[Senate Hearing 111-371]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 111-371

                PREDATORY LENDING AND REVERSE REDLINING:
                  ARE LOW-INCOME, MINORITY AND SENIOR
                   BORROWERS TARGETS FOR HIGHER-COST
                                 LOANS?

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

                                HEARING

                               before the

                        JOINT ECONOMIC COMMITTEE
                     CONGRESS OF THE UNITED STATES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 25, 2009

                               __________

          Printed for the use of the Joint Economic Committee





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                        JOINT ECONOMIC COMMITTEE

    [Created pursuant to Sec. 5(a) of Public Law 304, 79th Congress]

HOUSE OF REPRESENTATIVES             SENATE
Carolyn B. Maloney, New York, Chair  Charles E. Schumer, New York, Vice 
Maurice D. Hinchey, New York             Chairman
Baron P. Hill, Indiana               Edward M. Kennedy, Massachusetts
Loretta Sanchez, California          Jeff Bingaman, New Mexico
Elijah E. Cummings, Maryland         Amy Klobuchar, Minnesota
Vic Snyder, Arkansas                 Robert P. Casey, Jr., Pennsylvania
Kevin Brady, Texas                   Jim Webb, Virginia
Ron Paul, Texas                      Sam Brownback, Kansas, Ranking 
Michael C. Burgess, M.D., Texas          Minority
John Campbell, California            Jim DeMint, South Carolina
                                     James E. Risch, Idaho
                                     Robert F. Bennett, Utah

                     Nan Gibson, Executive Director
               Jeff Schlagenhauf, Minority Staff Director
          Christopher Frenze, House Republican Staff Director














                            C O N T E N T S

                              ----------                              

                                Members

Hon. Carolyn B. Maloney, Chair, a U.S. Representative from New 
  York...........................................................     1
Hon. Kevin Brady, a U.S. Representative from Texas...............     2
Hon. Elijah E. Cummings, a U.S. Representative from Maryland.....     4
Hon. Michael C. Burgess, M.D., a U.S. Representative from Texas..     5
Hon. Maurice D. Hinchey, a U.S. Representative from New York.....     6

                               Witnesses

James Carr, Chief Operating Officer, National Community 
  Reinvestment Coalition, Washington, DC.........................     8
Gregory Squires, Professor of Sociology and Public Policy and 
  Public Administration, and Chair of the Department of Sociology 
  at George Washington University, Washington, DC................    10
Sarah Bloom Raskin, Commissioner of Financial Regulation, State 
  of Maryland, and Chair of the Conference of State Bank 
  Supervisors (CSBS), Baltimore, MD..............................    12
Robert Strupp, Director of Research and Policy, Community Law 
  Center, Baltimore, MD..........................................    15

                       Submissions for the Record

Chart titled ``As Bubble Bursts, Subprime Foreclosures 
  Skyrocket''....................................................    34
Prepared statement of Representative Carolyn B. Maloney, Chair...    35
Prepared statement of Representative Kevin Brady.................    35
Prepared statement of Representative Elijah E. Cummings..........    36
Prepared statement of James Carr.................................    37
Prepared statement of Gregory Squires............................    39
Prepared statement of Sarah Bloom Raskin.........................    45
Prepared statement of Robert Strupp..............................    48

 
                     PREDATORY LENDING AND REVERSE
                  REDLINING: ARE LOW-INCOME, MINORITY
                      AND SENIOR BORROWERS TARGETS
                        FOR HIGHER-COST LOANS?

                              ----------                              


                        THURSDAY, JUNE 25, 2009

             Congress of the United States,
                          Joint Economic Committee,
                                                    Washington, DC.
    The committee met, pursuant to call, at 11:05 a.m., in Room 
2118, Rayburn House Office Building, The Honorable Carolyn B. 
Maloney (Chair) presiding.
    Representatives present: Maloney, Hinchey, Cummings, 
Snyder, Brady, Burgess, and Campbell.
    Staff present: Gail Cohen, Nan Gibson, Colleen Healy, Aaron 
Kabaker, Barry Nolan, Aaron Rottenstein, Justin Ungson, Andrew 
Wilson, Chris Frenze, Rachel Greszler, Robert O'Quinn, Jeff 
Schlagenhauf, and Jeff Wrase.

OPENING STATEMENT OF THE HONORABLE CAROLYN B. MALONEY, CHAIR, A 
               U.S. REPRESENTATIVE FROM NEW YORK

    Chair Maloney. Good morning. I would like to welcome all of 
our distinguished panel members here for the hearing that we 
are having today. We are here to examine the economic impact of 
reverse redlining where minority borrowers and senior citizens 
have been targeted to receive unnecessarily expensive 
mortgages.
    I thank Congressman Cummings and his staff for their help 
in bringing witnesses here from Baltimore, Maryland, one of the 
several states and localities that is investigating or have 
recently brought suits against lenders over practices that may 
have violated fair lending or civil rights laws by deliberately 
steering minorities and the elderly into more costly subprime 
loans.
    Two years ago, problems in the subprime mortgage markets 
touched off an economic crisis that is still unfolding. Today, 
almost one-in-six subprime mortgages is in foreclosure, 
compared to one-in-40 prime mortgages in the United States, and 
this chart is there to reflect this for the audience.
    [The chart titled ``As Bubble Bursts, Subprime Foreclosures 
Skyrocket'' appears in the Submissions for the Record on page 
34.]
    As subprime foreclosures have risen over the past two 
years, minority homeownership rates have fallen at a much 
faster pace than for non-minority homeowners. The pain of 
rising foreclosures is being felt in communities all across the 
country as the ripple of mounting losses spreads to borrowers, 
lenders, governments, and neighborhoods.
    In some areas, once thriving neighborhoods have been 
transformed into boarded-up ghost towns. Concentrated 
foreclosures have spillover effects on neighboring properties, 
increasing crime and vandalism and lowering surrounding 
property values.
    A fundamental problem is that the financial incentives of 
mortgage companies and mortgage brokers are not aligned with 
the best interest of their borrowers. Higher commissions for 
higher interest loans creates the incentive for mortgage 
brokers to sell the most expensive products to those who can 
least afford them.
    Low or no documentation loans, which rely on stated income 
rather than a W-2 form, provide an avenue for lenders to evade 
state laws by making loans appear affordable even when they are 
not. Evidence continues to come to light that many of the 
subprime borrowers who had paystubs to prove their employments 
and may have qualified for prime loans were steered into more 
costly no-doc loans by some lenders.
    In my home state of New York, Brooklyn and Queens have the 
highest concentrations of low and no documentation subprime 
loans compared to other parts of the state. There is a 
particularly high concentration of these loans in Astoria, 
which I have the honor of representing.
    Congress and the president have taken steps to strengthen 
the economy, keep families in their homes, expand affordable 
mortgage opportunities for families, and rein in abusive 
lending, but more must be done to stop bad loans from being 
made in the first place. We need to return to sensible 
principles that require lenders to assess borrowers' ability to 
pay over the whole life of the loan, but we also need to strike 
a balance between making sure borrowers can repay the loans 
they get and helping borrowers who can repay a loan get one.
    I have high hopes that the president's proposed Consumer 
Financial Protection Agency will play a key role in 
strengthening consumer protections against predatory practices 
in the future. The administration's proposal to eliminate the 
current preemption of state laws regarding anti-predatory 
lending for national banks, thrifts, and federal credit unions 
will allow steps to adopt and enforce stricter laws for 
institutions of all types regardless of the charter.
    Stopping abusive lending practices that have contributed to 
the current foreclosure crisis and returning to healthy, fair 
lending principles will provide a sound basis for economic 
growth and recovery. I look forward to the testimony of our 
witnesses today, and I thank my colleagues for coming. And I 
recognize the ranking member, Mr. Brady, for 5 minutes.
    [The prepared statement of Representative Maloney appears 
in the Submissions for the Record on page 35.]

    OPENING STATEMENT OF THE HONORABLE KEVIN BRADY, A U.S. 
                   REPRESENTATIVE FROM TEXAS

    Representative Brady. Thank you, Chair Maloney, for calling 
this hearing. I am pleased to join with you in welcoming the 
panel of witnesses testifying before the committee this 
morning.
    Racial discrimination lending is immoral. It is also 
illegal under the Equal Credit Opportunity Act.
    Recent studies suggested discrimination is generally 
limited to minority applicants with low incomes or poor credit 
and employment history. Moreover, discrimination occurs 
primarily in the price of credit rather than its availability. 
This practice is known as reverse redlining.
    Nevertheless, distinguishing between racial discrimination, 
misguided efforts to shoehorn marginal borrowers into subprime 
mortgage loans to buy homes as prices escalated, and simple 
greed by unethical lenders is not easy.
    From 1995 to 2007, the federal government encouraged 
mortgage lenders to loosen underwriting standards and offer 
exotic alternatives to fully amortizing fixed-rate 30-year 
mortgage loans in order to increase the rate of homeownership 
among low-income and minority families.
    Mortgage lenders obliged knowing that they did not have 
responsibility for the performance of mortgage loans they had 
extended once these loans were sold to issuers for 
securitization. The deterioration of underwriting standards and 
the development of subprime mortgage loans combined with an 
overly accommodative monetary policy to inflate a huge housing 
bubble.
    As in past bubbles, both borrowers and lenders became 
increasingly reckless. In some cases, individuals misled 
lenders to secure subprime mortgage loans to speculate in 
housing. In other cases, lenders took advantage of 
unsophisticated families by placing them in subprime mortgage 
loans they didn't understand and couldn't afford.
    In either case the results are the same: Many families 
found themselves under water and a tidal wave of defaults and 
foreclosures followed once the housing bubble burst. This has 
been especially difficult for low-income and minority families.
    Individuals must be fully aware of mortgage terms and the 
financial burden they are assuming before closing. Improving 
financial education would help families to understand mortgages 
and other financial products and to avoid credit problems in 
the future.
    In conclusion, exploiting the complexity of mortgage 
contracts to please borrowers is not an acceptable business 
practice. Full disclosure and transparency should be part of 
the solution. Loan originators and issuers of mortgage-backed 
securities should also be required to retain skin in the game 
to discourage lenders from knowingly extending mortgage loans 
that aren't likely to be repaid and to discourage issuers from 
placing such loans in mortgage-backed securities.
    And finally, excessive debt burdens, although all too 
common, make it very hard for families to get ahead over the 
long run. Better financial education could help people to avoid 
at least the most financially burdensome kinds of loans 
available.
    And I yield back, Madam Chair.
    [The prepared statement of Representative Kevin Brady 
appears in the Submissions for the Record on page 35.]
    Chair Maloney. I thank you.
    And the chair recognizes Congressman Cummings for 5 
minutes. Congressman Cummings was instrumental in putting this 
hearing together. He helped bring many of the witnesses from 
Baltimore, Maryland, which is one of the several states that is 
investigating and recently brought suit against practices that 
have allegedly violated civil rights and fair lending 
practices.
    I would also like to state that I have several amendments 
on the floor and may have to be on the floor, and Mr. Cummings 
has agreed graciously to chair this committee in my absence.
    So, Mr. Cummings, for 5 minutes, and thank you for your 
work in this area and for helping me with this hearing.

 OPENING STATEMENT OF THE HONORABLE ELIJAH E. CUMMINGS, A U.S. 
                  REPRESENTATIVE FROM MARYLAND

    Representative Cummings. Thank you very much, Madam 
Chairlady. And I want to thank you and staff for bringing about 
this hearing.
    I requested this hearing following a New York Times report 
on June 7th detailing new developments in the lawsuit filed by 
my hometown of Baltimore against Wells Fargo. The article 
described affidavits that were recently filed by the City of 
Baltimore that included staggering claims about Wells Fargo 
employees steering African-American citizens toward high-cost 
loans loan products to boost company profits and reward 
employees with monetary bonuses and trips.
    The affidavits also claim that the true opinion of the 
Wells Fargo firm toward their clients was reflected in their 
use of racial epithets to describe African Americans. The 
city's contention is that the discriminatory lending practices 
pursued by Wells Fargo promoted high-cost loan instruments 
which led to foreclosures far in excess of what the rate of 
foreclosure might otherwise have been.
    That, in turn, has led to declines in property values in 
many neighborhoods as well as in increased crime, increased 
costs for city services, loss of tax revenues, all on the backs 
of an increasingly burdened city and population. With home 
values still falling and the national unemployment rate now 
exceeding 9 percent, there has been a seemingly unending flood 
of foreclosures that has taken and continues to take an 
immeasurable toll on all of our communities and on the overall 
economy, and on our tax base.
    Obviously the proliferation of subprime and other 
alternative loan products in communities across this nation 
contributed significantly to the foreclosure crisis. So in 
order to progress toward a complete economic recovery, we need 
to fully understand exactly what got us where we are today, and 
that means that we need to understand both the specific 
financial transactions and the regulatory failures as well as, 
frankly, the assumptions and the attitudes that led firms to 
target certain groups for some of their most questionable 
transactions.
    The subprime loans, which were created to increase 
homeownership in low-and middle-income sectors, turned into 
vehicles for enriching lenders, brokers, and investors. We also 
know, from research done by Mr. Carr and the National Community 
Reinvestment Coalition, that there is a racial and ethnic 
disparity in the distribution of these high-cost loans.
    They found that low-to moderate-income African Americans 
were at least twice as likely as low-to moderate-income whites 
to receive high-cost loans in the 47.3 percent of areas they 
examined. The disparity continued into the higher income 
brackets as well.
    Dr. Squires has read very eloquently--written very 
eloquently--that, ``clearly not all subprime loans are 
predatory, but virtually all predatory loans are in the 
subprime market.'' That is why it is so important for us to 
ensure the protection of homebuyers, and President Obama has 
taken a decisive first step in this direction with the proposed 
Consumer Financial Protection Agency.
    As I say so often, I live in the inner, inner city of 
Baltimore, and the people on my block are my neighbors, my 
constituents, my friends, and they are struggling and they need 
help. And they need help now. I am determined to do everything 
I can to do for them for--from hiring dedicated staff to deal 
with constituent mortgages to getting people a seat at the 
table with their lender, as we did recently, putting 1,000 
borrowers together with 19 lenders at our foreclosure 
prevention event. And I am glad to say we were able to save a 
lot of people from losing their homes.
    The witnesses before us have also done their part. I 
commend all of them for their work protecting the interests of 
home borrowers and communities. I am particularly pleased to 
have Commissioner Raskin with us. She remains vigilant in 
exercising all the rights she has under the Maryland law and 
her efforts have lead to the enactment of new mortgage fraud 
protections by the Maryland General Assembly.
    And again, Madam Chairlady, I am very pleased to be here, 
and I am going to be a little bit in and out myself because I--
called for another hearing with Bernanke, which we are doing 
also, and I have an amendment on the floor. But I will be in 
and out. But thank you.
    [The prepared statement of Representative Elijah E. 
Cummings, appears in the Submissions for the Record on page 
36.]
    Chair Maloney. Thank you.
    Congressman Burgess for 5 minutes.

OPENING STATEMENT OF THE HONORABLE MICHAEL C. BURGESS, M.D., A 
                 U.S. REPRESENTATIVE FROM TEXAS

    Representative Burgess. Thank you, Madam Chair, and I too 
want to welcome the witnesses here this morning and thank them 
for testifying before us today. Certainly the topic of reverse 
redlining and mortgage discrimination is one that is important, 
and hearings like this are an important part of understanding 
all of the factors that contributed to the breakdown in the 
mortgage market. And I appreciate the opportunity for 
additional examination of that today.
    The area in Texas that I represent has generally been 
spared by some of the more severe consequences of the 
nationwide recession, but not entirely. And part of my 
district--that part that is represented by the southeast 
quadrant of the city of Fort Worth--certainly could fall into 
the description of being underserved.
    We have many low-income residents; we have very high infant 
mortality rates, falling property values, and crime. It is a 
part of my district that continues to struggle and an area that 
I have expended a great deal of effort in trying to assist in 
my capacity as their Representative.
    The foreclosures in southeast Fort Worth are high. It is 
difficult to obtain the data, but the sense I get is it is less 
from the aberrances in the loan market and more from the 
consequences of the economic downturn and increasing 
unemployment. Then the lack of recovering a job after someone 
has lost a job--very difficult for someone without income to 
maintain house payments, and certainly going to be difficult 
for someone without a job to initiate a mortgage in the first 
place, especially given what we have recently been through.
    Southeast Fort Worth certainly meets the description of the 
type of community at risk for the behavior that is being 
examined today, so I am anxious to hear more and learn more 
about the topic. And Madam Chairman, I will yield back my time 
and I thank you for the consideration.
    Chair Maloney. Thank you.
    Maurice Hinchey, from the great state of New York, is 
recognized for 5 minutes.

 OPENING STATEMENT OF THE HONORABLE MAURICE D. HINCHEY, A U.S. 
                  REPRESENTATIVE FROM NEW YORK

    Representative Hinchey. Well, thank you, Madam Chairman, 
for holding this hearing. It is on a very important subject.
    And I want to thank all of you for being here--the four of 
you--for joining us. And I am very anxious to hear what you are 
going to say.
    The economic circumstances that this Congress is attempting 
to deal with is probably the most serious and severe since the 
1930s, and the way in which it is being addressed is, to a 
large extent positive, but I don't think it is nearly going as 
far as it needs to. There is an awful lot more work that needs 
to be done.
    The predatory lending--and that predatory word, I think, is 
very appropriate--is a major part of the problem, and the so-
called subprime mortgage lending reached its peak just 3 years 
ago. The effects of that are now very, very prominent across 
the board and they have had a very negative impact on a whole 
host of people.
    And in addition to that negative impact, what we have seen 
over the course of the last several years--even a little bit 
longer than that--is a larger separation of income between the 
very wealthy and the very poor, and a decline in the number of 
middle-income people. The middle-income population of this 
country shrank, and we know that the middle-income people are 
the ones who drive most of the economic progress here.
    So we have a major problem ahead of us. We are now 
addressing it in the context of a bill called the Consumer 
Financial Product Safety Commission Act of 2009, which, like so 
many of the other things that have been done so far, proceeds 
to move us in the right direction, but I don't think it does so 
nearly far enough.
    There is an awful lot of work that needs to be done, and 
any insight that you have--and I know that you have a lot-- to 
this particular problem would be very helpful to us, 
particularly how this bill might be improved.
    What are some of the additions that could be added to it? 
What are some of the strengths that could be included within 
this legislation to help us deal more effectively with this 
very serious and deepening economic problem?
    So I thank you all very much for being here, and I am very 
anxious to listen to what you say. Thanks very much.
    Chair Maloney. Thank you very much.
    And Congressman Snyder, from the great state of Arkansas, 
for 5 minutes. Thank you.
    Representative Snyder. Thank you, Madam Chair. And thank 
you for putting together this hearing. I think this is a great 
opportunity to talk about these issues, and I believe that I am 
more interested in hearing the witnesses than hearing myself, 
so I will yield back. Thank you.
    Chair Maloney. Okay. I would now like to introduce our 
panel of witnesses and thank them again for being here.
    Jim Carr is the chief operating officer for the National 
Community Reinvestment Coalition, an association of 600 local 
development organizations across our nation dedicated to 
improving the flow of capital to communities and promoting 
economic mobility. He is also a visiting professor at Columbia 
University in New York City.
    Prior to his appointment to NCRC, Mr. Carr was senior vice 
president for financial innovation, planning, and research for 
the Fannie Mae Foundation and vice president for housing 
research at Fannie Mae. He has also held important posts as 
assistant director for tax policy with the U.S. Senate Budget 
Committee and research associate at the Center for Urban Policy 
Research at Rutgers University.
    He holds a bachelor of architecture degree with honors from 
Hampton University, a master's of urban planning degree from 
Columbia University, and a master's of city and regional 
planning from the University of Pennsylvania.
    Welcome also to Dr. Gregory D. Squires. He is a professor 
of sociology and public policy and public administration at 
George Washington University. Currently he is a member of the 
advisory board of the John Marshall Law School Fair Housing 
Legal Support Center in Chicago, Illinois, and the Social 
Science Advisory Board of the Poverty and Race Research Action 
Council in Washington, D.C.
    Prior to joining the faculty at George Washington, he 
taught at the University of Wisconsin, Milwaukee, and served as 
a research analyst for the U.S. Commission on Civil Rights. He 
received his M.A. and Ph.D. in sociology from Michigan State 
University, and his B.S. in journalism from Northwestern 
University.
    Welcome also to Sarah Bloom Raskin. She has been Maryland's 
commissioner of financial regulation since 2007. Commissioner 
Raskin was previously banking counsel to the U.S. Senate 
Committee on Banking, Housing, and Urban Affairs. She also 
worked at both the Federal Reserve Bank of New York and the 
Joint Economic Committee of Congress.
    Welcome back.
    Commissioner Raskin is on the board of directors of the 
Conference of State Bank Supervisors and serves as the chair of 
the Federal Legislation Committee. She also was recently named 
as chair of the Regulatory Restructuring Task Force, a group of 
state banking commissioners who are developing principles for 
evaluating regulatory restructuring proposals.
    Commissioner Raskin received her law degree from Harvard 
Law School. She received her undergraduate degree in economics 
from Amherst, and she is a recipient of the James R. Nelson 
Award in Economics.
    Robert J. Strupp is the director of research and policy 
with the Community Law Center in Baltimore, Maryland, which 
provides legal representation and advocacy to grassroots 
organizations, nonprofits, and small businesses. Mr. Strupp 
serves on the Homeownership Preservation Coalitions in 
Baltimore and Prince George's County and chairs the Coalition's 
Enforcement Committee.
    Mr. Strupp has served on numerous real estate fraud work 
groups including the Maryland Governor's and Attorney General's 
working groups on foreclosure and lending law reforms.
    I thank all of you for being here, and please proceed Mr. 
Carr.

  STATEMENT OF JAMES CARR, CHIEF OPERATING OFFICER, NATIONAL 
        COMMUNITY REINVESTMENT COALITION, WASHINGTON, DC

    Mr. Carr. Chairman Maloney and other distinguished members 
of the committee, good morning. My name is James H. Carr, and I 
am the chief operating officer of the National Community 
Reinvestment Coalition. On behalf of our coalition, I am 
honored to speak with you today.
    NCRC is an association of more than 600 community-based 
organizations that promotes access to basic banking services 
for working families and communities. NCRC is also pleased to 
be a member of a new coalition of more than 200 consumer, 
civic, labor, and civil rights organizations called Americans 
for Financial Reform that is working to cultivate integrity and 
accountability within the U.S. financial system.
    Members of the committee, a major reason for the continuing 
and protracted economic downturn we are experiencing is that 
the problem that precipitated the collapse of the credit 
markets and the economy is a foreclosure crisis that continues 
to worsen. Already this year more than a million homes have 
been lost to foreclosure and 5 million more homes are at risk 
over the next 3 years, and that is assuming that the new Making 
Homes Affordable program achieves all of the successes expected 
by the administration.
    Many blame the foreclosure crisis on the Community 
Reinvestment Act and on arguments that financial institutions 
were forced to lend to unqualified low- and moderate-income and 
minority households. Both these assertions have no basis in 
fact or logic.
    According to the Federal Reserve Board, only 6 percent of 
high-cost loans to low- and moderate-income households were 
covered by CRA regulation, and the Center for Responsible 
Lending has found that less than 10 percent of subprime high-
cost loans were to first time homeownership. Failure to 
regulate adequately the U.S. mortgage market allowed deceptive, 
reckless, and irresponsible lending to grow unchecked until it 
eventually consumed the financial system.
    Almost every institutional actor in the mortgage finance 
process played a role, including brokers, lenders, appraisers, 
Wall Street bond rating agencies, investment banks, and more. 
This is not an equal opportunity economic crisis. Although the 
national unemployment rate is an uncomfortable 9.4 percent, the 
rate for African Americans is still, for example, 15 percent, 
and for Latinos approaching 13.
    The unemployment rate for non-Hispanic whites, by 
comparison, remains under 9. Because African Americans and 
Latinos have so few savings, they are poorly positioned to 
survive a lengthy bout of unemployment. As a result, 
potentially millions of African-American and Latino middle-
class households could see themselves falling out of the middle 
class before this economic crisis is over.
    Moreover, African Americans and Latinos were targeted 
disproportionately for deceptively high cost loans. According 
to a study by the U.S. Department of Housing and Urban 
Development, subprime loans are five times more likely in 
African American communities than in white communities, and 
homeowners in high-income black neighborhoods are twice as 
likely as borrowers in low-income white neighborhoods to have a 
subprime loan.
    The result is that blacks and Latinos are overrepresented 
in the foreclosure statistics. African Americans, for example, 
have experienced a full 3-point drop in--3 percentage point 
drop--in homeownership since this crisis began.
    Further, research by the National Community Reinvestment 
Coalition found that predatory lenders aimed their toxic 
products particularly at women of color. And because African-
American children are more likely to reside in female-headed 
households, children--black children--are disproportionately 
harmed as a result of the foreclosure crisis and its attendant 
stresses.
    In separate research, ``The Broken Credit System,'' NCRC 
also found that predatory lenders targeted the elderly. 
Although African Americans and Latinos on average have lower 
credit scores than do non-Hispanic white consumers, the extreme 
levels of lending disparity in the U.S. mortgage market have 
little to do with differences in the credit quality of the 
borrowers.
    Fannie Mae has estimated that roughly 50 percent of 
consumers in the subprime market could have qualified for prime 
loans. In fact, in 2006 more than 60 percent of subprime 
borrowers had credit scores that could have qualified for prime 
mortgages. In response to the magnitude and complexity of the 
current crisis, a three-fold response is essential.
    First, we must stem the current foreclosure crisis. The 
Making Home Affordable program is the most comprehensive and 
effective program that has been enacted to date since the 
crisis began, but success there is still measured in the 
thousands and the problem is growing in the millions. We need a 
broader response.
    Second, we need to focus on those communities that were 
disproportionately harmed as a result of unfair, reckless 
lending and help to rebuild them rather than just stabilize 
them so far behind where they are today. And third, we need to 
enact comprehensive anti-predatory lending legislation. We need 
to expand and enforce the CRA law. And we need to enact a 
financial consumer protection agency.
    In conclusion, Nobel Prize-winning economist Joseph 
Stiglitz has observed the financial system discovered that 
there was money at the bottom of the wealth pyramid and it did 
everything it could to ensure that it did not remain there. 
Stated otherwise, the business model for many financial 
institutions was to strip consumers of their wealth rather than 
build and improve their financial security.
    Ironically, most solutions to date have focused on 
rewarding the financial firms and their executives that created 
the crisis, but in spite of more than $12.8 trillion of 
financial support in the form of loans, investments, and 
guarantees, this approach is not working because consumers 
continue to struggle in a virtual sea of deceptive mortgage 
debt and with a financial system that remains unaccountable to 
the American public. Now is the time to shift the focus away 
from Wall Street and onto Main Street in order to put America 
back on the firm financial footing.
    Thank you very much. I have a longer extended written 
statement that I would like to submit to the record.
    [The prepared statement of James Carr appears in the 
Submissions for the Record on page 37.]
    Chair Maloney. Thank you very much for your testimony.
    Dr. Squires.

STATEMENT OF GREGORY SQUIRES, PROFESSOR OF SOCIOLOGY AND PUBLIC 
 POLICY AND PUBLIC ADMINISTRATION, AND CHAIR OF THE DEPARTMENT 
  OF SOCIOLOGY AT GEORGE WASHINGTON UNIVERSITY, WASHINGTON, DC

    Mr. Squires. Chairperson Maloney and all members of the 
committee, I want to thank you for holding this hearing and for 
addressing what is, unfortunately, one of the most challenging 
sets of issues that we have to face today, and I want to thank 
you for inviting me to participate. I actually have one very 
simple message that I would like to leave with you today.
    To date, most of the discussion of subprime lending and the 
economic fallout has focused on the sins of various individual 
actors--homeowners who have bought too much house, lax if not 
fraudulent underwriters; incompetent if not corrupt appraisers 
and rating agencies; lax regulators; greedy investors and more. 
What is lost in much of this discussion is the critical role 
that has been played by the broader context of surging economic 
inequality and persistent racial segregation, which has 
incubated the rise in subprime lending and the economic 
fallout.
    So my basic message is that any response to these 
problems--the sets of problems that we are all taking about--
requires that we address this broader context of economic 
inequality and racial segregation as well as the lending 
practices of particular lenders and the regulatory actions of 
our regulatory agencies.
    Just a couple of revealing statistics on inequality: Since 
the mid-1970s, compensation for the 100 highest paid chief 
executive officers increased by $1.3 million, or 39 times the 
pay of the average worker, to $37.5 million, or more than 1,000 
times the pay of a typical worker.
    Perhaps more interesting for our discussion today, in 2007 
the 25 top hedgefund managers took home a combined $22 million, 
compared to the $14 million that they took home in 2006, while 
thousands of people were losing their jobs in financial 
services; and in 2007, the top five each took home $1 billion.
    Perhaps more significant is what is happening at the 
neighborhood level. Between 1970 and 2000, the number of high-
poverty census tracts grew from 1,200 to 2,500 and the 
population of these neighborhoods grew from 4 million to 8 
million. The number of middle-income tracts has declined from 
about 58 percent to 40 percent of all tracts, and many poor 
people who used to live primarily in middle-income tracts are 
now living primarily in poor tracts.
    In terms of segregation, we see that racial segregation has 
declined in recent years between blacks and whites, but in 
those big cities like Baltimore, Detroit, Chicago, New York, 
and so forth, where the black population is concentrated, 
segregation has persisted at hyper-segregated levels and 
Hispanics and Asians have actually become more segregated from 
whites in recent years.
    Just a few numbers showing how loan patterns have followed: 
The percentage of high-cost loans--this is in 2006, when 
subprime lending was at its peak--the percentage of borrowers 
who took out high-priced loans, it was 46 percent in low-income 
areas, 16 in high-income. It was 49 percent in minority areas, 
18 percent in white areas. And subsequent research has shown 
that these disparities persist after we control on credit 
rating, income, and other economic characteristics.
    And it is no accident. We have heard about Wells Fargo. 
There are many other incidents where people were targeted and 
steered from one set of loans to another. The New York Times 
report that was referred to earlier pointed out that the 
targets of these loans were ``mud people,'' and the loans were 
characterized as ``ghetto loans.''
    But in research I have done with colleagues we have found 
that levels of segregation have an impact above and beyond the 
level of racial concentration and racial composition of 
neighborhoods. For example, we found in the 10 most segregated 
metropolitan areas, the share of borrowers who took out high-
priced loans was 31 percent, compared to 20 percent in the 
least segregated areas.
    Far more significant is that race and ethnicity remain a 
statistically significant predictor of the level of subprime 
lending after you control on credit rating, poverty, 
employment, percent minority, and level of education. So 
segregation itself is not just a reflection of the subprime 
lending, it is one of the factors that has contributed to the 
level of subprime lending.
    So what do we do? I would like to suggest several policy 
responses in each of three different areas--one set of policies 
to deal with the broader economic inequality, one set to deal 
with housing and segregation, and finally, a set of policies to 
deal with lending practices.
    In terms of the broader patterns of inequality, the first 
thing I would recommend is that the Congress enact the Employee 
Free Choice Act to strengthen the role of unions. We need to 
index the minimum wage so that it keeps up with increases in 
the cost of living. We should increase the earned income tax 
credit to bring more working families above the poverty line.
    We should expand living wage programs where recipients of 
government contracts, and economic development subsidies, are 
required to pay their employees a wage that will rise them 
above that which requires further government support. We should 
enact the Income Equity Act, which was proposed by former 
Minnesota Congressman Martin Sabo, which would deny the 
corporate tax deduction when executive compensation exceeds 25 
times the pay of the lowest paid employee.
    There are a number of land-use and housing policies that 
could be implemented. In the Twin Cities, they have used tax-
based revenue sharing, whereby the property tax increases in 
the wealthiest neighborhoods are used in part to finance 
development throughout the metropolitan area. Inclusionary 
zoning laws, which require developers to set aside a share of 
new homes for low-and moderate-income families, have been 
developed in literally hundreds of communities in the United 
States. We need more.
    We need more mobility programs to help families who want to 
move to low-poverty areas to be able to do so. HUD should be 
required to steer more of its Housing Choice Voucher program to 
people who are interested in moving to low-poverty 
neighborhoods.
    We could require recipients of the low-income housing tax 
credit to provide incentives to families so that more can move 
to low-poverty neighborhoods. And Congress could enact the 
Housing Fairness Act of 2009, which would dramatically increase 
the power of nonprofit fair housing organizations which have 
been so critical for enforcing the Fair Housing Act.
    Let me just say a couple of things specifically about 
lending and lending regulation. The National Mortgage Reform 
and Anti-Predatory Lending Act would go a long way towards 
eliminating the kinds of-- abuses that we have talked about 
here.
    The Community Reinvestment Modernization Act of 2009 would 
bring the non-depository lenders who are responsible for the 
subprime problem under the authority of the CRA and would 
dramatically reduce the likelihood of foreclosure and related 
types of economic fallout from occurring in the future. The 
creation of a Consumer Financial Protection Agency, if in fact 
given appropriate rulemaking and enforcement authority and 
given the ability, the authority to hire adequate, competent 
staff, would go a long way in moving us in the right direction.
    So finally, let me just say that while much attention has 
been and should be focused on the behavior of lenders and other 
housing providers and the regulatory agencies, we need to spend 
more time looking at the broader context of inequality that has 
nurtured the predatory lending policies and practices that have 
brought our economy to the state that it is in today. Thank 
you.
    [The prepared statement of Gregory Squires appears in the 
Submissions for the Record on page 39.]
    Chair Maloney. Thank you. Ms. Raskin.

  STATEMENT OF SARAH BLOOM RASKIN, COMMISSIONER OF FINANCIAL 
 REGULATION, STATE OF MARYLAND, AND CHAIR OF THE CONFERENCE OF 
          STATE BANK SUPERVISORS (CSBS), BALTIMORE, MD

    Ms. Raskin. Chairman Maloney and members of the committee, 
thank you for inviting me to testify today at this important 
hearing. I am especially honored to return to the Joint 
Economic Committee where I was an intern and which first 
provided me with the standards of good policymaking that I have 
kept as a touchstone throughout my career.
    Now, as the chief financial regulator for the state of 
Maryland I am pleased to share information about our state's 
challenges in responding to the subprime lending crisis as it 
has manifested itself in Maryland. Our state is ravaged by the 
fallout from irresponsible lending--too many loans that never 
should have been made, poorly underwritten, if at all, with 
features and loan terms that make it clear that the chance for 
success was limited. And all too often, these loans have had a 
disproportionate impact on minority communities.
    The Urban Institute published a study last month of 
subprime lending in 100 metropolitan areas. The study 
controlled for income levels and concluded that the 
neighborhoods hardest hit by the subprime crisis have been 
those where minority residents predominate. The fallout is 
evident in foreclosures throughout our state, particularly 
Baltimore City and Prince George's County.
    Under a new law reforming the foreclosure process in our 
state, secured parties must send a notice of intent to 
foreclose to homeowners at least 45 days prior to docketing the 
foreclosure. My office receives copies of these notices, and 
they come in by the box load.
    In the past 12 months, over 100,000 notices of intent to 
foreclose have been sent to Maryland borrowers and to our 
office. Each day we struggle to input the information into our 
database and to send early outreach letters to the borrowers 
regarding options for assistance and warning about foreclosure 
scams.
    As the Commissioner of Financial Regulation, it is my 
obligation to pursue, within the boundaries of my authority, 
those who engage in violations of all our laws, including our 
anti-predatory lending laws. State regulators have a long 
history as the first line of protection for consumers. It was 
the states that first sounded the alarm against predatory 
lending and brought landmark enforcement against some of the 
biggest subprime lenders.
    While the big cases have received most of the recognition, 
success is sometimes better measured by those actions that 
never receive media attention. In 2007 alone, states took 
almost 6,000 enforcement actions against mortgage lenders and 
brokers, and this number doesn't include the unreported 
investigations and referrals for criminally-punishable fraud 
and other crimes.
    When most people talk about predatory lending, they think 
about the mortgage context. However, it is worth noting that 
the span of predatory lending practices includes consumer loans 
and lending transactions that have nothing to do with mortgages 
but contain features and terms that are high-cost and have 
confusing, if any, disclosure. Payday loans, payday loan 
brokering, and refund anticipation loans are but some of the 
set of ever-evolving predatory practices.
    In addition to investigating and taking enforcement actions 
against predatory lending behavior, we have also taken 
innovative regulatory and legislative action. For example, we 
have implemented anti-steering regulatory changes that require 
mortgage lenders and brokers to provide information about prime 
loans to borrowers who are being offered high-cost loans.
    The span of our legislative and regulatory changes are 
detailed in my written testimony, which I submit for the 
record. Suffice it to say that these are all important steps. 
Unfortunately, national banks are not subject to any of them.
    Despite these enforcement and legislative successes, state 
actions have been hamstrung by the dual forces of preemption of 
state authority and lack of federal oversight. The authority of 
state banking commissioners to craft and to enforce consumer 
protection laws of general applicability was challenged at 
precisely the time it was most needed, when the amount of 
subprime lending exploded and riskier mortgage products came 
into the marketplace.
    The laws passed by state legislatures to protect citizens 
and the enforcement actions taken by state regulators should 
have alerted federal authorities to the extent of the problems 
in the mortgage market and should have spurred a dialogue 
between state and federal authorities about the best way to 
address the problem. Unfortunately, this didn't occur. Had the 
federal regulators not adopted preemptive policies, I suggest 
we would have fewer home foreclosures and may have avoided the 
need to prop up our largest financial institutions.
    At the same time that preemption of state consumer 
protection powers gained ground, federal agencies failed to 
fill the gap in regulation with uniform market-wide standards 
that ensured lenders did not engage in fraudulent, deceptive, 
or unfair lending practices and to respond to the crisis.
    Congressman Cummings has seen this close-up effort in his 
efforts to gather information about mortgage modification. My 
office gathers modification data, and when this data indicated 
that loan modifications were not sustainable, we required 
servicers to report the impact of modification on the 
borrower's monthly payment.
    It was clear to us that this topic should be aired. 
Unfortunately, the federal regulators resisted. They dutifully 
reported that modifications were re-defaulting at high rates, 
but resisted drilling into the nature of these modifications. 
Thankfully, congressional action led by Congressman Cummings 
helped change things, and earlier this year the OCC began 
collecting similar data regarding monthly payments.
    The void created by preemption and the failure of federal 
oversight added a number of impediments for state banking 
commissioners in crafting legislation and in pursuing 
enforcement actions against predatory lenders. While it is too 
late to remove some of these impediments, there are some 
obstacles that can be eliminated to restore to state bank 
commissioners the ability to successfully regulate lending in 
the future.
    Congress should promptly eliminate federal preemption of 
the application of the state consumer protection laws to 
national banks. The magic of federalism is that if one level of 
government falls asleep at the wheel or has too much to drink 
at the party, another can drive everybody home safely. But when 
the federal regulators preempt the states' best laws, you take 
away the keys to the car and our license to drive.
    Together, with our nation's 50 banking commissioners and 
with the Conference of State Bank Supervisors, I am supportive 
of provisions contained within President Obama's recently 
proposed financial regulatory reform plan that would grant 
state authorities the ability to promulgate statutes and 
regulations that would apply to all financial firms operating 
in our state, to examine for compliance of these statutes and 
rules, and to take enforcement actions against those entities 
that were found to be out of compliance with these statutes. 
This structure would create a floor for all lenders but still 
permit states to protect their citizens through more robust 
legislation and regulation.
    To sum up, there are lessons to be learned. The movement to 
erode state authority to enforce state and federal consumer 
protection laws must cease. Attempts to exclude state bank 
regulators from enforcing consumer protection laws has 
significantly contributed to the distress our residents have 
endured as a result of these difficult economic times.
    Thank you for the opportunity to testify.
    [The prepared statement of Sarah Bloom Raskin appears in 
the Submissions for the Record on page 45.]
    Chair Maloney. Thank you. Mr. Strupp.

 STATEMENT OF ROBERT STRUPP, DIRECTOR OF RESEARCH AND POLICY, 
              COMMUNITY LAW CENTER, BALTIMORE, MD

    Mr. Strupp. Good morning, Madam Chair, members of the 
committee. I am honored to have this opportunity to testify 
before you this morning. I am the director of research and 
policy with the Community Law Center in Baltimore, Maryland, 
and for over 22 years the Community Law Center has been a 
leading voice in Baltimore for preventing and eradicating 
blight and returning vacant and abandoned property to 
productive use.
    The Community Law Center seeks solutions to the predatory 
and deceptive real estate transactions that have caused 
foreclosures and that have led to many of the housing 
challenges facing communities throughout Maryland. While I will 
try and focus my remarks this morning on Baltimore, I did want 
to share at the beginning a study from Chicago that exemplifies 
why this is a redlining issue, why this is an issue of concern 
with regard to discrimination.
    Research conducted by the Chicago Reporter, an online 
magazine in Chicago, showed that African Americans earning more 
than $100,000 a year were more than twice as likely to receive 
high-cost loans than white homeowners earning less than $35,000 
a year, and this would be true in any urban area--any part of 
our country. And so this is an example of what is going on.
    In 2000, at the behest of Senator Barbara Mikulski and 
Senator Paul Sarbanes, the United States Department of Housing 
and Urban Development established a Baltimore City Flipping and 
Predatory Lending Task Force, and I am proud to say that the 
Community Law Center was the staff for this task force, which 
had served as a laboratory to develop creative solutions to 
problems arising in Baltimore and nationwide from the abuses in 
the FHA mortgage program.
    In the beginnings of the 1990s, foreclosures in Baltimore 
were running at about $1,500--1,500 a year, excuse me. In 1999, 
that number rose to 6,000 a year as a result of the FHA fraud.
    The task force was instrumental in cleaning up some of the 
fraud that was going on with regards to FHA transactions, but 
as that was happening, the subprime loan products were emerging 
and providing an entirely new problem for Baltimore and around 
the country, specifically since a drop in foreclosures as low 
as 829 for the city of Baltimore in 2005. Unfortunately, in the 
first quarter of 2007, that number was 941. In 2008 it had 
risen to 1,474. And in 2009, 1,471.
    Currently, Baltimore is on track for over 5,000 
foreclosures once again for the year 2009, so there has been a 
steady increase in the foreclosures following the emergence of 
the subprime and predatory lending practices.
    This committee, actually, in 2007, had commissioned a 
report that showed that in Baltimore there would be a--I am 
sorry, in Maryland there would actually be a $2.73 billion loss 
in property values related to the wealth of Maryland residents 
and a $19.1 million loss in property taxes due to the subprime 
mortgage crisis. Between 2004 and 2006, subprime lending for 
the purchase of homes and refinancing continued to rise, and by 
the fourth quarter of 2006 and the third quarter of 2007 the 
growth in Maryland's prime and subprime foreclosure inventories 
was more than twice the national average.
    In 2000 there were 1,474 foreclosure filings, and as I 
said, the numbers have risen considerably now since the 
subprime mortgage crisis. Based on filings from part of 2007, 
the study that was done by the Baltimore Homeowner--
commissioned by the Baltimore Homeownership Preservation 
Coalition from the reinvestment fund showed that a 
disproportionately large share of foreclosure filings--73.5 
percent--were found in communities that are more than 60 
percent or more African American in Baltimore.
    These are just part of the story showing that African 
Americans and others of minority class, people of color, are 
being directed to loans that they didn't necessarily need to be 
placed into, and that is the key of the predatory part of this, 
is that folks were preyed on.
    There were many who were put into subprime loans who may 
have qualified for a better loan based upon credit reports, 
based upon job status, but there was a clear pattern in 
practice, as has been evidenced by the Wells Fargo case, of 
placing people who would have qualified for better loans into 
these dangerous high-risk loans based upon their color. And 
this is reverse redlining.
    There was a study done and a statement made by a mortgage 
lender in the late 1990s that predicted that low-income 
borrowers are going to be the leading customers going into the 
21st century. This was a target. This was a plan of lenders 
that these homeowners--minority homeowners--would be the focus 
of their profit. And they did that by placing minority 
homeowners into loans that they didn't necessarily need to be 
placed into, and either they could have qualified for much 
better loans or they were not ready to be homeowners at all, 
and I suggested that is certainly possible in some cases, where 
homeowners were given loans before they really were ready to be 
homeowners. And of course, that has somewhat been exemplified 
through the increase of housing counseling and pre-purchase 
counseling that we now see in the industry.
    But clearly, the Wells Fargo case and the statements of the 
mortgage officers who have come forward is suggestive that the 
discriminatory practices were well deep into the practices of 
this lender, and the statements of other lenders and others 
representing the lending industry clearly acknowledge that 
there was a targeted focus on African Americans, in particular.
    And the allegations in the Wells Fargo case specifically 
relate, as articles have indicated--news articles have 
indicated--on the bank's mortgage resource division, which was 
set up in 2001, and one of their former employees has said that 
this unit was targeting black communities by sending out 
fliers, visiting churches, and hiring minority employees to 
close deals.
    This was a tactic of trying to earn the trust of African 
Americans by essentially affinity--affinity relationships--and 
coming and speaking in churches on Sunday evenings at barbeques 
and picnics and what have you, and saying, ``We can help you 
own a home and we can bring you--come to our office or we will 
come to you and we will show you how you can own a home, too, 
and you can own a larger home than you might even think you can 
own because we can place you into one of these exotic 
products.''
    And this was going on throughout Baltimore and throughout 
the state of Maryland. Prince George's County, as many of you 
know, leads the state of Maryland in foreclosures, and in the 
first 3 months of 2009 Prince George's County has actually had 
about 3,000 homeowners who are either late in their payments or 
facing foreclosure. This is an across-the-state problem----
    Chair Maloney. Would you summarize? Your entire statement 
will be in the record----
    Mr. Strupp [continuing]. Thank you.
    Chair Maloney [continuing]. And we are under tight time 
constraints with the legislative agenda on the floor, so if you 
could summarize quickly.
    Mr. Strupp. So in closing, there is ample evidence that 
the--that redlining was going on, that targeted lending to 
African Americans of high-risk loans was going on. And we 
believe that this, you know, clearly requires regulation. It 
requires better law enforcement.
    And if I might just conclude by saying that in the current 
legislation, one of the things that I would ask to be looked at 
is improved regulation of the modification process--the loan 
modification process. Thank you.
    [The prepared statement of Robert Strupp appears in the 
Submissions for the Record on page 48.]
    Chair Maloney. Absolutely. That is part of what we are 
looking at in Congress. Thank you for your testimony.
    Commissioner Raskin, you touched upon this in your 
testimony, but I would like some more information on this 
important issue: The OCC preempted state anti-predatory lending 
laws on the bases of fostering competition between state and 
national banks and to create a better and more innovative 
banking system.
    I, for one, voted against this preemption because the 
leadership on the state level in New York, and the city level, 
were doing a very fine job in combating predatory lending 
practices and were very active in that area, so to me it was 
very disturbing that this action took the place of our laws.
    And I would like your comments from the ground in 
Baltimore, Maryland. Do you think that this preemption has had 
that effect? Can you explain further what this preemption 
meant? And you mentioned in your testimony your support for 
President Obama's decisions to change this direction in his 
proposed regulation, so from your perspective, could you give 
us some examples and better understanding of this? Thank you.
    Ms. Raskin. Sure. The preemption policies of the OCC and 
OTS, which are the federal agencies that regulate national 
banks, have been in place, really, for quite a number of years, 
and they have been moving in such a way that they have become 
ever more expansive and growing.
    So while there is complete, you know, settlement in the law 
regarding operating subsidiaries of national banks and whether 
those operating subsidiaries are subject to state or federal 
supervision, the problem with preemption is that the underlying 
law has been expanded way beyond the boundaries of what it was 
originally intended to do, and this creeping preemption, as we 
like to call it, has had the effect, really, of cutting off all 
efforts at the state level to do any meaningful consumer 
protection.
    So, for example, at the state level we will see bills 
regarding consumer protection efforts on credit cards, consumer 
protection efforts regarding payday lending, consumer 
protection efforts regarding refund anticipation loans, and to 
the extent any of those legislative initiatives touch upon or 
have anything to do with a national bank, you will hear from 
the federal agencies that those actions are preempted. And that 
has had a chilling effect at the state level and has kept 
states from being more robust, in my opinion, in the area of 
consumer protection.
    Chair Maloney. Thank you.
    And the fact--and I believe it was you, Dr. Squires, who 
brought up the fact that African American women are more likely 
to be mortgage-holders.
    Or was it you, Mr. Carr? Yes. Mr. Carr.
    I thought it was interesting when you said that they were 
more likely to be mortgage-holders compared to other women of 
color, or non-minority women, as well as the fact that these 
same women are more likely to be steered into higher-cost 
loans, regardless of income group. I found that statement quite 
disturbing.
    And according to a study that we recently did in the Joint 
Economic Committee, African American female householders are 
experiencing a very high level of unemployment during this 
recession, more so than other categories.
    And do you expect foreclosure rates to rise even more 
sharply due to these unemployment numbers, and are there 
additional measures, other than the increases in unemployment 
benefits and food stamps in the stimulus package, that we 
should consider to help the families that are considerably 
stressed because of their being exploited in the subprime loan 
market and also the unemployment that they are experiencing 
now?
    Mr. Carr. Thank you.
    Mr. Carr. Yes. Absolutely.
    First of all, this foreclosure crisis is nowhere near over. 
What has happened over the last year is it has morphed in its 
character and it is much more difficult to address now, so 
where we were mostly dealing with loans that were going to 
foreclosure because of the product, we are now dealing with 
loss of income or absolute loss of job through unemployment. So 
for every new 100 unemployed people we can expect up to 40 new 
foreclosures, and so that is an extraordinary number if you 
look at just the first quarter of the year in terms of 
unemployment. That added another 800 potential foreclosures to 
the statistics, which is why they are growing so large.
    Even to the extent that they look not so--I mean, even to 
the extent they look bad now, if you dig in and look at some of 
the underlying data, you will see that a lot of homes are in 
default but in fact they are not actually going through the 
foreclosure process, which means there is even a backlog of 
foreclosures that is waiting to happen, probably during the 
second half of this year, which is why we have been advocating 
a much broader approach--something like a Homeowners Loan 
Corporation, because there really isn't a response to the 
foreclosure crisis to the extent that it is driven by 
unemployment.
    To the extent that an individual actually becomes evicted 
from their home, that is where real damage occurs at a 
community level and at a national house price level.
    So we need to address keeping people in their homes through 
modifications that can be made on a much broader scale, and we 
also need to address the impact of foreclosures that are going 
to occur where people just simply can't afford a mortgage 
because they are unemployed.
    With respect to the female-headed household, the study that 
we did showed that African-American female-headed households 
were disproportionately targeted for predatory loans, and 
because African-American children tend to live 
disproportionately in the female-headed household, they will be 
disproportionately hurt, in terms of potentially needing to 
change schools, lose their social networks, and have long-term 
socioeconomic damage, as well as loss of wealth.
    As we all know, African-American households and Latino 
households can't afford to lose any more wealth. On average, 
they have about $10 and $12, respectively, to every $100 of 
wealth of non-Hispanic white households, and that wealth gap is 
growing. It is estimated that African Americans could end up in 
this recession experiencing the greatest loss of wealth since 
Reconstruction.
    Chair Maloney. Thank you very much.
    The chair grants herself an additional 2 minutes on a very 
important question. Many economists have come before this 
committee and told us that if we don't put a floor on the 
foreclosures and the tumbling house prices and the, really, 
freefall in the housing market, that we will not turn around 
this economy.
    As you know, Congress has stepped forward with a number of 
efforts to allow loan modifications, including more assistance 
to the servicers and many steps to help people stay in their 
homes. And very briefly, I would just like to go down, if any 
of you have any comments on what we could do additionally to 
help this foreclosure crisis that is in our country.
    And why don't we start with you, Mr. Strupp, and go down 
very quickly? And this is a critical issue that policymakers 
are studying and grappling with. And we have made many efforts 
to try to stop it, but it hasn't been able to have the impact 
that we had hoped.
    Mr. Strupp. Thank you very much. Actually, this is a pet 
project of mine, and what is strikingly missing from, I think, 
all the proposals and the legislation that have been submitted 
to date is a moratorium on foreclosures--a federal moratorium. 
The FHA did do that in Baltimore as a result of the discovery 
of the fraud. It has been done in the past, and I believe it 
should be done here.
    And you are right, Madam Chair, until we actually stop the 
foreclosures, we are going to continue to see deterioration of 
home values, the continued deterioration of the economy.
    And a foreclosure moratorium coupled with an attempt at 
loan modifications, such as what Sheila Bair has proposed, 
along with some percentage of 31, 35 percent, what have you, of 
income being paid monthly by homeowners--some combination of 
that is my recommendation, and we do need to have that 
moratorium. And it was proposed by Senator Obama when he was 
running for president, and I think it should be part of the 
package.
    Chair Maloney. Thank you.
    Commissioner.
    Ms. Raskin. Yes. Clearly the number of foreclosures 
continues to increase. There have been a number of efforts put 
in place to try to address the rising numbers.
    One initiative that we took in Maryland that had some 
traction was to put in place servicer agreements with various 
mortgage servicers which held servicers to different 
obligations regarding the way they negotiate with homeowners 
and taking certain steps regarding getting those loans 
modified. And that is one thing we have been able to do which 
has had some success.
    Chair Maloney. Thank you.
    Dr. Squires.
    Mr. Squires. I think reforming the bankruptcy law would be 
one important step. Up until now, almost all these loan 
modification programs have been strictly voluntary, and the 
fair housing groups--consumer groups--have been advocating this 
for years, but so far that has not been an option.
    Many states do have moratoriums in place. I think there is 
something like 14 or 15 states at least that have them in place 
right now, but that leaves most states unprotected. And I don't 
know if this is--maybe this isn't related to your question, but 
I think one of the issues we need to think about is what is 
happening to renters in the process. According to the Low-
Income Housing Coalition, as many as 40 percent of the people 
who are losing their homes in urban areas because of 
foreclosures are renters, and they are obviously, you know, 
innocent victims of this process.
    Chair Maloney. I want to thank you, and I am sure you are 
aware that the House passed a bankruptcy bill and passed it to 
the Senate, where it is awaiting movement forward. Thank you.
    Mr. Carr. Yes. I would like to just reinforce the need for 
bankruptcy reform. It was part of the president's Making Home 
Affordable proposals, and it is one of the weaknesses. That is, 
the stick is left out; only the carrots are in.
    What we have proposed in the National Community 
Reinvestment Coalition way back in January of last year in 
testimony to Congress was the establishment of an emergency 
homeowner loan program that was built on the basis of the 
original homeowner loan corporation. We called it HELP Now--
Homeowner Emergency Loan Program.
    Essentially, we had proposed a reverse auction program 
whereby the federal government buy from financial institutions 
toxic assets and modified them in mass, in bulk. In other 
words, eliminate this voluntary process where a consumer has to 
come forward, but the federal government actually take those 
loans and proceed to contact the borrowers and modify the 
loans.
    We don't believe that that would work now because the 
generosity of the financial subsidies to the financial system 
have been so great that we don't think financial institutions 
would take part in a reverse auction. So we have since modified 
that proposal and suggested that the federal government 
exercise the right of eminent domain, to buy those loans at a 
reasonable discount.
    The reason the reasonable discount is important, because 
that subsidy comes out of the lenders who actually made those 
loans and profited from them, and we would use that discounted 
amount from the sale, transfer that to the actual cost of loan 
modification, rather than sending the cost all to the federal 
taxpayers, which is what happens now. We----
    Chair Maloney. Thank you so very much. My time is expired.
    Mr. Brady, for 7 minutes?
    Representative Brady. Thank you, Chair. I think clearly 
greed drove this foreclosure crisis, all along the line from 
investors to lenders to borrowers, and I think that it was 
combined with good intentions over the past 2 decades by 
lawmakers to try to move people into homes, and who later sort 
of turned a blind eye to some of the consequences of these 
regulatory and statutory provisions.
    I don't think, honestly, that the answer to predatory 
lending is to strip the workers' rights to secret ballot. Under 
that thinking, we would pass cap and trade because we would all 
grow better looking and would learn a second language 
immediately.
    I do think that there is no simple solution. I think that 
is why Congress' efforts last session--HOPE for Homeownership 
program--was a failure. We have made some changes, but again, 
we are seeing even those loans modified a very high default 
rate on it. This is a tough problem to solve.
    Two questions I wanted to ask, the first one to Mr. Carr 
and the rest of the panel get your view on something.
    Looking at ways to prevent in the future--according to the 
Government Accountability Office, with the exception of loans 
covered under the Homeownership and Equity Protection Act, 
there are no federal statutes that expressly prohibit making a 
loan that a borrower will likely be unable to pay, other than 
generally under the Safety and Soundness set of requirements.
    For loans that are covered under the Homeownership and 
Equity Protection Act, making a loan without regard to a 
borrower's ability to repay isn't prohibited unless it can be 
demonstrated that an institution has engaged in a pattern of 
practice of doing so. The Office of Comptroller of Currency 
prohibits national banks or their operating subjects from 
making consumer loans based predominantly on the foreclosure or 
liquidation value of a borrower's collateral.
    Here is the question, Mr. Carr: Should Congress prohibit 
all lenders from intentionally making loans to consumers that 
lenders know ex-ante, before the event, that consumers cannot 
repay except by foreclosure or liquidation value of the 
collateral? So should we expressly prohibit lenders from making 
loans that they know will not be repaid?
    Mr. Carr [continuing]. Yes. Absolutely. If, in fact, the 
financial institution has the information to understand that a 
consumer cannot repay the loan, they shouldn't extend it.
    But I would go even further than that. I would say that on 
the very front end of the process, the broker who is actually 
offering that loan should have a fiduciary responsibility to 
tell the truth and give the best advice they can to the 
consumer.
    One of the things that is so interesting about this 
foreclosure crisis is that at almost any point in the process 
we could have eliminated the crisis we had. So, for example, if 
we simply had not had Wall Street bond rating agencies stamping 
triple A on bonds that we knew were junk bonds, it would not 
have happened. So yes, I would agree.
    Could I make just one quick point, though, on the loan 
modifications, because this is important? Many people have been 
scratching their heads to try and understand why loans, once 
they were modified, were still going to foreclosure. And there 
was such a paucity of information on that until the very end of 
last year, when it was revealed that more than half of the 
loans that were being modified were actually either leaving the 
payments the same or increasing them; a very small amount were 
actually lowering them.
    So it was a process that made no sense.
    Representative Brady. Well, I think, too, part of it is 
trying to figure out how you can help people who found 
themselves in tough situations--lost a job or lost valid 
income. How do you help them? And how do you address a 
colleague back home I talked to whose retired mother in Nevada 
took out three zero down payment, adjustable rate balloon 
payment notes to make investments in three homes she hoped 
would, you know, make money? And obviously these--our answers 
and solutions haven't fit those groups very well. So thank you 
for your comments.
    There are a lot of things that contribute to this. I want 
to ask the rest of the panel--in 1992 there was a landmark 
study published by the Federal Reserve Bank of Boston. It found 
that minority applicants for home mortgage loans in Boston were 
more likely to be rejected than white applicants, even after 
adjusting for a number of differences.
    In response to that study, the Federal Reserve Bank issued 
regulatory guidance to encourage banks to adopt more flexible 
underwriting standards for home mortgage loans.
    Among other things, banks should be willing to consider 
ratios above the standard 28, 36, you know, the net--gross net 
income devoted to the house payment, that they should allow 
gifts, grants, or loans from relatives, nonprofit 
organizations, or municipal agencies to help cover the down 
payment and closing costs. They should accept unemployment 
benefits, which are by definition temporary, as a source of 
income in covering those debts.
    Other federal regulators soon adopted this guidance, which 
became standard for evaluating the CRA performance of banks. 
The question is, however unintentional, did this Federal 
Reserve guidance contribute to the deterioration of 
underwriting standards? Did it deteriorate--contribute to the 
spread of subprime residential mortgage lending, inflation, 
ultimately, of the housing bubble, and the large number of home 
foreclosures among those low-income minority families probably 
least able to weather a tough economy or make the payments in 
the first----
    And why don't we start with you, Mr. Strupp, and we will 
work it down the panel?
    Mr. Strupp. Well, thank you, Congressman. I think that--
remember, there is a difference between subprime and predatory, 
and of course a lot of what we are talking about today is what 
was predatory, but----
    Representative Brady. Not always----
    Mr. Strupp [continuing]. But not always. There certainly 
are predatory subprime loans. And I think that there was--
certainly making loans more available and relaxing underwriting 
standards made more people able to borrow, but that did not 
suggest--does not suggest that irresponsible lending was being 
condoned or should have been condoned. And I think that is the 
distinction, is that it was still expected that lenders who 
were going to be making these more relaxed loans--FHA was 
making more relaxed loans as well--that that was the whole 
purpose of the FHA by its creation, was to make low-and 
moderate-income families available--make loans available to 
them. But that did not mean that what they were going to be 
borrowing was going to be something that they----
    Representative Brady [continuing]. Right.
    Mr. Strupp [continuing]. Could not sustain----
    Representative Brady. No, I agree with you. I can't think 
of a lawmaker, a regulatory body, a reserve bank who said, 
``Let us set out to inflate the housing bubble and get people 
into mortgages they can't afford.'' I don't think that occurred 
throughout the process.
    But trying to identify things that contributed to it that 
we ought to go back and revisit as a way to prevent them in the 
future in a reasonable way.
    Mr. Strupp. And I think it may well be fair to say that 
certainly the creation of more relaxed loan products was--
contributed to the problem, and those products were then 
abusively given to borrowers who should not have been given 
them. So I think that you could connect those dots and say that 
subprime loan products were abusively given to borrowers to 
whom they were not designed for. So yes.
    Representative Brady. Good point.
    Commissioner.
    Ms. Raskin. Yes. I think that more flexible standards 
should not have ever been equated with weak regulatory 
standards. In other words, once the more flexible guidance was 
put in place, it was incumbent upon the regulators, as 
examiners, to examine for those standards.
    So I think that the breakdown occurred at the regulatory 
oversight piece of the, you know, of the equation, which ties 
back into your question regarding ability to repay and the 
ability to repay standard, which is something we have adopted 
in Maryland. It is law in the state of Maryland now. And 
ability to repay standard must be shown for every loan, and our 
examiners examine against that law. So we----
    Representative Brady. When did you put that law in place?
    Ms. Raskin [continuing]. We put that in place in 2007--
early 2008, yes--that is exactly right, but it also goes to the 
question about what we can do to keep this from happening 
again.
    Representative Brady. Yes. I appreciate that. And you have 
a unique perspective, so thank you.
    Yes, sir, professor.
    Mr. Squires. I don't think the increase in flexibility was 
any kind of meaningful contribution to this problem. The fact 
that lenders were encouraged to be more flexible is not an 
invitation to be irresponsible, to not verify income, to not do 
sound underwriting.
    We have long had character lending that people have used to 
help out friends and people that they knew. It seems to me 
there is nothing wrong with encouraging people to try to reach 
out--lenders to reach out to communities that they had not 
traditionally served, but to do so in a responsible way.
    It is important to keep in mind that the CRA, which has 
gotten some criticism, has in the statute language requiring 
safe and sound lending. Lenders have an affirmative obligation 
to ascertain and be responsive to the credit needs of their 
entire service area, including low-and moderate-income 
families, consistent with safe and sound lending.
    So there is nothing in the call for flexibility that 
requires irresponsibility. Now, lenders, knowing that they 
weren't going to keep a loan in their portfolio and they were 
going to immediately sell it and turn it around, that clearly 
contributed to the problem, but it is not because of the 
flexibility.
    And I also want to point out--semi-related--that the 
Employee Free Choice Act does not deny any worker the secret 
ballot. It provides workers with the opportunity to exercise a 
choice as to whether or not they want to have a secret ballot 
or a card check.
    Representative Brady. That is not how my workers see it, 
but I appreciate the point. I do think one thing we have 
noticed in this foreclosure crisis is that everyone offends the 
good intentions in policy that they set out to accomplish.
    How those were interpreted, used, regulated, invested, 
ultimately borrowed from a wide range of borrowers, both from 
some out of need, from some for a hope of actually owning a 
home, some for making a quick buck--although I am not pointing 
to any single one; there were a whole lot of host of different 
issues that we have to deal with.
    And again, I really think this is a good panel. We 
appreciate you, Chairman.
    Mr. Carr. Could I respond to that? Could I respond to that 
question about the study, because I think that study was a 
watershed. That was actually at a high point in them actually 
trying to promote affordable, sustainable homeownership.
    The study didn't say become more reckless; it said be more 
careful in looking at the details of these consumers who, 
historically, have been outside of the system, so that you can 
bring them in. And that is not what broke down the system. 
Using alternative sources of income is not what happened. It 
was using no source of income, called no-doc mortgages.
    It was not giving them a fixed-rate mortgage that was a 
percentage point higher; it was giving them a--it was putting 
them into an adjustable loan that had payment shock that was 
about 50 to 80 percent and in some cases 100 percent higher. It 
was qualifying a person at a teaser rate rather than the actual 
adjusted rates that----
    Representative Brady. Although you have to admit, Federal 
Reserve Board followed up that study with specific guidance to 
banks--said, loosen, you know, the income ability to repay, the 
standard 28, 36 figure. It said, you know, loosen up how you 
get the down payment, closing costs, and loosen up using income 
like unemployment benefits. Again, I am not saying that caused 
a cascade of all of this----
    Mr. Carr [continuing]. Exactly. But they don't use income 
at all.
    Representative Brady [continuing]. What is that?
    Mr. Carr. My point is that they didn't say, underwrite 
consumers for the adjustable starting teaser rate and not for 
the cost of a loan. They did not say, use pre-payment penalties 
that would lock a consumer in. But once they were in the system 
and they actually perform well after the first year or year and 
a half, and they realize, ``Wow. This homeownership stuff 
works. I can get into a low-rate, fixed-rate mortgage.'' They 
couldn't because they were penalized and held into that 
mortgage.
    They didn't say, charge them $12,000 to $17,000 more----
    Representative Brady. But I do point out, there really were 
significant changes as a result of that study that had an 
impact down the road, whether intentional or not. Thank you.
    Chair Maloney. Mr. Hinchey.
    Representative Hinchey. Thank you very much, Madam 
Chairman.
    And thank you very much for your very excellent testimony 
and the very candid responses that you have given to the 
questions that have been asked of you.
    This is a very complicated situation, and it is something 
that really needs to be dealt with. We have seen a manipulation 
of the lending practices in this country now going back for 
almost a decade.
    And to a large extent, they originated with the repeal of 
the Glass-Steagall Act, which was a very conscious repeal that 
was engaged in and caused by people who wanted to engage in 
predatory lending and the manipulation of the lending system, 
going back to the circumstances that caused the depression of 
the 1920s, what enabled them to make a huge amount of money, 
and they didn't care what the outcome was going to be. That is 
the circumstances that we are dealing with.
    It strikes me as a kind of modern version of the con jobs 
of the 1930s. You go around establishing confidence in people, 
and then after you establish the confidence you manipulate them 
and take away as much money from them as possible. That is what 
we have seen, and we need to deal with this effectively. This 
Congress and this administration needs to deal with it 
effectively.
    A lot of things have come forward now that are attempting 
to deal with it, but there are a host of other things that 
really need further dealing with. One of the aspects of the 
past that interests me, frankly, was that January 7th, 2004 act 
of the Office of the Comptroller of the Currency, which issued 
a final rule identifying types of state laws that are preempted 
for national banks, including mortgage lender broker licensing 
laws, escrow account laws, credit score disclosure laws, and 
anti-predatory lending laws.
    That was just a brilliant move by the part of the OCC back 
in the Bush administration, and I am sure that they were 
advised to do that by a lot of the people who wanted to engage 
in these practices that we have seen that have caused so much 
of the damage.
    So we are seeing efforts now that are attempting to engage 
these problems, and I hope I am not too right about this, but 
in my opinion what is being suggested is not nearly enough. It 
is going to go some part of the way; it is going to deal with 
some aspects of the problem. But it is not going to deal with 
it all the way.
    So I am wondering if you might suggest to us what might be 
done with the Consumer Financial Product Safety Commission Act 
of 2009, which is the big bill which is upcoming and is 
supposed to deal with this problem. What should the Congress 
think about adding, consider adding? What should we do to 
strengthen that?
    And what should we do to really deal with some of the 
underlying problems here, which were set up intentionally to 
manipulate this national economic financial system, bring about 
predatory lending and the whole host of things that have caused 
these deep economic problems?
    And what can we do to deal with those, and not just deal 
with them in the context of the circumstances that are existing 
now, but what are we going to do to try to--to make sure to 
prevent this kind of thing from happening again in another 10 
years? Maybe you might have some suggestions, so let me start 
with Mr. Squires and ask him.
    Mr. Squires. Not being familiar with the statute that you 
are talking about, I would say that if there isn't a private 
right of action, there ought to be. You ought to make it easy 
for fair housing organizations, consumer advocates, private 
attorneys around the country to use the statute to take action 
on their own.
    We see with the Fair Housing Act, for example, HUD can only 
do so much, Justice can only do so much. Most of the major 
path-breaking decisions that we have gotten from the courts 
have been as a result of private lawsuits leading to decisions 
or settlements.
    So I think that you want to try to energize as many 
different organizations around the country so you are not 
relying simply on a federal regulatory agency to enforce the 
law.
    Mr. Carr [continuing]. Yes. I would offer just some broad 
comments. I think one of the most powerful things that can be 
done is collect information on the abuses that are occurring in 
the system. Without taking any action to eliminate abuses, just 
shining a spotlight on where the disparities in lending are 
happening and how and making it clear to the American public 
would go a long way, I think, to addressing a lot of problems, 
because just like at this hearing today, there are many who 
disagree with, for example, the--you know, where the 
disparities come from in the lending market. And we shouldn't 
be debating, you know, the facts; we should be debating how do 
we resolve them.
    A second thing I would say is, I would really encourage 
looking at the full panoply of institutions that serve 
consumers across the spectrum and asking, do they have the 
responsibility and do they have a perspective on how most to 
achieve financial mobility and economic--upward economic 
movement?
    One of the things that I find striking is these 
conversations between safety and soundness on one side and 
consumer protection on the other. We should know now very 
clearly that safety and soundness means promoting the economic 
mobility of consumers, and if that is not happening, the system 
is neither safe nor sound.
    Ms. Raskin. Yes, well I certainly concur with you that the 
causes of this are much broader than the proposed solutions 
appear to be. And when I look at this crisis I see, as you do, 
problems not just with the repeal of Glass-Steagall, which, 
after all, validated the growth and complexity of these 
institutions which are now too big to fail and which have 
devoted so much of our federal taxpayer dollars to help bail 
out, but also the absence of any meaningful antitrust 
enforcement as well as a general deregulatory impulse that 
has--that has sort of gripped the regulators in the last couple 
decades.
    To speak primarily to the question of the consumer 
protection proposal and suggestions for making it work, I would 
offer the following: First of all, I think that we want to make 
sure that we keep it from being captured. We think about how 
you create an agency--a federal agency--in this environment 
that is not captured by the industry that it is supposed to be 
regulating.
    Secondly, I think we want to look and make sure that we can 
keep it from being slow and reactive. In other words, what can 
we build into this agency that will keep it nimble and keep, in 
essence, what we do at the state level, which is the ability to 
respond very quickly and nimbly and in a tailored way to new 
developments as they emerge, because as this whole panel has 
pointed out, the predatory practices completely morph and 
change at a very constant, rapid-fire kind of way, and the last 
thing we want is a federal agency that is supposed to be 
overlooking these practices responding too slowly and too late.
    And finally, I would say that this protection agency should 
be studied with an eye towards understanding why other consumer 
protection agencies at the federal level have failed, have not 
been as strong as they could have, and what lessons have been 
learned from the other federal agencies that are supposed to be 
doing consumer protection.
    Representative Hinchey. Thank you very much.
    Mr. Strupp.
    Mr. Strupp. I am going to focus on your original, or 
initial, comments about preemption----
    Representative Cummings. And be brief.
    Mr. Strupp [continuing]. And I will be brief. Thank you, 
Congressman.
    I am a member of the Bar in the state of Virginia and in 
the District of Columbia. If I choose to practice law in New 
York, I have to get a New York license. I think this agency 
will set--should set minimum standards, but if I am a lender, 
and I choose to go into another state and it may have higher 
standards, I should adhere to that state's higher standards. I 
think that that is an important structure for this agency.
    Representative Cummings. Thank you very much.
    Mr. Campbell.
    Representative Campbell. Thank you, Mr. Chairman.
    And thank you all. First question: There is a proposal out 
there for a federal requirement of a single-page disclosure 
that would be very simple, very clear, that would have to 
outline if there is a change in payments what the maximum 
payment could be, et cetera, et cetera. Good idea, bad idea?
    Ms. Raskin. I think it is a great idea. If it can happen, 
if people can sit down and come up with a single form of 
disclosure that makes sense to people, I am all for it. It has 
bedeviled people in the past, but it is something that is 
worthwhile.
    Representative Campbell. Okay. I see nodding, I think, 
general agreement.
    Mr. Carr. I would agree.
    Representative Campbell. Okay. Fannie and Freddie--we 
haven't talked about them much. Do you all see Fannie and 
Freddie as having contributed to the problem, as having 
contributed to a solution, or as having been neutral in all the 
ills that we are currently experiencing?
    Mr. Carr. Well, as a former employee of Fannie Mae who was 
paid for many years to develop affordable loan products that 
were sustainable and to talk about and try to get predatory 
lending out of the market, I can say that Fannie Mae was a 
major player in trying to right what was happening wrong.
    In fact, going all the way back to 2001, I published two 
studies while still a Fannie Mae Foundation employee. I 
published an entire journal, called ``Predatory Lending,'' 
looking at every aspect of the mortgage market, again, funded 
by Fannie Mae.
    Going all the way back to 1999, 1998, 1997, I was giving 
lots of speeches around these issues. The problem is that those 
subprime loans were allowed to percolate through the markets, 
and ultimately it affected the entire mortgage finance system, 
and ultimately the finance system itself.
    But Fannie Mae was not a major player in the subprime 
mortgage market. And even to the extent that it did buy 
subprime mortgages, it did not contain the predatory features 
that in fact were the cause of the collapse of the market.
    Representative Campbell. Other thoughts from the panel? No 
other comments around that?
    Okay. One last question that I have, then. We talked about 
changes in the bankruptcy laws, and there is something--I have 
opposed that, and there is something that I just don't get and 
don't understand, and perhaps you can explain your position.
    Home loans are secured loans, and if under a bankruptcy 
loan, basically that security--the ability to tap that security 
can go away in bankruptcy, then doesn't that make--as a lender, 
doesn't that make you then say, ``All right, this is 
effectively a personal loan, which will''--and when you talk 
about underwriting standards and so forth and, you know, 
somebody wants to make a $200,000, $300,000, $400,000 personal 
loan that a very--a great number of people who currently are 
able to qualify for loans won't under that scenario? I mean, 
what am I missing?
    Mr. Carr. I think the key to the bankruptcy reform--the 
real key--was to actually get loans retroactively, loans that 
had already been originated, to allow people going to 
foreclosure to have those loans modified. And to the extent----
    Representative Campbell. And not going forward?
    Mr. Carr [continuing]. Not going forward, no. Because 
hopefully going forward we will be making loans that people 
won't need to go to bankruptcy court to maintain.
    Representative Campbell. Okay. So--you see it only as a 
solution to deal with the current crisis--and going forward 
that you would not be able to discharge that debt in bankruptcy 
and keep the security?
    Mr. Carr. Not for newly-originated loans.
    Representative Campbell. Okay.
    Mr. Carr. I am saying this would be a problem trying to 
clean out this exceptional problem that already exists and for 
which no other solution has been found. And what is helpful 
about this proposal, bankruptcy reform allows the cost to be 
borne by the individuals who were the two parties to the 
process--the borrower and the lender.
    Representative Campbell. I get that. And actually I think 
that is a reasonable point and I appreciate it. The only 
concern I would have--and then I will yield back my time--but 
the only concern I would have is that there is one thing going 
on in the marketplaces right now, that the rules of the game 
change in the middle of the game, and so still--if you did that 
now you would, in fact, be changing the rules of the game in 
the middle of the game.
    Now, you can argue that there is justification for doing 
that, that some people cheated, and I get that and I understand 
it. But the question becomes, there are a lot of people who 
didn't cheat, and do they say, ``Well, wait a minute, you know, 
I don't know how to play this game in the future because now 
the rules might change after we enter the game.'' So it is just 
a concern.
    I yield back my time. Thank you.
    Mr. Carr. Yes. I think that that, you know, that the 
institutions that are arguing that giving a homeowner access to 
bankruptcy court that is equivalent with something they could 
get for their luxury yacht in a time of national crisis is 
completely frivolous.
    The federal government is standing on the hook for about 
$12.8 trillion. If that is not a national disaster--and the 
taxpayers at the end of the day will have paid more than $1 
trillion of subsidies.
    So to open the window on a temporary law that will allow 
the cost to come out of the people who were actually investors 
in what was a lot of fraudulent mortgage product rather than 
shoving all of those costs on the backs of the American 
taxpayer I think makes reasonable sense. And I think it is 
important to recognize that all of us are paying, not just 
homeowners--all of us, because that foreclosure crisis is 
destroying the U.S. economy, and the crisis in foreclosures is 
getting worse.
    Representative Snyder. Thank you, Mr. Chairman. This is a 
Maryland-related hearing today, and I am from Arkansas.
    I think I want to direct my question to you, Ms. Raskin. 
This is my 13th year, but I suspect since about 12\1/2\ years I 
have been hearing from the local affiliate of Acorn back home 
about the potential problem with predatory lending. You had 
mentioned in your written statement that some banking 
commissioners have been warning about these problems for some 
years, and I think there were other people that were, too.
    Last night I got an e-mail from--in response to our 
questions from the Acorn group back home, and this is one of 
the things that they said, part of their e-mail: ``About 2005 
we began seeing lots of first-time homebuyers who were getting 
80-20 loans--two loans, one for 80 percent and the other for 
the 20 percent down payment. All of these loans had ARMs and 
most were loans that had a 2-year fixed rate before the ARM 
kicked in.
    ``Almost everyone received a loan through a mortgage 
broker. Most loans had a sizeable yield spread premium, the 
backend compensation that goes to the broker. The overwhelming 
majority of the people we have been seeing live in zip codes 
72204 and 72209. Those zips have the highest number of 
foreclosure filings in Pulaski County, Arkansas, as well.
    ``Almost everyone says they were never given any 
alternative products. Many reported being pressured into 
signing the paperwork. Of the 50 or 60 people we have had in 
counseling over the last year, no one fully understood the 
terms of the loan, no one was aware of the yield spread premium 
or even what it was, everyone was told that they could 
refinance during the 2-year period. When the ARM kicked in, the 
loan became more and more difficult to handle,'' end of quote.
    Is that about the kind of problem that you all have been 
seeing in Maryland, as well as Arkansas?
    Ms. Raskin. Yes. That pretty much sums it up. And I would 
venture to say that that description holds true in a lot of 
states in our country.
    Representative Snyder. Right. I wanted to ask, I am the 
father of four boys under the age of four, which means anything 
I learn now I learn from either the ``Jungle Book'' or ``Mary 
Poppins,'' and, you know, the staid old bankers in ``Mary 
Poppins'' that look like they have been very content with their 
4 percent earning, or whatever. I want to ask about the ethic 
of banking in general and financial services.
    We look at this predatory lending as an outlier, but in 
fact, when you look at some of the practices of mainstream 
banking, it doesn't seem so much like an outlier.
    Computer programs that, you know, if I go down and take 
$100 out of my account on Friday afternoon--sorry, take $10 out 
of my account on Friday afternoon and Monday morning early I 
take $100 out, it will be processed in my bank account so that 
$100 comes out first with the goal being to drive me into more 
overcharge fees. Our mainstream banks who put out credit cards 
are doing all this nefarious stuff that the Congress and the 
fed finally had to act.
    I put--two mornings ago deposited $13,000 in my bank 
account on June 23rd and received back my deposit slip that 
said half of it will not be credited till July 2nd. And I am 
pleased with that one because, apparently, my bank is saving 
gas money by sending the checks by Pony Express to the other 
state and then bring the cash back by Pony Express. It is the 
only way I can account for like, 11 days, to see if a check 
cleared or not.
    So what is happening? You have been in the industry a while 
from a different perspective, Ms. Raskin, from the policy for 
spending. What has happened to the banking and financial 
services industry that we can't really trust anyone? I mean, 
you really can't trust anyone in the banking industry that at 
some level they don't have predatory practices? What has 
happened to the ethic of financial services?
    And to my personal friends who are bankers back home, you 
all are excluded from my question.
    Ms. Raskin. Well, I mean, excellent observations, and it 
has been fascinating, really, to watch the evolution of banking 
over--really over the last couple decades. And I think----
    Representative Snyder. Worse than fascinating--it has been 
just, I mean, horrible.
    Ms. Raskin [continuing]. Right. But what we are talking 
about--what we have been talking about, you know, prior to your 
question, has been mostly predatory behavior on the mortgage 
side, not that that includes the whole universe of predatory 
behavior.
    But if you look at the small community banks, the Main 
Street banks, as you have talked about them, they generally 
were not--and obviously I can't speak with absolute 
quantitative precision here--but they were not the institutions 
that were heavily engaged in subprime lending.
    The subprime problem and the predatory behaviors associated 
with part of the subprime problem were associated really with 
the fact of the mortgage broker industry being inserted into 
the chain of relationships that used to be just a banker-
borrower kind of relationship, and then the corresponding 
securitization of loans and lending that financed this 
incredible new retail kind of operation.
    So when we look at mainstream banking we clearly look for 
the practices that you describe. I mean, we very much are 
sensitive to overdrafts, overdraft charges, the accumulation of 
fees that don't seem to bear any relationship to cost, and 
those are clearly things that need to be examined and kept an 
eye on.
    I would like to think that this doesn't represent a 
fundamental erosion of a community banking ethic. I tend to 
think, from the community banks that I see in my state, that 
that ethic remains strong, that the notion of charging 
excessive fees or acting in a predatory way is not the norm and 
is not the way that banks really want to move in terms of being 
sustainable engines of growth for our local economies.
    Representative Snyder. I agree with you on the community 
banks, and maybe that ``too big to fail'' is synonymous with 
``too big to be ethical'' also. Thank you.
    Representative Hinchey. Let me just ask you one more 
question: The original House bill on bankruptcy modification--
would allow bankruptcy courts to modify mortgages on primary 
residences. These loans are the only asset that a consumer has 
that can't be changed in bankruptcy court--second homes, 
whatever it might be.
    All of this can be modified. This doesn't mean that the 
value of the house, of course, doesn't matter in the context of 
the bankruptcy. But given the fact that the Senate version of 
the bankruptcy bill--is weak, let me ask you what you think we 
can do to give mortgage companies the incentive to modify these 
mortgages properly without forcing homeowners in the context to 
go bankrupt?
    Mr. Carr. I think the big problem is that we are already 
paying their bills, and so they are not incented to agree to 
bankruptcy or anything else because they know that they are too 
big to fail and we are going to subsidize, and the taxpayers 
are doing, and unfortunately I think our approach to propping 
up the financial system with an unlimited draw on the U.S. 
Treasury is what is hurting us in every type of loan 
modification, bankruptcy, and everything else.
    I mean, just the idea that the financial institutions are 
allowed to lobby while holding taxpayer funds, to lobby against 
the interest of the American taxpayer is, in and of itself, it 
is just a bizarre circumstance, and that needs to change in 
order to move forward in a positive way.
    Mr. Squires. And I would endorse that, and I think part of 
the problem is we have seen so many examples just in the last 
couple of years of where we are prepared to bail out these 
entities.
    There has always been this thought in the back that places 
like, you know, Fannie and Freddie had this implied 
relationship with the federal government and they would be 
protected, but now we have seen very concrete evidence that, 
you know, except for Lehman Brothers, we are prepared to step 
in and help out almost any entity, and so we have gone in the 
opposite direction and we have provided disincentives to 
institutions to sit down and work out these modifications.
    Mr. Strupp. I think the incentive is to mandate it and make 
them in noncompliance with the law if they don't, because I 
think that the problem is that the loan modification process we 
currently have is largely voluntary, and so the incentive 
should be, this is the law, this is what the lenders or the 
note-holders must do.
    Representative Hinchey. Well, once again, let me express my 
gratitude and appreciation to you for being here and for the 
things that you have said, which are very helpful, and again, 
the candid responses that you have provided to the questions, 
and my appreciation for Mr. Cummings, who had to leave to go 
back to the floor, for inviting many of you to be here.
    Thanks very much. We deeply appreciate it.
    [Whereupon, at 12:45 p.m., the committee was adjourned.]
                       SUBMISSIONS FOR THE RECORD

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


 Prepared Statement of Representative Carolyn B. Maloney, Chair, Joint 
                           Economic Committee
    Good morning. I would like to welcome our distinguished panel of 
witnesses who are here to examine the economic impact of reverse 
redlining, where minority borrowers and senior citizens have been 
targeted to receive unnecessarily expensive mortgages.
    I thank Congressman Cummings and his staff for their help bringing 
in witnesses from Baltimore, Maryland, one of several states and 
localities that is investigating or have recently brought suit against 
lenders over practices that may have violated fair lending or civil 
rights laws by deliberately steering minorities and the elderly into 
more costly subprime loans.
    Two years ago, problems in the subprime mortgage markets touched 
off an economic crisis that is still unfolding. Today, almost 1 in 6 
subprime mortgages are in foreclosure compared to 1 in 40 prime 
mortgages in the United States.
    As subprime foreclosures have risen over the past two years, 
minority homeownership rates have fallen at a much faster pace than for 
non-minority home owners.
    The pain of rising foreclosures is being felt in communities all 
across the country, as the ripple of mounting losses spreads to 
borrowers, lenders, governments, and neighbors. In some areas, once 
thriving neighborhoods have been transformed into boarded-up ghost 
towns. Concentrated foreclosures have spillover effects on neighboring 
properties, increasing crime and vandalism, and lowering surrounding 
property values.
    A fundamental problem is that the financial incentives of mortgage 
companies and mortgage brokers are not aligned with the best interest 
of their borrowers.
    Higher commissions for higher interest loans, creates the incentive 
for mortgage brokers to sell the most expensive products to those who 
can least afford them. Low or no documentation loans, which rely on 
stated income rather than W-2 forms, provide an avenue for lenders to 
evade state law by making loans appear affordable, even when they are 
not.
    Evidence continues to come to light that many of the subprime 
borrowers who had paystubs to prove their employment--and may have 
qualified for prime loans--were steered into more costly no doc loans 
by some lenders.
    In my home state of New York, Brooklyn and Queens have the highest 
concentrations of low and no documentation subprime loans compared to 
other parts of the state. There is a particularly high concentration of 
these loans in Astoria, which I represent.
    Congress and the President have taken steps to strengthen the 
economy, keep families in their homes, expand affordable mortgage 
opportunities for families, and rein in abusive lending. But more must 
be done to stop bad loans from being made in the first place.
    We need to return to sensible principles that require lenders to 
assess borrowers' ability to pay over the whole life of the loan. But 
we also need to strike a balance between making sure borrowers can 
repay the loans they get and helping borrowers who can repay a loan get 
one.
    I have high hopes that the President's proposed Consumer Financial 
Protection Agency will play a key role in strengthening consumer 
protections against predatory practices in the future.
    The Administration's proposal to eliminate the current preemption 
of state laws regarding antipredatory lending for national banks, 
thrifts, and federal credit unions will allow states to adopt and 
enforce stricter laws for institutions of all types, regardless of 
charter.
    Stopping abusive lending practices that have contributed to the 
current foreclosure crisis and returning to healthy, fair lending 
principles will provide a sound basis for economic growth and recovery.
    I look forward to the testimony of our witnesses.
                               __________
    Prepared Statement of Representative Kevin Brady, Senior House 
                               Republican
    I am pleased to join in welcoming the panel of witnesses testifying 
before the Committee this morning.
    Racial discrimination in lending is immoral. It is also illegal 
under the Equal Credit Opportunity Act. Recent studies suggest that 
discrimination is generally limited to minority applicants with low 
incomes or poor credit and employment histories. Moreover, 
discrimination occurs primarily in the price of credit rather than in 
its availability. This practice is known as ``reverse redlining.'' 
Nevertheless, distinguishing between racial discrimination, misguided 
efforts to shoehorn marginal borrowers into subprime mortgage loans to 
buy homes as prices escalated, and simple greed by unethical lenders is 
not easy.
    From 1995 to 2007, the federal government encouraged mortgage 
lenders to loosen underwriting standards and offer exotic alternatives 
to fully amortizing, fixed rate, thirty-year mortgage loans to increase 
the rate of home ownership among low-income and minority families.
    Mortgage lenders obliged, knowing that they did not have 
responsibility for the performance of mortgage loans they had extended 
once these loans were sold to issuers for securitization.
    The deterioration of underwriting standards and the development of 
subprime mortgage loans combined with an overly accommodative monetary 
policy to inflate a huge housing bubble.
    As in past bubbles, both borrowers and lenders became increasingly 
reckless. In some cases, individuals misled lenders to secure subprime 
mortgage loans to speculate in housing.
    In other cases, lenders took advantage of unsophisticated families 
by placing them in subprime mortgage loans that they did not understand 
and could not afford. In either case, the results were the same--many 
families found themselves underwater, and a tidal wave of defaults and 
foreclosures followed--once the housing bubble burst. This has been 
especially difficult for low-income and minority families.
    Individuals must be fully aware of mortgage terms and the financial 
burden that they are assuming before closing. Improving financial 
education would help families to understand mortgages and other 
financial products and to avoid credit problems in the future.
    In conclusion, exploiting the complexity of mortgage contracts to 
fleece borrowers is not an acceptable business practice. Full 
disclosure and transparency should be part of the solution. Loan 
originators and issuers of mortgage-backed securities should also be 
required to retain ``skin in the game'' to discourage (1) lenders from 
knowingly extending mortgage loans that are unlikely to be repaid, and 
(2) issuers from placing such loans in mortgage-backed securities. 
Finally, excessive debt burdens, although all too common, make it very 
hard for families to get ahead over the long run. Better financial 
education could help people to avoid at least the most financially 
burdensome kinds of loans available.
                               __________
        Prepared Statement of Representative Elijah E. Cummings
    Madam Chair,
    Thank you for holding this critical hearing to examine the targeted 
predatory lending practices that have ravaged our communities and our 
economy.
    I requested this hearing following the New York Times report on 
June 7th detailing new developments in the lawsuit filed by my hometown 
of Baltimore, against Wells Fargo.
    The article described affidavits that were recently filed by the 
City of Baltimore that included staggering claims about Wells Fargo 
employees steering African-American citizens toward high-cost loan 
products to boost company profits and reward employees with monetary 
bonuses and trips.
    The affidavits also claim that the true opinion of the Wells Fargo 
firm toward their clients was reflected in their use of racist epithets 
to describe African Americans.
    The city's contention is that the discriminatory lending practices 
pursued by Wells Fargo promoted high-cost loan instruments which led to 
foreclosures far in excess of what the rate of foreclosure might 
otherwise have been.
    That in turn has led to declines in property values in many 
neighborhoods as well as increased crime, increased costs for city 
services, and lost tax revenues, all on the back of an increasingly 
burdened city.
    With home values still falling, and the national unemployment rate 
now exceeding 9 percent, there has been a seemingly unending flood of 
foreclosures that has taken, and continues to take an immeasurable toll 
on all of our communities, and on the overall economy.
    Obviously, the proliferation of subprime and other alternative loan 
products in communities across this nation contributed significantly to 
the foreclosure crisis.
    So in order to progress toward a complete economic recovery we need 
to understand exactly what got us where we are today--and that means 
that we need to understand both the specific financial transactions and 
regulatory failures as well as, frankly, the assumptions and attitudes 
that led firms to target certain groups for some of their most 
questionable transactions.
    The subprime loans, which were created to increase homeownership in 
low and middle income sectors, turned into vehicles for enriching 
lenders, brokers, and investors.
    We also know, from research done by Mr. Carr and the National 
Community Reinvestment Coalition, that there is a racial and ethnic 
disparity in the distribution of these high-cost loans.
    They found that low- to moderate-income African Americans were at 
least twice as likely as low- to moderate-income whites to receive 
high-cost loans in 47.3 percent of areas they examined. The disparity 
continued into the higher income brackets as well.
    Dr. Squires has written very eloquently that, ``clearly not all 
subprime loans are predatory, but virtually all predatory loans are in 
the subprime market.''
    That is why it so important for us to ensure the protection of all 
homebuyers, and President Obama has taken a decisive first step in this 
direction with the proposed Consumer Financial Protection Agency.
    As I say so often, I live in the inner, inner city of Baltimore. 
And the people on my block are my neighbors, and my constituents, and 
my friends. They are struggling, and they need help now.
    I am determined to do everything I can for them, from hiring 
dedicated staff for constituent mortgages to getting people a seat at 
the table with their lender--as we did recently putting 1000 borrowers 
together with 19 lenders at our foreclosure prevention workshop.
    The witnesses before us have also done their part. I commend all of 
them for their work protecting the interests of home borrowers and 
communities.
    I am particularly pleased to have Commissioner Raskin with us. She 
remains vigilant in exercising all the rights she has under Maryland 
law--and her efforts have led to the enactment of new mortgage fraud 
protections by the General Assembly.
    Again, I want to thank the Chair for holding this hearing and I 
look forward to the coming discussion.
                               __________
Testimony of James H. Carr, Chief Operating Officer, National Community 
                         Reinvestment Coalition
    Good morning. My name is James H. Carr and I am the Chief Operating 
Officer for the National Community Reinvestment Coalition. On behalf of 
our coalition, I am honored to speak with you today.
    NCRC is an association of more than 600 community-based 
organizations that promotes access to basic banking services, including 
credit and savings, to create and sustain affordable housing, job 
development, and vibrant communities for America's working families. 
NCRC is also pleased to be a member of a new coalition of more than 200 
consumer, civic, and civil rights organizations--Americans for 
Financial Reform--that are working together to restore integrity and 
accountability to the US financial system.
                  the foreclosure and economic crises
    Members of the Committee, recent reports of green shoots and signs 
of an economic recovery offer hope to the American public that the 
worst may have past. But when one reads the fine print and footnotes on 
the optimistic headlines, the positive news is less than encouraging. 
This is particularly true within the financial services industry.
    The reason for the continuing and protracted economic downturn is 
that the problem that precipitated the collapse of the credit markets 
and erosion of the economy, namely the foreclosure crisis, continues to 
worsen. Already this year, more than a million homes have been lost to 
foreclosure and five million more homes are at risk of over the next 
three years (assuming Making Home Affordable achieves the full success 
expected by the Administration).
                   origins of the foreclosure crisis
    Many blame the foreclosure crisis on a claim that financial 
institutions that sought to improve homeownership among low- and 
moderate-income households. A variation of this argument is that the 
Community Reinvestment Act forced banks to lend in a reckless and 
irresponsible manner.
    Both of these assertions have no basis in fact or logic. According 
to the Federal Reserve Board, only 6 percent of high-cost subprime 
loans to low- and moderate-income households were covered by CRA 
regulation. And, the Center for Responsible Lending finds that less 
than 10 percent of subprime loans were for first-time homeownership.
    Failure to regulate adequately the US mortgage markets allowed 
deceptive, reckless, and irresponsible lending to grow unchecked until 
eventually it overwhelmed the financial system.
    Almost every institutional actor in home mortgage finance process 
played a role, including brokers, lenders, appraisers, Wall Street bond 
rating agencies, and investment banks.
                    not an equal opportunity crisis
    While few have been able to escape the financial pain completely, 
African Americans, Latinos, and Native Americans are bearing the brunt 
of this current economic disaster.
    Although the national unemployment rate is an uncomfortable 9.4 
percent, that rate for African Americans is 15 percent, and for 
Latinos, unemployment is approaching 13 percent. The unemployment rate 
for non-Hispanic whites remains under 9 percent.
    Because African Americans and Latinos have so few savings, they are 
poorly positioned to survive a lengthy bout of unemployment. As a 
result, potentially millions of African Americans and Latino middle-
class households could find themselves falling out of the middle by the 
time the economy recovers.
    Moreover, African Americans and Latinos were targeted 
disproportionately for deceptive high cost loans. According to a study 
by the US Department of Housing and Urban Development, subprime loans 
are five times more likely in African American communities than in 
white neighborhoods, and homeowners in high-income black areas are 
twice as likely as borrowers in lower-income white communities to have 
subprime loans.
    The result is that blacks and Latinos are over-represented in the 
foreclosure statistics. African Americans, for example, have 
experienced a full three-percentage point drop in their homeownership 
rate since the crisis began.
    Further, research by the National Community Reinvestment Coalition 
found that predatory lenders aimed their toxic products particularly at 
women of color. And, because African-American children are more likely 
to reside in female-headed households, black children are also 
disproportionately harmed as a result of the foreclosure crisis and its 
attendant stresses.
    If a family lost their home to foreclosure and could not find a 
suitable apartment in the neighborhood from which they were evicted, 
children may be forced to leave their school, social networks, and 
familiar community surroundings, all of which can hinder their 
educational performance and long-term socioeconomic wellbeing.
    In a separate NCRC study (The Broken Credit System, 2004), we found 
that after controlling for risk and housing market conditions, the 
portion of subprime refinance lending increased solely when the number 
of residents over the age of 65 increased in a neighborhood. If a 
borrower were a person of color, female, and a senior, she was the 
``perfect catch'' for a predatory lender.
    These levels of disparity have little to do with differences in the 
credit quality of the borrowers. Fannie Mae has estimated that 50 
percent of consumers with subprime loans could have qualified for prime 
loans. In fact, in 2006, more than 60 percent of subprime borrowers had 
credit scores sufficient for them to have received a prime loan.
    Failure to provide adequate consumer and civil rights protections 
explain the exceptional damage from the foreclosure crisis now being 
felt overwhelmingly in communities of color.
                          fixing the problems
    In response to the magnitude and complexity of the current crisis, 
a three-fold response is essential.
1. Stem the Rising Tide of Foreclosures
    Although the new ``Making Home Affordable'' program is the most 
comprehensive plan to date to address the foreclosure crisis, its 
success is measured in the thousands while the foreclosure crisis grows 
by the millions. The result: more is needed.
    A ``new'' vintage Great Depression-era Homeowners Loan Corporation 
(HOLC) is warranted. The new entity would more aggressively pursue loan 
modifications using exceptional governmental powers to purchase high-
risk loans at reasonable discounts in order to accomplish millions of 
loan modifications, in a relatively short span of time, and at a 
limited cost to taxpayers.
    The new HOLC could also take possession of properties and structure 
foreclosure moratoria based on workers' unemployment benefits. In the 
event of foreclosure, this new entity could also allow families to 
remain in their homes under rental agreements.
2. Rebuild Communities Harmed by the Crisis
    Government action also should help communities rebuild. Economic 
recovery funding should be focused on communities with a convergence of 
three factors:

    1. Areas with the highest levels of unemployment
    2. Areas with the greatest concentrations of foreclosures
    3. Areas with historically under-funded, inferior, or poorly 
maintained infrastructure

3. Enact Comprehensive Anti-Predatory Lending Legislation
    Comprehensive anti-predatory lending legislation should be 
immediately enacted. It should apply consumer financial protections to 
all of the institutional players in the mortgage market. In addition to 
purging previous predatory lending practices, the establishment of a 
financial consumer protection agency should be enacted. Already, in the 
midst of this crisis, new predatory practices are emerging.
                               conclusion
    In the words of Nobel Prize-winning economist Joseph Stiglitz, the 
financial system discovered there was money at the bottom of the wealth 
pyramid and it did everything it could to ensure that it did not remain 
there. Stated otherwise, the business model for many financial 
institutions was to strip consumers of their wealth rather than build 
and improve their financial security.
    Ironically, most solutions to date have focused on rewarding the 
financial firms (and their executives) that created this crisis. But in 
spite of more than $12.8 trillions of financial support in the form of 
loans, investment, and guarantees, this approach is not working because 
consumers continue to struggle in a virtual sea of deceptive mortgage 
debt and a financial system that remains unaccountable to the American 
public.
    Now is the time to shift the focus away from Wall Street and on 
Main Street by addressing, in a broader manner, the growing foreclosure 
crisis and its contagion effects on national home prices and the 
overall economy. This includes introducing a more robust foreclosure 
mitigation program, focusing recovery dollars on the communities most 
negatively impacted by the crisis, and enacting strong consumer 
protections against deceptive and reckless lending practices.
                               __________
 Prepared Statement of Gregory D. Squires, Professor of Sociology and 
 Public Policy and Public Administration, George Washington University
 segregation as a driver of subprime lending and the ensuing economic 
                                fallout
    Few issues have posed the range and severity of challenges to the 
nation as have recent developments in financial services. I want to 
thank the Joint Economic Committee for conducting this hearing, for 
taking on these difficult challenges, and for inviting me to 
participate.
    Dramatic changes have taken place in the nation's mortgage lending 
markets in recent years. Passage of the Community Reinvestment Act 
(CRA) in 1977, enforcement of the federal Fair Housing Act (FHA), and 
compliance with a range of local, state, and national fair lending 
rules have increased access to credit for many households and 
communities long denied conventional financial services. But within the 
past decade the rise in subprime and predatory lending has put many 
families and neighborhoods in financial jeopardy as default and 
foreclosure rates are skyrocketing, particularly in minority and low-
income areas. Fingers are pointed in several directions: greed on the 
part of families trying to buy homes they could not afford, lax 
underwriting by originators, inaccurate appraisals, fraudulent 
practices by investment bankers, inattention by regulators, and more. 
Community groups, elected officials, bank regulators and mortgage 
lenders themselves are debating over how the nation should respond.
    Lost amidst recent debates is the central role that surging 
economic inequality and persistent racial segregation have played. The 
concentration of income and wealth at the top coupled with the 
concentration of poverty and persisting levels of segregation and 
hypersegregation have nurtured significant increases in subprime and 
predatory lending among vulnerable communities. Reforming the 
regulation of financial services is a necessary but insufficient step 
for ameliorating the crises created by recent lending practices. 
Broader, macro-economic policies that directly address various 
trajectories of economic inequality and dynamics of discrimination and 
segregation must complement progressive banking and bank regulatory 
reforms if emerging challenges are to be met.\1\ This comment examines 
the impact of inequality on subprime and predatory lending and offers a 
range of policy responses to the emerging problems confronting 
metropolitan areas across the country.
---------------------------------------------------------------------------
    \1\ Gregory D. Squires, Urban Development and Unequal Access to 
Housing Finance Services, New York Law School Law Review 53(2): 255-268 
(2008/9).
---------------------------------------------------------------------------
Surging Inequality
    By virtually any measure economic inequality has increased in 
recent decades. Between 1967 and 2007, the share of income in the U.S. 
going to the top quintile of all households increased from 43.6% to 
49.7%, while the share going to the bottom fifth dropped from 4.0% to 
3.4%.\2\
---------------------------------------------------------------------------
    \2\ Carmen Walt-Denavas, Bernadette D. Proctor, and Jessica C. 
Smith, U.S. Census Bureau, Current Population Reports, P60-235, /
Income, Poverty, And Health Insurance Coverage In The United States: 
2007/, Table A-3. Selected Measures Of Household Income Dispersion: 
1967-2007, U.S. Government Printing Office, Washington, DC, 2008.
---------------------------------------------------------------------------
    Since the mid 1970s, compensation for the 100 highest paid chief 
executive officers increased from $1.3 million, or thirty-nine times 
the pay of the average worker, to $37.5 million, or more than 1,000 
times the pay of a typical worker.\3\ In 2004, those in the top one 
percent enjoyed a 12.5% increase in their incomes compared to 1.5% for 
the remaining 99%.\4\
---------------------------------------------------------------------------
    \3\ Paul Krugman, For Richer, N.Y. Times Mag., Oct. 20, 2002, at 
62, 64.
    \4\ Paul Krugman, Editorial, Left Behind Economics, N.Y. Times, 
July 14, 2006, at A19.
---------------------------------------------------------------------------
    Wealth, of course, has long been much more unequally distributed 
than income, and that inequality has increased over time. Between 1983 
and 2001, the share of wealth going to the top five percent grew from 
56.1% to 59.2%. While African Americans and Hispanics earn 
approximately two-thirds of what whites earn, wealth holding for the 
typical non-white family are approximately one-tenth that of the 
typical white family.\5\
---------------------------------------------------------------------------
    \5\ Thomas M. Shapiro, The Hidden Cost of Being African American 
48-49 (2006); see also Nat'l Cmty Reinvestment Coal. & Woodstock 
Instit., A Lifetime of Assets (2006).
---------------------------------------------------------------------------
    City residents have been falling behind their suburban 
counterparts, and non-white neighborhoods have been falling behind 
white communities. In 1960, per capita income in cities was 105% that 
of suburbanites, but in 2000, urban residents were earning just 84% of 
those in the suburbs.\6\ The median census tract income for the typical 
black household in 1990 was $27,808 compared to $45,486 for whites, a 
gap of $17,679. A similar pattern holds for Hispanics.\7\
---------------------------------------------------------------------------
    \6\ Interwoven Destinies: Cities and the Nation 25 (Henry G. 
Cisneros Ed. 1993); John R. Logan, Lewis Mumford Ctr. for Comparative 
Urban and Regional Research, Univ. at Albany, The Suburban Advantage: 
New Census Data Show Unyielding City-Suburb Economic Gap, and 
Surprising Shifts in Some Places (2002).
    \7\ John R. Logan, Lewis Mumford Ctr. for Comparative Urban 
Regional Research, Univ. at Albany, Separate and Unequal: The 
Neighborhood Gap for Blacks and Hispanics in Metropolitan America tbl. 
1 (2002).
---------------------------------------------------------------------------
    Between 1970 and 2000, the number of high poverty census tracts 
(those where 40 percent or more of the population is poor) grew from 
1177 to 2510, and the number of people living in those tracts grew from 
4.1 million to 7.9 million.\8\ The isolation of rich and poor families 
is also reflected by the declining number of middle income 
communities.\9\ Between 1970 and 2000, the number of middle income 
neighborhoods (census tracts where the median family income is between 
80% and 120% of the median family income for the metropolitan area) 
dropped from 58% to 41% of all metropolitan area neighborhoods.\10\ And 
whereas more than half of lower-income families lived in middle income 
neighborhoods in 1970, only 37% of such families did so in 2000.\11\ 
The share of low-income families in low-income areas grew from 36% to 
48%.\12\
---------------------------------------------------------------------------
    \8\ Compare Paul A. Jargowsky, Poverty and Place: Ghettos, Barrios, 
and the American City 34 (1998) (Reporting 1970 Figures), with Paul A. 
Jargowsky, Brookings Inst., Stunning Progress, Hidden Problems: The 
Dramatic Decline of Concentrated Poverty in the 1990s 20 (2003).
    \9\ Jason C. Booza, Jackie Cutsinger & George Galster, Brookings 
Inst., Where Did They Go? The Decline of Middle-Income Neighborhoods in 
Metropolitan America 1 (2006).
    \10\ Id.
    \11\ Id.
    \12\ Id. at 7.
---------------------------------------------------------------------------
    Even longer standing patterns of racial segregation persist. 
Nationwide, the black/white index of dissimilarity declined from .73 to 
.64 between 1980 and 2000.\13\ Scores above .60 are widely viewed as 
reflecting high levels of segregation. But in the large metropolitan 
areas where the black population is most concentrated, segregation 
levels persist at high levels reaching at or near .80 in New York, 
Chicago, Detroit, Milwaukee, and many other urban communities. Lower 
levels exist primarily in western and southwestern communities with 
small black populations. For Hispanics and Asians, segregation levels 
are much lower, approximately .4 and .5, but they have remained at that 
level or actually increased slightly between 1980 and 2000.\14\
---------------------------------------------------------------------------
    \13\ John Iceland, Daniel H. Weinberg & Erika Steinmetz, U.S. 
Census Bureau, Racial and Ethnic Residential Segregation in the United 
States: 1980-2000 tbl. 1 (2002). This index varies from 0 to 1, where a 
score of 0 would indicate that each neighborhood had the same racial 
composition of the metropolitan area as a whole and a score of 1 would 
represent total segregation meaning every neighborhood was either all 
African American or all white. Id. at 5. For a more complete discussion 
of the index of dissimilarity, see Jeffrey M. Timberlake & John 
Iceland, Change in Racial and Ethnic Residential Inequality in American 
Cities, 1970-2000, 6 City & Community 335-65 (2007).
    \14\ Iceland, Weinberg & Steinmetz, supra note 14, at tbls. 3 & 5; 
see also John E. Farley & Gregory D. Squires, Fences and Neighbors: 
Segregation in 21st Century America, 4 Contexts 33, 34-35 (2005).
---------------------------------------------------------------------------
Inequality and Subprime Lending
    A wealth of research has documented the concentration of subprime 
loans in low-income and minority communities.\15\ HMDA reports reveal, 
for example, that for 2006, when subprime lending was at its peak, for 
first lean conventional home purchase loans 46 percent of borrowers in 
low-income areas compared to 16 percent in upper income areas received 
a high-priced loan. Among borrowers in predominantly non-white 
communities 49 percent received such loans compared to 18 percent in 
predominantly white areas. In that year 53 percent of African 
Americans, 46 percent of Hispanics, and 22 percent of whites received 
high-priced loans. Subsequent research revealed that even after 
controlling on credit rating, income, and other financial 
characteristics, racial disparities persist.\16\
---------------------------------------------------------------------------
    \15\ Gregory D. Squires, Derek S. Hyra, and Robert N. Renner, 
Segregation and the Subprime Lending Crisis, Paper Presented at the 
Federal Reserve Board's Community Affairs Research Conference, (April 
16, 2009).
    \16\ P. Calem, K. Gillen, and S. Wachter, The Neighborhood 
Distribution of Subprime Mortgage Lending, Journal of Real Estate 
Finance and Economics 29: 393-410 (2004).
---------------------------------------------------------------------------
    Such patterns are no accident. The City of Baltimore recently sued 
Wells Fargo Bank for racially discriminatory predatory lending patterns 
in that community leading to high foreclosure rates and the heavy costs 
associated with those foreclosures. Plaintiffs found, for example, that 
the foreclosure rate for Wells Fargo loans was twice the city-wide 
average in African American communities while the rate in white 
neighborhoods was half the city-wide average (Mayor and City Council of 
Baltimore v. Wells Fargo Bank, U.S. District Court for the District of 
Maryland, Baltimore Division Case Number 1:2008v00062, January 8, 
2008). Subsequent investigation revealed that Wells Fargo loan officers 
were provided financial incentives to steer borrowers from lower-cost 
prime loans to higher-cost subprime loans, referring to them as 
``ghetto loans'' and to the borrowers as ``mud people.''\17\
---------------------------------------------------------------------------
    \17\ Michael Powell, Bank Accused of Pushing Mortgage Deals on 
Blacks, The New York Times, (June 7, 2009): A-15.
---------------------------------------------------------------------------
    And racial segregation has an effect above and beyond that of race 
alone. Table 1 shows that the share of loans that are high-priced is 
considerably higher in highly segregated than in less segregated 
communities. The average share of such loans in the nation's ten most 
segregated communities is 31 percent compared to 20 percent in the ten 
least segregated.

  Table 1--Top 10 Most and Least Segregated Metro Areas and Percent of
                             High-Cost Loans
------------------------------------------------------------------------
  10 Most Segregated Metropolitan   Black Segregation   High-Cost Loans
              Regions                     Index               (%)
------------------------------------------------------------------------
Detroit-Warren-Livonia, MI........                 84                 34
Milwaukee-Waukesha-West Allis, WI.                 81                 29
Chicago-Naperville-Joliet, IL-IN-                  78                 31
 WI...............................
Cleveland-Elyria-Mentor, OH.......                 77                 28
Flint, MI.........................                 76                 37
Muskegon-Norton Shores, MI........                 76                 38
Buffalo-Niagara Falls, NY.........                 76                 25
Niles-Benton Harbor, MI...........                 73                 30
St. Louis, MO-IL..................                 73                 31
Cincinnati-Middletown, OH-KY-IN...                 73                 25
------------------------------------------------------------------------
    Average.......................                 77                 31
------------------------------------------------------------------------



------------------------------------------------------------------------
 10 Least Segregated Metropolitan   Black Segregation   High-Cost Loans
              Regions                     Index               (%)
------------------------------------------------------------------------
Coeur d'Alene, ID.................                 16                 24
Hinesville-Fort Stewart, GA.......                 18                 39
Santa Fe, NM......................                 21                 17
Prescott, AZ......................                 21                 21
Bellingham, WA....................                 22                 16
Boulder, CO.......................                 23                 10
Jacksonville, NC..................                 24                 22
Blacksburg-Christiansburg-Radford,                 24                 20
 VA...............................
Santa Cruz-Watsonville, CA........                 24                 14
Missoula, MT......................                 24                 15
------------------------------------------------------------------------
    Average.......................                 22                 20
------------------------------------------------------------------------
Source: Gregory D. Squires, Derek S. Hyra, and Robert N. Renner,
  Segregation and the Subprime Lending Crisis, paper presented at the
  Federal Reserve Board's Community Affairs Research Conference, (April
  16, 2009).

    Far more significant, however, is that racial and ethnic 
segregation remain statistically significant predictors of the level of 
high-priced loans even after controlling for credit rating, poverty 
level, percent minority, and education (see Tables 2 and 3). These data 
show, for example, that a ten percent increase in black/white 
segregation (measured by the index of dissimilarity) is associated with 
an increase of 1.4 percent in high-cost lending. Every ten percent 
increase in Hispanic/white segregation is associated with an increase 
of 0.6 percent in high-cost lending.

                       Table 2--Black Segregation
------------------------------------------------------------------------
             Variables                 Coefficients     Standard Errors
------------------------------------------------------------------------
Percent in Poverty................            -0.00                 0.67
Percent Minority..................             0.13 *               0.02
Median Home Value.................            -0.11 *               0.03
Black Segregation.................             0.14 *               0.02
Percent Low Credit Score..........             0.23 *               0.06
Percent with BA or Higher.........            -0.48 *              0.04
------------------------------------------------------------------------
N = 354, R-Squared = 0.6943, * p < .01.


                 Table 3--Model II: Hispanic Segregation
------------------------------------------------------------------------
             Variables                 Coefficients     Standard Errors
------------------------------------------------------------------------
Percent in Poverty................            -0.05                 0.07
Percent Minority..................             0.12 *               0.02
Median Home Value.................            -0.14 *               0.03
Hispanic Segregation..............             0.06 *               0.02
Percent Low Credit Score..........             0.25 *               0.07
Percent with BA or Higher.........            -0.48 *               0.04
------------------------------------------------------------------------
N = 354, R-Squared = 0.6312, * p < .01

Policy Responses
    Many proposals have been offered to change the way banks do 
business and the way they are regulated. Clearly, such reforms are 
necessary. But if the problems generated by subprime and predatory 
lending along with the foreclosures and other economic costs that 
followed require new policies to change lending practices of financial 
institutions and regulatory actions of enforcement agencies, the 
broader context of inequality and segregation must also be addressed.
    Several politically feasible tools are available to respond to the 
overall surge in inequality. For example, the federal minimum wage 
should be indexed to take into consideration the cost of living so that 
the recent increase that was approved in May 2007 does not continue to 
lose buying power as it has since the moment it went into effect in 
July 2007.\18\ Living wage ordinances, which mandate even higher wages, 
generally $8 to $10 per hour, frequently with fringe benefits, have 
been enacted in more than 100 jurisdictions with these rules applying 
to government contractors and recipients of economic development 
subsidies.\19\ More jurisdictions should follow this lead. The Earned 
Income Tax Credit could be expanded to lift more working families out 
of poverty.\20\ Enacting the Employee Free Choice Act, which allows 
workers to form a union when more than 50% of workers sign a card 
indicating their desire to do so in lieu of secret elections, would 
strengthen the role of unions in the U.S. and their positive impact on 
wage inequality.\21\ A more provocative proposal, the Income Equity 
Act, has been offered by former Minnesota Representative Martin Sabo 
that would deny corporations tax deductions on any executive 
compensation exceeding twenty-five times the pay of the firm's lowest 
paid workers.\22\
---------------------------------------------------------------------------
    \18\ See generally John Atlas & Peter Dreier, Waging Victory, Am. 
Prospect., Nov. 10, 2006, http://www.prospect.org/cs/
articles?article=waging_victory; Neal Peirce, Congress' Minimum Wage 
Vote: Prelude to a Better Politics?, Stateline.org, Jan. 25, 2007, 
http://www.stateline.org/live/details/story?contentID=174954.
    \19\ Peter Dreier, Community Organizing For What? Progressive 
Politics and Movement Building in America., In Transforming the City: 
Community Organizing and the Challenge of Political Change 237 (Marion 
Orr ed., 2007).
    \20\ See Lawrence Mishel, Jared Bernstein & Sylvia Allegretto, The 
State of Working America, 2004/2005 13 (2005).
    \21\ See Thomas Kochan & Beth Shulman, Econ. Policy Inst., A New 
Social Contract: Restoring Dignity and Balance to the Economy 14, 15-16 
(2007).
    \22\ Peirce, supra note 46.
---------------------------------------------------------------------------
    Expansion of several housing and land use policies would also 
reduce inequality. Inclusionary zoning laws that require developers to 
set aside a specific share of housing units to meet affordable housing 
objectives have been implemented in dozens of cities.\23\ Tax-based 
revenue sharing, whereby a portion of the increasing property tax 
revenues in prosperous neighborhoods is used to invest in housing and 
other community development initiatives in distressed areas, has been 
implemented in Minnesota.\24\ Mobility programs have enabled thousands 
of families to leave ghettos and barrios for more prosperous outlying 
urban and suburban communities where they found safer neighborhoods, 
better schools, and better job prospects.\25\
---------------------------------------------------------------------------
    \23\ Rusk, supra note 45 (arguing that state legislatures must set 
new ``rules of the game'' requiring housing policies to ensure that all 
new developments have their fair share of low- and moderate-income 
housing).
    \24\ Myron Orfield, American Metropolitics: The New Suburban 
Reality (2002).
    \25\ John Goering & Judith D. Feins, Choosing a Better Life?: 
Evaluating the Moving to Opportunity Social Experiment (2003); 
Alexander Polikoff, Waiting for Gautreaux: A Story of Segregation, 
Housing, and the Black Ghetto (2006); Leonard S. Rubinowitz & James E. 
Rosenbaum, Crossing the Class and Color Lines: From Public Housing to 
White Suburbia (2000).
---------------------------------------------------------------------------
    Housing policies of the past have been linked with the 
concentration of minorities, particularly African Americans, in 
extremely segregated and impoverished communities.\26\ Today, much of 
the distressed public housing that once segregated minorities in inner 
city neighborhoods is being razed.\27\ Residents of these demolished 
buildings are receiving housing vouchers, a rent subsidy, to obtain 
private market rental units. Evidence suggests that voucher holders are 
ending up in other highly segregated communities.\28\ To prevent the 
continuing concentration of poverty and racial disadvantage, the U.S. 
Department of Housing and Urban Development's Housing Choice Voucher 
program must be reformed to provide greater opportunities for 
recipients to find units in less segregated and impoverished 
neighborhoods.
---------------------------------------------------------------------------
    \26\ James H. Carr and Nandinee K. Kutty, Segregation: The Rising 
Costs for America, New York: Routledge, (2008). Douglas S. Massey and 
Nancy Denton, American Apartheid: Segregation and the Making of the 
Underclass, Cambridge, MA: Harvard University Press (1993). Douglas S. 
Massey and Shawn M. Kanaiaupuni, Public Housing and the Concentration 
of Poverty, Social Science Quarterly 74(1): 109-122, (1993).
    \27\ Edward Goetz, Clearing the Way: Deconcentrating the Poor in 
Urban America, Washington, D.C.: The Urban Institute Press (2003). 
Derek S. Hyra, The New Urban Renewal: The Economic Transformation of 
Harlem and Bronzeville, Chicago: University of Chicago Press (2008).
    \28\ Paul Fischer, Where Are Public Housing Families Going? An 
Update, Chicago: Woods Fund of Chicago (2003). John M. Hartung and 
Jeffrey R. Henig, Housing Vouchers and Certificates as a Vehicle for 
Deconcentrating the Poor, Urban Affairs Review 32(3): 403-419 (1997).
---------------------------------------------------------------------------
    The Low Income Housing Tax Credit (LIHTC) program and inclusionary 
zoning laws are two other mechanisms for increasing the number of 
affordable rental units in non-poverty neighborhoods for voucher 
recipients. Traditionally, housing developments in low-income 
communities are given preferences for LIHTCs. This circumstance may 
indirectly increase or sustain prior levels of segregation by placing 
low-income residents and units in an already low-income community. To 
open up housing opportunities for low-income families, affordable 
housing developments in middle- and upper-income communities should be 
given priority for LIHTCs. Inclusionary zoning laws can also increase 
the stock of affordable housing in low-poverty areas. These local laws 
require new developments to set aside a certain percentage of units for 
affordable housing. The federal government could provide financial 
incentives for municipalities to adopt zoning laws that promote the 
construction and redevelopment of affordable units.
    Housing market discrimination clearly contributes to segregation. 
To more effectively enforce fair housing laws already in place, the 
proposed Housing Fairness Act of 2009 (H.R. 476) should be enacted. 
This bill would increase funding for the Fair Housing Initiatives 
Program to $52 million and would fund a $20 million nationwide paired 
testing program providing for 5,000 tests, approximately 50 in each of 
the nation's 100 largest metropolitan areas. In paired-testing 
investigations, equally qualified white and non-white auditors posing 
as homebuyers or renters approach housing providers, such as real 
estate and rental agents, mortgage lenders, and insurance agents, and 
inquire about the availability of the same or similar housing units or 
housing related services like home insurance or mortgage loans. Any 
differences in treatment they receive likely reflect discrimination 
since these auditors or testers are assigned identical qualifications 
and interests. Such investigations have routinely revealed 
discrimination in approximately one out of every five initial visits to 
real estate or rental agents. Discrimination in insurance and mortgage 
lending has also been documented using similar investigative 
techniques. \29\ If the real estate, mortgage and insurance industries 
knew these investigations were occurring more frequently, incidents of 
discrimination and levels of segregation might be reduced.
---------------------------------------------------------------------------
    \29\ Shanna Smith and Cathy Cloud, Documenting Discrimination by 
Homeowners Insurance Companies Through Testing. In Gregory D. Squires 
(Ed), Insurance Redlining: Disinvestment, Reinvestment, and the 
Evolving Role of Financial Institutions, Washington, D.C.: The Urban 
Institute Press (1997). Margery T. Turner and Felicity Skidmore, 
Mortgage Lending Discrimination: A Review of Existing Evidence, 
Washington, D.C.: The Urban Institute (1999). Margery Turner, Fred 
Freiberg, Erin Godfrey, Carla Herbig, Diane Levy, and Robin Smith, All 
Other Things Being Equal: A Paired Testing Study of Mortgage Lending 
Institutions, Washington, D.C.: The Urban Institute (2002).
---------------------------------------------------------------------------
    In addition to these general economic reforms and housing 
proposals, there are specific changes in the regulation of financial 
services that should be included in any reorganization of that 
regulatory function. For example, prepayment penalties and introductory 
teaser rates should be limited in all mortgage lending including the 
prime and subprime markets. Prepayment penalties make it more difficult 
for those that get behind in their payments to refinance or sell their 
homes. Even though these penalties provide banks with risk protection 
against early payment, it increases the likelihood that borrowers will 
default. Teaser rates (for example, 2/28 and 3/27 adjustable rate 
mortgages) frequently lead to late payments, defaults, and 
foreclosure.\30\ Only when carefully underwritten and when there is a 
clear economic benefit for the borrower should these types of loans be 
permitted. These simple product restrictions might reduce the extent of 
subprime loans, defaults, and foreclosures throughout the country. The 
National Mortgage Reform and Anti Predatory Lending Act (H.R. 1728) 
would reduce substantially the provision of inappropriate products in 
the mortgage market.
---------------------------------------------------------------------------
    \30\ Robert G. Quercia, Michael A. Stegman, and Walter R. Davis, 
The Impact of Predatory Loan Terms on Subprime Foreclosures: The 
Special Case of Prepayment Penalties and Balloon Payments, Housing 
Policy Debate 18(2): 311-346 (2007).
---------------------------------------------------------------------------
    State and local governments that receive federal funding for 
housing and community development are required to ``affirmatively 
further fair housing'' in the utilization of those funds. Recipients of 
TARP, bailout, or any other federal financial support should be 
required to pursue this objective as well.
    To ensure that these regulations and restrictions are followed, 
federal oversight is needed over the independent mortgage companies, 
the unregulated entities who originated the bulk of subprime mortgages 
and the affiliated institutions that are involved in the trading of 
mortgage-backed securities.\31\ Currently, the CRA applies only to 
depository institutions but passage of the CRA Modernization Act of 
2009 (H.R. 1749) would bring unregulated mortgage lenders under its 
purview. Having greater oversight over independent mortgage companies, 
might help decrease the number of high-cost loans.
---------------------------------------------------------------------------
    \31\ Robert B. Avery, Kenneth P. Brevoort, and Glenn B. Canner, The 
2006 HMDA Data, Federal Reserve Bulletin 93: 73-109 (2007).
---------------------------------------------------------------------------
    It has been argued that the CRA and related fair lending laws 
contributed to the foreclosure and related problems. But as the Federal 
Reserve Board and others have documented, this is simply not the case. 
CRA lenders made approximately 6% of all high-cost loans to low-income 
markets. Altogether just 5% of loans made by CRA lenders were high-cost 
compared to 34% for non-CRA lenders. In fact, the Fed and others have 
found that the CRA is responsible for significant increases in the 
level of good loans in traditionally underserved markets.\32\
---------------------------------------------------------------------------
    \32\ Governor Randall S. Kroszner, The Community Reinvestment Act 
and the Recent Mortgage Crisis, Speech Delivered to Confronting 
Concentrated Poverty Policy Forum, Board of Governors of The Federal 
Reserve System, Washington, D.C. (December 3, 2008). New York Times, 
Mortgages and Minorities Editorial, (December 9, 2008). Gregory D. 
Squires, Scapegoating Blacks for the Economic Crisis, Poverty & Race 
17(6): 3,4 (2008).
---------------------------------------------------------------------------
    A promising step in this direction is the President's proposal for 
the creation of a Consumer Financial Protection Agency.\33\ If given 
the tools to write and enforce strong regulations, this independent 
agency should prove far more effective in protecting the rights of 
consumers under the CRA and other consumer protection laws.
---------------------------------------------------------------------------
    \33\ U.S. Department of the Treasure, Financial Regulatory Reform, 
Washington, D.C.: U.S. Department of the Treasury (2009).
---------------------------------------------------------------------------
Conclusion
    The housing and related economic crises that disproportionately 
impact poor and minority communities, but which are clearly now 
threatening many middle income families as well, are inextricably 
linked to specific financial industry practices as well as broader 
forces of inequality and uneven development. The policies and practices 
that have generated these patterns are no great secret. Neither are at 
least some of the remedies.
                               __________
  Prepared Statement of Sarah Bloom Raskin, Commissioner of Financial 
                     Regulation, State of Maryland
    Chairman Maloney, Vice Chairman Schumer, Congressman Cummings and 
members of the Committee, thank you for inviting me to testify at 
today's hearing. As the chief financial regulator for the state of 
Maryland, I am pleased to share information about our state's efforts 
to respond to the subprime lending crisis as it has manifested itself 
in Maryland. I also serve as the Chair of the Legislative Committee of 
the Conference of State Bank Supervisors.
    Protecting Maryland residents from predatory mortgage lending has 
been a priority of mine since I took office as the Maryland 
Commissioner of Financial Regulation two years ago.
    As you all know, the home foreclosure crisis has profoundly 
affected not only homeowners but also taxpayers, cities, and states. I 
have heard from Maryland citizens who can hardly believe the enormous 
sums of taxpayer dollars flowing into the large money-center financial 
institutions to keep them afloat. In return for their trillion-dollar 
investment, these same citizens demand accountability, and, just as 
importantly, they demand that something be done to stem the swelling 
tide of home foreclosures in their communities.
    As the Commissioner of Financial Regulation, it is my obligation to 
pursue, within the boundaries of my authority, those who engaged in 
violations of all our laws, including our anti-predatory lending laws. 
State regulators have a long history as the first-line of protection 
for consumers. It was the states that first sounded the alarm against 
predatory lending and brought landmark enforcements against some of the 
biggest subprime lenders.
    Indeed, state banking commissioners have aggressively pursued 
enforcement actions against predatory lending practices since the 
1990s. And just last week, Maryland and 13 other states entered into a 
$9 million settlement with one of the ten largest wholesale mortgage 
lenders in the country. On Tuesday, Maryland issued a cease and desist 
order against a company that brokers usurious pay-day loans to Maryland 
residents.
    My testimony is divided into two parts. First, I will discuss a 
couple of the enforcement actions that my office has pursued against 
participants who have violated our financial laws and regulations 
designed to protect consumers. Second, I will identify some of the key 
impediments to effective legislation and enforcement of fraud and other 
consumer protection laws and regulations by state banking 
commissioners.
    Maryland is not a newcomer to the arena of predatory lending or its 
impact. Our state is ravaged by the fallout from irresponsible 
lending--too many loans that never should have been made--poorly 
underwritten, if at all, with features and loan terms that make it 
clear that the chance for success was limited. And all too often, these 
loans have had a disproportionate impact on minority communities. The 
Urban Institute published a study last month of subprime lending in 100 
metropolitan areas. The study controlled for income levels and 
concluded that the neighborhoods hardest hit by the subprime crisis 
have been those where minority residents predominate.\1\
---------------------------------------------------------------------------
    \1\ Source: Urban Institute, The Impacts of Foreclosures on 
Families and Communities. Thomas Kingsley, Robin Smith and David Price. 
May 2009.
---------------------------------------------------------------------------
    The fallout is evident in foreclosures throughout our state, 
particularly Baltimore City and Prince George's County. Under a new law 
reforming the foreclosure process in our state, secured parties must 
send a Notice of Intent to Foreclose to homeowners at least 45 days 
prior to docketing the foreclosure. My office receives copies of these 
notices--and unfortunately they come in by the boxload. In the past 
twelve months, over 100,000 Notices of Intent to Foreclose have been 
sent to Maryland borrowers and to our office. Each day, we struggle to 
input the information into our database and to send outreach to the 
borrower regarding options for assistance and warnings about 
foreclosure scams.
    With state attorneys general and other state regulators, Maryland 
has sought to cooperatively pursue unfair and deceptive practices in 
the mortgage market. Through several settlements, state regulators have 
returned nearly one billion dollars to consumers. In 2002, a settlement 
with Household Financial resulted in $484 million paid in restitution; 
that investigation targeted many of the practices that bring us to this 
room today. A settlement with Ameriquest Mortgage Company four years 
later resulted in $295 million paid in restitution; for those of us at 
the state level, the Ameriquest investigation marks the moment when we 
began to see the underwriting practices of mortgage lenders erode at a 
disturbingly accelerated pace.
    While these cases have received most of the recognition, success is 
sometimes better measured by those actions that never receive media 
attention. In 2007 alone, states took almost 6,000 enforcement actions 
against mortgage lenders and brokers. But these cases do not include 
the unrecorded investigations and referrals for criminally punishable 
fraud and other crimes.
    We have also moved through regulatory and legislative action. We 
have implemented regulatory changes through my office----

      Establishing a standard of good faith and fair dealing 
for mortgage lenders, brokers, servicers, and originators;
      Requiring that mortgage refinances provide the borrower 
with a net tangible benefit; and
      Setting forth new marketing standards and risk management 
standards for nontraditional mortgage loans

    Our state has also implemented statutory changes. These include 
requiring lenders to verify the borrower's ability to repay a mortgage 
loan at the fully indexed rate, prohibiting prepayment penalties in 
connection with residential mortgage loans, increasing surety bond 
requirements for mortgage lenders, enhancing mortgage originator 
licensing requirements in a way that conforms to the federal SAFE 
Mortgage Licensing Act, reforming the foreclosure process, and creating 
a process to track mortgage lenders and originators throughout the life 
of a mortgage loan by requiring that this information be recorded with 
the instrument securing the loan.
    These are important steps. Unfortunately, Wells Fargo, as a 
national bank, is not subject to these laws and regulations.
    At the same time, Maryland was one of 14 states that most recently 
entered into a major settlement with Taylor, Bean & Whitaker Mortgage 
Corporation earlier this week. Taylor Bean is one of the 10 largest 
wholesale mortgage lenders in the country. They are also a major 
mortgage servicer--the 7th largest licensed servicer in Maryland. This 
agreement follows a coordinated examination conducted jointly by 14 
states to evaluate compliance with laws and regulations pertaining to 
the origination of nontraditional mortgage loans made in 2006. These 
non-traditional products, also known as ``exotic'' loans represent the 
riskiest and most dangerous products on the mortgage market--
``interest-only'' mortgages, ``payment option'' adjustable-rate 
mortgages and stated income loans. In so many communities, these tools 
represent ground zero for the mortgage crisis.
    Concern over these practices led Taylor Bean to stop offering 
nontraditional mortgages in early 2007 and to make other changes to its 
internal control processes. As part of this settlement, Taylor Bean 
agreed to implement a loan modification program in accordance with the 
Making Home Affordable Program, to implement a comprehensive compliance 
program and to retain a third party to review compliance with state 
laws for these products to determine if refunds are appropriate. 
Maryland conducted an initial review on its own that has already 
resulted in over $50,000 in refunds to our borrowers. Finally, Taylor 
Bean is paying $9 million as part of the settlement including $4.5 
million to help fund the new Nationwide Mortgage Licensing System.
    This coordinated, multi-state examination and its results 
underscore the efforts and progress that the states have made in 
addressing problems within the non-bank mortgage segment. These 
efforts, combined with an increased use of technology to support the 
examination process, are a critical step forward in protecting 
consumers and further professionalizing the mortgage industry.
    Despite these enforcement and legislative successes, state actions 
have been hamstrung by the dual forces of preemption of state authority 
and lack of federal oversight. The authority of state banking 
commissioners to craft and to enforce consumer protection laws of 
general applicability was challenged at precisely the time it was most 
needed--when the amount of subprime lending exploded and riskier and 
riskier mortgage products came into the marketplace.
    The laws passed by state legislatures to protect citizens and the 
enforcement actions taken by state regulators should have alerted 
federal authorities to the extent of the problems in the mortgage 
market and should have spurred a dialogue between state and federal 
authorities about the best way to address the problem. Unfortunately, 
this did not occur. Had the federal regulators not adopted preemptive 
policies, I suggest we would have fewer home foreclosures and may have 
avoided the need to prop up our largest financial institutions. It is 
worth noting that many of the institutions whose names were attached to 
the mortgage preemptive initiative in general, including two who served 
as plaintiffs in an action against my predecessor in Maryland for 
trying to invoke a state law regarding pre-payment penalties--National 
City and First Franklin--were all brought down by the mortgage crisis.
    What is clear is that the nation's largest and most influential 
financial institutions have been major contributing factors in our 
regulatory system's failure to respond to this crisis. At the state 
level, we sometimes perceived an environment at the federal level 
skewed toward facilitating the business models and viability of our 
largest institutions, rather than promoting the strength of the 
consumer or our diverse economy.
    At the same time that preemption of state consumer protection 
powers gained ground, federal agencies failed to fill the gap in 
regulation with uniform market-wide standards that ensured lenders did 
not engage in fraudulent, deceptive or unfair lending practices and to 
respond to the crisis. Congressman Cummings has seen this close up in 
the effort to gather information on mortgage modifications. My office 
gathers modification data and, following concern regarding 
modifications that were not substantive, we required servicers to 
report the impact of modification on the borrowers' monthly payment 
last summer. When the results showed that 50+% of modifications did not 
lower the borrower's monthly payment, it was clear to us that this 
topic should be aired. Unfortunately, the federal authorities resisted. 
They dutifully reported that modifications were redefaulting at high 
rates, but resisted drilling into the nature of those modifications. 
Thankfully, Congressional action led by Congressman Cummings helped 
change things, and earlier this year, the OCC began collecting similar 
data regarding monthly payment.
    Our federalist system of government is premised on the notion that 
federal and state regulation can co-exist and are in fact 
complementary. Moreover, even if sufficient federal regulations had 
been promulgated, they are only effective to the extent that the 
federal regulator is interested in enforcing them.
    The void created by preemption in the face of a failure of federal 
oversight added a number of impediments for state banking commissioners 
in crafting legislation and in pursuing enforcement actions against 
predatory lenders. While it is too late to remove some of these 
impediments, there are some obstacles that can be eliminated to restore 
to state bank commissioners the ability to successfully regulate 
lending in the future.
    One key point I would like to make is that Congress should 
eliminate the preemption of consumer protections enacted by the states. 
I urge Congress to promptly eliminate federal preemption of the 
application of the state consumer protection laws to national banks. 
The magic of federalism is that if one level of government falls asleep 
at the wheel or has too much to drink at the party, another can drive 
everybody home safely. But when you preempt our best laws, you take 
away the keys to the car and our license to drive.
    Together with our nation's 50 banking commissioners, and with the 
Conference of State Bank Supervisors, I am supportive of provisions 
contained within President Obama's recently proposed financial 
regulatory reform plan that would grant state authorities the ability 
to promulgate statutes and regulations that would apply to all 
financial firms operating in our states, to examine for compliance of 
these statutes and rules, and to take enforcement actions against those 
entities that were found to be out of compliance with these statutes 
and rules.
    The Administration's proposal to create a consumer financial 
product agency is interesting. This agency could require a federal 
minimum of consumer protections for particular products. Such a 
standard would declare a national norm but also would allow states to 
address new predatory practices as they evolve. This dynamic would 
create a floor for all lenders but still permit states to protect their 
citizens through more robust legislation and regulation.
    Such ability to expand upon a basic federal standard is essential 
to the development of effective responses to new mortgage abuses as 
they emerge. Today, we see another mortgage storm brewing in the area 
of loss-mitigation consulting. Historically, we confronted fraudulent 
foreclosure transactions where title was conveyed as part of a scheme 
to strip homeowners of their equity. Today, with no equity left to 
strip, the ripoffs have become fee-based with so-called consultants 
charging high up-front fees to vulnerable consumers to help them get a 
loan modification. Too often, these efforts result in both wasted money 
and wasted time. Up front fees are restricted in Maryland and our 
office has recovered more than $80,000 for consumers to date. We have 
worked through the State Foreclosure Prevention Working Group to raise 
the issue with the Administration and to warn those overseeing the 
President's Housing Program of the potential for these practices to 
cause further financial instability. Congress can ban upfront fees at 
the federal level, or at least ensure that states have the flexibility 
to enforce their own laws against such ``loss-mitigation consultants'' 
who seem to be more in the business of loss aggravation.
    To sum up, some bank commissioners have been predicting the current 
lending crisis for years, but few listened. Banks, lenders and mortgage 
brokers lobbied aggressively to prevent any regulation at either the 
state or federal level. There are lessons to be learned. First, the 
movement to erode state authority to enforce state and federal consumer 
protection laws must cease. Attempts to exclude state banking 
regulators from enforcing consumer protection laws have significantly 
contributed to the distress our residents have endured as a result of 
these difficult economic times. Thank you for the opportunity to 
testify before the Committee today.
                               __________
   Prepared Statement of Robert J. Strupp, Director of Research and 
                      Policy, Community Law Center
    Good Morning Congresswoman Maloney, Senator Schumer, and members of 
the Joint Economic Committee. My name is Robert J. Strupp and I am the 
Director of Research and Policy at the Community Law Center based in 
Baltimore. I am honored to testify today concerning the impact of 
predatory lending and reverse redlining on low-income, minority, and 
senior borrowers and communities.
    For over 22 years, the Community Law Center has been a leading 
voice in Baltimore for preventing and eradicating blight and returning 
vacant and abandoned property to productive use. The Community Law 
Center also seeks solutions to the predatory and deceptive real estate 
transactions that have caused foreclosures and that have led to many of 
the housing challenges facing communities throughout Maryland
    Discriminatory practices in residential real estate are a well-
documented blemish on our Country's history. It was not until 1962 that 
President Kennedy issued Executive Order # 11063 making Federal Housing 
Administration (FHA) and VA loans available to all Americans, without 
regard to race, color, creed, or national origin. Tragically, some 
homebuilders responded by no longer offering FHA and VA loans. Indeed, 
5 years later, thirteen homebuilders--including three in Baltimore--
were identified as violating the President's directive (See Michael L. 
Mark, But Not Next Door, Baltimore Neighborhoods, Inc, 2002, p. 20).
    In 2000, at the behest of Senators Barbara Mikulski and Senator 
Paul Sarbanes, the United States Department of Housing and Urban 
Development (HUD) established the Baltimore City Flipping and Predatory 
Lending Task Force as a ``laboratory'' to develop creative solutions to 
the problems arising in Baltimore and nationwide from abuses in the FHA 
mortgage program, which was designed to help low-income families attain 
homeownership. The Community Law Center served as the staff for this 
Task Force. The Task Force was created to combat a number of 
residential real estate tactics that were hurting Baltimore's most 
vulnerable residents and neighborhoods. Relying on false and 
unsupportable appraisals, lenders originated FHA insured loans in 
amounts greatly exceeding the property's true value. Unsuspecting, 
trusting families aspiring to the American dream of homeownership were 
lured into purchasing shoddy, over-mortgaged properties that were too 
costly to repair and too overvalued to sell. As a result of these 
predatory practices, neighborhoods in the 1990s experienced rising 
foreclosures, bankruptcies, vacancies, and neighborhood disintegration. 
The gravity of the foreclosure situation at the time is perhaps best 
demonstrated by the decision of the FICA to declare a moratorium on FHA 
foreclosures.
    The Baltimore Task Force included representatives of HUD, FHA, 
Baltimore City Housing agencies, Fannie Mae, governmental officials, 
law enforcement agencies, housing counselors, consumer advocates, 
community leaders, and some of the regulated industries, including 
lenders and the real estate licensees.
    As law enforcement heightened, responses to the mortgage fraud 
epidemic increased, and FHA loan requirements became more stringent, 
the abusive use of highly risky and exotic loan products to promote 
homeownership began to emerge.
    The American obsession with homeownership at least since the 
administration of President Hoover. President Hoover initiated the Own 
Your Own Home Program, citing that ``nothing [is] worse than increased 
tenancy and landlordism.'' Unfortunately, as homeownership grew, so did 
foreclosures: from 2% of commercial bank mortgages in 1922 to 11% by 
1927. Following the Great Depression, the federal government 
established numerous initiatives to repair the mortgage markets and 
encourage homeownership. It created FHA to insure home loans and 
initiated the Federal National Mortgage Association (Fannie Mae) to 
purchase mortgages made by local banks. The federal government's 
regulation of the mortgage industry was born.
    Homeownership requires sustainable, qualified borrowers. During the 
decade of the 1950s the FHA default rate increased fivefold. VA loans 
doubled during the same period. At the same time, the foreclosure rate 
on conventional mortgages remained nearly constant because non-
government lenders maintained strict underwriting standards.
    In 1968, responding to the turmoil in our cities, FHA was empowered 
by Congress to insure loans that required down payments as low as $250. 
The unintended consequence was blockbusting; unscrupulous investors 
began to buy homes in changing neighborhoods, scaring homeowners to 
sell quick, and then these homes would be resold to low-income and 
minority families at inflated prices. By the early 1970s the 
consequences of these practices hit home, resulting in large numbers of 
mortgage defaults, a 500 count federal indictment involving 7,500 FHA 
insured homes in New York City neighborhoods, and previously stable 
neighborhoods collapsing as once optimistic homeowners, now in over 
their heads, walked away, leaving their homes to arsonists and other 
criminals.
    The press for homeownership opportunities continued in the 1980s 
when Congress passed legislation requiring Fannie Mae and Freddie Mac 
to buy mortgages designed for low- and moderate-income households. The 
intent was noble: find a way to grow sustainable homeownership among 
American minorities. These efforts, however, failed to regard the 
borrower's underlying economic ability to sustain the mortgage and 
obligations of homeownership. Despite the fact that by the end of the 
1990s homeownership reached 66% of all households, homeownership for 
low- and moderate-income households and young families was declining. 
The most creditworthy, were now homebuyers, leaving the biggest 
opportunity for mortgage expansion to be the field of lower-income 
families and refinancing. A Maryland mortgage lender predicted in a 
trade article that ``low income borrowers are going to be our leading 
customers going into the 21st century.''
    Homeownership has been described as wealth building, a ``forced 
savings plan,'' and is recognized as the largest purchase most 
Americans will ever make. Not only is homeownership important 
economically; it is important psychologically. A Baltimore study 
revealed that low-income homeowners had significantly higher levels of 
life satisfaction than similarly situated renters. (William M. Rohe & 
Michael A. Stegman, The Effects of Homeownership on the Self-Esteem, 
Perceived Control, and Life Satisfaction of Low-Income People, Journal 
of the American Planning Association 60, 1994 pp173-184). No doubt, 
personal satisfaction with one's life leads to more stable households 
and communities.
    Encouraging increased homeownership opportunities is not 
irresponsible, but it is wrong to equate legitimate, flexible lending 
standards with irresponsible underwriting. Low- and moderate-income 
communities need and ought to be given opportunities to access 
affordable credit. As we have learned, the loan products provided to 
borrowers were not affordable. Rather, they were money makers for the 
lending industry, so much so that premiums were paid based on the risk 
of the loan. The riskier the loan, the more a mortgage broker was paid, 
and the more Wall Street paid the originating bank. This feeding frenzy 
continued until, much like an over-stuffed animal, the entire system 
exploded.
    What went wrong was the misuse of loan products not designed for 
fixed-income low- and moderate-income families, but intended for 
higher-compensated, self-employed borrowers with fluctuating incomes. 
Nevertheless, lenders were encouraged to utilize certain ``tricks of 
the trade,'' such as the use of the NINA (``no income, no asset'') 
loans. These loans are commonly referred to as ``liar loans.'' As we 
know, in 2007, Freddie Mac stopped purchasing these loans. Although it 
is widely believed that borrowers deliberately took advantage of these 
products to be untruthful on their loan applications, the reality is 
that, time and again, it was the mortgage brokers and loan officers who 
inflated the borrower's income to qualify borrowers for loans they 
could not afford and to redirect them to the higher risk, more 
lucrative, and more expensive loans. Loan applications were frequently 
taken over the telephone and borrowers often did not see the documents 
until the closing. When borrowers spoke up, they were often told ``not 
to worry,'' the information did not need to be verified. Many borrowers 
never even saw the misstatements until much later because they were 
rushed through the closing process without an opportunity to review, 
let alone comprehend, the documents. Today, as a result of these 
practices and the proliferation of predatory and subprime lending, 
numerous cities confront abandoned, foreclosed, and unmaintained 
properties. For example, Baltimore and other municipalities have filed 
law suits against lenders for the economic devastation caused by 
lending practices and lack of property maintenance. As a result of 
foreclosures and the ensuing vacant houses, cities like Baltimore are 
losing tax revenue due to plummeting home values, but must continue to 
provide essential services. In addition, the rise in vacant properties 
increases the costs for rodent control, attracts squatters and drug 
dealers, and contributes to the overall decline of the community.
    So, were minorities ``targeted''? Was this reverse red-lining? 
Research conducted by the Chicago Reporter showed that African-
Americans earning more than $100,000 a year were more than twice as 
likely to receive a high-cost loan than a white homeowner earning less 
than $35,000.
    The New York Times reported in-depth on the impact of foreclosures 
in the Baltimore community of Belair-Edison. The Community Law Center 
researches the real estate transactions in this community and provides 
findings to the local housing counselors to reach out to at-risk 
homeowners, This partnership has enabled Belair-Edison residents the 
opportunity to successfully obtain sustainable loan modifications and 
avoid foreclosure.
    The Times article highlighted a study conducted by The Reinvestment 
Fund, showing that over a 4-year period (2003-2007), nearly half of the 
houses foreclosed on were owned by women. The National Association of 
Realtors reported that 40% of all home sales in 2006 were to single 
female buyers. The National Community Reinvestment Coalition (NCRC) 
determined that nearly half of these 2006 female purchases utilized 
subprime mortgages.
    The Consumer Federation of America reported that women were 32% 
more likely to receive a subprime loan than men, even though male/
female credit scores are comparable. The Consumer Federation of America 
also determined that, among high income borrowers, African-American 
women were five times more likely to receive subprime loans than white 
men. There has been considerable research conducted by NCRC, the 
Federal Reserve, and others to support the conclusion that minorities 
received a disproportionate number of subprime loans, even after 
controlling for creditworthiness (i.e., see Paul S. Calem, Kevin Gillen 
& Susan Wachter, The Neighborhood Distribution of Subprime Mortgage 
Lending, 29 Journal of Real Estate Fin. & Econ. 393 (2004); Paul S. 
Calem, Jonathan E. Hershaff & Susan M. Wachter, Neighborhood Patterns 
of Subprime Lending: Evidence from Disparate Cities, 15 Housing Policy 
Debate 603 (2004)).
    The mortgage crisis is felt by the senior population as well. 
Equity is often a senior's largest if not only asset for retirement. 
The devaluation of home prices severely impacts this population, delays 
retirement, impacts employment opportunities for the next generation, 
and thwarts the ability of seniors to use reverse mortgage products to 
supplement fixed-income elderly homeowners. According to AARP research, 
28% of all delinquencies and foreclosures at the end of 2007 were on 
loans held by older Americans. Older African Americans and Hispanics 
had higher foreclosure rates than older whites. Another frightening 
trend highlighted by Harvard's Joint Center for Housing Studies is that 
today more older Americans are carrying a mortgage. Twenty years ago, 
34% of Americans over 50 had a mortgage. Today, according to the study, 
53% of older Americans have a mortgage. Combined with the fact that 
millions of elderly homeowners devote more than 50% of their income to 
pay for housing, this presents a troubling picture. Research indicates 
that some of the most financially vulnerable members of our society, 
such as the elderly and poor, are being hit particularly hard by the 
housing crisis.
    Returning to Baltimore, since 2000, over 30,000 homes went into 
foreclosure, roughly 13% of all city households. As noted, these 
foreclosures have caused the city lost tax revenue, lower home values, 
increased crime and added expenditure for essential services and 
property maintenance--including rodent control and the need to board up 
and secure these homes from squatters and other misuse. In January 
2008, Baltimore filed a complaint against Wells Fargo Bank seeking 
damages for the economic injuries brought upon the city's minority 
neighborhoods as a result of Wells Fargo's deceptive lending practices.
    Where do we go now? The FHA response a decade ago in Baltimore is 
worth a closer look. A national foreclosure moratorium may be the bold 
but necessary next step in resolving the foreclosure crisis. Although 
foreclosures are said to have dipped slightly in May, one in every 398 
households with loans received a foreclosure filing. Filings, which 
include notices of default and auctions, were reported on 321,480 
properties last month.
    Congress alluded to a national foreclosure moratorium in the 
Helping Families Save Their Homes Act of 2009, Title IV  401(a): ``It 
is the sense of the Congress that mortgage holders, institutions, and 
mortgage servicers should not initiate a foreclosure proceeding or a 
foreclosure sale on any homeowner until . . . foreclosure mitigation 
provisions have been implemented and determined to be operational . . . 
'' This provision is unfortunately not binding, but it points to 
Congress's recognition that a national foreclosure moratorium would 
give borrowers time to research and apply to loan modification programs 
and give lenders time to build the capacity necessary to handle the 
increased volume of loan modification requests.