[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
FORECLOSURE PROBLEMS AND SOLUTIONS:
FEDERAL, STATE, AND LOCAL EFFORTS TO
ADDRESS THE FORECLOSURE CRISIS IN OHIO
=======================================================================
FIELD HEARING
BEFORE THE
SUBCOMMITTEE ON
HOUSING AND COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
JUNE 16, 2008
__________
Printed for the use of the Committee on Financial Services
Serial No. 110-120
----------
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44-185 PDF WASHINGTON : 2008
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Washington, DC 20402-0001
HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California DEBORAH PRYCE, Ohio
CAROLYN B. MALONEY, New York MICHAEL N. CASTLE, Delaware
LUIS V. GUTIERREZ, Illinois PETER T. KING, New York
NYDIA M. VELAZQUEZ, New York EDWARD R. ROYCE, California
MELVIN L. WATT, North Carolina FRANK D. LUCAS, Oklahoma
GARY L. ACKERMAN, New York RON PAUL, Texas
BRAD SHERMAN, California STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas WALTER B. JONES, Jr., North
MICHAEL E. CAPUANO, Massachusetts Carolina
RUBEN HINOJOSA, Texas JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York GARY G. MILLER, California
JOE BACA, California SHELLEY MOORE CAPITO, West
STEPHEN F. LYNCH, Massachusetts Virginia
BRAD MILLER, North Carolina TOM FEENEY, Florida
DAVID SCOTT, Georgia JEB HENSARLING, Texas
AL GREEN, Texas SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin, JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota TOM PRICE, Georgia
RON KLEIN, Florida GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio JOHN CAMPBELL, California
ED PERLMUTTER, Colorado ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana PETER J. ROSKAM, Illinois
BILL FOSTER, Illinois THADDEUS G. McCOTTER, Michigan
ANDRE CARSON, Indiana KEVIN McCARTHY, California
JACKIE SPEIER, California DEAN HELLER, Nevada
DON CAZAYOUX, Louisiana
TRAVIS CHILDERS, Mississippi
Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Housing and Community Opportunity
MAXINE WATERS, California, Chairwoman
NYDIA M. VELAZQUEZ, New York SHELLEY MOORE CAPITO, West
STEPHEN F. LYNCH, Massachusetts Virginia
EMANUEL CLEAVER, Missouri STEVAN PEARCE, New Mexico
AL GREEN, Texas PETER T. KING, New York
WM. LACY CLAY, Missouri JUDY BIGGERT, Illinois
CAROLYN B. MALONEY, New York CHRISTOPHER SHAYS, Connecticut
GWEN MOORE, Wisconsin, GARY G. MILLER, California
KEITH ELLISON, Minnesota SCOTT GARRETT, New Jersey
CHRISTOPHER S. MURPHY, Connecticut RANDY NEUGEBAUER, Texas
JOE DONNELLY, Indiana GEOFF DAVIS, Kentucky
MICHAEL E. CAPUANO, Massachusetts JOHN CAMPBELL, California
CHARLES A. WILSON, Ohio THADDEUS G. McCOTTER, Michigan
DON CAZAYOUX, Louisiana KEVIN McCARTHY, California
C O N T E N T S
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Page
Hearing held on:
June 16, 2008................................................ 1
Appendix:
June 16, 2008................................................ 75
WITNESSES
Monday, June 16, 2008
Brancatelli, Antony, Councilman, City of Cleveland............... 20
Ford, Frank, Senior Vice President for Research and Development,
Neighborhood Progress, Inc..................................... 57
Gross, Michael, Managing Director, Loan Administration and Loss
Mitigation Division, Countrywide............................... 48
Guelker, Kimberley, President, Lorain County Association of
Realtors....................................................... 51
Howell, Andrew S., Executive Vice President and Chief Operations
Officer, Federal Home Loan Bank of Cincinnati.................. 44
Kidd, Patricia, Executive Director, Lake County Fair Housing
Resource Center................................................ 26
Kramer, Edward G., Director and Chief Counsel, The Housing
Advocates...................................................... 55
Lloyd, Engram, Director, Philadelphia Homeownership Center, U.S.
Department of Housing and Urban Development.................... 13
Stefanak, Matthew, Commissioner, Mahoning County Health
Department..................................................... 24
Tisler, Lou, Neighborhood Housing Services of Greater Cleveland.. 53
Van Buskirk, Michael, President and CEO, Ohio Bankers League..... 45
Warren, Chris, Chief of Regional Development, Office of the Mayor
of Cleveland, Ohio............................................. 17
Wozniak, Tina Skeldon, President, Lucas County Commissioners..... 22
Zurz, Kim, Director, Department of Commerce, State of Ohio....... 15
APPENDIX
Prepared statements:
Carson, Hon. Andre........................................... 76
Kaptur, Hon. Marcy........................................... 77
Kucinich, Hon. Dennis J...................................... 83
Waters, Hon. Maxine.......................................... 93
Brancatelli, Antony.......................................... 101
Ford, Frank.................................................. 309
Gross, Michael............................................... 320
Guelker, Kimberley........................................... 326
Howell, Andrew S............................................. 335
Kidd, Patricia............................................... 342
Kramer, Edward G............................................. 360
Lloyd, Engram................................................ 397
Stefanak, Matthew............................................ 400
Tisler, Lou.................................................. 403
Warren, Chris................................................ 439
Wozniak, Tina Skeldon........................................ 445
Zurz, Kimberly A............................................. 450
Additional Material Submitted for the Record
Waters, Hon. Maxine:
Foreclosure Prevention Resources............................. 467
Freddie Mac Consumer Resources............................... 474
HUD Maps..................................................... 479
Article from The Morning Journal, dated June 6, 2008......... 484
Tables from Policy Matters Ohio.............................. 485
Report from the Center on Urban Poverty and Community
Development................................................ 491
Report from The Slavic Village Vacant and Abandoned Property
Task Force................................................. 507
FORECLOSURE PROBLEMS AND SOLUTIONS:
FEDERAL, STATE, AND LOCAL EFFORTS TO
ADDRESS THE FORECLOSURE CRISIS IN OHIO
----------
Monday, June 16, 2008
U.S. House of Representatives,
Subcommittee on Housing and
Community Opportunity,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 9:30 a.m., at
the Joseph E. Cole Center for Continuing Education, Cleveland
State University, 3100 Chester Avenue, Cleveland, Ohio, Hon.
Maxine Waters [chairwoman of the subcommittee] presiding.
Members present: Representatives Waters and Kaptur.
Also present: Representatives Wilson, Kucinich, Tubbs
Jones, and Sutton.
Mrs. Tubbs Jones. I am Stephanie Tubbs Jones. I am the
Congresswoman for the 11th Congressional District of Ohio. I
would like to welcome you to the 11th Congressional District
and please join me in welcoming my colleague from California,
our chairwoman, Maxine Waters, and my colleagues from across
the State of Ohio for this significant hearing.
We are being hosted today by another alma mater of mine,
Cleveland State University. And I would like for you to join me
in welcoming the president of Cleveland State University,
President Michael Schwartz.
Mr. Schwartz. Thank you, Congresswoman Tubbs Jones, and
welcome, Chairwoman Waters. We're glad to have you and all
members of this delegation here for a conversation about
probably one of the two most pressing problems facing this
entire Nation, and I hope that this turns into an important
learning experience for all of you who have come here today.
The Maxine Goodman Levin College of Urban Affairs is
probably the premiere college of urban affairs that studies
issues of housing and matters of predatory lending and so on.
And so it's really quite fitting that this hearing be held on a
campus so devoted the amelioration and solution of issues like
this.
Having said that as the University's president, I will try
to do something reasonably intelligent and get out of the way
of the real business that you're here for today. Thank you.
Mrs. Tubbs Jones. Thank you. Madam Chairwoman.
Chairwoman Waters. This hearing of the Subcommittee on
Housing and Community Opportunity will come to order.
Good morning, ladies and gentlemen. I would like to start
by thanking Dr. Michael Schwartz, president of Cleveland State
University for allowing us to use this space for today's
hearing on ``Foreclosure Problems and Solutions: Federal,
State, and Local Efforts to Address the Foreclosure Crisis in
Ohio.'' The University has also kindly allowed us to use some
additional rooms to conduct a foreclosure workshop where local
housing counselors, Legal Aid groups, and mortgage servicers
are available to work with borrowers trying to avoid
foreclosure.
I would especially like to thank our Ohio Representatives
here today for requesting that I hold a field hearing focused
on the foreclosure crisis and responses to it in the State of
Ohio. Your Representatives have been a powerful, persuasive
voice in Congress on behalf of Ohio's residents and
neighborhoods, which have been devastated by subprime lending
and the turmoil that has spread through the mortgage markets,
and, eventually, the entire economy. In fact, I can attest that
every Ohio Member sitting beside me today has played an
extraordinarily active role in the Federal response to this
crisis.
Representative Kaptur has been a persistent voice in our
Democratic caucus for taking bold action on the foreclosure
crisis generally, and for holding this field hearing in
particular. Representative Kucinich, in his role as chairman of
the Domestic Policy Subcommittee of the Government Oversight
and Reform Committee has painstakingly examined the causes and
characteristics of this growing problem, including holding a
joint hearing with my subcommittee less than a month ago which
focused on how best to target Federal aid to neighborhoods and
communities facing block after block of foreclosed and
abandoned properties. The Ohio delegation's efforts to address
the crisis have been bipartisan, with Representatives Kucinich,
Wilson, Pryce, and LaTourette--who wanted very much to be here
today. I hope that Representative Pryce will join us--some did
advise us that they would have unavoidable conflicts. They have
also worked to contribute key amendments to the bill I
introduced, H.R. 5818, the Neighborhood Stabilization Act of
2008. That bill, H.R. 5818, would provide $15 billion in grants
and loans, with over $800 million of this amount to the State
of Ohio, for the purchase, rehabilitation, and resale or rental
of foreclosed and abandoned properties. My Judiciary Committee
colleague Representative Sutton joined us in an effort to make
sure that bill passed the House. And all of us here are working
diligently to see that these critical resources are retained as
our chamber negotiates with the Senate on the elements of the
foreclosure rescue package that will eventually make it way to
the President's desk, and hopefully that will be done by July
4th.
Last, but certainly not least, I want to thank
Representative Stephanie Tubbs Jones, not only for the
tremendous logistical support her office and her staff have
provided to the subcommittee in putting this hearing together,
but also for really opening my eyes to the scope of the
foreclosure problem here in Ohio almost 2 years ago. I was here
working on a campaign, and she asked if I was coming to a town
hall meeting that residents had organized who were very angry
about the fact that there were so many abandoned houses in
their neighborhood. This is long before Members of Congress and
others understood what was happening with the foreclosure
problem.
I saw residents who were upset that their neighborhoods had
so many abandoned homes, the grass was overgrown, and the
copper had been stripped out. They were asking for answers, and
nobody had answers because no one really understood what this
was all about. But it was because of her that I began to pay a
lot more attention and I want to thank her for that today.
Thank you very much.
Because of the challenges it has faced economically over
the past few years, with the loss of manufacturing jobs and
population from certain parts of the State, Ohio was truly the
``canary in the coal mine'' of the foreclosure crisis,
vulnerable to subprime lending and its aftereffects much
earlier than the rest of the Nation.
Ohio has contended with rising foreclosures since 1995.
According to Policy Matters, from whom we will hear today, the
number of foreclosures in Ohio has quintupled since that year.
Ohio has consistently ranked in the top five States monthly in
foreclosure filings during the recent crisis. In May of this
year, the State ranked 7th nationally, with 12,295 foreclosure
filings, or 1 filing for every 410 households.
As the senior member of the Financial Services Committee
from California, which has been ranked first or second in
foreclosures for most of the past year, I can certainly confirm
that the rest of the Nation is confronting the problems that
Ohio has grappled with for some time. Foreclosure filings in
May are up 7 percent from April, and fully 48 percent from a
year ago. Over 260,000 properties received foreclosure filings
last month, or 1 in 483 U.S. households.
Today, we are here to learn about where things stand in
addressing these problems, specifically, the impact of existing
and potential Federal, State, and local efforts to prevent
further foreclosures and to help stabilize neighborhoods that
have already seen too many of them. I am here primarily to
learn, so I will turn things over shortly to my Ohio colleagues
and the witnesses. I will close, however, by noting that I am
particularly interested in two issues. First, I would like to
know whether Ohio stakeholders believe that the recent actions
taken by the House of Representatives, including passage of the
Neighborhood Stabilization Act as well as a broad housing
rescue package that proposes a greatly expanded role for the
FHA and the GSEs in preventing further foreclosures, might be
helpful to them if enacted into law.
Second, I would like to hear specifics about the efforts of
the major mortgage servicers in the State to engage in loss
mitigation. Unfortunately, the data provided by the voluntary
mortgage industry loss mitigation initiative, HOPE NOW, have
been incomplete and opaque, and I'm not the only one say that.
Treasury Secretary Paulson and, more recently, the Office of
the Comptroller of the Currency, have expressed similar
concerns. But the figures HOPE NOW does provide, coupled with
feedback from constituents facing foreclosure and counselors or
attorneys helping them, continue to trouble me. For example, of
the 1.5 million loan workouts HOPE NOW members have executed
since July 2007, fewer than one third have been loan
modifications. The rest are repayment plans, which can often
just postpone the day of reckoning on a subprime adjustable
rate mortgage, or so-called ``ARM'' loan. Indeed, of the over
600,000 subprime ARMs scheduled to reset in the first 4 months
of 2008, less than 3 percent received loan modifications from
HOPE NOW members of 5 years or longer, the loss mitigation
approach recommended by many, including FDIC Chairwoman Sheila
Bair, one of the few regulators to sound the alarm early in
this crisis. And the stories I have heard from distressed
borrowers and their representatives at previous field hearings
and town halls in my own district suggest that engagement with
members of the HOPE NOW Alliance is neither as smooth nor as
productive as the Alliance's press releases and testimony
before Congress suggest.
For this reason, I introduced H.R. 5679, the Foreclosure
Prevention and Sound Mortgage Servicing Act, which would
require mortgage servicers to engage in reasonable loss
mitigation. In particular, the bill would force them to focus
on providing loss mitigation offers that are affordable to the
borrower for the long term, something we don't know with
respect to any HOPE NOW loan workout, be it a repayment plan or
a loan modification, because the Alliance members don't report
the affordability standards they use.
I am looking forward to hearing from the witnesses about
mortgage servicers' work here in Ohio, as well as in local and
State government efforts to prevent foreclosures and address
the foreclosed and abandoned properties problem.
Representative Wilson and I are regular members of the
subcommittee present today, but I would like to ask unanimous
consent that each of the Members of Congress attending be
considered part of the subcommittee for the purpose of today's
hearing. Without objection, it is so ordered.
I would like to recognize our subcommittee members for
their opening statements. I will be alternating the parties and
the subcommittee members. We do not have some of our members
here today who serve on the committee, but we will start with
Congressman Wilson, who is recognized for 3 minutes.
Mr. Wilson. Thank you, Chairwoman Waters, for convening
this field hearing today, especially here in the State of Ohio.
I truly appreciate all that you have done to help put an
end, or certainly the beginning of the end, to this foreclosure
crisis. I'm happy that you chose to hold a hearing here in my
State to get a better view of what is going on, on the ground.
I also want to thank my Ohio colleagues, especially
Congresswoman Pryce and Congressman LaTourette who are on the
committee with me. I am proud to have worked with them on the
housing legislation produced by our committee this year.
Together, we were able to bring more money and more help home
to Ohio.
Today's hearing is particularly significant. As the
Financial Services Committee continues to work on this crisis,
it is important to look at our State. Ohio suddenly became one
of the Nation's worst home-loan default zones last year with an
88 percent spike in foreclosure proceeding.
Ohio filings included about 90,000 properties, with some of
the properties generating multiple court entries as they moved
through the foreclosure process in 2007. That represents nearly
2 percent of all Ohio properties. By almost every measure, the
outlook for Ohio is bleak.
But there is good news. I would like to take this
opportunity to highlight some of the innovative steps that our
State has taken to address this issue.
In Governor Strickland's first few months in office, he
formed a Foreclosure Prevention Task Force and charged this
diverse group with developing recommendations to address
various stages of the foreclosure process. Since the release of
the recommendations in September, administrative officials and
our State legislature have worked diligently to address many of
these recommendations. Recently, Governor Strickland and Ohio's
Director of Commerce, Kim Zurz, announced that nine mortgage
loan servicers agreed to sign the ``Compact to Help Ohioans
Preserve Homeownership.'' It is the first agreement of its kind
in the Nation. The document is a pledge by servicers that they
will work with the State in making every possible attempt to
prevent default loans and foreclosures in Ohio.
The principals agreed to include a willingness to engage in
a substantial and large-scale loan modification effort for
adjustable rate mortgage resets and subprime mortgages. That is
something that Congress is working to provide Federal insurers
if lenders are willing to take a haircut. The agreement also
encourages good-faith attempts to contact at-risk or defaulting
borrowers as soon as possible. It also creates an incentive for
staff and foreclosure counsel to modify loans rather than
foreclose.
These steps taken by the State of Ohio are vitally
important, but now they need a boost from Congress. We are
working on that. The House has passed a two-part housing
package that would first include loans and grants for States to
help keep families in their homes in flexible ways that are
best for that State also. The second part is a voluntary
program that would permit FHA to provide up to $300 billion in
new guarantees to help refinance 1.5 million at-risk borrowers.
I am happy to have worked on these bills when they came through
our committee.
Congresswoman Pryce, Congressman LaTourette and I have
worked together to modify the funding formula of the first part
of the House package resulting in loans and grants worth
millions more for Ohio.
In addition, I was able to include demolition as one of the
ways that our State could use these loans and grants. Now
States will be able to clean up the blight, help families stay
in their homes and rehabilitate long-vacant and decrepit
housing. States will be able to stabilize entire neighborhoods
that are hurting because of foreclosures.
This was particularly important in Ohio because many
foreclosed homes have been empty for a long period of time.
Many of them have been stripped of their copper piping and
other valuable parts. To rehabilitate such homes is often more
expensive than demolishing them. And in fact, in many pockets
of my State, we have homes that are no longer needed because of
the population decline.
I look forward to hearing from Matthew Stefanak today. He
really helped me understand how blight can affect an entire
neighborhood. He has been an real asset to us and I appreciate
that.
In closing, I would simply like to praise Governor
Strickland and his team once again, and encourage Congress to
act expediently, and to leave you with one final thought: I
believe we need to get back to our roots and the fundamentals
that have been so successful to the people of Ohio in the past.
Many years ago, when I was on a bank board, you loaned to
those who would be able to pay the loan back. You kept an eye
on those in trouble and you reached out when it looked like
they needed help. I believe that many in Ohio have kept to
those standards. But I also believe that many need to get back
to those standards.
I look forward to hearing the testimony from our panelists
today. Thank you.
Chairwoman Waters. Thank you very much. Congresswoman
Kaptur.
Ms. Kaptur. Thank you very much, Chairwoman Waters. On
behalf of our entire Ohio delegation, thank you for accepting
our invitation to come to Ohio to conduct one of the most
important hearings your committee has held outside of the
Nation's capital. It's a joy to be with our colleagues as well
and we selected Cleveland because we know it is it Ground Zero
in mortgage foreclosure challenges facing our great Buckeye
State.
Our State provides a telling picture of what is a recurring
problem in our Nation, the largest washout of private savings
in the form of home equity in half a century. Pew Charitable
Trusts estimate that just in the next 2 years, the loss in
property values will total over $356 billion, and that the cost
of this is really well over $1 trillion in the washout coast to
coast. Nationally, 9 million homeowners now owe more on their
mortgage than their home is worth, the largest share since the
Great Depression. In fact, for the first time since World War
II, net home equity is now negative, that is below 50 percent.
That is to say that as a whole, Americans now owe more on their
homes than they are worth. This is an enormous loss of real
wealth that affects not just the homeowners, but our Nation as
a whole. For the first time ever, the securitization of these
mortgages into the international capital market both fueled and
masked this risky process.
The effect has been to make our Nation and its banks more
dependent than ever on foreign borrowing and infusions of
foreign capital. America is now is now a debtor Nation both
publicly and privately.
When a homeowner can't make ends meet they lose their
homes. But when a giant firm like Bear Stearns can't make ends
meet due to this crisis, the Chairman of the Federal Reserve
and the Secretary of the U.S. Treasury get involved. Billions
of dollars of capital from foreign places such as Abu Dhabi are
found to fill the gap, mergers of banks expeditiously and the
Fed opens its New York window with our taxpayers becoming the
insurance company of last resort pledging the full fees and
credit of the United States not just to the big banks, but for
the first time, to brokerages as well.
Will ordinary homeowners in our Nation ever be afforded
equal attention by the Fed and the Treasury? It does not appear
to be so with the rate of foreclosures and bankruptcies rising
every month.
I want to thank all of those who are working so hard to
pick up the pieces, but we will note that large shares of the
cost of this crisis are being shifted to the public sector, to
the taxpayers. And I would like to enter this opinion for the
record and provide additional material as attachments. Congress
must get tougher in its own investigations of what brought
America's financial system to this predicament. An equity
washout of this magnitude does not happen by spontaneous
combustion. It was willed to happen.
Specific people in specific places set the pieces in place
to allow this to proceed. Many of them have been handsomely
rewarded. America needs to know who they were and are; I
believe Congress should authorize a full independent
investigation into the roots of this crisis and trace back the
unstable period following the savings and loan crisis in the
late 1980's. The development of the international mortgage
securitization instrument itself deserves more attention. In
effect, this became a clever and high-risk credit device with
little transparency that acted like a bank. It created money or
at least the illusion of it in a Ponzi-like scheme or manner
and it did so without the normal regulatory restraint of full
accounting and proper examination. How could the national
regulators let that happen?
Well, the first institution to embark on subprime lending
was Superior Bank of Hinsdale, Illinois, ultimately bought by
Charter Bank here in Ohio. Superior Bank was created out of the
Resolution Trust Corporation. By the late 1990's, Superior's
return on assets was 7.5 times the industry average. It held a
very different portfolio. It had a CAMEL rating of 2, yet its
executives were financially rewarded for presiding over ruin.
No Federal regulator stepped in to properly examine the
institution. Why? Where was the Office of Thrift Supervision?
What happened to appraisal and underwriting standards? Assuming
many of these loans were moved to market through Freddie Mac
and Fannie Mae, why is it their standard and HUD's regulatory
oversight fall short? How were their boards and executives
compensated during those years when risky practices
proliferated? Which board members and which financial
institutions and brokerages, regulators, and secondary market
bodies allowed these risky and predatory policies that
escalated this equity draw down?
Do we have any evidence that any of those board members
personally benefitted from their board decisions? Through which
domestic and international institutions were the original
securitizations approved? Which persons did it? Which
regulatory agencies sanctioned the process? What role did the
U.S. Secretary of the Treasury, the Securities and Exchange
Commission, and the Federal Reserve play in allowing these
practices to flourish?
I find it troubling, for instance, that even when it became
known that firms like Countrywide had done great damage to the
mortgage market, the Federal Reserve maintained them as one of
a handful of primary Treasury security dealers. Who and which
firms created the very first subprime loan and rolled it into
an international mortgage securitization instrument? What set
of individuals were involved in moving it and clearing it to
market? Frankly, Congress doesn't know.
Where are the audit trails for the thousands of those
subprime loan transactions that international securitizations?
Congress doesn't know.
In 2001, the Federal Deposit Insurance Corporation placed
the largest fine in American history, $450 million, on Superior
Bank. Though we know--and I'll be ending here, Madam
Chairwoman, with two sentences, though we know what Superior
and what Merrill Lynch were involved in, in moving securities
paper, we do not know which third parties were involved in
packaging it, their fees, and how that paper was moved into the
international market. For a crisis of this proportion, the
American people have a right to know the whole story.
I'm here to learn from the witnesses today what Congress
can do to help remedy the current crisis, but also trace its
roots to avoid a further raid on the private savings of
America's homeowners.
Chairwoman Waters. Representative Kucinich.
Mr. Kucinich. I wanted to thank Congresswoman Kaptur for
that very wise and perceptive commentary on this situation. And
you, Madam Chairwoman, for your work which has been exemplary
and enormously helpful on behalf of every American, your
experience as a community organizer, as someone who has come
through the political process. And I want to thank you for
bringing us together here in Cleveland, Ohio.
I have here, without objection, Madam Chairwoman, a
statement for the record from Congressman LaTourette.
Congressman LaTourette is scheduled for a tour of Ashtabula
Harbor with the Commandant of the Coast Guard and he is with
the Commandant right now and he asks that this statement be
entered.
Chairwoman Waters. Without objection, it is so ordered.
Mr. Kucinich. Thank you, Madam Chairwoman. Mr. Delfin, who
is our staff attorney, is going to be assisting us as I go
through these maps which will tell the story.
Cleveland is at the epicenter of the national problem of
foreclosure. Last year, the Center for Responsible Lending
projected that one out of five subprime mortgages originated
during the previous 2 years will end in foreclosure. These
foreclosures will cost, at a nationwide estimate, homeowners as
much as $164 billion. This is a massive transfer of wealth.
Here in Cleveland, we can already see the damage. This
series of maps illustrates the problem here in Cuyahoga County.
Look at the first map. This is where depository banks made
loans in 2005. You see the sideways ``V'' highlighted in light
green. Let me tell you what that geographical area represents.
It is the area in the City where the depository banks made very
few prime loans.
Now look at the next map of subprime loans made in 2005. It
is highlighted in reds and oranges. These are subprime loans.
Look at the ``V.'' This is where the highest number of subprime
mortgage loans were made during the same year.
Now look at the next map. Again, you see the same ``V''
pattern and the same place. Here, the red dots indicate the
number of foreclosures in the first 10 months of 2006. These
maps tell you that there is a clear and self-reinforcing
correlation between the low number of prime loans, the high
number of subprime loans, and the high number of foreclosures.
Now look at this next map. Again, the familiar sideways-
lying ``V'' shape. But here the foreclosures, indicated by blue
dots, are superimposed on the neighborhoods. Red indicates
predominantly African-American neighborhoods. Again, we see a
perfect match.
The next map shows the relationship among high-cost
mortgage loans made to investors in 2006, increases in vacant
homes in 2007 and 2008, and high minority population based on
the 2000 census. Again, we see the sideways ``V,'' but we also
see increases in high-cost loans and vacant properties in the
outer suburbs and outlying counties.
The last map highlights only the census tracts with all
three factors: the highest cost mortgages, the greatest
increase in vacant properties, and the highest minority
populations. We still see the sideways ``V,'' but where
previously the phenomenon was mainly in African-American census
tracts in eastern Cuyahoga County, we see the problem spreading
west to census tracts with larger Hispanic and Arab
populations. Now, it looks more like a diagonal ``T,''
spreading in every direction it can spread in Cleveland--east,
south, and now west.
Lack of access to prime loans, a high frequency of subprime
loans, and a high rate of foreclosures are by no means specific
to any racial group, but the pattern with respect to the
African-American community certainly carries a whiff of
America's bleak past.
Now how did our City get to this point?
The Domestic Policy Subcommittee, which I chair, has
initiated a broad-reaching examination of the predatory
mortgage and subprime lending industries, and the Federal
regulators overseeing the Nation's banking industry. As part of
that effort, the Domestic Policy Subcommittee intervened in a
major bank merger in Ohio between Huntington Bank and Sky
Financial. We asked the Federal Reserve Bank of Cleveland,
which is the primary regulator, to expand the public comment
period and to hold a public hearing. Instead of giving the
merger greater scrutiny in light of the mortgage crisis and
particularly this phenomenon in Cuyahoga County, the Federal
Reserve and the Office of the Comptroller of the Currency
rubber-stamped the merger based on the banks' self reporting of
Community Reinvestment Act compliance.
As a result of that merger, we see more depository bank
closures in low- to moderate-income communities, including
Euclid and Cleveland here in Cuyahoga County, as well as
Canton, Grandview, Lima, New Philadelphia, and Revanna. And as
we can see from the newest data, the problem is getting worse.
Madam Chairwoman, because of the Waters Amendment which you
drafted to the Banking and Branching Efficiency Act of 1994,
the City of Lima, Ohio, held a meeting to determine what
actions must be taken due to the Huntington bank branch closing
there. Last week, a similar meeting was held in Cleveland due
to the Huntington branch closings in Cleveland and Euclid. We
don't know what, if any, result will come of these meetings
with the Federal Reserve, the Office of the Comptroller of the
Currency, and the Nation's and State's other bank regulators,
banks, and community representatives. However, with your
leadership and understanding of the problems facing our cities
nationwide, and particularly here in Ohio, the Waters Amendment
was able to be invoked so we can pay attention to its
effectiveness where more depository bank branches have been
closed in low- to moderate-income communities. It is now up to
us to listen carefully to what the witnesses today say about
the crisis in Ohio and to find ways to supplement the mandate
of our Nation's regulatory agencies where necessary to get out
of the current crisis and avoid similar ones in the future.
Again, I want to thank you, Madam Chairwoman, and I do want
to say that I know that your whole life is about fairness and
equity. We have to find a way to bring about some kind of
equity for good people who had everything they worked their
lifetime for stolen from them by unscrupulous lending and sharp
mortgage practices. I think if this committee can do anything,
we need to delve very deeply into who precipitated, who made
the money, and to see if there's any way that we can find
remedies for people who have been cheated out of their dream of
a lifetime.
I thank the Chair again, and I look forward to hearing the
testimony.
Chairwoman Waters. Thank you very much.
Congresswoman Tubbs Jones.
Mrs. Tubbs Jones. Good morning, again, and thank you, Madam
Chairwoman. When I first came to Congress, I served on the
Financial Services Committee, and she was the ranking member on
the Housing Subcommittee at the time. Now she chairs that
subcommittee and we continue to move forward to try to
accomplish things within our community.
Before I go any further, I am joined by a number of my
elected official colleagues from across my Congressional
District. I am going to ask those who are here to kindly stand
because their communities need to know the fact that you are
here in support. Zach Reed from the City of Cleveland, I see
Council Member Brian Cummins, West Side, City of Cleveland. I
see the Mayor of the City of South Euclid, Georgine Welo. I see
the President of the City Council of East Cleveland, Gary
Norton. I see the Councilman from Ward 18, Jay Westbrook. Thank
you all for joining us this morning. This is an issue that we
have been paying attention to throughout Cuyahoga County.
I know that there are other people who are represented here
from the AGs Office, Ed Krause and Nancy Rogers on behalf of AG
Nancy Rogers. And the list goes on. I thank you very much for
being with us today.
I want to say that in the City of Cleveland, we have been
paying attention to predatory lending for a long time, but no
one was hearing us. In 2001, I introduced a piece of
legislation called the Predatory Lending Reduction Act of 2001,
trying to focus in on brokers who were not telling people that
they represented a company and got a commission, and brokering
these foreclosures. I knew that if I shamed the financial
district, then people would start paying attention to predatory
lending.
I also recall in yesterday's Plain Dealer an article about
the impact and I want to celebrate my colleague, Jim Rokakis,
the Treasurer of Cuyahoga County. We know that school systems
are going to suffer as a result of reduction in dollars coming
into, captured as a result of --
We also know that next generations are going to suffer
because working class families pass homes from one generation
to the next to give their kids a start. These days there won't
be homes to transfer from one generation to the next.
I could go on, but I have a statement, Madam Chairwoman,
that I seek unanimous consent to have placed in the record. I
am just so thankful that you came up here.
There are a lot of organizations that have been working
consistently around this issue such as the Ohio Credit Union,
and the Eastside Organizing Project Housing Advocates.
Cleveland Housing, I just thank you for your diligence. The
Legal Aid Society, all of you. We have to continue fighting on
behalf of the people that we represent and get this fixed. I am
pleased to say that a little piece of that 2001 predatory
lending legislation I introduced got included in recent
legislation that was introduced by my colleague, Maxine Waters,
and the chairman of the Financial Services Committee, Barney
Frank. We have to be consistent. We have to make our
communities stay in place.
Thank you, Madam Chairwoman. Thank you for bringing this
home to us and focusing in on the State of Ohio and all my
colleagues. It is nice to see all of these Members of Congress
right here.
Thank you.
Chairwoman Waters. Congresswoman Betty Sutton.
Ms. Sutton. Thank you very much. Thank you for inviting me
to participate here today and I would like to recognize the
strong leadership of Chairwoman Maxine Waters on this issue.
Chairwoman Waters has been a tremendous advocate during her
whole career for working families, and with the crisis that we
face, this has been no exception. She has been stellar.
I also want to thank my other colleague, Representative
Tubbs Jones, for hosting this event and Cleveland State as
well.
The foreclosure crisis has been devastating for Americans
all across the country, from all walks of life. Just recently,
one of my staff members told me of an experience he had right
in our office building. When he entered into an elevator, and
as they rode on the elevator between the floors, there was a
woman who got on and she started to sob and my staff member,
being the great caseworker that he is, he reached out and asked
her if he could be of assistance and asked her what was wrong.
She conveyed to him that she was on her way to sell her wedding
ring to try and make the house payment to save her house from
foreclosure. And then not long after that, I received an e-mail
from a person whom I had come to know who has been actively
involved in the community, a woman who had a job, but lost her
job, and is actively trying to find a job that will help her
make ends meet. The e-mail said that she had done some art work
in her spare time, paintings, and didn't really want to sell
them, but she was going to try to find some people who might be
interested in buying them. So people are trying and I am the
proud owner of some of her artwork, by the way.
Statistically speaking, in recent months, this crisis of
historical portions, the Mortgage Bankers Association recently
released numbers showing that more than a million homes are in
foreclosure, which is the highest number reported since they
began collecting those statistics in 1979.
RealtyTrac on Friday released numbers showing that for 29
straight months, foreclosure rates have seen a year-over-year
increase nationwide. And yet economic experts predict sadly
that we haven't seen the worst of it yet.
Ohio has consistently been at the forefront of this crisis,
as the chairwoman rightfully points out. We are the canary in
the coal mines. We see a massive exodus of manufacturing jobs
that have long been the backbone of this State's economy. Food
prices and fuel prices keep going up and families who were
already struggling to make ends meet are now at that breaking
point. The credit crisis which has been discussed here has made
it difficult for families to purchase new homes or to refinance
old loans. And all of these factors can compound the problem
and create a spiral effect that's difficult to break out of.
Although the figures from RealtyTrac released last Friday
show that the number of foreclosure filings in Ohio have
declined by 7 percent, the State still has the dubious
distinction of ranking 9th in the area nationally; 50 to 60
percent of homeowners who received a foreclosure filing will
eventually lose their home. That has to change. That translates
into a staggering human and economic cost.
In many respects we are still in unchartered territory and
the types of actions necessary to mitigate the crisis will
require solutions that move beyond what we have now come to
know and embrace.
Too often Federal, State, and local governments operate in
their own spheres. What we are facing is unlike anything we
have ever faced before and it will require innovative new ways
to address the problems of those we represent. That is why I am
so happy to see so many people from various levels of our
government here today to help become part of the solution, a
part of this charge that will overcome this challenge,
including the housing advocates and the advocates who are out
there being stricken so hard by the consequences of our plight.
We're fortunate to come from a State where we have leaders
who are willing to face this head on. The Ohio Foreclosure Task
Force that the Governor set up generated a number of excellent
recommendations, one of which was the basis for an amendment
that I was able to include in H.R. 3915, which passed, as you
have heard, last December.
I am also proud that the Ohio legislature quickly acted to
curb the predatory lending practices that played such a major
role in precipitating this crisis. And as you have heard, we're
also working on solutions at the Federal level and we have to
do more. The need is great, the challenge is enormous. We have
to do everything we can to overcome this crisis because the
wellbeing of so many families in all of our communities, and
frankly, the health of our Nation depends on it. In the House,
we have passed a number of mortgage foreclosure related bills
such as the Neighborhood Stabilization Act, FHA Stabilization,
and the Homeownership Retention Act. And these bills provide
funds to cities and States to purchase and rehabilitate vacant
homes and provide new refinancing mechanisms through the
Federal Housing Administration, both of which are critical in
northeast Ohio.
We still have significant challenges and I know I'm not
telling you anything new for those of you who are in this room.
These challenges lie ahead and that is why today's hearing is
so important.
Again, I thank the distinguished committee and I thank the
distinguished witnesses for being here today and all of you
gathered because I know you are here because we're looking for
solutions.
Thank you.
Chairwoman Waters. Thank you. At this time, I would like to
introduce our first panel: Mr. Engram Lloyd, Director,
Philadelphia Homeownership Center, U.S. Department of Housing
and Urban Development; Ms. Kim Zurz, director, Department of
Commerce, State of Ohio; Mr. Chris Warren, chief of regional
development, Office of the Mayor of Cleveland, Ohio; Mr. Antony
Brancatelli, councilman, City of Cleveland; Ms. Tina Skeldon
Wozniak, president, Lucas County Commissioners; Mr. Matthew
Stefanak, commissioner, Mahoning County Health Department; and
Ms. Patricia Kidd, executive director, Lake County Fair Housing
Resource Center.
I thank you all for appearing before the subcommittee today
and without objection, your written statements will be made a
part of the record. You will now be recognized for a 5-minute
summary of your testimony, and we will start with Mr. Lloyd.
STATEMENT OF ENGRAM LLOYD, DIRECTOR, PHILADELPHIA HOMEOWNERSHIP
CENTER, U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
Mr. Lloyd. Thank you, Chairwoman Waters. I appreciate the
opportunity to speak to you today on behalf of Steven Preston,
the Secretary of the U.S. Department of Housing and Urban
Development. I am Engram Lloyd, Director of the Philadelphia
Homeownership Center.
The significant effects of foreclosure on our national
economy and on world markets bring us here today. Congress and
the Administration have for some time been looking at
legislative and regulatory options for minimizing foreclosures.
At HUD, I can report that we are working on both in our efforts
to mitigate the adverse effects of this market correction on
borrowers.
One of the strongest tools we have to protect both
borrowers and markets is the Federal Housing Administration. As
you may know, FHA helps individuals secure credit by providing
mortgage insurance through a private sector distribution
network that makes owning a home more affordable and safe and,
therefore, a reality for many borrowers that might otherwise go
unserved.
Several times in testimony before Congress last year, HUD
witnesses stated that many of those who ultimately entered the
subprime market would have been better off with an FHA-insured
loan. Many may still be eligible to refinance today. Although
we cannot go back in time to ensure that each borrower made the
best decision when obtaining a mortgage, we can provide
refinancing options when obtaining a mortgage for many subprime
borrowers. And we can do more to help people make better
decisions and we can provide new financing options to many
subprime borrowers and we can do more to help people make
better decisions going forward through both innovative products
and counseling support.
The Administration has taken decisive action to help
responsible homeowners stay in their homes. Last fall, the
Administration launched the FHASecure initiative and
facilitated the creation of the HOPE NOW Alliance, which
together has helped more than a million struggling homeowners.
FHASecure is a refinance option designed specifically for
conventional and subprime borrowers who default on their
mortgages solely because they can no longer afford the payments
on their adjustable rate mortgages after the interest resets to
a higher rate.
On April 9, 2008, the Department announced a dramatic
expansion of the FHASecure program to help additional borrowers
stuck in subprime mortgages, some of whom may owe more on their
mortgage than their home is worth. Under the original FHASecure
program, FHA modified its refinancing program to help credit
worthy homeowners who missed payments after their teaser rate
reset. Now, FHASecure has expanded its eligibility standards to
cover borrowers with adjustable rate mortgages who were late on
as many as 3 monthly mortgage payments over the previous 12
months.
FHA has already helped about 250,000 people refinance into
safer mortgages and with these additional changes, FHA is
expected to help approximately 500,000 homeowners refinance by
the end of the year.
One of the goals of the HOPE NOW Alliance was to develop
and fund a nationwide advertising campaign to encourage
delinquent borrowers to seek help through the 888-995-HOPE
network of HUD-approved housing counselors. HOPE NOW is an
alliance among counselors, servicers, investors, and other
mortgage market participants. The Alliance maximizes the
outreach efforts to homeowners in distress to help them stay in
their homes. Its purpose is to reach and support as many
homeowners as possible. The members of this Alliance recognize
that by working together, they will be more effective than by
working independently.
In the fall of 2007, HUD released informational video
footage containing foreclosure prevention tips and information
for homeowners who are struggling to pay their mortgage. Among
other things, the video includes a list of 10 tips on how to
avoid foreclosure. I suggest anyone who owns a home or who is
in the market to buy a home visit HUD's Web site at www.hud.gov
for more information.
Throughout this year, HUD staff and senior officials have
sponsored or participated in more than 92 separate
homeownership retention events in Ohio including clinics,
fairs, targeted mailings, advertising, and joint task forces
that reached a combined audience of over one million people.
The Philadelphia Homeownership Center, in cooperation with the
Ohio congressional delegation, the State of Ohio, and HUD's
field offices have conducted housing preservation clinics and
foreclosure summits to spread the word about foreclosure
prevention alternatives. Participants besides HUD include
Fannie Mae and Freddie Mac, various agencies within the State
of Ohio, local governments, congressional representatives,
housing counseling agencies, lenders, and Realtors. Of these,
the most effective have been our Homeownership Preservation
Clinics in Cleveland and Columbus, which enabled homeowners to
meet face-to-face with participating lenders, including Wells
Fargo, Countrywide, and National City, and were attended by
over 1,000 participants. These clinics also enabled on-the-spot
counseling sessions with an approved counseling agency.
In addition to these Homeownership Preservation Clinics,
staff from the Philadelphia HUD has attended several banking
and Realtor conventions.
As you can see, the Department has taken several steps to
address foreclosures, but there is much more work to do. Thank
you, and I look forward to your questions.
[The prepared statement of Mr. Lloyd can be found on page
397 of the appendix.]
Chairwoman Waters. Thank you very much. We will now hear
from Kimberly Zurz.
STATEMENT OF KIMBERLY A. ZURZ, DIRECTOR, DEPARTMENT OF
COMMERCE, STATE OF OHIO
Ms. Zurz. Thank you, Chairwoman Waters. I appreciate the
opportunity to be here on behalf of Governor Strickland and the
Ohio delegation to be able to speak to you today about the
impact of foreclosures on our State.
The mortgage foreclosure crisis has touched all corners of
Ohio. Virtually every county has recorded an increase in
foreclosure filings from 2005 to 2008, and has reached the
highest level statewide in over 13 years.
We are making concerted efforts here in Ohio to help our
citizens, and I would like to tell you a little bit about that
today.
We have collaborative efforts crossing all of our branches
of government and expanding into the private sector as well.
Today, as I explain Ohio's crisis and our innovative efforts to
combat foreclosures, I hope you share my perspective, and also
that of Ohio's community.
The Supreme Court reported, as you know, 83,230 new
foreclosure court filings in Ohio in 2007. That's a high record
of over 5 percent over 2006. While we consider the numbers rise
and the trends are equally alarming across-the-board according
to the reports of the Association of Realtors. We also
recognize that we are taking every effort we can to help our
citizens stay in their homes.
When we listen to the statistics, we realize the sobering
reality of them, but they aren't speaking to the human stories
behind each of those mortgage foreclosures and they don't speak
to the uniqueness that Ohio has on this issue.
I have attached to our report some of the statistics since
1994 for your review to show that Ohio has been facing this
issue for many, many years.
In the last couple of years, some States have just begun
their fight. Obviously, Ohio has had its share of economic
problems which has contributed to the trend. However, we have
also been accounted for in the unscrupulous lending until the
passage of Senate Bill 185, the Homeowner Protection Act.
I hope you don't lose sight of the fact that Ohio has been
facing this issue for a number of years as Congress continues
to work toward legislation to address these issues.
In Ohio, the impact of vacant and abandoned properties
varies from one locality to another, from neighborhood to
neighborhood, but the impact is just as devastating no matter
where it might be. The scale and impact of the problem is some
things considered on the level of a natural disaster where
emergency assistance from the State and Federal Government that
some have compared to that of Katrina. As you visit our
neighborhoods, you can see the devastation that we're talking
about.
Our cities are trying to do the best that they can to
combat the problem. More needs to be done to assist them. Ohio
desperately needs the Federal and State actions to help to
reduce the impact of the vacant and abandoned properties.
Ohio's response has been vast. On March 7, 2007, shortly
after becoming Governor, Governor Strickland established the
Foreclosure Prevention Task Force of which I was appointed
chairwoman. This is a group that was brought together to
provide a unified coordinated statewide effort that would
respond to our citizens with the goal of keeping as many people
in their homes as possible. We brought together local, State,
and Federal government, and housing agency organizations and
associations, many of which are here today. We asked them to
put their personal agendas on the table and to put their
feelings aside and try to work for an overall solution that
everyone could live with. This is a group that had to come up
with solutions.
We held 11 meetings. We had 22 subcommittee meetings and we
had about 6 months to complete our report. We worked on a very
short timeline with a great deal of information.
After we had those meetings, and listened to a lot of the
testimony, we reported to the Governor on September 10, 2007,
with report recommendations of the best ideas and the best
approaches we felt Ohio could use to move forward to address
the foreclosure problem. We had 27 recommendations and we moved
forward on each of those recommendations and took action on
each one of those recommendations to date.
The most important piece that the country is talking about
and has been recommended and talked about a little bit today
was the Compact. The Compact that would help Ohioans preserve
their homeownership was signed earlier this year, and we are
hoping that the Compact will be something that we will be able
to continue to use to help our families be able to work with
their mortgage servicers and come to some type of workout of
loan assistance as they move forward.
Under the Compact, servicers were asked to take all kinds
of measures. They were asked to increase the loan workouts,
including adjusting their staff and resources to include major
improvement, preventive efforts, and loss of litigation. We
have asked that they report to the Department of Commerce on a
regular basis. We have asked that they do loan modifications
and that they work very diligently to actually contact the
borrower. We recognize that the contact piece is the most
difficult piece, and many of them tried, but we want to make
sure that they understand that it is imperative that they make
that extra effort.
In December of this year, I met with servicers and their
trade associations to discuss this proposed Compact. We finally
agreed on six principles on which we based the final product.
It substantially matched the spirit of our original
conversations with the servicers and will help us move forward
to come to fruition of the Compact that was actually signed
April 7, 2008, by Governor Strickland, myself, and nine of the
loan servicers. We will continue to look forward to try to get
more folks to join us in that Compact in Ohio. We are seeing
that it is having an impact on our citizens and we hope that it
is something we will be able to use as an example for others to
follow.
We encourage the servicers to join with us to try to help
those that are not part of the Compact at this time to join
along with us. The more folks we have following our effort, the
more helpful it is to our citizens and the more that we can do
as we reach out across the State.
We also kicked off what is called Save the Dream. Save the
Dream is our new effort for the State that tells you how to
contact the State and the State will then help you to get an
attorney or a housing counselor and put you in direct contact
with your servicer. All the efforts we are making on the
State's end are what we can do, but we also need your help.
We need Congress' help on many of the things that you have
before you today. Many of the pieces that you talked about are
the challenges that we face and if you will be able to move
forward with some of those pieces regarding housing counseling,
it would greatly impact what we can do here. Our citizens have
watched Wall Street be bailed out. They most desperately need
to be bailed out. There needs to be help for the citizens of
Main Street, not just those on Wall Street.
I thank you for coming here and taking the time to learn
about Ohio. Thank you.
[The prepared statement of Ms. Zurz can be found on page
450 of the appendix.]
Chairwoman Waters. Thank you very much.
Next, we have Chris Warren, chief of regional development,
Office of the Mayor of Cleveland.
STATEMENT OF CHRIS WARREN, CHIEF OF REGIONAL DEVELOPMENT,
OFFICE OF THE MAYOR OF CLEVELAND, OHIO
Mr. Warren. Good morning. Thank you, Chairwoman Waters, for
bringing this hearing to Cleveland. You're not only welcomed,
you are desperately needed because Cuyahoga County, and the
State of Ohio is trying to recover from the devastation caused
by unchecked predatory lending practices. This has been a
murderous unnatural disaster, one that has wiped out decades of
patient community development work, threatened our futures, and
left thousands of homeowners and renters in the lurch. Call it
Hurricane Greed.
Consider the wreckage: 15,000 foreclosures in Cleveland
filed in 2006 and 2007 and it will hit 8,000 this year; 80
percent of those are tied to subprime loans. Wreckage: 3,500
certified tax delinquencies as of March of 2008, a 5-fold
increase since 2005--5-fold--9,500 vacant residential
structures and growing as of December in our City, 3 times the
number in 2005.
Last year, our City spent out of our general funds, not our
block grant funds, but out of our general funds, $12.5 million
on public nuisance abatement, tearing down vacant structures
that cannot be lived in again, cutting the grass of vacant
properties. As reported in the Plain Dealer yesterday, sending
our fire trucks out to arsons at abandoned properties.
Cleveland Tenants Organization, a very good group in
Cleveland, reports a sharp increase in evictions. We're talking
about foreclosures. Why evictions? Because their landlords,
many of whom are as unscrupulous as the lenders, use predatory
loans to buy hundreds of properties, turn them into rental
properties, and once the interest kicked in, they're gone. And
even though these tenants have paid their rent, they're out.
They're evicted. Wreckage.
Our cities are bracing from declines in property tax
valuations and the consequent loss of sorely needed funds for
public schools, city services, our inside millage for borrowing
for public properties and infrastructure is in shambles.
As Congressman Kucinich indicated, the devastation does not
stop at our City boundaries. Double the foreclosure,
abandonment, and public service cost I cited for Cleveland, and
you have a fair idea of the impacts on Cuyahoga County.
Who are the plunderers? It's a long list, but the main
culprits we know, subprime lenders and brokers who
substantiated loan after loan, underwater loans with bogus
appraisals while maximizing their fee income through
questionable assembly line underwriting practices. The real
estate scam artists whom I mentioned who purchased hundreds of
properties, low-valued properties in poor neighborhoods with
subprime loans often in cahoots with the lenders and converted
them to high-cost rentals, no money put into repairs, and once
the resets came, they were gone.
Wall Street. We now know that tens of thousands of
mortgages originated in Cleveland since 2003 were snapped up by
some very large financial institutions, all of whom trafficked
in high risk mortgage-backed securities. And in fact, for firms
like Deutsche Bank, Merrill Lynch, Wells Fargo, Goldman Sachs,
and others, it appears the only home mortgage business they did
in Cleveland during that timeframe involved the acquisition of
subprime loans, the assignment of this paper.
The default rate on these loans backed by the titans of
finance? Better than 60 percent.
What can we do? Drawing on the work of Cleveland's Vacant
and Abandoned Property Action Council, here's a summary.
For people: place a moratorium on the foreclosure of
occupied properties that would give defendants the chance to
utilize court-supervised mediation in an effort to restructure
their loans.
For people: building on the work already going on that has
Federal, State, and local governments using every available
means to compel, not just encourage, lender workouts and loan
restructuring commitments coordinated with local financial
counseling efforts.
For people: as is called for in a number of bills before
Congress now, increase the amount of FHA mortgage insurance
available for refinancing restructured subprime loans.
For people: institute a strict policy by regulatory
agencies of policing mortgage brokers, appraisers, and the
secondary market. And as Representative Kaptur said,
aggressively investigate and prosecute fraud through actions by
the Justice Department, our regulatory agencies, and anybody
else we can find to do the job, including Congress.
Maintain high levels of funding. We need it for the long
haul for financing literacy and counseling programs.
Now for communities: hold Wall Street accountable. In
January, the City of Cleveland, through the leadership of Mayor
Jackson, filed a lawsuit against 21 Wall Street firms. The
complaint, based on Ohio's public nuisance statute, asserts the
defendants could have and should have foreseen massive numbers
of foreclosures when they purchased thousands of unsafe and
unsound subprime loans from 2003 through 2007. These 21
defendants have filed more than 16,000 foreclosure actions in
Cleveland and Cuyahoga County since 2003. We are spending
through the nose through public service expenses that are the
result, money that should go to police, fire, basic city
services, our suit seeks to recover in this damage.
So, in addition, we need emergency relief. This is a
hurricane, Federal relief. Congresswoman Waters, whose
leadership in introducing the security package in the House of
H.R. 5818 is a huge step in the right direction. And we have a
game plan here in Cleveland. Cooperation with community-based
development corporations, national and local foundations we
have launched in the State of Ohio, we have launched a
``Reclaiming Foreclosed Properties'' program led by
Neighborhood Progress, Inc., Cleveland Housing Network, some
very experienced community development corporations. This
initiative will target six city neighborhoods for intensive
pre-foreclosure workouts, systematic ``property banking'' of
tax-foreclosed and bank-foreclosed properties, clearance of all
vacant properties that are unsafe and beyond repair, and the
redevelopment of homes on terms affordable for low- and
moderate-income buyers. We have a plan, our county treasurer is
leading, Jim Rokakis is leading really an incredible effort to
establish a countywide land reutilization authority or land
bank that would make it possible to establish and finance a
countywide entity capable of holding, maintaining, and
redeveloping abandoned and foreclosed properties.
These programs constitute a solid framework for converting
and recovering from Hurricane Greed, the successful and
meaningful saleable level, meaning resources, and we need it
fast. We need resources that the Federal Government can
provide.
Last March, the City of Cleveland hosted a half-day forum
on the foreclosure crisis problem. One of the participants
summed up the situation well. She said, ``With the help of the
Federal Government, including the regulatory agencies, we might
recover in 5 to 10 years. Without their help, it will take a
century.''
Thank you.
[The prepared statement of Mr. Warren can be found on page
439 of the appendix.]
Chairwoman Waters. Thank you.
Councilman Brancatelli.
STATEMENT OF ANTONY BRANCATELLI, COUNCILMAN, CITY OF CLEVELAND
Mr. Brancatelli. Thank you, Madam Chairwoman, and members
of the subcommittee for this hearing today. Certainly, having
been a young, freshman Councilman, I get to sit in the middle
of these two tables and also have a bottle of water. The
distinguished chief is here and I'll kind of follow his lead.
My name is Antony Brancatelli, and I have had the pleasure
of representing our ward for the past 3 years. Prior to
becoming a Councilman, I served 17 years as the executive
director of Slavic Village Development Corporation, one of the
most successful community-based nonprofits in our city and now
led by an outstanding executive director, Marie Kittredge.
Madam Chairwoman mentioned earlier that we want to know how
it's working. I think I included in your packets at your desk
you'll see a piece, Fight Foreclosures and Abandoned forum,
breaking the cycle of abandonment. It was a forum that was
initiated by Martin Sweeney who supported Jay Westbrook. And
it's really a highlight of all the organizations and officials
that are working hard at stopping this abandonment.
I think if you look at this piece you'll see some of the
things that we're talking about and breaking the cycle of
abandonment. Those are detection, prevention, maintenance, and
redevelopment. You'll see ways that we are trying to change the
face of our neighborhoods and trying to recover from this
crisis.
While tracking this crisis across our City, I have seen a
record number of negative reassessments and as the chief
pointed out, the impact has been devastating for our
neighborhoods and our residents and our county treasurer
estimates that if our property values drop 10 percent,
Cleveland stands to lose $10 million. The Cleveland Municipal
School District will lose $3 million if it drops 10 percent.
I'm also providing you with a report entitled,
``Foreclosure and Beyond'' which is a detailed report on
ownership following the sheriff's sale to Cleveland. This
report was commissioned by Case University and researched by
Michael Schramm, Kristen Mikelbank, Claudia Coulton and
contains a detailed study of the impact of foreclosures. This
``Foreclosure and Beyond'' really identifies the corporate base
in our community and the changes that will be impacted by the
sheriff's sales and it will give you an identifying number that
you can see what will happen when this occurs.
Across the City, we have points of blight. You see over
10,000 vacant and abandoned homes in our community and as the
chief pointed out, we're spending millions and millions of
dollars maintaining these homes. Council members have spent
hundreds of thousands of dollars of their own precious EBG
dollars and many of you know how previous those dollars are.
Just to cut lots and maintain some of the vacant homes and keep
them secured, keep our residents from having to deal with this
crisis. And we found our weapons of mass destruction in the
form of Deutsche Bank, and JP Morgan just to name a few, but
used the Wall Street gold to destroy our community. Wells Fargo
officials openly admit their dependence on Federal dollars to
bail them out. Many panelists will talk about how to recover
from this, but first I want to talk about the impact of the
crisis in our local community.
Our community has been the victim of a perfect storm. This
is not a community with adequate banking presence. We have some
of the highest quality banks in the region. We have great
shopping, retail dining, and recreation opportunities in our
communities. We also have a wonderful employment base with
quality manufacturers, industry, and service providers.
What we don't have is an adequate protection from predatory
mortgage companies, corrupt mortgage brokers, and title
companies who openly participate in the destruction of our
company.
There were a questionable number of mortgages given by a
handful of mortgage brokers and appraisals which resulted in
millions of dollars of foreclosures, yet these brokers and
appraisers are still licensed today. As you go through that
document, you can see those firsthand. We have residents like
Barbara Anderson in our community who are working hard to
identify this fraud and that report clearly puts it in
perspective. This is not a neighborhood that was not hit with
hard economic times and market conditions that people would
believe it was hit hard with predatory lending. This
neighborhood averages two foreclosures a day. In the last 3
years, we lost 10 percent of our population and currently have
1,000 vacant homes.
Hundreds of homes are condemned and waiting for the
wrecking ball. Houses are being stripped at an incredible rate,
and scrap prices are at an all-time high. This was not
unforeseen.
We need to develop a Federal housing policy and legislation
that provides for the continuation of existing leases a minimum
of 90 days as a determination of the tenancy of the tenants in
the event of a foreclosure. We all seen the effects of vacant
homes and keeping families in their homes until suitable and
appropriate housing makes sense.
I have seen proposals by the Federal Government; we talked
about those today. Supporting H.R. 5818 and supporting H.R.
5870 brings millions of dollars and billions of dollars to help
save our neighborhoods is critical. Demolition is a critical
tool for our recovery. We have over 10,000 structures in our
neighborhood and many of those homes were factory-built and by
today's standards are functionally obsolete. This proposal not
only financially condemns these homes, they're now physically
condemned and should be demolished.
There are a number of plans in place for reuse of this
vacant land but what we need is help from the Federal
Government. We need the Federal Government to place all the
mortgage companies under stricter government lending laws. We
need stricter licensing and mortgage brokers and licensing of
appraisers. We need the Federal Government to make it a
priority to prosecute mortgage fraud at a high level. We need
the Federal Government to not bail out banks but to hold them
accountable for their actions. The city is doing their part and
will now enforce the registration laws and code enforcement
laws in at a very aggressive level. The community is doing its
part to help cut back some of the problems in our neighborhood.
The nonprofits are doing their part.
It's my hope that the next President will learn from our
experience and hit the ground running to change the policies
and help save our neighborhoods and this year we will see
meaningful mortgage packages that we can use now coming from
Congress. Thank you very much.
[The prepared statement of Mr. Brancatelli can be found on
page 101 of the appendix.]
Chairwoman Waters. Thank you very much.
Next, we will hear from Tina Skeldon Wozniak, president,
Board of Lucas County Commissioners
STATEMENT OF TINA SKELDON WOZNIAK, PRESIDENT, LUCAS COUNTY
COMMISSIONERS
Ms. Wozniak. Good morning, and thank you so much,
Chairwoman Waters, for this opportunity and to the members of
the Housing and Community Opportunity Subcommittee for coming
to Ohio for this very critical and important hearing. I would
also like to thank my own Representative, Congresswoman Marcy
Kaptur, for this opportunity. We've been working hard on this
issue at home.
I represent 450,000 residents of my county which is located
about 100 miles from here, as you know. I also come to you as a
trained and professional social worker, here to share stories
of the deep worry in the faces of many of our residents.
I'd like to be able to tell you that our problems are
unique, but the truth is that Lucas County and Northwest Ohio
are just like every other community in America that is dealing
with this foreclosure crisis as you have heard from this great
panel here today.
You've heard countless times the story of a family member
who lost their job and a family that subsequently lost their
home. You know too well the pain that unscrupulous lenders have
caused not just for homeowners, but in fact in whole
neighborhoods in our area. You've seen the struggle on the
faces of the people who have come before this subcommittee,
whether it's in our Nation's capital or the main streets of
America.
This problem is more than just the statistics, more than a
report, and data that is gathered in the field. But to fully
grasp the extent of this problem, the data is where we have to
begin.
Since 2002, foreclosure filings in Lucas County have
increased by over 50 percent, and in the last 5 years, we have
calculated over 18,000 homes have been part of foreclosure
filings. That is nearly 10 percent of the total housing stock
in Lucas County and that's a dramatic figure for any community
to deal with.
Single-family homeowners are not the only victims.
According to RealtyTrac and information from our county
auditor, almost 5 percent of all rental units in Lucas County
have been involved in a foreclosure action. This proves that
you don't have to own your own home to be hurt by this crisis.
A recent study by the policy group ReBuild Ohio determined
that vacant and abandoned properties in Toledo, Lucas County's
largest city, cost taxpayers at least $3.8 million in 2006
alone. But it's not just our cities like Toledo; the
foreclosure crisis in Lucas County has hurt almost every
community in our area, especially in the area of declining home
values and this decreases basically the revenue available to
provide necessary services.
Yes, the data is dramatic, but we know that the real story
of this crisis is in the faces of those who have been disrupted
and who have lost their chance at the American Dream. It is
both a story of the individual and their family.
But as tragic as those stories are, what's left after a
family loses their home is not just a personal crisis, it's a
community crisis too.
Those homeowners who didn't take any risks, who didn't fall
victim to the slickest sales pitches or unbelievable claims,
and who behaved appropriately, are now too watching their homes
fall in value in the foreclosure crisis. They are looking
across the street to the yard which hasn't been mowed all
summer. They are worried about what pests might be attracted by
the vacant buildings. They are wondering why their city is no
longer able to provide the same tree-trimming, street-cleaning,
and trash collections that they have experienced in the past.
When a foreclosure happens in Lucas County, instead of just
a family in crisis, a household is in crisis, a bank is in
crisis, and that foreclosure leads to a block, a neighborhood,
a city, a State, and a Nation in crisis.
Crime rates that had been dropping start to go back up.
Middle-class families move out of their former neighborhoods,
contributing to greater and greater urban sprawl. The falling
value of our homes keeps families from making needed
investments and contributing to starved local economies.
In Lucas County, trust me, we've seen it all. Before the
foreclosure crisis became a daily news item for the media, we
started working. In 2006, in partnership with city, county, and
State leaders, as well as nonprofits like United Way, the
Toledo Fair Housing Center, and Advocates for Basic Legal
Equality, we formed the Lucas County Save Our Homes Task Force.
This innovative group developed an important mailing that
is sent to families at the start of their foreclosure crisis,
so they can connect immediately with the many resources
available in the community. About 5,000 have already been sent
out and that's a good thing.
Working with our Department of Job and Family Services, we
were the first county in Ohio to devote over $400,000 in
Federal TANF dollars toward low-income foreclosure assistance.
The judges of our Common Pleas Court have also responded,
setting aside resources to create a foreclosure magistrate and
develop an expedited mediation process for homeowners and
lenders.
Elected officials and nonprofit leaders from across the
county, including myself, went door-to-door in the hardest-hit
neighborhoods and talked to residents about upcoming sessions
where homeowners could try to work out a mediation with their
lenders.
With the limited resources that our county government
provides, we've done a great job reaching out, but we know it's
not enough. We've been smart about our outreach, we've tried to
target our resources responsibly, but we've just nibbled around
the edges. At the end of the day, families keep losing their
homes and we haven't solved the problem.
I wish that I were here today with a new idea or a new
solution that could make a real difference. I am happy that
this subcommittee does have the right ideas and does know the
best solutions. Ultimately, Lucas County families need the
power to bring the lenders to the table to renegotiate these
loans. Our homeowners need the opportunity for a fresh start
with mortgage terms that they can afford.
This is not a bailout. It's an investment in our future,
and it's clear that only the Federal Government has the
authority, the clout, and the resources to make it happen.
There are two pieces of legislation currently being
considered by the Congress that I believe will bring a
tremendous amount of relief. Having listened closely to the
conversation regarding H.R. 5830, the FHA Housing and Homeowner
Retention Act of 2008, it's clear that these key provisions
will give at-risk homeowners the tools needed to get out from
under a bad mortgage.
As a local government official, I am pleased by the
initiations by the subcommittee. These two bills address the
twin grievances that communities like Lucas County are facing
in the foreclosure crisis. Our people are not afraid of hard
work and are not afraid to do their part to get out of a bad
situation. We do not need any special treatment. What we need,
both at the homeowner level and the level of the local
government, is a readiness by our leaders in Congress to take
action and make a difference.
Whether you're in Toledo, Houston, or Los Angeles, we know
that you are listening to our issues. Thank you very, very
much.
[The prepared statement of Ms. Skeldon Wozniak can be found
on page 445 of the appendix.]
Chairwoman Waters. Thank you very much.
We will now hear from Matthew Stefanak, commissioner,
Mahoning County Health Department.
STATEMENT OF MATTHEW STEFANAK, COMMISSIONER, MAHONING COUNTY
HEALTH DEPARTMENT
Mr. Stefanak. Thank you, Chairwoman Waters, and I would
also like to thank my Congressman, Representative Charlie
Wilson, for listening so intensively to our concerns about the
growing blight problem in this district.
When I started my public health career nearly 20 years ago,
I never thought of myself as an anti-blight worker, but over
the last couple of years, I have come to realize that the
blight problem caused by this housing crisis is a public health
problem.
Blighted dwellings attract nuisances, and they attract
disease vectors, like raccoons, rats, and mosquitoes. This is
the public health concern that we face.
Also, unmaintained properties, especially those that were
built many years ago when the use of lead paint was
commonplace, release lead and threaten to poison children when
they reoccupy those properties. In the Youngstown area, where
90 percent of our housing stock was built before 1950, lead-
based paint was in common use.
This housing crisis came home to roost for me over the last
few years, when I saw our numbers of housing complaints triple.
Last year my sanitarians struggled to respond to over 240 of
these.
I serve a health district that comprises 14 townships and 9
municipalities in Mahoning County. They range from old steel
towns like Campbell, Ohio, all the way to Smith Township, which
is a rural Appalachian township. And in each and every one of
those communities, there is a blighted property.
I have made a poster here showing you some of them. If you
can't see it, I am sorry. It illustrates the kinds of
properties that we are dealing with now in public health.
To give you a sense of what this means for people trying to
keep up their homes in some of these blighted neighborhoods,
last year I was listening to the news. One TV reporter
interviewed Ms. Lori Mayberry, who lives on Jefferson Street in
Campbell, Ohio. She tried to keep up her home as a resident,
put paint on her front porch, and flowers in her front lawn.
But she has 10 blighted properties like these up and down her
street.
She told the TV reporter, ``This neighborhood was full,
used to be full of nice, quiet families. One by one they either
moved or passed away. Now it is just a bunch of abandoned homes
that are just deteriorating. I feel like I am being
discriminated against. I feel like they have put me in a
category like if you live down here, you deserve what you
get.''
Now, units of local government, like mine and others,
especially the mayor of Campbell and our township trustees
across the county, want to do something to help people like Ms.
Mayberry, but they either don't have the money or they don't
have the tools or know how to use the tools to take down these
blighted vacant structures.
We are losing the war on blight, it seems, in Campbell,
because, first and foremost, as Congressman Wilson pointed out,
we have a lot of surplus housing. Our population has dwindled
by up to 50 percent in some communities, like Youngstown, over
the last 30 years. In Youngstown, in 1970, there were 160,000
people. Today there are barely 80,000. Campbell has probably
lost half of its population as well.
We have too much housing. You can buy a house in Campbell
for $2,000. If you bought it for $2,000 several years ago, it
is probably worth $500 now. You know, it costs $2,500 to $3,000
to knock down that home today. It is worth less than it takes
to knock it down.
That is why when Congressman Wilson and his colleague
Congressman Tim Ryan, our other representative from Mahoning
Valley, introduced the Emergency Neighborhood Reclamation Act
of 2008, we were very excited because we think that kind of
short-term Federal help can help us tip the balance in our war
on blight in the Mahoning Valley. We need to right size our
housing stock in order to deal with the blight problem at the
same time.
Some communities, like Campbell, really need that financial
assistance because those precious Community Development Block
Grant dollars for Campbell would need to be fully allocated
over the next 3 or 4 years to take care of the blight problem
at the exclusion of taking care of other needed city services,
like sidewalks and sewers and whatnot. There just isn't enough
money for cities like Campbell to get a handle on their blight
problem.
In not every community is just more money the answer. In
Smith Township, for example, the township could probably scrape
together the $2,500 to $3,000 it needs to knock down its
blighted structures, but it doesn't know how to do it.
The township has tools to deal with blight, but in many
cases they have never done it before. They have never had to do
it before. And that is why that we have been trying in my
district to educate our fire chiefs, our zoning inspectors, our
mayors, and our trustees about their authority under Ohio law
to deal with blight.
We brought in speakers from the State Health Department,
and State EPA earlier in the spring for a workshop. I have to
tell you, unfortunately, many of our fire chiefs and mayors
came away scratching their heads not knowing how to negotiate
the regulatory process to tear down or burn down blighted
structures. One of the participants wrote in his comments on
the workshop, ``This was depressing. I feel like we are
regulating ourselves into a Third World country.''
So one point I would make, in addition to supporting short-
term financial assistance to help communities like ours, is
that perhaps Federal agencies, like HUD and EPA, could get
together and offer some clear guidance to their State partners
and municipalities on how to safely negotiate asbestos
regulations and other air quality regulations in those
communities that want to deal with blight but can't or don't
have the money to do so.
Finally, my final point is that I wasn't around for
smallpox eradication in my public health career. It was before
I started, but I would like to be around for the elimination of
another major disease for many children in this country, and
that is childhood lead poisoning.
We have made a lot of progress in my community and
nationwide in a push to our goal of eliminating this disease
from this country by 2010, but I think that progress is in
jeopardy now because of the deteriorated quality of our housing
stock. That is why we would ask the Congress to please protect
and perhaps expand the opportunities to homeowners and
landlords to make their properties lead-safe through the HUD
Office of Lead Hazard Control and Healthy Homes.
Thank you. I hope I have made the case that this is also a
public health concern as well as an economic crisis.
[The prepared statement of Mr. Stefanak can be found on
page 400 of the appendix.]
Chairwoman Waters. Thank you very much.
Ms. Patricia Kidd, executive director of the Lake County
Fair Housing Resource Center.
STATEMENT OF PATRICIA KIDD, EXECUTIVE DIRECTOR, LAKE COUNTY
FAIR HOUSING RESOURCE CENTER
Ms. Kidd. Thank you, Chairwoman Waters, and I would like to
thank you for asking me to come. My name is Patricia Kidd, and
I am the executive director of the Fair Housing Resource
Center. We are a nonprofit fair housing advocacy agency that
operates in Lake County, Ohio.
Our county and people in the resident counties who spoke,
we have the same type of issues. But I want to try to take a
different approach, rather than give you statistics of all the
problems. I think we are all aware that we have a real issue
here.
Our agency has been a certified HUD housing counseling
agency since 2002. But, unfortunately, we have been at the
front lines of this foreclosure crisis since its beginning.
Back in the mid 1990's and late 1990's, I was helping on
predatory lending. Here, 10 years fast forward, we are dealing
with the results of what predatory lending brought to us.
Our agency had always done loss mitigation counseling for
homeowners. This is nothing new. It is not a new concept. We
have been doing this type of counseling since 2002. The
difference between then and today is that our numbers have
increased over 300 percent.
The numbers of homeowners that are coming to our offices
seeking services from our counselors are keeping us so
incredibly busy. It is time-consuming to assist a homeowner to
work out a mortgage loan. It is very time-consuming to try to
get a servicer on the phone. It takes anywhere between 6 to 10
phone calls just to find a phone number where we can fax a
release form to so that we can get permission to speak to a
borrower.
In my testimony, I have outlined 6 pages worth of
chronological order of one loss mitigation that we received
recently, 6 pages, 4 months, 43 phone calls and e-mails, 43 of
them.
Our qualified borrower was told that she didn't make enough
money to get a loan modification at $800 a month but, instead,
was offered a $1,200 repayment plan. I don't understand the
logic.
We are dealing with single families, elderly couples. And
it is difficult to see an elderly couple sitting before me who
have planned for their retirement 20 years ago as long as they
made a substantial amount of money and realizes today that they
can't afford to make ends meet. And the house they raised their
children in, like somebody on the panel has already said, isn't
past the loan. The house is going into foreclosure.
Everybody looks at the foreclosure statistics. But you want
to triple that or multiply it by five. That is how many people
are in default. We are dealing with people in default for 30
days, 60 days, 90 days, and running around scurrying, trying to
do everything that we can to try to prevent the foreclosure
from happening.
But the other thing that I think Congress needs to take a
look at is it doesn't just end after foreclosure. What happens
next? What about the people then? The house gets foreclosed on.
It is not like they fall off the face of the planet. They still
have to go somewhere. They have to relocate.
Nine times out of ten, the mortgages that the individuals
have that they are having trouble paying, then forcing them
into foreclosure is probably $300 less a month than the average
rental prices, they've learned when they leave that house. And
they have to rent somewhere else.
Most of the reputable landlords require a credit report on
initiating a lease. Now we have homeowners--they couldn't even
rent a decent place because their credit score doesn't pass
muster or their foreclosure is a bad stain on their financial
circumstances.
Representative Sutton said--and I had it written down--that
we have done a lot and there has been a lot initiated in order
to try to help this crisis moving down, but we need to do more.
H.R. 5679 is definitely a step in the right direction.
Let's get the mortgagors required to speak to us. As a HUD-
certified housing counselor, it would be nice to have a direct
line to a modification specialist and a direct individual whose
job it is to speak directly with our agency.
It shouldn't take 4 months to work out a loss--do a loss
mitigation or a repayment plan or a modification for a
particular homeowner. It should only take a matter of a couple
of weeks. The individuals that our agency is seeing, this
increase of 300 percent, is only 10 percent of the total
population.
Too many individuals are suffering this crisis, packing up
their belongings, and just leaving without picking up the
phone. And then when they come to us, we have to go to drag
through weeks and weeks and weeks of promises and we're trying,
we want phone calls. I think there needs to be more
accountability. We need to have more direct contact with the
servicers.
Mandatory mediation for any foreclosure filing after 30
days of the complaint, not tail end of the litigation process,
at the beginning. Let's bring the borrowers and the lenders to
the table, bring somebody who can mediate and negotiate on
behalf and try and see what we can do to try to keep people in
their homes.
We are seeing too many. And theres are too few of us in our
office to try to handle this. We can get more money for
increased hiring, our staff needs, but it takes us a while to
get somebody trained and up and running in order to effectively
counsel individuals. Taking a look at the--just something
simple as the Ohio domestic relations laws to try to prevent
losing a primary home residence in the issue of a divorce,
tough regulation on every recovery scam program.
We have enough bad things that are happening out there. Now
we have these individuals who are duping homeowners into quit
claiming their properties over to them, thinking that they are
recovering their home when, in fact, all they did is just went
from being a homeowner to being a tenant. If they are 2 days
late on their rent, they are evicted, and they don't even
realize that they ever transferred their property.
Increased offer instance to try and get homeowners to get
to counseling, to contact housing counseling agencies, such as
myself and the rest of my colleagues. And it is--then it is
through State governments, through renter regulations dealing
with renters' rights to prevent price gouging in rent or unfair
and unconscionable lease option purchase agreements, which is
going to be the next issue that we are going to see in the
future.
Thank you.
[The prepared statement of Ms. Kidd can be found on page
342 of the appendix.]
Chairwoman Waters. Thank you very much.
I would like to thank all of you for your testimony. And
let me just share with you that I think this is the first time
that I have conducted a hearing where witnesses were willing to
call names, to identify problems in such a pointed way.
I have a great appreciation for the recommendations that
you have made. I have sat here listening today, and I am going
to ask a few of you to help us improve on some of the
legislation that we are working on and to help us formulate
even additional legislation because I have heard some things
here today that I think really need to be addressed.
I will start my questions by simply asking whether or not
you know of any of our lenders or our service providers who
have done an excellent job in helping to do workouts and
modifications and whether or not they have had an impact in any
of your communities or areas because they have been so great
that they have done outreach, they have found people who need
help, they have stopped foreclosures, they have been easily
accessible. Anybody know any of the lenders or servicers with
that kind of description?
Ms. Kidd? Thank you very much. That was a loud ``no'' that
you don't know anybody?
Ms. Kidd. No.
Ms. Wozniak. Madam Chairwoman?
Chairwoman Waters. Yes, Ms. Wozniak?
Ms. Wozniak. I was just going to say the service providers,
locally it is the Fair Housing Center and GABEL, which is, you
know, the attorneys who assist communities, are the greatest
resource, but, as Ms. Kidd said, if there is anything that
Congress could do to assist with legislation to allow proper
staffing levels with agencies like that because the numbers are
so great.
So, chairwoman, thank you for that question. I think they
are the most unbelievable agencies with the ability that they
had to actually reach lenders, unlike anyone else.
Chairwoman Waters. I thank you. And I certainly was not
referring to Ms. Kidd's organization. You know to whom I was
referring.
Ms. Wozniak. Right, all of them.
Chairwoman Waters. Basically those who have been, some of
whom have been, identified are here today that have a
responsibility for a lot of the subprime lending that we are
not getting a connection to.
Let me just ask Mr. Lloyd, could you provide us with some
detail of the number of Ohio homeowners assisted by FHASecure
to date, the impact of the recent changes to that issue, and
the proportion of homeowners in the State relative to the total
need for assistance preventing foreclosures you expect
FHASecure ultimately to have? Let us know what is going on.
What is happening with that issue?
Mr. Lloyd. Well, to date, we have endorsed over 12,000
FHASecure mortgages in the State of Ohio.
Chairwoman Waters. You have done much of this?
Mr. Lloyd. Well over 12,000, 12,244.
Chairwoman Waters. What did you do?
Mr. Lloyd. Well, for those particular loans, they were
either delinquent or they were conventional ARMs that were
converted to FHASecure mortgages. They could have been
conventional mortgage products, subprime mortgage products,
that were converted into FHASecure and refinanced in a sense.
We have FHA, just standard FHA, loans across the State of
Ohio. We have roughly 10 percent of the market share, which the
point is still valid, 161,000 FHA-insured mortgages statewide.
As far as subprime, and when you look at FHASecure, that is
primarily for mortgages that have either reset or are about to
reset.
Chairwoman Waters. So describe to me the ARMs. Give me the
numbers of the ARMs that have been--that you have dealt with
when the--prior to reset so that people were able to either get
refinanced, to be able to continue with the mortgages that--in
the way that they were contracted with in the beginning of
the--when the mortgage began, and did not have to go into the
reset or the increased rate. How many of them?
Mr. Lloyd. I would have to go back and provide that
information to you. I don't have it broken out for my records
here.
Chairwoman Waters. Because 12,000 is a lot. I mean, you are
giving us a figure of 12,000 that you dealt with, but we don't
feel it here, do we?
Mr. Lloyd. I guess the other thing that I was going to say
is that when you look across--this information is based on the
mortgage bankers delinquency survey that came out, I think, at
the end of March. When we look at the situation across the
State of Ohio, there are 9,000 subprime ARMs out there that--
whereby 28 percent of those are now delinquent and facing
foreclosure. So, you know, when you look at it in those terms,
there are a vast number of mortgages that are still out there.
What we have been trying to do in doing our outreach, we
have been trying to encourage people not to wait until they are
reset but to come in and explore the possibility of
refinancing.
Chairwoman Waters. How do you do that? How do you encourage
it?
Mr. Lloyd. Well, we have done that through outreach events
that we have held here in Ohio and--
Chairwoman Waters. I am sorry? Outreach?
Mr. Lloyd. Outreach events.
Chairwoman Waters. What does that mean?
Mr. Lloyd. That means foreclosure summits, foreclosure
prevention summits.
Chairwoman Waters. In direct mail?
Mr. Lloyd. In direct mail to people who are anticipating
resets within the next 6 months.
Chairwoman Waters. What kind of response have you gotten
from your direct mail?
Mr. Lloyd. Usually we get a response. It is very low in a
sense but roughly maybe 2\1/2\ to 3 percent.
Chairwoman Waters. What would you advise us to do to help
FHASecure really identify outreach, too, and get people in to
get those mortgages before the resets kick in?
Mr. Lloyd. If we could do more advertising, prime time
advertising, I think that would help tremendously. We have just
gone on a rally type of training campaign where we provided
training to lenders. We brought in practitioners, counseling
agencies, and State finance agencies to just talk about
barriers that may be out there that preclude people from being
able to refinance.
One of the strong suggestions that was made--and we were
encouraged to take this back to Brian Montgomery, our Housing
Commissioner--is to expand it to include not only just ARMs but
all subprime, you know, subprime fixed mortgages, fixed-rate
mortgages, and the like.
Chairwoman Waters. Okay. Thank you very much. I am going to
move on.
Councilman, you talked about statutes or efforts to
prosecute fraud. Do you think we should do more of that?
Mr. Brancatelli. Thank you, Madam Chairwoman.
Absolutely I think it would be more aggressive marshaling
all of our Federal resources to prosecute. And then the
flipping report that you have shows where people were blatantly
using the system, blatantly using the no document loans, loans
that were put out there by mortgage companies.
And until we start going after measures of brokers and
companies who are participating in this, we are not going to be
able to make as much headway as I think we should.
Chairwoman Waters. I have been wanting to advocate to
eliminate the illegal no doc loans altogether. Do you support
that?
Mr. Brancatelli. I would welcome that with open arms.
Chairwoman Waters. Thank you.
Mr. Mayor, I am going to ask Congresswoman Stephanie Tubbs
Jones to bring us the information on the lawsuit that has been
filed by the City, against the Wall Street creditors, so that
we can take a look at that and perhaps somehow introduce that
into the record in a general way. Perhaps we can take some time
on the Floor and talk about that.
So I would like to thank you.
Ms. Zurz. Absolutely.
Chairwoman Waters. All right. Congressman Wilson, do you
have any questions?
Mr. Wilson. Thank you, chairwoman.
I have a couple of questions. Number one, I would like to
make a statement before I ask a question. The statement is that
we understand on a Federal level and in Congress what is going
on, and we don't fault you at all for being angry. This new
direction Congress is trying to address the issues that need to
be addressed.
I, for one, feel like I have been among a lot that has gone
on here, that I was in the Ohio Senate when we did Ohio Senate
bill 185. I was very proud to be a part of that and feel that
we were able to curb some of the things that had been going on
in the State of Ohio. Red flags had been going up for several
years. So it is nice that we could finally get something done.
I wanted to mention as far as in Congress what has happened
since 2007, which I think it is never enough and it is never
quick enough. But I would like to touch on H.R. 5818 and H.R.
5830, both of which have been discussed here this morning. They
have passed the House and are moving forward.
Also H.R. 3915, the Mortgage Reform and Anti-Predatory
Lending Act of 2007 has passed the House in December of this
past year. Now, H.R. 1427, the Federal Housing Finance Reform
Act of 2007, Chairman Barney Frank's bill, has passed the House
and is now moving forward. It passed May 24th.
So action is happening. We would have liked to have seen
this 4 or 5 years ago, instead of now. And then certainly what
is going on with Chairwoman Waters' bill, that is, the
Expanding American Homeownership Act of 2007, has passed the
House also, on September 19th of this past year.
So things are moving. How we get them past the House and
then through the Senate is another situation. But we are
definitely going to continue working and continue pushing.
My first question is for Matthew Stefanak, from our area.
Matthew, thanks, first of all, for your help that you have
given in the good things that you have written and said for Jim
Ryan and I as far as with the new legislation moving forward.
We need to do as much as we can. The Neighborhood
Stabilization Act, which Chairwoman Waters helped us with very
much, I have never really had an opportunity to personally
thank you and thank you for--
They have had us on a comparative basis with California,
our housing values with the chairwoman's State. There is a
difference, and we were able to get her to hear that and be
able to get into that, I think.
You know, really, she didn't have to, being a senior member
and the chairwoman of our committee, but she was willing to do
that for the State of Ohio.
I just wanted to make that point because many times those
things go unheard. And thank you so much, Congresswoman. It is
that kind of thing that is showing this new direction Congress
working together to be able to accomplish things. And we have a
bipartisan effort on this. So I am proud of that.
Back to Mr. Stefanak. My understanding is that a lot of
what is going on in Youngstown right now is you had been doing
some demolition and gearing down to be more addressing your
population, I think you were saying it has gone from 160 to
about 80. And so you are gearing down.
We are hoping that this is going to be helpful to you. Do
you see being able to have money for demolition for moving
forward to remove the blight from some of the neighborhoods? Do
you think this is going to be a significant positive action?
Mr. Stefanak. Congressman, absolutely. I see it as kind of
a short-term investment that is really helping cities like
Youngstown and Campbell and other former steel centers tip that
balance in favor of moving towards a housing stock that is
appropriate in size for the population of that community.
Youngstown has a very ambitious plan for creative
shrinkage--shrink the City with a plan that would tackle the
houses, for 80,000 or so residents, and create opportunities
for new green space and redevelopment.
And, as I said, outside of those areas where there are many
epicenters of the blight problem, like Youngstown and
Cleveland, there is probably less of a need for management
assistance than there is for some guidance to these communities
on how to deal with their blight problem before it becomes of
the proportion of enormity that it is in some of our cities,
like Campbell and Youngstown.
Mr. Wilson. Good. Okay. Well, thank you. And hopefully you
will be able to use those funds for other things as the Federal
money begins coming in and to continue to brighten the
neighborhood and lessen the blight.
Mr. Stefanak. I would add that there is the ability for
municipalities and townships in districts in the State to
recover some of those costs when those properties are
demolished and made available for redevelopment to recoup those
costs as property tax liens. So a short-term infusion of some
Federal assistance could benefit those communities on down the
line to help them deal with additional blighted properties that
come up in the future.
Mr. Wilson. Thank you.
Chairwoman Waters. Thank you very much.
And let me just say that, Congressman Wilson, I was focused
on demolition. I was a little bit concerned that we need rehab;
we don't need demolition. But hearing you describe what is
happening with Campbell really helps me to understand a lot
better why demolition resources are so important. So thank you
very much.
Congresswoman Kaptur?
Ms. Kaptur. Thank you. Thank you, Madam Chairwoman. Again,
thank you so much for coming to Ohio, which is off your regular
beat as you fly across the entire country from Los Angeles to
Washington on a regular basis. Can you imagine that kind of
schedule? Ohio truly thanks you for being here today and for
bringing the power of this committee to Ohio. Thank you so very
much for your leadership on so many issues of importance to the
vast majority of the American people.
Mr. Lloyd, I wanted to ask you a question, if I could,
regarding whether you know when HUD lifted its normal appraisal
and underwriting standards in the early 1990's, certain
mortgage letters that were issued by the Department that
overturned prior practice within the Department, I believe it
was in 1993. I am wondering if you are aware of that at all.
And in addition, in terms of both underwriting and
appraisal standards, a major change that occurred, I believe it
was in 1994, was that Fannie Mae and Freddie Mac came under the
regulatory jurisdiction of HUD. Am I correct in that
understanding?
Mr. Lloyd. That was before my tenure with the organization.
I have been on board since late 1999.
Ms. Kaptur. All right.
Mr. Lloyd. What I will do, I can take that information
back, and provide a written document to the committee.
Ms. Kaptur. All right. I thank you.
You know, during this period of time of the 1990's, we saw
the time-tested principles of making loans, home loans in
particular, which used to be measured by character, collateral,
and collectibility. I think Congressman Wilson knows that well.
Is anybody in the audience old enough to remember when you
actually knew the person who made the loan to you? And we move
from that into this world of high finance.
I can remember after we came out of the savings and loan
crisis in the 1980's; I served on the committee at that point.
And I can remember when they said, ``Well, you know,
Congressman, you don't ever have to worry because we are going
to securitize mortgages. And this magic will be breaking up
into pieces and giving to the market. This is going to prevent
any down turn. We will never have another savings and loan
crisis.''
But then as we move into the 1990's, I think around 1997-
1998, Congress is a part of the problem looking back, because
the Glass-Steagall Act, which had separated banking from
commerce, was abolished.
And so now we see the Federal Reserve bailing out Bear
Stearns. Think about that. Think about this change that
occurred during that decade before these fine numbers, many of
them, arrived in Congress, which set in place the opportunity
for the high-risk strategy. So the law also affects what is
going on is my point.
I wanted to ask--I also wanted to thank the chairwoman for
bringing us together today. You are part of the conversation
that happened in Ohio that has not happened before. This is
very useful, including the people who are in the audience
listening and thinking with us and the think tanks that are out
here, the analysts.
If we were to look at Ohio and to put your cumulative
knowledge together, if we wanted to go back and unwind what has
happened here, what would be the first bank or the first
brokerage or the first servicer that would have put their
footprint on these subprime loans in Ohio?
All right. Cleveland was a big player here. I mean, things
happened in Cleveland. But what do we know of Lucas County that
we could lend to what you are involved with here? Is there a
way for you to look at the footprints? Go back. What was the
first set of institutions you stumbled across or who is at the
top of your list?
You mentioned a couple of them here in your testimony, but
it is not a complete list. If you were to try to unwind what
happened here in Ohio to fully understand what we are all
facing, do you want to make any comment for the record? Could
you provide for the record additional material on your
reflection on what is captured and how Ohio was dipped into?
Who was the first dipper? How did they get here? Then they
left, right? The paper got taken. Who took it? How can you help
us understand?
I know you are dealing with casualties, and you don't have
time to think about this, but this is a very important question
because this leads us, then, at the national level to
understand the architecture, the broad architecture, of what
happened.
What we are doing now, Countrywide has plenty to apologize
to the American people for, but they are a downstream
participant. They were allowed to--they got into this market,
but they are not at the top. They are just involved in it. They
and their folks became beneficiaries.
Can you comment on this? As you look back at Ohio, look
back in Lucas County and Cuyahoga County. When--who were the
door openers? How did this happen here? What is the first--that
is the question across the country. What was the first
institution or set of institutions to invent the subprime
instrument? It may have been Superior Bank in Hinsdale,
Illinois, but I can't prove that yet. But I want to prove it.
And then what company, what third party took those subprime
loans and gave them to Merrill Lynch? And then what happened to
the paper? We don't know, but we need to know. What about here
in Ohio? What happened?
Mr. Warren. To the Chair and to the Congresswoman, I will
start on that. I will be brief. It is the right question.
Frankly, I can't answer that with precision.
Ms. Kaptur. We need to.
Mr. Warren. Yes. And I recognize the need. Part of our goal
of our lawsuit is that we'll get to a point where we are able
to pursue those questions in the courts. We will get to that.
There are 21 defendants, Wall Street-based defendants. And we
will provide those to whoever asks, the details of that
lawsuit.
But the answer is it seems to me--and I mean, I just have
sort of some feelings about this. I mean, you know, the
empirical data, you know, provide lots of information on the
casualties.
Ms. Kaptur. Right.
Mr. Warren. Where were the motives?
Ms. Kaptur. And in through the media is all focusing--
Mr. Warren. Yes. And we are going to--
Ms. Kaptur. --on people trying to care for those who get
hurt. What about the ones that did the hurting? We don't have
as much focus there.
Mr. Warren. And where did that start? And, you know, they
are people with names and corporations and signed letters and
supporters.
Ms. Kaptur. Was Banc One a part of this at all? Do you
know?
Mr. Warren. Banc One has not been a major player, no. They
have been involved. They have not been a major player.
Ms. Kaptur. Who would it be here in the Cuyahoga County
area? Who is number one on the list?
Mr. Warren. We have Argent. We have Countrywide. We have
Litton. We have a whole range of the subprime lenders that are
national in scope. They descended on Cuyahoga.
Ms. Kaptur. Did you know that they were--Countrywide, for
example, did you know that they were a primary dealer from the
Federal Reserve?
Mr. Warren. I heard that this morning.
Ms. Kaptur. So is HSBC. So is Citigroup.
Anybody else want to comment on footprints? Mr.
Brancatelli?
Mr. Brancatelli. Thank you, Congresswoman.
I think if you go through some of the reports that we gave
regarding mortgages in Slavic Village, it clearly indicates
those who were really on the front end of the part of the
mortgage problems, as the chief outlined, Argent Mortgage,
Ameriquest, New Century, Peoples Choice,--
Ms. Kaptur. I am sorry. You are going to have to speak up
louder.
Mr. Brancatelli. Okay. Argent Mortgage, Ameriquest, New
Century, Peoples Choice, Countrywide, Long Beach, Aegis, Wells
Fargo. You can go down the list and see.
Actually, if you go to the Web site, it is kind of a
mortgage flow meter. You can see all the companies that are
going out of business are those who had their first
fingerprints on this. I wouldn't use footprints unless I would
use my point elsewhere. Really, it is fingerprints on a crime.
And so you can see those who have participated by just looking
at the component numbers in our community.
And I think, as Congressman Kucinich--as a matter of fact,
as a resident in the Slavic Village neighborhood, you know, the
difference between the old Federal days and key bank days when
you walked in the bank and knew them, when these folks came in
to do their crime center neighborhood, you can see the
devastation that they have left behind.
It is pretty clear you can see the fingerprints on a number
of these, Beneficial and others, who came in and did their
criminal acts.
Ms. Kaptur. And what percent of those, sir, would it take
to get that paper and move it to Freddie Mac or Fannie Mae to
service? What would you guess?
Mr. Brancatelli. Well, what was interesting, when the first
pieces of that started happening, they didn't need--many of
them weren't insured you know, they hadn't worked through
Fannie Mae or HUD. As the crimes continue now, you start seeing
a lot of those that became insured through Fannie Mae and HUD,
they used those underwriting standards. And so it changed then
and kind of really kind of morphed into something different
each year as the crime changed each year.
And I think that when you talk about your demolition budget
and things that can be done, there are some things that can be
done without adding new House bills, that can be done just by
policy, by responding.
When you look at the number of distressed properties that
HUD now owns, many of those should be demolished in our
neighborhood. The HUD Dollar program right now, we have gotten
just in our neighborhood 23 houses this year we are trying to
get through the HUD Dollar program. We have a 10-day window to
respond to get that household dollar. It has been now 6 months.
We still don't have a deed to it.
Two-thirds of those in our neighborhood are slated for
demolition on a chiefs bill, and the city is having to pay for
that. For a policy change, all you have to say is the M&M
Brokers have the right to demolish properties and they can use
the budgets that you have all generously given to these M&M
Brokers, to demolish those properties today without having to
earmark any new funds.
Chairwoman Waters. All right. Thank you very much. We can
move on to Congressman Kucinich. Thank you for that
information.
Mr. Kucinich. Thank you very much, Congresswoman Waters,
again for holding this hearing.
I want to go right back to Mr. Warren. The City of
Cleveland has brought a lawsuit now against some of these
companies. In the course of developing the lawsuit, are you
looking at the question as to whether or not this entire
subprime fiasco was engineered? It did not just happen by
accident, but all across this country, people saw that low- and
moderate-income people were a target for these subprime
products.
They knew that the people were credit risks to begin with.
They knew that there was a reduced level of financial literacy
in some of these communities. They knew that there were loans
that were being inflated. They knew that Wall Street was
building enormous portfolios of these subprime loans that were
helping to fuel the growth of hedge funds. They knew exactly
what was going on, as opposed to it being an accident.
Which do you think it was?
Mr. Warren. I--to the Chair, to the Congressman, I think
you are right. It is part of our lawsuit. Let me illustrate the
point this way. Slavic Village, the community that you
represent, representative council and Councilman Brancatelli
represents now, between 2004 and 2006, we saw a study that
showed, then, the property values of that neighborhood measured
by reported purchase prices in the county. From 2004 to 2006,
actually, led Cuyahoga County in great appreciation.
We saw that. We said, go back and do the study. There was
something wrong with it. And so you dig into that. And what you
find out is that properties worth $20,000, $25,000, and $35,000
were selling, being financed in subprime loans by the fiscal
$75,000, $80,000, and $90,000, 10 properties reported on the
same day, almost as if, you know, with the same number.
And, as you know, Congressman, in Slavic Village on the
southeast side of Cleveland, there are a lot of doubles, so
prevalent we call them the Cleveland doubles, two-bedroom
apartment down, two-bedroom up. These are classic where the
properties were reverted to rentals. And then they were picked
up at these $85,000 and $90,000 rates where really the true
market value is $40,000.
Now, to your point, how does that fit into some sense of
conspiracy? Well, the point being is that these are properties
that are then bundled or mortgages paper bundled and sold to
the secondary market. And then values seemingly to the rest of
the world are so low, they don't--it is not a blip in the
screen. They just bundle them as part of thousands of
properties on a portfolio.
And so you might say--and, you know, we haven't proved it,
but we are pursuing this--that part of the strategy, perhaps
from afar, is to look at markets where the values, property
values, are so low that a doubling of the value from the true
value to the market or to what the sale was doesn't get
noticed. It is easily scurried and moved along.
Mr. Kucinich. Well, here is the point. Speaking out, we
should be honest here. These banks, these lending institutions,
they knew exactly what they were doing. They knew they were
going into the poor neighborhoods. They knew they could jack up
the value of the properties through inflated appraisals. They
knew if they loaned and then fronted them later on and then
they turned out to be securitized, that this would be part of a
go-go-go approach on Wall Street, a hedge fund.
And so what you have is some people made a lot of money on
these scams, but here is Wall Street supposed to be the really
smart people are going to avoid any risks. They are taking the
riskiest instruments--the four pronged instruments particularly
clean piece of property while the rest of the neighborhood
around them is falling away. Their property value goes down. I
mean, this is a crime. There is no other way to do it.
And I would urge the City of Cleveland to look at not only
pursuing the fraud statutes against these people but also a
fast action suit on behalf of African Americans who, no
question about it--there are civil rights implications.
And the fact that money wasn't loaned to people in the
first place according to the Community Reinvestment Act,
subprime loans were ignored, and then--the prime loans were
ignored, then they come up with these subprime products that
have fraud written all over them. And, you know, this is an
issue that goes to the core of our financial situation and goes
to the core of whether people can trust these lending
institutions. And the City of Cleveland because it is at the
epicenter of this crisis can also be at the epicenter of the
solution.
I want to thank all of the representatives from our
community who are here, the members of the council, who have
had to deal with this on a daily basis. You know, Mayor Terrell
will tell you this still concerns the city council.
When I was at council years ago, if you had a single home
in your community that was boarded-up, it was a problem. You
hear about the neighborhood groups organized around this. Okay?
How many, Mr. Brancatelli, are there out there in Slavic
Village now?
Mr. Brancatelli. Mr. Congressman, we have over 1,000 vacant
properties identified.
Mr. Kucinich. We cannot let these lending institutions get
away with this and just say, ``Well, it is the people's fault.
They should have known better.'' They knew exactly, these
lending institutions knew exactly, what they were doing. Wall
Street knew exactly what was going on. And there has to be--
somebody is going to have to pay for this.
Our community has already paid. Now we have to follow
through on this. As Congresswoman Kaptur says, we have to
follow this money all the way to where it leads.
Madam Chairwoman, I hope this committee gets subpoena power
so that you can start to go into this. And I will certainly
support every effort that you make.
Thank you very much.
Chairwoman Waters. Thank you very much. Thank you.
Congresswoman Stephanie Tubbs Jones?
Mrs. Tubbs Jones. Thank you, Madam Chairwoman.
First of all, I would like to recognize another elected
official from my congressional district who has joined us. His
name is Peter Lawson Jones. He is my cousin. And he is a
Cuyahoga County commissioner.
Also, because we were limited in the number of witnesses
that we could bring before the committee, I do want you to also
know that Mayor Georgine Welo represents the First Ring
Suburbs. She is the president of the First Ring Suburbs. And I
am talking with her about these issues.
In her City, there was a street on which one woman owned 11
houses. How does one woman own 11 houses and have no real
reportable income? Georgine, the City of South Euclid came to
the attention of this as a result of receiving more than 1,000
calls and complaints on this street for the police department.
What they ultimately did was they purchased these houses.
The City bought every one of the houses and then redid the
financing because there was no other way that they could
immediately get some resolve in there.
And I just want to congratulate Georgine Welo and that City
for the work that they did.
There are other cases where cities may have the opportunity
to fix some of the problems. We hope that they don't have to do
that, which Georgine Welo was saying that they spent tons of
money cutting the grass, all of the things that we have been
talking about in the process.
I would also hope that when we get to our second panel, you
are going to hear some of the litigation that has been
implemented by the housing advocates and other organizations to
address many of the issues that my colleagues have talked about
previously.
I am just so thrilled that here we are in 2008, paying
attention to what has been going on in our community for years.
And I am just so thankful that all of you each took time to
come in.
I would want to pontificate a little bit and ask a few more
questions, but I am just going to associate myself with the
comments of my colleagues.
I do want to see, Chris, if there is anything else you want
to add or, Mr. Brancatelli, anything else you would want to add
very briefly. And I am going to yield back my time. Chris?
Mr. Warren. To the Congresswoman and the Chair, again I
want to thank you for this effort today, your work on a variety
of fronts on our behalf.
It is a long way back. I think speed is of the essence. The
House is clearly taking a strong position. There are issues in
terms of looking at culpability and motives that can't be
ignored as we look at remedies. I would agree with that.
Hopefully our lawsuit would be helpful in that way. But, again,
thank you for your leadership, in particular.
Chairwoman Waters. Mr. Brancatelli?
Mr. Brancatelli. Thank you, Congresswoman. I think, as I
mentioned earlier, looking at policies for HUD, Fannie Mae, and
disposition of those real estate and how we can rescue
neighborhoods is critically important.
The other piece I want to note, which I don't think any of
the panelists really hit on hard, was the next wave of the
tsunami. And this is these houses that are being dumped on the
market for pennies, for pennies. You are seeing thousands of
houses sold on eBay every day for $1,000 or less.
In our neighborhood, we had hundreds and hundreds of homes
that are being bought by out-of-town brokers, from California
and on--I am not saying there is anything wrong with
California. It is kind of hard to manage scattered site-
condemned homes from California.
Chairwoman Waters. It is okay.
Mr. Brancatelli. And so we really need to look hard at how
we can try and get in front of that next wave so that more
families aren't impacted.
The other thing, members of the panel today talked about
these new lease-purchase programs, not lease-purchase but
companies that are turning the favor and knocking down the real
estate. And we need to stay in front of that because that is
what our service providers are going to be dealing with next.
And we are looking at cutting ways of dealing with some of
the issues we are facing. We talk about demolition as a tool.
We are also looking at deconstruction. And as we pick up our
houses, when you talk about an energy crisis now, being able to
use deconstruction as a tool for recycling materials and saving
some of our neighborhoods and saving some of our resources is
just as important.
So I appreciate your being with us.
Mrs. Tubbs Jones. Lastly, I want to say in conjunction with
the comments of my colleague Mr. Kucinich, that as we have been
looking and focusing on the fact that predatory lending
predominates in African-American communities, the Congressional
Black Caucus has been up front on this issue since way back,
almost back when you got here, Congresswoman Waters. And we
have done a lot of things.
But, lastly, I would say to everybody listening: you must,
you must understand what you are signing and you must
understand who you are going to be operating with. It is so
very important.
I don't care what kind of legislation we implement. I don't
care what kind of things we do. If you don't pay attention to
what you are doing and get the financial literacy information
and understand the process, we can't stop what is going on.
Whomever is listening, you must pay attention. You must
take a look at your grandparents and your mothers and your
aunts and your uncles, the seniors in our community, whom they
prey upon, not only in the course of building or buying a home
but in the housing reconstruction and remodeling. That is the
other way they attack senior citizens in our communities.
So again, Congresswoman Waters, thank you for your
leadership. Thank you for holding this hearing. And I yield
back my time.
Chairwoman Waters. Thank you.
Congresswoman Sutton?
Ms. Sutton. Thank you very much.
Your testimony was extraordinarily insightful, and I
appreciate the passion. I just want to be brief. This is
obviously a multifaceted challenge that we face. And a lot of
the angles have been discussed. I appreciate the questions of
my colleagues, which get at the heart of many, many key parts
of this issue.
I would like to begin, though, by speaking to Ms. Kidd. If
my colleagues haven't had the chance yet to look at the
transcript or the record of you trying to seek assistance to
help somebody who was trying to take action early on when she
identified that she was going to have problems and fulfilling
the commitment that she is in, it is an amazing account.
And I don't know if there are more of these that you can
make available to folks like myself and other members of this
committee as well as Congress, but this is really helpful
because we see as we look through this that all of the nonsense
that occurs along the way, the nonsensical direction that
people are given--on one occasion if you were to read through
this--I will just share--when you are seeking help for getting
lower payments, when they do the rework, it is actually a
higher payment. And that happens I think several times
throughout the course of this. You are actually told to wait to
seek help until you are further behind because then help might
be available.
So all of this information is really important. One of the
reasons why I ran for Congress is because policies don't always
make sense when they are being applied. And we also need to see
what actors are doing what in the process. So that is why this
hearing has been so good.
And, Ms. Kidd, if you could provide us with more
information like this? I know a lot of people don't want to
tell their stories, but it is important that we know really how
this works at the ground level when you are trying to deal with
a foreclosure.
Ms. Kidd. Yes, definitely.
Ms. Sutton. Thank you.
Also, one of the things that has been troubling to me and
we haven't talked a lot about it here yet today, although the
chairwoman did attempt, Mr. Lloyd, to ask you some questions--
and I am going to follow up on those--you know, we have heard a
lot about H.R. 5818 was passed. And it is a great, great bill
that the chairwoman has shepherded through the House.
And if that bill is signed into law, which I think it
deserves, your testimony says that will bring over $830 million
in grants and loans to Ohio to help us rebuild our communities
that have been devastated by the effects of this crisis if that
bill is signed.
Now, sadly, that bill isn't signed. And it doesn't look
like under this Administration, that we are likely to get that
bill signed. And that is a problem. Okay?
I am troubled about the Administration's, what appears to
be overly simplistic responses to some of the thoughtful plans
that have come out of the Congress and especially the
subcommittee that we are in today.
Oftentimes you hear this issue framed as an issue of
irresponsible borrowers. And I concur with my colleague
Representative Tubbs Jones that we have to be careful, we have
to be educated, and we have to do our best to know what it is
we are getting into. But it is framed as an issue of
irresponsible borrowers and lenders that don't deserve
government bailout.
But then the rhetoric ignores what I said was this
multifaceted crisis. First, this is a systemic problem that
involves the failure of multiple regulation and accountability
mechanisms. We have heard that discussed here today.
And, second, our fates are tied together. We have also
heard how that is discussed today. A house goes into
foreclosure. Regardless of the fault, it doesn't just affect
the family who lives there. It reduces the local tax base. It
has health consequences, safety consequences. And so the
effects of foreclosure are felt all around.
And the HOPE NOW program, the initiative that you
addressed, you addressed, Mr. Lloyd, I just don't think that it
was structured to address the enormity of the problem at hand.
And so I think that there is much lacking.
There have been some issues with the numbers being reported
by the HOPE NOW initiative, as the Comptroller of the Currency
has brought up in recent days. He suggested that perhaps only a
small fraction of the number reportedly helped by HOPE NOW have
received assistance.
And, in addition, there appeared to be significant
discrepancies between reported percentage of repayment plan
versus the actual loan modifications. And it is not a rounding
error. These are major, major differences in the numbers. They
are different sets of numbers.
So, Mr. Lloyd, do you have any numbers on--I know we tried
to get this a little bit earlier--on how many individuals from
Ohio have been helped through this initiative, how many have
been saved, literally saved, from foreclosure, how many have
received loan restructuring versus loan modifications? I know
that it is a bit early in the program, but what is the success
rate? Basically what is the success rate of keeping families
helped by HOPE NOW in their homes?
Mr. Lloyd. Unfortunately, I don't have the numbers for HOPE
NOW. I have primarily concentrated on the FHASecure numbers.
And I am versed in our numbers for the FHA portfolio. But I
will go back and retrieve those numbers for you and try to find
out exactly why there has been such discrepancies noted.
Ms. Sutton. Okay. I would appreciate that. I realize that
you don't run this program, and so this is not an attack on
you. But the problem reported about the HOPE NOW alliance, we
are wondering what we can do to improve it. And that coupled by
some of the other experiences in the information that has been
brought to light today, we would find that very useful.
With that, I yield back my time.
Chairwoman Waters. Thank you very much.
Mrs. Tubbs Jones. Madam Chairwoman?
Chairwoman Waters. Yes?
Mrs. Tubbs Jones. For the record, I have in my hand and I
would seek unanimous consent to add to the record an emergency
resolution passed by the Cleveland City Council asking the
Cuyahoga Board of Common Pleas to institute an emergency
foreclosure moratorium, to stay all active and newly filed
foreclosure cases involving occupied residences and continue to
work with council and community organizations to implement a
comprehensive program that strengthens distressed
neighborhoods. And this is from all six council members.
Chairwoman Waters. Without objection, that will be
submitted as part of the record for today. Thank you very much.
Ms. Kaptur. Madam Chairwoman?
Chairwoman Waters. Yes?
Ms. Kaptur. I know that you are about to conclude, but I
did want to just ask or suggest to the representatives from the
Cleveland area since we have representatives from Lucas County
and Youngstown, the Mahoning Valley area, perhaps the attorneys
that exist in those counties could join your suit or augment
your suit. People might want to think about this as you proceed
forward. I think that we probably haven't done that in our
region of the State. It is a very interesting path to pursue.
So I just wanted to put that out there. And I thank you,
Madam Chairwoman, for yielding the time.
Chairwoman Waters. You are certainly welcome. And I would
just like to send a message to the Governor that we commend him
on his leadership, including to the Compact. That has not been
done in other areas for the most part. They have not tackled
the foreclosure problem in quite that way. We will be
interested in your submitting more information to us about what
the impact has been to date.
And we want to know when you have servicers make their
first report on their efforts and subsequent successes. And if
there are servicers who have declined to participate, we would
like to know that, too. I think that information will be very
helpful as we go forward.
Ms. Zurz. Thank you, Madam Chairwoman. I will tell you that
we very much appreciate your recognition of that. We do have a
lot of work to do here as well.
But to the point of--and you asked the question earlier of
any servicers going above and beyond, we are saying ``no.'' And
I would be remiss to say that those that signed the compact
from our perspective are at least trying to make the efforts.
And I don't want that to go unnoticed because they are
responding to us and they are working with folks.
Do I think it is enough? No, I don't, and nor does the
Governor. But it is a start. We will be happy to get you
details, which the first reporting period is up in about by the
end of the week.
Chairwoman Waters. Well, I appreciate that. We don't have
time to go into the legislation that I am working on now, but
it is directed at servicers. And we are going to need some help
because one of the things we have discovered is that we have no
regulation over servicers. We have to create a body of law to
deal with them because they are the key now, based on the fact
that our citizens cannot get back to the institutions that
originated the loans, from the broker etc., those security
kinds of loans--that was packaged, they're all in service now,
and these servicers have a lot of power. But they said to us
that they were afraid to use the power because they could be
sued by the investors.
We have tried to help with that in this legislation by
eliminating liability and all of that but still they are not
coming forward, because they have no laws to make them. We have
to help them come forward. And we need a lot of pressure from
all of our community groups and organizations to do this.
Ms. Kidd, your testimony was right on point about
servicers. No telephone numbers, no way to get in contact with
them. Some of the loss mitigation is done offshore, where
people use a piece of paper with 10 questions. And after the 10
questions are answered, the telephone is hung up, and that is
it.
So we know that we have a lot of work to do in this area. I
want to thank all of you. And I would like to note that some of
our members may have additional questions for this pane], which
they may wish to submit in writing. Without objection, the
hearing record will remain open for 30 days for members to
submit written questions to these witnesses and to place their
responses in the record.
This panel is now dismissed. And I thank you so much. I
would now like to welcome the second panel.
Chairwoman Waters. Our next panel consists of: Mr. Andrew
S. Howell, executive vice president and chief operating
officer, Federal Home Loan Bank of Cincinnati; Mr. Michael Van
Buskirk, president and CEO, Ohio Bankers League; Mr. Michael
Gross, managing director, Loan Administration and Loss
Mitigation Division, Countrywide; Ms. Kimberley Guelker,
president, Lorain County Association of Realtors; Mr. Lou
Tisler, Neighborhood Housing Services of Greater Cleveland; Mr.
Edward G. Kramer, director and chief counsel, The Housing
Advocates; and Mr. Frank Ford, senior vice president for
research and development, Neighborhood Progress, Incorporated.
We are going to start our testimony with Mr. Andrew S.
Howell.
STATEMENT OF ANDREW S. HOWELL, EXECUTIVE VICE PRESIDENT AND
CHIEF OPERATIONS OFFICER, FEDERAL HOME LOAN BANK OF CINCINNATI
Mr. Howell. Good afternoon. Madam Chairwoman and members of
the subcommittee, I appreciate the opportunity to speak to you
today on behalf of the Federal Home Loan Bank of Cincinnati
about the role our bank has played to help restore balance to
the housing finance market and, specifically, to help at-risk
homeowners. My name is Andy Howell, and I am executive vice
president and chief operating officer of the Federal Home Loan
Bank of Cincinnati.
The Cincinnati Bank is one of 12 regional Federal Home Loan
Banks established by Congress in 1932 to provide liquidity to
community lenders engaged in residential mortgage lending and
economic development. For over 75 years, we have fulfilled the
housing finance mission with a successful cooperative structure
comprised of local lenders and regional management.
Our primary business is the provision of low-cost credit in
the form of secured loans or advances to our members. We do not
securitize loans. Our members, in turn, use these advances to
fund their daily credit needs, such as originating mortgage
loans, affordable housing activities, investing in community
projects, or managing their own balance sheets.
The Cincinnati Bank's role increased dramatically in 2007
due to the unprecedented disruptions in credit and mortgage
markets that have continued into 2008. Industry access to
liquidity was substantially restricted, and members
increasingly turned to us to support their daily funding needs.
Demand for our core products--advances--has reached historic
levels.
Since 2000, the State of Ohio has been severely impacted by
the substantial rise in residential foreclosure activity.
Although questionable lending practices of some have
contributed to the rise in home foreclosures, our general
experience is that many distressed homeowners did not originate
mortgages with a lot of these financial institutions.
Nonetheless, the impacts of foreclosures are substantial to
both homeowners and their communities.
In addition to meeting our congressionally-mandated
liquidity mission, we believe that the combined efforts of our
members, housing partners, Advisory Council, and our Board of
Directors, has led to the development of meaningful foreclosure
assistance programs. The result has been the offering of three
foreclosure mitigation programs that address the problem from
different perspectives, and a fourth program is under
development.
The first program is called HomeProtect, wherein we have
made available to our members $250 million in advances at our
cost of funds, targeting these funds to help our members
refinance homeowners at risk of delinquency or foreclosure. We
instituted this program in June of 2007, and have approved
commitments of more than $128 million to date.
Second, we have taken actions to direct more of our
Affordable Housing Program funds to assist with foreclosures.
Later this year, we will award roughly $13 million through this
program, and we have modified the scoring of these applications
to favor high-foreclosure areas and projects that will return
abandoned foreclosed homes to occupancy. With these new scoring
criteria, we expect to see funds directed to those areas of
Ohio that have been hardest hit by the foreclosure crisis.
Third, in February 2008, our Board instituted a voluntary
program called Preserving the American Dream, which will
provide $2.5 million for foreclosure counseling and mitigation.
Under this program, we will provide up to $3,500 per household,
through our members and qualified nonprofit counseling
agencies.
There is also a fourth effort underway. Regulations
currently prohibit the bank from using Affordable Housing
Program funds to help our members refinance mortgages for at-
risk homeowners. We have petitioned our regulator--the Federal
Housing Finance Board--for a regulatory waiver of this
restriction.
To date, we have experienced modest success with
HomeProtect. The interest level for the American Dream
assistance is high, and we are optimistic that the Affordable
Housing Program scoring adjustments and regulatory changes will
be well received.
In closing, we support a collaborative effort with multiple
initiatives to provide both preventative and effective
solutions to the foreclosure issue. The Federal Home Loan Bank,
its 726 members, and hundreds of housing partners, are working
diligently to provide long-term solutions to create and
maintain healthy communities and cities.
Madam Chairwoman, thank you for the opportunity to address
the subcommittee on this important matter. I would be happy to
answer questions at the appropriate time.
[The prepared statement of Mr. Howell can be found on page
335 of the appendix.]
Chairwoman Waters. Thank you very much.
We will now hear from Mr. Van Buskirk.
STATEMENT OF MICHAEL VAN BUSKIRK, PRESIDENT AND CEO, OHIO
BANKERS LEAGUE
Mr. Van Buskirk. Chairwoman Waters, members of the
subcommittee, and other Members of Congress from Ohio, thank
you for the opportunity to appear before you today.
The Ohio Bankers League is a nonprofit association
representing Ohio's commercial banks, savings banks, and
savings and loan associations. My name is Michael Van Buskirk,
and I am the Association's president.
Chairwoman Waters, as you know from your Ohio colleagues,
and as we all heard from the witnesses on the first panel, our
State, particularly its northern part, is suffering
economically. Mortgage loan delinquencies and foreclosures have
been one painful result.
Although foreclosures are a national problem, foreclosures
in Ohio have remained stubbornly higher than the national
average for at least the last 3 years. Other parts of the
country, including your home in Los Angeles, face troubling
foreclosure problems. However, the nature of foreclosure
problems differ regionally. Therefore, we are particularly
grateful you have come to Ohio to gain insight into the
circumstances here, as the subcommittee works to find ways to
help the national recovery.
Ohio's economy has struggled for at least the last 12
years. In northern Ohio, like Michigan, a decline in
manufacturing employment continues to be a contributing factor.
In eastern Ohio, a part of the country that is in Mr. Wilson's
district, a similar story is told through the decline in the
mining industry.
While Ohio's problems are not new, they have grown much
more severe. In 1995, we suffered 15,000 foreclosures. Last
year, we had 83,000. Not surprisingly, foreclosures have been
the highest in the northeastern part of the State, where job
losses in the auto, steel, glass, and rubber industries have
been the highest.
Before I offer the Association's perspective on what is
being done and what can be done to mitigate foreclosure short
term, I would like to offer a few observations on the causes of
our current problem along lines that you asked the first panel,
which I hope will help you as you chart this country's course
to avoid a recurrence.
Historically, most consumer mortgages in this country were
funded from insured deposits. Lenders were banks, thrifts, or
credit unions that kept the mortgages in their own portfolios.
For that reason, the lender had a shared interest in the
ability of the borrower to repay the loan. It suffered the loss
if the consumer could not repay the loan.
In addition, these institutions were regularly visited by
trained governmental examiners who analyzed both the safety of
the lending practices as well as their fairness. That fairness
measurement was given increased definition by Congress over
time through laws like the Truth in Lending Act, the Home
Mortgage Disclosure Act, the Equal Credit Opportunity Act, the
Real Estate Settlement Procedures Act, the Fair Housing Act,
and the Home Ownership and Equity Protection Act, among others.
By the 21st Century, lending in Ohio had become globally
funded. Investors ranging from foreign governments to Ohio
public pension funds bought securitized mortgages, rated as
very safe by international rating agencies. The securitized
loans were usually originated through a new retail outlet
called a mortgage broker. The ultimate owner of the mortgage
did not know the borrower. In fact, they often knew very little
about them.
This new system did bring benefits to the consumer. The
huge inflow of mortgage funds helped lower interest rates, and
market entrants, at least when they were ethical, gave
consumers more choice. Technology allowed mortgage and rate
shopping through the Internet. However, the new system also
triggered significant problems. Non-bank brokers had no
financial stake in the borrower's ability to repay. Both the
Ohio broker and the Wall Street securitizer were compensated by
sale. Neither suffered loss if the ultimate product didn't
work.
Historically, mortgage brokers in Ohio were not licensed.
In 2006, when Congressman Wilson was in the General Assembly,
our legislature required mortgage brokers to be licensed and,
for the first time, required a criminal background check. While
Federal lending laws theoretically applied to them, there was
no enforcement. Most Ohio mortgage brokers were ethical and did
comply with the lending laws. However, as history repeatedly
has proven, scoundrels will flow into an enforcement vacuum.
Ohio's Department of Commerce discovered many hundreds of
applicants were convicted criminals when it began a licensing
process.
Uneven governmental protection had unintended competitive
consequences, too. Since non-bank brokers do not face the same
high level of regulation and oversight as banks, they
benefitted from significantly lower operating costs.
Competitively, FDIC-insured lenders in Ohio suffered
significant loss of mortgage share.
Today, Ohio is fighting unethical lending practices.
Commerce Director Kim Zurz, whom you heard from earlier, has
greatly stepped up enforcement efforts under the Strickland
administration during her relatively short time in office.
Every Ohio mortgage brokerage today now gets some sort of
review every 18 months. That compares to no review at all in
past years. While we believe more needs to be done, efforts
continue to achieve adequate rigor of examination.
Unfortunately, as the subcommittee and the full committee
learned, many States still do little or no enforcement.
Therefore, we commend the House's work to require all mortgage
brokers to be licensed, to set minimum Federal standards, and
to establish a Federal alternative if a State fails to act.
We would suggest you consider one change to the House-
approved bill, though. The House designated HUD to act if the
State fails to do so. While HUD certainly has a great deal of
expertise in housing, we believe that the Office of Thrift
Supervision, which has trained mortgage examiners in most major
cities across the country, including here in Cleveland, in
Columbus, and in Cincinnati, is positioned to be immediately
effective.
We also want to take this opportunity to publicly support
other of your initiatives, including expanding the powers of
FHA to guarantee a reworked mortgage, where the investor or
lender agrees to reduce the principal to less than the current
appraised value, and to provide grants to purchase abandoned
properties in distressed neighborhoods and restore it to
productive use.
I want to commend Congressman Wilson's amendment to the
bill to increase the allocation formula benefitting highly
important cities like Cleveland. Funds to remove the blight of
unsaleable homes in blighted neighborhoods are sorely needed
here.
We commend the provisions in the bill which would
dramatically increase funds available to fight foreclosure--a
subject I want to return to a little bit later in my testimony.
Perhaps most importantly, we support the creation of a credible
regulator to ensure the safety and soundness of the housing-
related, government-sponsored enterprises.
Ohio is not a homogeneous State. To be successful, Ohio
banks and thrifts must tailor their operations to meet the
needs of communities each serves. Most Ohio banks maintained
prudent underwriting discipline in the face of mushrooming
competition from mortgage brokers and other non-traditional
lenders. Very few are engaged in subprime lending. As a
consequence, these banks and thrift institutions lost market
share as some customers were attracted to loans with teaser
rates, little or no requirement for documentation, or features
like non-amortizing payments.
Remediation processes tend to be tailored to individual
markets, too. But in surveying practices, the successful ones
at least, we found common elements. Banks want to keep
borrowers in their homes. They will work with borrowers on a
case-by-case basis, foreclosing only when all else fails. This
is not altruism. It represents enlightened self-interest. A
loan reworked to the borrower most times will cost the investor
or the lender less than foreclosing on a property and selling
it under the circumstances we heard the first panel talk about.
If you look across the foreclosure filings in counties
across Ohio, you see that the overwhelming majority of
foreclosure filings are not by Ohio-based banks or thrifts. In
surveying our members, we have found that as long as there is
good communication and good faith from the borrowers, ethical
lenders routinely waive late fees, permit partial payments,
extend terms, and in some cases, forgive past due amounts,
lower interest rates, or reduce principal.
We do need to focus on one recurrent problem--communication
with the borrower. One of the greatest challenges ethical
lenders face is getting delinquent borrowers to talk with them.
Mailings and telephone calls often go unanswered. I think we
can understand that financial problems are embarrassing.
Financial literacy is poor. Too few borrowers understand that
an ethical lender is strongly motivated to work with them. Too
few borrowers understand that there are competent, neutral
counseling services that can help.
Increasingly, these competent counseling services--
Chairwoman Waters. I'm sorry. Your time was up a long time
ago.
Mr. Van Buskirk. I am sorry. Thank you for your indulgence.
Chairwoman Waters. Thank you.
I am going to move on to Mr. Michael Gross, managing
director, loan administration and loss mitigation, at
Countrywide.
STATEMENT OF MICHAEL GROSS, MANAGING DIRECTOR, LOAN
ADMINISTRATION AND LOSS MITIGATION DIVISION, COUNTRYWIDE
Mr. Gross. Good afternoon, Madam Chairwoman, and members of
the Ohio delegation. Thank you for the opportunity to appear
here today to discuss Countrywide's efforts to help families
prevent avoidable foreclosures. We have testified on three
previous occasions to this subcommittee about these efforts,
and today I will update our progress, also providing additional
information on our activities in Ohio.
While our progress has been significant, we clearly
recognize that more must be done. A key component of the
successful loss mitigation initiatives undertaken by national
servicers includes partnerships with financial counseling
advocates and community-based organizations.
At Countrywide, we continue to expand our outreach to
ensure that every customer who needs help is reached. In
addition to our NACA partnership, which we discussed with this
committee last fall, we have strengthened our national
relationships with NeighborWorks, the Homeownership
Preservation Foundation, the National Foundation for Credit
Counseling, and ACORN.
Nowhere are partnerships with effective counseling and
advocacy organizations more important than in difficult markets
like Ohio's. Here in Cleveland, we have long had a strong
relationship with the Neighborhood Housing Services of Greater
Cleveland. We also have forged a strong working relationship
and signed a home retention agreement with ESOP, Empowering and
Strengthening Ohio's People, which also provides valuable
assistance to residents in Cleveland's hardest hit
neighborhoods.
Since December of 2007, ESOP and Countrywide have assisted
135 borrowers. With over half of those borrowers, we have been
successful in preserving homeownership into the future--a
success rate that both Countrywide and ESOP take pride in but
want to improve. We also are working with the State program--
Ohio Save the Dream--and 26 of our borrowers have sought help
through that program. Likewise, in Cincinnati, we have begun
working with our borrowers to seek counseling and assistance
from the nonprofit, Working in Neighborhoods.
We are actively engaged in foreclosure prevention outreach
programs with both governmental and community organizations
around the country. So far in 2008, we have participated in
nearly 170 home retention events around the Nation, including
foreclosure prevention fairs and train-the-trainer events.
In Ohio, we have participated in outreach events around the
State sponsored by the State of Ohio, HOPE NOW, and ACORN. We
as well have staff here on campus today helping our customers.
Countrywide remains committed to helping our customers avoid
foreclosure whenever they have a reasonable source of income
and a desire to remain in the property.
In addition to our work to provide home retention solutions
to customers, we are working with nonprofits from ESOP to
Enterprise Community Partners, NeighborWorks, and others, to
identify how Countrywide can be a partner to communities with
greater numbers of vacant and boarded-up properties. We are
providing them with information on Countrywide-serviced
properties in communities where they and a host of other
nonprofit partners are working. ESOP has connected Countrywide
with local nonprofits that have expertise in property
acquisition and disposition.
While that work is just beginning, we have already conveyed
property to the Slavic Village Development Corporation, and we
are discussing other properties that may be acquired by
nonprofits like Detroit Shoreway. With national intermediaries
like Enterprise, we have been working to build a program that
would result in the purchase of real properties in certain
distressed areas in markets like Cleveland. While this program
is not complete, Countrywide recently committed $1.5 million in
charitable funding to Enterprise to assist them in further
defining and implementing the program.
As we reported in the last hearing, in the 6 months ending
March 31st, we saved an average of more than 15,000 homes
nationally each month from foreclosure, more than double the
pace from the first 3 quarters of 2007. The pace continues to
improve.
In April and May of 2008--our most recent data--we
completed nearly 48,000 home retention workouts in these 2
months alone. I would emphasize that these are workouts in
which the borrower obtains a plan to keep their home. It does
not include deeds in lieu of foreclosure or short sales, which
accounted for less than 7 percent of our workouts.
Comparing May of 2008 versus 2007, home retention workouts
are up over 540 percent. The primary cause of that increase was
a 718 percent jump in loan modification plans, from about 2,000
modifications in May of last year to more than 14,200 in 2008.
A new program which has also greatly contributed to these May
results was the new Fannie Mae HomeSaver Advance Program, which
provided 12,200 homeowners with a fresh start. Clearly, the
efforts of our national and community-based partners, and our
own home retention teams, are paying off.
Since we announced a series of retention initiatives last
fall, loan modifications have become the predominant form of
workout assistance at Countrywide. Year-to-date, loan
modifications have accounted for more than 68 percent of all
home retention plans, while repayment plans accounted for less
than 16 percent.
While interest rate relief modifications were extremely
rare until late last year, that is not the case today. In May
2008, interest rate modifications accounted for more than 70
percent of all loan modifications Countrywide completed.
Importantly, the vast majority of these rate relief
modifications had a duration of at least 5 years, in a
sustainable area.
The trends are much the same in Ohio. In May 2008, we
serviced over 256,000 loans with an unpaid balance of $26.2
billion in Ohio. More than 92 percent of these loans are prime
or FHA/VA, with only 7.4 percent being subprime. As with
national data, our home retention workouts in Ohio are up
substantially. In May 2008, we completed 952 home retention
workouts that keep borrowers in their homes, which is a 120
percent increase over November of last year.
Before I conclude, I would like to briefly address our
pending acquisition and merger with Bank of America. The
acquisition is awaiting final approval by our shareholders next
week, and will close in the third quarter of 2008. Until it
does, I am limited as to what I can discuss. However, I can
assure you that Bank of America is committed to our efforts and
to continuous improvement in the foreclosure prevention area.
Chairwoman Waters. Thank you, Mr. Gross. Your time is up.
[The prepared statement of Mr. Gross can be found on page
320 of the appendix.]
Mrs. Tubbs Jones. Madam Chairwoman, for the record, if
there is anyone in the audience who is here to do a workout,
workouts are going on in the room right next door. If you go
out the door to the left, they are working at one of the
tables. The sign-in table is--behind that sign-in table is
where workouts are going on right now. So please feel free to
go over there and see if they can be of assistance.
Thank you, Madam Chairwoman.
Chairwoman Waters. You are welcome.
Ms. Kimberley Guelker.
STATEMENT OF KIMBERLEY GUELKER, PRESIDENT, LORAIN COUNTY
ASSOCIATION OF REALTORS
Ms. Guelker. Good afternoon. My name is Kimberley Guelker.
I am a Realtor with Howard Hanna Real Estate Estates, and I am
also the volunteer president of the Lorain County Association
of Realtors, located in Amherst, Ohio. With me today is our
Association's executive vice president, Tom Kowal. I would like
to express our thanks to you for convening these discussions to
provide an effective solution to the growing problem of
foreclosures.
The Lorain County Association of Realtors is a trade
association under the Realtor family of the National
Association of Realtors and Ohio Association of Realtors. Our
Association represents 500 Realtors and 40 brokerage offices in
Lorain County. In 2007, our members sold over 2,700 residential
units with an average market value of $143,000. The total
transaction value exceeds $375 million.
During the nationwide real estate market boom years, Lorain
County experienced a very favorable housing market for buyers.
Prices escalated about 3 percent, well below the national
average, during the same time period. Housing choices were
good. Local mortgage rates continue to be at record lows. As a
result, homeownership rates are at record levels.
Unfortunately, the current economy of Lorain County is
stagnant. Lorain County has experienced numerous heavy industry
plant closings, company relocations, and an aging population.
The unemployment rate of 6.2 percent in April 2008 was
significantly higher than the national rate of 4.4 percent and
the State of Ohio's rate of of 5.4 percent. As a result,
foreclosures are at an all-time high according to the Lorain
County Clerk of Courts.
I would like to share with the group an article that was
recently published in The Morning Journal. In Lorain County, 1
in 54 homes is foreclosed on, compared to 1 in 201 homes
nationally. We are 4 times as bad as the national average,
according to our clerk of courts.
Foreclosures filed through May were up 8 percent, as
compared to the same time last year. In one community--
Sheffield Lake--1 in every 28 homes is foreclosed on. The major
cities of Lorain and Elyria are about 1 in 40.
In addition, the current inventory of homes on the market
for sale is over 3,300. That is a 14-month supply. Many of
these homes are on the market because owners cannot afford the
mortgage payment, the homeowner's insurance, or the real estate
taxes. Studies on Lorain County foreclosures have shown that
the Lorain County foreclosure problem is not a direct result of
predatory lending practices.
While the Lorain County real estate market provides many
opportunities for affordable housing, greater amenities, and
reasonable cost of living, we are beginning to see negative
appreciation in housing values. The estimated impact on housing
values is $1,700 if your property is next to or near a
foreclosed or abandoned home. The cumulative impact would be
$56 million on our existing inventory of homes for sale.
According to many of our local lenders, they are seeing
foreclosures increasing because of rising health care costs and
the uninsured paying for medical care, job losses, and social
situations. I would also like to add that going forward, the
high cost of gas and food items will add to the foreclosure
rates as homeowners make a choice between these items or paying
their monthly mortgage.
Many of our local lenders are trying to intervene with
their mortgagees by participating in consumer outreach programs
sponsored by the Lorain County Save Our Homes Task Force and
other community organizations. Many of these foreclosed
properties were purchased by investors who find very high
vacancy rates because of the malaise in the Lorain County
economy. They are also reporting extensive property damage
which is forcing investors into the foreclosure alternative
rather than additional investment in their homes.
Our Association believes that educating the consumer and
our Realtor members plays a very important role in foreclosure
intervention. In 2005, our Association, with the support of
several Lorain County foundations and lenders, provided a 2-day
foreclosure intervention program for attorneys, government
officials, and Realtors.
The program, which covers the legal, ethical, and
intervention process with short sale sellers as an alternative
to foreclosure was again offered in 2007 under the leadership
of the Lorain County Save Our Homes Task Force, and supported
by a grant from the National Association of Realtors. These two
programs had over 300 participants.
Also in response to the need to educate the real estate
professionals, an extensive 30-hour foreclosure intervention
program, licensed by the Lorain County Association of Realtors,
has trained over 500 Realtors and attorneys throughout Ohio in
foreclosure intervention techniques.
Realtors are encouraged by recent legislation at the
national level that supported modernization of the FHA, as well
as financial support of community-based outreach programs for
helping consumers. Likewise, recent Ohio legislation on
predatory lending practices, mortgage rehabilitation programs,
and mortgage term reporting are helping homeowners.
We strongly recommend several additional efforts. Local
city, township, and county government agencies need to be more
concerned with the foreclosure rates in our communities,
because of the effect on government costs, tax revenue losses,
and reduced valuation of properties. Federal and State funding
for community outreach and education programs need to be
funneled down to local agencies.
County governments need to expend public funds for consumer
awareness programs. Financial literacy programs for young
adults need to be funded and become a criterion of classwork in
our educational system so they can develop a strong sense of
ownership in the next generation of home buyers.
Again, thank you for this opportunity to discuss the local
housing conditions and the real estate market in Lorain County.
Your attention to this unfortunate situation is commendable.
The Lorain County Association of Realtors' leadership and
members look forward to working with you to provide solutions.
[The prepared statement of Ms. Guelker can be found on page
326 of the appendix.]
Chairwoman Waters. Thank you.
Next is Lou Tisler.
STATEMENT OF LOU TISLER, NEIGHBORHOOD HOUSING SERVICES OF
GREATER CLEVELAND
Mr. Tisler. Good morning, Chairwoman Waters, and members of
the subcommittee. My name is Lou Tisler, and I am the executive
director of Neighborhood Housing Services of Greater Cleveland.
I am honored to be speaking to our congressional friends
and allies who are battling this crisis. No Federal agency has
taken the time to absorb the testimony of this panel.
Neighborhood Housing Services of Greater Cleveland is a
not-for-profit community development corporation incorporated
in 1975 with a mission to provide programs and services for
achieving, preserving, and sustaining the American dream of
homeownership. Our footprint is Cuyahoga and Lorain Counties
for all our housing programs, and includes Erie and Heron
Counties for our foreclosure prevention programs.
As one of the charter organizations in NeighborWorks
America, a network of excellence consisting of 236
organizations working in 4,400 urban, suburban, and rural
communities, in economic and community development across the
Nation. We are also a national board member of the National
NeighborWorks Association, and I would like to thank the
chairwoman for her leadership and commitment to neighborhood
stabilization.
Impact--the preceding panel spoke eloquently and succinctly
to the issue, but I would just bring one more study to bear.
According to Rebuild Ohio's February 2008 report, $60 million
and counting is the cost of vacant and abandoned properties in
the State. There are over 25,000 vacant and abandoned
properties in eight cities, Lima, Columbus, Springfield,
Toledo, and Zanesville--$15 million in additional houses and
additional city services and $49 million in cumulative loss and
property tax revenues for local governments and schools and
counties.
Adding to this impact, the continued stream of requests to
the County Treasurer's Office for property reassessment, which
will continue to impact exponentially the lost property tax
revenues that provide funding for city services to help
educational systems.
As a State with one of the highest rates of mortgage
defaults in the Nation, Ohio is facing a grim future for the
vitality of its communities. My written testimony provides
numerous statistics from many sources, including the Mortgage
Bankers Association, on the causes and effects of this crisis
on Ohio versus the rest of the Nation.
To be brief on the positives, which are fairly familiar to
all, lack of financial education exasperated with predatory
lending, loss of unemployment and underemployment uninsured
medical costs, and loss of spouse.
What are the programs that are being undertaken by NHS of
Greater Cleveland? Local efforts: From a local perspective,
NHSGC is involved in the Cuyahoga County foreclosure prevention
program started by Cuyahoga County Treasurer Jim Rokakis and
Director Paul Oyaski through our Cuyahoga County Department of
Development.
This program institutes United Way's two-for-one call for
help line that acts as a feeder system to the organization for
public prevention counseling services and programs. The measure
of effectiveness of this outreach is that NHSGC is the top
performer of all agencies participating in this foreclosure
program in mortgage foreclosure assistance, predatory lending
assistance, mortgage payment assistance, and total agency
referrals. Statistics on these measures are included in my
written testimony.
NHSGC has one of the most informative and useful Web sites
at www.nhscleveland.org with regards to foreclosure information
and prevention. NHSGC receives over 800 new visitors per week--
the majority of those new visits to the foreclosure prevention
area of our Web site.
NHSGC utilizes relationships with over 20 community
development corporations in the City of Cleveland to provide
common ground, grass-roots outreach to residents of the City of
Cleveland. NHSGC also works with the Cleveland City Council to
disseminate information to provide yet another outlet for NHSGC
programs and services.
NHSGC continues to play a leadership role in the Ohio Home
Rescue Fund, NeighborWorks Ohio Coalition, including 12
organizations across the State of Ohio. NHSGC is the
administrator of the $4.6 million of mortgage assistance funds
or rescue funds, implementing, assisting, and providing
direction to agencies across the State. These funds were
provided by the Ohio Department of Development and the Ohio
Housing Finance Agency.
Strategically placed, Ohio's nonprofit organizations have
been collaborating independently with public and private
funders, lenders, and nonprofit practitioners, to develop and
implement both the strategies to reduce the incidence of
foreclosures for the past 10 years.
The Ohio Foreclosure Action Initiative Organization began
marketing this program through public service announcements,
billboard advertising, public postering, large distributions of
literature drops, community and grassroots meetings, special
events, etc. We are also involved in a National Ad Council
campaign promoting homeownership preservation foundations,
credit counseling resource center, or CCRC, or hotline 888-995-
HOPE.
As a member of Governor Strickland's Foreclosure Task
Force, many of our recommendations have been instituted as
others have previously testified. Also, the State of Ohio
recently initiated the Save the Dream hotline, 888-404-4674.
This number, instituted across the State of Ohio, is a major
means for connecting homeowners to over 41 agencies'
foreclosure prevention programs and services.
The success of a statewide program is measured in many
different ways. The total number of clients counseled in Ohio
through the CCRC hotline, the Ohio Foreclosure Prevention
Initiative 2006, was 3,972 residents of Ohio. This program is
represented by many organizations counseling over 1,022
residents.
For the calendar year of 2007, there were 28,000 calls made
to the hotline from Ohio, making Ohio the 3rd greatest user of
the hotline in the United States, behind California and
Florida. A breakdown of the call volume for the period of the
delinquencies is contained in the written testimony.
Nationwide efforts: From a national perspective, NHSGC is
part of NeighborWorks America, and a grantee of the
NeighborWorks Center for Foreclosure Solutions, a participant
in the branding organization of the National Ad Council
campaign, as well as having a position on the National
NeighborWorks Association Board.
To assist homeowners in distress throughout the county,
NeighborWorks, in cooperation with the Ad Council, has embarked
on a public awareness campaign for a toll-free hotline. In
additional to the national campaign, NeighborWorks is
supporting the local implementation of foreclosure prevention
strategies to turn greater attention to focus on hot spots.
There was also--has made a Fiscal Year 2008 Consolidated
Appropriations Act to administer the National Foreclosure
Mitigation Counseling Program. These funds are targeted to
provide foreclosure mitigation and counseling help to eliminate
foreclosures and help those across the country.
If I could, I would like to move quickly to what Federal
legislative and regulatory reforms are needed. One --
Chairwoman Waters. I am sorry. I can't let you get into it
at this moment.
Mr. Tisler. Okay. Thank you very much.
[The prepared statement of Mr. Tisler can be found on page
403 of the appendix.]
Chairwoman Waters. Thank you. And you can submit your total
testimony for the record.
Mrs. Tubbs Jones. Madam Chairwoman, for the record,
Councilman Roosevelt from Ward 10 is here.
Chairwoman Waters. Welcome. Thank you.
Mr. Kramer, director and chief counsel, The Housing
Advocates.
STATEMENT OF EDWARD G. KRAMER, DIRECTOR AND CHIEF COUNSEL, THE
HOUSING ADVOCATES
Mr. Kramer. I want to thank you, Chairwoman Maxine Waters,
and the members of the subcommittee, especially my
Congresswoman, Stephanie Tubbs Jones, and her staff for their
untiring efforts to promote affordable housing and assist our
clients to fight housing injustice caused by predatory lending.
Housing Advocates was organized in June of 1975 to offer
minorities and the poor an opportunity for housing justice. And
for over 33 years now our organizations have provided a
lifeline to thousands of people who have no other place to turn
without the assistance of our staff.
More than a decade ago, Councilman Frank Jackson issued
warnings of the dangers posed by subprime mortgage schemes that
were beginning to prey upon Cleveland neighborhoods. If his
warnings had been heeded, much of the damage that we have heard
today would not have occurred.
Let me talk to you about the five questions that you
invited us to discuss. The first, the Congressional Joint
Economic Committee estimates that Ohio can expect another
82,000 home foreclosures between now and the end of 2009, with
more than $3.7 billion in losses.
And let me put a face on this large number. You in
Washington listen to billions of dollars. It is hard for me to
imagine. Let me tell you about one client who is actually
Councilman Holt's constituent, a 70-year old woman who lives in
Cleveland's east side at East 147th Street, and has lived in
that house for 38 years. In 2005, she took out a new
refinancing of her home. The value of that home was $89,000 in
2005; 7 weeks ago, the bank and Housing Advocates agreed to a
new appraisal. The appraisal came back at $31,000. That means
that in 3 years, that house is now worth only 35 percent.
We talk about the losses of wealth. This is the human
tragedy. The billions of dollars we cannot understand, but this
woman whom--the house is well-maintained. Her street has so
many foreclosures the appraiser said he could find no
comparable houses except sheriff sales. That is why it is
$31,000. That is the face that we, on the trenches, live with.
Frank and the other people who are testifying see every day,
that we need immediate action, not only from Congress but also
from the Administration, which hopefully will hear of this
hearing and the tragedy.
Housing Advocates has provided, in the last 5 years, 163
educational outreach programs, most from the Homeowner's
Assistance Program, which the City of Cleveland has funded
thanks to Frank Jackson and Jay Westbrook, and the other
council members.
Currently we receive phone calls from the Homeowner's
Assistance Program, and we have been assisting 242 victims of
predatory lending through this program alone. In addition, we
do a predatory lending counseling program through Cuyahoga
County, and through Homeowner's Assistance, we resolved 19
cases through litigation in the last 5 years. And we have saved
consumers $668,133.37 through this litigation program.
Three years ago, the Fannie Mae program had a pilot program
here, which Congresswoman Stephanie Tubbs Jones was at the
press conference. The Housing Advocates helped eliminate loans
that are predatory, where Fannie Mae agreed to lower--have no
credit scores and lower other criteria if Housing Advocates'
staff would assist in counseling these individuals.
We had four lending partners that assisted us, who became
our own loan committee, where we would present this information
to refinance predatory loans. Huntington Bank, Amtrust Bank,
Dollar Bank, and Fifth Third Bank have been our lending
partners. We have been able to refinance 17 loans and save $1.2
million to consumers through this refinancing program.
Putting several of them that were in bankruptcies, many of
them were in foreclosures, they are now saved and these homes
are saved. We have an Emergency Mortgage Assistance Program
which provides for up to $2,500 of emergency mortgage
assistance to help prevent people from becoming homeless. We
also have, under this program, rental and utility assistance
where we can provide up to $1,000 to individuals who have their
utilities being threatened to be cut off.
Let me tell you my experience with predatory lending.
Predatory lending has contributed greatly to this problem that
we are hearing about today. Yes, economic problems certainly
played its part. But what we are seeing here is in many cases
predatory lending, as Congressman Kucinich says, is just a
cleverly fashioned form of housing discrimination.
Let me ask you to consider urging Fannie Mae to expand this
pilot program that we have told you about. We have been
successful here in Cleveland, thanks to the efforts of our
staff and also Mayor Jackson. This would be something that
could be done immediately. They have the authority.
I would urge you to take a look at the information I have
given in my full text. This program can be expanded nationwide.
I thank you very much for the opportunity to present this
testimony.
[The prepared statement of Mr. Kramer can be found on page
360 of the appendix.]
Chairwoman Waters. Thank you very much.
Mr. Ford.
STATEMENT OF FRANK FORD, SENIOR VICE PRESIDENT FOR RESEARCH AND
DEVELOPMENT, NEIGHBORHOOD PROGRESS, INC.
Mr. Ford. Yes. Madam Chairwoman, and members of the
subcommittee, thank you for the opportunity to come forward and
testify today. I am going to focus my remarks on two topics:
the impact of this problem; and the recommendations for
Federal, regulatory, or legislative action.
I dread the thought of the chairwoman's gavel coming down.
At the risk of that, I am going to depart just briefly from my
remarks to take issue with one of my fellow panelists at the
far right, my right, probably on the left from you, but--and
that is Mr. Van Buskirk, whose opening remarks stated that the
foreclosures derived from Ohio's economy.
There is no question that is a factor, but let me just
point out a statistic. In Cuyahoga County, in 1993, the
unemployment rate peaked at 7 percent. It went down by 1995 and
hovered at 4 percent in 1995 to 2000. Yet, as that chart shows
right over there on the right, foreclosures doubled in that
same period. There is no way that you can explain this by
saying that the economy caused this problem. It is a
contributing factor, but the underlying problem is
irresponsible underwriting and investing by lenders.
I would like to talk about impact. The analogy of Hurricane
Katrina, others have talked about the tsunami wave, I
personally like the tsunami wave, because tsunami wave has the
wave--the initial wave, then it recedes and comes back.
And I actually think that there are three to five waves,
and three of them I anticipate--I suggest that we haven't quite
seen them yet. The first one is the individual impact on
borrowers losing their homes. The second is the impact on the
neighbors, which has been talked about quite eloquently by
other people, loss of property value, the costs to the city to
board-up properties.
There are three waves that I think are just emerging now,
and Tony Brancatelli did reference this. The third one would be
this emerging culture of flippers and speculators, which many
of them are just forming their business enterprises just in the
last few months.
And this sign over here, I am going to put that up.
Mr. Kramer. I did.
Mr. Ford. Oh, thank you. That is a great prop. I get to
point to it.
But what we are foreseeing is an emergence of something
that we haven't seen for 20 or 30 years, and that is land
contrasts, which are definitely not good for low- and moderate-
income people. And I can talk more about that later. So that is
the third wave.
The fourth one would be something that was referenced also
and I want to reinforce it--that property taxes are assessed on
a 3-year basis. We have not yet seen the property tax
assessments that are going to hit Tioga County. There is going
to be a devastating loss to school revenue, police and fire,
municipalities. That is another wave that is going to hit us
that really hasn't hit us yet.
The final one is one which I hope doesn't hit us, but there
is a lot of talk about tightening up credit standards, and
there should be a tightening up of credit standards, but not an
overtightening to where people who do deserve credit can't get
it. I am a little concerned about an overtightening where we go
back to a form of redlining.
Now, in terms of recommendations, I have three categories:
Federal action for preventing; Federal action for reclaiming
and restoring property; and this one I just mentioned, what do
we do about the credit markets going forward to make sure that
people have access to credit.
In terms of prevention, I am going to put forward two
things which I know are controversial, and it may not even be
within your power to do them, but I think it is important to
put them on the table. The first one is a moratorium on
foreclosures. Now, that would appear to be extreme and maybe
even unconstitutional, but in 1934, the U.S. Supreme Court
upheld the State of Minnesota's foreclosure moratorium. And I
can get you the cite for that case if you need it.
The second would be a freeze on the resetting of adjustable
rate mortgages. There is probably no other single effect, no
other single cause that is greater to trigger a foreclosure
than an adjustable rate kicking in and a payment going from
$800 a month to $1,200 a month.
The third category of action that could be taken--and I
think this is reasonably within the realm of the Federal
Government to do--we have four regulatory agencies that
regulate lenders: the Federal Reserve; the Comptroller of the
Currency; the FDIC; and the Office of Thrift Supervision. These
lenders could be using their authority to compel. And I like
the fact that--I think it was Chris Warren who used the word
``compel.'' Not just encourage loan modifications, but to use
their position to try to compel lenders to consider loan
modifications.
And I want to--this may surprise some people, but I want to
commend Countrywide for entering into the agreement they did
with ESOP. I think that exactly what Mr. Gross talked about is
what we need, and I like the fact that he said, ``We don't do--
when we count a loan modification, it is not a deed in lieu.
The family stays in the home.'' That is what we should be
aiming for, and trying to get other lenders to do that.
The question was asked by the chairwoman, I think, earlier,
or maybe it was Representative Kaptur, are the servicers doing
enough? I would say no, not nearly enough. There are some high
points. I would, again, say that Countrywide has responded. But
I think we need more leaning by our regulators on lenders and
whatever we can do to lean on services to do more workouts.
In terms of reclamation, the cleanup is going to be
extraordinary. There is demolition. The City of Cleveland
estimates that the 10,000--
Mr. Kramer. So that is the gap?
Mr. Ford. I was going to say, it sounded a little different
than I was expecting.
[Laughter]
[The prepared statement of Mr. Ford can be found on page
309 of the appendix.]
Mrs. Tubbs Jones. [presiding] We will try and give you a
little more time as we go through the process.
Madam Chairwoman has stepped out for a moment, so I am
stepping in as the Chair, and I am going to go to the first
question by my colleague. But before I do that, I would ask
unanimous consent to have a statement by the Court of Common
Pleas for submission to the record on the foreclosure problems
and solutions. They are going to open their mediation program
beginning June 24th. Where are the folks from the court
mediation program? Stand up if you have any questions.
And then, for the record, this is a copy of a lawsuit
against various lenders that was filed. Let me give it back to
you.
At this point, I would call upon Congressman Wilson to do
his questioning.
Mr. Wilson. Thank you. The first question is to you, Mr.
Tisler. I wanted to hear the rest of what you had to say. I
know you can't do it in this timeframe, but let me ask you
this: Is Senate bill 185 working in Ohio? Is it helping?
Mr. Tisler. I think, Congressman, that we are glad that it
was passed and that it is better than nothing. But I think that
there are a lot of things that we are taking out of that--that
good compromise that should have been. So I think that it is
the right way to go. It is starting to get everybody to
recognize what a predatory loan is, or at least what 185 says
it is, and to really bring some lenders back to earth. But I
think that it didn't go as far as it should have.
Mr. Wilson. Thank you. Can I ask another question?
Mrs. Tubbs Jones. Sure.
Mr. Wilson. Mr. Van Buskirk, are we better off today in the
way we are doing prime lending, or are we better off to go back
to the days where the banker, who is the customer, he insists
on a percentage down, versus the way we have gone--what has
brought us to this home foreclosure situation that we are in?
Mr. Tisler. Representative Wilson, that is a complex
question. The good part of what happened in the U.S. housing
market over the last 10 years was that we recognized the
relatively simple lesson for investment in money from around
the world flowing into it. It did make it possible for many
more Americans than had historically been the case, to afford
homes; most of them are still in those homes.
One of the issues we are dealing with now in credit crunch,
credit scams. Most of those sources of mortgages to the United
States no longer exist. We talk about when we get back to
normal. Part of the question is: what will be normal? I think
part of the issue is Congress is coming up with a set of new
guidelines that fit assures the investors into these loans that
they are buying at very low rates into.
We tend to damn investors. Many of them were people of
mutual funds during the Foreclosure Prevention Task Force. The
public numbers have stayed--the employees realized that they
were investors, because most of the public pension funds, in
fact, are impacted by these subprime mortgages. Why? Because
rating agencies said they were very safe, and they couldn't see
through the numbers.
So I think that one of the keys is getting back to a point
where appropriately underwritten mortgages, loaned under fair
and equitable lending standards, can be funded, both nationally
and again internationally.
When we saw the explosion and the change talked about
earlier among the FDIC-insured institutions, well, the good
news for the consumer is that there are tens of thousands of
choices, good choices and some of them are bad choices. We
talked about financial literacy and people being able to
choose. We don't want to go back to the old days, because
that--there was too little money available for mortgages and it
cost too much. But we have to find a new world where the
lending is prudent. It is fair, it is available to anybody who
has a reasonable probability of being able to pay it back.
Chairwoman Waters. Thank you.
Mr. Gross, one question for you, if I may. In your
testimony, Mr. Gross, you said 718 percent jump in loan
modification plans. Can you explain to me more in detail what
that means?
Mr. Gross. It means that in prior periods, back in the last
2 or 3 years, the general type of loan modification was one
where the borrower was already in his home, the reason for
default had now been cured, and if unemployed now they are
employed again, making a fresh start. The modification would
mean that any arrears would have been capitalized at a
principal balance and reamortized over the remaining term of
the loan, which would have resulted in a very small increase in
their monthly payment.
In the past year, with credit and all the initiatives, and
ASF guidance that we have gotten from the American
Securitization Forum, where we have now gotten into a more
proactive modifications where we have extended someone's start
rates, for hybrid numerical growth, those a year ago did not
exist. So now we are able to do those types of modifications,
and as Countrywide is making clear, we are doing tens of
thousands of loans on a monthly basis.
Mr. Wilson. Thank you.
Madam Chairwoman, I yield back the balance of my time.
Chairwoman Waters. Thank you very much.
Marcy Kaptur.
Ms. Kaptur. Thank you, Madam Chairwoman. I would like to
ask unanimous consent to place in the record three excellent
articles--one from The New York Times and two from The
Washington Post--dealing with this mortgage crisis.
Chairwoman Waters. Without objection, it is so ordered.
Ms. Kaptur. I thank the Chair very much.
Number two, I would like to just inform those who are on
the panel and in the audience that the poster to your right
tracks the rise in foreclosures in Ohio from 1994 to 2007,
reflecting the roughly 80,000 foreclosures last year. And the
poster to the immediate right, the number of foreclosures we
had in the State last year, each red dot representing 10
foreclosures.
I wanted to also thank Countrywide's representative, Mr.
Gross, for having people over in the adjoining room today, and
the other modes of instrumentality that have shown a presence
here today. We all live in this country, I think, and most of
us live in this State. And we have to work through this
together and it's not easy.
I am also fairly convinced that many people who got caught
up in this weren't the ones who came up with it; they came
along for the ride. That doesn't mean they are totally
guiltless, but I think they have responsibility. So we thank
you for being here today.
Mr. Van Buskirk, I am just going to focus this question to
you. I think Ohio has a really important role to play in
getting our Nation back on the right track. And I think in my
very long career in the Congress, when I first arrived we had
agricultural bankruptcies all over the country. Ohio had very
few of those, because our farmers didn't overextend themselves.
They were responsible, they were conservative, they didn't
over-borrow. It was an anomaly in the Nation.
When we had all the problems with thrifts back in the
1980's, if you look at California, Arizona, Florida, or Texas,
Ohio really--you know, we had some in there that weren't so
good, but nothing like the washout that happened in the rest of
the country. I see John Floyd sitting out there in the audience
from the Ohio Credit Union League. But for the State charters,
we have not had a bad record here with federally-regulated
credit unions from this State.
So I guess my message to you is that somehow America needs
fiscal discipline again, and it needs to exert fiscal
responsibility. We are $9.3 trillion in debt, headed to $10
trillion in the public sector, and it in the private sector,
according to your own testimony, we are just bringing the money
from everywhere else because we are not self-sufficient here at
home.
I think people like yourself, and your colleagues from
Ohio, need to have louder voices at the Federal level for how
this country can get back on track again, because we are merely
emptying ourselves. And you say in your testimony how our
public pension funds are now invaded by foreign money.
My friends, America has never really been here before. And
part of this problem, a large part of this problem is that
because we were broke, we should have been broke back in the
1990's when we were growing a little bit and government was
balancing the budget, we should have been more responsible
fiscally in our private sector dealings. This is a private
sector problem with a lack of public regulation.
I just hope that--you say in your testimony here, non-bank
brokers no longer have a real interest in the borrower's
ability to repay. I think Ohio--the people of Ohio have had a
history of paying their own way and wanting America to be
financially independent. And we have lost our way. And maybe
with, present company excepted, the City of Los Angeles--maybe
Ohio voices need to be a little bit stronger at the national
level and not be afraid to have our country take the actions we
need.
I think Ohio's experience has something to offer. The
people in the financial centers in New York often look at us as
flyover country, but our record is pretty good compared to
other places in the country. So I think your testimony reveals
the level of knowledge here that I think gives you special
responsibility.
And I guess my questioning really is only to say, ask
yourself, what do you do with that knowledge now? Maybe you
should play a little larger role before the committee. Maybe
Ohio's experience has something to teach the Nation in
unwinding things so we can become fiscally solvent in the
public and private sectors and stand on our own two feet again
as a country.
So I am impressed with your testimony, but don't be afraid
to draw from Ohio's experience and take it to the country. We
are hurting now, because we haven't looked into all these deals
from the coasts and internationally. Ohio should have been a
larger voice in opposing all of that. So maybe now is the time
to speak out. That is my comment, and I thank you for your
efforts.
Mr. Van Buskirk. Congresswoman Kaptur, thank you. I agree
with you. You mentioned very few insured depository failures in
Ohio's history compared to most other States, and that is true.
But you remember in your early days of Congress, the home State
failures.
And I think there is something instructive from Ohio
history to our current situation, because there was a group of
savings and loans that were privately insured. Most had chosen
private insurance to avoid the Federal regulator or the
prudential regulator protecting the public's interest. Then,
when one of them made poor investments in the private insurance
fund, it immediately became bankrupt and created a domino chain
into some other States, other failures.
Another thing, in terms of Chairman Frank just announced a
series of hearings of oversight in terms of the regulatory
structure. Regulatory structure on paper doesn't look very
pretty. The Comptroller of the Currency has created--the
Federal Reserve created in 1913 was never really meant to work
with one another very well. We have a series of housing laws
designed to protect consumers, but they have never really been
looked at as a whole to make them work efficiently and
effectively.
The Federal Reserve just announced some new rules dealing
with--under the Home Equity Protection Act for high-cost loans.
But it only has the authority, as I understand it, to deal with
those high-cost loans. In principle, they are very simple.
Focus on the disclosures to determine whether consumers learn
from them what it is they need to know and make a prudent
decision.
So I think some streamlining of the process is an
understanding to empower the consumer to make better decisions
on these things is a lesson we need to learn here in Ohio.
Ms. Kaptur. I would say that, in terms of the home State
situation relative to California or Texas and some of these
other washouts we had, Ohio didn't compare in terms of volume
or impact downstream. We had some mergers, and so forth, but in
terms of arguing that Ohio was equal to their situation, you
would have--
Mr. Van Buskirk. No. In terms of assets or number of
institutions, Ohio didn't compare. But unlike some of those
other areas, the problem here was a lack of financial
regulation that allowed folks to abuse circumstances and do
things that would--other kinds of financial institutions
couldn't really manage an appropriately regulated market.
Ms. Kaptur. I know that my time has expired, but I would
just like to say in your testimony you also talk about the
Office of Thrift Supervision. I have--I am withholding judgment
on the Office of Thrift Supervision, because I am asking myself
the question: what happened in Chicago, and what happened in
Washington, that Superior Bank in the State of Illinois was not
supervised? What went wrong? Why should I trust OTS again, if
ever? What needs to be done to clean that up?
Thank you.
Chairwoman Waters. Thank you very much.
Congresswoman Tubbs Jones.
Mrs. Tubbs Jones. Thank you, Madam Chairwoman. One of the
things that we didn't talk about earlier that we all need to
factor into our discussion is the fact that it is important
that predatory lending practices--a number of persons who
qualify for prime loans were ushered into subprime loans
because it was more financially viable--a financial gain for
the lending institution. And we need to take a look at that
also, because as a result of that a lot of people ended up in
subprime that should never have been in subprime lending.
I want to give--just for the record, say with regard to Ed
Kramer --Ed Kramer and I went to law school together, and we
started out first landlord-tenant cases way back in the day.
And I have to say that is truly where I began the process of
being concerned about housing, and that was way back in the
day.
And I want to use my time to talk about these things, but
also for a moment talk about the kind of litigation that you
have been involved in and the problem with litigation in this
particular predatory lending area.
Mr. Kramer. Well, the problem is there are very few
attorneys who are capable and have the financial resources to
go against major financial institutions in Wall Street. So the
fact that the City of Cleveland, through Mayor Jackson, filed
that lawsuit against the Wall Street firms and the investment
banks is very important, and we are supportive of the City.
That is something that we hope other cities will do. And,
in fact, the City of Baltimore has brought litigation. The Fair
Housing Law gives standing to cities because, if the city has
been injured--if you look at the--just the devaluation of
property, and, therefore, property taxes, every city that has
experienced devaluation has a fair housing claim for the next 2
years at least against these banks, but the clock is ticking.
And we really have not seen what I thought--Baltimore and
the City of Cleveland leading the way--other cities would join
on. And so I was very happy to hear Representative Kaptur talk
about encouraging other cities to look at this issue right now.
Mrs. Tubbs Jones. Would the gentleman yield for just a
second? I don't know if it is possible before we leave town for
that case to be xeroxed and distributed to the members. I would
like to take that back to my community. Thank you.
Chairwoman Waters. We have--I will ask Congresswoman
Stephanie Jones to lead us in the Congress--
Mrs. Tubbs Jones. Will you get one of my staffers and tell
them to come--one of my staffers and have him come in here,
please?
Chairwoman Waters. Let me just say to Congresswoman Kaptur,
what I would like us to do is to take our matter forward and
give some national presence to this lawsuit. Then, in addition
to that, I would like us to be in touch with the Conference of
Mayors in the country, and disseminate the lawsuit to them so
that we can create some momentum with other cities following
this lawsuit. It sounds as though it is kind of could help us
to move the courts in our direction.
Thank you.
Mr. Kramer. I would also point to Exhibit 2 of my written
testimony, which is an article that Marilyn Tobocman and I have
written on fair housing laws as a weapon against predatory
lending. It cites the principles about using the standing of
cities to be able to sue predatory lenders, and that is with
the materials that you would have, in my case.
I do want to talk about this sign, which--you are seeing
many of these signs popping up. It says, ``Sale, $500 down,
$350 a month.'' What is happening here is this is like the
third wave of the tsunami. The final devastation is just
occurring, and we are the canaries. You know, we have already
suffered through this predatory lending.
The banks that have now gotten our property--10,000 vacant
properties in the City of Cleveland alone--are not maintaining
those properties. And now the City of Cleveland, through Judge
Pianka, the City of Cleveland's housing court judge, is trying
to take them to task because as property owners they should be
maintaining the property. They should be cutting the grass.
They should be, maybe, boarding-up to make sure that house
stays viable. They are not.
So suddenly what is happening is we are handing these out-
of-State companies--this one, for example, is assigned from
Destiny Ventures. And Destiny Ventures are being given these
homes, sometimes for $500 or $2,000, and they are selling them
immediately back--selling--they are renting illegally, 21-year
leases, which are never reported, so it is illegal under Ohio
law, by giving it to families. It is like poisoning them with
candy. It is like Halloween.
And these families are trying to desperately take often
condemned property and bring them up, spending the last
resources they have because this is their chance, they think,
to own a home. But the lease itself is so adhesionary, it says
that if you default at all, once, if you don't make a payment,
if you don't bring this up to code within 3 months, they can
take the property back and they can evict you. Now--
Chairwoman Waters. Would the gentleman yield for a moment?
Would you repeat? Destiny Ventures?
Mr. Kramer. Destiny Ventures is in--
Chairwoman Waters. Where are they--
Mr. Kramer. Oklahoma, Texas also. This is--and they are
totally undercapitalized. But what is happening now, banks that
have financial resources that own these properties are now
trying desperately to get rid of them because they know they
could be held responsible by the city of Cleveland.
Chairwoman Waters. If the gentlemen would yield for a
moment, I am basically very, very cautious about eminent
domain. But the land use authority vested in the city council,
I believe that a criteria could be developed so that you could
use the eminent domain in some of these cases, or in many of
these cases.
Someone said here today that the banks or the lenders or
the investors are anxious to do workouts because in the final
analysis they could lose everything or they could save some of
their investment with these modifications. But if you are
telling me that you have, as he says, which we have heard over
and over again, that are bringing down the value of other homes
in the neighborhood, that are not kept up, that are being
stripped, that are being used for criminal activity, it seems
to me that is a good case for eminent domain.
And if the cities get involved with establishing criteria
for eminent domain, that if in fact the value of these
properties has decreased significantly, then perhaps the city
can end up, as I am trying to do with my--one of the pieces of
legislation that I have for the cities to buy up these
properties so that they can be rehabbed and placed on the
market for low and moderate income people. Through eminent
domain, you can get them all very, very cheap because the value
of them has gone down.
Perhaps the city ought to be a little bit more aggressive
in exercising its authority to do some of this. So we would
like to talk with you further because we are hearing something
today that I always knew was going to happen if this situation
persisted, but I didn't know it was actually happening the way
that you described.
All right. We are going to move on so that we can get--were
you finished?
Mrs. Tubbs Jones. Yes, ma'am.
Chairwoman Waters. All right. Okay. We will move to Ms.
Sutton.
Ms. Sutton. Thank you, Madam Chairwoman.
Ms. Guelker, thank you for coming in to testify about the
good work that you are doing in Lorain County. You mentioned in
your testimony short sales and they have been getting increased
attention lately as an alternative to foreclosure. Can you just
go into a little more detail about what short sales involve?
And can you also explain how they might be beneficial to
someone as an alternative to foreclosure?
Ms. Guelker. The lady who was at the end of the first
panel, I think she explained it exactly. I can fax or scan or
e-mail something eight or nine times. They don't have it. They
make a deal with an asset manager; a month later that deal is
off the table. The homeowner--I can see why the homeowner gives
up, walks away. It is very--they are made promises. They are
trying and then somebody pulls the rug out.
I mean, as a Realtor, I sit there and do it. I make the
call. You follow up. One mortgage company wanted a $25,000 no
interest for 5 years to a guy getting out of jail. The guy
didn't have a job. Six months after trying to do a short sale,
it went to sheriff's sale in January. He's still in the home
because the bank still hasn't paid the country. Kind of
disturbing. And he was a good one. He kept the property cut, he
made showings available, he was a good homeowner who was
actually trying to work with them.
Ms. Sutton. Thank you. I am going to follow up with you a
little bit after this and get some more information.
Mr. Gross, you received some positive support here for
Countrywide's president, but, you know, earlier in the first
panel, there was discussion about Countrywide. And maybe you
can just tell me, how many loans does Countrywide have in the
State of Ohio?
Mr. Gross. 256,000.
Ms. Sutton. Okay. Do you know how many of those 256,000 are
subprime loans?
Mr. Gross. 7.4 percent.
Ms. Sutton. 7.4 percent. Do you know how many homes
Countrywide foreclosed on in Ohio last month?
Mr. Gross. No, I am sorry. I do not have that information.
Ms. Sutton. How about the last year, 2007?
Mr. Gross. I don't have in terms of--at the present time,
approximately 2.04 percent of the loans in Ohio are in a
foreclosure status, which means foreclosure is pending. Of
those, we estimate normally that 50 to 60 percent of those
properties will not complete the foreclosure process, and 40-
plus percent will complete it.
Chairwoman Waters. Move the microphone up as close as you
can.
Mr. Gross. Sorry.
Ms. Sutton. Okay. In your written testimony you say that
you have assisted 26 borrowers who have sought help.
Mr. Gross. Through that one program.
Ms. Sutton. Right. Through Ohio Save the Dream Program,
right?
Mr. Gross. That is correct.
Ms. Sutton. And what percentage of the--well, we can
calculate that. That is a relatively small number.
Mr. Gross. Again, that is just those borrowers who have
approached us through that one program.
Ms. Kaptur. Will the gentlelady yield?
Ms. Sutton. Certainly.
Ms. Kaptur. Two percent of 276,000 is 5,520.
Ms. Sutton. Thank you.
Mr. Gross. In the foreclosure process, yes.
Ms. Sutton. Thank you, Representative Kaptur.
Although you are here today, and I appreciate that, and the
people are in the other room trying to work out loans, we have
heard some of the testimony about how difficult this all seems
to be when it is put into practice for people. I looked at the
litany of interactions between, you know, our earlier witness
when she was trying to help people, and it reminded me of
looking at the process that vulnerable people who are trying to
get their health care coverage go through, even when they have
insurance, it's just call after call after call, and when
people are vulnerable, there are always those out there to take
advantage.
But I just have a question: Even though you are here, I
didn't see Countrywide on the list of loan servicers who signed
a Compact to help Ohioans preserve homeownership. Why is that?
Mr. Gross. We have participated in the discussions
regarding the Compact. Many times the overall principles that
were in the Compact were ones that we subscribe to and had
practiced for many years. Unfortunately for us, it was sort of
the devil was in the details, which was for each one of those
major points there were sub-bullets in there that we, quite
frankly said, if it were just the six principles stated alone,
we are fine. We could subscribe to that, as we have done in
other States.
But once you got into the details of exactly what was
required, one of the challenges that we have is we service 9
million loans across the Nation. We absolutely cannot get into
a circumstance where we have materially different requirements
and standards that a location makes so that all loans in Ohio
have to be serviced in a certain manner, which is different
from Minnesota or Michigan.
So for national servicers, which is why I think there were
very few national servicers that subscribe to the Compact, this
was a major problem.
Ms. Sutton. So it would be some things that are initiated
on the Federal level so that you have--
Mr. Gross. Which we were one of the first subscribers to
the Dodd principles.
Ms. Sutton. What exactly, just for clarification, what are
the--what were the devilish details that kept you out?
Mr. Gross. I don't recall what they were. I'll have to
follow up with you later. Blame it on age; I don't remember.
Ms. Sutton. Thank you. I yield back.
Chairwoman Waters. Mr. Gross, are you a lawyer?
Mr. Gross. No, I am not.
Chairwoman Waters. Okay. Are you familiar with, I believe
there are laws that cover the country with regard to paper,
commercial paper, right?
Mr. Gross. Uniform commercial code.
Chairwoman Waters. Uniform commercial code, right?
Mr. Gross. Yes.
Chairwoman Waters. So even though you are not a lawyer, you
know what I am talking about, right?
Mr. Gross. A little bit.
Chairwoman Waters. Yes. But, so if we can have a uniform
commercial code that addresses consumer paper, why couldn't we
do the same thing with mortgages? Because I was--the grief we
were getting across the country from the national servicers
that it is very hard to put credit--to describe what predatory
lending is so you could regulate it, because lending is so
different across the country. But if you have uniform
commercial paper, you ought to be able to have uniform
predatory lending laws, don't you think?
Mr. Gross. I am betting that you could come up with a
designation.
Chairwoman Waters. Okay. I thought so.
Ms. Sutton. Just one final question.
Chairwoman Waters. Yes.
Ms. Sutton. You said that you didn't want to sign on to the
Compact because it is difficult when you are dealing with other
States if you agree here. Was there something in the compact
that would not have been acceptable or a practice that you
could have applied?
Mr. Gross. Not that I remember.
Ms. Sutton. Okay.
Mr. Gross. And I would note for the record that Countrywide
does report all of our portfolio management loss mitigation
statistics nationally, and we report them on a State level
basis, so any State regulator who wants access to this
information, it is led by an initiative from Ohio Attorney
General Tom Miller, and they are all reported through Deputy
Commissioner of Banking, Mark Pierce, in North Carolina. So our
information on a State-level basis is available to any
regulator.
Ms. Sutton. Thank you, Mr. Gross.
Chairwoman Waters. Thank you.
Mrs. Tubbs Jones. Madam Chairwoman, I apologize. For the
record, they are doing workout in the next room--Washington
Mutual, Countrywide, National City, Freddie Mac, Litton Loan
Service, Neighborhood Housing Services, Community Housing
Solutions, the Housing Advocates, Legal Aid Society, the East
Side Organizing Project, and ACORN. They are next door and
available to help you do workouts.
Chairwoman Waters. All right. Thank you very much. I am
supposed to spend my time now asking Mr. Gross and Mr. Van
Buskirk about the affordability standards Countrywide and
members of the Ohio Bankers League are using in their loss
mitigation efforts with distressed borrowers. But I would like
you to start to think about that while I--I guess offer a kind
of apology and help to accept the blame for the situation we
find ourselves in.
Our regulators have already admitted in hearings that they
dropped the ball, that they are responsible for this
foreclosure event that we are in. Members of Congress, some of
us, have certainly admitted that we dropped the ball on our
oversight responsibility, and we did not require enough of our
regulators so that they were able to get away with not doing
the kind of auditing and the kind of questioning of all these
new and exotic products that were coming on the market, so that
we could understand what was happening.
But as I look here today, I see further responsibility can
be taken. While I am very much aware that the economy certainly
plays a role, when people lose their jobs and we have financial
difficulties and cannot make our payments and we cannot take
care of our mortgages.
But, you know, and I am very close with the Realtors, but I
am wondering if some of our Realtors were selling these
properties that they did not wince at some of the products that
were being offered to their clients and say, ``I can't do this.
This just doesn't seem right. I know that based on what I know
about this client there is no way that this is going to work
with the reset, given, you know, the amount of income that they
have.''
I am also wondering when the Fed--the Home Loan Bank
situation, you have participating banks that you give low-cost
money to. I am wondering if--how many of those banks were
predatory lending, and if there is something interesting--what
was going on, and certainly with the Ohio Bankers Association,
what kind of early-on discussion did the Association have about
these products.
And how many of the banks and the associations were
involved with particularly mortgage brokers and bankers who
were out there pushing these products with no responsibility?
As a matter of fact, in the State of California, Countrywide--
we had two ways by which brokers could be licensed. And
Countrywide utilized the one where if they got their license,
they could go out and hire people without those--those brokers
being licensed. We are changing that in the legislation, but we
literally had these mortgage folks working out of the backs of
their cars with all kinds of utilization of these products and
some fraud, etc.
So I think that we all have to take some responsibility to
work very, very hard. We owe an apology to the American people.
And I really came here today quite upset, and I am trying to be
calm and to contain myself because the latest news is this.
Countrywide has something called Friends of Mozilo. The friends
of the chairman or the CEO, the president, the founder, or
whatever all those titles are at Countrywide Bank were people
who got special rates and special considerations. And some of
them are elected officials--Senator Dodd; Senator Conrad; Jim
Johnson, who was the CEO of Fannie Mae; Donna Shalala, who was
the head of Health and Human Services; Ambassador Holbrooke;
and Alfonso Jackson, who was the Secretary of HUD--all were
friends of Mozilo's and got special consideration for their
loans.
Not only did they get a reduced interest rate, but some of
them were able to borrow money above and beyond the standards
of Countrywide, where they were lending for multiple units and
properties that were not even supposed to be funded according
to the criteria of Countrywide. And, of course, general shock
that Jim Johnson, even while he was running Fannie Mae, was
able to get a special loan and special consideration on
multiple properties.
And so, you know, the American people, and particularly the
poorest and most vulnerable in our society who were being raped
with these predatory loans, added value products, and
extraordinarily high interest rates and resets that are going
to quadruple ought to be mad as hell at all of us about what is
happening. And I do think that some of the people who testified
here today talk about--we have to dig deeper. There is no way
that we should allow, even with the sale--Countrywide can't get
off with the sale just to Bank of America.
We have to dig deeper. We have to explore some of what
Congresswoman Marcy Kaptur asked about, who started it, whether
or not people conspired to target neighborhoods, on and on and
on. So I just must say that because it is so uncomfortable as a
public policymaker in the middle of Congress doing this work to
keep discovering what we are discovering.
This latest transfer with Mozilo with this little private
banking that they were doing with professional people and the
very people that we expected to protect the people of America
were getting privileged loans is just unacceptable. And we are
going to have to deal with this.
Not only my committee but the entire Congress of the United
States has to do this. We have to subpoena the people. And we
have to join some lawsuits. Meanwhile, let me get back to the
Bureau of Standards.
Countrywide, you get beaten up a lot, but you ought to be
beaten up.
[Laughter]
Chairwoman Waters. I mean, you know, I thank you for being
here today, but I don't feel sorry for you at all. And if you
end up getting hit hard, just grin and bear it, as you are
doing, because you have become the poster child for what is
wrong. I know Ameriquest and Century and some of the others
that are out of business were just as bad as you are. Thank you
for coming, and accepting the blows.
Now tell me, about the affordability standards in
Countrywide and also I will get back to the rivers of the Ohio.
Use it in your loss mitigation efforts. Is that understandable?
Do I have--
Mr. Gross. Yes, ma'am.
Chairwoman Waters. --to be more specific than that?
Mr. Gross. No, that's very specific.
Chairwoman Waters. All right.
Mr. Gross. When we are gathering financial information from
a customer today--
Chairwoman Waters. Would you speak up so everybody can hear
you?
Mr. Gross. Yes. When we are gathering information from the
homeowner regarding their income and expenses, which would be
gross income versus their expenses, we will use two traditional
ratios, one which is called the monthly housing expense, which
is principal, interest, taxes, and insurance, which is
typically going to fall somewhere in the 33 to 38 percent of a
person's or a household's gross monthly income.
The second ratio is the total monthly obligations, which
includes the monthly housing expense and all other obligations
they might have, which depending upon the homeowner and what
area of the Nation they live in, that would probably cap out
somewhere in the 45 to 50 percent of the household's gross
monthly income.
Chairwoman Waters. You have strict standards on
affordability for loss mitigation efforts. That may for example
require better than $200 in residential income left over after
a borrower's household expenses, including payments on all
secured and unsecured debt are taken into account. And that
requires 20 percent residual income per person. Under the same
analysis, VA and FHA also imposed similar standards on services
of the loans that they guarantee.
Mr. Gross. Yes. And the final item that I was going to
mention was we would generally try to leave approximately
somewhere between $75 to $100 net disposable income per
household member.
Chairwoman Waters. What do you mean you ``try?'' Is that a
standard or not?
Mr. Gross. It is a guideline.
Chairwoman Waters. So it could or could not be the case?
Mr. Gross. Yes. It would be the standard. What I outlined
to you before was generally that we would be in compliance with
the same thing that either Fannie Mae or Freddie Mac outlines.
Chairwoman Waters. Well, let me just ask this so I know.
The more I learn about servicing and servicers, the more
fascinated I am. Countrywide services its own loans. Is that
correct?
Mr. Gross. We service loans for Countrywide's mortgage
business, yes.
Chairwoman Waters. And who else do you service?
Mr. Gross. Fannie Mae, Freddie Mac, and privately issued
securities, some whole loan owners.
Chairwoman Waters. So you make a lot of money? You are a
big servicer?
Mr. Gross. Yes, we are.
Chairwoman Waters. And many of the loans that were
initiated by Countrywide were purchased on the secondary market
by Fannie Mae and Freddie Mac. Is that correct?
Mr. Gross. That is correct.
Chairwoman Waters. So there is a little professional
relationship going on here? They have to be the same loans
that--
Mr. Gross. We sell loans to Fannie Mae, Freddie Mac, and
other investors. And they hire us to service those loans on
their behalf.
Chairwoman Waters. Very interesting. Very, very
interesting. Now let me ask one more question: In the servicing
of loans, do you contract out your servicing to anybody?
Mr. Gross. Generally speaking, no.
Chairwoman Waters. Not generally. Do you contract out your
services to anybody?
Mr. Gross. There are certain isolated--
Chairwoman Waters. No. Do you contract out--
Mr. Gross. Yes.
Chairwoman Waters. --your services? Whom do you contract
out to?
Mr. Gross. It depends upon the--
Chairwoman Waters. Just give me the name of one or two of
the other servicers you contract out to.
Mr. Gross. Oh, other servicers?
Chairwoman Waters. Yes.
Mr. Gross. No, we do not. We service all of the loans on
behalf--
Chairwoman Waters. Well, what were you referring to?
Mr. Gross. I was referring to we may hire an outside firm
to assist us in certain aspects of servicing the loan.
Chairwoman Waters. Don't go do that with me.
Mr. Gross. Well, that is the answer to the question.
Chairwoman Waters. Well, the answer to the question is you
do contract out. Do you hire any offshore? And I have to put it
in a way that you don't--
Mr. Gross. Yes, we do them offshore.
Chairwoman Waters. You have offshore people who help you
with some of the aspects of the servicing--
Mr. Gross. Yes.
Chairwoman Waters. --that you are alluding to now in
nuancing on me. Where are those offshore contractors that help
you with some aspects of the servicing? Who are they?
Mr. Gross. They are employees of Countrywide. And they are
in India and Costa Rica.
Chairwoman Waters. India and Costa Rica?
Mr. Gross. Yes.
Chairwoman Waters. And what percentage of the servicing
done out in India and Costa Rica are modifications or--
Mr. Gross. None.
Chairwoman Waters. None?
Mr. Gross. None.
Chairwoman Waters. So what do they do for you?
Mr. Gross. Mainly office functions during off-hours because
they are--
Chairwoman Waters. So they answer their telephone, maybe.
And what do they do for you?
Mr. Gross. On very infrequent occasions, yes, we do have a
telephone staff there that is handled primarily for customer
service-oriented discussions.
Chairwoman Waters. So what does one in India do for an
American homeowner in Ohio?
Mr. Gross. Most typically the type of calls that they would
get would be a homeowner calling in to say, ``I'm going to make
my June 1st payment on June 23rd.'' And we would note that, and
we would say, ``Thank you.''
Chairwoman Waters. Well, let me just say this: In addition
to some of the things that we are trying to get into for that
is to make sure that no part of your business--we talked about
offshore. I alluded to it. I think they should be out. I think
all brokers should be licensed in Ohio.
One of the things I think we ought to do is we ought to
prevent and outlaw offshore contracting for any services.
American taxpayers, particularly with these predatory loans and
these resets, are paying high interest rates. And there is
enough money in there for you to hire people from these
communities. If you have legitimate jobs, they deserve to have
them.
But it is an insult, really, to talk about your hiring
people offshore to have a piece of paper with 10 responses to
questions where someone says, ``I am behind in my loan,'' and
all they say is, ``Yes,'' or they can say, ``I want this loan
to be repaid. I will catch up. I cannot pay for 10 days,'' and
a paper to tell them ``Yes'' or ``No.'' ``Yes, you may do
that,'' or ``No, you may not do that.'' That is absolutely
outrageous. And that is why we are so upset with Countrywide
for so many things.
I am not going to go any further with questioning, Mr.
Gross. I just want to say to you I thank all of you for being
here, despite the fact that you are going to feel a little bit
burned when you leave here today. I contained myself a lot
better than I thought I could, but I thank you all for
participating.
I would like to thank all of the nonprofits and
organizations that are attempting to help in so many ways. I
liked some of what I heard. We are going to take some of that
into consideration to see how we can better help you. I liked
some of the information I heard about what HUD can possibly be
doing. And, again, we have a lot of work to do. There is no end
in sight on these foreclosures. You would think they would be
winding down by now, but they are not.
So, with that, yes?
Mrs. Tubbs Jones. I would like to introduce one more person
who has come into the hearing. It is our newest councilwoman in
the City of Cleveland, Mamie Mitchell. She has the Ward 5.
Thank you, Councilwoman.
Chairwoman Waters. Thank you.
Mrs. Tubbs Jones. Let me ask all of the folks who are
participating here to please thank my colleague, the Chair of
the Housing and Community Opportunity Subcommittee of the
Financial Services Committee, Congresswoman Maxine Waters, for
convening this hearing.
Chairwoman Waters. Thank you very much.
Mrs. Tubbs Jones. Let me thank the key member of the Ohio
delegation, Marcy Kaptur, for joining us today.
Let me thank my colleagues Charlie Wilson and my sister in
Ohio, other sister in Ohio, Congresswoman Betty Sutton, for
being here.
Chairwoman Waters. Thank you.
Ms. Kaptur. Madam Chairwoman, I apologize --
Chairwoman Waters. Absolutely.
Ms. Kaptur. I just wanted to say to Congresswoman Tubbs
Jones, thank you, and thank you to your wonderful, wonderful
staff. It is a reflection of all you do for us here, including
Cleveland State University. And I want to thank Betty Sutton,
one of our crackerjack Congresswomen but also a crackerjack
lawyer. So I am glad she is here today. And I know this is the
beginning of a whole new day.
Thank you again, Chairwoman Waters. I leave today with
better spirits than I came. Sometimes it is very frustrating
working in Washington. Today I saw America the way it should
be. It was a very respectful discussion regarding the points of
view from people from all walks of life here. And we all
learned together to try to help our country. This would not
have been possible without this chairwoman setting the tone and
coming out here, allowing us to face you directly, and to us.
This is the way America should look. Thank you.
Chairwoman Waters. You are certainly welcome. And I would
like to thank all of our members who are present here today.
This Ohio delegation has been fantastic in coming to organize
this hearing that we had today. And, again, I would like to
thank the staff from my office and from all of your offices who
worked on this.
I thank you so much for your presence. There are times when
I hold hearings where I am the only one there because members
are so busy and they have so many people at them and so many
issues to deal with. But you have certainly demonstrated your
concern about this issue of foreclosures in your State, and I
am very appreciative of it.
We have learned a lot here today. And we will work together
to organize time on the Floor so that everybody understands
what took place here today and to give some exposure to
Washington. And so this has been very, very helpful to all of
us.
Again, let me thank all of those individuals representing
the institutions that are in the other room doing workouts. We
are going to do follow-up on those. I have asked all of the
citizens who are involved in trying to work out some kind of
form, a release, so that we could get the information because I
don't want anybody sending me back a form that they did 10
workouts.
I want the names of the workouts, and I will call each one
of the persons who is supposedly backed up. And I am going to
find out what happened with them. And if, in fact, a workout is
not a workout, then I am going to get back to the institution
that claimed it was a workout.
Without objection, let me just enter into the record
written submissions from the following organizations: Policy
Matters Ohio; Ohio Credit Union; United Way; the Poverty Center
at Case Western Reserve University; Lake County Fair Housing
Resource Center; Cynthia Dayton, City Manager; Rashad Young of
the Lake County ERMA, E-R-M-A, Program, submitted by
Representative LaTourette; and a statement from Mayor Marcie L.
Fudge from Warrensville, Ohio.
With that, this hearing is adjourned. Thank you.
[Whereupon, at 1:55 p.m., the hearing was adjourned.]
A P P E N D I X
June 16, 2008
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