[Senate Hearing 110-975]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-975


 RESTORING THE AMERICAN DREAM: SOLUTIONS TO PREDATORY LENDING AND THE 
                           FORECLOSURE CRISIS

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

                             FIELD HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                   ON

       SOLUTIONS TO PREDATORY LENDING AND THE FORECLOSURE CRISIS


                               __________

                         MONDAY, APRIL 7, 2008

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


      Available at: http: //www.access.gpo.gov /congress /senate /
                            senate05sh.html



                  U.S. GOVERNMENT PRINTING OFFICE
50-395                    WASHINGTON : 2010
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001





            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

               CHRISTOPHER J. DODD, Connecticut, Chairman
TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
THOMAS R. CARPER, Delaware           CHUCK HAGEL, Nebraska
ROBERT MENENDEZ, New Jersey          JIM BUNNING, Kentucky
DANIEL K. AKAKA, Hawaii              MIKE CRAPO, Idaho
SHERROD BROWN, Ohio                  ELIZABETH DOLE, North Carolina
ROBERT P. CASEY, Pennsylvania        MEL MARTINEZ, Florida
JON TESTER, Montana                  BOB CORKER, Tennessee

                      Shawn Maher, Staff Director
        William D. Duhnke, Republican Staff Director and Counsel
                  Jonathan Miller, Professional Staff
                Nathan Steinwald, Legislative Assistant
                 Bryn McDonough, Legislative Assistant
                       Dawn Ratliff, Chief Clerk
                      Shelvin Simmons, IT Director
                          Jim Crowell, Editor














                            C O N T E N T S

                              ----------                              

                         MONDAY, APRIL 7, 2008

                                                                   Page

Opening statement of Chairman Dodd...............................     1

Opening statements, comments, or prepared statements of:
    Senator Casey................................................     4

                               WITNESSES

Michael Nutter, Mayor of Philadelphia, Pennsylvania..............     7
    Prepared statement...........................................    25
Brian A. Hudson, Sr., Executive Director of Pennsylvania Housing 
  Agency.........................................................     9
    Prepared statement...........................................    27
Ira Goldstein, Ph.D., Director, Policy and Information Services, 
  The Reinvestment Fund..........................................    13
    Prepared statement...........................................    41
Yajaira Cruz Rivera, Philadelphia, Pennsylvania..................    16
    Prepared statement...........................................    57
Christina Anderson-Jones, Philadelphia, Pennsylvania
    Prepared statement...........................................    61

              Additional Material Supplied for the Record

Letter submitted to Senator Casey from the Greater Philadelphia 
  Urban Affairs Coalition........................................    63

 
 RESTORING THE AMERICAN DREAM: SOLUTIONS TO PREDATORY LENDING AND THE 
                           FORECLOSURE CRISIS

                              ----------                              


                         MONDAY, APRIL 7, 2008

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                  Philadelphia, PA.
    The Committee met at 10:17 a.m., in Ceremonial Courtroom, 
601 Market Street, Hon. Christopher Dodd (Chairman of the 
Committee) presiding.

       OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD

    Chairman Dodd. This hearing will come to order. Let me tell 
you what a pleasure it is to be in Philadelphia.
    I want to thank Senator Bob Casey. He's the first member of 
the banking committee to encourage a hearing on this issue. As 
a new member of this Senate and as a new Member of this 
Committee, it's a wonderful invitation to receive, and I am 
pleased that he asked me to do this. We need to do this more 
often, quite candidly. I don't think we could miss this 
opportunity and listen to the people in our major areas around 
the country and listening to people go through their ideas that 
they bring to these debates and discussions. So I'm very 
grateful of my colleague and for his suggestion of being here 
this morning.
    This Committee is holding a hearing entitled ``Restoring 
the American Dream: Solutions to Predatory Lending and the 
Foreclosure Crisis.'' This is the latest in a number of 
hearings held by our committee starting in February of 2007 to 
address the issue of predatory lending and the foreclosure 
crisis that it has intended. The committee is holding this 
hearing at the request, as I said, of Senator Bob Casey. 
Senator Casey has been a focused and effective leader on the 
committee and dealing with the issue of predatory lending and 
the foreclosure prevention. He has been an active participant 
in every hearing we've held on the subject matter. He's asked 
very good and tough questions of regulators in the industry and 
consumer groups that have come before us. As a result, he has 
developed a deep and thorough understanding of the issue that 
brings us together this morning.
    Senator Casey, along with a number of our colleagues, 
introduced the first antipredatory lending deal in his 
Congress. I commend him for it.
    I incorporated much of the legislation that Bob Casey has 
suggested when I introduced our own bill that Senator Casey 
quickly corresponded to. I am grateful to him for that.
    As part of his commitment, he has asked me to convene a 
hearing this morning in the city of Philadelphia. It could not 
be more timely to have this kind of a gathering. We are deeply 
involved, as many of you know, on the floor of the U.S. Senate 
with a housing proposal.
    Last week, and again this week, the Senate is considering 
the Foreclosure Prevention Act of 2008. It's a bipartisan 
package that was put together with the assistance of Senator 
Casey. He's been a very strong component of additional funds 
for foreclosure prevention counseling, as I have been.
    This legislation falls short of a small key title. I'm glad 
we are able to get started on this. The bill includes $100 
million in counseling funds. That is very important. The bill 
includes an expansion and modernization of the Federal Housing 
Administration Program which will create a real alternative to 
the abusive subprime lending that so many working families have 
turned to in the past over the years that have greatly 
contributed to the crisis that we're in today.
    The legislation both includes $1.6 billion for increased 
mortgage revenue by the authority for our states. The bill does 
not do enough to help the millions of Americans who are facing 
foreclosure every single day. It families here in Philadelphia. 
That has increased over 17 percent in just 1 year.
    Very broadly speaking, we have three challenges in this 
area that we need to address.
    First, we need to address the kind of abusive lending that 
lead to this terrible problem in our country. In other words, 
we need to stop predatory lending. The Federal Reserve Board, 
after much prodding by this committee, has proposed a new 
regulation--not as strong as I would like, but they seem to be 
moving. Senator Casey and I have also introduced legislation 
not indicated. Although, this is not our most pressing problem 
today. In fact, very little subprime is available today.
    Second, and more immediately, we need to help communities 
and community leaders, like Mayor Nutter, deal with the outcome 
of the foreclosure crisis. Included in our legislation on the 
floor of the U.S. Senate is $4 billion in emergency community 
development block land funding which will go to state and local 
governments to acquire and resell foreclosed and abandoned 
homes. That is important because we don't need more supply on 
the market.
    We have an over-supply, quite candidly. Every time you 
leave abandoned properties out there, you are increasing that 
supply, not to mention what it does to your police and fire and 
social services all are compromised every time a lender with a 
foreclosed property goes on the books.
    Not to mention the adjoining properties which also suffer. 
The people tell me, ``It's not my fault. Why are you helping 
out that individual with the foreclosed property?'' If you're a 
neighbor living on that block and you have a neighbor that has 
a foreclosed property, the value of your home has just gone 
down by at least 1 percent on the very day that foreclosure 
goes forward. Not to mention crime rates going up and 
continuing problems in that neighborhood.
    There is a contamination that occurs when this happens. It 
goes beyond the most impacted family, and that is the one 
losing their home. Frankly, that's not enough and that comes up 
short.
    Third and most importantly, we need to help people tolerate 
the interest of foreclosure to keep their homes. It's all well 
and good to provide funds to help pick up the pieces after the 
catastrophe, but we need to do more in the area of prevention, 
so we have less of a need for clean up after the fact.
    To that end, I have been working intensively with my 
colleagues, including Senator Bob Casey on what we call Hope 
For Homeowners Act of 2008. I am very pleased to state that 
there is a new fund at the Federal Housing Administration to 
ensure new, affordable mortgages for distressed homeowners. 
These FHA mortgages would refinance the old troubled loans at 
significant discounts. The new loans would be no larger than 
the borrowers could afford to pay and no more than 90 percent 
of the current value of their homes.
    This form is similar to the one laid out by the Federal 
Reserve Chairman Bernanke in his speech several weeks ago. He 
noted that creating a new equity for underwater borrowers may 
be a more effective way to prevent foreclosures. Lenders and 
investors will have to take a serious so-called haircut to 
participate in this program.
    In return, they receive more than what they would recover 
in foreclosure. Borrowers get to keep their homes but they must 
share the newly paid equity from the FHA program to help offset 
possible losses. Only owner occupants would be eligible for 
this new program, and only those who clearly cannot afford 
their current mortgages. There will be no speculators in this 
program.
    In addition to helping homeowners and the communities in 
which they live, this program would help stabilize capital 
markets, put a floor under the housing prices, and get capital 
flowing once again in this critical area. Later will have 
another hearing the following week as well. Then we will work 
to bring legislation to a vote, both in the community and on 
the floor in the U.S. Senate.
    Representative Barney Frank of Massachusetts and Chair of 
the Financial Services Committee in the House of 
Representatives is having a similar legislation in the House of 
Representatives. I understand that some people oppose this kind 
of a program on the grounds that we should not reward people 
who acted irresponsibly. As we will hear today, as we've seen 
from numerous other hearings that we have held in Washington, 
many victims of predatory lending were trying to act 
responsibly. They were led badly astray by unscrupulous 
mortgage brokers and lenders.
    In fact, The Wall Street Journal did a study which 
concluded that 61 percent of the subprime borrowers it reviewed 
had high enough credit scores to qualify for prime loans at the 
time they were talking to subprime mortgages. We know that 
these brokers portrayed themselves as trusted advisors for the 
unsuspecting borrowers while steering these borrowers into 
higher cost loans in exchange for higher commissions.
    Lenders and brokers gave these borrowers--many on fixed 
incomes--mortgages with exploding interest rate payments that 
they knew these borrowers could never ever afford at the fully 
indexed cost. These are the homeowners that we are seeking to 
help, and why we're here today in Philadelphia. We seek to help 
them because it's the right thing to do. It never should have 
happened in the first place.
    In the words of Franklin Roosevelt, ``When your neighbor's 
house is burning, you don't charge him for the use of your 
garden hose.'' You simply lend it to him so that he can take 
that hose and contain the fire spreading throughout the 
neighborhood.
    We are not acting for their sakes alone. Today, hundreds 
and thousands of our neighbors' homes are figuratively burning 
in many ways. And like any fire, the damage threatens to 
spread. Every home that goes into foreclosure lowers the value 
of the other homes on the block by at least $2,000 immediately. 
It produces property tax collections, as I mentioned, which 
level and always leaves students in public schools struggling 
to meet their needs. Fire, police, and all these other services 
are also adversely affected. We owe it to ourselves and our 
community, as well as our homeowners.
    We must act to put this fire out, if we can, and get our 
country heading in the right direction in this critical area. 
That is what I hope to do in the coming weeks and while we are 
here in Philadelphia this morning to listen to some good, solid 
advice from people at the local level, and how Bob Casey and I 
can do a better job of bringing closure to this problem and 
moving it positively and aggressively to address the underlying 
issues that we face.
    With that, I again thank Senator Casey for the invitation 
to be here this morning. It is the very first hearing I've held 
as a chairman of this committee outside of Washington D.C. and 
in the city of Philadelphia. So I thank Bob Casey and all of 
you for being here this morning.

              STATEMENT OF SENATOR ROBERT P. CASEY

    Senator Casey. Chairman Dodd, I want to thank you for your 
presence here and for bringing us together on such a critical 
issue for the country and for, of course, our economy, but 
especially for our families. I think the fact that we're here 
in Philadelphia and outside of Washington is indicative to the 
kind of leadership that Senator Dodd has demonstrated as 
Chairman of the Banking, Housing, and Urban Affairs Committee. 
That is a title that should remind all of us that the title 
speaks to the broad agenda of that committee. It's not just 
about banking. It's about housing and urban affairs. Certainly 
here in Philadelphia, we understand and appreciate that.
    This is not the first time that Senator Dodd has shown 
great leadership on a critical issue. Whether it's examining a 
complex on financial issues or whether it's in our housing 
market and what our families are struggling through or whether 
it's holding regulators accountable.
    Time and again, he has shown the kind of leadership on this 
committee and we greatly appreciate it. It's not his first 
visit to the city of Philadelphia. He's been here a number of 
times over the years, but we're especially grateful that he's 
here today in this capacity as chairman of this committee, but 
also as someone who has been, whether he's Chairman or not, 
would be deeply involved in and concerned about what has 
happened to the families in Pennsylvania and his home state of 
Connecticut and of course, other states across the country.
    What we are talking about here is something very basic. We 
are talking about the ultimate betrayal of families by people 
with power and money and influence. Instead of entering into a 
transaction that their family can afford, too often 
unscrupulous, unregulated players in the market have led 
families down a path of ruin financially.
    We are going to talk a good bit today about what has 
happened. We are also going to talk about a solution on how to 
help families and how to keep people in their homes and about 
extension, protecting and strengthening and nurturing the 
neighborhoods. If we do that, not only will the families and 
neighborhoods be better off, our economy will be that much 
stronger.
    My principal obligation here is to make sure that we 
introduce our witnesses and to hear from them and then we do 
some questioning. We will also admit a statement for the record 
of this hearing. I think it's important to point out before I 
make introduction, that this isn't just about individual 
families in one particular neighborhood or another. This is 
about the ripple effect that Senator Dodd mentioned and what 
this has caused for our entire economy and even the world 
economy.
    In the world economy, our credit markets are suffering in 
large measure because of what has happened in our housing 
market. So if there are people out there who think that this 
doesn't affect me and my mortgage, this doesn't affect my 
family, this doesn't directly affect my neighborhood, you're 
wrong. It does. One of the reasons why our economy is moving in 
the wrong direction is because of the ripple effect which has 
been caused by the housing market.
    Let me get to our witnesses. First of all, I want to do a 
quick summary of each of our witnesses before they testify and 
mention their background. No one in here needs a biographic 
sketch of Mayor Michael Nutter. It's critical that we remind 
ourselves not just where he is now as mayor, but where he came 
from. He worked as a member of the City Council for so many 
years here in the city, standing up for the workers, standing 
up for the neighborhoods.
    Being an effective legislator and a community activist has 
allowed him to come into the office of mayor with a broad and 
deep understanding of the city. He has already demonstrated in 
the time that he has been mayor, how much he cares about this 
city and fights for the people of this city. He's been on the 
phone with me a number of times and has visited us in 
Washington. I know he does the same for the legislators and 
Governor in Harrisburg in making sure that we are aware of the 
challenges the City faces.
    I can't tell you how much I appreciate the way he has 
worked with us on housing, on issues that pertain to the 
challenges that people in Philadelphia face.
    Mayor, we are grateful to have you here as a witness, but 
especially for the work you've done already in this city and 
we're looking forward to hearing your testimony.
    I just want to briefly introduce our other witnesses before 
we hear from the mayor: Brian Hudson from the Pennsylvania 
Housing Finance Agency, both Executive Director and CEO. I hope 
I got those titles right. I have known Brian for a long time. 
When I was in the State Treasury, he was a member of that 
board. He pretty much ran every meeting. To say that he's an 
expert in housing finance, not just across the state, but he's 
recognized across the country. To say that would be an 
understatement.
    He's been a tremendous advocate for the state of 
Pennsylvania. Especially for the people most affected by 
housing and how we finance housing. He has also learned over 
the years to work with lenders and other players in the market 
to make sure that the state and Federal Government work 
together with our lenders, realtors, families, all of the 
players in the market, so to speak, to provide safe, decent, 
affordable housing. So we're grateful for Brian's presence here 
today.
    Dr. Ira Goldstein, Director of Policy and Information 
Services for the Reinvestment Fund.
    Doctor, we appreciate your presence here and your 
scholarships over many years in this arena. We know that the 
Reinvestment Fund is a community development organization. It 
focuses on tiered housing and equal opportunity. I know that 
Dr. Goldstein will tell us today about the work done on the 
study called ``Loss Values: A Study of Predatory Lending in 
Philadelphia.'' We can learn a lot today, not just about what's 
happened here in Philadelphia through that study, an 
explanation of some of the challenges here in the city, but 
what's happening here is happening across the country. What we 
learn in Philly we can apply to other places across the 
country. We are grateful, Doctor, for your presence here today.
    Finally, we have someone who has taken the time to bear 
witness to the difficult challenges that families face, an 
actual homeowner. She is going to give us testimony about her 
own situation. Yajaira Cruz Rivera is here with us today.
    Yajaira, we appreciate your presence here today and your 
courage to come forward. It would be easier to keep these 
things to yourself and to think only about your difficulties 
that you encountered. You're here as a witness, and by your 
presence and by your testimony, you are going help other 
homeowners. You certainly help us better understand the 
challenges that family homeowners face.
    When you look across the landscape, whether it's homeowners 
or whether it's particular mortgages from lenders, we want to 
make sure that those mortgages that were the subject of any 
kind of predatory, dishonest marketing tactics, we highlight 
that and we learn from that. So we're grateful for the presence 
of our witnesses.
    I just want to commend a couple of organizations that 
helped bring this hearing together today. ACORN, of course. 
They are known all over the nation, all over the world. The 
signs in the back indicate that. We see a lot of red and white 
across the city and across the country. We are grateful for 
ACORN's work, the Philadelphia Unemployment Project who helped 
us through community legal services, the Philadelphia 
Foreclosure Crisis Committee, and finally, The Philadelphia 
Legal Assistance. That organization, as well as the others, 
we're grateful for the work that has been done.
    I have to turn the microphone back to our chairman. I did 
notice in the second row here, Counsel Marian Casco, who I have 
known for many years. Marian Casco is a member of City Council 
and sounded the alarm on predatory lending a long time ago. It 
was back many years ago when I was in state government, when I 
started in state government a decade ago. We are grateful for 
her advocacy and her presence here today.
    Mr. Chairman, I turn the microphone back over to you.
    Chairman Dodd. Thank you very much, Senator.
    Mayor, again, we are honored that you are here this 
morning. I was looking at some of the numbers in Philadelphia 
over the past several weeks with Senator Casey. Sometimes these 
numbers can just glaze over the eyes. Sometimes the numbers, 
the volume of them, are beyond understanding. We are talking 
about millions of people, two-and-a-half, three million people 
going into foreclosure. Think of it in these terms, every 
single day 7,000 to 8,000 people enter into foreclosure. That's 
every single day. So today before the day ends another 7,000 or 
8,000 of our fellow citizens will find themselves being drawn 
into the vortex of losing the most important asset outside 
their families that they have in the world.
    Every single day that we delay, until we do anything about 
trying to stop this from happening, more and more people are 
adversely affected and the ripple effect that Senator Casey 
pointed out is affected. In my little state of Connecticut, 
Bridgeport, Connecticut, there are 6,000 foreclosures in a city 
of 100,000 people. What that will mean in the city of 
Bridgeport with that many properties being vacant, not being 
sold, boarded up, destroyed in many ways and so severely 
affected that they will never get back on their feet again. If 
you think about it today and tomorrow as Bob Casey and I can 
finally convince our colleagues and others to do the next step 
and that is to stop this from happening, in addition to trying 
to help those who fall into that situation, before the day ends 
another 7,000 to 8,000 people in America will be suffering from 
a loss of that cause. And it will happen again tomorrow and the 
next day and the day after. You can fill a stadium in less than 
a week with the number of Americans who will be drawn into 
this, and they will never recover from it, given the adverse 
effects by it. These are real people every day whose lives may 
be permanently disrupted because we failed to act and step in 
and stop this from going on.

 STATEMENT OF MICHAEL NUTTER, MAYOR, PHILADELPHIA, PENNSYLVANIA

    Mayor Nutter. Good morning, Chairman Dodd and Senator 
Casey. My name is Michael Nutter, the Mayor of the city of 
Philadelphia. Before going into my prepared remarks, I have to 
say, Senator Dodd, thank you so very much for bringing this 
committee to Philadelphia. I recognized, as you pointed out, 
the significance and the importance of bringing a committee out 
of Washington to hear from the public. And so it is a great 
honor to have you here in our city and certainly a personal 
honor for myself. I have never testified to a U.S. Senate 
committee.
    More importantly, the citizens of Philadelphia, 
Pennsylvania, and I think the United States of America will 
benefit as a result of this kind of hearing, certainly on a 
personal level. Please always feel free to come back. The great 
work of this committee and your personal presence means a 
tremendous amount to thousands throughout Philadelphia, and I 
thank you very much. Your depth and understanding, your 
articulation in your opening remarks on the issue clearly 
displays a welcomed knowledge that I am sure will be quite 
convincing to many of your colleagues back in Washington.
    Senator Casey, I thank you again. We have had numerous 
opportunities, as you pointed out, to work on a variety of 
issues and your leadership in talking to the Chair and having 
this committee working with my staff, to make sure that we were 
in proper order was very, very helpful, and I do appreciate it.
    It is an honor to be on this panel with those who are 
really experts in the field. I get to as mayor talk about a 
great deal of things and work with those who know about these 
issues first-hand.
    We have a great panel here this morning. Let me read into 
the record my remarks, but I did want to share some personal 
feelings.
    I applaud this Senate committee on Banking, Housing and 
Urban Affairs and Chairman Dodd for holding this hearing to 
address the mortgage foreclosure issue. I thank both Senators 
Dodd and Casey for their leadership in this area, the current 
problem in Philadelphia.
    In 2007, there were 6,200 foreclosure filings in 
Philadelphia. This was an increase of 18 percent over 2006. The 
city's foreclosure rate is currently in the 17-to-18 percent 
range. The amount of foreclosures varies significantly across 
neighborhoods. However, with some neighborhoods such as West 
Oak Lane, East Mt. Airy, Southwest Philadelphia experiencing 
significant higher rates. Approximately 400 Sheriff's Sales are 
scheduled each month in our city. This crisis is already 
hurting the city of Philadelphia by disturbing our economy and 
by depressing real estate prices. It is also affecting city tax 
revenues.
    The city of Philadelphia is committed to dealing with this 
crisis. I will be proposing putting additional funds into our 
fiscal year '09 budget to provide relief to homeowners facing 
foreclosure.
    As Senator Casey has pointed out, I'll be working with 
Counsel Marian Casco, and you are absolutely right, 
Councilwoman, while I was still on City Council, it was by far 
the leading advocate on this issue, sounded the alarm much 
earlier than virtually anyone has recognized.
    We plan to use the funds in the following ways: Outreach, 
through an expanded foreclosure hotline, additional counseling 
services to help homeowners negotiate payment plans and work 
out predatory loans, and expanded support for legal services to 
help homeowners negotiate better mortgage terms and respond to 
sheriff sale lawsuits.
    In addition, the City is committed to developing 
refinancing tools and products such as the state's HERO, 
Homeowner's Equity Recovery Opportunity loan programs, which 
targets families with bad credit who cannot refinance at an 
affordable interest rate. Philadelphia has committed $1 million 
to the program, which will leverage $10 million in PHFA 
resources and $5 million from PNC Bank. We are also considering 
expanding the moratorium on Sheriff Sales just instituted by 
the Sheriff.
    As you can see, the City is stepping up to the plate to 
address this crisis. The Commonwealth of Pennsylvania, under 
the leadership of Governor Rendell and PHFA Director Brian 
Hudson, has also done a great job of providing additional 
resources. However, we need the Federal Government to do its 
part.
    Additional funding is needed to enable cities to maintain 
the purchased abandoned properties, to support housing 
counseling and legal assistance, and to provide bankruptcy 
relief to our citizens by allowing judges to modify mortgages.
    I am pleased to work with you on this important issue. We 
stand ready to help address this critical crisis, and I thank 
the Members of this Committee for the incredible opportunity to 
publicly speak on one of the most damaging crises that this 
city, this state, and this nation has faced in decades. Thank 
you very much.
    Chairman Dodd. Thank you very much, Mayor. Any other 
documentation, by the way, that you have and you would like to 
put in as part of this record, we would like to include that as 
well.
    I am going to go on to a couple of questions. How do you 
see this matter developing since what you suggested to me is 
not confined in one area. Maybe more so in some than others, 
but nevertheless, it's sweeping across the city.
    Mayor Nutter. Chairman, you're absolutely correct. We will 
provide additional backup materials to the committee.
    Chairman Dodd. Mr. Hudson, you had quite an introduction 
from the Senator here. We expect you to come up with all the 
answers now, of course.

   STATEMENT OF BRIAN A. HUDSON, SENIOR, EXECUTIVE DIRECTOR, 
              PENNSYLVANIA HOUSING FINANCE AGENCY

    Mr. Hudson. Thank you, Mr. Chairman, it's a pleasure being 
here.
    Senator Casey, it's good seeing you again. I do applaud 
your efforts for affordable housing. Thank you for holding this 
hearing here in Philadelphia.
    I'm Brian Hudson, Executive Director and Chief Executive 
Officer for the Pennsylvania Housing Finance Agency. I have as 
part of my written testimony more details in the program that I 
want to touch on briefly.
    I want to go back 25 years when the Commonwealth created a 
program known as Homeowners' Emergency Mortgage Assistance 
Program, HEMAP. HEMAP is entirely funded by the state 
legislature. It saved over 40,000 homes from foreclosure. The 
average HEMAP loan is $10,000, the average income of the 
borrower, and the average loan is around $38,000. HEMAP is not 
designed to deal with this type of crisis.
    In 2007, in October or November, we launched two products. 
We thought that two were needed. REAL, Refinance to an 
Affordable Loan, and HERO, as the Mayor just mentioned, 
Homeowners' Equity Recovery Opportunity. The REAL refinance 
project deals with those homeowners who are just beginning to 
slip in their adjustable rate mortgage and are one and no more 
than 2 months behind. They can go up to a $120,000 income and 
100 percent market value for that property. It has to be the 
primary resident. That's for a fast track. We originate that in 
product with about 70 or 80 lenders throughout the 
Commonwealth.
    The more difficult product is HERO, the Homeowners' Equity 
Recovery Opportunity. This is to help those homeowners who are 
truly upside down in their mortgage and they owe the lender 
more than the property is valued. We do this program in-house 
at the Pennsylvania Housing Finance Agency. We work on behalf 
of the homeowner, negotiating with lenders to take a write-down 
and to assign that property to them.
    As the Mayor mentioned, we did work with the city of 
Philadelphia. PHFA has committed $10 million to both of these 
programs so far. We know that we have over 200,000 subprime 
mortgages in the state of Pennsylvania. Of those 200,000, there 
are about 16 percent delinquent. Another subsection of that 
200,000 are 77,000 adjustable mortgages, or ARMS.
    They are approximately 22.5 percent delinquent. We have 
been trying to get at those individuals and help them.
    In 2003, we did a foreclosure study along with the 
Department of Banking. We developed a program to deal with 
foreclosure, which included an intensive counseling network. We 
have over 100 counseling agencies in this network now. In an 
effort to define for the council, we think that a key component 
is to provide education to the homeowner to understand what 
they're doing.
    We think that education for the homeowners is the key. We 
applaud your efforts to provide resources to Pennsylvanians, to 
continue to provide education for the homeowners that are 
involved. You've heard testimony from the homeowners where the 
credit scores are not the sole determining factor. We are in 
the situation prior to getting in the default situation. We 
want to make sure that we help the homeowner become part of 
that. We expect to help about 1,500 homeowners over the next 6 
months through our REAL and our HERO programs.
    Again, we are servicing these loans here in Pennsylvania 
and not in another state. We have the ability to modify loans. 
Our stony block is dealing with the servicers who are worried 
about taking on the liability from the investors. You have to 
get them to the table and be willing to take that write-down. 
We are negotiating on behalf of the homeowner. That is the 
primary issue. The servicers are reluctant or unable to agree 
to take a write-down. An example I use is a woman we helped. 
She owed $126,000. The property is worth $60,000. We negotiated 
on her behalf and got her into a loan for about $45,000. Again, 
using that extensive counseling effort and education which is a 
mandatory requirement for the program, we are hoping to stand 
up for these efforts. Currently, we are financing our efforts 
through the sale of taxable bonds. I applaud the efforts of 
your committee, Mr. Chairman, and also Chairman Barney Franks's 
committee to use tax exempt financing. It could reduce our 
mortgage rate by almost a full percentage by using the tax 
exempt findings. Again, I thank you for the opportunity, and I 
applaud your efforts and I am here to support the efforts in 
helping this crisis.
    Chairman Dodd. Thank you. You are very knowledgeable. 
Obviously, some of the things you are proving are successful 
here. We need to convince our colleagues on a national level. 
It's worked well here in Pennsylvania, these efforts to keep 
people in their homes. There's no reason why we can't be clear 
enough to come up with our ideas on a national level.
    I just have to quickly point out, when you talked about the 
special liability of those who purchased these mortgages--in a 
sense, I feel it's almost--feel it's a greater potential 
liability if you don't do something about it.
    If I'm sitting here purchasing one of these items, and it's 
less than what you told me it's going to be worth, I'd rather 
you get something for it than nothing for it. I'm more likely 
to sue you if I get zero. I'm not happy about the fact that I'm 
looking at less than you told me I was going to get, but I'd 
rather get something in return for your efforts. So I applaud 
the efforts you made.
    Mayor, I know you have to run on this. I know you have a 
busy schedule.
    Senator Casey, do you have any questions for the Mayor?
    Senator Casey. Mayor, before you go, I want to thank you 
for the time spent on this.
    Mayor Nutter. My pleasure.
    Senator Casey. I wanted to get a sense from you of the 
dimensions of this in the city and how we can be most helpful. 
I know you touched on it, but before you go, can you touch on 
it?
    Mayor Nutter. Thank you. And thank you for the opportunity. 
As you know, we're not shy here in Philadelphia. I'll go back 
to one of the items that Brian Hudson touched on and I did 
briefly in my testimony. The housing counseling services, we 
believe, have proved by far to be most helpful. Our ability to 
get out as early as possible to meet with these homeowners and 
get this situation under control, I believe, is one of the most 
critical elements that we can provide, having that counseling 
service spread out in a city-wide fashion.
    There is a creeping phenomenon to this, as Chairman Dodd 
talked about, of the impact of the foreclosed homes on the one 
block. It's obviously starting to depress our property values 
and starting to impact our tax revenues as well. We cannot over 
emphasize the need for housing counseling services. I believe 
we have the framework and some of the structure in place to 
make it happen. We also need more assistance, certainly from 
the legal community to the extent that we can encourage more of 
our law firms to lend us lawyers.
    There is a capacity issue here that we are increasingly 
concerned about. As the Senator said, we know the demand side. 
There are a lot of people who need services. We are 
increasingly concerned about our ability to respond both on the 
counseling side and the lawyers available. So help and support 
on just those two specific areas would just be tremendous in 
terms of responding to this problem in Philadelphia.
    As Brian said, last, Philadelphia may seem to some to be 
possibly not in as bad shape as other cities, but there is 
increasingly through the course of this year when those 
readjustments come, Philly is going to get hit. We are trying 
to get ahead of that wave before it runs us over. The kindness 
of this hearing and your articulation on the issues, it is 
really critical for us. The natural resources that expand our 
counseling programs is most important at the moment.
    Chairman Dodd. I have two points, Mayor. One is, that 
counseling is critical. Let me just say for those who are 
gathering, I normally don't recognize the audience but ACORN is 
a fabulous organization. I have hearings in my own state. I 
just had an informal gathering a week or so ago. And because it 
was a nonprofit organization, we are going to step in and 
inform people. I want to recognize the people involved and 
applaud you.
    Last year the Federal Government had $42 million total in 
nationwide counseling. As a result, Senator Bond from Missouri 
and I offered a bill and got $180 million for counseling 
services nationwide. I would have preferred 200 million but I 
had to compromise down to 100 million in the present bill we 
have before us. I was told by the organization that would be 
enough to help the county. So Bob and I will be trying to get 
that. Obviously, I was listening to the creative things that 
you have done here in the state of Pennsylvania to make a 
difference.
    I was in Reading last night and I was very impressed with 
the group of people that I met in Reading. I might be missing 
the numbers a little bit, but it is something like 60 homes off 
the roles and remortgaging. I think they had four failures out 
of 362, or something like that, in the city of Reading in an 
effort to restore, rehabilitate and get these properties back 
on the role, contributing to the community and obviously 
improving the conditions.
    Mayor, my question is, can you do this alone or do you need 
the help of the Federal Government? Does the Federal Government 
need to step up here or are you able to handle this on your own 
in Philadelphia or with the resources in the state?
    Mayor Nutter. No and yes. We cannot do this alone. Yes, we 
need the Federal Government to step up. These are the kinds of 
issues and challenges that clearly require Federal 
intervention. There is no question about it, Mr. Chairman. I 
think our responsibility is to carry that message here in 
Philadelphia, through you, and back to Washington.
    I think it goes back to something you said at the start of 
your opening statement. Sometimes some of us get blinded by 
numbers. I like numbers as much as the next person, but when 
you talk about 6,000 or 7,000 people or families a day going 
into foreclosure somewhere here in the United States of 
America, I think we lose sight sometimes. These are real 
people, real lives, and real challenges right on the ground. 
This is the opportunity for the Federal Government, quite 
frankly, to help people better understand how relevant the 
Federal Government can be in the lives of regular citizens. 
It's not some far-away place in Washington D.C. that somehow 
just sends money around all over the place.
    These are real challenges. The next step, unfortunately, 
for some of these homeowners today could be the streets of 
Philadelphia, or Reading, or Allentown, or some other city 
anywhere else in the United States of America. They will be on 
the streets. That's what we're talking about here. So, yes, we 
need the Federal support. We cannot, as a city, cover this 
issue all by ourselves. It is impossible.
    Chairman Dodd. We had a hearing last week and Bob and I 
listened to the circumstances around those 96 hours through 
March 13th and March 16th in the Federal Government, including 
the Federal reserve, that stepped in to the potential for 
bankruptcy of a major investment bank, Bear Stearns. And it's a 
major part of the merge that occurred between Bear Stearns and 
JP Morgan Chase.
    Looking at it, they might have some other alternatives. I 
argue that they probably did. Although, it's a point that Bob 
and I are concerned about. The point is, $30 billion of your 
money is thrown in to back up that proposal. So you could end 
up not having the kind of bankruptcy that could have had a 
ripple effect on the economy. There is $30 billion on the line. 
I hope the assets of Bear Stearns is going to be worth more 
than that and we will come out of this OK. We won't know that 
for a number of years.
    My point is, if we can put out as much as $30 billion of 
your money on this kind of a deal, can't we get the same kind 
of commitment when it comes to 8,000 people every day losing 
their homes?
    Mayor Nutter. Mr. Chairman, I would only suggest that there 
are probably a few Mr. Bears and possibly a few Mrs. Stearns 
here in Philadelphia who need the same kind of help.
    Chairman Dodd. Mayor, you're great. Thank you.
    Doctor, I'm happy you could be here today.

    STATEMENT OF IRA GOLDSTEIN, PH.D., DIRECTOR, POLICY AND 
          INFORMATION SERVICES, THE REINVESTMENT FUND

    Mr. Goldstein. Thank you. Good morning, Senators. My name 
is Ira Goldstein, and I'm the Director of Policy and 
Information Services for the Reinvestment Fund. I am honored to 
come before you today and talk about the results of the 
research that we have done on predatory lending in Philadelphia 
and the mortgage foreclosure issues.
    The organization of which I am part, TRF, is a national 
leader in the financing of neighborhood revitalization. We have 
been around since 1985 and invested $700 million in the 
creation and preservation of affordable housing, community 
facilities, commercial real estate, and renewable energy. There 
are various aspects of the housing market.
    Our work in the areas of mortgage lending, foreclosure and 
predatory lending has been supported by grants from foundations 
as well as governmental entities. The research we do has both a 
strong, objective data-based component, as well as a systematic 
qualitative component.
    Today, I was asked to provide some background on this study 
``Lost Values'' that we completed a while back. I will do that, 
and I will also try to bring you up to date on the numbers in 
Philadelphia.
    Just to draw your attention to that map over there, that is 
a map of the city of Philadelphia. It is the most recently 
available data that we have on mortgage foreclosures. They are 
displayed over the property values in the city of Philadelphia. 
You will see that those foreclosures, each represented by over 
6,000 dots on that map, represents the household that is at 
risk.
    Chairman Dodd. I'm closer than most people here. Give me 
some indication of what you're talking about on the map. I 
don't see the dots and I have my glasses on.
    Mr. Goldstein. Sure. This is a map of the City. We are 
sitting right here to give the orientation. The more darkly 
shaded areas are the higher priced areas in Philadelphia. There 
are, when you get a chance to stand up and walk over, you will 
see there are well over 6,000 dots here representing the 6,000 
foreclosures in Philadelphia. You will see that they are not 
singularly concentrated in the lowest priced areas. In fact, 
they are actually disproportionate in the more modest priced 
areas.
    Somebody mentioned the area of West Oak Lane, very highly 
concentrated areas like that. When you have a moment, I 
encourage you to take a look at it.
    The results that we are going to talk about today derive 
from a study of over 2,200 randomly selected properties in 
Philadelphia and 13,000 more in very specific neighborhoods in 
Philadelphia because of a set of characteristics that they had. 
We gathered information through very systematic interviews with 
people from all sectors of the mortgage lending process, from 
brokers to borrowers, to lenders, to servicers, to securities, 
to attorneys who represent borrowers, and lenders and Sheriffs, 
as well as law enforcement people at the Federal, state and/or 
levels.
    The quantitative data that we used, the hard numbers, 
allowed us to inspect and quantify the complete mortgage and 
sale transaction history for each selected property. That's 
over 15,000 properties in Philadelphia.
    In the written testimony you will see a written sample. 
Based on a thorough review of the literature and our 
interviews, we systematically coded patterns of transactions 
that we thought were indicative of predatory lending.
    For example, we coded the presence of ``rapid refinancing'' 
which we defined as two or more subprime mortgages of 
increasing amounts within a 1-year period.
    We also coded for the presence of a mortgage that likely 
exceeded the value of the property. We also coded for the 
presence of a mortgage that represented a historic pattern. It 
really goes back to the early 1990s. That is, in Philadelphia 
and many other cities, particularly the more modest income 
people were using these small finance home equity kind of loans 
to meet their credit needs for home repair, medical bills, and 
so forth. They would get these $5,000, $6,000 loans.
    In 1993, that pattern changed dramatically to the point 
where instead of borrowing these $5,000 or $6,000 amounts, they 
were really driven more into these very expensive, much larger 
loans, subprime loans in main. So really, to get a full 
historic picture of how we ended up where we are right now, you 
don't look at the last couple of years. You really have to go 
back to the early or mid-1990s.
    Essentially, what we learn is that each of those measures 
is imperfect but several together would be more or less 
indicative of predatory lending. We found that if you were to 
take a randomly selected property out of the city of 
Philadelphia, about 3 percent of those properties would have a 
pattern that was indicative of predatory lending. It doesn't 
sound like much, although, I would say that if we had any kind 
of consumer products that went bad, 3 percent of the time we 
would be taking them off the market.
    If we looked at homes that had more than a couple mortgages 
placed against them, that 3 percent rises to 14. There are some 
neighborhoods, like the one I pointed out on the map, where 
more than 30 percent of the homes manifest patterns of 
predatory lending. Not every instance of predatory lending ends 
up in foreclosure and not every foreclosure is a result of 
predatory lending, as we know, but they do often go together.
    As the Mayor pointed out, our foreclosure numbers right now 
are about 6,200. They really dipped after that 2003 time period 
by the surge since 2005. The chart of that is included in my 
written testimony. We have increased over 18 percent over the 
last couple years. That was against another increase the year 
before. What we found is that the frequency to predatory 
lending was much greater again in the foreclosing properties 
than randomly selected. Roughly 28 percent of the properties 
subject to foreclosure did manifest a pattern that suggested 
that predatory lending was in the background.
    With that, I would say that what we know about predatory 
lending, frankly, as you know, you've held more hearings than I 
even know about, there is no definition of what it is. Since we 
finished that, the landscape has changed quite a bit. What I 
would like to do is bring you up to date a little bit on some 
localized numbers since you're out here in the field.
    In terms of subprime lending, the most recent available 
data only takes us up to 2006. That does show a dramatic rise 
in Philadelphia, from 2004 to 2006. In 2004, purchases were 
about 14.5 percent and in 2006 it was up to 32 percent. More 
importantly though, with that rise, there has been a real 
decrease in the FHA lending activity. I know the FHA isn't 
really something that we don't pay very much attention to. It's 
very important. Here in the city of Philadelphia, in 2003, FHA 
loans comprised about 15 percent of the purchases. They are now 
down to just under 6 percent in 2006. I believed they continued 
to decline in 2007. What you see in many places, a drop in FHA 
was taken by the rise in subprime.
    We itemize the estimated aggregated value of real estate 
that has been mortgaged in any given year. In Philadelphia, 
that is about 13.5 percent. So if you say what is all the 
housing in Philadelphia worth, and how much was mortgaged in 
2006, about 13.5 percent. That, we believe, is a measure of 
risk. It's an enhanced risk over that which we see in the 
Commonwealth of Pennsylvania which was about 9.5 percent.
    I would say that in terms of just the last year, what do we 
know about servicing? I would say that servicing suggests that 
one of the years that we didn't pay a whole lot of attention to 
has been the run up of delinquencies in the subprime ARM area. 
It's something that people are well aware of. It's gathered a 
lot of attention, but the numbers that we suggest are much 
lower and are brought up in that delinquency rate, which is now 
quite significant. It's three or four times more than what it 
was a few years ago.
    What I would like to do is make a few final comments about 
some of the policy issues that have been asked over the last 
several months.
    First, we have housing counseling. It's my first-hand 
observation that housing counselors try very hard to keep up 
with both the changes in the lending and servicing industries 
and the extraordinary growth in volume of demand for their 
services.
    One of the things that PHFA has done a very good job in, 
and I would really encourage the Federal Government to take a 
look at, is the ability to tie the increase of funding to some 
enhanced measures of outcomes of banks. It would be a darn 
shame to put that much money in counseling and not have it have 
any effect and have us learn better about what works and what 
doesn't work.
    Last, it is important to remember when comparing 
Pennsylvania's experience to other states, we do have HEMAP, 
which is a nationally recognized program.
    Each year, PHFA staff and counselors review thousands of 
applications from Pennsylvania at the brink of mortgage 
foreclosure. More than 1,500 people are assisted each year. 
Those homeowners who get assistance from PHFA never reach 
foreclosure. If they were, Pennsylvania's numbers would be far 
worse.
    PHFA should be commended for some novel approaches to 
working with people who have adjustable rate mortgages that are 
becoming unafforded through its HERO and REAL programs.
    Finally, the Legislature is moving on several bills that 
will strengthen the regulatory environment and enhance consumer 
protection for homeowners in Pennsylvania.
    Thank you for inviting me to testify and I welcome your 
questions.
    Chairman Dodd. Thank you. I am sure the Senator has many 
questions. Let's first turn to our next witness, Mrs. Yajaira 
Cruz Rivera. First of all, as Senator Casey said, the gentlemen 
to your left obviously work at this every day. But now we get 
to actually hear from someone who is going through this. It 
takes a lot of courage, in my view, to stand up in a public 
setting and talk about personal circumstances.
    I want you to know that every person in this room and every 
person that's watching this are deeply grateful to you because 
there are literally thousands of people who are living what 
you're going through and whose names we will never know. They 
will be familiar with you. What you're going through is what 
they are going through.
    You will give us an opportunity to understand this in a way 
it is hard to understand when we are just talking about numbers 
and blocks and neighborhoods and blocks and efforts and titles 
of programs. But there is someone named Yajaira Cruz Rivera who 
is going through a situation and is willing to share it. That 
means a great deal and I want you to know that.

  STATEMENT OF YAJAIRA CRUZ RIVERA, PHILADELPHIA, PENNSYLVANIA

    Ms. Cruz Rivera. Thank you for having me. Thank you to 
Chairman Dodd, Senator Casey and ACORN. Without the joint 
effort from all of you plus myself and other Philadelphians 
that I represent, we wouldn't be here today.
    My situation is the following: In 2005, my husband and I 
purchased our home. We budgeted carefully and we did our 
homework. We went to a reputable broker. Before we even set 
out, we knew what the amount was that we wanted to spend on a 
home. We didn't want to go over our means. We have children and 
we are responsible people. We did a lot of budgeting for 
unforeseen things to occur, for example, a loss of a job, an 
illness, or a death. We mapped everything out even before we 
set out on this next endeavor in our lives together.
    After searching, we settled in a home. We sat down with the 
broker and we told him everything we did want and did not want. 
We did not want an ARM rate. We did not want a flexible rate. 
That was not in our best interest or our family's interest. We 
wanted a conventional mortgage at a standard price for the 
length of the time of our mortgage. We went to the closing 
table and we signed on the dotted line.
    At these closings, there are 200 documents, per se.
    They highlight everything that comforts you at that time or 
that you want to hear at that time. We did not have disclosure 
on the mortgage pretense. I think that needs to be said. There 
are disclosures for every legal parameter. We need to do more 
on the end of the mortgage disclosures.
    Ten days later after closing, we got a new set of papers 
that we did not sign and that we haven't seen before. They said 
that the projection of your mortgage monthly rate was an error. 
The calculations were wrong. The interest rate is not, in fact, 
7 percent. The interest rate is now 10.95. Your monthly 
mortgage will not be $975 a month that you settled on and 
signed previously. Your new mortgage, in fact, is $1,235.
    Now, at this point we're in the home. Our children are 
running around the home, picking out their rooms, picking out 
palettes for the colors on the walls. We have girls, needless 
to say. Our family has come over, brought gifts and so forth. 
OK. What do we do?
    We sat at the dinner table my husband and I, and we said, 
we can do this. We could do some budgeting and do this. There 
is something wrong when the initial draft and agreement has not 
been honored. My husband is a very reserved man and he doesn't 
like to shake the tree down, per se. He said, ``I know that in 
2004, the interests were low. We are in 2005, this has to be a 
result of that.''
    We buckled down. We said, ``We can do this.'' We could 
afford $1,235 a month. The rate adjusted again. Our original 
draft said conventional 7 percent. The words conventional, 
adjustable rate are not interchangeable. How do they do that? 
It's amazing.
    In 2007, we were faced with another uprising in our 
interest rate. Now, we're paying $1,671 a month. Needless to 
say, my husband at that time and currently still, is working 16 
hours a day, 6 days a week. He's not allowed to go to work on 
Sundays; if not, he would. He's committed to our family and 
home.
    This event did not come about because we were irresponsible 
or did not pay. We consistently made payments. I'm not going to 
be held on breach of contract, not on my hands. Not when my 
family would be facing displacement. It's myself, my husband, 
four children and a dog. I will give you that picture.
    So $1,671 with a full house, how do we do that? We cut--my 
husband doesn't eat lunch, per se. He can wait. We have to 
really re-budget our lifestyles and sacrifice a lot of things 
that people take for granted and we took for granted. How do 
you continually live like that? You cannot. It will take a toll 
on you. Sooner or later it will, and it did. We started making 
partial payments and late payments. Not ever sending no 
payment. We did. Again, this is in the interest of our family 
and the well being of our future.
    My principal at closing was $106,000. Our principal as I 
stand here today is $129,000 in less than 7 years. They charge 
us for attorney fees. That has been tacked to my principal. 
Usually, that is not the practice. In my case, it has been the 
practice. After months of negotiation, because we tried to 
negotiate, the mortgage service was not very sympathetic. They 
told us that we must have known what we were getting into when 
you got into the loan. We said everything that we didn't want, 
and we signed on to the things that we did want.
    What happened to us is pure, plain fraud. There is no other 
way to say it. Like I said prior, our first draft was never 
honored. If that had been the case, my family wouldn't be here 
today. That might be the percentage of the families facing 
foreclosure today. Not all--I cannot speak absolutely--but 
there are a good many people with responsibility that do the 
right thing.
    Then we sought out help. I saw ACORN on the news. I said, 
``I have to get on board with an organization and make these 
numbers really count. I have all this information, all this 
work for a year already and I wasn't getting anywhere. 
Corporate America wasn't doing anything for me. I had to take a 
bigger picture, a bigger chunk, and speak on behalf of the 
Philadelphians and not just myself. It's difficult to be naked 
or nude financially in the eye of the public. Nobody wants to 
do it but it's not only me on the line. It's 6,237 homes on the 
line. With a family of four you're looking at 32,000 people 
that will be displaced.
    As this gentleman said earlier, where are we going to go? 
We are going to go on the streets that are already pledged with 
the homeless as it is. These families are not at fault and 
these families should not be here. Who is at fault are 
Corporate America and subprime lenders.
    I did enter into modification. It was a consideration of 
modification, not even a modification. My lender has stipulated 
that I am on a grace period of 6 months to make payments of not 
the original draft. My payments are $1,284 a month. If I make 
those on time for the next 6 months, that will be my fixed 
rate. So what happened to the first draft which I signed on the 
line and bought? That has been forgotten at this point. We 
signed the paperwork and we sent in our payments, certified 
funds, which I've always done. Three weeks after that date I 
got a sheriff's sale posted on my porch simply because the 
law's litigation department did not convey information to the 
collection department. That just shows you the irresponsibility 
of these services. It's not done. To them, we are numbers. 
We're not real people.
    Philadelphia is a comfortable place to live. My family 
settled here in 1981, and I visited other states but I always 
come back here. This is my home. Our communities are getting 
destroyed, and no one seems to care or even want to budge. The 
only ones that are profiting are the investors, the banks, and 
the redevelopment that is happening here and across the 
country.
    For each foreclosure on a block, property values go down, 
which we have already mentioned and spoke about. The loans, for 
example, in the city are going to cost us $345 million for lost 
production. What is going to happen to our schools?
    It will produce the ripple effect. The neighborhoods get 
destroyed. The schools get destroyed. Taxes are being 
displaced, or what I would like to say, recirculated to a 
different end because the neighborhoods are not benefiting from 
them, not at all.
    On March 25th, Ms. Jones, who was also supposed to be here 
today to testify but she had an unforeseen family event, and I 
hosted a meeting at the House of Prayer Episcopal Church to 
discuss this crisis. Over 100 neighbors came out. Councilman 
Jones and other members of Council came out as well. We all 
agreed that the City should do all it could to prove what has 
happened here. It would be a shame to experience something like 
Cleveland and Detroit has.
    I think that if everyone steps in at this point--we merit 
to be salvaged. This city has always been a great city and it 
shouldn't be destroyed because of greedy predatory lenders. 
They are misguiding and flat out lying to the consumers. We 
think that maybe these lenders are waiting for the government 
to bail them out of the mess they created. Honestly, they 
shouldn't. They shouldn't because they have gained a large 
profit at the beginning by what they have done to the 
population.
    I think the issue at hand needs to be corrected, not just 
corrected with a Band-Aid. They want to refinance and modify 
less than 1 percent of these subprime loans. That's a slap in 
the face for the consumer and a Band-Aid over the issue. That 
is not going to help. We need real life solutions. Not for now, 
but for the future. With that said, we need a streamlined 
approach for fixing the Nation that's in crisis and not only 
Philadelphia. The projection has been, as this gentleman said 
on my left, 2.2 million homes have been set for foreclosure and 
it's rising everyday as we sit here. We need to be people of 
action.
    We cannot wait for a solitary loss, litigation staff person 
to pull out the abacus for each and every individual case. Our 
neighborhoods will never recover from this unless we handle 
this crisis. ACORN and the city of Philadelphia will not sit 
idly by and see our neighborhoods destroyed. As evidenced by 
the actions of City Council and the Sheriff, Philadelphia will 
fight back and hold lenders accountable for their actions. We 
will require them to fix these failing loans. We cannot wait 
for solutions to come from the state or Federal level either, 
or else we may suffer the same fate as many of the other cities 
have already been devastated by this crisis.
    We have acted now and we expect and hope that other cities 
will join us. We also hope that other states will join us and 
demand answers from those who caused the housing collapse that 
we all now face.
    Chairman Dodd. Thank you very, very much. Ms. Cruz Rivera, 
that was very good testimony. Let me quickly ask both of you, I 
may not have seen the details on this issue of the legislation. 
I wondered if you have any thoughts or comments on this idea of 
the FHA to ensure itself that it's doing a similar kind of act.
    Mr. Hudson. One of the things I mentioned in part of my 
testimony is that you do need a reserve fund. We have attempted 
to do some of that on a limited basis through our agency, but 
the numbers need to be a lot larger. Our concern is the 90 
percent versus a higher LTV. For instance, we have been doing 
95 percent of LTV for 25 years. Our average credit score is 
around 700. But we think there should be some flexibility 
there. Not just driven by a credit score of the homeowner. We 
do a little higher LTV there and buildup that as well.
    I know FHA hasn't seen a lot of activity, and we think part 
of that is because there is not enough flexibility built into 
it. While our homeowner's credit score is maybe below 600, the 
credit score in our program would be one of the last deciding 
factors. We are looking at the homeowner's ability to pay. If 
we can improve this, this solution would be back on solid foot. 
We are following the bill.
    Chairman Dodd. I would be very interested to look at and 
see any ideas. We have forgotten about this. I'd be very 
interested to take a look at this. We would like to move this.
    Mr. Hudson. Absolutely, Mr. Chairman. A number of states, 
including ourselves, have started a refinance program. We've 
already attended to 100 or so homeowners and we are looking to 
help over 1,500 over the next 6 months. That may not fit in 
with the criteria now, but we would like to work at that.
    Chairman Dodd. In fact, the second wave is coming around 
this summer. There is a larger wave coming.
    Senator Casey. First of all, I wanted to highlight some of 
Ms. Cruz's testimony. I was looking at the prepared remarks. 
When I looked at your testimony as well as Ms. Jones' 
testimony, she wasn't able to be with us today, I was struck by 
a couple of statements of which I think bring us back to 
reality for us. Especially for people who work on this issue in 
Washington. You said, and I am quoting from your testimony, ``I 
budgeted carefully. We did our homework.'' Then just after 10 
days they jacked your rate up. Later you talked about how you 
read the modifications over and over to find the hidden 
language.
    Ms. Jones talked about in her testimony, ``It is my home I 
hope to live in the rest of my life. I grew up in South 
Philadelphia. I was a block captain. I couldn't get the person 
on the phone who I was dealing with. ACORN showed me where in 
my loan adjustable rate language was tucked into my loan.'' She 
said later, ``I don't want a handout, I just want what I was 
promised.''
    This shows who you are and how hard you've worked and how 
this transaction is about your hopes and your dreams and your 
family and your future. Just the condition of that with the 
tricks and the deception and the lies and the hidden language, 
the information in the text is outrageous. This is America. 
These people made money. This wasn't just them being careless. 
These people made money off of this by tricking you. It's 
outrageous.
    You bring to us, not just a reality of how high your 
payments were and how they were jacked up unfairly and 
deceptively, but you also tell who you are and we appreciate 
that because there are a lot of people in Washington who have a 
lot of money to get their point across. They have lobbyists and 
insiders helping them everyday.
    You bring to us the reality of the situation and we are 
grateful for that. We are going to do everything we can. We may 
not get the votes to what we need, but we are going to continue 
to work on it. Senator Dodd has been working on this night and 
day, month after month after month not to mention years, but 
especially in the current crisis we went through. I want you to 
know how much we appreciate your testimony today as well as Dr. 
Goldstein and Mr. Hudson for bringing your expertise.
    I guess I have one global question for all three of you, 
but especially for those who are working with the mechanics of 
this. Senator Dodd has set forth a whole series of important 
proposals. The other side, I won't mention who they are, but 
there's another side to the Senate, who have been cooperative 
on some things and blocking other things.
    If there is one or two points that you could leave with us 
in terms of what you think we really have to get done if you 
had all the votes, what are one or two elements that you think 
we need to focus on?
    Counseling, of course, is one of them. Senator Dodd was 
giving us that summary that we go from 42 million and now we 
have 180 done. We have another 280 million for 2008. Tell me 
about what you think, one or two basic things that you want to 
follow up on from today.
    Mr. Hudson. Obviously, I feel that counseling is very 
important. The other point is, that the reserve fund is on 
target because we need that. It would be a loss if it was to be 
covered somehow. The other point that I think is very important 
is the AMP and the ability to refinance using taxes and bonds. 
That's critical for many programs. So you have the counseling, 
you have the reserve funds, and you have the tax re-fi. I think 
we can make a difference.
    Chairman Dodd. That's a very good point. We included the 
1.6 billion in mortgage revenue files. It's pending on the 
floor of the Senate.
    The 1.6 billion is not out of thin air. With some 
calculations, that number would be a pretty adequate number to 
help us out with this situation. Do you have disagreement with 
that number?
    Mr. Hudson. Not necessarily, no.
    Mr. Goldstein. I think the counseling is obviously very 
important. I think that being able to make sure that the 
counseling is done properly and that it's done with all the 
resources that somebody needs to have is a very important 
element. I also think that the issue of liability is very 
important and who ends up being liable for what pieces of the 
transactions.
    There are a lot of actors in all of this and it starts 
often with a very small conversation between a borrower and a 
broker. Obviously, the borrower is going to be helping out, and 
the borrower is the one who ends up losing their home. The 
brokers oftentimes though walk away completely unscathed. That 
is a problem when you have \2/3\ of the transactions done by 
these mortgage brokers. It really works all the way through--
for the people who buy these mortgages as well. They are making 
an investment.
    I think that for the observation in our interviews and what 
we learn in part is that what happens throughout a transaction 
is that there is a review of that transaction, but there is a 
view of the form of it rather than the substance of it. People 
look at these mortgages and see that they all have appraisals. 
Nobody is really taking a look to see if the person down the 
road has done it to make sure that it is done properly. 
Eventually, if someone is going to have responsibility for 
something they need to be able to rely on it. Oftentimes, it's 
the buyers that are setting the terms. The buyers will say, ``I 
want to buy a bundle of mortgages that I want to look a 
particular way.'' If you're going to be responsible for setting 
the terms, if you're going to set that out, there is going to 
be some responsibility that goes along with it.
    Second, I think the one thing that we did learn about the 
way this financial market works these days is that anything can 
be priced. If there is a liability that's attached to 
something, it will be priced. So by the time they get to the 
fourth or the fifth or the sixth buyer down the road, it might 
be, if there is going to be some liability attached to it, it 
might be the price that reflects that a little bit.
    Again, I think it's important to recognize that if you're 
going to set the terms by virtue of what you say you're going 
to purchase, then you need to accept the responsibility for 
what is under those terms. What I do think is interesting is 
the issues of the rating agencies. There really does need to be 
some responsibility there too. Frankly, our organization is a 
lending institution at our core. For example, if I had a travel 
voucher that's unsigned, it gets kicked back.
    These rating agencies are looking at bundles of 
transactions. They are not really looking at them with the same 
kind of scrutiny that they would look at with personal things 
or anything like that. Again, it's the presence of the document 
rather than the accuracy or the reasons for missing the 
document that they're waiting for.
    Mr. Hudson. I agree with you. As the prices started to hit, 
a number of opportunists started to buy these mortgages at deep 
discount prices. The market will determine its own level. With 
regard to the scrutiny and oversight, we at PHFA receive a 
number of calls about our portfolio from investors.
    Chairman Dodd. And you don't see any threat to that falling 
backwards?
    Mr. Hudson. I think there needs to be an understanding 
about that. You will get some push back on that for sure. It 
used to be that way before.
    Chairman Dodd. Subprime lending can be very valuable. 
Adjustable rate mortgages are very valuable instruments under 
certain circumstances. We are developing this certain notion. 
Without subprime lending, they certainly would never qualify. I 
don't know if you want to comment on this but I always try to 
make that point. If it weren't for subprime lending, people 
don't qualify for prime lending. They never even think about 
getting a loan.
    Mr. Hudson. I agree. When we got our foreclosures statewide 
to close in 2003, we realized our state had a high 
concentration of subprime lenders. Our study was not to 
eliminate that because it does sort of value old-fashioned 
lending. There should be some consideration for that. I think 
what it evolved into are buying process, and shops, greed, and 
laziness when old-fashioned underwriting went out the window. 
How many loans can you process in a day, a month, a week to get 
those commission rates? That's happened. We need to get back to 
basics. Subprime lending does sort of value those who are in 
that credit situation to buildup to a certain level. We need 
though to get back to basics and offer that product in some 
sort of fashion.
    Mr. Goldstein. I would agree. I think it forms again, I 
think the idea of being about to keep track of what to do. One 
of the folks that we interviewed was a former loan officer. He 
said the scrutiny that he was under, not so much for making 
loans that went into delinquency, but for not making enough 
loans that went into delinquency was great. What they said was, 
subprime lenders, if you're not doing that, you're not pushing 
the product hard enough.
    Chairman Dodd. I will repeat the statistic. Sixty-one 
percent of people who have subprime loans would and should 
qualify for prime loans.
    Ms. Cruz Rivera. On that note, I believe that there is a 
need for every step of this business venture. There are people 
who qualify for them. That's where the disclosure comes from. 
Those people should be stepping up and knowing what they're 
getting into. Do not give a product to a consumer who did not 
want that product to begin with. You dealt that card to them. 
No. Explain things to them. Tell them, you don't qualify for 
this. There are other products we have along these lines. Let 
them choose where to put their money or where their funds lay.
    Chairman Dodd. That's steering. That's called steering. 
Like I said a minute ago, most of these deals are done in about 
eight or 10 weeks. All the people on that front end got 
compensated and they moved on and got rid of the product, then 
they run to the next one.
    It's very exciting, what you've done. Could you once again 
briefly tell me about the REAL?
    Mr. Hudson. The REAL program is actually for those 
homeowners who----
    Senator Dodd. What does it stand for again?
    Mr. Hudson. Refinance through affordable loan. It's 
actually for those homeowners who are just beginning to slip in 
their mortgage. They are no more than 2 months delinquent. They 
are looking at another adjustable rate hike. We originate that 
product to a network of about eight lenders.
    Chairman Dodd. Is there a web page or something?
    Mr. Hudson. Yes. Our web page is www.phfa.org.
    Chairman Dodd. And they can find out about that program?
    Mr. Hudson. Absolutely. Also, 1-800-822-1174 is the phone 
number. REAL is designed to help those homeowners just 
beginning to slip. We know that there has been a number of hits 
that they have searched around to find. That's why credit 
scores, they are not the determining factor. Our determining 
factor is, can we improve the financial situation of that 
homeowner.
    HERO, which is the homeowners' equity recovery, is designed 
for homeowners who are upside down in their mortgages. They owe 
the lender more than the property is valued. We will actually 
do an appraisal and negotiate with the lenders on behalf of the 
homeowner. This is where we need help in bringing those 
services and investors to the table. We call all over the 
Nation trying to find out where loans are serviced and get 
someone to address it.
    Many times, we simply say, ``Look, foreclosure is going to 
cost you more. Take the write down, sign the loan to us, and 
we'll service it in the house. We've dedicated five million to 
each program. We're just beginning to do our intensive 
advertising that was the result of the foreclosure litigation 
on a nationwide basis. So we are going to really have to get 
started and target the consumer and say don't be embarrassed. A 
lot of consumers are embarrassed by the document and are not 
going to come forward.
    We are training our counselors what to look for. Is this a 
REAL candidate or is this a HERO candidate? We've hired five 
staff people to handle HERO alone in-house. We've mailed out 
3,000 applications on a statewide basis and we have 500 loans 
under review right now for the HERO program.
    Chairman Dodd. It's a national problem. For the first time 
in years, I want to say the Great Depression, it seems like 
that long ago, the percentage of homes in this country who have 
the debt that exceeds the equity. That's happened at an 
incredibly fast rate. I know this has been the first time since 
the Great Depression that where the home values have declined. 
That's not happened since the 1930s.
    Senator Casey. Mr. Chairman, thank you very much. We 
appreciate the testimony by the witnesses. We've learned a lot. 
Thank you.
    Chairman Dodd. We would like to thank you. You have been 
very helpful, and we'd like to stay in touch and follow up. I 
think we can go and take a step nationally and make a 
difference.
    Thank you very much and thank you, Senator Casey, once 
again. This would not have happened without Senator Bob Casey, 
Senator of Pennsylvania. Thank you to Banking, Housing and 
Urban Affairs for inviting me to this City of Brotherly Love. 
Thank you.
    [Whereupon, at 11:50 a.m., the hearing was concluded.]
    [Prepared statements and additional material supplied for 
the record follow:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

