will examine the subprime mortgage industry and the problem of foreclosure lending industry and the enforcement of the community reinvestment act the hearing will also examine alternatives to foreclosure and  urban america's unknown i wonder if any of us in government has a proper understanding of the dimensions of the forthcoming foreclosure crisis and the impact it will have an american it will be it will be prolonged and it will be  taking up issues of urban economic development but also issues that are important to families and individuals and that you can make a difference so thank you very much for that i also like to thank you for including me in this appreciate being included as you know and these record foreclosures are linked to the mortgage lending practices in the sub prime market rising interest rates and home prices have made it increasingly difficult for borrowers those that took out the sub prime loans to meet their obligations owning  maintaining a home is a challenge even under the best of financial circumstances when money is tight or nonexistent is virtually impossible i believe that homeownership is a privilege that everyone should enjoy but we must not allow for the dream of ownership about how his organization works to combat predatory lending and i urge the members of the subcommittee to listen closely to his testimony that relates to how we might be able to address predatory lending the local level his organization has taken an effort to educate a assist those who have got into trouble that is one of the i'd like to add is that as i served as mayor and as we were facing the issue of predatory lending and we would see the individual crisis and the price that this would have for homeowners my community continued to wonder how the financial markets could sustain these types of losses that would be inevitable because even though individuals lives were being impacted actual capital was being lost in the market that  mr chairman as i go into my statement i hope that that hearings will yield some results i think that so often we hold hearings and i've said this on other committees that i sit on and but when it comes to results we sometimes something happens and we don't get there and i've looked at some of the testimony here today and i know that a lot of people here will talk about things that they are trying to do to prevent foreclosures and things that stem from predatory lending and trying to address the whole payday loan situation and we involved more have done quite a bit in those areas too so i appreciate you have a signal am in the challenges facing america's cities and i think the timely issue of predatory lending is an excellent place to start news reports surrounding the recent subprime mortgage industr y shown a national spotlight on a problem that was already known to those of us with with our cities low and moderate income communities are being targeted by lenders who singular concern is making money at the expense of others for example some private sub prime loans trap individuals with poor credit by offering a low introductory interest rate that is followed by a dramatic rate increase this year mortgage payments on what he one percent of all subprime loans will increase additionally these loans frequently have an interest only no principal balloon structure and prepayment penalties these practices discourage borrows from paying down their debt and create a series of scenarios that could easily spiral out of control to be sure roughly one in five subprime loans go into foreclosure at least once this is bad news for individual borrowers and it is bad news for entire communities as well foreclosures have a domino effect in the community they depress nearby property values leading to additional foreclosures this cycle has devastated far too many low and moderate income communities in america's cities i'm disappointed the problem had to affect the stock market before it really goddard the national attention attention is deserved but i appreciate the opportunity to investigate the larger issue of predatory lending with this one high profile example as a backdrop today we will also look into the practice of payday lending which targets low and moderate income individuals who are strapped for cash payday loans offer it as short term loans payable in for after thirty days or less with interest and u typical payday borrow loan borrow is not a financially in state as it is not as financially unstable as you might expect he or she is likely to have a steady employment relationship with the bank and the ability to transfer funds electronically as i close unfortunately the same circumstances that caused the borrower to seek a payday loan in the first place are likely to prevent him or her from paying it off within the allotted time for this reason become trapped in a long term debt making high interest only payments payday loans can include interest rates higher than three hundred percent i'm seriously concerned that companies are profiting by trafficking trapping vulnerable low and moderate income individuals and cycles of debt in one thousand nine hundred seven congress passed the community reinvestment act to prevent this injustice i am interested to learn what we can do to better protect our low and moderate income communities and i appreciate the chairman's attention to this critical issue and as i close again mr chairman there's one interesting thing i don't know what happens in cleveland but in my community i live in inner city of baltimore you can go miles and not find a bank in the in the african american community and poor communities and so i'm hoping that we will look into these matters and go beyond the hearing mr chairman and try to come up with earlier today this is supposed to be along the read along hearing a little some of us up apologize in advance for being in and out of the room for other commitments but it doesn't mean that we have an opportunity to read the early what's been provided by this panel as well as the next panels properties and was instrumental in creating county don't borrow trouble foreclosure prevention program developed nationally recognized link deposit loan programs that help revitalize the county's housing stock and reduce  analysis and non profits and public policy he conducts research on real estate and housing markets economic development community development community reinvestment for housing and urban and regional planning and policy professor emerita grand valley  but as someone who served with in public life for decades you have been an exemplary public servant and you honor us with your work and your presence thank you very much for being here please please  state has been enormous but sadly the news of the past few months convinces me that the worst is yet to come my name is jim or caucus and the county treasurer county ohio county of over one point three million people that includes cleveland and fifty nine suburban communities for at least the past seven years urban leaders in cities like cleveland dayton toledo and other older more mature cities throughout america have been decrying the explosion in foreclosure filings in their communities they have complained of abandonment of property flipping and of a lending industry that we thought was behaving so responsibly we were convinced that someday a segment of that industry the subprime sector would implode we complained of no document loans and  rate mortgages that would reset at a rate higher than would be it would be well beyond the means of the bar where we complained of our words known as ninjas no income no job no assets were often buying properties multiple properties very often with no down payment we can planed a fraud on an unprecedented scale that of all buyers sellers brokers rankers bankers and appraisers mr chairman members of the committee these tactics have devastated cleveland and its neighborhoods the most obvious example chairman percentage is a neighborhood in cleveland that you once represented known as slavic village where nine hundred homes have been abandoned in just the past several years we pleaded for help at the state level but were no match for the lobbying team assembled by the mortgage brokers the bankers and financial services industry that had come to view securitization in the use of collateralized debt obligations as a foolproof way to finance mortgages in this country not just for people with good credit but for people with bad credit or no credit at all you've heard this before but it bears worth repeating the american dream of homeownership has become for the hundreds of thousands of americans with been foreclosed or are being foreclosed or will be foreclosed this year with those americans it has become a nightmare for older struggling american cities like cleveland this promise of the american dream has become a nightmare burden in these communities with vacant properties and maintenance costs the city's cannot afford for the millions of americans who live next to one of these properties or on a street with a vacant home or many vacant homes who have witnessed a precipitous decline in the value of the most valuable asset their home foreclosure disaster has become a nightmare for them too last march we began a foreclosure prevention program in our county that asked our residents who are facing foreclosure to call two one one hotline where operators referred them to foreclosure counseling specialist the director of that program mark wiseman is seated behind me i'm proud to say we saved approximately six hundred homeowners from foreclosure during that period but i'm sobered by the fact that for every mortgage we say twenty more before closures are filed with our clerk of courts we've gone from thirty five hundred private mortgage foreclosures and one thousand nine hundred five to seventy five hundred private mortgage foreclosures in two thousand to over thirteen thousand in two thousand and six with no end in sight these inc coincided perfectly with the growth of the sub prime lending industry what are we asking for this congress to do don't fall for the argument that some on wall street are starting to voice that this is a market problem that the market will correct that the market is already doing so by tightening credit standards is to chairman we've already talked about it but i've read various reports that estimate anywhere from one point four to two point four million mortgages will go into default the losses suffered as a result of these default will run into the hundreds of billions of dollars on a daily basis we read reports of mortgage banker funny bankruptcy or facing bankruptcy does anybody really believe this is all caused by a little hick up in the market one that we should trust the market to correct their two areas with this congress can be a great help certainly loan products must be abolished and loan officers must be held to fiduciary duty no document loans have no place in the home mortgage industry these loans which are unapologetically referred to was  loans among brokers are an invitation to fraud and should be outlawed if your borrower can't prove beyond doubt what their income is why you lending the money in the first place far as long officers are concerned mr chairman the loan officer knows a considerable degree  certainty whether the borrower he is working with will be able to repay that loan yet they reject the notion that they should be required to have that borrowers best financial interest at heart when the driving the decision making this is the most important financial decision these borrowers will ever make and it's critical that these mortgage brokers be held to the highest bid to sherry standards there's been talk in this congress of the suitability standard does the borrow have the income to make a monthly loan payment not only next month's payments but the payment when the loan rate resets selling somebody a loan they don't need or can't afford should cost the mortgage broker his or her life and when the industry testifies for this panel please ask yourself one question why are we here to address what has become a national crisis the blame the foreclosure disasters on the slow economy and rising unemployment one role brokers and bankers of mis behave and they tell you we have enough laws and regulations we just need to do a better job of enforcing the ones we have asked them if bla are nonexistent underwriting standards haven't played a role in this disaster or of high fees and bonuses totalling billions of dollars to brokers who are rewarded to write mortgages with higher interest rates and excessive fees have been contributed to this foreclosure mr chairman you will never be able to put a dollar amount on the heartbreak the pain and the distress caused to these families never reject the argument that if congress reigns in the abuses of the sub prime industry that it w credit for the millions of americans with less than perfect credit there is unquestionably a place for sub prime lending in this country subplot prime loans can provide opportunity for people to own a home who might not otherwise have that chance but mr chairman and members of the committee to say that you must accept these abuse of practices as part of the solution well that is just plain wrong thank you for this opportunity thank you very much  only when all other options have failed regardless of the type or how it was underwritten often have little financial cushion to withstand any financial again if the customer won't talk to us we can't help to close the communication gap has partnered with nonprofit housing advocacy groups including the national training and information center in chicago advocacy groups receiving contact from a local community group such as customer to make a call and take that critical first step to avoiding foreclosure through have resulted from market factors that is investors and investment banks are requiring product and underwriting changes and from recent regulatory changes will reduce the number of new borrowers finding themselves in trouble only months after receiving their loan changes however will make it more difficult already in a law to fix their current problems a another service groups alike and investors and investment banks must work together to help these homeowners already facing difficulties thank you  the committee for having a hearing today and thank you for inviting me to testify on this important topic as has been mentioned we estimate that out of sub prime mortgages made in the past two years twenty percent will fail not just enter foreclosure but the personal actually there the impact on urban communities is absolutely profound keep in mind that over half of african american homeowners have sub prime mortgages and forty percent of latino homeowners and when looking at the practices in the sub prime industry it really should come as no surprise that we're seeing such high rates of foreclosures the dominant loan product in the subprime market that most homeowners and subprime market have is called  a twenty or three twenty seven hybrid on that simply means that for the first two or three years the person has a fixed rate well then it enters an adjustable period but here's the problem these loans  have a built in payment shock of at least thirty percent meaning that if you have a two thousand dollars monthly payment it is going to jump to twenty six hundred dollars at least generally these loans are only underwritten the lender is only providing a loan based on the person's ability to afford the loan for the fixed rate period not for the adjustable period so really shouldn't come as a surprise that we're problem the other thing is that many times as been mentioned  people are receiving no doc and low doc no loans which are which make it extremely difficult for someone to actually afford the cost of the loan and generally costs them more money lenders also frequently do not ask for taxes and insurance meaning that a person has a major bill to do in addition to the payment shock and most sub prime borrowers homeowners have a prepayment penalty seventy percent of subprime homeowners over seventy percent have prepayment penalties on their loans less than five percent of prime borrowers have prepayment penalties this means that most homeowners have a terrible choice to get hit with a prepayment penalty or they have to pay the adjusted rate it's a lose lose situation you're between a rock and a hard place another thing that should be taken into account is that many people in the subprime market actually qualified for prime loans it's been estimated by freddie mac at least twenty percent of people in the subprime market subprime loans could qualify for a prime loan and the reason why is because there is massive stearing going on in the subprime industry we have shown in our research which i attach the testimony that african american and latino homeowners are thirty percent more likely to have a sub prime loan even when they have the same credit score as their white counterparts so this is not just about credit risk there is a lot more going on here so what should be done that's natural question well first of all congress should pass a comprehensive anti predatory lending law that not only holds lenders and brokers accountable but also allows states and localities to add additional protections down the down the road we should also have return to sound underwriting where a person is qualified for a loan not just for the initial period but also when the loan adjusted upward with out that it's going to be ineffective in addition  brokers really need to have a have more duties to do sherry duty to homeowners over seventy percent of subprime loans are made by mortgage brokers and so for going to attack this problem we have to deal with the role of mortgage brokers  have a financial incentive to put first to put people at a higher rate loan than what they qualify for through the payment of premiums in addition the federal regulators bank regulators have proposed new guidance which calls on institutions to underwrite loans to the adjusted rate we hope that those regulations are in fact finalized and then the federal reserve make sure that it's applied to the entire market not just the national banks and to federally regulated banking institutions and we encourage lenders and servicers to reach out to homeowners now to try to avoid what we will perceive as a much bigger problem as far as people entering foreclosure and finally we call on the unfortunately has not followed their lead and has not taken the same action we would hope that fannie mae would take the same action the impact of these issues on communities and well it's difficult to overstate and i would just say that keep in mind that african american and latino households have only seventeen percent of the wealth of white households so the impact in pieces and sub prime industry are just absolutely devastating thank you i'd be happy to answer your questions we've had a flood of poorly structured mortgage credit much of it which works of the detriment of the by our and to the benefit of brokers and some investors the phenomenon of housing markets and harming neighborhoods and communities one major problem which is being amplified nationally now as housing appreciation stalls in many more places that sub prime foreclosure rates are routinely running at more than ten to fifteen times those  prime mortgages in some localities this is more than thirty times the greatest increase closures in the late ninety's were generally confined to central city neighborhoods with high proportions of lower income and minority  residents continue to be hit very hard but now is the sub has grown so much in recent years it's appetite for pushing product and increasingly suburban market has swelled and foreclosures are now following in the five county atlanta market for example really a region that has suffered from weak economy of any foreclosures increased over one hundred eighty percent from two thousand to two thousand and six and the county with the essential bubble neighborhoods faculty at the wharton business school recently found that aggressive aggressive adjustable rate lending pushes up neighborhood housing values and then pushes them when the inevitable market for overly aggressive lending hurts neighborhoods and neighbors who had no role in the credit even if one does not believe it is the government's role to protect vulnerable homeowners and i should add that i do believe it's hard to argue there no role for government in regulating products that harm entire communities given that some cities have not experienced at least until recently the high levels of foreclosures cleveland detroit baltimore and atlanta have congress the federal reserve and other regulator should do whatever is necessary to extend such regulations to state regulator mortgage lender and not just depository institutions second there is an urgent need for making all actors in the mortgage supply chain accountable for their role in the mortgage process liability for reckless lending needs to follow from the broker to the lender to the investor nothing will create more accurate information and reduce raud better than exposing investors downside risk providing capital to irresponsible lenders federal preemption of stronger state laws is not an appropriate quid pro quo for better federal regulation the research shows that mortgage markets are not significantly impeded by different state regulatory regimes we've had different regimes in foreclosure for many years and i haven't seen a significant problem federal law should be strengthened to provide a structurally sound floor of basic mortgage regulation not one based soley on a confusing babble of dozens of disclosure documents thank you is the only trade association devoted to representing the mortgage broker industry of more than twenty five thousand members in all fifty states and the district of columbia mortgage brokers must comply with a number of state and federal laws and regulations we are subject to the oversight of not only state agencies but also the f t c and certain extent the federal reserve board first let me say that is a tragedy tragedy when any family to lose their home no one disputes this foreclosure hurts not only the family but the neighborhood and surrounding communities as small business brokers we live shop and raise our families in these communities when consumers property values decline our property values decline when consumers and neighborhoods become unstable and prone to violence our neighborhoods become unstable and prone to violence more than any other channel brokers live  motto once a customer a customer for life what happens in our neighborhoods and iraq communities hurts all of us more is broke is due care and we believe that everyone from wall street to mortgage originators has a role to play when a consumer is in trouble and facing foreclosure at the same time we must remember that today america enjoys an all time record rate of home ownership almost seventy percent the challenge we face now is how do we help people avoid foreclosure while at the same time ensure they have continued access to credit we realize that a number of recent reports have focused on the rise in home for foreclosures the truth is we can only speculate on the causes responsible for a rise in home foreclosures there are a number of possible factors bankruptcy reform minimum wage gains credit card debt decreased savings rate decreasing home values second homes fraud illness and other life events to name just a few do not rush to just before we have all the facts we understand the congress is calling for a g a o study on the cause of foreclosure we expect the study to take into account a number of possible economic and non economic factors such as product pricing seasonal and market changes which should examine the conclusions before implementing any policy decisions that could unfairly her tail access to credit in two thousand to our present challenge industry to increase minority homeowners homeownership by five point five million families by two thousand and ten more rigid niters realtors lenders ers and investors on wall street responded and help families and urban america own homes with this at all of us and history government and consumers have a role in helping these families stay in their homes let me close with a brief summary of what a and b is doing to help families achieve and maintain responsible homeownership we continue to advocate for affordable housing including f h a reform and have pushed for increased mortgage participation in the program we must make a real choice for non prime customers we support authorizing v a to provide reverse mortgages and expand access to credit especially for elderly veterans into that since two thousand and two game b is the only trade association has advocated for education criminal background checks and increased professional standards for already all mortgage originators not just mortgage brokers we prepared and submitted a  estimate to help provide comparison shopping our code of ethics in best business practices prohibit placing pressure on being pressured by other professionals and we propose a development of a loan specific payment disclosure to be given to consumers at the shopping stage and again it funding this will help consumers avoid payment thank you for the opportunity for you today i'm happy to answer a question thanks very much we're now going to services chairman congressman member the committee no we're not and i don't like to admit this we really are losing as i said for every mortgage we're able to say twenty more file there's an effort underway at the state level but we really need help at this level are we can respond quickly at a local level but the reality is our resources are limited we tried to partner with local banks local financial institutions some joined our efforts some did not so we are doing the best we can but this really is a problem that goes far beyond the power of the county government it really needed help at the state level we've not really gotten it you know there's been a raging battle we already know that it's been devastating to neighborhoods entire neighborhoods of emptied out the county has lost fifty thousand people in the past five years i think a significant percentage of that loss is attributable to these practices and these know that many of these arm which by the way are known by some of the as explosive arms we know that many of these are going to push people over the edge in the industry needs to really consider that they  continued testimony so i'm able to hear the comments and really appreciate both the dedication that each of you have to this issue but also your ability to communicate how this relates to the average american house relates to their predatory lending have their homes at risk but really it's the whole neighborhood when you live next to a house that becomes abandoned it takes down the neighborhood it takes down your housing value it is a blighting influence it attracts crime and other impacts and as you have a whole neighborhood where this happens you have then the repetition of this as the housing values begin to drop because of the incidence of blighting of abandoned houses there there resale goes down resulting in even more capital being lost for those individuals that are in a foreclosure situation and then the resulting abandonment of these properties represents a title block on future redevelopment once a house becomes aband doing the transaction because not readily available on the market there are so many impediments that are on the way to clean it up in fact left behind not only just a broken family and a broken abandoned house it's left behind a title problem so that future chairman congressman turner in my role as county treasurer i serve on something called border vision the three member board comprised of an auditor a member of the county commission in my office i chair the committee i've been asking my board members this is a year because of appraisals that tens of thousands of filings are occurring where people are arguing or contesting the value of their property at least at this point one of three people who are applying for property tax appeals that request for reduced property value because both what i've read and both what i see talking to realtors i know the property is worth less because it's next to you can you imagine the congress congressman if you're on the street with seven eight nine ten of these revenue well it lowers the revenue base and because of the way something called nine twenty which you know in ohio works it increases property values within that category i'm talking about residential so when people vote for higher taxes they like to see those taxes and come down over time but it doesn't work and in fact in cases where property values decrease at a really substantial bases there can be attacked an increase in property taxes for those people who are left and justice and that's not just kind of anecdotal that's been shown in the literature that vacant houses do increase neighborhood crime levels foreclosures related to vacant houses increased neighborhood crime levels and it's also passed gave the federal reserve the authority to regulate the entire mortgage industry when it comes to practices they have never used that authority they've never used that authority definitely would agree with mr nasser that the federal reserve can do a lot more they made a few moves in two thousand and one only on refinance loans and only on kind of high cost refinance loans and that takes up such a small part of the market it's had very minimal effect although it did have some effect so it proves that the federal government can do something on refinances i think actually shifted a lot of subprime activity into the home purchase market because they were totally unregulated there so i think the federal reserve do a lot more by using at that to work on home purchase and all types of refinance loans and home equity loans i also think that although some states have done a good job the federal government at least has to get out of the way and quit preempting states when they do take action that to me that's been just a travesty of federal policy for federal regulators to allow banks to export regulations from easy states into states that want to do something to protect their consumers and finally i think yes congress can do economic forecasting from moody's and others to talk about assumptions about you know what has already been going on as far as foreclosures and and the mortgage market but what will happen and what what we have seen is that really the explosion of these unsustainable loans with huge bills and payments on the dominant subprime market have had a devastating impact it doesn't need to be that way prime homeowners make great homeowners and there's no need for loans to be made in this way the other thing i would just like to point out is that when looking for solutions disclosures will not solve this problem anyone has been through closing knows about the kind of paperwork you have to go through and the thought but one of the things that's so hard mr chairman to deal with when you've got things that are controlled by money and money is the incentive for doing them is hard to get a hold of get you hands around it and try to stop it but what i think about when i press my former life in practice and law and i saw what my clients went through to qualify for a loan and then i hear stuff like this this is you know how do you get to that and i know the opposite then and then you hear on the other hand the mortgage industry saying people are not going to be able to get  loans they got it it's just not going to end then but yet and still i think it was you who said that it becomes a nightmare and i guess in the end what happens is the person would have been far better off if they never even got in the house which is and as i've said many times we have one life to live this is no dress rehearsal and this is the life what we just destroyed just about somebody's life or maybe twenty years if they ever get back to a point where they can even buy a house i mean i think it's very hard and the reason why i say it's hard to get a of you to get your hands around something when it's motivated by money is because i think coming up with the strategies to deal with it are going to be hard because you're going to have so much opposition going in the opposite in the in never in another direction but one of you also said something that i found very interesting you said that it's beginning to spread to neighborhoods it was a time when these issues were just in the african american community where you know no big deal now it's spreading beyond those communities and sadly it's sad but in a way it may allow folks to have more room when more communities begin to join in and then these other communities that you all talked about the ones where they are the adjacent communities who are finding that their property values are being affected and maybe just maybe we'll have enough power be with all of this going forward to do something about it but what i fear is that we i don't want to be sitting here saying the same things five ten years from now because you know what that means that means that a whole lot of people had lost their houses children have literally and we don't think about the children in this situation is the children have seen their mothers and fathers excited about a dream walk in the house excited and the next thing you know they see that dream plummet and i don't know what effect i know it has a detriment effect on them in the moment but it also has an effect of causing them it puts a damper on any dreaming that they might do and i don't even know how you put a value on that and so i just you know i just think that's why i was so gla you you you did this and i just i'm just amazed at how this thing has a rippling effect and we see in baltimore where we have the foreclosures of folks come in like vultures and so the next two you know  chairman you know i came to city government back the late seventy's and we dealt with redlining issues i will tell you this is a far more negative impact on your urban neighborhoods and redlining and i never thought i'd miss the days of redlining too much credit  far worse and it is empty these neighborhood neighbors out far faster in a very strange way redlining lock people into place this is open the doors and basically emptied entire neighborhoods out past the point now set up before there's a tipping point there's a point at which urban communities like cleveland in baltimore dayton can no longer afford the costs associated with trying to bring a neighborhood back and you hate to tell the person living that community is beyond our means but it's happening and the tipping point has been reached those things first this place is a hard place to get stuff done i don't know about easy as far as the political realities as far as talking about what is just down practice and that is bring back decent underwriting where basically a person is qualified to afford the payment increase where they don't have to refinance at best or for close one adjustment head that's just straight forward but it's also important to point out change yes i mean the broker has a as a financial incentive to put someone at a higher price than what they qualify for it's just plain and simple they get paid to claw those are just the facts i'm not and came up with the idea for this hearing mr cummings and mr davis and other members of the committee thought that this is so critical to proceed based on their own experience and is what we're talking about  risk the spreading of risk to too many parties in the mortgage supply side and mr denham i guess my opinion so different i think it's because of the the effort to try and bring home homeownership to more people at this point is a reason you've seen the subprime industry become so large at this point because there's only so many people that you can deal with i think to answer your question if we were to go back to the days of the seventy's and eighty's where we only had fixed rate loans you would understand the fact that every time you raise the interest rate by a quarter percent you take a certain part of the market out you cannot qualify for those loans after that point and this has been an effort overall to try and bring home ownership or give people a chance to do that so that's that's where we are on this on this issue as well you know it's important that we hear your perspective one of the things that  i'm interested in and maybe you could give your perspective i know in cairo county ohio foreclosures topped one thousand a month in two thousand and six and they're out of the top twelve hundred a month in two thousand and seven what would you say are the major causes of this epidemic that's the reason we asked for an independent government study we don't know the cause of this point but i can tell you the traditional causes of four closure have always being allowed into loans that they cannot afford well at this point without some kind of definition or some or some kind of evidence to that fact it's hard for me to make that claim i mean i cannot i cannot make that claim but that's part of the problem that is the claim of a lot of there that doesn't tell me what the problem is but you really can't say that this is the result of borrowers being allowed into loans they can't avoid what i can't say is that there are some borrowers that do have that may have had have a problem because of that but i likely if the borrower can't afford a loan no sir i would i would say that arjun is a person that's most likely to know because they do all the underwriting the mortgage broker gets them into the house get them into the  a mortgage broker does does get them in there and give them options gives them options on what they want to that point and then the customer the consumer makes the choice of which loan product they want to go with of them they've been tracking foreclosures in ohio they went out and surveyed all eighty eight county sheriffs in the state of ohio especially in smaller counties nobody knows better the cause of a foreclosure than the county sheriff now it may not be an issue in montgomery where sh are far removed from the process they've got other people implementing the foreclosure the eviction action but of the sheriff they interviewed while the overwhelming majority of the sheriff said that they thought the cause of a they observe that the cause of the i just before the recess would you agree that are independent mortgage brokers who are the only people from the lender side of the table to actually meet the bar or the parties most likely to know if the borrower can afford the loan or the independent mortgage brokers do they know if the borrower can or can't afford the loan what i agree to that i'll bet the only i'm going to agree to on that is they do not make the ultimate decision on whether loans approved enough or not you know anything about that process how it is approved i know exactly how the process works customer comes in you take an application from the customer you get all the information documentation you have to to do and then you submit that information to the to the lender for approval underwriting approval and then they send it back normally with some additional conditions or they can make a decision right up right off the bat and then  all starts and we all know that wall street not used to losing money on things so they're making money on what's going on at this point they still are so while the consumer is suffering maybe because of some of the foreclosures are going on they're still not losing their well i think i've testified that i don't know what it is at this point is causing the problems and county i will know in two thousand and five the number one lender of foreclosed properties for sheriff in cleveland  responsibility because they are under contract with lenders also at this point so it is hard to serve two masters i would say i would know that i have a other words and in texas we are required to tell them the bar or at at the time of application what our relationship is going to be to the bar where they are told at the very beginning that they are not we are not agents of the bar at this point and i don't think that's going to solve your problem by making everybody fiduciary and if you do that then you need were for all of them have an education continuing education including the banks at this point so we would really like to see that given given that  facts speak themselves depending on who you talk to they say that we do over fifty percent of the business on a on a regular basis do you think that the consumers would continue to come back to us if the word we had to live on on referrals where you don't go out and solicit new business every time so you live in all referrals at this point and i really think that that without those we wouldn't be doing as much business as we are so the consumer believes that we are giving him a good deal but do they have a choice they have a choice and that's one of the things we like to see them do is to shop because that's one of the problems  go out and get an independent appraisal at that time so the underwriter is the actual person that makes those decisions if you've heard of any brokers who would inflate house value only if they want to commit fraud because it happened yes it does i'm sure it does because if they've been court cases where it's happened but any but i would say that any industry has got some bad actors in it at least these are being caught in fact in texas we're working on what are the circumstances under which that happens well they don't qualify for the loan they don't meet that they don't meet the guidelines at that point of the work you turn them down if they don't qualify how do you suppose that's the way it's a it's a lot it's a lot easier today than it used to be there was a time before the invention of the automated underwriting system where i could just take an application tell you where somebody would be approving that point today without an automated underwriting you don't dare do that because we have computers out there that are making some of the decisions and after that those decisions are made you have to get the requirements along with that and send them to the investor for the final approval to mortgage brokers in the average customer base it's about twenty four thousand here a low to moderate income borrowers so if you're borrowing five hundred dollars plus a seventy five hundred fifty dollars finance charge that has to be repaid on your next pay day if you're in that average income range you're agreeing to pay seventy five percent of your take home pay to keep that from bouncing to hit that low pay not very many middle class people pay out a lot more than the minimum payment loan eleven times in one and one day give these loans and the lack of underwriting it's no surprise that these loans create a debt trap for cash strapped  families what's going on in this industry comes from regulators but the colorado attorney general's office has been collecting the data from loan applications they tell us that sixty percent of the borrowers come from the lowest three income brackets that they make around twenty five thousand here other states have even lower incomes and these are minority borrowers as well in north carolina academic study found that african american consumers are price of a study in texas of a hundred forty five thousand customers that although african american consumers make up eleven percent of the adult population in texas forty three and is a consortium of more than two hundred twenty private nonprofit fair housing organizations state and local civil rights agencies and individuals from throughout the country since two thousand and one my agency has been implementing the predatory lending solutions project in montgomery county ohio through the project we assist residents of montgomery county by providing outreach and education on the dangers of predatory mortgage lending and providing intervention and rescue services to the victims of predatory mortgage lending fair housing and the most important issue facing our nation however there is no strong commitment by the federal government to enforce the fair housing laws that we have their lending which is covered by the fair housing act is a key part of ensuring equal housing opportunity in our communities while the subprime lending market offers credit to high risk borrowers at higher interest rates and s wonders have capitalized on this extension of credit by steering vulnerable individuals often on the basis of the borrowers race ethnicity or gender to take loans whose terms they cannot possibly repay and thus are not suitable to the borrower this practice of predatory lending is a serious housing concern our work suggests that homeowners were targeted by subprime lenders because they had significant equity in their homes and their credit needs have been ignored by depository lending institutions so the same neighborhoods that have been subjected to years of homeowner insurance redlining and mortgage lending redlining have now also been  targeted for harvesting of the hard earned equity in their homes this is having a devastating effect on our cities and our county in the past six years the number of mortgage foreclosure filings in montgomery county has more than doubled provide the services with the limited resources available for those clients that we are able to assist given our resources we have been exceedingly successful in keeping them in their homes and getting them into appropriate loan products and i'd like to thousand nine hundred ninety two dollars and eighty cents with an eleven point five one percent interest rate and a monthly payment of seven hundred ninety six dollars and eighty four cents per monthly payment did not include escrow for taxes and insurance we negotiated a short payoff with the offending lender and secured refinancing for the client on a loan amount of three thousand three hundred dollars which is what the house was valued at with a six point five percent  half hours as the work of our project clearly demonstrates consumers have affected were armed with the appropriate time and resources intervention that keeps the homeowners in their homes and paying their  mortgage possible our clients are not deadbeat mortgage borrowers they are hard working individuals and families who are chasing the american dream of homeownership as it has been marketed by some of the largest  most wealthy residential mortgage lenders and brokers in the united states no matter what regulatory or legislative steps are taken to address the problem of predatory mortgage lending and subsequent foreclosures absolutely must be folks who own their home outright and are working people who are just trying to improve their standard of living and make sure they have something to pass on to their children legal services corporation is a great function but they program in order to increase the education and on the part of local fair housing organizations organizations when properly funded can serve as the infrastructure through which a lot of this could be addressed congress to convert problematic into appropriate loan products and congress should require federal government including hud the department of justice and the federal trade commission to undertake more aggressive thank you very much  lending industry i'd like to focus in on our product hundred of loan what we call the pal loan we developed this loan in mid two thousand and two and we did that as a result of the story that you saw in the video with one of our members we received support from for this product from the national credit union ministration they were very supportive both on the regulatory and examination side and also from the c f i fun of the u s department of treasury we structured our loan as a five hundred dollar loan sixteen and a half percent saleable over six months the reason we structured it as a term loan is as congressman cummings noted earlier the payday lending industry really structures their alone in a way to encourage rollovers in a way that is really not able to repay be repaid in two weeks or in one month and the goal is to bring new members into the credit union we have chart we have made over four thousand two hundred of these loans over the last two years totaling over two million dollars and today we have had a charge of about one hundred forty thousand or about six percent of these loans and our sixty day delinquencies are about five percent and while this is higher than the rest of our portfolio is manageable for us and sustainable in that way there are other financial institutions that are offering alternatives to payday loans to which i say the more the merrier i don't want to corner this market the more banks the more credit unions that are involved in this certainly the better including southside community federal credit union and congressman davis is district is offering alternative products we've learned three lessons from our work in this area first in general the product is not used for one time emergencies you'll often hear the story from the payday lenders about somebody's car breaking down and they need to fix their car to get to work our experience is that these are people who are living paycheck to paycheck week to week really in some cases living a week before paycheck to a week before a paycheck and that's why the traditional payday loan is so destructive there is no way for them to get out of that cycle of debt and so they continue to roll it over the second thing that we've learned is an issue of profitability we structure this product could be sustainable not a profitable but a sustainable product and we've gotten to the place where we have that is the case for us now one way to certainly increase the sustainability is that is to reduce the transaction costs and there are banks that are larger than i am and credit unions that are larger than i am that can use technology and other ways to cut the transaction cost but the second thing is that view profitability on a relationship basis the individual who comes in and joins the credit union to take out a payday alternative loan will later be with us when they need an auto loan or when they need a mortgage loan and we need to view profitability in a longer timeframe and just that one initial loan so far we've made over one hundred fifty loans totaling over six hundred thousand dollars to what we call pal graduate people who started out with a paid alternative loan and graduated to larger loans with us i don't want to be the cheapest payday lender that's not why i'm in business in some ways the most important difference between the work we do and this pain of a payday lender is that we want to move people out of these products we don't want them back into endless cycle of debt with us and that's the important thing you saw the story of the woman was a member of ours who paid three thousand hours to borrow three thousand dollars every hour that she paid to a payday lender is a dollar that was drained from our community for the four thousand two hundred payday alternative loans we have funded so far our members have saved over three million dollars compared to traditional payday loan i'm a small eight million dollar credit union sitting on the north side of the city of chicago and i've saved my community three million dollars if i can do that for my twenty five hundred square foot location on the north side think what other larger banks with better technology better knowledge better expertise can do and i encourage other traditional financial institutions good financial institutions to get in th marketplace thank you very much thank you very much mr jacobs and where your full statement will be and the record as well as a transcript of the of the video very grateful if you wish to leave right now so get your flight  there were more payday lending locations than mcdonald's burger king and wendy's restaurant combined the sheer volume of payday lenders in ohio was problematic because of the weak regulation of the industry ohio has a maximum limit of eight hundred dollars per lo relationship between lending locations and areas of low and moderate income housing or african americans a recent study found that lenders who cultivate more repeat business from existing customers will fare better financially than those who do not to repeat a recent study found that lenders who cultivate more repeat business from existing customers will fare better financially than those who do not have an incentive to get in the b consumer is bombarded with probably over three hundred mortgage products today when you were mayor of cleveland there was probably everyone you knew got a mortgage  and they charge micro mark we make loans to small businesses we do a lot of lending to churches and profit as well as we do many kinds of accounts for individual often customers of our banks and banks like ours and they care because they're a constant source of income we provide many services that customers want and they have to remember the pay people who  credit loans of five hundred to a thousand dollars with no credit no one can make them at this point we don't have the ability there are some programs and the interesting we finished it's interesting you said that because one of the things that i talk about quite a bit in my district is what i call bridges so often what happens to people is that that five hundred dollars you just talked about that bridge that five hundred dollars can bridge them from one thing to another now it's only five hundred dollars but without it they're doomed and i think that's where the payday loans well come in they're looking at it from the standpoint of the borrowers looking at it from the standpoint the say for example i've got all of money for my daughters to wish him but i need five hundred dollars and so they go to the payday loan  person and get the money knowing that it's going to cost them a lot but they look at it from the standpoint that this is the bridge to get me from one point to the other and wow this five hundred dollars because i've heard people talk about this kind of stuff  hundred dollars is only five hundred dollars for that situation is like a million dollars because they're looking at it that this is what's going to allow my kids to be able to afford to jewish and to go on to become a doctor or whatever and so i think and i think companies do take advantage of that and i guess people get hooked on those payday loans and then you know this just like this is like going down down rolling down a hill of ice and so and so then and it just amazes i listen to the various testimony that's taken that's been presented here mr chairman you know i look at the neighborhood that i live in i live in a very in the inner city of baltimore and i see people who are saying the highest prices for everything they pay the highest prices at the grocery store because in those stores they paid they do the  payday loan thing they get cabs and they cause they don't have a car i mean you go on and they pay if they have a car they pay the high as insurance it's amazing that that people who ever get out out of the hole and when you go to the grocery store i mean when i when i shop in the grocery store in my neighborhood and i know the chairman of the moment the chairman is going to have some hearings on grocery stores but i go to the grocery store in my neighborhood to buy a can of shaving cream there may be a fifty cents difference in my neighborhood it may cost me three dollars i go to a neighborhood about maybe five miles away and it's fifty cents less and so they add up and they add up and some people just go down and down and down and then say well why can't they ever get up and get on their feet and even when it comes time to get their taxes you got to come to me i'll give you a tax money right away and so it's even then they are finding themselves in difficult circumstances why ask a question about the credit unions because i'm trying to figure out you know this is a multifaceted problem that perhaps nee represent constituencies which include solid inner city constituents and our experience is that people are always broke and part of our research we've examined payday lending and its impact on consumers and our research has found a payday lending has increased access to short term credit without harming the couple of things that we probably need to be pointed out i believe in the context of the short term credit industry the short term credit industry itself generates more than nine ninety five billion dollars in costs i don't think that's the right tack to take all forms of legal credit or vast improvements over loan sharks and wholly unregulated forms of credit that dominated the credit market prior to the twentieth century and i think that we will return to that again if people are denied access to legal forms of short term credit the credit access to credit is best conducted in the open and competitive market although likely always to be relatively high cost short term credit has high cost because it's fixed costs and the cost of doing business are still competitively determined and there's a lot of competition in the industry hence we have to believe that that's the cost of doing business research by dr dollar morgan at the federal reserve bank of new york has confirmed previously published research that consumers a payday loan shop for best prices and have as i mentioned before for many it's a choice of taking out a payday loan or confronting more expensive alternatives a two thousand and five study by professor tom lehmann confirms that payday loans offer a cost advantage  on this payday loan industry has always been that it could be good or it could be bad and it seemed to me that the questions that answered are whether communities are worse because of payday loans are better off people are there more homeless people because of payday loans or they're less homeless because of and that's a scientific question the scientific question that i think we have some answers not complete we important for consumers who are seeking to maintain their homes eliminating short term credit and forcing cash strapped homeowners to choose between their mortgage payments and medical bills or car payments potentially going to increase and is it possible probable that your findings might change when you come to the end of your research oh it's entirely possible but i'm but i'm very i wouldn't come here and tell you stuff that i didn't think was costly due to the risk profile of the borrowers it serves and the fixed costs of delivery and collection the payday loan industry increasingly competitive and profit margins for providers of payday loans have been reduced in recent years i want you to just tell me what you mean by the risk of the borrower what does that refer to and how does that relate to your research they obviously are not good credit risks are they would have access to different to lower cost credit alternatives but but the fact of the matter is they are not all that risky in terms of the  payday loan system is that an assumption is that based on some research have you looked at any credit ratings of a whole lot of people who are the working poor and they work hard and even you in your statement you talk about how ten percent chose payday loans because of because they were located in a convenient place a lot of these people have not even had access to banks and banks are not in their neighborhood and a lot of them education maybe they have limited