    [House Hearing, 116 Congress]
    [From the U.S. Government Publishing Office]

                          A REVIEW OF THE STATE OF AND
                       BARRIERS TO MINORITY HOMEOWNERSHIP

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

                                    HEARING

                                   BEFORE THE

                            SUBCOMMITTEE ON HOUSING,
                             COMMUNITY DEVELOPMENT,
                                 AND INSURANCE

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                  MAY 8, 2019

                                   __________

           Printed for the use of the Committee on Financial Services

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE
    37-522 PDF                  WASHINGTON : 2020

    --------------------------------------------------------------------------------------

                               Serial No. 116-23

                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                     MAXINE WATERS, California, Chairwoman

    CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina,
    NYDIA M. VELAZQUEZ, New York             Ranking Member
    BRAD SHERMAN, California             PETER T. KING, New York
    GREGORY W. MEEKS, New York           FRANK D. LUCAS, Oklahoma
    WM. LACY CLAY, Missouri              BILL POSEY, Florida
    DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
    AL GREEN, Texas                      BILL HUIZENGA, Michigan
    EMANUEL CLEAVER, Missouri            SEAN P. DUFFY, Wisconsin
    ED PERLMUTTER, Colorado              STEVE STIVERS, Ohio
    JIM A. HIMES, Connecticut            ANN WAGNER, Missouri
    BILL FOSTER, Illinois                ANDY BARR, Kentucky
    JOYCE BEATTY, Ohio                   SCOTT TIPTON, Colorado
    DENNY HECK, Washington               ROGER WILLIAMS, Texas
    JUAN VARGAS, California              FRENCH HILL, Arkansas
    JOSH GOTTHEIMER, New Jersey          TOM EMMER, Minnesota
    VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
    AL LAWSON, Florida                   BARRY LOUDERMILK, Georgia
    MICHAEL SAN NICOLAS, Guam            ALEXANDER X. MOONEY, West Virginia
    RASHIDA TLAIB, Michigan              WARREN DAVIDSON, Ohio
    KATIE PORTER, California             TED BUDD, North Carolina
    CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
    SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
    AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
    BEN McADAMS, Utah                    JOHN ROSE, Tennessee
    ALEXANDRIA OCASIO-CORTEZ, New York   BRYAN STEIL, Wisconsin
    JENNIFER WEXTON, Virginia            LANCE GOODEN, Texas
    STEPHEN F. LYNCH, Massachusetts      DENVER RIGGLEMAN, Virginia
    TULSI GABBARD, Hawaii
    ALMA ADAMS, North Carolina
    MADELEINE DEAN, Pennsylvania
    JESUS ``CHUY'' GARCIA, Illinois
    SYLVIA GARCIA, Texas
    DEAN PHILLIPS, Minnesota

                       Charla Ouertatani, Staff Director
                      Subcommittee on Housing, Community
                           Development, and Insurance

                       WM. LACY CLAY, Missouri, Chairman

    NYDIA M. VELAZQUEZ, New York         SEAN P. DUFFY, Wisconsin, Ranking
    EMANUEL CLEAVER, Missouri                Member
    BRAD SHERMAN, California             BLAINE LUETKEMEYER, Missouri
    JOYCE BEATTY, Ohio                   BILL HUIZENGA, Michigan
    AL GREEN, Texas                      SCOTT TIPTON, Colorado
    VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
    CAROLYN B. MALONEY, New York         DAVID KUSTOFF, Tennessee
    DENNY HECK, Washington               ANTHONY GONZALEZ, Ohio
    JUAN VARGAS, California              JOHN ROSE, Tennessee
    AL LAWSON, Florida                   BRYAN STEIL, Wisconsin
    RASHIDA TLAIB, Michigan              LANCE GOODEN, Texas, Vice Ranking
    CINDY AXNE, Iowa                         Member

                               C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        May 8, 2019..................................................     1
    Appendix:
        May 8, 2019..................................................    47

                                   WITNESSES
                             Wednesday, May 8, 2019

    Bailey, Nikitra, Executive Vice President, Center for Responsible
      Lending........................................................     7
    Castro-Conroy, Carmen, Managing Housing Counselor, Housing
      Initiative Partnership, Inc....................................    12
    Griffith, Joel, Research Fellow, Financial Regulations, The
      Heritage Group.................................................    15
    Hicks, Jeffrey, President, National Association of Real Estate
      Brokers........................................................    11
    McCargo, Alanna, Vice President, Housing Finance Policy, The
      Urban Institute................................................     5
    Nery, Joseph, Partner, Nery & Richardson LLC, and past President,
      National Association of Hispanic Real Estate Professionals
      (NAHREP).......................................................     9
    Poole, JoAnne, 2019 Vice Chair, Multicultural Real Estate
      Leadership Advisory Group, National Association of REALTORS....    14

                                    APPENDIX

    Prepared statements:
        Bailey, Nikitra..............................................    48
        Castro-Conroy, Carmen........................................    80
        Griffith, Joel...............................................    84
        Hicks, Jeffrey...............................................    89
        McCargo, Alanna..............................................    95
        Nery, Joseph.................................................   117
        Poole, JoAnne................................................   128

                  Additional Material Submitted for the Record

    Waters, Hon. Maxine:
        UnidosUS report entitled, ``The State of, and Barriers to,
          Latino Homeownership,'' dated May 15, 2019.................   157
    Clay, Hon. William Lacy:
        Written statement of The Cedar Band of Paiutes' CBC Mortgage
          Agency (the ``Chenoa Fund''), dated May 8, 2019............   162
        Written statement of The Leadership Conference on Civil and
          Human Rights and Americans for Financial Reform............   269
        Written statement of the National Community Reinvestment
          Coalition..................................................   276
    McHenry, Hon. Patrick:
        Written statement of David M. Dworkin, President and CEO,
          National Housing Conference................................   290
    Posey, Hon. Bill:
        ``Multifamily Cost of Regulation, 2018 Special Study'' by the
          National Association of Home Builders and the National
          Multifamily Housing Council................................   300
    Tlaib, Hon. Rashida:
        Written statement of the National Consumer Law Center (on
          behalf of low-income clients)..............................   317

                          A REVIEW OF THE STATE OF AND
                       BARRIERS TO MINORITY HOMEOWNERSHIP

                                  ----------

                             Wednesday, May 8, 2019

                 U.S. House of Representatives,
                               Subcommittee on Housing,
                                 Community Development,
                                         and Insurance,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 10:05 a.m., in
    room 2128, Rayburn House Office Building, Hon. Wm. Lacy Clay
    [chairman of the subcommittee] presiding.
        Members present: Representatives Clay, Velazquez, Cleaver,
    Beatty, Green, Gonzalez of Texas, Maloney, Vargas, Lawson,
    Tlaib, Axne; Duffy, Luetkemeyer, Huizenga, Tipton, Kustoff,
    Gonzalez of Ohio, Rose, Steil, and Gooden.
        Ex officio present: Representatives Waters and McHenry.
        Chairman Clay. The Subcommittee on Housing, Community
    Development, and Insurance will come to order. Good morning,
    and welcome to this morning's hearing entitled, ``A Review of
    the State of and Barriers to Minority Homeownership.''
        As the Chair of the Subcommittee on Housing, I am honored
    to mark the anniversary of the congressional passage of the
    Fair Housing Act during the month of April, which was National
    Fair Housing Month.
        It is clear from the evidence in front of us, though, that
    51 years later there is still much work to be done to promote
    and ensure fair housing in America.
        Just a few weeks ago, The Washington Post published an
    article entitled, ``The Heartbreaking Decrease in Black
    Homeownership'', which told a sad tale but also discussed some
    of the historical discrimination that led the homeownership
    rates to decrease for blacks and other minorities as a result
    of the recent financial crisis.
        President Lyndon Johnson signed the Fair Housing Act on
    April the 11, 1968, 1 week after the assassination of Dr.
    Martin Luther King. The Fair Housing Act was a monumental step
    forward for the civil rights movement and pivotal to
    establishing equal opportunity in housing for all Americans.
        The discrimination which the Act attempted to outlaw did
    not occur through happenstance, and although many private
    actors were complicit, research has shown that the government
    played a significant role. And although it was officially
    outlawed 50 years ago, as the National Fair Housing Alliance's
    2018 report noted, some discriminatory practices are still
    prevalent.
        In fact, since 1988, dozens of cases alleging redlining and
    discrimination by mortgage lenders have resulted in close to $1
    billion in compensation to victims of mortgage lending
    discrimination and for investment in communities.
        A recent New York Times bestseller by researcher Richard
    Rothstein provides a very sobering account of how government
    policy supporting and directing segregation was not accidental.
    And we should all be alarmed that the homeownership rate for
    blacks is now 42 percent, and for Hispanics, is 47 percent,
    compared to 73 percent for white households.
        Homeownership has proven to be one of the most consistent
    paths to attaining wealth in America and narrowing the wealth
    gap. Closing the racial wealth gap will be an essential path
    towards countering historic discrimination and predatory
    lending practices and would no doubt be a boon for the housing
    market.
        It is also clear that minority borrowers must have access
    to credit on the same terms and conditions as everyone else.
    Otherwise, the racial wealth gap will persist.
        In theory, enhanced fair lending, increased financial
    intelligence, and the use of creative ways to promote community
    development will spur the type of development that will help
    the economy grow and help our community to thrive and not just
    survive.
        There is much work to be done but there are resources
    available. And I want to acknowledge the housing advocates in
    St. Louis and to acknowledge the work of the St. Louis
    Affordable Housing Trust Fund Task Force which issued a report
    yesterday that spells out a number of recommendations to
    address affordable housing. And I will be introducing
    comprehensive legislation to address some of the problems that
    still exist.
        Let me also acknowledge the contributions of my colleagues
    who have introduced or are working on legislative proposals
    that will work to improve this dire situation.
        As chairman of this subcommittee, my mission is to promote
    pragmatic policy through smart legislation, intelligent
    collaboration, and sound policy choices to help make that dream
    a reality again. And I look forward to the witnesses'
    testimony.
        At this time, I now recognize the ranking member of the
    subcommittee, Mr. Duffy of Wisconsin.
        Mr. Duffy. Thank you, Mr. Chairman. I appreciate you
    holding this hearing.
        Welcome, witnesses. It is hard to imagine that 50 years
    after passing a myriad of laws aimed at incentivizing low-
    income and minority homeownership, we find ourselves in a place
    where African-American ownership is lower than it was when
    Congress passed the Fair Housing Act.
        That is not an assault on Fair Housing. But it is that we
    have to reevaluate what we are doing and how we can be more
    effective, I think to the chairman's point.
        It is especially hard to imagine that with the lowest
    unemployment since 1969 at 3.6 percent, this is actually taking
    place today. I don't have the answers, but I want to work with
    the Majority and Chairman Clay to uncover reasons for the
    disparity of homeownership and what the solutions are to fix
    it.
        Looking at recent history, we know minorities were targeted
    for predatory mortgages prior to 2008 and the crisis. Congress
    acted to ensure that lenders verify employment, debt levels,
    costs involved in the loan, and the borrower's ability to repay
    at the FHA. Those disclosures are important, and we are still
    debating if we have hit the right balance on those disclosures.
        I think most people will point to a lack of financial
    resources for a down payment, poor credit history, a lack of
    understanding of the home buying process, regulatory burdens,
    and housing discrimination as barriers to homeownership.
        Sometimes, we can find microtargeted solutions for these
    issues by allowing the use of alternative data such as paying
    your phone bill or paying your medical bills when lending
    institutions use credit scores to determine a borrower's risk.
        The reality is we have an opportunity to address some of
    the inequities through a more holistic approach to housing
    finance reform and one cause of the financial crisis that
    Congress just hasn't seemed to get its hands around, but I
    think actually we need to address, again, housing finance.
        As I held hearings not long ago when I used to be the
    chairman, we invited many of the groups to testify at a
    roundtable where we discussed the barriers to minority
    homeownership in the context of major housing finance reform.
    And we will hear some of those ideas again today.
        I do want to use this opportunity to call on the chairwoman
    of the full Financial Services Committee to take the issue of
    housing finance reform up and do this in a bipartisan fashion
    because it is long overdue.
        Chairwoman Waters started this Congress by calling for a
    bipartisan working group on flood insurance and I am looking
    forward to participating in that. And I think she can use the
    same model to tackle housing finance reform and the issues that
    we are going to talk about today.
        I, for one, am ready to sit down with Chairman Clay, we
    have a great working relationship, and others on the
    subcommittee to work towards a solution that will benefit
    everyone in this room and all of our communities and all of our
    districts in all of our States.
        In today's hearing, we are looking at four bills and asking
    if they will solve some of the problems that you all will be
    highlighting. If they are legitimate solutions, we should stand
    with those bills and with those ideas. And if not, we want your
    feedback on how we can reform these proposals and make them
    work better and be more effective.
        While I have some initial opinions on the bills, I am
    looking forward to your testimony and your insight and your
    expertise to guide this Congress on how we should move forward.
        With that, if I could ask the Chair for a point of personal
    privilege?
        Chairman Clay. Proceed.
        Mr. Duffy. I would just like to make a quick note that
    Clinton Jones has served our committee and this subcommittee
    for 24 years. I know he doesn't look that old, but we have been
    blessed to have his expertise for 29 years in the Federal
    Government, 2 years at Fannie Mae. I am not sure how he would
    speak about the 2 years at Fannie Mae. Maybe he was happy to
    come back to the committee.
        But this is his last week. This is his last subcommittee
    hearing before he goes over to the FHFA.
        I couldn't have a better friend on the committee as someone
    who gives great insight. And it is fascinating as we go through
    some of these debates that Mr. Jones is sometimes a radical
    conservative and sometimes he is a radical socialist leftist.
    It just depends on the issue.
        And we never know where he is going to stand, but he always
    shares his opinion, and the loss to this committee from Clinton
    leaving will be to the benefit of FHFA. And so, Clinton, I just
    want to say thank you for your service and your friendship, and
    good luck as you make this transition.
        [applause]
        Chairman Clay. The gentleman yields back.
        Let me also congratulate Mr. Jones on your years of service
    here and good luck in your future endeavors.
        Today, we have a well-rounded panel of experts in the area.
    Oh, I see.
        Let me stop there with my opening statement and ask the
    chairwoman, did you want to make an opening statement?
        Chairwoman Waters. Yes. I would like to, right after you
    but not before you.
        Chairman Clay. Oh, I have done it. We have done ours--
        Chairwoman Waters. You have? Okay.
        Chairman Clay. So we will yield to you.
        Chairwoman Waters. Well, thank you for the opportunity. I
    would like to do that. I would like to thank you, Mr. Clay. The
    racial gap in homeownership represents a failure to remedy
    decades of explicit government-sponsored discrimination in our
    housing markets.
        Due to the projected growth of minority households in the
    coming decades and the economic importance of the housing
    market, some analysts have argued that a failure to address the
    gap in minority homeownership and the corresponding wealth gap
    is not only a major civil rights issue, it is a threat to
    America's economic security. This hearing is an important
    hearing to hear from experts about the ongoing barriers to
    homeownership as well as potential solutions.
        I am also very concerned that under Kathy Kraninger's
    leadership, the Consumer Financial Protection Bureau (CFPB)
    last week issued a proposal to severely curtail data reporting
    under the Home Mortgage Disclosure Act (HMDA).
        HMDA data is a crucial tool used by researchers, advocates,
    journalists, and the government to identify and combat
    predatory and discriminatory mortgage lending. And the CFPB
    must rescind this proposal at once. I look forward to
    discussing this and other issues with our witnesses. Thank you
    very much.
        I yield back.
        Chairman Clay. The chairwoman yields back, and I thank you
    for your opening statement.
        We have a well-rounded list of witnesses, and I will start
    off by introducing them all. The first witness will be Ms.
    Alanna McCargo, vice president of housing finance policy at the
    Urban Institute.
        The second witness will be Ms. Nikitra Bailey, executive
    vice president for the Center for Responsible Lending.
        Third, will be Mr. Joseph Nery, partner at Nery &
    Richardson, LLC, and past president of the National Association
    of Hispanic Real Estate Professionals, and a current national
    board member.
        Fourth, will be Mr. Jeffrey Hicks, president of the
    National Association of Real Estate Brokers.
        Fifth, will be Ms. Carmen Castro-Conroy, managing housing
    counselor at the Montgomery County Housing Initiative
    Partnership.
        Sixth, will be Ms. JoAnne Poole, the 2019 vice chair of the
    Multicultural Real Estate Leadership Advisory Group of the
    National Association of REALTORS.
        And finally, Mr. Joel Griffith, research fellow, Financial
    Regulations, from the Heritage Foundation.
        Welcome to you all. You will each be recognized for 5
    minutes to present your oral testimony. And without objection,
    your written statements will be made a part of the record.
        And we will start with Ms. McCargo. You may proceed.

     STATEMENT OF ALANNA MCCARGO, VICE PRESIDENT, HOUSING FINANCE
                      POLICY, THE URBAN INSTITUTE

        Ms. McCargo. Chairman Clay, Ranking Member Duffy, and
    members of the subcommittee, thank you for the opportunity to
    testify today.
        My name is Alanna McCargo. I am the vice president of the
    Housing Finance Policy Center at the nonprofit Urban Institute.
    The views I express today are my own and should not be
    attributed to the Urban Institute, its trustees or funders.
        This morning, I will share data on the critical role of
    homeownership access, housing affordability, and sustainability
    for households of color. My remarks will often focus on black
    homeownership because the homeownership trends for black
    Americans today are in a dire and declining state, and the
    Housing Finance Policy Center has been extensively researching
    these issues over the past several years.
        The face of our nation is changing profoundly and
    literally. As communities of color grow, their experiences will
    increasingly come to define the housing market of the future.
    Some projections suggest that in just 25 years, no racial or
    ethnic group will represent more than 50 percent of the U.S.
    population.
        The overwhelming majority of new homebuyers in the next 10
    years will be non-white, with more than half being Hispanic. If
    current trends persist, however, the homeownership rate will
    significantly decline and opportunities to build wealth through
    homeownership will as well.
        Becoming a homeowner in America today is getting further
    out of reach for most families. The cost of buying a home is
    high and it is difficult to get a mortgage unless you have
    pristine credit. High rental cost makes saving for a down
    payment on a house very challenging.
        The result has been a persistent and significant racial
    homeownership rate gap in the United States. Just to level set,
    the national homeownership rate today is at 64 percent. Broken
    down by race, rates stand at 42 percent for blacks, and 47
    percent for Hispanics, reflecting gaps of 30 and 25 percentage
    points less than whites, whose homeownership rate is at around
    72 percent.
        The racial homeownership gap is larger today than it was 50
    years ago, as the chairman mentioned, and that was when race-
    based discrimination was actually legal in this country. Not
    only have we failed to make progress, we have lost precious
    ground. New solutions, programs, and policy interventions are
    needed.
        There are four facts I will highlight around the severity
    and persistence of the crisis in homeownership for people of
    color. First, despite big gains made during the housing boom,
    black and Hispanic homeownership rates have never hit 50
    percent in this country, and minorities disproportionately
    suffered the biggest stripping of wealth through the
    foreclosure crisis.
        Second, racial disparities exist across the nation. We
    looked at cities with the 100 largest black populations across
    the country, and there is no city without a racial
    homeownership gap.
        Third, racial homeownership gaps are a generational
    dilemma, intergenerational dilemma. The homeownership gap is
    present with our seniors, our Baby Boomers, and Generation X,
    and our research shows it persists with a large and very
    diverse generation of 74 million-plus millennials.
        Finally, there are historical and structural barriers and
    biases that continue to live in our housing system that cannot
    be ignored or put aside if we are to make any progress over the
    next 50 years. These barriers must be eliminated in order to
    reverse these trends.
        The racial homeownership gap will have consequences for the
    financial health and well-being of future generations and for
    the entire country because homeownership remains the primary
    wealth-building tool for most Americans.
        That survey data shows that homeowners have significantly
    more wealth than renters. Today, the median homeowner has a net
    worth of roughly $200,000 compared to just $5,000 for renters.
    And while the black and Hispanic homeowners have less than half
    the net worth of white homeowners, they still have considerably
    more than black and Hispanic renters.
        The returns on homeownership are not just financial, of
    course. Homeownership provides shelter, stability, and enables
    families forced savings each month when making their mortgage
    payment. And the home equity plays an increasingly important
    part in retirement security for seniors.
        I have shared several ideas for reducing the racial
    homeownership gap in my written testimony. Many of these ideas
    will require action from Federal, State, and local agencies.
        I urge this committee to pursue a bipartisan action that
    will help change the direction of the persistent growing racial
    homeownership gap by addressing these priorities.
        The segregation in our communities and the disparities in
    accessing our housing markets did not come about by accident.
    Our history and the role that the Federal Government played in
    creating segregated and undervalued neighborhoods through
    explicit race-based policies that benefited white families,
    helping them purchase homes through FHA and other programs that
    excluded people of color, is well documented.
        It is my view that intentional policies will be needed to
    reverse decades of wealth-stripping and decline. The data and
    the evidence are clear on this.
        Ensuring an equitable and accessible housing finance system
    is something Congress can and should undertake with all of the
    housing agencies.
        This includes modernizing and bolstering the Federal
    Housing Administration, particularly its outdated servicing
    systems, safely expanding access to fairly-priced conventional
    mortgages to borrowers of color through Fannie Mae and Freddie
    Mac, updating underwriting practices and models to consider
    modern living arrangements and varying income types, and
    innovating to make alternative forms of credit available and
    mortgage decisions to improve access to credit and reduce
    mortgage application denials.
        [The prepared statement of Ms. McCargo can be found on page
    95 of the appendix]
        Chairman Clay. The gentlewoman's time has expired. Thank
    you, Ms. McCargo.
        And now, Ms. Bailey, you are recognized for 5 minutes.

     STATEMENT OF NIKITRA BAILEY, EXECUTIVE VICE PRESIDENT, CENTER
                        FOR RESPONSIBLE LENDING

        Ms. Bailey. Good morning, Chairwoman Waters, Ranking Member
    McHenry, Chairman Clay, and Ranking Member Duffy. Thank you for
    the opportunity to testify in today's hearing on barriers to
    homeownership for families of color.
        Four hundreds of years after the enslaved Africans arrived
    in Jamestown, Virginia, and hard-fought battles won granting
    citizenship and equal protection to African Americans,
    homeownership remains the driver of inequality.
        Our nation's housing finance system was built with
    discrimination as the cornerstone. The mortgage ecosystem
    favored whites and set them up for success while curtailing
    opportunity for families of color.
        Today's racial wealth gap is the outcome of this
    discrimination. White families have 13 times the wealth of
    African Americans and 10 times the wealth of Latino families.
    The white homeownership rate is 73 percent compared to 41
    percent for African Americans and 47 percent for Latinos.
        These stubborn and persistent figures will only disappear
    when we stop underwriting practices that falsely equate race
    with risk. This hearing can be a catalyst for change, a step
    towards addressing the Federal Government's role in lending
    discrimination that produced winners and losers among American
    citizens in the pursuit of the American Dream.
        I am executive vice president of the Center for Responsible
    Lending, an affiliate of Self-Help, one of the nation's largest
    community economic development lenders based in North Carolina.
    Self-Help has provided over $7 billion in financing to
    borrowers all across the nation, including in a secondary
    market program that has helped low- to moderate-income families
    and people of color succeed in homeownership.
        President Johnson signed the Fair Housing Act in 1968
    following the assassination of Dr. Martin Luther King, Jr.,
    stating that he was delivering on the promise of a century,
    referencing Lincoln's emancipation.
        In 1866, Congress passed the Civil Rights Act that promised
    fair lending. It was limited by a private right of action and
    that weakened its enforcement manifesting in discrimination for
    102 years of legal mortgage discrimination. Race remains an
    impediment to fair lending.
        Today, African Americans have the same rates of
    homeownership as they did in 1968. Home Mortgage Disclosure Act
    data consistently show low levels of lending by conventional
    lenders to communities of color, with only 3.1 percent of
    conventional loans going to African Americans and 5.8 percent
    to Latinos in comparison to 70.2 percent to white families in
    2016.
        Discriminatory lending birthed redlining. Redlining birthed
    predatory lending. Predatory lenders target families of color
    with high-cost and risky mortgages.
        CRL's research found that consumers of color were steered
    towards these unsustainable loans even when they qualified for
    loans with lower cost and fewer risks. The spillover costs for
    black and Latino families totaled $1 trillion.
        Today's mortgage market delivers as designed. Conventional
    loans are for whites only. Families of color, including upper-
    income Latinos and African Americans, are disproportionately
    represented in the FHA. Government-backed loans cannot and
    should not be the only sources of credit for low-wealth
    families.
        Post-recovery, banks experienced record profits, reporting
    $59.1 billion in the fourth quarter of 2018, up 133.4 percent
    from a year earlier. Fannie Mae data shows that loans to low-
    income families originated between 2010 and 2015 had a default
    rate of just 0.3 percent, approximately equal to that of loans
    to high-income borrowers originated in 2002 through 2004.
        Rather than remediate the damage done by abusive subprime
    lending, excessive risk-based pricing dominates in today's
    mortgage market, driving out the very borrowers that a future
    system depends on. Harvard's Joint Center tells us that 7 out
    of 10 future borrowers will be families of color.
        Mortgage discrimination's impact on families of color needs
    a Federal response equal to the problems it created. Now is the
    time for action and not retreat.
        Some ways that we can achieve this goal include increasing
    support for down payment assistance, requiring national banks
    to ensure that 10 percent of their mortgage lending and small
    business lending occurs in communities where at least 20
    percent of the population has experienced poverty for the last
    30 years in exchange for FDIC insurance or to have their loans
    sold to the GSEs or Ginnie Mae.
        Strengthen and fairly enforce our nation's lending laws.
    These laws have never been fairly enforced. African Americans
    and Latinos have never operated in a fair and equitable
    mortgage system. If we had, many of the disparities discussed
    would be smaller than they are today. According to Demos, we
    would see a reduction in the homeownership and equity building
    for communities by considerable percentages.
        Whites have better life outcomes in wealth accumulation,
    housing, education, employment, and health. Our nation's
    lending system contributed to these inequities. Remediating the
    Federal Government's role will level the playing field,
    creating more equity of opportunity so that all Americans can
    share in its prosperity.
        Thank you. I look forward to answering your questions.
        [The prepared statement of Ms. Bailey can be found on page
    48 of the appendix.]
        Chairman Clay. Thank you for your testimony.
        And, Mr. Nery, you are recognized for 5 minutes.

     STATEMENT OF JOSEPH NERY, PARTNER, NERY & RICHARDSON LLC, AND
      PAST PRESIDENT OF THE NATIONAL ASSOCIATION OF HISPANIC REAL
                     ESTATE PROFESSIONALS (NAHREP)

        Mr. Nery. Good morning, Chairwoman Waters, Chairman Clay,
    Ranking Member Duffy, and distinguished members of the
    Subcommittee on Housing, Community Development, and Insurance.
        My name is Joseph Nery, and I am here representing the
    National Association of Hispanic Real Estate Professionals
    (NAHREP), both as 2016 NAHREP national president and as a
    Chicago-based real estate attorney where I serve a largely
    Latino market.
        With over 30,000 members in over 80 local chapters, our
    organization is one of the largest Latino business
    organizations in the country. The force and passion behind our
    growing membership revolves around one primary mission:
    advancing sustainable Hispanic homeownership. Bottom line, we
    believe every individual who desires to become a homeowner and
    is able to sustain a mortgage should be granted access to the
    American Dream.
        Today, my testimony will outline the current state of
    Hispanic homeownership and make several actionable
    recommendations for this committee to consider. This year's
    edition of our annual State of Hispanic Homeownership Report
    highlighted four consecutive years of homeownership growth for
    Latinos and the largest increase since 2005.
        In spite of this remarkable growth, homeownership rates
    among Latinos and other minority populations lag behind that of
    their non-Hispanic white counterparts. At the end of 2018, the
    Hispanic homeownership rate was 47.1 percent compared to 73
    percent for the non-Hispanic white population and 64.4 percent
    for the general population.
        While homeownership trends are positive, they should be
    much higher. And this is important because Hispanics will
    account for more than half of all new potential homeowners over
    the next several years and 56 percent of all new homeowners by
    2030.
        Hispanics have also accounted for more than half of the
    nation's population growth since the year 2000. And at a median
    age of 29, Hispanics are just entering into their prime
    homebuying years, further increasing homeownership potential
    for decades to come.
        If homeownership rates across all ethnic groups were to
    remain what they are today, the national homeownership rate
    would decline to 55 percent over the next 40 years. The last
    time the homeownership rate was that low was in the years
    immediately following World War II.
        So that bring us to the unique challenges credit-worthy
    Latinos face in today's market. A young couple I assisted in
    buying their first home are a prime example of the Hispanic
    homebuyer today. Jose and Laura own a small gardening business,
    while Laura occasionally caters at events.
        Laura's mother and sister live with them, both of whom
    contribute to the monthly mortgage payment, yet it took 6
    months for this household to be able to gain access to a
    reasonable loan. Much like my clients, potential Hispanic
    homeowners are more likely to be self-employed or involved in
    the gig economy, live in multi-generational households and tend
    to use cash over credit.
        Given these characteristics, coupled with today's
    regulatory constraints, lenders consistently fail to accurately
    assess the credit risk of many otherwise credit-worthy Hispanic
    borrowers.
        To that end, NAHREP offers these actionable Federal policy
    solutions. First, we must temporarily extend the GSE QM patch
    until it is replaced with a workable solution. Communities of
    color would be disproportionately impacted if the GSE QM patch
    were to expire, given that Hispanics are 38 percent more likely
    to have a high DTI loan.
        As data is still being developed to support alternatives
    and replacements for the patch, the Hispanic community is
    poised to be negatively impacted without clear solutions for
    non-W-2 borrowers, particularly for the growing number of
    Latino small business owners.
        Second, Congress must prioritize efforts to fund FHA's
    much-needed modernization. No Federal housing finance reform
    should be devoid of a plan for how to do so. Today, Hispanics
    are more than twice as likely to make use of the FHA programs
    than non-Hispanics, yet the agency is understaffed, underfunded
    and operating with severely outdated technology and computer
    systems.
        Third, we must put a halt to the practice of denying
    taxpayer-supported loans to taxpaying DACA recipients. We
    support today's Homeownership for Dreamers Act legislation and
    join its co-sponsors in their call to clarify that eligibility
    of a government-sponsored mortgages may not be conditioned on
    the status of a consumer being a DACA recipient. We must ensure
    that FHA and other Federal housing agencies do not get ahead of
    the judiciary to decide immigration law.
        Fourth, we urge the Subcommittee on Diversity and Inclusion
    to take on the issue of diversifying the mortgage industry at
    all levels. A diverse lending community stimulates
    homeownership rates for minority borrowers.
        And finally, we would be remiss if we did not mention the
    need to increase the inventory of affordable owner-occupied
    housing, quite possibly the biggest short-term barrier to
    minority homeownership today.
        While we are proud to see a resilient Latino population
    consistently increasing its rate of homeownership, this
    progress is in spite of the structural barriers to
    homeownership. Today, more than ever, broad access to
    affordable credit, low-down-payment mortgage products, and
    sufficient affordable housing stock will be imperative to
    ensuring the long-term prosperity of the nation.
        Now is not the time to curtail access to the very products
    that have catapulted so many working-class Americans into the
    middle class. Instead, we must ensure that our housing system
    adequately adapts to the changing face of America's aspiring
    homeowner.
        Thank you.
        [The prepared statement of Mr. Nery can be found on page
    117 of the appendix.]
        Chairman Clay. Thank you, Mr. Nery.
        Mr. Hicks, you are recognized for 5 minutes.

    STATEMENT OF JEFFREY HICKS, PRESIDENT, NATIONAL ASSOCIATION OF
                          REAL ESTATE BROKERS

        Mr. Hicks. Good morning, Chairwoman Waters, Chairman Clay,
    Ranking Member Duffy, and distinguished members of the
    subcommittee. Thank you for holding this hearing and for giving
    me the opportunity to testify about the important issue of
    minority homeownership in America.
        My name is Jeffrey Hicks and I'm from from Atlanta,
    Georgia. I am the president of the National Association of Real
    Estate Brokers, NAREB. Founded in 1947, NAREB is the oldest
    minority real estate trade association in America. Its members
    are known as REALTIST. The primary mission is reflected in
    NAREB's motto: Democracy in Housing.
        For 72 years, the association has worked to ensure that all
    Americans have equal access to homeownership opportunities in
    urban, suburban, and rural communities throughout the United
    States, and equal opportunity in the real estate profession for
    black Americans. I am honored to be here today to provide our
    perspectives on what NAREB believes to be the barriers to
    minority homeownership in the United States.
        Our nation has a very complicated and checkered history
    with providing equal and equitable access to homeownership for
    black Americans.
        At the end of World War II, when black Americans sacrificed
    their lives for the cause of freedom, dignity, and human
    rights, the United States Federal Government created an
    economic divide between black and white veterans, and their
    families were denied the multi-generational enriching impact of
    homeownership and economic security that the G.I. Bill
    conferred on the majority of white veterans, their children,
    and their grandchildren.
        Unequal implementation of the G.I. Bill, along with Federal
    Government policies and practices at the Federal Housing
    Administration, including the redlining of black neighborhoods,
    but at the same time financing the construction of suburbs
    restricted to whites only and providing subsidized mortgages,
    financing only for whites, set the stage for today's wealth and
    homeownership gap statistics.
        It is against this backdrop that I give my testimony.
    Annually, NAREB publishes the State of Housing in Black America
    Report. The 2018 edition examined the need for Federal policies
    to address and bolster the rate of black American homeownership
    since previous Federal policies discriminated against blacks
    which helped to create a disparity in black American
    homeownership, which lags a whopping 32.1 percent behind that
    of white Americans.
        According to the first quarter 2019 Census Bureau
    statistics, the homeownership rate for black Americans is 41.1
    percent for blacks versus 73.2 percent for whites. For these
    reasons, NAREB has adopted three policy principles that can
    work to increase homeownership among minorities.
        One, we must continue to promote homeownership as a high
    priority public policy. NAREB calls for the passage of the
    American Dream Down Payment Savings Plan proposal by
    Congressman Meeks that will function from a tax perspective
    like the 529 College Savings Plan.
        Potential homebuyers and existing homebuyers desiring a
    move-up home would be allowed to save in an authorized account
    where the savings could grow tax free and be used as a down
    payment for purchasing a home.
        Two, loan level equality, which would be the absence of
    hereditary or arbitrary class distinctions, biases or
    privileges in the mortgage origination process.
        And three, non-bank financial institutions should have an
    accountability structure. There is a growing concern about the
    lack of regulation for non-deposit mortgage lenders while these
    entities are the growing force, now more than 50 percent of all
    mortgage originations, yet there is very little regulatory
    accountability.
        In closing, we need lawmakers and policymakers, local
    officials, homebuilders and the financial industry to promote
    homeownership. I fear the value of homeownership is being lost
    on our young people and will be lost on future generations.
        Realtist will continue to be the conscience of the real
    estate industry, forever promoting democracy in housing, which
    is the right for every person to live in a neighborhood of
    their choice. Thank you, and I will be happy to respond to any
    questions.
        [The prepared statement of Mr. Hicks can be found on page
    89 of the appendix.]
        Chairman Clay. Thank you, Mr. Hicks.
        Ms. Castro-Conroy, you are recognized for 5 minutes.

    STATEMENT OF CARMEN CASTRO-CONROY, MANAGING HOUSING COUNSELOR,
                  HOUSING INITIATIVE PARTNERSHIP, INC.

        Ms. Castro-Conroy. Good morning, Chairwoman Waters,
    Chairman Clay, Ranking Member Duffy, and members of the
    subcommittee. Thank you for the opportunity to testify today.
    My name is Carmen Castro-Conroy, and I am the managing housing
    counselor at the Housing Initiative Partnership.
        We are a nonprofit affordable housing developer and HUD-
    approved housing counseling agency located in Maryland. Our
    housing counselors have provided counseling, education, and
    advocacy to over 20,000 households to help them enter
    homeownership, avoid foreclosure, secure affordable rental
    housing, and strengthen their personal finances.
        We serve Prince Georges County, Maryland, one of the most
    affluent majority African-American communities in the country,
    and Montgomery County, the 25th most diverse county in the
    country. The two primary barriers to minority homeownership our
    counseling staff witnesses are the lack of generational wealth
    and the shortage of affordable housing.
        The parents, grandparents, and great-grandparents of
    African American and immigrant populations either did not
    benefit from or were intentionally excluded from the Federal
    programs that allow white families to build generational
    wealth.
        During the housing bubble, the housing market exploited the
    communities that lack wealth. We worked with over 10,000
    homeowners in default during the foreclosure crisis. A vastly
    disproportionate percentage, 98 percent, of those defaulting
    homeowners were minority households. To a person, our clients
    presented their counselors with the most toxic loan documents
    we had ever seen.
        We know now that lenders created these dangerous predatory
    products to be easily accessible specifically to this
    population that had been historically excluded from access to
    credit.
        The result? The African-American and immigrant households
    we worked with watched as their hard-fought financial gains and
    accumulation of equity slipped through their hands, draining
    their wealth away at an alarming and devastating rate.
        An African-American family we work with illustrates this
    loss of wealth. This family purchased in 2005, and despite
    their solid income and recent savings, their mortgage contained
    an adjustable interest rate that had spiked to 15 percent by
    the time we met in 2008.
        A housing counselor helped negotiate a loan workout with a
    new 4 percent interest rate, but the home had lost value after
    the housing crash, and the family continues to be saddled with
    close to $80,000 in negative equity.
        In communities of color we serve, home values are often far
    below pre-recession levels, and in some cities you will find as
    many as one in five homeowners with negative equity.
        On the purchase side, the lack of affordable rental housing
    creates barriers for minority households seeking to enter
    homeownership. Minority households that have sufficient income
    to qualify for a mortgage are often unable to save or pay down
    debts due to the high cost of rental housing.
        One of our clients who immigrated from the Republic of
    Congo in 1995 and began working as a nursing assistant
    illustrates this challenge. She had achieved a household
    monthly income of $6,000, but her credit was low due to her
    debts.
        She worked steadily for 2 years to adhere to a very strict
    budget, often meeting monthly with a counselor, and succeeded
    in paying down debt, building savings, and purchasing a
    $320,000 townhouse in 2018 with an FHA loan.
        This allowed her to access homeownership, but it came at a
    high cost. Her higher-than-market interest rate and high
    mortgage insurance fees will cost her $89,000 over the life of
    the loan.
        Minority households that have been historically excluded
    from or exploited by the credit market deserve a better Federal
    response, one that provides low-wealth borrowers with safe and
    sustainable mortgages without the prohibitive fees.
        Finally, any Federal response to increase homeownership for
    low-wealth minority communities should include housing
    counseling. Research is clear: Loans made to borrowers who had
    received pre-purchase counseling performed better.
        We hope Congress will improve access to sustainable
    homeownership for the minority communities. Thank you.
        [The prepared statement of Ms. Castro-Conroy can be found
    on page 80 of the appendix.]
        Chairman Clay. Thank you, Ms. Castro-Conroy.
        Ms. Poole, you are recognized for 5 minutes.

    STATEMENT OF JOANNE POOLE, 2019 VICE CHAIR, MULTICULTURAL REAL
       ESTATE LEADERSHIP ADVISORY GROUP, NATIONAL ASSOCIATION OF
                             REALTORS (NAR)

        Ms. Poole. Thank you. Good morning, Chairwoman Waters,
    Chairman Clay, Ranking Member Duffy, and members of the
    subcommittee.
        My name is JoAnne Poole. As a REALTOR in Baltimore,
    Maryland, I have 33 years of experience working with the people
    of Anne Arundel County, Prince Georges County, Baltimore City,
    and Baltimore County.
        I have been an active member of the National Association of
    REALTORS for over 20 years, serving as its vice president,
    Chair of the Federal Housing Policy Committee, and currently as
    the 2020 chair of the REALTORS Multicultural Real Estate
    Leadership Advisory Group.
        On behalf of NAR's 1.3 million members, I want to thank you
    for the opportunity to present our association's concerns
    surrounding the state of and the barriers to minority
    homeownership in the United States.
        In addition to my work with NAR, I am also a member of the
    National Association of Real Estate Brokers. I am proud to sit
    here today with President Jeffrey Hicks. Under President Hicks'
    leadership, NAREB continues to play its historic role,
    highlighting the critical issues this committee has convened to
    discuss.
        To many people in this country, homeownership is synonymous
    with the American Dream. Homeownership provides for stable
    communities, increases civic participation, and builds our
    feelings of self-worth and self-esteem.
        In fact, studies have shown that the children of homeowners
    go on to earn more as adults. But sadly, stark racial
    disparities in the rate of homeownership demonstrate that this
    dream remains out of reach for countless families and potential
    homebuyers across the United States. For example, the rate of
    homeownership for African Americans has returned to the levels
    not seen since before the passage of the Fair Housing Act. And
    as has been mentioned, that was over 50 years ago.
        NAR and NAREB and the Urban Institute recently convened a
    roundtable focusing on improving African-American homeownership
    rates. A five-point framework that can be applied across all
    minority communities emerged and continues to be developed.
        Namely, these priorities include advancing local policy
    solutions, tackling housing supply constraints and
    affordability, promoting an equitable and accessible housing
    finance system, engaging in outreach to our mortgage-ready
    individuals, and maintaining a focus on sustainable
    homeownership and preservation.
        NAR strongly supports the production of affordable housing
    and efforts to increase the supply of entry level homes. We
    encourage States and municipalities to consider the input of
    local experts and to adopt zoning laws, building codes, and
    other policies that encourage free market production of
    affordable housing units.
        If America is to remain a nation of homeowners, we must
    address the persistent barriers that minorities continue to
    face. NAR's policy solutions and proposals for this national
    issue are outlined in more detail in the official testimony
    submitted to this committee.
        I want to thank you again for the opportunity to address
    this committee, and I look forward to addressing these critical
    issues at today's hearing and in the months and the years to
    come.
        Thank you.
        [The prepared statement of Ms. Poole can be found on page
    128 of the appendix.]
        Chairman Clay. Thank you, Ms. Poole, for your testimony.
        And now, we go to Mr. Griffith. You are recognized for 5
    minutes.

        STATEMENT OF JOEL GRIFFITH, RESEARCH FELLOW, FINANCIAL
                    REGULATIONS, THE HERITAGE GROUP

        Mr. Griffith. Good morning, Chairwoman Waters, Chairman
    Clay, Ranking Member Duffy, and members of the subcommittee.
    Thank you for the opportunity to testify this morning.
        My name is Joel Griffith. I am a research fellow at the
    Heritage Foundation. The views I express in this testimony are
    my own and should not be considered as representing the
    official position of the Heritage Foundation.
        Efforts to expand homeownership through government programs
    or policies are often well-intentioned. But as you all know,
    good intentions are an insufficient basis for public policy.
        Directing resources to the housing sector through
    government subsidies, mandates, and guarantees may financially
    benefit select special interests such as MBS investors and
    lenders, but this negatively impacts affordability for all,
    including minorities.
        Furthermore, a focus on simply expanding homeownership
    fails to recognize that homeownership itself does not suddenly
    improve a borrower's financial health, enhance their skillset,
    or expand their economic opportunities.
        In other words, homeownership stems from financial health,
    a profitable skillset, and economic opportunity. These
    desirable conditions are not simply created by virtue of owning
    a home.
        Closing the gap in wealth accumulation and multiplying the
    opportunities to create such wealth requires an approach
    different from the government housing subsidies, mortgage
    guarantees and mandates of the past. Congress can help make
    housing more affordable, but this is actually accomplished by
    shrinking the Federal role in housing finance.
        Data show that heavy government involvement in the home
    finance sector failed to substantially increase homeownership
    long term, despite the trillions of dollars worth of credit
    that flowed to those with lower credit scores, minimal income
    documentation, less stable employment history, and scant down
    payments.
        Robust homeownership in this country was established long
    before the government became heavily involved in the housing
    market. Fannie Mae was not allowed to purchase non-government
    insured mortgages until 1968.
        But in the 2 decades prior to that watershed change,
    government-backed mortgages never accounted for 6 percent of
    the market in any given year. Yet, the homeownership rate was
    64 percent in 1968 overall. That was virtually unchanged
    compared to today.
        For blacks, homeownership actually grew from 35 percent in
    1950 to 42 percent in 1970 and increased to 44 percent in 1980.
    But by 1990, after the securitization market had begun
    expanding, black homeownership actually declined to 43 percent.
    And now in 2019, as discussed already, homeownership in the
    black community has declined even further to 41 percent.
        The fact is that homeownership rates for blacks and for the
    nation as a whole are nearly unchanged today compared to 1990.
    This indicates that additional leverage that many are
    recommending should not be relied upon to increase the rate of
    homeownership further.
        Rather than recognize the realities, congressional inaction
    has expanded the government's role in the wake of the prior
    financial crisis. This is leading once again to widespread
    unaffordability and increased taxpayer risk. In fact, adjusted
    for inflation, residential property prices in the United States
    in the middle of last year had reached levels close to the peak
    of the bubble.
        The home price-to-income ratio is now at 3\1/2\. That is
    very close to the peak prior to the last crisis. The current
    system perpetuates inflated prices and deprives other sectors
    of needed financial resources. It is difficult to argue that
    these policies improve the status quo for anyone other than
    lenders, securitizers, and MBS investors.
        Optimally, Congress will work to make housing more
    affordable by gradually reducing those subsidies, but this
    alone will not close the wealth gap.
        What we need is an increase in economic opportunity. This
    also requires State and local governments sharing that
    responsibility and eliminating the artificial barriers to
    economic growth such as unreasonably high minimum wages,
    occupational licensing, and unreasonable zoning restrictions.
        Lastly, failing public schools contribute to a relative
    lack of education, marketable skills, and other forms of human
    capital. To better equip the next generation to prosper we need
    expanded educational choice. Many of the underperforming public
    schools are located in economically deprived areas with a
    disproportionately large minority population.
        The government-granted education monopoly fails the
    millions of students who are subsequently unable to effectively
    compete in the labor market. Educational choice will help close
    this opportunity gap.
        These three steps will unlock human potential and expand
    opportunities for all. Thank you.
        [The prepared statement of Mr. Griffith can be found on
    page 84 of the appendix.]
        Chairman Clay. Thank you, Mr. Griffith, for your testimony.
        I now recognize myself for 5 minutes for questioning.
        Ms. Castro-Conroy, in your testimony you mentioned an
    African-American family who had solid income but was still
    saddled with a predatory loan.
        Do you suspect that there are other families out there like
    this who unfortunately were not aware of the services that the
    Housing Initiative Partnership provides?
        Ms. Castro-Conroy. Yes. There are other families who do not
    know about the services that we provide. And we have also seen
    other families who have been impacted very similar to this case
    as well.
        Chairman Clay. And as a follow-up, how do we educate other
    families so that they are not subject to the type of bad
    financial practices that this family encountered?
        Ms. Castro-Conroy. We provide financial education to all of
    our clients with the counseling that we do. So when we work
    with them, we look at their budgets, we look at their credit
    reports, we talk about savings, we talk about debt.
        So we start educating them in the process of becoming
    homeowners, whether they are renting. Even when they are actual
    homeowners we always look at their finances, try to educate
    them.
        Chairman Clay. And that counseling service is effective and
    it helps?
        Ms. Castro-Conroy. Yes, we see results. We keep track of
    how they improve in their credit score, how they improve in
    their savings, and how they reduce their debt through time.
        Chairman Clay. Thank you so much.
        Ms. Bailey, from a historical perspective, you talk about
    how Jim Crow laws and groups like the Ku Klux Klan worked
    diligently to keep African Americans down, and when African-
    American neighborhoods flourished, like the one known as
    America's Black Wall Street, until the Tulsa Race Riot of 1921
    in which white residents massacred 26 black residents, injured
    hundreds more, and razed the neighborhood within hours.
        The riot was one of the most devastating massacres in the
    history of U.S. race relations, destroying the once thriving
    Greenwood community. Could you discuss how devastating this
    was, not just to the black community in Oklahoma, but how it
    had a chilling effect on blacks' success and wealth?
        Ms. Bailey. Yes, thank you for the opportunity. Many
    African Americans were making an effort to pursue opportunity
    across the country in the same way that white American families
    did. Twenty percent of white American family wealth can be
    attributed to them getting access to land grants from the
    Homestead Act.
        African-American families were following in that trend and
    relocated from the south throughout the nation, including
    western cities like Tulsa, Oklahoma.
        However, they faced terrorism, because right as the nation
    was moving forward with more sound economic and fairness
    policies, it met an equal and opposite reaction where we wanted
    to preserve white supremacy in this nation. And in doing that,
    we created barriers to opportunities for African Americans that
    really jeopardized their communities in the way that you just
    identified with the evidence from Tulsa.
        It is important to say that Tulsa is not the only place.
    There is also evidence that this happened in places like
    Rosewood, Florida, and in other communities across the country.
        So we really need to get at the real hardship that families
    of color face. People who were really pulling themselves up by
    their bootstraps, doing everything right in a nation that
    promised opportunity, we had all of these fair lending laws
    that promised opportunity and that opportunity was resisted by
    white Americans who wanted them to remain as second-class
    citizens.
        Chairman Clay. And you cite some notable historic examples.
        Ms. McCargo, you cited a paper by your colleague, Lori
    Goodman, which concluded that homeownership is still one of the
    better paths towards accumulating wealth. And when you think
    about it, if a family saves for a home, their spending behavior
    changes, usually for the better.
        They become more financially astute and they work towards a
    goal. Could you discuss homeownership and retention and some of
    the solutions which you mentioned in your testimony?
        Ms. McCargo. Thank you for the question, Mr. Chairman.
    Undoubtedly, homeownership has provided a wealth-building
    opportunity for families for generations. It is noteworthy that
    we talk about the homeownership rate nationally at 64 percent.
    It has been, for over 30 years, over 70 percent for white
    households, and the accumulation of wealth during that same
    time has been significant.
        And I think it is important to recognize the significant
    opportunity that forced savings and essentially paying into
    something that you will ultimately own, as well as the
    intergenerational implications of that wealth transfer
    opportunity for families.
        That is something that has been afforded for decades to
    white families. And I think it is really important as a
    foundation for us to think about how disproportionately wealth
    is built in black and Hispanic communities through home equity.
    And that opportunity needs to be made more available and
    readily available for most.
        Chairman Clay. Thank you so much for your response.
        And the gentleman from Wisconsin, Mr. Duffy, is recognized
    for 5 minutes.
        Mr. Duffy. Thank you, Mr. Chairman. Listen, I want to thank
    the panel for the insightful conversation and good insight you
    provided to the committee. Just, it is troubling the disparity
    that we are talking about today in homeownership and actually
    the disparity in wages. And I think it brings us to the point
    that Mr. Griffith was mentioning.
        I don't think there is any one solution here. I think it is
    pretty clear that, as Mr. Jones just mentioned, this is a salad
    bowl of ideas that we are going to have to look at.
        I don't think there is any one single bullet, but you
    talked about regulation and education and choice. What impact
    do you think that will have on incomes but also then on
    homeownership?
        Mr. Griffith. Thank you for your question. I think, yes,
    we, all of us, regardless of what side of the political line we
    fall on, are deeply troubled by the fact that there is this gap
    in opportunity.
        But what we see is that you have minority communities that
    are disproportionately in areas, in local areas that have in an
    inordinate number of regulations that are impeding the ability
    to even get on that first rung of the economic ladder.
        When you compound that with the lack of educational
    opportunities that many minority communities have because of
    where they are located, it compounds the problem. And that is
    why I talked about the educational choice of it.
        This is a more difficult solution than simply subsidizing
    somebody's purchase. But longer term, this can have lasting
    impacts because somebody with a better education will be better
    equipped to make prudent financial choices and probably more
    importantly will have the opportunity to earn more over a
    longer term.
        Mr. Duffy. And I know this is not an education hearing and
    this is not the full solution, but I do think you are right.
    When you can look at the success of a young child based on
    their ZIP code because the quality of their school, not giving
    kids an equal opportunity for economic success because we keep
    them in failing schools is a problem and that we wouldn't give
    families, parents, and children a choice to go to a better
    school.
        I find that to be outrageous because I think better than
    Mr. Clay and myself, families know better what is best for
    their children and we don't offer that opportunity. I think
    that is maybe getting more to some of the root causes as to
    some of the other issues that were brought up today. But I
    appreciate that.
        Also, you have to be able to save money, right? So if you
    start out as a renter, you have to be able to save money for a
    down payment. And Mr. Hicks, I like your testimony and some of
    the ideas that you brought up.
        Let's give people an incentive to save for a down payment.
    Maybe a tax-free incentive to say, I am not paying that
    whatever percent you are at. I get to keep all that money and I
    am going to work towards that homeownership.
        But one of the problems that we have discussed in this
    committee is, and as we dealt with flood insurance, I am all
    about making sure that we have smart regulations so we are
    building quality homes for the spaces in which we build.
        But if we have too many rules and regulations and too many
    ordinances, all of a sudden we start jacking up the cost of
    housing so we have people who can least afford it paying higher
    rents. That is less money they can put in the bank to save for
    a home.
        And I think, again, it is a holistic approach that is going
    to put people in a better situation to take that leap, because
    I agree with everyone on the panel that homeownership does help
    you create wealth, and it helps you buy into a community. And I
    think it is better for families.
        And if we have policies that don't incentivize that, that
    is a problem here. But also I, as and we have talked about this
    since the 2008 crisis, I don't want to see people buy homes
    that they can't afford because--we have heard countless
    witnesses testify that if you are foreclosed upon how far that
    sets your family back and just the personal anguish that a
    foreclosure does to a family.
        We don't want anyone to go through that. Is that fair? We
    don't want to give loans to people who can't afford them just
    to say homeownership is the highest priority? Actually,
    homeownership for a home that you can afford is the highest
    priority. Is that fair?
        Mr. Hicks. Yes.
        Mr. Duffy. I only have 40 seconds. If you could just give
    us your one, the one thing, and I know there is no silver
    bullet so you are all going to have different answers, but give
    me the one thing we can do that you think will make the biggest
    different on minority homeownership?
        And by the way, my wife is a Latina, and she will tell you
    that Hispanics start businesses at 3 times the national
    average, and your point on W-2s is exactly right. And my wife
    would be singing off your sheet. But I'm sorry.
        Ms. McCargo, would you start?
        Ms. McCargo. Sure. I think that one of the critical things
    is increasing the supply of affordable housing. I think that
    that is one of the most important things that we need in this
    country.
        Mr. Duffy. Supply.
        Ms. McCargo. Absolutely, supply.
        Mr. Duffy. Great.
        Ms. Bailey?
        Ms. Bailey. Reforming the housing finance system, GSEs, to
    regulated utilities with oversight to preserve the important
    public interest mission of duty to serve.
        Mr. Duffy. Great.
        Mr. Nery?
        Mr. Nery. And I would say definitely some modernization of
    FHA is vitally important to make sure that we don't lose some
    important protections that we have for communities of color
    because we need to have low down payment assistance programs.
    Those are vital to our communities to be able to obtain and
    increase our homeownership rates.
        Mr. Duffy. Mr. Hicks?
        Mr. Hicks. I would say support of the American Dream Down
    Payment Savings Plan, and support of programs like the Federal
    Home Loan Bank of San Francisco's WISH Program, which is a 4:1
    percent match for savings.
        Mr. Duffy. Great.
        Ms. Castro-Conroy?
        Ms. Castro-Conroy. I would have to say to support
    comprehensive housing counseling agencies that provide credit
    counseling, rental counseling--
        Mr. Duffy. Education.
        Ms. Castro-Conroy. Repurchase, homebuyer relocation which
    we see all the cases. We see the needs. We know how we can help
    our families.
        Mr. Duffy. Ms. Poole?
        Ms. Poole. Removing some of the local zoning issues and
    restrictions that cause affordable housing not to be built.
        Mr. Duffy. Absolutely.
        Mr. Griffith?
        Mr. Griffith. Equipping the next generation to earn more so
    they can seize economic opportunities to make investment
    decisions of their own choosing.
        Mr. Duffy. Thank you.
        Chairman Clay. The gentleman's time has expired.
        The Chair now recognizes the Chair of the full Financial
    Services Committee, Chairwoman Waters, for 5 minutes.
        Chairwoman Waters. Thank you very much.
        Let me thank all of our panelists.
        And allow me to thank you, Mr. Clay, for putting this panel
    together. This is perhaps one of, if not the most, diverse
    panel that we have had before us on any issue. And it is good
    to know that with the fact that Democrats are in the
    leadership, we can have these kinds of panels that reflect
    America. Thank you so very much for putting this panel
    together.
        I just want to say to our panelists today that during the
    crisis I got very much involved in learning a lot about loan
    modifications. Of course we were advised by, I think, our
    Ethics Committee that we were not supposed to do that, but I
    defied all of that. And I started to call these institutions to
    find out about why certain of my constituents were being
    foreclosed on and the way that it was happening.
        Now, in doing all of this, I learned a lot about what has
    evolved and what is being utilized in the banking community in
    different ways that they operate. For example, and I just want
    to give you a few of the things that I would like to see us
    scrub all of the practices and laws that are employed by the
    banks, many of which we take for granted.
        Let us take, for example, interest-only loans, which have
    an adjustable rate. When the adjustable rate, I guess expires,
    I don't know how many years it is and whether or not we should
    have a law to say how many years it is, take 5 to 10 years, and
    now you are paying not only interest but you are paying for the
    principal.
        And on that adjustable rate, the interest rate is going to
    increase, and so now what you have is a homeowner who is paying
    interest only. And based on their income and all of that, they
    got into it because they thought this was a good way to do it.
        But now they are paying the principal and the interest, and
    because of the adjustable rate, they are paying a high interest
    rate. They can't afford the loan anymore and they are
    foreclosed on.
        The other thing that I noticed was too many of the banks
    were saying they wouldn't even entertain a loan modification
    unless you have missed at least two payments. And by the time
    you miss two payments and you go through a loan modification
    attempt, you can't afford to pay up and get back into the loan.
    We want to take a look at that kind of stuff.
        The other thing is many of these foreclosures and
    particularly what was happening with the robocalling that was
    done and you found that there were people who lost their homes
    because they missed x number of payments. And then they
    packaged these loans with hedge funds or some of these other
    folks who go about, I call them scavengers almost, and then the
    equity that was built up in the home is not given any
    consideration for the cost of selling that or putting it in the
    package.
        That home might be worth, I don't know, $300,000, but when
    they packaged them, you have Countrywide that used to be in
    operation and all of their folks who are buying the things for
    pennies on the dollar. And if you had done that for the people
    living in the homes who could not afford to make their payments
    for a couple of months, they could have stayed in their home.
        So I bring this to your attention along with fraud. I had
    folks who said that this person who sold me this loan said
    don't worry about my income. They could fix that and they
    signed the loan for me.
        Where do they turn? If they don't have a private attorney,
    there is no fraud division in the bank that is going to take a
    look at that and help out with unraveling this fraud.
        So there are a lot of things that have developed, some of
    which we take for granted, in the way that they do business. We
    need to scrub these mortgages and all of the rules and
    practices and come up with a laundry list of what we think
    needs to be taken out of the way that these home mortgages are
    done.
        These are just some of the things that I ran into as I was
    helping to do loan modifications. And so I would like to ask
    all of you who are experts, Ms. Bailey, all of you, to begin to
    take a look at all of the practices. Let us not assume that
    just because they do it, it is right to do.
        Let us begin to think about what just is not right and what
    absolutely operates against the homeowner's ability to stay in
    that home, and see if we can't get rid of some of the practices
    and laws in operation today.
        Thank you so very much. And that is not a question as much
    as it is a plea to you because you know this stuff. And let us
    scrub them and find out what we can eliminate. Thank you so
    much.
        I yield back.
        Chairman Clay. Thank you. I thank the chairwoman for her
    comments.
        I now recognize Mr. Luetkemeyer from Missouri for 5
    minutes.
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        And first, I would like to recognize my good friend, Mr.
    Clinton Jones. I was the chairman of the Housing and Insurance
    Subcommittee for a couple of years and I got to know Clinton
    very well. He is a fantastic individual, a wonderful staff
    person, and I just wish him the very, very best in his new
    endeavor.
        I know he will be very successful. I am just thankful this
    opportunity came his way and he is able to take advantage of
    it. So again, all my best to you, Clinton.
        With regards to what we are doing here today, we are
    looking at barriers to minority homeownership. And a couple of
    weeks ago, we had a hearing that talked about regulations
    being, like, 34 percent of the cost of a home. And today, a
    number of you have talked about adequate and affordable housing
    finance system.
        And what I want to do is talk about a regulation that is in
    that that I believe is causing or could cause the housing
    financial system to hurt people to be able to afford a home
    because of the increased cost. And it is called CECL. How many
    of you have heard of CECL already? One?
        One? Okay. Okay, let us educate. Current Expected Credit
    Loss (CECL) is proposed by the Federal Accounting Standards
    Board (FASB). And what they are proposing to do is they believe
    that there needs to be better transparency with regards to loss
    on a bank's balance sheet with regards to mortgage loan
    exposure.
        Unfortunately, that goes across the board, not just banks
    but credit unions, mortgage bankers, anybody that makes a
    housing loan, as well as the GSEs. I have even had asset
    managers, insurance companies as well as credit card companies
    talk to me because it will affect them in certain ways.
        Last week, we even had one of the bankers here talk about
    how $6 billion to $10 billion of additional reserves are going
    to have to be put because of credit card exposure.
        The reason it is concerning to me is because in a committee
    back in December that I chaired, which was the Financial
    Institutions Subcommittee, the Home Builders Association
    indicated that it would cost, if you have increased cost of a
    home loan of $1,000, 100,000 people across the country no
    longer have access to home loans.
        Is that familiar? Are you familiar with that, Mr. Nery?
        Mr. Nery. I am familiar with it. It definitely is a
    proposal that would be onerously burdensome for a lot of the
    smaller regional banks. Certainly if you are going to have a
    standard rule that is going to apply across the board I think,
    obviously, you would have more adherence and it would be easier
    to adhere to by the larger institutions.
        But when you are talking about credit unions and you are
    talking about municipal, small, regional banks, it is going to
    be a higher burden, which I think is very, very difficult to
    accept because we have institutions, at least in communities of
    color, that are often reliant on these local institutions as
    well.
        And if you burden them and put them out of business or make
    it unreasonable for them to be able to afford or to be able to
    offer loans, it really would do an injustice to those
    communities which they serve.
        Mr. Luetkemeyer. Yes, my thought process is this is going
    to really impact the low- and moderate-income folks
    tremendously because when you increase these costs, which, you
    know, the credit unions have given me a couple of studies. So
    different ones said there were going to be an additional $30
    billion in lost capital they are going to have to replace.
        One of them talked like over 30 percent of their members
    are either going to cut lending or they are going to have to
    increase costs or increase the cost to the consumer for their
    services. And if that happens, the availability of home loans
    is not going to be there. And so that is one part of it.
        The other part is the procyclicality of this thing. In
    other words, one of the problems is that if this happens and
    the economy turns down the financial institutions have to
    reserve more. And if they reserve more it means they have to
    charge more, which means they have less ability to lend, which
    means you start spiraling downward.
        And this is what happened with the mark-to-market. This is
    exactly the problem that the FASB folks caused and helped
    exacerbate the crash of 2008 because of the mark-to-market
    situation which they then had to pull that rule back because
    they didn't study the potential impacts.
        And in this situation they haven't put they haven't studied
    the potential impacts either. They admit to me that they have
    not studied this to see once what could happen here.
        So this is very, very concerning to me. I am hopeful that
    all of you will look into this. To me, it is going to have a
    dramatic impact on especially the groups that you are talking
    about here, the low- and moderate-income folks that we want to
    make sure they have the ability to have that American Dream:
    the home.
        And if you can do a study, please send it to me. I would be
    more than happy to take it and run with it. I know the
    REALTOR's association, I have talked to some of your folks
    already. This is going to have a dramatic impact on your
    ability, Mr. Hicks, on yours as well, Mr. Nery.
        This one regulation could be as impactful as any other
    regulation that is being proposed right now by anybody across
    the board if you think about what is going on. And the GSEs,
    you have a $5 trillion portfolio of 30-year loans? Imagine how
    much money is going to have to be reserved for that.
        I am out of time, but thank you so much. And again, if you
    can send me your studies, I would sure appreciate it. Thank
    you.
        Chairman Clay. The gentleman from Missouri's time has
    expired.
        The gentlewoman from Ohio, Mrs. Beatty, who is also the
    Chair of our Subcommittee on Diversity and Inclusion, is
    recognized for 5 minutes.
        Mrs. Beatty. Thank you very much, Chairman Clay.
        Thank you also to Ranking Member Duffy and to the panel.
        Before I get started, let me also echo my thanks and
    congratulations, Clinton, to you for all your years of service.
        I want to start out by thanking you, as our chairwoman of
    Financial Services stated, for having a panel that is very
    diverse, not only in gender and race and ethnicity but their
    brilliance that they bring to the diversity of their experience
    in this very important issue.
        For some 20 years, I worked as a consultant in housing, so
    I give you a personal thank you for helping and fighting for
    all those who benefit from your services.
        Today is an exciting day for me, Mr. Chairman. One, I like
    that you said you are going to include pragmatic legislation in
    the work that we do.
        Mr. Duffy, I am sorry he is not here, but I want to thank
    him for acknowledging and reminding us that some 50 years later
    we still have disparities, especially with African Americans.
        So when we talk about funding and moving that needle, I am
    sure Mr. Duffy will be right there with you, Mr. Clay, in
    making sure that we fund and finance FHA and all of the housing
    programs.
        But on the pragmatic side, let me share with you all today
    that included in today's hearing is my bill, the House
    Financial Literacy Act, H.R. 2162. To the panel, I am very
    pleased to hear you, Ms. Castro-Conroy, Mr. Hicks, and Mr. Nery
    talking about the value of education in making sure that we
    include legislation and programs that can be helpful.
        Well, this bill will give first-time homeowners a 25 basic
    point reduction on their up-front mortgage insurance premiums
    if they take a HUD-approved housing counseling program. This
    bill will essentially lower the cost due at closing by reducing
    the current up-front mortgage insurance premium on a FHA loan
    of 1.75 to 1.5 percent.
        So basically, if you were buying a home at $200,000, you
    would get a $500 reduction. If it was $300,000, you can do the
    math, $750; $400,000, $1,000. And here is what is so important
    about this and many of you have talked about first-time
    homeowners, who purchase a home.
        If they have the counseling classes, if they have the
    support system, they are one-third less likely to default on
    their mortgages, which in the case of FHA leads to cost savings
    for the mutual mortgage insurance program.
        Also, I think it is important to note that FHA's 2016
    annual report to Congress found that in 2015, FHA was used for
    47 percent of homes purchased by African Americans and 49
    percent of purchases by Hispanic households. It also found that
    82.1 percent of FHA purchase loans were for first-time
    homebuyers.
        Now, all of you are probably very familiar with Section
    2126 of the 2008, when Congress passed and the President
    signed, the Housing and Economic Recovery Act. Well, as you
    will be reminded, it authorized $25 million a year between 2009
    and 2015.
        So I would like to ask you all, do you support the fact of
    having education and counseling and that we should, of course,
    make sure that Congress should pass those dollars again. So I
    only have about 30 seconds.
        Ms. Castro-Conroy, Mr. Hicks?
        Mr. Hicks. Absolutely.
        Ms. Castro-Conroy. Strongly support, yes.
        Mrs. Beatty. Thank you.
        Ms. Bailey?
        Ms. Bailey. Yes.
        Mrs. Beatty. Mr. Griffith?
        Mr. Griffith. I can't endorse specific legislation, but I
    support education of borrowers.
        Mrs. Beatty. Ms. Poole?
        Ms. Poole. NAR absolutely supports this.
        Mrs. Beatty. Ms. McCargo?
        Ms. McCargo. Absolutely. I think that the educational
    component is critical to the solving of these issues and
    housing counseling as well.
        Mrs. Beatty. Okay, thank you very much.
        Mr. Chairman, I yield back.
        Chairman Clay. I thank the gentlewoman from Ohio.
        And I recognize the gentleman from Michigan, Mr. Huizenga,
    for 5 minutes.
        Mr. Huizenga. Thank you, Mr. Chairman. And I have had a
    kind of a front row seat into some of these issues in my own
    career. I have been a licensed REALTOR in the past. I have had
    family members who have been licensed REALTORS literally since,
    well, my earliest memories.
        And I thought it was the coolest thing when my uncle's
    beeper went off, and it was for those of you that have been in
    the industry, and Ms. Poole, you are nodding your head. You
    had, I think, two times that you could hear whatever that
    message was, right?
        But it has been a problem, as has been pointed out by many
    of you, some of the inequities that have existed in housing.
    And I know, again, from being a licensed REALTOR and from
    having a family involved in construction, there are a number of
    barriers that have been in place.
        Mr. Hicks and some of the others had noted some of those
    formal barriers and certainly historic barriers that we, in a
    modern society, look at and say, completely unacceptable.
        Mr. Hicks. Yes.
        Mr. Huizenga. Mr. Hicks, though, on page three of your
    testimony, I just wanted to kind of give you an opportunity to
    be a little more specific here. And I know you then continue on
    with some policy recommendations.
        And I am going to quote you here, ``Housing experts such as
    scholar Richard Rothstein find that segregated neighborhoods
    are not an accident, but the result of laws and policies passed
    by local, State, and Federal Governments that promote
    segregation and discriminatory practices.''
        Can you be more specific on what some of those local and
    State laws might be? And this goes back to some of the
    discussion that we have had in this committee a number of
    times, which are what are some of those cost barriers that are
    put up by local governments that, whether it is lot size,
    whether it is certain building requirements?
        Mr. Nery, I see you nodding your head, too, but please
    either of you can jump in.
        Ms. Poole?
        Mr. Hicks. Well, when you start talking about cost barriers
    historically, is that what you are asking?
        Mr. Huizenga. No, I am asking right now, what are State and
    local governments and expand upon that if you need to, on the
    Federal Government as well. But what are some of those barriers
    for that entry?
        And Mr. Nery if you want to jump in?
        Mr. Nery. I just wanted to clarify, are you speaking as to,
    maybe, some of the costs for affordable housing or building
    homes? Is that what we are discussing?
        Mr. Huizenga. That is what I guess I am trying to get--
        Mr. Nery. Okay.
        Mr. Huizenga. Mr. Hicks to find out if that is what he
    meant--
        Mr. Nery. Well, I will speak to that.
        Mr. Huizenga. --by that. Yes?
        Mr. Nery. Definitely one of the grave issues that we see
    across the country when you are talking about building
    affordable homes for first-time homebuyers is the fact that
    there is just exorbitant amounts of costs just to start really
    shovel to ground.
        Our friends at the Home Builders would tell you that in the
    average municipality, the average builder is spending about
    $90,000 just in permits, in zoning, and what have you before
    they can actually construct a home.
        Then if you add on top of that $120,000 it will take to
    actually build a property, you are talking a cost, an upfront
    cost of $220,000, $230,000. So you are probably going to have
    to sell in the $300,000 to $400,000 range.
        That would not constitute a first-time homebuyer option,
    right? That is not going to be for somebody at an entry level.
    It is going be most likely a move-up buyer.
        But again, those are just cost-prohibitive measures that
    exist across the country so we really need to have some Federal
    legislation that can work with a lot of the local
    municipalities to ensure that we can reduce some of that red
    tape, that we can reduce some of those zoning costs and
    building costs.
        Mr. Huizenga. How does the Federal Government do that,
    though?
        Mr. Nery. I think it really would be a question of putting
    together some sort of a body that would govern some of these
    zoning regulations that I think there would have to--
        Mr. Huizenga. But we may have some 10th Amendment issues--
        Mr. Nery. Right, right, right.
        Mr. Huizenga. --in that.
        Mr. Nery. Sure, but I think there would definitely be some
    standards that can be put into place for zoning departments,
    building departments for municipalities across the country. I
    think cities would adopt a lot of those regulations to try to
    create some uniformity.
        But you also have issues right now just when you are
    talking about labor and when you are talking about building
    costs right now there has been a lot of stories written about
    the costs in lumber and costs in labor shortages so you have
    higher costs for builders as well.
        So those are obviously ancillary issues that need to be
    dealt with as well. But I think there needs to be some sort of
    a uniform system across the country to try to reduce some of
    those upfront costs.
        Mr. Huizenga. Ms. Poole, if--
        Ms. Poole. Yes, I would love to add to that. In addition to
    some of the zoning laws and some of the cost of building new
    construction, if grants are not there, a lot of times there are
    no affordable homes put in those developments.
        Another piece that we have to consider is that when some
    new construction is being built there are deferred costs that
    are then pushed off to the homeowner so that the builder
    doesn't absorb those costs, things like front foot assessments,
    that in this case could total an additional $400 to $600 a year
    just in paying for the deferred charges of putting in public
    water and sewer.
        So as they go through, you start thinking about all the
    costs that are then referred over to the homeowner and it all
    of a sudden disqualifies them possibly for a loan.
        Mr. Huizenga. My time has expired. I am in the process of
    building new construction. I hear Mr. Nery. I have never been a
    part of any project, other than vacant land, that has put any
    kind of delayed sewer and water assessment on those. But maybe
    we can talk about that at a--
        Ms. Poole. I would love to talk to you about it.
        Chairman Clay. The gentleman from Michigan's time has
    expired.
        I now recognize the gentleman from California, Mr. Vargas,
    for 5 minutes.
        Mr. Vargas. Thank you very much, Mr. Chairman. I appreciate
    what you are doing here today and especially the panel being
    here. I agree with Mr. Luetkemeyer completely, that it is still
    the American Dream to own a house. I still believe that.
        It certainly was the case in my family. I know that once
    our family was able to buy a house, it really stabilized our
    finances. And it allowed my parents later on to help us with
    college costs, and so I am very appreciative of that.
        I did want to ask some specific questions, however, with
    regard to DACA recipients since we are talking about dreams. It
    was the case in the past that HUD and FHA was not preventing
    DACA recipients from getting FHA loans.
        Now, my understanding is that there is nothing in writing
    that prevents them from getting FHA loans but now that both FHA
    and HUD are verbally saying that they are not eligible. Who
    would like to comment on that if they know the information?
        Ms. Bailey, it sounds like you have some information. Go
    ahead please.
        Ms. Bailey. Yes, thank you so much for the opportunity. We
    think that the practice has a very chilling effect on potential
    homeowners for an important subset of our nation's citizens and
    residents. And we think that it is important for HUD to really
    clarify its position and ensure that DACA recipients are
    eligible for FHA loans without legislation.
        Mr. Vargas. Mr. Nery, yes, sir?
        Mr. Nery. I would echo Ms. Bailey's thoughts. DACA
    recipients really, under FHA guidelines when you are looking at
    them, the whole issue is legal status. And from NAHREP's
    perspective, it really is inappropriate for a government agency
    to be setting up immigration legislation.
        And in my statement I mentioned that really is something
    for the judiciary to decide as opposed to have a body such as
    FHA really dictate that. So our feeling really is it is more of
    an administrative issue that is going on right now.
    Administration forcing that immigration question to be
    addressed through FHA which, again, is inappropriate in our
    eyes.
        Mr. Vargas. Well, we have, in fact, cases where there are
    individuals who have arrived in our country and undocumently
    when they were 3 years old. They have lived here their whole
    lives.
        Mr. Nery. Absolutely.
        Mr. Vargas. They got married. They had kids. They have very
    stable incomes and they believe that everything is going to
    work out. They have saved for their down payment.
        And then they go to the bank and the bank looks and all of
    a sudden they are denied because they receive verbal
    instructions from FHA that they don't qualify, even though
    their legal status is such that they should qualify and they
    did previously qualify.
        Mr. Nery. Right.
        Mr. Vargas. Mr. Nery, you were going to comment?
        Mr. Nery. No, I would agree with that. I have had personal
    experience with that with a number of clients that had they
    applied for a loan a year ago, 2 years ago, they would have
    easily received a loan. But now because of their DACA status
    they have been unable to obtain loans.
        And these are folks and individuals for all intents and
    purposes you would say they are as American as apple pie
    because some of them have been here since they were born,
    right?
        They were here. They just happened to be born in another
    country, but they have been here since they were 6 months old,
    a year old. So for all intents and purposes, they are American
    through and through.
        Mr. Vargas. Okay, thank you. You were going to say
    something, Ms. Bailey. Go ahead.
        Ms. Bailey. If I could hold up the study that I cited
    earlier by the UNC Center for Community Capital of Self-Help
    Credit Union's mortgage loan. Self-Help is one of the primary
    lenders to undocumented families across the nation. And again,
    when consumers are given safe and responsible loans, they
    perform well in those. So we know that these consumers can
    succeed. So again, HUD needs to really clarify its position.
        Mr. Vargas. Thank you. Well, I appreciate that. I have to
    say also with respect to affordable housing, I was on the San
    Diego City Council for many years. And it is interesting being
    on the other side of those fees because at the same time, it
    used to be in California that the State would pick up a lot of
    the infrastructure issues. They would pick up the roads, the
    schools, the sewer, the water.
        And because of Prop 13, property values continued to grow
    but the assessment didn't except for 1 percent a year. So the
    amount of money that was coming into the government just wasn't
    there.
        So that is why you put it on the new homeowner. They had to
    pay then upfront, all of those costs, and that does create a
    huge burden for new homes to be built.
        And also, of course, the NIMBYism. Everyone loves density
    somewhere else, but not in their own community, which is too
    bad. I love to travel, and I travel quite extensively with my
    family.
        One of the places we have traveled to is Vienna. It is one
    of the most dense cities in the world. It is also the most
    livable. And so I hope that we get over that notion that
    density is wrong and bad, especially in places like California
    where people want to live. The price is too darn high.
        So again, I appreciate very much the work that you have
    done here. Again, I am someone who believes in homeownership. I
    know some people are saying that maybe it is not the best way
    to create wealth. It certainly has been historically, and it
    certainly has stabilized families.
        And I think it is still the dream that we all aim for. And
    certainly, I hope that we can make it affordable for people.
    Again, thank you guys. God bless you.
        And I thank you, Mr. Chairman. Thank you, sir.
        Chairman Clay. You are very welcome, Mr. Vargas.
        I now recognize the gentlewoman from Michigan, Ms. Talib,
    for 5 minutes.
        Ms. Tlaib. Thank you, Mr. Chairman. I thank all of you so
    much for your incredible advocacy on this important issue in
    our country. A lot of folks are locked out of the traditional
    mortgage market. I think we can all agree to that, due to a
    number of factors that all of you have mentioned from
    institutional racism to, you know, I would like to wrap it up
    into access.
        Access is so key. In the 13th Congressional District, many
    homes are under $50,000 where it is nearly impossible to get a
    traditional mortgage company or folks to finance. This has led
    to my district becoming ground zero for land contracts.
        And I want to urge my colleagues, as I am working with
    Chairwoman Waters and her team on the Land Contract Homebuyers
    Protection Act, that I am hoping to provide eviction
    protections for buyers by allowing termination of those
    contracts only through foreclosure proceedings, similar to
    foreclosure proceedings, again giving them access to due
    process.
        It seems like a great idea, land contracts. And I worked at
    nonprofit organizations where that is where we lean to when we
    couldn't get folks to traditional access to finance. And now it
    is becoming a thing. Many of the folks who are pushing
    predatory lending and so forth have gotten into the business of
    land contracts.
        Many buyers, many of our residents don't realize that and
    there are repairs that are needed, hidden fees and interest and
    so forth, again, not fully disclosed to the homeowner. Later
    down the line, the seller forces the buyer to make the repairs
    that should have been made.
        And if the resident doesn't make those repairs, they evict
    them, literally taking everything, their time, their energy,
    every single ounce of what was put into the home.
        So based on your experience, Mr. Hicks, would you say that
    homes sold under land installment contracts are habitable
    condition to rent?
        Mr. Hicks. Well, we totally discourage the use of land
    contracts and that is because I am from Georgia, and we believe
    in the owner getting title at time of closing.
        Ms. Tlaib. Yes.
        Mr. Hicks. And because of that we just discourage the use
    of it. And because, like I say, there is too much fraud that
    can occur in that type of transaction.
        Ms. Tlaib. I agree.
        Mr. Nery?
        Mr. Nery. So I would say, as a practicing a real estate
    attorney, land contracts is something that I understand well.
    And when I first read about your bill, I was taken aback
    because, honestly, when I have been involved, I make sure I am
    pulling title in escrow and ensuring that there aren't any
    issues with liens or--
        Ms. Tlaib. Yes. Can we--
        Mr. Nery. --previous ownership--
        Ms. Tlaib. The thing is, we have to get--
        Mr. Nery. I can establish that.
        Ms. Tlaib. --residents in front of you.
        Mr. Nery. Correct, correct.
        Ms. Tlaib. And that is what is happening is they are not.
        Mr. Nery. The majority of people--
        Ms. Tlaib. And I am an attorney myself.
        Mr. Hicks. Right.
        Ms. Tlaib. But these are the same. I mean, renters have
    more rights than--
        Mr. Nery. Right.
        Ms. Tlaib. --land contracts.
        Mr. Nery. Right.
        Ms. Tlaib. Some of these places can't even be rented out
    because of certain--
        Mr. Nery. Absolutely.
        Ms. Tlaib. --requirements for conditions like roofing and
    so forth. Many of these folks who are pushing the land
    contracts can't rent them out because of the condition of the
    home.
        Mr. Nery. Right. No, I--
        Ms. Tlaib. But I really have to reclaim my time.
        Mr. Nery. Yes.
        Ms. Tlaib. It is really, really important. In 2015, the
    Detroit News found that more land contracts than traditional
    mortgages have been filed with the Wayne County registrar in my
    district.
        Ms. Bailey, compared to a traditional mortgage offered by
    financial institutions, how high are interest rates on land
    installments?
        Ms. Bailey. They are extremely high, and we know that these
    are not new practices, right? This is, again, reincarnating
    things that had been really problematic in places like
    Illinois. We know that those types of contracts cost consumers
    in the City of Chicago more than $500 million. So you are right
    to be concerned.
        We think two things need to happen that are essential.
    Every contract should be recorded immediately. And then we also
    believe that the termination of the contract needs to be
    enforced through judicial foreclosure.
        Ms. Tlaib. That is right.
        Ms. Bailey. That is really important. And then, we want to
    highlight that TILA already provides substantive protections
    around these transactions. So we don't really need to
    reincorporate that language in any of the bills.
        Ms. Tlaib. Yes, thank you.
        And, Ms. McCargo, why are companies allowed to get around
    regulations that address predatory lending, the Truth in
    Lending Act, and offer these products with outstanding property
    taxes and liens to consumers without letting the potential
    homeowners know?
        Ms. McCargo. For me?
        Ms. Tlaib. Yes, you go ahead.
        Ms. McCargo. Thank you.
        Ms. Tlaib. I am, like, where are you?
        Ms. McCargo. Thank you for the question. So land contracts,
    we have done a tremendous amount of research on low-cost
    markets. There is an inadequate amount of financing available
    for the purchase of lower-cost properties.
        And so we have looked at small-dollar access to lending,
    and I think that the workarounds in terms of, I shouldn't call
    them workarounds, the issues that you are describing are
    pervasive, predatory, and essentially inadequate.
        And I think it is an issue that we need to spend more time
    on in terms of how to deal with land contracts. But I do think
    that the mortgage system, the finance system, in supporting
    properties in lower-cost markets needs a tremendous amount of
    modernization.
        Small-dollar lending and the ability to actually finance
    anything that is frankly under $80,000 in communities like
    yours and many others around the country are completely
    insufficient and inadequate. And that there is an opportunity
    to look at how we can propel and advance small-dollar financing
    for more safe, consumer-friendly products to allow for
    affordable home buying at the lower end of the market.
        Ms. Tlaib. And thank you.
        And, just really quickly, Chairman Clay, I would like to
    submit a statement by the National Consumer Law Center that
    outlines the racist history of land contracts that I couldn't
    get a deeper dive into during my questioning.
        Chairman Clay. Without objection, it is so ordered.
        The gentlewoman's time has expired.
        I recognize the gentleman from Ohio, Mr. Gonzalez, for 5
    minutes.
        Mr. Gonzalez of Ohio. I first want to thank the chairman
    for holding this hearing and thank all of the witnesses for
    your participation today. Let me start by saying that, like all
    my colleagues on this committee, I believe that for many
    Americans and for many of my constituents, homeownership is an
    integral part of achieving the American Dream.
        Along with the pride and accomplishment of owning a home,
    homeownership encourages civic and community engagement, helps
    lead to better educational achievement, and also improves
    health outcomes. Based on the testimony today, it is clear that
    minority communities have a more difficult time achieving
    homeownership and that this is by no means an easy problem to
    address.
        As you said in your testimony, Ms. Poole, there is no end
    all, be all solution. It is multifaceted. That being said, Ms.
    Poole and Mr. Nery, you both mentioned the issue of access to
    credit for many minority communities.
        Ms. Poole, you specifically stated that for Hispanic
    households, more than a quarter are either credit invisible or
    have an unscored credit record.
        Mr. Nery, you stated that millions of Hispanics pay their
    bills with cash which prevents individuals from gaining access
    to credit. So my first question is for Mr. Nery. You briefly
    mention in your testimony that alternative credit models are
    currently unavailable in the mortgage space.
        We had the credit rating agencies in here earlier this
    session. I met with FICO the other day. I couldn't agree more.
    It is pretty clear that this is an industry, and I think, Ms.
    McCargo, you kind of were alluding to it. This is an industry
    in need of major innovation, and it is not happening. And I
    think that is primarily structural, frankly.
        But, Ms. Poole, what are your recommendations for expanding
    access to credit for individuals who may be credit invisible in
    a more responsible way?
        Ms. Poole. Thank you for the question. One of the things
    that needs to happen is, as we look at alternative credit, is
    to recognize that everything doesn't fit in a box--
        Mr. Gonzalez of Ohio. Absolutely.
        Ms. Poole. When we are looking at the multicultural
    individuals that we serve, what we are looking at is saying,
    there are credit vendors who report credit scores for positive
    and negative. But the positives of paying rent and paying
    utilities and things that they do, paying car insurance, only
    show up if they are delinquent. It never shows up as a
    positive.
        If we could move towards, if anything, that one alternative
    piece and being able to say is there a way that all credit, no
    matter what it is that they are paying on a monthly basis and
    installments, be reported as current good credit.
        Mr. Gonzalez of Ohio. Right.
        And Mr. Nery?
        Mr. Nery. Yes, NAHREP firmly would agree with that. There
    is a company, VantageScore, that already is successful in the
    automotive and the lending, small lending, personal loan, or
    their credit models are being implemented already for credit
    cards and automotive loans.
        That company would be somebody that can certainly introduce
    an alternative credit model that can be utilized by the GSEs.
    They have been using the same model essentially for 20 years.
    If they adopted a new model, if they took that decision, made
    that decision themselves to implement new credit scoring
    models, I think you would see a drastic change.
        Mr. Gonzalez of Ohio. My understanding is VantageScore is
    owned by the three credit bureaus. Do you know if that is
    accurate?
        Mr. Nery. To my knowledge, that is not accurate.
        Mr. Gonzalez of Ohio. I will have to look into that. I
    think when we met with some folks last week, they suggested
    that that was true. If it is true, I think we may need to find
    another vehicle.
        Mr. Nery. Right.
        Mr. Gonzalez of Ohio. But kind of next question more
    broadly, and again, this gets into the competition. I will open
    this question up to the entire panel, but more broadly
    speaking, do you all think there is adequate competition in the
    credit reporting industry? And maybe just go down the line, a
    simple yes or no.
        Ms. McCargo. No.
        Ms. Bailey. No.
        Mr. Nery. Absolutely not.
        Mr. Hicks. No.
        Ms. Castro-Conroy. No.
        Ms. Poole. No.
        Mr. Griffith. No opinion on that.
        Mr. Gonzalez of Ohio. No opinion? Okay. Well, again, I
    thank you all for your time. I am as committed as anybody to
    making sure that there is more competition.
        One of the promises of A.I. is that when you have robust
    datasets if they are opened up and people can innovate in a
    space that we can find those better predictors so that we can
    more accurately distribute credit into the marketplace. And I
    look forward to working with anybody on the committee who is
    committed to that fundamental mission.
        So thank you, and I yield back.
        Chairman Clay. Okay. The gentleman from Ohio yields back.
        I now recognize the gentleman from Florida, Mr. Lawson, for
    5 minutes.
        Mr. Lawson. Thank you, Mr. Chairman, and witnesses, welcome
    to the committee.
        Mr. Hicks, I want this question to go to you. I want to
    make sure that I am on the right track and I am not out there
    in left field. I have been concerned a great deal about
    millennials who are coming out and would like to become
    homeowners.
        And I have been working on what I call a rentals IRA which
    allows them to put money into an IRA account on a deferred
    basis that can only be used for a down payment on a house. But
    what I would like to know from your perspective or any anyone
    else's perspective is what is the limit of the amount that they
    should be able to put in those IRAs earning interest in order
    to be adequate for a down payment?
        I will tell you the reason why. In about 1973 or 1974, I
    was purchasing a house through FHA. I think the interest rate
    was 21.5 percent, and they required that you had to put down 10
    percent. And I was trying to find out how I am going to get the
    10 percent.
        So when you see all these rental units and everybody rent
    them and even housing, how they get out, and I think that has
    been my perspective. So judging from that if they can have this
    IRA that they can put money into and know that they can use it
    and I just wanted to see if anybody can respond to that. Okay.
        Ms. McCargo. Did you have--
        Mr. Hicks. That is a very interesting concept. In our down
    payment savings plan proposal what we are suggesting is as much
    as $500,000 could be accumulated in a tax savings plan. The
    reason why we say $500,000 is because that paints a broad brush
    of all Americans.
        Certainly, $500,000 is not a large amount for very wealthy
    people buying $5 million and $6 million houses, but we are
    talking about a down payment savings plan where the wealthy
    could contribute that maybe to a family member.
        So in a renter's IRA I do think that is a very unique
    concept because there are a lot of lease purchase programs that
    are out there that probably that type of a structure could be
    beneficial. And I think that that is an excellent idea. So I
    think you asked the amount. I would say about $500,000.
        Mr. Lawson. Okay.
        Ms. McCargo. The rents in this country are incredibly high.
    We have been talking about the housing supply problem and so
    those constraints are really pushing up the issue on
    affordability.
        Research that we recently have done has indicated that the
    average or median down payment for most home purchases in the
    last year is 5 percent. And there is still a belief out there
    that there is a need for a down payment of 20 percent, 10
    percent.
        There are a tremendous number of low down payment programs
    out there. Both Fannie Mae and Freddie Mac have introduced such
    programs that have allowed for as low as 3 percent down. The
    V.A. home lending is 0 down.
        So I think it is really important to just note that part of
    the educational process and kind of demystifying is that the
    majority of people don't put down 20 percent; 5 percent is the
    median down payment amount in America today. And I think there
    is a lot of opportunity for down payment assistance programs to
    help meet or go support homebuyers in purchasing at that level.
        Ms. Bailey. And I would share that you are right. Many
    Americans are now paying more than 50 percent of their income
    in rental housing costs. So it is really difficult for them to
    be able to save for a down payment.
        And we know that student loan debt, $1.7 trillion, is
    really delaying homeownership entry by many first-time
    homebuyers and many of those people will be families of color.
        So other options that have been promoted have been promoted
    by people like Sandy Darity and others coming up with ideas
    around baby bonds to make sure that people have sufficient
    resources for entry into homeownership and money already
    reserved for entry into homeownership.
        And because we got a question earlier about education and
    how education can really solve these issues, what we know is
    that students of color are disproportionately burdened with
    debt because of historical housing discrimination.
        White families got access to homeownership because of
    Federal housing policy so they were able to build up home
    equity and then use that home equity across generations to
    support their family members. So your idea is definitely taking
    us in the right direction.
        Mr. Nery. I think NAHREP would wholeheartedly agree that we
    should have something. If it is going to be use of an IRA it
    would be something that would be aligned with low down payment
    assistance programs.
        So if we are talking about 3\1/2\ percent, simply because
    in the Latino space we are talking it is about 16 years before
    homeowners would be able to achieve a 20 percent down payment.
        And we are challenged because of the fact that we are
    younger, at 29 years old, we live in large metro areas that are
    more expensive, and we also don't have intergenerational
    wealth.
        So we are not inheriting money at the rates that non-Latino
    communities are doing. So it definitely would be a challenge
    for us. I would say something commensurate with the loan down
    payment programs that exist would be ideal.
        Mr. Lawson. Thank you. My time has run out, but I need you
    all to help as we move forward with this. Thank you.
        Chairman Clay. The gentleman from Florida yields back.
        I now recognize the gentlewoman from New York, Mrs.
    Maloney, who is also the Chair of our Subcommittee on Investor
    Protection, Entrepreneurship, and Capital Markets. She is
    recognized for 5 minutes.
        Mrs. Maloney. I thank the gentleman for calling this
    important hearing and for yielding me the time and I thank all
    of the panelists today.
        I would like to ask Joseph Nery, we all know that
    homeownership is absolutely critical for wealth creation in our
    country. We also know that the financial crisis really caused
    havoc on the foundations of homeownership and
    disproportionately hurt minority homeowners and borrowers.
        This led all of us to acknowledge the need for smart
    regulations and strong consumer protections. The ability to
    repay and qualified mortgage rules that went into effect a few
    years ago provide some of the vital consumer protections that
    we now know are necessary.
        But when thinking about barriers to homeownership today,
    particularly for minorities, I have heard concerns that some
    credit-worthy borrowers with non-traditional sources of income
    like individuals who are self-employed, farmers or gig workers
    have difficulty in verifying their income using documentation
    other than their W-2 and therefore they have more obstacles
    than anybody else in obtaining mortgages.
        And with an increasing number of Americans making their
    living through alternative work arrangements, I would like to
    get your perspective. Have some of the income verification form
    requirements unnecessarily shut people out of the mortgage
    market and particularly affected minority borrowers? So your
    take on that, please?
        Mr. Nery. I would say that NAHREP would agree that the
    current credit scoring models that exist have
    disproportionately affected a lot of minority consumers
    because, again, we have thin credit files or no credit really
    through the current models. Yet, we have made some strides and
    some improvements.
        The GSEs have had HomeReady. They have had Home Possible
    and those programs have then started to take into account some
    of the different scoring or the different ways of establishing
    credit that Latinos have, again, being self-employed, having
    gig-economy, dealing in cash.
        But there still needs to be more done on that front. I
    think a lot of the legislation as we are looking at either
    modernizing FHA, if we are looking at the continuation of the
    QM patch for the GSEs, we really have to make sure that that is
    one of the factors that is incorporated in there.
        We have to ensure that whether it is through alternative
    credit scoring models or whether the existing models are
    modified, there has to be a mechanism which accounts for the
    way Latinos and minorities traditionally bank.
        Because again, if we are talking about how we pay cash for
    credit card payments, for utility bills, for rental payments,
    that is not captured in the credit models that exist today
    which were really developed in the 1990s. So, they are
    outdated. We need to make sure that they become updated and
    they reflect the way the communities establish their credit and
    bank today.
        Mrs. Maloney. Well, could you elaborate and explain and
    maybe give examples of other types of documentation that non-
    traditionally employed individuals could use to build their
    credit score?
        Mr. Nery. I would say one of the things when you are
    talking about the ability to repay for lenders that are
    employing some of these more traditional models, one of the
    things that they look at is they really look at banking
    accounts because they will see the deposits.
        They will see that over time, there actually is money.
    There is sufficient money that comes in. And I will give you an
    example. Earlier, I had mentioned one of my clients who had a
    tree trimming business. If you were to look into his deposits
    and you were to look at his monthly statements you would see
    that there are sufficient funds to afford that mortgage
    payment.
        The payments that he is receiving in cash, that his wife is
    receiving in cash, that the other family members were
    contributing to the bank account, that would be sufficient to
    cover the mortgage. But again, sometimes some of the more
    traditional models that are out there don't really look at
    deposits. They don't look at bank statements.
        They really look at the W-2s. They look at the tax returns.
    So if you are looking simply at bank statements, I think that
    would be one thing that would be important. Even if you were
    looking at receipts for rental payments. If you are looking at
    monthly statements for credit cards, those I think are all
    indicators of the ability to repay.
        Mrs. Maloney. Do you think it would be a good idea to
    include all of those in the criteria that they could be looking
    at?
        Mr. Nery. I think so. I think it is very important because,
    again, as we look at millennials, in the Latino space we are
    talking about 29 year olds, but if we look just at non-Latinos,
    if we look at millennials across the board there are so many
    folks that in that gig-economy if you are an Uber driver by day
    or if you are doing something else online by night, you are not
    receiving your traditional W-2.
        Perhaps you are a 1099 person so you are not receiving that
    easily identifiable salary that is nine to five. Right now, you
    have young folks who are not working at companies for 30 years.
    They are moving every 3 years to a different company. They are
    creating their own jobs. So we have to be flexible.
        We have to adjust with how a lot of our younger generation,
    the future of the country, really, how they are developing, how
    they are earning their income. So I think those are factors
    that have to be incorporated.
        Mrs. Maloney. I would like to follow up with you further,
    my time is almost up, because there has been legislation and
    proposals out that say you can use these other forms that
    include some of the things you said, yet organizations that
    advocate for these communities have been very much opposed to
    the use of it.
        To me it seems like a practical good step forward, but I
    don't want to advocate or work on something that people who are
    most affected are against. And some of these organizations have
    been against it. I don't quite understand why. Maybe this is a
    further conversation we could have but thank you and all the
    panelists for being here. My time is over. Thank you.
        Chairman Clay. The gentlewoman's time has expired. Give me
    names on the other side.
        What is his name?
        Voice. Brad Steil. Mr. Steil.
        Chairman Clay. Where is he from? Give me the State.
        Voice. Wisconsin.
        Chairman Clay. The gentleman from Wisconsin, Mr. Steil, is
    recognized for 5 minutes.
        Mr. Steil. Thank you, Mr. Chairman. Thank you for calling
    today's hearing on a really important topic. I was digging into
    some numbers in particular at the distinction between some of
    the different cities in the United States.
        Seeing homeownership, in particular for African Americans
    in Milwaukee, and the disparity we see is between different
    cities, maybe higher in the south, Atlanta seemed to be
    significantly higher than, say, New York; Milwaukee is in
    between.
        Looking at why that might be the case and what we can learn
    from the distinction between specific cities in the United
    States where it is statistically pretty significant variations.
        I was wondering if maybe you, Ms. Poole, could comment as
    to what you have seen from that and then ask some of your
    colleagues on the panel to comment as well?
        Ms. Poole. The differences depend on where they come from,
    high-rent districts or high-cost areas versus median prices
    that we see every day. Some of it are barriers related to
    zoning issues that we talked about earlier and cause homeowners
    not to be able to cross those barriers.
        In some cases, we know that the sophistication leads to
    barriers to homeownership that are higher in some areas than
    others purposely. Some are put in place to cause homeownership
    not to occur and especially for minorities.
        So that would be one of the barriers when we are talking
    about fair housing and moving forward, and some of them are
    intentional.
        Mr. Steil. And so those local land use regulations that we
    are seeing have a statistically significant impact--
        Ms. Poole. Oh, absolutely.
        Mr. Steil. In your observation?
        Ms. Poole. Absolutely.
        Mr. Steil. Thank you.
        Ms. Bailey. And if--
        Mr. Steil. Ms. Bailey, please?
        Ms. Bailey. And if I may add, what we see from those local
    ordinances is that there is a preference for single family
    housing, and because of the history of discrimination, African
    Americans oftentimes were not allowed to live in those
    communities.
        They were actually relegated to the industry areas and
    local jurisdictions. So all of those things combined with an
    inability to get access to safe and affordable loans over time
    has created regional disparities.
        And we should just always note that African Americans and a
    lot of our history is rooted in the south so you see
    opportunities in those southern cities that might be different
    from when we migrated during the great migration up north
    because we lived in close proximity, quite frankly, to many of
    our southern white neighbors and attempted to do that when we
    migrated to the north.
        But these local ordinances that were a response to our
    progress emerged that really denied that and created kind of
    barriers, even with highways around our communities that locked
    us in. And because of that, we have this persistent residential
    segregation.
        Mr. Steil. I appreciate that comment.
        Mr. Hicks?
        Mr. Hicks. The thing that hasn't been mentioned along with
    what Nikitra is saying is that we have to look at historical
    redlining maps that existed in certain cities across the
    country. And I think that that has a lot to do with how we see
    the level of homeownership disparities that exist in the
    nation.
        Mr. Steil. Thank you.
        Maybe to just shift gears for a moment with my limited
    time, Mr. Griffith, if I can you a question? I have been
    looking at the Dodd-Frank Act and the mortgage lending standard
    getting tightened significantly following the economic
    downturn.
        And we have seen, I think, a disproportionate impact maybe
    on the minority communities and lower-income Americans as a
    result of some of the regulations in the Dodd-Frank Act. Could
    you comment on what you think might have been some of the key
    problems in Dodd-Frank and what impact that has had in
    particular with minority communities and homeownership?
        Mr. Griffith. I thank you for your question. What we have
    been focused on at the Heritage Foundation are ways in which we
    can restore affordability to the market in general, not for
    just minorities but for everyone in general.
        And we really do believe that as that footprint has grown
    substantially even in the wake of the crisis that this has
    fueled another increase in prices that is making it very
    difficult for minority communities, the middle class in
    general, and that the way long term to restore that
    affordability is to gradually diminish the size of the imprint.
        And just one thing on that, if you look at the proportion
    of these, the loans that are guaranteed that are for cash-out
    refis, how does that actually help people build wealth long
    term? I think that is something that Congress should look at.
        Mr. Steil. Thank you very much. I appreciate everyone's
    time here.
        I yield back.
        Chairman Clay. The gentleman yields back.
        The gentleman from Texas, Mr. Green, who is also the Chair
    of our Subcommittee on Oversight and Investigations, is
    recognized for 5 minutes.
        Mr. Green. Thank you, Mr. Chairman.
        I thank the witnesses for appearing as well.
        And I thank Mr. Duffy for his engagement.
        Mr. Chairman, I would like to ask a few questions of the
    witnesses with your consent and permission. Friends, if you
    believe that invidious discrimination has been a significant
    reason for the inability of African Americans to achieve wealth
    in this country, would you kindly extend a hand into the air.
        Please let the record reflect that some persons have
    extended 2 hands--
        [laughter]
        --but that everyone extended hands into the air.
        If you believe that invidious discrimination to this very
    day, as I speak to you now, as I say these words, if you
    believe that invidious discrimination is still a part of the
    obstacle to wealth-building for minorities in this country,
    extend a hand into the air.
        Let the record reflect again that all have raised their
    hands. I am grateful that you have done this because we have
    been trying to build this record to let the world know that we
    still have discrimination. Regulations have to be dealt with,
    but our original sin was discrimination.
        To be more specific, racism, a word that we don't like to
    hear in hearings like this, institutionalized racism. With this
    understanding, those of you who may know, are you familiar with
    something called testing such that you can ascertain whether or
    not discrimination exists?
        If you are familiar with testing, would you kindly extend a
    hand into the air? All but one person, I believe. If you are
    not familiar with it, would you kindly extend your hand? Okay,
    one person. That is Mr. Griffith. Is that correct? Is that your
    name, sir?
        Mr. Griffith. That is correct.
        Mr. Green. Okay, not familiar with testing. Those of you
    who are familiar with testing, is testing a valuable tool in
    determining whether or not invidious discrimination exists? If
    you believe that it is, extend your hand. All have extended
    hands. Let the record reflect such.
        Now, given that testing is a valuable tool, would testing
    be a valuable tool in ascertaining whether or not invidious
    discrimination exists in lending by using testing, having
    persons go into lending institutions, banks and credit unions,
    and test them to see if they are engaging in invidious
    discrimination?
        Do you think this is a tool that can be useful to help us
    ascertain whether or not invidious discrimination exists in
    lending? If so, raise your hand. All have raised their hands
    who are familiar with testing. Let the record so reflect.
        Finally, on this question, I have a bill, H.R. 166, the
    Fair Lending for All Act. This bill would establish criminal
    penalties for invidious discrimination and would allow testing
    to determine whether it exists.
        I think that it is time for us to move now a quantum leap
    forward. We have talked about this for years, how this
    discrimination exists in lending but now we can do something
    about it. We may have a Congress that will act.
        If you think it would be beneficial to have this sort of
    testing and penalize persons for invidious discrimination,
    which is harmful discrimination, raise your hand please. All
    who agree that testing is helpful have raised their hands.
        Moving to the next bill, H.R. 123, you have talked about
    credit. This bill would allow additional credit scoring, a
    pilot program such that people who pay their light bills, their
    gas bills, their water bills, their phone bills, and
    utilities--these things could be scored in an automated
    fashion.
        This would help the people with the thin files that you
    have talked about. This would give people an opportunity who
    are paying rent to possibly buy a home for less than they are
    spending on rent.
        If you believe in scoring light, gas, water, phone, and
    cable as additional scoring, not as a substitute for current
    scoring but in addition to it, kindly raise your hand. Okay.
        Mr. Griffith, you don't think that that would be beneficial
    I take it? You didn't raise your hand. Is that correct?
        Mr. Griffith. It is a bit nuanced, but I don't believe that
    it should be forced congressionally.
        Mr. Green. You don't think it should be forced.
        Mr. Griffith. Correct.
        Mr. Green. I see. Well, you and I--
        Chairman Clay. The gentleman from Texas--
        Mr. Green. We have a difference in opinion.
        Chairman Clay. I am going to ask you to wrap up.
        Mr. Green. Yes, sir. I will. I want to thank the panel. All
    but Mr. Griffith indicated that this would be beneficial.
        With this said, thank you for the time, Mr. Chairman. I
    will yield back the balance of my time and I ask unanimous
    consent that H.R. 123 and H.R. 148 be made a part of the
    record.
        Chairman Clay. Without objection, it is so ordered.
        Mr. Green. Thank you.
        Chairman Clay. The gentlewoman from New York, Ms.
    Velazquez, is recognized for 5 minutes.
        Ms. Velazquez. Thank you, Mr. Chairman. Let me thank you
    and the ranking member for holding this important hearing. And
    I would like to take this opportunity to thank the
    distinguished panel.
        Ms. Bailey, earlier this year I introduced H.R. 963, the
    Home Loan Quality Transparency Act of 2019, which reinstates
    Dodd-Frank's expanded HMDA reporting requirements that were
    stripped out of law last year as part of the passage of S.
    2155.
        Senator Cortez Masto has introduced companion legislation
    in the Senate. Can you talk about the importance of these
    expanded reporting requirements and how, without them, finding
    and prosecuting mortgage lenders and financial institutions for
    discriminatory lending practices will be far less effective?
        Ms. Bailey. Yes, thank you so much for the question. The
    Home Mortgage Disclosure Act data has brought a lot of
    transparency into the marketplace. Because of HMDA data, every
    year we know which lenders are serving which borrowers.
        So we know that conventional lenders are not serving
    consumers of color and the service that they are provided is
    very minimal in comparison to the more than 70 percent of
    mortgages that they are giving to white homeowners.
        The rollback took away that transparency that we need. We
    need the data. Part of the challenge that we have in the
    consumer advocacy and fair lending space is oftentimes we don't
    have the data, and that is one of the important things that
    HMDA has provided. And your legislation gives us the tools that
    we need to really strengthen and get back that data that is
    really foundational for consumers.
        And then in terms of compliance, because I know a lot of
    what we heard during S. 2155, a lot of smaller lenders were
    saying that they were having difficulty with compliance, we
    felt like a lot of larger banks were really hiding behind those
    smaller lenders.
        We do understand the burdens of complying with our laws and
    regulations. My organization is part of a small credit union
    administration organization in the country so we understand
    compliance costs. But for years, banks have consistently been
    able to comply with our nation's fair lending laws and do it in
    a way that has really allowed us to give credit to consumers.
    So your bill takes us back where we need to go.
        Ms. Velazquez. Thank you. Ms. Bailey, last week the CFPB
    issued a notice of proposed rulemaking regarding changes to
    HMDA's reporting requirements as required by the passage of S.
    2155. Can you explain any concerns you have with the CFPB's
    notice of proposed rulemaking?
        Ms. Bailey. Yes. We are concerned that they have put out
    this idea that we can either increase or decrease the
    thresholds, and it is around 50 closed-end mortgages.
        Ms. Velazquez. Yes.
        Ms. Bailey. So it is, once again, going back and undoing
    the transparency opportunities that we need HMDA to continue to
    provide.
        Ms. Velazquez. Thank you.
        Ms. Poole, in your testimony you state the homeownership
    rate for African Americans, Hispanics, and Asian Americans
    remains at an unacceptably lower rate than that of white non-
    Hispanic Americans. I agree. What is the National Association
    of REALTORS doing to address discrimination in housing?
        Ms. Poole. I am glad that you asked that question because
    we are an organization which is evolving and moving forward,
    not revolving and staying in the past.
        We are intentionally moving forward with programs to help
    our REALTOR members stay current on fair housing, to reduce any
    discrimination policies that might be happening locally for
    them. We are helping local and State associations to provide
    programs at no cost to them that they can filter down to their
    members.
        We are working with a multicultural leadership across the
    country, and some are represented here today, and trying to
    find ways that we can work together to reduce a lot of the
    discriminatory practices that occur. Because in some cases we
    hear from each other some practices that we don't even know
    about.
        We kind of thought that we were a solo and come to find out
    that individually, we are together. So we are working together
    to try to move our agenda forward and we are progressive in
    doing so.
        Ms. Velazquez. Thank you.
        I yield back.
        Chairman Clay. The gentlewoman from New York yields back.
        I now recognize the gentleman from Missouri, Mr. Cleaver,
    who is also the Chair of our Subcommittee on National Security,
    International Development and Monetary Policy. He is recognized
    for 5 minutes.
        Mr. Cleaver. Thank you, Mr. Chairman. I may not take up the
    entire 5 minutes. Thank you for calling this hearing.
        Mr. Griffith, I am not sure, I may have misunderstood you.
    Do you believe that there is such a thing as racial
    discrimination in housing?
        Mr. Griffith. Racial discrimination does occur. And when
    that does occur, the people perpetrating that should be
    prosecuted to the fullest extent of the law.
        Mr. Cleaver. Well, the only reason I am bringing this up is
    because Mr. Green raised four issues and your hand was the only
    one that didn't raise. I think one of them was about
    discrimination. And so I am a little, more than a little,
    concerned. I am still, even with your answer I am not sure I
    understand what you are suggesting?
        Mr. Griffith. Oh, yes, and thank you for the opportunity to
    clarify that. I was unfamiliar with the details regarding
    testing for discrimination, the random testing of entering
    institutions to actually determine whether or not the
    discrimination is occurring.
        That is something that I am not actually fully apprised on
    and that is why my hand was not raised for that question,
    simply because I am not familiar with that practice in
    determining whether or not discrimination is occurring.
        Mr. Cleaver. Well, what practices are you familiar with?
        Mr. Griffith. That I am not aware of the different
    mechanisms in which people randomly enter in order to
    determine. I am just not aware of that.
        I am aware, of course, of being able to report to the FHA
    through our civil system when discrimination is occurring. I
    think, of course, that is very helpful that we have that
    opportunity.
        Mr. Cleaver. And I am still getting a headache.
        Ms. Bailey, will you--
        Ms. Bailey. Yes, thank you for this opportunity. I want to
    highlight a report that the National Fair Housing Alliance did
    recently. They conducted an in-depth investigation on how
    consumers are treated when they shop for auto loans, so I want
    to--
        Mr. Cleaver. I will yield.
        Ms. Bailey. --talk about it in the auto lending context.
    Mr. Green held a hearing last week on auto lending
    discrimination. The National Fair Housing Alliance found in
    that testing case, that in 62.5 percent of the cases, consumers
    of color received unfavorable treatment and more costly price
    options than the less-qualified white counterparts.
        So if you were white and your credit wasn't as good, you
    received better credit. I would really refer our co-panelist to
    that study. We know that discrimination is real and ongoing.
        Mr. Cleaver. Yes. We always have a problem in solving a
    problem. If you don't think you can get cancer from cigarettes,
    there is no point in trying to stop people from smoking.
        If you don't think there is discrimination, there is no
    point in trying to stop people from discriminating. And
    obviously, it is massive.
        I would like to yield the balance of my time to Ms. Tlaib
    of Michigan.
        Chairman Clay. The gentlewoman from Michigan is recognized.
        Ms. Tlaib. Thank you so much, and I wanted to actually
    allow Mr. Nery to finish. We were both very eager to hear what
    you have to say about land contracts. But before I do that, I
    do want the record to note that between the 1930s and the
    1960s, contracts were used to redline and prevent minorities
    from being homeowners.
        As you all know, 50 years later, we still allow for the
    land contract system to exist to hurt communities of color. And
    so it is really important that we allow it to happen but with
    safeguards.
        And so, Mr. Nery, we are very curious about your response
    of, we know and I think we want access, because access is key.
        Mr. Nery. Absolutely.
        Ms. Tlaib. But this seems to be a predatory process, a
    redlining process that hurts predominantly blacks--
        Mr. Nery. I would--
        Ms. Tlaib. --in our country.
        Mr. Nery. --wholeheartedly agree. I was just expressing as
    an attorney, that it surprised me because when I am involved, I
    make sure that those issues that we are concerned about don't
    occur. But I didn't imagine, I didn't think about in the
    majority of transactions people are obtaining land contracts
    consumer-to-consumer without having any of those protectionary
    measures.
        I would say NAREB completely and wholeheartedly agrees that
    there has to be some uniformity. There has to be some standard
    to it because you have to, at a minimum, make sure that you
    have some sort of a memorandum of agreement that identifies
    that this contract is there.
        You want to make sure that you have title and--
        Ms. Tlaib. Oh, I know.
        Mr. Nery. --that you can ensure that all of those
    protectionary measures are there for the consumers. You don't
    want someone to inherit any kind of liens or foreclosure or any
    kind of debts or other mortgages that exist.
        So absolutely, I think there has to be a standard that is
    applied across the country for consumers to be protected
    because you have to make sure that although in some cases this
    may be the only option that people have for financing, you have
    to make sure that they are protected.
        Ms. Tlaib. Thank you.
        Lastly, Ms. Bailey, you said something really shocking and
    profound. I lost more black homeownership in the State of
    Michigan than anywhere in the country. But you said black
    homeownership is at the same rate today that it was in 1968.
    What is the rate now, since 1968 to 2019, the same rate?
        Ms. Bailey. Indeed, it is. Today, it is at 41.4 percent.
    And it is important to really help us understand, we had
    progress after the Fair Housing Act, however, the market
    shifted. Reverend Jackson says that when we get in the game and
    the rules are clear and the referees are fair, we win.
        Black and Latino families have never been in a mortgage
    market that operated in that way. Instead, we have had dual
    systems where we are tracked to dangerous and risky mortgages
    and other financial services products that stop our ability to
    build wealth over time and pass on to future generations. Each
    of our generations continually have to start over again as
    opposed to building on legacies of families' opportunity.
        Chairman Clay. The gentlewoman's time has expired.
        Did the gentleman from Florida have something to add?
        Mr. Lawson. Yes. Ms. Bailey, I just want to say you made
    reference to Rosewood?
        Ms. Bailey. Yes.
        Mr. Lawson. And the reason why I'm interested is that I am
    the one who did a bill in Florida.
        Ms. Bailey. Yes.
        Mr. Lawson. And that was in 1923 when African Americans had
    homes and all that kind of stuff before the massacre and
    everything took place, but it was interesting that you
    mentioned Rosewood. It just stimulated me when you mentioned
    something about it.
        Ms. Bailey. And if I may? People keep asking, why do we
    look back? Why do we look at yesterday? The only way we are
    going to learn the lessons of the past is by understanding what
    the facts present. And we have a chance today to make sure we
    do not pass on to our children the burdens of discrimination.
        Chairman Clay. The gentleman is welcome.
        And I would like to thank our witnesses for their testimony
    today, as well as say that I am encouraged by the thoughtful
    questions and answers to this intractable issue of barriers to
    minority homeownership. But I am confident after hearing your
    testimony and your responses that we can find solutions to this
    issue.
        The Chair notes that some Members may have additional
    questions for this panel, which they may wish to submit in
    writing. Without objection, the hearing record will remain open
    for 5 legislative days for Members to submit written questions
    to these witnesses and to place their responses in the record.
    Also, without objection, Members will have 5 legislative days
    to submit extraneous materials to the Chair for inclusion in
    the record.
        And, thank you all.
        This hearing is adjourned.
        [Whereupon, at 12:17 p.m., the hearing was adjourned.]

                                A P P E N D I X

                                  May 8, 2019

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