
result of consumer debt and other signs that when we look at
the Fed chairman's role, he often speaks on.
Ms. Braunstein. I don't have statistics on that, but my
guess would be that often times people are venerable and put
into a position of refinancing because they have other
obligations.
Mr. Issa. So----
Ms. Braunstein. I doubt that people are doing this to
invest in the stock market. It would be my gut feelings. I
think it's more likely that they have other debts that they're
trying to pay off.
Mr. Issa. So, the 60 percent would be people who are in
trouble, and in a sense it's predatory, but it's predatory on
both sides. They're slipping in toward bankruptcy. A refy lets
them get some cooling off space for making a whole bunch of
credit card loans, but, ultimately, they slip right back into
it.
Where would we get an understanding of that? Because
obviously, you know, earlier they talked about liar's loans.
I've always had a problem with calling liar's loans predatory
because I'm saying, wait a second. If you lie to get a loan,
then who's the victim when it goes into default? I've always
felt that a liar's loan was sort of over here with, wait a
second, if you lie to get a loan, and then eventually you're
out of a house, and I've got a house that is upside down, and
if I were a banker, I'm wondering who's the victim here, and I
think the bank is the victim in the case of liar's loans.
Ms. Braunstein. Those can go two ways. I will tell you one
of the ways we can get information about questions you've asked
are the four hearings that we held last year in 2006. And one
of the things that we heard over and over again anecdotally was
that the stated income loans--they can go two ways. It could be
that a borrower will overinflate their income. Yeah. They don't
have to document their income.
It's also where the broker or the lender may put the wrong
number in, and so in that case a borrower would be a victim.
And we have heard anecdotally a lot of stories about the case
where the borrower did not even realize the number that the
lender was putting into the application.
Mr. Issa. I know it may be a lot of work, but to the extent
that you can, would you provide this committee with information
you've gotten from those hearings that you think would be
appropriate for our continued followup and also from your
public comments? Because as I understand, your public comments
in a sense are open forum hearings. You can take 200, 300, 400
comments, where in a hearing like this today as we can all see,
you're only going to get a few people into a speech into an
hour or 2-hour period.
Ms. Braunstein. Absolutely. For each of the four hearings,
as well as the fifth one on June 14th, there is a public
comment process attached to that where we encourage people to
write us and tell us comments on the issues.
Mr. Issa. Now, I'm going to close out with one that is near
and dear to my heart. When I came to Congress, I came to one of
my other committees, the Judiciary Committee, and we worked on
bankruptcy reform my first, second and third term, and,
finally, got it passed. And I think all of us know that
anything that's that hard to get passed, you didn't get it all
in.
When it comes to how the Fed--and I realize you probably
won't be able to give us a full answer today, but I would
appreciate a supplement from your board and others that may be
able to comment. In bankruptcy reform we really didn't deal, if
you will, with home ownership. In California, we call them cram
downs. When, in fact, in a bankruptcy it is determined that a
mortgage is not payable, the authority of the bankruptcy judge
to view that and to view, for example, that a predatory event
occurred, an event occurred that may have led to the inability
to pay, etc., we didn't deal with that. We sort of left the
case law where it was to a great extent.
Well, at the same time we may be individual if they have
the ability to pay for future revenues. So, when we looked at
specifically, bankruptcy, if a bankruptcy event occurs, can you
give us your comments on things that maybe we should pick up
legislatively that may empower the courts who ultimately, if
they give debt relief and someone comes out of a bankruptcy
still owning their home but at a different mortgage rate, etc.,
it tips the balance as to your institutions, could you give us
whatever followup comments you feel are appropriate because I
believe in light of a lot of what we're seeing here, that we
may be looking on the other comment at a bankruptcy reform
affecting what happens to somebody that's been a victim of
predatory lending?
Ms. Braunstein. We'll have to get back to you on that
because, frankly, I'm not prepared to discuss that at this
point in time.
Mr. Issa. I understand. Thank you, Mr. Chairman. I yield
back.
Mr. Kucinich. I want to thank Mr. Issa. You know, in your
discussion you raised a couple of questions, and what I'd like
to do is have a very short second round here.
Mr. Issa. I love second rounds.
Mr. Kucinich. If we may proceed. Do you think, Ms.
Braunstein, that the guidance the Fed has issued has been
adequate to the magnitude of the predatory lending crisis.
Ms. Braunstein. I think that we still--it is too early.
First of all, the non-traditional mortgage guidance has only
been in effect for a few months, and the subprime guidance has
not been finalized yet, so I think it's too early to make that
judgment. However, I will say that we have seen signs that even
without final guidance, the markets are starting to self-
correct in that we hear that underwriting is being tightened.
Ms. Braunstein. Well, it took a long time in the sense that
there were a lot of people hurt, but most of the people who are
having problems now received their loans in, some in 2005 and
most in 2006.
Mr. Kucinich. OK.
Ms. Braunstein. So, if you look at it that way, it's not
been a problem for years and years and years.
Mr. Kucinich. Mr. Rokakis said something when he was
testifying. Did you hear his testimony?
Ms. Braunstein. Yes, I did.
Mr. Kucinich. He raised some questions. He said that the
Fed can ban no-document loans, but they have not. Is that true.
Ms. Braunstein. I think what Mr. Rokakis was referring to
was our authority under HOEPA, and that is what we are looking
at at this hearing.
Mr. Kucinich. Is that true though, that you can ban no-
document loans? Is that true.
Ms. Braunstein. I guess technically we could, but I do need
to qualify that, that in exercising our authority for unfair
and deceptive or banning practices, we are going to have to do
some very careful study to look at the wider effects that we
need to be well calibrated, so that we don't end up in a
situation where we're restricting or constraining credit.
Mr. Kucinich. He also said that you can ban loans that are
not fully indexed to a borrower's income. Is that true.
Ms. Braunstein. Again, that would probably fall under--if
it meets the definitions of unfair and deceptive, then that's
another part of the law that we are doing an analysis of, and
so I don't know if we could ban that or not.
Mr. Kucinich. Well, he says that you can ban the practice
known as risk layering where borrowers with the weakest credit
are offered gimmicks to qualify them for loans, but you have
not. Is that true.
Ms. Braunstein. Again, we are looking at that, and I am not
sure because in addition to wanting to be careful about how we
calibrate bans or practices, the way the law is written, they
need to meet the definition of unfair and deceptive, and these
may not meet that definition. So, I can't answer that at this
point. These are things that we are looking at.
Mr. Kucinich. Well, what I'd like you to do, I mean, in a
followup, written answers to these questions. If you can't
answer them and elaborate right now, I can understand that
because there's a lot of things that are apparently in flux at
the Fed relative to these questions. But Mr. Rokakis also said
that you can require that all subprime loans provide for escrow
taxes and insurance in their payments, but that you don't. Is
that true.
Ms. Braunstein. Same answer as----
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T0152.057
[GRAPHIC] [TIFF OMITTED] T0152.058
Mr. Kucinich. OK. Well, I think that this is a productive
hearing if we can open up a discussion here with the Fed about
the direction that you need to take, because we're not only
looking at the forensics of this. We're looking at where we are
headed for the future.
Ms. Braunstein. And can I say this.
Mr. Kucinich. Sure.
Ms. Braunstein. These were already things we are looking at
under this authority. Some of those things, it may end up are
better dealt with through guidance, and we have dealt with
those issues in the subprime guidance that we have now out and
that we're finalizing. So, there's a big difference between
dealing with something in guidance and dealing with it in the
rule.
Mr. Kucinich. I understand that, and I also ask you to take
note that while you're calibrating these things, neighborhoods
are falling apart. We really need your help.
And the one final question I have before I go back to Mr.
Issa is this. Again, in your statement about public hearings,
which, you know, there was an aspect of it that I found very
troubling, you said, you know, you could get sufficient
information. Mr. Issa pointed out that you solicit comments.
That's good. But you still don't have these public hearings for
people here in the community. My question to you is, do you
meet with bankers to discuss these issues?
Ms. Braunstein. Are you talking about applications issues.
Mr. Kucinich. No. I'm talking about the issues that you
wouldn't hold in a public hearing to talk to people in the
community. Do you have meetings with bankers?
Ms. Braunstein. We meet with a wide range of people. We
meet with people from the industry. We meet with bankers. We
meet with community organizations on a regular basis.
Mr. Kucinich. The obvious reason why I raise that question
is, I mean, people in the community would feel hurt if they
felt that you wouldn't meet with them, but you would meet with
the bankers. And so I just want to appeal to the fairness of
this process as we move forward.
I thank you very much, by the way, for your testimony and
now to Mr. Issa.
Mr. Issa. Working with the chairman is a great deal of fun,
and I've always liked his insight. Once in a while he gets mine
and wonders where it came from. But, you know, the interesting
thing is that I meet with the NRA and I meet with the Brady
organization. I don't hold a public hearing to see all the
gunners come in and anti-gunners come in to tell me what they
think. And, perhaps, I should, but I've had some pretty lively
town hall meetings, so I try to stay off of some subjects.
Mr. Kucinich. Maybe you should have that sign and say that
you will check your guns at the door.
Mr. Issa. I once had to have SWAT because I did an
immigration reform hearing, and I now do those telephonically.
But I want to close out my questioning for something that I
hope the Fed can take an active role in, and that is modelling
the question of the 80 versus the 20. Today in this hearing so
far what we've seen is that in the worst case, you're going to
have about 20 percent of these loans go south, at least, based
on all the worst case problems we've seen so far. That means 80
percent of the people who take these high-risk or subprime
loans perform under the--perhaps convert them in time to
conforming loans. And I'm concerned that 80 percent and,
perhaps, the others, certainly the 80 percent, might not have
gotten a loan, might not have owned a home.
And so as you're doing this, I hope that you're going to be
able to supply this committee and the public with some
modelling of the what if. What if we tighten this up a little?
Do 79 percent of the 80 percent still get their homes? Well, a
big chunk of the misery factor goes away or is it one of those
things where half the people who got these loans, and as a
result, are enjoying home ownership around the country, will be
denied? And that's going to be very important to me, that as
much as I don't want to see boarded up homes, I don't want to
see--quite frankly, I don't want to see banks making loans that
ultimately lead to defaults.
At the same time, as Members of Congress, the one thing
that we've got a very bipartisan basis and President after
President has stated, is home ownership is a big part of what
America is all about. And moving that number up as we've done
as a society over the last few years continues to be important,
so I'm hoping that you can give us insight on that. Because as
much as we want you to reduce this pain factor--as a homeowner
who was lucky enough to get a VA loan the first time, I
realized I was a bit of a stretch starting a business here in
Cleveland and getting my VA loan with no qualification
necessary other than an honorable discharge.
So, if you would respond to us in writing for that, and
obviously we're hoping for leadership from the Fed, and I'm
happy that you were able to be here today. We talk about the
Federal Reserve Bank of Cleveland, and it is a noble
institution, but I appreciate the fact that, as I understand,
you just came from Washington to make this happen for us.
Ms. Braunstein. Thank you very much, and I agree with you,
Congressman, and that's what we're trying to do, is achieve the
right balance, and we would be happy to get to you on that.
Mr. Issa. Thank you, Mr. Chairman. I yield back.
Mr. Kucinich. The chair is going to declare a 5-minute
recess. We'll come back in 5 minutes. We intend to complete
this hearing by 1. I would ask the next panel to stay close. If
you're going to leave the room, please know that we're starting
again in 5 minutes.
[Recess.]
Mr. Kucinich. The committee will come to order. The
committee will come to order. If you have any conversations,
please take them outside the room.
I want to make sure that anyone who has participated here
signs the sign-in list so that as the work of this committee
continues, we can keep you posted of any further discussions or
hearings on the subcommittee relative to these questions. We
now are about to begin the third panel.
And I would like to make the following introductions: Judge
Raymond Pianka is presiding as administrative judge in the
Cleveland Municipal Housing Courts. A division he has served as
such since his election in 1996.
Previously, Judge Pianka served on the Cleveland City
Council where he chaired the Community and Economic Development
Committee and the legislative committee.
Judge Pianka received his jurist doctorate from Cleveland
Marshall College of Law in 1977.
Professor Kathleen Engel is a professor at the Cleveland
Marshal College of Law. Her research focuses on predatory
lending, housing discrimination and the Community Reinvestment
Act. She's published a long list of law review articles on the
topic and teaches a seminar at the law school on predatory
lending.
A recent article was entitled, ``Do cities have standing?
Redressing the externalities of predatory lending.'' Professor
Engel received her AB, cum laude from Smith College and her JD,
cum laude from the University of Texas School of Law. Mr. Alex
Pollock has been a resident fellow at the America, Enterprise
Institute since 2004 focussing on financial policy issues among
other related issues. Previously he has spent 35 years in
banking, including 12 years as president chief executive of the
Federal Home Loan Bank of Ohio. He's director of the Allied
Capital Corp., the Chicago Mercantile Exchange, the Great Lakes
Higher Education Corp., the International Union for Housing
Finance and chairman of the Board of Great Books Foundation.
Ms. Marianne McCarty-Collins is the senior vice president
of Insight Bank, past president of both the Columbus and Ohio
Mortgage Bankers Association. At the Mortgage Bankers
Association, the National Association for the Industry, she
serves on the Board of Directors and Board of Governors. She's
a former trustee for the Columbus Board of Realtors, chairs the
Government Financing Subcommittee as former affiliate of the
year for the association.
She's also a former trustee of the building industry of
central Ohio. Ms. McCarty-Collins has served on the Fannie Mae
National Advisory Council in Washington, DC, in 1996 and 1997.
I want to thank this distinguished panel of witnesses for
being here. It is the policy of the Committee on Oversight and
Government Reform to swear in all witnesses before they
testify. I'm going to ask you now to rise and to raise your
right hands.
[Witnesses sworn.]
Mr. Kucinich. Thank you. Let the record reflect that all of
the witnesses answered in the affirmative. As with panel 2, I
ask that each witness give an oral summary of his or her
testimony, and to keep in mind that you should keep that
summary under 5 minutes in duration. Your written statement
will be included in the hearing record.
I'd like to start with Judge Pianka. Thank you very much
for being here. Please proceed.
STATEMENT OF RAYMOND PIANKA, JUDGE, CLEVELAND MUNICIPAL HOUSING
COURT
Judge Pianka. Thank you for the opportunity to be here. The
Cleveland Housing Court has been described by Chief Justice
Moyer as emergency room for housing conditions in Cleveland. We
are a problem solving and therapeutic court.
As judge of the housing court, the sole judge of the
housing court, I observe daily in the cases before me the
impact of the banking industry and the lack of regulation on it
in our homes and our neighborhoods.
There are nine points briefly. First of all, the lack of
regulation has reduced our neighborhoods to financial wild
wests with homeowners left to fend for themselves with an
attempt to survive in those neighborhoods. Cleveland is
experiencing a record number of home mortgage defaults,
foreclosures, bankruptcies and failed financial deals. The
primary impact of the financial crisis is, of course, on the
property owner. The homeowners, however, are not the only ones
who are suffering as result of the increased number of defaults
and foreclosures.
The collateral damage from this financial decline is felt
worse in our neighborhoods as the committee saw yesterday in
its tour of the Cleveland neighborhood. Each day I see property
owners who were told by banks and mortgage companies to vacate
their properties at the commencement of the foreclosure actions
leaving the properties empty and unattended. Their
neighborhoods are forced to live next door to that vacant,
boarded property with high grass and weeds stripped of siding
and they contact the court about their options to combat these
living conditions.
These homeowners not only suffer the effects of living next
door to the blight, they suffer financial loss as well as their
own properties are devalued as a result. The frustrated city
council representatives contact the court, are concerned about
the abandoned property that are magnets for criminal activity,
and they produce a domino effect as poorly maintained
properties lead to more poorly maintained and properties in
default. And there are discouraged community groups who are
trying to help but cannot as they attempt to determine who, if
anyone, has authority and responsibility for the properties.
I've been with the housing court for over 10 years, and the
negative impact of the mortgage defaults, foreclosures, and
conduct of the banking industry upon our neighborhoods has
never been greater than it is today.
Certainly, the banks and other lending institutions have a
right and even an obligation to initiate foreclosure actions
when mortgages go unpaid. However, the non-regulation of the
industry has led to a lack of enforcement of basic fiduciary
duties of banks and other lending institutions.
The banks and other lenders must be called on to act
responsibly in both lending and collection processes to
minimize the destructive effect on our neighborhoods. Reduced
lending by the regulated banks has created a vacuum which is
being filled by less reputable lenders. Lending in Cleveland by
regulated banks has dropped sharply since 1995. The refusal of
regulated banks to lend in Cleveland has created a vacuum,
which is being filled in part by unscrupulous, subprime
lenders, perpetrators of mortgage fraud and irresponsible
investors.
Each day in court I'm told stories by property owners with
little incomes who have fallen prey to schemes involving
purchase of multiple properties as investment opportunities.
The schemes seem to thrive in the current, unregulated lending
atmosphere of Greater Cleveland. And while there are laws
against fraudulent applications, waste, false statements of
income and deceitful appraisals, those laws go largely
unenforced.
And I'm heartened to see the current efforts to prosecute
some of the perpetrators of these schemes, but the prosecutions
are small in numbers and slow. And because of the time needed
to investigate and pursue these cases, it's unrealistic to view
prosecution as a cure. Reputable lenders must encourage and
encourage to occupy their place to lend money to people who
purchase homes and refinance homes in Cleveland. Lenders must
be accessible to borrowers and other interested parties and be
responsible in their actions toward borrowers. One of the
primary problems that we face in a housing court is our
inability to reach someone in the bank or lending institution
who is able and willing to discuss the property with the
defaulting property owner or the court. It's difficult to find
a contact person who can negotiate a deed in lieu of
foreclosure or short sale that would transfer that property to
a beneficial loaner.
And this inability to contact the financial institution
coupled with a fact that a number of the banks are avoiding
service of process in the--is that my time.
Mr. Kucinich. Yeah. What I want you to know, Your Honor, is
that you have an extensive statement here that is actually
quite helpful to this committee. Your entire statement will be
included in the record, and I think that you'll be able to get
to some of these areas in the question and answer period.
Judge Pianka. Mr. Chairman----
Mr. Kucinich. But you may wrap it up.
Judge Pianka. The court every day has to deal with banks
who have failed to file the deeds, trying to help people who
are in default get out of the loans, toxic titles where the
banks have dropped foreclosures and have left the liens on the
properties, and it is going to take years for us to dig out
from underneath these problems in Cleveland. And I found out
today that these are unattended consequences, but they are
consequences nonetheless that we face every year in Cleveland.
[The prepared statement of Judge Pianka follows:]
[GRAPHIC] [TIFF OMITTED] T0152.059
[GRAPHIC] [TIFF OMITTED] T0152.060
[GRAPHIC] [TIFF OMITTED] T0152.061
[GRAPHIC] [TIFF OMITTED] T0152.062
[GRAPHIC] [TIFF OMITTED] T0152.063
[GRAPHIC] [TIFF OMITTED] T0152.064
[GRAPHIC] [TIFF OMITTED] T0152.065
[GRAPHIC] [TIFF OMITTED] T0152.066
[GRAPHIC] [TIFF OMITTED] T0152.067
[GRAPHIC] [TIFF OMITTED] T0152.068
[GRAPHIC] [TIFF OMITTED] T0152.069
[GRAPHIC] [TIFF OMITTED] T0152.070
[GRAPHIC] [TIFF OMITTED] T0152.071
[GRAPHIC] [TIFF OMITTED] T0152.072
[GRAPHIC] [TIFF OMITTED] T0152.073
[GRAPHIC] [TIFF OMITTED] T0152.074
[GRAPHIC] [TIFF OMITTED] T0152.075
[GRAPHIC] [TIFF OMITTED] T0152.076
[GRAPHIC] [TIFF OMITTED] T0152.077
[GRAPHIC] [TIFF OMITTED] T0152.078
[GRAPHIC] [TIFF OMITTED] T0152.079
[GRAPHIC] [TIFF OMITTED] T0152.080
[GRAPHIC] [TIFF OMITTED] T0152.081
[GRAPHIC] [TIFF OMITTED] T0152.082
[GRAPHIC] [TIFF OMITTED] T0152.083
[GRAPHIC] [TIFF OMITTED] T0152.084
[GRAPHIC] [TIFF OMITTED] T0152.085
[GRAPHIC] [TIFF OMITTED] T0152.086
[GRAPHIC] [TIFF OMITTED] T0152.087
[GRAPHIC] [TIFF OMITTED] T0152.088
[GRAPHIC] [TIFF OMITTED] T0152.089
[GRAPHIC] [TIFF OMITTED] T0152.090
[GRAPHIC] [TIFF OMITTED] T0152.091
[GRAPHIC] [TIFF OMITTED] T0152.092
[GRAPHIC] [TIFF OMITTED] T0152.093
[GRAPHIC] [TIFF OMITTED] T0152.094
[GRAPHIC] [TIFF OMITTED] T0152.095
[GRAPHIC] [TIFF OMITTED] T0152.096
[GRAPHIC] [TIFF OMITTED] T0152.097
[GRAPHIC] [TIFF OMITTED] T0152.098
[GRAPHIC] [TIFF OMITTED] T0152.099
[GRAPHIC] [TIFF OMITTED] T0152.100
[GRAPHIC] [TIFF OMITTED] T0152.101
[GRAPHIC] [TIFF OMITTED] T0152.102
[GRAPHIC] [TIFF OMITTED] T0152.103
[GRAPHIC] [TIFF OMITTED] T0152.104
[GRAPHIC] [TIFF OMITTED] T0152.105
[GRAPHIC] [TIFF OMITTED] T0152.106
[GRAPHIC] [TIFF OMITTED] T0152.107
[GRAPHIC] [TIFF OMITTED] T0152.108
[GRAPHIC] [TIFF OMITTED] T0152.109
[GRAPHIC] [TIFF OMITTED] T0152.110
[GRAPHIC] [TIFF OMITTED] T0152.111
[GRAPHIC] [TIFF OMITTED] T0152.112
[GRAPHIC] [TIFF OMITTED] T0152.113
[GRAPHIC] [TIFF OMITTED] T0152.114
[GRAPHIC] [TIFF OMITTED] T0152.115
[GRAPHIC] [TIFF OMITTED] T0152.116
[GRAPHIC] [TIFF OMITTED] T0152.117
[GRAPHIC] [TIFF OMITTED] T0152.118
[GRAPHIC] [TIFF OMITTED] T0152.119
[GRAPHIC] [TIFF OMITTED] T0152.120
[GRAPHIC] [TIFF OMITTED] T0152.121
[GRAPHIC] [TIFF OMITTED] T0152.122
[GRAPHIC] [TIFF OMITTED] T0152.123
[GRAPHIC] [TIFF OMITTED] T0152.124
[GRAPHIC] [TIFF OMITTED] T0152.125
[GRAPHIC] [TIFF OMITTED] T0152.126
[GRAPHIC] [TIFF OMITTED] T0152.127
[GRAPHIC] [TIFF OMITTED] T0152.128
[GRAPHIC] [TIFF OMITTED] T0152.129
[GRAPHIC] [TIFF OMITTED] T0152.130
[GRAPHIC] [TIFF OMITTED] T0152.131
[GRAPHIC] [TIFF OMITTED] T0152.132
[GRAPHIC] [TIFF OMITTED] T0152.133
[GRAPHIC] [TIFF OMITTED] T0152.134
[GRAPHIC] [TIFF OMITTED] T0152.135
[GRAPHIC] [TIFF OMITTED] T0152.136
[GRAPHIC] [TIFF OMITTED] T0152.137
[GRAPHIC] [TIFF OMITTED] T0152.138
[GRAPHIC] [TIFF OMITTED] T0152.139
[GRAPHIC] [TIFF OMITTED] T0152.140
[GRAPHIC] [TIFF OMITTED] T0152.141
[GRAPHIC] [TIFF OMITTED] T0152.142
[GRAPHIC] [TIFF OMITTED] T0152.143
[GRAPHIC] [TIFF OMITTED] T0152.144
[GRAPHIC] [TIFF OMITTED] T0152.145
[GRAPHIC] [TIFF OMITTED] T0152.146
[GRAPHIC] [TIFF OMITTED] T0152.147
[GRAPHIC] [TIFF OMITTED] T0152.148
[GRAPHIC] [TIFF OMITTED] T0152.149
[GRAPHIC] [TIFF OMITTED] T0152.150
[GRAPHIC] [TIFF OMITTED] T0152.151
[GRAPHIC] [TIFF OMITTED] T0152.152
[GRAPHIC] [TIFF OMITTED] T0152.153
[GRAPHIC] [TIFF OMITTED] T0152.154
[GRAPHIC] [TIFF OMITTED] T0152.155
Mr. Kucinich. Thank you, Judge Pianka. And I want to thank
you for the dedicated service that you've given in the housing
court. I had the chance to serve with Judge Pianka and you
really have done an outstanding job. Your entire testimony will
be included in the record, and at this point we'll go to our
next witness. Next we're going to hear from Professor Engel, a
professor from the Marshall School of Law.
STATEMENT OF KATHLEEN ENGEL, PROFESSOR, MARSHALL SCHOOL OF LAW
Ms. Engel. Thank you. I think it's an honor and a privilege
to----
Mr. Kucinich. Is your mic on, please?.
Mr. Issa. Little green light.
Ms. Engel. Can you hear me now?
It's an honor and a privilege to testify today on this
critically important issue. My name is Kathleen Engel and
together with my co-author, Patricia McCoy, I've been engaged
in extensive research on issues related to predatory lending. I
was asked today to briefly discuss three issues. First, the
emergence of predatory lending in underserved neighborhoods.
Second, the targeting of borrowers of color with abusive
loans, and, last, the role that CRA can play in enabling and
curtailing predatory lending.
I'll turn first to the growth of abusive lending in low and
moderate income neighborhoods. Historically, people with weak
or a blemished credit history were ineligible for credit. The
development of the securitization of home mortgages and the
deregulation of lenders in the 1990's ushered in a new home-
lending market, making credit available for low and moderate-
income borrowers.
The same forces led to the appearance of a new breed of
unregulated lenders offering an array of subprime loan
products. These lenders market their products in areas with the
highest levels of pent-up demand for loan. That is
neighborhoods that have not had access to credit in the past.
Making credit available to borrowers in these areas is not
a bad thing. The problem is that some of these lenders are
making loans on terms that are, per se, harmful. These loan
terms are harmful not only to the borrowers but to the
community as you've observed in Slavic Village.
Too often lenders are making loans knowing that borrowers
ultimately will not be able to afford the repayments. We would
expect that banks would enter the subprime loan market and
undercut the abusive lenders with competitive products that
don't contain abusive terms, thus, driving the worst lenders
out of the market.
This has not happened. There are many explanations for why
banks might be reluctant to enter the subprime market directly,
and why banks more generally may choose to leave lower-income
neighborhoods. Those explanations are beyond the scope of my
testimony today. What is important is that because banks have
little or no presence in these communities, abusive lenders can
proliferate and exploit venerable borrowers.
This leads me to my second point. The marketing of the most
abusive loans are to people of color. There is increasing
evidence that, on the whole, people of color pay more for
mortgage loans than Whites with similar incomes and credit
histories. This is adding insult to injury. For centuries, this
country engaged in de jure discrimination that prevented Blacks
and Hispanics from owning homes.
Laws prohibiting discrimination and programs aimed at
increasing home ownership has changed the tide and led to
increased rates of home ownership among people of color. Now,
abusive lenders are taking these homeowners' hard-fought gains
in equity.
The impact of lending abuse is not limited to people losing
their homes. When neighborhoods experience decline because of
foreclosure and property abandonment, all homeowners, even
though without mortgages, see declines in their property
values. Crime rates increase, cities lose tax revenues and
cities find themselves spending money boarding up houses, money
that could be used to invest in these very fragile
neighborhoods. My final point addresses CRA's role in predatory
lending. This is also the topic of an article that I have
attached to my testimony. The two important questions on this
topic are, does CRA credit incentives for predatory lending and
could CRA serve as a tool to combat predatory lending?
I contend that the answer to both questions is yes. An
unintended consequence of CRA is that it permits banks to earn
CRA credit for financing predatory loans. For example, the bank
purchases loans, it may be fulfilling its obligations under the
lending test. Similarly, a bank that purchases securities
backed by predatory loans may be able to claim credit under the
investment test if the investments fall within CRA guidelines.
Banks can also directly finance lenders, predatory lenders,
through warehouse lines of credit and loan guarantees. In
thinking about how regulators can employ CRA to combat
predatory lending, the minimum first step is to increase that
lenders are not receiving CRA credits for financing predatory
loans and predatory lenders and sanctioning banks that are
engaging in such activities.
In addition, CRA exams should include bank affiliates and
subsidiaries, which are vehicles through which banks can engage
in predatory lending without sanction.
Last, regulators need to actively encourage and reward
banks that develop loan products designed to compete with
abusive lenders in underserved neighbors. These loan products
should include vehicles through which borrowers can refinance
predatory loans. CRA is a powerful tool that if employed more
aggressively, could help deter predatory lending and help
communities like ours recover by infusing neighborhoods with
good credit products.
Thank you again for the opportunity to present this
testimony.
[The prepared statement of Ms. Engel follows:]
[GRAPHIC] [TIFF OMITTED] T0152.156
[GRAPHIC] [TIFF OMITTED] T0152.157
[GRAPHIC] [TIFF OMITTED] T0152.158
[GRAPHIC] [TIFF OMITTED] T0152.159
Chairman Kucinich. Thank you very much for your testimony.
And the Chair wishes to acknowledge the presence in the
audience of Federal Judge Polster. Thank you, Your Honor, for
being here.
We're going to move to the next member of the panel, Mr.
Pollock from the American Enterprise Institute. Thank you so
much for being here today.
STATEMENT OF ALEX POLLOCK, RESIDENT FELLOW, AMERICAN ENTERPRISE
INSTITUTE
Mr. Pollock. Mr. Chairman and Ranking Member Issa, thank
you very much for the chance to be here. We heard some really
interesting discussion of the difference between Ohio and
California a little earlier. I'm trying to, in my testimony, to
set all of these discussions in the national and historical
context, the written testimony, which I'll say a word or two
about, covers five issues. The evolution of the American
banking structure, as we begin, that's talking about the bank
mergers. The context for the subprime mortgage market,
delinquencies in Ohio in particular, the general topic of
information asymmetries and, finally, my proposal for a one-
page mortgage disclosure document, which, I believe, if we
don't do anything else or even if we do other things, we ought
to do that.
First, American banking structure briefly, in 1970 when I
was new in the banking business, there were about 13\1/2\
thousand banks in the United States. Now, there are about half
that many, so we've had a consolidation. But they, at the same
time, have about doubled the amount of banking offices. And
relative of the population, the density, if you want to think
about it, that way has increased by about 60 percent in
addition, of course, to building an amazingly, global network,
ATM network and the provision of debit cards, which are
checking accounts in your pockets. So, the banking
consolidation on average has been accompanied by much greater
convenience and access to the payment systems, the banking
system.
On a subprime mortgage market, let me say we all know that
there was an unsustainable expansion of subprime mortgage
credit along with an unsustainable house price inflation.
That's now been reversed. We've had large financial losses
suffered by lenders of investors, layoffs, bankruptcy and
subprime lenders. The accelerating delinquencies and
foreclosures we discussed here this morning, the recession in
home building, tightening liquidity, recriminations.
As a student of financial history and one whose lived about
close to four decades of financial history, this strikes me as
displaying the classic patterns of credit overexpansions and
ensuing busts. I will say one point, expansions and busts is
emergency housing acts. We've had, since 1974, emergency
housing acts, not counting the one for Katrina, which is an act
of nature and not an act of finance.
Subprime mortgages grew from about 2\1/2\ percent to 13\1/
2\ percent of total mortgage loans, but over the last several
years interestingly prime loans also increased their share. So,
one might ask how can--these are numbers of the Mortgage
Bankers Association I'm using here. How can the prime loans
have the same increase at the same time as subprime? The answer
is subprime basically misplaced the government programs, the
FHA and VA programs, which are also non-prime lending programs.
If you look at the sum of subprime and the non-prime
government programs at stake, more or less the same. One of the
things that happened, as Ranking Member Issa pointed out, a lot
of people experience success. If you took an extremely risky
loan, and, let's say, 100 percent loan with an adjustable rate,
you've bought a house that went up a lot and in the house boom,
you experience success. And it is success always that sets up
the boom that sets up the bust.
The question I wish to pose is, should you be able to take
a chance, as a borrower, if you want to?
Should you be able to take a chance as a lender, and the
answer is, yes, you should, but we need to have a reasonability
of what you're doing.
On Ohio, just briefly, it's interesting to me, that if we
look at all the classes of loans in Ohio, Ohio's serious
delinquency rate, which means loan 90 days in arrears or in
foreclosure, are roughly twice the national averages in all
categories. That's true for prime and fixed rate loans or prime
floating rate loans or FHA loans, and for subprime fixed rate
loans. So, there's something broader going on in Ohio as we've
discussed its economic problems, problems like unemployment
rate, low employment growth, which is equally as important as
unemployment, and obviously the structural changes that we're
aware of. I want to say how much I agree with Ranking Member
Issa's view, that if you buy with the proper income, you get a
loan, and you don't qualify as a victim. And the liar's loans,
no-doc loans have a long history of performing poorly in
credit. We've just reinvented and rediscovered that history,
and it's a good example of what economists call information
asymmetry--may I have 30 more seconds, Mr. Chairman?
Mr. Kucinich. Sure.
Mr. Pollock. And my view is that the nature of the loan and
its relationship to the borrower's income, both for the
borrower and the lender, need to be clearly and easily
accelerized in a one-page form, which I have designed and
included in my testimony.
When we have extremely complex disclosures, which we have,
they fail. They fail to deliver any meaningful information to
the borrower in the result of confusion. And as I say, whatever
else we may do, we ought to insure a really simple, clear
disclosure to all borrowers, subprime and prime, which includes
their income so they can really see it, the relationship of the
payments on this loan to their income.
The fully indexed payments on this loan, once the rates
reset and its the relationship to their income, I think if we
do that, that's one step that will be very good for the country
and also for Ohio.
Mr. Kucinich. I certainly appreciate your testimony.
[The prepared statement of Mr. Pollock follows:]
[GRAPHIC] [TIFF OMITTED] T0152.162
[GRAPHIC] [TIFF OMITTED] T0152.163
[GRAPHIC] [TIFF OMITTED] T0152.164
[GRAPHIC] [TIFF OMITTED] T0152.165
[GRAPHIC] [TIFF OMITTED] T0152.166
[GRAPHIC] [TIFF OMITTED] T0152.167
[GRAPHIC] [TIFF OMITTED] T0152.168
[GRAPHIC] [TIFF OMITTED] T0152.169
[GRAPHIC] [TIFF OMITTED] T0152.170
[GRAPHIC] [TIFF OMITTED] T0152.171
[GRAPHIC] [TIFF OMITTED] T0152.172
[GRAPHIC] [TIFF OMITTED] T0152.173
[GRAPHIC] [TIFF OMITTED] T0152.174
[GRAPHIC] [TIFF OMITTED] T0152.175
[GRAPHIC] [TIFF OMITTED] T0152.176
[GRAPHIC] [TIFF OMITTED] T0152.177
[GRAPHIC] [TIFF OMITTED] T0152.178
Mr. Kucinich. Ms. McCarty-Collins, please proceed.
STATEMENT OF MARIANNE MCCARTY-COLLINS, SENIOR VICE PRESIDENT,
INSIGHT BANK
Ms. McCarty-Collins. Thank you, Chairman Kucinich, Ranking
Member Issa and members of the subcommittee. Thank you for the
opportunity to speak about issues that have captured the
attention of this committee and the financial services
industry.
I am Marianne McCarty-Collins, senior vice president for
Insight Bank of Columbus and here representing the Mortgage
Bankers Association. I would like to focus my remarks on the
Association's views on subprime lending and the industry's
efforts to mitigate the delinquency and foreclosure rates here
in Cuyahoga County and across the Nation.
The Association's statistics show delinquencies and
foreclosures have risen over the past 6 months, particularly in
the subprime market. In response, regulators have established
new standards. Investors have punished companies that made bad
loans, and I'm here to answer your questions about the effect
it is having on consumers.
I believe the delinquency and foreclosure data in MBA's
written statement is both objective and comprehensive, and I am
confident that it is the most authoritative to date because it
includes 86 percent of all outstanding mortgages.
Economics aside, I want to speak as someone with 30 years
of experience in mortgage lending. What I have seen of late
troubles me deeply. Responsible lenders only extend credit to
borrowers who are willing and able to make a mortgage payment.
They do not trick borrowers into loans that are unsuitable, and
they do not hold out something that is only a mirage of the
American dream.
I have conducted my professional life according to these
standards and have most members of the Mortgage Bankers
Association, yet, bad loans were made. They were not made
responsibly or with the best interest of consumers in mind.
For the most part, those making those poor loans have been
punished by Wall Street and restrained by regulators.
And while we must ask what lessons we should learn from
these mistakes, it is equally important for those in positions
of authority to help current homeowners stay in their homes.
Working together, I suggest that we must accomplish three
things: Stabilize the subprime mortgage credit system, provide
assistance for homeowners facing foreclosure, and, finally,
prevent this from ever occurring again.
First, reaction from Wall Street has been swift. Already
nearly three subprime lenders, three dozen subprime lenders
have closed their doors. As we watch this, we must remind
people not to confuse subprime with predatory. And we must
reiterate that while subprime foreclosures are high at 4\1/2\
percent, they remain below their historic peek of nearly 10
percent. Sound perspective and approved regulatory hand will
soothe investors, calm editorial writers and help consumers.
Second, the subprime borrowers who are facing foreclosure,
industry and policymakers must partner to help provide options
so that as many as possible are able to remain in their homes.
Further, we at MBA strongly encourage all borrowers that
find themselves unable to continue making payments, to contact
their lenders immediately. Lenders lose money in foreclosure
and have a strong desire to make any number of arrangements
that will allow a borrower to start making payments again and
keep his or her home.
For those who might not be comfortable calling their
lenders, MBA and many of our members have partnered with
NeighborWorks America and the Home Ownership Preservation
Foundation to provide free mortgage counseling via a toll-free
phone number, 1-888-995-HOPE and a Web site.
Third, lawmakers, regulators and industry must work to
insure that this situation does not occur in the future.
Borrowers are smart. When given good information, they make
good decisions, but the opposite is also true. An absence of
pricing transparency coupled with a daunting and complicated
closing process has permitted certain actors to prey on the
unsophisticated. But, frankly, every person from the subprime
to jumbo borrower is susceptible when even the CEO of Fannie
Mae and the Secretary of HUD, by their own admission, cannot
understand all the documents on a mortgage closing. The
mortgage market is desperate for a rewrite of the Nation's
settlement laws and its strong uniform lending standard to trap
predators and bring them to justice.
In conclusion, MBA stands ready to work with members of
this subcommittee as well as the entire Congress to accomplish
these goals. Together we can insure that predatory lenders
don't foreclose on the American dream. Thank you.
[The prepared statement of Ms. McCarty-Collins follows:]
[GRAPHIC] [TIFF OMITTED] T0152.179
[GRAPHIC] [TIFF OMITTED] T0152.180
[GRAPHIC] [TIFF OMITTED] T0152.181
[GRAPHIC] [TIFF OMITTED] T0152.182
[GRAPHIC] [TIFF OMITTED] T0152.183
[GRAPHIC] [TIFF OMITTED] T0152.184
[GRAPHIC] [TIFF OMITTED] T0152.185
[GRAPHIC] [TIFF OMITTED] T0152.186
[GRAPHIC] [TIFF OMITTED] T0152.187
[GRAPHIC] [TIFF OMITTED] T0152.188
[GRAPHIC] [TIFF OMITTED] T0152.189
[GRAPHIC] [TIFF OMITTED] T0152.190
[GRAPHIC] [TIFF OMITTED] T0152.191
[GRAPHIC] [TIFF OMITTED] T0152.192
[GRAPHIC] [TIFF OMITTED] T0152.193
[GRAPHIC] [TIFF OMITTED] T0152.194
[GRAPHIC] [TIFF OMITTED] T0152.195
[GRAPHIC] [TIFF OMITTED] T0152.196
[GRAPHIC] [TIFF OMITTED] T0152.197
[GRAPHIC] [TIFF OMITTED] T0152.198
[GRAPHIC] [TIFF OMITTED] T0152.199
[GRAPHIC] [TIFF OMITTED] T0152.200
[GRAPHIC] [TIFF OMITTED] T0152.201
[GRAPHIC] [TIFF OMITTED] T0152.202
[GRAPHIC] [TIFF OMITTED] T0152.203
[GRAPHIC] [TIFF OMITTED] T0152.204
[GRAPHIC] [TIFF OMITTED] T0152.205
[GRAPHIC] [TIFF OMITTED] T0152.206
[GRAPHIC] [TIFF OMITTED] T0152.207
[GRAPHIC] [TIFF OMITTED] T0152.208
[GRAPHIC] [TIFF OMITTED] T0152.209
[GRAPHIC] [TIFF OMITTED] T0152.210
[GRAPHIC] [TIFF OMITTED] T0152.211
[GRAPHIC] [TIFF OMITTED] T0152.212
Mr. Kucinich. Thank you very much. I'd like to give--Mr.
Issa, if you would like to go first with the questions.
Mr. Issa. Thank you, Mr. Chairman. I'm going to ask some
hypothetical questions. I think the first couple of panelists
have done us a lot of good.
Ms. McCarty-Collins, have you looked at Mr. Pollock's one-
pager?
Ms. McCarty-Collins. I have not personally. I'm not sure if
the association has that.
Mr. Issa. I have, and perhaps you can leave with one today.
I did find it interesting that I, too, have gone through the
mortgage process multiple times and you get to where you're
signing and initialing and signing and initialing so many
times. And by the way, that's after you did the realtor part of
it, which seems to grow by several pages a year.
And I really do think that one of the things that your
association needs to look at, is you need to look at how to
meet all legal requirements that people are putting on you, but
also give somebody something that they can understand that says
it very clearly.
But let me ask you the second rhetorical question, and,
perhaps, since we have two Federal judges in the room, you
couldn't have a better time. If the Federal Government acted to
create a tort balance that would say that if a Federal judge
found, let's say, in the Federal class action or a State, if
appropriate, that, in fact, the portfolio in the hands of
whoever had it was tainted by predatory practices, and that
portfolio's value could represent, if you will, the liquidated
damages, would that change how the oversight would occur
without us passing a separate law, but simply shifting the
financial outcome if, in fact, in a court it was found that
the, that it was part of a portfolio that had damaged people
through--and I don't use the word predatory all the time. I
don't think all subprime, certainly VA, FHA are not predatory.
But assuming for a moment that there's a finding in court,
would you think that would change the way that you would
evaluate portfolios and the way that you would be held to
deliver them?
Ms. McCarty-Collins. You're talking basically assigning
liability.
Mr. Issa. Yes.
Ms. McCarty-Collins. OK. I think that's a yes and no
answer.
Mr. Issa. I'll just take a yes.
Ms. McCarty-Collins. Well, the only problem with assigning
liability is that when the secondary market view that as such
a--what word do I want to use?
Mr. Issa. I'm going to assume it would be less assigning.
Ms. McCarty-Collins. And you have to have it. You have to
be able to--you have to have a secondary market for those
mortgages.
Mr. Issa. I totally agree with you that you would have to,
but I just want to followup. You know, when those subprime
companies went out of business, they didn't go out of business
with portfolios in their hand. They simply closed their doors,
sold off their desk. For the most part, a lot of them had been
transactional in nature, and the fact is somebody else is
holding the portfolio.
Ms. McCarty-Collins. But as a lender and speaking of--when
we're talking mortgage bankers, we are the lenders. We are not
mortgage brokers. We are not a pass through. So, as the
lenders, these subprime companies had a duty to the secondary
market in that they had to buy back its mortgages if there was
fraud, if there was predatory problems.
So--and we all have those buy-back agreements in the loans
that we sell in the market. So, what happens is as a result of
those buy backs, this is what has bankrupted most of those
companies, not the fact that they made the subprime or
predatory loans, but the fact that they were found to be
predatory and/or fraudulent, and they had to buy these loans
back.
Mr. Issa. Or close their doors because they had not
reserved----
Ms. McCarty-Collins. They did not have the capital to buy
them back.
Mr. Issa. So, that was my point in saying that they were
transactional in nature. They were doing this, but ultimately
without an underlying separate insurance they were in a
position to issue dividends or disperse profits in the good
times and then close their doors in the bad times.
Ms. McCarty-Collins. That is probably true.
Mr. Issa. Mr. Pollock, I've teed up the question for you.
I'm intrigued at the reception you've been getting when you've
said--you know, because we all grew up with Truth in--well, I'm
afraid that's us old guys today. I remember when Truth in
Lending came out, and I remember when we tried to simplify the
understanding so that you wouldn't think you were paying 6
percent when the annual rate ended up being 35 or whatever it
compounded to. Why is it we're back to that exact same point?
How is it that we lost track of simplicity?
Mr. Pollock. Thank you, Congressman. One of the fans of
this who has been helping me, was a staffer on Capitol Hill in
Truth in Lending was----
Mr. Issa. Even I get the bell, too.
Mr. Pollock. And he told me you should call this Truth in
Mortgage Lending, and I said, no, because I don't want to
repeat what happened to Truth in Lending, was you started off
with a simple idea and made it incomprehensible. That's why I
have this insistence on a one page and regular-sized type.
That's the another thing. I don't think you should allow little
type, which confuses people.
I'm not suggesting that all of the other stack of things
you get could be taken away or this is just something you get
on top, but for the first time----
Mr. Issa. This is like the Ditech commercial though, except
you're putting one more on and not taking one off.
Mr. Pollock. That's it.
Mr. Issa. OK.
Mr. Pollock. Exactly. I believe it's the first time, I
believe, that in the American mortgage system we've ever talked
about disclosures that disclose the relationship of you, the
borrower, and your income to the loan, as opposed to telling
you a vast detail about the loan itself and leaving it to you
to figure out if you can even understand that, how it applies
to your own personal situation.
Mr. Issa. OK. I appreciate your indulgence. Professor, I
was intrigued by the fact that you've studied this both as a
subprime and looking at conforming loans, as we call them, in
California. From a practical standpoint, and we've dealt with
this on the earlier panel, is there sort of the elasticity of
demand? If we crank down and reduce some of these subprime
loans, how much are we going to crank down the opportunity for
home ownership? How elastic is that market, and can we make
some reforms? At what point do we begin to reverse a trend of
greater home?
Ms. Engel. I think this is a fundamental question in any
type of credit regulation. How do you find that balance between
making good credit available to people who otherwise wouldn't
obtain credit, and how do you also protect people from the
worst abuses in the market?
One of the really nice things that's happened from a
research standpoint is that over the last 10 years a number of
States have passed anti-predatory lending laws, North Carolina
being at the vanguard and the most well known. And one thing
that's not on my resume, but it will be shortly is that----
Mr. Issa. You have an awfully good resume for having
something left off.
Ms. Engel. Well, you don't put things on until you know
they're going to get published.
Together a group of economists and my co-author, Pat McCoy,
we've been looking at every State and local effort to regulate
predatory lending, and we have coded all of those laws and
looked to see what impact the laws have had on loan
applications, loan rejections and loan originations. And
interestingly in the States with the strongest laws, the loan
applications and originations have gone up.
And there are many different conclusions you could draw
from this, but one possible explanation is that the really good
subprime borrowers were afraid of taking out loans because they
heard about all the abuses in the market. And when the State
stepped in and said we're going to regulate the worst abuses,
they said, I feel safe and I feel protected by the State.
It's hard--you know, I'm not going to say I know that's the
causality, but what I do know is that in the States with the
strongest regulations, we're seeing stable or increased
subprime lending.
And the other point, I think, that's very important, is
this whole issue of assigning liability. And any regulation or
laws that we have in this country have to be very careful in
terms of assigning liability. We can't have open-ended
assigning liability for punitive damages.
But if it's predictable in assigning liability in a
liquidated amount, which many of these State laws have, then we
can hold people to lead to the fire in terms of having a
secondary market, police, as it were, the lenders without
drawing on credit.
Mr. Issa. Mr. Chairman, one thing you have to know in this
business is when to quit on a high note. Thank you. Great
answer.
Mr. Kucinich. I want to say, Mr. Issa, the question that
Professor Engel acknowledged in terms of what about home
ownership, how do people who don't have the best of credit get
home ownership? What happens? That's a key question here. And I
think that one of the areas that this committee may, in our
continuing work may inevitably look at, you know, are their
questions relating to home ownership availability, availability
to credit and also the underlying monetary process. There's a
real serious question here about monitoring policy that seldom
gets looked at, and bringing the Fed into this discussion for
the first time enables us to move into that question.
I want to, again, tell Judge Pianka that I looked at your
whole statement, and it's quite significant, and I want to ask
you, without significant new regulatory enforcement from the
Fed and other agencies, what do you predict for cities like
Cleveland and neighborhoods with significant foreclosure
problems?
Judge Pianka. The prediction by Treasurer Rokakis, that
it's only going to get worse, I think, is absolutely true.
And, unfortunately, the collateral damage that affects the
streets and the neighborhoods just compounds.
In addition, no more--there has never been greater time in
our history of the city of Cleveland when there have been more
properties owned by banks and mortgage companies.
Mr. Kucinich. You know, Mr. Pollock said something, and,
Mr. Issa, this is something that in your testimony you pointed
out that this phenomenon that has hit low-income areas now, the
subprime mortgage is shifting away from lower-income areas and
going into middle and higher income areas; is that right.
Mr. Pollock. I pointed out this interesting study by COHHIO
is the fact that subprime lending is principally a middle and
higher-income activity.
Mr. Kucinich. That jumped out at me because what it says is
that the--it may be that the subprime business has more or less
maxed out in some of these communities, and now we're seeing
all the boarded up homes.
But then, if you have that core, as we have in Cleveland,
which is already beginning to be hollowed out, and now there's
a shift to the middle-income and even upper-income areas. It's
possible we may, absent any kind of new regulatory or
legislative authority, we may see this spread like a cancer.
How do you respond to that?
Judge Pianka. Mr. Chairman, it's spreading out to inner
ring suburbs and to the outer ring suburbs as well.
Mr. Kucinich. We have the map here. Did we put the map
away? We saw them. We saw the kind of spread starting to occur.
Judge Pianka. Unfortunately, what we've seen in the urban
areas in Cleveland, many times the financial institution will
abandon the property but keep a lien on the property and it
becomes a toxic lien. And that property cannot be transferred,
and then the cities and the neighbors are held hostage to those
properties. Every boarded up property in the city of Cleveland
sends a signal that mortgage amount is greater than what the
value of that property is, and there are thousands of
properties.
Mr. Kucinich. So, judge, you know, can the city make a
comeback if you, as a housing court judge, cannot properly
transfer title to the foreclosed houses.
Judge Pianka. Well, there can't be progress because they
sit there, and then it has a domino effect on people's decision
whether they stay in a neighborhood or invest in a
neighborhood.
Mr. Kucinich. Thank you, your Honor.
To Ms. Engel, what specifically should the Fed do to put a
stop to the coincidence of banks receiving credit for their CRA
exams for predatory loans made by their affiliates who are
invested in them for their portfolios, and how should the
Federal bank regulators assess a value on the quality of loans?
Ms. Engel. I think that the first thing is that the
regulators need to start taking into account the activities of
the affiliates and the subsidiaries, because by limiting the
exams to just the banks, it is really giving the subsidiaries
and the affiliates cart blanche to engage in wrongdoing without
it coming to the attention of the regulators.
The banks can voluntarily have a more expansive CRA exam,
but I don't think I know of any situations where a bank has
said, oh, yes, please come and look at our subsidiaries and our
affiliates. It's, you know, not likely that they're going to do
that. So, I think that's a key thing.
I think that CRA also could take a stronger position in
terms of what's getting disclosed in the HMDA data. We need to
have credit score information in the HMDA data. We need
information about fees. It's just insufficient. Even when the
Federal Reserve Bank is doing its own HMDA analysis, it's
finding itself with its hands tied in terms of the ability of
the data to really generate a meaningful analysis.
Mr. Kucinich. Thank you. And I just have one more question
for Ms. McCarty-Collins. For borrowers who contact groups like
NeighborWorks America or other consumer credit counseling
groups, does this effect their credit scores just by making a
contact.
Ms. McCarty-Collins. No. Not by making a contact. And those
agencies work with the lenders to try and work out
modifications and repayment schedules for them. At this point,
I would say that their credit is probably already harmed by the
time they call.
The biggest problem that we find is that people that become
delinquent on their mortgage are afraid to call their lender,
and then it really becomes too late, and so we're trying to get
some early intervention for them.
Mr. Kucinich. I want to thank the members of the panel.
This has been a very good panel and just the testimony that
we've read would be the basis for a lengthy hearing in and of
itself, but your testimony will be included in the record and
will be available for review as we continue to move forward
with this topic. It's very helpful.
I want to thank Chief Judge Carr for making this facility
available and all Federal judges for their indulgence for
having this meeting in this building. I want to thank the
staff, both of our majority and minority staff, because you
made it possible for us to come together to have this hearing,
as well as the court stenographer.
I want to thank all of the public officials who have
attended and whose cooperation we will need as we move forward
on the community groups represented here.
This has been a hearing of the Domestic Policy Subcommittee
of the Government Oversight and Reform Committee. The topic of
the hearing has been Foreclosure and the Federal Reserve Bank
of Cleveland. I want to thank all of you for attending. This
committee is in adjournment.
[Whereupon, the subcommittee was adjourned.]
[Additional information submitted for the hearing record
follows:]
[GRAPHIC] [TIFF OMITTED] T0152.213
[GRAPHIC] [TIFF OMITTED] T0152.214
[GRAPHIC] [TIFF OMITTED] T0152.215
[GRAPHIC] [TIFF OMITTED] T0152.216
[GRAPHIC] [TIFF OMITTED] T0152.217
[GRAPHIC] [TIFF OMITTED] T0152.218
[GRAPHIC] [TIFF OMITTED] T0152.219
[GRAPHIC] [TIFF OMITTED] T0152.220
[GRAPHIC] [TIFF OMITTED] T0152.221
[GRAPHIC] [TIFF OMITTED] T0152.222
[GRAPHIC] [TIFF OMITTED] T0152.223
[GRAPHIC] [TIFF OMITTED] T0152.224
[GRAPHIC] [TIFF OMITTED] T0152.225
[GRAPHIC] [TIFF OMITTED] T0152.226
[GRAPHIC] [TIFF OMITTED] T0152.227
[GRAPHIC] [TIFF OMITTED] T0152.228
[GRAPHIC] [TIFF OMITTED] T0152.229
[GRAPHIC] [TIFF OMITTED] T0152.230
[GRAPHIC] [TIFF OMITTED] T0152.231
[GRAPHIC] [TIFF OMITTED] T0152.232
[GRAPHIC] [TIFF OMITTED] T0152.233
[GRAPHIC] [TIFF OMITTED] T0152.234
[GRAPHIC] [TIFF OMITTED] T0152.235
[GRAPHIC] [TIFF OMITTED] T0152.236
[GRAPHIC] [TIFF OMITTED] T0152.237
[GRAPHIC] [TIFF OMITTED] T0152.238
[GRAPHIC] [TIFF OMITTED] T0152.239
[GRAPHIC] [TIFF OMITTED] T0152.240
[GRAPHIC] [TIFF OMITTED] T0152.241
[GRAPHIC] [TIFF OMITTED] T0152.242
[GRAPHIC] [TIFF OMITTED] T0152.243
[GRAPHIC] [TIFF OMITTED] T0152.244
[GRAPHIC] [TIFF OMITTED] T0152.245
[GRAPHIC] [TIFF OMITTED] T0152.246
[GRAPHIC] [TIFF OMITTED] T0152.247
[GRAPHIC] [TIFF OMITTED] T0152.248
[GRAPHIC] [TIFF OMITTED] T0152.249
[GRAPHIC] [TIFF OMITTED] T0152.250
[GRAPHIC] [TIFF OMITTED] T0152.251
[GRAPHIC] [TIFF OMITTED] T0152.252
[GRAPHIC] [TIFF OMITTED] T0152.253
[GRAPHIC] [TIFF OMITTED] T0152.254
[GRAPHIC] [TIFF OMITTED] T0152.255
[GRAPHIC] [TIFF OMITTED] T0152.256
[GRAPHIC] [TIFF OMITTED] T0152.257
[GRAPHIC] [TIFF OMITTED] T0152.258
[GRAPHIC] [TIFF OMITTED] T0152.259
[GRAPHIC] [TIFF OMITTED] T0152.260
[GRAPHIC] [TIFF OMITTED] T0152.261
[GRAPHIC] [TIFF OMITTED] T0152.262
[GRAPHIC] [TIFF OMITTED] T0152.263
[GRAPHIC] [TIFF OMITTED] T0152.264
[GRAPHIC] [TIFF OMITTED] T0152.265
[GRAPHIC] [TIFF OMITTED] T0152.266
[GRAPHIC] [TIFF OMITTED] T0152.267
[GRAPHIC] [TIFF OMITTED] T0152.268
[GRAPHIC] [TIFF OMITTED] T0152.269
[GRAPHIC] [TIFF OMITTED] T0152.270
[GRAPHIC] [TIFF OMITTED] T0152.271
[GRAPHIC] [TIFF OMITTED] T0152.272
[GRAPHIC] [TIFF OMITTED] T0152.273
[GRAPHIC] [TIFF OMITTED] T0152.274
[GRAPHIC] [TIFF OMITTED] T0152.275