[Senate Hearing 112-397]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 112-397
 
   EXAMINING LENDING DISCRIMINATION PRACTICES AND FORECLOSURE ABUSES 

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

                                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

                              ----------                              

                    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

                              ----------                              


                        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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