[Senate Hearing 108-453]
[From the U.S. Government Publishing Office]
S. Hrg. 108-453
PREDATORY LENDING:
ARE FEDERAL AGENCIES PROTECTING OLDER AMERICANS FROM FINANCIAL
HEARTBREAK?
=======================================================================
HEARING
before the
SPECIAL COMMITTEE ON AGING
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
__________
FEBRUARY 24, 2004
__________
Serial No. 108-29
Printed for the use of the Special Committee on Aging
93-393 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
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SPECIAL COMMITTEE ON AGING
LARRY CRAIG, Idaho, Chairman
RICHARD SHELBY, Alabama JOHN B. BREAUX, Louisiana, Ranking
SUSAN COLLINS, Maine Member
MIKE ENZI, Wyoming HARRY REID, Nevada
GORDON SMITH, Oregon HERB KOHL, Wisconsin
JAMES M. TALENT, Missouri JAMES M. JEFFORDS, Vermont
PETER G. FITZGERALD, Illinois RUSSELL D. FEINGOLD, Wisconsin
ORRIN G. HATCH, Utah RON WYDEN, Oregon
ELIZABETH DOLE, North Carolina BLANCHE L. LINCOLN, Arkansas
TED STEVENS, Alaska EVAN BAYH, Indiana
RICK SANTORUM, Pennsylvania THOMAS R. CARPER, Delaware
DEBBIE STABENOW, Michigan
Lupe Wissel, Staff Director
Michelle Easton, Ranking Member Staff Director
(ii)
?
C O N T E N T S
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Page
Opening Statement of Senator Larry E. Craig...................... 1
Statement of Senator Debbie Stabenow............................. 23
Panel I
David Wood, director, Financial Markets and Community
Investments, U.S. General Accounting Office, Washington, DC.... 2
John C. Weicher, assistant secretary of Housing/Federal Housing
Commissioner, U.S. Department of Housing and Urban Development,
Washington, DC................................................. 24
Howard Beales, director, Bureau of Consumer Protection, U.S.
Federal Trade Commission, Washington, DC....................... 33
Panel II
Gavin Gee, director, Idaho Department of Finance, Boise, ID...... 51
Lavada E. DeSalles, member, Board of Directors, American
Association of Retired Persons, Washington, DC................. 65
Veronica Harding, Philadelphia, PA............................... 73
APPENDIX
Statement of George Brown, senior vice president of the Center
for Responsible Lending........................................ 107
Statement of the American Securitization forum................... 116
Statement of the Bond Market Association......................... 125
Testimony of the Coalition for Fair and Affordable Lending (CFAL) 131
Testimony submitted by the Consumer Mortgage Coalition........... 149
Consumer Protection Report submitted by GAO...................... 179
(iii)
PREDATORY LENDING: ARE FEDERAL AGENCIES PROTECTING OLDER AMERICANS FROM
FINANCIAL HEARTBREAK?
---------- --
TUESDAY, FEBRUARY 24, 2004
U.S. Senate,
Special Committee on Aging,
Washington, DC.
The committee met, pursuant to notice, at 10:02 a.m., in
room SD-628, Dirksen Senate Office Building, Hon. Larry Craig
(chairman of the committee) presiding.
Present: Senators Craig and Stabenow.
OPENING STATEMENT OF SENATOR LARRY CRAIG, CHAIRMAN
The Chairman. Good morning, everyone. The Senate Special
Committee on Aging will be convened. Our ranking member,
Senator Breaux wanted to be here, but he had a conflict in his
committee schedule, which is quite typical this hour of the day
with many of our colleagues.
Anyway, I want to thank you all for attending the Special
Committee on Aging hearing this morning. Four years ago, this
Committee held a hearing on equity predators, which treated
this type of lending fraud in a very broad context. However,
since then, we felt this subject merited further sustained and
comprehensive inquiry, particularly in the context of home real
estate assets belonging to our nation's seniors. To that end,
in the fall of 2002, we commissioned a bipartisan study by the
General Accounting Office into the problems presented by this
type of fraud. The study was to include the Federal and State
efforts in enforcement and education in this area as well as
the effectiveness of such efforts, particularly on senior
citizens.
This study has taken a year to complete and represents only
the initial step in this oversight endeavor. Accordingly,
today, we narrow the focus on the ruthless stripping of seniors
of their lifelong, hard-earned equity in homeownership by
unscrupulous brokers and lenders. Senior citizens seek to live
comfortably in their advancing years but also must meet the
rising financial costs of medical care and everyday living
expenses. To meet these expenses, they often tap into the
equity of their homes. In so doing, all too often, through are
taken advantage of by those types of predators.
Today, we explore the types of Federal agency efforts as
well as State efforts and their effectiveness in addressing the
problems under the myriad of laws already in place. We will
begin with witnesses from the General Accounting Office and two
Federal agencies involved in the noble combat of this kind of
fraud.
The Chairman. Our first witnesses will be David Wood,
director of Financial Markets and Community Investment of the
General Accounting Office. He will be joined by John Weicher,
assistant secretary for Housing, Federal Housing Commissioner
at HUD and Howard Beales.
Mr. Beales. Beales.
The Chairman. Beales; thank you, Director, FTC's Bureau of
Consumer Protection.
Our second panel will be that of Gavin Gee, past-president
of the National Association of State Bank Examiners and Lavada
DeSalles, member of the Board of Directors, AARP and Ms.
Veronica Harding of Philadelphia, PA, a victim of such a
predator who has come here today to share her important
message.
We thank you all for joining us. We will start with our
first panel. Again, to all of you thank you for being here. Mr.
Wood, if you would proceed, please.
STATEMENT OF DAVID WOOD, DIRECTOR, FINANCIAL MARKETS AND
COMMUNITY INVESTMENTS, U.S. GENERAL ACCOUNTING OFFICE,
WASHINGTON, DC
Mr. Wood. Thank you, Mr. Chairman. As we note in our report
to you and Ranking Member Breaux, predatory home mortgage
lending has no precise definition, rather, it refers to a range
of unsavory practices. Our report, which you are releasing
today, addresses five aspects of this complex issue: first, how
elderly homeowners, in particular, may be susceptible to
abusive or predatory lenders; second, the actions of Federal
agencies to address predatory lending practices; third, an
overview of State laws on the subject, with case examples from
two States; fourth, how the secondary market for home mortgage
loans can affect predatory practices; and fifth, the roles of
consumer education, mortgage counseling and disclosure
requirements in fighting such practices.
In the interests of time, I will focus my remarks on the
first two aspects. A number of factors may make the elderly
especially susceptible to predatory or abusive lenders. First,
older homeowners on average have more equity in their homes,
making them inviting targets to lenders looking to strip equity
from unsuspecting borrowers. Second, elderly homeowners often
live in older homes and are more likely to need someone to do
repairs for them. This makes them particularly vulnerable to
lenders and home improvement contractors who collaborate to
swindle. Third, physical impairments associated with aging such
as declining vision, hearing or mobility can restrict elderly
consumers' ability to obtain and compare credit information.
Finally, some elderly people lack social and family support
systems, potentially increasing their susceptibility to
unscrupulous lenders who market loans through home visits.
In response to concerns about predatory lending, Federal
agencies have taken a number of actions that generally fall
into three categories. First, Federal agencies have conducted
or funded education initiatives to increase consumers'
financial literacy. Some of this effort is focused on the
elderly population; for example, the Department of Justice
offers guidance warning about financial crimes against the
elderly.
However, Federal consumer protection laws that have been
used to address predatory lending generally do not have
provisions specific to elderly persons. Accordingly, the other
two types of actions by Federal agencies: first, revising
regulations or guidance applicable to lending institutions; and
second, undertaking enforcement actions against certain lenders
are designed to protect all consumers.
We asked eight Federal agencies involved in oversight or
law enforcement among mortgage lending institutions to identify
actions they have taken to address predatory lending. These
eight agencies included the five financial institution
regulators, that is, the Federal Reserve, the Office of the
Comptroller of the Currency or OCC, the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation and the
National Credit Union Administration. The others were the
Federal Trade Commission, the Department of Justice and HUD.
The five banking regulators reported little evidence of
predatory lending activities among the institutions they
supervise. Accordingly, only one, the OCC, reported taking a
formal enforcement action. The regulators have, however, issued
guidance to their institutions about predatory lending and
subprime lending in general. Further, the Federal Reserve
tightened its regulations implementing the Home-Ownership and
Equity Protection Act, the only Federal law specifically
directed at predatory lending practices, and revised other
regulations to require that lenders provide more data with
which to analyze lending patterns.
The Federal Reserve also oversees financial and bank
holding companies, some of which own non-bank mortgage lending
subsidiaries. Because these companies are engaged in subprime
lending, our report recommends that the Congress clarify the
Federal Reserve's authority to monitor and examine their
lending activities.
Among the remaining three Federal agencies, the Federal
Trade Commission has filed about 20 complaints since 1998
against mortgage lenders or brokers. HUD has taken steps to
avoid abuses involving mortgages insured by the Federal Housing
Administration, or FHA. While abuses such as flipping FHA
properties, that is, repeatedly reselling them at escalating
prices, are ultimately directed at bilking the lender or
insurer, they may also harm innocent homebuyers. Finally, the
Department of Justice has taken two major enforcement actions
against lenders under the fair lending laws.
Mr. Chairman, that concludes my prepared statement, and I
will be happy to respond to any questions you have. Thank you.
[The prepared statement of Mr. Wood follows:]
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The Chairman. Mr. Wood, thank you very much for that
statement.
We have been joined by another of our colleagues and a
member of this Committee, Senator Stabenow. So, Secretary
Weicher, before we go to you, I am going to ask if the Senator
has any opening comments, and then we will proceed.
OPENING STATEMENT OF SENATOR DEBBIE STABENOW
Senator Stabenow. Thank you. I first welcome our panelists
and want to particularly thank you for this hearing. This is a
very important topic. I sit on the Banking, Housing and Urban
Affairs Committee and since coming to the Senate 3 years ago
have spent a great deal of time on this issue, and recognize,
in fact, it was one of the first issues brought to me after
becoming a member of that Committee from the people of
Michigan.
I would appreciate if I could put a statement, my prepared
opening remarks into the record.
The Chairman. Certainly.
Senator Stabenow. I would just add that I think there are a
number of things that we can do together, and one of the
positive steps that has already been taken is that in the Fair
Credit Reporting Act, which we passed overwhelmingly last fall,
a title of mine that I cosponsored along with Senator Enzi in
the Committee is on financial literacy, and we specifically
placed that in the new law to focus on a coordinated effort on
financial education, specifically to help address some of the
issues of predatory lending.
I realize it is a larger issue. It is complicated. There is
a lot that needs to be done on the enforcement end, but we also
know that good consumer information, consumers being able to
ask the right questions and being able to get good answers
before they make decisions is a part of the whole issue.
So, I am hopeful that this section, this new title of the
act, will be enforced quickly, and we will be able to use that
as part of the way we begin to address this very serious issue.
Thank you.
[The prepared statement of Senator Debbie Stabenow
follows:]
Prepared Statement of Senator Debbie Stabenow
Thank you, Senator Craig, for convening this hearing on
predatory lending. Americans have a right to expect their
national legislators to be concerned about and take action to
thwart abusive lending practices.
We know that home ownership provides basic financial
security for Americans at all income levels. Homeowners hold an
asset that most often increases in value, that provides
stability in uncertain times; and that can be bequeathed to
heirs. We also know that most mortgage lenders and brokers are
upstanding businesspeople. But there are some unscrupulous
lenders who prey upon naive consumers and take advantage of
their limited financial understanding, ultimately jeopardizing
consumers' basic financial security.
Sadly, predatory lending is a practice that
disproportionately targets older adults. Victims of this type
of financial abuse often find themselves paying much higher
interest rates, losing their equity through unnecessary and
repeated refinancings. Many even end up losing their homes.
Members of Congress have heard horror stories from victims
of predatory lendings as well as potential solutions from
different representatives of the lending industry. As a member
of the Banking and Housing Committee, I have pushed for greater
financial education, enhanced enforcement of existing anti-
predatory laws, and strong new protections against unethical
yet technically legal practices. I will continue to do so.
Thank you again, Senator Craig, for holding this important
hearing. I look forward to hearing testimony from these
knowledgeable witnesses and to working toward ending the unfair
practice of predatory lending.
The Chairman. Senator, thank you for your leadership in
this area. We hope you will take this study over to the
Committee along with the record that I think we can build here
that will advance these issues for you.
Thank you very much. Now, let us turn to John Weicher,
assistant secretary for Housing. Welcome before the Committee,
John.
STATEMENT OF JOHN C. WEICHER, ASSISTANT SECRETARY OF HOUSING/
FEDERAL HOUSING COMMISSIONER, U.S. DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT, WASHINGTON, DC
Mr. Weicher. Thank you, Mr. Chairman and thank you, Senator
Stabenow for the opportunity to testify this morning on the
efforts of the Department of Housing and Urban Development to
combat predatory lending and protect senior citizens and,
indeed, all Americans against unfair and deceptive lending
practices.
Meeting the housing needs of senior citizens while
protecting them from predatory lending practices is a high
priority at the Department. I would like to submit my prepared
statement for the record and just discuss a few aspects of our
efforts with you this morning.
The Chairman. All full statements will become a part of the
record. Thank you.
Mr. Weicher. HUD's authority to address predatory lending
essentially extends only to FHA loans and FHA lenders, so I
would like to start by describing our mortgage insurance
activity.
Our typical homebuyer is a young, first-time homebuyer,
often a minority household. In fiscal year 2003, FHA insured
600,000 home purchase mortgages. Of these 80 percent were to
first-time homebuyers, and 40 percent were to minority
households. About 1 percent of FHA's home purchase borrowers
are elderly.
But FHA does have one important insurance program that
specifically serves the elderly. This is the home equity
conversion mortgage program. HECMs are also known as reverse
mortgages. They let elderly homeowners convert the equity into
their homes into income that can be used to pay for living
expenses. FHA accounts for about 95 percent of the reverse
mortgage market.
The HECM program started as a demonstration in 1990. We now
have insured 90,000 loans overall. In each of the last 2 years,
we have set records. We endorsed over 13,000 loans in 2002 and
then set another record in 2003 with over 18,000 loans. Three-
quarters of the borrowers are aged 70 or over. There are even
some borrowers older than 90. We recognize that seniors with
considerable equity in their homes can be prime targets for
predatory lending. FHA-insured HECMs give seniors an
alternative. We require that seniors considering a HECM loan
receive counseling, and we have worked hard to ensure that the
counseling they receive is of high quality.
During the housing counseling session, the senior learns
how a HECM works, how much he or she would receive through a
HECM, how much the transaction will cost, what are the
financial alternatives and what are the tax and estate
consequences, among other things.
One of HUD's major partners in our effort to educate
seniors about reverse mortgages is the AARP Foundation. The
foundation sponsors the reverse mortgage education project,
which has been the leading consumer voice in the reverse
mortgage market for over a decade, providing in-depth,
objective consumer information and promoting high quality
independent consumer counseling on reverse mortgages and other
alternatives.
During 2003, the project doubled the size of its counseling
network, and this year, the project has received a 150 percent
increase in funding from HUD, from $750,000 in 2003 to $1.9
million this year. HUD funds AARP through our Housing
Counseling Grant Program. Housing counseling funds have doubled
in this administration, from $20 million to $40 million, and
President Bush is proposing to increase our Housing Counseling
Grant Program to $45 million in this year's budget, another
12.5 percent increase.
We know that housing counseling works. Families who receive
counseling are better able to select the best mortgage for
their needs and better able to manage their finances so they
can remain in their homes. Housing counseling has proven to be
an extremely important activity to educate consumers on how to
avoid abusive lending practices.
In my formal statement, I discuss other HUD activities to
combat predatory lending, including new regulations, some
addressing the HECM program specifically and others addressing
all of our borrowers, and also vigorous enforcement of FHA
procedural violations by lenders and others. They protect all
FHA homebuyers, elderly and non-elderly alike.
In the interests of time, I will skip over these at this
point, but I would like to mention that HUD works closely with
State and local governments to carry out enforcement actions
against business partners engaged in predatory lending. We also
work with coalitions of community groups to help FHA-insured
borrowers who have been victimized by predatory practices.
We have tripled our enforcement staff over the last year.
On a national level, HUD's Inspector General continues to work
closely with law enforcement in many States, notably New York,
New Jersey, Pennsylvania, Illinois and Arizona, to target
unscrupulous lenders and better combat abusive lending
practices.
HUD also works closely with the FTC to prosecute lenders
who engage in illegal practices. Some of these cases are
described in both my prepared testimony and the statement of
Mr. Beales and also in the GAO report.
I hope this discussion of our efforts and accomplishments
has made clear that the Department is aggressively policing
program participants and imposing significant sanctions on
business partners found to be violating our procedures or
otherwise engaged in abusive or deceptive behavior. The
administration remains firmly committed to protecting seniors
and all consumers against predatory lending practices.
We are happy to have this opportunity to discuss our
activities and look forward to working with you to strengthen
consumer protections against predatory lending.
[The prepared statement of Mr. Weicher follows:]
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The Chairman. Mr. Secretary, thank you very much. Now, let
us turn to Howard Beales, director, FTC'S Bureau of Consumer
Protection. Director Beales, welcome.
STATEMENT OF HOWARD BEALES, DIRECTOR, BUREAU OF CONSUMER
PROTECTION, U.S. FEDERAL TRADE COMMISSION, WASHINGTON, DC
Mr. Beales. Thank you very much, Mr. Chairman and Senator
Stabenow.
I appreciate the opportunity to appear before you today on
behalf of the Commission to discuss our efforts to combat
unfair and deceptive practices in the subprime mortgage lending
industry.
The damage that dishonest and unscrupulous lenders can
cause to consumers of all ages, loss of one's life savings or
even one's home, is potentially catastrophic. The Commission
has maintained a vigorous enforcement program, achieving
notable successes in halting illegal practices and returning
hundreds of millions of dollars to defrauded borrowers. At the
same time, the agency has been careful to avoid discouraging
honest subprime lenders from making credit available to
consumers.
My testimony today will discuss the subprime lending market
and the Commission's enforcement and education efforts. In
recent years, the subprime mortgage lending market has grown
dramatically as part of a trend in this country toward greater
availability of credit to credit-impaired consumers. This
development has been fueled by the use of risk-based pricing,
through which creditors fine-tune the terms of a loan offer to
a consumer's specific credit history.
No longer are credit-impaired consumers shut out from the
credit market. Instead, they are offered credit, albeit on
terms less favorable than those offered to consumers with
stronger credit histories. The expansion of credit availability
that risk-based pricing makes possible greatly benefits
consumers, providing more choices at more reasonable rates.
Subprime borrowers can now obtain needed credit when previously
they did not qualify at all.
Of course, subprime loan terms are less favorable than
those available to prime borrowers, but higher rates are
appropriate when commensurate with the risks involved. For the
subprime market to operate effectively, it is critical that it
be free of illegal practices. As this market has emerged,
however, some lenders and loan servicers deceived or defrauded
consumers. The Commission, working with its Federal and State
partners, has used its law enforcement tools successfully to
stop such illegal conduct.
The Commission has jurisdiction over lenders and servicers
other than banks, savings and loan institutions and Federal
credit unions. Our primary enforcement tool is the FTC act,
which broadly prohibits unfair or deceptive practices. In
recent years, we have settled or prosecuted cases against 20
subprime mortgage companies of various sizes and located in
different parts of the country. Several of these cases have
resulted in large monetary judgments.
Let me highlight three of the Commission's most recent
enforcement efforts. In September 2002, we reached a settlement
with the Associates and its successor, Citigroup. At one time,
the Associates was the largest subprime lender in the United
States. The Commission alleged that it lured consumers into
high rate loans by deceiving them about their true costs and by
deceptively packing single premium credit insurance into the
loan.
At the time, the $215 million settlement was the largest
redress order in FTC history, by far. In another recent
settlement with First Alliance Mortgage Company, the FTC and
others, including six States, private plaintiffs and the AARP
alleged that the company promised consumers loans with no up
front fees. In reality, the companies charged exorbitant
origination fees, typically 10 percent but sometimes 20 percent
of the amount of the loan.
Most recently, last November, the Commission and the
Department of Housing and Urban Development announced a
settlement with Fairbanks Capital Corporation, one of the
country's largest third-party subprime loan servicers. Among
other things, the Commission charged that Fairbanks did not
post payments until after the payment deadline had expired and
then imposed late fees and other charges as a result.
The Commission also alleged that Fairbanks charged
borrowers for homeowners' insurance even when they already had
insurance in place. FTC redress funds for these three
settlements alone amount to $345 million, a remarkable
achievement on behalf of aggrieved borrowers. Enforcement is
important, but the first line of defense against fraud and
deception is educated consumers who shop for the best deal. The
Commission has implemented extensive programs to educate
consumers about financial literacy generally and subprime
borrowing specifically.
In October 2003, the Interagency Task Force on Fair
Lending, of which the Commission is a part, published a
brochure called Putting Your Home on the Loan Line is Risky
Business. This brochure discussed the risks of home equity
loans and makes recommendations to help borrowers avoid those
risks. Also, earlier this month, when we mailed over 800,000
redress checks to borrowers in the Associates case, we included
a bookmark containing tips on shopping for a home equity loan.
We recognize that the American population is aging, and
issues facing older consumers are therefore a priority for the
agency. A recent study found that the population of subprime
borrowers tends to be older than the population of prime
borrowers. Therefore, while older Americans may have benefited
more from the expansion of the subprime market, they may have
also suffered more from illegal lending practices.
At the FTC, we are committed to preserving the increased
access to credit that the subprime market has made possible
while illegal practices that deceive or defraud consumers.
Through our enforcement and consumer education, we continue to
work to protect consumers of all ages.
Thank you and I would be happy to answer questions.
[The prepared statement of Mr. Beales follows:]
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The Chairman. Director, thank you very much for that
statement.
We will now turn to questioning.
Mr. Wood, in the efforts of the General Accounting Office,
did you find a central data base for information containing
government investigations, enforcement actions and other
efforts to combat predatory lending?
Mr. Wood. There is no central data base of enforcement
actions that we are aware of.
The Chairman. As a result, your report was a matter of, if
you will, fanning out and investigating all of those areas
where Government has that authority.
Mr. Wood. Right, we contacted each agency separately.
The Chairman. Given GAO's recommendation and what the State
of Georgia experienced, has the agency done any serious
investigation of the possible adverse effects upon subprime
lending markets among providers and consumers?
Mr. Wood. I am not sure I understand your question with
respect to the Georgia law.
The Chairman. In looking at that law----
Mr. Wood. Yes
The Chairman [continuing.] I guess what I am saying have
you investigated the possible adverse effects upon a subprime
lending market, both for providers and consumers?
Mr. Wood. We provide some information in our report about
the Georgia law and what happened there and the changes that
occurred. I do not know that we have a section specifically on
the impact, and we certainly did not assess any impacts on our
own.
The Chairman. You did no assessment there.
Mr. Wood. That is correct.
The Chairman. OK; that is fine.
How closely have the Federal regulatory agencies
coordinated their campaign in educating the public in general
and seniors in particular about predatory lending, especially
in matters of real estate? Obviously, we have heard an effort
now going on at the FTC and others.
Mr. Wood. Right.
The Chairman. Has there been an overall coordinated effort,
in your analysis?
Mr. Wood. There has not been a single overall coordinated
effort. Each of the agencies is doing different things.
However, there are certain mechanisms that provide for
coordination. There is an Interagency Fair Lending Task Force
that established a working group on predatory lending
specifically, and just recently, that group published a
brochure. I think it is called Putting Your Home on the Line is
Risky Business.
The Chairman. Just mentioned, yes.
Mr. Wood. That came out of a cooperative effort among the
agencies.
The Chairman. Good, good. Well, thank you very much.
Secretary Weicher, what is HUD's view on the newly created
Financial Literacy and Education Commission chaired by the
Secretary of the Treasury?
Mr. Weicher. Well, we are certainly active participants in
that commission, Mr. Chairman, and I am Acting Secretary
Jackson's alternate on that Commission, and I attended the
first meeting a month ago at his request, and the Commission
has established subcommittees to address issues of publicizing
and making information public, a Website, an 800 number, and
those committees are starting to meet.
We are also very active as members of the Interagency Task
Force on Fair Lending that Mr. Beales mentioned and that Mr.
Wood mentioned. So we are participating in both of those
efforts.
The Chairman. OK; what is HUD's view of the recommendation
that GAO has made regarding the monitoring of the subprime
lending market by the Board of Governors of the Federal
Reserve?
Mr. Weicher. Well, we have not taken a position on that,
but we certainly think that the subprime market, as Mr. Beales
said and I think the GAO report says, embraces more than
predatory lending. The important procedure is to attack
predatory lending without limiting the ability of borrowers to
obtain mortgages which are not predatory but which reflect the
risks that they are imposing on lenders.
The Chairman. OK; Director Beales, you have cited examples
of enforcement. Does the FTC have an estimate of how much
predatory lending in the real estate markets is costing the
citizens of this country today?
Mr. Beales. We do not. We do not have any reliable basis on
which to estimate either the total or the total for any age
group.
The Chairman. In the kind of investigative work you have
done and those settlements that you have arrived at, how long
did it take to put that kind of effort together and bring it to
completion?
Mr. Beales. It varies by case. Some of them are more
straightforward than others. Stewart Financial was probably 4
or 5 months before we filed, something like that. Other cases,
like the Associates, were much more complicated cases; probably
took a year or more to put together before we were ready to
file a complaint.
The Chairman. So they vary, of course, as you have said,
depending on the character of the case.
Mr. Beales. Depending on the character, yes, and depending
on how clear--what we typically see in our enforcement actions
is misrepresentations about the terms of the loan.
The Chairman. Yes.
Mr. Beales. Sometimes, those are clear. There are scripts
that tell people to misrepresent, and those are relatively
straightforward cases. Other times, we have to talk to
consumers; we have to figure out what kinds of representations
were actually made. We have to build the evidentiary record
sort of consumer by consumer of what was actually happening and
what the salesman was actually selling. Those are more
complicated, and, you know, they just take longer to build our
case.
The Chairman. You mentioned that in the subprime market,
that group tended to be an older group of people. Is it
possible to obtain reliable data on what percentage of seniors
make up settlements spoken to in your testimony?
Mr. Beales. No, we have not collected that information as
part of the settlements. We are typically asking for a lot of
information that we need in order to administer the redress
program, and we try to make it as simple as possible and ask
for as little as possible that we do not absolutely need in
order to administer the programs.
The Chairman. Sure; well, thank you very much. Let me turn
to my colleague, Senator Stabenow, please.
Senator Stabenow. Thank you, Mr. Chairman. Thank you again
to each of you.
I would first indicate that my personal conversations with
people in Michigan and the hearings that I have had back home
in Michigan have persuaded me that this is a very serious issue
and that even though there may not be specific information that
this is targeted to seniors, certainly in the information that
I receive from people in my State, it is very clear that it
appears that seniors are very highly targeted, I think
particularly because they may have a home that is paid for or a
great deal of equity built up in their homes, and I have had
numerous examples brought to my attention of people who need a
new furnace or a new roof on the home who have been talked into
loans that ended up with extremely high points and fees and
interest rates, getting very little out of the loan. In a
couple of cases where the home was entirely paid for, and they
were into totally refinancing their homes again in order to be
able to meet certain needs in terms of home improvements and so
on, really outrageous situations.
One case, there was a situation where a gentleman was
following seniors home from church on Sunday morning, getting
to know them, building a rapport with them and then asking
them, gee did they need any home improvements; did they need a
new furnace? Could he help them with anything? Then, talking
them into, again, situations and loans that took away their
life savings or took away their homes. So I think it is a very,
very serious issue.
Having said that, I also believe a majority of lenders are
reputable and that we are talking about a few bad actors, but
they are definitely out there. I am very pleased to see that
the Commission is up and running, the Financial Literacy
Commission; again, as the sponsor of the provisions requiring a
Website and a 1-800 number and so on, I am very pleased to see
things are moving as quickly as they are.
One of the things that we found in looking at the financial
education piece is that there are a lot of good things going
on, FTC or HUD or Federal Reserve or all kinds of different
agencies, but it was very difficult from a consumer's
standpoint to find out what is going on and to be able to
access that. So I think that is a very important part of
addressing this, Mr. Chairman, is to be user-friendly for
people so that they can find out information.
My questions really go to the enforcement end, and I also
would add though, first, that I want to thank Freddie Mac, who
has been involved in a program called Don't Borrow Trouble,
which we brought to Detroit, a very successful consumer
education program and Fannie Mae and many others who have been
involved as well in these efforts.
But there has been a lot of discussion about whether or not
we should pass a Federal law. In the absence of a Federal
definition of predatory lending from a statutory standpoint, we
are seeing communities, city councils, passing ordinances. We
are seeing States passing laws to address the legitimate needs
and concerns in their States. The question is whether or not we
ought to be addressing this and, if so, how to make sure that
we are providing adequate consumer protections as well as
addressing the question of a national definition.
I am wondering, Mr. Wood, if you looked at all at this
issue from the standpoint of not just individual enforcement,
and I would ask each of the other panelists as well to address
this, but not just individual enforcement within existing
regulations but whether or not there is a need for a national
definition or set of definitions around which we would then
enforce on predatory lending.
Mr. Wood. As we always do, we look for areas in which we
can make a useful recommendation. One of the things in this
area that we looked at clearly was, ``Is there a gap in the
current Federal laws in some area?'' The one that we identified
is the one that we raised in our matter for consideration. The
difficulty, I guess, in coming up with a single definition, and
this is one of the things that we wrestled with early, is how
do you strike that balance in crafting a law that does not
eliminate or cutoff credit to people who otherwise would not
have it while at the same time preventing the most egregious
abuses. We do not have an answer for exactly where that balance
should be.
Senator Stabenow. Thank you. I share that ambivalence or
concern about how we strike that balance, but--yes, Mr.
Weicher?
Mr. Weicher. Senator Stabenow, as I think both of my
colleagues mentioned, there is no generally accepted definition
of predatory lending. What we have done at HUD is to establish
regulations that address individual practices which we consider
to be abusive, unfair, deceptive, and to establish a regulation
prohibiting that particular practice. The body of those
regulations becomes, in our judgment, a comprehensive attack on
predatory lending.
In my prepared statement, I mention a number of
regulations. One, in particular, is an anti-flipping rule,
whereby we will not insure a mortgage if the home has been sold
twice within a 90-day period unless there is evidence that this
is a reasonable transaction and not a flip and that for
transactions that occur between 90 days and 270 days, whether
insurance is automatic depends on how much the price has
increased over that period of time.
This has been a particular problem in some of the larger
cities. We have a particular problem in Baltimore, which has
been brought under control----
Senator Stabenow. Right.
Mr. Weicher. By a variety of local efforts, and our anti-
flipping rule contributes to fighting that problem in a number
of larger cities. That is an example of the approach we have
been taking, and we think it has been successful.
Senator Stabenow. Are you indicating, then, that you think
that is enough in terms of giving you the authority and the
definitions that you need, or if you had a preference, would
you prefer to see a more standardized definition?
Mr. Weicher. As I said, we deal essentially with FHA,
almost exclusively with FHA-insured loans and FHA lenders, and
we believe that we have authority to address the problems that
we see in the FHA-insured market. We have not felt that we
needed to come to you with a request for additional legislative
authority nor have we felt it necessary to develop a definition
of predatory lending in general when we think we can target the
individual practices that we see and go at them specifically.
Senator Stabenow. Thank you.
Yes, Mr. Beales?
Mr. Beales. Senator, what we have seen in our enforcement
experience is really more of a problem of the claims that are
made than of the loans themselves or the practices themselves.
They may be perfectly legitimate kinds of loan approaches in
the right circumstances, but if consumers do not know what they
are getting into, that is the source of the problem.
For example, in the case we did jointly with HUD that
involved Mercantile Mortgage, there were loans with balloon
payments. Now, that is a fairly common instrument and perfectly
appropriate, but the borrowers were told no balloon payment.
That is a problem. But it is a problem of deception rather than
of the particular practices, and we feel like we have the
authority to go after those practices wherever we find them.
Senator Stabenow. Thank you, Mr. Chairman.
The Chairman. Thank you. Thank you very much, Senator.
Let me also echo what the Senator did, and I think it is
appropriate to be said that while the vast majority of our
lenders out there are reputable, highly professional, skilled
people who educate their consumers, we are after those who are
not, obviously, and the phenomenal destruction that they raise
against an individual or a couple when a life savings is
oftentimes eliminated by that.
It appears from the GAO effort and others that accumulating
the data, grasping it or being able to bring it together in a
way that is definable for our use is still a problem as it
relates to age groups and those areas where there may be
vulnerable communities of people that are being preyed upon. We
will continue to make that effort, gentlemen.
We appreciate all the efforts that you have made and the
work that is now underway, and we will stay current on this
issue with you and monitor it. As I have said in my opening
statement, we believe that this will is one of many that we
will be having over time as we review this and watch its
process. Thank you very much. We appreciate it.
The Chairman. Now, let me invite our second panel forward.
Well, again, we thank our second panel for being with us.
Let me start with Mr. Gavin Gee, who is the past-president of
the National Association of State Bank Examiners and director
of the Idaho Department of Finance. Gavin, welcome before the
Committee.
STATEMENT OF GAVIN GEE, DIRECTOR, IDAHO DEPARTMENT OF FINANCE,
BOISE, ID
Mr. Gee. Thank you, Mr. Chairman. My name is Gavin Gee. I
am the director of the Department of Finance for the State of
Idaho and appear here today on behalf of the Conference of
State Bank Supervisors. We thank you for this opportunity to
testify on the States' efforts to protect senior citizens and
other consumers from fraudulent and predatory lending
practices.
Through CSBS, State regulators of banks and non-bank
lenders meet to share information and share solutions to
problems such as predatory lending. Predatory lending is a
complex issue, and I want to begin my statement by
distinguishing between predatory and subprime lending. Subprime
lending is not necessarily predatory lending. As described in
the prior panel, subprime lending products are loans that are
priced according to risks associated with a particular
borrower, and the availability of subprime mortgage loans in
particular has made homeownership a reality for thousands of
low and moderate income families.
Predatory lending can be hard to define, but it is all too
obvious when we see the harm it does to our most vulnerable
citizens. Over the past several years, the States have learned
a great deal about where the problems lie and how best to
address them. We have learned that a single set of rules and
remedies is not necessarily appropriate for every lender or for
every group of borrowers.
Our challenge and yours is to prevent abuses without
reducing the availability of credit or stifling innovation in
new lending products such as reverse mortgages, which have been
a boon to many older Americans when appropriately marketed and
underwritten.
As you seek to understand the options for State and Federal
Government action on this problem, I ask that you consider this
point: Federal preemption of State consumer protection laws
can, for all intents and purposes, deny consumers the real
protection that State laws would give them. The explosion of
the mortgage industry created a new class of lenders for
nonprime borrowers, and in some cases, these lenders have
engaged in predatory and fraudulent practices.
Many States sought remedies through enforcement of existing
laws, new legislation and financial education efforts. Our
efforts have reached thousands of borrowers and potential
borrowers, punished and discouraged predatory lenders and
brought a national spotlight to this program and this problem.
I would mention that the States have the largest enforcement
action on record to date against a particular predatory lender.
Even small States like Idaho have their share of predatory
lenders. Idaho has found its existing laws sufficient to take
action against predatory lenders, and we have not seen a need
to enact separate anti-predatory lending legislation. A
priority for my agency under this law has been to establish a
program of routine examinations of mortgage brokers and
mortgage lenders. Routine examinations allow our examiners to
identify and address violations of consumer protection laws
before these violations harm large shares of the population.
Education is also a key element of our consumer protection
mission. We are actively involved in the Idaho Financial
Literacy Coalition, which provides educational resources and
instructions to educators, youth leaders, the elderly and
others who are in need of assistance or at financial risk.
Over the past 3 years, our Department has processed 617
complaints related to non-depository lenders and 247 complaints
relating to national banks or their operating subsidiaries. In
the same period, we returned over $3.5 million to Idaho
consumers as a result of resolved consumer complaints against
mortgage brokers, mortgage lenders and finance companies and
charged an additional $216,000 in fines and penalties.
Under regulations recently issued by the Comptroller of the
Currency, we would not have been able to take these actions if
these businesses were operating subsidiaries of national banks.
The OCC began by exempting national banks from specific State
laws against predatory lending and has in recent weeks vastly
expanded that exemption. The OCC now claims that national banks
and their thousands of nonbank operating subsidiaries are
exempt from virtually all State consumer protections and
licensing requirements in the area of mortgage lending.
The OCC has also said that the States have no authority to
enforce a vast number of laws affecting national banks and
their State-chartered subsidiaries, including consumer
protections and laws against unfair and deceptive practices.
Taking the States out of enforcement for a large and growing
segment of the industry can have serious consequences. The
Comptroller's recent regulations would displace much of the
investigative and enforcement network States have created for
responding to consumer complaints, many related to the
operating subsidiaries and affiliates of national banks.
This network has been working, with millions even hundreds
of millions of dollars, being returned to mistreated consumers.
This issue of preemption is a critical obstruction to our work
against the threat predatory lenders pose to senior citizens.
Over the past 3 years, our small agency conducted 618 routine
examinations of nondepository lending institutions doing
business in Idaho. These examinations are the ones that will be
left undone if Idaho's mortgage brokers, mortgage lenders and
finance companies continue to surrender their State licenses to
us under the claim of OCC preemption.
With limited resources at both State and Federal levels, we
should be talking about sharing responsibilities, not
preempting valuable resources. Most consumers shopping for a
mortgage do not understand that different sets of laws apply to
different lenders. As in most States, Idaho borrowers call our
Department if they have a problem with their bank, their
mortgage broker or finance company.
For the elderly, a local contact is critical, and consumers
rightly expect that their State officials can go to bat for
them when they have been wronged. We want to be able to respond
to these calls effectively. If you lose the States as a
laboratory for consumer protections and other innovations, you
lose two great attributes of our Federalist system: the ability
to find out what does and does not work and the ability to
tailor the response to the problem.
Predatory lending is an insidious practice that turns the
American dream into the American nightmare. It steals not only
the victims' money and homes but their confidence in our
financial system. We at the State level are the first line of
defense against these unscrupulous businesses. A long-term
solution to predatory lending requires three elements: consumer
education, clear and consistent laws and effective enforcement.
For the States, enforcement is becoming the weakest link.
Federal preemption continues to hinder our enforcement efforts
and has created incentives for businesses to seek the
regulatory structure that guarantees the fewest consumer
protections. This hurts the citizens of Idaho; this hurts the
citizens of the United States.
We stand ready to work with the Congress and with our
Federal counterparts on a coordinated stand against predatory
lending. Our experience should create a valuable foundation for
solutions as we go forward.
That concludes my testimony, Mr. Chairman. I would be happy
to answer any questions the Committee may have.
[The prepared statement of Mr. Gee follows:]
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The Chairman. Director Gee, thank you. I will be back to
you with questions. You have made a very profound statement
this morning that I want to pursue with you.
Now, let us turn to Lavada DeSalles, member of the Board of
Directors of the AARP. Thank you so much for being with us this
morning.
STATEMENT OF LAVADA E. DeSALLES, MEMBER, BOARD OF DIRECTORS,
AMERICAN ASSOCIATION OF RETIRED PERSONS, WASHINGTON, DC
Ms. DeSalles. Thank you for inviting us. My name is Lavada
DeSalles.
The Chairman. Lavada, thank you.
Ms. DeSalles. Certainly. As you mentioned, I am a member of
AARP's Board of Directors.
I appreciate this opportunity to testify, Chairman Craig,
on a matter of concern to us; that is, the practice of
predatory mortgage lending. The types of loans that are being
made available to today's borrowers have expanded well beyond
the prime credit products traditionally offered at banks.
Subprime credit lending has grown and grown rapidly. In 1984,
the $35 billion in subprime mortgages represented less than 5
percent of all mortgage originations. By 2002, subprime lending
had increased to $213 billion or 8.6 percent of originations.
AARP's concern regarding the growth of the subprime market
is based on numerous studies that indicate that older
homeowners are more likely than younger borrowers to receive a
subprime loan. This is a concern because the subprime market
appears to be the primary source of predatory lending
practices. Loan-skimming practices appear to most often occur
when a subprime loan is refinanced.
Additionally, AARP is concerned that push marketing, often
conducted by subprime lenders, leads to loans that are sold and
not sought. AARP continues to be concerned by research findings
that the percentage and volume of foreclosures associated with
subprime mortgages appears to be increasing. For older persons,
the impact of foreclosure can be devastating, representing not
only a loss of a lifetime of savings but the loss of one's home
and a lifetime of memories, even one's independence.
AARP has seen the devastation wrought by predatory loans
upon older homeowners. We have been active in working to
eliminate predatory lending through litigation, advocacy, and
education. In my written statement, I provide two examples of
the financial problems faced by borrowers receiving predatory
loans and the efforts made by our litigators to provide relief
for those who have been victimized.
AARP has also been active at the Federal level, supporting
antipredatory lending legislation and regulation. We have
testified before numerous House and Senate committees as well
as the Departments of Housing and Urban Development and
Treasury, expressing our concerns about predatory lending and
the need for stronger protections. AARP's efforts have also
included an educational campaign entitled ``They Didn't Tell Me
I Could Lose My Home.'' Educational materials, tips on shopping
for mortgages and media messages are among the resources we
offer to educate homeowners about predatory mortgage lending.
AARP is pleased to report that as a result of our efforts
and the efforts of many others, including leading lenders,
Fannie Mae, Freddie Mac and other stakeholders, significant
market changes have occurred. But clearly, more needs to be
done.
In summary, assuring that older, refinanced borrowers
obtain appropriate loans is critical to ensuring the current
and future financial security of millions of older Americans.
Predatory lending harms both homeowners and legitimate lenders.
We look forward to working with you, Chairman Craig, and
with the other members of this Committee. Together, we must
strive to find effective and appropriate methods for
eliminating these exploitative lending practices. These
practices have proven to be very devastating to older persons
and their families. I would be happy to answer any questions
that you may have. Thank you.
[The prepared statement of Ms. DeSalles follows:]
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The Chairman. Ms. DeSalles, thank you very much for that
testimony, and we are pleased to hear that the AARP is as alert
on this as you are. I will pursue some of your efforts with you
in a moment.
Now, let us turn to Veronica Harding of Philadelphia, PA.
She was the victim of such predatory lending, and Veronica, we
are anxious to hear your story.
STATEMENT OF VERONICA HARDING, PHILADELPHIA, PA
Ms. Harding. First, I would like to say good morning. My
name is Veronica Harding. I will be 75 years old next month. I
am a retired machine operator and domestic worker. I now
support myself on Social Security and a small pension. I live
in a Philadelphia row house that I purchased back in 1980.
I paid $7,500 cash for my home in 1980. I guess it is worth
now about $30,000. I love my home, and it is all I have to show
for my lifetime working. I almost lost my house through a
combination of being taken advantage of and not knowing what I
was doing. I appreciate the opportunity that you give me today
to tell my story. What I did, you know, when I woke up and
found out what had really happened to me behind this terrible,
disgraceful thing called predatory lending, I felt ashamed when
I first found out what had happened to me.
I was ashamed to talk about it. But then, I realized that
if I could help just one person to keep them from getting mixed
up and getting into trouble with this predatory lending, then I
would have done something good.
The first thing I would like to say, ``I have learned the
hard way that debt is like drugs. They start sending you credit
cards in the mail, making you believe that instantly you can do
the things, buy the things that you want to buy, that you could
not really afford to do in the beginning, and you think they
are doing something good for you.''
Before you know it, you are in a debt that is too big for
you to handle. They sent me credit cards. I used the cards, and
I would occasionally borrow a couple thousand dollars to do
small jobs on my home. Then, here comes the big stuff, the hard
stuff. One day, a man came to my house, and he said he could
get me a steel door. He told me that he thought the best thing
for me to do would be to consolidate all my bills into one
payment that I could pay off the door.
Well, that started off with one big mortgage company, one
big mortgage. It was $17,000. But within a couple of months of
taking that mortgage, I started getting calls from many
companies, from that company and other companies. They all told
me that they would lower my payments if I would consolidate my
bills. I was not looking for anybody. They looked for me. They
found me.
After refinancing my house three or four times, by 1997,
the mortgage debt on my house was over $38,000. Now, remember,
I have only a little money to live on. My house was all paid
for. It is not even worth the $38,000 I now owe.
I really do not remember too much about the loan in 1997. I
remember a nice man calling me on the telephone. He seemed to
know something about me and told me that he could make it easy
to pay my bills. I remember him saying, ``You got the coffee, I
got the danish.'' Honestly, I thought he was really doing me a
favor. It is embarrassing to admit that I never understood what
I was signing. But, you know, there are so many papers
involved; these sales people, they are smooth talkers.
In fact, I realize that I did not know what I was doing.
Certainly, I did not know that they were burying me alive.
Attached to my written testimony are copies of my loan
documents from that last loan. First of all, I want to point
out the name of the company that made me the loan, the American
Mortgage Reduction. Senators, do not bother looking for that
company, because they went out of business soon after my loan.
I think American Mortgage Reduction sold out to Conti Mortgage
Company. I never even heard from that one, even though I paid
them for a couple of years. Then, afterwards, I found out that
I was turned over to a company named Fairbanks Capital.
That is who I have my loan with now. My point in telling
you this is that you have to pay attention not only to the
people who are making the loans but also to the people who are
buying these loans. In my written testimony, I have given these
loan documents one by one.
This morning, I want to summarize a few key points: first,
I now realize that I was putting over $38,000 of mortgage debt
on my house. We never talked about the amount of the loan.
Remember, I was not even trying to borrow anything. They found
me. This loan would make it easier for me to pay my bills.
These people who come to our houses selling these mortgages
never talk about how much we are borrowing or the fees we are
paying. They talk mainly about the monthly payments, about how,
if you will take out this loan, you will make things better for
yourself. Who does not want to do that?
Second, a very big part of the debt is just fees. Of the
$38,000 I was supposed to be borrowing, over $5,600 was just in
fees. Third, the really scary part of the loan for me was the
balloon, the balloon payment that they put on me. Now, the way
that worked, I was supposed to pay $308 for 15 years, and then,
in December of 2011, when I am 82 years old, I am supposed to
make a payment of $29,000. Now, tell me where anybody at 82
years old is going to have money, $29,000, and have to make
this payment in one lump sum. If I do not have that $29,000,
they take my house.
The other thing that is amazing about it is after 15 years
of paying $55,400 in payments from my Social Security, I would
still owe them the amount of the last mortgage company in 1997
when they refinanced me.
It is a funny thing that just like the predatory lenders,
the people who first helped me wake up to what had happened to
me came knocking on my door. They were like my angels: Ira
Goldstein and Rebecca Cook of The Reinvestment Fund and Paul
Davies of the Philadelphia Daily News. They came separately,
told me they were doing some researching on predatory lending,
and they discovered me. They asked me for my loan documents,
and I showed them.
They sent me to my lawyer, Irv Ackelsberg at Community
Legal Services. He is the one who is fixing my problem and
saving my house for me. He filed bankruptcy for me. He sued the
company that has my loan and saved my house. Now, the $38,000
mortgage problem has been reduced to a $20,000 obligations that
I can afford. My picture was on the front page of the Daily
News in 2001, and then, I started giving talks at my church,
around the city. The Mayor came to my house for a press
conference, and also, I spoke at a press conference at City
Hall for the graduating housing counselors for the predatory
lending training program.
The last page of my testimony shows a flier with my picture
on it that the city was putting into water bills, inviting
people to call the predatory lending hotline and send people to
the housing counselors.
Now, you have asked me for suggestions about what
government agencies can do about this problem of predatory
lending. Here are five things I think you should think about.
First, stop acting like credit is always good. The more I have
gotten involved, I have heard it said that we need to be
careful about what we are doing about predatory lending,
because it might dry up credit. Truth is, some kind of credit
loans need to be dried up. Loans are just like food. Some food
is good for you, and some food is not.
Second, stop blaming people like me for getting into
trouble and start protecting us from predatory lending. For a
long time, I was really ashamed about what happened to me. But
now, I realize what happened to me did not happen because I was
a dumb person. It happened because you are letting people like
those operate in our communities. Right in my block, believe it
or not, we had 19 other families caught up in the loans that
the researchers who found me told me about.
I think that the loan that I have, that was sold to me
should have been illegal. All of those fees, the balloon
payment, they really--I was not really looking for a loan. They
talked me into these loans. They are dangerous products like
cigarettes, unsafe cars. Sure, we need education, but we also
need protection.
Third, beware of this thing called preemption. I learned
the word preemption about 3 years ago. In Philadelphia, we had
a City Council hearing. We cried for help, and they heard us.
They answered us with a new law against predatory lending. Two
months later, some of the companies got angry. They went to
Harrisburg, and they preempted it. The legislature preempted
it. It seems like because the State government is higher than
the city government, they can undo the things that the city has
done.
Now, I hear that the Federal Government, which is higher
than the State, is talking about preempting some of the good
things other States have done in protecting their people. I
think that is terrible. Instead of spending so much time trying
to pull each other down, I think the governments should get
together and work together to make a difference about these
things and put protection on us.
Fourth, senior citizens need more counselors, lawyers, like
we have in Philadelphia. I was just one of the lucky people
who--people who helped me with what happened to me to fix my
problem. Philadelphia has housing counselors, the legal
services lawyers, who know about predatory lending. I hear that
if I was in a different city, where they don't have these
services I would probably have lost my house by now. My lawyer
has explained to me that Community Legal Services actually has
had to give up Federal funding in order to continue doing the
work because of restrictions that Congress placed on legal
service lawyers. This is a real shame. We need more lawyers and
housing counselors, and we need to let them do their job.
Fifth, spend less time talking to the big fellows, and
spend more time talking to the little people like us, like me.
I feel that predatory lenders can come here, hire fancy
lobbyists, and tell you how wonderful they are. You probably do
not get many opportunities to talk to people like me. But you
should do more of that. Come to Philadelphia. I will have the
coffee, and you bring the danishes. [Laughter.]
I can show you over, over hundreds, hundreds of retired,
churchgoing Americans who are in real trouble and need help,
and this predatory lending--and I thank you so very much for
the opportunity of letting this grandmother speak a piece of
her mind.
[The prepared statement of Ms. Harding follows:]
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The Chairman. Well, Ms. Harding, thank you very much. If
you are a little person, that is a pretty loud voice, and I
think it is being heard outside Philadelphia today, and we
thank you for that testimony.
Now, let me turn to all of you with questions.
Gavin, you just heard Ms. Harding talk about preemption,
and you spoke pretty forcefully about preemption and the
Comptroller of the Currency. Does your association have any
further views about the role of Federal regulations in general,
especially, we are talking about in regard to GAO's
recommendation for further empowering the Board of Governors of
the Federal Reserve? If you would speak to that and also your
frustration again about what is happening to preempt States
from the kind of enforcement authority that you have had?
Mr. Gee. Yes; thank you, Mr. Chairman. Well, as I
understand, the GAO recommendation is to empower the Federal
Reserve to grant them more authority over essentially
subsidiaries of holding companies.
The Chairman. That is correct, yes.
Mr. Gee. Nonbank entities that engage in lending. Let me
say, Mr. Chairman, that we work very closely with the Federal
Reserve. They are our partner in State-chartered Federal
Reserve member banks and also with bank holding companies, we
work closely with them. We have a very good working
relationship with the Federal Reserve.
We believe that it is appropriate, certainly, to have more
regulators and more cops on the beat, if you will, with respect
to predatory lending. I believe our concern in this area is
that based on the OCC preemption, what you will have by
empowering the Federal Reserve is with nonbank entities, you
will have jurisdiction shared by the FTC, the Federal Reserve
and the States, whereas, because of OCC preemption, national
banks and their subsidiaries will only have a single regulator,
and you will not have that oversight; you will not have
examination that is currently being provided by the States. You
will not have that in the Federal Reserve. I assume they will
not have jurisdiction also over those subsidiaries of national
banks.
The Chairman. That is what I was just going to ask. That
would include the subsidiaries of national banks within the
national banks' holding companies, would it not?
Mr. Gee. It would include the subsidiaries of the national
banks. Quite frankly, that is our major concern is those
subsidiaries of the national banks. There are hundreds and
hundreds, if not thousands, of those companies. We are seeing
those companies turn in their licenses where they are currently
licensed by the State. These are entities that are actually
chartered by the States; have historically been chartered by
the States.
Most States, like we do in Idaho, examine those entities.
We license many of those entities, and it is those entities now
that we are being preempted from exercising not only any kind
of licensing or regulatory authority over, but our office and
the Attorney Generals' offices in our States are being
preempted from taking any kind of enforcement action against
those entities. We do not have the ability to respond to
consumer complaints and inquiries. As you probably know,
Senator, in our State, the OCC has no office, no presence in
Idaho.
When consumers, particularly elderly folks, have complaints
or concerns, they like to come in; they like to visit with us.
Often, we will go out to their homes. We have five people on my
staff dedicated to dealing with those kinds of consumer
complaints and inquiries, whereas, the OCC has no presence in
our State. You have to call an 800 number in Houston. That
number is not even listed in our phone books to my knowledge.
So, all of that is being preempted by this recent action of the
OCC in dealing with national bank subsidiaries and national
banks themselves.
Let me just mention, in our State, Idaho may be somewhat
unique. We only have one national bank actually headquartered
in Idaho, a community bank. But national bank branches in Idaho
represent about 70 percent of the market share in Idaho. So, a
lot of the complaints and inquiries we receive are against
national banks and national bank subsidiaries.
So to take the States out, to take our ability to respond
to our own consumers, just seems to me to be a huge policy
mistake.
The Chairman. Well, I believe I concur with you on that.
You know, having once been a State legislator, but also
understanding what the average person thinks when they think of
government and when they think of help from government, they
think local and State almost always at the beginning of that
thought process, who can they reach the quickest, or who do
they know or know someone who might know. Sometimes, our
Federal Government agencies are--I will not say inaccessible
but say daunting to access, maybe, is a better word for it.
Mr. Gee. Well, absolutely, and we believe at the State
level, we are the first line of defense.
The Chairman. Yes.
Mr. Gee. We are the first ones people call. They know to
call the State banking departments. They know to call the State
financial regulators. They look to us for help and assistance,
and for us, now, to be preempted by this very large class of
potential mortgage lenders, mortgage brokers, finance
companies, virtually anybody in the lending business, now, that
is a subsidiary of a national bank, we are preempted. Our
ability to help those people, our ability to examine, license,
regulate in any way has been preempted by this most recent OCC
ruling.
The Chairman. All right; thank you for that statement and
that response. We will pursue that with the Comptroller, and,
as I am sure, others are. I think when we see the impact of
that kind of regulation, we get more State examiners and more
finance directors like you coming forward in that area, that is
something that I think Congress is going to want to take a look
at. So I thank you very much for being here.
Mr. Gee. Thank you, Mr. Chairman.
The Chairman. Ms. DeSalles, what do you think the Federal
Government should do to obtain the necessary data about how
this particular fraud impacts our nation's seniors? It sounds
like AARP is attempting to gain a grasp of the impact of it;
obviously, your educational outreach and all of that. Have you,
yourself, polled the membership of the AARP specific to this
area of concern? Of course, my question is how the Federal
Government might gather that kind of information.
Ms. DeSalles. I am not aware of any specific polling.
Certainly, we have heard about numerous situations as was so
eloquently described by Ms. Harding. It has been brought to our
attention in reports from all of our States. People look to
AARP for assistance in this area. But to be more specific, I am
not aware of any specific polling of our membership on this
issue.
As far as the Federal Government's data collection, I have
not read, of course, the GAO report. I just got a copy of it
today.
The Chairman. Right.
Ms. DeSalles. But we have a very well-respected research
arm at AARP, and we are fully in support of any effort to add
to the body of knowledge through data collection. I do not have
a specific recommendation to offer, Senator Craig.
The Chairman. Well, we might challenge AARP to look at its
membership and maybe do some information gathering in this
area. I will have to tell you that we had the CEO of AARP in
Idaho last week testifying at a health conference, and a
comment was because a young man in the audience had turned 50,
they said the reason we had not caught Osama bin Laden was
because he had not yet turned 50, and AARP had not gone out to
find him. [Laughter.]
Ms. DeSalles. That sounds like Bill Novelli.
The Chairman. So I suspect that we might look to you, also,
as a way of finding out reaction from an older community of
Americans as it relates to this impact. So we will be engaging
you and AARP as it relates to that.
Any other--go ahead.
Ms. DeSalles. I will ask staff to see if we have done--it
is possible that we have done some polling on that issue that I
am unaware of.
The Chairman. Well, what often happens, and as I turn to
Ms. Harding, the thing that she said so clearly often happens
in these situations: elderly people I guess--I can use a
Western phrase--hunker down, or they are quiet about something
they did because they are embarrassed about it.
Ms. DeSalles. Absolutely.
The Chairman. They will not come forward and speak up, or
they do not know where to go to speak up. So, they walk away
maybe having lost a home or a large chunk of their equity or
their assets simply because they are embarrassed. They feel
they were taken. I am thinking of you and a way to access an
information base that might tap that kind of concern or
response that we might not otherwise be able to gain.
Ms. DeSalles. I will have my staff get back to you on that.
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The Chairman. Great. Thank you very much.
Well, Ms. Harding, your testimony is important to this
Committee. I think it exemplifies the very kind of thing that
we are pursuing here. We have high-quality professional people
in the lending business, and some of them, most of them, are
very credible. There are others who are not, and of course,
that is where we are looking. Your experience, I think, clearly
speaks to that.
I think your recommendation, your five recommendations
really are very critical to us. You have heard Senator Stabenow
and myself and others talk about educating and outreach and an
effort to educate people to beware, to ask the questions, or to
know what to ask, or to know who to ask to be able to get the
right questions asked. All of that becomes important.
I am pleased that you have mentioned preemption. We do
think local as it relates to government, because that is where
we access it the quickest, and it is the most obvious to most
every citizen. So I think all of those recommendations are
important, and we thank you very much for that.
Your testimony today certainly adds to the overall work
this Committee does. We do not authorize. By that, I mean we do
not write legislation. That is not the role of this Committee.
The role of this Committee is to build a record and to hand it
to the Banking Committee or the Finance Committee, to be
advocates for people like you who found yourself in a very
difficult situation and to be able to build a record around
that and to make recommendations to these committees as to what
they might do.
So before I close this hearing, let me ask if you have any
further comment you would like to make.
Ms. Harding. The further one that I would like to say is
that what bothered me was that when I read in the paper last
month that we had in Philadelphia, there were 1,120 homes up
for sheriff's sale. It made me feel that some of these people
who were losing their homes had gotten caught up in these bad
loans, this predatory lending. My heart just goes out for these
people. It is so sad.
The Chairman. Surely.
Ms. Harding. It is really sad what we are going through.
But like I said before in my testimony, I am so glad that I
have met good people. But the only way that you meet good
people, you have got to be a good person yourself.
The Chairman. Well, thank you very much. I think you fill
that category. I do not often get to Philadelphia, but when I
do, I will bring the danish. [Laughter.]
Ms. Harding. I will have the coffee.
The Chairman. All right; if you will have the coffee, I
will bring the danish.
To all of you, thank you very much for your testimony and
your active involvement in this area. We appreciate it. The
Committee will continue to pursue, to identify the numbers.
Gavin, we are going to take a very serious look at these new
regulations coming out of the OCC and the impact they are
having on State regulators and the role that you are not being
allowed to play now.
So I will also be quizzing my colleagues on the Banking
Committee as to the whys and the wherefores of those
regulations. Thank you all very much, and the Committee will
stand adjourned.
[Whereupon, at 11:24 a.m., the Committee adjourned.]
A P P E N D I X
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