COMMUNITY SOLUTIONS FOR THE PREVENTION

OF AND MANAGEMENT OF FORECLOSURES

FIELD HEARING

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND COMMUNITY OPPORTUNITY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

AUGUST 23, 2006

Printed for the use of the Committee on Financial Services

Serial No. 109–116

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COMMUNITY SOLUTIONS FOR THE PREVENTION

OF AND MANAGEMENT OF FORECLOSURES

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31–545 PDF 2007

COMMUNITY SOLUTIONS FOR THE PREVENTION

OF AND MANAGEMENT OF FORECLOSURES

FIELD HEARING

BEFORE THE

SUBCOMMITTEE ON 

HOUSING AND COMMUNITY OPPORTUNITY

OF THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

AUGUST 23, 2006

Printed for the use of the Committee on Financial Services

Serial No. 109–116

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

CAMPBELL, JOHN, California 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON HOUSING AND COMMUNITY OPPORTUNITY

ROBERT W. NEY, Ohio, Chairman

GARY G. MILLER, California, Vice Chairman 

RICHARD H. BAKER, Louisiana 

WALTER B. JONES, JR., North Carolina 

CHRISTOPHER SHAYS, Connecticut 

PATRICK J. TIBERI, Ohio 

GINNY BROWN-WAITE, Florida 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

STEVAN, PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

CAMPBELL, JOHN, California 

MICHAEL G. OXLEY, Ohio 

MAXINE WATERS, California 

NYDIA M. VELA ́ ZQUEZ, New York 

JULIA CARSON, Indiana 

BARBARA LEE, California 

MICHAEL E. CAPUANO, Massachusetts 

BERNARD SANDERS, Vermont 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

EMANUEL CLEAVER, Missouri 

AL GREEN, Texas 

BARNEY FRANK, Massachusetts 

(V)

C O N T E N T S 

Page 

Hearing held on: 

August 23, 2006 ................................................................................................ 1

Appendix: 

August 23, 2006 ................................................................................................ 35

WITNESSES 

WEDNESDAY, AUGUST 23, 2006

Fratantoni, Michael, Senior Director, Single-Family Research and Economics, 

Mortgage Bankers Association ............................................................................ 17

Oakley, Deborah, Senior Vice President, National City Bank ............................. 20

Randolph, Vanessa, Director, Fannie Mae’s Northern Ohio Community Business Center ........................................................................................................... 21

Rush, Daryl P., Director, Department of Community Development ................... 6

Tisler, Lou, Executive Director, Neighborhood Housing Services of Greater 

Cleveland .............................................................................................................. 23

Wiseman, Mark, Director, Cuyahoga County Foreclosure Prevention Program 8

Wolfe, Bryan, Vice President, Ohio Farmers Union ............................................. 25

APPENDIX 

Prepared statements: 

Kucinich, Hon. Dennis J. ........................................................................................ 36

LaTourette, Hon. Steven C. .................................................................................... 37

Jones, Hon. Stephanie Tubbs ................................................................................. 41

Fratantoni, Michael ................................................................................................. 49

Oakley, Deborah ...................................................................................................... 73

Randolph, Vanessa .................................................................................................. 82

Rush, Daryl P., with inserts ................................................................................... 88

Foreclosure Identification and Prevention ..................................................... 190

A Report From Policy Matters Ohio 2004 ...................................................... 205

Building a New Framework for Community Development in Weak Market Cities ....................................................................................................... 231

Cleveland Mortgage Bulletin 2006 .................................................................. 261

Tisler, Lou, ............................................................................................................... 98

Wiseman, Mark, with inserts ................................................................................. 107

Foreclosure Prevention Program ..................................................................... 122

Chart depicting Ohio Foreclosure Filings ....................................................... 126

Chart depicting a Broken Mortgage Market .................................................. 127

A Report From Policy Matters Ohio 2006 ...................................................... 128

Unfair Lending: The Effect of Race and Ethnicity on the Price of 

Subprime Mortgages, by Center for Responsible Lending ........................ 138

Wolfe, Bryan ............................................................................................................. 145

Page

VI

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Vacant Houses in Garfield Heights ................................................................ 147

Combating Problems of Vacant Houses .......................................................... 160

Statement of Mayor David S. Pocek, City of Bedford, Ohio ......................... 177

Letter from Judge Raymond L. Pianka, Housing Division, Cleveland Municipal Court .................................................................................................. 178

Foreclosure Prevention Summary, January to July 2006 ............................. 182

Banks Warrant Capias List, July 31, 2006 .................................................... 185

Statement of Anne M. Juterbock representing the Department of Consumer Affairs of the City of Cleveland ........................................................ 187

(1)

COMMUNITY SOLUTIONS FOR THE 

PREVENTION OF AND MANAGEMENT 

OF FORECLOSURES 

Wednesday, August 23, 2006

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HOUSING AND

COMMUNITY OPPORTUNITY, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10 a.m., at the 

Super Conference Room, Cuyahoga County Community College, 

Corporate College Eastern Campus, 4400 Richmond Road, 

Warrensville Heights, Ohio, Hon. Steven C. LaTourette, presiding. 

Present: Representatives LaTourette and Tubbs Jones. 

Mr. LATOURETTE. [presiding] Good morning. The subcommittee 

will come to order. 

I want to thank everyone for being here today. I want to thank, 

from the full committee, Chairman Michael Oxley of Ohio, and 

Ranking Member Barney Frank of Massachusetts, for permitting 

us to conduct this hearing today. 

I want to thank my colleague, Stephanie Tubbs Jones, for suggesting we convene this hearing. I want to thank Tri-C and the 

president, Jerry Sue Thornton, whom I believe to be one of the best 

educators in the country. We’re honored to be at the Corporate College here today. 

A couple of housekeeping matters. When Congresswoman Tubbs 

Jones was elected, she served with us on the Financial Services 

Committee, and then she got a promotion. She became the first African-American woman to serve on the Ways and Means Committee, and so the housekeeping matter is that she is a member of 

the Financial Services Committee, and she has been permitted to 

participate and ask questions and that is so ordered. 

In addition, we have had a number of elected officials come up 

and provide information to us that they would like to have made 

a part of the record today. We’ll do that by unanimous consent as 

well. 

I would also indicate that by unanimous consent, the record will 

be kept open for 30 days not only for additional questions that 

Members of Congress may have, but if other folks have things they 

would like to submit for the record of this hearing, we would be 

glad to review them and receive them. 

But initially, with unanimous consent that Stephanie, my colleague, or Congressman Kucinich has a statement that they would 

2

like submitted into the record, Mayor Longo of Garfield Heights 

has a study called Vacant Homes in Garfield Heights. I received a 

letter from Judge Raymond Pianka, who was the housing judge at 

the Cleveland Municipal Housing Division, and Mayor Pocek of the 

City of Bedford also provided me with a statement. 

And I ask by unanimous consent that all of those be included in 

the record of today’s proceedings. So ordered. 

Mrs. TUBBS JONES. Along that line, Congressman LaTourette, I 

know that there are other elected officials in the audience who 

would like to have statements submitted for the record, and I 

would ask that since we have this 30-day window to have those 

records submitted, I know that we would want the county treasurer, Jim Rokakis, to submit a statement; I know that Jay 

Westbrook from the Cleveland City Council would like to submit a 

statement; Anne Juterbock, a lawyer with the City of Cleveland, 

Department of Consumer Affairs, would like to submit a statement; 

and I’m confident that a couple of other members of the council 

who would have wanted to, but because of our requirement, I 

would like for the record to have my staff get a list of all of the 

other people who would like to submit a statement. Thank you. 

Mr. LATOURETTE. Again, I want to welcome everybody to this 

hearing which focuses on the growing problem affecting many 

areas across the country, and especially here in northeastern Ohio, 

and that is the problem of foreclosures. 

Back in 1995, Cuyahoga County experienced 2,582 foreclosures. 

In contrast, last year that number surpassed 12,000. The cost of 

foreclosures is hard for everyone involved. The homeowner must 

struggle with the financial and psychological impact of losing their 

home, and borrowers and lenders face economic costs such that not 

only the State and local governments will feel the impact, but the 

surrounding real estate market, as well. 

The State of Ohio ranks among the highest in foreclosure rates 

nationwide, and that is definitely not a category or statistic that we 

should be proud of. In my mind, first and foremost the question is, 

is enough being done to prevent or mitigate consumers from going 

into the foreclosure situation? 

When a homeowner is struggling to pay his or her bills, the prospect of missing a single payment will sometimes cause that person 

to seek help from a financial counselor. Helping people through financial difficulties is important work, and many people on our two 

panels do that work on a daily basis. 

One of the key issues that I hope our panelists will discuss with 

us today is what to do about those whose objective isn’t to help but 

to take advantage. 

Another consequence of high foreclosure rates is the cost of foreclosure to the community and the surrounding real estate market. 

These costs end up being absorbed by State and local governments, 

making it that much harder to help generate new economic development in these economically stressed parts of town. 

When the foreclosure rates start to climb in the community, 

homes nearby begin to lose value, and the ensuing chain reaction 

is that more people are losing their homes. 

Local governments don’t collect taxes to help in development of 

the projects and must flip the bill on the foreclosed property and 

3

fix them up to save them. We’re told that the City of Cleveland 

alone spent $1 million this year to board up and secure vacant 

houses. Those are funds that could be used in economic development and other infrastructure needs. 

We will also see today that foreclosure problems facing the Nation in our region extend beyond what we think of as the traditional homebuyer out there in the country, particularly family 

farms. 

In Ohio, one in seven people is involved in some aspect of agriculture, and believe it or not, Cuyahoga County, home of the great 

City of Cleveland, has about 4,000 acres of farmland. In my district, which begins just a few miles east of where we’re sitting 

today, family farms are the mainstays of many people in the local 

economy and a buffer against unfettered sprawl. 

There are over 5,000 farmers who work in the Congressional district and will annually sell agricultural products with a market 

value of $212 million. 

Family farmers struggle with credit challenges unfamiliar to the 

average homeowner, such as having to turn to local lenders for 

short-term financing to get through a difficult season, a drought, 

or a bad harvest. 

Our farmland is dwindling, and once it goes, it is forever lost to 

development because the land is so valuable. We need to ensure 

that both the farmers and lenders are on the same page. 

Our panelists today represent a variety of distinguished organizations, local groups, and private lenders that help individuals and 

families get through difficult times without losing their homes. 

In fact, Congresswoman Tubbs Jones and I both are involved in 

the Cuyahoga County Foreclosure Crisis Program, and I look forward to hearing from Mr. Wiseman telling me about the good work 

that his organization has undertaken to educate folks on the ins 

and outs of financing a home. 

My first panel consists of witnesses who will be able to provide 

us with a better scope of the problem nationwide, and specifically 

in Cuyahoga County. 

On the first panel, I want to welcome Mr. Daryl Rush, director 

of the Department of Community Development for the City of 

Cleveland, and Mr. Mark Wiseman, director of the Cuyahoga County Foreclosure Prevention Program. 

Our second panel is here on behalf of community organizations 

and private lenders, and they’re working to mitigate the foreclosure 

effects in our area. 

We will welcome Ms. Vanessa Randolph, the director of the 

Northern Ohio Community Business Center for Fannie Mae, Mr. 

Lou Tisler, the executive director of Neighborhood Housing Services of Greater Cleveland, which is a charter member of the 

NeighborWorks Program, Mr. Michael Fratantoni, the senior director of single-family research and economics at the Mortgage Bankers Association, and Ms. Deborah Oakley, the senior vice president 

of homeownership preservation for National City Corporation, testifying on behalf of the Housing Policy Council of the Financial Services Roundtable. 

And lastly I’m pleased to welcome the panelist, Mr. Bryan Wolfe, 

who is here today in his capacity as vice president of the Ohio 

4

Farmers Union. I don’t know how many farmers you have in your 

district, Stephanie. 

Mrs. TUBBS JONES. More than you. 

Mr. LATOURETTE. Nobody works harder than Mr. Wolfe, and nobody works harder than a farmer. 

I want to thank my colleague, Congresswoman Stephanie Tubbs 

Jones, for her participation today, and for her outstanding work as 

an advocate to find solutions to reduce the impact of foreclosures 

on communities, lenders, and borrowers in northeastern Ohio. And, 

again, I want to thank her for having us in her district today. 

Mrs. TUBBS JONES. Thank you. 

I want to, first of all, thank Chairman Oxley and Ranking Member Barney Frank for agreeing to allow us to have this official Congressional hearing in the 11th Congressional District of Ohio. 

I want to thank my colleague, Steve LaTourette, a member of Financial Services Committee. And I still have links to the Financial 

Services Committee, even though I’m now on the Ways and Means 

Committee. There are a lot of issues that impact the 11th Congressional District which come before the Financial Services Committee. 

A lot of my banking friends say, ‘‘We wish you were back on 

Banking so we can do something.’’ But I’m there through Steve and 

through all these other folks. 

I would like to say that it was very important to have the hearing here in Cleveland to address the growing problem of foreclosures, both in Cuyahoga County and across the State of Ohio. 

I would also like to thank Cuyahoga County Corporate College 

and Dr. Jerry Sue Thornton for hosting us today. 

Thanks also needs to be extended to the Cuyahoga County commissioners, Jimmy Dimora, Tim Hagan, and Peter Lawson Jones; 

the county sheriff, Gerald McFaul; the county recorder, Patrick 

O’Malley; the county auditor, Frank Russo; the county treasurer, 

Jim Rokakis; and many of our county judges because they’re responsible for the processing of foreclosures. 

I did see my former colleague, Judge Thomas Pokorny, in the audience. I would like to thank Judge Raymond Pianka of the Cleveland Municipal Housing Court, and the Honorable Mayor Marcia 

Fudge of Warrensville Heights, because we sit in the City in which 

she has jurisdiction, as well as the Honorable Mayor Daniel Pocek 

for his interest in this issue, and all the panelists who join us 

today. 

The issue of foreclosures has reached a critical state in Ohio, and 

particularly in Cuyahoga County. In 2005, we had an estimated 

2,000 foreclosures, 4 times more than 1998, and among the highest 

in the Nation. 

According to a recent study, there was an average of 463,996 

foreclosure filings in 2005. Throughout the State of Ohio, there was 

an increase of 8.45 percent from 2004. 

Just as a backup, I remember when I was a Cuyahoga County 

prosecutor, I worked very closely with my colleagues who were 

county-elected officials trying to figure out how we could speed up 

the foreclosure process because one of the impacts of a huge number of foreclosures is the impact on the tax base of Cuyahoga CounVerDate 0ct 09 2002 16:59 Mar 16, 2007 Jkt 031545 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\31545.TXT HFIN PsN: TERRIE
5

ty, which has an impact on the ability of the county to obtain dollars for bonding, etc. 

A loss of a home is devastating both to the family and to the 

community, since a family owning a home is often their only piece 

of the American pie. The equity from owning a home is often the 

only means to secure funding for a new business, college tuition, 

or retirement. 

As a community, increased foreclosures often turn neighborhoods 

that were once vibrant into neglected areas which ultimately could 

raise costs for local government. 

This problem disproportionately affects African-Americans here 

in Cuyahoga County. A number of indicators show that AfricanAmericans received a greater portion of subprime loans and were 

denied home loans more frequently than whites in Cuyahoga County. 

As a Member of Congress, I’ve been at the forefront of issues regarding homeownership. I’m the former Chair of the Congressional 

Black Caucus Housing Task Force and host of the CBC Housing 

Fund with ownership wealth problem in Cleveland. 

For the last three Congresses, I’ve introduced the Predatory 

Lending Practice Reduction Act, and the Community Economic Development Expertise Act, also known as CEDEA. A reduction act 

calls for Federal certification of mortgage brokers and the CEDEA 

act provides for support for the community development corporation that have done such a great job in northeast Ohio in building 

new homes, and I want to salute them as well. 

I’m pleased to join with Cuyahoga County Freddie Mac earlier 

this year in support of a recent expansion of, ‘‘Don’t borrow trouble,’’ a campaign to compact predatory lending. 

It is my hope that today’s hearing will help us determine solutions to the foreclosure issue and identify ways to combat unscrupulous predatory lending practices. 

One of the first steps toward creating wealth is homeownership, 

and I want to make sure that everyone is open to the opportunity 

to realize their dream. 

One of the dilemmas we always have when we start talking 

about predatory lending is that all the bankers are not predatory 

lenders, and we end up in the process of trying to get to the predatory lenders and at the same time we seem to put a mark on the 

great lenders who are out there. 

For all of the lenders who are here in this audience, we thank 

you for the good work that you do, and we hope that you will join 

us in this effort to reduce predatory lending in Cuyahoga County. 

I want to thank my colleague for giving me this opportunity to 

make a presentation, and I also want to recognize Ruth Clevenger 

from the Federal Reserve Bank, who is here in our audience today. 

Thank you. 

Mr. LATOURETTE. I thank you very much, Congresswoman Tubbs 

Jones. 

We’ll now proceed with our first panel, and those of you who 

don’t follow the Congress on a regular basis, and I don’t know why 

anybody would, we operate under the 5-minute rule. 

All of the witnesses who are testifying here today have submitted 

written testimony, and we have reviewed those testimonies. 

6

There’s a series of lights that counsel is holding. There’s a green 

light, a yellow light, and a red light. The green light means go, the 

yellow light means you have about a minute left, and the red light 

means that your 5 minutes has expired. 

In all of the hearings that I have chaired, I have never done anything bad to somebody who went over the 5 minutes. But so that 

we can move through the hearing in an orderly fashion, I would 

ask you to stay within the time limitation. 

It is now my pleasure to welcome my first panel today. The first 

witness here is Daryl P. Rush, who, as I indicated earlier, is the 

director of the Department of Community Development for the City 

of Cleveland, Ohio, and the second witness on the first panel will 

be Mr. Mark Wiseman, who is the director of the Cuyahoga County 

Foreclosure Prevention Program. 

I welcome you both, and I thank you for your written submissions before the hearing commenced. Mr. Rush, you’re first. 

STATEMENT OF DARYL P. RUSH, DIRECTOR, DEPARTMENT OF 

COMMUNITY DEVELOPMENT 

Mr. RUSH. Thank you. 

Good morning, Mr. Chairman, Congresswoman Tubbs Jones, 

public officials, elected officials, residents, fellow panelists, and 

guests. 

I’m honored to represent Mayor Frank G. Jackson, the Mayor of 

the City of Cleveland, before you this morning. 

I will speak from the perspective of local city government. First 

of all, I would like to begin by saying it is important to consider 

in the context of predatory lending foreclosures that Cleveland is 

a weak market city. What that means is that we have a declining 

population base, and we are struggling with marginal economic 

growth, and a declining city core. 

The dynamics of weak market cities augment and heighten the 

effects of predatory lending and foreclosures. With that backdrop, 

the City of Cleveland has been primed for its residents to either 

find themselves in unfortunate financial circumstances or to fall 

victim to unscrupulous conduct by conspirators involved in predatory lending. 

The State of Ohio, during the most recent recession, lost 236,700 

jobs. Most of those were in the manufacturing sector. Northeast 

Ohio was over-represented by those job losses in losing over 7,000 

jobs in a 2-year period. 

During that same period there was an increase in subprime lending in the city. Even though not every subprime loan is predatory, 

studies have discerned that subprime loans are 3 times more likely 

to result in foreclosure than prime loans. 

The combination of the economic downturn and the influx of 

well-marketed subprime loans, particularly to susceptible population segments in the City of Cleveland, has led to our local crisis. 

Mr. Chairman, you mentioned some of the rates of the foreclosures. Studies have indicated some of the reasons for foreclosures. At the top of the list is loss of employment, lower employment, and a weak economy, followed closely by predatory lending, 

which includes flipping, divorce, or family break-up. 

7

Currently there are over 7,000 foreclosure cases pending in the 

City of Cleveland. It increases between 875 to 1,000 per month. 

The rate of foreclosure indicates that 67 percent of the foreclosures 

had at least one of the top characteristics of a predatory loan. My 

written comments list the most common characteristics for predatory loans. 

In addition, African-American neighborhoods have a much higher 

level of subprime lending than majority neighborhoods, even after 

controlling for resident’s credit history or income. 

Other groups targeted by subprime and predatory lenders include seniors, Latino communities, and other communities where 

English is a second language. 

I mentioned flipping. It must be noted that flipping is closely related to predatory lending. Cleveland has had a high degree of flipping, particularly in neighborhoods where there is improvement in 

the housing stock because it creates a value range where vultures 

can suck the equity out of people’s houses by not making improvements to the property or making superficial improvements and 

then selling the property to an unsuspecting homeowner and the 

property ultimately gets foreclosed on. 

Loan flipping is defined as refinancing the property, particularly 

over a short period of time, without any improvement to the property or economic gain for the borrower. 

It is also noted that even though we talk about predatory lending 

and foreclosures with the acquisition of a home, people frequently 

end up in a foreclosure situation as a result of home improvement 

or home repair loans. 

The City Housing Program, designed to improve the housing 

stock and provide affordable housing, has also been adversely affected by rising foreclosure rates. Homes supported by second mortgages provided by the City, and home repair loans granted to 

homeowners by the City are experiencing high foreclosure rates 

due to foreclosure borrowed by the primary lender. 

The City does not initiate foreclosures, but we suffer a loss 

through the foreclosure initiated by the principal lender. In order 

to address that, we have examined our programs to make sure that 

there are no predatory loans. 

The foreclosures that our programs and the residents that utilize 

our programs indicate that they are generated by adverse economic 

conditions. The City is undertaking several actions and activities to 

try to reduce the flow of foreclosures by Cleveland homeowners. 

Notwithstanding our efforts to try to strive to alleviate the symptoms of weak market cities and improve the quality of life of our 

residents, we struggle with the effects of predatory lending. 

Mr. Chairman, you mentioned that we spend $100,000 per month 

on boarding up houses. We increased the funding for board-ups and 

demolition by $145,000 this year. We also, as this morning’s paper 

indicated, alleviate nuisance of vacant and boarded houses by 

clearing debris and cutting grass. We increased the funding for 

that activity by $190,000 this year. 

These funds from community public block grant funds could be 

used for other purposes, to try to increase the quality of life in 

Cleveland’s neighborhoods. Instead they’re being directed to alleviate the woes of foreclosures. 

8

One of the things that we would like for Government to do to assist us in this effort would be to maintain or increase funding from 

HUD. CDBG and HOME funds are the tools that we use for our 

efforts to combat predatory lending. 

We’ve lost 21 percent of our CDBG funding over the last 5 years. 

An additional 10.4 percent was lost last year. We’ve lost 28 percent 

of our HOME funds over the past 5 years. This greatly hampers 

our ability to put forth our agenda for our distressed neighborhoods 

in the City of Cleveland. 

To help to battle predatory lending and foreclosures, it would 

also help to change the HOME and CDBG value lines to enable us 

to participate in weak financing predatory loans. 

Furthermore, I would like to maintain CRA regulations. Last 

year oversight guidelines were reduced for thrifts. A change for 

banks would undercut the progress we’ve made to increase the volume and quality of lending by banks in the city. 

We have a program by which we negotiate investment guidelines 

for banks in the City, and this has been very effective in making 

loan products that are not predatory available for our residents. 

We would like to increase oversight for mortgage brokers and appraisers on a national level. We would also like to increase funding 

for municipalities to improve data gathering and technology systems. 

As evidence of what we’re trying to do, the chart over to your 

right is a chart of foreclosure filings in the City of Cleveland for 

2006. 

The ability to increase our technology to collect and utilize data 

to show trends would be very important in trying to combat the effects of predatory lending. 

The assistance financially to municipalities and government entities to increase their technology and utilization capacity would be 

beneficial. Thank you. 

[The prepared statement of Mr. Rush can be found on page 88 

of the appendix.] 

Mr. LATOURETTE. Thank you very much, Mr. Rush, for your excellent testimony. 

Mr. Wiseman, we welcome you this morning, and we look forward to hearing from you. 

STATEMENT OF MARK WISEMAN, DIRECTOR, CUYAHOGA 

COUNTY FORECLOSURE PREVENTION PROGRAM 

Mr. WISEMAN. Thank you, Congressman. I would first like to 

thank Congressman LaTourette and Congresswoman Tubbs Jones 

for calling this hearing and for putting in all the effort you did to 

make it a reality. 

There are 1,000 new foreclosures a month, which means 1,000 

times a month somebody in Cuyahoga County wakes up and 

thinks, ‘‘Is the sheriff going to put me out of my house tomorrow?’’ 

It takes a long time, but most borrowers don’t know that, so the 

County has a created program called the Foreclosure Prevention 

Program, which can assist borrowers at all phases of the process. 

The main thing we do is put borrowers in touch with 2–1–1, 

which is United Way’s first call for help hotline to get sent to the 

appropriate agency to help them during this process. 

9

When we set this up, we assumed that about 60 percent were 

going to be people in foreclosure and about 40 percent were going 

to be people wondering what to do to get credit, or wondering other 

things about the lending industry. 

About 95 percent of the calls we have received so far—and so far 

we’ve gotten about 1,700 calls in a 4-month period—are from people in foreclosure who are fighting for their homes. So the main 

thing that the Foreclosure Prevention Program can do is hook 

these people up with their lender and get them in touch with the 

loss mitigation department that’s going to help them work through 

the process. 

Now, it seems counterintuitive that there has to be a governmental program that can help a borrower make a phone call to call 

their lender, but something this committee needs to understand 

and something everybody needs to understand about what a borrower can face when they call the servicer of the lender to try to 

work out a loan. 

What would testimony from an attorney be without a disclaimer 

in his mind. I don’t mean to say that all servicers are bad or that 

any particular servicer is bad, but if we continue to ignore what’s 

going on and how borrowers are treated, this problem will never 

solve itself and the next hearing we have will be what to do with 

Cleveland, which has nothing but empty homes. 

From the moment the borrower calls their lender, or some borrowers or most borrowers, they’re berated, they’re threatened with 

eviction, they’re threatened with homelessness, they’re called 

things, and they’re insulted. 

I know how collections work; I used to work at a collection agency. Don’t kid yourself, the loss mitigation people are nice and just 

want to work things out. Some of them do it to be sure and a lot 

of the national banks have loss mitigation phone numbers and 

they’re doing a lot of work and they work with us. 

The program has so far supplied about 65 loss mitigation contact 

names from different lenders to our nonprofit partners to help the 

borrowers, but a lot needs to be done. 

By the time a borrower gets a letter from a lender that says, 

‘‘Hey, call us, we have a new department that’s handling your file. 

We want to help you work this out,’’ they think, ‘‘This is the same 

guy that called me a deadbeat and told me he was going to take 

my house and put me out on the phone, why should I call him 

back.’’ 

In fact, in 2005 Freddie Mac did a study where they showed that 

the overwhelming majority of borrowers didn’t call the lender because they were afraid or they didn’t know what the borrower had 

to offer or they didn’t know that they had options. 

It doesn’t make any sense. Every borrower wants to stay in their 

home, every borrower wants to work things out, and every borrower obviously knows that the lender calling them on the phone 

is the only person on the globe that can help them work things out. 

Yet the borrower has a stack of loss mitigation letters in their 

drawer, and they leave the house as soon as they can. 

So far the Foreclosure Prevention Program has sent out about 

18,000 postcards to specific addresses that are in adverse neighborhoods in Cuyahoga County. We’ve developed a Web site that shows 

10

people what the foreclosure process means for them and answers 

frequent questions. We’ve had about 2,000 visitors to that Web site. 

This is just in 4 months, and we’ve multiplied the number of phone 

calls at first call for help for foreclosure assistance by ten. 

That’s without marketing the program. So far the only marketing 

we have is me talking in public, the paper doing a couple of articles, and the Web site that we have. I have no idea what’s going 

to happen once we start getting billboards and paying for radio and 

TV spots. There’s going to be a lot of people calling, and there’s a 

lot that needs to be done. 

It’s too easy. I’m not going to talk about the damage that this 

caused because everybody talked about that so well. It’s too easy 

to get a loan. It’s too easy to get a fake appraisal. It’s too easy to 

get a loan product that can give anybody money no matter what 

the terms are, and this is something that needs to be looked at. 

I’m going to skip right to what I think Congress might be able 

to do unless I get the red light while I’m speaking. I know that the 

Federal legislation can take years to take shape and I know that 

once it’s submitted it looks way different than the animal it comes 

out with. 

It would help in immeasurable ways, and this hearing certainly 

is a good start. It would help in immeasurable ways if our representatives could start talking in Washington, D.C., about what’s 

going on and what has to be done and the fact that the situation 

is very dire. 

I don’t think Cuyahoga County is the only one that’s going to 

look like this and that’s going to have 1,000 foreclosures a month. 

I just think we’re the first or one of the first. 

And for the people who think that unemployment is the biggest 

cause of foreclosure rates, I submitted a graph today with my testimony that shows that even as the unemployment rate goes down 

in Ohio, although it’s not what the metro section said today, but 

even as unemployment rate has done down in the late 1990’s and 

early 2000’s, foreclosures have gone up and up and up. We’re way 

above national averages, and it’s not unemployment that’s causing 

it. 

The time has come to stop arguing about whether there’s a problem and what the solutions are. Ohio did that this year when they 

passed Senate Bill 185. Now the argument in Columbus will be 

whether 185 is efficient enough and whether the Consumer Sales 

Practices Act can help. 

Second, the laws that help direct the national servicing industry 

need a serious checkup. There are too many players who only help 

borrowers, who only ask the borrowers, and who only make more 

money if the case is in foreclosure than if the borrower works out 

a deal. 

Second, there are two loan products that I think should be either 

abolished or greatly curtailed. The first is the no documentation 

loan. This loan is called openly by mortgage brokers a liar’s loan 

because the only thing that the lender requires is what the mortgage broker says that the borrower makes. 

There was an article yesterday in the Wall Street Journal that 

described how the Mortgage Bankers Association looked at some 

11

loans; 60 percent of them were inflated over 50 percent by the income, and 90 percent of them were inflated 5 percent. 

In my mind, there is no reason why a loan where the lender 

doesn’t even look at what the borrower makes, or whether they can 

pay it back, should be legal. 

I’ve heard some of the lending institutions talk about this as a 

limited consequence, but certainly not in a finance situation and 

not when somebody is buying a house and that’s where they’re 

most popular. 

The need for financial literacy education for our children has 

never been more apparent; 16 year-olds get credit card applications 

in the mail, and college kids get credit card applications in the 

mail. These kids are deciding something that’s going to ruin the 

rest of their lives if they fall in that credit card and make it impossible for them to borrow money and save money, and the high 

schools are not giving them any guidance in terms of what they 

have to get and what they have to look out for. 

Lastly, Congress can empower States to enact laws that curtail 

predatory lending. The Center for Responsible Lending did a study, 

and that’s attached to my remarks, that showed that 28 States—

they looked at millions of loans, and they showed that these 28 

States had lower foreclosure rates and subprime products were 

able to flourish and do well after they had strong anti-predatory 

lending laws. 

I would like to ask that my remarks be entered into the hearing 

record today, the testimony and packets that I have, and also 

there’s a late entry to the remarks, which is the January to July 

update from the 2–1–1 first call for help that details the calls that 

they received for the Foreclosure Prevention Program. 

Thank you. 

[The prepared statement of Mr. Wiseman can be found on page 

107 of the appendix.] 

Mr. LATOURETTE. Thank you very much. 

Without objection, your late entry will be added to the record as 

well as your complete statement. 

Again, I want to thank both of you for your excellent testimony. 

Mr. Rush, has the City put together any statistics to determine 

whether or not the majority of residents who are engaged in foreclosure proceedings are doing so as the result of defaults on the 

first mortgage loans or refinancing? Is that more of a problem with 

refinancing than with first loans, or is it equally bad in both? 

Mr. RUSH. Mr. Chairman, I don’t have figures on that. That’s one 

of the things that as we have looked harder at foreclosures and 

both within the City and in working with the county we see sets 

of data that we would like to segregate out and be able to examine 

more closely. 

We don’t have those figures right now. 

Mr. LATOURETTE. Mr. Wiseman, you targeted in your written 

testimony and also your oral testimony two types of products, no 

document loans and adjustable rate mortgages. 

Mr. WISEMAN. That’s correct. 

Mr. LATOURETTE. Do you have any experience with working in 

your organization as to whether or not there’s a greater problem 

with refinancing or first loans? 

12

Mr. WISEMAN. Before I came to the county, I worked for a program assisting Cleveland City residents with foreclosure problems, 

and I looked at hundreds of loans when I was there. 

Most of those are refinance loan first mortgage on the property 

that the borrower has, and the majority of those were ARM loans 

because in the subprime market an adjustable rate mortgage is 

tied to usually the liable index, another index that’s not the U.S. 

prime lending rate. 

Although the prime rate goes down, the subprime ARM almost 

always goes up and will never be at the same place it was when 

the borrower got the loan. 

Mr. LATOURETTE. One product to begin with that’s of interest to 

me, that’s so new, are these interest only loans. I have to tell you 

I know a lot of young people who are buying, in my opinion, more 

house than they can afford, and they’re buying more house than 

they can afford because they’re only paying interest and the principal just sits there forever until there’s a balloon payment. 

We saw in the Washington area, where Stephanie and I spend 

so much of our time, a balloon just recently burst because I think 

people are engaged in flipping properties and are engaged in speculation. 

Are you seeing any impact on the interest only product? 

Mr. WISEMAN. Not from what we can tell yet. As far as I know, 

the interest only loan is at prime rate annual, not a subprime annual, so it’s going to be more popular with the communities that 

are more affluent. 

Of the calls that 2–1–1 has received, only about 55 percent have 

come from Cleveland. We’re seeing numbers close to 5 percent in 

a lot of the suburbs where traditionally you would not see foreclosures in the past. 

And I think that’s an indication of just what you’re talking about, 

that people are buying more house than they can afford. 

They don’t realize what’s on the other end. 

Mr. LATOURETTE. There was an article on June 6, 2006, that indicated that the hardest hit zip code in the area was the 44105, 

and it includes Cleveland’s Slavic Village neighborhood. Councilman Anthony Brancatelli said that a large number of older people 

are scammed into moving in the neighborhood. This is obviously 

clear evidence of the foreclosure problem. 

You mentioned education in your statement. Can you just talk a 

little bit about whether or not you believe more education could be 

provided that would help the Slavic Village residents. 

Mr. WISEMAN. I think more education can and should be provided. I think it can help. How much it will help is anybody’s 

guess. 

I think a lot of people have no earthly idea that they have to look 

at money coming in versus money going out and what’s going to 

happen with the interest rate. 

I talked to a woman yesterday who couldn’t even make two pay- ments on her loan and the first payment—the payment was $800. 

And I said to her, ‘‘Did you know when you signed the loan what 

the payment was?’’ And she said, ‘‘Well, they told me’’—‘‘They 

asked what I could afford and I told them $650 and they said 

okay,’’ and she signed loan papers anyway. 

13

There’s a big problem for borrowers who don’t know that you 

have to look at the loan papers and see what the loan amount is 

and not just listen to what the loan officer is saying. 

So, yes, I think education is a very, very important piece of the 

puzzle. 

Mr. LATOURETTE. When people call your hotline, do they talk to 

a person? 

Mr. WISEMAN. That’s correct. 

Mr. LATOURETTE. You mentioned that when people get these notices that they’re getting in trouble, they’re slamming them into a 

drawer. Aside from embarrassment, have you gotten into what it 

is in the human behavior that causes people to just ignore them 

and not reach out for help that is available? 

Mr. WISEMAN. This is what causes me to put a pile on the end 

of my desk and not look at the files for as long as I can. I cannot 

imagine what it’s like to think that the sheriff could be at my 

house at 8:00 the next morning to put everything on the front 

lawn. 

I think it’s too overwhelming for people to deal with. The letter 

you get has the amount you couldn’t pay, plus another month’s 

payment, plus $5,000 in attorney’s fees. Most people look at that 

and say, ‘‘I can’t do it so why even bother.’’ 

During our kick-off Sam Miller, who gave money to the program, 

stood up and said, ‘‘Who’s been foreclosed?’’ Nobody’s hand went up 

but Sam’s. Sam’s in his 90’s, and he recounted in detail coming 

home from school when he was 6 and seeing his mother on the 

lawn with everything they owned. 

I can’t imagine what it does to somebody to be in foreclosure or 

worried about losing their house. 

Mr. LATOURETTE. My last question before turning it over to my 

colleague, in your written testimony you discuss in detail sort of 

the danger of secondary lending. 

And I just want to be clear that you’re not indicating only the 

secondary market can provide—and can do a better job at regulating the product. 

Mr. WISEMAN. That’s correct. Nothing could be further from the 

truth. I think the secondary market serves a purpose and serves 

a great purpose. 

I think that the question is, at some point in this country the 

game became signing as many loans as you possibly can and getting money out of it. 

Once that happens, the incentive for the person signing the loan, 

a lot of times the loan officer doesn’t care whether the borrower can 

make the first payment, the fifth payment, or the last payment. 

That’s where the trouble starts. 

Mr. LATOURETTE. Thank you very much. Stephanie. 

Mrs. TUBBS JONES. Mr. Wiseman, when you speak of the loan officer, who do you speak about? 

I say that, and I’m not trying to be defensive of any industry at 

all, but that’s a very broad term to use and it’s not always the 

banking institution that you put your hand on. And I think that 

most of the dilemma that we find in Cuyahoga County are banking 

institutions that have no land at all or location in the area where 

people have some relief. 

14

You call up, you pick up the phone like you say, and they’ll say, 

‘‘Okay, if you want so-and-so, press 1, if you want so-and-so, press 

2,’’ and you stay on the line and you flip and flip. Answer my question, please. 

Mr. WISEMAN. When I say loan officer, I’m talking about the person who sits at the table with the borrower and should explain the 

loan terms with them and sees their financial information. 

This happens in one or two ways. A great many loan officers in 

this State are free agents. They work for their particular lender, 

they have a brokerage, and they pick a lender off of their shelf. 

Mrs. TUBBS JONES. That was part of the reason I pushed so 

much for legislation to require brokers to provide the same Federal 

guidelines and information to borrowers that they’re not required 

to do currently, and a lot of borrowers don’t realize that a mortgage 

broker is not related. They think this is the guy that’s looking out 

for their interests, when, in fact, the mortgage broker doesn’t have 

any obligation to do that. 

What do you suggest to Congress that we do to address the ‘‘loan 

officer’’ situation? 

Mr. WISEMAN. I think national background checks is a help. I 

think there is a connection that is lost between the loan officer and 

the borrower once the loan is closed. 

And perhaps Congress needs to look at the nationally non-regulated industry that’s doing business. Some lenders do business with 

only independent loan officers who don’t work for that particular 

lender, so in 2 years, the loan officer is going to be with another 

lender. 

Mrs. TUBBS JONES. And the lender is no longer even around. The 

loan has been bought by seven different other companies. 

Mr. WISEMAN. That’s correct. It makes it impossible to hold anybody responsible then if the loan officer is gone. So maybe if, at 

some point, that connection gets lost down the line, then maybe 

some increased scrutiny needs to happen at the beginning of the 

process. 

Mrs. TUBBS JONES. Mr. Rush, good morning. How are you doing? 

Mr. RUSH. Fine. 

Mrs. TUBBS JONES. Always nice to see Mr. Rush. We live in the 

same neighborhood. 

What’s the City of Cleveland’s legislation or the things that 

you’re doing to—what does it do to address the mortgage broker or 

loan officer? 

Mr. RUSH. There are several things that we are trying to do. One 

is that the City has an ordinance that requires notification and recording. That ordinance was under court challenge. Currently it’s 

before the Supreme Court, but it is geared to try to provide an opportunity for better explanation of the loan product to the borrower 

and enforcement of the ordinance is authorized to the Department 

of Consumer Affairs, which is the point department within the City 

for predatory lending problems. 

Mrs. TUBBS JONES. Since the legislation is—or there’s a lawsuit 

pending, what are you able to do in the City of Cleveland, through 

your department, to assist with mortgage situations? 

Mr. RUSH. Congresswoman, as Mark mentioned, we believe and 

agree with the county that a part of alleviating foreclosures and 

15

predatory lending is increase in financial literacy. Turning off the 

spigot by making people better informed at the front end on borrowing decisions. The City of Cleveland spent $4.2 million of CDBG funding over 

the past 5 years to provide funding to agencies that provide either 

financial literacy counseling, pre-purchase, post-purchase, or foreclosure counseling. 

Those agencies include the agencies that are participating in the 

United Way 2–1–1 line. So when a resident calls, they’re referred 

to one of those agencies. We also participate with the— 

Mrs. TUBBS JONES. I’m running out of time. I’m almost done. 

Thank you for that response. I wanted, for the record, Mr. Chairman, to acknowledge that Councilman Brancatelli, who you mentioned was actually in the audience. Councilman, how are you? I 

see Councilwoman Phyllis Cleveland from Cleveland in the audience as well. 

Let me go on to something else. Mr. Rush, in your testimony you 

used the term flipping. What do you see—is there any industry responsibility for the volume of flipping that we see. 

Mr. RUSH. Congresswoman, I referred to the flippers as vultures. 

44105 is the zip code that includes Councilman Brancatelli’s ward. 

We had a flipper—I guess our poster child flipper was a man 

named Jeff Cruise, who after he was evicted, was convicted, but a 

part of the flipping scenario is due to the success of redevelopment 

activity in neighborhoods. 

In the Slavic Village neighborhood, for example, the Community 

Development Corporation has expended a lot of effort to redevelop 

rehabbed homes in the neighborhood, so you end up with two housing markets. A rehabbed home with a quality thorough rehab could 

appraise for between $75- and $85,000. An unimproved home may 

appraise for $40,000. 

So the scavengers or the vultures will come in and prey upon 

that difference. They will approach seniors with an opportunity to 

write a check to them for $40,000 or $50,000. These well-marketed 

campaigns are hard to resist by somebody who does not have a 

high level of financial literacy. So they will take that loan out, and 

then they’ll end up in foreclosure. 

Mrs. TUBBS JONES. Has the bankruptcy act, Mr. Wiseman, enacted in 2005, affected rates of foreclosure to your knowledge? 

Mr. WISEMAN. Man, that’s a tough question. 

Mrs. TUBBS JONES. Not for you, Mr. Wiseman. 

Mr. WISEMAN. I have not tracked bankruptcy trends. I know that 

before the Act went into effect there was a flood of new bankruptcies because the bankruptcy bar considered it more favorable 

to file beforehand than after. 

I will say a great many borrowers who go into bankruptcy are 

very misinformed. They think bankruptcy is a magic wand and it’s 

going to get them the house and it doesn’t. 

There needs to be a very specific set of circumstances to get you 

that house, such as paying the lender back, and I don’t think the 

bankruptcy attorneys, they’re wonderful people, but sometimes I 

don’t think they explain this to borrowers. And I think it makes it 

a lot worse in terms of vacant properties because sometimes it just 

adds 6 or 8 months to the situation. 

16

I can’t speak to whether or not there were more, but I will tell 

you that I’ve had a number of borrowers say, ‘‘But I filed bankruptcy.’’ And I say, ‘‘That doesn’t get you a home.’’ 

Mrs. TUBBS JONES. Earlier you were talking about what Members of Congress needed to do to make a difference, and many of 

the things that you spoke to are things that many Members of Congress have been advocating for a significant period of time. 

If there was one thing that you wanted me to take back to my 

colleague, Barney Frank, the ranking member of the Committee on 

Financial Services, what would be that one thing you would want 

me to tell him? 

Mr. WISEMAN. Congresswoman, most genies give three wishes 

Mrs. TUBBS JONES. I’m the genie of the genies. I give one. 

Mr. WISEMAN. I think the non-regulated lending industry needs 

a serious looking at. They make a lot of money, and they don’t have 

to follow the rules that everybody else does. 

Mrs. TUBBS JONES. Let’s be a little more specific. When you 

speak of the non-lending portion of the industry, tell me who those 

people are. 

Mr. WISEMAN. Well, I can’t list them all for you now, but there 

are a great many national lending institutions that do not have to 

submit to most of the government— 

Mrs. TUBBS JONES. You said—I thought you said the non-lending, you said the national lending. Repeat what you said. 

Mr. WISEMAN. Nationally non-regulating lending industry, such 

as Ameriquest, for instance. That’s just an example. But when you 

asked Mr. Rush about flipping, too many times flipping is caused 

by the lender just not looking at any of the information. 

Everybody can find out whether a house went into sheriff’s sale 

2 months ago for half of what it’s going for now. Anybody can find 

out whether repairs were actually done to the house. Anybody can 

find all this out except for a lender who only wants to close as 

many loans that they can and sell them in trust on Wall Street. 

Mrs. TUBBS JONES. Same question, Mr. Rush. 

Mr. RUSH. Congresswoman, in addition to Mr. Wiseman’s comments, again, with flipping, flipping could not occur without the 

participation of the appraiser. 

Mrs. TUBBS JONES. So we should have greater regulation of appraisers? 

Mr. RUSH. Yes. 

Mrs. TUBBS JONES. Is that the one thing you want me to take 

back? 

Mr. RUSH. Ditto to Mr. Wiseman. 

Mrs. TUBBS JONES. Mr. Chairman, thank you. 

Mr. LATOURETTE. Thank you very much. I want to thank both 

of you for your testimony, and your suggestions today. We’ll take 

them back with us when we return in September. 

And, Mr. Rush, please extend my thanks to the Mayor for the 

fine work that he’s doing. 

Just by way of housekeeping, some members may have additional questions for the panel which they may submit in writing, 

but the actual hearing record will remain open for 30 days. The 

members may submit written questions to these witnesses and 

place their responses in the record, and those would include ConVerDate 0ct 09 2002 16:59 Mar 16, 2007 Jkt 031545 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 K:\DOCS\31545.TXT HFIN PsN: TERRIE
17

gresswoman Tubbs Jones, and Congressman Kucinich, who have 

asked to participate in this hearing. Thank you for coming, gentlemen. 

Mr. WISEMAN. Thank you. 

Mrs. TUBBS JONES. Look forward to working with both of you. 

Let me know how I can help. 

Mr. LATOURETTE. If I could ask our second panel to make their 

way to the table. 

Before we welcome the second panel, I need to clarify some earlier comments according to counsel. 

According to rule 8 of the standing rules of the committee, only 

statements submitted before the close of the hearing can be included in the official record. 

So I think Mrs. Tubbs Jones mentioned a number of people 

whose statements she would like to see included in the record. If 

you would hop up out of your chairs and go find a fax machine, and 

we’ll attempt to talk slowly so we can accommodate as many of you 

as we can through the course of the hearing. 

Mrs. TUBBS JONES. Can I repeat that just in case some of my colleagues didn’t hear you clearly? 

Those of you who wanted to have your statements in the record, 

I need them before the end of the hearing. 

All of my colleagues and good friends who wanted to have something to say, I need those statements by the close of the hearing. 

I’ll talk really slow. 

Mr. LATOURETTE. I would like to welcome our second panel here 

today. We are joined in the second panel by Mr. Fratantoni, the 

senior director of single-family research and economics for the 

Mortgage Bankers Association; Ms. Deborah Oakley, the senior 

vice-president of homeownership preservation with the National 

City Corporation, testifying on behalf of the Housing Policy Council 

of the Financial Services Roundtable; Ms. Vanessa Randolph, the 

director of Fannie Mae Northern Ohio Community Business Center; Mr. Lou Tisler, the executive director of Neighborhood Housing 

Services of Greater Cleveland; and, lastly, Bryan Wolfe, the vice 

president of the Ohio Farmers Union. 

I don’t know if you were in the room during the first panel, but 

again counsel has a box with some red lights. We have received 

your written testimony, and Congresswoman Tubbs Jones and I 

have reviewed it, and we appreciate those of you who submitted 

that in a timely fashion. 

We are operating under a 5-minute rule, and when you get the 

red light, if you could sort of sum up, we would appreciate it. But 

as you saw with the first panel, we didn’t do anything bad to anybody. But if you would take care of that for us, I would appreciate 

it. Welcome to all of you. 

Mr. Fratantoni, you’re first. 

STATEMENT OF MICHAEL FRATANTONI, SENIOR DIRECTOR, 

SINGLE-FAMILY RESEARCH AND ECONOMICS, MORTGAGE 

BANKERS ASSOCIATION 

Mr. FRATANTONI. Thank you. Thank you for inviting me. I’m 

Mike Fratantoni, and I’m an economist with the Mortgage Bankers 

Association. 

18

Let me start by making four key points from my written testimony. First, the same economic factors that have caused mortgage 

delinquencies and foreclosures throughout history continue today. 

At a national level, foreclosure and delinquency rates are currently low, but in Ohio and the Midwest, more generally, these 

rates have been elevated due to a weakened regional economy and 

the resulting job losses. 

Second, mortgage lenders stand to lose financially when loans do 

not perform and thus have significant incentives to prevent foreclosures. According to our data, on a national basis mortgage lenders’ loss mitigation efforts have helped three out of four borrowers 

who enter the foreclosure process to avoid a foreclosure sale. 

Third, a fundamental fact regarding mortgage pricing is that different borrowers get different mortgage rates that are based upon 

objective credit criteria. 

The Federal Reserve, in its last analysis of Home Mortgage Disclosure Act data, confirmed that objective credit criteria account for 

the overwhelming majority of pricing disparities. Studies that attempt to paint the industry with a broad brush regarding unlawful 

discrimination are flawed and do not stand up to scrutiny. 

Furthermore, legislative efforts to restrict lending practices or 

credit standards invariably reduce credit availability. 

Finally, I would like to stress the importance of financial education regarding the mortgage process. Prospective owners need to 

educate themselves about the process and about the range of available mortgage products, and they need to learn to take advantage 

of the highly competitive nature of the mortgage industry today. 

Let me start by reviewing trends in mortgage delinquencies and 

foreclosures. As shown in chart 2 of the appendix to my testimony, 

on a national basis foreclosure rates on loans that are available are 

seen during a recession in 2001, but they’ve increased somewhat 

due to a number of factors, including high interest rate, aging in 

the loan portfolio, and higher energy prices. 

In addition to the national level trend, the two maps in the appendix show how delinquency and foreclosure rates varied across 

the country in the first quarter of 2006. 

With respect to the delinquencies, the Gulf Coast continues to experience the highest rate in the country. With respect to foreclosures, States in the Midwest had the highest rates due to the 

continuing slow pace of job growth and weak housing markets. 

The foreclosure trends in Ohio, specifically Cuyahoga County, are 

quite troubling. As I noted with respect to the Midwest, the reason 

for these trends include a decline in the number of jobs in the county and a weakened housing market. 

Loss of employment is one of the most common unanticipated 

shots to consumer finances. All of the States in the Midwest are 

continuing to suffer job losses from their peak employment prior to 

the recession of 2001. 

In addition, these States are among the most concentrated with 

respect to manufacturing employment in the Nation. Due to the ongoing productivity growth and increasingly strong global competition, it’s likely that manufacturing employment will remain soft in 

the coming years. 

19

Another factor impacting the foreclosure rate is the homeownership rate. Homeownership rates in the Midwest are considerably 

higher than the national average. A high level of homeownership 

is a sign of strength for a local economy. 

However, in the midst of a regional downturn, homeowners, who 

are typically less mobile than renters, may have difficulty making 

their mortgage payments, leading to delinquency and potentially 

foreclosure. 

Let me turn now to a brief discussion regarding the foreclosure 

process, loss mitigation, and foreclosure prevention. There are 

many false claims about mortgage lenders profiting from foreclosures. In reality, every party to a foreclosure loses; the borrower, 

the community, and the mortgage lender. 

It’s important to understand that profitability for the industry 

rests in keeping a loan current and, as such, the interests of the 

borrower and lender are aligned. 

Now I would like to spend a minute addressing mortgage pricing. 

Over the past few years, States and localities have enacted over 30 

widely different anti-predatory lending standards to protect borrowers. 

While MBA recognize that these initiatives are well-intended, 

legislative efforts to artificially tighten lending or credit standards 

will invariably reduce credit availability. 

Let me be clear. There is no perfect model to underwrite all borrowers. Two lenders will evaluate the same borrower and come to 

different assessments regarding the risks of that borrower. A onesize-fits-all model imposed on the industry would stifle innovation 

with respect to the measurement and pricing of risk, and that 

would be to the detriment of consumers. 

The innovation of this industry has benefited borrowers and increased the supply of credit, ultimately resulting in a higher level 

of homeownership. 

Finally, I would like to discuss borrower education. If the goal is 

to ensure that a borrower is getting a good deal, there is no better 

approach than to empower the borrower to make that determination for himself or herself. 

Borrowers would be far better off if they educated themselves 

about the mortgage process and shopped among lenders for the 

best loan product to meet their needs before they begin the process 

of finding a home. The MBA is devoting considerable resources to 

support the consumer education programs. 

I urge you and your staff to view our consumer Web site at 

HomeLoanLearningCenter.com and take a look at the type of information that we believe a prospective homeowner should understand preferably before they even start shopping for a house. 

Thank you again for inviting me to present the views of the MBA 

before the committee, and I look forward to answering your questions. 

[The prepared statement of Mr. Fratantoni can be found on page 

49 of the appendix.] 

Mr. LATOURETTE. Mr. Fratantoni, thank you very much. 

Ms. Oakley, you’re next. 

Thank you for coming. 

20

STATEMENT OF DEBORAH OAKLEY, SENIOR VICE PRESIDENT, 

NATIONAL CITY BANK, ON BEHALF OF THE HOUSING POLICY COUNCIL OF THE FINANCIAL SERVICES ROUNDTABLE 

Ms. OAKLEY. Thank you, Congressman LaTourette, and Congresswoman Tubbs Jones. My name is Deborah Oakley, and I’m 

vice president for homeownership preservation with National City 

Bank. 

Thank you for the opportunity to speak today. I am testifying on 

behalf of the Housing Policy Council of the Financial Services 

Roundtable. 

The Housing Policy Council represents 22 of the leading mortgage finance companies in the Nation. On behalf of the Council, I’m 

here to tell the committee about what actions responsible lenders 

are taking to prevent foreclosures, including a new national initiative to help homeowners who are experiencing difficulties. 

My testimony follows Mike’s testimony quite a bit, so I’m going 

to cut some of it out as I go. 

First of all, there are two popular misperceptions that I would 

like to address. 

The first is that lenders benefit from foreclosure. As Mike has 

testified, we don’t. We lose on average $30,000 to $50,000 on a foreclosed loan through deferred maintenance, property devaluation, 

advances for tax and insurance, foreclosure fees, and costs. 

The second is that lenders do not have, and have no wish to 

offer, work-out options to homeowners facing foreclosure. The opposite is absolutely true. 

Over the last 10 years, the mortgage industry, in conjunction 

with the GSE and HUD investors and guarantors, have established 

numerous work-out options that are available to homeowners to 

help them keep their homes. 

One of the most frustrating things that lenders face in working 

with homeowners is the lack of response. Typically what we find 

when we take back the property is all of the letters that we’ve sent 

in the kitchen drawer unopened. We also find, at the same time, 

letters from creditors offering rescue scams and schemes to help 

people keep their homes. 

We are judged by our investors as to how well we work at engaging in work-outs. We are scored, we are rated by rating agencies, 

and our operations are looked at. We are studied to make sure that 

we are offering homeowners every opportunity to keep their home. 

I would like to address something that was raised in earlier testimony. I’ve managed default operations for 22 years, and I can tell 

you that the responsible lenders do not engage in good cop/bad cop 

behavior with the loss mitigation people being the good cops. 

We incentive our loan counselors to engage in work-outs. They 

have options to offer—that is done in the collection arena where repayment plans and forbearances are offered to homeowners. In addition to that, we record calls. We listen for behavior that we consider unacceptable, unfriendly, or not helpful. 

The work-out options are pretty much the same throughout the 

industry. There are repayment plans, forbearances, loan modifications, and for homeowners who can no longer keep their home, we 

have pre-foreclosure sales and deeds-in-lieu. 

21

We all operate pretty much the same. We take financial information from the borrower, figure their excess income, if there is any, 

and their motivation, and then we come up with a sensible plan 

that helps them keep their home. 

We work with counseling agencies. And I would like to stress 

here that this is a paradigm shift. It may have been 20 years ago 

that you wouldn’t have seen the partnerships being formed now between counseling agencies, local governments, and community 

groups to get borrowers into counseling. 

We recognize that good financial counseling helps people keep 

their homes, and it’s something that we want to see happen. The 

counseling agencies that are out there, the national reputable counseling agencies, are in a unique position of trust with homeowners. 

They can talk to them in an objective fashion that they may not 

feel they’ll get from their lender, so we welcome these partnerships. 

I want to address the national initiative that the Housing Policy 

Council, NeighborWorks, and members of the HPC have embarked 

upon. 

We are working with NeighborWorks and the Homeownership 

Preservation Foundation to publicize a toll-free number, 888–995–

HOPE, in which anybody can call and get free telephone counseling. This free telephone counseling is available 24 hours a day, 

7 days a week. 

If a homeowner needs additional assistance, face-to-face counseling is available through local NeighborWorks agencies. These 

are all HUD accredited counselors. There’s intensive training involved in this. 

The HPC members recognize that there are certain hot spots in 

the country, such as Ohio, that need additional attention. So we 

started our national initiative in April in Ohio, and 726 homeowners in Ohio have been counseled. 

Part of this initiative also includes an Ad Council campaign that 

will be released at the beginning of 2007, that will publicize the 

availability of counseling to anyone in Ohio who calls in, and we’ll 

be expanding to Michigan, Georgia, and Texas. 

I see the red light blinking so I will stop talking. 

[The prepared statement of Ms. Oakley can be found on page 73 

of the appendix.] 

Mr. LATOURETTE. Thank you very much, Ms. Oakley, for your 

testimony. 

Ms. Randolph, we’re up to you. 

STATEMENT OF VANESSA RANDOLPH, DIRECTOR, FANNIE 

MAE’S NORTHERN OHIO COMMUNITY BUSINESS CENTER 

Ms. RANDOLPH. Thank you, Chairman LaTourette. Good morning, Congresswoman Tubbs Jones. And to all of you in the audience, I also say good morning. 

My name is Vanessa Randolph, otherwise known as Van, and I 

am the director of Fannie Mae’s Northern Ohio Community Business Center. 

In that capacity I act to help emphasize or impact affordable 

housing across the entire State of Ohio, but with an emphasis on 

northern Ohio. 

22

I am a native Ohioan and currently reside in Cuyahoga County. 

I have over 16 years of mortgage lending experience, and I care 

about reducing the number of foreclosures here in Ohio. 

I am pleased to be here today to discuss foreclosures, foreclosure 

prevention, and to share with you the steps that Fannie Mae is 

taking to help keep people in their homes. 

Ohio does have the highest rate of defaults, and this is a distinction we could very easily live without. According to a recent report, 

Ohio’s foreclosure rates have doubled since 1998 and have increased more than 31 percent since 2001. 

Ohio was first in the number of mortgage defaults in 2004 and 

2005. The Mortgage Bankers Association reports that in 2005, the 

number of prime Ohio loans in foreclosure was 1.48, which was 3 

times the national rate of .42 percent. Fannie Mae’s rates on foreclosures tend to confirm this trend. 

But we are not here today to dwell on our problems but to discuss what we can do to reduce the number of foreclosures in our 

community. 

Fannie Mae’s objectives are two-fold. 

First, we must do everything we can to assure that borrowers are 

not put into situations where they cannot afford these payments 

over long periods of time. 

It is Fannie Mae’s desire to avoid purchasing loans from lenders 

who demonstrate the use of predatory or abusive lending methods, 

and in 2001, we developed a set of anti-predatory lending standards that lenders must adhere to in order to sell loans to Fannie 

Mae. 

These standards include not purchasing or securitizing mortgages with excessive points and fees, including loans subject to the 

Homeownership and Equity Protection Act of 1994, and mortgages 

where the lenders did not adequately assess the borrower’s ability 

to repay the loan. 

Fannie Mae’s second objective is to do everything feasible to keep 

people in their homes. First and foremost, Fannie Mae believes in 

financial literacy, and we believe that is the key to success. The 

more families know and understand about the economics of homeownership, the more likely that they will become successful homeowners. 

Let’s discuss what can happen when families cannot make their 

mortgage payment. Fannie Mae has developed a home saver solution initiative consisting of several creative approaches that help financially troubled borrowers stay in their homes where possible or 

avoid the stigma of foreclosure. 

These approaches, collectively known as work-outs, consist of 

forbearances, repayment plans, modifications, assumptions, preforeclosure sales, and deeds-in-lieu of foreclosure. 

The key to success of this initiative is early intervention. We 

also, therefore, encourage borrowers experiencing financial difficulties to contact their lender/servicer at the first sign of trouble, and 

we ask that our seller/servicer do likewise. 

Since 1997, an increased number of Fannie Mae borrowers have 

been able to work out delinquencies instead of losing their homes 

to foreclosure. Repayment plans and modifications have increased, 

enabling most borrowers to remain in their homes. 

23

And as of year-to-date 2006, Fannie Mae has entered into workouts aimed at saving borrowers’ homes for approximately one-third 

of Ohio loans that have become seriously delinquent. 

Work-out options are based largely on the borrower’s financial 

situation, the type of mortgage they have, and the investor holding 

the loan. 

Alternatives to foreclosure are two major categories, short term 

and long term. Again, the short term would be forbearance agreements and repayment plans, and the longer term would be modifications, assumptions, pre-foreclosure, deeds-in-lieu, etc. My written testimony does describe these in more detail, and it also tells 

the benefits of these options. 

Unfortunately, despite the best efforts of Fannie Mae and loan 

servicers, not all borrowers are able to avoid foreclosure. Again, 

borrowers are encouraged to notify the servicer at the first sign of 

difficulty. By being proactive borrowers can not only avoid foreclosure but also avoid possible long-lasting damage to their credit 

reports. 

Fannie Mae feels so strongly about helping Americans sustain 

homeownership that we expect our servicers to pursue alternatives 

to foreclosure, and we provide for servicers to earn additional compensation from us for pursuing alternatives to foreclosure. 

However, when the borrower does not meet the mortgage obligation or when the work-out attempts fail, foreclosure is unavoidable. 

If foreclosure becomes necessary, it will be done in the most costefficient manner possible and within the guidelines of the State. 

I want to again thank you for your leadership and your commitment to addressing the foreclosure problems on behalf of all Ohioans. You have been, Congressman and Congresswoman, champions 

in developing affordable housing. 

We look forward to working with you and to making progress on 

this issue. Thank you. 

[The prepared statement of Ms. Randolph can be found on page 

82 of the appendix.] 

Mr. LATOURETTE. Thank you very much, Ms. Randolph. 

Mr. Tisler, welcome to you. 

You’re next. 

STATEMENT OF LOU TISLER, EXECUTIVE DIRECTOR, NEIGHBORHOOD HOUSING SERVICES OF GREATER CLEVELAND 

Mr. TISLER. Thank you. 

Good morning, Chairman LaTourette, Congresswoman Tubbs 

Jones, and members of the committee. Thank you for bringing this 

hearing to the State that is the epicenter of the foreclosure crisis. 

I’m here today to testify regarding the local and national strategies that have been developed to attack rising foreclosures, including homeownership counseling and education, both before and after 

a purchase. 

Neighborhood Housing Services of Greater Cleveland is a not-forprofit community development corporation incorporated in 1975 as 

one of the charter organizations of NeighborWorks America, also 

known as Neighborhood Reinvestment. 

Our mission is to enhance the quality of life in Cleveland’s neighborhoods and inner-ring suburbs by promoting homeownership, inVerDate 0ct 09 2002 16:59 Mar 16, 2007 Jkt 031545 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\31545.TXT HFIN PsN: TERRIE
24

creasing economic development, and developing housing that is affordable through education and home repair programming. 

Our commitment to the community and to these issues also include relocating our offices into the Slavic Village neighborhood 

and bringing our education center to Slavic Village. 

Neighborhood Housing Services of Greater Cleveland’s program 

lines include the homeownership promotion program, which consists of educational classes and loans for people interested in becoming homeowners, and the homeownership preservation program, which consists of loan products, post-purchase counseling, 

and foreclosure assistance to those residents who are interested in 

maintaining and preserving not only the physical structure of their 

home but also the ability to retain ownership. 

We have all witnessed the dramatic increase in foreclosures. 

Ohio is ranked number one in the country for the rate of foreclosures. This is not something new. 

Reasons for this growth in foreclosures include life crises such as 

unemployment, divorce, and medical problems, as well as ease of 

access to credit. In Cuyahoga County, and Cleveland specifically, 

the top reasons are predatory lending and the addition of these life 

crises. 

Neighborhood Housing Services of Greater Cleveland’s homeownership preservation program includes a post-purchase program 

which provides homeowners with counseling and education in areas 

of mortgage delinquency, foreclosure, predatory lending prevention, 

credit and budget counseling, and home maintenance and refinance 

workshops. 

Also, locally to dovetail the Cuyahoga County foreclosure prevention program 2 weeks ago in Washington, D.C., the program, with 

our involvement, received the third place award for innovation of 

homeownership across the Nation in the NeighborWorks network. 

We have also been working with local community development 

corporations, national partners throughout the State of Ohio, and 

one of our most invaluable partnerships has been the Federal Reserve Bank of Cleveland, of convening, researching, and providing 

innumerable and invaluable resources to our effort. 

NeighborWorks America is a congressionally funded national 

nonprofit that has established the Neighborhood Center for Foreclosure Solutions in partnership with the private sector to preserve 

homeownership by coordinated foreclosure intervention strategies 

in communities nationwide. 

In Ohio, in particular, 10 NeighborWorks organizations, including Neighborhood Housing Services of Greater Cleveland, are collaborating with lenders, State and local government, and other 

partners with support from NeighborWorks America initiating the 

statewide foreclosure effort to address the rising foreclosures across 

the State, as Ms. Oakley has indicated. 

This also includes a recently funded statewide rescue fund of approximately $1 million to do work-outs and rescues of up to $3,000 

per homeowner. 

As an example of our local foreclosure prevention programs, one 

of our clients purchased her home with her mother. Her mother 

moved away leaving her to continue with the mortgage payments 

25

but with only half the income, since the home was originally supported by two incomes. 

Our client found herself thrown into a situation that forced her 

to work three jobs, and yet she still found herself in foreclosure. 

She came to the Neighborhood Housing Services of Greater Cleveland offices not knowing what her options were. Her lender was 

very unresponsive to providing a work-out. 

Our HUD-approved housing counselor worked with the client to 

prepare and address a budget to show her how she would be able 

to afford her regular monthly payments as well as make additional 

payments to keep her home. 

The housing counselor contacted the lender who, again, originally 

would not work with our client, and we were able to get them to 

agree to allow our client to be placed into a reasonably affordable 

repayment agreement. Through cooperation, education, and determination, this client will be able to keep her home. 

In order to address foreclosures more broadly through a partnership with the Homeownership Preservation Foundation, as Ms. 

Oakley has indicated, NeighborWorks America is promoting a national hotline to assist homeowners in distress, helping them contact the mortgage servicers and providing them with referrals to 

local NeighborWorks organizations such as Neighborhood Housing 

Services of Greater Cleveland for face-to-face counseling, rescue 

funds, and to help navigate local resources. 

Since its kickoff on April 11th, the Ohio foreclosure hotline, 888–

995–HOPE, received a total of more than 2,000 calls; 871 counseling sessions were completed; and 40 percent of these clients 

were more than 120 days late on their mortgage. 

Again, stressing the educational aspect that our borrowers need 

to speak to their lending institutions. So as you can see, Mr. Chairman, there’s no one solution to rising foreclosures, but we are 

working on several fronts to help families protect their most precious asset, their home. 

Thank you for convening this very important hearing in our community, and I look forward to answering any questions the members of the committee may have. 

[The prepared statement of Mr. Tisler can be found on page 98 

of the appendix.] 

Mr. LATOURETTE. Thank you very much for your written testimony and also your oral testimony today. 

Mr. Wolfe, welcome to you. I thank you for providing your written testimony, and we look forward to hearing from you. 

STATEMENT OF BRYAN WOLFE, VICE PRESIDENT, OHIO 

FARMERS UNION 

Mr. WOLFE. Thank you for inviting me, Congressman 

LaTourette, and Congresswoman Tubbs Jones. 

My name is Bryan Wolfe. I’m a dairy farmer from Ashtabula 

County, Ohio, and I would like to thank you for this opportunity 

to speak concerning the farm credit issues. 

People need food, which is another way of saying people need 

farmers. Farmers need access to credit in order to produce food. 

Credit is a growing problem for farmers. According to the Federal 

26

Reserve data, 31 percent fewer non-real estate loans were made to 

farmers than were made 10 years ago. 

From a banker’s perspective this makes sense. Farming no 

longer demonstrates that hard work pays. Take milk, as an example. Ohio dairy farmers were paid $11.74 

per hundred weight for milk produced in June. The USDA economic research service shows the total cost of producing milk in 

Ohio to be $24.31 for June 2006. 

When our milk is priced below the cost of production through a 

Federal pricing system, something is wrong. There’s something 

wrong when the value of farmland is determined by non-farm purchasers. 

A recent USDA report stated cropland and pasture values rose 

by 13 and 22 percent respectively since January 1, 2005. The Dow 

Jones Industrial average rose just 3.7 percent in the same period. 

The report continues, ‘‘The increase in farm real estate values continues to be driven by a combination of mostly non-agricultural factors, including relatively low interest rates and strong demand for 

non-agricultural land uses. Demand for farm real estate as an investment continues to be a strong market influence.’’ 

This combination of artificially low farm prices and artificially 

high farmland prices becomes a deadly combination when farmers 

need to restructure farm loans. In many cases, a farmer’s credit 

problem could be resolved with a simple loan restructuring. Although the equity might be there, the equity is not based on agricultural use. 

Farmers may then be driven to foreclosure. At that point, all too 

often, the farmer is trapped in a system of lender corruption which 

he has neither the time nor the resources to adequately fight. 

Even where there is no obvious corruption, lenders have no incentive to work with farmers. With the rise in farmland value, the 

lender is likely to sell the assets in a foreclosure for several times 

the amount owed. 

Complicating all of this is bank consolidation. Just a generation 

ago, farm loans were mostly a financial activity between people 

from the same community. Today those setting farm loan policy at 

some remote central office, and the farmer needing credit, are 

strangers. 

That might not seem to be an important point, but if you drive 

through rural America, it looks like a war zone. Rural poverty is 

climbing faster than urban poverty. Farm towns are losing businesses and population. 

Of all the population loss, the most devastating is the loss of our 

youth. The average age of farmers is growing each year. An article 

in the July issue of the Fedgazette published by the Federal Reserve Bank of Minneapolis says, ‘‘The outlook for 2006 is negative 

throughout the district, as 39 percent of lenders expect net farm income to decrease. This pessimism is due mostly to high production 

costs, such as the continued increased costs of inputs, fuel, chemicals and machinery repairs, according to a South Dakota banker. 

Pessimism and a poor lending environment will not attract youth 

to farming.’’ 

A logical question then is: Who will feed America in the future? 

America’s agricultural trade surplus is virtually gone. However, 

27

with rising fuel costs, food imports will no longer be a solution for 

the American public. 

We are back to where we began. We are talking about food. If 

the American public’s interest is to be served, farmers need both 

a fair farm price and access to farm credit which realistically 

serves their needs. Homeland security ultimately begins at the 

farm. 

That’s my statement, and I thank you again for the opportunity 

to be here today. 

[The prepared statement of Mr. Wolfe can be found on page 145 

of the appendix.] 

Mr. LATOURETTE. Mr. Wolfe, I want to thank you for coming, and 

also for your testimony. Basically, it’s not your testimony that I 

want to begin with. But, Ms. Oakley, in a previous conversation I 

had with Mr. Wolfe, it ties into when you were talking about the 

lengths that National City goes through to try to find some accommodation with people involved with trying to work this problem 

out. 

Bryan would come and tell me that—it sounds foreign to those 

of us that live in the city—but he said, ‘‘We’re having a bad year.’’ 

He may not even make enough money to feed his family. He might 

like to buy two or three cows. 

And in order to do that, he would go in town and he would go 

to the bank, and he would shake hands with the banker and the 

banker, who had known him for years and knew his family, would 

give him the money to buy two or three cows. 

I grew up in Cleveland Heights, and I knew the teller at the 

bank. And I think when we heard Mr. Wiseman, the difficulty that 

some of us have isn’t with National City. It’s when—and we all recognize the value of the secondary market, but it’s when that mortgage is sold again and again and again. 

The person who is on the phone with the person about to go into 

foreclosure might not be as friendly as the folks at National City 

on your recorded telephone call. It is some person who has bought 

the note, and they’re not too nice. 

I never worked in the collection business, as Mr. Wiseman has, 

but I’ve gotten collection telephone calls, and these people aren’t 

very friendly. 

I’m just wondering how we got away from not necessarily the 

neighborhood banker, but how we got away from—how do we ensure that everybody is sort of moving ahead? I’m very impressed 

with what Fannie Mae is doing, what the bank is doing. How do 

we get back to protecting the consumer who has fallen prey to this 

tertiary person trying to collect. 

Ms. OAKLEY. I think, in answer to your question, we are moving 

in that direction. The national lenders meet constantly to share 

best practices. We are encouraged and penalized for not engaging 

in work-outs, not dealing with borrower issues. 

It is sometimes like pushing a string to get people to change behavior, but people do what they are rewarded for, which we find 

in working with our staff. 

And as far as the national lenders, our goal is to work with our 

customers to improve homeownership retention rates, to make sure 

28

that people have every opportunity. It’s one of the reasons why 

we’re entering into these partnerships with local agencies. 

There is something else, if I can add, that national lenders are 

doing. We’re trying to improve the communication between us, the 

local government, and the nonprofit agencies by providing key contact lists for those people who are getting frustrated in trying to 

identify who to reach. 

That includes property preservation contacts. We just provided 

Judge Pianka with a list that identifies the key contacts and the 

escalated contacts for major lenders. 

We’re also trying to get out there in the communities and understand the problem better. 

Clearly if you sit in your office and you never sit down face to 

face with people who are facing foreclosure, you really don’t understand the scope of the problem. 

But your question is a good one. I don’t think there’s an easy answer for it. 

Mr. LATOURETTE. I thank you. 

Mr. Fratantoni, I believe Mr. Wiseman was testifying, and he 

talked about what he saw as things in the secondary market and 

even with the original lender adjustable rate mortgages and no document loans. And I heard what you said, and I believe that onesize-fits-all mortgage policy in the country is not best. 

Different consumers come to borrow money with a different set 

of circumstances and different products are required. 

But any mortgage that I’ve ever taken out, again, I knew my 

banker, I had to supply tax returns, I had to supply W–2’s and one 

asked for my firstborn, but I had to give them a lot of stuff to get 

a loan. 

Would you please respond from a mortgage banker’s perspective 

on Mr. Wiseman’s observation that one of the reasons we find ourselves in this mess are these no document loans. 

Mr. FRATANTONI. I think it would probably help to talk a little 

bit about the history and about the development of these loans. 

They were designed with the self-employed borrower in mind who 

might have difficulty or it might be time consuming to document 

income or highly variable income from year to year. 

This program would enable them to state what their average income might be in a given year just as a time period and for that 

time they get a higher rate to avoid some difficulty of pulling all 

the documents together. 

If you looked at the performance of stated income loans from 

Wall Street, they typically perform fairly well relative to full documentation loans and, in fact, a substantial proportion of all loans 

today are now reduced documentation loans. You don’t need all of 

the documentation. 

Now, obviously, we should be extremely concerned about fraud. 

There was a report Mr. Wiseman mentioned, and he also noted 

that since 1999 the FBI reports of mortgage fraud have increased 

sevenfold. There were 22,000 suspicious activity reports that were 

mortgage related in Fiscal Year 2005. 

Federally regulated institutions reported over $1 million in 

fraud-related losses in 2005. So this is an enormous issue for the 

29

industry. It obviously impacts lenders and certainly affects borrowers as well. 

Mr. LATOURETTE. I have to say that I was impressed by Mr. 

Wiseman’s testimony. 

Ms. Randolph, I just wanted to ask, Fannie Mae doesn’t do business with consumers directly? 

Mrs. TUBBS JONES. For the record I would like to state that a 

wonderful gentleman, Gerald Fuerst, the clerk of courts of Cuyahoga County is here. Thank you, very much. 

Mr. LATOURETTE. Thank you, very much. 

Fannie Mae doesn’t do business with the consumer directly. 

Could you give us some details on the types of lenders that Fannie 

Mae does do business with? And then we’ll also talk about the antipredatory lending procedures and regulations in place at Fannie 

Mae, and those are restricted in most States, could you just comment on that as well. 

Ms. RANDOLPH. Certainly. 

It is indeed a fact that Fannie Mae does not deal directly with 

consumers because, by our charter, we are not allowed to. So we 

need to partner with as many entities that are out in the community interacting with the consumers as possible. We do that by way 

of lenders, nonprofit developers, counseling agencies, and the like. 

We certainly look to lenders who have a reputation for being 

credible, and Ms. Oakley has pointed out we don’t do it in a vacuum. We identify lenders and then we watch lenders, and we monitor their activities, we monitor what types of loans are delivered 

to us. 

We monitor them for early defaults and that type of thing so we 

can check and make sure they understand the quality of loan we’re 

looking for because we don’t want to put borrowers at risk. 

Our anti-predatory lending initiatives, you are correct, we have 

them in certain States and not throughout the entire country. Fortunately, we have four of those initiatives here in Ohio. The cities 

would include Toledo, Dayton, Cincinnati, and the last that was introduced was here in Cleveland. 

And the overall objectives of those initiatives is to help our nonprofit partners to go through documentation with potential victims 

of predatory lending prior to them entering into the foreclosures. 

So our objective here is to keep them in their homes by putting 

them in touch with folks that can help them before it’s too late. 

Mr. LATOURETTE. You mentioned that Fannie Mae incentivizes 

lenders who actually work things out, and we’ve said for purposes 

of this hearing the open observation that the lenders lose on average $30- to $50,000 on foreclosures. 

Can you describe what—do you give them cash to say nice job? 

Ms. RANDOLPH. Actually we do that, too. We incent them monetarily. We also provide for their benefit a Web-based product called 

risk profiler. And what that risk profiler is intended to do for our 

lenders, it’s a free service to them, but it is to help them determine 

trends of an individual borrower, to look at the trends of a product 

and give us feedback around those borrowers and that product. 

And that will help them to detect at an early stage if—let’s say 

your normal payment pattern is that you pay your mortgage on the 

first of the month but here you’re at the fifth day of the month. 

30

Risk profiler would even pick up that this is out of character for 

that borrower, and that lender may very well pick up the phone at 

that point and just reach out to the borrower or try to reach out 

to the borrower to ask if there’s anything they can do to assist. 

So there are several different things we do to try to help the 

process before it gets to be too late. 

Mr. LATOURETTE. Thank you, very much. 

My last question before I open it to my colleague. Ms. Oakley, 

today it would be my observation that we sort of moved in a positive direction, and we no longer have the discussions we used to 

have about which consumer can foreclose, and I think there is a 

valid discussion now as to the terms in which consumers get home 

loans and some of the concerns about which consumers would enter 

them continue on. 

From the banking perspective, to what would you attribute the 

fact that minority borrowers receive on average a higher rate of 

subprime loans than white Americans? 

Ms. OAKLEY. I think the MBA testimony addresses some of those 

issues, which is that those decisions are based on the credit profile 

and the documentation submitted by the homeowner which is not 

race based—we use automated underwriting tools that look at credit scores, credit history, pay histories, length of employment, and 

things of that nature. 

Those are all ingredients in the automated underwriting. So I 

don’t have a good answer for you as to why that observation is out 

there. 

Mr. LATOURETTE. Thank you, very much. 

Mrs. TUBBS JONES. It’s more than observation, Ms. Oakley. I love 

National City Bank, they do a great job in Cleveland, but it’s more 

than an observation that African-Americans receive greater points. 

We’ve got studies from the Federal Reserve and all over the 

place. I’m not intending to be accusatory, but it’s a reality and part 

of the reason that so many people are alarmed about it is because 

it’s fact and we know it’s fact. It is nothing personal, but it’s fact, 

and we need to deal with that. 

Let me go on to a couple of other things. To my colleague, Mr. 

LaTourette, this hearing is so important to so many of my colleagues in Cuyahoga County that they continue to show up in 

droves. 

We’ve got two city council people from Warrensville Heights, 

Deborah Hill and Ruby Nelson. We also have the Mayor of the City 

of South Euclid, who has joined us as well, Georgine Welo. And I 

just want you to know for the record how many people in our county in my Congressional district are concerned about this and thankful that you would choose this hearing. 

Let me ask about exotic mortgages for a moment. In a study of 

2006, based on review of 2001 data, the Federal Reserve concluded 

that even with simple ARM’s, 35 percent of borrowers could not 

discern how much their interest rate could jump at any one time; 

41 percent were not sure of the maximum rate they could be 

charged. Non-white borrowers were twice as likely than white borrowers to not understand their loan terms. 

31

Isn’t this further evidence that lenders may bear some responsibility that loans should be made in the best interest of the borrower, Mr. Fratantoni? 

Mr. FRATANTONI. I think it gets back to a portion of my testimony with respect to borrower financial education, and I certainly 

agree that the industry has a major role there to provide all of the 

resources prospective homeowners need to understand the loan 

they’re signing up for. 

Our guidance to borrowers is that the first thing they should do 

before they go out shopping for a home is sit down, Mr. Wiseman 

suggested, and get their family budget in order. You don’t go shopping for the home first. First you figure out what you can live with. 

And then you go to the lender, look at the range of available mortgage products that are available, understand the mortgage products, and then you go shop for a home. 

Mrs. TUBBS JONES. I understand the educational pieces. It 

sounds great for all of us seated here, but everyday people, they’re 

berated. 

I’m a late TV watcher sometimes, and I’ve reduced how much 

cable I have in Washington, D.C., just because it’s starting to cost 

too much. So I’m watching the regular TV station, and it’s unbelievable, ‘‘Are you in debt?’’ ‘‘I could get you out of debt.’’ ‘‘How do 

I get you out of debt, just call my number and you’ll be out of debt.’’ 

There’s some company called Great Consumer or some name, and 

I’m trying to figure out who is paying them to do this, to get people 

to go into an agreement that they must be getting a percentage of. 

Can you help me with that? 

Mr. FRATANTONI. Absolutely. In 2004, there were 8,800 lenders 

who originated more than 100 loans. There are a lot of people out 

there who are hungry for business. 

And that’s why we emphasize the borrower education so much 

because they have to get armed with the knowledge they need to 

reduce that competition for the banks. 

Mrs. TUBBS JONES. How do the good people in industry help us 

regulate the bad people? I’ve been talking about this for the 8 years 

that I’ve been in Congress. There’s got to be a way in which all you 

good folks who do the right thing, write loans and let everybody 

borrow, how do we kick them out of the country? 

Mr. FRATANTONI. I think you put them out of business. If you can 

offer someone a 7 percent loan and they’re being offered a 9 percent 

loan by someone else, you need the borrower to understand how to 

shop between the two loans, to choose the one that’s best for them, 

to choose the best deal for that borrower. 

Mrs. TUBBS JONES. Do you believe the industry is willing to expend greater dollars to help us educate people who are applying for 

loans, is that possible? 

Mr. FRATANTONI. Absolutely. We are doing that. We have a consumer Web site, HomeLoanLearningCenter.com, and we are putting substantial resources into that. 

Mrs. TUBBS JONES. I’m going to legislate that you have to spend 

more money. I want you to agree with me that we have to do this 

collectively in some fashion. 

32

I’m going to talk with my colleague, Mr. LaTourette, about us 

corresponding about exotic mortgages and see if we can do something in that area. 

Ms. RANDOLPH. Congresswoman Tubbs Jones, if I may just add 

a bit to that. I think we need to put a foot patrol to some of what 

we’re doing. You mentioned earlier that it’s a known fact that minorities tend to end up more at risk than others. 

I believe very strongly that the reason for that has to do largely 

with the fact that they are still not comfortable walking through 

some of our lenders’ doors. And if that, in fact, is tested, I think 

you will find it to be a situation where we need to go sideways 

maybe to go forward, meaning we need to identify other trusted advisors who folks are more comfortable talking with and then bring 

in the expertise. 

If that means we go through the churches, if that means that we 

go through even some of the health care facilities, that is what we 

need to do here in Cuyahoga County because there is still a great 

deal of distrust amongst our African-American and Hispanic communities. 

We try to partner with those kinds of entities to get that message across because we know that folks—they don’t pick up the 

phone and call Fannie Mae, and when they do, what do we have 

to do, we have to refer them back to a list of lenders or a list of 

competent agencies. 

Mrs. TUBBS JONES. Let’s huddle my advocacy as well to be on behalf of the Spanish-speaking community, the Hispanic community. 

What’s happening, what are we doing in that area trying to address the issue of predatory lending, Mr. Tisler, Deborah? 

I’m going to come to you, Mr. Wolfe, in a minute, too. My grandfather used to have a farm. I didn’t know much about it, but I want 

to ask you a couple of questions. 

Mr. TISLER. At this point, with our agency, we have two people 

who are bilingual, English as a prior, Spanish as a first language. 

We really do outreach and education that is outside of our programs and services, so if somebody calls, we really make sure that 

they feel comfortable in moving forward. 

We have Fannie Mae and Freddie Mac publications in Spanish, 

in Polish, and in Russian that we’re able to sit down with a client 

and be able to walk them through. 

What we find is that with the Hispanic community and a lot of 

the immigrant communities that people are as hungry for business 

as sharks are hungry for food, so we want to make sure that 

doesn’t happen. 

Mrs. TUBBS JONES. Mr. Wolfe, what would you suggest that Congress do to assist farmers with foreclosures? I gave the other people 

only one wish, I’m going to give you two wishes because I like to 

eat. 

Mr. WOLFE. I think, first of all, something that you folks can do 

in Washington, D.C., is the old FSA offices or FHA, Farmers Home 

Administration, they get a monetary reward for selling farmers out 

once they get in trouble instead of working with them. 

So the old FHA used to be a source of last credit for farmers, and 

the paperwork right now is unbearable to get a loan and the 

amount that you can borrow from them, direct borrowing money is 

33

really not very much in today’s world, a couple hundred thousand, 

and they do also guarantee loans. 

But in our area nobody wants to do any business with them on 

the guarantee loans because the commercial banks can’t do the paperwork to keep up with the 90 percent guarantee. 

So the old Farmers Home Administration, as far as I’m concerned, is just in total disarray and it’s not out there to help farmers at all. But I do know for a fact that the district people, when 

it comes time to foreclose on a farmer, they do it with the monetary 

reward. 

Mrs. TUBBS JONES. But you said they get incentives to help you 

go through foreclosure versus expenses to help you stay out of foreclosure. 

Mr. WOLFE. Right. 

Mrs. TUBBS JONES. Second request. 

Mr. WOLFE. I think overall because there is such a small margin 

of profit in agriculture, whether it’s commercial banks or farm credit service or FHA, we need a totally different set of guidelines to 

deal with us. 

You go through a bank and we get commercial loans which are 

probably 3, maybe 4 times higher interest rates than a homeowner 

would get for their home, and so that’s what farmers live on, that 

amount of money. 

A lot of the banks in our area will say they don’t do agricultural 

loans or other rural community loans because they don’t have the 

expertise to do them, and so they walk away from farm loans because of that. 

There’s really no simple answer, but I think we need to sit down 

with you folks in D.C. 

Mrs. TUBBS JONES. There are other things, as well. This is a Federal hearing, but maybe at some juncture I would like to hear from 

you what you think that the State of Ohio could do on behalf of 

the farmers. 

I would like to connect you with that gentleman right there, even 

though you’re out of my district, he won’t mind, but I want to help 

you do something, in this district we have Michael Taylor to figure 

out what we could do. 

Mr. LATOURETTE. I advised you of that. 

Mrs. TUBBS JONES. Sounds like a plan. Actually I used to have—

I didn’t foreclose, I just stopped leasing. 

For the record, I want to submit a listing of bank fraud capiases 

that were provided to us by Judge Pianka as some of the corporations that he found most in foreclosure giving him difficulty with 

the court. I won’t read them for the record, but I’d like to submit 

them, if possible. 

Mr. LATOURETTE. Certainly. Without objection. 

Anything else. 

Mrs. TUBBS JONES. Of course, I can go on, but I’m good. 

Mr. LATOURETTE. I want to thank all of our witnesses on the 

first panel and also on the second panel. 

I’ll ask unanimous consent to include for the record the testimony of Anne Juterbock on behalf of the Department of Consumer 

Affairs for the City of Cleveland, as well as the attachments that 

34

were referenced in Ms. Randolph’s and Mr. Rush’s testimony, and 

the poster he referenced as well. 

I want to thank my colleague, Stephanie Tubbs Jones, for asking 

us to be here again today, and I want to thank Tri-C for letting 

us come to your facility, I want to thank all of our witnesses and 

I want to thank all of you who attended today. 

No further business coming before the subcommittee, we’re adjourned. 

[Whereupon, the hearing was adjourned.] 

(35)

A P P E N D I X

August 23, 2006

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