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93–393 PDF 2004

S. HRG. 108–453

PREDATORY LENDING:

ARE FEDERAL AGENCIES PROTECTING OLDER

AMERICANS FROM FINANCIAL HEARTBREAK?

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

WASHINGTON, DC

FEBRUARY 24, 2004

Serial No. 108–29

Printed for the use of the Special Committee on Aging

(

SPECIAL COMMITTEE ON AGING 

LARRY CRAIG, Idaho, Chairman 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

MIKE ENZI, Wyoming 

GORDON SMITH, Oregon 

JAMES M. TALENT, Missouri 

PETER G. FITZGERALD, Illinois 

ORRIN G. HATCH, Utah 

ELIZABETH DOLE, North Carolina 

TED STEVENS, Alaska 

RICK SANTORUM, Pennsylvania 

JOHN B. BREAUX, Louisiana, Ranking 

Member 

HARRY REID, Nevada 

HERB KOHL, Wisconsin 

JAMES M. JEFFORDS, Vermont 

RUSSELL D. FEINGOLD, Wisconsin 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

DEBBIE STABENOW, Michigan 

LUPE WISSEL, Staff Director 

MICHELLE EASTON, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Larry E. Craig ..................................................... 1

Statement of Senator Debbie Stabenow ................................................................ 23

PANEL I 

David Wood, director, Financial Markets and Community Investments, U.S. 

General Accounting Office, Washington, DC ..................................................... 2

John C. Weicher, assistant secretary of Housing/Federal Housing Commissioner, U.S. Department of Housing and Urban Development, Washington, 

DC .......................................................................................................................... 24

Howard Beales, director, Bureau of Consumer Protection, U.S. Federal Trade 

Commission, Washington, DC ............................................................................. 33

PANEL II 

Gavin Gee, director, Idaho Department of Finance, Boise, ID ............................ 51

Lavada E. DeSalles, member, Board of Directors, American Association of 

Retired Persons, Washington, DC ...................................................................... 65

Veronica Harding, Philadelphia, PA ...................................................................... 73

APPENDIX 

Statement of George Brown, senior vice president of the Center for Responsible Lending ........................................................................................................ 107

Statement of the American Securitization forum ................................................. 116

Statement of the Bond Market Association ........................................................... 125

Testimony of the Coalition for Fair and Affordable Lending (CFAL) ................. 131

Testimony submitted by the Consumer Mortgage Coalition ................................ 149

Consumer Protection Report submitted by GAO .................................................. 179

(III) 

(1)

PREDATORY LENDING: ARE FEDERAL AGENCIES PROTECTING OLDER AMERICANS 

FROM FINANCIAL HEARTBREAK? 

TUESDAY, FEBRUARY 24, 2004 

U.S. SENATE, 

SPECIAL COMMITTEE ON AGING, 

Washington, DC. 

The committee met, pursuant to notice, at 10:02 a.m., in room 

SD–628, Dirksen Senate Office Building, Hon. Larry Craig (chairman of the committee) presiding. 

Present: Senators Craig and Stabenow. 

OPENING STATEMENT OF SENATOR LARRY CRAIG, CHAIRMAN 

The CHAIRMAN. Good morning, everyone. The Senate Special 

Committee on Aging will be convened. Our ranking member, Senator Breaux wanted to be here, but he had a conflict in his committee schedule, which is quite typical this hour of the day with 

many of our colleagues. 

Anyway, I want to thank you all for attending the Special Committee on Aging hearing this morning. Four years ago, this Committee held a hearing on equity predators, which treated this type 

of lending fraud in a very broad context. However, since then, we 

felt this subject merited further sustained and comprehensive inquiry, particularly in the context of home real estate assets belonging to our nation’s seniors. To that end, in the fall of 2002, we commissioned a bipartisan study by the General Accounting Office into 

the problems presented by this type of fraud. The study was to include the Federal and State efforts in enforcement and education 

in this area as well as the effectiveness of such efforts, particularly 

on senior citizens. 

This study has taken a year to complete and represents only the 

initial step in this oversight endeavor. Accordingly, today, we narrow the focus on the ruthless stripping of seniors of their lifelong, 

hard-earned equity in homeownership by unscrupulous brokers and 

lenders. Senior citizens seek to live comfortably in their advancing 

years but also must meet the rising financial costs of medical care 

and everyday living expenses. To meet these expenses, they often 

tap into the equity of their homes. In so doing, all too often, 

through are taken advantage of by those types of predators. 

Today, we explore the types of Federal agency efforts as well as 

State efforts and their effectiveness in addressing the problems 

under the myriad of laws already in place. We will begin with witVerDate 0ct 09 2002 15:30 May 20, 2004 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\93393.TXT SAGING1 PsN: JOYCE
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nesses from the General Accounting Office and two Federal agencies involved in the noble combat of this kind of fraud. 

The CHAIRMAN. Our first witnesses will be David Wood, director 

of Financial Markets and Community Investment of the General 

Accounting Office. He will be joined by John Weicher, assistant secretary for Housing, Federal Housing Commissioner at HUD and 

Howard Beales. 

Mr. BEALES. Beales. 

The CHAIRMAN. Beales; thank you, Director, FTC’s Bureau of 

Consumer Protection. 

Our second panel will be that of Gavin Gee, past-president of the 

National Association of State Bank Examiners and Lavada 

DeSalles, member of the Board of Directors, AARP and Ms. 

Veronica Harding of Philadelphia, PA, a victim of such a predator 

who has come here today to share her important message. 

We thank you all for joining us. We will start with our first 

panel. Again, to all of you thank you for being here. Mr. Wood, if 

you would proceed, please. 

STATEMENT OF DAVID WOOD, DIRECTOR, FINANCIAL 

MARKETS AND COMMUNITY INVESTMENTS, U.S. GENERAL 

ACCOUNTING OFFICE, WASHINGTON, DC 

Mr. WOOD. Thank you, Mr. Chairman. As we note in our report 

to you and Ranking Member Breaux, predatory home mortgage 

lending has no precise definition, rather, it refers to a range of unsavory practices. Our report, which you are releasing today, addresses five aspects of this complex issue: first, how elderly homeowners, in particular, may be susceptible to abusive or predatory 

lenders; second, the actions of Federal agencies to address predatory lending practices; third, an overview of State laws on the subject, with case examples from two States; fourth, how the secondary market for home mortgage loans can affect predatory practices; and fifth, the roles of consumer education, mortgage counseling and disclosure requirements in fighting such practices. 

In the interests of time, I will focus my remarks on the first two 

aspects. A number of factors may make the elderly especially susceptible to predatory or abusive lenders. First, older homeowners 

on average have more equity in their homes, making them inviting 

targets to lenders looking to strip equity from unsuspecting borrowers. Second, elderly homeowners often live in older homes and 

are more likely to need someone to do repairs for them. This makes 

them particularly vulnerable to lenders and home improvement 

contractors who collaborate to swindle. Third, physical impairments associated with aging such as declining vision, hearing or 

mobility can restrict elderly consumers’ ability to obtain and compare credit information. Finally, some elderly people lack social and 

family support systems, potentially increasing their susceptibility 

to unscrupulous lenders who market loans through home visits. 

In response to concerns about predatory lending, Federal agencies have taken a number of actions that generally fall into three 

categories. First, Federal agencies have conducted or funded education initiatives to increase consumers’ financial literacy. Some of 

this effort is focused on the elderly population; for example, the DeVerDate 0ct 09 2002 15:30 May 20, 2004 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\93393.TXT SAGING1 PsN: JOYCE
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partment of Justice offers guidance warning about financial crimes 

against the elderly. 

However, Federal consumer protection laws that have been used 

to address predatory lending generally do not have provisions specific to elderly persons. Accordingly, the other two types of actions 

by Federal agencies: first, revising regulations or guidance applicable to lending institutions; and second, undertaking enforcement 

actions against certain lenders are designed to protect all consumers. 

We asked eight Federal agencies involved in oversight or law enforcement among mortgage lending institutions to identify actions 

they have taken to address predatory lending. These eight agencies 

included the five financial institution regulators, that is, the Federal Reserve, the Office of the Comptroller of the Currency or OCC, 

the Office of Thrift Supervision, the Federal Deposit Insurance Corporation and the National Credit Union Administration. The others 

were the Federal Trade Commission, the Department of Justice 

and HUD. 

The five banking regulators reported little evidence of predatory 

lending activities among the institutions they supervise. Accordingly, only one, the OCC, reported taking a formal enforcement action. The regulators have, however, issued guidance to their institutions about predatory lending and subprime lending in general. 

Further, the Federal Reserve tightened its regulations implementing the Home-Ownership and Equity Protection Act, the only 

Federal law specifically directed at predatory lending practices, and 

revised other regulations to require that lenders provide more data 

with which to analyze lending patterns. 

The Federal Reserve also oversees financial and bank holding 

companies, some of which own non-bank mortgage lending subsidiaries. Because these companies are engaged in subprime lending, 

our report recommends that the Congress clarify the Federal Reserve’s authority to monitor and examine their lending activities. 

Among the remaining three Federal agencies, the Federal Trade 

Commission has filed about 20 complaints since 1998 against mortgage lenders or brokers. HUD has taken steps to avoid abuses involving mortgages insured by the Federal Housing Administration, 

or FHA. While abuses such as flipping FHA properties, that is, repeatedly reselling them at escalating prices, are ultimately directed 

at bilking the lender or insurer, they may also harm innocent 

homebuyers. Finally, the Department of Justice has taken two 

major enforcement actions against lenders under the fair lending 

laws. 

Mr. Chairman, that concludes my prepared statement, and I will 

be happy to respond to any questions you have. Thank you. 

[The prepared statement of Mr. Wood follows:]

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The CHAIRMAN. Mr. Wood, thank you very much for that statement. 

We have been joined by another of our colleagues and a member 

of this Committee, Senator Stabenow. So, Secretary Weicher, before we go to you, I am going to ask if the Senator has any opening 

comments, and then we will proceed. 

OPENING STATEMENT OF SENATOR DEBBIE STABENOW 

Senator STABENOW. Thank you. I first welcome our panelists and 

want to particularly thank you for this hearing. This is a very important topic. I sit on the Banking, Housing and Urban Affairs 

Committee and since coming to the Senate 3 years ago have spent 

a great deal of time on this issue, and recognize, in fact, it was one 

of the first issues brought to me after becoming a member of that 

Committee from the people of Michigan. 

I would appreciate if I could put a statement, my prepared opening remarks into the record. 

The CHAIRMAN. Certainly. 

Senator STABENOW. I would just add that I think there are a 

number of things that we can do together, and one of the positive 

steps that has already been taken is that in the Fair Credit Reporting Act, which we passed overwhelmingly last fall, a title of mine 

that I cosponsored along with Senator Enzi in the Committee is on 

financial literacy, and we specifically placed that in the new law to 

focus on a coordinated effort on financial education, specifically to 

help address some of the issues of predatory lending. 

I realize it is a larger issue. It is complicated. There is a lot that 

needs to be done on the enforcement end, but we also know that 

good consumer information, consumers being able to ask the right 

questions and being able to get good answers before they make decisions is a part of the whole issue. 

So, I am hopeful that this section, this new title of the act, will 

be enforced quickly, and we will be able to use that as part of the 

way we begin to address this very serious issue. Thank you. 

[The prepared statement of Senator Debbie Stabenow follows:] 

PREPARED STATEMENT OF SENATOR DEBBIE STABENOW

Thank you, Senator Craig, for convening this hearing on predatory lending. Americans have a right to expect their national legislators to be concerned about and 

take action to thwart abusive lending practices. 

We know that home ownership provides basic financial security for Americans at 

all income levels. Homeowners hold an asset that most often increases in value, that 

provides stability in uncertain times; and that can be bequeathed to heirs. We also 

know that most mortgage lenders and brokers are upstanding businesspeople. But 

there are some unscrupulous lenders who prey upon naive consumers and take advantage of their limited financial understanding, ultimately jeopardizing consumers’

basic financial security. 

Sadly, predatory lending is a practice that disproportionately targets older adults. 

Victims of this type of financial abuse often find themselves paying much higher interest rates, losing their equity through unnecessary and repeated refinancings. 

Many even end up losing their homes. 

Members of Congress have heard horror stories from victims of predatory lendings 

as well as potential solutions from different representatives of the lending industry. 

As a member of the Banking and Housing Committee, I have pushed for greater 

financial education, enhanced enforcement of existing anti-predatory laws, and 

strong new protections against unethical yet technically legal practices. I will continue to do so. 

24

Thank you again, Senator Craig, for holding this important hearing. I look forward to hearing testimony from these knowledgeable witnesses and to working toward ending the unfair practice of predatory lending.

The CHAIRMAN. Senator, thank you for your leadership in this 

area. We hope you will take this study over to the Committee along 

with the record that I think we can build here that will advance 

these issues for you. 

Thank you very much. Now, let us turn to John Weicher, assistant secretary for Housing. Welcome before the Committee, John. 

STATEMENT OF JOHN C. WEICHER, ASSISTANT SECRETARY OF 

HOUSING/FEDERAL HOUSING COMMISSIONER, U.S. 

DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, 

WASHINGTON, DC 

Mr. WEICHER. Thank you, Mr. Chairman and thank you, Senator 

Stabenow for the opportunity to testify this morning on the efforts 

of the Department of Housing and Urban Development to combat 

predatory lending and protect senior citizens and, indeed, all Americans against unfair and deceptive lending practices. 

Meeting the housing needs of senior citizens while protecting 

them from predatory lending practices is a high priority at the Department. I would like to submit my prepared statement for the 

record and just discuss a few aspects of our efforts with you this 

morning. 

The CHAIRMAN. All full statements will become a part of the 

record. Thank you. 

Mr. WEICHER. HUD’s authority to address predatory lending essentially extends only to FHA loans and FHA lenders, so I would 

like to start by describing our mortgage insurance activity. 

Our typical homebuyer is a young, first-time homebuyer, often a 

minority household. In fiscal year 2003, FHA insured 600,000 home 

purchase mortgages. Of these 80 percent were to first-time homebuyers, and 40 percent were to minority households. About 1 percent of FHA’s home purchase borrowers are elderly. 

But FHA does have one important insurance program that specifically serves the elderly. This is the home equity conversion 

mortgage program. HECMs are also known as reverse mortgages. 

They let elderly homeowners convert the equity into their homes 

into income that can be used to pay for living expenses. FHA accounts for about 95 percent of the reverse mortgage market. 

The HECM program started as a demonstration in 1990. We now 

have insured 90,000 loans overall. In each of the last 2 years, we 

have set records. We endorsed over 13,000 loans in 2002 and then 

set another record in 2003 with over 18,000 loans. Three-quarters 

of the borrowers are aged 70 or over. There are even some borrowers older than 90. We recognize that seniors with considerable 

equity in their homes can be prime targets for predatory lending. 

FHA-insured HECMs give seniors an alternative. We require that 

seniors considering a HECM loan receive counseling, and we have 

worked hard to ensure that the counseling they receive is of high 

quality. 

During the housing counseling session, the senior learns how a 

HECM works, how much he or she would receive through a HECM, 

how much the transaction will cost, what are the financial alterVerDate 0ct 09 2002 15:30 May 20, 2004 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 C:\DOCS\93393.TXT SAGING1 PsN: JOYCE
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natives and what are the tax and estate consequences, among other 

things. 

One of HUD’s major partners in our effort to educate seniors 

about reverse mortgages is the AARP Foundation. The foundation 

sponsors the reverse mortgage education project, which has been 

the leading consumer voice in the reverse mortgage market for over 

a decade, providing in-depth, objective consumer information and 

promoting high quality independent consumer counseling on reverse mortgages and other alternatives. 

During 2003, the project doubled the size of its counseling network, and this year, the project has received a 150 percent increase 

in funding from HUD, from $750,000 in 2003 to $1.9 million this 

year. HUD funds AARP through our Housing Counseling Grant 

Program. Housing counseling funds have doubled in this administration, from $20 million to $40 million, and President Bush is proposing to increase our Housing Counseling Grant Program to $45 

million in this year’s budget, another 12.5 percent increase. 

We know that housing counseling works. Families who receive 

counseling are better able to select the best mortgage for their 

needs and better able to manage their finances so they can remain 

in their homes. Housing counseling has proven to be an extremely 

important activity to educate consumers on how to avoid abusive 

lending practices. 

In my formal statement, I discuss other HUD activities to combat 

predatory lending, including new regulations, some addressing the 

HECM program specifically and others addressing all of our borrowers, and also vigorous enforcement of FHA procedural violations 

by lenders and others. They protect all FHA homebuyers, elderly 

and non-elderly alike. 

In the interests of time, I will skip over these at this point, but 

I would like to mention that HUD works closely with State and 

local governments to carry out enforcement actions against business partners engaged in predatory lending. We also work with 

coalitions of community groups to help FHA-insured borrowers who 

have been victimized by predatory practices. 

We have tripled our enforcement staff over the last year. On a 

national level, HUD’s Inspector General continues to work closely 

with law enforcement in many States, notably New York, New Jersey, Pennsylvania, Illinois and Arizona, to target unscrupulous 

lenders and better combat abusive lending practices. 

HUD also works closely with the FTC to prosecute lenders who 

engage in illegal practices. Some of these cases are described in 

both my prepared testimony and the statement of Mr. Beales and 

also in the GAO report. 

I hope this discussion of our efforts and accomplishments has 

made clear that the Department is aggressively policing program 

participants and imposing significant sanctions on business partners found to be violating our procedures or otherwise engaged in 

abusive or deceptive behavior. The administration remains firmly 

committed to protecting seniors and all consumers against predatory lending practices. 

We are happy to have this opportunity to discuss our activities 

and look forward to working with you to strengthen consumer protections against predatory lending. 

26

[The prepared statement of Mr. Weicher follows:]


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The CHAIRMAN. Mr. Secretary, thank you very much. Now, let us 

turn to Howard Beales, director, FTC’S Bureau of Consumer Protection. Director Beales, welcome. 

STATEMENT OF HOWARD BEALES, DIRECTOR, BUREAU OF 

CONSUMER PROTECTION, U.S. FEDERAL TRADE COMMISSION, WASHINGTON, DC 

Mr. BEALES. Thank you very much, Mr. Chairman and Senator 

Stabenow. 

I appreciate the opportunity to appear before you today on behalf 

of the Commission to discuss our efforts to combat unfair and deceptive practices in the subprime mortgage lending industry. 

The damage that dishonest and unscrupulous lenders can cause 

to consumers of all ages, loss of one’s life savings or even one’s 

home, is potentially catastrophic. The Commission has maintained 

a vigorous enforcement program, achieving notable successes in 

halting illegal practices and returning hundreds of millions of dollars to defrauded borrowers. At the same time, the agency has been 

careful to avoid discouraging honest subprime lenders from making 

credit available to consumers. 

My testimony today will discuss the subprime lending market 

and the Commission’s enforcement and education efforts. In recent 

years, the subprime mortgage lending market has grown dramatically as part of a trend in this country toward greater availability 

of credit to credit-impaired consumers. This development has been 

fueled by the use of risk-based pricing, through which creditors 

fine-tune the terms of a loan offer to a consumer’s specific credit 

history. 

No longer are credit-impaired consumers shut out from the credit 

market. Instead, they are offered credit, albeit on terms less favorable than those offered to consumers with stronger credit histories. 

The expansion of credit availability that risk-based pricing makes 

possible greatly benefits consumers, providing more choices at more 

reasonable rates. Subprime borrowers can now obtain needed credit 

when previously they did not qualify at all. 

Of course, subprime loan terms are less favorable than those 

available to prime borrowers, but higher rates are appropriate 

when commensurate with the risks involved. For the subprime 

market to operate effectively, it is critical that it be free of illegal 

practices. As this market has emerged, however, some lenders and 

loan servicers deceived or defrauded consumers. The Commission, 

working with its Federal and State partners, has used its law enforcement tools successfully to stop such illegal conduct. 

The Commission has jurisdiction over lenders and servicers other 

than banks, savings and loan institutions and Federal credit 

unions. Our primary enforcement tool is the FTC act, which broadly prohibits unfair or deceptive practices. In recent years, we have 

settled or prosecuted cases against 20 subprime mortgage companies of various sizes and located in different parts of the country. 

Several of these cases have resulted in large monetary judgments. 

Let me highlight three of the Commission’s most recent enforcement efforts. In September 2002, we reached a settlement with the 

Associates and its successor, Citigroup. At one time, the Associates 

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mission alleged that it lured consumers into high rate loans by deceiving them about their true costs and by deceptively packing single premium credit insurance into the loan. At the time, the $215 million settlement was the largest redress 

order in FTC history, by far. In another recent settlement with 

First Alliance Mortgage Company, the FTC and others, including 

six States, private plaintiffs and the AARP alleged that the company promised consumers loans with no up front fees. In reality, 

the companies charged exorbitant origination fees, typically 10 percent but sometimes 20 percent of the amount of the loan. 

Most recently, last November, the Commission and the Department of Housing and Urban Development announced a settlement 

with Fairbanks Capital Corporation, one of the country’s largest 

third-party subprime loan servicers. Among other things, the Commission charged that Fairbanks did not post payments until after 

the payment deadline had expired and then imposed late fees and 

other charges as a result. 

The Commission also alleged that Fairbanks charged borrowers 

for homeowners’ insurance even when they already had insurance 

in place. FTC redress funds for these three settlements alone 

amount to $345 million, a remarkable achievement on behalf of aggrieved borrowers. Enforcement is important, but the first line of 

defense against fraud and deception is educated consumers who 

shop for the best deal. The Commission has implemented extensive 

programs to educate consumers about financial literacy generally 

and subprime borrowing specifically. 

In October 2003, the Interagency Task Force on Fair Lending, of 

which the Commission is a part, published a brochure called Putting Your Home on the Loan Line is Risky Business. This brochure 

discussed the risks of home equity loans and makes recommendations to help borrowers avoid those risks. Also, earlier this month, 

when we mailed over 800,000 redress checks to borrowers in the 

Associates case, we included a bookmark containing tips on shopping for a home equity loan. 

We recognize that the American population is aging, and issues 

facing older consumers are therefore a priority for the agency. A recent study found that the population of subprime borrowers tends 

to be older than the population of prime borrowers. Therefore, 

while older Americans may have benefited more from the expansion of the subprime market, they may have also suffered more 

from illegal lending practices. 

At the FTC, we are committed to preserving the increased access 

to credit that the subprime market has made possible while illegal 

practices that deceive or defraud consumers. Through our enforcement and consumer education, we continue to work to protect consumers of all ages. 

Thank you and I would be happy to answer questions. 

[The prepared statement of Mr. Beales follows:]

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The CHAIRMAN. Director, thank you very much for that statement. 

We will now turn to questioning. 

Mr. Wood, in the efforts of the General Accounting Office, did 

you find a central data base for information containing government 

investigations, enforcement actions and other efforts to combat 

predatory lending? 

Mr. WOOD. There is no central data base of enforcement actions 

that we are aware of. 

The CHAIRMAN. As a result, your report was a matter of, if you 

will, fanning out and investigating all of those areas where Government has that authority. 

Mr. WOOD. Right, we contacted each agency separately. 

The CHAIRMAN. Given GAO’s recommendation and what the 

State of Georgia experienced, has the agency done any serious investigation of the possible adverse effects upon subprime lending 

markets among providers and consumers? 

Mr. WOOD. I am not sure I understand your question with respect to the Georgia law. 

The CHAIRMAN. In looking at that law——

Mr. WOOD. Yes 

The CHAIRMAN [continuing.] I guess what I am saying have you 

investigated the possible adverse effects upon a subprime lending 

market, both for providers and consumers? 

Mr. WOOD. We provide some information in our report about the 

Georgia law and what happened there and the changes that occurred. I do not know that we have a section specifically on the impact, and we certainly did not assess any impacts on our own. 

The CHAIRMAN. You did no assessment there. 

Mr. WOOD. That is correct. 

The CHAIRMAN. OK; that is fine. 

How closely have the Federal regulatory agencies coordinated 

their campaign in educating the public in general and seniors in 

particular about predatory lending, especially in matters of real estate? Obviously, we have heard an effort now going on at the FTC 

and others. 

Mr. WOOD. Right. 

The CHAIRMAN. Has there been an overall coordinated effort, in 

your analysis? 

Mr. WOOD. There has not been a single overall coordinated effort. 

Each of the agencies is doing different things. However, there are 

certain mechanisms that provide for coordination. There is an 

Interagency Fair Lending Task Force that established a working 

group on predatory lending specifically, and just recently, that 

group published a brochure. I think it is called Putting Your Home 

on the Line is Risky Business. 

The CHAIRMAN. Just mentioned, yes. 

Mr. WOOD. That came out of a cooperative effort among the 

agencies. 

The CHAIRMAN. Good, good. Well, thank you very much. 

Secretary Weicher, what is HUD’s view on the newly created Financial Literacy and Education Commission chaired by the Secretary of the Treasury? 

47

Mr. WEICHER. Well, we are certainly active participants in that 

commission, Mr. Chairman, and I am Acting Secretary Jackson’s 

alternate on that Commission, and I attended the first meeting a 

month ago at his request, and the Commission has established subcommittees to address issues of publicizing and making information public, a Website, an 800 number, and those committees are 

starting to meet. 

We are also very active as members of the Interagency Task 

Force on Fair Lending that Mr. Beales mentioned and that Mr. 

Wood mentioned. So we are participating in both of those efforts. 

The CHAIRMAN. OK; what is HUD’s view of the recommendation 

that GAO has made regarding the monitoring of the subprime 

lending market by the Board of Governors of the Federal Reserve? 

Mr. WEICHER. Well, we have not taken a position on that, but we 

certainly think that the subprime market, as Mr. Beales said and 

I think the GAO report says, embraces more than predatory lending. The important procedure is to attack predatory lending without limiting the ability of borrowers to obtain mortgages which are 

not predatory but which reflect the risks that they are imposing on 

lenders. 

The CHAIRMAN. OK; Director Beales, you have cited examples of 

enforcement. Does the FTC have an estimate of how much predatory lending in the real estate markets is costing the citizens of 

this country today? 

Mr. BEALES. We do not. We do not have any reliable basis on 

which to estimate either the total or the total for any age group. 

The CHAIRMAN. In the kind of investigative work you have done 

and those settlements that you have arrived at, how long did it 

take to put that kind of effort together and bring it to completion? 

Mr. BEALES. It varies by case. Some of them are more straightforward than others. Stewart Financial was probably 4 or 5 months 

before we filed, something like that. Other cases, like the Associates, were much more complicated cases; probably took a year or 

more to put together before we were ready to file a complaint. 

The CHAIRMAN. So they vary, of course, as you have said, depending on the character of the case. 

Mr. BEALES. Depending on the character, yes, and depending on 

how clear—what we typically see in our enforcement actions is misrepresentations about the terms of the loan. 

The CHAIRMAN. Yes. 

Mr. BEALES. Sometimes, those are clear. There are scripts that 

tell people to misrepresent, and those are relatively straightforward cases. Other times, we have to talk to consumers; we have 

to figure out what kinds of representations were actually made. We 

have to build the evidentiary record sort of consumer by consumer 

of what was actually happening and what the salesman was actually selling. Those are more complicated, and, you know, they just 

take longer to build our case. 

The CHAIRMAN. You mentioned that in the subprime market, 

that group tended to be an older group of people. Is it possible to 

obtain reliable data on what percentage of seniors make up settlements spoken to in your testimony? 

Mr. BEALES. No, we have not collected that information as part 

of the settlements. We are typically asking for a lot of information 

48

that we need in order to administer the redress program, and we 

try to make it as simple as possible and ask for as little as possible 

that we do not absolutely need in order to administer the programs. 

The CHAIRMAN. Sure; well, thank you very much. Let me turn to 

my colleague, Senator Stabenow, please. 

Senator STABENOW. Thank you, Mr. Chairman. Thank you again 

to each of you. 

I would first indicate that my personal conversations with people 

in Michigan and the hearings that I have had back home in Michigan have persuaded me that this is a very serious issue and that 

even though there may not be specific information that this is targeted to seniors, certainly in the information that I receive from 

people in my State, it is very clear that it appears that seniors are 

very highly targeted, I think particularly because they may have 

a home that is paid for or a great deal of equity built up in their 

homes, and I have had numerous examples brought to my attention of people who need a new furnace or a new roof on the home 

who have been talked into loans that ended up with extremely high 

points and fees and interest rates, getting very little out of the 

loan. In a couple of cases where the home was entirely paid for, 

and they were into totally refinancing their homes again in order 

to be able to meet certain needs in terms of home improvements 

and so on, really outrageous situations. 

One case, there was a situation where a gentleman was following 

seniors home from church on Sunday morning, getting to know 

them, building a rapport with them and then asking them, gee did 

they need any home improvements; did they need a new furnace? 

Could he help them with anything? Then, talking them into, again, 

situations and loans that took away their life savings or took away 

their homes. So I think it is a very, very serious issue. 

Having said that, I also believe a majority of lenders are reputable and that we are talking about a few bad actors, but they are 

definitely out there. I am very pleased to see that the Commission 

is up and running, the Financial Literacy Commission; again, as 

the sponsor of the provisions requiring a Website and a 1–800 

number and so on, I am very pleased to see things are moving as 

quickly as they are. 

One of the things that we found in looking at the financial education piece is that there are a lot of good things going on, FTC 

or HUD or Federal Reserve or all kinds of different agencies, but 

it was very difficult from a consumer’s standpoint to find out what 

is going on and to be able to access that. So I think that is a very 

important part of addressing this, Mr. Chairman, is to be userfriendly for people so that they can find out information. 

My questions really go to the enforcement end, and I also would 

add though, first, that I want to thank Freddie Mac, who has been 

involved in a program called Don’t Borrow Trouble, which we 

brought to Detroit, a very successful consumer education program 

and Fannie Mae and many others who have been involved as well 

in these efforts. 

But there has been a lot of discussion about whether or not we 

should pass a Federal law. In the absence of a Federal definition 

of predatory lending from a statutory standpoint, we are seeing 

49

communities, city councils, passing ordinances. We are seeing 

States passing laws to address the legitimate needs and concerns 

in their States. The question is whether or not we ought to be addressing this and, if so, how to make sure that we are providing 

adequate consumer protections as well as addressing the question 

of a national definition. 

I am wondering, Mr. Wood, if you looked at all at this issue from 

the standpoint of not just individual enforcement, and I would ask 

each of the other panelists as well to address this, but not just individual enforcement within existing regulations but whether or not 

there is a need for a national definition or set of definitions around 

which we would then enforce on predatory lending. 

Mr. WOOD. As we always do, we look for areas in which we can 

make a useful recommendation. One of the things in this area that 

we looked at clearly was, ‘‘Is there a gap in the current Federal 

laws in some area?’’ The one that we identified is the one that we 

raised in our matter for consideration. The difficulty, I guess, in 

coming up with a single definition, and this is one of the things 

that we wrestled with early, is how do you strike that balance in 

crafting a law that does not eliminate or cutoff credit to people who 

otherwise would not have it while at the same time preventing the 

most egregious abuses. We do not have an answer for exactly 

where that balance should be. 

Senator STABENOW. Thank you. I share that ambivalence or concern about how we strike that balance, but—yes, Mr. Weicher? 

Mr. WEICHER. Senator Stabenow, as I think both of my colleagues mentioned, there is no generally accepted definition of 

predatory lending. What we have done at HUD is to establish regulations that address individual practices which we consider to be 

abusive, unfair, deceptive, and to establish a regulation prohibiting 

that particular practice. The body of those regulations becomes, in 

our judgment, a comprehensive attack on predatory lending. 

In my prepared statement, I mention a number of regulations. 

One, in particular, is an anti-flipping rule, whereby we will not insure a mortgage if the home has been sold twice within a 90-day 

period unless there is evidence that this is a reasonable transaction 

and not a flip and that for transactions that occur between 90 days 

and 270 days, whether insurance is automatic depends on how 

much the price has increased over that period of time. 

This has been a particular problem in some of the larger cities. 

We have a particular problem in Baltimore, which has been 

brought under control——

Senator STABENOW. Right. 

Mr. WEICHER. By a variety of local efforts, and our anti-flipping 

rule contributes to fighting that problem in a number of larger cities. That is an example of the approach we have been taking, and 

we think it has been successful. 

Senator STABENOW. Are you indicating, then, that you think that 

is enough in terms of giving you the authority and the definitions 

that you need, or if you had a preference, would you prefer to see 

a more standardized definition? 

Mr. WEICHER. As I said, we deal essentially with FHA, almost 

exclusively with FHA-insured loans and FHA lenders, and we believe that we have authority to address the problems that we see 

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in the FHA-insured market. We have not felt that we needed to 

come to you with a request for additional legislative authority nor 

have we felt it necessary to develop a definition of predatory lending in general when we think we can target the individual practices that we see and go at them specifically. 

Senator STABENOW. Thank you. 

Yes, Mr. Beales? 

Mr. BEALES. Senator, what we have seen in our enforcement experience is really more of a problem of the claims that are made 

than of the loans themselves or the practices themselves. They may 

be perfectly legitimate kinds of loan approaches in the right circumstances, but if consumers do not know what they are getting 

into, that is the source of the problem. 

For example, in the case we did jointly with HUD that involved 

Mercantile Mortgage, there were loans with balloon payments. 

Now, that is a fairly common instrument and perfectly appropriate, 

but the borrowers were told no balloon payment. That is a problem. 

But it is a problem of deception rather than of the particular practices, and we feel like we have the authority to go after those practices wherever we find them. 

Senator STABENOW. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. Thank you very much, Senator. 

Let me also echo what the Senator did, and I think it is appropriate to be said that while the vast majority of our lenders out 

there are reputable, highly professional, skilled people who educate 

their consumers, we are after those who are not, obviously, and the 

phenomenal destruction that they raise against an individual or a 

couple when a life savings is oftentimes eliminated by that. 

It appears from the GAO effort and others that accumulating the 

data, grasping it or being able to bring it together in a way that 

is definable for our use is still a problem as it relates to age groups 

and those areas where there may be vulnerable communities of 

people that are being preyed upon. We will continue to make that 

effort, gentlemen. 

We appreciate all the efforts that you have made and the work 

that is now underway, and we will stay current on this issue with 

you and monitor it. As I have said in my opening statement, we 

believe that this will is one of many that we will be having over 

time as we review this and watch its process. Thank you very 

much. We appreciate it. 

The CHAIRMAN. Now, let me invite our second panel forward. 

Well, again, we thank our second panel for being with us. Let me 

start with Mr. Gavin Gee, who is the past-president of the National 

Association of State Bank Examiners and director of the Idaho Department of Finance. Gavin, welcome before the Committee.

51

STATEMENT OF GAVIN GEE, DIRECTOR, IDAHO DEPARTMENT 

OF FINANCE, BOISE, ID 

Mr. GEE. Thank you, Mr. Chairman. My name is Gavin Gee. I 

am the director of the Department of Finance for the State of Idaho 

and appear here today on behalf of the Conference of State Bank 

Supervisors. We thank you for this opportunity to testify on the 

States’ efforts to protect senior citizens and other consumers from 

fraudulent and predatory lending practices. 

Through CSBS, State regulators of banks and non-bank lenders 

meet to share information and share solutions to problems such as 

predatory lending. Predatory lending is a complex issue, and I 

want to begin my statement by distinguishing between predatory 

and subprime lending. Subprime lending is not necessarily predatory lending. As described in the prior panel, subprime lending 

products are loans that are priced according to risks associated 

with a particular borrower, and the availability of subprime mortgage loans in particular has made homeownership a reality for 

thousands of low and moderate income families. 

Predatory lending can be hard to define, but it is all too obvious 

when we see the harm it does to our most vulnerable citizens. Over 

the past several years, the States have learned a great deal about 

where the problems lie and how best to address them. We have 

learned that a single set of rules and remedies is not necessarily 

appropriate for every lender or for every group of borrowers. 

Our challenge and yours is to prevent abuses without reducing 

the availability of credit or stifling innovation in new lending products such as reverse mortgages, which have been a boon to many 

older Americans when appropriately marketed and underwritten. 

As you seek to understand the options for State and Federal Government action on this problem, I ask that you consider this point: 

Federal preemption of State consumer protection laws can, for all 

intents and purposes, deny consumers the real protection that 

State laws would give them. The explosion of the mortgage industry created a new class of lenders for nonprime borrowers, and in 

some cases, these lenders have engaged in predatory and fraudulent practices. 

Many States sought remedies through enforcement of existing 

laws, new legislation and financial education efforts. Our efforts 

have reached thousands of borrowers and potential borrowers, punished and discouraged predatory lenders and brought a national 

spotlight to this program and this problem. I would mention that 

the States have the largest enforcement action on record to date 

against a particular predatory lender. 

Even small States like Idaho have their share of predatory lenders. Idaho has found its existing laws sufficient to take action 

against predatory lenders, and we have not seen a need to enact 

separate anti-predatory lending legislation. A priority for my agency under this law has been to establish a program of routine examinations of mortgage brokers and mortgage lenders. Routine examinations allow our examiners to identify and address violations of 

consumer protection laws before these violations harm large shares 

of the population. 

Education is also a key element of our consumer protection mission. We are actively involved in the Idaho Financial Literacy CoaVerDate 0ct 09 2002 15:30 May 20, 2004 Jkt 000000 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 C:\DOCS\93393.TXT SAGING1 PsN: JOYCE
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lition, which provides educational resources and instructions to 

educators, youth leaders, the elderly and others who are in need 

of assistance or at financial risk. 

Over the past 3 years, our Department has processed 617 complaints related to non-depository lenders and 247 complaints relating to national banks or their operating subsidiaries. In the same 

period, we returned over $3.5 million to Idaho consumers as a result of resolved consumer complaints against mortgage brokers, 

mortgage lenders and finance companies and charged an additional 

$216,000 in fines and penalties. 

Under regulations recently issued by the Comptroller of the Currency, we would not have been able to take these actions if these 

businesses were operating subsidiaries of national banks. The OCC 

began by exempting national banks from specific State laws 

against predatory lending and has in recent weeks vastly expanded 

that exemption. The OCC now claims that national banks and their 

thousands of nonbank operating subsidiaries are exempt from virtually all State consumer protections and licensing requirements in 

the area of mortgage lending. 

The OCC has also said that the States have no authority to enforce a vast number of laws affecting national banks and their 

State-chartered subsidiaries, including consumer protections and 

laws against unfair and deceptive practices. Taking the States out 

of enforcement for a large and growing segment of the industry can 

have serious consequences. The Comptroller’s recent regulations 

would displace much of the investigative and enforcement network 

States have created for responding to consumer complaints, many 

related to the operating subsidiaries and affiliates of national 

banks. 

This network has been working, with millions even hundreds of 

millions of dollars, being returned to mistreated consumers. This 

issue of preemption is a critical obstruction to our work against the 

threat predatory lenders pose to senior citizens. Over the past 3 

years, our small agency conducted 618 routine examinations of 

nondepository lending institutions doing business in Idaho. These 

examinations are the ones that will be left undone if Idaho’s mortgage brokers, mortgage lenders and finance companies continue to 

surrender their State licenses to us under the claim of OCC preemption. 

With limited resources at both State and Federal levels, we 

should be talking about sharing responsibilities, not preempting 

valuable resources. Most consumers shopping for a mortgage do not 

understand that different sets of laws apply to different lenders. As 

in most States, Idaho borrowers call our Department if they have 

a problem with their bank, their mortgage broker or finance company. 

For the elderly, a local contact is critical, and consumers rightly 

expect that their State officials can go to bat for them when they 

have been wronged. We want to be able to respond to these calls 

effectively. If you lose the States as a laboratory for consumer protections and other innovations, you lose two great attributes of our 

Federalist system: the ability to find out what does and does not 

work and the ability to tailor the response to the problem. 

53

Predatory lending is an insidious practice that turns the American dream into the American nightmare. It steals not only the victims’ money and homes but their confidence in our financial system. We at the State level are the first line of defense against these 

unscrupulous businesses. A long-term solution to predatory lending 

requires three elements: consumer education, clear and consistent 

laws and effective enforcement. For the States, enforcement is becoming the weakest link. Federal preemption continues to hinder 

our enforcement efforts and has created incentives for businesses 

to seek the regulatory structure that guarantees the fewest consumer protections. This hurts the citizens of Idaho; this hurts the 

citizens of the United States. 

We stand ready to work with the Congress and with our Federal 

counterparts on a coordinated stand against predatory lending. Our 

experience should create a valuable foundation for solutions as we 

go forward. 

That concludes my testimony, Mr. Chairman. I would be happy 

to answer any questions the Committee may have. 

[The prepared statement of Mr. Gee follows:]

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The CHAIRMAN. Director Gee, thank you. I will be back to you 

with questions. You have made a very profound statement this 

morning that I want to pursue with you. 

Now, let us turn to Lavada DeSalles, member of the Board of Directors of the AARP. Thank you so much for being with us this 

morning. 

STATEMENT OF LAVADA E. DeSALLES, MEMBER, BOARD OF DIRECTORS, AMERICAN ASSOCIATION OF RETIRED PERSONS, 

WASHINGTON, DC 

Ms. DESALLES. Thank you for inviting us. My name is Lavada 

DeSalles. 

The CHAIRMAN. Lavada, thank you. 

Ms. DESALLES. Certainly. As you mentioned, I am a member of 

AARP’s Board of Directors. 

I appreciate this opportunity to testify, Chairman Craig, on a 

matter of concern to us; that is, the practice of predatory mortgage 

lending. The types of loans that are being made available to today’s 

borrowers have expanded well beyond the prime credit products 

traditionally offered at banks. Subprime credit lending has grown 

and grown rapidly. In 1984, the $35 billion in subprime mortgages 

represented less than 5 percent of all mortgage originations. By 

2002, subprime lending had increased to $213 billion or 8.6 percent 

of originations. 

AARP’s concern regarding the growth of the subprime market is 

based on numerous studies that indicate that older homeowners 

are more likely than younger borrowers to receive a subprime loan. 

This is a concern because the subprime market appears to be the 

primary source of predatory lending practices. Loan-skimming 

practices appear to most often occur when a subprime loan is refinanced. 

Additionally, AARP is concerned that push marketing, often conducted by subprime lenders, leads to loans that are sold and not 

sought. AARP continues to be concerned by research findings that 

the percentage and volume of foreclosures associated with 

subprime mortgages appears to be increasing. For older persons, 

the impact of foreclosure can be devastating, representing not only 

a loss of a lifetime of savings but the loss of one’s home and a lifetime of memories, even one’s independence. 

AARP has seen the devastation wrought by predatory loans upon 

older homeowners. We have been active in working to eliminate 

predatory lending through litigation, advocacy, and education. In 

my written statement, I provide two examples of the financial problems faced by borrowers receiving predatory loans and the efforts 

made by our litigators to provide relief for those who have been victimized. 

AARP has also been active at the Federal level, supporting 

antipredatory lending legislation and regulation. We have testified 

before numerous House and Senate committees as well as the Departments of Housing and Urban Development and Treasury, expressing our concerns about predatory lending and the need for 

stronger protections. AARP’s efforts have also included an educational campaign entitled ‘‘They Didn’t Tell Me I Could Lose My 

Home.’’ Educational materials, tips on shopping for mortgages and 

66

media messages are among the resources we offer to educate homeowners about predatory mortgage lending. 

AARP is pleased to report that as a result of our efforts and the 

efforts of many others, including leading lenders, Fannie Mae, 

Freddie Mac and other stakeholders, significant market changes 

have occurred. But clearly, more needs to be done. 

In summary, assuring that older, refinanced borrowers obtain appropriate loans is critical to ensuring the current and future financial security of millions of older Americans. Predatory lending 

harms both homeowners and legitimate lenders. 

We look forward to working with you, Chairman Craig, and with 

the other members of this Committee. Together, we must strive to 

find effective and appropriate methods for eliminating these exploitative lending practices. These practices have proven to be very 

devastating to older persons and their families. I would be happy 

to answer any questions that you may have. Thank you. 

[The prepared statement of Ms. DeSalles follows:]

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The CHAIRMAN. Ms. DeSalles, thank you very much for that testimony, and we are pleased to hear that the AARP is as alert on 

this as you are. I will pursue some of your efforts with you in a 

moment. 

Now, let us turn to Veronica Harding of Philadelphia, PA. She 

was the victim of such predatory lending, and Veronica, we are 

anxious to hear your story. 

STATEMENT OF VERONICA HARDING, PHILADELPHIA, PA 

Ms. HARDING. First, I would like to say good morning. My name 

is Veronica Harding. I will be 75 years old next month. I am a retired machine operator and domestic worker. I now support myself 

on Social Security and a small pension. I live in a Philadelphia row 

house that I purchased back in 1980. I paid $7,500 cash for my home in 1980. I guess it is worth now about $30,000. I love my home, and it is all I have to show for my 

lifetime working. I almost lost my house through a combination of 

being taken advantage of and not knowing what I was doing. I appreciate the opportunity that you give me today to tell my story. 

What I did, you know, when I woke up and found out what had 

really happened to me behind this terrible, disgraceful thing called 

predatory lending, I felt ashamed when I first found out what had 

happened to me. 

I was ashamed to talk about it. But then, I realized that if I 

could help just one person to keep them from getting mixed up and 

getting into trouble with this predatory lending, then I would have 

done something good. 

The first thing I would like to say, ‘‘I have learned the hard way 

that debt is like drugs. They start sending you credit cards in the 

mail, making you believe that instantly you can do the things, buy 

the things that you want to buy, that you could not really afford 

to do in the beginning, and you think they are doing something 

good for you.’’ Before you know it, you are in a debt that is too big for you to 

handle. They sent me credit cards. I used the cards, and I would 

occasionally borrow a couple thousand dollars to do small jobs on 

my home. Then, here comes the big stuff, the hard stuff. One day, 

a man came to my house, and he said he could get me a steel door. 

He told me that he thought the best thing for me to do would be 

to consolidate all my bills into one payment that I could pay off the 

door. 

Well, that started off with one big mortgage company, one big 

mortgage. It was $17,000. But within a couple of months of taking 

that mortgage, I started getting calls from many companies, from 

that company and other companies. They all told me that they 

would lower my payments if I would consolidate my bills. I was not 

looking for anybody. They looked for me. They found me. 

After refinancing my house three or four times, by 1997, the 

mortgage debt on my house was over $38,000. Now, remember, I 

have only a little money to live on. My house was all paid for. It 

is not even worth the $38,000 I now owe. 

I really do not remember too much about the loan in 1997. I remember a nice man calling me on the telephone. He seemed to 

know something about me and told me that he could make it easy 

74

to pay my bills. I remember him saying, ‘‘You got the coffee, I got 

the danish.’’ Honestly, I thought he was really doing me a favor. 

It is embarrassing to admit that I never understood what I was 

signing. But, you know, there are so many papers involved; these 

sales people, they are smooth talkers. 

In fact, I realize that I did not know what I was doing. Certainly, 

I did not know that they were burying me alive. Attached to my 

written testimony are copies of my loan documents from that last 

loan. First of all, I want to point out the name of the company that 

made me the loan, the American Mortgage Reduction. Senators, do 

not bother looking for that company, because they went out of business soon after my loan. I think American Mortgage Reduction sold 

out to Conti Mortgage Company. I never even heard from that one, 

even though I paid them for a couple of years. Then, afterwards, 

I found out that I was turned over to a company named Fairbanks 

Capital. 

That is who I have my loan with now. My point in telling you 

this is that you have to pay attention not only to the people who 

are making the loans but also to the people who are buying these 

loans. In my written testimony, I have given these loan documents 

one by one. 

This morning, I want to summarize a few key points: first, I now realize that I was putting over $38,000 of mortgage debt on my 

house. We never talked about the amount of the loan. Remember, 

I was not even trying to borrow anything. They found me. This 

loan would make it easier for me to pay my bills. These people who 

come to our houses selling these mortgages never talk about how 

much we are borrowing or the fees we are paying. They talk mainly 

about the monthly payments, about how, if you will take out this 

loan, you will make things better for yourself. Who does not want 

to do that? 

Second, a very big part of the debt is just fees. Of the $38,000 I was supposed to be borrowing, over $5,600 was just in fees. 

Third, the really scary part of the loan for me was the balloon, the 

balloon payment that they put on me. Now, the way that worked, 

I was supposed to pay $308 for 15 years, and then, in December 

of 2011, when I am 82 years old, I am supposed to make a payment 

of $29,000. Now, tell me where anybody at 82 years old is going 

to have money, $29,000, and have to make this payment in one 

lump sum. If I do not have that $29,000, they take my house. 

The other thing that is amazing about it is after 15 years of paying $55,400 in payments from my Social Security, I would still owe 

them the amount of the last mortgage company in 1997 when they 

refinanced me. 

It is a funny thing that just like the predatory lenders, the people who first helped me wake up to what had happened to me came 

knocking on my door. They were like my angels: Ira Goldstein and 

Rebecca Cook of The Reinvestment Fund and Paul Davies of the 

Philadelphia Daily News. They came separately, told me they were 

doing some researching on predatory lending, and they discovered 

me. They asked me for my loan documents, and I showed them. 

They sent me to my lawyer, Irv Ackelsberg at Community Legal 

Services. He is the one who is fixing my problem and saving my 

house for me. He filed bankruptcy for me. He sued the company 

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that has my loan and saved my house. Now, the $38,000 mortgage 

problem has been reduced to a $20,000 obligations that I can afford. My picture was on the front page of the Daily News in 2001, 

and then, I started giving talks at my church, around the city. The 

Mayor came to my house for a press conference, and also, I spoke 

at a press conference at City Hall for the graduating housing counselors for the predatory lending training program. 

The last page of my testimony shows a flier with my picture on 

it that the city was putting into water bills, inviting people to call 

the predatory lending hotline and send people to the housing counselors. 

Now, you have asked me for suggestions about what government 

agencies can do about this problem of predatory lending. Here are 

five things I think you should think about. First, stop acting like 

credit is always good. The more I have gotten involved, I have 

heard it said that we need to be careful about what we are doing 

about predatory lending, because it might dry up credit. Truth is, 

some kind of credit loans need to be dried up. Loans are just like 

food. Some food is good for you, and some food is not. 

Second, stop blaming people like me for getting into trouble and 

start protecting us from predatory lending. For a long time, I was 

really ashamed about what happened to me. But now, I realize 

what happened to me did not happen because I was a dumb person. It happened because you are letting people like those operate 

in our communities. Right in my block, believe it or not, we had 

19 other families caught up in the loans that the researchers who 

found me told me about. 

I think that the loan that I have, that was sold to me should 

have been illegal. All of those fees, the balloon payment, they really—I was not really looking for a loan. They talked me into these 

loans. They are dangerous products like cigarettes, unsafe cars. 

Sure, we need education, but we also need protection. 

Third, beware of this thing called preemption. I learned the word 

preemption about 3 years ago. In Philadelphia, we had a City 

Council hearing. We cried for help, and they heard us. They answered us with a new law against predatory lending. Two months 

later, some of the companies got angry. They went to Harrisburg, 

and they preempted it. The legislature preempted it. It seems like 

because the State government is higher than the city government, 

they can undo the things that the city has done. 

Now, I hear that the Federal Government, which is higher than 

the State, is talking about preempting some of the good things 

other States have done in protecting their people. I think that is 

terrible. Instead of spending so much time trying to pull each other 

down, I think the governments should get together and work together to make a difference about these things and put protection 

on us. 

Fourth, senior citizens need more counselors, lawyers, like we 

have in Philadelphia. I was just one of the lucky people who—people who helped me with what happened to me to fix my problem. 

Philadelphia has housing counselors, the legal services lawyers, 

who know about predatory lending. I hear that if I was in a different city, where they don’t have these services I would probably 

have lost my house by now. My lawyer has explained to me that 

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Community Legal Services actually has had to give up Federal 

funding in order to continue doing the work because of restrictions 

that Congress placed on legal service lawyers. This is a real shame. 

We need more lawyers and housing counselors, and we need to let 

them do their job. 

Fifth, spend less time talking to the big fellows, and spend more 

time talking to the little people like us, like me. I feel that predatory lenders can come here, hire fancy lobbyists, and tell you how 

wonderful they are. You probably do not get many opportunities to 

talk to people like me. But you should do more of that. Come to 

Philadelphia. I will have the coffee, and you bring the danishes. 

[Laughter.] 

I can show you over, over hundreds, hundreds of retired, churchgoing Americans who are in real trouble and need help, and this 

predatory lending—and I thank you so very much for the opportunity of letting this grandmother speak a piece of her mind. 

[The prepared statement of Ms. Harding follows:]

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The CHAIRMAN. Well, Ms. Harding, thank you very much. If you 

are a little person, that is a pretty loud voice, and I think it is 

being heard outside Philadelphia today, and we thank you for that 

testimony. 

Now, let me turn to all of you with questions. 

Gavin, you just heard Ms. Harding talk about preemption, and 

you spoke pretty forcefully about preemption and the Comptroller 

of the Currency. Does your association have any further views 

about the role of Federal regulations in general, especially, we are 

talking about in regard to GAO’s recommendation for further empowering the Board of Governors of the Federal Reserve? If you 

would speak to that and also your frustration again about what is 

happening to preempt States from the kind of enforcement authority that you have had? 

Mr. GEE. Yes; thank you, Mr. Chairman. Well, as I understand, 

the GAO recommendation is to empower the Federal Reserve to 

grant them more authority over essentially subsidiaries of holding 

companies. 

The CHAIRMAN. That is correct, yes. 

Mr. GEE. Nonbank entities that engage in lending. Let me say, 

Mr. Chairman, that we work very closely with the Federal Reserve. 

They are our partner in State-chartered Federal Reserve member 

banks and also with bank holding companies, we work closely with 

them. We have a very good working relationship with the Federal 

Reserve. 

We believe that it is appropriate, certainly, to have more regulators and more cops on the beat, if you will, with respect to predatory lending. I believe our concern in this area is that based on the 

OCC preemption, what you will have by empowering the Federal 

Reserve is with nonbank entities, you will have jurisdiction shared 

by the FTC, the Federal Reserve and the States, whereas, because 

of OCC preemption, national banks and their subsidiaries will only 

have a single regulator, and you will not have that oversight; you 

will not have examination that is currently being provided by the 

States. You will not have that in the Federal Reserve. I assume 

they will not have jurisdiction also over those subsidiaries of national banks. 

The CHAIRMAN. That is what I was just going to ask. That would 

include the subsidiaries of national banks within the national 

banks’ holding companies, would it not? 

Mr. GEE. It would include the subsidiaries of the national banks. 

Quite frankly, that is our major concern is those subsidiaries of the 

national banks. There are hundreds and hundreds, if not thousands, of those companies. We are seeing those companies turn in 

their licenses where they are currently licensed by the State. These 

are entities that are actually chartered by the States; have historically been chartered by the States. 

Most States, like we do in Idaho, examine those entities. We license many of those entities, and it is those entities now that we 

are being preempted from exercising not only any kind of licensing 

or regulatory authority over, but our office and the Attorney Generals’ offices in our States are being preempted from taking any 

kind of enforcement action against those entities. We do not have 

the ability to respond to consumer complaints and inquiries. As you 

92

probably know, Senator, in our State, the OCC has no office, no 

presence in Idaho. 

When consumers, particularly elderly folks, have complaints or 

concerns, they like to come in; they like to visit with us. Often, we 

will go out to their homes. We have five people on my staff dedicated to dealing with those kinds of consumer complaints and inquiries, whereas, the OCC has no presence in our State. You have 

to call an 800 number in Houston. That number is not even listed 

in our phone books to my knowledge. So, all of that is being preempted by this recent action of the OCC in dealing with national 

bank subsidiaries and national banks themselves. 

Let me just mention, in our State, Idaho may be somewhat 

unique. We only have one national bank actually headquartered in 

Idaho, a community bank. But national bank branches in Idaho 

represent about 70 percent of the market share in Idaho. So, a lot 

of the complaints and inquiries we receive are against national 

banks and national bank subsidiaries. 

So to take the States out, to take our ability to respond to our 

own consumers, just seems to me to be a huge policy mistake. 

The CHAIRMAN. Well, I believe I concur with you on that. You 

know, having once been a State legislator, but also understanding 

what the average person thinks when they think of government 

and when they think of help from government, they think local and 

State almost always at the beginning of that thought process, who 

can they reach the quickest, or who do they know or know someone 

who might know. Sometimes, our Federal Government agencies 

are—I will not say inaccessible but say daunting to access, maybe, 

is a better word for it. 

Mr. GEE. Well, absolutely, and we believe at the State level, we 

are the first line of defense. 

The CHAIRMAN. Yes. 

Mr. GEE. We are the first ones people call. They know to call the 

State banking departments. They know to call the State financial 

regulators. They look to us for help and assistance, and for us, now, 

to be preempted by this very large class of potential mortgage lenders, mortgage brokers, finance companies, virtually anybody in the 

lending business, now, that is a subsidiary of a national bank, we 

are preempted. Our ability to help those people, our ability to examine, license, regulate in any way has been preempted by this 

most recent OCC ruling. 

The CHAIRMAN. All right; thank you for that statement and that 

response. We will pursue that with the Comptroller, and, as I am 

sure, others are. I think when we see the impact of that kind of 

regulation, we get more State examiners and more finance directors like you coming forward in that area, that is something that 

I think Congress is going to want to take a look at. So I thank you 

very much for being here. 

Mr. GEE. Thank you, Mr. Chairman. 

The CHAIRMAN. Ms. DeSalles, what do you think the Federal 

Government should do to obtain the necessary data about how this 

particular fraud impacts our nation’s seniors? It sounds like AARP 

is attempting to gain a grasp of the impact of it; obviously, your 

educational outreach and all of that. Have you, yourself, polled the 

membership of the AARP specific to this area of concern? Of 

93

course, my question is how the Federal Government might gather 

that kind of information. 

Ms. DESALLES. I am not aware of any specific polling. Certainly, 

we have heard about numerous situations as was so eloquently described by Ms. Harding. It has been brought to our attention in reports from all of our States. People look to AARP for assistance in 

this area. But to be more specific, I am not aware of any specific 

polling of our membership on this issue. 

As far as the Federal Government’s data collection, I have not 

read, of course, the GAO report. I just got a copy of it today. 

The CHAIRMAN. Right. 

Ms. DESALLES. But we have a very well-respected research arm 

at AARP, and we are fully in support of any effort to add to the 

body of knowledge through data collection. I do not have a specific 

recommendation to offer, Senator Craig. 

The CHAIRMAN. Well, we might challenge AARP to look at its 

membership and maybe do some information gathering in this 

area. I will have to tell you that we had the CEO of AARP in Idaho 

last week testifying at a health conference, and a comment was because a young man in the audience had turned 50, they said the 

reason we had not caught Osama bin Laden was because he had 

not yet turned 50, and AARP had not gone out to find him. [Laughter.] 

Ms. DESALLES. That sounds like Bill Novelli. 

The CHAIRMAN. So I suspect that we might look to you, also, as 

a way of finding out reaction from an older community of Americans as it relates to this impact. So we will be engaging you and 

AARP as it relates to that. 

Any other—go ahead. 

Ms. DESALLES. I will ask staff to see if we have done—it is possible that we have done some polling on that issue that I am unaware of. 

The CHAIRMAN. Well, what often happens, and as I turn to Ms. 

Harding, the thing that she said so clearly often happens in these 

situations: elderly people I guess—I can use a Western phrase— hunker down, or they are quiet about something they did because 

they are embarrassed about it. 

Ms. DESALLES. Absolutely. 

The CHAIRMAN. They will not come forward and speak up, or 

they do not know where to go to speak up. So, they walk away 

maybe having lost a home or a large chunk of their equity or their 

assets simply because they are embarrassed. They feel they were 

taken. I am thinking of you and a way to access an information 

base that might tap that kind of concern or response that we might 

not otherwise be able to gain. 

Ms. DESALLES. I will have my staff get back to you on that.

94


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The CHAIRMAN. Great. Thank you very much. 

Well, Ms. Harding, your testimony is important to this Committee. I think it exemplifies the very kind of thing that we are 

pursuing here. We have high-quality professional people in the 

lending business, and some of them, most of them, are very credible. There are others who are not, and of course, that is where we 

are looking. Your experience, I think, clearly speaks to that. 

I think your recommendation, your five recommendations really 

are very critical to us. You have heard Senator Stabenow and myself and others talk about educating and outreach and an effort to 

educate people to beware, to ask the questions, or to know what 

to ask, or to know who to ask to be able to get the right questions 

asked. All of that becomes important. 

I am pleased that you have mentioned preemption. We do think 

local as it relates to government, because that is where we access 

it the quickest, and it is the most obvious to most every citizen. So 

I think all of those recommendations are important, and we thank 

you very much for that. 

Your testimony today certainly adds to the overall work this 

Committee does. We do not authorize. By that, I mean we do not 

write legislation. That is not the role of this Committee. The role 

of this Committee is to build a record and to hand it to the Banking Committee or the Finance Committee, to be advocates for people like you who found yourself in a very difficult situation and to 

be able to build a record around that and to make recommendations to these committees as to what they might do. 

So before I close this hearing, let me ask if you have any further 

comment you would like to make. 

Ms. HARDING. The further one that I would like to say is that 

what bothered me was that when I read in the paper last month 

that we had in Philadelphia, there were 1,120 homes up for sheriff’s sale. It made me feel that some of these people who were losing their homes had gotten caught up in these bad loans, this predatory lending. My heart just goes out for these people. It is so sad. 

The CHAIRMAN. Surely. 

Ms. HARDING. It is really sad what we are going through. 

But like I said before in my testimony, I am so glad that I have 

met good people. But the only way that you meet good people, you 

have got to be a good person yourself. 

The CHAIRMAN. Well, thank you very much. I think you fill that 

category. I do not often get to Philadelphia, but when I do, I will 

bring the danish. [Laughter.] 

Ms. HARDING. I will have the coffee. 

The CHAIRMAN. All right; if you will have the coffee, I will bring 

the danish. 

To all of you, thank you very much for your testimony and your 

active involvement in this area. We appreciate it. The Committee 

will continue to pursue, to identify the numbers. Gavin, we are 

going to take a very serious look at these new regulations coming 

out of the OCC and the impact they are having on State regulators 

and the role that you are not being allowed to play now. 

So I will also be quizzing my colleagues on the Banking Committee as to the whys and the wherefores of those regulations. 

Thank you all very much, and the Committee will stand adjourned. 

107

[Whereupon, at 11:24 a.m., the Committee adjourned.] 

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