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PROTECTING THE AMERICAN DREAM (PART II): 

COMBATING PREDATORY LENDING UNDER THE 

FAIR HOUSING ACT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON THE CONSTITUTION, 

CIVIL RIGHTS, AND CIVIL LIBERTIES 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

APRIL 29, 2010 

Serial No. 111–88 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

LUIS V. GUTIERREZ, Illinois 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

DANIEL MAFFEI, New York 

[Vacant] 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Majority Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON THE CONSTITUTION, CIVIL RIGHTS, AND CIVIL LIBERTIES

JERROLD NADLER, New York, Chairman 

MELVIN L. WATT, North Carolina 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

WILLIAM D. DELAHUNT, Massachusetts 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

TAMMY BALDWIN, Wisconsin 

JOHN CONYERS, JR., Michigan 

STEVE COHEN, Tennessee 

SHEILA JACKSON LEE, Texas 

JUDY CHU, California 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

TOM ROONEY, Florida 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

DAVID LACHMANN, Chief of Staff 

PAUL B. TAYLOR, Minority Counsel 

(III) 

C O N T E N T S 

APRIL 29, 2010 

Page 

OPENING STATEMENT 

The Honorable Jerrold Nadler, a Representative in Congress from the State 

of New York, and Chairman, Subcommittee on the Constitution, Civil 

Rights, and Civil Liberties .................................................................................. 1 

WITNESSES 

The Honorable Thomas E. Perez, Assistant Attorney General, Civil Rights 

Division, U.S. Department of Justice 

Oral Testimony ..................................................................................................... 6 

Prepared Statement ............................................................................................. 9 

The Honorable A C Wharton, Jr., Mayor, Memphis, TN 

Oral Testimony ..................................................................................................... 25 

Prepared Statement ............................................................................................. 27 

Mr. Roger Clegg, President and General Counsel, Center for Equal Opportunity 

Oral Testimony ..................................................................................................... 138 

Prepared Statement ............................................................................................. 141 

Ms. Gillian N. Miller 

Oral Testimony ..................................................................................................... 149 

Prepared Statement ............................................................................................. 152 

Mr. Gary Klein, Roddy, Klein & Ryan 

Oral Testimony ..................................................................................................... 159 

Prepared Statement ............................................................................................. 162 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable F. James Sensenbrenner, Jr., a Representative in Congress from the State of Wisconsin, and Ranking Member, 

Subcommittee on the Constitution, Civil Rights, and Civil Liberties ............. 2 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Chairman, Committee on the 

Judiciary, and Member, Subcommittee on the Constitution, Civil Rights, 

and Civil Liberties ............................................................................................... 3 

Prepared Statement of the Honorable Henry C. ‘‘Hank’’ Johnson, Jr., a Representative in Congress from the State of Georgia, and Member, Subcommittee on the Constitution, Civil Rights, and Civil Liberties .................... 4 

Material submitted by the Honorable Robert C. ‘‘Bobby’’ Scott, a Representative in Congress from the State of Virginia, and Member, Subcommittee 

on the Constitution, Civil Rights, and Civil Liberties ...................................... 194 

APPENDIX 

Material Submitted for the Hearing Record .......................................................... 281 

(1) 

PROTECTING THE 

AMERICAN DREAM (PART II): 

COMBATING PREDATORY LENDING 

UNDER THE FAIR HOUSING ACT 

THURSDAY, APRIL 29, 2010 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON THE CONSTITUTION,

CIVIL RIGHTS, AND CIVIL LIBERTIES, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 1:45 p.m., in room 

2141, Rayburn House Office Building, the Honorable Jerrold Nadler (Chairman of the Subcommittee) presiding. 

Present: Representatives Nadler, Conyers, Scott, Johnson, and 

Chu. 

Staff Present: (Majority) Michelle Millben, Counsel; Elliott 

Mincberg, Counsel; and Paul Taylor, Minority Counsel. 

Mr. NADLER. This hearing of the Subcommittee on the Constitution, Civil Rights, and Civil Liberties will come to order. I am sorry 

we were delayed by the votes on the floor. 

The Chair will begin by recognizing myself for an opening statement. 

Today’s hearing continuing the Subcommittee’s review of the 

Fair Housing Act and its enforcement by the Department of Justice. In this hearing, we will be looking at predatory lending practices that have targeted minority communities and borrowers. 

I am pleased that Assistant Attorney General for Civil Rights, 

Tom Perez, has joined us today to discuss the Civil Rights Division’s enforcement initiatives in this area. It is really refreshing to 

have a seasoned civil rights lawyer who believes in the Division’s 

mission at the helm again. 

Years ago, minority communities were denied credit under a policy called redlining, in which individuals who lived in those communities were denied credit not on the basis of their creditworthiness but on the basis of their race. The term came from the practice of simply drawing a red line around the minority neighborhood 

and refusing to lend in that area. 

In addition to being unfair to individual borrowers who were otherwise qualified for loans on an equal basis as White borrowers, 

redlining destroyed whole communities around the country. Fortunately, States and Federal Government enacted fair lending laws 

to outlaw this practice. 

2 

What we witness today, however, is something called reverse 

redlining, a mortgage brokerage or bank’s practice of systematically 

singling out minority borrowers in neighborhoods for loans with inferior terms such as high up-front fees, high interest rates, or lax 

underwriting practices. 

It seems that everything old is new again. Here we are again 

looking at the impact of discriminatory lending practices on families and communities, but what we are now looking at is not the 

refusal to lend in those areas or to those people, it is the refusal 

to give normal loans. It is steering people into subprime and more 

expensive loans with inferior terms in the areas in effect or the 

groups that used to be red lined. 

What is most pernicious about the more recent practice is that 

the banks figured that they can make more money through predatory lending than they can by simply refusing to lend altogether. 

The geographic pattern is the same. Whether you look at a map of 

Memphis or Boston or Baltimore or Brooklyn, the pattern is disturbing; and anyone who knows his or her city knows exactly who 

is targeted. 

We know the results of the wave of subprime lending: foreclosures, destroyed lives, destroyed credit, destroyed communities, 

and a destroyed financial system. These people are the human face 

of the unrestrained subprime lending spree. And what is most disgraceful is that it did not have to happen. Many people who were 

sold subprime mortgages could easily have qualified for conventional mortgages, but they were not offered conventional mortgages 

or they were steered into subprime mortgages because of their race 

or their location. 

In addition to hearing about the problem and about how the 

courts and the Justice Department are attempting to address the 

harm, I hope to hear from our witnesses today what more we can 

do to provide the tools necessary to prevent this outrage from occurring in the future. 

I want to welcome our distinguished panels of witnesses, and I 

look forward to your testimony. 

I yield back the balance of my time. 

In the interest of proceeding to our witnesses and the absence of 

the distinguished Ranking Member, mindful of our busy schedules, 

I ask that other Members submit their statements for the record. 

Without objection, all Members will have 5 legislative days to 

submit opening statement for inclusion in the record. 

[The prepared statement of Mr. Sensenbrenner follows:] 

PREPARED STATEMENT OF THE HONORABLE F. JAMES SENSENBRENNER, JR., A REP- RESENTATIVE IN CONGRESS FROM THE STATE OF WISCONSIN, AND RANKING MEM- BER, SUBCOMMITTEE ON THE CONSTITUTION, CIVIL RIGHTS, AND CIVIL LIBERTIES

The Obama Justice Department has made it clear it intends to follow the Clinton 

Administration and file more lawsuits under what is called the ‘‘disparate impact’’ 

theory. Disparate impact lawsuits challenge practices that lead to statistically worse 

results for a particular group relative to other groups without alleging that the practice is actually discriminatory in its terms, design, or application. That is, disparate 

impact lawsuits claim there is discrimination when there is often no discrimination 

at all under any reasonable definition of the term. 

Disparate impact theories arose out of Title VII of the Civil Rights Act of 1964, 

which was designed to protect individuals from intentional discrimination in employment. The Senate floor managers of Title VII, Senators Clifford Case and Joseph Clark, made clear that Title VII prohibited only intentional discrimination, and 

3 

that it did not require statistical parity in hiring. In their exhaustive memorandum 

distributed prior to Senate debate on the bill, the Senators wrote ‘‘There is no requirement in title VII that an employer maintain a racial balance in his work force.’’ 

This was reiterated by Senator Hubert Humphrey, who said ‘‘If [a] Senator can find 

in title VII . . . any language which provided that an employer will have to hire 

on the basis of percentage or quota related to color, race, religion, or national origin, 

I will start eating the pages one after another, because it is not there.’’ 

But then Alfred Blumrosen, the Equal Employment Opportunity Commission’s 

first chief of compliance, admitted in a law review article years later that he employed ‘‘[c]reative administration’’ to draft regulations under Title VII allowing disparate impact claims. He admitted that those regulations did not ‘‘flow from any 

clear congressional grant of authority.’’ Subsequently, the courts often upheld disparate impact claims even without the grant of congressional authority, and different Congresses have from time to time codified them in one way or another in 

other contexts that require businesses that are not engaging in discriminatory treatment to ensure their products are sold in racially proportionate ways. 

The abuse of the disparate impact theory in courts has had real-world consequences. There were many pressures on mortgage lenders to relax the standards 

under which loans were extended in the 1990’s. But one factor was the Clinton Administration Justice Department’s aggressive pursuit of disparate impact claims in 

which it sought to prosecute entities whose mortgage lending policies did not intentionally discriminate, but only had a disparate impact on one group or another. 

In 1998, for example, Clinton Administration Housing Secretary Andrew Cuomo 

announced the results of a federal lawsuit settlement in which a bank was made 

to extend $2 billion in loans to people who posed a greater credit risk. Secretary 

Cuomo even admitted during a press conference televised on C-Span that ‘‘the 2.1 

billion, lending that amount in mortgages, will be a higher risk and I’m sure there’ll 

be a higher default rate on those mortgages than on the rest of the portfolio.’’ 

A leading article published in the Banking Law Journal at the time made clear 

that ‘‘Lenders relying on written standards and criteria in making decisions as to 

whether to grant a residential mortgage loan application run the risk of exposure 

to liability under the civil rights law doctrine known as disparate-impact analysis 

. . . Several underwriting guidelines that are fairly common throughout the mortgage lending industry are at risk of disparate-impact analysis [including] creditworthiness standards.’’ 

These lawsuits pressured lenders to bend traditional and time-tested accounting 

rules and extend more mortgages to many who could not afford them. These relaxed 

lending standards are now widely regarded as being a prime cause of the current 

financial crisis. Even the Washington Post editorialized that ‘‘the problem with the 

U.S. economy . . . has been government’s failure to control systemic risks that government itself helped to create. We are not witnesses a crisis of the free market but 

a crisis of distorted markets . . . [G]overnment helped make mortgages a purportedly sure thing in the first place.’’ 

As one economist wrote recently in the Wall Street Journal: 

. . . [T]he focus on subprime [mortgages] ignores the widely available industry 

facts (reported by the Mortgage Bankers Association) that 51% of all foreclosed 

homes had prime loans, not subprime, and that the foreclosure rate for prime 

loans grew by 488% compared to a growth rate of 200% for subprime foreclosures ... The suggestions being put forward by the administration and most 

media outlets—more stringent regulation of subprime lenders—would not have 

prevented the mortgage meltdown regardless of their merit otherwise. Rather, 

stronger underwriting standards are needed ... But to do so political leaders 

must face up to the actual causes of the mortgage crisis, not fictitious causes 

that fit political agendas and election strategies. 

In our efforts to enforce the nation’s housing laws, I hope we do not repeat past 

mistakes. I look forward to hearing from all our witnesses today. 

[The prepared statement of Mr. Conyers follows:] 

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, CHAIRMAN, COMMITTEE ON THE JUDICIARY, AND MEMBER, SUBCOMMITTEE ON THE CONSTITUTION, CIVIL RIGHTS, AND

CIVIL LIBERTIES

Compelling evidence demonstrates that banks and mortgage companies have committed prohibited practices of predatory lending and reverse redlining targeted at 

4 

1 NAACP, Discrimination and Mortgage Lending in America (March 2009) at 5. 2See ‘‘Foreclosure activity increases 7 percent in first quarter,’’ Realty Trac (April 15, 2010); 

‘‘Michigan foreclosure rate is nation’s sixth highest,’’ Detroit News (April 16, 2009). 3 Applied Research Center, Race and Recession (May, 2009) at 39. 4See Race and Recession at 35. 

minority communities across the country. The very same people victimized by redlining—the refusal to provide conventional loans in minority neighborhoods—are 

now victimized by reverse redlining—efforts to steer minority residents of those 

same neighborhoods towards high cost subprime or other predatory loans. These 

practices have played a key role in fueling the home foreclosure crisis and devastating communities of color across our nation. 

For example, take my home state of Michigan. The NAACP has reported that 

70.7% of subprime loans in Michigan in 2006 went to African-Americans.1 In 2009 

and the first quarter of 2010, Michigan had the sixth highest foreclosure rate in the 

country.2 And as a 2009 study by the Applied Research Center found, Detroit neighborhoods with ‘‘high proportions of people of color have the highest foreclosure 

rates.’’ 3

Listen to what a Detroit attorney who has worked on foreclosure and predatory 

lending issues has to say. I would like to place in the record, with unanimous consent, the full statement of attorney Vanessa G. Fluker. She explains that: 

‘‘In my practice, which unfortunately now consists almost solely of predatory lending and foreclosure matters, the vast majority of my clients are the poor, minorities, 

and senior citizens over the age of 75 years old, who initially owned their home outright until steered into ARMs, despite the fact that they were on a fixed income, 

and now face foreclosure and homelessness.’’ 

As we will hear today and as Ms. Fluker states, there are real people behind 

these statistics and these concerns. For example, Mrs. Mallory, an African American 

grandmother on a fixed income in Detroit, wanted to take out a $4000 home equity 

loan to pay for a new furnace for her house. She had lived in that house for almost 

20 years and had almost finished paying for it. But she was pushed by a loan company broker to instead take out a larger loan, which he insisted she would have no 

trouble paying back. That was true for six months, but then the rate jumped way 

up, as so many predatory loans do. Soon her house was put into foreclosure.4

We will hear today about more stories like Mrs. Mallory’s, and about efforts to 

get justice for victims like her. As we listen to today’s testimony, three important 

issues should be considered. 

First, what is our federal Department of Justice doing about this serious problem? 

Previous hearings by our Committee have found that the Department was not vigorously and effectively enforcing fair housing laws, particularly with respect to predatory lending. We have all been gratified to hear the public announcements this year 

and last that the Department will take effective action. We look forward to hearing 

the details today from Assistant Attorney General Perez of the Civil Rights Division. 

Second, I applaud the efforts of private attorneys and cities like Memphis to pursue fair housing claims against lenders charged with reverse redlining and predatory lending practices. But individual lawsuits are not enough. What can be done 

to better coordinate efforts at the federal, state, and local level to use the fair housing act to combat predatory lending? 

Third, what can and should Congress do? Earlier this month, the Fair Housing 

Act, which I was proud to help through Congress in 1968, celebrated its forty-second 

birthday. Are any changes needed in the law? Would more hearings like this one 

be helpful? Are there particular programs that Congress should appropriate funds 

for to better combat predatory lending? 

I join Chairman Nadler in welcoming all our witnesses today and look forward 

to their testimony and their answers to these questions. 

[The prepared statement of Mr. Johnson follows:] 

PREPARED STATEMENT OF THE HONORABLE HENRY C. ‘‘HANK’’ JOHNSON, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF GEORGIA, AND MEMBER, SUB- COMMITTEE ON THE CONSTITUTION, CIVIL RIGHTS, AND CIVIL LIBERTIES

Thank you, Mr. Chairman, for holding this hearing and giving Members the opportunity to examine the enforcement of the Fair Housing Act, the effect of 

subprime and predatory lending on the foreclosure crisis, and the work of the Justice Department’s Civil Rights Division of its Fair Lending Unit. 

5 

All Americans have the right to be treated equally and free from discrimination. 

We must ensure that our fair housing laws are strictly enforced to protect everyone, 

especially the most vulnerable, in our society. 

Although we have come a long way, many Americans still live in communities 

largely divided by race and ethnicity. Minorities have been disproportionately affected by the recent subprime mortgage crisis that has resulted in many families 

losing their homes, and their sense of well-being. 

Minorities with much lower home ownership rates have been struggling to become 

part of the home-owning middle class. Unfortunately, subprime lenders have taken 

advantage of that want and desire. 

Home Mortgage Disclosure Act data has shown that African-American and Latino 

borrowers were far more likely to receive subprime loans than white borrowers. 

There is increasing evidence that the causes of the foreclosure crisis include mortgage fraud, predatory lending, discriminatory lending, and reverse redlining practices. 

This issue is near and dear to my heart as Georgia ranks 8th in the nation for 

mortgage fraud. This is troubling as mortgage fraud played a big role in setting the 

housing crisis in motion, with mortgage professionals listing false income claims for 

borrowers, and overstating a home’s appraised value. 

I am especially appalled at the reverse redlining practice. In reverse redlining, 

banks have systematically singled out minority neighborhoods for loans with terms 

like high up-front fees, high interest rates, and lax underwriting practices. 

I am anxious to hear from our witnesses today. The U.S. is already on course to 

lose more than a million homes to foreclosure this year, I want to know the steps 

that the Justice Department and HUD are taking to prevent predatory lending, and 

ensure that the Fair Housing Act is effectively enforced. 

I look forward to hearing from our witnesses today and yield back. 

Mr. NADLER. Without objection, the Chair will be authorized to 

declare a recess of the hearing, which I anticipate doing only if 

there are votes on the floor necessitating such action. 

We turn to our first panel of witnesses numbering exactly one, 

one witness. As we ask questions of our witness, the Chair will recognize Members in the order of their seniority in the Subcommittee, alternating between the two parties, provided the Member is present when his or her turn arrives. The Chair reserves the 

right to accommodate a Member who is unavoidably late or only 

able to be with us for a short time. 

Our first panel consists of the Assistant Attorney General for the 

Civil Rights Division, Tom Perez, who was nominated by President 

Obama to serve in that position and was sworn in on October 8, 

2009. Mr. Perez previously served as Secretary of Maryland’s Department of Labor, Licensing, and Regulation, which protects consumers through the enforcement of a wide range of consumer 

rights laws, including the mortgage setting. From 2002 until 2006, 

he was a member of the Montgomery County Council. 

Earlier in his career, he spent 12 years in Federal public service, 

most of them as a career attorney with the Civil Rights Division. 

Mr. Perez later served as Deputy Assistant Attorney General for 

Civil Rights under Attorney General Janet Reno. He received a 

bachelors degree from Brown University, a masters of public policy 

from the John F. Kennedy School of Government and a juris doctorate from Harvard Law School. 

I am pleased to welcome you. Your written statement in its entirety will be made a part of the record, and I would ask you summarize your testimony in 5 minutes or less. 

And in case the members of the second panel are listening, I will 

ask them to do the same thing, and I will not repeat this 

boilerplate the second time. 

6 

To help you stay within your time, there is a timing light at your 

table. When 1 minute remains, the light will switch from green to 

yellow and then red when the 5 minutes are up. 

Before we begin, it is customary for the Committee to swear in 

its witnesses. If you would please stand and raise your right hand 

to take the oath. 

[Witness sworn.] 

Mr. NADLER. Let the record reflect the witness answered in the 

affirmative. You may be seated, and you are recognized for 5 minutes for an opening statement. 

TESTIMONY OF THE HONORABLE THOMAS E. PEREZ, ASSISTANT ATTORNEY GENERAL, CIVIL RIGHTS DIVISION, U.S. DEPARTMENT OF JUSTICE 

Mr. PEREZ. Thank you, Mr. Chairman. It is always a pleasure to 

be in front of your Committee, and good afternoon to the other 

Members your Committee and Ranking Member Sensenbrenner. 

We are all by now well aware that the nationwide housing crisis 

that has been a significant factor contributing to our Nation’s economic unrest was fueled in large part by risky and irresponsible 

lending practices that allowed too many Americans to get 

unsustainable or unaffordable home loans. This crisis has overwhelmed families and communities of all kinds, but communities 

of color have been hit particularly hard. 

A study of foreclosures in the New York region by the New York 

Times that looked at neighborhoods with mortgage default rates of 

at least twice the national average found that 85 percent of those 

neighborhoods have a majority of African American or Latino 

homeowners. The same study noted that an African American 

household in New York City making more than $68,000 a year was 

almost five times more likely to have a subprime loan than similarly situated White people. 

Home Mortgage Disclosure Act data has shown that African 

American and Latino borrowers were far more likely to be put in 

subprime loans, often without correlation to their creditworthiness. 

The more segregated that a community of color is, the more likely 

it is that homeowners who live there will face foreclosure because 

the lenders who peddled the most toxic loans targeted those communities. The result is a large number of foreclosures in close proximity to each other, with devastating consequences to communities. 

As a local elected official and then the State Secretary in charge 

of the department that oversaw the State-wide financial industry, 

I saw the realities of lending discrimination from the front row. I 

had the opportunity to work on solutions at the State level, and we 

did pass a sweeping package of reforms. But our reach was limited 

because large national players are not subject to State regulation. 

Perhaps the biggest lesson learned as a local and State official 

trying to address this crisis was that Federal oversight and enforcement is absolutely critical to ensuring responsible, nondiscriminatory lending. It is for this reason that we have established a fair 

lending unit in the Civil Rights Division. 

Both career attorneys, who have been there a while, and new 

hires will staff the unit, which will also have dedicated professional 

staff including economists and statisticians to assist in the work of 

7 

this unit. The unit is focusing on the entire range of discriminatory 

practices seen in the market. 

We have currently have 39 open matters involving large, midsize, 

and small lenders, national lenders, regional lenders, local lenders. 

No single case will capture the full range of discriminatory conduct 

occurring in the mortgage market. However, what you see is a series of cases, each one targeted at specific discriminatory practices. 

We expect to see cases, for instance, that examine the following: 

discrimination in the underwriting and pricing of loans such as discretionary markup and fees, redlining through the failure to provide equal lending services to minority neighborhoods, reverse redlining through the targeting of minority communities for predatory 

loans, steering minority borrowers into less favorable terms such as 

the case that I will describe later, marital status, gender, and age 

discrimination in lending. 

Last month, we announced a settlement with two subsidiaries of 

AIG resolving a lawsuit that alleged that African American borrowers nationwide were charged higher fees on wholesale loans 

made by the lenders through contracted brokers. The $6.1 million 

settlement marked the largest amount for damages for identified 

victims in a fair lending settlement ever secured by the Division, 

and the case marked the first time that the Department has held 

a lender accountable for failure to monitor brokers’ fees to insure 

that the fees are not being charged in a racially discriminatory 

manner. 

Lenders had previously argued that they could not be held accountable for the discriminatory practices of brokers. That is incorrect, and this case sent an important signal of our direction in this 

area. 

The unit’s work will not focus solely on mortgage lending. We are 

committed to tackling discrimination in auto loans and other areas 

of consumer credit as well as in business lending. 

Additionally, we are ramping up enforcement of the Servicemember’s Civil Relief Act, which dictates that creditors may not 

take action to foreclose a lien against a servicemember on active 

duty without first obtaining a court order. We have two cases involving foreclosures against active duty servicemembers without a 

court order and also a number of cases involving unlawful repossession of cars belonging to servicemembers. This work is a part of a 

larger, Administration-wide effort to crack down on financial fraud 

so that we can eradicate those practices that helped lead to the financial meltdown. 

The President’s Financial Fraud Enforcement Task Force is fostering unprecedented interagency collaboration, a critical need in 

the face of this unprecedented crisis. I am a co-chair, along with 

the HUD and the Fed, of the Task Force’s Nondiscrimination 

Working Group. Our relationship with HUD is especially critical to 

ensuring effective enforcement, and we have been working closely 

with our counterparts there. We have regular meetings that involve career staff in addition to political leaders so that the resulting collaboration will be institutionalized as part of our agencies’ 

respective cultures. 

8 

We are also working with State officials. I spent a good part of 

last week with the Attorney General of Illinois working on a number of fair lending issues. 

Referrals from banking regulatory agencies are a key component 

of our fair lending enforcement program, and through our relationships with these agencies we will continue to ensure that we receive a steady flow of referrals and that we collaborate so that 

problems identified in these referrals can be addressed expeditiously. 

We also are working with our partners to identify potential fair 

lending violations where much of the lending is occurring today, 

and that is the mortgage modification context. We will be getting 

data soon from the Home Affordable Modification Program 

disaggregated by race and ethnicity, and our work group will be 

collaborating to analyze that and to hold wrongdoers accountable. 

There are some who claim that aggressive enforcement of the 

civil rights laws in the fair lending context will hurt the very people that we are trying to help and dampen the business climate. 

I have heard that argument many times, and I must confess this 

has not been my experience. Common sense consumer protection 

and promoting a sound climate for lending go hand in hand. The 

absence of effective consumer protections and the dearth of meaningful Federal enforcement in recent years not only hurt communities but brought about staggering losses in the industry. 

Through our efforts and partnerships, the Civil Rights Division 

will continue to ramp up fair lending enforcement to ensure that 

all Americans have equal access to credit without which the promise of equal opportunity remained unfulfilled. 

Thank you, Mr. Chairman, for the opportunity to be here; and I 

welcome any questions that you or other Members of the Committee might have. 

[The prepared statement of Mr. Perez follows:] 

9 

PREPARED STATEMENT OF THOMAS E. PEREZ


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Mr. NADLER. I thank you, and I will begin the questions by recognizing myself for 5 minutes. 

Mr. Assistant Attorney General, the Fair Housing Testing Program was established within the Civil Enforcement Section of the 

Civil Rights Division in 1992 to assist with the Department’s fair 

housing enforcement activities. Testing, according to the DepartVerDate Aug 31 2005 11:33 Jun 30, 2010 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6601 H:\WORK\CONST\042910\56181.000 HJUD1 PsN: 56181

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ment, can be a valuable tool to investigate housing market practices and to document illegal housing discrimination. 

Two years ago, the Department of Justice testified that in 2006 

they were improving and expanding the Fair Housing Testing Program; and they testified further 2 years ago that the tests were 

producing new cases and significant results. Can you describe the 

effectiveness of testing? 

Mr. PEREZ. Our testing program has been very, very effective. 

There is a case in Atlanta involving Coldwell Banker in which we 

used testers to uncover steering by real estate agents. And, among 

other things, the real estate agent, when he first met the person, 

he had said that he wasn’t sure where to take him to look at potential homes because: I couldn’t tell—and I am quoting—I didn’t 

know if you were a Caucasian or not over the phone. So he did not 

know where to take that person. And the testing—— 

Mr. NADLER. He said that out loud? 

Mr. PEREZ. Oh, yes. And then we had another case in Alabama 

involving a rental in which the rental agent said to the White tester: You will love this place. There are no Black people here. Quote, 

unquote. 

So our undercover testing is a very, very important tool to eradicate discrimination. And, regrettably, a lot of the discrimination we 

see is not very subtle. Those two cases are illustrations of the fact 

that it is not very subtle, and that is why we will continue to have 

a robust testing program. Because it does enable us—— 

Mr. NADLER. Have you expanded the testing program and can 

you cite improvements since the new Administration took over? 

Mr. PEREZ. Yes, I think what we are trying to do and what we 

have succeeded in doing—first of all, we reestablished partnerships 

with fair housing groups. There was very little communication with 

fair housing groups. These are the boots-on-the-ground groups, and 

they enable us—for instance, I was in Birmingham, Alabama, 

about 2 weeks ago; and I heard from fair housing groups, here are 

some areas where we believe your testers should focus because this 

is what we have learned. What I found was that we were doing, 

frankly, a lot of testing, but I am not sure we were deploying our 

resources—— 

Mr. NADLER. In the right areas. 

Mr. PEREZ [continuing]. As smart as possible because we didn’t 

have those relationships with the frontline people who can help us. 

So what we are doing I think better now is the strategic deployment of our resources in an evidence-based fashion so that we can 

yield better results from tests that we do. 

Mr. NADLER. Thank you. 

In the past, Members of this Committee have expressed concern 

over the types of cases being pursued by the Department. Data 

suggests that the Department of Justice’s enforcement of traditional civil rights cases sharply declined during the previous Administration. In the context of fair housing enforcement, DOJ filed 

fewer fair housing cases in 2007 and 2006 in comparison to previous years: 35 fair housing cases in 2007, 31 in 2006, compared 

to 42 in 2005, and down from 53 in 2001. 

In order to continue the rebuilding of the Civil Rights Division, 

can you talk very briefly about the professional credentials and 

16 

backgrounds of the attorneys and the individuals? For example, 

how many attorneys have extensive experience in complex litigation? 

Mr. PEREZ. Sir, thanks to your leadership and the leadership of 

the President and the Attorney General, we have 102 new positions 

in the Civil Rights Division in fiscal year 2010. So your question 

is very timely, because the housing section is getting a significant 

complement of those new resources, and we have hired people who 

have extensive experience in fair lending. We are hiring people who 

have extensive experience in zoning. What we are finding is that 

a lot of the discriminatory barriers we are seeing in 2010 relate to 

zoning laws that are really subterfuges for discrimination. 

And, frankly, the other thing we are doing, in addition to hiring 

remarkable people—and we have something like 500 applicants, 

Mr. Chairman, for roughly 8 or 10 attorney slots. And in addition 

to bringing in the new people we have got some remarkable people 

who were there throughout and done great work. And then, equally 

importantly, we are using every available tool in our arsenal. 

The AIG case I described was a case in which we used our disparate impact theory, which is a theory that every circuit in the 

Nation that has ruled on has ruled is a viable theory. That theory 

was not allowed to be put forward in those cases, and now we are 

using all of our arrows in our quiver. 

Mr. NADLER. Okay. Thank you. 

My time is going to run out shortly. I want to ask one more question on the question of discriminatory lending practices. 

In New York City, African American homeowners making more 

than $68,000—we are not taking about poor people here—were almost five times as likely to hold high-interest mortgages in comparison to Whites with similar or even lower incomes. An even 

greater disparity was reflected among Wells Fargo borrowers in 

New York, with subprime mortgages assigned to 16 percent of African Americans and 2 percent of Whites, again people making more 

than $68,000. 

The Chicago Reporter found that, quote, African Americans earning $100,000 a year or more were three times more likely than 

their White counterparts to get high-cost loans, closed quote. 

The Wall Street Journal reports that, of subprime loan borrowers 

generally, by the end of 2006 61 percent of such borrowers had 

credit scores that were high enough to qualify for conventional 

loans with better terms. 

In your opening remarks, you discussed cases and investigations 

involving minorities paying more for loans than White borrowers or 

being steered into subprime loans. Can you discuss, first, why that 

would happen? Why are we seeing minority people who are capable 

financially, who have good credit scores and good incomes, who are 

capable of taking standard, relatively low-interest loans, why are 

they being steered into subprime loans and higher loans? And why 

is this happening and what can you do about it? 

And, A, why is it happening; two, what can you do about it; and, 

three, do you have any recommendations about what Congress 

might do to enhance your enforcement capabilities? 

17 

Mr. PEREZ. Why is it happening? Because you can make more 

money by steering people into these toxic products that will give 

you a higher commission. 

Mr. NADLER. Of course, if you are a major bank, you can make 

more money by steering people into toxic—into these products. But 

why the racial discrimination? I am out to exploit people. Why 

should I care if they are Black or White? Why don’t I exploit everybody if I can get away with it? 

Mr. PEREZ. Frankly, what we see in the lending context is we see 

behavior that that is predatory. Certain unscrupulous lenders are 

targeting everyone and anyone that they can bamboozle. We see 

behavior that is fraudulent. We see behavior that is discriminatory, 

that is targeting minority communities. So not all—when we talk 

about the wide panoply of abuses, some of the abuses are indeed 

predatory. They are equal opportunity. 

Mr. NADLER. Equal opportunity terrible? 

Mr. PEREZ. Yes, and some of the behavior is discriminatory, targeting low-income communities; and part of that targeting is you 

get somebody into a bad loan and then it is the gift that keeps on 

giving. Because a year later you come back to them and say, you 

know, that loan, I don’t know if it is sustainable. Why don’t we refinance? And then you get another set of fees. And given the 

securitization, the day after the loan is closed the broker has made 

their money; and it does not matter whether it is a sustainable 

loan. So that is part of the why. 

The what are we doing? We are doing quite a lot. You saw the 

AIG case. We have investigations ongoing against large and small 

borrowers. We have the national, State, and local borrowers—lenders, I should say. We have the capacity to do the regression analyses. 

Because what we often hear from critics is that, well, minority 

communities have problems with credit scores and things of that 

nature. And what we have found through the work that we have 

done is that when you control for all of those things, there is still 

discrimination at work. 

Your point about upper-income African Americans, it is true in 

New York. It is true where I live in Montgomery County, which is 

one of the 10 or 12 wealthiest counties in the United States. And 

we did the same analysis when I was on the county council there. 

It is very troubling problem. 

The last question about what to do, there are two issues I would 

like to bring to your attention, one of which relates to fair lending. 

When the alphabet soup of regulators, OCC, et al., are conducting 

reviews, they have the ability to subpoena documents. When HUD 

is conducting a review, they have the ability, pre-complaint, to subpoena documents. The only entity who has enforcement authority 

that does not have that similar subpoena power is the Civil Rights 

Division. So I would simply make that observation. 

Second observation I would make relates to how technology has 

not kept pace—civil rights laws have not kept pace with technology. If you go on line—and a lot of people will now rent their 

apartments or try to get loans, et cetera, through the Internet or 

through Craigslist or all of those various entities, and we don’t 

have authority under our tools to do that because the CommunicaVerDate Aug 31 2005 11:33 Jun 30, 2010 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6601 H:\WORK\CONST\042910\56181.000 HJUD1 PsN: 56181
18 

tions Decency Act exempts them. And there are a couple of Court 

of Appeals cases that say that Craigslist—the Fair Housing Act 

doesn’t apply to Craigslist. 

Mr. NADLER. So we ought to amend the law to simply extend the 

jurisdiction of the Fair Housing Act and the Fair Credit Act to 

some of these other things? 

Mr. PEREZ. That would enable us to have a level playing field to 

root out—— 

Mr. NADLER. We will be talking to you about this. Thank you 

very much. I have exceeded my time. 

The gentleman from Virginia is recognized. 

Mr. SCOTT. Good afternoon. 

I would like to follow up briefly on Craigslist. Is there a threshold number of units you have to have—be renting to be under the 

Fair Housing Act? 

Mr. PEREZ. Not for statements. So if you have a statement that 

says, no people with children need apply, it doesn’t matter whether 

you have a 10-unit building or you have the garden apartment in 

the basement. 

Mr. SCOTT. Okay. You mentioned testing for real estate agents. 

Do you test on loans? Have testers go in and try and get a loan, 

somebody else similarly situated, variable only being race with a 

credit score being virtually identical to see what the difference 

looks like? 

Mr. PEREZ. We have authority to go in pre-application and test. 

If you attempt to do post-application testing, there are Federal 

laws that create barriers, in other words, the law being lying on 

an application. So that law does not prevent pre-application testing. In fact, pre-application testing can be very, very effective. It 

was used in the past in the Division, as I understand it; and it’s 

one of the strategies that we are contemplating now in our fair 

lending work. But it has to be pre-application testing. 

Mr. SCOTT. You mentioned mortgage fraud—or the fraudulent 

way they are doing business. One of the things about these no— 

these recourse loans where the mortgage broker does it and 

securitizes it and they get out of it, there is a period of time where 

the person who buys the mortgage does have recourse. If they don’t 

pay it off right off the bat, the mortgage broker might get stuck 

with the loan, and it might come back. 

One of the things they have done to get past this little period is 

to have these teaser rates where the borrower actually pays a teaser rate a couple of months, gets past the recourse, and then when 

it gets jacked up, obviously, they never could have paid it. Is there 

something inherently fraudulent about that practice? 

Mr. PEREZ. I think every case is case specific, and I think the key 

to those situations is you need to qualify the person not at the teaser rate but at the rate that it will go up to. 

Mr. SCOTT. They obviously don’t qualify for the jacked-up rate, 

but they don’t care. Because if they can get them past the period 

of time with the teaser rate during that period of time, then there 

is no recourse and it is not their problem. Isn’t that inherently 

fraudulent? 

Mr. PEREZ. I think it is irresponsible. And whether it rises to the 

level of fraudulent I think is a case-specific determination. But we 

19 

tried very hard in Maryland to ensure that when you are trying to 

qualify someone that you are not qualifying them at these teaser 

rates, because those are invitations for failure. 

Mr. SCOTT. Does the mortgage broker have any fiduciary duty to 

the borrower? 

Mr. PEREZ. It often depends on what State you live in. Some 

States have a duty of good faith and fair dealing. The various duties basically are a State-by-State issue. And one of the—— 

Mr. SCOTT. Is there any way we can do this federally? Because 

if the broker has no fiduciary duty, his incentive is just to rip them 

off the best you can. If there is a fiduciary duty, you can’t do that. 

Mr. PEREZ. We have seen a lot of activity vis-a-vis brokers, and 

the majority of brokers are responsible. But there are a sufficient 

number of bad apples. That I think is an area where regulation is 

appropriate. 

Mr. SCOTT. Is there anything in Federal law, regulation, in terms 

of subprime loans that Congress encouraged in any way banks to 

get into this in such a way that it contributed to the economic collapse? There is some suggestion that because banks felt compelled 

to make these loans that were not getting paid back that that was 

the cause of the economic collapse. 

Mr. PEREZ. Well, I have heard it often said, and I heard this as 

recently as a week ago, the Community Reinvestment Act is the 

main reason or one of the main reasons why we have seen the crisis that we have seen. And, frankly, the evidence doesn’t support 

that. The Community Reinvestment Act was originally passed, I 

believe it was, in 1977; and if indeed that was the impetus then 

we should have seen a problem 10, 20 years ago. 

In fact, the evidence shows that the loans that have been underwritten under the Community Reinvestment Act are some of the 

most solid loans we have seen. And, in addition, the large lenders, 

like Countrywide and others that were most responsible for the 

meltdown, are not even subject to the Community Reinvestment 

Act. 

So that has really proven in my judgment, and I think the evidence demonstrates it, that that whole Community Reinvestment 

Act was the problem is the quintessential red herring. 

Mr. SCOTT. Are Community Reinvestment Act loans set aside— 

can you tell which ones were made pursuant to the Community Reinvestment Act so they can be individually or as a category evaluated? 

Mr. PEREZ. Yes, there have been studies that have looked at that 

and the Community Reinvestment Act—lenders covered by the 

Community Reinvestment Act—there was a study in 2006 by the 

Fed. Lenders covered by the Community Investment Act originated 

about 6 percent of the subprime loans that were made in the area 

where the lender was assessed for CRA compliance. 

Again, the big dogs in this subprime mess, Countrywide, Wells 

Fargo, et cetera, they were not subject to CRA. And that is why 

I say—and Wells Fargo is slightly different because they are a 

bank. But they have so many operating subsidiaries that the operating subsidiaries that were doing the most toxic products were the 

operating subsidiaries that were not subject to CRA. So that is 

20 

really a red herring. And frankly, if we had more responsible CRA 

lending, I think we would be in a much better place. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Mr. NADLER. I see the Chairman of the parent Judiciary Committee has arrived. Does the Chairman want to make an opening 

statement at this point? 

Mr. CONYERS. No. 

Mr. NADLER. Do you want to question him now? 

Then I will recognize the gentleman from Georgia for 5 minutes. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

Mr. Chairman, I have been in Congress now for about 31⁄2 years. 

This is the first Subcommittee hearing that I have attended where 

there are no Members from the other side of the aisle present. If 

I had control of the video processes of this Committee, of this Subcommittee, I would order them at this time to just take a shot to 

see all of the folks on this side of the aisle that are here versus 

zero folks on the other side of the aisle. But since I don’t have that 

power, perhaps my words will suffice. But I will say that I find it 

strange that the other side is not here. 

I would ask, Mr. Perez, is it not true that the practices of various 

components of the financial services industry—fraudulent practices 

of various segments of the financial services industry are what led 

to the financial meltdown that we have suffered from in this country since 2008? 

Mr. PEREZ. I think the fraudulent and at times predatory and at 

times discriminatory and at times all of the above practices and the 

failure to effectively regulate with the alphabet soup of Federal 

agencies that have authority to regulate were certainly factors— 

important factors that led to the crisis that we have been experiencing. 

Mr. JOHNSON. So in addition to housing discrimination and housing—unfair housing practices directed toward minorities, i.e., predatory lending practices, we have had the same kinds of problems 

with respect to the automobile lending industry, the student loan 

industry, particularly the private student loan industry, consumer 

lending in general, credit cards. All of these excesses, fraudulent 

activity, discriminatory activity, predatory lending activity have 

contributed to this meltdown, isn’t that correct? 

Mr. PEREZ. Yes, sir. 

Mr. JOHNSON. And I am happy to note that your unit inside the 

Justice Department will be focusing on all of these areas, in addition to fair housing practices; correct? 

Mr. PEREZ. Yes, sir, especially—not especially, but including but 

not limited to protecting our men and women of the Armed Forces 

who are deployed abroad and then while they are deployed overseas they find that someone is trying to foreclose on their home or 

someone is trying to repossess their car and they haven’t followed 

the proper process. When people are protecting our Nation, we owe 

it to them to protect their backs here at home, and that is precisely 

what we are doing through the tools that you have given us. 

Mr. JOHNSON. Well, I am certainly proud to bestow more resources upon your unit to clean up what got us into this horrendous financial meltdown that we continue to suffer from today that 

has resulted in people losing their jobs and their homes. 

21 

But I do want to—in focusing on this fair housing situation that 

has—fair housing law that has been unenforced over the last decade, it has resulted in a number of children and families becoming 

homeless. So, in other words, as a result of these financial practices, one of the results is more homeless children and youth—2 

million children, it has been reported, have been rendered homeless 

because of the foreclosure practice. 

With so many families and children, especially families and children of color, suffering greater impact in the foreclosure practice, 

is the Department of Justice increasing its renting testing, especially with African American and Latino families with children of 

all ages? 

Mr. PEREZ. We have a robust testing program. We test on issues 

of racial discrimination. We test on disability discrimination, ethnicity discrimination. And I described two cases that were the product of testing, and we have many others, and we will continue to 

do that, including family status, people who are losing their homes 

in many of the ways you described. 

Mr. JOHNSON. Well, with many people losing their homes, becoming homeless, maybe getting back on their feet, they need to go into 

rental housing. 

Mr. PEREZ. Correct. 

Mr. JOHNSON. And you are focusing on rental housing and testing in that market? 

Mr. PEREZ. We have a heavy focus in the rental market. In fact, 

the largest settlement in the history of the Fair Housing Act was 

a rental discrimination case in Southern California involving the 

owner of the Los Angeles Clippers, Donald Sterling, and that case 

involved discrimination in rental housing against African American 

and Latino would-be renters. And a big part of the settlement in 

that case in terms of compliance monitoring will be testing. Because it is one thing to reach a settlement, but then you have to 

got to make sure that you have truly stopped the discriminatory 

behavior. So we are not going away because we saw some serious 

pattern and practice problems in that particular area. 

Mr. JOHNSON. And last thing I would like to speak on are the 

Federal insured—is the federally insured private student loan market where you get a lot of private institutions of higher learning 

which really have no accreditation and they end up being steered— 

or they end up steering students into that private student lending 

market, as opposed to the traditional student loan market. 

That market is the subject of the legislation that Mr. Cohen out 

of Tennessee has proposed that would make those loans dischargeable in bankruptcy. In 2005, they were granted nondischargeability 

status; and I would want your unit to look into those types of lending practices within that market as well. 

They feature high-cost loans, adjustable rates, and since they are 

not dischargeable, that means lenders are insisting upon strict repayment terms without regard to the debtor’s ability to repay the 

loan. So I want you to take a close look at that. This legislation 

of Mr. Cohen is pretty important. 

So I will close with that. Thank you, Mr. Chairman. 

Mr. NADLER. Thank you. 

I now recognize the gentlewoman from California. 

22 

Ms. CHU. Thank you, Mr. Chairman. 

Well, I am particularly shocked by the blatant discriminatory 

practices of Wells Fargo Bank and their clear intent to steer Blacks 

to more expensive, riskier loans, despite the fact that there is a 

Fair Housing Act, and that they even instructed loan officers to 

place African American borrowers who had excellent credit into 

subprime mortgages and fired employees who didn’t comply. 

Now, the State of Illinois sued Wells Fargo for doing this; and, 

in their case, they state that Wells Fargo lacked policies to prevent 

borrowers from being purposefully steered into high-cost subprime 

and risky mortgages. Are banks required to have such policies in 

place? 

Mr. PEREZ. Yes, ma’am. 

Ms. CHU. What kind of actions can DOJ make to ensure that 

lending institutions do carry out these policies? 

Mr. PEREZ. We have two primary tools, Congresswoman, and 

they are the Fair Housing Act and the Equal Opportunity Act. We 

have, again, a robust docket of cases involving large and small 

lenders alike; and we are looking at origination practices. Was 

there discrimination? Were people steered into high-cost loans on 

account of their race when they could have qualified for conventional loans that would have saved them a lot of money? Were the 

lending practices targeting minority communities, as we talked 

about before, the phenomenon of reverse redlining where the minority community is being targeted for these toxic products? 

We have the capacity under the Equal Credit Opportunity Act 

and the Fair Housing Act to eliminate both intentional discrimination and policies and practices that may be neutral on their face 

but have the effect or a disproportionate adverse impact based on 

race. And we are actively looking at—— 

Again, I mentioned we have a docket of about 39 cases right now. 

And we just settled the AIG case that I talked about, which was 

a case about the relationship between lenders and brokers. That is 

one form of discrimination that we see, but we see many different 

forms, and I think what you will see in the months ahead as we 

move forward are cases that address varying aspects of the discrimination that we have seen. 

Ms. CHU. Are you certain that every lending institution does in 

fact have a policy in place? 

Mr. PEREZ. Well, I think it makes sense for a lending institution 

as a matter of safety and soundness and as a matter of sound compliance with both civil rights obligations and fair lending obligations relating to anti-predatory lending and consumer protection ordinances to ensure that every part of their process from soup to 

nuts is a process designed to ensure that there is no discrimination 

and that people—that you are lending to people who have the ability to repay and that you have taken steps to monitor your own internal practices. 

I do a lot of police work, and it is really no different, making sure 

you have continuous internal quality control. And if those controls 

are not in place, you see in police departments and you see in lending institutions a lot of the excesses that we, from time to time, observe. 

23 

Ms. CHU. Well, I guess what I am wondering is how do you know 

that they have those internal mechanisms in place? 

Mr. PEREZ. What we are finding in some of our investigations is 

those mechanisms are not in place. I am not here to contend that 

they are in every case. That is actually one of the critical factual 

questions that is often the focus of our investigations. 

I apologize. I think I misheard your question. 

Ms. CHU. It is monitoring. 

Mr. PEREZ. I apologize. 

Ms. CHU. You are actively looking at that? 

Mr. PEREZ. Absolutely. 

Ms. CHU. And providing some oversight on that? 

I also have a question about HAMP. Of course, they are a large 

part of dealing with foreclosure issues, making sure that our Home 

Affordable Modification Program is addressing the needs of people 

out there that are facing foreclosure. The Treasury Department 

said that it will collect information to make sure that this program 

is not practicing discrimination, but so far none of this information 

has been released. Do you know whether this information is even 

being collected? 

Mr. PEREZ. It is my understanding that the information is being 

collected, and I believe they began collecting the information as of 

December of 2009, the information disaggregated by race and ethnicity. We are working very closely with our partners at Treasury 

to access the data so that we can conduct an analysis to ensure 

that the program is being administered in a nondiscriminatory 

fashion. 

We are also looking at other aspects that are perhaps not discrimination per se but are very problematic, practices such as entities who are examining somebody’s application for a modification. 

Under the terms of the HAMP program, you are not allowed to initiate foreclosure proceedings during the pendancy of that review; 

and what we are finding anecdotally—and I heard this as recently 

when I was in Wisconsin and I heard it 2 weeks ago in Birmingham—that there are case after case after case where foreclosure proceedings are being initiated when the homeowner hasn’t 

even gotten an answer to the question. 

At a minimum, if those facts are accurate, that is a breach of 

contract, because those who signed up in the HAMP program made 

a commitment not to do that. And that is one of the most frequent 

problems that we are seeing. 

So we are doing our level best to, obviously, keep our radar up 

for the discrimination issues, but as we hear other concerns with 

the implementation of HAMP we are working closely with our partners at Treasury and HUD and elsewhere to address those situations. 

Because people who are—people in trouble need four things: 

They need time, they need money, they need a good advocate, and 

they need government regulators who are actually doing the regulating that they are supposed to be doing. That is our role and 

what we are trying to do. 

Ms. CHU. So you are saying you are getting the information from 

the Treasury in terms of the discriminatory practices. It is just that 

it has not been made public to—— 

24 

Mr. PEREZ. The data—right—the data was collected beginning in 

December of 2009. That is my understanding. The data is still 

being scrubbed, and we hope to get the data that is being collected 

in the very near future. We have very regular conversations with 

our partners over at Treasury on this issue because we are, obviously, very interested in monitoring compliance. 

Ms. CHU. Thank you. 

Mr. NADLER. Thank you. And we thank the witness. 

Mr. PEREZ. Thank you, Mr. Chairman. Always a pleasure to be 

here. 

Mr. NADLER. We will now proceed with our second panel. I would 

ask the witnesses to take their place and, in the interest of time, 

I will introduce the witnesses while they are taking their seats. 

A C Wharton, Jr., was elected the mayor of Memphis in a special 

election held on October 15, 2009—in other words, last October— 

to complete the term of the former mayor, Willie Herenton. Mayor 

Wharton previously served as the mayor of Shelby County, Tennessee. First elected in August of 2002 and reelected in August of 

2006. 

Mayor Wharton attended the Tennessee State University. He received a bachelor’s degree in political science, and later earned his 

law degree from the University of Mississippi. 

Roger Clegg is the President and General Counsel for the Center 

for Equal Opportunity. From 1982 to 1993, Mr. Clegg held a number of positions in the U.S. Department of Justice, including Assistant to the Solicitor General and the number two official in the Civil 

Rights Division and Environment Division. From 1992 to 1997, Mr. 

Clegg was the Vice President and General Counsel of the National 

Legal Center for the Public Interest. He is a graduate of Rice University and Yale Law School. 

Gillian Miller is a single mother of three from Boston, Massachusetts. In 2005, she purchased a home, but, despite her good credit 

score, Mrs. Miller was only offered a subprime adjustable rate 

mortgage by her lender. Like many Americans in her position, Mrs. 

Miller eventually found herself unable to make the increasing payments on her loan, resulting in the loss of her home in 2006. She 

is currently a plaintiff in a discrimination lawsuit against Countrywide Financial Mortgages. 

Gary Klein is currently a principal at the firm of Roddy, Klein 

& Ryan. He has litigated cases involving predatory lending and 

servicing and mortgage charging and wrongful foreclosure. From 

1991 to 2000, Mr. Klein was a senior attorney at the National Consumer Law Center and Director of the Center of Sustainable 

Homeownership Initiative. He is a graduate of Yale University and 

Rutgers University Law School. 

I am pleased to welcome all of you. Your witness statements will 

be made a part of the record in their entirety. 

I would ask each of you to summarize your testimony in 5 minutes or less. To help you stay within that time, there is a timing 

light at your table. When 1 minute remains, the light will switch 

from green to yellow and then red when the 5 minutes is up. I 

trust you heard that when I said that to the first panel. 

25 

Before we begin, we will swear in the witnesses, which is our 

custom. If you would stand and raise your right hands to take the 

oath. 

[Witnesses sworn.] 

Mr. NADLER. Let the record reflect the witnesses answered in the 

affirmative, and you may be seated. 

I recognize for 5 minutes the Honorable Mayor Wharton. 

TESTIMONY OF THE HONORABLE A C WHARTON, JR., 

MAYOR, MEMPHIS, TN 

Mr. WHARTON. Thank you, Mr. Chairman. 

Again, Chairman Nadler, Ranking Member Sensenbrenner, and 

Members of the Subcommittee, I want to thank you for the opportunity to address you on this afternoon. 

Also, I wish to extend a special thanks to my Congressman and 

friend, the Honorable Steve Cohen—who met me earlier and said 

that he had to be away from this hearing—for his graciousness and 

his fierce engagement on this most important issue. 

I am indeed delighted to be present today. Although I am currently the mayor of Memphis, I feel that my words will not only 

represent the struggles of my own city and county with respect to 

this issue but they will also echo the frustrations of other mayors 

and local officials grappling with the serious consequences of predatory lending. 

In his address before the signing of the landmark Civil Rights 

Act of 1968, President Lyndon Baines Johnson recognized Dr. Martin Luther King, Jr., and Dr. King’s involvement on the subject of 

nondiscrimination in housing. This legislation, inclusive of Title 

VIII of the Fair Housing Act, as it is commonly known, was signed 

into law by President Johnson on that day, April 11, 1968. And 

while this event was historic and memorable, a truly seminal moment in civil rights, this signing ceremony was overcast by the long 

shadow of Dr. King’s assassination in my home City of Memphis, 

Tennessee, exactly 1 week earlier. It is altogether befitting that 

Memphis, inspired by the legacy of Dr. King, has taken on the updated fight for nondiscrimination in housing with the reverse redlining lawsuit that our city and county filed against Wells Fargo 

on December 30, 2009. 

We allege in that lawsuit that Wells Fargo targeted minority citizens and communities in Memphis for predatory loans that offered 

a fragile opportunity for homeownership that was essentially a financial house of cards. 

As we have advanced this cause and found the voice for our 

grievance in the Fair Housing Act, we have been ever mindful of 

a larger context to be considered. Having taught law school for 

many years, I understand implicitly the sensitivity we all must 

have to the changing face of discrimination. The long and storied 

history of civil rights clearly shows us that one generation’s Jim 

Crow is another generation’s glass ceiling in corporate America. 

Outright police brutality was largely banished, only to be later repatriated under the identity of racial profiling. 

Against the changing backdrop of political and social realities, we 

must continue to ensure that the principles of fairness and equity 

26 

do not fall victim to discrimination in new forms and with new 

names. 

It is our contention that the discriminatory acts that once kept 

African Americans from renting or owning homes in certain neighborhoods is hardly different from blatant actions from financial institutions that singled out African Americans with noxious agreements that were rotten to the core. Simply put, predatory lending 

is to this generation what no lending to Blacks and Latinos was a 

generation before. 

In Memphis, our reality is particularly unsettling as we see 

whole neighborhoods that have been picked apart and hollowed out 

by foreclosed properties. With State law that allows for nonjudicial 

foreclosures since the year 2000, foreclosures in Shelby County 

have increased by 180 percent. 

Now you know Memphis to be the city of the blues. Some might 

say you are just singing the blues. We are not. We are simply crying foul. And if you look at Wells Fargo foreclosure rate in predominantly African American neighborhoods in Shelby county, it is 

nearly seven times as high as its foreclosure rate in predominantly 

White neighborhoods. It is particularly acute in minority neighborhoods in South Memphis, Hickory Hill, Orange Mound, and other 

neighborhoods with African American populations exceeding 80 

percent. 

As I sum up, I will simply go back to a few years back, a few 

decades back, when we, after the following of the many riots in our 

cities, we had the Kerner Commission that concluded that America 

was moving to two societies, one Black, one White. If this situation 

is not remedied, we will soon be moving to a different kind of dual 

society, one in which homeownership is a dream, the other in 

which it is a nightmare. 

Thank you. 

[The prepared statement of Mr. Wharton follows:] 

27 

PREPARED STATEMENT OF A C WHARTON, JR. 


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Mr. NADLER. I thank you. 

I recognize Mr. Clegg for 5 minutes. 

TESTIMONY OF ROGER CLEGG, PRESIDENT AND GENERAL 

COUNSEL, CENTER FOR EQUAL OPPORTUNITY 

Mr. CLEGG. Thank you very much, Mr. Chairman, for the opportunity to testify this afternoon before the Subcommittee. 

My name is Roger Clegg. I am President and General Counsel 

of the Center for Equal Opportunity. I should also note that I was 

a Deputy in the Justice Department’s Civil Rights Division from 


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1987 to 1991, and during part of that time I supervised the housing 

and public accommodations section. 

My written statement today, Mr. Chairman, makes four points. 

Just briefly, it is and should be illegal for lenders to treat people 

differently on the basis of race or ethnicity. 

Second, lending practices that do not discriminate in their terms, 

application, or intent on the basis of race or ethnicity but simply 

have disproportionate effects on that basis are not and should not 

be illegal. 

Third, I have no opinion on whether bans on subprime lending 

are a good idea as a matter of macroeconomic policy, but I would 

note that one likely effect of such a ban is to make loans of any 

kind unavailable to people who will be viewed by lenders as unacceptable default risks unless they are charged higher interest rates. 

Fourth, nobody knows exactly what role racial and ethnic discrimination played in the mortgage meltdown, but it is at least as 

likely that politically correct rather than politically incorrect discrimination played a serious role; and, accordingly, it would be 

quite foolish for the Federal Government to repeat its policies during the Clinton and Bush administrations of pressuring lenders to 

make more home loans to people whose creditworthiness is marginal. 

In that regard, Mr. Chairman, I want to commend to the Subcommittee’s reading a report that was put out by the United States 

Commission on ‘‘Civil Rights last year on Civil Rights and the 

Mortgage Crisis.’’ It is quite evenhanded. In fact, it is so evenhanded that in many respects it does not draw conclusions. But it 

is, nonetheless, I think a very useful compilation of information in 

a disinterested way on the role that race and ethnicity may have 

played in mortgage policies and in the mortgage crisis. 

For the balance of my time I would like to make a few other 

points that are not in my written statement but that are prompted 

by the statements that the other witnesses have made; and, of 

course, I didn’t get those statements until after my own statement 

was due, so that’s why I’m playing catch-up here. 

One point I would make is something that, Mr. Chairman, I 

think you’ve already sort of, you know, hinted at. And that is that 

even if subprime loans were evenly spread among racial groups 

there would still be a problem if they were unfair or if they had 

dangerous macroeconomic effects. That’s one reason why I think 

that, in looking at this issue, it’s important to bear in mind that, 

in some instances, there might be problems whether or not there 

is discrimination on the basis of race and ethnicity. 

Reading the other witnesses’ narratives, the basic point seems to 

be that there are these evil moneylenders out there that are targeting African Americans and African American communities for 

subprime loans because they are gullible enough to accept them. 

I’m skeptical that most lenders are deliberately deciding to charge 

higher interest rates on the basis of race rather than on the basis 

of creditworthiness. I don’t think that most lenders like to make 

loans that are going to be defaulted on, and there are plenty of 

lenders out there so that competition among them will keep interest rates at a reasonable level. 

140 

Even if this is true, even if African Americans or other groups 

are being targeted, I want to go on and offer one other observation. 

This is not a new claim, and it’s not limited to the home loan area. 

In fact, we’ve already heard that this is a problem or an allegation 

that’s made in other areas, too—auto loans and so forth. 

In our economy, it is not very efficient to say that the government has to go around and investigate every business that has 

price variations from day to day, from place to place, and from customer to customer. And I hasten to stress that racial discrimination 

in lending is wrong, and it is illegal. But, ultimately, the best way 

for customers, for consumers to protect themselves is by shopping 

around and by maybe making the decision that they should not 

buy. Don’t buy a car at the first dealership that you walk into. 

Check the newspaper, the real estate section, every day as to what 

the going rate is for real estate loans. Don’t validate the Black-people-are-gullible stereotype. 

I know I’m going to be accused of blaming the victim, but sometimes the victim does have to shoulder some of the blame. I’m 

happy for the government to bring race discrimination cases if it 

can really show race discrimination. But part of the solution is for 

consumers to be more careful, more skeptical. They need to shop 

around, and they may decide that they really can’t afford to buy 

a house right now. 

Thank you. 

[The prepared statement of Mr. Clegg follows:] 

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PREPARED STATEMENT OF ROGER CLEGG


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Mr. NADLER. I now recognize Ms. Miller for 5 minutes. 

TESTIMONY OF GILLIAN N. MILLER 

Ms. MILLER. I’m here to share my homeowner experience. I became aware of a program in a local newspaper assisting first-time 

home buyers with a down payment on a home. I wasn’t certain I 

qualified because I had previously owned a home in another State. 

Nonetheless, I met with the person and found they were a combined mortgage broker and realty firm. I was told I didn’t qualify 

for this down payment program because of one negative account on 

my credit report. I believe they would have found anything negative just so they wouldn’t have qualified me for a down payment, 

and I realized the add was a ploy to get people in the door. 

As such, I decided to work for the realtor from that office and 

a mortgage broker at Summit Mortgage instead. Our initial meeting was at a Dunkin’ Donuts and subsequent meetings were made 

at places of similar nature, rather than in an office setting. 

My credit score, as it turned out, which was above 660, was high 

enough that it qualified me for a hundred percent financing. I must 

admit I was not entirely sure of what a hundred percent financing 

meant. The broker informed me that it qualified me for no down 

payment. 

Our second meeting was to give her my financial information, 

bank statements, and pay stubs. I was also asked if I had any retirement savings, although I found it odd that the broker would 

ask me about a 401. It wasn’t something I questioned until much 

later, when I found out it was counted as part of my income. 

At a later meeting, I learned that I would receive an 80/20 loan 

and that it meant the loan would be split. However, I still was not 

really clear on what that meant until closing where I had two sets 

of documents to sign and what appeared to be two mortgages. This 

is when my eyebrow was first raised. 

During closing, I read through as much of the huge number of 

documents as I could, but there were so many documents I couldn’t 

read through everything. I asked the broker why I received this 

kind of mortgage. The broker stated this was the best deal we 

could do for you; and I responded, with my credit score, this is the 

best deal? 

At the end, I decided to trust her. I am a consumer. It is not my 

job to know what a broker does. All I can do as a consumer is ask 

the right questions and hope that the answers given are truthful 

based on the nature of that person’s profession and trust that that 

person knows what he or she is doing. 

I was apprehensive in signing the documents and voiced this to 

the broker and to the broker’s closing attorney, but it was stressed 

to me that my closing was imperative so that the sellers could close 

on time, which was the same day. 

In essence, I was coerced into signing the papers due to the sellers needing to have the money from my closing to attend their closing and because I was worried about losing the home and my deposit. It was during closing that I learned for the first time that 

my two loans would be sold to Countrywide. 

At the end of the day, I did receive two mortgages. The first loan, 

despite my good credit, was a variable rate with an APR of 11.52 

150 

percent. The loan included more than $8,500 in settlement charges. 

The second loan was at 11.317 percent. Under that loan, after making 179 payments of $629.38, I would have a balloon payment of 

more than $55,000 due in a lump sum. 

As I had no way of knowing the rates paid by White borrowers 

with similar credit to me, it wasn’t until much later that I learned 

that it was very likely that my loans were at rates and on terms 

that were worse than those available to White borrowers who are 

similar to me. 

While I am not a person who cries discrimination whenever a 

problem arises, I do think that the system needs to be designed so 

that people with the same credit ultimately get the same rates and 

all borrowers should be able to rely on a system that allows them 

to get loans with understandable terms at affordable rates. 

In the end, the loan, despite my best efforts, were unaffordable. 

Three months after I moved into the home, I lost my job. I lived 

off of a small savings until I ran into financial difficulty. I reached 

out to a nonprofit. They paid the second mortgage, and it was during this meeting in which the woman I met saw discrepancies with 

the fees on my loan documents. 

I also reached out to Countrywide to inform them of my financial 

situation and asked if the loan could be modified. 

It is imperative that I emphasize that I am very marketable in 

terms of job skills, and I did not anticipate being out of work for 

too long. I took whatever job I could, but I could not manage the 

high payments. I worked a series of temp jobs with a decrease in 

pay and worked with several employment agencies to find permanent employment. I tried refinancing with another lender. I contacted several non-profits to assist me in paying the mortgage or 

to help me negotiate a modification with Countrywide, to no avail. 

I eventually had to take two jobs, one working 11 p.m. To 7 a.m., 

the other working from 11 a.m. To 7 p.m., in addition to attending 

classes two evenings a week to obtain my bachelor’s degree. 

I sent all of the necessary paperwork to the modification department at Countrywide. It was 2 weeks before I spoke with anyone, 

and that was only after I initiated contact to find out the status. 

I was told they hadn’t received the paperwork. I resubmitted it for 

the second time, where I was informed that I did not qualify for 

the modification. I fought with them, stressing the combined income from the two jobs, and they resubmitted the paperwork for 

a third time. 

When I finally heard back from a representative from the modification department, it was via voicemail. As such, we played phone 

tag and never spoke. And a few days later, I received a notice to 

foreclose. 

I was still willing to fight for the house, and my last effort to 

keep the house was to file Chapter 13. But with the new bankruptcy laws in place, the payments to the trustees pushed me over 

my monthly income limit and, sadly, I was forced to convert to 

Chapter 7 a few months later. I was told by a court clerk that I 

would have to vacate the premises because the stay would be lifted 

and the foreclosure procedure would commence immediately. Not 

wanting to be homeless with my children, I rented a townhouse 

within walking distance from the said property. 

151 

The house was supposed to foreclose in 2007, 2008, and again in 

2009, but as of date, it is still sitting there. 

When President Obama passed the stimulus package, I was told 

by Countrywide that my status was placed on hold and this is why 

the house had not foreclosed. Yet they were unwilling to work with 

me on getting the house back, because, according to the person I 

spoke with, I have to reside in the home in order to get help. 

In closing, I’d like to say that we speak about having the American dream, and as an immigrant to this country from Barbados, 

it was something to look forward to achieving, having an education, 

a great career, home ownership, a family. I worked hard in achieving my educational goals. This fall, I will be enrolled in a master’s 

degree program. And, in spite of being divorced, I have managed 

to single-handedly raise three great children who excel in academics, civic duties, and sports. 

I once had home ownership. The experts say when you fall into 

financial difficulty, the first thing you should do is contact your 

creditors. Well, I did just that. I took all of the necessary steps. I 

did everything right, and, in the end, that American dream was 

taken from me. I was victimized by the lender, the broker, and the 

courts. 

However, even through this ordeal that has caused me great 

angst and stress, if it means that my story will help the next person not be a victim of someone’s pre-judgement based on their skin 

color or their status, then my attempts to fight for my home, something I worked very hard at attaining, has not been in vain. 

[The prepared statement of Ms. Miller follows:] 

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PREPARED STATEMENT OF GILLIAN N. MILLER


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Mr. NADLER. Let me ask you something on that bankruptcy, Ms. 

Miller. 

You couldn’t do Chapter 13 because, including your payments, it 

was more than the court figured you could afford? 

Ms. MILLER. Correct. 

Mr. NADLER. So, in other words, you were too poor to qualify for 

chapter 13 under the new bill? 

Ms. MILLER. Probably so. Right. 

Mr. NADLER. I just note that because, when we considered that 

bill, which some of us here were very much opposed to at the time, 

the whole idea of the bill was to get more people into Chapter 13, 

away from Chapter 7, and some of us raised the question at that 

point that by putting on these additional fees and so forth we 

would make some people too rich for chapter 7 and too poor for 

Chapter 13 and they wouldn’t be able to go bankrupt at all. And 

we were told don’t worry about that. That will never happen. But, 

obviously, it did. 

I’m sorry for that digression. 

Mr. Klein is recognized for 5 minutes. 

TESTIMONY OF GARY KLEIN, RODDY, KLEIN & RYAN 

Mr. KLEIN. I want to thank you, Chairman Nadler, and the distinguished Members of the Subcommittee for the opportunity to 

testify today. 

I am lead counsel in several class actions that seek remedies for 

minority victims in mortgage lending discrimination. 

Some of you may remember that a number of years ago during 

the 1990’s, when I was working at the National Consumer Law 

Center, I would darken doorways on Capitol Hill talking about 

subprime lending problems even then and consumer protections for 

homeowners, including the bankruptcy system. The issue I’m here 

to talk about today, mortgage discrimination, is a direct consequence of some of the abuses of the subprime lending market 

that have been in place for at least 10 years and haven’t been 

fixed. 

As discussed in my written testimony, the data is now irrefutably 

clear that minority homeowners, due to a variety of lender practices, pay more for their homes than White borrowers. Date shows 

that Black and Hispanic homeowners are significantly more likely 

than White homeowners to have high-cost mortgages. When the 

data is drilled down, rates for minority borrowers are about onehalf of 1 percent higher than for Whites. On a $125,000 mortgage 

loan, that represents an extra $500 per year in interest costs. Over 

the life of a 30-year loan, that’s about $15,000 more. This has a significant impact on people’s lives. 

That is, by itself, of course, wrong. The additional borrowing 

costs paid by minority homeowners means that those borrowers use 

more of their income each month than Whites to cover their housing costs. The resulting budgetary strain leads to additional foreclosures, especially in these troubled economic times. 

From a legal perspective, though, the question is, are these rate 

disparities driven by real credit differences between minority and 

White borrowers or do they result from discriminatory practices? 

Stated another way, are there legitimate business justifications for 

160 

charging African American and Hispanic borrowers more for their 

home loans? 

In recent years, statisticians have looked at this issue using 

straightforward regression analysis. Buyer regression analyses 

have looked at many millions of home mortgage transactions and 

can control for differences in credit characteristics such as credit 

score, home values, debt, and income. And to the surprise of no one 

in the civil rights community, it turns out that minority borrowers 

do pay more than similarly situated Whites, even after controlling 

for an extensive array of credit factors. 

In the case of one lender, the data shows that African American 

and Hispanic borrowers as a group were obligated to pay $102.5 

million more than similarly credentialed White borrowers, and 

that’s just in the first 5 years of their loan. Discrimination in this 

context is highly profitable. 

I note, too, that it is not just civil rights lawyers that have 

reached the conclusion that African American and Hispanic borrowers pay more than similarly situated Whites. As noted in my 

written testimony, there is a body of academic evidence that finds 

disparities after controlling for credit and loan characteristics; and 

analysts working for lenders themselves have reached similar conclusions in self-testing programs. Yet the problem is still not fixed. 

So why do these disparities arise and what can be done to fix the 

problem? 

Ms. Miller testified eloquently about her personal struggle with 

loans made to her by Countrywide at APRs in excess of 11 percent, 

despite good credit. The high cost of her loan made her vulnerable 

to even a short period of underemployment. How is it that she became a target for subprime credit and why didn’t she have the tools 

to protect herself? 

The first and most prevalent problem is the dirty little secret of 

the mortgage industry. Loan prices at the end of the day are not 

set entirely based on objective credit factors but rather are discretionary with the sales force. That is, loan officers and loan brokers 

have discretion to attempt to convince borrowers to sign up for 

loans at rates above the rates determined by objective credit factors 

like credit scores and debt-to-income ratios. In fact, loan officers 

and loan brokers get paid more when they jack up the interest 

rate. 

Similarly, loan officers and loan brokers have discretion to add 

to the many fees and charges that are now part of any home mortgage loan. A broker, for example, can add certain charges to a loan 

which have the effect of increasing that broker’s compensation. The 

unfortunate reality is that these discretionary charges disproportionately affect minority borrowers. 

The second problem is that minority borrowers—even borrowers 

with excellent credit—are more vulnerable to be targeted for and 

steered into subprime loans. That is, when a lender has a choice, 

some borrowers are more likely to be pressed into subprime because subprime is more profitable. 

The third problem contributing to mortgage discrimination is the 

sheer complexity of the modern mortgage loan. Closings involve 

hundreds of pages of paperwork describing often incredibly complex 

loan terms. 

161 

Ms. Miller just testified about a loan made in an 80/20 format. 

Her first mortgage had a teaser rate and variable rate that only 

the first 2 years were fixed. After the end of the first 2 years, the 

rate could increase from 6.75 ultimately up to as high as 12.75 percent. It can be virtually impossible for even a well-educated consumer to decipher variable interest rates, pre-payment penalty 

terms, rate change provisions, and other similar issues. Borrowers 

simply don’t have the tool in the current lending environment to 

protect themselves. 

Finally, it’s fair to ask what needs to be done. Most obviously, 

we need to rebuild a functional marketplace that does not leave in 

place the discretion to discriminate. All loans should be made at 

rates grounded only in objective credit qualifications without discretionary markups and fees. Equally importantly, borrowers who 

are suffering under the weight of a loan bearing discriminatory 

term need remedies. 

Loans should be reformed to make rates charged to minority borrowers consistent with those charged to Whites; and when real 

hardship has already been manifest, as it is in Ms. Miller’s case, 

in delinquencies and foreclosures, where victims of discrimination 

may lose their homes, nondiscretionary mortgage workout loans 

terms are necessary. Failure to act to prevent foreclosures will not 

lead just to loss of home ownership but also to property abandonment, abandonment in minority communities, decay, reduction of 

property values, and to a renewed sense of despair. 

Thank you very much for the opportunity to testify. 

[The prepared statement of Mr. Klein follows:] 

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Mr. NADLER. Thank you. 

I will begin the questioning by recognizing myself for 5 minutes. 

Mayor Wharton, the City of Memphis and Shelby County is seeking redress for the injuries caused by Wells Fargo, allegedly caused 

by Wells Fargo, and you contend they have engaged in a practice 

of illegal and discriminatory mortgage practice lending. What assistance do cities like yours need in battling the practices of banks 

like Wells Fargo? What should the Civil Rights Division do that it’s 

not doing? What should we in Congress do what we haven’t done? 

Mr. WHARTON. Thank you, Mr. Chairman. 

With respect to the lawsuit, we certainly need the assistance and 

the investigative powers that the Federal Government has. We 

reached into our meager funds to retain counsel. We do not have 

the investigative authority that the government does. 

Mr. NADLER. Excuse me. You don’t have the resources or the 

State doesn’t have the subpoena or other authority or the city 

doesn’t? Which is it? 

Mr. WHARTON. With respect to preparing for the lawsuit, taking 

the statements of witnesses, the Federal Government has many 

more investigative resources than those of us at the city level. This 

is a municipal lawsuit. 

Additionally, with respect—and some of the suggestions that 

have been made even before we get to the lawsuit, more in the 

way—I will not say by way of legislation—more in the way of financial literacy, perhaps some stopgaps as consumers start down 

this long and treacherous path, as was the case with Ms. Miller, 

some intervention there before—there is just no daylight in there. 

Before the consumer finds out anything, they are already in danger. 

I know in some consumer practices there are rights to rescind before the whole process is complete. And the relative positions that 

the parties share, there should be some—and perhaps this goes to 

your question at the beginning—some fiduciary responsibility. The 

relative positions of the purchaser and the lenders here are just so 

out of balance. These are amazingly complex transactions. 

This is not a matter of buying an MP3 player, whatever, you go 

home, and that’s it. These are transactions that even—I did not 

practice real estate law, but I made a real estate transaction the 

other day, and I haven’t the slightest idea of what I did. They said 

sign, and I signed. I shouldn’t have done that. 

But if there could be legislative, many more protections as we go 

through this almost raising to the level of the lender having the fiduciary responsibility. 

And I might—just one other thing. If these were situations in 

which this was just a benign set of circumstances and the lender 

goes in and makes a transaction, that’s one thing. I perhaps would 

not be here. This is more than just taking advantage of a maligned—of a benign situation. This is a malignant, intentional act 

that we’re complaining about. Those ought to be outlawed. 

Mr. NADLER. Thank you. 

Let me ask Mr. Klein. You’ve represented people in this situation. Talk about malignant acts. Ms. Miller testified one of the 

mortgages was I think she said $597 a month or something like 

that for X number of months and then a $50,000 balloon. Now, is 

190 

there any way that a lender could expect a person to be able to— 

a middle-class or moderate-income person be able to pay a $50,000 

balloon coming one day? Should such practices be outlawed entirely? 

Mr. KLEIN. Put simply, Mr. Chairman, there is no way that a 

lender could expect that to have been paid. 

Mr. NADLER. Could he have been expecting refinancing at that 

point? 

Mr. KLEIN. That’s exactly why those kinds of loans are made, Mr. 

Chairman. They are made so the borrower will be in a position to 

have no choice other than to refinance at a higher interest rate. 

And I should mention as well that Ms. Miller’s loan included a 

prepayment penalty. So had she chosen to refinance fairly early on 

in the process, she would have incurred that penalty and had to 

pay even more in order to get out of the situation where the balloon came due. 

Mr. NADLER. Let me ask you, Mr. Klein, what further steps are 

needed to enforce the law in order to combat and prevent these 

practices, like similarly situated borrowers subjected to discriminatory practices? 

Mr. KLEIN. There are a number of arguments that Mr. Clegg 

made based on a body of opinion I think that disparate impact 

shouldn’t be applicable to cases under the Fair Housing Act; and 

I think that’s just dead wrong, Mr. Chairman. 

First of all, as a lawyer, I take comfort in saying that there are 

12 courts of appeal, all of whom have decided that disparate impact 

analysis does apply under the Fair Housing Act. 

Mr. NADLER. Wait a minute. I would certainly agree with you. 

But putting aside the question of disparate impact, if you find that 

a company, Wells Fargo or somebody else, is generally offering differing mortgage terms to African Americans or to Hispanic people 

than they are to White people of the same income level, it’s not a 

disparate impact analysis. That’s out and out straight discrimination. 

Mr. KLEIN. Well, it is and the issue from the court’s perspective 

is that you can’t establish the treatment being different without 

looking back toward the policy that would lead to disparate impact. 

So, in this particular context, it’s the discretionary pricing policy allowing markup by loan officers and loan brokers that’s being challenged in these cases. So they are disparate impact cases and probably appropriately so. 

When someone speaks of eliminating disparate impact analysis 

under the Fair Housing Act, what they’re really saying is there 

shouldn’t be a remedy for any discrimination. 

Mr. NADLER. I’d like you to reply to that, Mr. Clegg. 

Mr. CLEGG. I don’t think that’s true at all. I think the testimony 

that Mr. Klein gave and that we’ve heard here and that Mr. Perez 

gave earlier shows that bringing disparate treatment cases is quite 

straightforward, and those cases can be brought and won. 

The racist comments that Mr. Perez quoted—— 

Mr. NADLER. Let’s assume nobody is stupid enough to make racist comments. 

Mr. CLEGG. Well, people are stupid enough to make them. 

Mr. NADLER. Sometimes. 

191 

Mr. CLEGG. And even when they aren’t, you can use statistical 

evidence and circumstantial evidence in order to prove—in order to 

show—disparate treatment. 

So I don’t—I am not somebody who thinks that it ought to be 

okay for people to discriminate on the basis of race in lending and 

get away with it. But the government needs to be able to—I think 

the government should have to prove disparate treatment, and I do 

think they can do that. 

Mr. NADLER. My time is running out. 

Would you comment on that, Mr. Klein? 

Mr. KLEIN. Sure, Mr. Chairman. 

Mr. Clegg is simply dead wrong on the issue. The proof required 

is proof of disparate impact. There is no treatment issue when everyone is treated facially the same. Everyone is subject to the same 

possibility of discretionary pricing so that minority homeowners 

and White homeowners are both subject to discretionary pricing. 

It’s the application of that policy which leads to a disparate impact 

evaluation which is this fiscal analysis under which you can evaluate what happens to similarly situated Blacks. 

Mr. NADLER. Which you need in the absence of an e-mail saying, 

give a different rate to Black people, or something. 

Mr. KLEIN. Absolutely right, Your Honor. And what these cases 

show is that when you do do the analysis—did I call you Your 

Honor? Mr. Chairman. 

Mr. NADLER. I like to think I’m honorable. 

Mr. KLEIN. What the analyses do show when you drill down is 

that after you take out every conceivable credit characteristic and 

loan characteristic such that you’re looking at the exactly similar 

situation that Black payers pay more. 

Mr. NADLER. Thank you. My time has expired. 

The gentleman from Virginia is recognized. 

Mr. SCOTT. Mr. Clegg, when you do find discrimination, what is 

the remedy when there is discrimination in lending? 

Mr. CLEGG. Well, the Fair Housing Act has been violated and the 

Equal Credit Opportunity Act has been violated. Of course, if a 

State agency is involved, then the Constitution has been violated. 

And I believe, in some instances, Title II of the 1964 Civil Rights 

Act is implicated as well. 

There are a variety of—those are just the Federal laws that have 

been violated. There are also frequently State and local laws as 

well. 

Mr. SCOTT. Are there any class-action lawsuits pending that 

you’re aware of on this issue? 

Mr. CLEGG. I’m sorry? 

Mr. SCOTT. Are there class-action lawsuits pending on this issue? 

Mr. CLEGG. I believe so. I think Mr. Klein is bringing—— 

Mr. SCOTT. Mr. Klein, can you give us a review of some of those 

pending lawsuits and some that perhaps may have been concluded? 

Mr. KLEIN. Yes, Congressman Scott. 

There are a number of cases pending in various jurisdictions. 

Some of them have been consolidated. There are a series of cases 

pending against Wells Fargo Home Mortgage, pending in a multidistrict litigation proceeding in San Francisco. There are also a series of cases pending against Countrywide, pending in a multi-disVerDate Aug 31 2005 11:33 Jun 30, 2010 Jkt 000000 PO 00000 Frm 00195 Fmt 6633 Sfmt 6601 H:\WORK\CONST\042910\56181.000 HJUD1 PsN: 56181
192 

trict litigation proceeding in the Western District of Kentucky. 

There are similar cases against other lenders, including HSBC, 

Chase, and many of the big subprime lenders like Green Point, 1st 

Franklin, which is owned by Bank of America. 

Mr. SCOTT. What is the basis of the lawsuits? 

Mr. KLEIN. They are disparate impact cases based on the discretionary pricing policies of those lenders. What those cases allege is 

that lenders allowed brokers and loan officers to mark up loans 

and that that discretion was used in a differential way to mark up 

loans of minority customers more than White customers. 

Mr. SCOTT. Have any of those gone through trial? 

Mr. KLEIN. None of them have gone through trial. Several of 

them are in the process of class certification. One of them, the earliest one for class certification, is pending before Judge Henderson, 

Judge Thelton Henderson in the Northern District of California. 

Mr. CLEGG. Can I make an observation? 

I think it’s very interesting that the claim here is that the process should be made more mechanical because the lack of mechanicalness has a disparate impact. We hear precisely the opposite 

claim in other contexts—for instance, college admissions. You 

know, the claim is that, well, universities should not mechanically 

make admission decisions just based on SAT scores and grades. It 

needs to be more ‘‘holistic.’’ And that the failure of a university to 

engage in that kind of holistic review has a disparate impact. 

Now, in this context, we are hearing just the opposite. I think 

that what this, I think, indicates is the whole problem with the disparate-impact approach. I think that this shows that—the touchstone should always be whether there is disparate treatment. It’s 

certainly possible that using a very discretionary touchy-feely 

standard in this area, in the mortgage area, can facilitate racial 

discrimination. But I think the challenge should be against the racial discrimination—not saying that, well, because the discretionary standard has this result that we should win this lawsuit 

even if we are not able to show—— 

Mr. SCOTT. Well, sometimes, as you call it, touchy-feely results 

in discrimination. Sometimes a mechanical approach, if you’re not 

using the right standard, can—I mean, if you’re using SAT scores, 

what you’re doing is not evaluating the student’s potential but the 

discriminatory education they were subjected to. 

Mr. CLEGG. But, see, I think the same sort of argument can be 

made here, too. You can say, look, why shouldn’t the individual be 

treated as an individual rather than simply looking at his credit 

score. Maybe—— 

Mr. SCOTT. There’s nothing wrong with the approach. I think 

what Mr. Klein is complaining about is, when they have that discretion, they used it in a discriminatory way. If they use it in a fair 

way, then we wouldn’t be here. 

Mr. CLEGG. Right. And what I’m saying, is when you bring that 

kind of a lawsuit, the ultimate question should be whether in fact 

disparate treatment has been proven or not. 

Mr. SCOTT. I think you can look at the numbers. 

If I can ask one more question. 

193 

Mr. Mayor, can you tell us—you’re testifying as a mayor of a city. 

Can you tell us what damage is done when there’s widespread discrimination in housing, what it does to a city? 

Mr. WHARTON. Certainly. 

Forty percent of the operating revenues for the City of Memphis 

come from property taxes. It has certainly had a damaging effect 

on our major source of revenue. The police calls—I’m getting into 

detail. Police calls to boarded-up homes, the effect on neighboring 

properties of homes that are now vacated, boarded up, and neglected, all of those drive down property values in the immediate 

neighborhood; and then it tends to spread. Those are very precise, 

damaging effects that these practices have had on our neighborhoods. 

As I indicated in my prepared remarks, they are all racially identifiable. This was not just something that they stumbled upon, but 

it has had a very damaging effect on property values in those areas 

that have been hard hit by these practices. 

Mr. SCOTT. Some cities have sued because of the damage inflicted on the city for lending practices. Has Memphis filed a lawsuit, or are you aware of other cities who have filed lawsuits? 

Mr. WHARTON. We have filed such a lawsuit. 

Mr. SCOTT. What is the basis of your lawsuit? 

Mr. WHARTON. The Fair Housing Act, and in an amended complaint we are alleging violations of certain State laws. 

As I indicated earlier pursuant to the Chair’s question, what are 

we asking, your question brings us to the question of whether we 

really have the standing for the United States government to become involved in that through the Attorney General’s Office. That 

question would be out of the way. 

It would be horrible for our lawsuit to be thrown out simply because the city, for whatever reason, at the early stage could not 

demonstrate damages, although we know the practices are there. 

It would seem sort of a miscarriage of justice to say, well, there 

may be something out there, but you’re not the one to come in here 

and tell us about it. And this is why we are seeking help from the 

United States Government on this. 

Mr. SCOTT. Mr. Chairman, if we could get copies of the lawsuits 

or any briefs that have been filed, that would be helpful. 

[The information referred to follows:] 

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Mr. NADLER. I thank the gentleman. 

The gentleman from Georgia is recognized. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

About an hour or so ago, I sent out a clarion call for my brethren 

and sisters on the other side of the aisle to appear so that they can 

defend Mr. Clegg. And, thus far, no one has appeared. And I wonder if that is related to the effort by Congress to pass Wall Street 

reform. I will note that on the other side of the Capitol, the folks 

over there have been filibustering Wall Street reform, and I think 

they have now relented, and they will argue their case on the floor. 

But I would like to ask you, Mr. Clegg, you mentioned earlier 

about the lending industry being pressured to make loans to noncreditworthy individuals. You did say that, correct? 

Mr. CLEGG. That is correct. 

Mr. JOHNSON. What kind of pressure was it? 

Mr. CLEGG. Well, again, I would commend to your-all’s reading 

the report by the U.S. Commission on Civil Rights. And also in my 

testimony I cite that report and also some other—— 

Mr. JOHNSON. That report is not a Federal law that compels the 

lending industry to do something. I guess you cited Federal laws 

in your paper or in that paper that would act to pressurize or pressure banks or lending institutions to grant lending, to grant loans 

to non-creditworthy individuals. What laws are you talking about? 

Mr. CLEGG. I’m talking about the Community Reinvestment Act. 

I’m talking about lawsuits that were brought during the Clinton 

administration, in particular, using the disparate impact approach. 

Private lawsuits, you know, in that area as well. And Administration policies that I think were, in the Clinton administration, policies that were well intended. 

Mr. JOHNSON. Did they actually pressure—I mean, did they pressure the lending institutions to make loans to non-creditworthy individuals? 

Mr. CLEGG. Yes. Let me just read you something. 

Mr. JOHNSON. Give me some examples. 

Mr. CLEGG. Let me read you from this report. 

It says, ‘‘at the root of the real estate crisis was a misguided notion that home ownership should be available to all people—what 

President Bush has called the ‘ownership society.’ ‘The ‘‘I told you 

so’’ here is that home ownership is a nice thing, but it is not suitable for everyone.’ ’’ 

Mr. JOHNSON. You’re not telling me anything about how lending 

institutions were pressured to make these predatory loans to get 

people in houses when they really knew that the folks were 

uncreditworthy. I think that’s a false argument. It puts the Wall 

Street debacle on—it blames the consumer for the Wall Street debacle, when, in fact, what was happening was these substandard 

predatory loans were packaged as securities. They were bundled together, packaged as securities, and sold on Wall Street. 

Mr. CLEGG. I am not going—— 

Mr. JOHNSON. For exorbitant interest rate profits, correct? 

Mr. CLEGG. I am not going to defend the practices on Wall 

Street. But what I’m saying is—— 

Mr. JOHNSON. Hold on now. Because those same Wall Street 

banks owned outfits like Countrywide and all of the others. And 

278 

then those very banks who bundled the securities together, or bundled the mortgages together, sold them as securities which then became non-performing loans, with the securities becoming worthless. 

Those same Wall Street banks are buying a short position from 

AIG so that they could not lose; and then the taxpayers end up 

bailing out AIG $160 billion, I believe it was. 

Where are my friends on the other side of the aisle to come down 

and help you and defend you in the onslaught of my questions? I 

shouldn’t say ‘‘onslaught’’. You deserve some protection. 

Mr. CLEGG. I will do my best, Congressman, to defend myself. 

I think if there was an uptick in subprime lending in the recent 

past, it may have come about—and, again, I’m not an economist, 

I’m just suggesting this—it may have come about because lenders 

were being pressured by government and quasi-government agencies like Freddie Mac and Fannie Mae to make more loans to individuals with marginal creditworthiness. The response of the lenders might have been to say, okay, fine, we are getting this pressure—— 

Mr. JOHNSON. We don’t want to make that money that we’ve 

been making where we can’t lose whether or not the mortgages are 

good or whether or not they are bad loans. We went anyway. 

Mr. Klein, you said something about Mr. Clegg being dead wrong 

about some other topic during this hearing. Is he dead wrong about 

this? 

Mr. KLEIN. Yes, Congressman, he is dead wrong again. No one 

in the civil rights community or in the consumer community or in 

the housing community ever created any pressure on the lending 

community to make loans that borrowers couldn’t afford. It’s absurd. 

The whole idea was to go in and make loans at prime rates to 

give people home ownership opportunities. And what happened was 

the banks looked around, in my view, and said, oh, there’s a vacuum there in those communities that we haven’t been filling. And 

instead of filling them by building new brick-and-mortar branches 

and sending in mortgage representatives to make loans on the 

same terms as was made in White communities, they filled the vacuum by buying loans from brokers and sending in subprime units 

in order to make loans on different rates, and that’s where the 

steering came in. 

So that what happened was that, instead of going in and helping 

people fulfill the promise of home ownership, they went in sensing 

a profit-making opportunity to make high-rate subprime loans on 

terms that people couldn’t afford; and it was exactly for the reason 

that you suggested, Congressman, because they knew that the secondary market would buy these things. They would be able to 

make their profit and leave the investors down the road somewhere 

holding the bag when things went sour. And that’s exactly what 

happened, and that’s a big part of the problem with the economy 

today. 

Mr. JOHNSON. And that’s pretty much what the Federal Government is alleging against Goldman Sachs in terms of selling long 

and buying short. 

And I appreciate it, Mr. Chairman. I might close out by just saying that, after amending the Bankruptcy Code back in 2005 to 

279 

make it more difficult and expensive for aggrieved homeowners to 

file Chapter 13 to save their homes and being successful at it and 

then failing to oversee these practices that we just discussed in the 

financial services industry, I believe I know why no one showed up 

from the other side. 

Thank you. 

Mr. NADLER. Thank you. 

Let me just ask one question of Mayor Wharton before we close 

the hearing. 

The Federal Government is collaborating with a lot of cities and 

States to address the problem of predatory lending and reverse redlining. Has Memphis or Shelby County collaborated either with 

other cities or with the Federal Government to address these practices? 

Mr. WHARTON. Yes. We have communicated on a number of occasions with Deputy Attorney General Perez, also with our State Attorney General, and in any way possible we will work with other 

cities. But, as I indicated earlier, there are some limits because of 

certain jurisdictional questions that cities are faced with that the 

Federal Government does not have to deal with when it comes to 

standing and other issues. 

Mr. NADLER. Thank you very much; and, with that, I want to 

thank our witnesses. 

Without objection, all Members will have 5 legislative days to 

submit to the Chair additional written questions for the witnesses 

which we will forward and ask the witnesses to respond as promptly as they can so that their answers may be made part of the 

record. 

Without objection, all Members will have 5 legislative days to 

submit any additional materials for inclusion in the record. 

With that, again, I thank the witnesses; and this hearing is adjourned. 

[Whereupon, at 3:35 p.m., the Subcommittee was adjourned.] 

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