[Congressional Record (Bound Edition), Volume 155 (2009), Part 9]
[House]
[Pages 12412-12419]
[From the U.S. Government Publishing Office, www.gpo.gov]




                           FORECLOSURE CRISIS

  The SPEAKER pro tempore. Under the Speaker's announced policy of 
January 6, 2009, the gentleman from North Carolina (Mr. Miller) is 
recognized for 60 minutes as the designee of the majority leader.
  Mr. MILLER of North Carolina. Tonight, I would like to devote this 
hour to the foreclosure crisis that the Nation faces--and will continue 
to face for some time; the financial crisis; the recession that we now 
have that is the worst recession since the Great Depression, 
precipitated by the foreclosure crisis and by the financial crisis. I 
want to talk about how we got where we are and what we need to do now 
to make sure it never happens again.
  According to the financial industry, what happened was this freakish 
combination of macroeconomic forces that no one could have predicted. 
It was a perfect storm. But with a little help from the government, 
from the taxpayers, and a little bit of patience, we will muddle 
through this and we will be back to where we were just a couple of 
years ago; not to worry.
  Columnist Paul Krugman earlier this week quoted a prominent Wall 
Street lawyer who was under consideration to be the Deputy Treasury 
Secretary, Rodgin Cohen, as saying that the Wall Street that will 
emerge from this will not be terribly different from the Wall Street of 
the recent past, and said, ``I am far from convinced that there was 
something inherently wrong with the system.''
  Mr. Speaker, a Wall Street or a financial system that is not 
different from the one in the recent past that just gets us back to 
where we were a couple of years ago is not much of a deal for the 
American middle class. I don't claim that I knew that the financial 
crisis would happen the way it did. But I knew that the mortgages that 
have proven so toxic for the financial system and for the financial 
industry were toxic for borrowers, were toxic for homeowners. And I 
thought that was reason enough to do something about it.
  I began working on the issue almost as soon as I was elected or 
entered Congress in 2003. In 2004, I introduced legislation, along with 
Congressman Watt, to prohibit many of the practices that led us to 
where we are now. And we saw--I know well what kinds of mortgages have 
led us to the foreclosure crisis.
  Subprime mortgages went from 8 percent of all mortgages in 2003 to 28 
percent in the heyday of subprime lending--the 2004 to 2006 period. 
More than half of the people who got subprime loans qualified for prime 
loans. Many others should never have gotten any loan of any kind.
  There were extravagant upfront charges, costs, and fees. Ninety 
percent of loans had an adjustable rate, with a quick adjustment after 
just 2 or 3 years. The typical adjustment--the teaser rate, the initial 
rate was frequently above prime. It was no deal in the first place.
  Then, when the adjustment set in, regardless of what interest rates 
were, the monthly payments would go up by 30 to 50 percent. Seventy 
percent of the loans had a prepayment penalty that made it almost 
impossible for borrowers to get out without losing a big chunk of the 
equity in their home.
  The loans were designed to be unsustainable. They had the effect of 
trapping borrowers in a cycle of repeated refinancing. Every time they 
refinanced, having to pay points and fees and closing costs to get into 
the new loan and a prepayment penalty to get out of the last loan.
  All that time, the industry defended all those terms, all those 
practices as necessary to provide credit to homeowners who would not 
qualify for prime loans. The terms, they said, might appear predatory 
to the uninformed, Members of Congress like me, the consumer groups, 
but they were really innovations that would make credit available to 
people who otherwise could not have gotten it.
  Repeatedly they said this legislation, while well-intended, will just 
hurt the very people it's trying to help. I admit that I resented being 
patronized at the time. But now, looking at what really

[[Page 12413]]

happened, I am furious at the dishonesty of it all.

                              {time}  1930

  Mr. Speaker, this is what really happened. This is a chart of the 
percentage of corporate profits in America that the financial services 
industry got. And it peaked during the period, the heyday of subprime 
lending, at more than 40 percent of all corporate profits. The terms of 
mortgages that appeared predatory really were predatory. The lenders 
did not have to include those terms in their loans.
  Now, obviously, something went wrong. And I want to talk about that 
in a bit. But I first want to recognize my colleague. This is the 
majority party's hour. But in the spirit of bipartisanship, or post-
partisanship, I am happy to recognize Mike Turner, my colleague from 
Ohio. Mr. Turner has many fine qualities. His political party is not 
one of them. But he represents a district, Dayton, Ohio, that has been 
particularly hard-hit by the foreclosure crisis.
  And I want to recognize Mr. Turner to talk about what he has seen 
happen in Dayton.
  Mr. TURNER. Well, I want to thank Brad Miller for his leadership on 
this issue. This is a very important issue that affects our whole 
country. And we all took a pause as we saw our financial institutions 
shaken nationally. And as the bailouts were proposed that came here to 
this floor to be voted upon, across the country, Americans wondered, 
How did we get here? How did this happen?
  Now I voted against every bailout that came here to this floor. And I 
voted against it because not only did I believe that they were not 
structured appropriately, that there was money that was going to be 
wasted, but more importantly, not one of them included a change in the 
laws that would prohibit the type of practices that got us here to 
begin with. The toxic assets that people talk about are these mortgage-
backed securities that were traded and sold upstream. They were the 
securities that were based upon practices of mortgage lending that had 
a negative impact on our families and a negative impact on our 
communities.
  And today I wanted to offer my support for the recently passed bill, 
H.R. 1728, Mr. Miller's bill, the Mortgage Reform and Anti-Predatory 
Lending Act of 2009. This bill directly addresses the root causes of 
the current financial and economic crisis in the United States as well 
as how it has led to some home abandonment and high foreclosure rates 
throughout the country.
  Mr. Speaker, the United States is experiencing a steady increase in 
foreclosures and mortgage lending problems that have impacted 
homeowners, families, communities, the United States economy and global 
economies. In 2006, there were an estimated 1.3 million foreclosures in 
the United States. This number has increased by 79 percent in 2007, 
bringing the estimated number of foreclosures nationwide to 2.2 
million. In 2008, an estimated 3.2 million foreclosures were reported 
nationwide. Estimates suggest that this trend is likely to continue 
with millions more of Americans potentially losing their homes to 
foreclosure in the next 4 years and with foreclosures not abating until 
perhaps 2011.
  Recently, an analysis by the Associated Press reported that Ohio has 
three of the most vacant neighborhoods in the United States where home 
foreclosure and abandonment have devastated neighborhoods with parts of 
northwest Dayton, Ohio, in my district, with more than 40 percent of 
the area being vacant. This statistic makes northwest Dayton the ninth 
emptiest neighborhood in the Nation. If you look at the 2008 
foreclosure rates in my district, there have been 4,091 foreclosures in 
Montgomery County, the primary county of my district. There were 1,558 
foreclosures in Warren County, 287 foreclosures in Clinton County, and 
351 in Highland County.
  These statistics become even more real when I open the pages of my 
local newspaper. When I was home over the past couple of weeks, I 
looked at the newspaper, and I actually compared the number of pages 
that actually contained news to the number of foreclosures. The Dayton 
Daily News the other day showed up on my doorstep. It had 14 pages of 
news nationally and worldwide and 14 pages of foreclosures. Those are 
foreclosures that affect families, communities and neighborhoods, the 
families that live there, the children that live there, and the 
neighbors that live next to the homes, and the neighborhoods that begin 
to decline upon foreclosure and abandonment.
  According to a study commissioned by Jim McCarthy, the head of the 
Miami Valley Fair Housing Center in my district, the mortgage 
foreclosures associated with lenders who are identified as subprime 
lenders increased at an annual rate of 43 percent from 1994 to 2000. 
This number is more than double the annual 18 percent rate increase 
associated with lenders who are not identified as subprime lenders. The 
study also showed that foreclosure filings in Montgomery County, Ohio, 
nearly doubled from 1994 to 2000 and that subprime lenders were 
responsible for a disproportionately high share of that increase. In 
Montgomery County, the number of predatory lending complaints since 
2001 have risen to 5,326.
  Home foreclosures resulting from predatory lending take a toll on 
American cities. Properties which are foreclosed often sit vacant for 
long periods of time and not only become an eyesore but become a threat 
to public health and to safety. Boarded-up neighborhoods, falling 
property values, and increased crime all lead to an eroded local tax 
base and impair a city's ability to provide important services to urban 
families.
  Additionally, when I served as mayor of the city of Dayton and faced 
this issue and how it impacts homeowners, my community continued to 
wonder how the financial markets would be able to sustain the losses 
associated the mortgage foreclosures. Beyond the individual impact 
resulting from predatory lending, these practices were resulting in the 
loss of capital in the market that cumulatively, one would expect that 
it would have an impact.
  Now, I want to show you some of the boards that I have beside me. 
These are the home foreclosure numbers for Montgomery County for the 
years starting in 1997 to 2008. Since I have been in Congress here for 
6\1/2\ years, in a county that has a population of slightly more than 
500,000, there have been about 27,000 foreclosures in the community. 
The number of families that are impacted, the number of houses in the 
neighborhood is just really astounding.
  I wanted to show you a representative map of a neighborhood that 
would show you what that would look like from the early period, before 
this period here starting from 2004 on where we have the higher 
numbers, as the foreclosure crisis began in the community. This is one 
Dayton neighborhood in northeast Dayton. You can see probably on the 
camera just a few of the streets and the make-up of the area. But for 
every dot you see on this map, that represents a foreclosure. This is 
just the period from 1997 to 2003. We haven't even imposed upon this 
map what occurred from 2003 forward.
  If you imagine, that means that just about everybody living in the 
neighborhood lives next to a house that went through foreclosure. And 
what is unfortunate is that a lot of those houses then go on to 
abandonment. When a house is foreclosed, a family might walk away. And 
many times families are left in the neighborhood living next to houses 
like these that become boarded up, sources for criminal activity, 
lowering the property values and trapping everyone. If these houses 
were subject to predatory lending and their neighbors were not, the 
neighbors still are impacted by predatory lending by having these types 
of occurrences in their neighborhood and next to them.
  Well, today, Mr. Speaker, the impact of all of this is clear. It does 
impact our financial institutions. And it does impact the very fabric 
of our financial institutions for our community and our country. These 
are the toxic assets that everyone speaks about. When they talk about 
toxic assets and mortgage-backed securities, they talk about the

[[Page 12414]]

real-life foreclosures that have occurred. And predatory lending 
practices have contributed a disproportionate amount to those impacts.
  I believe that homeownership is a privilege that everyone should 
enjoy. But we must not allow for the dream of homeownership to be 
shattered because of questionable and less-than-honest mortgage lending 
practices that can steal individuals' futures. That is why I'm pleased 
to commend my colleague, Brad Miller, on his leadership on this issue 
and work on securing the passage of H.R. 1728 in this body.
  Brad, we appreciate it. The families who have been impacted 
appreciate it. This is an important step of changing the rules so that 
we don't continue the practice of creating toxic assets.
  Mr. MILLER of North Carolina. Thank you, Mr. Turner. If you will stay 
a moment, I have a question or two. I know that your start in politics 
was in local politics, that you were the mayor of Dayton. And my 
observation of people who work in local politics is they can't just 
spout talking points. They really have got to solve problems. They 
don't have much choice in the matter. And I'm pleased that after more 
than 6 years in Congress, that hasn't worn off completely. You do still 
have some sense of the practical to you which I appreciate.
  I said a moment ago that I would come back to what went wrong. 
Obviously, for more than 40 percent of all corporate profits, they are 
now on taxpayer life support. And what went wrong was that their 
economic models, their business models, assumed that property values 
would continue to appreciate and home values would continue to 
appreciate. In 2004, home values across the country appreciated by 11 
percent, and they assumed--looking back, obviously foolishly--they 
assumed that property values would continue to go up. And what happened 
when property values simply stalled was they had a business model that 
only worked if property values continued to go up. They might go up 
quickly or slowly, but they would continue to go up, and they couldn't 
possibly, couldn't possibly go down. But when they stalled, people 
could not get out of their mortgage.
  More and more people were underwater in their mortgage. They owed 
more money on their house than their house was worth. They could not 
get out of their mortgage. They couldn't sell their house because they 
couldn't pay the mortgage. And property values and foreclosure were 
just inextricably linked. Nationwide property values have now gone 
down, according to some economists, by about 30 percent from their peak 
in 2006, I think it was.
  And for most middle class families, the equity they have in their 
home is the bulk of their net worth. It is their life savings. And they 
are seeing that disappear. Even the people that have mortgages they can 
pay, who aren't in subprime mortgages, when their property values 
collapse, their home value collapses, they see their life savings 
evaporate with the collapse in home values.
  As you pointed out, foreclosed homes sit vacant, stigmatizing 
neighborhoods and killing the property values in those neighborhoods. 
And in many markets around the country that have been hardest hit by 
subprime lending and by the foreclosure crisis, half or more of the 
homes on the market are foreclosures. And those houses are priced to 
sell.
  In Dayton, what has been the effect of this on home values? Well, 
what has been the effect of the foreclosure crisis on home values in 
Dayton?
  Mr. TURNER. Well it has definitely gone down. And Brad, you make some 
excellent points. Now our community in Dayton, Ohio, and the 
surrounding counties, Warren, Clinton and Highland, that are in my 
district, we are not an area of the country which saw these large 
spikes in property values. We had very modest property appreciation. 
What happened most of the time, I believe, and the Montgomery County 
Fair Housing Center has statistics where this has been proven out, is 
that through predatory lending practices and what I believe are also 
fraudulent lending practices, the loan-to-value ratio got out of 
kilter. They would lend people more money than their house was worth. 
Structurally, you cannot maintain that. You are going to have a 
foreclosure if someone leverages their entire equity.
  I will give you an example. Someone might have a house that is worth 
$70,000. A lender comes to them and says, well, your house is really 
worth $100,000. I will give you $10,000 cash out of your equity. And 
then they will charge them $15,000 in fees that are rolled up and 
capitalized into the loan, so the family now has a $100,000 loan on a 
house that was worth $75,000. They got $10,000 to send their kid to 
college or pay medical bills. But they are now sideways because the 
house really isn't worth $100,000.
  So if you have then an economic event where they have difficulty in 
making that mortgage payment, it is different from economic downturns 
we have had before. When we have had economic downturns before, people 
still had equity in their home. They might be able to sell their home 
or they might be able to try to make the payments on the lower value. 
But once you have a loan on a house that is greater than its value, and 
people do not have the money to cut the check for the difference, they 
are going to walk away. And they are structurally going to have to 
leave that home behind. The bank is going to foreclose and take it. 
You're going to have this abandonment.
  And what you just said, Brad, what is really important, is the people 
who live next to that house, who didn't have a predatory loan, who 
didn't take a loan out greater than their value, now see their property 
values drop because the house next door to them is now abandoned.
  We have seen stagnation in property values and growth in the Dayton 
area, some declines. People who live next to a home that has been in 
foreclosure see their property values decline. So it is something that 
doesn't just impact the family. These numbers you see here of people 
who have had their home where they have lost it in foreclosure are 
multiplied by the number of people who live next to those homes. And in 
some neighborhoods because there are so many that this has happened, 
the whole neighborhood sees the decline.
  Mr. MILLER of North Carolina. You mentioned in your remarks the 
number of people, the 2.5 million families who have already lost their 
homes to foreclosure because of the subprime crisis, and you said the 
estimates are that many more will. The estimate that I have seen, the 
economists at Credit Suisse, was at 8.1 to 10.2 million families. More 
families will lose their homes by the end of 2012, in the next 4 years. 
And if that happens, if we can't do something to stop that, it is hard 
to imagine that anything else we do to fix the economy is going to 
work. That is going to be catastrophic for those families. Those 
families will fall out of the middle class and into poverty and 
probably will never climb back out. But it is going to be catastrophic 
for the whole economy.
  One further question, though. I have talked about the relationship 
between home values, the collapse of home values and foreclosures; but 
a family that has seen their home collapse in value is not going to be 
in any hurry to go buy a new car or to buy anything they don't have to 
have. What has been the effect of the economy in Dayton generally? What 
has been the effect on the car dealerships and the retailers? Are you 
seeing an effect on the economy, the retail economy, in Dayton as a 
whole?

                              {time}  1945

  Mr. TURNER. Absolutely. In Ohio, we have had significant job loss, 
and that goes to part of the economic crisis that people are seeing.
  But when you have people's home values drop, just as you said, they 
have less wealth. And when they have less wealth, they are less secure, 
so they are less secure in proceeding with other purchases.
  But an issue that also impacts them is when the value of your house 
goes down because someone else has gone into foreclosure, the value is 
not there and you are also stuck, unable to sell your home. There are 
people now, who

[[Page 12415]]

because of the number of foreclosures that have occurred in the 
neighborhood, were holding onto their house, and that has a suppressing 
impact on the economy also. If the value was still there, they might 
sell their home and move on.
  Brad, I commend you again for your bill. Throughout the country, 
people know we have a foreclosure crisis. They know there is a 
foreclosure crisis which goes straight to the issue of toxic assets, 
which goes straight to the financial stability of our financial 
institutions. This bill, unlike the bailouts that were passed, goes 
straight to the issue of trying to stop these practices so that we 
don't continue to crank out toxic assets. That will provide stability 
in the market where people will have some confidence that these loans 
that are being given have some standards behind them and that families 
are not put at risk.
  Mr. MILLER of North Carolina. I did vote in October for the TARP, the 
bailout, and it was certainly a bitter pill for me, having been one of 
the sternest critics of the industry for the whole time I have been in 
Congress. I did it because I thought there were exigent circumstances 
that I thought the country was facing, but I said at the time that we 
have to reform the industry. We cannot just get back to where we were. 
We have to address the kinds of practices that led us to where we are.
  Mr. TURNER. Exactly to what you said, one other thing that I want to 
talk about is the issue of how people feel about this.
  There are people who live next to abandoned homes that went into 
foreclosure, who have made their payments and have seen their property 
values drop, and they know that lenders took advantage of the families 
in their neighborhoods, and those lenders are part of where the tax 
dollars are going for these bailouts. They want to know when are these 
lenders, when are they going to be held accountable and stopped from 
these types of activities. That is what your bill does. It goes to 
saying we are not going to allow the lenders to continue these 
practices. Elements of your bill will have a huge impact on 
neighborhoods and families. Thank you for advancing it.
  Mr. MILLER of North Carolina. There has been a lot of hand-wringing 
by the political establishment, by the political pundits, the 
populism--they use the word ``populism'' as if it is completely 
synonymous with the word ``demagoguery,'' which it is not--the populist 
rage at what has happened in the financial sector and the AIG bonuses.
  To me, I think many Americans know the kinds of practices that have 
gone on. It is not just mortgages. Certainly it includes mortgages, but 
it is also credit card practices. Just 2 weeks ago we had legislation 
that we have now passed that would fundamentally reform credit card 
practices. Many, many Americans have had very distasteful and very 
expensive experiences with credit card companies that left them furious 
at that industry, the same industry.
  Overdraft fees. Overdraft fees. They don't really affect the middle 
middle to upper middle class. It is more people who really are 
struggling. When they get to the end of the month and there is more 
month than there is paycheck, they might go beyond the amount of money 
in the bank. The lending industry has actually designed what they call 
fee-harvesting software that batches the transactions, the checks, the 
ATM visits, the debit card purchases, that batches them in a way that 
maximizes the overdraft fee. And an overdraft fee is typically $35.
  If someone gets to the end of the month and has $100 in their bank 
account and they go to the ATM and get $20, they buy something on their 
debit card for $20, go back to the ATM and get another $20 and make a 
$15 purchase with their debit card, and then another $25, and then 
write a $105 check, the software runs the $105 purchase through first, 
and charges a $35 overdraft fee on that and then a $35 fee on the $20, 
the $20, the $20, the $15 and the $20. Americans are furious.
  And then they see the very industry that they think cheated them on 
their mortgage, cheated them on their credit card, cheated them with 
overdraft fees, they see their tax money going to help save that 
industry from their own bad judgment. I think it is righteous anger, 
and I think we need to, as you have said, we need to reform the 
practices that led us to where we are.
  Mr. Ellison has returned.
  Mr. TURNER. Before you turn to Mr. Ellison, I do want to commend you 
for this bill. It is very important. You are taking action that goes 
right to the heart of the crisis. I am pleased to support it, as this 
House was, and we certainly look forward to it proceeding. Thank you 
for highlighting it today.
  Mr. MILLER of North Carolina. In these hours, it is typically the 
case that Members are filled with praise for one another, and I wonder 
sometimes when I hear a Member say, I thank the gentleman for his 
leadership, I wonder sometimes whether he is actually thanking for him 
for his leadership or is just stalling to think of what to say next.
  We are joined by Mr. Ellison, who has joined the Financial Services 
Committee. He is now in his second term, and he has been a great friend 
and ally on that committee and a great advocate for consumers.
  Mr. ELLISON. Let me say, I do thank the gentleman, but I do it in all 
sincerity. Congressman Miller, you and Congressman Frank and 
Congressman Watt and Congresswoman Waters and Congressman Gutierrez and 
Congresswoman Maloney have really been offering the kind of leadership 
on the Financial Services Committee that any freshman or sophomore 
Member could only dream of. Any freshman or sophomore Member joining 
our committee could easily wonder where do I fit in and all this stuff, 
but you all have carved away so that those of us who have a compassion 
for consumer justice and for an America where we have shared 
prosperity, not just for some of us but where all of us have an 
opportunity to do well and take care of our families, you all have cut 
a wide berth for us, and so I thank you for that.
  Let me say about the foreclosure crisis, in many ways I come here 
somewhat embarrassed because we could have had a bill like this years 
ago. It is not as if you and Congressman Watt didn't think of it. It is 
not as if the Miller-Watt bill wasn't on your mind back in the 109th 
Congress and 108th Congress. It was there, but it took this propitious 
moment to get as close as we are. And yet, we still don't have a signed 
bill. We have a bill that has passed through the House, and we have 
great hopes for it getting through the Senate, and we have even greater 
hopes to get it on the President's desk for signature. But the moment 
that the American people are waiting for, which is to end predatory 
mortgage lending, that moment has yet to come. And we have seen 
foreclosures that have rivaled the Great Depression. That is very 
disturbing to me.
  I want the American people to look at this chart that we have here 
tonight. The number of new foreclosures increased dramatically between 
2005 and 2008. That is precipitous growth in foreclosures. As 
foreclosures were going up, we also see human beings attached to each 
one of those foreclosures. Congressman, you know what I am talking 
about. The stories can be told.
  Let me tell a story. I was knocking on doors one day and I saw a 
gentleman hobble to the front door to answer the door to talk to me. 
This particular gentleman lived on the south side of Minneapolis. I 
heard a voice come from deep within the house say, Be careful, Honey, 
and it clearly was his partner. And he hobbled up to the front door 
anyway on a cane.
  I said, How are you doing?
  He said, Fine.
  I said, I'm running for Congress. I want to go there and I am going 
to work on consumer justice. I am real concerned about credit cards and 
real concerned about predatory lending.
  He said, I hope you are, because let me tell you, I was on my roof 
trying to fix it. It is because I didn't have the money to fix it to 
hire a guy who really knew what he was doing. My wife told me not to do 
it, but I did it anyway. As

[[Page 12416]]

usual, she is right. I fell. I hurt my back, which I hurt years before, 
and we didn't really have the money. It cost us $1,800 for an emergency 
vehicle to come get me. They got me there. I had a big bill. I didn't 
know what hurt more, the back or the bill. I didn't have the money, so 
I put it on a credit card. I ended up getting another credit card, and 
I started juggling these cards. And then when the mortgage payments 
came and I wasn't working, I just couldn't keep up.
  Well, a few years ago we bought this house and we had a huge balloon 
payment after 3 years. We thought we would be able to do it because 
when we talked to the guy, he said, You know what? The value of your 
house is going up and you will be able to do a refinance and you won't 
have any problem.
  That man told me, Look, I have big credit card debt and medical debt, 
and I am starting to get notices that they are going to foreclosure if 
I don't make some payments to the bank. Unfortunately, time went by, 
November came, I ended up being a Congressman, and this man ended up 
being in foreclosure.
  The sad fact is the people who are in foreclosure, there are a lot of 
ingredients to this very sad cake; but one is hard times and economic 
difficulty, and two, bad loan products. The combination of the two 
makes for foreclosures.
  As we open up tonight, Congressman Miller, I am grateful to you and 
Congressman Frank, Congressman Watt, Congresswoman Waters, 
Congresswoman Maloney, and all of the people who have been leading the 
charge on this issue.
  I want to keep it in mind that we are not talking about just 
statistics. We can tick off, in 2008, there were 2,417,000 
foreclosures, but there was a life and a family connected to each one 
of those.
  As we do this Special Order tonight, we need to keep that in mind.
  Mr. MILLER of North Carolina. Thank you, Mr. Ellison.
  I want to address a couple of other points. One that is frequently 
cited, argued, that the people who signed those mortgages should have 
known better.
  Here is the reality. Economists call it asymmetry of information. In 
other words, one of the parties to a transaction knew what was in the 
documents because they wrote the documents. They had their lawyers 
write them. It was little print. It was legalese. There was a lot of 
it.
  And most Americans who may feel smug that they didn't sign a subprime 
loan have probably gotten burned on a credit card, and they know what 
credit card contracts are like. And they know that the bank wrote the 
credit card contract and they didn't have any say in what was in that 
contract, and they know that it was complicated and it was designed to 
trap them and had little trip wires and whatever else.
  But the same was true of mortgages. The Federal Trade Commission 
actually quizzed both prime and subprime borrowers, people who got good 
mortgages and people who got the toxic mortgages right after closing, 
right after they signed the documents, and it was an open book test 
with their documents in front of them. They quizzed them on what the 
terms of their mortgages were, and almost nobody knew what they were 
signing.
  A half could not identify the total amount of the loan. A third could 
not identify what the interest rate was. That was with the documents in 
front of them. Two-thirds did not know there was a prepayment penalty 
if they had one, and 90 percent did not know the total up-front cost. 
Up-front cost is where predation lives.

                              {time}  2000

  That was what predatory lending was all about.
  And in addition to that, most borrowers, particularly subprime 
borrowers--70 percent of the subprime borrowers got a mortgage broker. 
They thought mortgage brokers presented themselves as a mortgage 
professional. Now they tell Congress that they should be regulated like 
a used car salesman--which is actually unfair to used car salesmen 
because there are some consumer protections in selling a used car. But 
they said they should simply be a salesman. It should be buyer beware; 
that there should be no particular protections. They shouldn't be 
treated like a lawyer or someone else who has a fiduciary duty--I think 
a point that you made in committee.
  Brokers were being paid not just by the borrower, but by the lender. 
And the worse the loan was for them, the more the lender paid the 
broker. Now, most Americans, when they hear that, just think that's 
crooked.
  Mr. ELLISON. Will the gentleman yield? Was there an obligation to 
disclose that I'm getting paid more money for selling you this loan, 
and it's costing you more but it's making me more? Was that part of the 
disclosure requirement?
  Mr. MILLER of North Carolina. Yes. It was one of the documents, it 
was one of many documents that the borrowers signed. And guess who 
handed them that document and explained to them what they were signing? 
The broker. And if the borrower asked, what is this I'm signing? What 
the broker would say is, well, this just means that the lender is 
paying part of my fee, saving you money.
  So, yes, there was a disclosure. Was it an effective disclosure, was 
it a disclosure that really told consumers what was going on? No, it 
was not.
  Mr. ELLISON. If the gentleman would yield one more time. So what 
you're saying is it was telling you without telling you anything; is 
that right?
  I yield back.
  Mr. MILLER of North Carolina. Yes. It was a nondisclosure disclosure.
  This is actually a rate sheet. This is from a lender that is now long 
out of business, but this is how mortgage rates were set. Across the 
top it shows the loan to value, what percentage--it might be 95 
percent--and a credit score, how well a consumer or borrower paid their 
bills, what they had earned for themselves. Their reputation also 
factored in. The industry used to call that ``character'' as one of 
their considerations in lending.
  And so on this sheet, a 95 percent loan, a loan where the borrower 
only had 5 percent and the borrower had a credit score between 640 and 
659 would pay 7.55 percent interest. But over here, there is the 
payment that the lender made to the broker called the yield spread 
premium. And it says, if the borrower signed a mortgage that was a half 
a point higher interest rate than they qualified for based upon their 
loan to value and their credit score, the interest rate that they 
earned by how well they paid their bills, the lender would pay the 
broker 1 percent of the loan. That was called a yield spread premium.
  Now, I think most Americans hearing this can't believe that this was 
ever legal. It's still legal. The bill we passed last week would 
prohibit this, would end it. But this means that even those borrowers 
who are trying as hard as they could, knowing that they were entering 
into a complicated and important transaction to buy a home or to borrow 
money against their home, who would try to get a professional voice, 
someone to be on their side, someone who would understand it and would 
lead the borrower through it and find the best loan for the borrower, 
their trust is being betrayed. Now, if our bill passes, we will have 
finally ended this. But those who feel smug and say, well, they should 
have known better, the odds were so stacked against them, they never 
had a chance.
  Mr. ELLISON. Would the gentleman yield? May I ask the gentleman a 
personal question?
  Mr. MILLER of North Carolina. Yes.
  Mr. ELLISON. How many homes have you ever purchased in your life?
  Mr. MILLER of North Carolina. Let's see. I think three or four--four.
  Mr. ELLISON. Could you count them all on one hand?
  Mr. MILLER of North Carolina. I could on one hand, yes.
  Mr. ELLISON. How many mortgage transactions does a mortgage broker do 
in a given week?
  Mr. MILLER of North Carolina. Quite possibly 10 or 15; I mean, a 
successful broker.
  Mr. ELLISON. If the gentleman would yield back. So they do more 
transactions in a week than you have done in a lifetime?

[[Page 12417]]


  Mr. MILLER of North Carolina. And that's what they told the 
borrowers. This is my business----
  Mr. ELLISON. Is that what you call an information asymmetry?
  Mr. MILLER of North Carolina. Yes. There was an information 
asymmetry, which worked very badly for the borrower, for anyone who is 
on the short end of that information deficit, that information gap.
  Mr. ELLISON. So if the gentleman would yield back. The bottom line 
is, you are a lawyer, you are a Member of Congress, you have served in 
the North Carolina State Legislature, you're a man, clearly, of ability 
and all these things--I'm not just praising you gratuitously, I'm just 
identifying the facts--and here you walk into a transaction to buy a 
home, and quite literally you are at a disadvantage because the person 
on the other end of the transaction has done more transactions in a 
week than you have in a lifetime.
  Now, imagine a person who is a first-time homebuyer, a person who has 
not finished law school and college and maybe even high school, a 
person who maybe works hard every day, and the idea of buying a home 
for them is a dream come true, maybe nobody in their family has ever 
owned the place where they lived. And so they're juiced up, they're 
excited, and they really don't understand the documents that they're 
signing.
  The fact is, I think that this legislation that you have helped 
shepherd through Congress is a long time coming. And we need people to 
really register their support for a piece of legislation like this. I 
just want to ask you a question, Congressman, because I think it's an 
important one.
  Now, someone might make the case that, okay, Congressman, you're 
talking about predatory lending a lot. What about predatory borrowing; 
isn't it true that some of these people bought loans that they knew 
they could not afford? Well, what are your views on that, given the 
fact that people were in fact steered to more expensive loans, that 
mortgage brokers--some of them, not all, some of them--did get paid to 
get you to pay a higher cost loan, that there were these things like 
information asymmetries; what does the reality of predatory borrowing 
really mean? I yield back.
  Mr. MILLER of North Carolina. Some of our colleagues make that 
argument frequently. It is an explanation for the crisis that the 
lending industry loves. They welcome that explanation.
  Here is the reality: As long as home prices were appreciating, they 
didn't have to pay attention to whether borrowers could really pay it 
back or not because the house would appreciate in value. The borrower, 
if they couldn't pay back the loan, they certainly weren't going to 
allow it to be foreclosed, they would sell it.
  I asked those very questions of a spokesman for the industry at a 
hearing just last year to Robert Story, who was vice chairman of the 
Mortgage Bankers Association. I asked if the cost of foreclosure is 
actually recoverable by the lender out of the proceeds of the 
foreclosure sale. So if there is equity in the home, the lender 
recovers the cost; is that correct? He said, okay, as long as there is 
equity in the home, it really isn't an economic problem for the lender, 
that's right. He said, that's correct, but most people who have equity 
in their homes don't go into foreclosure because they can sell their 
home because they have equity in their home and they can reduce the 
price. As long as home prices continued to appreciate, there was no way 
they were going to lose money even if a borrower couldn't pay back the 
mortgage.
  And I asked that at some point, too, when we had the questions in 
committee again and again about predatory borrowing, people who are 
committing fraud. I asked Sheila Bair, the Chair of the Federal Deposit 
Insurance Company, I asked on April 9, 2007, If lenders were really 
getting half of all loans, subprime loans, without full income 
verification, do any of you--I was speaking to a panel of witnesses--
really think that no one buying those loans really had a clue that 
there was a problem? And Sheila Bair said, I don't think they looked. 
It's amazing to me; investors who are holding the ultimate risk in the 
loans, and I don't think they looked. I don't think the rating agencies 
looked. It's one of the breakdowns of the system that we have. Market 
discipline was not there, nobody was looking.
  But I asked the panel after she said that, I said, Does anyone here 
think that the masters of the universe on Wall Street who bought those 
loans were really being played for chumps by middle class families who 
were borrowing from them? And John Dugan, the Comptroller of the 
Currency, said, I think there was a belief that income was no longer 
predictive of people paying the loans back, and you could rely on the 
history of house prices going up. And so they ignored it. And I think 
that proved to be a very dangerous decline in underwriting standards.
  Well, no kidding. And we've had story after story about how lax the 
underwriting standards were, about how little they did really to make 
sure that the borrowers could pay the loans back because it didn't 
matter.
  The New York Times ran an article on WaMu, Washington Mutual, one of 
the leading subprime lenders. And they quoted an appraiser who worked 
with WaMu who said, If you were alive, they would give you a loan. 
Actually, I think if you were dead, they would still give you a loan.
  There were memos to the originators of loans from WaMu saying, A thin 
file is a good file. Don't ask too many questions. There was an article 
in the press in just the last week or two about a similar memo that 
JPMorgan Chase sent out to everyone who was originating mortgages, 
Don't ask questions. If you don't want to know the answer, if it might 
disqualify someone for the loan, just don't ask. They weren't worried 
about people paying the loans back. Now, that was catastrophic for the 
borrower because the borrower was going to lose the equity in their 
home if they had to sell their home. And once you've gotten yourself 
into the middle class by buying a home, and God forbid you lose it to 
foreclosure, but even if you had to sell it because you can't pay the 
mortgage, you really are falling out of the middle class.
  Some have argued that we haven't done anything about borrower fraud. 
We don't have to do anything about borrower fraud. There is already the 
law of fraud that if the lender was really duped by the borrower, they 
could sue the borrower, but they would have to show that they actually 
reasonably relied upon what the borrower told them. They weren't 
relying on what the borrower told them; they were asking to be lied to. 
And in most cases, the broker filled it out and just gave it to the 
borrower to sign.
  Mr. ELLISON. Would the gentleman yield? Is there a commonly referred 
to name for the kind of loans you are referring to?
  Mr. MILLER of North Carolina. Liar loans, yes. Sometimes they're 
called ``Alt A,'' that was Alternative A, that was the polite name, but 
they were also called liar loans.
  I do want to talk about where we go from here. The bill that the 
House has passed does reach a lot of the practices that have led us to 
where we are. It does limit the upfront cost, which is where the 
predators really made their living was by soaking borrowers at the 
front end, as Mr. Turner talked about, what they made came out of the 
equity in the borrower's home. It was lost in the loan documents, but 
it was in the lending industry's pocket by that point.
  It requires disclosures that are actually understandable. It requires 
standard forms that are actually developed by the banking regulators. 
They are designed to be understood, not disclosures designed by the 
industry that are designed not to be understood. It prohibits this 
compensation system that rewards brokers for betraying the trust of 
borrowers.
  It requires that the lending industry not make loans to people who 
don't have a reasonable ability to pay it back. It requires brokers to 
present borrowers with a set of options that are reasonably suitable to 
the borrower's needs. If we had that bill in effect 5 years ago, we 
would not have the crisis we have now.

[[Page 12418]]

  Now, there has been a lot more contributing to the crisis now than 
just subprime loans or even alternative loans, option arms, and all the 
rest, the exotic products--exotic mortgages is what Alan Greenspan 
called them. It has gone well beyond that now. But this is what 
precipitated it, this is what got it started. This was the match that 
started the newspapers, that started the kindling that started the hard 
wood. This is what started the fire of mortgage lending.

                              {time}  2015

  But we have to go beyond this.
  Again, let me go back to this chart of the financial industry profits 
as a share of U.S. business profits. It peaked during the subprime 
heyday at more than 40 percent of all profits. This is when the lending 
industry is saying, you know, we have to do these things to make credit 
available to people. If you rein in what we're doing, we just won't be 
able to make credit available to people, and you are going to hurt the 
very people you are trying to help. No. They were making a killing.
  This is gone now. This is in addition. This is after all the vulgar 
compensation that we've heard about. In addition to CEO compensation up 
and down the line, the financial industry pays very well. Compensation 
in the financial industry was almost twice of what Americans generally 
got. But this money is now gone. In the words of the country music 
song, ``It's in the bank in someone else's name.'' And now we're 
dealing with the fallout after this.
  But look at what it was back in the fifties and the sixties when our 
economy was doing pretty well. We had a manufacturing base. The middle 
class was doing well. Their lives were improving. Their economic 
conditions were improving. They were making just ordinary profits of, 
you know, 10 to 15 percent, not more than 40 percent.
  The financial industry wants to go from where we are, which is that 
they're on taxpayer life support. But they want to go back to this. 
This is not what we need to go back to.
  Mr. Ellison, I know that you also support the legislation that Mr. 
Delahunt and I have introduced. I actually lost a coin flip. It's 
Delahunt/Miller instead of Miller/Delahunt. But in addition to what 
we've done to get at mortgage lending practices and credit card 
practices to create a regulator whose only job is to look at financial 
products, consumer financial products and look at those up front to see 
if they're fair to the consumer and prohibit those that aren't.
  In addition to Mr. Ellison, there are several prominent supporters of 
this proposal. Joseph Stiglitz, a professor of economics at Columbia 
who's won the Nobel Prize.
  Mr. ELLISON. Elizabeth Warren.
  Mr. MILLER of North Carolina. Elizabeth Warren. Robert Shiller who is 
a professor of economics at Yale, widely published, well regarded, seen 
as a likely future winner of the Nobel Prize. He probably has an 
economics status that the golfing world has, the best golfer never to 
have won a major, and I hope that that status or that reputation for 
Professor Shiller does not have the same career consequences as that 
reputation in golf has.
  But Elizabeth Warren, as you point out, a professor of law at 
Harvard, is probably the best known and most vocal advocate for it. And 
she compares it to a toaster. That a manufacturer of a toaster--you 
know, a consumer doesn't know what's on the insides of a toaster. And 
if a toaster manufacturer is just trying to make the most money that 
they can--she made these arguments just earlier this week on the 
Charlie Rose show--take out the insulation from the toaster, and the 
toaster has maybe a one in five chance of catching fire. It's more 
profitable for the manufacturer of the toaster. They would make more 
money, though the Consumer Product Safety Commission is at least 
supposed to keep them from doing that kind of thing. Why is there not a 
regulator who looks in the same way at financial products? That is 
Elizabeth Warren's analogy, and that probably rings true with a lot of 
people.
  But in my late and unlamented law career, I did some insurance 
regulatory work, and I can't tell you how different insurance is from 
lending. Insurance has been regulated because there have been abuses in 
the past. Before an insurer can offer a policy, the insurance 
commissions in the various States approve the policy form. What are you 
insuring against? Do you have little tricks in there that you aren't 
really insuring people against what they think they're getting? What is 
the likelihood that there is really going to be a loss? And is the 
premium right? Is the premium right? Is it not too high so it gouges 
consumers? And is it not too low so that insurance companies might make 
a quick profit but not have the money to pay claims when claims come 
due? And that happened in the past. That's why we have that regulation, 
and that's what's happened now.
  The financial industry has made a huge profit, huge profit. More than 
40 percent of all corporate profits by these consumer lending 
practices. But now that the consumers can't pay their credit card bills 
and can't pay their mortgages, they're stuck.
  The American people are not deadbeats. They're stuck. They are 
working hard. And if anything goes wrong in their life, if they lose 
their job or someone in the family gets sick or if they go through a 
divorce, they really don't have much room to play. And they've got to 
be able to borrow money.
  But the industry made a killing, and now they're getting bailed out. 
I don't want to go through a cycle of making a killing and getting 
bailed out, making a killing and getting bailed out.
  Let's have a set of regulations in place that provides the American 
people the kinds of financial services, the kinds of financial products 
that really meet their needs and doesn't produce this kind of profit, 
that really produces the kind of profits we had back in the 
manufacturing days, back when the lives of ordinary Americans and the 
middle class was improved.
  Mr. ELLISON. Well, let me say, I'm proud to be on that bill with you. 
I think that Elizabeth Warren, Professor Stiglitz and Professor Shiller 
are all brilliant for coming up with the idea. The fact is, if you look 
at many of these mortgages, they were not safe at any speed, to borrow 
a phrase from Ralph Nader.
  The fact is, if the only way that this mortgage, quote-unquote, works 
is if you can refinance it in 3 or 2 years, then that is a mortgage 
that doesn't work. It's designed to end up in foreclosure but for a 
very shaky assumption.
  If the gentleman would allow me to mention in our waning time, I 
would also like to say this about the bill we just passed through the 
House. And that is that many of the properties that have ended up in 
foreclosure are not homeowner-occupied. In other words, they're 
multifamily dwellings. They're investor-owned. And in many States 
across our country, you can be a tenant who has paid every, every 
rental payment on time, never missed one. And yet if your landlord 
didn't use that money you gave him to pay that mortgage on that 
building, you could find yourself kicked out without any notice at all.
  Some States have regulations, many don't. This bill gives people 90 
days from the date of foreclosure in order to stay and make new plans 
for their lives.
  I think this is a critically important piece of legislation, very 
important provision in the bill, and I'm glad it is a part of it.
  I know you're going to have to wrap up pretty soon, Congressman 
Miller, so I just want to yield back to you now.
  Mr. MILLER of North Carolina. Thank you, Mr. Ellison, for 
participating.
  We have covered a great many topics that I wanted to cover. There are 
many more that we have not. The arguments that the Community 
Reinvestment Act of 1977 caused our financial crisis in 2008.
  Mr. ELLISON. Ridiculous.
  Mr. MILLER of North Carolina. Actually, the Federal Reserve Board's 
statistics show that 6 percent of subprime loans were by lenders who 
were subject to the Community Reinvestment Act--not all lenders were, 
or

[[Page 12419]]

just those with federally insured deposits--and were in the 
neighborhoods where the Community Reinvestment Act encourages savings. 
And all the evidence says that that 6 percent perform better than 
others.
  So it is not that that is exaggerated. It is completely untrue. There 
is no truth to that argument at all.
  If we had longer, we could talk about the role of Freddie and Fannie. 
Certainly they are blameworthy. They acted badly, but they did not lead 
the financial industry into this crisis, as has frequently been 
charged.
  What led the industry into this crisis was the pursuit of profits and 
not an honest living but a killing. Not an honest living by providing 
services to people who needed it, credit to people who needed it on 
reasonable terms but a killing by cheating people. And we can't go back 
to that.
  What we need to do now is not just climb out of where we are but try 
to restore what we had before. We need to reform the industry and the 
consumer lending practices.
  Mr. Speaker, I don't think I have much time to yield back, but I do 
yield back the balance of my time.

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