[Senate Hearing 110-868]
[From the U.S. Government Publishing Office]
S. Hrg. 110-868
CLARK COUNTY, NV: GROUND ZERO OF THE HOUSING AND FINANCIAL CRISES
=======================================================================
FIELD HEARING
before the
CONGRESSIONAL OVERSIGHT PANEL
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
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HEARING HELD IN LAS VEGAS, NEVADA, DECEMBER 16, 2008
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Printed for the use of the
Congressional Oversight Panel
Available on the Internet:
http://www.gpoaccess.gov/congress/house/administration/index.html
CLARK COUNTY, NV: GROUND ZERO OF THE HOUSING AND FINANCIAL CRISES
S. Hrg. 110-868
CLARK COUNTY, NV: GROUND ZERO OF THE HOUSING AND FINANCIAL CRISES
=======================================================================
FIELD HEARING
before the
CONGRESSIONAL OVERSIGHT PANEL
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
HEARING HELD IN LAS VEGAS, NEVADA, DECEMBER 16, 2008
__________
Printed for the use of the
Congressional Oversight Panel
Available on the Internet:
http://www.gpoaccess.gov/congress/house/administration/index.html
----------
U.S. GOVERNMENT PRINTING OFFICE
51-705 PDF WASHINGTON : 2009
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Washington, DC 20402-0001
CONGRESSIONAL OVERSIGHT PANEL
Panel Members
Elizabeth Warren, Chair
Rep. Jeb Hensarling
Richard H. Neiman
Damon Silvers
C O N T E N T S
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Page
Opening Statement of Elizabeth Warren, Chair, Congressional
Oversight Panel................................................ 1
Opening Statement of Damon Silvers, Member, Congressional
Oversight Panel................................................ 8
Opening Statement of Richard Neiman, Member, Congressional
Oversight Panel................................................ 17
Statement of Congresswoman Shelley Berkley....................... 18
Statement of Congresswoman-Elect Dina Titus...................... 21
Statement of George Burns, Commissioner, Nevada Financial
Institutions Division.......................................... 24
Statement of Bill Uffelman, President & CEO, Nevada Bankers
Association.................................................... 40
Statement of Dr. Keith Schwer, Director, Center for Business and
Economic Research, UNLV........................................ 49
Statement of Gail Burks, President & CEO, Nevada Fair Housing
Center......................................................... 63
Statement of Danny Thompson, Executive Secretary-Treasurer,
Nevada State AFL-CIO........................................... 71
Statement of Julie Murray, CEO, Three Square Food Bank........... 72
Statement of Senator Harry Reid, U.S. Senate Majority Leader..... 81
Statement of Alfred Estrada, Resident of Clark County, NV........ 83
CLARK COUNTY, NV:
GROUND ZERO OF THE HOUSING AND FINANCIAL CRISES
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TUESDAY, DECEMBER 16, 2008
U.S. Congress,
Congressional Oversight Panel,
Las Vegas, NV
The Panel met, pursuant to notice, at 10 a.m. at the Thomas
and Mack Moot Court, Boyd School of Law, University of Nevada-
Las Vegas, 4505 S. Maryland Parkway, Las Vegas, Nevada,
Elizabeth Warren presiding.
Attendance: Elizabeth Warren [presiding], Damon Silvers,
Richard Neiman.
OPENING STATEMENT OF ELIZABETH WARREN, CHAIR, CONGRESSIONAL
OVERSIGHT PANEL
The Chair. The hearing of the Congressional Oversight Panel
will now come to order. This is the first field hearing of the
Congressional Oversight Panel of the Emergency Economic
Stabilization Act of 2008. I want to begin by thanking our
hosts, The Boyd School of Law of the University of Nevada Las
Vegas where I count many of my close friends. I want
particularly to thank President David Ashley and Dean John
White. I think both of them are with us. Would you mind
standing so we can say thank you.
Universities and law schools in particular have a unique
role to play in civic life. And I think this is a very
important example of that. And so I am grateful, the entire
panel is grateful, for the willingness of those at UNLV to come
in on very short notice and work very hard so that we can put
this hearing together. I also want to add that we received
generous assistance from the offices of Senator Harry Reid and
Congresswoman Shelley Berkley. We're delighted that Senator
Reid and Congresswoman Berkley, as well as Congresswoman-elect
Diana Titus will be joining us. Sorry. I'm sorry. I'm sorry.
Congresswomen-elect Dina Titus will be joining us during the
course of today's hearing.
Actually, I'm particularly embarrassed, because I want to
be able to say publicly how tickled I am to have the
opportunity to meet Congresswoman Titus because she is
responsible for doing something that I didn't think anyone
could do. And that was to manage to get through when she was
still a state legislator, a ban on universal defaults in
consumer contracts. And so my particular kudos in that case.
It's a remarkable achievement, given how much the odds were
stacked against it. So I'm particularly looking forward to this
opportunity.
Chairwoman Warren. In September 2008, the Secretary of the
Treasury, Henry Paulson, issued a strong warning to Congress
that without massive government intervention, the U.S.
financial system faced the possibility of imminent collapse. In
response, on October 3, 2008, Congress passed the Emergency
Economic Stabilization Act of 2008 authorizing the Treasury
Department to commit up to 250 billion dollars in taxpayer
money, to be followed by another one billion dollars and
another 350 billion, if warranted.
The statute also created this oversight panel at a
considerably smaller cost. The Act's purposes are, to quote,
``restore liquidity and stability to the financial system of
the United States in a manner that, A, protects home values,
college funds, retirement accounts, and life savings; B,
preserves home ownership and promotes jobs and economic growth;
C, promotes overall returns to taxpayers of the United States;
and D, provides public accountability''.
Congress created the Office of Financial Stability within
Treasury to implement the Troubled Assets Relief Program,
cleverly known as TARP. At the same time, Congress also created
the Congressional Oversight Panel with the far better acronym,
COP, to review the current state of financial markets and the
regulatory system. COP is empowered to hold hearings, to review
official data, and to write reports on actions taken by
treasury and financial institutions and their effect on the
economy.
Through regular reports, COP must oversee Treasury's
actions, assess the impact of spending to stabilize the
economy, evaluate market transparency, ensure effective
foreclosure mitigation efforts, and guarantee the Treasury's
actions are in the best interest of the American people.
In addition, Congress has instructed COP to produce a
special report on regulatory reform that will analyze, quote,
``The current state of the regulatory system and its
effectiveness at overseeing the participants in the financial
system and protecting consumers''.
We are here today to investigate, to analyze, and to review
the expenditure of taxpayer funds. But most importantly, we are
here to ask the questions that we believe all Americans have a
right to ask. Who got the money? What have they done with it?
How has it helped the country? And how has it helped every day
Americans?
As part of that ongoing effort, we reach out to you. We can
read the statistics and we can analyze the data, but we want
more. We come to Nevada to learn from you about the current
economic crisis and the impact, if any, of the nearly 350
billion dollars that has been committed to the financial
institutions and AIG insurance company so far.
One quick word about this panel. We have been in existence
as a group for less than three weeks. And instead of spending
time to set up our offices, hire an extensive staff, and
develop a timeline and a strategic plan, we jumped directly
into the task at hand. We have met with representatives of the
Treasury Department, the Federal Reserve Bank, and the GAO. We
have read documents and requested information. And we now have
two things: We have our first report and we have a website. The
two are together.
The first report is posted on our website. It's COP,
cop.senate.gov. That's cop.senate.gov. And you can go there and
download the report, cut and paste it. Do what you want to do,
if you would like to read it.
But most importantly, what we also hope to do with that
website is not just have us talk to you. We hope that you will
use it as an opportunity to talk to us. And that is, we're
setting up within the website, it's still in its beginning
phases, but an opportunity for you to tell us what's happening
to you in this economy, how it is that you're experiencing the
current economic crisis, and to talk with us about the
questions we are asking of the Treasury Department.
Further to that, we have invited witnesses today and their
testimony will be posted on the website so that people all
around the country can read it. But we recognize this is an
opportunity for a public hearing.
And so we will have out in the lobby, starting, I believe
now, a video camera. We have someone out there who will give
you the same five minutes the witnesses get here to tell your
story. To tell whatever story you want to tell about this
economy, about the Congressional Oversight Panel, and about the
actions of the Treasury so far. We hope to be able to use some
of those. We will look at them when we're not here. We
recognize the constraints of time. And we also hope to be able
to use them to feature some of them on our website so that
others have the opportunity to hear from people in Nevada about
what is going on in Nevada. So we hope you will take advantage
of that, as many of you as possibly can.
We arranged this first meeting in great haste, imposing on
our skeletal staff and, more often, on the kindness of our
friends to put together this event in less than a week. We are
especially grateful to everyone who contributed to this effort.
But I mention the tight deadlines and our quick response to
emphasize a different point. We take this task very seriously.
Our country is in peril. Taxpayer dollars are flowing into
banks, but there is little evidence what effect these hundreds
of billions of dollars are having on the very obvious troubles
facing us. Mortgage foreclosures, constricted small business
lending, and rising unemployment.
We are here to learn from you and to take what we learn
back to Washington. We appreciate your coming here in person.
And for those of you who join us online, for telling us your
stories. And I hope you will join us again on our website.
[The prepared statement of Ms. Warren follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chair. With that, I will be quiet and listen to you.
And next, we will have our opening statement from Damon
Silvers, one of our panelists. Damon.
OPENING STATEMENT OF DAMON SILVERS, MEMBER, CONGRESSIONAL
OVERSIGHT PANEL
Mr. Silvers. Good morning. I am very pleased to be here in
Nevada for this first hearing of the Congressional Oversight
Panel. I want to express my appreciation to Senator Harry Reid
and Speaker Nancy Pelosi for the opportunity to serve on the
panel and to the congressional leadership and their staff, and
the good people here at UNLV, and to Congresswoman Berkley and
Congresswoman-elect Titus for all their help under the extreme
time pressures that we asked people to act under as Elizabeth
indicated.
I also want to express my appreciation to our chair,
Professor Elizabeth Warren, for her leadership in getting our
panel off to such a fast start. Professor Warren has worked
tirelessly over the past three weeks, giving voice to the
concerns of the American people.
It is also an honor to serve on the panel with my two
distinguished fellow panelists; Congressman Jeb Hensarling, who
was unable to be here with us today, and New York State Banking
Superintendent, Richard Neiman.
In the three week since the panel's first meeting, we have
had the chance to meet with many dedicated public servants at
every level. In the Treasury Department, the Government
Accountability Office, the GAO, and other government agencies
who are working as hard as they can to try and stabilize our
economy. Whatever the panel's concerns are and may become
regarding policy, strategy or execution, they should not be
read in any way as to diminish the great respect and gratitude
that we owe for those folks, for the public service that they
are rendering in their efforts to serve our country in this
economic crisis.
Since early October, the Treasury Department has provided
banks, private companies, with 165 billion dollars in public
money, taxpayer money, in exchange for preferred stock. Plus,
an additional 60 billion dollars to two companies; Citigroup
and AIG. And they have made commitments to allocate more than
100 billion dollars more to banks and to buy asset backed
securities. In total, these very large numbers amount to more
than $1000 for every single American.
Each of us has to be concerned about the specifics of these
actions taken under the Emergency Economic Stabilization Act of
2008. Actions which every person I know who is not actually
involved in the policy making process refers to as the
financial bailout.
When Congress created this panel, Congress asked that it
report every 30 days on our oversight work. Last week, we
issued our first report. The report was, in its essence, a set
of ten simple questions, together with some explanations as to
why we felt it was necessary to ask each question. These basic
questions cannot be answered through a dialogue among
Washington insiders. They must be the subject of a national
conversation. A conversation that starts off with what is
actually happening in our communities. Communities like yours.
Can business people borrow money to run their firms? Are
foreclosures getting better or worse? Are employers hiring or
laying off workers? Are local financial institutions being
fairly treated by our federal government?
The opportunity to get answers to these questions is why
I'm so pleased to be here in Nevada today. Because we need to
know how the Wall Street bailout looks from here. Has it
helped? Is there less fear here in Nevada than there was in
September and October? Is the bailout being fairly managed? Is
the Treasury Department's plan thoughtful in relation to what
has gone on in the economy here? Do Nevadans, whose tax dollars
have been used to fund the bailout, feel that you have enough
information about how your money is being used? Do you feel
that there has been accountability for the financial sector?
Now, some involved in managing the bailout have said that
the measure of success is not in what has happened but in what
has not happened, that we have averted, we have prevented a
complete halt to all financial activity. When Hank Paulson
asked Congress to act in September, and then when he chose
together with British Prime Minister Gordon Brown to put money
directly into the banks in October, he certainly had good
reason to believe that we faced the risk of systemic breakdown.
But it is difficult to assess this kind of argument. Because
while it is true that our economy is in grave trouble, now,
today, it could always be worse. And it can be hard to know
whether by our actions are actually making it better.
So our panel needs to look deeply in the coming weeks into
the extent to which we have stabilized our financial markets
and whether we could have done a better job. But when we do so,
we must remember that the financial markets do not exist to
serve themselves. Markets exist to move resources to productive
activities so that all of us are better off. If the financial
markets are not achieving that end, if the innovative
entrepreneur, the builder, the business person, large and
small, cannot obtain financing for viable businesses, then we
have not achieved our purposes in seeking to stabilize the
financial markets.
If a downward spiral in housing prices driven by
foreclosures, falling incomes, and rising joblessness keeps our
major financial institutions on the brink of collapse, we have
not repaired the real economy and we have not really even
stabilized our financial markets.
As we make these inquiries we need to remember that our
economic problems are not ultimately about finance. This
recession and its associated financial upheavals are driven by
structural problems in our economy. And in particular, a long
futile effort to maintain high consumer spending while in
reality wages stagnate and our productive capacity shrinks.
Some of us in the East don't understand about Nevada, that for
decades there have been good jobs here. The hotels here in Las
Vegas employ tens of thousands of workers who earn a living
wage, have health insurance and a pension, doing jobs that in
other parts of the country often pay only poverty wages.
Labor and management in Las Vegas built a service sector
middle class in the '80s and '90s, which is now under pressure
from a national economic model that is not working. The truth
is, if America is in economic trouble, if the American middle
class is under pressure, the middle class in Las Vegas will
feel the pain. In a very real way our economic fate as
Americans is woven together.
But our national strategy in recent years seems to have
been to look to the financial sector to borrowing, to leverage,
to generate wealth. That strategy has failed. And the vain
pursuit of it has made our economic situation far worse than it
might have been.
Now, we run the risk as a nation of making the mistake of
thinking that if we only cut our incomes we can get through
this crisis, that the best employers are those that pay the
least. The best bankers are those that lend the least. The
truth is that these deflationary strategies will only make
things worse, much worse.
So the questions we as a nation should ask about the 225
billion dollars that has been handed out are: Are we really
stabilizing the financial system and improving our economy? And
second, are we laying the foundation for a financial system
that can really work to move capital toward productive uses and
appropriately manage risk?
In the pursuit of answers to these questions, I hope our
panel will visit every corner of our country. In the weeks and
months to come, we need to hear what the public, business
people and consumers, workers and home owners have to say about
how the public's money is being used to stabilize our economy.
Thank you.
[The prepared statement of Mr. Silvers follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chair. Thank you, Mr. Silvers.
Mr. Neiman.
OPENING STATEMENT OF RICHARD NEIMAN, MEMBER, CONGRESSIONAL
OVERSIGHT PANEL
Mr. Neiman. Good morning. And thank you all for appearing
here today. Especially those who are here to testify, those who
are here to learn. And particularly, those who are here because
they care. I also want to especially thank the media here. And
there are a number of television and print. Because that way,
all citizens and members of the public across the state will
have an opportunity to participate in today's event.
I also think it's especially appropriate that we are
starting our first meeting here in Nevada, the epicenter of the
foreclosure crisis. I don't have to tell anyone in this room
that Nevada ranks first in the nation for foreclosure filings,
up more than 100 percent since last year. The turmoil in the
financial markets has literally hit home here.
Now, we all come from diverse backgrounds as members of
this panel. We've been asked to serve as citizens by Congress
on this unique experience. I come from the state of New York.
We are not nearly as severely impacted as a state as you are.
However, pockets of New York are being disproportionately
impacted. Whole areas of communities like Brooklyn and Queens,
which account for over 30 percent of all foreclosures, are
being devastated by a series of foreclosures impacting
concentrated areas in those communities. Over 20 percent of
foreclosures are on Long Island are being significantly
impacted where there is an extreme shortage of affordable
housing.
So I can relate to the challenges you are facing here in
Nevada. It may seem overwhelming when entire communities risk
being destabilized. Unfreezing credit markets is vital. But
lasting stability also must address the needs of families
losing their most valuable asset, their home.
So a lot of these efforts--foreclosures, are a local issue.
They impact states, they impact communities, and they impact
families. And much must be done at the state level. In New
York, Governor Paterson and I chair an inter-agency task force
for over a year and a half that we refer to as HALT, Halt
Abusive Lending Transactions. We are addressing foreclosures
and the impact of the housing crisis across a continuum of
progressive approaches to stem the crisis. From direct outreach
to borrowers, connecting borrowers and lenders to sit down and
modify mortgages, to new legislation at the state level, to
significant grants to home counseling agencies and legal aid
groups, and increased enforcement against unscrupulous mortgage
originators and other participants in the mortgage crisis.
However, only so much can be done at the state level. And
that's why there is such an important need for action at the
federal level. And that was the impetuous for the Emergency
Economic Stabilization Act which gave rise to this important
panel. The panel includes a diverse group, as you can see,
among us, as members, with diverse backgrounds from a union, an
academic, and consumer interests. As well as myself from an
industry at a regulatory agency. But even more importantly, we
are out to hear from you as stake-holders among an even more
diverse a group of citizens. From industry, from consumer
advocates, from state and local officials, and from academia.
So we're here to hear from you. This is your day. And I'm
going to turn it back over to Elizabeth so we can get started.
And I look forward to an extremely productive morning. And
thank you for giving me the opportunity to give those remarks.
The Chair. Thank you, Mr. Neiman. We would like to start
with statements from Congresswoman Berkley and Congresswoman-
elect Titus. If you can join us. Come to the table.
Congresswoman Berkley, thank you very much for being with
us. The chair recognizes you.
STATEMENT OF CONGRESSWOMAN SHELLEY BERKLEY
Congresswoman Berkley. Thank you very much. I want to
particularly thank you, Chairwoman Warren. And thank all of the
panel for traveling to Las Vegas to see firsthand how the
nation's economic crisis is affecting our community.
Mr. Silvers, I'm going to help you understand the State of
Nevada.
Mr. Silvers. I tried.
Congresswoman Berkley. You tried. Here in Las Vegas, we
have become accustomed to leading the nation in many different
categories. And that's usually a very good thing. Population
growth, economic strength, number of satisfied visitors that
come to our community. Las Vegas has been a boom town. Just to
give you some idea of what it has been like growing up in Las
Vegas over the last several years, many, many decades now.
Unfortunately, the problems caused across the nation by the
current economic downturn have been magnified in Nevada. We
have had the highest foreclosure rate in the country. For most
of the last two years, our unemployment rate was at 7.6
percent. In October, I suspect it's substantially more than
that. And Danny Thompson head of the AFL-CIO will speak to the
fact that thousands and thousands of his members are out of
work and idle.
Our unemployment rate, unfortunately, continues to climb.
And the number of people flying into Las Vegas to enjoy our
wholesome family entertainment has decreased for the last 12
straight months. The airlines have cut 20 percent of their
flights to the Las Vegas valley, which has had devastating
consequences for us. Our community is suffering. My
constituents are suffering. And there's not much good news on
the horizon.
When Secretary Paulson came to Congress requesting
unprecedented power and funding to rescue the financial
industry and restore the flow of credit, I was extremely
skeptical that this strategy would work or that enough
conditions were attached to ensure accountability and
transparency. I initially voted against the bailout. And I'll
tell you why.
There were three reasons. One was, I didn't think there was
enough control over executive compensation. There was some
language in there, wasn't strong enough. And if you read in the
Las Vegas paper yesterday, you would have seen that there's a
report saying that executive compensation continues as usual
because of a loophole that was included at the last minute in
the bailout bill.
The second one was, with all due respect, please know how
grateful I am that you are here, I thought the congressional
oversight committee was a window dressing, to say the very
least. I mean, this is an after the fact thing. The money is
gone and there was no oversight. Secretary Paulson gave the
money where he wanted to give it. There was nobody, certainly
nobody in Congress that had the authority. We gave the
authority away, and the money is gone. The authority never
existed and--there's no accountability.
The third was the judicial review section, which I thought
was, in all due respect, a joke. The only way that Mr. Paulson
can be held accountable for his actions through judicial review
is not if he violated the intent of Congress, which I believe
he has, not if he's violated the statute, but if he violated
the constitution. So as an attorney, I was thinking, how does
one violate the constitution? It seems to me, unless Mr.
Paulson is accused of committing treason or owned slaves or
keeps women from voting in this country, there is precious
little we can do when it comes to judicial review of his
decisions.
I reluctantly supported the final legislation only after
being assured that the need was great and the oversight would
be vigorous. This is what was said to Congress. And I am
quoting almost verbatim. The purpose of this was to buy up
toxic paper, unclog the pipes of the financial industry, and
get money and credit into the pipeline, get the credit and the
money flowing again.
In the two months since I cast that vote, Secretary Paulson
has used almost 350 billion dollars to prop up Wall Street
banks and investment companies, but little has been done to
help the people of Las Vegas and other communities across the
country who have already lost their homes or who will fall
victim to foreclosure soon.
As an added insult, the government accounting office
reported recently that the Treasury Department has no way of
knowing whether the billions already allocated are being used
merely to pad the financial industries' bottom line rather than
increase lending and limit foreclosures--and limiting
foreclosures was Congress' intent.
The bottom line is there is no discernible impact from TARP
money. TARP was supposed to set the floor. It has not set the
floor, and that has not created the necessary stability to give
the banks the confidence to lend money.
Now, I keep hearing from people that this is a crisis in
confidence. Well, perhaps that is true.
However, it is very difficult to tell someone that has lost
their job and their home in the same week that this is a crisis
in confidence. It is a little more substantial than that.
And believe me, I understand what it's like to want that
American dream of home ownership. When my family moved to Las
Vegas, everything we had was in a U-Haul hooked up to the
bumper. Now, when we finally bought our first home in Vegas, it
gave us a feeling of stability and power. We had roots in this
community. We were--we were somebody. We were homeowners. We
belonged here. We made Las Vegas our home. I understand how my
constituents feel about that. It gives you a piece of the rock.
And I cannot even begin to imagine the devastation it would
have caused my family if we would have lost our very small but
our very first home to foreclosure.
It's more than that. It's more than people that have lost
their homes. And let me give you three very quick vignettes. I
met with my car dealers yesterday. They have got millions of
dollars of inventory sitting on their lots. They have willing
buyers coming into their lots, and they can't get them
financing because the pipes are still clogged. So people that
are creditworthy still can't get the credit that they need in
order to do the second biggest purchase of their lives for most
people, and that's a car. That's killing the car dealers.
Killing them.
My step-daughter--I'm very proud to say--has just become a
doctor and started practicing here in Las Vegas in September.
She has signed a multiyear contract. She has an income coming
in, and a rather substantial one. She could not get a loan for
a house. Because why? Because there's no liquidity. The banks
are not lending money, even to creditworthy people.
And finally, another quick example, one of the most
successful business people in the Las Vegas area, if not the
United States of America, has the second largest timeshare
company on the planet, Golden Credit, is having all of his
loans called in for absolutely no reason. Nothing has changed
other than that lack of confidence and the banks wanting to
guarantee their money. And it's creating havoc, I can assure
you.
I appreciate the efforts of this Congressional Oversight
Panel to highlight exactly what the economic crisis has meant
to families of southern Nevada, whether the TARP is actually
helping. I also am delighted that you're going to take a tour
of Las Vegas. You'll be in my congressional district. You're
going to see the devastation of home after home after home in
foreclosure. What it's doing to neighborhoods, and what it is
doing to property values. The witnesses you will hear from
today bring a variety of important perspectives to this
hearing. But each are going to deliver the same message. Our
community is hurting. We could use some help.
Now, let me say this. And I have a couple of other things I
want to say. I remain optimistic. Our nation has survived far
worse than this and we've come out stronger. And while it is
not under your jurisdiction, I believe that infrastructure
stimulus package that we're going to pass in January is going
to make a tremendous difference. Because we have a crumbling
infrastructure in this country. And if we are going to remain a
super power with a future, we're going to need to shore up
that.
Number two, energy legislation. We need to get away from
foreign oil and start tapping into renewable energy sources.
It's an economic imperative, an environmental imperative, and I
believe a national security imperative too. And it's good for
the future of this nation.
Also, the way we do health care in this country is
backwards. We spend billions of dollars in end of life care
rather than pouring those billions into early detection and
prevention of disease, research, and development. This crisis
may be the catalyst for making those necessary changes for the
21st century. But before we do any of that, we have to solve
our financial crisis.
Let me give you four things that I have found would help a
lot. My homeowners still have no one to renegotiate their loans
with. And at the end of this month, a lot of--millions of loans
across the country are going to be reset higher up, people are
going to be losing their homes. There is nobody to talk to.
There is no telephone number. There is nobody on the other end
of the line that can say, alright. You can afford to stay in
the house for $1100 a month, your current mortgage payment.
You're reset to go up to $1600 a month. Let's renegotiate this
loan.
Who are these people going to talk to? There is nobody yet.
And we need to provide that for them. I'm sure the blanks would
rather have somebody paying a mortgage, even at a lower amount
than nobody in the house. It's certainly good for the
municipalities and the states as well.
I believe there is no consistency between the Treasury and
congressional intent and the FDIC in what they are doing. The
regulators are overcompensating. And that's why creditworthy
people like my stepdaughter can't get a loan. They're putting--
really putting the thumb down on the banks. We're giving them
the TARP money. And there are so many rules and regulations to
overcompensate for what they did or didn't do that created this
crisis, that they're not freeing up the liquidity that we need.
Number three, short selling. I mean, it's killing us. And
suspend mark-to-market. And there hasn't been a businessman
that I've spoken to that hasn't begged for those things and the
banks as well. Because if it's at the current--if it's valued
at 500,000 but it's only worth 300,000, then the banks have to
write off the 500,000. They're using the TARP money for that
instead of putting it in the pipeline so that my consumers can
get that credit.
I thank you very much for your kind attention. I know I
went a little long. I've got much to say, and I need to take
care of my constituents because they depend on me.
The Chair. Thank you. Thank you very much, Congresswoman. I
applaud your enthusiasm and thank you for hosting us here. We
really do appreciate the help you gave us so that we could be
here----
Congresswoman Berkley. Well, you're here at my alma mater,
and I'm very happy to have you here.
The Chair. Thank you.
Congresswoman-elect Titus, it's a pleasure to welcome you.
Please, give us your statement.
STATEMENT OF CONGRESSWOMAN-ELECT DINA TITUS
Congresswoman-Elect Titus. Well, thank you very much, Madam
Chair. That's always a hard act to follow, I can tell you.
Madam Chair, members of the committee, for the record, I'm Dana
Titus. I'm the newly-elected member of Congress from Nevada's
third congressional district and a former minority leader of
the state Senate since '92. And I very much appreciate,
Professor Warren, your comments about some of my work in the
legislature.
I'm pleased to join my colleagues in welcoming you to Las
Vegas. And I'm encouraged by your presence here to gather
information on our very serious housing and mortgage
foreclosure problem. As you know, as you've said, and as you
will hear repeatedly, Las Vegas has the worst foreclosure rate
in the country. And the third congressional district is the
worst of the worst. The third district includes the suburbs and
the surrounding communities where the greatest growth has
occurred in the recent decade. In the numerous developments
that ring this valley that have just sprouted up like mushrooms
over the past ten years, speculation has run rampant. And we
see the result of that in the high foreclosure rate.
Companies and individuals scooped up lots of houses with
mortgages that were too good to be true, anticipating that they
could sell the houses off at a profit before they had to pay
the piper. Unfortunately, it didn't work that way. There were
other individuals who, as Congresswoman Berkley mentioned, who
were just trying to realize the American dream at a time when
the economic prospects looked really good. Never did they dream
that within a few months or a year or so they would be without
a job. Nor did many people understand the complex financial
instruments, and terms, and ARMS, et cetera that were part of
the lease--or the mortgage that they signed. Who can read and
understand that--those terms in the fine print when many of
those haven't even been recognized or defined in the financial
world and certainly have not even been regulated?
As a result, it's been estimated that maybe as many as 1 in
40 houses in this district is in some form of foreclosure. Now,
you take that problem and you couple it with the highest
unemployment rate that Nevada has had in 25 years. In addition
to that, we have a national economy that has hurt our gaming
industry, because there is no disposable income for people to
use for taking a holiday.
In addition to that, the revenues at the state and local
level are down because property tax is down, sales tax is down,
real estate transfer tax is down. And the result is those
governments have had to cut services that would help the people
who are now in trouble. So you overlay that with this
foreclosure disaster and southern Nevada is on the brink of an
economic crisis.
We used to pride ourselves on being recession proof, but
that is no longer the case. People used to feel like if they
had two nickels to rub together, they would go to Las Vegas,
gamble it, and perhaps change their fortune. Not so much
anymore. Now, we are in trouble and we need your help.
I understand. I wasn't there. But I have tried to study
that the Emergency Economic Stabilization Act that was passed
by Congress with the best of intentions to encourage the banks
to free up credit, to invest money back into the economy, and
to allow the Treasury to buy those troubled assets. As yet,
however, we have seen very little help on our main street level
here in District Three.
And now the message has changed. As I understand it,
Secretary Paulson now says he is not going to buy up mortgage
related securities. One day it's one thing, the next day it's
the next. I believe that until the Treasury Department uses
it's authority to more aggressively and directly address the
housing problem, hard working families in CD3 will continue to
face the problem of foreclosure. We need for banks to use the
money that they have to refinance mortgages, to restructure
loans in meaningful ways that don't foster re-foreclosures
within a short time, because we have seen that happening. To
get involved before delinquencies in payments occur, so you get
on the front end of things and not the back end, and to pursue
rent to buy options as certain possibilities. And we need to
focus first on those owner occupied homes. Those are the people
who are there who need our help.
And as you have said, Madam Chair, and as the recent GAO
report pointed out, we need more transparency. The taxpayer
needs to know who is getting the money, how much are they
getting, where is it going, what are the state and local
governments really doing with their neighborhood stabilization
funds, and why is it taking so long?
In short, we cannot allow financial institutions to ignore
the intent of the law to aid in the reduction of foreclosures,
because I believe that addressing the housing situation and
creating jobs are the keys to turning our economy around. That
is certainly true in Nevada.
While individual lenders, investors, builders, and
borrowers must accept the responsibility for their actions, we
also have to remember that this crisis not only affects that
family that loses its home but it also affects the
neighborhood. From lower property values to forgone revenue,
the entire community suffers. We have seen that throughout
District Three. A house is vacant, the lawn dies very quickly
here without water, then the graffiti comes, the vandals come,
the windows are broken, the swimming pool turns into a feeding
ground for West Nile Virus and mosquitoes. You see the whole
neighborhood goes downhill instantly. And we just cannot allow
that to happen.
So thank you very much for being here and for giving me an
opportunity to tell you how critical this problem is and how
much we need your help to diversify Nevada's economy, keep
people in their houses, get people back to work, and turn this
country around. Thank you so much.
The Chair. Thank you, Congresswoman. Thank you both for
joining us.
And now I ask that the first panel could be seated. Thank
you.
Today's hearing will consist of two panels of witnesses.
The first panel will address the causes of the current
foreclosure crisis in Clark County and their relationship to
the broader financial crisis gripping the country. The second
panel will focus on the impact of the crisis on the local
economy and how it has affected working families in Clark
County.
We're joined on the first panel by George Burns, a
Commissioner of the Financial Institutions Division of the
Nevada Department of Business and Industry. William Uffelman,
President and CEO of the Nevada Bankers Association, and Dr.
Keith Schwer, Director of the Center for Business and Economic
Research here at UNLV.
Thank you all for being here today. I ask you to please
limit your oral remarks to five minutes. Your full written
statements will appear in the official record of the hearing.
Mr. Burns, could you start, please.
Mr. Burns. Thank you. Good morning, Chair Warren and
members of the panel. My name is George Burns. I am the
Commissioner of the Nevada--am I on?
Mr. Neiman. I think the speaker over to your right. You
have one right in front of you. Okay.
Mr. Burns. Is that better? How is that? Sorry. I'll start
again.
The Chair. Thank you.
STATEMENT OF GEORGE BURNS, COMMISSIONER, NEVADA FINANCIAL
INSTITUTIONS DIVISION
Mr. Burns. Good morning, Chair Warren and members of the
panel. My name is George Burns. And I am the Commissioner of
the Nevada Financial Institutions Division. I am honored to
have the opportunity to testify on the banking and economic
environment in the State of Nevada and the Treasury's Troubled
Asset Relief Program.
This panel provides an important mechanism for oversight
and accountability of this program in the future of our
regulatory structure. I am very pleased that my colleague,
Richard Neiman, has a critical role in this process. As state
regulators, we play an important role in ensuring local
economic development while protecting consumers. As we evaluate
the effectiveness of the various government programs and
contemplate our future regulatory structure, it is important
for Congress and the Administration to hear and learn from the
experience of state officials.
Today, I will share my perspective on the effect of the
mortgage and financial crises on state chartered banks and bank
customers in Nevada, the strategy behind the Nevada banks and
the Treasury Department's use of TARP funds through its Capital
Purchase Program, and my recommendations on the use of future
TARP funds to help the banking industry in the State of Nevada.
I would also like to share my thoughts on the broader
issues surrounding the TARP and regulatory restructuring.
Nevada, as the rest of the nation does, finds itself in one of
the most challenging financial situations since perhaps the
1930s. Two studies, one done by the National Conference of
State Legislators, and another completed by The Rockefeller
Institute, state that Nevada has suffered significantly more
than the rest of the nation in the current economic crisis. In
short, our economy has gone from the fastest growing in the
nation to amongst the worst.
Nevada, like the rest of the nation, is experiencing both a
foreclosure problem and a credit availability crisis. In
Nevada, the financial crisis is strongly related to the
unavailability of capital. The lack of investment funds for
projects has literally killed economic growth, while just a few
years ago this state led the nation in the creation of small
businesses.
Not only are many financial institutions not extending new
credit, but they're also reducing or eliminating existing lines
of credit for many customers, which only exasperates the
problem. Making capital available for institutions to loan to
credit worthy customers is an essential step in the right
direction of turning this financial crisis around.
Our nation's banks are operating in a challenging economic
environment, the severity of which is probably greatest in
Nevada. A downturn in economic conditions often results in a
weakening of the banking sector and an increase in bank
failures. Nevada has seen the voluntary liquidation of two
banks, the closure of two other banks, and the merger of two
nationwide financial institutions into others.
The declining real estate market of almost 30 percent in
values, rising foreclosures to a level of the highest in the
nation, slower economic growth, and an unstable energy crisis
have both exposed and contributed to weaknesses in the
portfolios of numerous Nevada banks. The industry now has to
manage these risk exposures over an ever weakening economy.
Our job as regulators is to ensure that risks are
identified in a timely manner and proactively managed to
minimize destabilization of individual institutions, as well as
the financial institution's industry as a whole. Nevada,
particularly southern Nevada, has two major economic engines;
gaming and real estate development. The overall economy has
dampened gaming, and the mortgage crisis has stagnated real
estate development with huge inventories of foreclosed
properties. State chartered banks in Nevada are being affected
by these circumstances indirectly but significantly. Most
Nevada community banks do not originate much, if any,
residential real estate mortgage loans. If they do, they are
not held in portfolio in any significant amounts. However, the
mortgage crisis has begun to spill over into the commercial
real estate market, which Nevada community banks specialize in
with small to medium size businesses.
As residential real estate values have declined, so have
commercial real estate values, specifically, in the acquisition
and development categories. If there are no residential
rooftops going up, supporting commercial development of grocery
stores, retail strip malls, et cetera do not go up either. This
has led to increasing nonperformance in substantial segments of
Nevada community bank loan portfolios. The need for----
The Chair. Mr. Burns, if I can just ask you to wrap up, so
that we can be sure we hear all three people. I'm sorry how
fast five minutes goes.
Mr. Burns. That's quite all right.
The Chair. And we will, of course, have your entire
statement in the record.
Mr. Burns. Thank you.
With the announcement of the Capital Purchase Plan, 27 of
the banks--state bank charters indicated their interest in
applying. Nine of these have submitted applications. Two
applications have been forwarded to federal regulators in
Washington D.C. headquarters. And two applications have been
forwarded and approved by the Treasury. To date, only three
Nevada institutions have received any of the TARP funds. And
that is from funds that were supplied to their multi-state,
multi-bank holding companies. All the rest of those that have
been submitted so far are primarily from privately or closely
held institutions, which the Treasury Department has only just
begun to entertain the approval process.
It seems that the larger institutions have avoided poor
examination ratings that would have vexed them from
consideration because of timing. However, the smaller community
banks have continued to deteriorate putting them at a
competitive and regulatory disadvantage to publicly traded
institutions because they maybe no longer meet the federal
regulatory definitions of a healthy institution.
The Chair. Thank you very much.
Mr. Burns.
Mr. Burns. Thank you.
The Chair. I appreciate it.
Mr. Burns. Thank you.
[The prepared statement of Mr. Burns follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chair. Thank you. Mr. Uffelman.
STATEMENT OF BILL UFFELMAN, PRESIDENT & CEO, NEVADA BANKERS
ASSOCIATION
Mr. Uffelman. Good morning. My name is Bill Uffelman. I'm
president and CEO of the Nevada Bankers Association. Madam
Chair, members of the panel, I appreciate the opportunity to
testify on behalf of Nevada's bankers on the Troubled Asset
Relief Program. I have been asked to focus on the health of the
local banking system of the current financial climate,
including bank lending to small businesses and whether TARP has
had a measurable effect on the community banking industry in
Nevada.
Nationally, the TARP program has served to calm the
financial markets and does have promise to promote renewed
economic growth. However, it's also a source of great
frustration and uncertainty to many banks. George has commented
on how few Nevada banks actually have seen the money.
Much of the frustration and uncertainty is because of the
significant and numerous changes to the program and
misperceptions that have resulted on the part of press and the
public. Overall, as you know, regulated banks were not the
cause of the problem and have generally performed well. Not
only did the regulated banks not cause the problem, they can be
the primary solution to the problem, as both regulation and
markets move towards the bank world. Investment banks, in
effect, are no more. They're all becoming bank holding
companies with substantially reduce leverage opportunities and
with much stricter regulation.
In general, banks across Nevada did not make toxic sub-
prime loans. They are strongly capitalized and ready to lend.
But they cannot do so if misguided policies increase their
regulatory costs and provide disincentives to lend. Banks
already face significantly higher costs from deposit insurance
premiums. They are almost double now what they were in the
past. And banks are already receiving contradictory government
signals about lending, being told to use capital to make new
loans. And in some cases, being told by bank examiners not to
because the risk is too great.
As you all probably recall, banks loan from deposits. You
don't lend out your capital. The capital is there to support
the lending, but it in fact is not to be--or shouldn't be the
source of the loans. There's a broad consensus that the crisis
grew out of a housing bubble fed by mortgage loans that never
should have been made, which were securitized and sold to
investors who did not properly analyze or understand the risk.
Excess leverage on Wall Street and other financial centers
greatly exacerbated the crisis. The impact on the economy of
the dysfunctional housing market is very evident in Las Vegas
and in northern Nevada. The dramatic reduction to new home
construction has hit the construction development lending,
bringing it to a virtual halt. Banks in both areas have also
been hit by the decline in the commercial real estate
development, which typically lags behind residential
construction.
These impacts are further exacerbated in Las Vegas by the
decline in retailing, tourism, and gaming. In northern Nevada
declines in manufacturing are also contributing to the decline
of their economy. Despite it all, banks in Nevada stand ready
to lend to qualified borrowers. However, it's more difficult
for potential borrowers to qualify because of tightened credit
requirements. At the same time, because of the economic
slowdown, potential borrowers are not stepping forward to ask
for loans. They have hunkered down to wait and see what the
future holds.
A banker at a large bank commented to me that in the old
days they might have funded seven deals out of ten that were
presented. Now, they're only funding three or four. Some of the
other deals were referred to smaller community banks where they
might obtain funding or many wither on the vine. To many
bankers, the implementation of TARP has been frustrating.
Today, nationally, only about 50 banks have received capital
infusions in Nevada. Less than a handful, as George has pointed
out, two community banks have qualified for the Capital
Purchase Program and received funds.
This is due to Treasury's phased implementation program.
The program was open to the publically traded banks in mid-
October, to small privately held banks in mid-November.
Guidelines from mutual banks, Sub S banks, and others that have
no way to issue preferred stock have not been issued. My
current chairwoman, she actually received the application forms
on Thursday. She has to decide whether to convert her bank from
a Sub S to a C, so they can even proceed with the process.
As Treasury moves forward, it should assure that TARP will
allow all healthy banks, regardless of their corporate
structure or charter type to participate in the CPP. Treasury
should also ensure that sufficient money remains to fully fund
the CPP for community banks accepted into the program. It would
be most unfair and result in competitive inequality for the
community bank program not to be fully funded.
The Chair. Mr. Uffelman----
Mr. Uffelman. Because the TARP funds have not really
reached most of Nevada's community banks, I cannot say that it
has a measurable effect on community banking.
The Chair [continuing]. One minute.
Mr. Uffelman. To the extent that most community banks have
not yet had the opportunity to participate, they are at a
disadvantage in competing with banks that have received TARP
funds. Nevada banks continue to lend, and the TARP can help to
further stimulate expanded banking services by healthy banks.
As the economy starts to grow again, the growth will be stunted
if adequate credit is not available.
As experience has shown in previous economic slowdowns, it
is the banks that end up providing most of the needed credit to
support a recovery. Banks are anxious to meet the credit needs
of businesses and consumers, and we know that such capital is
vital to the economic recovery in communities large and small
across Nevada and the country. Thank you.
The Chair. Thank you----
Mr. Uffelman. I have also provided the panel with an
article that was in the Review Journal yesterday. It's an
associated press article: ``Small Banks Waiting for Rescue
Funds.'' It seemed very on point. I could have read you the
article rather than constructing something myself.
The Chair. Thank you very much, Mr. Uffelman.
[The prepared statement of Mr. Uffelman follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chair. Dr. Schwer.
STATEMENT OF DR. KEITH SCHWER, DIRECTOR, CENTER FOR BUSINESS
AND ECONOMIC RESEARCH, UNLV
Dr. Schwer. Thank you. Madam Chair, members of the panel,
thank you for the opportunity to testify this morning. I will
be focusing on the economic conditions surrounding the State of
Nevada, but will be making most references with respect to Las
Vegas. But conditions in Las Vegas are pretty much matched by
what is going on in our sister city to the north in Reno. Las
Vegas represents 71 percent of the population of the State of
Nevada, a population of slightly less than two million people
here locally.
There was a myth that was mentioned earlier about the
southern Nevada economy, that it was decoupled from the
national economy. That myth has destroyed very clearly. But the
myth was based upon 25 years of growth and expansion with the
population growth rate in excess of 5 percent per year. And
that compares with the national rate of 1 percent per year.
Last year, we lost a population of near 10,000 people. And that
turns into roughly 4,000 additional vacant homes added to the
excess supply that we currently have.
Looking at the composition of the economy, it is an economy
that very much looks like the Michigan economy, in the sense
that it is concentrated in one industry. The location quotient,
the measure that economists use to evaluate economic
concentration, shows that hotels and accommodations were 17
times the national average. And with autos in Michigan, it is
somewhere around 12 or 13 percent.
Over this rapid period of expansion of the last 25 years,
housing prices in southern Nevada until 2003 remained at or
near the national level with very little price variation. So
our economy was growing and providing housing, but it was not
in a bubble situation. In 2003, we saw the change. In 2003, we
saw that housing prices began to jump. And within a period of
one year, housing prices had rose more than 50 percent.
The cause of that is many components that were associated
with speculative behavior. I will note only one. That was on
television, you could follow the get rich real estate seminars.
Take out your mortgage equity, withdraw it, and invest in Las
Vegas, and get rich.
We have also had others that followed on, seeing an
economic opportunity, that were inexperienced and that added to
the economic difficulty associated with price increases.
Housing price increases peaked in 2006, and have been going
down ever since. I've included the most recent information in
graphic form, the Case-Shiller Price Index for Las Vegas.
Housing prices are now returning to the levels that they
were prior to the peak, but nobody is buying other than
investors. Overall, the economy slowed. I would note that we
did not enter a recession here in southern Nevada until
October. The economy peaked in October of 2007. So we went for
over a year with minimal impacts even though real estate and
residential construction were heavily hit. What happened there
is, we had workers moving out of residential construction to
construction jobs on the strip. If it had not been for the
credit crisis of 2007 and the associated difficulties
thereafter, we may, we may have got through that economic
downturn without the severity that we now see.
The Las Vegas economy is now one in which unemployment
rates are rising. As noted, our unemployment rate has remained
above the national rate by 1 percent and continuing to
increase. We have every reason to believe that the economy, its
unemployment rate will peak next year and could well be at the
10 percent level.
We also included a very important point of the risk during
this period. And that is, that 50 percent of homeowners in the
State Nevada have negative mortgage equity. And that is a great
risk going forward if the economy does not pick up. The housing
problems are focused in three key areas: price, for which we
have made some progress locall; foreclosures, which continue to
be a problem, an increasing problem; and jobs. And we're seeing
around those last two, that our economy is suffering
significantly.
So in conclusion, what we've seen is that credit has dried
up, we had a housing bubble, we've seen flight to safety. And
we anticipate that there will be further problems here, serious
problems. And that we face significant risk going ahead, and
that risk will depend very much on how the national economy
performs over the next year.
Thank you for your time and your attention.
[The prepared statement of Dr. Schwer follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chair. Thank you, Dr. Schwer. If you all would remain
for just a minute, we have a few questions. And I'm going to
start with Mr. Neiman.
Mr. Neiman. Thank you. As you all referenced, the Treasury
has two programs that it implemented under the TARP. One is
directed toward systemically significant failing institutions.
The other toward healthy institutions. And that's where the
bulk of money has gone to, the Capital Purchase Program. With
respect to the Capital Purchase Program, I'm interested in your
views on the effectiveness of a strategy that invests
taxpayers' money into only healthy banks, the term viable
without any additional assistance, and investment in banks
without any restrictions on--or requirements that that money be
down streamed.
I think Mr. Burns referenced the fact that there is no
requirement that money invested at the holding company level be
down streamed to individual banks, as well as no restrictions
or requirements regarding the use of the funds. And this is
really one of the critical questions that we are dealing with.
I would like the perspective of both--in fact, of any of the
members of the panel that would like to comment.
Mr. Burns. If the Capital Purchase Program continues to be
orchestrated the way that it has been so far in its short
existence, I believe that it's going to lead to further
concentration of banking in Nevada, where over 80 percent of
the market is already controlled by three national banks. This
is because, as the smaller banks have taken longer and longer
to be able to apply for and possibly receive these Capital
Purchase Program funds, their exam ratings are deteriorating
and they're now being tagged as non-healthy banks. Whereas, if
this program had moved faster or sooner or further
consideration could be given to them regardless of what their
most recent ratings are and so forth, their sustainability
there over the long run.
Mr. Neiman. So the use of the capital into larger banks,
the likely use of those funds will be for acquisitions of other
banks further consolidating the markets?
Mr. Burns. Exactly. One of the few banks in this state that
has received the funds from their holding company received over
140 million dollars. They just recently announced that they're
using 77 million of that in order to write off their bad
security investments. That is not contributing to lending, nor
the stabilization of the system.
Mr. Neiman. Mr. Uffelman.
Mr. Uffelman. Last week, when I was invited to appear
before this panel, I went out to a number--well, I went to my
board and several of my other members, among them a small
community bank. I want to quote something that he wrote back to
me. ``The FDIC just left here yesterday--and George, I forget
what bank you're at--we've been impacted with the real estate
and economic issues much the same as everyone else. They're
just plain overreacting in favor of protecting the FDIC to the
detriment of the consumers they're chartered to protect. They
talk out of both sides of their mouths and are unquestionably
on a mission to take some banks down regardless of their real
viability. I will undoubtedly come under some form--some sort
of regulatory action, just not sure which one for now. The TARP
program really needs to have its name changed. And I can think
a number of good names since they have yet to touch a toxic
asset by way of loan purchase or stock purchase.''
I will skip a couple other comments here. ``All the while,
community banks like ours are left hanging in the wind, and due
to our deteriorated condition caused by the economic downturn,
excluded for eligibility for the CPP. It's just ridiculous. And
I hope that the idea that community banks didn't cause the
problem and are affected by it are being--are not--excuse me--
are not--are affected by it are being dismissed as bad
investments. That the FDIC has taken all this effectively
discourages banks from taking any risk due to the fear of being
downgraded and subjected to harsh treatment as they continue to
protect the bank insurance fund. Since everyone knows that the
government will step in to bolster the fund, I think they're
tossing out the baby with the bathwater. Now, that you've heard
it, I'm buried at this point working on an action plan to
refocus this bank in a fashion where we're stingy lenders or
not lenders at all and will only grow our loan portfolios at a
rate commencement with our core deposit of growth. That won't
go a long way towards encouraging the banking industry to begin
lending again.''
The Chair. Thank you. Mr. Silvers.
Mr. Silvers. Well, first, I want to thank all three panel
members. I thought that the testimony was extremely valuable
and candid. As someone who just got off the plane from the East
Coast this morning, it was worth my while just to hear the
three of you outlining conditions. I'm really grateful.
I want to ask several questions I believe follow up on
Richard's inquiry, which I think, as he indicated, is essential
to an aspect of at least our--of our world.
Let me pose a series of questions to you and you can maybe
pick which one you want to answer. We have met with the
Treasury Department, and we have been present and reviewed much
of what they have said about what they are doing. And they
repeat, and we have queried them about this, and we've queried
the Federal Reserve about this, that their sole decision
criteria in the Capital Purchase Program is whether a bank is
healthy, absent of the capital infusion. That that's all that
they look at. All right.
I'm curious if any of you have a response or an evaluation
of the accuracy of that assertion.
Mr. Neiman. And the appropriateness, is that what the test
should be as to the use of those capital objections?
Mr. Silvers. And with that addition, my second question to
you really comes off of some of the comments in Mr. Uffelman's
written testimony, where you discuss the quandary, the problem
faced by banks contemplating requesting TARP money. The
perception how--how potential depositors will perceive it, how
capital--how stockholders will perceive it, a sort of set of
game theory problems. Will a bank be perceived as being weaker
for asking for money or stronger?
And this of course interacts with the criteria. The sole
decision criteria is, are you healthier or not? It's kind of a
question you may not want to ask for fear of the answer. My
question is kind of one step up, which is: Does that set of
quandaries that you've laid out, which seemed like a sort of no
win set of propositions for banks thinking about this, does
that suggest that maybe we ought to reconceptualize the way
this whole capitalization program works, and perhaps for
example give money to everyone? So that it's not--you don't
ask, you just get it. Unless, of course, you really can't--you
really are nonviable. In which case, you should be closed or
sold off.
Third question--and this is very brief--the Congresswoman
and the Congresswoman-elect talked a great deal about the
problem of mortgage restructurings. And each of you in your
testimony eluded to very high foreclosure rates. I'm curious as
to what steps are being taken here to address mortgage
restructurings by the financial institutions community, and
what steps would be helpful for the Treasury to take under the
TARP in that regard.
The Chair. So a combination of questions there. Perhaps,
we'll start at the other end this time, if that's all right.
Dr. Schwer.
Dr. Schwer. Well, I'd like to come back perhaps to the
first one and offer some explanation of perhaps what the Fed is
doing. And since the question and the devaluation of banks is
always that of solvency versus liquidity. And the deep abiding
concern and the financial regulators is the question of
solvency and the question of bank runs. I would suggest that it
is in the DNA of bank regulators not to use the word solvency.
They are very much concerned about liquidity. So I think that
perhaps reflects some of the comments that they may have made.
With respect to structuring mortgage programs, I think it's
particularly important to note the magnitude of the problem
that we face. I realize that there are questions about how to
do that. But waiting a long period of time to figure it out in
some way may well result in the problem having grown to great
magnitude. There is a question of getting it done and getting
it done now.
Mr. Silvers. If you don't mind my stopping you right there.
Do you think it's important, in thinking about this, how much
attention should we pay to the question of whether to some,
quote, ``undeserving'' people may receive aid if we act?
Dr. Schwer. Well, I realize the there is always the
question in equity of who gets what. That is the current debate
about the distinction between the money that is being used for
Wall Street and the money that is being used for Main Street.
There is the question of bailing out the banking industry
versus the automobile industry. So that equity issue is always
in front. Standing and having a long debate on who wins and who
loses is contrary to getting the nation's economy back in
order. So we need to be moving forward, from my perspective.
The Chair. Thank you. Mr. Uffelman, would you like to
respond to the questions?
Mr. Uffelman. If I can keep them all straight.
The Chair. I hope you took good notes, sir.
Mr. Uffelman. I did want to comment. You know, Fannie and
Freddie, before their failure and their preferred and other--
their stock and the impact, it did have an impact on at least
one Nevada community bank that I'm aware of. So, you know,
immediately, the day before, you're being encouraged, put your
money in Fannie and Freddie, you can't lose, by the regulators.
You do, and guess what, it's basically no longer of value. So
your capitalization is down. Mark-to-market, in the midst of
all the Treasury process over that weekend, the same time we
had people in the banking industry working on the mark-to-
market issue, again, a kind of a double-whammy.
I'll comment on the mortgage restructuring. As I said
before, the banks that I represent, in effect, they got
excluded from the mortgage game. I mean, the larger banks, you
know, that had a mortgage division, that because they were in
the mortgage business, they now are frequently servicers for a
number of investors for the mortgage-backed securities. So they
have a bigger portfolio to manage. But, in fact, and if you go
out here, as we commented before, the community bank in Las
Vegas, the community bank in northern Nevada, a minimal number
of mortgage loans, and regularly packaged up and sold upstream.
But the whole servicing industry--yesterday afternoon, I
was on an extended phone call with people all over the country
in the servicing industry, talking about servicing related
issues. For whatever reason, I have become their spokesperson.
The servicing companies that--you know, you used to have that
collection side that made all the calls, those people are now
becoming workout specialists. And they have added bodies.
But again, how many thousand properties are we talking
about? The other experience that time and time again we're
reminded, as many as half--excuse me--as many of half the loans
that are in default in this valley, the people will not return
a phone call, they won't respond to the letter. They have in
effect thrown their hands up and walked away.
Foreclosure in Nevada is typically nonjudicial. Typically,
you have missed payments for three months and a letter is sent
called a notice of default and intent to sell. That's a 90-day
letter. Sometime in that 90 days, we sure hope you would call
home and ask about, can we make an arrangement? At the end of
that 90 days, I then have a 21 day notice of sale. You still
have an opportunity to work it out.
After the sale at the courthouse steps, whoever the
purchaser is, they basically have a three day delay before
there is an eviction. So in that process, if you missed
payments for 90 days, you have the notice of default for 90
days, 21, you start adding it up, we're talking about seven or
eight months before there is that final moment that the locks
get changed on the door and the new owner, whoever they are,
takes over. Maybe the institution got it back, maybe they
didn't.
But the net outcome of all of that is, somewhere between 40
and 50 percent of the people who are involved in that, they
haven't talked to their lender at any time. It is very
discouraging. The homeowners association are upset with the
lenders. The lender doesn't own the home until the end. And it
is very difficult to deal with. So yes, we are working at it
and there are more people available to do the workouts. But it
is a very tough situation.
The Chair. Mr. Burns would you just have a short answer.
We're going to be running a little bit late, but we would like
to hear from you on these questions.
Mr. Burns. To generally answer all of the three questions
that you asked, it is indeed the case that for the first time
in history we are seeing banks fail, not due to a lack of
capital but due to a lack of liquidity of that capital. And
that's why the Capital Purchase Program is so important as far
as providing capital to institutions, so that they can loosen
up the funds aimed at liquidity.
It seems to become a matter of too big to fail versus too
small to matter. The larger banks whose actual viability is
probably even more in doubt than small community banks are
being infused. The smaller community banks are not.
Mr. Neiman. Can I just ask--do we have time or----
The Chair. We--actually--it would be rude to our next
panel.
Mr. Neiman. Okay.
The Chair. So I am going to play the discipline of the
chair here.
I want to thank our first panel very much for coming. As I
said, your remarks will be posted in full. We appreciate the
time that you have taken. And the first panel is excused. Thank
you.
I would now like to invite our second panel of witnesses to
come down.
I'm pleased to welcome our second panel of witnesses. We're
joined by Gail Burks, who is president and CEO of Nevada Fair
Housing, Inc.; Julie Murray, who is CEO of Three Square, a
local community food bank; Danny Thompson, who is Executive
Secretary and Treasurer of the Nevada AFL-CIO; and by Alfred
Estrada, who is a Clark County resident who will share his
personal story of the effects of the foreclosure crisis.
Thank you all for being here today. As I asked of our first
panel, please limit your oral remarks to five minutes. Your
full written statements will be part of the official record.
Ms. Burks, could we begin with you?
STATEMENT OF GAIL BURKS, PRESIDENT & CEO, NEVADA FAIR HOUSING
CENTER
Ms. Burks. Thank you, Madam Chair, members of the
committee, for the opportunity to make comments today. I have
been asked to focus on the role of lenders in the foreclosure
crisis and the prevalence of foreclosure victims and the impact
on those victims.
Audience Speaker. We can't hear.
Ms. Burks. Is that better?
I've been asked to focus on the role of lenders in the
foreclosure crisis and the impact on victims. Nevada Fair
Housing Center is a nonprofit. We have served the valley since
1995. And much of our work involves housing and consumer
issues. Over the last two years, we've seen a huge increase in
our case load for foreclosure prevention. Currently on average,
we are servicing about 600 calls and internet inquiries per day
for foreclosure assistance.
In terms of the lender role, in the Nevada community,
advocates warn the local government officials as well as public
officials about the increase in predatory lending in 2001. As
we begin to see what we refer to as predatory lending, we saw
an increase in fees, a decrease in retail originations, an
increase in loan purchases, and a decrease in the use of such
things as down payment assistance, FHA loans, and fee for
service type work that literally represented services provided.
As this increased, we saw a transition from predatory
lending to sub-prime lending. With that, we mean consumers who
could have received better loans receiving what we consider to
be toxic loans or sub-prime loans. So how in effect did that
work? In looking at actual data and case files in some of the
communities that have been hit the hardest by the foreclosure,
over 97 percent of the consumers that received adjusted rate,
sub-prime loans, interest only loans or Alt-A loans had credit
scores of 640 or greater and could have received a traditional
conventional loan or even qualified for an FHA loan.
As the increase in the sub-prime market expanded and the
decrease of consumers receiving legitimate loans, we also saw
an increase in foreclosure. Now, many of the national reports
and studies that have been broadcast in the news have done what
we call blaming the victim or literally putting the economic
crisis on the backs of low income consumers stating that they
caused the mortgage market to fail. This is not true. Many of
the consumers that we see on a day-to-day basis are consumers
who could have received better loans. The clients that we see
are broken down into those who have a delinquency; meaning 30
days or less, those who have received a notice of default;
meaning, 90 days or more, and those who have actually received
a sale date.
Given the opportunity, many of these loans could be
modified because the consumers could afford the homes. Now,
earlier it was stated that 50 percent of those in foreclosure
don't talk to their lender. What was not stated is that many of
the consumers have attempted to contact their servicer to
receive help, but because of all of the different programs that
are available, the loans are not getting modified without some
sort of intervention and assistance on behalf of the consumers.
The Chair. Ms. Burks, one minute.
Ms. Burks. The other thing that we are seeing in terms of
the foreclosure crisis is not enough sufficient initiatives to
actually address consumer issues. All real estate is local.
With the inability to modify loans or to obtain direct
assistance or funding to modify those loans or to purchase
those loans, these loans are actually going into foreclosure.
That's also leading to another type of scam. Consumers are
being inundated with requests to pay for foreclosure prevention
services. In some instances, consumers have paid upwards of
$4,000 to scammers to modify loans, only to find that the
foreclosure has not been stopped.
The top funds have not increased lending. Indeed, many
lenders have changed their mortgages conventional products. So
today, you have to have on average a 680 to a 720 credit score
and 75 percent of that loan will be financed, where as the
other 25 percent must come from money from your pocket. In
order to make TARP effective, we have to give consumers some
relief, we have to make modifications mandatory versus
voluntarily, and we have to ensure consumers that there is
legitimate assistance to help with the foreclosure crisis.
The Chair. Thank you, Ms. Burks.
[The prepared statement of Ms. Burks follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chair. Mr. Thompson.
STATEMENT OF DANNY THOMPSON, EXECUTIVE SECRETARY-TREASURER,
NEVADA STATE AFL-CIO
Mr. Thompson. Thank you. Thank you, Madam Chairwoman and
members of the committee. It's a pleasure to be here today. You
know, I think the previous speakers have pretty well laid out
what happened here, and that we had this massive housing bubble
and a move by everyone to make money quick.
Let me tell you, during that period of time, I was going to
buy a rental property, to show you how bad this was. I had
found one that was right, that I could afford and make enough
money in the rent. When I went to make the offer on the home,
the person selling the home told me, ``Well, no, that's not
enough, you have to offer more because this week the prices
went up.'' The prices went up so quickly and there was such a
move by people to get in on this get rich scheme, if you will,
that the lenders made loans that normally they wouldn't make.
I have friends who--who got ARM loans that they didn't
fully understand. Interest-only ARM loans on a $700,000 home
that had been told by the lender that, ``Well, don't worry if
rates go up beyond,'' because there is no way they could afford
that home, ``if the rates go up, you will simply refinance.''
And then we come to where we are today and you couldn't
refinance if you had to.
Today, they're over 30,000 foreclosures in Clark County.
One of the problems, quite honestly, is that 50 percent of the
people that hold mortgages owe more on the mortgage than the
home is worth. Now, that's a direct result of the bubble
popping. But it's also--a lot of those people are her clients,
where they now have those ARMs and those interest-only ARMs
come due. And as they get readjusted, they find themselves in a
situation where that is impossible. And so many of them simply
walk--walk away. We have a $450,000 house that the house right
across the street is worth $200,000. That's what's happening.
They--some of them literally walk away. And some of them go and
turn the keys in.
Whether the stimulus has helped individuals, I don't know
of any help that has filtered down to homeowners. I do know,
though, that the lack of regulation or the lack of enforcement
of existing regulations on some of these mortgage companies is
something that certainly needs some scrutiny. Because, you
know, like I say, I know people that have loans that ended up
with an adjustable rate mortgage that they didn't fully
understand that that's what it was. Whose fault is that? I
don't know. But I can tell you that the result of that has put
Nevada, as a state, in a place where we have never been before.
Right now, on the Las Vegas Strip, we have the largest
privately funded construction job in the world. There are
approximately 10,000 workers on that job. And Nevada's economy
is dependent, so dependent on a single source, in that almost
50 percent of all the money in the state budget comes from a
single source. And so I can tell you what the fix is not. The
fix is not to take away wages. The fix is not to take away
pensions. The fix is not to take away health care of workers.
Because that's a rush to the bottom.
And I have heard so many work people say, ``Well, we need
to''--in fact, this legislative session, I'm in the fight of my
life to protect public employees' pensions. That's not the fix.
The fix, I think is creating jobs and good paying jobs and jobs
that pay prevailing wages in the community that they are
created will get us out of this mess. Thank you.
The Chair. Thank you, Mr. Thompson.
We are going to take a break for just a minute in the
middle of this panel. I apologize to Mr. Estrada and Ms.
Murray. But Senator Reid has come to join us, and we would like
to just make a space for him and invite him in so that he can
also read a statement. That would be good. The rest of you can
just stay there. Stay there, Ms. Murray. I think Mr. Thompson
is going to give up his seat. Please, Ms. Burks, stay. That's
fine. I think we have the Senator?
Oh, it's--sorry. We do not have the Senator. We will have
the Senator soon. I was misinformed.
Ms. Murray, would you like to start your testimony? Yes.
Sorry, Mr. Thompson. I'm glad for you to have a little exercise
in the middle of this. I appreciate it.
Ms. Murray.
STATEMENT OF JULIE MURRAY, CEO, THREE SQUARE FOOD BANK
Ms. Murray. Good morning, Chairwoman Warren and members of
the Congressional Oversight Panel. My name is Julie Murray, and
I serve as the CEO of the Three Square Food Bank in Las Vegas,
Nevada. And I'm honored to have been invited to provide
testimony today. My testimony follows that of housing and
finance experts who have done an outstanding job discussing the
economic conditions of our community and our state. My role in
today's proceedings is to focus on what these numbers mean in
terms of human lives and how the residents of our city and
state are being affected and are suffering due to the downward
trends in our economy.
As you know, I run the Three Square Food Bank which started
over a year ago at the inspiration of Eric Hilton, youngest son
of Conrad Hilton, and numerous other think-outside-the-box
leaders in this community who declared that it is was not
acceptable for people in our community to go hungry. As the
newest member of Feeding America, we're proud to distribute
food in southern Nevada to over 211 nonprofit agency partners,
including faith-based groups and churches. We also provide
weekend food banks, food bank bags to 120 schools with our
Backpack for Kids program.
Maslow's hierarchy of needs states that when looking at how
a human being's needs are met on a pyramid, the basic needs of
food and shelter are at the base of the pyramid, serving as the
foundation. Once a person has these basic needs of food and
shelter met, they are better equipped to excel in school, to
maintain a job, and lead a productive life. When part of that
foundation, the core, food and shelter, is absent or has
crumbled, it makes it very difficult for a person to survive or
exist.
If I would have testified a year ago or even six months
ago, I would have said that thousands of families in my home
state are living paycheck to paycheck and are just one crisis
away from disaster. However, I'm sad that as I testify before
you today, those thousands of families have had that one crisis
occur. Due to the recession, they're now living their biggest
fear, living without a paycheck. Our city, county and state
budgets are receiving double digits cuts at a time when people
are in most need of services. At the Three Square Food Bank, we
see the people affected by these statistics and these numbers
every day.
Let me give you three brief examples in the five minutes of
my testimony. Number one, children. Children facing hunger. In
this Clark County School District here in southern Nevada
nearly half of our children, 132,000 qualify for a free or a
reduced lunch meal, which means that a family of four makes
less than $20,000 a year. Picture that. Five out of ten
children crossing the crosswalk on their way to school who are
struggling with hunger. When half of our children are
suffering, we are living in a crisis mode.
The Chair. One minute.
Ms. Murray. Thank you. Secondly, families in need. For
every child in need, there are members of families struggling
to make ends meet. Recently, while filling my gas at a gas
station in Summerlin, Nevada, a car driven by a middle aged man
with two sweet little girls in the back seat pulled in next to
me. The man approached me with an ashamed look on his face and
said that he had never been out of work but recently was laid
off, lost his home, and could not afford gas or food for his
family. My heart broke as the two little girls watched their
dejected father beg for money. I gave him some cash and told
him how to find a local food bank agency partner where he could
receive free groceries.
As Nevada's unemployment rate grows, such stories will only
become more common all across the country. So in conclusion, I
want to share with you what I testified before the
Congressional Appropriations Committee last week, along with
Governors from Wisconsin, Vermont, and New Jersey, and an
expert on higher education. Congressman David Obey wanted the
Congressional Appropriations Committee to hear testimony about
how lives are being impacted. And I was delighted to be able to
represent our state and share that with him. My input for that
committee and my input for this committee is the same. When we
are looking at ways to effect change and when you are looking
at the effectiveness of TARP, let me say that we have not seen
any decreases in the demand for food or services from my food
bank and from our 211 nonprofit agencies, partners, schools,
and churches. In fact, as we wind down our year, each week
brings huge increases in demand for food and longer lines of
people who need food at our agency and nonprofit agency
partners.
My recommendation is that we all work together. And in the
final conclusion is, I want to share with you that, as Damon
Silvers said in his opening remarks, we're all woven in this
together. And Richard Neiman said, only so much can be done at
the state level. And all of you are right. We have to work
together. My food bank service providers, cities, counties,
states, and the federal government must communicate and be
effective.
It is sad--a sad day when a child writes to Santa that all
he or she wants for Christmas is food. This recession is
frightening, it's impacting us all, people are suffering. And I
thank you for coming to our state to hear about how things are
going. Thank you.
The Chair. Thank you, Ms. Murray.
[The prepared statement of Ms. Murray follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Chair. Now, Mr. Estrada, if you could wait for just a
minute, we're going to hear, I believe, from Senator Reid,
who's going to join us.
Senator Reid, on behalf of Mr. Neiman, and Mr. Silvers, and
myself, the Congressional Oversight Panel, we want to welcome
you here today and offer a special word of thanks because,
without your insistence, this panel would not exist and
certainly not would be in Nevada today. So we welcome your
thoughts.
STATEMENT OF SENATOR HARRY REID, U.S. SENATE MAJORITY LEADER
Senator Reid. Madam Chair, I appreciate very much all of
you being here in Las Vegas. But more importantly, thank you
very much for taking this assignment. This is an
extracurricular activity that you all didn't have time to do,
but you're all uniquely situated to help the American people
work their way through the issues that they have, which are
significant.
The Chair. Senator, could you move the mic just a little
bit closer, now that you've finished those kind words.
Senator Reid. It's good over the years--it's good over the
years, I haven't developed a complex because people always tell
me I don't talk loud enough.
The Chair. Thank you, sir.
Senator Reid. Maybe I do have a complex. I don't know. For
those who are listening, I had the unique opportunity to
appoint the chair, Elizabeth Warren. And I appreciate your
taking this. I worked with Speaker Pelosi, you know, Mr.
Silvers, to get you on this board. And it really is a very,
very important job that each of you have. I can't think of a
more appropriate place in the country than Las Vegas to hold
this hearing. No place can demonstrate more the struggles that
communities across the country are facing as we work our way
through one of the most difficult economic recessions in our
entire nation's history. I'm confident this hearing will
provide the oversight board important information and insight
into the economic crisis to help guide its work in Washington.
Before the election, we passed the Economic Stabilization
Act, which created the Troubled Asset Relief Program or as we
all refer to it TARP. In acting, Congress believed that working
with the administration and the Federal Reserve, that there
could be an ad hoc approach to rescuing important financial
institutions that at the time wasn't working at all. And we
felt confident a legislative solution was needed.
We all believed, and Congress certainly was part of that
belief, that the financial system had to be stabilized before a
broader economic recovery could follow. The Bush Administration
initially believed that they would do this by using TARP to
purchase from banks troubled assets which consisted mainly of
mortgage backed securities or mortgages.
Now, I'd never heard of an illiquid asset, but that's what
Paulson kept referring to--these illiquid assets, these bad
loans. These illiquid assets had been rapidly declining in
value due to the housing crisis and were causing many
institutions to suffer enormous losses. Soon after the law was
passed, Secretary Paulson concluded that this approach was too
complicated and would take too much time and frankly too much
money. So treasury shifted gears, began buying preferred stock
in the nation's largest banks as a way to inject capital into
these firms and hopefully into the country's financial
problems. This capital could be used to help absorb expected
losses on real estate related to securities or mortgages, and
also could be used to provide funds for lending which we know
is critical to economic growth.
So far, we know that at least 350 billion dollars have been
allocated under TARP. Yet, as the economy continues to
deteriorate, foreclosures increase and credit continues to
contract. Many Nevadans wonder whether TARP is being used
appropriately. All America shares this. I do. I see two
problems with how TARP has been implemented so far. First, most
of the big banks that received capital funding through TARP,
some 225 billion dollars, were healthy and should be using the
new capital for lending. And they're not. Instead, these firms
appear to be contracting their lending activity just when
business and consumers across the country need access to credit
the most.
This lending contraction exacerbates our country's economic
troubles. And if there is anything that I want to make as a
point today, it is that these banks have to loosen their grasp
on stopping people from borrowing anything. Businesses that
have been ongoing for years and years with good credit ratings
can't borrow enough to keep their businesses going. People
can't buy cars.
I met with a bank president here in Las Vegas yesterday,
president of one of the one hundred largest banks in America.
He said it's unbelievable what is happening as far as his bank.
People can't get--their credit ratings can be very high, but
they can't get approval to borrow money for a car loan. Now, as
you know, I have spoken to car dealers and of the few cars they
have, if they have somebody who wants to buy a car, they can't
get it financed. So 225 billion dollars given to the big banks
has not helped the problem at all. And it shouldn't be that
way.
I took the liberty yesterday to call three large financial
institutions. What's going on? And they all had the same
answer, ``We're working on it.'' Well, I would suggest they get
a new work crew because it's just not helping at all.
Underwriting standards became too shoddy before the housing
bubble. We all know that. But I believe the pendulum now has
swung too far in the other direction. I hear from too many
constituents, parents, small business owners or business
leaders that need capital but can't get it because it's either
unavailable or far too expensive. The banks that received TARP
have a unique responsibility due to the fact that American
taxpayers now have an ownership stake in these banks. All of us
here who pay taxes are shareholders of those banks. We can't
force them. But for the good of the country, the banks should
be putting their TARP funds to use and lending where possible.
I don't know if this is true. You could find out, that some
of these big banks are loaning money to countries in the Middle
East. I'm not--countries, I'm sorry--to business propositions
in the Middle East, but nothing here in America. And I hope you
would follow up on that.
Second, despite Congress' clear intent that TARP be used to
stem foreclosures, so far no TARP funds have been used for that
purpose. Meanwhile, the number of foreclosures increases by
day, by day. Especially here in Nevada. Some of the witnesses
here, like Gail Burks, can explain first hand, if she hasn't
already, the scope of Nevada's foreclosure problem and the
tremendous strain it brings to working families and entire
neighborhoods. If we don't confront the problem here more
aggressively, experts predict we would see another up to 2
million foreclosures in the next two years.
Oscar Goodman and I went to the number one place in the
city of Las Vegas for foreclosures. The average home in the
area was eight years old. It was a very nice neighborhood.
People have the idea these foreclosures are taking place in
slums. They're not. The number one foreclosure district in Las
Vegas--neighborhood, I should say--in Las Vegas is a very nice
neighborhood. But part of it was exacerbated by the virtue of
the fact that here in Nevada, we had a lot of homes that were
bought for speculative purposes and not to live in. And that
made things worse.
My colleagues and I in Congress know that strong oversight
of the Treasury Secretary is critical, given the large funds at
stake. The oversight board is just one of several tools
included in the legislation to hold the Treasury Secretary
accountable to the taxpayers for fulfilling the objectives of
TARP. While I had some role in the makeup of this board,
everyone should be reminded, this board is independent from
Congress. This board will be a reliable resource to Congress
and the public, and this administration and the Obama
Administration as we learn from you how the Treasury program is
performing and whether its helping to put our country's
financial system and economy back on track.
And I would say to you, Mr. Neiman, I'm going to go out in
just a minute and speak to my number one pal on the telephone.
Schumer and I talk--Senator Schumer of New York and I talk
several times a day, and he said only nice things about you a
few minutes ago.
Mr. Neiman. Thank you very much.
Senator Reid. Thank you very much.
The Chair. Thank you, Senator, we appreciate you coming.
Senator Reid. Could I be excused?
The Chair. You may be excused, Senator.
Senator Reid. Glad to--glad to escape this difficult cross
examination.
The Chair. Thank you, sir.
Mr. Thompson would you like to rejoin us? Mr. Estrada.
Mr. Estrada. Yes, ma'am?
The Chair. It was a wait. We appreciate your patience--
Mr. Estrada. No problem.
The Chair [continuing]. And now it's time for your
statement. Please, sir.
STATEMENT OF ALFRED ESTRADA, RESIDENT OF CLARK COUNTY, NV
Mr. Estrada. Good morning. My name is Alfred Estrada, and I
was referred to you by my realtor who is Leslie Moore. Let me
tell you a little story about what happened to me. Okay?
The Chair. Yes sir.
Mr. Estrada. What happened was that my house, I fell behind
on my payments. Okay? The house doubled in price, like this
gentleman was saying, the houses doubled in price. So the
amount of money that I owed on my house was not what it is
worth anymore. So I had found another buyer to purchase the
house from me. Right? And this is when I met up with my
realtors. And I had asked them, I says, you know, I want to
sell the house to a family friend of mine so that I can stay in
the house.
I have two little daughters, and I live in a house where I
would never need to live in any other home in my life. Okay.
This is my dream house, because I can open my garage door and
see my daughters playing right directly across the street
because that's where their school is at. Okay. And what had
happened was, was that my mortgage company, they did everything
that they were supposed to do. My wife, she worked on it for
two, three weeks. Always on the phone. We had sent a bid in for
the house for a fair rate of $75,000 for the house.
All the houses had lost all their equity in the homes.
Okay. And this was with Wells Fargo Bank. And what they had
told us was that they wanted $89,000--$98,000 for the house.
Okay. So I called--I called back my buyer and I told him, I
said, ``Listen, this is what they want and then we can get the
house back.'' Because the one part--the one part that I never
wanted to do was to leave the house. Okay. Well, we did
everything that they asked for. We gave them a new bid, the
money that they wanted. They told us that if you give us this
amount, the house is yours. So after we had did everything we
were supposed to do, for two weeks, we couldn't get in touch
with anybody. And then about another week or two down the road,
and we find out that our house was sold at auction.
I had a realtor come to my house and tell me that I had to
move out of my house because--because they had no record pretty
much of none of the things that was being done as far as the
new bid for the home with our first mortgage company. So at the
end, they tell me that I have 14 days to get my children out of
the house and take them out of the house that--it's their home
really. And so the gentleman tells me that he's going to pay me
$500--up to--well, first $1,500, he was going to pay me for
something called cash for keys.
Which meant--because my wife, she was--she was working for
a lady that was into foreclosed homes and she was cleaning the
homes. And so she--we had--I had been with her, and I had seen
some of the homes that people that are so distraught they're
losing their homes or they're just upset, and they're tearing
these houses apart, which is bringing the value down even more.
And I told the gentleman, I said, ``Look, that's not our
intention.'' I says, ``My intention is this, is that on the day
that you told tell me that you are going to put the house back
up for sale, I want to be the first person that you call so
that I can have what should have been done in the beginning get
finished so that I can move back into my home.'' The thing that
really amazed me was that the $98,000 that the bank said that
they wanted for the house, well, they sold the house for
$85,000 in a auction. So they actually lost money.
So now, Wells Fargo has the house. And now we've had to
leave the home. We--I live in an apartment right around the
corner from my house because I have five and six year old
daughters.
My six year old came home the other day with a full sheet
of paper with all of her friends' names on it.
And she told--she told me that these were the people that
were going to miss her because we were going to have to be
moving. And I told my daughter, I says, ``I don't care if I
have to live in a van. You're still going to be able to go to
this school.''
I'm trusting in God that we're going to be able to be back
into this home again. But this is what had happened to us. We
had the money to buy the house.
It wasn't supposed to go into foreclosure. And four or five
days later, they sold it at auction for a reduced price.
The Chair. Mr. Estrada, do you have any idea why this
happened?
Mr. Estrada. I have no idea. We did everything we were
supposed to do. My realtors put in the bid for the home. They
were dealing with the mortgage company, this and that. They
sent back saying that they didn't want the first bid, that they
wanted this amount of money, and they would sell the house to
us. So that's what we did. We give them everything that they
wanted. And in the end, they threw me--threw us--me and my
family out of our house.
Mr. Neiman. This is often an unfortunately common story,
where banks are not moving these short sales along. And I
assume when you had that offer to purchase that home at that
price, they were going to allow you to remain in that house
either through a rental or a loan, personal loan to you?
Mr. Estrada. Right. We were going to rent the house from
the buyer.
Mr. Neiman. Right. This is something, an area that has to
be addressed in order to get banks to move that along. Because,
as you see, you're not benefiting and the bank is not
benefiting.
Mr. Estrada. No.
Mr. Neiman. So it's a lose/lose. And that really is--and I
very much appreciate you bringing this one to our attention,
because it highlights a number of the problems in facing and
dealing with an institution and the impact that it has on
families. So I thank you very much for sharing that with us
today.
Mr. Estrada. Yes, sir.
The Chair. Thank you, Mr. Estrada.
Mr. Estrada. You're welcome. Thank you.
Chair Warren. Mr. Silvers.
Mr. Silvers. I have two questions. First, I want to pose a
question about foreclosures. And I think Mr. Estrada's
testimony suggests that foreclosure is kind of the first idea
rather than the last. And we in Washington have heard on a
number of occasions from the Treasury Department, in the
context of the Treasury Department implementing TARP, the
bailout, that what they are doing--that they are doing an
enormous amount to prevent foreclosures on a voluntary basis.
They have a program that they talk about called Hope Now.
And they say that is the appropriate way to deal with
foreclosures, is by voluntarily encouraging the banks that are
receiving the hundreds and billions of dollars to work things
out in just the--maybe not quite just the way they worked them
out with the Mr. Estrada, but that kind of idea.
I'm interested in the panelists' observations about the
effectiveness of this voluntary approach and what might be done
alternatively if that's not good enough with what remains of
the TARP money?
Second question is for Mr. Thompson. There was a mention of
the----
The Chair. You have multiple chances to ask questions.
Mr. Silvers. Oh, I do? Okay.
The Chair. So if you want to just ask one? I promise----
Mr. Silvers. Then I'll come back. Thank you.
The Chair. Good.
Ms. Burks. Thank you. The Hope Now program is a program
that uses a national toll free number for consumers that need
assistance to call in. The difficulty is, it is impossible to
truly diagnose a particular loan situation without looking at
the case file, taking information from the client, and looking
at the neighborhood at large. If you just tell the consumer to
call the lender and request a modification, it doesn't work.
You have to assist the consumer in calling the lender and show
that lender how it's in the best interest of their investors
and the consumer, how they can maximize net tangible benefit by
keeping the client in that home. It's a lot of work. And on the
average, if you do it correctly, you will spend about 200 hours
per case.
It's a direct service. There is no way around it. It's like
trying to diagnose your medical problem without running a test
or without doing any blood work. It cannot be done. So all of
what we have done and all of the voluntary initiatives, call a
toll free number, get it refinanced through FHA secured, they
don't address the fundamental problem. Look at, can the
consumer afford the mortgage? Is it in your best interest to
take a short sale? And make sure the paperwork goes through and
is recorded so that there is no foreclosure. And then the last
thing is different lenders, different servicers have different
departments and they don't talk to each other. It happens all
the time that you're negotiating a deal and the foreclosure
goes through. So then you have to start at the top, work down,
and rescind that foreclosure.
Mr. Silvers. Thank you. Ms. Burks, we, as you probably
know, in New York we are working with a number of other state
banking departments and attorneys general in meeting with
servicers on a regular basis. The data that we have collected
continues to worsen and shows that eight out of ten seriously
delinquent borrowers are in no stage of foreclosure mitigation.
What are you seeing in terms of the largest obstacles? What
are the greatest obstacles that you believe are deterring the
servicers from modifying these? Is it the volume? Is it the
staffing? Is it the fiduciary duty they assert that's owed to--
to investors? What is it, in your opinion, that we need to
hurdle--that hurdle that we have to address?
Ms. Burks. It's a little bit of all three. The major thing
is the people on the servicing end that answer the phone and
talk to the consumer. And sometimes the same people that talk
to the advocates have no authority to make a decision. If that
servicer does not have full delegated authority, they cannot
give you an answer on that modification. They have to go back
to the investor, get permission, and then come back. And so you
have to be able to sort of negotiate at a higher level, to go
to the top to say, ``This is what we need to do.'' Present an
offer and literally do counter offers back and forth. That's
the main problem, that the people on the line don't have the
ability to----
Mr. Neiman. Do you think that one of the other criticisms
is that this ad hoc basis of negotiation will never address the
millions of foreclosures? Is there a systemic stream line
modification program out there that you support as an
alternative to move these modifications forward?
Ms. Burks. Well, it's not out there yet. But we would make
it mandatory. There has to be some mandatory modification in
order to stabilize the market. It's not going to happen
otherwise.
Mr. Silvers. Okay. As I understand it, and I hope maybe
other panelists will respond to this. As I understand it,
there's been a dialogue about--about foreclosure moratorium
here in this state. It's my understanding that the Governor has
asked major services to voluntarily take on a moratorium. Am I
correct in that?
Ms. Burks. That request has been made. It is unclear as to
which servicers have agreed to do that and will do that. And so
we advise consumers, please don't take a chance on voluntarily
moratorium.
Mr. Silvers. But now to come back for a moment to the issue
of what the treasury has said. As we have been providing
financial institutions with hundreds of billions of dollars, we
have been simultaneously saying that for homeowners, for
homeowners such as Mr. Estrada, the solution is a negotiation,
perhaps 200 hours, in which the ultimate power as to what to do
rests with the bank. They can chose to act arbitrarily or they
can chose not to, but it doesn't appear to be the government's
business. Right. As far as I know.
Mr. Estrada, have you received any money from the Treasury
Department to assist you?
Mr. Estrada. No. Not yet.
Mr. Silvers. Now, there seems to be--it feels like there
was some kind of difference in approach here fundamentally. The
Treasury Department says to us, ``Well we are concerned that
people who are undeserving might receive money.'' Now, perhaps
we can request an application form for bank assistance and see
if the question, ``Are you deserving?'', is on the form some
place.
Mr. Neiman. I think something that would be useful would be
some regulation that would be mandatory for these lenders to be
more proactive with these people, and often times people who
don't--who can't tell you what their loan is, they can't--they
don't know that they're in an ARM, they don't know that it's
going to be readjusted. But the potential, certainly in Clark
County where half of the people owe more than the house is
worth, the potential there is disastrous. So if I were in the
mortgage business, I would be more proactive in reaching out to
those people knowing that at any given moment they could walk
away for a better deal somewhere else. I don't it's
unreasonable for the government or the Treasury Department to
require them by regulation to be more proactive, in that they
are getting the bailout money and seek out these people who--
and it's easily identified, they know what their loans are and
they know what the value is in the community, seek them out and
see if you can't make arrangements with them to keep them in
the house.
Mr. Silvers. There has been a deal between Citigroup and
the Treasury Department and the FDIC, that in exchange for--
Citigroup received, I think, it's 25 billion dollars in the
first set of monies for healthy banks. Then later on, when
there was some issues at Citigroup, they received another 20
billion. In the context of that second infusion of cash, there
was an agreement that Citigroup would implement the FDIC
program for mortgage modifications. The FDIC program is not
principal write down program. It's a program that defers
payments in certain respects, reschedules things, to make the
loan more attractive.
Is it your view, Mr. Thompson or Ms. Burks that that
perhaps ought to be across the board for people who receive
this money? For banks who receive money from the Treasury
Department?
Mr. Thompson. I believe that. I believe that.
Ms. Burks. Yes.
Mr. Silvers. That's the sort of thing you're talking about?
Ms. Murray and Mr. Estrada, you have an opportunity to
respond.
Ms. Murray. Yes. Thank you. As we talked about, 50 percent
of the people who receive a foreclosure letter are not
responding. I just want to remind all of us that often times
those same 50 percent of people are people who have lost their
jobs, who don't have food, and are just trying to survive. So
as we look at the ripple effect that comes from what you're
here to investigate and how it flows through the system of you
lose your home, you lose your job, vice versa, often times, and
you have no food, it's so important for us to get the core
fixed so that people can stay in their homes, have jobs, have a
healthy economy and be able to have food. These are just the
basic needs in life. So I wanted to again to just talk about
the human element in all of this. So thank you, Mr. Silvers.
Mr. Neiman. In New York, the numbers are even in worse.
Over 90 percent of people who lose their homes through the
foreclosure process, and we have a judicial process in New
York, 90 percent of those individuals lose their homes through
a default. Meaning, they never show up. And that's why, they
give up hope, they don't understand the process, they don't
know how to obtain an attorney. Or they just think that it's--
there's no hope.
So I think your point is so well taken, and why the focus
has to be on--on not for profits who provide housing,
counselors on legal aid to provide assistance on these complex
issues involving negotiations, because individuals cannot be
expected to understand the complexities. You even heard the
Senator talk about the complexities of these illiquid
securities and these contracts. These mortgage contracts are
even more complex. So I agree with you. And I really appreciate
you putting a public face to these complex issues.
The Chair. I would like to ask in a different direction, as
long as we're talking about mortgage modifications here. As I
know you're well aware of at this point, it's possible for a
family to declare bankruptcy and deal, in effect, with
virtually every debt except the home mortgage. So credit card
debts can be written off. Car loans can be written down.
Indeed, mortgages can be written down on real estate if they're
on vacation homes, if they're on rental property, if they're on
business property. But for someone who lives in a home and is
trying to save that home, there is currently no bankruptcy
protection. One of the alternatives that Congress is currently
considering would be to amend that portion of the bankruptcy
laws so that bankruptcy is never a happy alternative, but it
puts rights in the hands of the family. So that it would not be
possible to ignore the phone calls, it would not be possible
not to have someone on the phone to negotiate. So that these
mortgages could be re-written, at least down to 100 percent of
loan to value ratio and put people into 30 year fixed mortgages
that would permit them to save their homes.
I wonder if you could speak to the impact of that on not
only how it would or would not be useful for families who are
in trouble as a direct option for some families to go through
bankruptcy, but perhaps more importantly how it might change
the structure of the negotiations if the consumer had the
option available to the family to declare bankruptcy if nothing
could be worked out consensually. Could anyone speak to that?
Perhaps, Ms. Burks would be appropriate?
Ms. Burks. Thank you. When the bankruptcy rules were
changed, it became more difficult for consumers to file
bankruptcy. And attempts have been made to get mandatory cram
down and to look at using bankruptcy to save the foreclosure.
That would be very helpful if we could get that passed.
Currently, when they file bankruptcy, if they don't litigate
the underlying sub-prime mortgage issue, they cannot then go
back again and address it. So once the main bankruptcy plan is
put in place, guess what, the lender's running out, filing a
motion to lift a stay to take the home anyway. So, yes, we need
the bankruptcy rules amended in order to help consumers address
these issues.
Mr. Silvers. I want to shift for a moment from mortgages to
jobs or the way to jobs. I want to get at the heart of what I
think are the reasons why Congress passed the Emergency
Economic Stabilization Act, TARP, bailout, why this was passed
and what this was trying to be--what Congress was trying to
achieve and what I believe the people at the Treasury
Department are in good faith trying to achieve.
References have been made to large commercial construction
projects in southern Nevada and particularly, on the strip and
to projects being canceled. There is an argument that it takes
a while for money to flow down through the financial system to
home mortgages, to cars, and so forth. Large commercial
construction financing which drives jobs, good jobs--to your
point, Mr. Thompson--large commercial construction financing
moves very fast, if people want to lend it.
I was hoping to ask the prior panel this, but we have a
structured time frame here. But, Mr. Thompson, I wondered if
you might be able to enlighten us as to whether or not large
commercial construction financing is flowing in southern Nevada
or not? And if not, why not?
Mr. Thompson. I can tell you that right now, we have the
largest privately funded job in the world. When that job is
over, and there are about 10,000 people on that one job, I
don't know where those people are going to go to work. As a
direct result of this financial crisis, builders and developers
aren't able to get financing. We have Echelon, which is a
massive project, coming out of the ground, and it's closed
because it's not able to finance the project.
Mr. Silvers. Can you describe Echelon? Where----
Mr. Thompson. It's a resort development on the Las Vegas
Strip. It's partially built and stopped in the middle of
construction. It was in the early phases of construction. So
there were only about 1,000 workers on that job. But they
literally stopped the job because--because of the inability to
get the financing. So if you multiply that out, times every job
that I can think of, that's either been canceled or been put on
hold or postponed, we are heading for some very tough times in
Nevada, specifically, because we are so reliant on one source
of income in the state, that when they have hard times, we all
have hard times. So if you add the fact that now, you know,
builders can't build and developers can't develop, to just the
general downturn in the economy, we are in real trouble here.
And potentially, this time next year, and I think you heard
Dr. Schwer talk about unemployment numbers, this time next year
are going to be severe unless something changes. And unless
something can be done to loosen up those lines of credit to
businesses, we are going to have double digit unemployment and
an economy that's going to be very difficult.
Mr. Silvers. Can I just get more specific with you for a
moment?
Mr. Thompson. Okay.
Mr. Silvers. It became clear that the Treasury Department
was going to infuse banks with substantial equity capital in
mid October. Now, of course, the mechanisms by which the money
gets there are a little slower than that. But it became clear
in mid October. By mid November, some of largest banks had
received that money. Those are the sorts of banks that I would
assume would be potential funders for a project of the size of
the Echelon project.
Have you seen any indication or are you aware of any
indication among developers that construction unions deal with,
that there has been any increase in the availability of credit
starting in mid October, or starting in mid November?
Mr. Thompson. Not to my knowledge. And I would tell you
that, you know, the City Center is actually saved by partially
being funded from money from Dubai. But I don't see that
happening. And as this thing continues to tighten around and
people spend less money and, you know, you can't get financing
on a car, so the cars aren't selling. It just at some point
spins out of control.
Mr. Neiman. We're hearing that across the country. In New
York, which has traditionally been a very strong commercial
development location, we are hearing that there is no money to
any loan type, to real estate, that over 400 billion dollars of
commercial real estate loans are coming due and are going to
need to be refinanced over the next number of years, and there
are no banks there to talk about refinancing. So I appreciate
you highlighting it from what it means for Nevada but
recognizing that this is going to be an issue that we are going
to look at and address across the country. Because these are
some of the largest banks that are accepting these funds as
capital. And as of now, we want to understand why, what are
their lending standards with regard to a large commercial
construction development project?
The Chair. Mr. Neiman, I think Ms. Murray would also like
to comment.
Ms. Murray. Yes, thank you. Thank you, Chairwoman Warren.
Going back to Mr. Silvers' comment, you recently mentioned
unemployment and you shifted the transition to that.
Let me share with you, in Nevada, we are currently at 7.6
percent unemployment rate. And you heard Dr. Schwer say we are
on track for what could be 10 percent unemployment rate. And as
you know, nationwide, traditionally, we've been a percentage
point or more below the national average for decades.
So currently, if we have five out of every ten children in
school who need and qualify for a free lunch or if they don't
get food in a day, and we go from 7.6 percent unemployment rate
to 10 percent unemployment rate, the numbers are going to
skyrocket of kids who won't eat and won't have access to food.
And so we're bracing for something of crisis proportion next
year when the unemployment rate could go as high as double
digits.
So again, I come back to the importance of what you all are
doing and what you're doing in listening to share with Congress
the severity of the situation. And I thank you for that.
Mr. Thompson. There is a point that I would like to make
that I--unrelated to the banking crisis--that I think when you
talk about stimulating the economy, and certainly in this
state, one of the things that the federal government could do
is to relax the need for matching funds for some--for instance,
highway construction is a match. If the government could put a
moratorium on matching funds for public works projects for two
years so that the state doesn't have to come up with that
money, and yet they get the funds to build those projects, I
think it would go a long way in creating jobs. Just this last
year, we gave money back because we didn't have the matching
funds to match for the particular program.
And I think that's something the government can do
immediately to help the economy.
The Chair. Mr. Thompson, can I just ask, because this is
one of the proposals on the table, not specifically for TARP,
but in general. The idea of putting money directly back into
the states overall with the theory behind it, that the states
are well prepared to put this money to use, to put people into
jobs, to rebuild infrastructure, and so on. Can you comment on
this? Do you think this is a wise move, a foolish move? I'd be
interested in your thoughts on this.
Mr. Thompson. I can tell you, I served in the Nevada
legislature for ten years. Actually, I served with Shelley
Berkley and Dina Titus. But I can tell you, absolutely,
critically needed, the state is ready--for instance, I'm a
commissioner in a high speed train commission, to build a train
from here--a train from here to Anaheim, California. So much
work has already been done on that job. If we just had some
money, they could start construction soon. And in regards to
matching funds, we have mapped out needs to widen I-15, to
increase the freeways. That work's already been done, but we
don't have the money. And so by relaxing those matches and
letting the states keep the money, you would create jobs
overnight.
The Chair. That's pretty helpful.
Mr. Silvers.
Mr. Silvers. Mr. Thompson, your comments, I think, go to my
opening statement which is the real underlying problem here,
which we need to be conscious of as we craft TARP, as TARP
moves forward, is that we're not moving resources to productive
uses. Right? Enormous housing levels, speculative--speculative
boom here but all around the country. Meanwhile, critical
needs, the congressman talked about energy and infrastructure,
critical needs are unmet. Now part of it--part of addressing
that is the issue of moving public money. But part of the issue
is why are our private funds, why are our capital markets not
funding productive processes and instead funding destructive
speculation? That is all over this. And the question of what
should the Treasury Department be and the Congress be doing in
relationship to TARP, to see to it that TARP moves in the right
direction rather than in the wrong direction. By rather than
repeating this cycle of destructive and ultimately misleading
financial booms, I think is right at the center of things.
I would like to turn again, though, I think, you know, we,
as a panel later this week are going to be meeting with the
FDIC and we hope to be even meeting with Treasury again. We
will have an opportunity to convey what we hear today to the
people who are the decision makers, people who will decide what
to do with the TARP funds that remain, who will decide what
sort of oversight should be over institutions that have
received money, that will decide what the rules will be for
some of these programs that have been announced that involve
buying credit card paper or buying other sorts of paper. There
is more money involved here than I think any of us can properly
grasp. But this is an opportunity--and as our chair said there
are cameras outside for all of you who are here to be heard--
but this is an opportunity particularly for the four of you to
be heard, for us to be able to carry the direct message back.
And I particularly would like Ms. Murray and Mr. Estrada, you
know, this is your chance. Imagine, Hank Paulson is sitting
right here at this desk, what would you say?
Ms. Murray. If Hank Paulson were sitting at the desk, I
would say that never in the history of our country has the
challenges been so great. But then never has there been a
greater opportunity for us to show how strong we are as a
country. We're the United States of America. We have to, and we
will be able to get this under control. But it starts with the
strength of the financial communities and unemployment.
Because, as a food bank, I can do all that we can do to keep up
with food. But if people don't have jobs, and if there is not
strength in the financial markets, we're only being reactive.
And that it's so important to be proactive and to work with
members of Congress, to work with the states and the cities and
the counties to ensure that everyone is doing the best it is
that they can be doing.
Mr. Estrada. Well, I would like to just say that to me,
without putting God first around us, this world, the way that
it is right now--unfortunately, I just got laid off from a job
that dealt with transportation for tourism. And they couldn't
justify moving 32 people in the morning, having 13 drivers, and
having a bus that carries that many people in one shot. So I
was laid off. And the one thing I thank God about is that I
have a commercial license so that I sort of have some leeway.
But the one thing that I will not do especially in this town,
and I've lived in Las Vegas for 30 years, is take a job that
has to do anything with tourism anymore. Because tourism here
in Las Vegas is so bad. I have a friend that was working at the
airport--and three years ago, I worked an economy lot shuttle
from the airport parking to the zero level, and we filled up
three different parking lots. This year, they didn't even fill
up the first parking lot.
And all I'm saying is that we need help. And some of these
people that we're trying to talk to, like our mortgage
companies and stuff like that, they're not talking to us.
They're waiting until the end, just like what happened with me
as far as losing my house, when to me, that never should have
ever happened. It should have never happened. They had what
they wanted, we agreed to give them the amount, and still a few
days later, they tell us, you know, it's not your home anymore.
Ms. Murray. Chairwoman Warren, we have an opening in our
food bank for a driver. I would like to talk to Mr. Estrada
after the hearing.
The Chair. Good things can come from hearings.
Mr. Estrada. Yes, they do.
The Chair. Good.
Remarks----
Mr. Neiman. I have a question. We have heard a lot about
the servicers and the lenders being overwhelmed. And I know
that not for profits, particularly the housing counselors, are
overwhelmed as well. And that's why in New York, we've had a
specific effort of getting grants. In fact, we've given in the
banking department, over 2 million dollars in monies that we've
collected from fines, in fact, against predatory lenders to go
to housing counselors and legal aid. The state's given 25
million to housing counselors and legal aid, because they're
mandating now, prior to a foreclosure, that individuals have a
right to counselors. And if it goes into a foreclosure
proceeding, they have a right to legal counsel.
Ms. Burks, what is the level of volume and support that
your institutions have in terms of providing resources? Can you
handle the work? Is there a funding resource or is there an
expertise or staffing need for the organizations in this state?
Ms. Burks. Yes. The nonprofits have been working around the
clock and with the local government to do outreach. We could
work 24/7 and we couldn't handle the load. There have been some
counseling funds that have come down through national. There is
no state money to do the work. Staffing is inadequate, and it's
going to get worse in 2009.
So while you may have expertise, there may be people you
could hire, there are no funds to hire more staff. That is not
going to happen. So we have to do the best we can with what we
have. And we have to change the way we modify loans in this
country and in this state.
The Chair. Thank you. With that----
Audience Speaker. Madam Chairwoman, a point of inquiry, if
I might?
Ms. Warren. I'm sorry? Yes.
Audience Speaker. Well, it's such a special panel and this
is such a special gathering. So nonofficial, so nonspecific. I
would beg your indulgence to open to the public to be able to
comment to folks. It is a special moment. And you have that
discretion. And I think this moment calls for that. And if you
give us a certain amount of time. Even three minutes. And I
mean this with respect.
Now, there are some things that need to be addressed which
are not being addressed here.
The Chair. I understand your question. I'm going to deal
with the panel first here.
I want to thank the panel for coming. I appreciate the time
that you have put in on this. I know this is difficult to come
and tell these stories.
I know you work hard to prepare, and I know you work hard
every day on what you're accomplishing. So I appreciate it on
behalf of the panel.
And the second panel is now excused. Thank you very much.
We still have in our schedule, I believe, we have about
eight minutes left.
We are scheduled to leave at 12:30, and we will leave at
12:30. We must leave at 12:30. I'm sorry we don't have more
time. I want to remind everyone, we brought, for exactly this
reason, a videographer who is out in the hallway so that each
of you who wants to talk can talk to the videographer. That
gives us a record to take back with us, rather than simply our
repeating.
But we are glad to spend our remaining time, perhaps the
fairest way to allocate that time, is if we each just took one
minute for a person who wants to do that. And perhaps I should
start with you, sir.
Audience Speaker. First, I would state my position to
somebody else more important who might not understand who I am.
I'll take that.
The Chair. Yes, sir.
Audience Speaker. So having conveyed that, here is what
concerns me. It concerns me that we're talking all around an
issue and we're not being specific. I want to see the plan. I
want to see just like I'm sitting at the kitchen table what
we're going to do. I want to feel the pain. And there is lots
of pain, ladies and gentlemen.
And you are not going to resolve this unless you go to the
heart of it. It is about energy. If you do not move towards
energy and move now, everything else will be fraud.
When I hear people talking about financial enterprises, I
am disgusted. It is those people who got us into this that give
these bodies credibility.
It is foolish on top of foolish.
And it is not about----
The Chair. Sir, that's one minute.
Thank you very much. I want others to have a chance to talk
too.
Audience Speaker. It is not about jobs. It is about a
vision for the country that brings us back to being American.
And I am not here to----
Chairwoman Warren. Thank you, sir. That is more than a
minute. Thank you. Yes, sir.
Yes. In the back in the gray sweater. Will you please
identify yourself, please, sir.
Audience Speaker. Yes. My name is Raymond G. Herrera. I'm
going to make this as quick as I possibly can. I lost my
position in May of 2008. We have done everything we possibly
could with our own savings to help support the people that are
renting the homes that we have rented, including our own which
we reside in, which is in Las Vegas. We have since tapped our
resources because of the fact that the other individuals who
rent those homes have themselves have become victims to this
economy. We couldn't do anything towards moving towards trying
to address our own loan situation because the banks instructed
us that we had to be in default before they would even talk to
us. Now, that they're communicating with us, they treat us like
we're the culprit. In fact, that we can't pay the loan anymore.
And then you hear these outside sources that say, you know
what, these people are trying to take advantage of the system
by trying to get some kind of loan modifications.
There were two things that were brought up here that could
really assist those of us. One is to mandate forbearance until
an issue is resolved, even if it does mean the loss of a home.
And the second one is do the adjustment on the bankruptcy, so
that we can at least address our situation.
I mean, everybody is talking about the three big auto
dealers going bankrupt to try to resolve their own issues. Yet
we ourselves, in our own homes and residences, we don't have
that option. So those are two things that could be addressed
and we don't have to worry about where all the other money is
going at this point in time.
The Chair. Thank you, sir.
Yes, ma'am.
Audience Speaker. My name is Aussie Brooks.
And I have written a proposal on real estate and
foreclosure and defaults. I know I can upload it, but I do have
an extra copy here that I would like to give to you. And it
seems like everything is trickling down, not getting to us. I
want it to start trickling up. What do we have to do, wait for
the new regime or administration to come in or not? But my
concern--my great concern is that nothing has been done now.
And we do need some help right now. And when I say we, I mean
the people who make the banks. Our monies are in the banks. And
anyway, can I give this to you, please?Foreclosures, are these
lenders receiving mortgage insurance? Is that a motivation for them to
let it go into foreclosure? Also, you know the TARP money that is going
out, you know, the banks are getting--receiving this money, can this
money go through the consumer? To allow them to buy down the loans, and
it still goes to the lender anyway. That's something I wanted to state.
The Chair. Thank you, sir.
Yes, sir.
Audience Speaker. Strictly, three things.
Economics. Economics. Economics. Now----
Chairwoman Warren. Got them all.
Audience Speaker. Now, Obama wants to reissue economics in
the middle class of America with dams and bridges, and
buildings, and federal funds.
The bailout is waste, because if you bail them out now,
you're going to have to bail them out in the future. But if we
go back to our founding fathers, the people that came over here
from the old country, and they built equity--the word equity
has been lost in the rental of survival and low income is $750
a month. How in this God's earth can a wage earner that is
making $7.50 to $10.00 an hour afford to live in the economic
structure the way it is?
Simply, the unions and all the other factions pushed our
economic structure lop sided. I've been told that the Ford
motor company worker gets $50 to $70 an hour for goods and
services for his work. The basic America is getting back to the
low income people that can afford to live and build some
equity. The only option is the mobile home industry that can
rebuild mobile homes for low income housing and buy equity into
the future. That's where it has to go. Back to the grassroots
of earning the right to become in life, liberty and the pursuit
of happiness. That's what's wrong, and that's what has to be
corrected. And if you don't, stop wasting your time.
The Chair. Thank you, sir. Yes, ma'am. And then we'll do
one more, and we'll be done. The gentleman in the back.
The Witness. My name is Linda Abrams.
I'm a counselor with NID Housing. I want to speak on the
issue about the loan modification. It is not enough that is
being done to help the people that I am working with. The
borrowers, they're being offered modifications that the
payments are just as high. And in some cases, more than what
they were already paying. Which is not helping them. Then they
ask for $20,000, $30,000 up front. Well, if they can't make
their mortgage payment, how are they going to come up with
$20,000 or $30,000? Then they're forced into bankruptcy. And
when they're forced into bankruptcy, and you go back to the
servicer or the lender to try and get a loan modification so
they can take it to the judge, which is what they tell you that
you need to do, they don't talk to each other, because you go
from one department to another. And this department tells you
you need to talk to the bankruptcy department. The bankruptcy
department tells you you need to go speak to the attorney. The
attorney sends you right back, and then it comes that, well,
you know what, we can't do anything for that loan because the
loan is bundled. So we don't even have--we don't even know who
the lender is. So I'm stuck with borrowers that we can't do
anything--we don't have a modification that we can take to the
a judge and ask that judge if he could do something to bring
that payment back down. So what do we do with those borrowers?
There's just not enough. And it's very, very sad. Our hands are
just tied.
The Chair. Yes, ma'am. Thank you.
Audience Speaker. Ron. Resident here in Clark County.
Coming back to the courts, everything that has been said here,
mandatory loan modification, make them step up. If you are
handed a million dollars, make sure they are handing you a
million dollars that they have in existing mortgages that they
have done modifications down to loan value.
The Chair. I want to close now by thanking all of you. I
want to thank you for coming out. I want to thank you for
talking with us. I want to thank for your patience for sitting
here for two and a half hours as we work through this. Please
let me say again if you have not already done so, we're glad to
hear and we're glad to make notes but please do talk to the
videographer. I really want to make a record of this. I also
want to say if you get the opportunity click on the website.
Remember it's cop dot senate dot gov. Click on, add your
comments, as we begin to post comments feel free to add
additional comments. I don't think this is going to be over
within the next few weeks. Finally I want to say that the three
of us, the panelists, one reason I need to stay on schedule is
that we were here today to engage in a formal hearing to have
an opportunity to hear from the public. But we are not through
trying to learn at least a little bit about Nevada in our short
time here. We are leaving to drive around a little and talk to
some more people on a more informal basis. So we hope to see
more of Clark County while we're here and learn more. Again
thank you all for coming. This hearing is adjourned.
Hearing adjourned at 12:32 p.m.
[The written statement of Oscar B. Goodman, Mayor, City of
Las Vegas, follows:]
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