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



                                                        S. Hrg. 110-237
 
 A LOCAL LOOK AT THE NATIONAL FORECLOSURE CRISIS: CLEVELAND FAMILIES, 
 NEIGHBORHOODS, ECONOMY UNDER SIEGE FROM THE SUBPRIME MORTGAGE FALLOUT

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 25, 2007

                               __________

          Printed for the use of the Joint Economic Committee



                                     
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                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

SENATE                               HOUSE OF REPRESENTATIVES
Charles E. Schumer, Chairman         Carolyn B. Maloney, New York
Edward M. Kennedy, Massachusetts     Maurice D. Hinchey, New York
Jeff Bingaman, New Mexico            Baron P. Hill, Indiana
Amy Klobuchar, Minnesota             Loretta Sanchez,  California
Robert P. Casey, Jr., Pennsylvania   Elijah Cummings, Maryland
Jim Webb, Virginia                   Lloyd Doggett, Texas
Sam Brownback, Kansas                Jim Saxton, New Jersey, Ranking 
John Sununu, New Hampshire               Minority
Jim DeMint, South Carolina           Kevin Brady, Texas
Robert F. Bennett, Utah              Phil English, Pennsylvania
                                     Ron Paul, Texas

                  Michael Laskawy, Executive Director
           Katherine Beirne, Deputy Staff Director for Policy
             Christopher J. Frenze, Minority Staff Director


                            C O N T E N T S

                              ----------                              

                                Members

Hon. Charles E. Schumer, Chairman, a U.S. Senator from New York..     1
Hon. Carolyn B. Maloney, Vice Chair, a U.S. Representative from 
  New York.......................................................     5
Hon. Amy Klobuchar, a U.S. Senator from Minnesota................     6
Hon. Elijah E. Cummings, a U.S. Representative from Maryland.....     7
Hon. Phil English, a U.S. Representative from Pennsylvania.......     9
Hon. Sherrod Brown, invited, U.S. Senator from Ohio..............     9

                               Witnesses

Statement of Hon. James Rokakis, Treasurer, Cuyahoga County, Ohio    12
Statement of Hon. Anthony Brancatelli, Councilman, Slavic 
  Village, Ohio..................................................    15
Statement of Audrey Sweet, Resident of Maple Heights, Ohio.......    17
Statement of Barbara Anderson, Resident of Slavic Village, Ohio..    19
Statement of Kenneth Wade, CEO, Neighborhood Reinvestment 
  Corporation....................................................    21

                       Submissions for the Record

Prepared statement of Senator Charles E. Schumer, Chairman.......    40
Prepared statement of Representative Carolyn B. Maloney, Vice 
  Chair..........................................................    42
Prepared statement of Senator Sherrod Brown......................    43
Prepared statement of Hon. James Rokakis, Treasurer, Cuyahoga 
  County, Ohio...................................................    44
    Article by Mark Weisman......................................    45
Prepared statement of Hon. Anthony Brancatelli, Councilman, 
  Slavic Village, Ohio...........................................    48
Prepared statement of Audrey Sweet, Resident of Maple Heights, 
  Ohio...........................................................    49
Prepared statement of Barbara Anderson, Resident of Slavic 
  Village, Ohio..................................................    52
Prepared statement of Kenneth Wade, CEO, Neighborhood 
  Reinvestment Corporation.......................................    54
Charts:
    Acceleration in Home Foreclosures in Minnesota May 2005 vs. 
      May 2007...................................................    57
    Economic Conditions in Ohio Do Not Explain Spikes in 
      Delinquency and Foreclosure................................    58
    Ohio Counties With Unemployment Rates Above 6% in May 2007...    59
    Acceleration in Home Foreclosures in Ohio May 2005 vs. May 
      2007.......................................................    60
    Total Vacancies Caused by Foreclosures in Cleveland and Eight 
      Selected Suburbs in 2007...................................    61
    Argent Mortgages Ending in Foreclosure, 2003-2007 (Apr. 30)..    62
    Argent Mortgages Negative Equity in Cleveland and Eight 
      Suburbs 2003-2007..........................................    63


 A Local Look at the National Foreclosure Crisis: Cleveland Families, 
 Neighborhoods, Economy Under Siege From the Subprime Mortgage Fallout

                              ----------                              


                        WEDNESDAY, JULY 25, 2007

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The Committee met at 10:05 a.m. in room SH-216 of the Hart 
Senate Office Building, the Honorable Charles E. Schumer 
(Chairman of the Committee) presiding.
    Senators present. Sherrod Brown, Amy Klobuchar, and Charles 
E. Schumer.
    Representatives present. Elijah E. Cummings, Phil English, 
and Carolyn B. Maloney.
    Staff members present. Christina Baumgardner, Katie Beirne, 
Chris Frenze, Nan Gibson, Colleen Healy, Michael Laskawy, 
Robert Weingart, and Jeff Wrase.

OPENING STATEMENT OF HON. CHARLES E. SCHUMER, CHAIRMAN, A U.S. 
                     SENATOR FROM NEW YORK

    Chairman Schumer. The hearing will come to order. I want to 
thank everybody for attending, and I first want to welcome my 
colleague, Senator Brown from Ohio, because he has been so 
instrumental in not only moving of this whole issue forward in 
the Senate, Congress and the country, but also helping us talk 
about Slavic Village, one of many communities affected by the 
foreclosure crisis. I want to thank all of my colleagues.
    Today, the subprime crisis is in the news everywhere. You 
read about it in terms of big numbers, big statistics, the 
effect on the economy and the effect on the stock market.
    But it affects people. All those numbers represent people, 
and we're going to hear about that today. We're going to hear 
about the effect on one community. First, let's talk about the 
numbers.
    The Center for Responsible Lending estimates as many as 2.4 
million families may ultimately lose their homes to the 
subprime foreclosure crisis. That's at a cost of $164 billion 
in home equity.
    That's money out of the pockets of people who can't afford 
huge amounts of money, just as CRA has sort of been a magical 
force almost, forcing money into the inner cities in ways that 
government couldn't, and it's been such a success. This 
foreclosure crisis is sucking money out, and it's just a shame.
    In June alone, foreclosure tracker Realty Trac counted 
165,000 new foreclosure filings, more than double the amount 
recorded in 2005. From June to October of this year, $100 
billion of risky subprime adjustable rate mortgages are 
scheduled to be reset in a weak housing market, many of which 
are likely to default.
    One in five--this is an astounding statistic, and we see 
the faces behind it with Ms. Anderson and Mr. Wade here--one in 
five subprime loans originated in 2005 and 2006 will end in a 
lost home.
    These numbers are not the manifestation of a housing market 
correction, as the Administration's economists have argued. 
That's just false. These facts are not merely the byproduct of 
bad decisionmaking among a select few over-eager borrowers.
    That's false. These shocking figures are a result of 
widespread systematic irresponsible underwriting practices by 
too many unscrupulous brokers and lenders that are now 
threatening the social fabric and economic well-being of our 
Nation's neighborhoods and towns, and even our national 
economy.
    Worst of all, this subprime foreclosure crisis is just 
beginning. I wish that weren't so, but you've got to look at 
the facts. It's hard to imagine that it could get worse from 
here, but unfortunately it will.
    The wave of foreclosures that we have seen to date does not 
include the vast number of risky ``exploding'' adjustable rate 
mortgages that were originated in 2006, because of course in 
the early days, the interest rate stays flat. It's not until 
the rate bounces up that you run into the problem, and the 
rates are going to start bouncing up in 2008 and 2009 in much 
greater numbers than they did in 2006, or they are in 2007.
    Once these loans start resetting this fall and into next 
year, we can expect to see hundreds of thousands more families 
lose their homes. When this foreclosure storm subsides, it will 
have left a net loss of home ownership in its wake.
    I called this hearing today for two reasons. First, I fear 
that the cries for help from millions of real people trapped in 
bad subprime loans today are getting drowned out by the 
headlines of investor woes, collapsing hedge funds and lower 
than expected earnings among lenders.
    Again, all these huge numbers have faces of real people 
attached to them. That's what we're not paying attention to, 
and it may also lead us in the direction of a solution, since 
it's estimated that a large number of those who might be in 
foreclosure in the next 6 months to year and a half, could 
actually avoid foreclosure by refinancing.
    Some have estimated 40 percent of the subprime mortgages on 
the edge of default could be refinanced with prime mortgages. 
That's an astounding fact, but it is true, because too many 
people signed up for interest rates higher than they had to pay 
because of the unscrupulous mortgage brokers who preyed upon 
them.
    While every city in America is in this together, I chose to 
focus on the families and neighborhoods of Cleveland, like 
Slavic Village, that are being decimated by subprime 
foreclosures. At the importuning of Senator Brown, Slavic 
Village is a harbinger of the crisis that is unfolding in 
cities across the Nation, and I hope that by investigating the 
human toll of unscrupulous lending up close, we can better 
prepare to prevent more Slavic Villages from emerging in the 
future.
    Second, I'm afraid that we're not learning the lessons of 
the present. I fear that this problem is beginning all over 
again right under our noses, with predatory lenders preying on 
those very families already in danger of losing their homes.
    They go back again and they do the same thing again. The 
victims are innocent; they don't know, and they're sold a bill 
of goods. This idea that some have, including the Wall Street 
Journal editorial page, that the people who are buying these 
loans are so well-schooled in economics, that they can see 
through the fine print, the nuanced economic terms and the 
deceptive language of the seller just isn't reality, plain and 
simple.
    When you need $50,000 because of a medical illness, and you 
can't get it anywhere else, then some guy comes in like magic 
and says ``refinance your home,'' you're not in the best 
position.
    We're reading headlines that lenders are tightening 
underwriting guidelines, and that some have even banned certain 
types of risky loans. Yet the data examined by the Center for 
Responsible Lending says otherwise.
    At a hearing in June that I held on the Housing 
Subcommittee, CRL testified that many of the most recent 
offerings of mortgage-backed securities still included harmful 
prepayment penalties, and stated income or low documentation 
loans. Eighty percent of the mortgages were still risky, 
adjustable-rate loans.
    The witnesses we have here today are at the epicenter of 
the subprime storm. The testimony that you will hear will tell 
a story of fraud, corruption, greed, negligence and heartbreak. 
Our witnesses will also inform us about an important side of 
the issue that's rarely discussed, the way foreclosure impacts 
not only on the families that own homes, but their neighbors.
    You could be perfectly up to the date on your mortgage, but 
if three homes on your block are in foreclosure, it's going to 
affect your home's value. For instance, we never hear that one 
foreclosure on your city block can bring down your home's value 
by 1.5 percent, even if you've never missed a payment on your 
own mortgage.
    In neighborhoods like Slavic Village, where over 1,000 
homes are foreclosed and community leaders like Tony 
Brancatelli and residents like Barbara Anderson, both of whom 
are here today, are grappling with lost property values, this 
one little village, one community, $60 million, just think 
about that.
    Sixty million dollars of financial security that the 
families in this one community were relying on has disappeared. 
As I said, it's sort of a giant sucking sound out of poor and 
working class neighborhoods.
    Lower property values also mean lower tax revenues for the 
local government at a time when demands on them are high. 
County treasurers like Jim Rokakis, here with us today, will 
have fewer resources for their schools, their local law 
enforcement, and for important public services.
    This is not a problem that's going to go away when the 
market corrects itself. The subprime mess is leaving deep scars 
that threaten economic security nationwide.
    Whether in urban neighborhoods, like those in St. Louis or 
Baltimore, suburbs like Massapequa in my State on Long Island, 
or entire regions like Greater Cleveland, the bottom line is we 
can't afford inaction. To do nothing means that hundreds of 
thousands more families will lose their homes, their primary 
source of economic security.
    To do nothing means that millions of other homeowners will 
see the value of their homes plunge through no fault of their 
own. To do nothing means that we will be permanently 
handicapping communities for years to come, which will have 
widespread repercussions on our entire national economy.
    To stem the surge of foreclosures expected in the months 
ahead, Senators Brown, Casey, and I are fighting in the 
trenches for increased resources for non-profit groups. We are 
fighting to get $100 million of funding for HUD-approved 
foreclosure prevention programs in the Senate Transportation 
HUD Appropriations bill.
    I want to thank Senator Murray for taking a real step out, 
putting her scarce resources into this much-needed idea. We're 
going to fight to make sure that this important resource is 
made available to organizations like Neighborhood Works and 
ESOP, here with us today, that are providing an invaluable 
service to help struggling borrowers keep their homes.
    Remember, to refinance costs everybody--the banks, the 
people holding the mortgage, the community and most 
importantly, the homeowner--a lot less than a foreclosure.
    So a small amount of money to groups can help people avoid 
foreclosure, because there's no one there to do it themselves, 
most of these mortgages don't come----
    They come from a mortgage broker and the mortgage company, 
and they're now up in the big world of high finance. Then we'll 
come back and say, ``I can help you get out of this mess.'' 
That's what we're trying to do, Senators Brown, Casey, and I, 
with this appropriation.
    In April we also introduced a strong bill, the Borrowers 
Protection Act, to make it harder for irresponsible brokers and 
non-bank lenders to sell mortgages that are designed to fail 
the home owner and result in foreclosure.
    That's to prevent any future crises. The first step is the 
present crisis. Our ultimate aim there is to strengthen 
standards for subprime mortgages by regulating mortgage brokers 
and all originating under TILA, by establishing on behalf of 
consumers, fiduciary duty and other standards of care.
    The bill outlines standards for brokers and originators to 
assess a borrower's ability to repay mortgages, requires taxes 
and insurance to be escrowed on all subprime loans, and holds 
lenders accountable. We're hopeful, with Chairman Dodd's 
cooperation, that the bill will move fairly quickly through the 
Banking Committee.
    So we look forward to all of our witnesses today. What 
we're going to do here is first allow my colleagues to make 
brief opening statements. Senator Brown will introduce our 
panel. So he'll be the last speaker.
    Let me call on Vice Chair Maloney to make an opening 
statement.
    [The prepared statement of Senator Schumer appears in the 
Submissions for the Record on page 40.]

  OPENING STATEMENT OF HON. CAROLYN B. MALONEY, VICE CHAIR, A 
               U.S. REPRESENTATIVE FROM NEW YORK

    Vice Chair Maloney. Thank you so much, Senator Schumer for 
holding this hearing to examine the economic impact of the 
foreclosures caused by subprime mortgage defaults and to 
congratulate you on your outstanding leadership with your 
legislative proposals, and with the allocation you have 
achieved in the Senate budget, which will be fighting to keep 
in conference, and support in the House, likewise.
    I also welcome my good friend and colleague, Senator Brown, 
who used to live down the hall from me. We miss him, but we are 
thrilled with his election to the Senate, and I've just 
congratulated him on his leadership on this and in some of the 
other areas.
    In this hearing, we will hear from victims and local 
leaders from one of the hardest-hit cities, Cleveland, Ohio, 
but the same sort of economic pain is being felt in communities 
across the country, as subprime mortgage defaults and 
foreclosures rise.
    As subprime mortgages reset to much higher rates than 
borrowers can afford, families are experiencing the devastating 
effects of these loans. Like a stone cast into a pond, the 
ripple is being felt throughout local economies, as losses 
mount for borrowers, lenders, government and neighborhoods.
    Sadly, the worst is yet to come. If we do not stem the tide 
of these foreclosures, the coming crises could eclipse the 
number of people displaced by Hurricane Katrina, according to 
the National Consumer Law Center.
    Moreover, consumer advocates estimate that at the current 
foreclosure rate, the surge of subprime lending could end up 
eliminating more home owners that it initially created.
    Concern is also growing about whether the turmoil in the 
subprime market will infect the larger economy. At least four 
large subprime lenders are already in bankruptcy, and Wall 
Street investment banks are seeing huge losses in their 
subprime portfolios.
    As reported in today's New York Times, yesterday 
Countrywide Financial, the Nation's largest mortgage lender, 
sparked a selloff in the stock market with the news that more 
borrowers with good credit are falling behind on their mortgage 
payments.
    In their view, the housing market may not begin to recover 
until 2009. Both the Senate and House have held hearings, where 
we've heard from Federal regulators and industry and consumer 
representatives about the need to strengthen underwriting, 
correct abusive lending practices, and provide remedies for 
borrowers.
    I applaud Senator Schumer's efforts to gain additional 
funding for foreclosure prevention programs, and for his 
efforts in general in this area. In terms of changing lending 
practices, the interagency guidance on subprime lending 
sensibly sets out principles that require lenders to assess 
borrowers' ability to pay over the whole life of the loan.
    This guidance strikes a balance between making sure 
borrowers can repay the loans they get and helping borrowers 
who can repay a loan get one. We should extend that guidance to 
the entire universe of subprime lenders, not just the sliver of 
the primary markets regulated by Federal agencies.
    The Federal Reserve has broad powers under HOEPA to 
regulate unfair and deceptive practices for all lenders. I have 
urged the Fed to use those powers to extend this guidance to 
the entire market, including mortgage subsidiaries of bank 
holding companies and state-regulated banks and finance 
companies.
    We should legislate an enforcement scheme to support such a 
rulemaking, which could involve State authorities. Extending 
such underwriting principles to the secondary market is also 
important because lenders won't make these loans if they cannot 
resell them.
    We need to take steps to help borrowers in crisis. We also 
need to return to healthy underwriting principles because that 
provides a sound basis for economic growth. I thank the 
chairman for holding this hearing. I look forward to the 
testimony of the witnesses.
    [The prepared statement of Representative Maloney appears 
in the Submissions for the Record on page 42.]
    Chairman Schumer. We'll have a brief opening statement from 
Senator Klobuchar. Congressman Cummings? So we'll go to Senator 
Klobuchar and Congressman Cummings. Then Senator Brown, unless 
new people come in.

 STATEMENT OF HON. AMY KLOBUCHAR, A U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you so much, Senator Schumer, for 
calling this hearing. I'm alarmed by what's happening to hard-
working families in Cleveland and in Minnesota, and across the 
country.
    As we all know, the dream of owning your own home is 
becoming harder and harder for middle class families. The last 
2 years, as I went around my State, we held living room forums, 
where we'd invite people in to talk about what was going on in 
their lives.
    One of the things I most remember is people talking about 
their own kids who had just graduated from college. Parents 
were alarmed that their children who had just graduated and 
were starting a family, couldn't afford to buy a home.
    It was a like lightbulb went on as they realized this isn't 
just about my kids having trouble, this is going on everywhere 
across this country. Too many families are being priced out of 
housing market.
    In order to afford their own homes, these families are 
becoming increasingly likely to turn to risky mortgage 
practices that put their savings, their credit history, and 
ultimately their homes in jeopardy. In a prefect world, 
subprime lending products enable borrowers with limited capital 
or a less perfect credit history to purchase a home and 
establish credit.
    But in recent years, we have seen a proliferation of abuse 
in the subprime market with too many borrowers being offered 
loans that the lenders knew they could not afford, and cannot 
sustain.
    Unfortunately, this is an issue that I witnessed firsthand 
as a county prosecutor where I worked closely with the U.S. 
Attorney's Office on numerous cases involving mortgage slipping 
and other predatory mortgage practices.
    I saw the devastation that these unscrupulous practices can 
have on families. As you see on the map here--do we have our 
map up for Minnesota yet? You guys can see it.
    [Chart entitled, ``Acceleration in Home Foreclosures in 
Minnesota May 2005 v. May 2007,'' appears in the Submissions 
for the Record on page 57.]
    Across the Twin Cities Metropolitan Area, and in Hennepin 
County where I live, foreclosures have increased by more than 
300 percent in the last 2 years.
    According to the data from Realty Trac, in 1 month, this 
past May, foreclosure procedures were filed against 965 homes 
in Minnesota. That's a 785 percent increase in the number of 
foreclosures reported just 2 years ago.
    I'm proud that Minnesota as a State has taken action to 
combat abusive lending practices by passing the strongest anti-
predatory lending law in the country. This law, which will go 
into effect next week, will require that lenders verify that a 
borrower can repay the full indexed cost of the mortgage, 
rather than offering homeowners a loan they cannot afford.
    The Minnesota law will also prohibit lenders from steering 
borrowers to products with higher rates than they qualify for. 
The law also eliminates prepayment penalty fees, allowing 
borrowers to refinance and take advantage of more favorable 
rates.
    While I'm pleased that Minnesota has taken these positive 
steps to protect consumers, I commend Senators Schumer, Casey, 
and Brown for introducing legislation to protect consumers 
across the country from predatory lending practices.
    I thank Senator Schumer for calling this hearing. I also 
want to mention on the House side, I know there's some good 
work being done by Congressman Ellison from my State, who's 
taken the lead on this issue, as well as Congressman Frank.
    I thank you for being here and look forward to your 
testimony on this important subject. Thank you very much.
    Chairman Schumer. Thank you, Senator Klobuchar.
    Congressman Cummings, then Congressman English. We're 
having opening statements. You can go after Congressman 
Cummings.

  STATEMENT OF HON. ELIJAH E. CUMMINGS, A U.S. REPRESENTATIVE 
                         FROM MARYLAND

    Representative Cummings. Thank you very much, Mr. Chairman. 
I too applaud you for holding this hearing, and I applaud you 
for your leadership in the Senate in raising awareness about 
the inherent dangers of the subprime mortgage industry.
    It is my privilege to represent the 7th Congressional 
District of Maryland, which includes Baltimore City.
    My interest and desire to become involved in preventing 
predatory lending practices within the subprime mortgage 
industry and educating consumers developed not because of the 
number of foreclosures in Baltimore and the State of Maryland, 
which mirror the rate of those in Cuyahoga County, Cleveland or 
the State of Ohio.
    My involvement simply began by realizing that hard-working 
people across this Nation were having the American Dream of 
home ownership stolen from them with just a few strokes of the 
pen, turning their dreams into nightmares.
    However, it did not take long to realize that foreclosures 
were going to hit Baltimore and the State of Maryland in 
dramatic fashion. All too soon, my suspicion was confirmed.
    Recent reports for the year estimate that 5,700 home owners 
in Maryland are currently facing foreclosure, while another 
36,000 are currently late on their mortgage payments.
    Most startling is the fact that in June, Maryland ranked 
22nd nationally in foreclosures, up from 40th in 2006. My 
Congressional District alone had 466 foreclosures in the month 
of May. This equates to a 570 percent increase since May of 
2005.
    Unfortunately, these numbers are increasing nationwide, and 
the situation does not appear to be getting any better.
    According to the Center for Responsible Lending, 
approximately 1 in 5 subprime loans issued in 2005 and 2006 
will go into default, costing some 2.2 million home owners 
their homes over the next several years.
    It is urgent that the Members of Congress, Federal 
regulators, and States begin working together to protect our 
families and communities. One of the simplest and easiest 
things to do to prevent this problem from getting worse is to 
make sure that potential home buyers and current home owners 
who are facing financial difficulty are properly educated about 
their options.
    In April, I held a press conference designed to accomplish 
this goal. Community leaders and organizations such as 
NeighborWorks and the Neighborhood Association Corporation of 
America were invited to promote the resources that are 
available. It was startling to learn that many people were 
going through foreclosure just because they were too 
embarrassed to reach out for assistance.
    However, educating consumers is simply not enough. It is 
time for the Federal Government and the State legislatures to 
begin regulating the mortgage brokers, non-bank lenders, and 
enacting more stringent consumer protection laws, period.
    Earlier this year, I sent a letter to Chairman Ben Bernanke 
of the Federal Reserve, asking that action be taken to protect 
home owners from predatory lending practices, using his 
authority under the Home Ownership Equity Protection Act.
    I was pleased to learn that the Fed and other regulators 
issued guidelines to lenders that encompass many of the ideals 
expressed in the letter sent in May and H. Res. 526, which I 
introduced and was passed by the House 2 weeks ago.
    H. Res. 526 states that Government action should be taken 
to do the following: Encourage lenders to evaluate borrowers' 
ability to reasonably repay the mortgage over the life of the 
loan, not just the introductory rate; require that disclosures 
clearly and effectively communicate necessary information about 
any mortgage loan to the potential borrower; address appraisal 
and other mortgage fraud; raise public awareness regarding 
mortgage originators whose loans set high foreclosure rates; 
and finally, increase opportunities for loan counseling.
    As Chairman Schumer has led the Senate by introducing the 
Borrowers Protection Act of 2007, I will work with my 
colleagues in the House to introduce comprehensive legislation 
to do the same.
    I want to applaud you, Mr. Chairman, you Senator Brown and 
Senator Casey for all of your hard work with regard to this 
issue. With that, I yield back.
    Chairman Schumer. Thank you, Congressman Cummings.
    Congressman English.

  STATEMENT OF HON. PHIL ENGLISH, A U.S. REPRESENTATIVE FROM 
                          PENNSYLVANIA

    Representative English. Thank you, Mr. Chairman. As befits 
the House, I'm going to keep this very brief and simply say 
that I'm here to listen.
    The testimony we're about to hear today has immediate 
relevance for parts of my district, down the lake from 
Cleveland, where we are experiencing some of the same phenomena 
in some of our older neighborhoods.
    It has an immediate relevance right across the Ohio border, 
in the Chenango Valley part of my District. These are all 
issues that have a national relevance, and I want to thank the 
panel for coming forward to provide a local perspective.
    Let me yield back with that.
    Chairman Schumer. Thank you, Congressman English. Now to 
make an opening statement and then introduce our panel, Senator 
Brown.

 OPENING STATEMENT OF HON. SHERROD BROWN, A U.S. SENATOR FROM 
                              OHIO

    Senator Brown. Thank you, Mr. Chairman for your terrific 
work on this issue, working with Senator Casey and me on the 
legislation to protect buyers from predatory lending and for 
working with the Housing Appropriations Subcommittee for the 
$100 million in funding for HUD-approved foreclosure prevention 
programs.
    That's not accomplished yet, but we're well along in the 
process and very hopeful. I appreciate Senator Schumer's work 
on that issue.
    I want to thank two staff people in particular, Mark Powden 
from my staff, behind me, and Katie Beirne, who works for 
Senator Schumer, but is from Cleveland.
    We want her to return to Cleveland--nothing against 
Chairman Schumer; sooner, rather than later, Mr. Chairman.
    Ms. Sweet, Ms. Anderson, thank you for coming here from 
Cleveland. You're traveling to tell your story, along with 
Treasurer Rokakis and Counselor Brancatelli. People shouldn't 
have to go through what you have been through.
    I want to thank Mr. Wade also for joining us for this 
hearing.
    Thanks to its location on the shores of Lake Erie during 
the Industrial Age, Cleveland, as we know, helped build this 
country. Iron ore came down by barge from Minnesota, Senator 
Klobuchar's State, while railroads carried coal from Kentucky, 
Eastern Kentucky, Western Pennsylvania and Southern Ohio.
    Steel mills sprang up from Erie through Ashtabula through 
Cleveland, through Lorain, manned by immigrants, new and old, 
from around the world. Many of the Poles and the Czechs who 
worked in the steel mills settled in the neighborhood of 
Cleveland that came to be known as Slavic Village, a solid 
working class neighborhood.
    Most of the steel mills have been shuttered, but the 
neighborhood lives on. As our witnesses will testify, Slavic 
Village and communities like it are fighting for their lives. 
The economy is certainly a big part of my State's problems, but 
the steel mills shut down years ago and a stagnant economy is 
unfortunately nothing new.
    As the chart shows, the fact is that unemployment has 
actually been falling slightly over the past 2 years in Ohio, 
while the number of subprime loans and delinquency has climbed 
steadily. What's true for Ohio is generally also true for 
Cleveland, and especially for Slavic Village.
    [Chart entitled, ``Economic Conditions in Ohio Do Not 
Explain Spikes in Delinquency and Foreclosure,'' appears in the 
Submisions for the Record on page 58.]
    Both have been rebuilding over the past several years.
    If you look at the State of Ohio on a county by county 
basis, there doesn't seem to be much of a relationship between 
jobs, the unemployment rate, and foreclosure.
    Counties with low unemployment rates have high rates of 
delinquency and vice-versa.
    The second chart illustrates that I'm talking about.
    [Chart entitled, ``Ohio Counties With Unemployment Rates 
Above 6% in May 2007,'' appears in the Submisions for the 
Record on page 59.]
    The overlay shows counties with unemployment rates of 6 
percent or more, concentrated on the east and southeast parts 
of the State along the Ohio River.
    Bear in mind, the counties hit the hardest, the chart 
underneath, depicts the counties that have experienced the 
highest growth in foreclosure filings over the past 2 years.
    [Chart entitled, ``Acceleration in Home Foreclosures in 
Ohio May 2005 vs. May 2007,'' appears in the Submisions for the 
Record on page 60.]
    As you can see, there's little relationship between 
unemployment and foreclosures. Delinquency rates today approach 
those in the last recession. We're told our economy is doing 
great.
    Wall Street may not agree recently. The biggest mortgage 
lender in the country lost 10 percent off its stock price 
yesterday, and the markets were down 2 percent, probably 
because of worries about subprime loans.
    But market swings tell only half the story. Sure, hedge 
fund investors have lost money and credit has tightened.
    But there are a lot of people in this city who do not fully 
understand what lies behind these numbers.
    Behind these numbers are thousands and thousands of people 
like Ms. Sweet and Ms. Anderson, communities like Slavic 
Village and counties like Cuyahoga.
    That's why the hearing is so important today. I know some 
people want to dismiss the mortgage crisis as merely a problem 
for part of the Midwest.
    Even if that were the case, it would demand our Nation's 
attention just as much as a flood or a tornado. A man-made 
disaster is still a disaster. Cleveland, to be sure, is the 
canary in the coal mine. What has happened there is beginning 
to happen in New York, California, Florida and Nevada and 
Colorado, and all over our country.
    Millions of people across the country have been sold these 
loans that are designed to default, putting their entire life 
savings at risk in the face of this crisis.
    Congress needs to act.
    We shouldn't have to wait for this to become a crisis for 
investors on Wall Street, when our witnesses are living through 
a crisis everyday in the streets of Slavic Village and 
communities throughout Ohio.
    We should not have to wait for the regulators to act, 
because every day we wait, thousands of families will have 
their exploding loans reset to unaffordable levels.
    We shouldn't have to wait for the markets to self-correct. 
That correction costs a lot more than a hit to a hedge fund or 
to a lender's stock. It costs the hopes and dreams of home 
owners who are guilty only of trying to make a better life for 
their families. Communities like Slavic Village, Broadway and 
Fleet, and Cleveland need our help.
    They've been robbed of too much already while the Federal 
Government has turned its head away. Thank you, Mr. Chairman, I 
will introduce our witnesses from left to right, and I'll 
introduce all of you, and then the Chairman will call on each 
of you individually.
    Jim Rokakis, whom I've known for 30 years, took office as 
Cuyahoga County Treasurer in Cleveland in March 1997, after 
serving as a city councilman on the near west side of 
Cleveland, representing among other places the Cleveland Zoo, 
and for over 19 years served on the city council.
    He spearheaded House Bill 294, which streamlines the 
foreclosure process for abandoned properties, and was 
instrumental in creating Cuyahoga County's ``Don't Borrow 
Trouble'' foreclosure prevention program.
    Governor Strickland appointed Mr. Rokakis to Ohio's 
recently formed task force on foreclosures in Ohio.
    Mr. Rokakis interestingly has been written up extensively 
in newspapers around the country on the auction of his 
childhood home, which was caught up in the subprime foreclosure 
crisis in Cleveland.
    Councilman Anthony Brancatelli recently was elected as 
councilman for Ward 9 on the Southeast side of Cleveland, 
Slavic Village. Prior to his election, he was executive 
director of Slavic Village Development, one of the largest 
neighborhood-based community development corporations in the 
city of Cleveland.
    He has devoted his life to this neighborhood, to this 
community, to economic development, to improving people's 
lives.
    He's witnessed over $140 million of investment in the 
historic Broadway neighborhood and infrastructure, roads, 
housing and industrial development. He is currently on the 
front lines of the subprime foreclosure fight in Slavic 
Village, which registered the most foreclosure filings of any 
zip code in the Nation last year.
    Audrey Sweet, who currently resides in Maple Heights, not 
too far from Slavic Village, with her husband Roland of 6 years 
and their 2 children, holds a Bachelor's degree in Social Work 
and a Master's degree in Education, and works at Cuyahoga 
Community College.
    Since April 2007, Empowering and Strengthening Ohio's 
People, ESOP, a Cleveland non-profit, has been working with Ms. 
Sweet to aid in her negotiations to modify her unsuitable 
subprime mortgage.
    Ms. Barbara Anderson currently resides in Slavic Village. 
She's employed by the Citizens of Cuyahoga County Ombudsman's 
Office. She's street club president working in a grass roots 
group called ``Bring Back the 70s'', a group of residents 
living between East 70th and East 78th in Slavic Village, an 
area plagued by vacant homes and high rates of foreclosure.
    As the Chairman pointed out, a number of studies have shown 
when your neighbors foreclose what happens to the value of your 
own home, and how infecting of the whole neighborhood that is. 
She was a victim of predatory lending 5 years ago, but she's 
been, with the help of ESOP, able to avoid foreclosure and 
refinance her predatory loan with a safe fixed rate mortgage, 
and she smiles when she thinks of it.
    Kenneth Wade is chief executive officer of Neighbor Works 
of America. You've seen his face around here fairly frequently 
in the last few months. He oversees a multi-million-dollar 
grant program and training activities to support a national 
network of some 240 to 250 affordable housing and community 
development organizations.
    Neighbor Works of America is a public, non-profit 
corporation. It's played a major role in saving a lot of 
people's homes, and we thank you, Mr. Wade, very much for that. 
So the four of you from Ohio, thank you for coming this 
distance, and Mr. Wade also thank you. Mr. Chairman, thank you.
    [The prepared statement of Senator Brown appears in the 
Submissions for the Record on page 43.]
    Chairman Schumer. Thank you, Senator Brown, and all of my 
colleagues, for excellent statements that I believe show the 
gravity and the poignancy of this issue. We're going to ask 
each witness to limit their statement to 5 minutes.
    Your entire statement will be read into the record without 
objection.
    Mr. Rokakis, you may proceed, and I guess we'll go from my 
left to right.
    With the witnesses, I just want to say I have to be 
somewhere briefly at 11 o'clock. I will be getting up.
    I want to thank Congresswoman Maloney.
    She will chair the hearing until about 11:20, if I'm not 
back by then. Senator Klobuchar has graciously agreed to take 
over, and I will come back and ask questions as well.
    Mr. Rokakis.

  STATEMENT OF JAMES ROKAKIS, TREASURER, CUYAHOGA COUNTY, OHIO

    Mr. Rokakis. Mr. Chairman, Members of the Committee, thank 
you for the opportunity to speak before you today.
    While the events of the past several months have focused 
the attention of the entire financial world on the practices of 
the subprime lending industry, we have suffered the 
consequences of recklessly irresponsible lending for many 
years.
    Since the late 1990s, Ohio and Cuyahoga County have 
consistently led the Nation in the sad statistic of foreclosure 
filings. Consider these numbers. In 1995, over 3,300 private 
mortgage foreclosures were filed in Cuyahoga County, and almost 
16,000 in the State of Ohio.
    By 2000, over 7,000 private mortgage foreclosures were 
filed in Cuyahoga County, and over 35,000 in the State of Ohio, 
better than double the number of filings 5 years before. In 
2006, last year, 13,610 foreclosures were filed in our county 
and over 79,000 statewide.
    Sadly, we are on pace to foreclose on 17,000 properties in 
Cuyahoga County in 2007, 5 times the 1995 total.
    The impact of foreclosures on the county's tax base has 
been overwhelmingly negative. Last year, more than 74,000 home 
owners filed for a property tax reduction with our county 
auditor and the Board of Revisions.
    Professor Dan Imergluk, whom you've referred to of Georgia 
Tech, among others, has written extensively about the impact of 
foreclosures on vacant properties and on crime and property 
values.
    While very few of my residents have read Professor 
Imergluk's work, they know this. Their neighborhoods are less 
safe and their properties are worth substantially less as a 
result of these foreclosures, and they are voting with their 
feet.
    Fifty thousand residents have left Cuyahoga County in the 
past 5 years. Only Hurricane Katrina-afflicted counties have 
suffered greater population loss.
    We estimate, and I'm going to point to a chart here, that 
at least 15,000 structures are vacant in the county as a result 
of this foreclosure epidemic. I think that's actually not 
generous enough.
    [Chart entitled, ``Total Vacancies Caused by Foreclosures 
in Cleveland and Eight Selected Suburbs in 2007,''appears in 
the Submissions for the Record on page 61.]
    We think the number is closer to 18,000, obviously, most 
are in the city of Cleveland, but the suburbs are now beginning 
to catch up. The impact has been felt in the suburbs in other 
ways.
    Almost every community in Cuyahoga County is being forced 
to maintain yards and properties of empty dwellings as a result 
of these foreclosures.
    Shaker Heights, Ohio will be forced to spend over $500,000 
this year to maintain vacant properties. The city of Euclid 
will spend almost 400,000.
    Cleveland Heights, Garfield Heights, Maple Heights, South 
Euclid, Lakewood and Parma will also spend hundreds of 
thousands of dollars out of their general funds to maintain 
these properties, monies they cannot afford and expenditures 
that will result in the loss of services in other critical 
areas.
    The last thing I want to discuss, Mr. Chairman, is the 
carelessness, sloppiness, and indeed rampant fraud in the 
mortgage lending industry, at least in our town. Look at the 
studies of foreclosed properties conducted by Cleveland State 
University.
    The first chart is a page of foreclosed mortgages on loans 
made by Argent Mortgage in our community, a wholly owned 
subsidiary of Ameriquest.
    [Chart entitled, ``Argent Mortgages Ending in Foreclosure, 
2003-2007 (Apr. 30)'' appears in the Submissions for the Record 
on page 62.]
    The first example is a random sample of mortgages on 
Cleveland's west side. Look at the auditor's fair market value 
in the second to the last column.
    We color coded this chart to highlight our point. Every 
mortgage in red is a mortgage of at least 175 percent of the 
auditor's fair market value. Every mortgagee owes at least 125 
to 174 percent of the auditor's fair market value.
    Look at how many mortgages are loaned in amounts of at 
least 200 percent of fair market value.
    The second part of the study done by Cleveland State 
University looks at the issue of negative equity. You might 
want to go the next chart. It shows there is, in the city of 
Cleveland alone, a negative equity totaling a $168 million on 
mortgages made by Argent, and $143\1/2\ million on suburban 
mortgages made by Argent.
    [Chart entitled, ``Argent Mortgages Negative Equity in 
Cleveland and Eight Suburbs 2003-2007,''appears in the 
Submissions for the Record on page 63.]
    The negative equity in the city of Cleveland is probably 
much higher, since so many of these properties have been 
vandalized and stripped of their siding and copper piping and 
anything else of value.
    The purchasers of these properties, and I must say this, 
Mr. Chairman, I'm not blameless. Many had horrible credit to 
begin with. Most put nothing down. Many were issued cash back 
at the closing, but the broker, the mortgage banker and Wall 
Street knew all of this, but the money was too good, the 
profits too powerful to ignore.
    Don't buy the argument of the Federal Reserve Bank, that 
the market will correct itself. The market corrected too late, 
and only after neighborhoods in Cleveland and Buffalo and 
cities like Cleveland all over the country were decimated by 
this industry.
    The real victims in this scandal, Mr. Chairman, were the 
hard-working citizens of my community, who paid taxes, 
maintained their property and who watched helplessly as 
properties were sold and resold around them and were being 
vandalized.
    Citizens whose major and often only asset, their home, is 
stripped of its value, just as the home next door to them is 
stripped of its aluminum siding.
    We must not forget, Mr. Chairman, to make the point that 90 
percent of the subprime loans in our country are not to new 
home owners. They are refis.
    So when this whole sordid mess is over, there will be fewer 
home owners than when this whole problem started. I'm out of 
time. I'd like to say, Mr. Chairman, I commend you and Senators 
Casey and Brown on the Borrower Protection Act. I think it's 
something.
    I'm hopeful, we're all hopeful around the country, that the 
Senate will move quickly on this. We're also very impressed by 
the efforts of States like Minnesota and my good friend 
Prentice Cox with the AG's office.
    I've attached additional testimony from Mark Weisman, who 
runs our foreclosure venture program. By reading that, you'll 
get an idea of how difficult it is on the ground for us to get 
modification and workout from this industry.
    [Article by Mark Weisman entitled, ``What the Borrower in 
Default Is Up Against,'' appears in the Submissions for the 
Record on page 45.]
    [The prepared statement of James Rokakis appears in the 
Submissions for the Record on page 44.]
    Chairman Schumer. Thank you for excellent testimony, Mr. 
Rokakis. I'd like to ask unanimous consent that the opening 
statement of Senator Voinovich, Senator Brown's colleague, will 
be added to the record.*
---------------------------------------------------------------------------
    * The statement of Senator Voinovich was unavailable at press time.
---------------------------------------------------------------------------
    Chairman Schumer. Mr. Brancatelli.

 STATEMENT OF ANTHONY BRANCATELLI, COUNCILMAN, SLAVIC VILLAGE, 
                              OHIO

    Mr. Brancatelli. Thank you for the opportunity to talk 
today. Without piling on to the statistics as Treasurer Rokakis 
talked about, I just want to talk a little bit about a good 
community.
    Slavic Village is a hard-working community that Senator 
Brown spoke so finely of. Our neighborhood is a wonderful 
neighborhood. It's not dying, not decaying, not falling apart.
    We have wonderful opportunities created in our 
neighborhood. We have Rails and Trails programs, social and 
civic organizations, Boys and Girls clubs, golf courses.
    Over a thousand new homes have been built, over a thousand 
homes have been renovated.
    We continue to move forward with great partners like 
Cleveland Housing Network, Habitat for Humanity and are 
creating a vibrant community. We talk about the loss of 
industrial base that we have. Mottal Steel, one of the most 
efficient steel plants in the entire world today, with a much 
smaller workforce, the industry has changed significantly. So a 
renaissance that's moving forward is being derailed by this 
crisis. It's being derailed by what Treasurer Rokakis calls 
many times a perfect storm, a neighborhood undone many times by 
predatory lenders, by fraudulent lending. We look forward to 
what can be created to stop this.
    Within the packet I have given you, we talk about the 
survey of vacant property we've done in our neighborhood.
    There's over a thousand of vacant and abandoned homes in 
our community, over 700 boarded up I understand right now.
    A housing court judge, Raymond Pinka Pianca, is going to 
charge me rent, because we've got so many staff in the housing 
court every day, testifying against absentee landlords, 
testifying against mortgage companies that continue to leave 
decaying and problem properties going on in our neighborhood.
    You spoke very clearly about the loss of values in our 
community. The loss of values continue to pile on. We have 
created an inventory of the problem homes.
    I have stacks of photos of vacant and abandoned properties 
in our neighborhood that are just openly vandalized, and the 
crime of stripping and fraudulent lending continues.
    What once used to be homes available for working poor 
families of 20,000, 30,000, 40,000-dollar homes with a roof 
over their head are now stripped of any equity. Now the only 
thing left of them is the wrecking ball. The foreclosure trends 
are clearly outlined.
    We are facing two foreclosures a day in the Broadway 
neighborhood. You can see the REOs now owned by mortgage 
companies, and you can see the disposition, the increase of 
forcing these companies to dispose of these properties, the 
increase of making the foreclosures happen sooner.
    Disposition is happening at a remarkable rate, and they're 
virtually giving away homes just to get them off the rolls, and 
not to be a responsible property owner. These homes will now 
then go back in the prey to be recycled.
    I certainly want to note what the Federal Reserve Chairman 
Bernanke talked about in his statement. He said the recent 
rapid expansion of the subprime market was clearly accompanied 
by a deterioration of underwriting standards, and in some cases 
by abusive lending practices and outright fraud.
    He's absolutely right. Nevertheless, these are creating 
personal economic and social distress for many home owners and 
communities, problems that will likely get worse before they 
get better. We've not peaked yet, and it's coming even greater. 
If you look around our neighborhood, you can see questionable 
real estate fraud.
    You can see questionable flipping practices. There was a 
documentary done called ``Flip,'' which talked about flipping 
in Buffalo. It is absolutely horrifying to see what is 
happening on the Internet in the resale of real estate that 
way.
    Within your document, you'll see a piece called QUACS, 
which is Questionable Urban Appraisals. When you look at these 
appraisals that are occurring in our neighborhood, you can see 
simply within our community a million dollars' worth of real 
estate purchased and 4 million dollars' worth of real estate 
sold.
    These properties were purchased as foreclosures. They were 
sold to investors and are now being foreclosed on again. It is 
a cycle that is not ending. If you look at the people who are 
buying these homes, they're buying 10 to 15 homes at a time.
    That tells you the lender is not paying attention. When you 
look at the lenders who are doing this, Long Beach, New 
Century, Argent Ameriquest, the list goes on. They're predatory 
lenders that are creating havoc in our communities when you buy 
10 homes at a time.
    I don't have any discovery within my jurisdiction. All I 
look at is the Internet. I look at what's available on-line. 
You can see people buying 10 and 15 homes at a time, yet the 
mortgage companies continue to lend.
    Some of the folks we have interviewed in these lending 
practices never even went into the home. They're buying five 
homes at a time and never went through the home and now the 
home is being foreclosed on.
    If you look at some of these folks who don't even have a 
job, some of the folks who never had a job, never declared 
income, are buying 10 and 15 homes at a time. That is fraud. 
That is being allowed by the mortgage companies to happen.
    I'll wrap up. I understand. I'm looking at the clock.
    But when I look at the victims in this, we had crime happen 
around our neighborhoods. Certainly some of those who have been 
victims of predatory lending can see what else is happening 
around our neighborhood, the crimes that are occurring, the 
social issues that are happening, the stripping of houses.
    It's absolutely horrifying to see what's happening in our 
community. We have a great community. It will not be self-
correcting. It needs to happen through Federal legislation. I 
certainly encourage the opportunity for you to step forward and 
continue the steps that you're doing in making this happen. 
Thank you.
    [The prepared statement of Anthony Brancatelli appears in 
the Submissions for the Record on page 48.]
    Chairman Schumer. Once again, excellent testimony.
    Ms. Sweet.

   STATEMENT OF AUDREY SWEET, RESIDENT OF MAPLE HEIGHTS, OHIO

    Ms. Sweet. Thank you, Mr. Chairman, Members of the 
Committee. I appreciate the opportunity to come before you and 
want to thank Senator Sherrod Brown for his intense interest in 
the issue. I ask that my comments today be made part of this 
hearing.
    Chairman Schumer. Without objection.
    Ms. Sweet. My name is Audrey Sweet. When my husband and I 
did our home loan search, we believed that these responsible 
lenders were probably doing us a favor. We were then introduced 
to a real estate agent who said she could take care of 
everything.
    We were so excited that finally, someone was going to give 
us a chance. She took us to the Countrywide Home Loans office 
and we began our home search.
    When we finally found one we liked, the agent said that the 
seller and lender would do all sorts of things to give us a 
home. It was as though everyone was doing us a favor.
    When you match that with our lack of funds, our lack of 
knowledge about mortgages, credit, finances and less then 
stellar credit, we were a dream come true, at least to the 
broker. When we were finally told the amount of the monthly 
mortgage payment, we were shocked. When we expressed our 
concern, we were told not to worry about it. We would be able 
to refinance to a better rate in a year.
    We just had to prove ourselves. We requested that the 
property taxes be escrowed, but were told that if we did, the 
loan would no longer be affordable and we would not be 
approved.
    In the excitement of the moment, I did not focus in on the 
fact that I was just told that my income would not support the 
expense of both the mortgage and property taxes.
    He knew that I would eventually lose my home, yet went 
forward with the loan.
    I lived up to my end of the deal by paying my mortgage, but 
neither he nor Countrywide lived up to their commitment.
    Of course, the refinancing never happened and we've been 
since falling behind on our mortgage from time to time, but 
we've managed to bring it current each time.
    I did end up seriously neglecting the property taxes.
    In March of this year, Countrywide took action and paid 
back the taxes, a total of $3,493.51. I fully expect that they 
would do this to protect their interest in the property.
    However, I did not expect what came next.
    In April, I received a letter from Countrywide, informing 
me that my monthly payment was to increase by $658 effective in 
June for the next 12 months, because our back taxes had been 
paid by Countrywide.
    In addition, our rate was set to adjust up in February 
2008. It was written in our loan document that it can only 
adjust up, never down. $387.72 of this increase was attributed 
to the shortage amount. However, when you multiply that by the 
12 months it was to be effective, that comes to $4,652.64.
    I have yet to receive a clear explanation of what that 
amount was to cover. This new payment, in my experience with 
Countrywide's lack of willingness to help, prompted me to call 
ESOP, Empowering and Strengthening Ohio's People, also known as 
the Eastside Organizing Project.
    In preparing for my visit to ESOP, I began to look over my 
home loan documents and discovered several things I had 
apparently overlooked until then. First, was that my gross 
monthly income was recorded as $726 more than it actually was. 
Second, I have two sets of loan documents, one that was created 
10 days before we closed and another from the day of closing.
    The closing date document lists my assets as $9,400 in my 
Charter One megaccount. I've never had $9,400 in the bank. The 
final item I noticed was that the tax amount listed on the 
appraisal report was $1,981.34, which comes to about $165 a 
month.
    Countrywide listed my taxes as $100 a month. Again, looking 
back to my mortgage application experience, I was embarrassed. 
I remember how I felt so undeserving of a loan, because I'd 
been turned down so many times before and I realized that I 
finally made a 30-year mistake.
    Once I realized that Countrywide was counting on my feeling 
this way, I became angry. I began to see how I had been taken 
advantage of, and was hoping that my initial feeling of 
embarrassment would keep me from sharing my experience with 
anyone.
    However, that would mean I would lose my home, and I have 
decided not to let that happen. When I first came to ESOP in 
April 2007, various resources have been presented that I would 
not know of otherwise.
    One service ESOP is offering me is a weekly conference call 
with Countrywide. These phone calls were essential to my result 
with Countrywide, as there were witnesses to every promise and 
excuse given.
    While the calls were helpful to keep my case in their face, 
they also showed how little Countrywide cared. The same 
modification was offered twice. I had declined both times, as 
this did not fit what I could afford.
    Although I have asked repeatedly for the following 
information, I have yet to receive it. The name of the 
compliance officer working on my case, the amount of the tax 
payment, and the $9,400 asset and the documentation to support 
this.
    After these talks, I would usually end up feeling defeated. 
However, ESOP continued to encourage me. Without their support, 
I would have given up long before the issues were resolved.
    Once Countrywide finally received a report from their 
compliance person, I received a call from them. They said that 
while what happened with my loan was not exactly illegal, there 
were definitely things that should have been done better.
    Since then, the contact with Countrywide repeatedly refer 
to what happened with my loan as a special circumstance. In 
June, Countrywide executives met with ESOP to talk to their 
borrowers. At that meeting, I was struck by their less than 
willing attitude to help people keep their homes.
    They refused to answer any questions and refused to sign a 
letter of commitment with ESOP to work with their borrowers. 
I'm going to wrap up because I've gone over my time.
    But basically since then, they referred me to a program 
with Third Federal Savings and Loan, where they educate home 
buyers on home buying process, credit and finances, and I was 
able to refinance with them with a fixed rate of 7.2 percent.
    That's where I'm at now with my taxes escrowed.
    [The prepared statement of Ms. Audrey Sweet appears in the 
Submissions for the Record on page 49.]
    Vice Chair Maloney [presiding]. Thank you very much for 
sharing your story.
    Ms. Anderson.

STATEMENT OF BARBARA ANDERSON, RESIDENT OF SLAVIC VILLAGE, OHIO

    Ms. Anderson. I also appreciate the opportunity to appear 
before you and want to express a special thank you to Senator 
Sherrod Brown. I'm pleased that my comments today, both written 
and oral, will be made part of the record for this hearing.
    My name is Barbara Anderson, and I appear before you today 
as the treasurer and member of the Predatory Lending Action 
Committee of the Empowering and Strengthening of Ohio's People, 
formally known as ESOP.
    ESOP is very well-known and recognized as a leader in the 
prevention of predatory lending. I also serve as treasurer of 
the Empowerment Center of Greater Cleveland and serve on the 
board of Ohio State University's Extension Program and Metro 
Health Advisory Committee.
    I'm co-chair of the Slavic Village Development, Abandonment 
and Vacant Housing Committee. I've lived at 3435 East 76th for 
more than 25 years. That address is in the Slavic Village 
neighborhood that is widely seen as the epicenter of the 
foreclosure crisis facing the entire Nation.
    When my husband and I bought our home, we were the first 
African-American family to move into Slavic Village. As you 
know, Cleveland has had a long history of racial tension, and 
we experienced them firsthand. Within months of our moving into 
our home, people set fires at our home. We lost our garage 
twice, had fires at three of the entryways and a major fire at 
the back of our home.
    After the third fire, our insurance company dropped our 
coverage. For several years afterwards, we tried to make the 
repairs on our own. However, they became more and more of a 
struggle, and we were no longer able to do so, as my husband 
became ill.
    We sought to refinance our mortgage, to get some of the 
equity in order to make the repairs. Several local banks did 
turn us down, not so much because of our credit, but rather 
because of the fire damage and because the insurance company 
would not cover us.
    After being turned down, I was approached by a loan broker. 
He got us a loan at 8.5 percent through the now defunct Conti 
Mortgage. I didn't know that in the span of 4 years, that rate 
would jump to 14.5 percent, causing my payments to increase by 
nearly 60 percent.
    Between 1996 and 2001, my loan was then sold no less than 
15 times. Indeed, my home was a commodity for the market, as 
the secondary market got greedy and sold these loans with the 
same carefree business model my grandchildren used with selling 
lemonade on a hot summer day.
    I came to the ESOP near the end of 2001. I was desperate, 
as my loan was now being serviced by Fairbanks Capital, and 
despite the exorbitant rate of my loan, my issue when coming to 
ESOP was the servicing of that loan, as my payments were not 
being applied.
    I led a national fight against Fairbanks through ESOP's 
national affiliate, NTIC, the National Training and Information 
Center, headquartered in Chicago. We went on to win a national 
agreement that we had replicated with other lenders and 
servicers across the Nation.
    For me, that agreement meant wiping out nearly $30,000 in 
bogus fees that occurred during the time of that loan. I was 
able to refinance with Third Federal Savings and Loan at a rate 
of 5.85 percent. I e-mailed, faxed, called and wrote so many 
different organizations for help, that I am at a loss to 
account for them.
    I quickly realized that many of the organizations with 
neighborhood-friendly sounding names were mere pimps that 
preyed on the poor. Poor people are big business. These 
organizations increased their budgets with the promise of 
assisting victims, but very little else.
    Being a victim of predatory lending penetrates your very 
heart and soul. It's an experience that leaves you devastated 
and attacks you with an overwhelming feeling of helplessness. 
You are robbed at penpoint. You have been tricked, fooled, 
bamboozled and you are ashamed at your own lack of finesse.
    Houses, homes, children, mothers, fathers, whole families 
are stripped from the communities, just as sure as the aluminum 
siding and the copper have been stripped from the vacant, 
abandoned homes that litter the streets of a once-vibrant 
neighborhood.
    I chose to move to Slavic Village because of the well kept-
homes and the manicured lawns. I chose to live there because of 
my beliefs. I choose to stay because I still believe. I believe 
that we can recapture more of the look and feel of our 
community. I believe that we can sustain more of the benefits 
that we already have.
    I believe that predatory lending and ever-spiraling effects 
of it can be halted. I believe that elected and appointed 
officials must step up and speak out. I believe that grassroots 
organizations and victims must take immediate action to stop 
the victimization.
    I believe it should be done. I believe it must be done.
    I believe it can be done, and I believe it will be done.
    Thank you.
    [The prepared statement of Ms. Barbara Anderson appears in 
the Submissions for the Record on page 52.]
    Vice Chair Maloney. Thank you for your very moving 
testimony.
    Mr. Wade.

   STATEMENT OF KENNETH WADE, CEO, NEIGHBORHOOD REINVESTMENT 
                          CORPORATION

    Mr. Wade. Thank you, Madam Chair. I want to thank the 
Committee for allowing us the opportunity to share some of our 
experiences on this issue. For those of you who may not be 
aware, we are a public, non-profit corporation created by 
Congress and supported by Congress, as well to support our 
activities.
    I just wanted to highlight four main points. I submitted 
written testimony, but in light of some of the things that have 
already been said, rather than rehash some of those, let me 
just highlight some of the things I think haven't been covered, 
and also probably try to put this more in a national 
perspective.
    There's no question that oftentimes in the context of macro 
statistics, we lose sight of the fact that this foreclosure 
crisis is having a specific impact on real people, real 
families, and real neighborhoods. The testimony from the folks 
here from Ohio helped illustrate that point. NeighborWorks 
essentially started working on the foreclosure issue 5 years 
ago. We saw this coming, based on the feedback that we were 
getting from our affiliates throughout the country.
    NeighborWorks has done a lot of work to help low and 
moderate income families achieve the dream of home ownership. 
Over the past 5 years, our network has helped over 100,000 
families be successful in achieving home ownership.
    However, our affiliates began seeing people showing up at 
their doorstep in foreclosure. These by and large were people 
who had not had the benefit of pre-purchase counseling and 
people who were primarily in non-prime loans.
    That suggested to us that something was going on that we 
needed to pay attention to. We funded some studies of our 
affiliate in Chicago and supported some activities that they 
began to address the foreclosure issue, trying to see if there 
were things that we could learn from the specific Chicago 
experience that we could replicate nationally.
    As a result of that, we established the Center for 
Foreclosure Solutions about 3 years ago. Its main 
responsibilities include improving on the ground counseling 
capacity and providing training to counselors on foreclosure 
prevention; conducting research to better understand the scale 
and scope of the problem, in order to better develop solutions; 
supporting local efforts in cities and regions with high rates 
of foreclosure, we are supporting the efforts you heard about 
today in Ohio, working with the lending community to improve 
industry practices to avert foreclosure, and we're establishing 
a national public education and outreach campaign to reach 
consumers who are threatened with foreclosure.
    I think as Congressman Cummings commented, one of the 
things we learned from our Chicago research is up to 50 percent 
of consumers who go to foreclosure never have any contact with 
their lender. They don't reach out to anyone, and they just 
allow the foreclosure to occur.
    In addition to that, in Chicago we found that many of the 
consumers who eventually reached out for help reached out far 
too late. In Chicago 5 years ago, the average was about 5 
months delinquent when the consumer finally had the wherewithal 
to reach out to someone for assistance.
    As you can imagine, a consumer who is 5 months delinquent 
has limited options. So one of the things we thought we could 
do was contribute by developing a national public education 
campaign to get consumers, if they didn't want to reach out 
their lender, to be able to reach out to a non-profit 
counseling agency that would be able to assist them.
    In Ohio specifically, we're working with the creation of an 
Ohio foreclosure prevention initiative. It's a state-wide 
coalition of 12 organizations across the State, 10 of whom are 
our affiliates, 2 of whom are not.
    This state-wide coalition has joined forces with the work 
we're doing nationally, to do much more on the grassroots level 
to reach out to consumers. They also in Ohio, like in many 
other States, have done some things to put some resources on 
the street, in order to address this problem.
    There's a $4.6-million Ohio rescue fund that's being 
administered by one of our affiliates in Ohio. Of this amount, 
$1.5 million is being provided to home owners as forgivable 
deferred loan funding. In addition, the remaining $3.1 million 
is being provided as deferred loans or due on sale loans on the 
transfer of the property, as a way to help consumers work 
through delinquency.
    In addition, post-purchase counseling is a requirement, and 
is written into the loan document. So that counseling 
assistance is being provided to the borrowers.
    It's pretty clear, from our experience, that if consumers 
had had the benefit of high quality pre-purchase counseling, 
many of the challenges that consumers are faced with today 
would not have occurred.
    We have, from our own experience, as I said, have helped 
over 100,000 home owners achieve the dream of home ownership. 
Looking at the loan performance of consumers that have been 
assisted by our network, our delinquency rate is actually 10 
times less than the subprime market, and basically it tracks 
comparable to where the prime market is.
    I think that's a testament to what you can do with good 
pre-purchase counseling. Just to highlight some of the 
challenges that exist, and obviously you're wrestling with a 
range of things on what you might do to assist in this arena.
    There's no question that high quality counseling is not 
universally available. Clearly, more resources are needed to 
support counseling at the grassroots level. It's not 
universally available; that's particularly challenging in rural 
areas, where people might have to travel a long distance to get 
assistance.
    We also need better transparency in the lending process, as 
you can see from some of the testimony of folks earlier. You 
know, you don't really know the deal you have until you're 
sitting at the closing table, and oftentimes it's much too late 
for a consumer to take alternative action.
    In addition to that, most of the time you've already spent 
a considerable amount of money, because most consumers have had 
to pay for the appraisal, they've had to pay an application 
fee, and essentially they somewhat feel trapped at that point.
    Even though they might see things at the closing that might 
suggest to them that it isn't the best loan for them, there is 
an obvious need to do some things to enhance the regulatory 
regime so it can catch up with how the market has changed.
    Today, there are a variety of players in the market, all of 
whom are unconnected in many cases. You have brokers operating 
independently, mortgage companies and investors on Wall Street, 
all of which have contributed to providing more credit.
    But this environment also creates a challenging delivery 
system when you're trying to address a problem like 
foreclosures. We need more flexibility with lenders, servicers 
and investors around workouts and modifications, in order to 
help people out of foreclosure.
    There's no question that many people can be helped, but we 
need much more flexibility from lenders and servicers if we're 
going to be as successful as we can; mostly we need to address 
the increasing rescue scams that are cropping up, preying on 
people who are having problems.
    There are a range of scams out there that people are 
engaged in. We need better enforcement, in order to address 
these rescue scams.
    [The prepared statement of Kenneth Wade appears in the 
Submissions for the Record on page 54.]
    Vice Chair Maloney. Thank you for all of your hard work, 
really. I would like to ask Ms. Sweet and Ms. Anderson, the 
subprime market was intended to help people achieve the 
American dream, but that dream has turned into a nightmare for 
you and many other home owners.
    One of the recommendations being made that really came out 
in the guidance of Chairman Bernanke and others, but one of the 
recommendations is to require lenders to assess the borrowers' 
ability to pay over the life of the loan, when it is fully 
indexed.
    In other words, you don't give a loan to someone who cannot 
afford to pay for it. So my question is, is there any doubt in 
your mind that if that had been the practice when you were 
shopping for a mortgage, that you would not have been having 
this nightmare?
    If they had looked at you and said we're not going to give 
you a loan unless you can pay for it, part of the question is 
do you think it's a good practice, even if it means that 
possibly you would not have qualified for the house that you 
have, but would have had to have a smaller house, possibly in a 
different neighborhood?
    Ms. Sweet. Yes, I do think that would have been helpful. I 
think if we would have been put on pause and made to repair our 
credit and save money, we would have been able to get into a 
home that would have been probably equal to what we have now.
    But we would have had less trouble sustaining and would 
have been able to move on to the next home sooner and easier.
    Vice Chair Maloney. It would have helped you, even if it 
meant you possibly could not have afforded the home that you 
have? Ms. Anderson, would you like comment?
    Ms. Anderson. I'm going to speak for both myself and other 
people. I do not think it would have been helpful for me. What 
would have been helpful to me is if they had not cheated, lied 
and stolen.
    I think that would have been helpful to me, if they had not 
said it was going to be one rate, and then flipped it over and 
over and over again, and increased the amount by more than 60 
percent. I think it would have been helpful to me if they had 
upheld their bargain.
    I know you didn't ask me this question, but even when we 
started talking about counseling, I do believe counseling is 
helpful. I think it's very helpful to the brokers, the lenders, 
the appraisers and the servicers who need counseling in ethics, 
so they can do what is right when it comes to dealing with the 
American public.
    Vice Chair Maloney. Would you like to comment further, Ms. 
Sweet.
    Ms. Sweet. I would. I agree with Ms. Anderson that had they 
not, if that law would have been there, that they still would 
have done what they did, inflating my assets and what is the 
point? They knew I couldn't afford it, but they made it appear 
that I could so that they could approve it.
    So I have to agree. They need to behave responsibly and 
abide by the law.
    Vice Chair Maloney. But the guidance would require them to 
not do that, that they could not mislead you and could only 
grant a loan that you could afford to pay.
    Ms. Anderson and Ms. Sweet both mentioned that, that 
comprehensive counseling would help them, and Mr. Wade, you've 
testified that that is really something that you think would be 
incredibly important.
    But what we have now in the current situation in the 
subprime market, we have many, many borrowers defaulting on 
their loans or behind on their mortgage payments. What is the 
strategy, the best strategy to prevent foreclosure?
    This is past counseling. This is in a crisis situation, 
keeping people in their homes, which everyone agrees helps the 
neighborhood, helps the economy and helps the family.
    Now what is the best strategy to help, really, 
constituents, and people like Ms. Sweet and Ms. Anderson, stay 
in their homes, who are in the middle of this subprime crisis?
    Mr. Wade. It's a complex problem, but again counseling is 
helpful here again. I think consumers who have the benefit of 
working with a counselor when they're behind have a higher 
success rate of being able to sustain home ownership.
    Working with a lender or a servicer is a complex process, 
and I think most consumers on their own, without the benefit of 
working with someone who understands the ins and outs of that 
process, who knows all the programs that would be available 
from a lender, would make the possibility of averting a 
foreclosure that much higher.
    Mr. Rokakis. Congresswoman Maloney, if I could add just one 
thing. We saw the chart of the Argent mortgages. As we tried to 
work out these mortgages, Congresswoman, we're not in a 
position, nor do I think we should refinance a mortgage that's 
been reissued for two, three, four times the actual value of 
the property.
    One of the problems we're dealing with as we try to do 
mitigation, we have four counseling agencies that work with us 
in Cuyahoga County. We've taken over 5,000 calls in the past 
year, trying to work these out.
    We have to get a recognition from the lenders that they 
have made huge mistakes in this process. They have overvalued 
these properties. They've overmortgaged them, and if we're 
going to do a workout, they're much better off accepting the 
real market value of the property and working with that 
borrower in a fixed rate that they can afford, as opposed to 
foreclosing on the property, losing the borrower and taking a 
complete loss on their investment.
    They have to recognize the mess that they're in, and 
they've been reluctant to do that.
    Vice Chair Maloney. You're absolutely correct. We'll be 
working to really bring that message to them. It obviously 
helps people and helps the community and helps the economy. I 
yield now to Mr. Brown, for such time as he may consume.
    Senator Brown. Thank you, Madam Chair.
     Ms. Sweet, Ms. Anderson, thank you for your personal 
stories and your courage, especially Ms. Anderson, for the last 
25 years, and your pioneering spirit and your perseverance for 
both of you, all that you've done and your willingness to share 
your story.
    Both of you, how do we stop--put yourselves back at the 
beginning of this process, if you can. I know it's not always 
easy. How do we stop these lenders and those who bought and 
sold your loans? Is it 15 times in 5 or 6 years? How do we stop 
them from this unethical behavior?
    If we could have--if the State government, Federal 
Government, local government, regulators, legislators, 
whatever, if we had known more and done something, how do we 
stop them from doing this in the future?
    Vice Chair Maloney. Sherrod, I have a meeting, and I am 
passing the gavel to Senator Klobuchar.
    Ms. Anderson. One of the things that we need to look at, I 
don't want to confuse subprime lending with predatory lending. 
They're not one in the same. Subprime lending is what it is, 
but predatory lending is abusive practices.
    If we look at what is abusive practices, if we were able to 
just kind of lay out what does it look like, we would see 
things like ARMs. We would see things like force-placed 
insurance. We would see these different things.
    ESOP, the East Side Organizing Project, which is also 
Empowerment to Strengthen Ohio's People, is very good in 
forming partnerships with companies by showing them what an 
abusive practice looks like, laying out the 10 or 12 different 
items that we say these are the things that need to change.
    We have come up with a list of those practices, and before 
we sign the partnership, we get agreements that say you will 
not practice these. These are things that you will not do.
    If that was throughout industry-wide, if there was a 
standard, if there was a code of ethics, that there was 
something that says this is predatory lending, this is abusive 
practices, and they were glaringly out there, and we were able 
to hold the industry to that, then you would not see predatory 
lending.
    Senator Brown. I'm sorry, Ms. Anderson. Are these community 
groups able to hold the industry to that standard, the 
voluntarily agreed-to standard?
    Ms. Anderson. With the partners that we have formed, with 
the partnerships that we have, yes.
    Senator Brown. What's to keep others from coming into any 
neighborhood and inflicting their damage on people that are 
less sophisticated than you, or who have a problem or something 
happens in their lives, such as a divorce or job layoff or 
whatever?
    Ms. Anderson. That's right. Some of them are hardship 
cases. There's no doubt that that's the case, and that's the 
reason why so many fail; its because they're desperate. But 
we've been able to work to modify loans, to get people out of 
loans and maybe into bank loans.
    Whatever it takes, that's what we've been willing to do.
    Those servicers that we work with have worked diligently 
with us to help make that happen.
    Senator Brown. So those voluntary agreements you've come 
to, should those be Federal laws? Should they be State law?
    Ms. Anderson. I like the way you said voluntary. They might 
be forced.
    Senator Brown. But no, they go into an agreement with you, 
with ESOP.
    Ms. Anderson. They are.
    Senator Brown. Voluntary in that sense. Should they be 
Federal laws, should they be State law?
    Ms. Anderson. Let me say it this way. When those 
agreements--how can I say this nicely? Once we formed those 
agreements with those partners, the hell stops for those 
companies, for those loan servicers that we have agreements 
with.
    Yes, I do believe that we could take that list, and it 
could become nationwide. Yes, I do.
    Senator Brown. Ms. Sweet, your comments on how we stop this 
from happening?
    Ms. Sweet. I agree. Federal and State legislation needs to 
be monitored by people like ESOP that are right there in the 
community, so that people like me can go ask someone who has 
the knowledge.
    I'm educated. I'm not an ignorant person, but I am not 
educated on mortgage or finance. So I had to go to someone else 
that I could depend on for that information. When I signed my 
loan documents, I assumed that it was a broker that was going 
to do that, and was going to be honest and forthright with me.
    Unfortunately, that wasn't true. When I needed help to work 
it out, I tried a few different places, and until I went to 
ESOP, I didn't have a real resolution. But when I went to ESOP, 
I was able to speak with someone who had practice in doing 
this, who knew what options there were available, what steps I 
could take.
    The basis for me is that I didn't have the knowledge that I 
needed, and there was nowhere on the research. I researched it. 
I went on-line, I looked at what I can look for.
    But there was no standard code of ethics that I could find 
for the mortgage industry. I was trying to find out where they 
went wrong and what they did wrong with my loan.
    Up until I went to ESOP, I know it felt wrong what happened 
with the loan, but I didn't know that it actually was wrong.
    So I just think yes, the Federal and state legislation 
would be helpful. But it needs monitoring locally and access 
for a regular citizen to go in and get that help.
    Senator Brown. Thank you, Madam Chair. Just one more point 
real quick. You are far from alone in not understanding this. I 
don't know much of anybody who buys a house that really 
understands, especially when I bought my first house.
    I'm not a lawyer. I went to college, but I don't think that 
very many of us understand this at all. You obviously were 
victimized, like so many people have been. Not out of 
ignorance, but out of malintent. Thank you.
    Senator Klobuchar [presiding]. Thank you, Senator Brown. 
Thank you to both of you, Ms. Sweet and Ms. Anderson, for your 
stories. As Mr. Wade said, there's nothing that brings these 
points home more than personal experience, as opposed to simply 
statistics.
    I thought that Mr. Rokakis and Mr. Brancatelli were looking 
a little lonely down there, so I thought I'd ask them a few 
questions. Recently, the Chairman of the Federal Reserve stated 
that the predatory lending crisis seems manageable, and that 
market forces, he said, are working to rein in excess.
    He further stated that he does not think the crisis in the 
subprime market will affect the larger housing market or 
housing values more generally. Given your experiences in Ohio, 
would you agree with what he said and could you comment about 
that, I guess both of you?
    Mr. Rokakis. Senator, I would not agree with it. Let's look 
at that chart again. We'll look at the Cleveland situation. If 
you're a home owner in Cleveland, and you're unable to sell 
your home because of the declining values, because of the 
devastation in your community makes your home virtually 
unsaleable, you're not going to be able to move to that next 
property, whether it's in the suburb of Lakewood or Parma.
    It's going to really restrict the flow of buyers to next 
ring of suburbs. If people in that community are unable to sell 
their homes, how will that not impact the people in the next 
ring of suburbs, where they too will be unable to sell their 
homes?
    We have seen the impact of this in every community in 
Cuyahoga County, with the exception of certain properties and 
luxury high-end homes. Talk to any realtor in Northeast Ohio. 
They will tell you they have felt the impact; they continue to 
feel the impact, and I think the notion that the chairman of 
Countrywide said ``2009 recovery.''
    We deal with a mortgage expert named Tom LaMalfa, quoted 
nationally on a regular basis, he thinks it's a 4 to 7 year 
recovery. So I disagree with the fact that it's got to be 
limited in its impact.
    Senator Klobuchar. Mr. Brancatelli.
    Mr. Brancatelli. I fully agree with the Treasurer.
    When you say terms like ``self-correcting markets,'' when 
you talk about recommendations and advisories to get the market 
to behave in its normal course, it's absolutely wrong.
    The values of real estate that were normally 30,000- and 
40,000-dollar houses that were affordable housing, which got 
totally stripped of their wealth when they get overfinanced and 
then get actually physically stripped, and they bring that 
value down to zero, has just a devastating effect on an entire 
block.
    We have lost blocks within our community because of these 
poor lending practices, and we will not recover just because we 
think the market will self-correct.
    Senator Klobuchar. When I talked about this issue to some 
of our Minnesota bankers, and we have some wonderfully strong 
banks in Minnesota, they talk about how when we address this 
issue of predatory lending, we should be careful not to punish 
the entire banking community because of a few bad actors.
    Is it your experience that there are particularly bad 
actors in the mortgage lending business, and are there 
particular practices we should be aware of that may be 
instructive for drafting future legislation?
    Mr. Brancatelli. It's truly clear, when you look at who the 
bad actors are, and who is trying to do responsible lending. 
There's a misconception, that just because there may not be a 
bank on a street that people don't have good lending available 
to them, and that's just not true.
    As was stated earlier, through good counseling, through 
education, there are good quality loans available. In the 
broader community we have Third Federal Savings right on 
Broadway. Their operations center and their headquarters is 
there. They're one of the most effective and efficient savings 
and loans in the Nation.
    Throughout our neighborhood, we have a number of banks.
    The mortgage companies that are out there preying on 
individuals need to be corrected. When you look at what can be 
done, it really does require stepping forward and putting in 
regulations, that the unregulated companies fall under some of 
the same regulations that the savings and loans have.
    I think there can be a compromise, so that we don't get 
caught up in a wave of requirements and legislation that would 
really restrict lending that's happening already from good 
quality banks.
    Just having more disclosures and having 22 font print isn't 
going to make it. It does take counseling, it does take 
responsible lending. What keeps responsible lending happening 
is having the ability to really go after those who are doing 
irresponsible lending.
    Until there's criminal punishment for what they're doing, 
until there's criminal punishment for fraudulent appraisal, 
criminal punishment for title companies that are willing to 
look the other way, criminal punishment to brokers and loan 
originators who are willing to lie on the documents, we will 
not be able to correct it.
    Senator Klobuchar. Ms. Anderson.
    Ms. Anderson. Can I just add something? I don't want to 
answer that question, but I just want to talk a little bit 
about self-correcting.
    When I first saw that word and thought about this industry, 
I thought about when you have a child who's throwing hands and 
feet and kicking and bruising other people because they're out 
of control. The most responsible people will not just wait 
until that child self-corrects.
    Somebody, some responsible person who sees this going on 
and knows the damage that they're causing to other people, will 
correct that child. That's how I feel about this industry. We 
don't wait for it to selfcorrect, because it's damaged and hurt 
too many people, and it's not going to self-correct.
    Senator Klobuchar. As I noted in my earlier opening 
statement, we certainly have seen that in Minnesota. That's why 
we adopted these State laws and why I favor some kind of 
Federal legislation.
    Mr. Rokakis.
    Mr. Rokakis. Minnesota has been very progressive, and I've 
followed you very closely in what steps have been taken. The 
problem is we have some banks that are State-regulated; we have 
some that are Federally regulated; and we have people who fly 
between the two.
    We really need a uniform standard, so a bank doesn't say, 
``I don't want to do this, but I have to do it, because if I 
don't do it, they will.'' I can't tell you how many times I've 
heard people say, ``I'm doing it because if I don't, they'll do 
it.''
    If we adopt a uniform standard, everybody in this industry 
has to adopt these guidelines and these sets of rules. I think 
it would serve to shut down these abuses.
    Senator Klobuchar. Thank you very much.
    Congressman Cummings.
    Representative Cummings. Thank you very much, Madam Chair.
    As I listen to this, it is interesting. It seems to me that 
this is a transfer of wealth. It really is. You have got 
everybody getting a chunk of the person who is trying to get a 
house.
    Then the person who is trying to get a house ends up with 
nothing. Really, it is theft, it is theft, it is theft. It is 
theft of hope, it is theft of dreams, it is theft, period and I 
am trying to figure out if there's anything unique about 
Cuyahoga County?
    I think Mr. Brown was talking about it a little bit 
earlier, the uniqueness of Cuyahoga County. Because it seems to 
me that if this were happening at the rate it is happening in 
this area of Ohio, in a whole lot of places in the United 
States, this would be truly a national emergency.
    Because basically what you have here are people trying to 
get homes. And like I said, all of these people taking a chunk 
of money all the way down, fraudulently, lying and stealing. 
You have got hard-working Americans left holding the bag, and 
when you talk about communities, with the property values going 
down and down and down, at some point something has to give.
    Is there something unique about the county?
    Mr. Rokakis. I'm going to try to be non-political here.
    I think the State government plays a critical role.
    In progressive States like Minnesota, North Carolina, which 
have been very good on consumer protection and other states, 
these practices would not have been tolerated.
    You need to know the city of Cleveland, the city of Dayton 
and Toledo on their own passed anti-predatory lending laws in 
2002 out of a sense of desperation, because the State 
legislature has done nothing.
    Within 30 days of those laws passing, the legislature 
convened and passed a law preempting the rights of cities to 
protect themselves with the promise that they would deal with 
it later.
    They dealt with it last summer, because elections were 
pending for all the State offices, and they passed a good 
consumer bill and proceeded to gut it after the election, after 
the change of leadership at the State level.
    All I can tell you is this. Common Cause has reported on 
this extensively. The power and the influence of the real 
estate lobby in the state legislatures is unparalleled.
    It's like nothing I've ever seen.
    Unfortunately, it was the fact that nobody was home at the 
State government that allowed this to happen in Cuyahoga 
County. Now that's changed. We have an attorney general that's 
very engaged. I think that will change. But that, I think, is 
the biggest reason.
    Representative Cummings. One of the things that I hear from 
my people in the subprime business, they say, ``Cummings, be 
light on us. We are trying to--if it were not for us, people 
would not have a house.'' I hear that over and over and over 
again.
    When I hear testimony like Ms. Anderson and Ms. Sweet, at 
some point, I just think the truth will always rise to the top. 
Unfortunately, when it rises to the top, a lot of times there 
is a lot of pain that got it to the top.
    So at the same time, you know, Ms. Maloney asked the 
question about whether we were doing some damage to the 
subprime industry because they are doing all these good things.
    But it seems to me that if the end result is that a 
significant number of the subprime loans are going into 
default, and then it takes all the time that you all just 
talked about for recovery, means that there are some people who 
will never recover.
    It just seems to me, in some kind of way, we have got to 
get ahold of this problem. I understand even moreso why you, 
Ms. Anderson and others, talk about the Federal solution.
    Just one question for you, Mr. Wade. Talk about this 
counseling. How does that work? You said you have a 10 times 
better rate of getting people straightened out. How does that 
work? What do you all say to them? What do you do? These are 
people that are already in trouble?
    Mr. Wade. I meant of the consumers that we counsel, to help 
get into home ownership, their foreclosure rate--or to say it 
another way, the foreclosures in the subprime market are 10 
times higher than the consumers we've assisted to get into home 
ownership.
    That's because good pre-purchase counseling arms people 
with the information to do the due diligence that's necessary. 
I would agree. Purchasing a mortgage is probably the most 
complex thing that most Americans will ever do, and you don't 
do it that often.
    So the notion that a consumer on their own will be able to 
wade through this dizzying array of products is just, I think, 
too much to expect. So I think really we need to think about 
pre-purchase counseling the way that we think about a home 
inspection, when you're going to purchase a home.
    Most consumers know they don't know enough about a house. 
They have go get a home inspector. I think we've come to that 
in the mortgage industry as well. It's too complex a process. 
It's not like it was 30 years ago, where basically you had a 
couple of choices.
    There's a 15-year mortgage or a 30-year mortgage, and it 
wasn't very complicated. The person that sold you the loan was 
also the person that serviced the loan, and was also the person 
that held the loan. That's not the market today.
    I don't know if you've ever seen a pricing sheet, a 
subprime pricing sheet. There's a dizzying array of options 
based on the person's credit score, the loan, the value of the 
property, how much they're going to put down. It's very 
complicated.
    I would say most consumers on their own would have a 
difficult time wading through that. Coupled with the challenge 
that you really don't know the deal you have until you're at 
the closing table.
    That's another complicating factor. I mean even when you 
get the good faith estimate, it's just an estimate.
    It's not binding and it says right on there that it's 
subject to change based on a number of variables.
    I had just an exchange the other day. One of our staff, who 
had a friend who knows that they work in this arena, at the 
closing table called her and said ``Look. The loan documents 
say that I've got two points. They didn't tell me that ahead of 
time. What can I do?''
    Well, the only thing you can do as a consumer is get up and 
walk away, because if you sign the paper, you're obligated. 
Unfortunately, the person felt trapped because they were 
counting on the purchase of this home going through in order to 
be able to sell their other home.
    So if they got up and walked away, it would have a 
cascading effect on their life, and they just felt they were 
stuck. That's the complicated process we have today, and I 
think it creates a real challenge for consumers.
    Representative Cummings. What we discovered in Baltimore is 
that a lot of people feel ashamed. You talk about both 
organizations, ESOP and the other one.
    Sometimes you need somebody who can hold your hand, so you 
do not feel ashamed. Somebody who can say ``Look, I have been 
there.'' I want to thank you all for your testimony, and thank 
you, Mr. Chairman.
    Chairman Schumer [presiding]. I guess I'm on. I thank the 
witnesses for being here again, and apologize for my leaving. 
This one is for Jim Rokakis and Tony Brancatelli.
    As I said, I think that Slavic Village is a forewarning of 
what's to come in other communities across the Nation.
    These are communities that have a high percentage of 
subprime mortgage borrowers.
    But we heard repeatedly from the industry and 
Administration representatives, that the market will fix this 
mess. Our economic growth will not take a hit. We should all 
breathe easy.
    I want to ask Mr. Rokakis and Mr. Brancatelli, take 
whatever time you need here. What do you have to say to this 
optimistic outlook on the housing market?
    Second, will this subprime housing market fall have a 
lasting impact on Slavic Village and other neighborhoods in 
Cleveland? Has it had any effect on business investment and the 
ability to hire new workers to date?
    Mr. Rokakis. Senator Schumer, I think that's misplaced 
optimism. It may be true in some parts of the country. But in 
some parts of the country that are not doing as well, that are 
struggling economically, I think that's wishful thinking.
    I don't see how they can make that statement, when there 
are thousands and thousands of vacant homes put just a drain on 
the local government's ability to deal with this problem.
    How can they say that when properties are being devalued 
not only in areas they're located in, but throughout the 
region?
    How can you think about the future of a community?
    Think of your own personal circumstances. How could you 
think about the future when you're in a life and death struggle 
to hold on to what you have?
    That's what has been so difficult for us in Northeast Ohio, 
in this foreclosure crisis. It's just heightened the tension 
and the problems we were already experiencing. So I think the 
optimism is misplaced. Has it hurt the county's ability to 
attract business? Is that the question, Senator?
    Chairman Schumer. Yes.
    Mr. Rokakis. Certainly the publicity has not been at all 
positive, and I struggle with that. Maybe we just need to keep 
our mouths shut and act as if it isn't a problem.
    But the reality is it's too late. This problem has reached 
the crisis stage in our county. But it's going to become a 
crisis all over the country.
    You've alluded to that fact. This is the beginning.
    It's going to get much worse. If speaking up means that 
this Congress takes actions to prevent this going forward, then 
I think it's something we need to do.
    Chairman Schumer. One other point here. You had mentioned 
before--we go to Mr. Brancatelli on this--you had mentioned, I 
think, that there were 15,000 foreclosures in Cleveland. Is 
that the city of Cleveland?
    Mr. Rokakis. Seventeen thousand will be filed this year in 
Cuyahoga County. Seventeen thousand.
    Chairman Schumer. Just this year in Cuyahoga?
    Mr. Rokakis. That's just this year. Thirteen thousand six 
hundred last year.
    Chairman Schumer. Do you have any idea how many total 
residences there are, owned residences, not rentals in Cuyahoga 
County?
    Mr. Rokakis. That's a good question, Senator. We look at 
the pool of people who are facing foreclosure. We roughly break 
it out.
    It's at least 50 percent who fall in the category alluded 
to by Mr. Brancatelli earlier, people who are buying multiple 
properties because they think they're going to get rich in the 
real estate business.
    So I don't think--I don't want you to think that 17,000 
families are being forced to leave their homes. We think the 
number is half or even less than that number.
    Chairman Schumer. Mr. Brancatelli, in answer to my 
questions.
    Mr. Brancatelli. Just one area I'd like to contradict Mr. 
Rokakis on, when he talks about not being good for business, 
there is one business that's doing remarkably well because of 
this industry, and that's the scrapyard business.
    With the high cost, the high value of scrap aluminum and 
copper, the scrapyards have never flourished so well.
    Houses are being stripped at a remarkable rate.
    Good for the city, because we demand things like 
landscaping and fencing the scrapyards would never do to help 
protect our neighborhoods. It's bad for the city because we're 
seeing houses being stripped at a remarkable rate.
    But from that, the down side is the businesses are 
suffering. You see a remarkable rate of move-outs in our 
community, as the treasurer outlined. You see that we can no 
longer support some of the local businesses that we have in 
place, the delis, the local stores are suffering.
    We're suffering from such a huge loss of equity. So when 
grandma finally decides to sell her house, once she could have 
sold for $60,000; now she sells it for 40,000.
    When you keep stripping that equity out of our 
neighborhoods, it has a devastating effect on the long-term 
investments that we have.
    Certainly, I think, as Ms. Anderson pointed out, in our 
community we have a wonderful integrated community. We have a 
community that's moving forward.
    But how do we recruit people to come into our neighborhood 
when we see 1,000 vacant and abandoned properties? How do we 
recruit people to invest in their real estate when they see the 
values going down? It's a very, very difficult thing to do.
    I agree with the treasurer. It's difficult for me to stand 
here today when I spent 17 years of my life trying to promote 
home ownership and trying to get people into homes.
    But it's not difficult for me to stand here and say, you 
know, look at how hard we've been hit. We have to say it, we 
have to do it, and we have to change the direction. We have to 
let people know it's no longer acceptable to go into liar's 
loans when the mortgage companies allow it.
    Some of the people see this and they think ``Well, it must 
be OK, because the mortgage company gave me the loan.'' This is 
a big mortgage company. It must be OK, and it's just not true. 
They're thieves, they're liars, they'll do anything to get you 
in a mortgage.
    Chairman Schumer. I agree with your point. We find this 
across the board. People have trust in American institutions. 
So they say this is a mortgage company; there must be a bank 
somewhere. Banks have these nice buildings.
    They're not stealing.
    We find the same thing we found with the student loans just 
now. People say how would a college steer me to a higher 
interest rate loan? It's a college, but they're doing it. This 
is sort of a bit of, you know, this is a larger issue.
    I don't know if on the JEC we should look at this, but it's 
sort of a breakdown of institutional trust, and people used 
lots of sort of, I don't know, codes.
    They're not code words; they're not symbols. But you didn't 
have to scour the details of a mortgage document, because the 
bank would never rip you off, because the bank held the 
mortgage.
    It was in their interest to make sure that you were given a 
good mortgage. But we don't have banks involved in most of 
these problems, the same thing with the colleges.
    Let me ask one more question. Then I'll turn to Sherrod for 
a second round, and then I'll go for a second round.
    But I wanted to ask both Ms. Anderson and Ms. Sweet you 
both testified about the importance of third parties 
intervening on your behalf. In both cases, this third party was 
ESOP.
    I said in my opening statement Senators Brown and Casey and 
I are trying to get more resources to foreclosure prevention 
programs that are on the ground working with borrowers and 
homes. So I'd like to hear your experience with foreclosure 
prevention counseling.
    Does it work? Is there any substitute? Is this sort of pie 
in the sky do-good stuff, or is this real on the ground stuff 
that matters? Tell me what role they played in your 
negotiations with the person who ultimately holds the mortgage? 
Do you want to go first, Ms. Anderson, and then we'll call on 
Ms. Sweet.
    Ms. Anderson. OK. Let me just say this. First, I stumbled 
around for a long time looking for an organization to go to. In 
my opening statement, I made mention that I e-mailed, faxed, 
called, made all kinds, looked everywhere, all over the 
Internet, looking for who is it that can help me.
    First, I had to deal with the fraud. It was unbelievable. 
Nobody believed me, number one. Then people tended to ask 
questions that I had no answer for, as in why would anybody do 
this to you? So that was devastating to me, because I couldn't 
answer that question either.
    Why would your mortgage, out of all the mortgages across 
the country, why would someone single out your mortgage, not to 
apply your little money?
    Chairman Schumer. Most people would be a little bit 
embarrassed too.
    Ms. Anderson. I was embarrassed. Actually, I've said this 
before, but I began to do what most battered women do.
    I began to blame myself. I began to think maybe I'm mailing 
them to the wrong place. Maybe instead of mailing it in my 
building, maybe I need to take it to the post office.
    Instead of taking to the post office, maybe I need to put 
extra stamps on it. Instead of doing that, maybe I should send 
it certified, maybe send it registered. Maybe I should do this.
    Maybe instead of sending the check, maybe I needed to send 
them a money order. I was doing and making all kinds of changes 
because for a long time I thought it was my fault.
    I did stumble into ESOP. They weren't really working on my 
issue at the time. But the issues that they were working on 
were so interesting to me that I got caught up in the CRA, and 
kind of made my issue a secondary issue.
    But we had an agreement with Charter One Bank. Charter One 
Bank made way for us or made an opportunity for us to appear on 
a radio station. We went to the radio station early one 
morning, one Sunday morning before church.
    As we were sitting there, bombarded with questions about 
home ownership, foreclosure, predatory lending, they began to 
ask if there was any one servicer that you would mention, what 
servicer would that be?
    Either I or the president of ESOP at that time said 
Fairbanks. At that time, all the lights in the studio lit up. 
One of the men who was actually working there turned around, 
pointed to himself gesturing that his mother had that kind of 
loan.
    We said ESOP is going to have this meeting, come to the 
meeting. People from all over came. People from out of the 
city, just bombarded. We became worried that we might be 
exceeding the fire limits for the building.
    Selfishly, I must say, I was so happy, because at that time 
I knew I wasn't crazy. I said I don't believe it.
    Look at all of these people here. It's not just me. Then I 
began to work diligently, because for the first time it was 
confirmed to me that this is real.
    This abuse is meant. This is not something just made up in 
my head. So we began to fight like never before. But ESOP began 
to really fight for so many people in that same shape I was. 
That was really what I considered our biggest, maybe just 
because it was me, our greatest challenge.
    We had a meeting with Fairbanks. We came to an agreement. 
They wiped out over $30,000 off my loan. They asked me to stay. 
I said no way Jose. I'm out of here.
    I've refinanced with Third Federal. Went from 14.5 percent 
to 5.85 percent, and I've never been happier making that loan 
payment every month in my life.
    Chairman Schumer. You see, we could do that for hundreds of 
thousands of families, just with a small amount of this money 
to go the groups like yours. Ms. Sweet, do you want to say 
something quickly, and then I'll call on Mr. Brown. Then we'll 
wrap up.
    Ms. Sweet. Yes. Definitely ESOP was helpful. What I think 
is unfortunate is that it sounds like Ms. Anderson, similar to 
myself, we're more proactive and assertive than I think most 
people. So we sought out that information.
    I think a lot of people this happens to and no one even 
knows, because they don't step forward or they try to and they 
don't know how and they step back.
    So I think, in addition to keeping ESOP and other 
organizations like it funded, getting the word out, I mean I 
have a degree in Social Work. So of course I know how to ask 
for help and who to ask.
    But like you said, it's the battered wife syndrome. I was 
so embarrassed that I had allowed myself to get into an 
agreement that was so ridiculous.
    Then when I looked back and saw that I didn't even review 
my closing documents closely enough, and missed all of these 
lies and untruths, I didn't want to bring that forward to 
anyone. I felt like an idiot when I had to. But I knew that I 
had to, or I would lose my home.
    Chairman Schumer. We're glad you did.
    Ms. Sweet. Yes. Definitely helpful.
    Chairman Schumer. Senator Brown.
    Senator Brown. Thank you, Mr. Chairman. You will not be 
surprised to know when you had to leave the room, that Ms. 
Anderson said the real counseling that we should have is the 
counseling of the bankers and the mortgage brokers, and there 
should be counseling in ethics. You missed that statement from 
Ms. Anderson.
    But first of all, I apologize. I have to go to another 
committee to make a quorum. We're doing the FDA reform bill. So 
after a couple of questions, I'll have to run. So thank you, 
Mr. Chairman.
    Mr. Rokakis and Councilman Brancatelli, some less 
sympathetic experts, if you will, have said, including mortgage 
bankers, have argued that the current wave of foreclosures in 
Cleveland and throughout the State are due to economic 
conditions rather than loan practices.
    They also make another point often, that there's a price to 
pay for these prime mortgages, and that is that the whole point 
of subprime at its best is to get more people into home 
ownership. We certainly heard that, and I think that's 
certainly an arguable point.
    But my question to both of you, particularly Mr. Rokakis, 
when you have said when this is all said and done, there will 
be fewer people, at least, between Fleet and Broadway. But 
fewer people probably in this country are going to own homes as 
a result of this, that would have owned homes if there weren't 
the aggressive kind of selling.
    Would you both comment on that?
    Mr. Rokakis. That's unquestionably true. The argument you 
hear about Cleveland, Ohio is just a variation of the theme 
that basically blames the poor for their plight.
    Let me just say this. Every time I debate people from this 
industry, and I debate them a lot more than I want to these 
days, when they make that argument I ask them one question, and 
I've never gotten an answer.
    If you knew that to be true about Ohio's economy, why do 
you continue to pour mortgage dollars into a depressed economy? 
Why do you continue to make loans in Northeast Ohio in 2003, 
2004, 2005 and 2006, when the foreclosure rate in this 
community and the State was already the highest in the Nation?
    You know, I've yet to get a response. I just want one 
person to respond to that. They can't respond, because it's 
unbridled greed. It's a complete lack of care and concern for 
the community.
    Let's face it. These were great years for that industry. 
The profits were absolutely out of this world.
    But you know, you can blame this entire meltdown on Ohio 
and Michigan, as I've heard and I've read.
    Senator Brown. And Indiana.
    Mr. Rokakis. Just wait. As you said, we're the canary in 
the coal mine, and it's going to get worse. It's going to be 
this way all over the country.
    Mr. Brancatelli. It absolutely is all over the country.
    When you see some of the most strongest markets in 
California and Florida, and you see the foreclosure rate that's 
happening there now, it may not be the 20- or 30-thousand-
dollar homes in Slavic Village; it could be the half-million-
dollar home in Naples. But it's happening all over on these 
aggressive lending practices that are happening.
    When someone says ``Well, we're providing home ownership 
opportunity,'' I think it's a real unfortunate script to hide 
behind. I'll be the first to admit that not everybody should be 
a home owner. We have wonderful counseling opportunities for 
people to get them ready to be a home owner.
    But because they're not ready to be a home owner today 
doesn't mean they should get into a predatory loan. It means 
they should go through counseling and it means they should go 
to the appropriate agencies.
    I spent 20 years of my life working at a non-profit agency 
before becoming an elected official, and there are some people 
that I turned down. I said, ``You know what? You need more 
help.'' They turned around, they went to a predatory loan and 
they suffered the consequences.
    For those who did go through the appropriate process, they 
are still in those homes. But the effect that's happening now, 
with the vacancy and abandonment that's happening and the 
stripping of the wealth, I agree with the treasurer. It's 
unbridled greed that's happening in our communities.
    Senator Brown. Thank you to all of you.
    Chairman Schumer. Because it's noon and you've been here a 
while, I have a few questions in writing I want to submit.
    I want to thank you all. This hearing is adjourned. Sherrod 
and I will come over and say thanks.
    [Whereupon, at 12 p.m., the hearing was adjourned.]


                       Submissions for the Record

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

[GRAPHIC] [TIFF OMITTED] T8266.001

       Prepared Statement of Senator Charles E. Schumer, Chairman
    I would like to welcome my fellow Committee Members, Senator 
Sherrod Brown, our witnesses and guests here today for this very 
important hearing on a problem that is plaguing too many families and 
communities across the nation--the subprime foreclosure crisis.
    The numbers are staggering and getting worse.
    Consider these statistics:
      The Center for Responsible Lending estimates that as many 
as 2.4 million families may ultimately lose their homes to the subprime 
foreclosure crisis, at a cost of $164 billion in home equity.
      In June alone, foreclosure tracker RealtyTrac counted 
165,000 new foreclosure filings, more than double the amount recorded 
in June 2005.
      From June to October of this year, $100 billion of risky 
subprime adjustable rate mortgages are scheduled to reset in a weak 
housing market, many of which are likely to default and lead to further 
foreclosure increases.
      One in five subprime loans originated in 2005 and 2006 
will end in a lost home.
    These numbers are not the manifestation of a housing market 
``correction,'' as the administration's economists have argued. These 
facts are not merely the byproduct of a period of bad decisionmaking 
among a select few over-eager borrowers. These shocking figures are a 
result of widespread, systemic, irresponsible underwriting practices by 
too many unscrupulous brokers and lenders that now are threatening the 
social fabric and economic well-being of our nation's neighborhoods and 
towns.
    And worst of all, this subprime foreclosure crisis is just 
beginning. I know it is hard to imagine that it could get worse from 
here, but it will. The wave of foreclosures that we have seen to date 
does not include the vast number of risky ``exploding'' adjustable rate 
mortgages that were originated in 2006. Once these loans start 
resetting this fall and into next year, we can expect to see hundreds 
of thousands more families lose their homes.
    And when this foreclosure storm subsides, it will have left a net 
loss of homeownership in its wake.
    I called this hearing today for two main reasons:
    First, I fear that the cries for help from the millions of real 
people trapped in bad subprime loans today are getting drowned out by 
headlines of investor woes, collapsing hedge funds, and lower-than-
expected earnings among lenders.
    And while every city in America is in this together, I chose to 
focus on the families and neighborhoods of Cleveland, like Slavic 
Village, that are being decimated by subprime foreclosures. Slavic 
Village is a harbinger of the crisis that is unfolding in cities across 
the nation; and I hope that by investigating the human toll of 
unscrupulous lending up close, we can better prepare to prevent more 
Slavic Villages from emerging in the near future.
    Second, I am afraid that we are not learning the lessons of the 
present. I fear that this problem is beginning all over again right 
under our noses, with predatory lenders preying on those very families 
already in danger of losing their homes--this time, with the promise 
that they are rescuing them from foreclosure.
    We're reading in the headlines that lenders are tightening 
underwriting guidelines, and that some have even banned certain types 
of risky loans. Yet the data examined by the Center for Responsible 
Lending show otherwise. At the June hearing I held on the Housing 
Subcommittee that I chair, CRL testified that many of the most recent 
offerings of mortgage-backed securities still included harmful 
prepayment penalties and stated income or low documentation loans, and 
nearly 80 percent of the mortgages were still risky adjustable rate 
loans!
    The witnesses that we have here testifying for us today are at the 
epicenter of the subprime lending storm. The testimonies that you will 
hear tell a story of fraud, corruption, greed, negligence and 
heartbreak.
    Our witnesses will also inform us about an important side of this 
issue that is rarely discussed--the ways foreclosures impact not only 
the families that own the homes, but their neighbors, their 
communities, and their local governments.
    We never hear, for example, that one foreclosure on your city block 
can bring down your home's value by 1.5 percent, even if you have never 
missed a payment on your own mortgage. In neighborhoods like Slavic 
Village outside of Cleveland, where over 1,000 homes are currently 
foreclosed and vacant, community leaders like Councilman Tony 
Brancatelli and residents like Barbara Anderson--both of whom are here 
today--are grappling with lost property values in the area of $60 
million. Just think about that. $60 million of financial security that 
the families in this one community were relying on has disappeared.
    And lower property values means lower tax revenues for local 
governments at a time when the demands on them are already too high. 
County Treasurers like Jim Rokakis here with us today now have fewer 
resources for their schools, their local law enforcement, and for 
important public services such as those that can help these imperiled 
homeowners.
    This is not a problem that is going to go away when the market 
corrects itself--the subprime mess is leaving deep scars that threaten 
economic security nationwide, whether in urban neighborhoods like those 
in St. Louis and Baltimore, suburbs like Massapequa on Long Island, or 
entire regions like Greater Cleveland.
    We cannot afford inaction. To do nothing means that hundreds of 
thousands more families will lose their homes and their primary source 
of economic security. To do nothing means that millions of other 
homeowners will see the value of their homes plunge through no fault of 
their own. And to do nothing means that we will be permanently 
handicapping communities for years to come, which will have widespread 
repercussions for our economy.
    We don't have time for endless debate about the causes of this 
crisis. We need to help families everywhere, including those sitting in 
this room, who are struggling with foreclosures today. And we need 
stronger, common-sense regulations, to prevent a flood of risky or 
abusive subprime loans rushing into the vacuum that the current crisis 
has created.
    To help stem the surge of foreclosures expected in the months 
ahead, Senator Brown, Senator Casey and I are fighting for increased 
resources for nonprofit groups in the trenches of the foreclosure 
prevention fight. We have succeeded in getting $100 million of funding 
for HUD-approved foreclosure prevention programs in the Senate 
Transportation-HUD Appropriations bill, and we will fight to make sure 
that this important resource is made available to the many 
organizations, like NeighborWorks and ESOP here with us today, that are 
providing an invaluable service to help struggling borrowers keep their 
homes.
    Another goal that Senators Brown, Casey and I share is to create a 
national regulatory structure for mortgage brokers and other 
originators that fall through the cracks of the complex Federal and 
state regulatory structure.
    In April, we introduced a strong bill, The Borrowers Protection 
Act, to make it harder for irresponsible brokers and non-bank lenders 
to sell mortgages that are designed to fail the homeowner and result in 
foreclosure.
    Our ultimate aim is to strengthen standards for subprime mortgages 
by regulating mortgage brokers and all originators under the Truth in 
Lending Act (TILA) by establishing on behalf of consumers a fiduciary 
duty and other standards of care. In addition, the bill outlines 
standards for brokers and originators to assess a borrower's ability to 
repay a mortgage, requires taxes and insurance to be escrowed on all 
subprime loans, and holds lenders accountable for brokers and 
appraisers.
    We look forward to hearing from all of our witnesses today. You are 
on the front lines of this battle, and your testimony that you will 
provide today will help better inform the Members of this Committee and 
of Congress, and shape Federal action to address this crisis.
    Without further delay, let us get down to business. I welcome all 
Committee Members and honorary members here with us today to give their 
opening statements, starting with [Ranking Member Rep. Saxton] and Vice 
Chair, Ms. Maloney. Then we will proceed to the other members before my 
colleague from the Banking Committee and a leader on this issue, 
Senator Brown, offers his opening statement and introduces of our 
panelists.
[GRAPHIC] [TIFF OMITTED] T8266.002

  Prepared Statement of Representative Carolyn B. Maloney, Vice Chair
    Good morning. I would like to thank Chairman Schumer for holding 
this hearing to examine the economic impact of foreclosures caused by 
subprime mortgage defaults. I also want to welcome Sen. Brown and our 
witnesses.
    In this hearing we will hear from victims and local leaders from 
one of the hardest hit cities--Cleveland, Ohio. But the same sort of 
economic pain is being felt in communities across the country as 
subprime mortgage defaults and foreclosures rise.
    As subprime mortages reset to much higher rates than borrowers can 
afford, families are experiencing the devastating effects of these 
loans. Like a stone cast into a pond, the ripple is being felt 
throughout local economies as losses mount for borrowers, lenders, 
governments, and neighbors.
    Sadly, the worst is yet to come. If we do not stem the tide of 
these foreclosures, the coming crisis could eclipse the number of 
people displaced by Hurricane Katrina, according to the National 
Consumer Law Center. Moreover, consumer advocates estimate that at the 
current foreclosure rate, the surge of subprime lending could end up 
eliminating more homeowners than it initially created.
    Concern is also growing about whether the turmoil in the subprime 
market will infect the larger economy. At least four large subprime 
lenders are already in bankruptcy and Wall Street investment banks are 
seeing huge losses in their subprime portfolios.
    Yesterday, Countrywide Financial, the nation's largest mortgage 
lender, sparked a sell-off in the stock market with the news that more 
borrowers with good credit are falling behind on their mortgage 
payments. In their view, the housing market may not begin to recover 
until 2009.
    Both the Senate and the House have held hearings where we've heard 
from Federal regulators and industry and consumer representatives about 
the need to strengthen underwriting, correct abusive lending practices, 
and provide remedies for borrowers.
    I applaud Chairman Schumer's efforts to gain additional funding for 
foreclosure prevention programs.
    In terms of changing lending practices, the interagency guidance on 
subprime lending sensibly sets out principles that require lenders to 
assess borrowers' ability to pay over the whole life of the loan.
    This guidance strikes a balance between making sure borrowers can 
repay the loans they get and helping borrowers who can repay a loan get 
one. We should extend that guidance to the entire universe of subprime 
lenders, not just the sliver of the primary market regulated by Federal 
agencies.
    The Federal Reserve has broad powers under HOEPA to regulate 
``unfair and deceptive'' practices for all lenders. I have urged the 
Fed to use those powers to extend this guidance to the whole market--
including mortgage subsidiaries of bank holding companies and state-
regulated banks and finance companies.
    We should legislate an enforcement scheme to support such a 
rulemaking, which could involve state authorities.
    Extending such underwriting principles to the secondary market is 
also imperative, because lenders won't make these loans if they can't 
sell them.
    We need to take steps to help borrowers in crisis. We also need to 
return to healthy underwriting principles, because that provides a 
sound basis for economic growth.
    I thank the chairman for holding this hearing and I look forward to 
the testimony of our witnesses.
              Prepared Statement of Senator Sherrod Brown
July 25, 2007

    Washington, DC--U.S. Senator Sherrod Brown (D-OH) released the 
following statement from today's Joint Economic Committee entitled A 
Local Look at the National Foreclosure Crisis: Cleveland Families, 
Neighborhoods, Economy Under Siege:

    ``Mr. Chairman, I am pleased that you have called today's hearing 
to look more closely at the current mortgage crisis and the toll it is 
taking on a single community. I also want to thank your staff for all 
of their hard work. Mrs. Sweet and Ms. Anderson, I appreciate your 
traveling here to join us to tell their stories. People should not have 
to go through what you have been through. I also want to thank Mr. 
Wade, Councilman Brancatelli, and Jim Rokakis for joining us as well. 
Each of them has been working hard on this problem for years and we are 
indebted to them.
    ``Thanks to its location on the shores of Lake Erie, during the 
industrial age Cleveland helped build America. Iron ore came down by 
barge from Minnesota, while railroads carried coal from the south. 
Steel mills sprang up throughout Northeast Ohio, manned by immigrants--
new and old--from around the world.
    ``Many of the Poles and Czechs who worked in the steel mills 
settled in a neighborhood of Cleveland that came to be known as Slavic 
Village, a solid, working class neighborhood. Most of the steel mills 
have been shuttered, but the neighborhood lived on. As our witnesses 
will testify, today Slavic Village and communities like it are fighting 
for their lives.
    ``The economy is certainly a big part of Ohio's problems, but the 
steel mills shut down years ago and a stagnant economy is unfortunately 
nothing new. Unemployment has actually been falling slightly over the 
past 2 years in Ohio, while the number of sub-prime loans in 
delinquency has climbed steadily. And what's true for Ohio in general 
is also true for the Cleveland area and Slavic Village. Both have been 
rebuilding over the past several years. And if you look at the state of 
Ohio on a county-by-county basis, there doesn't seem to be much of a 
relationship between jobs and foreclosures. Counties with low 
unemployment rates have high rates of delinquency, and vice versa.
    ``Delinquency rates today approach those in the last recession. But 
we are told our economy is doing great. Wall Street may not agree. The 
biggest mortgage lender in the country lost 10 percent off its stock 
price yesterday and the markets were down 2 percent because of worries 
about sub-prime loans.
    ``But market swings only tell half the story. Sure, hedge fund 
investors have lost money and credit has tightened. But there are a lot 
of people in Washington, DC who do not fully understand what lies 
behind these numbers. Behind these numbers are thousands and thousands 
of people like Mrs. Sweet and Ms. Anderson, communities like Slavic 
Village, and counties like Cuyahoga. That's why today's hearing is so 
important.
    ``I know some people want to dismiss the mortgage crisis as merely 
a problem for part of the Midwest. Even if that were the case, it would 
demand our nation's attention just as much as a flood or tornado. A 
man-made disaster is still a disaster.
    ``Cleveland is the canary in the coal mine. What has happened there 
is beginning to happen in New York and California and Florida and 
Nevada and Colorado. Millions of people across the country have been 
sold these loans that are designed to default, putting their life 
savings at risk.
    ``In the face of this crisis, Congress needs to act. We shouldn't 
have to wait for this to become a crisis for investors on Wall Street, 
when our witnesses are living through a crisis every day in the streets 
of Slavic Village and communities throughout Ohio. We shouldn't have to 
wait for the regulators to act, because every day we wait thousands of 
families will have their exploding loans reset to unaffordable levels. 
And we shouldn't have to wait for the market to self correct. That 
correction costs a lot more than a hit to a hedge fund or a lender's 
stock; it costs the hopes and dreams of homeowners who were guilty only 
of trying to make a better life for their families.
    ``Communities like Slavic Village need our help now. They have been 
robbed of too much already, while the Federal Government has turned its 
head away. Thank you, Mr. Chairman.''
  Prepared Statement of Jim Rokakis, Treasurer, Cuyahoga County, Ohio
    Mr. Chairman and members of the Committee, thank you for the 
opportunity to speak before you today. My name is Jim Rokakis and I am 
the Treasurer of Cuyahoga County, Ohio, the state's largest county, 
representing Cleveland and 59 cities, villages and townships.
    While the events of the past several months have focused the 
attention of the entire financial world on the practices of the 
subprime lending industry, we have suffered the consequences of 
reckless and irresponsible lending for many years. Since the late 
1990's, Ohio and Cuyahoga County have consistently led the Nation in 
this sad statistic of foreclosure filings.
    Consider these numbers, please. In 1995, 3,345 private mortgage 
foreclosures were filed in Cuyahoga County and 15,975 were filed 
statewide. By 2000, over 7,000 private foreclosures were filed in 
Cuyahoga County and over 35,000 in Ohio--better than double the number 
of filings 5 years earlier. In 2006, 13,610 foreclosures were filed in 
Cuyahoga County and over 79,000 statewide. Sadly, we are on pace to 
foreclose on 17,000 properties in Cuyahoga County in 2007--five times 
the 1995 total.
    The impact of the foreclosures on the county's tax base has been 
overwhelmingly negative. Last year more than 74,000 borrowers filed for 
a property tax reduction with our county auditor and the Board of 
Revision. Professor Dan Imergluck of Georgia Tech, among others, has 
written about the impact of foreclosures and vacant properties on crime 
and property values. While very few of my residents have read Professor 
Imergluck's work they know this: their neighborhoods are less safe and 
their properties worth substantially less as a result of these 
foreclosures and they are voting with their feet. 50,000 residents have 
left Cuyahoga County in the past 5 years--only Hurricane Katrina 
afflicted counties have experienced a greater loss. We surveyed vacant 
properties in seven suburbs and Cleveland, and estimate at least 15,000 
structures are vacant in Cuyahoga County as a result of this 
foreclosure epidemic.
    The impact has been felt in suburbs as well as in the city of 
Cleveland. Almost every community in Cuyahoga County is being forced to 
maintain yards and empty dwelling units as a result of these 
foreclosures. Shaker Heights will be forced to spend over $500,000 this 
year to maintain its vacant properties. Euclid will spend almost 
$400,000. Cleveland Heights, Garfield Heights, Maple Heights, South 
Euclid, Lakewood and Parma will all spend hundreds of thousands of 
dollars out of their general funds to maintain these properties--monies 
they cannot afford and expenditures that will result in a loss of 
services in other critical areas.
    The last thing I want to discuss is the carelessness, sloppiness 
and rampant fraud that is so prevalent in the mortgage lending 
industry. Look at this study of foreclosed properties conducted by 
Cleveland State University. The first exhibit is a page of foreclosed 
mortgages on loans made by Argent Mortgage, a wholly owned subsidiary 
of Ameriquest. This first exhibit is a random sampling of foreclosed 
mortgages on Cleveland's west side. Look at the auditor's fair market 
value in the second to last column. We have color-coded this chart to 
highlight our point. Every mortgage in red is a mortgage of at least 
175 percent of the auditor's fair market value. Every mortgage in 
yellow is at least 125 to 175 percent of the auditor's fair market 
value. Look at how many mortgages are loaned at amounts of at least 200 
percent of fair market value. The second part of this study looks at 
the total value of Argent mortgages and the total value of these 
properties according to our county auditor. The study shows negative 
equity totaling one hundred eighty six million dollars in the city, and 
forty three and one-half million dollars in the suburbs. The negative 
equity in the city of Cleveland is probably much higher since so many 
of these properties have been vandalized and stripped of their siding 
and copper piping, and anything else of value.
    The purchasers of these properties were not blameless in most of 
these transactions. Many had horrible credit. Most put nothing down. 
Most received cash back at the closing, but the broker, mortgage banker 
and Wall Street knew all of this but the money was too good, the 
profits too powerful to ignore. Don't buy the argument of the Federal 
Reserve Bank that the market will correct itself. The market corrected 
too late and only after neighborhoods in Cleveland, and cities like it 
all over the country, were decimated by this industry. The real victims 
in this scandal, Mr. Chairman, were the hard working citizens of my 
community who pay their taxes, maintain their property and who watch 
helplessly as properties are sold and resold around them, going dark 
and being vandalized--citizens whose major and often only asset--their 
home--is stripped of its value--just as the home next door to them is 
stripped of its aluminum siding and copper piping. And we must not 
forget, Mr. Chairman, that 90 percent of the subprime loans in our 
country are not new homeowners. They are existing homeowners who have 
refinanced their properties. That is why when foreclosures on subprime 
mortgages--there are about 800 billion dollars of subprime arm's 
resting this year and next--are all filed and adjudicated--there will 
be fewer homeowners in this country than before this whole sordid mess 
got started.
                                 ______
                                 
                        Article by Mark Weisman
               what the borrower in default is up against
    When a homeowner is late on their monthly payments, the servicer 
who has been hired by the lender to process the payments will start 
calling to inquire where the payment is. The collection calls come fast 
and furious to the borrower's home phone. Unlike what the industry 
would have Congress believe, the tone of the phone call is anything but 
conciliatory or amicable.
    There are various stumbling blocks that the borrower faces, in his 
efforts to save a loan from foreclosure.
    First--nearly every subprime loan is sold to another lender. 
Sometimes an even different party services the loan; sometimes it is 
the new lender. The constantly changing cast of relevant characters 
merely adds confusion to an already muddled situation.
    Second--when a borrower attempts to contact his lender or servicer, 
he is met by noncompliant voice mail, flat out refusals to reveal 
direct dial numbers, or mailing addresses and (because nobody in any 
loss-mitigation department is assigned to any particular loan) the need 
to rehash the entire story every time he calls back.
    Third (and this is one of the most important aspects of the 
situation) by the time a loan gets referred for a foreclosure lawsuit, 
the borrower has been berated, threatened with eviction and 
homelessness, and screamed at and insulted for not paying the entire 
balance due. Is it any wonder that borrowers mistrust whoever tries to 
contact them?
    Freddie Mac performed a study in 2005 that shows that the 
overwhelming majority of borrowers fail to respond to loss-mitigation 
efforts by their lender.\1\
---------------------------------------------------------------------------
    \1\ ``Foreclosure Avoidance Research,'' 2005 Study commissioned by 
Freddie Mac. Performed by Roper Public Affairs, Dec, 2005.
---------------------------------------------------------------------------
    The results of that survey are striking. More than 60 percent of 
borrowers were unaware that there were viable workout options open to 
them. Almost all of that 60 percent would have responded, had they 
known that options existed. Almost 20 percent did not call because they 
were afraid, embarrassed or didn't know who to call. Furthermore, 
almost 30 percent expressed the erroneous belief that their servicer 
could provide no help at all.
    Every borrower wants to stay in his home and every borrower knows 
that the lender who is trying to contact them is the only party who can 
help. Unfortunately, what causes the defaulting borrower to ignore 
their lender is how borrowers are treated once they are in default.
    Here is just one example of the trouble that awaits a borrower who 
attempted to work out the default on his home loan.
    The foreclosure prevention program helped a man named John, who was 
in default on his payments. John was behind 3 months on his mortgage 
because of a serious illness to his wife. After the lender had given 
him an amount to pay to save his home from ``being sent to 
foreclosure,'' he attempted to submit the payment amount. 
Unfortunately, his lender then delayed finalizing the deal for a week 
and referred his file to foreclosure. (Keep in mind that once a 
foreclosure lawsuit has started, the lender can legally insist on 
collecting legal fees, and at the same time, make the unstated threat 
of homelessness even more real. It is hard to imagine being able to 
place more duress on the borrower's shoulders.)
    Unfortunately, John had no choice but to agree to pay whatever the 
lender wanted, even though he had the money to pay a week before the 
foreclosure lawsuit was filed. His monthly payment now includes the 
legal fees for that foreclosure because the lender was successfully 
able to put him off long enough to get their law firm to file the 
lawsuit. John could fight this if he could afford an attorney, but like 
99 percent of the borrowers in foreclosure, he has no cash left. (Not 
to mention there are precious few attorneys who can actually take this 
type of case)
    Even if a borrower is successful in convincing an attorney to take 
his case, the foreclosure bar has a clientele that will gladly finance 
a litigation strategy that has more to do with squashing any attempts 
the borrower can make at a legal defense and nothing to do with trying 
to keep the borrower in their house.
    In addition to the above example, this panel should be aware of the 
various foreclosure rescue scams that are proliferating in this 
Country. From the time a foreclosure case is filed, borrowers receive a 
barrage of letters, phone calls and see endless ads that promise to 
save their house and erase all of their problems.
    These people (who are experiencing life-shattering events) are 
often powerless to protect themselves from a population of individuals 
who have no compunction about using someone who is desperate to make 
money. Too often these scams hasten the borrower's status as newly 
homeless, or worse, cause them to lose their house, even though they 
would have been able to satisfy their lender, had they had the 
opportunity to work out a payment plan.
    By now, most players in the lending and servicing industry have 
introduced ``loss-mitigation'' phone numbers for borrowers to call when 
in distress. But, just figuring out the right party to call is not as 
easy as it seems. The typical caption in a foreclosure lawsuit (which 
is the only indicator of who the unsuspecting borrower should call, 
reads like this:

           IN THE COURT OF COMMON PLEAS, CUYAHOGA COUNTY OHIO


------------------------------------------------------------------------
CHASE MANHATTAN BANK NA AS         COMPLAINT IN FORECLOSURE
 TRUSTEE FOR THE REGISTERED
 HOLDERS FROM TIME TO TIME OF      CASE NO.
 LEHMAN HOME EQUITY LOAN TRUST
 1996-2 C/O BARCLAYS CAPITAL REAL  JUDGE
 ESTATE INC, DBA HOMEQ SERVICING
 CORPORATION, 1100 CORPORATE
 CENTER DRIVE, RALEIGH, NC 27607-
 0000.

            Plaintiff
        v.
Jane Smith, et. al.
            Defendants

This is the actual Plaintiff from a case that was recently filed in the 
Cuyahoga County Common Pleas Court. Unfortunately, it reveals two very 
daunting pieces of information that conspire to block any attempts the 
lone borrower can make to resolve the matter and avoid a sheriff's 
auction.
    The first problem is obvious--who in the world does the borrower 
call? While an attorney or experienced housing counselor might be able 
to decipher this caption, nearly all borrowers would be stopped in 
their tracks. Does the average borrower know that CHASE bank holds this 
mortgage and that it is part of a securitized trust that is comprised 
of Mortgage Backed Securities that were pooled together in the mid-
1990s and sold on Wall Street? Or, that the loan is being serviced by 
HOMEQ, which just makes its money by charging legal fees and late fees 
to the borrowers? Or, that Barclays Capital is an investment bank based 
in England?
    Unfortunately, even if this borrower calls the right person, what 
they are going to be told is that--other than repay the entire balance 
due (together with late fees, attorney fees, a repeated monthly 
inspection charge, and who knows what else) there is nothing the 
borrower can do to stop the foreclosure.
    This actually happened in another case that was handled by a public 
interest law firm in Cleveland on a loan that HOMEQ was servicing. Even 
though the borrower had the money that HOMEQ wanted him to pay to 
``avoid being sent to foreclosure,'' the case was sent to the 
foreclosure attorney. It was no matter that the money was ready, before 
any case was filed. According to HOMEQ, they ``couldn't recall the 
foreclosure, once it was sent to the attorney's office.'' Understand, 
HOMEQ (like all servicers) is the party collecting the monthly 
payments, deciding whether the case gets sent to the foreclosure 
attorney, telling the Court what the balance due is and signing the 
affidavit that will be submitted to obtain judgment and a sale of the 
borrower's house. Yet, they claim not to have the power to stop the 
process! This is the direct result of fact that nearly all home loans 
are now securitized. The fact that most home loans are now sold and re-
sold multiple times before the borrower experiences any problems, 
coupled with the fact that an entirely different party is hired to 
collect payments and hound the borrower if they are late has created a 
maze where an open field used to be.
    The second problem apparent from the case caption listed above is 
not as readily apparent. But, it is no less damaging. Liability on the 
part of industry players in the home loan business has all but 
disappeared. Immediately after the loan closes and is sold to a third-
party, the players that took part in the application process, the 
preparation of the paperwork, the approval of the loan and the actual 
closing disappear forever. The borrower now has an impossible task of 
assigning liability, if he ever wants to mount a legal defense.\2\
---------------------------------------------------------------------------
    \2\ ``Predatory Structured Finance,'' Cardozo Law Review, Vol 28 
Issue 5, Christopher Peterson, FN 441
---------------------------------------------------------------------------
    The securitization of the Home Lending Industry has created a 
shield for the ultimate holders of home loans to hide behind. The 
decision whether to keep any individual in their home now rests in the 
recesses of the individual Pooling & Servicing agreements that are used 
to facilitate the loan pools as they make their way along Wall Street 
and with the scores of invisible investors who stand to make money on 
the volume of the loans that exist.\3\
---------------------------------------------------------------------------
    \3\ ``Turning a Blind Eye: Wall Street Finance of Predatory 
Lending,'' Fordham Law Review Vol 75, at 2039, Kathleen Engel and 
Patricia McCoy.
---------------------------------------------------------------------------
    To further the confusion, nearly every summons in a foreclosure 
case instructs the borrower to contact the attorney for the bank, if 
they have questions. Unfortunately, the attorneys for the bank are 
most-often no help to the borrowers when attempting to resolve the 
matter. That is because, the attorneys who foreclose for the lending 
industry are typically paid only to work the foreclosure case, not to 
talk to the borrower and work to keep them in their home.
    During a meeting with representatives of Cuyahoga County and the 
CEO of one of the top ten servicers in the Country, it was revealed 
that the servicers only pay their attorneys to foreclose--not to work 
with the borrower. In other words, there is an inherent disincentive 
for the foreclosure bar to even answer the phone when the borrower 
calls.
    As this committee can see, the home mortgage system that our 
Country has allowed to form is extremely efficient at lending money 
irresponsibly to millions of homeowners, making money off of the volume 
of loans that are written for the industry that creates the loans, and 
the investment community and making sure that the borrower who doesn't 
pay is evicted from the premises. However, that same system has been 
designed to be completely unavailable to the borrower who wants to help 
themselves.
                   how vacant properties are created
    From the moment a loan goes into default, the borrower is peppered 
with phone calls from angry collection staff that constantly threaten 
one thing, for nonpayment--homelessness. The lender's representatives 
make it abundantly clear that if the borrower doesn't pay all that is 
due, they will lose their home. To the borrower who is uneducated about 
how long the judicial foreclosure process can take, the consequences of 
nonpayment seem much more immediate.
    Too often, the borrower leaves the house at the very beginning of 
the foreclosure case, because they are under the (mistaken) impression 
that eviction is not far behind the initial lawsuit papers. In the 
inner-city, the simple act of leaving the home so that the lender can 
take it over is what leads to the destruction of what used to be an 
inhabited home.
    In the city of Cleveland, it takes a mere 72 hours for a house to 
get looted. Once a house is empty of its residents, it is seen by many 
in the neighborhood as a source for scrap metal, wood and appliances. 
It doesn't take long for criminals to strip a house of its aluminum 
siding, its appliances, its woodwork and lastly as a fatal blow, its 
copper piping. Once the pipes have been stripped out of a home's walls, 
the cost of rehabbing the property is so prohibitive; demolition 
becomes the only viable alternative. Unfortunately, the effect on 
neighborhood crime in the wake of vacant homes is all-too 
predictable.\4\
---------------------------------------------------------------------------
    \4\ ``The Impact of Single-Family Mortgage Foreclosures on 
Neighborhood Crime,'' Housing Studies, Vol 21 No. 6, 851-866, November 
2006. Dan Immergluck and Geoff Smith.
---------------------------------------------------------------------------
    The diminution of property values that results from the appearance 
of vacant houses, an already high foreclosure rate, and an inner-City 
area that is attracting no new residents created a rash of empty blocks 
that spread outward from Cleveland's inner core to the seventeen inner-
ring suburbs that share a border with the city of Cleveland. Stopping 
this rash from taking over the County has now become a paramount 
concern.

Mark Wiseman, Director
Cuyahoga County Foreclosure Prevention Program
1219 Ontario Street, Room 113
Cleveland, OH 44113
216-443-7461
      Prepared Statement of Hon. Anthony Brancatelli, Councilman, 
                          Slavic Village, Ohio
                  foreclosure crisis in slavic village
Slavic Village History and Demographics
    Renaissance Derailed
    Community in Change ``Perfect Storm''
Survey of Vacant Property
    Conditions Assessment
    Lost Values
Foreclosures and REO's
    Trends, 2 foreclosures per day
    REO's and Disposition
    Continued cycle of decline
Questionable Loans and Appraisals
    QUAC's
    Property Flipping
Social Impact, Quality of Life
    Criminal Activity
    Social Issues
    Transient Population, Displacement of tenants
Government Intervention
    Criminal Prosecution
    Mortgage Company Oversight

            Slavic Village Vacant Property Survey, July 2007
------------------------------------------------------------------------
   January 2007 to July 2007 Changes in Boarded and Vacant Real Estate
-------------------------------------------------------------------------
                                          Jan 2007  July 2007    Change
------------------------------------------------------------------------
Boarded................................        604        614         10
Vacant/Secure..........................        270        426        156
OVV....................................         32         40          8
                                        --------------------------------
  TOTAL vacant structures..............        906       1080        174
------------------------------------------------------------------------
                                                                       0
------------------------------------------------------------------------
Under Constr/New/or Rehab..............         44         85         41
Vacant Land............................        499        555         56
Unknown................................         23          6        -17
Demos..................................  .........         67  .........
Arson..................................  .........          3  .........
Partially Boarded......................  .........        109  .........
Badly Damaged..........................  .........          2  .........
  TOTAL................................       1428       1641        213
------------------------------------------------------------------------

                                                               [GRAPHIC] [TIFF OMITTED] T8266.003
                                                               
  Prepared Statement of Audrey Sweet, Resident of Maple Heights, Ohio
    Good morning Senator Schumer and ladies and gentlemen of the Joint 
Economic Committee. I appreciate the opportunity to appear before you 
and want to thank Senator Sherrod Brown for his intense interest in 
this issue. I ask that my comments today, both written and oral, be 
made part of the record for this hearing.
    My name is Audrey Sweet. Together with my husband, and two 
children, I live at 16008 Northwood Ave. in the city of Maple Heights, 
an inner ring suburb that is to the southeast of the city of Cleveland. 
Maple Heights is home to about 26,000 residents\1\ (a 7.1 percent 
decrease in just the last 6 years\2\). In 2005, the median home value 
was about $102,000 compared with $85,000 just 5 years earlier.\3\ 
Indeed, this ``increased value'' in housing prices . . . a 16.7 percent 
increase in 5 years while Cleveland and most inner ring suburban 
valuations remained flat or declined . . . is an example of the after 
effect of abusive lending. Without question, housing prices did not 
appreciate this much in my community. Had they, I would have had no 
problem refinancing my loan to avoid the impending adjustable rate.
---------------------------------------------------------------------------
    \1\ http://www.city-data.com/city/Maple-Heights-Ohio.html
    \2\ http://www.city-data.com/citylMaple-Heights-Ohio.html
    \3\ http://www.city-data.com/city/Maple-Heights-Ohio.html.
---------------------------------------------------------------------------
    When my husband and I began our home loan search, we repeatedly 
heard that our financial situation would not allow it. We did not fully 
understand why nor did we appreciate the fact that these ``responsible 
lenders'' were probably doing us a favor to some extent.\4\ We knew our 
credit was not great and that there was not a lot of money left at the 
end of the month. However, we also knew that we always paid our rent on 
time and we felt that if we could just get a mortgage payment for 
around the same amount we would be fine and could have the ``American 
Dream.'' With that belief, we were then introduced to a real estate 
agent who said she could take care of everything.
---------------------------------------------------------------------------
    \4\ Since I became involved with ESOP and this issue, I have 
learned a lot about the lending industry ommunity Reinvestment Act 
(CRA). While this is a topic for another hearing, I want to make it 
clear that, absent Third Federal Savings & Loan which has agreed to 
invest in me and my neighbors, I am hard pressed to name another bank 
in Cleveland that is stepping up to the challenge.
---------------------------------------------------------------------------
    We were so excited that finally someone was going to give us a 
chance. She took us to the Countrywide Home Loans office and the 
interviewer took our information and stayed in contact with the real 
estate agent. The agent took us to homes that were in our price range 
and when we finally found one that we liked the gent said that the 
seller and the lender were willing to do all types of things to help us 
get the home. It was as though everyone was doing us a favor. When you 
match that with our lack of funds, our lack of knowledge about 
mortgages, credit, finances, and less than stellar credit, we were a 
dream come true; at least for the broker.
    When we were finally told the amount of the monthly mortgage 
payment, we were shocked! When we expressed our concern, we were told 
not to worry about it, as long as we paid the mortgage on time for a 
year we would be able to refinance to a better rate. We just had to 
prove ourselves. We requested that the property taxes be escrowed but 
were told that if we did, the loan would no longer be affordable and we 
would not be approved. In the excitement of the moment, I did not focus 
in on the fact that he just told me that by his calculations my income 
would not support the expense of both a mortgage and property taxes. He 
knew that I would eventually lose my home yet went forward with the 
loan. I trusted the broker about ``proving myself''. Indeed, that is 
what makes me so angry: I lived up to my end of the deal by paying my 
mortgage but neither he nor Countrywide lived up to their commitment.
    Of course, a refinance never happened and we have since fallen 
behind on our mortgage from time to time but have managed to bring it 
current each time. I did end up seriously neglecting the property 
taxes. I knew that eventually Countrywide would become concerned but I 
never had enough money at the end of the month to cover the cost of the 
taxes. When you compare that bill to the others (daycare, lights, gas, 
insurances, cars, water, groceries) it was the least urgent and 
repeatedly got pushed to the back.
    In March of this year, Countrywide took action and paid the back 
taxes, a total of $3493.51. I fully expected that they would do this to 
protect their interest in the property; however, I did not expect what 
came next. In April, I received a letter from Countrywide, informing me 
that my monthly payment was to increase from $1055.61 to $1713.88 
effective in June for the next 12 months because our back taxes had 
been paid by Countrywide. In addition, our rate is set to adjust up in 
February 2008 (It is written in our loan docs that it can only go up 
never down)! $387.72 of this increase was attributed to the ``shortage 
amount'', however when you multiply that amount by the 12 months it was 
going to be effective it comes to $4652.64. I have yet to receive a 
clear explanation of what that amount was to cover.
    This new payment amount and my experience with Countrywide's lack 
of willingness to help prompted me to call Empowering and Strengthening 
Ohio's People aka East Side Organizing Project (ESOP).
    In preparing for my visit to ESOP, I began to look over my home 
loan documents and discovered several things I had apparently 
overlooked until then. The first was that my gross monthly income was 
recorded as $726 dollars more than it actually was. Second, I have two 
sets of loan documents, one that was created 10 days before we closed 
and one that was created the day of closing. The closing day documents 
list my assets as $9400.00 in my Charter One Bank account. I have never 
had $9400 in the bank. Indeed, coming up on payday, I am fortunate to 
have $94 left! The final item I noticed was that the tax amount listed 
on the appraisal report was $1981.34, which comes to about $165.00 a 
month but Countrywide listed $100.00 a month as the tax amount.
    As I began to think back to my mortgage application experience, I 
was embarrassed. I remembered how I felt so undeserving of a loan 
because I had been turned down so many times before and I realized that 
I had signed my name to a 30-year mistake. Once I realized that 
Countrywide was actually counting on me feeling this way, I became 
angry. I began to see that I had been taken advantage of and that they 
were hoping that my initial feeling of embarrassment would keep me from 
sharing my experience with anyone. However, that would mean I would 
lose my home and I have decided not to let that happen.
    Since I first came to ESOP in April 2007, various resources have 
been presented that I would not know of otherwise. One service ESOP has 
offered me is a weekly conference call with Countrywide. These phone 
calls were essential to my result with Countrywide, as there were 
witnesses to every promise made and excuse given (and there were many 
more excuses than promises during those calls!). ESOP is also able to 
share with the borrower their knowledge of lending practices and 
experiences with Countrywide and other lenders. While the calls were 
helpful to keep my case in their face, they also served to show just 
how little Countrywide cared: for example, the same modification was 
offered twice. I declined both times, as it did not fit what I had 
stated I could afford.
    Although, I have asked repeatedly for the following information I 
have yet to receive it:
    (1) The name of the compliance officer working on my case (When 
asked, my Countrywide rep stated that he did not know what her name 
was).
    (2) I have never had the amount of the tax payment explained
    (3) I have never been told how the $9400.00 in assets appeared on 
my loan documents the day of signing or what was used to documentation 
this amount.
    After these talks, I would usually end up feeling defeated. 
However, ESOP continued to encourage me. Without their support I would 
have given up long before the issues were resolved. Once Countrywide 
finally received a report from their compliance person, I received a 
call from them. They stated ``while what happened with your loan was 
not exactly illegal, there were definitely some things that could have 
been done better'' Since then my three contacts at Countrywide 
repeatedly refer to ``the special circumstances'' with my loan but have 
yet to explain to me what the circumstances are or admit to anything.
    In June Countrywide executives met with ESOP to speak with their 
borrowers. As the Co-Chair of that meeting, I was struck by their less 
than willing attitude to keep people in their homes; whether or not, 
Countrywide made a bad loan! They refused to answer any questions from 
the borrowers or to sign a letter of commitment to work with borrowers 
through ESO.\5\ When I approached one rep after the meeting about my 
ESOP specific situation, he said that he had never seen my file nor did 
he have any knowledge of it. Yet, I was told by another Countrywide 
employee that this gentleman was working very closely on my case.
---------------------------------------------------------------------------
    \5\ ESOPcurrently has formal written agreements with: CitiFinancial 
(extends through the entire Citi network), JP Morgan Chase, ACC Capital 
Holdings (i.e., Ameriquest), Litton Loan Servicing, Ocwen Financial, 
Third Federal Savings & Loan, Charter One Bank and Select Portfolio 
Servicing. Combined, they represent about 40 percent of the 
``servicing'' market in Cleveland. Per those agreements, ESOP has an 85 
percent workout rate. Because we do not have a similar agreement with 
Countrywide, the workout rate is LESS THAN 50 percent, of the 
countrywide homeowners who have come through our doors.
---------------------------------------------------------------------------
    Based on my ``special circumstances'', Countrywide offered me a new 
loan with the back taxes and various fees wrapped for a total of 
$122,000 at a fixed rate of 8 percent and taxes escrowed. Prior to 
coming to ESOP, I might have agreed to this workout. However, 
Countrywide has deceived me too many times to continue the relationship 
at this point. ESOP has referred me to a program with Third Federal 
Savings and Loan. The program includes classes on budgeting, credit and 
the home buying process. Because of ESOP's referral, I have been 
approved for a refinance loan through Third Federal. I will enter into 
the new agreement effective August 1, 2007. I will be in a fixed rate 
of 7.2 percent with my taxes escrowed.
    I know that what happened with my loan was wrong and it is 
unfortunate that when left to their own devices Countrywide refuses to 
behave responsibly. I have tried to work with Countrywide on my own in 
the past. I have never been able to reach the same person more than 
once. My conversations and agreements were never recorded so that 
others have access to what should be happening with my account. I have 
been lied to. ESOP provided the backing needed to deal with lenders 
such as Countrywide. Without ESOP, Countrywide would not have been held 
accountable and I would have lost my home.
    Ladies and Gentlemen, while I am proud to be a part of ESOP, I 
should not need to search endlessly for an organization to take ``my 
case'' in order to highlight the injustice. I got lucky with ESOP. 
While ill-funded, very grassroots, and, admittedly, ``different'', ESOP 
SAVED MY HOME.
    It is my hope, that by appearing here today, I have shed light on 
what so many Americans, particularly in my area must endure to keep 
their homes. I am sad to say that my situation is not an isolated 
incident. I am asking that you take action and hold the lending 
industry accountable through better regulation and legislation.
    Again, thank you for the opportunity to appear before you.

    [GRAPHIC] [TIFF OMITTED] T8266.003
    
  Prepared Statement of Barbara Anderson, Resident of Slavic Village, 
                                  Ohio
    Good morning Senator Schumer and ladies and gentlemen of the Joint 
Economic Committee. I appreciate the opportunity to appear before you 
and want to thank Senator Sherrod Brown for his intense interest in 
this issue. I ask that my comments today, both written and oral, be 
made part of the record for this hearing.
    My name is Barbara Anderson. I appear before you today as the 
Treasurer and member of the Predatory Lending Action Committee of the 
Empowering & Strengthening Ohio's People (formerly known as the East 
Side Organizing Project) (ESOP), a community organization whose roots 
are in the southeast side of Cleveland, Ohio but whose growth has been 
fueled by abusive lending and now includes the entire Northeastern Ohio 
region as ESOP's work is widely recognized and requested.
    I also serve as Treasurer of the Empowerment Center of Greater 
Cleveland, President of the Bring Back the 70's Street Club, I'm the 
Past President of Community Assessment and Treatment Services, and 
serve on the boards of Ohio State University Extension Program, Vision 
Advocacy Council of MetroHealth Center for Community Health, and Co-
Chair the Slavic Village Development Abandoned and Vacant Housing 
Committee.
    I have lived at 3435 E. 76th St. for more than 25 years. That 
address is in the Slavic Village neighborhood that is, today, widely 
seen as the epicenter of the foreclosure crisis facing Cleveland and 
the nation.
    When my husband and I bought our home, we were the first African-
American family to move to Slavic Village. As you know, Cleveland has a 
long history of racial tensions and we experienced them first hand. 
Within months of moving into our home, thugs began setting fires at our 
home. All told, we lost our garage twice, had fires at three of the 
entryways and a major fire on the back of our house. After the third 
fire, our insurance company dropped our coverage. Indeed, not only was 
I vicitimized by the thugs in my community, I was also hung out to dry 
by my insurance company.
    For several years after, we tried to make the repairs on our own. 
By 1996, we were no longer able to do so and we sought to refinance our 
mortgage to get some of the equity in order to make the repairs. 
Several local banks turned us down; not because of our credit but, 
rather, because of the fire damage and the fact that no insurance 
company would cover us.
    After being turned down, I was approached by a loan broker. He got 
us a loan at 8.5 percent through the now defunct Conti Mortgage. I 
didn't know that in the span of 4 years, that rate would jump to 14.5 
percent causing my payments to increase by nearly 60 percent.
    Between 1996 and 2001, my loan was then sold no less than fifteen 
times. Indeed, my ``home'' was a commodity for the market as the 
secondary market got greedy and sold these loans with the same carefree 
business model my grandchildren use when selling lemonade on a hot 
summer day.
    I came to ESOP near the end of 2001. I was desperate as my loan was 
now being serviced by Fairbanks Capital and, despite the exorbitant 
rate of my loan, my issue when coming to ESOP was the servicing of that 
loan as my payments were not being applied.
    I led a national fight against Fairbanks through ESOP's national 
affiliate, the National Training & Information Center (NTIC), 
headquartered in Chicago. We went on to win a national agreement that 
we have replicated with other lenders and servicers across the nation. 
For me, that agreement meant wiping out nearly $30,000 in bogus fees, 
accrued interest and over appraised loan principal and allowed me to 
refinance with the only bank in Cleveland that has remained true to its 
word with respect to meeting the credit needs of low-mod income census 
tracts: Third Federal Savings & Loan.
    Like Audrey, I got lucky. I heard about ESOP from a friend. Ladies 
and Gentlemen, people should not be dependent on luck to get respite 
from a bad loan. Indeed, I call upon you to demand that the lending 
industry make the comprehensive resources that ESOP provides to all 
borrowers.
    ESOP's model is different from most, if not all, other foreclosure 
prevention counseling agencies. Chief among those differences is that 
we combine direct action organizing in order to secure an agreement 
with our loan counseling efforts. Indeed, the secret to our success is 
direct action organizing to secure written agreements that, most 
importantly, designate one specific person empowered to negotiate and 
change the loan terms to keep a family in their home.
    Since 2001 when we began keeping track, ESOP's agreements have kept 
more than 2500 people in their home. For 2007, to date, we have 
assisted more than 400 families and are bracing for the ``October 
Surprise'' that will actually hit in January, 2008.
    I want to spend a few minutes and give you a sense of just how 
devastating the last decade has been due to the regulators abdicating 
their responsibility and abusive lenders entering the market place. The 
following statistics were put together by Paul Bellamy, a fair housing 
expert in Cleveland. They paint a very grim picture. Consider:
     Ohio's foreclosure rate is three times the national 
average and the highest of all states.\1\
---------------------------------------------------------------------------
    \1\ Mortgage Bankers Association, National Delinquency Survey, 
Third Quarter 2006
---------------------------------------------------------------------------
     Data from 12 of the 13 largest Ohio counties indicate that 
2006 foreclosure filings increased by an estimated 25 percent over 
2005, with an estimated 80,000 foreclosure filings.\2\
---------------------------------------------------------------------------
    \2\ Data for the last 10 years was originally obtained from the 
Ohio Supreme Court and are republished in Policy Matters Ohio reports 
over the past several years. See http://www.policymattersohio.org/
Foreclosure _Growth_2006.htm
---------------------------------------------------------------------------
     The volume of foreclosures is expected to grow much faster 
in 2007 and 2008 because of the number of subprime ARM loans that will 
be reset at much higher rates. In 2005, subprime loans accounted for 
about 13 percent of the mortgages issued nationally, compared to almost 
28 percent (more than double) of the mortgages issued in Ohio. Subprime 
loans account for 18 percent of all outstanding Ohio mortgages 
currently held by the secondary market and other loan servicers. 
Despite representing less than one of five outstanding mortgages, 
subprime loans account for 70 percent of all foreclosures.\3\
---------------------------------------------------------------------------
    \3\ The Subprime Market's Rough Road,'' Wall Street Journal, 2/17/
07.
    Home Mortgage Disclosure Act data--Reported subprime loans 
(generally considered an undercount) show that subprime increased from 
16 percent of Ohio's mortgages in 2004, to just over 28 percent of the 
Ohio loan market in 2005.
    Mortgage Bankers Association, National Delinquency Survey, Third 
Quarter 2006 (most recent available).
---------------------------------------------------------------------------
     The most common type of Ohio subprime mortgage is a ``2/
28'' loan. These loans are sold with low initial ``teaser rates'' that 
are fixed for the first 2 years. Beginning in year three, the interest 
rate increases as often as every 6 months, so the monthly payment grows 
dramatically. Often, these loans are not underwritten to anticipate the 
inevitable rate escalation. In 2007 and 2008, roughly $14 billion of 
these 2/28 subprime loans are going to reset in Ohio, impacting some 
150,000 to 200,000 mortgages.\4\
---------------------------------------------------------------------------
    \4\ ``Losing Ground: Foreclosures in the Subprime Market and Their 
Cost to Homeowners,'' The Center for Responsible Lending, December 19, 
2006. Figures from data bases maintained by lending industry trade 
groups actually suggest that over $20 billion 2-28 subprime loans will 
reset in Ohio during 2007 and 2008.
---------------------------------------------------------------------------
     Many borrowers with 2/28s and other ARMs can't refinance 
or sell to avoid default because their property is not worth what is 
owed. All too often, their original mortgage was based on an inflated 
appraisal. In 2006, six of Ohio's eight major metropolitan areas 
experienced depreciating real estate values between 3.5 and 7.7 
percent--well above the US average of 2.7 percent.\5\
---------------------------------------------------------------------------
    \5\ First two sentences are based on reports of staff of 
foreclosure prevention projects around the state. Third sentence is 
from ``National housing market declines,'' Cleveland Plain Dealer, 2/
16/07 based on home price data for 2006 from the National Association 
of Realtors.
---------------------------------------------------------------------------
    While the above numbers are staggering, what I see in my 
neighborhood is even more tragic. There are ten houses on my street. 
Five of them are currently vacant and, in most cases, are owned by the 
lender who made an abusive loan that the homeowner could not afford. My 
street is not unusual. You can walk up and down virtually any street in 
my neighborhood and you will find a similar situation.
    Obviously, the vacant houses have reduced the value of my home. 
While that is devastating by itself, what is more devastating is that I 
can't allow my grandchildren to play outside because squatters, usually 
high on drugs, are now occupying some of these homes as they sit wide 
open.
    Today, organizations like ESOP are fighting an uphill battle to 
clean up their mess. We have written agreements with about a dozen 
lenders and servicers that allow us to serve as the middleperson 
between the homeowner and lender in order to help negotiate a workout 
to their problem loan. This year, ESOP is projected to assist about 700 
families get out of foreclosure. While we are proud of our efforts, 
Cuyahoga County is expected to see upwards of 15,000 foreclosures in 
2007. Frankly, our work is a ``drop in the bucket''.
    ESOP's work, to date, has resulted in a number of partnerships that 
we are proud of, including: ACC Holdings (Ameriquest/Argent), JP Morgan 
Chase, Charter One, SPS, Ocwen, Litton, Third Federal Savings & Loan as 
well as some very effective relationships with Homecomings and 
Wilshire. Regrettably, however, Countrywide Home Loans, to date, has 
refused to enter into an agreement with ESOP to help their customers. 
Indeed, while ESOP has about an 85 percent success rate working through 
those lenders where we do have an agreement, our success rate with 
Countrywide is less than 50 percent.
    Again, I thank you for the honor to be before you.
                               __________
       Prepared Statement of Kenneth D. Wade, CEO, Neighborhood 
                        Reinvestment Corporation

    Chairman Schumer, and Members of the Committee, my name is Ken 
Wade, CEO of NeighborWorks' America, and I appreciate the 
opportunity to talk with you today about the efforts we and our 
partners are making to help stem the tide of foreclosures.
    NeighborWorks' America was established by Congress in 
1978 as the Neighborhood Reinvestment Corporation and is the original / 
public/ private partnership model. Over the past 28 years, we have 
replicated this successful model in over 4,400 communities around the 
country. NeighborWorks' organizations operate in all 50 
states, the District of Columbia and Puerto Rico; in America's urban, 
suburban and rural communities.
    Over the past 5 years NeighborWorks' has:
      Assisted nearly 100,000 families of modest means to 
become homeowners (of which, 91 percent are low-income and 53 percent 
are ethnic/racial minorities)
      Own and manage more than 63,500 units of affordable 
rental housing
      Provided homeownership education and counseling to more 
than 317,000 families
      Trained and certified nearly 50,000 community development 
practitioners from over 5,000 organizations and municipalities 
nationwide; and
      Facilitated the investment of nearly $9 billion in 
distressed communities across the country.
    Today, my testimony will focus on our response to the precipitous 
rise in foreclosures.
    NeighborWorks' America has a 30-year history of 
supporting lending to non-conforming borrowers--including lower income 
families, borrowers with impaired credit and others who would not 
normally qualify for a conventional mortgage.
    By providing quality pre-purchase housing counseling, financial 
fitness training and working with borrowers to improve their credit 
rating, local NeighborWorks' organizations are able to 
present mortgage-ready borrowers who qualify for reasonably priced 
traditional mortgage loans and achieve sustainable homeownership.
    From our experience, we know that the best defense against 
delinquency and foreclosure is objective education and advice before 
the borrower begins shopping for a home and selecting a mortgage 
product. And the best home buyer counseling is provided through 
objective, well-trained non-profit agencies (including local 
NeighborWorks' organizations and other HUD-approved 
nonprofit housing counseling agencies) that put the consumers' and the 
communities' interest first.

          NeighborWorks' America has been tracking the loan 
        performance of the many low-income families assisted by 
        NeighborWorks' organizations over the years. These 
        loans continue to perform significantly better than subprime 
        loans.
          In fact, a comparison of the loan performance of borrowers 
        counseled by NeighborWorks organizations (in the first quarter 
        of 2007) indicates that their loans are:

          10 times less likely to go into foreclosure than 
        subprime borrowers;
          Nearly 4 times less likely to go into foreclosure 
        than FHA borrowers; and
          Slightly less likely to go into foreclosure than 
        Prime borrowers.

    NeighborWorks' America saw the problem of foreclosures 
coming over 4 years ago and, created the NeighborWorks' 
Center for Foreclosure Solutions, modeled on the successful 
trailblazing efforts of one of our local NeighborWorks' 
affiliates, Neighborhood Housing Services of Chicago.
    Foreclosure reaches far beyond the individual tragedies confronting 
homeowners. Foreclosed homes can threaten entire communities. The value 
of surrounding homes goes down and other homeowners will have 
difficulty selling or refinancing their homes, leading to further 
disinvestment in communities. As a result, property taxes collected 
will be lower, affecting schools and government services, creating a 
downward spiral that is detrimental to the entire community.
    A study by the Woodstock Institute found that a single foreclosure 
on a given block can directly lower property values of surrounding 
homes by $139,000. Other studies show that one foreclosed property can 
end up costing a municipality as much as $30,000.
    And lenders report that each foreclosure can cost them from $30,000 
to $50,000.
    And, studies confirm that foreclosures are much more likely to 
occur in high minority neighborhoods, even when all other variables 
such as borrower credit and income are held steady.
    NeighborWorks' America, in partnership with the 
Homeownership Preservation Foundation has established a national toll-
free hotline for delinquent borrowers (888-995-HOPE) that is available 
24/7 to provide callers with high quality telephone-based assistance 
(in English and in Spanish). Individuals needing more intense service 
than can be provided over the phone are referred to local HUD-approved 
housing counseling agencies.
    The key to helping as many people as possible through the 888-995-
HOPE hotline is to get people who are experiencing problems in paying 
their mortgage to call as soon as possible. Therefore, 
NeighborWorks' America is also launching a public service 
advertising campaign supported by the Ad Council, to decrease 
foreclosures by directing struggling borrowers to call the 888-995-HOPE 
hotline. The campaign has just begun, specially targeting areas with 
high rates of foreclosure. We anticipate that this effort will go a 
long way toward increasing public awareness of the 888-999-HOPE 
hotline.
    Once the call is made, service begins immediately. They are 
connected with a trained counselor at the outset and depending on the 
problems, homeowners can get budgeting help, assistance developing a 
written financial plan, assistance contacting their lender to discuss 
payment options and loan restructuring, and a referral for face-to-face 
counseling through local HUD-approved housing counseling agencies. 
Counselors are also trained to look for and respond to callers who have 
experienced fraud in the mortgage process with appropriate referrals to 
local agencies and resources.
    As Federal, state and local legislators, regulators and others 
wrestle to identify proposed actions to respond to the surge in 
foreclosures, I want to stress that denying credit to the type of 
people NeighborWorks' has served for decades (lower-income, 
families, minorities, people with blemishes on their credit reports) is 
not the answer.
    In my view, the real challenge continues to be how to create 
informed consumers and foreclosure-resistant borrowers.

                  OHIO FORECLOSURE PREVENTION EFFORTS

    In April of 2006, NeighborWorks' America assisted in the 
creation of the Ohio Foreclosure Prevention Initiative, a statewide 
coalition of twelve organizations across the State of Ohio (10 being 
NeighborWorks' organizations). This statewide coalition 
joined forces with the NeighborWorks' Center for Foreclosure 
Solutions and the Homeownership Preservation Foundation to provide 
counseling to homeowners throughout the state, in danger of losing 
their homes to foreclosure. In the initiative's first 9 months, 4,470 
Ohioans reached out for help by using the Homeownership Preservation 
Foundation's 888-995-HOPE toll-free hotline number.
    The twelve organizations that participate in this initiative 
include: East Akron Neighborhood Development Corporation, The Home 
Ownership Center of Greater Cincinnati, Neighborhood Conservation 
Services of Barberton, Neighborhood Housing Partnership of Greater 
Springfield, Corporation for Ohio Appalachian Development, Rural 
Opportunities, Inc. Ohio, Neighborhood Housing Services of Greater 
Cleveland, Neighborhood Housing Services of Hamilton, Neighborhood 
Development Services, Neighborhood Housing Services of Toledo, and St. 
Mary Development Corporation.

                                CLOSING

    [Please note that recommendations below are not necessarily the 
Administration's positions, and that NeighborWorks' America 
is speaking as a public non-profit organization, as noted earlier--
especially as NeighborWorks' America advocates for a 
national housing counseling fund.]
    In closing, let me state that from our experience, the best way to 
create foreclosure-resistant homeowners is through quality pre-purchase 
housing counseling. We challenge the real estate and mortgage industry 
to help figure out how to make housing counseling universally available 
for every first time home buyer in America. Is there a homebuyer in 
America who should be denied a basic level of home-buyer education? 
Given the scale of the industry, one option is the addition of an 
extremely small amount to every mortgage originated to create a 
national housing counseling fund to compensate counseling agencies for 
this essential service.
    An alternate approach would be to ensure that a meaningful level of 
housing counseling be provided to any borrower considering a 
nontraditional mortgage--such as an interest-only mortgage, a negative 
amortization mortgage, an option-ARM or a 2/28 or 3/27 mortgage. It is 
clear that borrowers who have opted for these non-traditional mortgage 
products are encountering foreclosure at significantly higher rates.
    And finally, as credit for subprime borrowers has begun to tighten 
up in response to current challenges in the subprime market, there is a 
larger need than ever for a reasonably priced mortgage refinance 
product to assist families currently trapped in high-cost mortgages, as 
well as to assist additional families as more than 1.5 trillion dollars 
in adjustable-rate mortgages prepare to reset within the next 2 years.
    I trust this testimony gives you a sense of some of the challenges 
we are facing and our response to families facing foreclosure. I stand 
ready to answer any questions you may have.

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