[Senate Hearing 112-397]
[From the U.S. Government Publishing Office]
S. Hrg. 112-397
EXAMINING LENDING DISCRIMINATION PRACTICES AND FORECLOSURE ABUSES
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HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
MARCH 7, 2012
__________
Serial No. J-112-62
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin CHUCK GRASSLEY, Iowa
DIANNE FEINSTEIN, California ORRIN G. HATCH, Utah
CHUCK SCHUMER, New York JON KYL, Arizona
DICK DURBIN, Illinois JEFF SESSIONS, Alabama
SHELDON WHITEHOUSE, Rhode Island LINDSEY GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota JOHN CORNYN, Texas
AL FRANKEN, Minnesota MICHAEL S. LEE, Utah
CHRISTOPHER A. COONS, Delaware TOM COBURN, Oklahoma
RICHARD BLUMENTHAL, Connecticut
Bruce A. Cohen, Chief Counsel and Staff Director
Kolan Davis, Republican Chief Counsel and Staff Director
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Feinstein, Hon. Dianne, a U.S. Senator from the State of
California, prepared statement................................. 92
Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa...... 6
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1
prepared statement........................................... 96
WITNESSES
Black, William K., Associate Professor of Economics and Law,
University of Missouri-Kansas City School of Law, Kansas City,
Missouri....................................................... 25
Cardin, Hon. Ben, a U.S. Senator from the State of Maryland...... 2
Perez, Thomas E., Assistant Attorney General, Civil Rights
Division, U.S. Department of Justice, Washington, DC........... 8
Rodriguez, Eric, Vice President, Office of Research, Advocacy and
Legislation, National Council of La Raza, Washington, DC....... 23
Shelton, Hilary O., Director, Washington Bureau, and Senior Vice
President for Advocacy and Policy, National Association for the
Advancement of Colored People (NAACP), Washington, DC.......... 27
SUBMISSIONS FOR THE RECORD
Black, William K., Associate Professor of Economics and Law,
University of Missouri-Kansas City School of Law, Kansas City,
Missouri, statement............................................ 33
Cardin, Hon. Ben, a U.S. Senator from the State of Maryland,
prepared statement............................................. 86
Perez, Thomas E., Assistant Attorney General, Civil Rights
Division, U.S. Department of Justice, Washington, DC, statement 98
Prosecuting Wall Street, Steve Kroft, Correspondent, and James
Jacoby, Producer, 60 Minutes, December 4, 2011, Transcript..... 111
Rodriguez, Eric, Vice President, Office of Research, Advocacy and
Legislation, National Council of La Raza, Washington, DC,
statement...................................................... 123
Shelton, Hilary O., Director, Washington Bureau, and Senior Vice
President for Advocacy and Policy, National Association for the
Advancement of Colored People (NAACP), Washington, DC,
statement...................................................... 131
EXAMINING LENDING DISCRIMINATION PRACTICES AND FORECLOSURE ABUSES
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WEDNESDAY, MARCH 7, 2012
U.S. Senate,
Committee on the Judiciary,
Washington, D.C.
The Committee met, pursuant to notice, at 10:07 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Patrick J.
Leahy, Chairman of the Committee, presiding.
Present: Senators Leahy, Whitehouse, Klobuchar, Franken,
and Grassley.
OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM
THE STATE OF VERMONT
Chairman Leahy. Today we welcome Assistant Attorney General
Tom Perez, who has hobbled in here. And for the record, so that
in case somebody reads this, he has just had knee surgery, so
that is why I appreciate him taking the time to be here to
discuss the Justice Department's efforts to combat
discrimination in mortgage lending and foreclosure abuse. This
Committee has tried to do its part in connection with the
housing crisis, including our consideration of important
legislation introduced by Senator Whitehouse after a series of
hearings both here and in Rhode Island. Our exploration of the
civil rights component of the housing crisis and foreclosure
abuse is part of that effort.
The Obama administration has been aggressively responding
to the foreclosure crisis. Yesterday the administration
announced a new initiative which could benefit millions of
homeowners by reducing their fees and providing an average
savings of $1,000 a year through refinancing. The
administration reiterated its commitment to our men and women
in uniform by outlining the steps it is taking to provide
relief to those who have been harmed by lending abuses.
A few weeks ago, Attorney General Holder, Housing and Urban
Development Secretary Donovan, and 49 State attorneys general,
announced a historic $25 billion settlement with the Nation's
five largest mortgage servicers, and I commend them for that.
Key actors were Associate Attorney General Tom Perrelli,
Vermont Attorney General Bill Sorrell, and Iowa Attorney
General Tom Miller, who helped lead the effort to investigate
and expose the abuses and misconduct that have hurt so many. It
will provide relief not just in my State of Vermont but in
every other State.
I should recognize the Civil Rights Division for its role
in obtaining compensation, above the $25 billion settlement, to
provide relief to our men and women in uniform who have lost
their homes to wrongful foreclosures. It is inexcusable that in
some cases, under the Servicemembers Civil Relief Act, mortgage
servicers failed to meet their responsibilities to our men and
women in uniform who risk their lives in the service of our
country. It is not only inexcusable; it is disgusting to see
some of the news accounts in total violation of the law,
foreclosing on men and women in uniform.
Just a few months ago, the Civil Rights Division fought on
behalf of hundreds of thousands of African-Americans and
Hispanics victimized by Countrywide Financial Corporation and
received a landmark $355 million compensation there.
Historically, lending discrimination has manifested itself
in redlining, the refusal to lend to qualified minority
borrowers in certain neighborhoods. We would like to think that
those days are behind us, but apparently the Justice Department
has identified a new and disturbing trend in lending
discrimination, so-called reverse redlining, targeting minority
neighborhoods and borrowers to push subprime and other riskier
mortgages to individuals in certain communities who might
otherwise have been qualified for safer and more traditional
loan products. I hope that these recent settlements put banks
and others on notice that our laws will be enforced and that
those abuses for profit will not be tolerated.
The unsound practices of our Nation's biggest banks crept
into the bankruptcy process, where Americans turn as a last
resort. Last year, Senators Whitehouse, Blumenthal, and I
introduced the Fighting Fraud in Bankruptcy Act to strengthen
the Justice Department's efforts to protect American homeowners
and our servicemen and servicewomen. Struggling homeowners, and
in particular our service families, have to be treated fairly.
So I do welcome Assistant Attorney General Perez back
before the Committee today. He knows this Committee very, very
well. But before we hear from him, I will recognize first our
Ranking Member, and then we will have the pleasure of welcoming
back to the Committee Senator Ben Cardin, one of the best
Senators I have served with, a man with a well-deserved
reputation in Maryland. He has been a leader in these matters
in the Maryland Legislature, in the House of Representatives,
and in the Senate. He was a hardworking member of this
Committee until his recent transfer to the Finance Committee,
but he has never stopped his activity in matters of fairness
and civil rights, and it is a pleasure to have him here.
I will yield first, speaking of the Finance Committee, to
the Ranking Member.
Senator Grassley. Because I have a longer statement than
what you had, I would like to not hold up Senator Cardin. So
let him go ahead and then call on me right after he is done. Is
that OK?
Chairman Leahy. I appreciate the courtesy.
Senator Cardin, go ahead, sir.
STATEMENT OF HON. BEN CARDIN, A U.S. SENATOR FROM THE STATE OF
MARYLAND
Senator Cardin. Well, Senator Leahy and Senator Grassley,
thank you for the courtesy, and Senator Whitehouse. Senator
Leahy, it is nice to be back to the Judiciary Committee. I must
tell you, on the other committees I serve the Chairman does not
recognize me in the same way that you just did. So I thank you
very much for those very nice comments. But it is good to be
back, and I thank you for that. And I thank you for holding
this hearing because I think this is an extremely important
subject, and I applaud your leadership and the leadership of
the members of this Committee.
I know from my own State of Maryland that families and
communities are still hurting from the effects of lending
discrimination and foreclosure abuses. The wounds are raw and
real. There is still so much more that we can do. My own State
of Maryland has become a model for the Nation in strategies for
combating foreclosures. Working across agencies, the State has
developed a comprehensive strategy that includes legal and
regulatory reforms, as well as housing counseling and legal
assistance networks. They are making a difference. Here is just
one example.
A few weeks ago, I was proud to partner with the Maryland
Department of Housing and Community Development to hold a
foreclosure prevention workshop. That was not the first that I
have held, and it certainly will not be the last. And there was
very strong community turnout. In fact, Mr. Chairman, there
were over 600 people who showed up for this mortgage
foreclosure prevention workshop. It took place maybe 8 or 9
miles from here, in the Washington suburbs.
Viola Williams was one the hundreds of Marylanders that
attended the event. Three years ago, she began to fall behind
on her mortgage, mainly due to factors that were beyond her
control. She was responsible and immediately got in touch with
her bank about modifying her loan. For 3 years, she went back
and forth with her bank. She became convinced that her bank was
trying to wear her down. But she did not give up. She was
persistent. She was proactive because she knew that her home
was her biggest investment and she could not walk away. At my
event, she met with a housing counselor who gave her honest
opinions as to what she could do and what resources were
available to her and how to deal with her bank.
Most importantly, she was able to meet directly with a
representative from her bank who was able to directly submit
her modification papers. After waiting for 3 years, a few days
after this event Ms. Williams received her modification papers.
Her story is a common one. But her happy ending is all too
rare. We need to do more to help these people. There is no
magic wand or silver bullet for fixing our housing problems. In
the end, our success will be the result of a patchwork of
policies and the hard work of government officials, housing
counselors, and individuals. The path ahead is unknown, but we
owe it to Viola Williams and others like her to keep trying and
to provide them with the tools to stay in their homes.
Mr. Chairman, we can make a difference. Our policies can
save people's homes, can save families, and can save
communities. The height of the irresponsible lending practices
was from 2004 to 2008. According to the Justice Department, the
greater Washington area, including suburbs in my home State of
Maryland, ranked among Countrywide's top 10 targets. In Prince
George's County, the most affluent majority-black county in the
United States, these types of loans have had a devastating
effect. At the beginning of the housing crisis in 2007, a State
task force identified it as the epicenter of Maryland's
foreclosure crisis, and the county's residents continue to
struggle to stay in their homes. Mortgages for roughly one in
four single-family residences there have been in default or
some stage of the foreclosure process since 2006. And average
property values have declined by 35 to 40 percent, and
homeowners will continue to struggle with underwater mortgages.
The banks protected themselves by shifting the risks of
nonpayment to investors and made a profit in the process. These
practices triggered the worst financial crisis since the Great
Depression. And today many economists blame the anemic housing
market as the biggest drag on our economy.
Many of the victims are honest, hardworking, responsible
people that bought homes to raise their families, to pursue
their dreams, and to make memories. And now they are trapped in
a nightmare where they cannot refinance their homes to make
them more affordable, or worse, are in serious risk of
foreclosure.
I want to personally thank Assistant Attorney General Perez
and the Department of Justice for the important steps they have
taken and continue to take to protect families across the
Nation. In December, the Department of Justice announced a
historic settlement of a lawsuit involving Countrywide.
Countrywide charged over 200,000 African-American and Latino
victims more for their loans because of their race or
ethnicity. Countrywide put more than 10,000 of those families
who had qualified for safe loans in the less expensive prime
market into risky, subprime mortgages, while at the same time
white borrowers with similar credit histories were steered into
safer, prime loans.
Traditional civil rights laws took aim at the practice of
redlining, which in the housing context meant that banks and
mortgage companies would favor lending to whites and disfavor
lending to minorities. Congress passed the Fair Housing Act of
1968 and the Equal Credit Opportunity Act of 1974 specifically
to prohibit discrimination based on race, color, or ethnicity
in terms of selling, buying, renting, or financing a house. But
today, in 2012, we are seeing a new type of housing
discrimination. This is the practice of reverse redlining.
While traditional civil rights cases dealt with being denied a
benefit based on race--such as lack of access to public
accommodations, employment, or the election booth--today's
discrimination makes the victims believe that they are actually
lucky and have finally achieved the American dream. I commend
Mr. Perez for aggressively enforcing our civil rights laws to
meet today's challenges.
This new type of discrimination results from the steering
of Hispanic and African-American borrowers into less favorable
loan rates, including subprime loans. According to the
Department of Justice, these loans were often much more
expensive and were subject to possible prepayment penalties,
exploding adjustable interest rates, sudden rate increases
after a few years, and increased risk of credit problems,
default, and, ultimately, foreclosure.
Every family has paid a very steep price for the
irresponsibility and recklessness on Wall Street over the last
decade. But no group has experienced the pain of this crisis
more than African-American and Latino families. According to
the Department of Housing and Urban Development, ``between 2005
and 2009, fully two-thirds of median household wealth in
Hispanic families was wiped out. At the same time, middle class
African-American saw nearly two decades of gains reversed in a
matter of months.''
Any way you look at it, it is an absolute tragedy. As my
staff and I work with borrowers, banks, and housing counselors
to keep hardworking families in their homes, I am grateful for
the efforts taken by the State of Maryland and the Federal
Government to stabilize our neighborhoods. At the same time, I
look to Mr. Perez, the Department of Justice, and this
Committee to continue our work in making sure that deceptive
and discriminatory lending practices never happen again.
The Countrywide consent order and $335 million settlement
are but a first step. I commend the President for forming a
Financial Fraud Enforcement Task Force to investigate and
prosecute housing fraud and discrimination. Last month,
Attorney General Eric Holder announced a multi-State settlement
with five of the Nation's largest mortgage servicers for
origination and servicing fraud and wrongful foreclosures. As
part of this settlement, these market leaders will implement
new standards designed to ensure that borrowers are protected
as they enter into mortgages.
In Maryland, this settlement will also bring $1 billion to
help homeowners. Forty thousand borrowers will be able to
modify their mortgages to make them more affordable or receive
restitution for the loss of their homes. The State will have
more funds to increase mortgage counseling and legal services
available to homeowners. The settlement is a positive step
forward and is part of ongoing efforts by the States and on the
national level to investigate previous practices, improve them
going forward, and hold bad actors responsible.
Mr. Chairman, I am reminded of what Senator Ted Kennedy, a
former member of this Committee, used to say when he discussed
civil rights as the ``great unfinished business of the
Nation.'' Let us keep working to fulfill the promise of the
American dream for all our citizens.
Thank you.
[The prepared statement of Senator Cardin appears as a
submission for the record.]
Chairman Leahy. Senator Cardin, I thank you. I thank you
for your hearings and your persistence on this. I know you well
enough to know you will keep right on it. We would like to
think that redlining has become a matter of the past, but I
think one of our witnesses here today knows that it is not
completely obliterated, but this reverse redlining is just as
wrong and just as perfidious and just as damaging to the moral
core of our country. So thank you very much for doing that.
Senator Cardin. Thank you.
Chairman Leahy. I realize you have to go to another
hearing, so we will let you be excused. And I will yield to
Senator Grassley.
STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM THE STATE
OF IOWA
Senator Grassley. Thank you, Senator Cardin.
I thank you for holding this hearing, and I fully support
pursuing justice for victims of the mortgage crisis, and I
would remind listeners that I took the lead in the Clinton
administration, the Bush administration, and finally completing
the job in this administration in bringing justice to black
farmers who were discriminated against on Government programs.
So I appreciate very much people fighting to make sure that
justice comes to those who are discriminated against.
But the settlement that the Civil Rights Division of the
Justice Department obtained--and I do not belittle that, the
one against Countrywide, but I hope that it will not divert us
from the real issues surrounding the mortgage crisis.
Recently, Barry Ritholtz wrote a column in the Washington
Post concerning the larger robo-signing mortgage settlement.
Many of the points that he made about that settlement also
apply to the Countrywide settlement. The economic impact of the
Countrywide settlement is minimal.
Now, remember, the complaint asked for the victims to be
put in the same position they would have been absent the
discrimination for civil penalties and, of course, for
consequential damages. But the consent decree provided only
$1,700 per victim.
For those who still have these mortgages, perhaps this
would cover a mortgage payment. Many of these individuals will
still hold mortgages that exceed the value of their homes. The
likelihood that they will default is essentially unchanged.
For other people, bear in mind that one-third of all
Countrywide mortgages ended up in default. For these victims
who are alleged to have paid higher costs and interest rates,
the default rate is almost certainly higher. Since you no
longer live at your most recent address, good luck for
receiving the settlement. If you do, here is my advice: Do not
spend it all in one place.
Like the larger settlement that State attorneys general
obtained, this settlement is for Bank of America a mere cost of
doing business. One, we still do not know what individuals took
the unlawful action; two, they face no punishment; three, they
can keep their jobs; four, Countrywide admits nothing, and the
Government has proved nothing to the courts.
The problem is not limited to civil litigation. The Justice
Department has brought no criminal cases against any of the
major Wall Street banks or executives who are responsible for
the financial crisis. In the greatest speech ever made
concerning prosecution, then-Attorney General Robert Jackson
said, ``Law enforcement is not automatic. It isn't blind. What
every prosecutor is practically required to do is select the
cases for prosecution in which the offense is the most
flagrant, the public harm the greatest, and the proof the most
certain.'' And that has not happened in these cases.
I have already called for the resignation of the head of
the Criminal Division, Lanny Breuer, for his false denials to
Congress that ATF ever walked guns in Operation Fast and
Furious, but that does not take away from the terrible job
being done by him in prosecuting financial crimes. So let us
consider once again Countrywide.
The former CEO was accused of lying about the risk of
Countrywide loans. He made more than half a billion dollars as
CEO of Countrywide. The SEC let him settle for less than 5
percent of that amount given that Countrywide reimbursed him
for most of the costs. Something is seriously wrong if the
allegations, including discrimination, against the former CEO
are true but he keeps 95 percent of his salary.
Even worse, Mr. Breuer's Justice Department decided not to
bring any criminal charges against him. Mr. Breuer recently
stated that it was important not to ``completely discount the
deterrent effects when we investigate cases, even if we do not
bring them.'' Now, this is a preposterous statement. The
Department's message is that crime does pay. Light settlements
and no prosecution not only do not deter, they also invite
crimes of this sort to occur against similar future victims.
How are the Department's enormous resources being used? I think
that is a question that we can beg.
The error in failing to prosecute Countrywide's former CEO
is further compounded by the unwillingness of the Department to
contact a former Countrywide vice president whose job was to
fight fraud. And people know that I pay a lot of attention to
what whistleblowers say, not meaning that they are always
right, but most often you get valuable information from them.
CBS interviewed this whistleblower, Eileen Foster. In her ``60
Minutes'' appearance, she discussed Countrywide's, in her
words, ``systemic fraud.'' She said they concealed evidence of
fraud. She also had evidence of Countrywide's unlawful act of
retaliation for reporting bank fraud and mail fraud to Federal
regulators. Based on her statements, ``60 Minutes'' wondered
why no charges of violating the certification requirements of
Sarbanes-Oxley had been brought. Ms. Foster was fired but
eventually recovered more than $1 million for whistleblower
complaints.
As the co-author, along with Chairman Leahy, of the
whistleblower protection provisions Ms. Foster utilized, I am
glad that she was made whole for her unlawful termination.
However, I am appalled that the Justice Department turned a
blind eye and refused to reach out to her.
When recently asked about the Department's failure to
contact Ms. Foster, Mr. Breuer responded that she should not
have waited for the Government. ``There are telephones. You can
Tweet. You can let the Government know.'' I think that is an
insulting comment. Mr. Breuer obviously lacks comprehension of
the enormous obstacles facing whistleblowers.
Other administration officials in this area are equally
questionable. The administration is about to use taxpayer
dollars through the HAMP program to bail out speculators who
drove up housing prices during the bubble. Landlord will be
able to qualify for up to four federally subsidized loan
workouts. The benefits they will receive include lower interest
rates, longer terms, and forgiveness of principal. We know for
sure that Countrywide victims did not receive those benefits. I
am glad that we see the National Council of La Raza here and
the NAACP having representatives testifying before us today
because they have a story to tell that we all ought to listen
to.
Finally, I note that there have been multiple previous
financial crime task forces announced by this administration,
including a new one this year, but no major responsible party
has ever been prosecuted. All the previous task forces did was
issue press releases. They have added nothing to the existing
entities that have also taken no meaningful criminal action. We
should not expect anything more from the announcement of yet
another task force. We should not confuse packaging with
packages. All that matters is results--in other words,
prosecutions and convictions. The American people are waiting.
I ask consent to include that ``60 Minutes'' referral into the
record.
Chairman Leahy. Without objection.
[The information referred to appears as a submission for
the record.]
Chairman Leahy. Our first witness is Thomas Perez. He was
nominated by President Obama to serve as the Assistant Attorney
General for the Civil Rights Division. He was sworn in on
October 8, 2009. Prior to his nomination, he served as
Secretary of Maryland's Department of Labor, Licensing, and
Regulation. He also served as special counsel to the late
Senator and former Chairman of this Committee, our good friend
Ted Kennedy, acting as Senator Kennedy's principal adviser on
civil rights, criminal justice, and constitutional issues. He
and I have known each other from that time, and he received his
law degree from Harvard University in 1987.
I know it is not the easiest thing being here today, Mr.
Perez, having recently had your knee surgery, but it means a
lot to us that you are here, and I am going to turn it over to
you. I would also note that at some point I am going to have to
go to another Committee that I serve on.
Senator Grassley. Mr. Chairman, I may have to go also to
Finance.
Chairman Leahy. No, you have to stay here if I go.
[Laughter.]
Senator Grassley. Well, I will try to----
Chairman Leahy. No, no, I am just kidding you. But Senator
Franken is going to take over the chair when that happens.
Please go ahead, Mr. Perez.
STATEMENT OF HON. THOMAS E. PEREZ, ASSISTANT ATTORNEY GENERAL,
CIVIL RIGHTS DIVISION, U.S. DEPARTMENT OF JUSTICE, WASHINGTON,
D.C.
Mr. Perez. Thank you, Mr. Chairman. It is an honor to be
back here before the Committee. You inspired me over many years
to purchase, among other things, many Jerry Garcia ties, and I
want to thank you for that.
And, Senator Grassley, you always treated me with great
respect when I was on Senator Kennedy's staff, so there is a
lot of wonderful ghosts in this room as I sit here today, 3
weeks removed from knee replacement surgery, which I am told is
going to be helpful, but I have not yet seen it, so hopefully
it will.
Chairman Leahy. Or felt it.
Mr. Perez. Or felt it, yes, exactly.
As we all know, the housing crisis has touched so many
communities across the country, and I have seen in my work as a
civil rights lawyer at a State, Federal, and local level that
communities of color, in particular African-Americans and
Latinos, have been hit particularly hard. I have seen all too
frequently that Latinos and African-Americans seeking equal
credit opportunity were all too frequently judged by the color
of their skin rather than the content of their
creditworthiness. And for all too many years, accountability
was lacking and enforcement was spotty, at best.
That is why, in the wake of the housing and foreclosure
crisis, the Federal Government under the leadership of
President Obama has indeed responded forcefully. To address the
lending discrimination, Attorney General Holder created a Fair
Lending Unit in the Civil Rights Division's Housing Section.
Since the establishment of that unit, thanks to the dedicated
career staff in the Division, we have brought record numbers of
enforcement actions. In the approximately 2 years since the
unit was established, we have filed or resolved 16 lending
matters, and by way of comparison, from 1993 to 2008 the
Department filed or resolved 37 matters. So 16 in 2 years and
37 in the 15 previous years.
The Division produced an unprecedented set of results in
2011 alone. We filed a record eight lending-related Federal
lawsuits and obtained eight settlements, providing for more
than $350 million in relief. I will talk shortly about our
Countrywide case. I also look forward to talking about the
record relief we have gotten on behalf of servicemembers.
No one case can rectify the multitude of unlawful
practices, but as our enforcement record illustrates, we use
every possible tool to combat the range of abuses seen in the
market, both mortgage and non-mortgage lending.
Collaboration is key to what we have accomplished. We have
been working very carefully and closely with the regulatory
agencies, and they have picked up the pace of their work, and
let me give you a data point there: From 2009 to 2011, the
regulatory agencies, the FTC, and HUD referred a total of 109
matters involving a potential pattern or practice of lending
discrimination to the Justice Department. Fifty-five of those
matters involved race or national origin discrimination, a
combined total that is far higher than the 30 race and national
origin matters that we were referred 2001 to 2008. So we got 30
race and national origin matters in 8 years, and we got 55 over
the course of the last 3 years. They have definitely picked up
the pace of our work.
Let me talk about Countrywide because that is the largest
settlement--in fact, more than 50 times larger than the next
largest fair lending settlement--in our history. Our complaint
against Countrywide alleges that the systematic discrimination
over a 4-year period violated the Fair Housing Act and the
Equal Credit Opportunity Act and impacted more than 200,000
African-American and Latino families, and at the core of the
case was a very simple story. If you are African-American or
Latino and you were qualified, you likely paid much more for a
loan than a similarly qualified white borrower simply because
of the color of your skin.
So, for instance, a qualified non-subprime customer in
Chicago seeking a $200,000 loan in essence paid a racial surtax
of about $1,100, unnecessary fees. A Latino paid $1,235 racial
surtax simply because of the color of your skin.
In addition, if you are African-American or Latino and you
qualified for a prime loan, you were far more likely to be
steered into subprime loans, and the impact of this is
literally tens of thousands of dollars in increased costs, not
to mention the corrosive features such as prepayment penalties
and the increased risk of default.
This was what this case was about, remedying
discrimination, and we reviewed 2.5 million loans, including
data loan terms and information on creditworthiness. It was the
most Countrywide investigation in our history, and I was proud
to be part of it, and I appreciate the work of the career staff
as well as the regulatory agencies that referred it.
We have also done four other pattern or practice pricing
discrimination cases since the unit was established, and we
have also continued the regrettably time-honored cases
involving redlining, which is the practice where a red line is
literally drawn around certain elements of a city that are
predominantly minority and lending does not occur there. That
practice has been around, regrettably, since seemingly the
beginning of time. Our settlements also have gone to expand
opportunities for minority communities and others to access
credit in areas where a lender had previously denied those
services.
Let me turn very briefly to our work in the SCRA context
because we have had a robust array of work on behalf of our
servicemembers. Last year, we settled a case with the Bank of
America, the largest SCRA settlement. These are our Nation's
finest serving our Nation, and while they were serving our
Nation abroad, they were having their homes foreclosed at home
illegally. And we had a $20 million settlement fund in the Bank
of America case.
We also had another case involving Saxon Mortgage, and then
most recently as part of the $25 billion mortgage servicer
agreement, we were able to reach agreement with the other
servicers. And so there will be a minimum of $116,785 in
compensation, and that is a floor. That is not the ceiling. And
this compensation is in addition to the $25 billion settlement
fund. So we continue to aggressively enforce the Servicemembers
Civil Relief Act on behalf of our servicemembers and their
families.
I have spoken about our litigation experience, but we also
have an active program of education, outreach, and prevention.
We reach out regularly to those in the industry. We share our
lessons. I do not understand why the redlining cases continue
to occur, and we share what happens. An ounce of prevention is
worth a pound of cure, and so many of the discriminatory
practices that we see could be prevented if there were adequate
internal controls. I spend a lot of time working with police
departments to develop adequate internal controls, and
similarly, we spend a lot of time working with lenders so that
they can develop adequate internal controls, because I would
far rather prevent the train wreck from occurring than pick up
the pieces. And, regrettably, there are too many pieces to pick
up. And as such, we will continue to use every tool in our
arsenal to ensure that there is equal credit opportunity across
America.
I look forward to answering any questions that you may have
today, and once again, it is an honor to be here, and thank you
for your leadership in all of these matters.
[The prepared statement of Mr. Perez appears as a
submission for the record.]
Chairman Leahy. Thank you very much, Mr. Perez. As I noted,
when I first got into this, finding out about this reverse
redlining, you just wonder what decade or even what century you
are living in.
Now, some have actually criticized the Obama administration
for protecting borrowers who are targeted because of the color
of their skin. Some have argued the Justice Department is
interfering between a lender's ability and willingness to make
credit available and a borrower's right to freely enter into a
contract. I think you know from my earlier statement I do not
buy that argument, but how do you respond to it? And is your
work with reverse redlining a part of the core responsibilities
of your Division?
Mr. Perez. The answer to your second question is
absolutely. Redlining referred to the practice of drawing a red
line around communities and failing to offer prime loan
products. Reverse redlining is the flip side: targeting
minority communities and offering the toxic products that are
incredibly destructive.
There is often a false choice that I have heard, Senator
Leahy, Mr. Chairman, and that is the choice between common-
sense consumer protection and fair lending and preserving a
sound lending climate for business. I think if there is one
lesson we have learned from the meltdown, it is that the
absence of common-sense consumer protections not only
undermines communities, but it put a lot of lenders out of
business. I know in Maryland we worked on a lot of consumer
protection work, and all of those bills passed unanimously
between the industry recognized that it was important to put
the stops on no-doc loans and other abusive practices that were
undermining the industry.
And so I think it is a false choice, and that is what I say
when I have the outreach to lenders, is that we can have
common-sense fair lending enforcement and consumer protection
and preserve that sound lending climate for businesses. We can
and must do both.
Chairman Leahy. Well, as you know, in the current
litigation, we saw some of the documents. In one case bank
employees state that subprime loans were referred to internally
as ``ghetto loans,'' and that African-Americans are targeted
because ``they were not savvy enough to know they were getting
a bad loan, and the bank would have a better chance of
convincing them to apply for a high-cost subprime loan.''
Frankly, as far as I am concerned, those who would do that,
you should be cracking down on them every way you can, both
civilly and I believe in some instances criminally.
Mr. Perez. I agree, and we see these practices. I am
holding up a photograph of--this is Detroit, Michigan, and in
this particular case the bank is required under the Community
Reinvestment Act to establish its catchment area, and there is
a red dot here. This red concentration is the African-American
concentration, and their catchment area that they established
was a horseshoe all around the African-American communities.
A picture tells a thousand words, and when I look at this,
I cannot help but wonder why aren't there internal systems of
control, because you do not need to be a rocket scientist to
see that you have established in all of the white areas where
you are going to do business, and you have deliberately ignored
African-American areas. And we do peer analysis, so other banks
are in the African-American areas; they are doing well and they
are doing good. And so this is not a case of there is no
business there. That is a stereotypical judgment. But we see
this all too frequently. There are emerging abusive practices,
and then there are some time-honored practices, and we are
going to root out all of them to the best of our abilities.
Chairman Leahy. I appreciate that. You also had a role in
reaching an agreement to compensate servicemembers for wrongful
disclosures. I introduced legislation to require creditors in a
bankruptcy case to certify that the requirements of the
Servicemembers Civil Relief Act had been met. Do you believe
that legislation, the Fighting Fraud in Bankruptcy Act, would
help the Justice Department ensure that military homeowners are
protected?
Mr. Perez. Again, anything we can do to help service-
members I think is very, very important. For instance, we
actually prepared and disseminated to a bipartisan group of
lawmakers a series of legislative proposals regarding
servicemembers, and including the SCRA, and we have done a lot
of work on the credit provisions that you are referring to, on
the foreclosure provisions, and we are trying to expand the
protections for our servicemembers, and we look forward to
working with you and with Senator Grassley, because this is not
a Republican or a Democratic issue. Protecting our
servicemembers has always been a bipartisan issue, and I look
forward to working with you.
Chairman Leahy. I agree with that, and you have also worked
on discrimination on the basis of sex and familial status when
mortgage companies have refused a woman who was on paid
maternity leave.
Mr. Perez. Yes. We have a case in Pennsylvania that we
filed roughly a year ago on that issue.
Chairman Leahy. Well, I hope you will continue it, and I
will turn the gavel over to Senator Franken and turn it over to
Senator Grassley.
Mr. Perez. Good morning, Senator. It is an honor to see you
again.
Senator Grassley. Thank you, General Perez, for being here.
I have already stated some opinion that I have about this, so
you already have some background for questions I might ask.
The complaint that the Department filed against Countrywide
alleged intentional, willful, or reckless discrimination
against Hispanic and African-American borrowers. Nobody argues
with that. It asks that victims be restored as nearly as
practical ``to the position that they would have been in but
for the discriminatory conduct,'' plus asking for civil
penalties. But the consent decree provided only $335 million,
not nearly enough to do anything like restoring the victims to
the position that they should have been, and there was no civil
penalty, and the bank can deduct the settlement costs from its
taxes, which could take away up to one-third of the bank's
sting already.
So, question--and when I use that figure $335 million, just
remember in the case of Bank of America, they earned $9 billion
last year. Won't banks that may have discriminated view
settlements that are so much weaker than the relief sought in
the Department's complaint as a cost of doing business rather
than a deterrent to future bad acts?
Mr. Perez. I appreciate your question, Senator, and we
certainly hear from banks that we are too hard on them. And so
it is interesting that you should say that.
Our goal in this particular case when we established the
settlement fund was to maximize the amount of dollars that
would go directly to victims. And I should note in this case,
Senator, that there are two types of victims. There are the
people who are the victims of pricing discrimination, and,
again, the average amount of recovery there will be in the $700
to $2,000 range, depending on the individual.
And then there are the steering victims. Those are people
who should have been in a prime loan but were discriminatorily
put into subprime loans. They will be recovering in the tens of
thousands of dollars on the average, and we will have an
individual case-by-case analysis of what they should recover.
This settlement is about 50 times larger than any
settlement we have had. I do not think there is any home run,
Senator, in the work that we do. There is no one case that is
going to be the panacea to address all of the abuses of the
past 10 years.
I am very proud of the work that was done in the servicer
agreement. The servicer agreement does some great things, but
as Secretary Donovan has correctly pointed out, that does not
address the underwriting abuses. That addressed another part of
the problem.
And so our approach, Senator, has been to make sure that we
continue to do our level best to address every type of abuse,
and we continue to hit, I believe, a series of doubles and
singles and a triple here and there, and we are going to
continue to do that. And I do not know of any one case that we
could bring that will resolve this, but I think it is very
important that the Government become a credible deterrent. And
in our fair lending work--and I have outlined the cases that we
have brought, both the quantity and quality, I think we have
done that. And we will continue to do that because I think
there is a role for common-sense fair lending enforcement, and
we have to be vigilant in that area.
Senator Grassley. Your testimony references the settlement
that the Department obtained against lenders who violated the
SCRA. That law protects the rights of servicemembers not to be
foreclosed on while they are on active duty.
Now, those individuals received a minimum of $117,000 plus
lost equity.
Mr. Perez. Correct.
Senator Grassley. That figure is 70 times larger than the
average settlement at Countrywide.
Mr. Perez. Sure, and that figure was a function of the
direct economic harm and the emotional harm, and that was a
function of that--and, by the way, that figure is a floor. If
there is lost equity in any servicemember's home that exceeds
that, then they will get that. And another important aspect of
the servicemember agreements that we just reached is that there
is not a cap on the amount that the servicers will be paying.
So, in other words, we will be--depending on how many--if we
identify 600, then they will compensation all 600. They will
not reach a cap and say, ``No more.'' That was a very important
part of the agreement.
And, again, that reflects the damage that we found in that
particular case, and so that is how we arrived at those
figures.
Senator Grassley. Mr. Chairman, let me ask one more
question.
Senator Franken [presiding]. Absolutely.
Senator Grassley. Some of the settlements that you
described as ``innovative'' worked to help banks to build
relationships with new customers. Why don't some of the
settlements include such innovative ideas as removing bank
executives who knew of or approved of discrimination?
Mr. Perez. Well, it is an idea that is worth considering.
When we meet with and negotiate these decrees, we have a lot of
different ideas on the table, and in the course of these
agreements, we also have a very active monitoring capacity. And
so if we continue to see problems, we continue to have the
ability to remedy those. But, again, we are trying to reflect
the balance between our enforcement responsibilities and
allowing the bank to make their appropriate judgments.
Senator Grassley. Thank you.
Thank you, Senator.
Senator Franken. Assistant Attorney General Perez, thank
you for your testimony. It is clear from the Countrywide
settlement and from your written testimony that the policies
that Countrywide had in place between 2004 and 2008 led to
widespread discrimination against racial and ethnic minorities.
I am going to come to this $335 million figure. While I commend
DOJ for bringing the case, again, the settlement only comes to
about $2,000 per individual, if you can find these individuals.
And these are people who may have lost their homes based on
illegal lending discrimination.
Why is $335 million adequate when there are, you know,
presumably in the SCRA settlement you are talking about
$176,000 or something for a wrongful foreclosure? These are
people who, because of the discrimination, went into
foreclosure, may have gone into foreclosure directly because of
discrimination. Why was $335 million arrived at? I realize it
is a lot larger than any other settlement you have had, but,
still, Countrywide was a lot larger entity, wrote a lot more of
these loans, was a lot larger defrauder of the American public.
How was that figure arrived at? Was it that you had to reach
this settlement and you felt that was the farthest you could
go? Or how was that done?
Mr. Perez. First of all, let me again reiterate there are
two categories of victims in the Countrywide case. There are
the pricing discrimination victims who were charged, in
essence, a racial surtax, and the figures that they will get,
they will be compensated for that, what I call ``racial
surtax.'' Then there are steering victims. These are, again,
people who should have been in a prime loan but were steered
into subprime, and we will be making case-by-case individual
determinations. And it is our estimate that the average
steering victim will recover tens of thousands of dollars
because if you had a 7-percent loan when you should have had a
5-percent loan, you can do the math and figure out that the
recovery is going to be significantly greater.
Senator Franken. Well, what I am saying is that the terms
of the predatory or subprime loan where they should have
qualified for a better loan may have been the very thing that
drove them into foreclosure. And it seems to me that the
damages to them far exceed a few tens of thousands of dollars.
Mr. Perez. We will be doing a case-by-case evaluation, and
the fact that we have this particular settlement fund, as we
identify particular individuals and we see the harm that it has
caused, that does not prevent us from going back and attempting
to use other tools to assist them. So I think one of the major
benefits of this--and there are about 2,000 victims in the Twin
Cities metropolitan census area, and I think one of the real
benefits of this is to be able to identify people and make that
particular judgment. In some cases, you know, people--well, in
most cases, people were unaware that they were victims. That is
the insidiousness of this. It is discrimination with a smile.
Senator Franken. Sure.
Mr. Perez. And in some of those cases, they continue to
have their home, and in other cases they do not. And that is
why we are going to be doing the individualized determinations
so that we not only have the settlement fund at our disposal,
but then there are other programs through the Federal
Government that we may be able to use that will help people.
And so----
Senator Franken. What are those?
Mr. Perez. Well, again, the President has been very active
in attempting to expand the universe of programs to help people
who are underwater, and so this is a real coordination
challenge and a real coordination opportunity, because we will
have the names--we have the names of the victims in this case,
and we are in the process, through the administrator, of
reaching out to them. And that is going to present us with
opportunities. This is not just--one way that Government often
works is, well, here is your--we are in this narrow lane, we
have got this settlement fund, if you do not qualify, you go
somewhere else. That is not the approach we are taking. You may
have been a victim here, and you may be entitled to $2,000, but
you may have other challenges, and what we are going to be
doing is working with them to see what other opportunities we
can use to avail ourselves to assist them to stay in their
home.
Senator Franken. And I assume that part of that will be to
assist eligible borrowers to refinance their loans.
Mr. Perez. Again, availing them of programs of that nature,
and I know that has been an interest of yours for some time.
Senator Franken. Well, yes, I have introduced a bill, the
Helping Homeowners Refinance Act. You know what I would like to
do? I would like to go to Senator Whitehouse because I am going
to be chairing this for the third panel, so I am here. I know
that both Senator Klobuchar and Senator Whitehouse may have--I
do not know their schedules. I am not intimately involved with
their scheduling. But in that event, I would like to allow them
to ask their questions, and I might just hold you for a little
bit extra, and then we will go to our next panel.
Mr. Perez. I would be honored to stay.
Senator Franken. Senator Whitehouse.
Senator Whitehouse. Thank you, Chairman.
Mr. Perez. Good morning, Senator.
Senator Whitehouse. Good morning. How are you?
Mr. Perez. Doing very well.
Senator Whitehouse. We are glad to have you back here and
glad that we are here on this issue because it has been a
source of immense frustration to a great number of us here in
Congress. Rhode Island has been hit very hard by foreclosures,
and the frustration is that in many cases those foreclosures
should not have happened. Some of them should not have happened
as a matter of law because they befell veterans, because the
documents were phony, because the foreclosure was itself
illegal. Some of them should not have happened as a matter of
economics. The person in the house was actually the best person
to buy the house, and yet the bank insisted on throwing them
out and having an empty house get scavenged in the foreclosure
market with real costs to the neighbors and to the community
around it. You have people who cannot refinance because they
are underwater, but they could do fine if they were allowed to
refinance. And it is not their fault they are underwater. That
is because of the housing crash.
I have heard over and over again from the Rhode Island
realtors about what a disaster the short sales are in terms of
just plain mismanagement of short sales by the bank so that it
becomes impossible both for buyers and realtors to deal with
them. It is just not worth your trouble. And the sort of
ultimate folly is banks that agree to a short sale and then
turn around and foreclose on their own short sale because the
right hand and the left hand do not know what they are doing.
And now you have got everybody just tearing their hair out
again. It is just constant frustration. And in some cases, the
foreclosure, frankly, should not have happened just as a matter
of decency, and it could have been solved if there had been
somebody there to talk to. And one of the prevailing complaints
I have heard over the years has been that folks who have their
homes at risk cannot find a human being to talk to. They have
to dial the 800 number. They have to go through endless push
buttons. They finally find somebody name Joe or Tom or Frances
or Jane, and then that person will not give their last name,
and you never find them again, and the information probably is
not accurate, and it is different from the papers that they
have got in front of them. And the confusion and the fear is a
huge cause for frustration.
So please push harder on this. I think wherever you go in
that array of reasons why foreclosure would not happen, you
find the banks right there at it, the banks and their lawyers
failing with the documents and performing illegal foreclosures,
the banks basically going against their own economic best
interests and the economic best interests of their investors,
fouling up the ability of homeowners to stay in their homes and
forcing foreclosures that just hurt communities. And probably
the worst consumer protection problem that I come across is
people with their homes at risk who simply cannot get a
straight answer, who simply cannot find a human being to talk
to who will talk to them a second time later and be familiar
with their case. That is the single-point-of-contact problem,
as referred to by the Government. And, frankly, I do not think
it has been that great, the response. I think we need to do a
lot better, and I think we need to press very hard to make
these banks clean up their act. This is just plain bad
management of these cases.
I would particularly like to focus on veterans because I
have a piece of legislation that would increase the penalty for
foreclosures on veterans. Could you tell me what you are doing
about illegal foreclosures on veterans while they are serving
overseas or during the period when they are still coming back
and recovering economically as they try to get back into this
tough jobs market.
Mr. Perez. Sure. We reached a settlement last year with
Bank of America and Saxon in connection with the illegal
foreclosures, and some of the stories were just shocking--
servicemembers who had been deployed, sustained serious injury,
including things like TBI, and they are losing their home in
the process because of violations of the SCRA. And so we
reached the agreement with Bank of America, and, again, the
floor in terms of the recovery is $116,000 and change, and it
can go higher depending on our particularized assessment of the
individual situation. So if there is other equity loss, et
cetera, that number can go higher. And then in connection with
the most recent servicer agreement, we were able to reach
agreement with five servicers and, again, the figure I cited is
the floor as we move forward.
You know, in the servicing context, I have not yet met a
lender who was deliberately trying to screw servicemembers. But
that is no excuse nonetheless. They should know what the rules
are. The rules are very--they are transparent, and they were in
violation. And so I think we are working hard on those, and--
yes, absolutely.
Senator Whitehouse. The fact that it is a systems failure
rather than intentional is no solace to the----
Mr. Perez. And that is exactly right----
Senator Whitehouse.--their home.
Mr. Perez. And I absolutely share your frustration. I
worked on this issue when I was a cabinet secretary in the
State of Maryland. I was one of the Governor's point people on
foreclosure prevention, the communities that Senator Cardin
talked about. I have spent a lot of time with Senator Cardin in
those communities. We used to talk about equity stripping back
in 2006 in Prince George's County. We do not talk about equity
stripping anymore because there is no equity left to be
stripped because of what has happened in the market.
The one thing I have learned from this is that the problems
were many years in the making, and they are going to be many
years in the solution. They are going to require vigilance. I
am very proud of the Countrywide agreement because--again, it
is not a home run. I do not think we have any home runs in our
arsenal. There is not one solution that is going to solve
everything. The servicer agreement that was just reached is
another critical component forward, and you mentioned, Senator,
the concept of the single point of contact. That is critical. I
cannot tell you the number of people that we have heard from,
and I know you have heard from, who just cannot get the darn
phone answered. And then if you are limited English proficient,
you are in deep--you are hot water. Senator, I do not know the
other word for it.
[Laughter.]
Senator Whitehouse. Just as well.
Senator Franken. Do not look at me.
Mr. Perez. I do not know why I looked at you, Senator, for
guidance on that.
[Laughter.]
Mr. Perez. So we have seen this, and you certainly have my
commitment, because we have done more than we have ever done
before in fair lending, but we need to do even more, because I
recognize that for all the people we have helped, there are
scores more that need our help, and that is why it has been an
all-hands-on-deck enterprise and will continue to be so.
Senator Franken. Senator Klobuchar.
Senator Klobuchar. Thank you very much.
Mr. Perez. Good to see you again, Senator.
Senator Klobuchar. Good to see you. Thank you for--I was
going to ask you about the servicemembers, and I appreciate
your work in that area. It is completely unbelievable that that
would happen.
I was going to first start off by asking you about--I
authored an amendment with Senator Merkley during the Wall
Street reform bill to help end the practice of steering,
whereby loan originators are compensated for leading borrowers
into non-prime loans that are not sustainable for them over the
long term. And in your testimony, you discussed how in the
Countrywide case minority borrowers were steered into loans
that--this is your own quote--``cost them on average thousands
of dollars more and caused additional harm as a result of
increased risk of prepayment penalties, credit problems,
default, and ultimately foreclosure.''
Could you discuss how this discriminatory practice harms
not only the borrowers and their families but also damages the
housing market?
Mr. Perez. Sure. Again, we looked at data on 2.5 million
loans, so we really did an unprecedented review, and this was a
comparison of qualified white applicants with similarly
qualified African-American and Latino applicants, and we saw
that if you were Latino, you were something like two to three
times more likely to be steered into the subprime loan and
similar likelihood for African-Americans. And that is
unconscionable because it is not only the damage to the
particular individual, but then when you have one foreclosure
which leads to another foreclosure you see the damage to the
community. So the collateral damage is as burdensome and
destructive as the damage to the particular family. And that is
why we focused a lot of effort and we do have other matters
under review that involve similar issues of steering, and we
will continue to see that happen.
Senator Klobuchar. Thank you. I think that point is really
important, that while the damage is immense to the individual
family, people have to understand it is not just, oh, it is my
neighbor. It affects the whole community.
Last year, I held a hearing in my Judiciary Subcommittee on
the Financial Fraud Enforcement Task Force and the important
contributions it has made. In your testimony, you talked about
the task force, the role that it played in the discrimination
investigation. Can you talk about how that is going, the
collaboration with State and local authorities in order to
fulfill your mission?
Mr. Perez. Oh, it has been going very well. In the
Countrywide, for instance, we worked very closely with the
attorney general of Illinois, Lisa Madigan, who was a critical
partner in this enterprise. I have traveled to the south side
of Congress and the west side of Chicago with Attorney General
Madigan to a number of distressed communities to hear directly
from individuals.
The work we have been able to do with regulators--and I
gave some data in my remarks today about the increase in the
number of referrals. Virtually every case I am talking about is
a referral from a regulator, and they have really picked up the
pace of their activity, and without them we really cannot do
our job.
Senator Klobuchar. Do you see any kind of geographic
patterns? Are there areas that are hurting, you know, where you
see areas that are hit the hardest by foreclosures? Is there
more discrimination? Is there any geographic pattern?
Mr. Perez. That is an interesting question. As I reflect on
the geo-mapping of our cases, you know, we have had cases in
urban areas, St. Louis and Detroit, that have large African-
American and Latino populations. In Countrywide, 30 percent of
the victims were in California. But there were 2,000 victims in
the Twin Cities area. And while I have not specifically geo-
mapped where they are, I am going to guess that they are
probably concentrated in Minneapolis and St. Paul. And so where
you have larger concentrations of minorities, you tend to have
larger concentrations of our fair lending work.
Senator Klobuchar. It makes sense. I was just thinking,
because in the health care area where we had more disorganized
health care systems, we had more fraud in those areas.
Mr. Perez. Correct.
Senator Klobuchar. Even though those two things did not
seem related, but this is a different issue.
Last, multiple agencies, I have been struck by how many
different agencies are involved in overseeing mortgage lending
practices and forcing our banking laws. The President has shown
an interest in streamlining our Government and made a
significant proposal in the trade and commerce area. The Wall
Street reform law took some steps to streamline, but do you
think there is any opportunity to streamline things and make it
more focused and efficient?
Mr. Perez. Well, I think we have tried to make it more
focused and efficient through the working group and the task
force, and one of the things we are trying to do is marry data
bases because sometimes you get your own data, you put it in
your own data base, and little did you know that another
regulator might be working on a similar issue.
And so one of the many value-addeds of the work that we
have done is to make sure that information sharing is occurring
as a matter of course, and that enables us, I think, to do our
job better.
Senator Klobuchar. Thank you.
Senator Franken. I am going to just follow up a little on a
couple things as quickly as I can. Then Senator Grassley, I
know, before the next panel would like to say a couple things
because he--and he will listen to the testimony of the next
panel, but he will have to go at a certain point.
I wanted to talk about just a couple things. I want to pick
up on what Senator Whitehouse was talking about, this complaint
that he talked about that I have heard over and over again,
that when borrowers are underwater and seek the Government's
help, they sometimes fall through the bureaucratic cracks, to
say the least. Often they talk to several different people and
get several different answers. Servicers lose their
documentation all the time, and that is why I introduced a
bill--and this was actually during the Wall Street reform
bill--to create an Office of the Homeowner Advocate, and this
office is based on the IRS' successful Office of the Taxpayer
Advocate. It would help homeowners get the loan modifications
or other help they need, and it would provide what you exactly
talked about, the single point of contact, because I think that
is the key, that you can call someone and that you talk to the
same person every time so that person knows your history and
has records of your history. And this is not brain science. I
am sorry.
So I was wondering if we could work together to make this
office happen. I do not know if it happens under Treasury, I do
not know if it happens under the Consumer Financial Protection
Bureau. But somewhere we need a place where people can call and
know that they are not going to get a runaround, and a
runaround caused by absolute total incompetence.
Mr. Perez. We have been having a lot of conversations about
this issue. When I first entered the Justice Department in
1990--in 1989, in the Bush I administration, one of the things
I remember from one of my early supervisors, he wrote on the
board, ``This is one of the most important things you need to
remember, three words: Return phone calls.'' And I have sort of
kept it in my mind, and unfortunately, I do not know that they
went to the same training, a lot of the servicers here, because
people cannot get phone calls returned.
When automated underwriting came into play and there was a
lot of money to be made, now suddenly you could get a loan
approved in 48 to 72 hours. Well, we need some form of
automated servicing so that we can move with similar alacrity
because time is of the essence. The most important things that
people in distress need are time, money, an advocate to work
for them, and a Government that is working for them. And you
need all of those----
Senator Franken. Well, that is what I am talking about, and
I know----
Mr. Perez. I appreciate that.
Senator Franken. Senator Whitehouse articulated it
beautifully, and I know that Senator Grassley has had this
experience. I think now that every member of the U.S. Senate
has had this conversation in somebody's living room or their
office or in the Senator's office about the litany of
frustrating calls. It is a universal experience, and please,
would you help me with that?
Mr. Perez. I look forward to trying to make--we need to
improve this. We need to do better. There is no doubt about it.
Senator Franken. OK. Well, I need an advocate in the
administration.
Last month, I introduced a bill, the Helping Homeowners
Refinance Act, to assist eligible borrowers in refinancing
their loans. The same week I introduced my legislation, the
President announced his plan to help borrowers refinance, which
included my proposal, and I understand you cannot comment on
any particular piece of legislation, but it is fair to say that
the administration supports the policy of reducing barriers to
refinancing. Is that the case?
Mr. Perez. Sure. And I look forward to reviewing the text
of your bill, and I know obviously the administration does
indeed support removal of barriers. And so we look forward to
reviewing what you have introduced.
Senator Franken. And I just want to say one last thing,
then I will excuse you, on the Servicemembers Civil Relief Act.
I was just meeting a couple days ago with members of the VFW
from Minnesota who told me that they knew recently returned
servicemembers who fell into that category. What should
servicemembers and veterans who think they are victims of
illegal foreclosure do to benefit from the settlement? What
should they do?
Mr. Perez. Actually, they do not need to do anything
because it is incumbent on us, and we have a data base that
enables us to identify victims. Having said that, we have
identified and established an 800 number so that if they have
questions or want to talk to a live body--and they will get a
live body--they can do this.
I did two calls yesterday with advocacy groups that deal
with servicemembers to talk about this precise issue, and we
have been getting a lot of calls, and the number----
Senator Franken. And where would they find that----
Mr. Perez.--is 800-896-7743. 800-896-7743. And, again,
under the terms of this agreement, it is not incumbent on
servicemembers to opt in. It is incumbent on us to find them,
and it is incumbent--and we are working very closely with----
Senator Franken. Well, just in case you do not find
someone----
Mr. Perez. Absolutely. No, we can use the help--we can use
all the help we can get, which is why we have been having these
outreach meetings. And I had two of them yesterday with
advocacy groups that have a wide footprint across America.
Senator Franken. Thank you. Thank you for doing that.
Mr. Perez. Thank you for your leadership.
Senator Franken. Thank you for your testimony. Thank you,
Assistant Attorney General Perez. You are excused. And I would
like to turn to the esteemed Ranking Member.
Mr. Perez. It might take me a little while to excuse
myself.
Senator Franken. Well, do not worry about it. He is going
to talk. But I would not that that is not a Jerry Garcia tie.
Senator Grassley. I will be here until the bottom of the
hour, but I have an 11:35 appointment I have to go to. I will
be able to listen to most of the testimony, but most
importantly, I want to thank Professor Black for answering our
calls for him to come here and testify. And I will be
submitting questions to the panel for answer in writing.
Thank you, Mr. Chairman.
Senator Franken. Thank you to the Ranking Member.
Senator Franken. Now I would like to call the third panel,
and while they are taking their seats, I would just like to
say, as we heard from Mr. Perez and I am sure it will be echoed
in the testimony from our next distinguished panel, the lending
practices of Countrywide Bank were unlawful and unconscionable.
There is no doubt in my mind that these activities were also
immoral and the targeting and exploitation of racial and ethnic
minorities for financial gain will also have long-lasting
effects.
In Minnesota and across the country, foreclosures take a
toll far beyond the immediate financial losses that the
families experience. In addition to short-term financial
insecurity and uncertainty, many families struggle to pay for
higher education and retirement when they do not have the kind
of equity provided by homeownership. Studies have shown that
children are more likely to move frequently when their families
lose housing stability, and student mobility is a major cause
of low academic achievement. So these discriminatory lending
practices will have long-reaching effects on the children and
the families who experience this exploitation.
The Federal Housing Administration was established in 1934
to regulate the mortgage terms and interest rates, and it had
strict lending standards dictating which mortgages and
properties it would support. Included in these criteria was the
consideration of the racial and ethnic demographics of the
neighborhood. The FHA used color-coded residential security
maps to determine where mortgages could or could not be
supported. Red lines on the maps showed where mortgages were
less secure based in part on racial and ethnic makeup of the
neighborhood.
Putting the discriminatory practices of lenders such as
Countrywide into this context, the kind of targeted predatory
lending that we have seen in recent years is a tragedy. While I
have no information to suggest these schemes were carried out
with the intent of segregating neighborhoods, there can be no
doubt that this has been their effect.
In Minnesota, 56 percent of loans to black Minnesotans in
2006 were subprime, and as Mr. Rodriguez noted in his written
testimony, approximately one out of four Latino and black
borrowers has lost a home to foreclosure or is at serious risk
of foreclosure compared to about 12 percent of white borrowers.
The effect of these trends is that racial and ethnic minorities
are losing their homes and are forced into lower-income
neighborhoods. These flawed lending practices will have long-
term repercussions not only for those families who have lost
their homes, but also for our society.
This leaves me with one question: How can we work to repair
the damage that has been done? Last month, as I told Mr. Perez,
I introduced the Helping Homeowners Refinance Act. This
legislation will keep Fannie Mae and Freddie Mac from making
investments that create a financial disincentive to helping
borrowers refinance their mortgages. It will also help remove
artificial barriers that are currently keeping banks from
competing to refinance eligible borrowers' mortgages.
This proposal to reward competition in the marketplace,
which President Obama included in his recent plan to revitalize
the housing market, will be an important first step for healing
the damage that we have seen in recent years. Expanded access
to refinancing is the low-hanging fruit. We know that many if
not most eligible borrowers have not refinanced their loans,
but by doing so they could save thousands of dollars a year. I
am proud that the organizations of two of our distinguished
panelists, the National Council of La Raza and the NAACP, have
both endorsed this legislation. I hope that my colleagues on
both sides of the aisle will work with me to take this first
step toward a healthier and more equitable housing market.
With that, it is my honor to introduce our panelists.
Eric Rodriguez is the vice president of the Office of
Research, Advocacy, and Legislation at the National Council of
La Raza. His expertise includes policy issues affecting Latino
families, economic and labor issues, and homeownership issues.
He has a bachelor's degree in history from Siena College and a
master's degree in public administration from American
University.
William Black is an associate professor of economics and
law at the University of Missouri-Kansas City. From 2005 to
2007, he was the executive director of the Institute of Fraud
Prevention and previously taught at the LBJ School of Public
Affairs at the University of Texas at Austin. He was also the
litigation director of the Federal Home Loan Bank Board and has
worked with the Federal Home Loan Bank of San Francisco and the
National Commission on Financial Institution Reform, Recovery,
and Enforcement. Thank you for being here.
Hilary Shelton is the vice president for advocacy and the
director of the NAACP's Washington Bureau. In his current
capacity, he has covered a wide range of policy issues,
including homeownership and consumer protection. Additionally,
Director Shelton serves on the boards of directors of the
Leadership Conference on Civil Rights, the Center for
Democratic Renewal, and the Congressional Black Caucus. He
holds degrees in political science, communications, and legal
studies from Howard University, the University of Missouri, and
Northeastern University.
I want to thank you all for being here today. You are good
Mr. Ranking Member?
Senator Grassley. Yes.
Senator Franken. Why don't we start with Mr. Rodriguez.
STATEMENT OF ERIC RODRIGUEZ, VICE PRESIDENT, OFFICE OF
RESEARCH, ADVOCACY, AND LEGISLATION, NATIONAL COUNCIL OF LA
RAZA, WASHINGTON, D.C.
Mr. Rodriguez. Well, thank you. Thank you, Senator, and I
certainly want to thank the Ranking Member and the Chairman for
inviting me today to provide expert testimony and for the
gracious welcome this morning.
I have had an opportunity to work on civil rights and human
rights issues for many, many years, and as many of you know,
recent evidence of discrimination in housing is perhaps some of
the most damaging we have witnessed in recent years. So it is
really important for all of us to put a spotlight on this issue
in the hopes that we do not forget these lessons and understand
fully the shared benefit of the remedy that we are discussing
today.
I just want to make a few brief points in my time. To begin
with, this is the largest fair lending settlement in our
history, and it should serve as a blueprint for enforcement of
the Nation's fair lending laws going forward. We know three
main things at this point.
Discrimination against Latino and black borrowers was
prevalent in the mortgage market, and this is really critical
because the mortgage lending system in the U.S. is an advanced
and innovative system, and I think it is really striking to
find in a system like this, where everyone really talked about
automated underwriting and the great benefits of it and how it
was really going to get rid of discriminatory and discretionary
behavior that we are seeing evidence and proof of race/ethnic
discrimination in that system.
Second, I would say discrimination against Latino and black
borrowers had widespread impact on all Americans, not just
Latinos and African-Americans.
And, lastly, there is more work that needs to be done, and
I think the Assistant Secretary's testimony really shows that,
as well as some of the cases that were being raised and talked
about in the questions.
So, first, the DOJ investigation into Countrywide documents
discriminatory tactics that we have long warned against. For
civil rights groups, we are oriented toward seeing
discrimination everywhere, right? I can open my refrigerator
and I see disparate impact in my food choices. But the fact
that we have documented evidence finally of a case--and many
cases--is really striking for the rest of America to really see
patterns of discrimination, and I think that is really what is
most notable about what we are seeing in this settlement today.
Investigations found 10,000 victims of steering--we had
been talking about steering for over a decade--and a
particularly egregious form of predatory lending where
creditworthy borrowers were unfairly sold risky subprime
products even though we know they are eligible for prime. One
other study found that among borrowers with FICOs about 660,
blacks and Latinos received higher interest rate loans more
than 3 times as often as whites.
Second, the ramifications of predatory lending are not
limited to just the immediate victims, and I think that is
really crucial. It is not just about how this is impacting
African-Americans and Latinos, although that is really crucial
for our community. The housing bubble that eventually drove the
financial crisis of 2008 was seeded by unfair lending that
targeted vulnerable communities. As a result, communities of
color, low-income families, and the elderly have experienced
disproportionately high foreclosure rates. However, the pain
has been widely felt as the housing market crashed, drove the
Great Recession where millions have lost their jobs, 2.7
million families have lost their homes, 10 million are
underwater right now. In a highly integrated system like the
housing market, you cannot just see one or two areas of really
bad behavior and not think that that is going to have a
widespread impact on our economy. Approximately one out of four
Latino and black borrowers have lost their homes or are at
serious risk of foreclosure compared to nearly 12 percent of
white borrowers.
Third, DOJ must build on the investigation of Countrywide
to root out other abusive lending. The Wall Street bailouts and
the Great Recession have cost taxpayers untold sums. DOJ has
the responsibility to hold companies that contributed to the
circumstances accountable to the public. Moreover, the need for
this work is only increasing. The Civil Rights Division you
heard today is getting referrals. More than half of those in
the last 3 years are race/ethnic based.
There is a lot of work to be done out there. The lessons of
the housing bubble must be that ignoring the abuses
concentrated in certain communities puts the entire market at
risk.
It is equally important that DOJ deliver justice to as many
individual victims as possible. We have offered some
recommendations in our testimony and look forward to working
with everyone on those.
So, in summary, this is a landmark settlement of importance
to all Americans, not just Latinos and African-Americans. We
now see that housing discrimination in one or two areas can
have widespread and devastating impacts on all of us.
Therefore, it should be a call to action for all that we do
everything that we can to ensure equal justice and fair
treatment in our economic systems.
Furthermore, solutions and remedies to injustice can have
widespread positive impacts. This settlement will contribute
greatly to our country's economy as we stabilize our housing
market and puts ourselves on a path to recovery.
Thank you.
[The prepared statement of Mr. Rodriguez appears as a
submission for the record.]
Senator Franken. Thank you, Mr. Rodriguez.
Professor Black.
STATEMENT OF WILLIAM K. BLACK, ASSOCIATE PROFESSOR OF ECONOMICS
AND LAW, UNIVERSITY OF MISSOURI-KANSAS CITY SCHOOL OF LAW,
KANSAS CITY, MISSOURI
Mr. Black. Thank you for the invitation. I will go directly
to substance given the timing.
I am going to build on Assistant Attorney General Perez's
metaphor that he now believes that we are up to singles and
doubles and that home runs are not in our arsenal.
In the different leagues, the big leagues, of criminal
prosecutions, the industry is pitching a perfect game. We have
no elite convictions. We have a massive fraud that has been
described, massive illegality, not even really a criminal
investigation, no indictments, as far as I know not a grand
jury, certainly no prosecutions. And they are all K's, if you
want to extend the baseball metaphor, strikeouts, and they are
all strikeouts called looking. We have not gotten the bat off
our shoulder.
He told you that we are up to 50 or 80 referrals now for
non-crime criminal referrals. Our agency, the Office of Thrift
Supervision, in 4-1/2 years in the savings and loan crisis made
over 30,000 criminal referrals. The Office of Thrift
Supervision in this crisis made zero criminal referrals. The
Office of the Comptroller of the Currency, depending on who you
believe at the OCC, made either zero or three. The Federal
Reserve made three. The FDIC is smart enough not to answer the
question.
Without criminal referrals in elite white-collar crime, you
cannot get any significant convictions. We have destroyed the
absolute essential function. It does not even exist. People are
not even there in charge of making criminal referrals anymore,
where we had dozens of personnel whose job was to make the
criminal referral. And this is the largest epidemic of elite
fraud in the history of the world, and it has caused the most
devastating consequences.
You are looking at pieces and not seeing the integration.
The mortgage origination fraud, the discrimination and
predatory lending, the fraudulent sales of mortgages to the
street, the fraudulent sales by the street, and the foreclosure
fraud are all part of the same piece. And the mystery is that
the Assistant Attorney General of the United States cannot
understand why internal controls were weakened. They were
weakened because they got in the way of fraud. So here is the
recipe for an accounting control fraud, standard criminology
and economics:
One, grow like crazy.
Two, by making really crappy loans, but at a premium yield
or interest rate.
Three, while employing extreme leverage that just means a
lot of debt.
And, four, while putting aside virtually no reserves for
the inevitable losses. In jargon, that is the Allowance for
Loan and Lease Losses, the ALLL.
If you do those four things, then the Nobel Laureate in
Economics George Akerlof warned in 1993, in the famous article
``Looting: The Economic Underworld of Bankruptcy for Profit,''
that you are mathematically guaranteed to report record
profits. It was, in his phrase, ``a sure thing.'' And this
produces record income, and that is the profit, of course. The
bankruptcy is, as Assistant Attorney General Perez said, the
firm fails because it is making the bad loans. So let us make
it real.
There is testimony in front of the Financial Crisis Inquiry
Commission that the typical job for a mortgage broker, prior
job, was flipping burgers. So this is a guy, sometimes a gal,
making roughly $20,000. Your fee as a mortgage broker for a
single California jumbo, a $600,000 to $800,000 mortgage, could
be $20,000. And it was a question of hitting the sweet spot,
and to create the sweet spot, you had to create a unicorn--
something that cannot exist in finance but was made to exist
millions of times every year, and that was the liar's loan, an
asset that was supposedly relatively low risk and high yield at
the same time, which is impossible under efficient markets,
which they purported to believe in.
So how did you do that? The first thing you want is a real
premium yield. You do that by picking on the people that you
can get away with. Who are the great people to pick on?
First, the elderly, particularly those with incipient
Alzheimer's.
Second, Latinos, especially Latinos that do not speak or
read English very well, because you handle all the negotiations
in English.
Third, African-Americans, because they have less connection
to the financial industry, fewer choices, and, yes,
statistically less formal training in finance.
That is why you go after these groups: because you can
charge them more. And that is the first thing that maximizes
your fee.
The second thing has two subparts:
You have got to make the loan look less risky. How do you
do that? First, you gimmick two ratios: one is the loan-to-
value ratio. The loan is the loan amount, the value is the
appraisal.
Senator Franken. Professor, I hate to do this, but because
of my time limitations, I am going to have to ask you to try to
wrap this up in----
Mr. Black. Happy to.
Senator Franken. You know, to give justice to your argument
as quickly as possible.
Mr. Black. Absolutely. So what that meant empirically is
that 90 percent of liar's loans were fraudulent, and that it
was lenders overwhelmingly who put the lies in liar's loans,
and that after warnings from the Government and the industry,
they massively increased the amount of liar's loans they made.
That produced the crisis; that destroyed the documentation.
That is how you get the discrimination pattern; that is how you
get the foreclosure fraud; that is how you get the largest loss
of wealth to minorities in America in the history of our
Nation.
Thank you.
[The prepared statement of Mr. Black appears as a
submission for the record.]
Senator Franken. Thank you, Professor.
Mr. Shelton.
STATEMENT OF HILARY O. SHELTON, DIRECTOR, WASHINGTON BUREAU,
AND SENIOR VICE PRESIDENT FOR ADVOCACY AND POLICY, NATIONAL
ASSOCIATION FOR THE ADVANCEMENT OF COLORED PEOPLE (NAACP),
WASHINGTON, D.C.
Mr. Shelton. Thank you very much, Senator Franken, Chairman
Leahy, and esteemed members of this Committee. My name is
Hilary Shelton. I am the director of the NAACP's Washington
Bureau, the Federal legislative and national public policy arm
of the Nation's oldest and largest grassroots-based civil
rights organization.
Let me be clear: Abusive, predatory lending and the lack of
access to basic financial services and reasonable credit
continues to be a major civil rights issue in America today. In
my written testimony I provide an in-depth review of the
literature and data which supports the NAACP's contention that,
for at least 20 years, African-Americans and other racial and
ethnic minorities have been targeted by abusive predatory loans
and that this targeting was exacerbated by the lack of access
to reasonable and responsible credit in our communities. For
brevity's sake, I will simply refer you to my written testimony
for more on this particular piece of information.
While the NAACP recognizes the benefits of non-conventional
credit for a constituency which includes many without a strong
traditional credit history, we are offended by the notion that
somehow it makes it OK to offer abusive predatory loans through
a group of people based solely on their race or ethnic
background. Furthermore, we find it deplorable for a potential
homebuyer to be given a higher-rate mortgage than a borrower
with an equivalent credit history and score based only on the
borrower's race or ethnicity.
The results of decades of disparate and discriminatory
predatory lending in our communities are becoming more and more
evident. Borrowers of color are more than twice as likely to
lose their homes to foreclosure today than white homeowners.
Furthermore, neighborhoods with high concentrations of racial
and ethnic minority residents have been hit especially hard by
the foreclosure crisis. Nearly 20 percent of loans in high-
minority neighborhoods have been foreclosed upon or are
seriously delinquent, with significant implications for long-
term economic viability on these communities.
The impact of these disproportionate foreclosures on our
communities cannot be understated. Neighborhoods with high
concentration of foreclosures lose tax revenue while at the
same time incurring the financial costs of abandoned properties
and neighborhood blight. In fact, it is estimated that local
governments incur an average of over $19,000 in costs for every
foreclosure.
Furthermore, homeowners living in close proximity to the
foreclosed home typically lose significant wealth as a result
of depreciated home values. Neighbors adjacent to a foreclosure
incur a loss of $3,000 in lost property values. These revenue
losses have a direct impact on the ability of local governments
to provide residents with crucial services, such as high-
quality schools, adequate health care, basic public safety, and
infrastructure maintenance, to name just a few.
So how do we help these people, these families and these
communities? By enforcing the existing laws as well as enacting
new laws to help those currently struggling to keep a roof over
their families' heads.
The NAACP recognizes and is deeply appreciative of the
enforcement efforts by Assistant Attorney General Tom Perez,
Attorney General Eric Holder, and the entire Justice
Department. We are, in fact, encouraged by many of the actions
coming out of DOJ and other agencies, and we are especially
heartened by the fact that if and when the nascent Consumer
Financial Protection Bureau becomes fully operational, there
will be an even more robust enforcing of laws already on the
books and fewer cases of discrimination that are allowed to
fester and grow as big as Countrywide. We are also pleased that
the Dodd-Frank Wall Street Reform and Consumer Protection Act
prohibits many of the predatory lending practices which have
decimated so many of our communities.
Legislatively, we support several initiatives which we
believe will alleviate much of the pain and suffering which has
been caused by the foreclosure crisis and allow millions of
hardworking American families to say in their homes and their
communities.
First off, we support a yearlong moratorium on
foreclosures. This would potentially allow homeowners and
mortgage servicers time to find and take remedial action.
The NAACP also supports initiatives to help homeowners who
are currently facing foreclosure and/or those who are
underwater on their mortgages, owing more than the value of
their homes. We need to make it easier for homeowners to
refinance their mortgages and get away from the abusive or
high-cost loans and take advantage of today's record-low
interest rates. Proposals such as Senator Franken's Helping
Homeowners Refinance Act of 2012 will help make it easier for
homeowners to refinance. We strongly support it.
We also support and enact proposals such as Congresswoman
Maxine Waters' Project Rebuild, which would target Federal
dollars and matching State and local funds into rehabilitating
and redeveloping abandoned and foreclosed properties. By doing
this, we are not only investing in communities which have, for
too long, been ravaged by the foreclosure crisis, but we are
also creating jobs.
I would again like to thank the Committee for holding this
hearing and for also inviting the NAACP to share our
perspective and our opinion on these matters. As such, I look
forward to your questions.
[The prepared statement of Mr. Shelton appears as a
submission for the record.]
Senator Franken. I want to thank all the witnesses. And, by
the way, your complete written testimonies will be made part of
the record.
Mr. Rodriguez, as I mentioned, I introduced the Helping
Homeowners Refinance Act last month to expand access for
eligible homeowners to refinance their mortgages. Based on what
I have heard today, it is clear that many racial and ethnic
minorities were unfairly discriminated against and are now
stuck in loans with high interest rates. The National Council
of La Raza was one of the first endorsers of my legislation. I
want to thank you for your support.
Can you explain how helping homeowners to refinance their
mortgages would help to heal the damage done or some of the
damage done by discriminatory lending practices of banks like
Countrywide?
Mr. Rodriguez. I would be happy to. Thank you. And thank
you for your leadership. It is a good piece of legislation. We
think it is crucial in this environment to provide all the
opportunities we can to keep homeowners in their homes as much
as possible. All of the families that we talk to and our
housing counselors have an opportunity to talk to, they want to
remain in their homes. It is just very unaffordable for them
right now to be able to make their monthly payments. Any
opportunities that can be provided and support that helps them
do that I think is something we ought to encourage, and we hope
for swift passage of that legislation.
Senator Franken. Thank you. And, Mr. Shelton, thank you
also for the NAACP's endorsement.
Mr. Shelton. It is a good bill.
Senator Franken. Thank you. How do you think that helping
homeowners refinance their mortgages would help heal the
housing market?
Mr. Shelton. As you know, so many are locked into mortgages
they cannot continue to sustain. Being able to make that
transition into an affordable, sustainable loan will make all
the difference to them in the world.
When we look at the trap that so many were placed in, the
subprime loan trap, one of the things many Americans were not
told and disproportionate racial and ethnic minority Americans
were not told is that as we move through the process of this
once attractive loan, as we saw the escalating mortgage rates,
that they would be able to transition into a mortgage they
could actually support, they could actually sustain.
Indeed, what this bill would do is allow them to do that,
make that transition, get past those early payment penalties,
which in some cases far superseded anything they could afford.
So it would help them move along. The idea is to sustain people
in the homes and communities they are in and make sure they can
continue to stay there, putting that roof over their families'
heads.
Senator Franken. It would have been nice if we could have
done this a little earlier.
Mr. Shelton. Absolutely.
Senator Franken. Mr. Shelton and Mr. Rodriguez, even before
the foreclosure crisis, geographic segregation by income among
racial and ethnic minorities in our country was increasing.
This trend was exacerbated by the racial and ethnic
discrimination faced by Americans by mortgage lenders like
those at Countrywide.
Can banks be doing more to repair the damage done by their
discriminatory lending practices? And if so, what?
Mr. Shelton. I believe that certainly a stronger outreach
to the communities that they have abused, reaching out to those
individuals, helping them reassess the loans that they have,
and moving them as expeditiously as possible to some refis,
some ability to restructure those loans, is extremely
important. But as was mentioned earlier by Assistant Attorney
General Tom Perez, too often not only are the banks and lending
institutions not reaching out, but they are not making
themselves available. So what we find is we have millions of
Americans that are sitting on the brink of foreclosure and
trying to figure out exactly what to do.
The banks could do so much more. They could also work very
closely with community-based organizations. It stands to reason
that many of the people that are struggling to maintain their
loans are fearful when they get a call from their bank. If I
had a call or a message left on my answering machine from the
same bank that--I am trying to find a nice term for what they
did to me and the mortgage they saddled me with. But I would
very well find myself perhaps not even responding or knowing
exactly why they are calling.
Utilizing those trusted entities within communities,
whether it is organizations like La Raza or the NAACP,
churches, synagogues, other religious organizations in the
communities, or other trust entities, could prove to be very
helpful.
Mr. Rodriguez. Yes, I concur. I would just add and make
three quick points.
For banks, clearly compliance and cooperation in this
environment I think would be pretty crucial. You mentioned the
single point of contact earlier as being a crucial piece of the
remedy, and I think being responsive to that and doing so more
quickly than I think we have seen is going to be crucial going
forward. Getting out more accurate information and doing their
very best to root out fraud in communities. All of our
communities have received letters that say--they are sort of
stamped ``HUD'' something, that, ``I can help you,'' and it is
really scam artists that are targeting our community. And I
think there is a lot more we can all do collectively, and
certainly the banks can play a role in helping to root out bad
actors that are out there. And I certainly agree that
partnering with community-based organizations in the way that
our organizations have been able to, with HUD-certified housing
counselors that are out there doing really, really good work
and need the support and cooperation of local banks to fix
cases that we are seeing quite often I think is a crucial
part--all crucial parts of the remedy.
Senator Franken. Well, thank you. I do think the single
point of contact is so important because of the frustration
that you see in people.
I have to go preside in a couple minutes, but, Professor
Black, you came here and you testified, and I want to be able
to hear more from you because you are basically saying that we
need to be prosecuting people. That came through loud and
clear.
Mr. Black. Mission accomplished then.
Senator Franken. Mission accomplished. And I could not
agree more. It would be nice if some of these bad actors--do
you know if, for example, in Countrywide there was--there was
an attempt to do some kind of criminal prosecution, was there
not?
Mr. Black. ``No'' is the real answer. There was a supposed
review. This is at a time when there were a total of 120 FBI
agents nationwide working all mortgage fraud cases. To give you
an idea of scope, in 2006 alone there were more than 2 million
fraudulent mortgages originated, and they were assigned to tiny
cases. So I am sure that somebody called it an investigation
and assigned a couple of FBI agents maybe even for a month.
To give you an idea of scope, in the savings and loan
crisis where the losses were 1/70 as large, we had 1,000 FBI
agents working it. And in just our Dallas task force, we had
over 100 professionals. To do a sophisticated of Countrywide
would take roughly a team of 100 FBI agents and 20 prosecutors.
So, no, there was no serious criminal investigation.
On that note, we now have several governmental entities put
in pleadings that Countrywide committed intentional fraud.
Senator Franken. Well, thank you all for your testimony. I
unfortunately have to go preside, because we could go on for a
lot longer more productively, but I really appreciate your
testimony.
The record will be kept open, and it will be kept open for,
I believe, another week. One week. That is kind of what I said.
So the record will be help open for 1 week for submission of
questions for witnesses and for other materials.
Thank you again, gentlemen, and this hearing is adjourned.
[Whereupon, at 11:50 a.m., the Committee was adjourned.]
[Submissions for the record follow.]
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