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38–397 PDF 2007

THE EFFECT OF PREDATORY LENDING AND

THE FORECLOSURE CRISIS ON TWIN CITIES’

COMMUNITIES AND NEIGHBORHOODS

FIELD HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

AUGUST 9, 2007

Printed for the use of the Committee on Financial Services

Serial No. 110–57

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman

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 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

ALBIO SIRES, New Jersey 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

SPENCER BACHUS, Alabama 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III)

C O N T E N T S 

Page 

Hearing held on: 

August 9, 2007 .................................................................................................. 1

Appendix: 

August 9, 2007 .................................................................................................. 43

WITNESSES 

THURSDAY, AUGUST 9, 2007

Abed, Wade, President, Minnesota Mortgage Association ................................... 33

Bridges, Dorothy J., CEO & President, Franklin National Bank, Minneapolis, 

Minnesota ............................................................................................................. 22

Coleman, Hon. Christopher, Mayor, St. Paul, Minnesota .................................... 7

Glover, Sharon, Golden Valley, Minnesota ............................................................ 16

Gugin, Julie, Executive Director, Minnesota Home Ownership Center .............. 31

Hanson, Patricia L., President, Community Development and Specialized 

Lending, Wells Fargo ........................................................................................... 25

Johnson, Barb, President, Minneapolis City Council ........................................... 5

Marx, Timothy E., Commissioner, Minnesota Housing Finance Agency, ........... 30

Rivera, Dante, St. Paul, Minnesota ........................................................................ 18

Satriano, Paul, ACORN National Treasurer, and Minnesota ACORN State 

Board Member ...................................................................................................... 24

Sullivan, Sherrie Pugh, Executive Director, Northside Residents Redevelopment Council, Minneapolis, Minnesota .............................................................. 27

Swanson, Hon. Lori, Attorney General, State of Minnesota ................................ 9

Todd, Richard M., Vice President, Federal Reserve Bank of Minneapolis ......... 11

APPENDIX 

Prepared statements: 

Bridges, Dorothy J. ........................................................................................... 44

Coleman, Mayor Christopher; and Rybak, Mayor R.T. ................................. 52

Glover, Sharon .................................................................................................. 60

Gugin, Julie ....................................................................................................... 64

Hanson, Patricia L. .......................................................................................... 72

Marx, Timothy E. ............................................................................................. 81

Rivera, Dante .................................................................................................... 85

Satriano, Paul ................................................................................................... 88

Sullivan, Sherrie Pugh ..................................................................................... 92

Swanson, Hon. Lori .......................................................................................... 96

Todd, Richard M. .............................................................................................. 102

(1)

THE EFFECT OF PREDATORY LENDING AND 

THE FORECLOSURE CRISIS ON TWIN CITIES’

COMMUNITIES AND NEIGHBORHOODS 

Thursday, August 9, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 6:19 p.m., in the Minneapolis Central Library, Pohlad Room, 300 Nicollet Mall, Minneapolis, Minnesota, Hon. Barney Frank [chairman of the committee] presiding. 

Members present: Representatives Frank and Ellison. 

Also present: Representative McCollum. 

The CHAIRMAN. This hearing of the Committee on Financial 

Services will come to order. 

This is an official hearing of the Committee on Financial Services, House of Representatives. My name is Barney Frank and I am 

the chairman of the committee. Accompanying me, as you well 

know, are two members of the House from here: Congressman 

Keith Ellison, who is a member of the committee; and Congresswoman Betty McCollum, who is someone with a great interest in 

the subject. 

We will proceed to opening statements from the two Minnesota 

Members, and we will then go to the witnesses. 

Our procedure will be to hear from the witnesses. We have three 

panels of witnesses. The witnesses will make their statements and 

submit for the record any additional material they want to submit, 

and then at the conclusion of each panel, we will have questions 

from the three members. I also will ask if we have unanimous consent, and on the assumption that there is no objection, that will be 

permitted. 

With that, I will turn to Congressman Ellison, who has been a 

very active member of the committee and a strong advocate for action to deal with the crisis in predatory lending, and in fact, is a 

sponsor of a very important piece of legislation that I am confident 

will be—much of which will be incorporated in our final product. 

Congressman Ellison. 

Mr. ELLISON. Thank you, Mr. Chairman. First of all, Mr. Chairman, I’d like to thank you for devoting your time and resources and 

the resources of the Financial Services Committee to come to Minneapolis tonight to highlight the devastating effects of predatory 

mortgage lending and the mortgage foreclosure crisis on neighborhoods in the community of the Twin Cities. I would also like to 

2

point out that our mayor, R.T. Rybak, is not at our hearing tonight 

only because there are a number of our fellow Minnesotans whose 

remains are being taken out of the river as we speak, and he has 

to be there with the families. I hope everybody understands that; 

I’m sure that you do. I also want to point out that Congresswoman 

Michelle Bachmann wanted to be here tonight, and expressed to 

me the desire to be here. She is away in the Middle East right now, 

but very much wanted to be present. 

I want to highlight—I want to welcome tonight’s hearing my colleague and good friend from St. Paul, Congresswoman McCollum, 

as well as Mayor Rybak, Mayor Coleman, and other elected officials 

in the Twin Cities area. I would like to welcome all of the members 

of the public who found time in their busy schedules to be at this 

hearing. 

As Congress begins to address the issue of predatory lending, it’s 

important to me that we hear directly from the people in the communities who have been affected most. I want these voices to be 

heard in Washington. Mr. Chairman, the hearing tonight represents one important step in making sure these critical community voices are heard, and I applaud your leadership for making 

this happen. 

Predatory lending foreclosures have torn holes in the fabric of 

neighborhoods not only in Minneapolis and St. Paul, but across the 

State of Minnesota, and the Nation as a whole. There are both personal and community consequences of housing foreclosure called 

predatory lending. In addition to ruining a family’s dream of homeownership, housing foreclosures can have devastating impacts on 

local neighborhoods and communities. Boarded-up homes drive 

down local property values and are the locus of crime and other illegal activities. 

Displayed on the screen before you is a map of the mortgage foreclosures currently listed in North Minneapolis. The red dots represent foreclosures. The sheer number of concentration of these 

foreclosures is still shocking to me, even though I viewed this slide 

numerous times. I live in North Minneapolis, and you’re looking at 

my neighborhood. I look forward to hearing the testimony of our 

distinguished panelists tonight which include elected officials, advocates and community representatives who have been generous 

enough to share their time and experience with us tonight. 

And so, Mr. Chairman, I look forward to working with you and 

the entire committee and the whole Congress to address this housing foreclosure crisis facing us today. 

Thank you, and I yield back my time. 

The CHAIRMAN. Thank you. And you set a good example, because 

we’re going to have a time problem. I do notice two things, people 

standing, and a row of seats in front of me that say ‘‘reserved.’’ By 

the power vested in me as chairman, I unreserve them. Come on. 

There are still some seats too. 

This hearing could last a couple of hours. There are still some 

more seats. There are some fill-in seats, so please feel free to take 

those seats. If a State representative had to wait, I wonder who 

they were reserved for. 

3

And I will now recognize our colleague, and a great supporter of 

trying to have us do the right thing, Congresswoman Betty McCollum. 

Ms. MCCOLLUM. Thank you, Chairman Frank, and Congressman 

Ellison for extending the opportunity for me to be here. And I want 

to thank all of you from Minneapolis who didn’t vote St. Paul out 

of the room when the chairman asked if I could be part of the committee and the panel today. 

Minnesota, as we know, has one of the highest homeownership 

rates in the Nation. It has been an innovator in promoting opportunities for its residents to achieve the dream of homeownership. And 

we in Minnesota know we still have a lot to do. 

Minnesota has also been a leader in creating opportunities for 

homeownership for members of our community who are disadvantaged, low-income, single-owner households, or communities of 

color. Our community banks and some of our larger banks in the 

Twin Cities have stepped up to the plate when they have been 

asked to participate, and subprime loans have been used as a mortgage tool to provide borrowers with a weak or limited credit history. 

Now, the subprime loans now have been used to take away opportunity for many families because of the lack of regulation. But 

I want to focus for a second just here in Minnesota. Jeff Crump’s 

report, ‘‘Subprime Lending and Foreclosure in Hennepin and 

Ramsey Counties,’’ as Keith has shown with the map, shows how 

many foreclosures are just here in one area. But Jeff Crump goes 

on to speculate that the problem of foreclosures starts with predatory lending practices, and their goal is to remove the equity for 

the homes by refinancing multiple times. The equity that has been 

stripped from all these homes that we’re seeing here and the homeowners have forced them into foreclosure. We’re here today to find 

out what we can do to stop that from happening and still allow 

people with limited means or people who have had past problems 

in obtaining equity still achieve the American dream. 

A little bit about what’s going on in the Fourth District, Mr. 

Frank. The Fourth Congressional District, at our best estimate 

right now, has 796 homes that are involved in foreclosure. A 

Ramsey County estimate said that there will be 1,900 homes forced 

to foreclose by the end of 2007. That’s a 30 percent increase over 

last year’s number, but nearly a 500 percent increase over foreclosures since 2003. Right now nearly 1,200 homes are vacant in 

St. Paul, and it’s mostly due to foreclosures. Many of these now 

have severe code violations and they have become unhabitable. I 

know my mayor, Mayor Coleman from St. Paul, is committed, and 

you’ll hear from him later, to ensuring that these vacant homes are 

a priority for redevelopment. 

But this is also happening in the first rank suburbs. Out of the 

foreclosures though again in St. Paul, approximately 45 percent of 

them are home equity loans. These delinquencies and foreclosures 

harm our neighborhoods and our communities, and they place an 

unfair burden on local and State governments to address the social 

and financial costs, and they also have an impact of people feeling 

that there are lenders in the community who they can trust, who 

they can’t trust to be honest with them. So the financial services 

4

community, I know, has demonstrated great leadership on this 

issue by working on it in many, many different ways, and I know 

we’ll hear more about that, Mr. Frank. But I want to tell each and 

every one of you that I’m so proud to be a co-sponsor of Congressman Ellison’s bill, H.R. 3081, the Fairness for Homeowners Act of 

2007, and the Twin Cities stand jointly together in Congress to 

make sure that everyone has an opportunity for shelter—shelter 

that can’t be taken away. 

I yield back. 

The CHAIRMAN. Thank you, Congresswoman McCollum. I just 

want to make a brief statement. 

The Financial Services Committee, which I chair, will pass legislation this year which prevents—if we are successful in it being 

adopted—the degree of problems we see with subprime loans. And 

I want to address a couple of the reasons why we are doing this. 

One argument we get from people is well, why is the government 

interfering? After all, nobody put a gun to peoples’ heads to make 

them take out a loan. 

There are of course circumstances in which people were unfairly 

pressured and given inadequate information, but there is an overriding one, and this is—the map shows it. Predatory loans that get 

foreclosed are not randomly distributed geographically, they are 

concentrated in neighborhoods, which means that the victim of this 

set of practices, the victims include people who may have saved 

every penny and maybe not even taken a mortgage, but bought a 

home and then find that the home next door has been foreclosed, 

and the home two doors down is vacant, and the home across the 

street is vacant. And pretty soon that hard-working individual’s 

property is deteriorating in value and the physical deterioration 

around causes neighborhood deterioration. So the justification here 

is that we are not talking about little houses on the prairie 200 

miles apart, we are talking about our neighborhoods where what 

in fact happens in one set of homes affects others. 

Secondly, people said well, why are you regulating? There are 

two sets of mortgage lenders, of originators or people who originate 

mortgages in this country. One set, banks of various kinds, are 

fairly heavily regulated because they have deposit insurance and 

the Federal Government says if we’re going to pay off your depositors if you screw up we’re going to try and get you not to screw 

up because we’re not going to pay off the depositors. 

So the regulated institutions, the banks, have not been the major 

part of this problem. If only regulated banks had made mortgage 

loans as the originators of the loans we would not have the problem we now have. It is largely a problem of the unregulated segment. That is an argument that said that sensible regulation can 

be useful, and we plan to do that. One of the factors that I want 

to throw in that is relevant, part of the problem has been the housing policy in this country for years has equated home and homeownership. Homeownership is a good thing. We want to encourage 

people to be homeowners, but not everybody given his or her economic circumstance is able to do it. 

And one of the problems that has exacerbated things has been 

the absence of decent rental housing at affordable levels for people. 

So a comprehensive plan will be to prevent abusive subprime lendVerDate 0ct 09 2002 13:30 Dec 11, 2007 Jkt 038397 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\38397.TXT HFIN PsN: TERRIE
5

ing, to go forward with the right kind of—by they way, one of the 

things we plan to do is to make the Federal Housing Administration, the FHA, better able to make subprime loans. We’re not trying to shut people out of this market. We have some legislation 

going forward, Congressman Ellison has voted for, that’s going to 

make the FHA more available. So that’s the package. It is very 

helpful to us to have this kind of testimony from people who are 

feeling this impact from the efficacy groups, from the elected officials who have to try to cope with these kinds of questions from 

some of the responsible institutions. So I very much appreciate the 

initiative that Congressman Ellison took in putting this hearing together. 

Obviously, this turnout is an example of the extent to which we 

have a problem here. Of course, it would be impossible to come to 

the Twin Cities and not express the deep grief of the Nation which 

we share with you in that terrible tragedy, and I hope that we will 

be learning from the problem to the subprime market, from the 

tragedy of this bridge, that there is a positive role for a sensible 

set of public policies that we may have lost sight of, but we believe 

the time has come to revive. 

With this I will now—I ask you to please withhold your applause 

because, well, you know, we have about 20 witnesses and the rule 

of 10 minutes set. Our first witness, Congressman Ellison, explained that the Mayor, understandably, has obligations elsewhere, 

and we fully understand those and why he is honoring those, and 

he certainly should be there. And instead, we will hear from Barb 

Johnson who is the president of the Minneapolis City Council and 

our close official here. 

STATEMENT OF BARB JOHNSON, PRESIDENT, MINNEAPOLIS 

CITY COUNCIL 

Ms. JOHNSON. Thank you, Chairman Frank, Congressman 

Ellison, and Congresswoman McCollum. We very much welcome 

you to Minneapolis, and thank you for inviting us to testify on the 

effects of foreclosures and predatory lending on our community. 

Like many cities across the country, Minneapolis is facing a 

mortgage foreclosure crisis. The rate of foreclosures has more than 

doubled in the last year. In the first quarter of 2006, we experienced 320 foreclosures. In the first quarter of 2007, we had 678 in 

our City. Foreclosure affects all parts of our City, but the hardest 

hit are our poorest neighborhoods, as the Congressman pointed out, 

our map showing the impact in North Minneapolis. North Minneapolis people do not have big stock portfolios or cushy retirement 

systems; they only have their homes. 

And when foreclosures happens it devalues—first of all, if it happens to them, it’s a tragedy. But if it happens in their neighborhood, as the Congressman said, it devalues the property of that 

valuable asset that they have. So it’s a big hit for people who are 

on the margins. 

The victims of foreclosures are not just the homeowners themselves, but the whole community. Hand-in-hand with foreclosures, 

when you see a big impact like this in a community, you also see 

a rise in crime. North Minneapolis is home this year to the City’s 

largest number of homicides; we have more homicides in North 

6

Minneapolis than all the rest of the City combined. The fact that 

we have all of these foreclosures and vacant buildings is no coincidence. 

City response to the foreclosure crisis has been innovative, comprehensive, and in partnership with community partners. We are 

involved in prevention. We’ve expanded the successful mortgage 

foreclosure prevention services that we have in partnership with 

community groups, including advertising through ‘‘Don’t Borrow 

Trouble,’’ in providing help to people to avoid risky mortgages. We 

have increased our support for mortgage foreclosure prevention in 

partnership with our community partners. 

We’ve expanded our Minneapolis 311 system to encourage people 

to report and ask for assistance through our new 311 system. 

We’ve been getting the word out in our community through expanded programs, through postcards that you can find at the front, 

community groups and notices in community papers. We are acting 

in intervention. The North Side Home Fund Strategy is working 

with neighborhood organizations to identify and redevelop critical 

clusters. We have identified over 300 addresses so far, and have 6 

clusters currently in progress. The approach starts with housing, 

but includes a comprehensive approach around street design, 

crime, and health impacts. We have one in Cottage Park which includes donated renovation of a park, Hawthorne Echo Village, in 

partnership with the Home Depot Foundation, to create a sustainable community, and on our Penn Avenue cluster which for me is 

the most distressing, we are addressing 8 homes in a half block 

that are boarded and vacant. 

The City is acting in a multitude of ways through community 

partnerships as well as the use of eminent domain. Our work also 

supports community partners doing great work such as Urban 

Home Works, a faith inspired community development partner. We 

are acting on remediation. We have a $12 million strategic acquisition fund that allows us to purchase and rehabilitate the highest 

impact housing and resell them to stable homeowners. We have a 

$10 million loan from the State Housing Finance Agency and a million dollar grant from Minnesota Housing and Business from our 

local Wells Fargo Bank and US Bank. The Regional Foreclosure 

Prevention Founders Council, led by our own city director of housing policy and development, is allowing us to expand this comprehensive strategy in partnership with housing funders and foreclosure specialists, including the City of St. Paul, Hennepin County, Ramsey County, Dakota County, Minnesota Housing, the Family Housing Fund, the Greater Metropolitan Housing Corporation, 

Housing Link, Fannie Mae, the Minnesota Home Ownership Center, and the Emerging Market Homeownership Initiative. Now we 

need Federal help to be able to take this work to the next level. 

From the testimony that Mayor Coleman and I will submit, I will 

highlight three points. 

First, quality renters are preferable to vacant properties. Currently renters living in foreclosed homes are evicted at the end of 

the redemption period when the property ownership often goes 

back to the lender. Providing credit through the Community Reinvestment Act could be established to provide lenders the incentive 

7

to allow quality renters to reside in properties that would otherwise sit vacant. 

Second, sometimes the best option for a homeowner facing foreclosure is to sell their home. Currently there are Federal tax consequences to selling a home. Federal tax consequences should be 

eliminated or capped for homeowners facing foreclosure because 

sale is often the best option for distressed homeowners, and the 

quickest way to getting the housing back into stable use. Sometimes the best option for a homeowner is to redesign the terms of 

the mortgage with the lender. Mortgage officials should be required 

to modify a mortgage with a homeowner as a mandatory first step 

to assist a distressed homeowner when the homeowner can financially qualify. 

Finally, we have been working with the State of Minnesota, the 

Federal authorities, the FBI, the Postal Inspection Service, and the 

county attorney to investigate irregular lending purchases and 

sales, particularly in North Minneapolis. And I want to thank the 

attorney general for allowing me to sit on the Foreclosure Prevention Council that developed really strong legislation in our State. 

In our neighborhoods right now, we are seeing flipping schemes. 

We have one particular landlord group that has over 200 properties. They have thousands of inspection orders, unpaid water 

bills, thousands of 911 calls, and now many boarded-up and foreclosed properties. 

This is a severe problem, and we thank you so much for letting 

us tell you our story. 

The CHAIRMAN. Thank you. Next, we have the Mayor of St. Paul, 

Chris Coleman. Mr. Mayor. 

STATEMENT OF THE HONORABLE CHRISTOPHER COLEMAN, 

MAYOR, ST. PAUL, MINNESOTA 

Mr. COLEMAN. Thank you, Chairman Frank. I appreciate your 

presence here, Members of Congress. I don’t know what that note 

is, but I’m going to ignore it for right now because I have much to 

say and little time to say it. 

As Council President Johnson said, there are a tremendous number of efforts that are going on right now in the Twin Cities in 

partnership with the State, with the counties, and with municipal 

and nonprofit partners across the region to try to respond to this 

crisis in our community, and it is a crisis. We recently launched a 

program called ‘‘Invest St. Paul,’’ which is an effort for us to coordinate resources in four target neighborhoods in the City of St. Paul. 

You have before you a map of those targeted areas. They are areas 

that have suffered from this investment for decades. 

We are trying to be smarter about how we are responding to the 

needs of those communities: We focus the delivery of city services 

to residents; we have planted trees; we have fixed cracks in sidewalks; we have changed the way we police those neighborhoods; we 

have asked our libraries and our health professionals to reach out 

to those neighborhoods; we have increased inspections in one- and 

two-bedroom units in those neighborhoods; we made it easier for 

citizens to log complaints so that we can deal with the challenges 

that we face; and we have done over 1,200 inspections of one- and 

two-bedroom units just in the months between March and June of 

8

this year. We are doing everything that we can to revitalize these 

key neighborhoods in our community. We like to think of St. Paul 

as a city of neighborhoods, but it isn’t a strong city of neighborhoods unless all neighborhoods are prospering. 

If you look at the overlay of foreclosures and vacant buildings in 

the City of St. Paul, you can see that there are very heavy concentrations of foreclosures in vacant buildings in those four key 

neighborhoods in the City. In January of 2006, we had 546 vacant 

homes in the City; today there are nearly 1,200 vacant buildings 

in the City of St. Paul. Most of these are residential buildings. We 

believe it’s clear that foreclosure is hitting already distressed 

neighborhoods the hardest, and we know that we need to turn 

these neighborhoods around. But unless we do something about the 

issue of foreclosures we are not going to be able to do what we need 

to do. 

We are striving to make things better, but the rate of foreclosures and vacancies is working against us. Throughout this 

country we should all fear that home foreclosures and the disruption of life in neighborhoods will cause what is known as a disinvestment domino effect. Home foreclosures and vacancies will 

lead to neighborhood property values declining, which will lead to 

remaining neighborhoods having less incentive to invest in their 

homes, which will lead to fewer people moving into the neighborhoods and concentrating poverty. It will result in local businesses 

having fewer customers and lending industries will be less willing 

to work in these communities, which ultimately will result in further deterioration, more crime, and all the troubles that we see associated with some of these inner city neighborhoods. 

The costs to the City of St. Paul are very high. We obviously 

have a tremendous number of increased police expenses. We have 

thieves who are breaking into the houses to steal the copper metal 

in the vacant buildings, and it is creating a very dangerous, hazardous situation where firefighters and emergency responders are 

going into homes where the gas has been left on, but the copper 

piping has been taken out. It is the crisis that I think you know 

it to be, and we really welcome your participation and help as cities 

across America deal with this issue. 

We believe that we are doing everything that we can, and we 

would like some assistance, and we have a few recommendations 

what we think could be very helpful for us. Council member Johnson outlined some ideas. We think that there are three things that 

could be looked at. 

The first one is to repurpose the Tax Exempt Mortgage Revenue 

Bond Program. Look at refining existing tools to allow cities to address current problems. One opportunity that I would like to bring 

to your attention specifically is the Tax Exempt Mortgage Revenue 

Bond Program. Presently Minneapolis, St. Paul, and other cities 

use this program for first-time home buyer programs. Mortgages 

can be used to finance or purchase—purchase or rehabilitate homes 

in federally designated target areas. Updates to this program will 

allow us to have more flexibility with respect to financing home 

mortgages and allow cities more authority to define targeted areas. 

It would be an extremely helpful tool if we could make these 

changes. 

9

The second is requiring re-registration of mortgages after sieged 

sales. One of our biggest hurdles in redeveloping a vacant home is 

trying to track down who owns the property. Mortgage originators 

usually sell a mortgage to a banker finance company. The mortgage 

may be packaged with another mortgage or sold as part of a larger 

investment pool. Our planning and economic development staff, 

they are great people, but they can spend weeks and weeks simply 

trying to figure out who owns a piece of property that has been 

foreclosed upon. It makes it very difficult for us to move forward 

in terms of rehabilitation. 

The third is the reinvestment in community development block grants. In 1975, in inflation unadjusted dollars, we received $18 

million in the City of St. Paul to reinvest in our community. Today 

we receive less than $8.2 million, again in actual dollars. If you 

look at the level of funding that we used to have, we had the tools, 

we had the resources to reinvest in our community. Those tools and 

resources are significantly drawn down upon, or they don’t exist at 

all. 

We need your help. We know that you understand this issue. We 

appreciate your time here today. We thank you for taking this 

issue up, and we will work side-by-side with you in any way that 

we can to fix this problem. 

The CHAIRMAN. Thank you, Mayor. 

[The joint prepared statement of Mayor Coleman and Mayor 

Rybak can be found on page 52 of the appendix.] 

The CHAIRMAN. Next, the Attorney General of the State of Minnesota, the Honorable Lori Swanson. 

STATEMENT OF THE HONORABLE LORI SWANSON, ATTORNEY 

GENERAL, STATE OF MINNESOTA 

Ms. SWANSON. Good evening. I’m Lori Swanson, Attorney General of Minnesota. Chairman Frank, Congressman Ellison, and 

Congresswoman McCollum, thank you for holding this very important hearing tonight. 

You know, over the years, the American dream of homeownership really has been the way that most middle-income and low-income Americans built a nest egg, and saved for the future. Yet 

today, instead of being a savings vehicle, the home has been turned 

into a financial liability for far too many of our neighbors. In the 

Attorney General’s Office, we receive 500 to 700 calls a day, and 

200 letters a day, from people in Minnesota who have problems, 

and paying attention to that tells me that many of our neighbors 

are living paycheck-to-paycheck. College tuition is rising, 

healthcare costs are rising, gasoline is up, utilities are up, and at 

the same time here in Minnesota, the unemployment rate is also 

up and good paying jobs are more scarce. As a result, many of our 

neighbors are borrowing, borrowing not to get ahead, but borrowing 

just to get by. And in fact, if you look at the statistics, in 2006, over 

88 percent of the people who took out mortgage refinancing loans 

did it in part to take cash out of their home and pay off other bills 

like healthcare debt and credit card debt. Because so many middleincome and low-income Americans are squeezed, they are vulnerable to default when they see surprises in their mortgage due to 

undisclosed rates, undisclosed fees, predatory terms, and so on and 

10

so forth. And here in Minnesota, we have seen many mortgage 

loans sold with little or no regard for the borrower’s ability to repay 

the loan, and which are completely unsuitable for the borrower’s 

situation. 

What has that meant for Minnesota? Well, the number of foreclosures in Minnesota has nearly doubled in the last year, and 

nearly quadrupled in the last 2 years. It is a statewide issue. In 

2006, there were over 11,000 foreclosures in Minnesota, up from 

6,000 in 2005. In rural Minnesota, the number of foreclosures rose 

from about 2,700 in 2005 to over 4,100 in 2006. It’s expected to 

reach 8,700 this year. And in fact, in some rural Minnesota counties, nearly half of all loans in 2005 were subprime loans. Those 

borrowers are going to see big surprises when they see their interest rates reset upward after the teaser rate ends on their adjustable rate mortgages. And the impact of foreclosures is highly destructive. It’s destructive for the families and homeowners involved 

to end up either losing their homes or being trapped in 

unsustainable products. And families forced from their homes face 

a lack of stability that affects all aspects of their lives, their kids’ 

education, and their own jobs. They face damaged credit which 

makes it harder for them to then buy other products or even hold 

a job or get a job, and it really results in a downward financial spiral for these people, and it pushes them into other predatory products like payday lending, which is problematic for obvious reasons. 

Congress can do a lot to help in this area. First, with regard to 

the future, Minnesota did pass a law this year, a bill that became 

law on August 1st, to reign in predatory lending practices. I see 

that State Representatives Davnie and Mullery—the authors of 

that law— are here, but through that leadership, it requires brokers and lenders to verify a borrower’s ability to repay the loan and 

other expenses, not just at a teaser rate, but at the full rate using 

reliable documentation, and places a duty on the broker to act in 

the best interest of the borrower. While States have shown leadership in addressing the issue, the Supreme Court has tied our hands 

as it relates to national banks and their operating subsidiaries, and 

so we do need the Federal Government’s help here in Minnesota to 

close that loophole. Congressman Ellison’s bill would do that, the 

bill that he has announced. 

Second, with regard to the past, I think that Congress plays an 

incredibly important oversight role, and it’s a role that we in Minnesota very much appreciate. You have put pressure on financial 

regulators to responsibly address this crisis, and Congress should 

continue to do that. As much as we can talk about prospective legislation, we do have a lot of people in a boatload of trouble today, 

and Congress can and should continue to press Federal regulators 

to use their leverage over the lenders they regulate to help reach 

effective loan restructuring for the people who are in crisis today. 

So thank you for your leadership and for holding this hearing. 

[The prepared statement of Attorney General Swanson can be 

found on page 96 of the appendix.] 

The CHAIRMAN. Thank you. Finally, the vice president of the 

Federal Reserve Bank of Minneapolis. Mr. Todd, thank you for representing the Federal Reserve. 

11

STATEMENT OF RICHARD M. TODD, VICE PRESIDENT, 

FEDERAL RESERVE BANK OF MINNEAPOLIS 

Mr. TODD. Thank you. Mr. Chairman, Representative Ellison, 

and Representative McCollum, I appreciate this opportunity to discuss the impact of foreclosures and abusive lending in the Twin 

Cities. And I thank Representative Ellison for arranging the hearing. 

Foreclosures are a rapidly escalating problem in Minnesota. The 

Community Affairs Unit in the Federal Reserve Bank of Minneapolis provides technical assistance to foreclosure mitigation efforts. As a result, I know that the issues before us are urgent in 

the Twin Cities, where our foreclosure rates have more than tripled 

in recent years. Because our other witnesses have more more direct 

knowledge of the resulting impacts, I am going to focus on some 

research findings. The views I present, however, are my own and 

not necessarily those of the Fed of Minneapolis or the Federal Reserve System. 

In the Twin Cities, foreclosure rates are highest in our core cities. Research conducted by my staff and Dr. Laura Smith of 

Macalester College found that when multiple factors were considered, the strongest relationship in 2002 was between foreclosure 

rates and the percentage of adults in the neighborhood with impaired credit histories. The next most important factor was the increase in minority home ownership between 1990 and 2000. In 

short, foreclosures were high in low- to moderate-income areas 

where minority and young families, often with a history of financial 

stress, were transitioning to homeownership. 

And foreclosure rates are still highest in these neighborhoods. 

For example, in Hennepin and Ramsey Counties, and adjacent portions of the Fifth Congressional District, there are about 40,000 

first-lien, subprime, and Alt-A mortgages right now, according to 

the staff at the Board of Governors in Washington. About 2,200, or 

5.5 percent, of these mortgages are in foreclosure now, and the 

highest percentages, 8 to 14 percent, are in North Minneapolis and 

some neighborhoods near downtown St. Paul. 

However, foreclosures are rising rapidly throughout the area. 

Among the subprime and Alt-A mortgages discussed above, 5,200 

are delinquent. Monthly payments on about 15,000, or 37 percent 

of the total, are scheduled to reset to significantly higher amounts 

before 2010. And we’ll be sharing information like this with local 

counseling organizations to help them target their efforts. 

Concerning the impact of foreclosures, I will briefly cite two findings. First, as documented by Macalester’s Dr. Smith, between 

2005 and 2007, the number of owner-occupied dwellings declined in 

Minneapolis neighborhoods with high foreclosure rates. This undercuts Minnesota’s Emerging Markets Homeownership Initiative and 

its objective to close racial and ethnic homeownership gaps. 

Second, investor-owned properties need to be considered. In 

Ramsey and Hennepin Counties, as many as 40 percent of foreclosure sales involve properties that are not owner-occupied. In 

hard-hit North Minneapolis, the percentage of mortgages to non-occupant borrowers surpassed 31 percent in 2005. 

I hope the findings I have presented here and in my written 

statement are informative. On October 4th, the Minneapolis Fed 

12

will hold a workshop to consider how to improve access to data on 

foreclosures, and to address the overall functioning of the foreclosure system, such as the re-registration issue that Mayor Coleman spoke on. 

I hope we can share outcomes from that event. Thank you. 

[The prepared statement of Mr. Todd can be found on page 102 

of the appendix.] 

The CHAIRMAN. Thank you, Mr. Todd. And we’ll begin the questions with Mr. Ellison. 

Mr. ELLISON. Mr. Todd, my question to you is this: When you 

look at the data that you just shared with us, you indicated that 

two of the most important factors are the frequency of minority and 

young homeowners. How do you factor in the predatory nature of 

some of the loans that we see out there? Are these folks making 

bad decisions, or are they being sold on products that are actually 

exotic or predatory products? 

Mr. TODD. I think that there are many things that go on. I think 

that there are clearly cases, it has been well-documented, I believe, 

in the Twin Cities, that there are many cases where high pressure 

tactics were used without good disclosure and full information to 

borrowers, but there are other ways that this happens as well, and 

I think it’s important that we do recognize that not all foreclosures 

are the same. It still can be the case that people get into foreclosures for old-fashioned reasons like losing a job or getting sick. 

And sometimes people get into a subprime loan having had other 

problems first that led them to refinance into subprime. So we have 

a wide range of things going on that include abusive lending, but 

it’s not limited to that. 

Mr. ELLISON. Does the Fed have a role to play here locally in regulating some of these lending products that we’ve seen that are socalled exotic products, prepayment penalties, no doc, low doc, those 

kind of loans, what is the regulatory role that the Fed can play? 

Mr. TODD. The Federal Reserve has a role in writing regulations 

that apply nationally, so it would not be this local Federal Reserve 

Bank, it would be more the Board of Governors in Washington, 

D.C., doing it for the whole country. We do have authority to write 

rules that apply to, in some cases, all mortgage lenders, but we do 

not have the authority to enforce those rules on all. I think Chairman Frank was alluding to some difference in outcomes between 

the federally regulated institutions and some of the other institutions, and I think there is an area where we can write the rules 

for all, but we cannot enforce them for all. 

Mr. ELLISON. Attorney General Swanson, one of the things that 

has been bandied about in this national debate is whether we 

should preempt States or whether we should continue to make sure 

that we have an active role from our State regulators. What are 

your views on the subject? 

Ms. SWANSON. Well, I would be very much opposed to any type 

of preemption on the part of the Congress. I think that in area 

after area, the States have been the ones that have shown leadership and stepped up to the plate when it comes to protecting their 

patients, their financial customers, their workers, and their citizens, and there has been a trend too often, I think, in Congress 

over the last 10 years, where either Congress or Federal agencies 

13

have preempted the State’s power to do better for their citizens, not 

because the Federal Government really wants to regulate these industries, but because they want to deregulate these industries and 

want to tie the State’s hands. 

I think that States are close to their citizens. We have the ability 

sometimes to act swiftly and move to address uniquely local issues. 

And in this case I think it’s a great example where the Minnesota 

legislature has done that. It moved forward to pass, I think, really 

very good and strong anti-predatory lending legislation. There is 

that small area that we can’t address because of the U.S. Supreme 

Court ruling, but I think it would very much be in the citizens’ best 

interest to not have any type of preemption and let the States be 

the laboratory for the democracy that they traditionally have been 

and let them do better for their citizens. I think that’s very, very 

important. 

Mr. ELLISON. Mr. Mayor, as you try to develop your City of St. 

Paul, and I’d actually like to see if our council president can chime 

in here too, how important is housing as a focal point of economic 

development? We all want to do start-ups, we all want to promote 

businesses coming in, but what role does housing play in stabilizing and developing a community? 

Mr. COLEMAN. I don’t think that there is enough time, Congressman, to tell you all of the reasons why that’s critical. You know, 

without housing, you start off life, from the very beginning—we 

have kids who are transferring schools five or six times during the 

course of the year. There are some schools where 60 or 70 percent 

of the kids in there are moving during the course of the year so 

that it’s destabilizing our classrooms. It’s making it very hard to 

track those kids to make sure that they have the resources that 

they need. 

From a crime prevention standpoint, when you have this kind of 

a vacancy rate and you have a neighborhood that is falling to further decline because of these foreclosures and vacant buildings it 

makes it very difficult to police our neighborhoods. It makes it very 

difficult for us to try to attract businesses into our neighborhoods, 

and to attract residents into our neighborhood. I really could go on 

and on because, you know, it’s just—it’s such a fundamental, fundamental piece of our community from so many different angles 

that we have to handle this. And when you look at our ‘‘Invest St. 

Paul’’ initiatives to say, you know, we’re prepared to do everything 

that we can to redeliver public services in a different way, to work 

with partnerships across the City in the for-profit and nonprofit 

sectors, but if every time we take a step forward, we go two steps 

backwards because of situations like this, then everything that 

we’re doing will go for naught, and all of our efforts to try to revitalize these neighborhoods won’t work. 

Ms. JOHNSON. Thank you Congressman Ellison. What I would 

just like to say is something that I’ve always said about my particular community, North Minneapolis. North Minneapolis’s 

strength has always been its housing stock. We don’t have big employers there. We have a fantastic housing stock that has provided 

homes for working people throughout the City’s history. We are in 

danger of losing this, and this would be a tragedy for our City. 

Mr. ELLISON. Thank you. 

14

The CHAIRMAN. Congresswoman McCollum. 

Ms. MCCOLLUM. Thank you, Mr. Chairman. I want to thank the 

panel for its testimony. Just when you think you have read and 

kept up with the devastation that’s going on with foreclosures, you 

hear more, and it makes you realize that we’re playing catch up as 

my Mayor from St. Paul said, and we keep getting further behind 

while doing it. 

But I would like to talk a little more about marketing practices. 

Attorney General Swanson, you pointed out that Minnesota has 

passed some legislation addressing marketing practices, and I’ll 

speak as a person who has a home mortgage in St. Paul. I’m still 

receiving through the mail, I thought to bring them with me but 

I would have had two large garbage bags to hold it all, and they 

are garbage, what I’m sent about refinancing my home—‘‘Last 

chance, do it before, literally before August 1st.’’ It comes in very 

official looking mail. And they have even taken to soliciting my son, 

who doesn’t hold a mortgage, and whohas been living in Japan for 

the past year teaching over there. 

What were you able to do here, and then what do we need to look 

at doing with postal inspectors and others as we move forward? 

Ms. SWANSON. Well, there are a number of things that can be 

done. The Minnesota legislation really sort of legislated some common sense that lenders haven’t applied and brokers haven’t applied, which is making sure that people can pay it back. If you 

make a loan, can they pay it back? And you know, what we have 

seen is a lot of problems where lenders were making these no documentation loans and they weren’t even looking at a tax return to 

see if the income stated on the application was in the ballpark of 

what the person really made. And so the Minnesota legislation 

curbed that and said the lenders ought to look at documentation 

because of the so-called ‘‘liar loans’’ where the broker can put down 

anything at all on the application. The legislation says that can’t 

be the case anymore. Lenders now look at verifiable documentation, and it does place a duty on mortgage brokers to act in the borrower’s best interest. 

You know, a mortgage is the largest financial transaction any 

American consumer will enter into. It’s also the biggest financial 

transaction an American consumer will enter into, and it makes 

great sense to treat a mortgage, therefore, more like you treat an 

insurance product or securities or like a duty a Realtor has or a 

lawyer has, as opposed to that you’re just selling a television set. 

There are a lot of problems with abusive marketing practices, no 

doubt. I mean, a lot of the people who have been put into some of 

the most predatory products already had a home, they already had 

the American dream, and somebody, you know, some advertiser on 

late night television said, ‘‘If you have credit problems, don’t worry, 

you can refinance. Come with us. Take cash out. Pay off your credit 

cards.’’ And that is a problem, the advertising no doubt. But hopefully with the legislation putting in place more prudent underwriting standards, that should really curb the kind of abusive loans 

that we’ve been seeing. 

Ms. MCCOLLUM. I have a question for the Federal Reserve as for 

going through with re-authorization of leave no child behind. One 

of the things that I’ve heard from social studies teachers, and I’ll 

15

be honest, I heard from a former social studies teacher, is the 

amount of time that’s being taken out of the class curricula for 

teaching social sciences, which includes economics. And I know 

many of our lenders are our community banks and that some of our 

large banks try to go into the classroom and do financial literacy, 

but they have to be asked in, and with more and more emphasis 

on testing, we’re seeing some of these life skills being lost. Could 

you maybe speak to, if you could, the importance of financial literacy and maybe if we need to be offering it in community education classes and figuring out a more creative way to get people 

up-to-speed. 

Mr. TODD. I’d be happy to. That is an area that I personally work 

in a lot, and I’ve thought about it quite a bit. It is very important. 

On the issue you raise, I am often asked if I support making it 

mandatory to teach it in the schools, and I try to be very careful 

about that, and I think teachers do have lots of mandates now, and 

I do not necessarily feel that I know enough to say that I’m going 

to add another one. 

But I think we do need to get the job done somehow. And you 

can try to get it into the math classes and integrated into some of 

the classes. I think we can also attempt sometimes to get it into 

summer camps. We’re doing work with some Native American summer camps ourselves, one here in Minneapolis as well as elsewhere 

around the country. I think that you’re right, that it continues in 

adult life. Sometimes I think that before you graduate from high 

school, you don’t always understand the importance of it. It’s good 

to have the basics, then you need to reinforce as an adult when you 

start to see the decisions you’re actually making. We have good 

homeownership counseling here in Minnesota. We need to keep 

that organization strong. 

I will just relate also that I have found in terms of some of the 

high school programs I have been involved in that we were impaired in our ability to move forward with the financial education 

in certain circumstances where the schools were behind on their 

testing. They simply had to devote so much time to catch up that 

they were not able to do much with the financial education. 

The CHAIRMAN. Thank you. I have a couple more questions for 

Attorney General Swanson. You write about the trend to cancel 

State law, or as we call it, preemption. You were just a little under 

on the time. You said 10 years; it has actually been 12 years. Random selection people think about what happened in 1994 and that’s 

over. 

Ms. SWANSON. Thank you, Chairman Frank. 

The CHAIRMAN. There are differences. Now to—Ms. Swanson, let 

me say first of all, people, you see the influence of great masters, 

and politician Tip O’Neill said that all politics is local. We tend 

sometimes to be behave a little differently at home. I will say to 

you, Mr. Todd, that by telling you Mr. Ellison treated you far more 

gently than he treated the chairman of the system. But that’s appropriate. 

Mr. TODD. I appreciate that. 

The CHAIRMAN. But I want to thank you in particular for mentioning the race factor. One of the things that Congress did over 

the objection of some people, frankly even in the affected industry, 

16

was to pass a bill of which my former colleague, Joe Kennedy, was 

the main sponsor, called the Home Mortgage Disclosure Act 

(HMDA). HMDA continues to reveal one of the great ongoing 

shames of America that there is a very significant racial disparity 

in peoples’ availability and stuff that we ought to keep working on. 

I appreciate your mentioning that, that this is something that we 

as regulators very much have to deal with. That is very important. 

The other thing that was new to me, I must say, was the reference to ‘‘investor-owned.’’ Would you say that foreclosures among 

investor-owned, is that disproportionate to the number of investorowned, or just a significant factor? 

Mr. TODD. I don’t know if it’s disproportionate—I see there are 

people in the audience—Alan Malkis is doing research on this in 

North Minneapolis—but I do know that it’s an important part of 

the foreclosures. 

The CHAIRMAN. I appreciate that. And I certainly believe that 

renting—this a new thing that I will take away from this. We’ve 

tended to think about the tragedy of the individual, but from the 

economic and social impact we will look at that. 

And then also we need to thank you, Mayor, for the second item 

referred to, the importance of helping people unravel the ownership 

chain, to see who is the ultimate owner. We did in our committee 

press the Securities Exchange Commission to get the Financial Accounting Standard Board fairly obscure, but they have now ruled 

that the servicer of the secondary mortgage held markets can—

doesn’t have to be just an automaton. And Ken said you know 

what, we’d all be better off if instead of foreclosing we did some 

flexibility. But that doesn’t help if you don’t know who to go to. 

And I will ask the staff of the committee tomorrow to begin to 

make available—we will look into this question. The other issues 

on the revenue bonds, I very much agree with the mortgage fund, 

those are not our committee, but we will pass that along. And on 

community throughout the fund grant, you’re right, we’re way 

below, but you will see in the budget, again 12 years, you will see 

that the budget that will come forward on October 1st will have the 

first real increase over inflation at CDBG in 12 years. 

I thank the panel, and we will dismiss this panel and ask our 

second panel to come up. 

The CHAIRMAN. Our second panel consists of: Ms. Sharon Glover 

from Golden Valley, Minnesota; and Mr. Dante Rivera from St. 

Paul, Minnesota. 

The room will come to order. Will people please take their seats 

so that we can begin? 

Our first witness is Ms. Sharon Glover from Golden Valley. Ms. 

Glover, thank you for joining us, and please proceed. 

STATEMENT OF SHARON GLOVER, GOLDEN VALLEY, 

MINNESOTA 

Ms. GLOVER. Thank you. My name is Sharon Glover. My late 

husband, Gleason Glover, was the head of the Minneapolis Urban 

League for 25 years. He passed away in late 1994. And I have 

worked for many years in the education field, and I always had a 

job until recently. 

17

Gleason and I bought the house in 1984, and our mortgage was with Homeside in Florida. We paid $94,000 for the house, and our 

payments were $1,200 a month. The problem came when I refinanced in 1999. I really wasn’t seeking to refinance, I was thinking 

about it, but if I did refinance, I wanted lower payments than the 

$1,200 I was paying. 

Well, one day a man came to my door, I say he danced into my 

house, saying all kinds of wonderful things about Gleason, singing 

my husband’s praises. I, of course, was still in the grieving stage 

at that time, so I trusted him because he respected my husband. 

He called me, and I said, ‘‘I’m ready to close.’’ Again, I trusted him. 

I signed the papers believing him. And it was only much later that 

I found that my payments were no longer—they went from $1,200 

a month to $1,550 a month. 

Also, I never got copies of the loan documents from him. In fact, 

I’ve only gotten them very recently through the lawyers who are 

pro bono working with me. But the loan balance went from $94,000 

to $162,000 and I never understood why. I didn’t get any cash 

back, and they paid a few bills, but I certainly didn’t have $70,000 

in bills. And as I said, I just got a copy of the paperwork sent to 

me recently. And I know it’s too late now, but legally maybe they 

don’t have to do anything, but I still want to go back and ask them 

to tell me where that money went and who got paid. So since 1999, I have made those payments of $1,550 a month. 

I worked and paid this even though I realized I had been taken. 

Then a few years ago I got a call from Ocwen saying that they were 

my new mortgage company, and that was when the troubles really 

started. Ocwen told me that they were going to pay my taxes and 

insurance although I was current on everything. They increased 

my payments by $400 a month, so now I have gone from $1,200, 

to $1,550, to $1,945. 

Then in 2003, I became ill, and had a total hip replacement on 

the right leg and a total knee replacement on the left. After my 

surgery I couldn’t go back to work, so I went through all the money 

I had and kept paying my mortgage. Then I got another little parttime consulting job, but I still hadn’t healed and so we were—I 

couldn’t stand up and sit down. We were in a conference with 

someone and I was trying to stand up to shake the donor’s hand, 

and I fell onto the owner of the school’s feet. So I was let go that 

very day because, as they said, I was a liability to them. So I didn’t 

run into any problems until I no longer was working. 

Then as now, I’m living on the Social Security check that doesn’t 

come until the third Wednesday of the month, and a small annuity 

check from my husband, my deceased husband, which comes the 

last week of the month. But I still have never missed a payment. 

But the payments were always made at the end of the month because that’s when I get the money. Because my payments increased 

to the $1,945 a month, that left me only with $200 a month then 

to pay all my bills including food and medical, so I just stopped 

taking my medicine so that I could make my mortgage payment. 

Starting from the time when I wasn’t able to work, if Ocwen 

didn’t get the payment during the first 5 days of the month they 

would call me 4, 5, 6, 7, and 8 times a month harassing me. I told 

them, and I also put it in writing, that they would have their 

18

money every month, but it would be at the end of the month because of when I got Social Security, and when I got the annuity. 

They could have adjusted everything to change the payment due 

date, but they refused to do that. 

Now, I have all of these records and documentation showing that 

all of the months were paid. Not only that, on the wire when I 

wired the money every month, on the wire I would put to be used 

for mortgage June 2007 only, payment only, with only being in big 

letters, but still they went ahead and used the money any way they 

wanted to. Ocwen had my June 2007 payment. I wired it with the 

statement, ‘‘Oly to be used for mortgage,’’ when on July 3rd, a sheriff knocked on my door, and said you are served. I don’t know what 

happened. I just got this letter saying that they were going to foreclose on August 7th. I was so ashamed. Ashamed that I, as a bright 

woman, had let this happen to me and didn’t see it coming because 

I had made the payments and thought that if you pay every one 

of your payments they can’t take your house from you. The sad 

thing about this is that I was going to move anyway because the 

house had become too much for one person, but I had not planned 

to lose everything as I am now. 

Ocwen told me recently, in fact on the 2nd of August, that for $12,000 they would prevent the foreclosure sale. And then they 

said that after—if I gave them $12,000, and they stopped the foreclosure sale, I would have to give them another $12,000 as soon as 

the mortgage was reinstated. And they said that the other $12,000 

would include things like foreclosure costs and fees, property valuation, title report fees, $2,325 in late fees, etc., etc., in addition to 

continuing to pay the $1,945 every month. 

My home was up for auction, or sheriffs sale as you say, for 

Tuesday, August 7th, which meant that after that, I wouldn’t be 

able to get the title to my house without paying a redemption fee 

of $200,000, and I never in my life expected this to happen to me. 

Well, I went to the sheriffs sale, and thank goodness the Urban 

League went with me too so I wouldn’t be alone, and my house 

didn’t come up and so we asked the sheriff what was the matter, 

why wasn’t my house up for sale? We learned from them that 

Ocwen had pulled it at 10 a.m., that very morning. 

Now, the reason they had pulled it is because my lawyers, my 

pro bono lawyers, Seymour Mansfield and Richard Fuller, had filed 

a class action suit against Ocwen here in the Federal Court because of their predatory mortgage practices and piling on junk fees. 

I have a copy of the complaint with me. I understand that my action will be transferred to the Federal Court in Chicago as a consolidated multi-district action with hundreds and hundreds of other 

cases against Ocwen. This has been going on for years, and still 

Ocwen continues to get away with these predatory practices. But 

whatever happens, Ocwen has already done its damage to me. 

[The prepared statement of Ms. Glover can be found on page 60 

of the appendix.] 

The CHAIRMAN. Mr. Rivera. 

STATEMENT OF DANTE RIVERA, ST. PAUL, MINNESOTA 

Mr. RIVERA. Hello, my name is Dante Rivera. I am from Texas, 

but I have lived in Minnesota for almost 12 years. I live in East 

19

St. Paul, and I work in North Minneapolis for a roofing company. 

My wife works in St. Paul for the school. I have three kids: my oldest daughter is 11 years old; my middle daughter is 9 years old; 

and my youngest daughter is 2 years old. 

I bought my house almost 8 years ago. I used to live in an apartment, but one day the new owner came to my apartment, and said 

we had to move; they only gave us 2 days to get out. So my wife 

and I went to look for another apartment, and I saw a house for 

sale. I told my wife that I was tired of renting, and I wanted to 

buy something better. When I bought the house, my mortgage payment was $760 a month. One year later they sent me a letter telling me that we had to start sending our payments to a different 

mortgage company, Option One, and that my payments would now 

be $1,025 a month. 

In 2004, at that time, I got a little behind on my payments, so 

somebody told my wife about a broker. I don’t speak English, so I 

felt very uncomfortable about refinancing the house because maybe 

something would go wrong, but we had to do something to catch 

up the mortgage, so my wife called the broker to make an appointment. 

We told the person over there that we don’t want any money 

back; the only thing we want is to lower the payment. But the person over there told us we have to get some money back, and if everything goes right for one year, we can go back until we get the 

payments lower. Later I found out that I have an adjustable rate 

mortgage where payments started at $950, but went up to $1,150. 

The price of my house was when I bought it was $86,000. When 

they refinanced it, it wnet up to $160,000. They charged a lot of 

money to refinance the house. 

I have a lot of problems with this loan company, Option One. 

One time we sent the money Western Union, and then about 2 

months later, I sent out a payment, and one time Option One 

called me to say that I was 2 months late. I told them I sent a payment from Western Union, but they sent it back, so I lost the 

money because I lost the receipt. Also it’s very difficult to communicate with them. When I call, I get an answering machine. They 

say, ‘‘Press 1 to make a payment,’’ but there is no person there. 

Other times I call, the person says you have to speak with somebody else, and then they put me on hold 30 or 40 minutes, and 

then nobody answers the phone and I have to hang up. And everyone only speaks English. Only one time did I call there and talk 

to someone who spoke Spanish. She said she could help me, and 

then put me on hold again. 

My company shuts down every year in December, so every time 

in January, I have a hard time sending my payments. I just want 

to catch up in February, but my electricity and gas are very expensive. Sometimes I have to pay between $400 and $700 a month in 

the winter, so me and my wife, we have to make a decision to send 

the mortgage payment or the bills or they will cut off the electricity 

and we’ll be cold. I also had to go to out-of-State this year because 

my grandfather was sick. 

When I got behind in my payments, I tried to call Option One 

to explain, but there was no answer. We sent the payment for JanVerDate 0ct 09 2002 13:30 Dec 11, 2007 Jkt 038397 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\38397.TXT HFIN PsN: TERRIE
20

uary and February late, but this time they sent them back. They 

didn’t want to take them late, so they sent me a foreclosure notice. 

In June, we tried to speak with somebody to fix the problem. We wanted to send $4,000 and make an agreement with them, but nobody answered the phone. Over 2 weeks ago, this guy from Option 

One called me that tried to refinance my house, but I told him I 

was working with ACORN, and they told me not to talk to anybody 

else. And he wanted to make me make a decision right away; they 

told me, say this, and we can go over and do another refinancing. 

The sheriff came last week to give a letter to my wife that they’re 

going to put the house up for sale on September 12th. When the 

sheriff came over, my wife was very scared. She was crying and she 

came to my job. I told her that I’m very tired of living in this 

house. Maybe we can move to an apartment to save more money 

because this house is too old. 

When I bought this house, it was the biggest mistake of my life. 

I was in a hurry because this guy, the owner of the apartment, said 

we had to move out. If I had more time to find somebody who spoke 

Spanish who could help me understand, maybe I could have bought 

a better house, and provided a better future for my wife and my 

kids. Thank you. 

[The prepared statement of Mr. Rivera can be found on page 85 

of the appendix.] 

The CHAIRMAN. Congressman Ellison. 

Mr. ELLISON. First of all, let me say that I’m very concerned, and 

very about what you had to go through. It’s the kind of thing that 

we’re here to try to address. Could you talk about what you learned 

about this company, Ocwen? As I did some research on them, I understand that there is already some pending litigation against 

them before you got into the litigation. What can you tell us about 

this? 

The CHAIRMAN. Does the reporter have the spelling of the company? 

Mr. ELLISON. O–C–W–E–N. Is that right? 

Ms. GLOVER. That’s right. 

Mr. ELLISON. What can you tell us about this company? 

Ms. GLOVER. All I can tell you is that they’ve been terrible to 

deal with. My blessing is that these lawyers, Seymour Mansfield, 

stepped up to help me pro bono, because otherwise there is no way 

I could have done this on my own. But we have the documentation. 

I mean, we can prove that every payment has been made. They 

have four notebooks of materials from me, and still they’re just 

holding out. But I guess ACORN has a big lawsuit too going with 

Ocwen. So I understand that there are hundreds and hundreds of 

people in the suit. And the only thing that stopped this thing on 

Tuesday is I guess the lawyers sent a copy of the complaint over 

to them to tell them it had already been filed. But again, neither 

Ocwen, nor Shapiro, the lawyer that represents Ocwen, ever notified me or the law firm that they had pulled it. And we know it 

isn’t pulled for good; it’s only a matter of time. 

Mr. ELLISON. Let me ask you this: Do you feel as though these 

companies treated you in a fair way? 

Ms. GLOVER. I have to laugh at that. 

The CHAIRMAN. I don’t do audience participation. You go ahead. 

21

Ms. GLOVER. Of course I didn’t. No. No. I mean, even the calling 

and harassing me 7 or 8 times a month, and me repeatedly saying 

that my Social Security check doesn’t come until the third Wednesday of each month, and my husband’s annuity check comes the last 

week, but as soon as his check comes, then I will wire it to you. 

I mean, they could have made—as stated in the paper the lawyers 

drew up—a change; they could have changed the date, but they refused. 

Mr. ELLISON. Thank you. 

Ms. MCCOLLUM. When—and I really appreciate the courage it 

takes to talk about. We don’t talk about finances very well as a Nation. We don’t even talk about it within our families, and here you 

are sharing something that’s very personal to both of you with everyone, but thank you for coming forward. 

When you found—you have an attorney now and you called 

ACORN, sir, what—tell me what you felt like when you found that 

you were having all these legal problems. Did you think, ‘‘Oh, I can 

call the Better Business Bureau.’’ ‘‘I can call the Attorney General.’’ 

‘‘This can’t be happening to me.’’ Tell me a little bit about, if you 

feel comfortable, what was going through your mind and how you 

felt that there were no resources available to you. 

Ms. GLOVER. Let me tell you, you know, United Way puts out a 

list, and it’s either United Way or the county, and they say call 

311, and then there are a number of other numbers they say to 

call. I got the list and I called everyone on the list. Now, I live in 

Golden Valley which is first suburban tiered Minneapolis, and so 

after calling everybody on the list there are only two on the list 

well known that deal with foreclosures in Golden Valley. I went to 

each of them, each of them, and I said to them can—will you help 

me? I said, if you will lend me $1,945, one months payment, I can 

make it on the first, and then when my check comes I will be on 

time every time after. And these are people who are listed. And I 

was listening to the—well, let me not say that. But okay. These are 

people who are listed as who will help. When I went to, let me just 

call it ‘‘X,’’ they said right out, ‘‘No.’’ Now, the woman there really 

wanted to help, but her boss told—she told me off the record, 

pulled the staff together and they said no. 

The other agency that I went to, and this is before it reached the 

foreclosure point, had me come back four times. The last time I 

went, I thought to myself, you have to take somebody with you, 

Sharon, because this makes no sense. So I took a young man, an 

African-American man from our community—I’m not going give his 

name, but all of you know it—who reaches out and helps people 

when he can. And I said, ‘‘blank,’’ will you come with me and just 

listen. So he went with me to this other—to this group. We sat and 

they said well, let us think about it. Come back again. 

On the day that I was supposed to come back for the fifth time, 

I got a call from this particular office saying that the woman who 

would be dealing with me wasn’t able to come in that day and that 

she would call me when she was feeling better and could come in. 

So I didn’t go. So this list that we put out really didn’t help at all. 

And I didn’t know—I thought to myself, since they say they’re foreclosure prevention programs and they get money to help, who can 

I go to? 

22

But the people whom I turned to, I went to the Urban League, 

and the president of the Urban League helped me. That’s who 

helped me and stood with me. And then I went to ACORN. Their 

league also had this big thing on foreclosures, and I went to that 

conference. And at that conference I met a number of organizations, of which ACORN was one, and then I went in to see ACORN. 

And then right at that time these lawyers took me on said they 

would help me, and they knew me through my— 

The CHAIRMAN. How did you meet those lawyers? Who connected 

you to those lawyers? 

Ms. GLOVER. Well, the lawyers at one time were on the Urban 

League board many, many years ago, and they also, the lawyers, 

were personal friends, or knew my husband very well. 

The CHAIRMAN. So is that through the Urban League foreclosure 

conference that you met them, or separate? 

Ms. GLOVER. No, I knew them over years, but I don’t know who 

called them. Somebody called them about me, and I think it was 

my sister, and they called and said come in. And then when they 

looked at my income they said, ‘‘Oh, no, you can’t afford to pay us 

anything, this is pro bono.’’ And they’re the ones who have really 

gotten on top of this and stopped it. But if not for them and the 

Urban League, and ACORN, I don’t know where I’d be. 

The CHAIRMAN. Let me ask Mr. Rivera, how did you get to 

ACORN? What was the connection there? 

Mr. RIVERA. Well, at that time my wife was very nervous, so she 

went to her friend’s house, and her friend’s husband called me and 

gave me the number for ACORN. And then I was very scared because I don’t want to call companies; they are only looking for 

records. And I think to myself, these guys who came to my house, 

lenders and everything like that, I feel like they are sharks. They 

want to attack me. You know, like take something from my pocket. 

And then, well, my friend explained to me, and told me about 

ACORN, so he made the appointment for me and then I came over. 

The CHAIRMAN. Thank you. 

Mr. RIVERA. You’re welcome. 

The CHAIRMAN. Thank you both. No further questions. 

I echo Congressman Ellison, that to share your own personal 

pain in the hopes of helping other people avoid it is really about 

as generous a thing as you can do. So we very much appreciate 

both of you sharing in this way to try and help others. 

The CHAIRMAN. We will now take the next panel. Will the next 

panel please come forward: Ms. Bridges, Mr. Satriano, Ms. Hanson, 

Ms. Sullivan, Mr. Marx, Ms. Gugin, and Mr. Abed. 

We will begin. Are we ready? 

We will begin with Ms. Dorothy Bridges, who is the president of 

the Franklin National Bank in Minneapolis. 

STATEMENT OF DOROTHY J. BRIDGES, CEO & PRESIDENT, 

FRANKLIN NATIONAL BANK, MINNEAPOLIS, MINNESOTA 

Ms. BRIDGES. Chairman Frank, Congressman Ellison, and Congresswoman McCollum, my name is Dorothy Bridges, and I am the 

CEO and president of Franklin National Bank of Minneapolis. I am 

pleased to be here today, and I want to thank you for taking time 

out of your busy schedules to be in our community. 

23

This community is very important to me and to all the great people who work at Franklin Bank. It is our home, and our livelihood 

is intimately connected to its economic wellbeing. I’ve learned 

throughout my life that people are a part of their community and 

their community is a part of them. This is why our vision at Franklin Bank is to be the leader in improving our urban community. 

Every day we work hard to find new ways to use our resources to 

improve life in urban Minneapolis. We believe social responsibility 

based on solid partnership is vital to this effort. We embrace diversity and support the individuals, businesses, and nonprofit organizations that work tirelessly to create jobs, build affordable housing, 

help individuals reach their goals, and improve our overall quality 

of life. 

While our focus at Franklin Bank is on local business lending, 

the recent rise in home foreclosures has had a direct impact on us 

due to our involvement and work with nonprofit community development organizations like Project for Pride and Living, and many 

of the others that are located in this room. 

PPL helps lower- to moderate-income people become self-sufficient. We recently loaned them money to build 14 single-family 

homes on the old school site in North Minneapolis. While the 

project is complete and the homes are for sale, the number of foreclosures in the area has made it very difficult for PPL to find interested, qualified buyers. Most people are reluctant to buy a home on 

a street where a lot of other homes are for sale or boarded-up due 

to foreclosures. And since the loan we made to PPL does not get 

repaid until the homes are sold, our ability to work on future 

projects of this nature is hampered. 

There is no question that the rise in foreclosures will hurt other 

businesses in our area as well, therefore, we must be a part of the 

solution as a banking institution. 

A variety of factors are responsible for the current situation, but 

I cannot say strongly enough that predatory lending has no place 

in our financial system. The vast majority of predatory lending 

practices are engaged in by unregulated lenders that are not subject to the same strong oversight and examination that the banking 

industry is subject to. While many of these non-bank lenders lend 

responsibly and hold themselves accountable, many do not. But all 

should lend responsibly and be held accountable for not doing so. 

They should be subject to the same strong consumer protection 

laws that apply to banks. 

Today there is no regulatory system for ensuring that they comply even with the laws that they are subject to, such as RESPA. 

All of us should be required to abide by high ethical standards 

whether you are a banker, a mortgage broker, a mortgage lender, 

or anyone else involved in real estate and homeownership. High 

ethical standards should be the norm, not the exception. 

Thank you for your time, and I’m happy to address any questions 

you may have. 

[The prepared statement of Ms. Bridges can be found on page 44 

of the appendix.] 

The CHAIRMAN. Thank you, Ms. Bridges. 

24

Next we’ll hear from Mr. Paul Satriano, who is the national 

treasurer of ACORN and a State board director for ACORN. Mr. 

Satriano. 

STATEMENT OF PAUL SATRIANO, ACORN NATIONAL 

TREASURER, AND MINNESOTA ACORN STATE BOARD MEMBER 

Mr. SATRIANO. Thank you, Chairman Frank. 

My name is Paul Satriano, and I am a board member for Minnesota ACORN and I also serve as treasurer on ACORN’s national 

board. I want to thank you, Chairman Frank, for coming to Minnesota and for all of your work in Washington holding hearings to 

shine a spotlight on predatory lending, putting the mortgage industry under a microscope, and pressing the Federal Reserve to do 

their job and issue rules to protect consumers from abusive lending 

practices. I also want to thank Representative Ellison for holding 

this hearing and for fighting for credit justice, amd Representative 

McCollum for being here. 

I was in danger of losing my own home to a predatory loan when 

I first joined ACORN 7 years ago. Since then I’ve been working 

with ACORN to fight predatory lending. I’m proud of what we have 

accomplished and the progress that ACORN and others have made. 

But new problems have developed. More and more subprime loans 

had adjustable rates. More and more loans were made where the 

borrower fell behind the first few months. More and more homeowners found out too late that their mortgage payments didn’t include taxes and insurance. 

In Minnesota, when we see a problem, we like to do something 

about it. Just this year, legislation was passed with the help of 

Representatives Daphne and Mullery, who are here with us today, 

and we passed the strongest law in the country against predatory 

lending. We were excited when Congressman Ellison introduced a 

similar bill in Washington. This was the second time in recent 

years that ACORN, the Minnesota Attorney Generals Office, 

AARP, and legal services have passed landmark legislation to protect innocent homeowners. 

In 2004, with the help of then-State Representative Keith 

Ellison, we passed the first State law in the country against foreclosure rescue scams. It became a model law for other States. 

We know that your committee will be looking at Federal predatory lending bills and that the mortgage industry wants one national bill that will preempt all the State laws. We also want to see 

a national law, and are committed to working with you throughout 

the process. But we don’t want a national law to take away the 

protections we worked so hard to pass or take away our State’s 

ability to address new problems that come up like we did with the 

foreclosure rescue scam. And while we need to pass laws to protect 

homeowners from predatory loans, we also need to help families 

who have already fallen prey to these loan sharks and who are facing foreclosure. We believe that this crisis can be addressed, but 

there are specific things that need to happen. 

In Minnesota we are fortunate to have an excellent network of 

foreclosure prevention counseling agencies, including our sister organization, ACORN Housing. However, our programs are not able 

to keep up with the demand for our services, much less expand to 

25

really address the need that is out there, and many homeowners 

don’t know that there is help available. We need to educate them. 

I repeat, we need to educate them. The Senate Appropriations 

Committee recently approved $150 million for the HUD Housing 

Counseling Program with $100 million of this specifically designated for foreclosure prevention counseling and outreach. But the 

House has approved less than $50 million, with no money directed 

to foreclosure prevention. We need the House to support the $150 

million in funding. But no matter how good the foreclosure prevention program is, we still need the lenders to do their part in cleaning up the mess they created, and we need them to do something 

quickly. That’s why we are calling on subprime lenders and services to agree immediately to a voluntary foreclosure moratorium for 

3 months on loans here in Minnesota, and during these 3 months, 

we want the mortgage companies to back up their talk with action. 

We keep hearing from the lenders how they don’t want to foreclose on people, and how they only want to do it as a last resort, 

but homeowners say that the largest companies are still only giving them two options, sell or pay extra every month to catch up. 

Mortgage companies need to agree to do more loan modifications, 

not just on a case-by-case basis, but on a large scale to help families stay in their homes with an affordable mortgage. 

For people with adjustable rates who can’t afford their payments 

because the rate went up, mortgage companies need to lower the 

interest rate and make it fixed on loans made before August 1st. 

In so-called stated income loans where the broker or loan officer 

lied about the borrower’s income, the mortgage company has a duty 

to reduce the interest rate or principal or both so that it is affordable. 

And in cases where the homeowner fell behind because they had 

to pay their taxes and insurance separately, lenders need to redo 

their loans and include the taxes and insurance in the monthly 

payments. 

During the 3-month foreclosures moratorium, we are willing to 

do our part and conduct a large scale outreach program to reach 

homeowners who are facing foreclosure. According to Freddie Mac, 

half of all foreclosed homeowners never talked to their lender during the foreclosure process. In many cases this is because they 

don’t think the lender is willing to do anything to help them. We 

will go door-to-door to find homeowners and make sure they know 

about the second chance they are getting through the moratorium 

and urge them to contact their lender or housing counseling agency. We need your help now. Thank you. 

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

88 of the appendix.] 

The CHAIRMAN. Next we’ll hear from Patricia Hanson, who is the 

president of community development and specialized lending at 

Wells Fargo. 

STATEMENT OF PATRICIA L. HANSON, PRESIDENT, COMMUNITY DEVELOPMENT AND SPECIALIZED LENDING, WELLS 

FARGO 

Ms. HANSON. Chairman Frank, and Congressman Ellison, thank 

you for the invitation to testify today. 

26

My name is Pat Hanson, and I am the president of community 

development and specialized lending for Wells Fargo. In addition to 

my professional community development work, I also serve on the 

board of Junior Achievement of the Upper Midwest, and also as 

vice president and treasurer of the Family Housing Fund. 

I have been a foreclosure lender for over 15 years, which means 

ensuring borrowers have an appropriate mortgage that they can 

repay because we keep the risk of these loans on our books. My 

years of experience have proven to me that no one benefits or wins 

in a foreclosure situation. In the Twin Cities of Minneapolis and St. 

Paul, we work daily with the communities to understand the needs 

of our customers. In 1990, Wells Fargo was the first bank in Minnesota to introduce a portfolio product which is now called the 

Community Development Mortgage Program (CDMP). CDMP was 

created to meet the needs of low- and moderate-income borrowers 

here in the Twin Cities. Since that time we have originated and 

held in our portfolio over half a million dollars of loans to low and 

moderate income individuals in the State of Minnesota. 

In 2006, the average borrower income in our program was just over $38,000, 90 percent of our customers were first-time home 

buyers, and over 50 percent of our customers had either a low credit score or no credit score. CDMP in Minnesota allows 100 percent 

loan-to-value ratio with no mortgage insurance required, making it 

more affordable to achieve the dream of homeownership. 

We have also resisted the market temptations when rates were 

low to do ARMs with this product because we understand that our 

borrowers could have been at risk if interest rates had in fact rose 

and a reset occurred. 

Mr. Chairman, Congressman Ellison, as we have previously testified in Washington, Wells Fargo formally adopted responsible mortgage lending principles in 2004, and we have implemented responsible servicing principles as well. We work hard to help customers 

who encounter financial difficulties and to prevent foreclosures 

where possible because doing so is in the best interest of our communities, our customers, our investors, and our company. Wells 

Fargo believes that it’s important to have an outreach plan to work 

with borrowers early and often. It is also important to have a plan 

for orderly transfer of homes to further improve our borrowers as 

well as ensure integrity of our neighborhoods. 

Some of our practice steps include making repeated attempts to 

contact customers with delinquencies in order to find a workable 

solution. All our of prime and non-prime ARM customers in our 

servicing portfolio have been identified, and we have begun contacting these customers to ensure that they receive a communication from us at least 6 months before their reset date. I would emphasize that it’s critical that the borrower communicate with their 

lender as you’ve heard from others, or recommend a nonprofit who 

can work with the borrower. 

We have a dedicated Wells Fargo expert staff trained to work 

with borrowers seeking ARM reset assistance, including an office 

right here in Minneapolis. Once a borrower contacts us, we will 

work with the customers on a case-by-case basis. 

As mentioned, we believe collaboration with nonprofits is very 

important to assist borrowers. As a part of this collaboration, I 

27

want to thank Mayors Rybak and Coleman for their support in the 

creation of the Twin Cities Prevention Funders Council. We are an 

active participant of the council’s lender subcommittee. As part of 

this group we are working to find solutions for homeowners facing 

foreclosures in the Twin Cities, specifically to ensure that homes 

that are in foreclosure are properly maintained and taxes and assessments are paid on a timely basis until that home can be put 

back into service. We have a designated contact person that our 

Minnesota nonprofit partners can contact regarding inquiries about 

vacant properties and how to once again make them available for 

new homeowners. We are one of the founding members of the Minnesota Home Ownership Center, whom you will hear from in a 

minute. They do excellent work in pre and post-purchase counseling, as well as mortgage foreclosure assistance. 

We have established a dedicated toll-free number for foreclosure 

counselors assisting customers who are delinquent, which is included in my remarks. 

In closing, let me reiterate that Wells Fargo is firmly committed 

to continuing to lead the industry in advocating and conducting fair 

and responsible lending and servicing. We know that it can work. 

As part of our long-standing commitment to the communities of 

Minneapolis and St. Paul we will remain committed to working 

with borrowers to find alternatives for each of their individual situations. 

Thank you again, Chairman Frank, and Congressman Ellison, 

for the opportunity to testify today. 

[The prepared statement of Ms. Hanson can be found on page 72 

of the appendix.] 

The CHAIRMAN. Thank you. Can we ask the—we want to accommodate everybody at the table, we increased the panel. So let’s 

work at it. Maybe we can move around the corner. 

And next, as we’re doing this, we’re going to hear from Ms. 

Sherrie Pugh Sullivan. 

STATEMENT OF SHERRIE PUGH SULLIVAN, EXECUTIVE DIRECTOR, NORTHSIDE RESIDENTS REDEVELOPMENT COUNCIL, MINNEAPOLIS, MINNESOTA 

Ms. SULLIVAN. Thank you, Chairman Frank, Congressman 

Ellison, and Congresswoman McCollum. My name is Sherrie Pugh 

Sullivan, and I am the executive director of the Northside Residents Redevelopment Council (NRRC). NRRC is a 35-year-old community based organization established by residents in North Minneapolis in 1970 after the rebellion. The Northside Residents Redevelopment Council is committed to the rebuilding of the fabric of 

our neighborhood which began its efforts around civic engagement 

and a deliberate strategy focus that redevelopment of affordable 

housing for homeownership. 

In the 1970’s, the homeownership rates in our community to target neighborhoods were less than 25 percent. With nonprofit partners such as Project Pride and Living, Greater Minneapolis Housing Corporation, and NHS, in over a 30-year period we rehabbed 

homes, built new homes on abandoned lots in our communities, 

and changed that fabric. We increased homeownership by 2000 to 

28

almost 60 percent in the Willard Hays neighborhood and 35 percent in the near north neighborhood. 

But all of that has changed. Our community has been battled in 

sustaining housing homeownership. Where we try to build wealth 

and family sustainability we have encountered foreclosures and 

egregious attacks by the lending institutions. 

In the late 1980’s, NRCC was part of creating what is now called 

statewide the Mortgage Foreclosure Prevention Program. We were 

that first pilot project. And every year we see hundreds of families 

who are facing foreclosure. In 2006, we assisted over 325 families 

who were facing foreclosures. We provided intensive counseling to 

over 117 in providing those loans as well. Who are the clients? Their median income is about $31,000, and 

their average principal, interest, and taxes total $1,206 a month. 

The average month that they’re past due when we see them is 

about 5 months, and their average amount past due is $6,000. We 

know that many of the reasons for these delinquencies are not because people are bad; it’s because they’ve had a family crisis. 

They’ve lost a job. They’ve had a health incident. But what is egregious to us is that they’ve been the victims of predatory products. 

As consistent with our community’s demographics and what you, 

Mr. Chairman, have pointed out, we are a minority community; 65 

percent of the residents in near North Willard Hays and in greater 

parts of North Minneapolis is about 65 percent. Yet when you 

looked at the map that was up, and I’m glad it’s down, you see that 

we are the place where we’re at ground zero. As a matter of fact, 

it used to be that people would say look at all the dots for foreclosures on the north side, and now they say, look at the big blob. 

We have experienced mortgage flipping—well, we’ve experienced 

redlining from the 1960’s. No one even knows what that is anymore. We experienced mortgage flipping in the 1990’s. We’re now 

experiencing the predatory subprime loans and those wonderful 

ARMs. It is eroding the fabric of our community. We’ve lost value. 

In 2000, values jumped about 30 percent in our community. We 

thought we were catching up with the rest of the cities, only to find 

out that this year people have lost $30- to $50,000 in value in their 

homes, and along with that loss, because we appreciate that in 

2000 they got hit with the new tax bill, which was a 10 percent 

increase, the number of foreclosures have skyrocketed unreasonably. In 2004, there were 228 foreclosures in North Minneapolis. 

That increased to 487 by 2005, and in 2006, there were 693. I can 

tell you that we are already almost to that point now, in 2007. 

What is most egregious to us as a community of color, people trying to obtain that Minnesota dream—a mentor of mine to a director 

said homeownership, Minnesota really likes homeowners. But 

that’s not true in our communities, and in a study recently published by the National Community Reinvestment Council called 

‘‘Income is no Shield Against Racial Differences in Lending,’’ it 

rings so true for our community. 

There is no mistake that North Minneapolis has been egregiously 

attacked and targeted by predatory lending, mortgage flipping, and 

adjustable rates. We have been seeing dangerously overpriced lending products. They are flipping our neighborhoods. The success we 

made from the 1960’s and increasing homeownership has taken a 

29

sharp dive. We also know that this has affected our families. And 

Dan Shrads, an activist for the poor, talks about how the way in 

which you build family wealth is threefold: education; business; 

and owning a home. Those things have been taken from our residents. The foreclosures impact our families in so many ways. 

Shame, guilt, embarrassment, and feeling that they weren’t smart 

enough. How could I be so stupid, people say. Families are taking 

on the responsibility, but is it really theirs? They were seeking the 

American dream, the Minnesota dream, where homeownership is 

the highest in the country. But now we are under attack. African 

Americans and Latinos are the most at risk in our community for 

subprime lending products, and that is a shame. Our community—

I’m going to skip some notes here. 

The CHAIRMAN. Please turn off the cell phones. 

Ms. SULLIVAN. What happens in our communities with foreclosures is that the foreclosures end up resulting in a vacant property, and those vacant properties are purchased by investors. Those 

investors then try to flip those homes quickly, and when they don’t 

make their money, they abandon them. The foreclosed properties 

have resulted in huge numbers of vacant properties. I said this will 

be controversial—while our President is in Iraq fighting a war, in 

North Minneapolis, we’re under siege. 

Vacant properties become targets for the copper strippers as they 

take their found copper and make money from that. The vacant 

properties become opportunities for criminal activities. The vacant 

properties become health nuisances. The vacant properties make us 

all depressed as we walk the streets, come out of our homes, and 

see all the boarded-up and abandoned properties. And most of all, 

it decreases the value. 

So for those who still hang onto the community and want to keep 

their investment, all they see is dropping prices. 

In Minnesota the subprime mortgage default rates by a national 

study when you looked at February 2005 and the subprime market 

we represented 7.8 percent of those subprime mortgages and foreclosures. In February 2007, Minnesota represented 16.8 percent. 

We are above the national average. That is horrifying to me to 

think that Minnesota could be above the average, which is 12.4 

percent. 

In closing, I just want to say that one of the things that we feel 

needs to be addressed is, and we talked about this earlier, Mr. 

Chairman, and that is there needs to be new life put into HUD and 

FHA programs. At one time, FHA loans were the predominant loan 

in our community. Right now, they only represent 9 percent; 80 

percent are conventional subprime loans predominantly. So please 

look at giving us FHA back and a new vigorous way of addressing 

the needs of low-income buyers in communities where there is existing housing stock. 

Putting a stop to the predatory and subprime lending market, we 

have to have regulations to control this industry, and putting upon 

the regulators to take strong positions in regulating lenders and 

holding them accountable. And also the CRA bill for 2007 desperately needs to be passed. We need that too as communities to 

hold our lenders accountable. 

30

And then last, I’d like to say that everyone talks about economic 

literacy, but it always has amazed me that so often everything we 

do, someone asks us to pay, so they can pull our credit score. Somehow we never get a copy of that credit score. 

So something has to be done. Economic literacy, we’re always 

paying other people to learn about our credit and we never see the 

credit score. So we need to really rethink how credit scores are 

handled, how people are informed about their credit scores. Homeownership is important in our communities. 

The CHAIRMAN. Please wrap up. 

Ms. SULLIVAN. It is a building of the fabric of the community. 

And thank you very much for allowing me to speak. 

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

92 of the appendix.] 

The CHAIRMAN. Mr. Tim Marx. 

STATEMENT OF TIMOTHY E. MARX, COMMISSIONER, 

MINNESOTA HOUSING FINANCE AGENCY 

Mr. MARX. Thank you, Mr. Chairman, Representative Ellison, 

and Representative McCollum for holding this hearing here in Minnesota, and for the opportunity to testify. 

I serve as the commissioner of the Minnesota Housing Finance 

Agency, the State’s affordable housing financial institution. Minnesota Housing is a finance agency and not a regulatory body, so 

my testimony would relate to financial tools that we use, and community development issues, not to regulatory matters such as lending practices. I will summarize my written testimony by making 

four points. 

First, Mr. Chairman, Minnesota is very proud of the long term 

and bipartisan record that we have established among government 

at all levels with local government partners, with faith communities, with private foundations, and with the private sector to 

affordably house low- and moderate-income Minnesotans. This 

partnership, which is well-represented here this evening, has produced the highest homeownership rate in the Nation and the 12th 

lowest percentage of households among the States which confront 

severe housing cost burdens. 

However, the dramatic increase in foreclosures experienced 

throughout the entire State, and particularly in the Twin Cities, 

concentrated in lower income neighborhoods, is making it very difficult to maintain and improve this performance. We are particularly proud of our emerging market homeownership initiative 

where the homeownership industry and the community have come 

together on a specific plan to address the minority homeownership 

gap, which in Minnesota is the fifth worst in the Nation. We will 

not be able to realize the promise of that initiative unless we address aggressively this foreclosure crisis. 

Second, as Mayor Coleman did, we ask that you consider 

strengthening the Tax Exempt Mortgage Revenue Bond Program 

for providing low- and moderate-income home buyers with low-cost 

mortgages. The MRB program is a responsible, well-run, and highperforming program that offers a superior alternative to predatory 

and other unsound lending practices by focusing on long-term susVerDate 0ct 09 2002 13:30 Dec 11, 2007 Jkt 038397 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 K:\DOCS\38397.TXT HFIN PsN: TERRIE
31

tainable homeownership often coupled with homeownership counseling and foreclosure prevention services. 

As the subprime market has contracted over the last several 

months, the demand for our MRB program has increased dramatically. The number of loans purchased, and the dollar volume of 

purchases by Minnesota Housing in July 2007, increased 41 percent and 66 percent, respectively, over July of 2006. To meet this 

growing demand we need to be able to have the authority to issue 

more bonds, to provide more mortgages, and to recycle loan repayments. 

Third, we ask that you provide funding and other incentives to 

support homeownership training and foreclosures prevention. An 

example would be Representative Ellison’s bill, to provide incentives to financial institutions to fund counseling through the Community Reinvestment Act. 

In Minnesota, we are doing our part. The legislature just recently funded $1.7 million of foreclosure prevention and homeownership counseling resources, and Commissioner of Commerce 

Glenn Wilson and I announced today an additional $500,000 of 

State resources for a particularly targeted foreclosure relief effort 

that will reach out using the resources of the Federal Reserve to 

try to predict where foreclosures are likely to happen to provide relief. 

Fourth and finally, we ask that you increase appropriations for 

the Home Investment Partnership Program and the Community 

Development Block Grant Programs as Mayor Coleman and others 

stressed. We need to acquire, rehabilitate, and get homes back on 

the market once they are in foreclosure and prevent abandoned 

properties from causing blight in our neighborhoods. The Funders 

Council which has been referenced here this evening has been a 

very effective institution to develop plans we provided through 

Minnesota Housing, our largest award ever, $11 million to the City 

of Minneapolis effort. We are prepared to do more throughout the 

State, but the magnitude of this issue really requires a significant 

Federal response as we move forward. 

Mr. Chairman, thank you for your time. 

[The prepared statement of Mr. Marx can be found on page 81 

of the appendix.] 

The CHAIRMAN. Next, Ms. Julie Gugin. 

STATEMENT OF JULIE GUGIN, EXECUTIVE DIRECTOR, 

MINNESOTA HOME OWNERSHIP CENTER 

Ms. GUGIN. Chairman Frank, Congressman Ellison, and Congresswoman McCollum, thank you for this opportunity. My name 

is Julie Gugin, and I am the executive director of the Minnesota 

Home Ownership Center. The Center’s mission is to promote sustainable homeownership for low- and moderate-income Minnesotans through the development and delivery of quality standardized 

education, counseling, and related support services. To this end, 

the Center provides key services to a network of 50 communitybased agencies throughout Minnesota. These agencies in turn deliver pre-purchase, post-purchase, and foreclosure education and 

counseling programs to low- and moderate-income households. 

32

Each year the Center and its network of agencies offer 15,000 

low- and moderate-income households the tools they need to purchase and sustain their homes. Our statewide model is unique. No 

other State has this centralized, standardized approach to what we 

believe is the most important element of homeownership—education and counseling. 

Homeownership is an exhilarating goal. It is also a complex venture. We believe that all home buyers should be empowered with 

education to enter homeownership through the right door. Homestretch is the Center’s pre-purchase education and counseling curriculum that is provided to home buyers by our network partners. 

Education is offered in a workshop setting, providing the knowledge that home buyers need to create a realistic plan to buy and 

sustain a home. We think that pre-purchase counseling is one of 

the best preventors of foreclosure. However, we also emphasize the 

work of our foreclosure prevention network. 

Foreclosure prevention counseling is available in every county in 

Minnesota through the Center’s network of nonprofit or government agencies. These providers help families facing foreclosure 

through in-depth counseling, budgeting and financial management, 

intervention and advocacy, emergency financial assistance, and referrals. 

Counselors also help homeowners develop and negotiate a recovery plan with their lenders and other creditors. The foreclosure 

services supported by the Center and its network offer a cost-effective solution to the current foreclosure crisis. A study recently conducted by the Family Housing Fund found that the cost of preventing foreclosures through foreclosure prevention counseling was 

a small fraction of the cost compared to those incurred by the multiple stakeholders impacted by foreclosures. The study found that 

while program costs amounted to $1.6 million to help close to 500 

homeowners reinstate their mortgages, the averted losses to mortgage insurers alone were an estimated $9.6 million. 

Other studies have found that foreclosures resulted in costs as 

high as $34,000 per foreclosure for local government and $59,000 

per foreclosure for the mortgage industry. 

As Commissioner Marx mentioned, the primary source of funding 

for the statewide Foreclosure Prevention Assistance Program is the 

Homeownership Education Counseling and Training Fund. This 

fund is sponsored annually certainly by Minnesota Housing, but 

also by the Family Housing Fund, the Greater Minnesota Housing 

Fund, and the Home Ownership Center. Last year, it provided $1 

million to support foreclosure prevention in the State. 

Our foreclosure prevention counseling offers a proven method of 

helping families stay in their homes. Current data shows that 60 

percent of families who receive foreclosure prevention counseling 

through the network are still current on their mortgages 2 years 

after receiving services. The Center is adamantly committed to the 

critical role that foreclosure prevention counseling plays in addressing the complex issue of foreclosures. We are continually working 

to add capacity within our system that is currently taxed to its limits. 

33

Minnesota’s model of offering a consistent standardized and professional approach to education and counseling has proven its effectiveness. 

The success of the model is attributable to three primary factors. 

First, a localized approach. We believe that homeownership education and counseling is optimally delivered locally through providers who understand the nuances of the local housing market, 

local lending tools, and who can identify trusted industry partners. 

Second, the support from our industry partners. Our network is 

sustained through the sponsorship of our generous lenders, our 

State housing finance agency, and numerous other affordable housing stakeholders, including our local officials. 

And finally, the patience, perseverance, and compassion of our 

educators and counselors, many of whom are here tonight, while 

their work is frequently gratifying, the challenges can be daunting. 

And their creativity and spirit helps deliver a high-quality, critical 

program to the communities they serve. Thank you. 

[The prepared statement of Ms. Gugin can be found on page 64 

of the appendix.] 

The CHAIRMAN. Thank you. 

And finally, Wade Abed who is the president of the Minnesota 

Mortgage Association. Mr. Abed. 

STATEMENT OF WADE ABED, PRESIDENT, MINNESOTA 

MORTGAGE ASSOCIATION 

Mr. ABED. Thank you. Chairman Frank, Congressman Ellison, 

and Congresswoman McCollum, thanks for having me. I appreciate 

it. 

You know, I guess I’d like to start by saying trusted partners, 

that’s what the Minnesota Mortgage Association, that’s what we 

are. I’d also like to say right off the bat that we are absolutely and 

always have been against predatory lending. It makes me sick as 

president to get some of the phone calls that I get. It makes me 

sick to read some of the things that I read, not just about North 

Minneapolis, but about my own neighborhood. It makes me sick because I see it every day. 

So trusted partners, that’s what it’s going to take to make this 

stop. And we’re all partially responsible, we’re all partially involved, and we’re absolutely all the solution. 

The Minnesota Mortgage Association and my role within it is 

that it’s a voluntary organization of which I’m the president, and 

my role is to promote what we believe. And what we believe is to 

raise the bar of professionalism in the mortgage industry. We believe we do that through education, as you’ve heard from many 

here, and we’ve been doing that for many years. We’ve worked with 

our department of Congress. We’ve worked with many of our other 

agencies, Commissioner Marx, and other folks who testified here to 

find solutions to problems that we know exist. 

And personally, I’d like to see the dirty scoundrels who practice 

this kind of behavior out of this marketplace as quickly as possible—quicker than we’re seeing them go now. 

This crisis is not only about getting homeownership back, it’s 

about keeping homes. It’s about keeping people in their homes for 

the length of their lives in many cases, even though we move a lot 

34

in America. It’s also about the businesses that lend those funds to 

folks to get them into homes and we cannot destroy that model, at 

the same time when we try to correct what we know is a crisis. We 

as individuals need to do, we as industries have to do, we as elected officials have to do whatever it takes to get this fixed. 

We at the Association promote the prevention of fraud through 

education, financial literacy in our high schools, and we work with 

our legislators, the gentlemen in front of me. We’ve worked with 

our attorney general. We’ve wanted regulation and have been to 

our government at a State level many times looking for it. And 

over the years, they’ve been very cooperative. We’ve been able to 

get background checks in. We’ve been able to get now, this year, 

mandatory education. I’d like to see licensing in the next session. 

But we did get registration which will help track people and we 

can make sure we have a vehicle to get rid of some of these bad 

actors. They come from all places, not just the mortgage brokers or 

the bankers or the real estate folk, it’s a lot of places. It’s in all 

businesses, and I’d like to see all of it gone. But I’m only responsible for this Association, and the way I conduct my business, and 

that’s really what we’d like to continue to do. 

Our legislative agenda is to get licensing for every individual 

originator in the State of Minnesota regardless of if they work for 

a bank, a credit union, a pass-through lender, or whatever it is you 

want to call them. A mortgage broker, a loan originator, we believe 

all should be licensed. We believe they should all have a standard 

which we live by as an Association is a requirement of membership. We teach business law. 

We teach business ethics with regard to the laws in the State of 

Minnesota as well as the Federal regulations required under 

RESPA. We want more done and we want vehicles put in place so 

we can find out who these perpetrators are and remove them from 

this place, and especially North Minneapolis. Our agenda is to continue to promote education, to help craft regulation that works for 

the consumer and for business, and really to do the right thing. 

Thank you very much for the time. I know I went over. If you 

have any questions, I’d be glad to answer them. 

The CHAIRMAN. Mr. Ellison. 

Mr. ELLISON. Mr. Abed, you talked about standards for mortgage 

originators. What sort of requirements for licensure would you envision? What sort of things do you think members of your industry 

should have to abide by before they can be licensed? 

Mr. ABED. Thank you for the question, Congressman Ellison. I 

believe, and with our Association proposed this in 2003, that there 

be pre-licensing requirements and education. Today we now have 

15 hours. I believe, and we do have that now, that they have to 

go through criminal background checks. I do believe that the owners of these companies have a financial net worth that is of a reasonable amount. I believe as we have in many industries the continuing education is required. 

And I believe every one of them should be individually licensed 

and tracked so they cannot go from one place to another. I also believe that out-of-State servicers, people who offer these types of 

products, should have to comply with the laws of the State of Minnesota. 

35

You know, thanks for letting me talk again. I also believe you 

need to get FHA done. 

Mr. ELLISON. Let me ask this: Is there ever any good reason to 

have a prepayment penalty on an adjustable rate mortgage? 

Mr. ABED. Congressman Ellison, I think that there is— 

Mr. ELLISON. Other than just getting money from people. 

Mr. ABED. That would not be the good reason. And the way I 

practice, and the way that our Association believes, there is a place 

for prepayment penalties within the market that we work in, and 

that market is the secondary investor pooled saleable trust loans 

and Wall Street. And the reason for that is to guarantee those are 

on their books for ‘‘X’’ amount of time, and in doing so, with that 

guarantee, we are able to offer a lower rate. 

And for us, we can pass that to the consumer. And for that reason, and probably that reason alone, that is why there is a good 

reason for it. 

Mr. ELLISON. Is there ever a reason for a no document or low 

document mortgage to be sold to a consumer? 

Mr. ABED. Congressman Ellison, there absolutely is a reason for 

that product. For instance, entrepreneurs who start businesses 

start with their savings, their 401Ks or whatever it is that they 

come up with to get that money put together to start their businesses. And we all know that the first few years of any business 

are a struggle. 

Mr. ELLISON. Well, let me ask you this: Is there ever any reason, 

excluding entrepreneurs? 

Mr. ABED. I believe in emerging markets and other nontraditional places where income is difficult to verify, yes, it is. I believe 

that a—people who get commission, I believe waitresses who get 

tips, I believe those things are hard sometimes to document. But 

it is their income. 

Mr. ELLISON. Wait a minute. Waitresses have to document their 

income to the IRS. I mean, shouldn’t your industry— 

The CHAIRMAN. Can we please have quiet in the audience so this 

can go forward? 

Mr. ELLISON. Shouldn’t your industry be required to ensure that 

people can pay the loans that the people you represent issue to 

them? 

Mr. ABED. I would absolutely agree. 

And they do, I hope, report all of it. But the fact is when they 

write it all down it doesn’t necessarily mean it’s—they don’t have 

the capacity to pay, it means their accountant is very good at them 

to have less of a tax burden. 

Mr. ELLISON. Yes, but isn’t it the case that the burden really is 

being relieved by the mortgage originator, not the consumer? If the 

consumer wants a loan they will verify their income or they will 

come up with the information they need to show how much they 

make. But really the no doc requirement just gets you guys off the 

hook. 

Mr. ABED. Well, you know, I think the no doc purpose, and the 

one that I wanted to really make—hit home with is that we write 

these things down and we can only add back through standard accounting practices in how we can say and verify this is what you 

make even though we know that it is not the case. 

36

Mr. ELLISON. Is there—now—well, let me move on from here. 

Ms. Hanson, what percentage of the loans that Wells Fargo issues 

are prime loans and what percentage are subprime? 

Ms. HANSON. I am responsible for community development, and 

I’m going to have to say that we will respond to you in writing. 

Mr. ELLISON. Thank you. Do you know what percentage of the 

subprime result in foreclosure? 

Ms. HANSON. No, I do not. But we will get you that information. 

Mr. ELLISON. Do you know, do your subprime loans include adjustable rate mortgages that also include penalties? 

Ms. HANSON. I would anticipate that’s true, but again that’s not 

my area of expertise. I work in community development versus the 

mortgage. 

Mr. ELLISON. Okay. That’s it then. 

And what do your subprime loans require? Do you have—what 

are your document requirements for issuing those loans? 

Ms. HANSON. I can answer based on my programs that I run, and 

we have full doc with all our programs. 

Mr. ELLISON. And you know, when you look at the HMDA data, 

you know, the data that is collected based on race and ethnicity 

data for homeownership, home lending, how do you—what do you—

how do you think we end up with this racial disproportion in this 

data? What is your sort of thinking about how we end up there? 

Ms. HANSON. We have done—tried to do extensive outreach in 

our minority communities, and it is a difficult issue. Since, I would 

say, the mid 1990’s we’ve been studying what the primary reasons 

are for denial on our loans. And the two primary reasons are debtto-income are too high, and also that their credit score is not good 

or that their credit is not good. Those are two things you only solve 

through education with partners such as the Home Ownership 

Center and counseling people on what their credit score should look 

like or what their credit should be before they come in for an application, as well as understanding that if you have too much debt 

compared to the income that you have you probably won’t qualify 

for a loan. 

So we have put a lot of time and energy into education within 

Wells Fargo and with our partners across the country to try to address those issues because it really concerns us as a company. 

Mr. ELLISON. With the Chair’s indulgence could I—Mr. Satriano, 

the comment was made by one of our witnesses today that I believe 

that when a mortgage ends up in foreclosure, no one wins. But 

somebody wins. Who wins? How do we get these mortgages in foreclosure if nobody wins? I mean, if nobody won, they wouldn’t happen, so how do they happen? Who wins? We know the consumers 

don’t win. 

Mr. SATRIANO. The predatory lender wins. 

Mr. ELLISON. Is it the case that when someone, for example, if 

a mortgage originator after they do the deal with the homeowner, 

after that they send that on, that’s not kept in their— 

Mr. SATRIANO. Well, most of them do. Yes, most of them do. But 

they have to sell them to somebody. But when a house goes from 

$84,000 to 160,000, somebody has that money. I mean, it’s already 

taken out, so who has it? Not the person who owns the home, so 

someone has to have it. 

37

But can I ask one thing? I know this is a Federal panel, but I 

want to ask a question to this panel. 

The CHAIRMAN. The witnesses can’t ask each other questions. 

Mr. SATRIANO. I don’t want to ask a question, I just want to 

ask—I just want to say we are all here together. We can do locally 

while you’re doing in Washington—who here, right here would be 

willing to get a panel together to try to work on this thing? 

The CHAIRMAN. And after the hearing, you’ll get that answered. 

Mr. ELLISON. Thank you very much, Mr. Satriano. 

Ms. MCCOLLUM. Thank you, Mr. Chairman. 

For those of you who are involved, both lending and nonprofits, 

that are involved in helping people with mortgages when they come 

forward and say, I have a problem with my mortgage, and 5 

months is, you know, getting to be a little late and that’s part of 

getting out public service announcements, how many of you, if you 

could speak briefly because I have a couple of other questions, are 

open evenings and weekends, open—I worked third shift for many, 

many years so I had to sleep during the day and that. 

The CHAIRMAN. You worked third shift all last week in the 

House. 

Ms. MCCOLLUM. But I didn’t have to go outside and catch a bus 

in sub-zero weather. And people have daycare and that. And then 

the issue of language and culture because I know I’ll speak to our 

community’s banks and our major banks here, they have people on 

staff who are culturally able to communicate whether it’s language 

or even with our Somali refugees with how to work out homeownership. 

Who do you have on staff? When are you available? And I would 

also like the gentleman from the mortgage association to answer 

that question. 

Ms. SULLIVAN. For the Northside Residents Redevelopment 

Council, we currently have three staff members who work what 

you would call normal office hours. However, you can catch them 

at our office many nights up until about 8 p.m., so they do flex for 

our clients. They do a lot of work on the phone for people, but most 

of the work is done with individual clients one-on-one, so they will 

meet with them in the evenings. If there are language issues, barriers, we have translators that are available to us. 

But we began to look at reassessing our delivery system and we 

have some pretty exciting ideas around utilizing our fellow neighborhood councils in North Minneapolis to help us do outreach and 

intake and to gain greater diversity among our staff. 

Ms. GUGIN. If I may, Counselor McCollum, I think what Sherrie 

has characterized in terms of availability of services, hours of operation is consistent across our network. I also—the Home Ownership Center and our counseling agencies are key players in the 

emerging markets homeownership initiative. So for the last couple 

of years we have really stressed culturally competent programming 

throughout the State of Minnesota. 

Right now we’re operating with four agencies in greater Minnesota under a past building grant actually from the USDARD to 

offer services to Spanish speaking residents. One of our key partners, Neighborhood Development Alliance which is located in St. 

Paul, offers Spanish speaking services throughout Minneapolis, St. 

38

Paul, and just recently was awarded some dollars to provide the 

service in Hennepin County as well. One of our other key partners 

is the African Development Center here in the Twin Cities, and 

they’re doing a great job not just here, but they’re trying to reach 

out to greater Minnesota areas as well. 

Ms. MCCOLLUM. Well, if you could provide me the evening—your 

hours. You know, how many hours you were open on evenings and 

weekends that aren’t continual. And another question before, and 

I noticed Mr. Marx, and I did ask Mr. Abed to respond, but out of 

the 60 percent of the foreclosures that you kept from happening, 

Ms. Sullivan, how many of them were subprime? 

Ms. SULLIVAN. I’d have to get you that number. 

Ms. MCCOLLUM. I believed it was— 

Ms. SULLIVAN. I’m Sullivan. Do you mean Julie? 

Ms. MCCOLLUM. I might have it in my notes—I was trying to 

take notes. 

Ms. SULLIVAN. I mean, we do work with a lot of subprime families who’ve had subprime products. I couldn’t give you the exact 

statistic. Last year we wrote over 100 loans in our community. Out 

of those granted, the majority of them are probably subprime products. But I’d have to get you the specific breakdown. 

Mr. MARX. Mr. Chairman, Ms. McCollum, I wanted to address 

your earlier question. One of the things that we are discovering of 

those who are confronting foreclosure is that oftentimes they will 

not respond to phone calls or letters, and that’s why we are initiating, with the additional resources that we’re freeing up, a much 

more targeted approach to foreclosure prevention. Actually thinking and really working with the community we want all your ideas 

to knock on doors, to go to churches so that people, before the letters come, before the calls come, we can predict generally what 

neighborhoods, very clearly, are going to be impacted, and we want 

to have that type of very targeted specific outreach to get to a problem before it is a significant problem and, hopefully resolved. 

Ms. MCCOLLUM. Mr. Abed, if you could answer my question, and 

then could you tell me, are you professionally bonded? 

Mr. ABED. Yes, Congresswoman McCollum, everyone in my office 

is. 

Ms. MCCOLLUM. Just in your office? 

Mr. ABED. You asked me—in the State as of 8/1/2007, they are 

required, or to meet a net worth through a audited financial and 

tangible liquid asset, yes. To answer your question from an association point of view regarding being able to service the different folks 

that we have to, we are currently seeking partnerships out with a 

variety of outside vendors because we are a volunteer organization 

and do not have that capacity ourselves. And so we are currently 

seeking those services as recently as this week actually. 

Ms. MCCOLLUM. Thank you. 

The CHAIRMAN. Let me follow up, Mr. Abed. You said that people 

should be held to a standard. Could you describe the standard to 

which you think people should be held? 

Mr. ABED. You know, we’re total— 

The CHAIRMAN. No. No. Just tell me what the standard is you 

think people should be required to abide by. 

Mr. ABED. I think a reasonable ability to pay is a good standard. 

39

The CHAIRMAN. So you would say that we should—that people 

should not make loans to people if they could not figure out that 

they had a reasonable ability to pay, that banning loans that people were unlikely to be able to pay them back would be a reasonable statutory standard? 

Mr. ABED. I think it’s irresponsible to lend to people that you 

knowingly and willingly, you know they cannot pay. 

The CHAIRMAN. I appreciate that, because that’s been somewhat 

controversial. That’s very helpful, because I think that is one of the 

things we’ve talked about, and I think putting that in the loan 

would be a useful thing. 

Mr. ABED. Can I add one thing? 

The CHAIRMAN. Yes. 

Mr. ABED. You know, I hope people understand that I know they 

believe things when they buy their first home and they buy any 

home they go to a point that may be an uncomfortable place for 

them, and one of the things we teach is it’s about the payment. 

The CHAIRMAN. Get to the point. 

Mr. ABED. It’s about the payment, not how much we could qualify you for. So the important part through the education process we 

believe is, it’s about the payment. 

The CHAIRMAN. That’s right. And that payment should include— 

Mr. ABED. Taxes and insurance. And we believe that. 

The CHAIRMAN. I understand that. And it also—and what the 

payment will be 3 years from now, not just what the payment will 

be for the first year. That’s very important and I appreciate that. 

The one thing you said that puzzled me though, you said with regard to documentation I thought I heard you say that people can 

tell you something, and you have to go by standard accounting procedures, even if you know that’s not true. I don’t think it’s true 

that you have to go by that if you know it’s not true. Would you 

elaborate? 

It seems to me that you were saying that sometimes you feel you 

have to accept income statements that you know aren’t true. I don’t 

know why you would have to accept those. 

Mr. ABED. No, we would not accept those. 

The CHAIRMAN. Well, what were you saying then? Did I misunderstand you? 

Mr. ABED. Some of the documents that we have from nontraditional income sources, it has to be a similarly reliable document 

that we could actually validate income, because sometimes that becomes very difficult. 

The CHAIRMAN. I thought you were saying that there were times 

when you had to, because of standards of accounting, accept things 

that— 

Mr. ABED. No. No. I think there are allowable things that are 

added back as far as that goes. 

The CHAIRMAN. I misunderstood. 

Mr. ABED. Thank you for clarifying that. 

The CHAIRMAN. Ms. Sullivan, with regard to the clerical report, 

my recollection is that now legislatively you can get a free copy of 

your credit report. Now, the point is that people have to resist 

when you get the free copy—don’t buy all the extras. They want 

to throw in all these extra things. But you are now by statute, 

40

which our committee passed under a public issue, and it was bipartisan, people are entitled to their credit report. 

We do have just one problem. If you get your credit report currently, and it shows that you owe a particular vendor something 

that you believe you don’t really owe, there is no procedure by 

which you can challenge that other than to ask the vendor to do 

his or her paperwork. And we are currently working with the Federal Trade Commission to get procedures in place for that. 

So it’s one thing to get your credit report, right now if you get 

it, and there is something on it you know is wrong, you don’t now 

have adequate access to a procedure, but you will have access pretty soon. 

The only other thing, let me make kind of a frontal statement 

summing up because I am impressed—well, let me say, that we 

can’t come to the Twin Cities without expressing our solidarity 

with you in your grief over this terrible tragedy that has befallen 

you, and it does seem to me that the common theme today is that 

the people here in Minneapolis and St. Paul have been the victim 

of two government failures. 

But government failures are to some extent collective failures. 

These are not mistakes made by one government official. These are 

mistakes made by our public in how we have approached things because we have been, in my judgement, not sufficiently aware of our 

capacity to come together to improve the quality of our lives. And 

when we do that, sometimes it’s called government. Government is, 

after all, the way in which we can act together. 

And let’s look at two examples. There are inadequate resources 

for maintaining our infrastructure, so a bridge collapses and people 

die. There is also inadequate regulation and financing to help people in lower income brackets, so we have the physical blight of the 

bridge and the economic blight of subprime, which in turn can lead 

to some physical blight. 

And I am struck by the commonality of the theme frankly bipartisan appointing to the governor, democratic mayors, this is the 

case where we may need some more government. Our friends in 

the mortgage practice want licensing. Who licenses? The Kiwanis 

Club doesn’t license you. The Boy Scouts don’t license you. The government licenses you. That’s an expansion of a government function. 

We heard from the commissioner that we need more money for 

Home and CDBG. That’s not voluntary contributions, that’s tax 

dollars. That’s the Federal Government spending tax dollars. I completely agree. And when the President vetoes our bill because we 

have too much money for Home and CDBG, I hope you guys will 

be there to help us override that veto. What we are talking about 

is that we have underestimated collectively our capacity to come together to make our lives better, and that sometimes means what 

we call government. Keith Ellison’s bill is an expansion of the government, and what Betty does in the Education and Labor Division 

is an expansion of the government. Yes, it is. 

And you know what, you cannot have a whole that is smaller 

than the sum of the parts. We want an increased role for the FHA, 

we were told that. As Ms. Sullivan heard me say earlier, our committee going forward has already voted out of the committee a bill 

41

to make the FHA what it used to be with more counseling, with 

it being a place where subprime loans can be gotten where you 

don’t need adjustable rates and prepayment because a settlement 

of the secondary market because you have FHA the mortgage guarantee. But that’s more government. The FHA is a government 

agency. CDBG is government tax dollars. Home is government tax 

dollars. 

Fixing a bridge is government tax dollars. That says the government should do everything. But you have to understand, you cannot be against government in general and cheer every time somebody says we’ll have less government and then expand the FHA 

and increase licensing requirements and ban loans that shouldn’t 

be banned and have more money for Home and more money for 

CDBG. So what we need to do is to better understand, I think, our 

collective capacity to improve our life. 

That’s the message I take away from this, and I thank you all 

very much for participating. 

Mr. ELLISON. Mr. Chairman, before we adjourn, I just want to—

on behalf of everybody here in Minnesota, thank you for coming 

out, and thanks for your work here. 

[Whereupon, at 8:39 p.m., the hearing was adjourned.] 

(43)

A P P E N D I X

August 9, 2007

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