U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

74–142 PDF 2012

S. HRG. 112–397 

EXAMINING LENDING DISCRIMINATION PRACTICES 

AND FORECLOSURE ABUSES 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

MARCH 7, 2012 

Serial No. J–112–62 

Printed for the use of the Committee on the Judiciary 

( 
(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

CHUCK SCHUMER, New York 

DICK DURBIN, Illinois 

SHELDON WHITEHOUSE, Rhode Island 

AMY KLOBUCHAR, Minnesota 

AL FRANKEN, Minnesota 

CHRISTOPHER A. COONS, Delaware 

RICHARD BLUMENTHAL, Connecticut 

CHUCK GRASSLEY, Iowa 

ORRIN G. HATCH, Utah 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

MICHAEL S. LEE, Utah 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

KOLAN DAVIS, Republican Chief Counsel and Staff Director 
(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Feinstein, Hon. Dianne, a U.S. Senator from the State of California, prepared 

statement .............................................................................................................. 92 

Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa ............................ 6 

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 1 

prepared statement .......................................................................................... 96 

WITNESSES 

Black, William K., Associate Professor of Economics and Law, University 

of Missouri-Kansas City School of Law, Kansas City, Missouri ...................... 25 

Cardin, Hon. Ben, a U.S. Senator from the State of Maryland ........................... 2 

Perez, Thomas E., Assistant Attorney General, Civil Rights Division, U.S. 

Department of Justice, Washington, DC ............................................................ 8 

Rodriguez, Eric, Vice President, Office of Research, Advocacy and Legislation, 

National Council of La Raza, Washington, DC ................................................. 23 

Shelton, Hilary O., Director, Washington Bureau, and Senior Vice President 

for Advocacy and Policy, National Association for the Advancement of Colored People (NAACP), Washington, DC ............................................................. 27 

SUBMISSIONS FOR THE RECORD 

Black, William K., Associate Professor of Economics and Law, University 

of Missouri-Kansas City School of Law, Kansas City, Missouri, statement ... 33 

Cardin, Hon. Ben, a U.S. Senator from the State of Maryland, prepared 

statement .............................................................................................................. 86 

Perez, Thomas E., Assistant Attorney General, Civil Rights Division, U.S. 

Department of Justice, Washington, DC, statement ......................................... 98 

Prosecuting Wall Street, Steve Kroft, Correspondent, and James Jacoby, Producer, 60 Minutes, December 4, 2011, Transcript ............................................. 111 

Rodriguez, Eric, Vice President, Office of Research, Advocacy and Legislation, 

National Council of La Raza, Washington, DC, statement .............................. 123 

Shelton, Hilary O., Director, Washington Bureau, and Senior Vice President 

for Advocacy and Policy, National Association for the Advancement of Colored People (NAACP), Washington, DC, statement .......................................... 131 

(1) 

EXAMINING LENDING DISCRIMINATION 

PRACTICES AND FORECLOSURE ABUSES 

WEDNESDAY, MARCH 7, 2012 

U.S. SENATE, COMMITTEE ON THE JUDICIARY, Washington, D.C. 

The Committee met, pursuant to notice, at 10:07 a.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Patrick J. Leahy, 

Chairman of the Committee, presiding. 

Present: Senators Leahy, Whitehouse, Klobuchar, Franken, and 

Grassley. 

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. 

SENATOR FROM THE STATE OF VERMONT 

Chairman LEAHY. Today we welcome Assistant Attorney General 

Tom Perez, who has hobbled in here. And for the record, so that 

in case somebody reads this, he has just had knee surgery, so that 

is why I appreciate him taking the time to be here to discuss the 

Justice Department’s efforts to combat discrimination in mortgage 

lending and foreclosure abuse. This Committee has tried to do its 

part in connection with the housing crisis, including our consideration of important legislation introduced by Senator Whitehouse 

after a series of hearings both here and in Rhode Island. Our exploration of the civil rights component of the housing crisis and foreclosure abuse is part of that effort. 

The Obama administration has been aggressively responding to 

the foreclosure crisis. Yesterday the administration announced a 

new initiative which could benefit millions of homeowners by reducing their fees and providing an average savings of $1,000 a year 

through refinancing. The administration reiterated its commitment 

to our men and women in uniform by outlining the steps it is taking to provide relief to those who have been harmed by lending 

abuses. 

A few weeks ago, Attorney General Holder, Housing and Urban 

Development Secretary Donovan, and 49 State attorneys general, 

announced a historic $25 billion settlement with the Nation’s five 

largest mortgage servicers, and I commend them for that. Key actors were Associate Attorney General Tom Perrelli, Vermont Attorney General Bill Sorrell, and Iowa Attorney General Tom Miller, 

who helped lead the effort to investigate and expose the abuses and 

misconduct that have hurt so many. It will provide relief not just 

in my State of Vermont but in every other State. 

I should recognize the Civil Rights Division for its role in obtaining compensation, above the $25 billion settlement, to provide relief 
2 

to our men and women in uniform who have lost their homes to 

wrongful foreclosures. It is inexcusable that in some cases, under 

the Servicemembers Civil Relief Act, mortgage servicers failed to 

meet their responsibilities to our men and women in uniform who 

risk their lives in the service of our country. It is not only inexcusable; it is disgusting to see some of the news accounts in total violation of the law, foreclosing on men and women in uniform. 

Just a few months ago, the Civil Rights Division fought on behalf 

of hundreds of thousands of African-Americans and Hispanics victimized by Countrywide Financial Corporation and received a landmark $355 million compensation there. 

Historically, lending discrimination has manifested itself in redlining, the refusal to lend to qualified minority borrowers in certain 

neighborhoods. We would like to think that those days are behind 

us, but apparently the Justice Department has identified a new 

and disturbing trend in lending discrimination, so-called reverse 

redlining, targeting minority neighborhoods and borrowers to push 

subprime and other riskier mortgages to individuals in certain 

communities who might otherwise have been qualified for safer and 

more traditional loan products. I hope that these recent settlements put banks and others on notice that our laws will be enforced and that those abuses for profit will not be tolerated. 

The unsound practices of our Nation’s biggest banks crept into 

the bankruptcy process, where Americans turn as a last resort. 

Last year, Senators Whitehouse, Blumenthal, and I introduced the 

Fighting Fraud in Bankruptcy Act to strengthen the Justice Department’s efforts to protect American homeowners and our servicemen and servicewomen. Struggling homeowners, and in particular our service families, have to be treated fairly. 

So I do welcome Assistant Attorney General Perez back before 

the Committee today. He knows this Committee very, very well. 

But before we hear from him, I will recognize first our Ranking 

Member, and then we will have the pleasure of welcoming back to 

the Committee Senator Ben Cardin, one of the best Senators I have 

served with, a man with a well-deserved reputation in Maryland. 

He has been a leader in these matters in the Maryland Legislature, 

in the House of Representatives, and in the Senate. He was a hardworking member of this Committee until his recent transfer to the 

Finance Committee, but he has never stopped his activity in matters of fairness and civil rights, and it is a pleasure to have him 

here. 

I will yield first, speaking of the Finance Committee, to the 

Ranking Member. 

Senator GRASSLEY. Because I have a longer statement than what 

you had, I would like to not hold up Senator Cardin. So let him 

go ahead and then call on me right after he is done. Is that OK? 

Chairman LEAHY. I appreciate the courtesy. 

Senator Cardin, go ahead, sir. 

STATEMENT OF HON. BEN CARDIN, A U.S. SENATOR FROM THE 

STATE OF MARYLAND 

Senator CARDIN. Well, Senator Leahy and Senator Grassley, 

thank you for the courtesy, and Senator Whitehouse. Senator 

Leahy, it is nice to be back to the Judiciary Committee. I must tell 
3 

you, on the other committees I serve the Chairman does not recognize me in the same way that you just did. So I thank you very 

much for those very nice comments. But it is good to be back, and 

I thank you for that. And I thank you for holding this hearing because I think this is an extremely important subject, and I applaud 

your leadership and the leadership of the members of this Committee. 

I know from my own State of Maryland that families and communities are still hurting from the effects of lending discrimination 

and foreclosure abuses. The wounds are raw and real. There is still 

so much more that we can do. My own State of Maryland has become a model for the Nation in strategies for combating foreclosures. Working across agencies, the State has developed a comprehensive strategy that includes legal and regulatory reforms, as 

well as housing counseling and legal assistance networks. They are 

making a difference. Here is just one example. 

A few weeks ago, I was proud to partner with the Maryland Department of Housing and Community Development to hold a foreclosure prevention workshop. That was not the first that I have 

held, and it certainly will not be the last. And there was very 

strong community turnout. In fact, Mr. Chairman, there were over 

600 people who showed up for this mortgage foreclosure prevention 

workshop. It took place maybe 8 or 9 miles from here, in the Washington suburbs. 

Viola Williams was one the hundreds of Marylanders that attended the event. Three years ago, she began to fall behind on her 

mortgage, mainly due to factors that were beyond her control. She 

was responsible and immediately got in touch with her bank about 

modifying her loan. For 3 years, she went back and forth with her 

bank. She became convinced that her bank was trying to wear her 

down. But she did not give up. She was persistent. She was 

proactive because she knew that her home was her biggest investment and she could not walk away. At my event, she met with a 

housing counselor who gave her honest opinions as to what she 

could do and what resources were available to her and how to deal 

with her bank. 

Most importantly, she was able to meet directly with a representative from her bank who was able to directly submit her modification papers. After waiting for 3 years, a few days after this event 

Ms. Williams received her modification papers. Her story is a common one. But her happy ending is all too rare. We need to do more 

to help these people. There is no magic wand or silver bullet for 

fixing our housing problems. In the end, our success will be the result of a patchwork of policies and the hard work of government 

officials, housing counselors, and individuals. The path ahead is 

unknown, but we owe it to Viola Williams and others like her to 

keep trying and to provide them with the tools to stay in their 

homes. 

Mr. Chairman, we can make a difference. Our policies can save 

people’s homes, can save families, and can save communities. The 

height of the irresponsible lending practices was from 2004 to 2008. 

According to the Justice Department, the greater Washington area, 

including suburbs in my home State of Maryland, ranked among 

Countrywide’s top 10 targets. In Prince George’s County, the most 
4 

affluent majority-black county in the United States, these types of 

loans have had a devastating effect. At the beginning of the housing crisis in 2007, a State task force identified it as the epicenter 

of Maryland’s foreclosure crisis, and the county’s residents continue 

to struggle to stay in their homes. Mortgages for roughly one in 

four single-family residences there have been in default or some 

stage of the foreclosure process since 2006. And average property 

values have declined by 35 to 40 percent, and homeowners will continue to struggle with underwater mortgages. 

The banks protected themselves by shifting the risks of nonpayment to investors and made a profit in the process. These practices triggered the worst financial crisis since the Great Depression. And today many economists blame the anemic housing market as the biggest drag on our economy. 

Many of the victims are honest, hardworking, responsible people 

that bought homes to raise their families, to pursue their dreams, 

and to make memories. And now they are trapped in a nightmare 

where they cannot refinance their homes to make them more affordable, or worse, are in serious risk of foreclosure. 

I want to personally thank Assistant Attorney General Perez and 

the Department of Justice for the important steps they have taken 

and continue to take to protect families across the Nation. In December, the Department of Justice announced a historic settlement 

of a lawsuit involving Countrywide. Countrywide charged over 

200,000 African-American and Latino victims more for their loans 

because of their race or ethnicity. Countrywide put more than 

10,000 of those families who had qualified for safe loans in the less 

expensive prime market into risky, subprime mortgages, while at 

the same time white borrowers with similar credit histories were 

steered into safer, prime loans. 

Traditional civil rights laws took aim at the practice of redlining, 

which in the housing context meant that banks and mortgage companies would favor lending to whites and disfavor lending to minorities. Congress passed the Fair Housing Act of 1968 and the 

Equal Credit Opportunity Act of 1974 specifically to prohibit discrimination based on race, color, or ethnicity in terms of selling, 

buying, renting, or financing a house. But today, in 2012, we are 

seeing a new type of housing discrimination. This is the practice 

of reverse redlining. While traditional civil rights cases dealt with 

being denied a benefit based on race—such as lack of access to public accommodations, employment, or the election booth—today’s discrimination makes the victims believe that they are actually lucky 

and have finally achieved the American dream. I commend Mr. 

Perez for aggressively enforcing our civil rights laws to meet today’s challenges. 

This new type of discrimination results from the steering of Hispanic and African-American borrowers into less favorable loan 

rates, including subprime loans. According to the Department of 

Justice, these loans were often much more expensive and were subject to possible prepayment penalties, exploding adjustable interest 

rates, sudden rate increases after a few years, and increased risk 

of credit problems, default, and, ultimately, foreclosure. 

Every family has paid a very steep price for the irresponsibility 

and recklessness on Wall Street over the last decade. But no group 
5 

has experienced the pain of this crisis more than African-American 

and Latino families. According to the Department of Housing and 

Urban Development, ‘‘between 2005 and 2009, fully two-thirds of 

median household wealth in Hispanic families was wiped out. At 

the same time, middle class African-American saw nearly two decades of gains reversed in a matter of months.’’ 

Any way you look at it, it is an absolute tragedy. As my staff and 

I work with borrowers, banks, and housing counselors to keep 

hardworking families in their homes, I am grateful for the efforts 

taken by the State of Maryland and the Federal Government to 

stabilize our neighborhoods. At the same time, I look to Mr. Perez, 

the Department of Justice, and this Committee to continue our 

work in making sure that deceptive and discriminatory lending 

practices never happen again. 

The Countrywide consent order and $335 million settlement are 

but a first step. I commend the President for forming a Financial 

Fraud Enforcement Task Force to investigate and prosecute housing fraud and discrimination. Last month, Attorney General Eric 

Holder announced a multi-State settlement with five of the Nation’s largest mortgage servicers for origination and servicing fraud 

and wrongful foreclosures. As part of this settlement, these market 

leaders will implement new standards designed to ensure that borrowers are protected as they enter into mortgages. 

In Maryland, this settlement will also bring $1 billion to help 

homeowners. Forty thousand borrowers will be able to modify their 

mortgages to make them more affordable or receive restitution for 

the loss of their homes. The State will have more funds to increase 

mortgage counseling and legal services available to homeowners. 

The settlement is a positive step forward and is part of ongoing efforts by the States and on the national level to investigate previous 

practices, improve them going forward, and hold bad actors responsible. 

Mr. Chairman, I am reminded of what Senator Ted Kennedy, a 

former member of this Committee, used to say when he discussed 

civil rights as the ‘‘great unfinished business of the Nation.’’ Let us 

keep working to fulfill the promise of the American dream for all 

our citizens. 

Thank you. 

[The prepared statement of Senator Cardin appears as a submission for the record.] 

Chairman LEAHY. Senator Cardin, I thank you. I thank you for 

your hearings and your persistence on this. I know you well enough 

to know you will keep right on it. We would like to think that redlining has become a matter of the past, but I think one of our witnesses here today knows that it is not completely obliterated, but 

this reverse redlining is just as wrong and just as perfidious and 

just as damaging to the moral core of our country. So thank you 

very much for doing that. 

Senator CARDIN. Thank you. 

Chairman LEAHY. I realize you have to go to another hearing, so 

we will let you be excused. And I will yield to Senator Grassley. 
6 

STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR 

FROM THE STATE OF IOWA 

Senator GRASSLEY. Thank you, Senator Cardin. 

I thank you for holding this hearing, and I fully support pursuing 

justice for victims of the mortgage crisis, and I would remind listeners that I took the lead in the Clinton administration, the Bush 

administration, and finally completing the job in this administration in bringing justice to black farmers who were discriminated 

against on Government programs. So I appreciate very much people fighting to make sure that justice comes to those who are discriminated against. 

But the settlement that the Civil Rights Division of the Justice 

Department obtained—and I do not belittle that, the one against 

Countrywide, but I hope that it will not divert us from the real 

issues surrounding the mortgage crisis. 

Recently, Barry Ritholtz wrote a column in the Washington Post 

concerning the larger robo-signing mortgage settlement. Many of 

the points that he made about that settlement also apply to the 

Countrywide settlement. The economic impact of the Countrywide 

settlement is minimal. 

Now, remember, the complaint asked for the victims to be put in 

the same position they would have been absent the discrimination 

for civil penalties and, of course, for consequential damages. But 

the consent decree provided only $1,700 per victim. 

For those who still have these mortgages, perhaps this would 

cover a mortgage payment. Many of these individuals will still hold 

mortgages that exceed the value of their homes. The likelihood that 

they will default is essentially unchanged. 

For other people, bear in mind that one-third of all Countrywide 

mortgages ended up in default. For these victims who are alleged 

to have paid higher costs and interest rates, the default rate is almost certainly higher. Since you no longer live at your most recent 

address, good luck for receiving the settlement. If you do, here is 

my advice: Do not spend it all in one place. 

Like the larger settlement that State attorneys general obtained, 

this settlement is for Bank of America a mere cost of doing business. One, we still do not know what individuals took the unlawful 

action; two, they face no punishment; three, they can keep their 

jobs; four, Countrywide admits nothing, and the Government has 

proved nothing to the courts. 

The problem is not limited to civil litigation. The Justice Department has brought no criminal cases against any of the major Wall 

Street banks or executives who are responsible for the financial crisis. In the greatest speech ever made concerning prosecution, thenAttorney General Robert Jackson said, ‘‘Law enforcement is not 

automatic. It isn’t blind. What every prosecutor is practically required to do is select the cases for prosecution in which the offense 

is the most flagrant, the public harm the greatest, and the proof 

the most certain.’’ And that has not happened in these cases. 

I have already called for the resignation of the head of the Criminal Division, Lanny Breuer, for his false denials to Congress that 

ATF ever walked guns in Operation Fast and Furious, but that 

does not take away from the terrible job being done by him in pros-
7 

ecuting financial crimes. So let us consider once again Countrywide. 

The former CEO was accused of lying about the risk of Countrywide loans. He made more than half a billion dollars as CEO of 

Countrywide. The SEC let him settle for less than 5 percent of that 

amount given that Countrywide reimbursed him for most of the 

costs. Something is seriously wrong if the allegations, including discrimination, against the former CEO are true but he keeps 95 percent of his salary. 

Even worse, Mr. Breuer’s Justice Department decided not to 

bring any criminal charges against him. Mr. Breuer recently stated 

that it was important not to ‘‘completely discount the deterrent effects when we investigate cases, even if we do not bring them.’’ 

Now, this is a preposterous statement. The Department’s message 

is that crime does pay. Light settlements and no prosecution not 

only do not deter, they also invite crimes of this sort to occur 

against similar future victims. How are the Department’s enormous resources being used? I think that is a question that we can 

beg. 

The error in failing to prosecute Countrywide’s former CEO is 

further compounded by the unwillingness of the Department to 

contact a former Countrywide vice president whose job was to fight 

fraud. And people know that I pay a lot of attention to what whistleblowers say, not meaning that they are always right, but most 

often you get valuable information from them. CBS interviewed 

this whistleblower, Eileen Foster. In her ‘‘60 Minutes’’ appearance, 

she discussed Countrywide’s, in her words, ‘‘systemic fraud.’’ She 

said they concealed evidence of fraud. She also had evidence of 

Countrywide’s unlawful act of retaliation for reporting bank fraud 

and mail fraud to Federal regulators. Based on her statements, ‘‘60 

Minutes’’ wondered why no charges of violating the certification requirements of Sarbanes-Oxley had been brought. Ms. Foster was 

fired but eventually recovered more than $1 million for whistleblower complaints. 

As the co-author, along with Chairman Leahy, of the whistleblower protection provisions Ms. Foster utilized, I am glad that she 

was made whole for her unlawful termination. However, I am appalled that the Justice Department turned a blind eye and refused 

to reach out to her. 

When recently asked about the Department’s failure to contact 

Ms. Foster, Mr. Breuer responded that she should not have waited 

for the Government. ‘‘There are telephones. You can Tweet. You 

can let the Government know.’’ I think that is an insulting comment. Mr. Breuer obviously lacks comprehension of the enormous 

obstacles facing whistleblowers. 

Other administration officials in this area are equally questionable. The administration is about to use taxpayer dollars through 

the HAMP program to bail out speculators who drove up housing 

prices during the bubble. Landlord will be able to qualify for up to 

four federally subsidized loan workouts. The benefits they will receive include lower interest rates, longer terms, and forgiveness of 

principal. We know for sure that Countrywide victims did not receive those benefits. I am glad that we see the National Council of 

La Raza here and the NAACP having representatives testifying be-
8 

fore us today because they have a story to tell that we all ought 

to listen to. 

Finally, I note that there have been multiple previous financial 

crime task forces announced by this administration, including a 

new one this year, but no major responsible party has ever been 

prosecuted. All the previous task forces did was issue press releases. They have added nothing to the existing entities that have 

also taken no meaningful criminal action. We should not expect 

anything more from the announcement of yet another task force. 

We should not confuse packaging with packages. All that matters 

is results—in other words, prosecutions and convictions. The American people are waiting. I ask consent to include that ‘‘60 Minutes’’ 

referral into the record. 

Chairman LEAHY. Without objection. 

[The information referred to appears as a submission for the 

record.] 

Chairman LEAHY. Our first witness is Thomas Perez. He was 

nominated by President Obama to serve as the Assistant Attorney 

General for the Civil Rights Division. He was sworn in on October 

8, 2009. Prior to his nomination, he served as Secretary of Maryland’s Department of Labor, Licensing, and Regulation. He also 

served as special counsel to the late Senator and former Chairman 

of this Committee, our good friend Ted Kennedy, acting as Senator 

Kennedy’s principal adviser on civil rights, criminal justice, and 

constitutional issues. He and I have known each other from that 

time, and he received his law degree from Harvard University in 

1987. 

I know it is not the easiest thing being here today, Mr. Perez, 

having recently had your knee surgery, but it means a lot to us 

that you are here, and I am going to turn it over to you. I would 

also note that at some point I am going to have to go to another 

Committee that I serve on. 

Senator GRASSLEY. Mr. Chairman, I may have to go also to Finance. 

Chairman LEAHY. No, you have to stay here if I go. 

[Laughter.] 

Senator GRASSLEY. Well, I will try to—— 

Chairman LEAHY. No, no, I am just kidding you. But Senator 

Franken is going to take over the chair when that happens. Please 

go ahead, Mr. Perez. 

STATEMENT OF HON. THOMAS E. PEREZ, ASSISTANT ATTORNEY GENERAL, CIVIL RIGHTS DIVISION, U.S. DEPARTMENT 

OF JUSTICE, WASHINGTON, D.C. 

Mr. PEREZ. Thank you, Mr. Chairman. It is an honor to be back 

here before the Committee. You inspired me over many years to 

purchase, among other things, many Jerry Garcia ties, and I want 

to thank you for that. 

And, Senator Grassley, you always treated me with great respect 

when I was on Senator Kennedy’s staff, so there is a lot of wonderful ghosts in this room as I sit here today, 3 weeks removed from 

knee replacement surgery, which I am told is going to be helpful, 

but I have not yet seen it, so hopefully it will. 

Chairman LEAHY. Or felt it. 
9 

Mr. PEREZ. Or felt it, yes, exactly. 

As we all know, the housing crisis has touched so many communities across the country, and I have seen in my work as a civil 

rights lawyer at a State, Federal, and local level that communities 

of color, in particular African-Americans and Latinos, have been hit 

particularly hard. I have seen all too frequently that Latinos and 

African-Americans seeking equal credit opportunity were all too 

frequently judged by the color of their skin rather than the content 

of their creditworthiness. And for all too many years, accountability 

was lacking and enforcement was spotty, at best. 

That is why, in the wake of the housing and foreclosure crisis, 

the Federal Government under the leadership of President Obama 

has indeed responded forcefully. To address the lending discrimination, Attorney General Holder created a Fair Lending Unit in the 

Civil Rights Division’s Housing Section. Since the establishment of 

that unit, thanks to the dedicated career staff in the Division, we 

have brought record numbers of enforcement actions. In the approximately 2 years since the unit was established, we have filed 

or resolved 16 lending matters, and by way of comparison, from 

1993 to 2008 the Department filed or resolved 37 matters. So 16 

in 2 years and 37 in the 15 previous years. 

The Division produced an unprecedented set of results in 2011 

alone. We filed a record eight lending-related Federal lawsuits and 

obtained eight settlements, providing for more than $350 million in 

relief. I will talk shortly about our Countrywide case. I also look 

forward to talking about the record relief we have gotten on behalf 

of servicemembers. 

No one case can rectify the multitude of unlawful practices, but 

as our enforcement record illustrates, we use every possible tool to 

combat the range of abuses seen in the market, both mortgage and 

non-mortgage lending. 

Collaboration is key to what we have accomplished. We have 

been working very carefully and closely with the regulatory agencies, and they have picked up the pace of their work, and let me 

give you a data point there: From 2009 to 2011, the regulatory 

agencies, the FTC, and HUD referred a total of 109 matters involving a potential pattern or practice of lending discrimination to the 

Justice Department. Fifty-five of those matters involved race or national origin discrimination, a combined total that is far higher 

than the 30 race and national origin matters that we were referred 

2001 to 2008. So we got 30 race and national origin matters in 8 

years, and we got 55 over the course of the last 3 years. They have 

definitely picked up the pace of our work. 

Let me talk about Countrywide because that is the largest settlement—in fact, more than 50 times larger than the next largest fair 

lending settlement—in our history. Our complaint against Countrywide alleges that the systematic discrimination over a 4-year period violated the Fair Housing Act and the Equal Credit Opportunity Act and impacted more than 200,000 African-American and 

Latino families, and at the core of the case was a very simple story. 

If you are African-American or Latino and you were qualified, you 

likely paid much more for a loan than a similarly qualified white 

borrower simply because of the color of your skin. 
10 

So, for instance, a qualified non-subprime customer in Chicago seeking a $200,000 loan in essence paid a racial surtax of about 

$1,100, unnecessary fees. A Latino paid $1,235 racial surtax simply 

because of the color of your skin. 

In addition, if you are African-American or Latino and you qualified for a prime loan, you were far more likely to be steered into 

subprime loans, and the impact of this is literally tens of thousands 

of dollars in increased costs, not to mention the corrosive features 

such as prepayment penalties and the increased risk of default. 

This was what this case was about, remedying discrimination, 

and we reviewed 2.5 million loans, including data loan terms and 

information on creditworthiness. It was the most Countrywide investigation in our history, and I was proud to be part of it, and I 

appreciate the work of the career staff as well as the regulatory 

agencies that referred it. 

We have also done four other pattern or practice pricing discrimination cases since the unit was established, and we have also continued the regrettably time-honored cases involving redlining, 

which is the practice where a red line is literally drawn around certain elements of a city that are predominantly minority and lending does not occur there. That practice has been around, regrettably, since seemingly the beginning of time. Our settlements also 

have gone to expand opportunities for minority communities and 

others to access credit in areas where a lender had previously denied those services. 

Let me turn very briefly to our work in the SCRA context because we have had a robust array of work on behalf of our 

servicemembers. Last year, we settled a case with the Bank of 

America, the largest SCRA settlement. These are our Nation’s finest serving our Nation, and while they were serving our Nation 

abroad, they were having their homes foreclosed at home illegally. 

And we had a $20 million settlement fund in the Bank of America 

case. 

We also had another case involving Saxon Mortgage, and then 

most recently as part of the $25 billion mortgage servicer agreement, we were able to reach agreement with the other servicers. 

And so there will be a minimum of $116,785 in compensation, and 

that is a floor. That is not the ceiling. And this compensation is in 

addition to the $25 billion settlement fund. So we continue to aggressively enforce the Servicemembers Civil Relief Act on behalf of 

our servicemembers and their families. 

I have spoken about our litigation experience, but we also have 

an active program of education, outreach, and prevention. We reach 

out regularly to those in the industry. We share our lessons. I do 

not understand why the redlining cases continue to occur, and we 

share what happens. An ounce of prevention is worth a pound of 

cure, and so many of the discriminatory practices that we see could 

be prevented if there were adequate internal controls. I spend a lot 

of time working with police departments to develop adequate internal controls, and similarly, we spend a lot of time working with 

lenders so that they can develop adequate internal controls, because I would far rather prevent the train wreck from occurring 

than pick up the pieces. And, regrettably, there are too many 

pieces to pick up. And as such, we will continue to use every tool 
11 

in our arsenal to ensure that there is equal credit opportunity 

across America. 

I look forward to answering any questions that you may have 

today, and once again, it is an honor to be here, and thank you for 

your leadership in all of these matters. 

[The prepared statement of Mr. Perez appears as a submission 

for the record.] 

Chairman LEAHY. Thank you very much, Mr. Perez. As I noted, 

when I first got into this, finding out about this reverse redlining, 

you just wonder what decade or even what century you are living 

in. 

Now, some have actually criticized the Obama administration for 

protecting borrowers who are targeted because of the color of their 

skin. Some have argued the Justice Department is interfering between a lender’s ability and willingness to make credit available 

and a borrower’s right to freely enter into a contract. I think you 

know from my earlier statement I do not buy that argument, but 

how do you respond to it? And is your work with reverse redlining 

a part of the core responsibilities of your Division? 

Mr. PEREZ. The answer to your second question is absolutely. 

Redlining referred to the practice of drawing a red line around 

communities and failing to offer prime loan products. Reverse redlining is the flip side: targeting minority communities and offering 

the toxic products that are incredibly destructive. 

There is often a false choice that I have heard, Senator Leahy, 

Mr. Chairman, and that is the choice between common-sense consumer protection and fair lending and preserving a sound lending 

climate for business. I think if there is one lesson we have learned 

from the meltdown, it is that the absence of common-sense consumer protections not only undermines communities, but it put a 

lot of lenders out of business. I know in Maryland we worked on 

a lot of consumer protection work, and all of those bills passed 

unanimously between the industry recognized that it was important to put the stops on no-doc loans and other abusive practices 

that were undermining the industry. 

And so I think it is a false choice, and that is what I say when 

I have the outreach to lenders, is that we can have common-sense 

fair lending enforcement and consumer protection and preserve 

that sound lending climate for businesses. We can and must do 

both. 

Chairman LEAHY. Well, as you know, in the current litigation, 

we saw some of the documents. In one case bank employees state 

that subprime loans were referred to internally as ‘‘ghetto loans,’’ 

and that African-Americans are targeted because ‘‘they were not 

savvy enough to know they were getting a bad loan, and the bank 

would have a better chance of convincing them to apply for a highcost subprime loan.’’ 

Frankly, as far as I am concerned, those who would do that, you 

should be cracking down on them every way you can, both civilly 

and I believe in some instances criminally. 

Mr. PEREZ. I agree, and we see these practices. I am holding up 

a photograph of—this is Detroit, Michigan, and in this particular 

case the bank is required under the Community Reinvestment Act 

to establish its catchment area, and there is a red dot here. This 
12 

red concentration is the African-American concentration, and their 

catchment area that they established was a horseshoe all around 

the African-American communities. 

A picture tells a thousand words, and when I look at this, I cannot help but wonder why aren’t there internal systems of control, 

because you do not need to be a rocket scientist to see that you 

have established in all of the white areas where you are going to 

do business, and you have deliberately ignored African-American 

areas. And we do peer analysis, so other banks are in the AfricanAmerican areas; they are doing well and they are doing good. And 

so this is not a case of there is no business there. That is a 

stereotypical judgment. But we see this all too frequently. There 

are emerging abusive practices, and then there are some time-honored practices, and we are going to root out all of them to the best 

of our abilities. 

Chairman LEAHY. I appreciate that. You also had a role in reaching an agreement to compensate servicemembers for wrongful disclosures. I introduced legislation to require creditors in a bankruptcy case to certify that the requirements of the Servicemembers 

Civil Relief Act had been met. Do you believe that legislation, the 

Fighting Fraud in Bankruptcy Act, would help the Justice Department ensure that military homeowners are protected? 

Mr. PEREZ. Again, anything we can do to help service-members 

I think is very, very important. For instance, we actually prepared 

and disseminated to a bipartisan group of lawmakers a series of 

legislative proposals regarding servicemembers, and including the 

SCRA, and we have done a lot of work on the credit provisions that 

you are referring to, on the foreclosure provisions, and we are trying to expand the protections for our servicemembers, and we look 

forward to working with you and with Senator Grassley, because 

this is not a Republican or a Democratic issue. Protecting our 

servicemembers has always been a bipartisan issue, and I look forward to working with you. 

Chairman LEAHY. I agree with that, and you have also worked 

on discrimination on the basis of sex and familial status when 

mortgage companies have refused a woman who was on paid maternity leave. 

Mr. PEREZ. Yes. We have a case in Pennsylvania that we filed 

roughly a year ago on that issue. 

Chairman LEAHY. Well, I hope you will continue it, and I will 

turn the gavel over to Senator Franken and turn it over to Senator 

Grassley. 

Mr. PEREZ. Good morning, Senator. It is an honor to see you 

again. 

Senator GRASSLEY. Thank you, General Perez, for being here. I 

have already stated some opinion that I have about this, so you already have some background for questions I might ask. 

The complaint that the Department filed against Countrywide alleged intentional, willful, or reckless discrimination against Hispanic and African-American borrowers. Nobody argues with that. It 

asks that victims be restored as nearly as practical ‘‘to the position 

that they would have been in but for the discriminatory conduct,’’ 

plus asking for civil penalties. But the consent decree provided only 

$335 million, not nearly enough to do anything like restoring the 
13 

victims to the position that they should have been, and there was 

no civil penalty, and the bank can deduct the settlement costs from 

its taxes, which could take away up to one-third of the bank’s sting 

already. 

So, question—and when I use that figure $335 million, just remember in the case of Bank of America, they earned $9 billion last 

year. Won’t banks that may have discriminated view settlements 

that are so much weaker than the relief sought in the Department’s complaint as a cost of doing business rather than a deterrent to future bad acts? 

Mr. PEREZ. I appreciate your question, Senator, and we certainly 

hear from banks that we are too hard on them. And so it is interesting that you should say that. 

Our goal in this particular case when we established the settlement fund was to maximize the amount of dollars that would go 

directly to victims. And I should note in this case, Senator, that 

there are two types of victims. There are the people who are the 

victims of pricing discrimination, and, again, the average amount 

of recovery there will be in the $700 to $2,000 range, depending on 

the individual. 

And then there are the steering victims. Those are people who 

should have been in a prime loan but were discriminatorily put 

into subprime loans. They will be recovering in the tens of thousands of dollars on the average, and we will have an individual 

case-by-case analysis of what they should recover. 

This settlement is about 50 times larger than any settlement we 

have had. I do not think there is any home run, Senator, in the 

work that we do. There is no one case that is going to be the panacea to address all of the abuses of the past 10 years. 

I am very proud of the work that was done in the servicer agreement. The servicer agreement does some great things, but as Secretary Donovan has correctly pointed out, that does not address the 

underwriting abuses. That addressed another part of the problem. 

And so our approach, Senator, has been to make sure that we 

continue to do our level best to address every type of abuse, and 

we continue to hit, I believe, a series of doubles and singles and 

a triple here and there, and we are going to continue to do that. 

And I do not know of any one case that we could bring that will 

resolve this, but I think it is very important that the Government 

become a credible deterrent. And in our fair lending work—and I 

have outlined the cases that we have brought, both the quantity 

and quality, I think we have done that. And we will continue to 

do that because I think there is a role for common-sense fair lending enforcement, and we have to be vigilant in that area. 

Senator GRASSLEY. Your testimony references the settlement 

that the Department obtained against lenders who violated the 

SCRA. That law protects the rights of servicemembers not to be 

foreclosed on while they are on active duty. 

Now, those individuals received a minimum of $117,000 plus lost 

equity. 

Mr. PEREZ. Correct. 

Senator GRASSLEY. That figure is 70 times larger than the average settlement at Countrywide. 
14 

Mr. PEREZ. Sure, and that figure was a function of the direct economic harm and the emotional harm, and that was a function of 

that—and, by the way, that figure is a floor. If there is lost equity 

in any servicemember’s home that exceeds that, then they will get 

that. And another important aspect of the servicemember agreements that we just reached is that there is not a cap on the 

amount that the servicers will be paying. So, in other words, we 

will be—depending on how many—if we identify 600, then they will 

compensation all 600. They will not reach a cap and say, ‘‘No 

more.’’ That was a very important part of the agreement. 

And, again, that reflects the damage that we found in that particular case, and so that is how we arrived at those figures. 

Senator GRASSLEY. Mr. Chairman, let me ask one more question. 

Senator FRANKEN [presiding]. Absolutely. 

Senator GRASSLEY. Some of the settlements that you described as 

‘‘innovative’’ worked to help banks to build relationships with new 

customers. Why don’t some of the settlements include such innovative ideas as removing bank executives who knew of or approved 

of discrimination? 

Mr. PEREZ. Well, it is an idea that is worth considering. When 

we meet with and negotiate these decrees, we have a lot of different ideas on the table, and in the course of these agreements, 

we also have a very active monitoring capacity. And so if we continue to see problems, we continue to have the ability to remedy 

those. But, again, we are trying to reflect the balance between our 

enforcement responsibilities and allowing the bank to make their 

appropriate judgments. 

Senator GRASSLEY. Thank you. 

Thank you, Senator. 

Senator FRANKEN. Assistant Attorney General Perez, thank you 

for your testimony. It is clear from the Countrywide settlement and 

from your written testimony that the policies that Countrywide had 

in place between 2004 and 2008 led to widespread discrimination 

against racial and ethnic minorities. I am going to come to this 

$335 million figure. While I commend DOJ for bringing the case, 

again, the settlement only comes to about $2,000 per individual, if 

you can find these individuals. And these are people who may have 

lost their homes based on illegal lending discrimination. Why is $335 million adequate when there are, you know, pre- sumably in the SCRA settlement you are talking about $176,000 or 

something for a wrongful foreclosure? These are people who, because of the discrimination, went into foreclosure, may have gone 

into foreclosure directly because of discrimination. Why was $335 

million arrived at? I realize it is a lot larger than any other settlement you have had, but, still, Countrywide was a lot larger entity, 

wrote a lot more of these loans, was a lot larger defrauder of the 

American public. How was that figure arrived at? Was it that you 

had to reach this settlement and you felt that was the farthest you 

could go? Or how was that done? 

Mr. PEREZ. First of all, let me again reiterate there are two categories of victims in the Countrywide case. There are the pricing 

discrimination victims who were charged, in essence, a racial surtax, and the figures that they will get, they will be compensated 

for that, what I call ‘‘racial surtax.’’ Then there are steering vic-
15 

tims. These are, again, people who should have been in a prime 

loan but were steered into subprime, and we will be making caseby-case individual determinations. And it is our estimate that the 

average steering victim will recover tens of thousands of dollars because if you had a 7-percent loan when you should have had a 5- 

percent loan, you can do the math and figure out that the recovery 

is going to be significantly greater. 

Senator FRANKEN. Well, what I am saying is that the terms of 

the predatory or subprime loan where they should have qualified 

for a better loan may have been the very thing that drove them 

into foreclosure. And it seems to me that the damages to them far 

exceed a few tens of thousands of dollars. 

Mr. PEREZ. We will be doing a case-by-case evaluation, and the 

fact that we have this particular settlement fund, as we identify 

particular individuals and we see the harm that it has caused, that 

does not prevent us from going back and attempting to use other 

tools to assist them. So I think one of the major benefits of this— 

and there are about 2,000 victims in the Twin Cities metropolitan 

census area, and I think one of the real benefits of this is to be able 

to identify people and make that particular judgment. In some 

cases, you know, people—well, in most cases, people were unaware 

that they were victims. That is the insidiousness of this. It is discrimination with a smile. 

Senator FRANKEN. Sure. 

Mr. PEREZ. And in some of those cases, they continue to have 

their home, and in other cases they do not. And that is why we are 

going to be doing the individualized determinations so that we not 

only have the settlement fund at our disposal, but then there are 

other programs through the Federal Government that we may be 

able to use that will help people. And so—— 

Senator FRANKEN. What are those? 

Mr. PEREZ. Well, again, the President has been very active in attempting to expand the universe of programs to help people who 

are underwater, and so this is a real coordination challenge and a 

real coordination opportunity, because we will have the names—we 

have the names of the victims in this case, and we are in the process, through the administrator, of reaching out to them. And that 

is going to present us with opportunities. This is not just—one way 

that Government often works is, well, here is your—we are in this 

narrow lane, we have got this settlement fund, if you do not qualify, you go somewhere else. That is not the approach we are taking. 

You may have been a victim here, and you may be entitled to 

$2,000, but you may have other challenges, and what we are going 

to be doing is working with them to see what other opportunities 

we can use to avail ourselves to assist them to stay in their home. 

Senator FRANKEN. And I assume that part of that will be to assist eligible borrowers to refinance their loans. 

Mr. PEREZ. Again, availing them of programs of that nature, and 

I know that has been an interest of yours for some time. 

Senator FRANKEN. Well, yes, I have introduced a bill, the Helping 

Homeowners Refinance Act. You know what I would like to do? I 

would like to go to Senator Whitehouse because I am going to be 

chairing this for the third panel, so I am here. I know that both 

Senator Klobuchar and Senator Whitehouse may have—I do not 
16 

know their schedules. I am not intimately involved with their 

scheduling. But in that event, I would like to allow them to ask 

their questions, and I might just hold you for a little bit extra, and 

then we will go to our next panel. 

Mr. PEREZ. I would be honored to stay. 

Senator FRANKEN. Senator Whitehouse. 

Senator WHITEHOUSE. Thank you, Chairman. 

Mr. PEREZ. Good morning, Senator. 

Senator WHITEHOUSE. Good morning. How are you? 

Mr. PEREZ. Doing very well. 

Senator WHITEHOUSE. We are glad to have you back here and 

glad that we are here on this issue because it has been a source 

of immense frustration to a great number of us here in Congress. 

Rhode Island has been hit very hard by foreclosures, and the frustration is that in many cases those foreclosures should not have 

happened. Some of them should not have happened as a matter of 

law because they befell veterans, because the documents were 

phony, because the foreclosure was itself illegal. Some of them 

should not have happened as a matter of economics. The person in 

the house was actually the best person to buy the house, and yet 

the bank insisted on throwing them out and having an empty 

house get scavenged in the foreclosure market with real costs to 

the neighbors and to the community around it. You have people 

who cannot refinance because they are underwater, but they could 

do fine if they were allowed to refinance. And it is not their fault 

they are underwater. That is because of the housing crash. 

I have heard over and over again from the Rhode Island realtors 

about what a disaster the short sales are in terms of just plain mismanagement of short sales by the bank so that it becomes impossible both for buyers and realtors to deal with them. It is just not 

worth your trouble. And the sort of ultimate folly is banks that 

agree to a short sale and then turn around and foreclose on their 

own short sale because the right hand and the left hand do not 

know what they are doing. And now you have got everybody just 

tearing their hair out again. It is just constant frustration. And in 

some cases, the foreclosure, frankly, should not have happened just 

as a matter of decency, and it could have been solved if there had 

been somebody there to talk to. And one of the prevailing complaints I have heard over the years has been that folks who have 

their homes at risk cannot find a human being to talk to. They 

have to dial the 800 number. They have to go through endless push 

buttons. They finally find somebody name Joe or Tom or Frances 

or Jane, and then that person will not give their last name, and 

you never find them again, and the information probably is not accurate, and it is different from the papers that they have got in 

front of them. And the confusion and the fear is a huge cause for 

frustration. 

So please push harder on this. I think wherever you go in that 

array of reasons why foreclosure would not happen, you find the 

banks right there at it, the banks and their lawyers failing with 

the documents and performing illegal foreclosures, the banks basically going against their own economic best interests and the economic best interests of their investors, fouling up the ability of 

homeowners to stay in their homes and forcing foreclosures that 
17 

just hurt communities. And probably the worst consumer protection problem that I come across is people with their homes at risk 

who simply cannot get a straight answer, who simply cannot find 

a human being to talk to who will talk to them a second time later 

and be familiar with their case. That is the single-point-of-contact 

problem, as referred to by the Government. And, frankly, I do not 

think it has been that great, the response. I think we need to do 

a lot better, and I think we need to press very hard to make these 

banks clean up their act. This is just plain bad management of 

these cases. 

I would particularly like to focus on veterans because I have a 

piece of legislation that would increase the penalty for foreclosures 

on veterans. Could you tell me what you are doing about illegal 

foreclosures on veterans while they are serving overseas or during 

the period when they are still coming back and recovering economically as they try to get back into this tough jobs market. 

Mr. PEREZ. Sure. We reached a settlement last year with Bank 

of America and Saxon in connection with the illegal foreclosures, 

and some of the stories were just shocking—servicemembers who 

had been deployed, sustained serious injury, including things like 

TBI, and they are losing their home in the process because of violations of the SCRA. And so we reached the agreement with Bank 

of America, and, again, the floor in terms of the recovery is 

$116,000 and change, and it can go higher depending on our particularized assessment of the individual situation. So if there is 

other equity loss, et cetera, that number can go higher. And then 

in connection with the most recent servicer agreement, we were 

able to reach agreement with five servicers and, again, the figure 

I cited is the floor as we move forward. 

You know, in the servicing context, I have not yet met a lender 

who was deliberately trying to screw servicemembers. But that is 

no excuse nonetheless. They should know what the rules are. The 

rules are very—they are transparent, and they were in violation. 

And so I think we are working hard on those, and—yes, absolutely. 

Senator WHITEHOUSE. The fact that it is a systems failure rather 

than intentional is no solace to the—— 

Mr. PEREZ. And that is exactly right—— 

Senator WHITEHOUSE.—their home. 

Mr. PEREZ. And I absolutely share your frustration. I worked on 

this issue when I was a cabinet secretary in the State of Maryland. 

I was one of the Governor’s point people on foreclosure prevention, 

the communities that Senator Cardin talked about. I have spent a 

lot of time with Senator Cardin in those communities. We used to 

talk about equity stripping back in 2006 in Prince George’s County. 

We do not talk about equity stripping anymore because there is no 

equity left to be stripped because of what has happened in the market. 

The one thing I have learned from this is that the problems were 

many years in the making, and they are going to be many years 

in the solution. They are going to require vigilance. I am very 

proud of the Countrywide agreement because—again, it is not a 

home run. I do not think we have any home runs in our arsenal. 

There is not one solution that is going to solve everything. The 

servicer agreement that was just reached is another critical compo-
18 

nent forward, and you mentioned, Senator, the concept of the single point of contact. That is critical. I cannot tell you the number 

of people that we have heard from, and I know you have heard 

from, who just cannot get the darn phone answered. And then if 

you are limited English proficient, you are in deep—you are hot 

water. Senator, I do not know the other word for it. 

[Laughter.] 

Senator WHITEHOUSE. Just as well. 

Senator FRANKEN. Do not look at me. 

Mr. PEREZ. I do not know why I looked at you, Senator, for guidance on that. 

[Laughter.] 

Mr. PEREZ. So we have seen this, and you certainly have my 

commitment, because we have done more than we have ever done 

before in fair lending, but we need to do even more, because I recognize that for all the people we have helped, there are scores more 

that need our help, and that is why it has been an all-hands-ondeck enterprise and will continue to be so. 

Senator FRANKEN. Senator Klobuchar. 

Senator KLOBUCHAR. Thank you very much. 

Mr. PEREZ. Good to see you again, Senator. 

Senator KLOBUCHAR. Good to see you. Thank you for—I was 

going to ask you about the servicemembers, and I appreciate your 

work in that area. It is completely unbelievable that that would 

happen. 

I was going to first start off by asking you about—I authored an 

amendment with Senator Merkley during the Wall Street reform 

bill to help end the practice of steering, whereby loan originators 

are compensated for leading borrowers into non-prime loans that 

are not sustainable for them over the long term. And in your testimony, you discussed how in the Countrywide case minority borrowers were steered into loans that—this is your own quote—‘‘cost 

them on average thousands of dollars more and caused additional 

harm as a result of increased risk of prepayment penalties, credit 

problems, default, and ultimately foreclosure.’’ 

Could you discuss how this discriminatory practice harms not 

only the borrowers and their families but also damages the housing 

market? 

Mr. PEREZ. Sure. Again, we looked at data on 2.5 million loans, 

so we really did an unprecedented review, and this was a comparison of qualified white applicants with similarly qualified AfricanAmerican and Latino applicants, and we saw that if you were 

Latino, you were something like two to three times more likely to 

be steered into the subprime loan and similar likelihood for African-Americans. And that is unconscionable because it is not only 

the damage to the particular individual, but then when you have 

one foreclosure which leads to another foreclosure you see the damage to the community. So the collateral damage is as burdensome 

and destructive as the damage to the particular family. And that 

is why we focused a lot of effort and we do have other matters 

under review that involve similar issues of steering, and we will 

continue to see that happen. 

Senator KLOBUCHAR. Thank you. I think that point is really important, that while the damage is immense to the individual fam-
19 

ily, people have to understand it is not just, oh, it is my neighbor. 

It affects the whole community. 

Last year, I held a hearing in my Judiciary Subcommittee on the 

Financial Fraud Enforcement Task Force and the important contributions it has made. In your testimony, you talked about the 

task force, the role that it played in the discrimination investigation. Can you talk about how that is going, the collaboration with 

State and local authorities in order to fulfill your mission? 

Mr. PEREZ. Oh, it has been going very well. In the Countrywide, 

for instance, we worked very closely with the attorney general of 

Illinois, Lisa Madigan, who was a critical partner in this enterprise. I have traveled to the south side of Congress and the west 

side of Chicago with Attorney General Madigan to a number of distressed communities to hear directly from individuals. 

The work we have been able to do with regulators—and I gave 

some data in my remarks today about the increase in the number 

of referrals. Virtually every case I am talking about is a referral 

from a regulator, and they have really picked up the pace of their 

activity, and without them we really cannot do our job. 

Senator KLOBUCHAR. Do you see any kind of geographic patterns? Are there areas that are hurting, you know, where you see 

areas that are hit the hardest by foreclosures? Is there more discrimination? Is there any geographic pattern? 

Mr. PEREZ. That is an interesting question. As I reflect on the 

geo-mapping of our cases, you know, we have had cases in urban 

areas, St. Louis and Detroit, that have large African-American and 

Latino populations. In Countrywide, 30 percent of the victims were 

in California. But there were 2,000 victims in the Twin Cities area. 

And while I have not specifically geo-mapped where they are, I am 

going to guess that they are probably concentrated in Minneapolis 

and St. Paul. And so where you have larger concentrations of minorities, you tend to have larger concentrations of our fair lending 

work. 

Senator KLOBUCHAR. It makes sense. I was just thinking, because in the health care area where we had more disorganized 

health care systems, we had more fraud in those areas. 

Mr. PEREZ. Correct. 

Senator KLOBUCHAR. Even though those two things did not seem 

related, but this is a different issue. 

Last, multiple agencies, I have been struck by how many different agencies are involved in overseeing mortgage lending practices and forcing our banking laws. The President has shown an interest in streamlining our Government and made a significant proposal in the trade and commerce area. The Wall Street reform law 

took some steps to streamline, but do you think there is any opportunity to streamline things and make it more focused and efficient? 

Mr. PEREZ. Well, I think we have tried to make it more focused 

and efficient through the working group and the task force, and 

one of the things we are trying to do is marry data bases because 

sometimes you get your own data, you put it in your own data 

base, and little did you know that another regulator might be 

working on a similar issue. 
20 

And so one of the many value-addeds of the work that we have 

done is to make sure that information sharing is occurring as a 

matter of course, and that enables us, I think, to do our job better. 

Senator KLOBUCHAR. Thank you. 

Senator FRANKEN. I am going to just follow up a little on a couple things as quickly as I can. Then Senator Grassley, I know, before the next panel would like to say a couple things because he— 

and he will listen to the testimony of the next panel, but he will 

have to go at a certain point. 

I wanted to talk about just a couple things. I want to pick up on 

what Senator Whitehouse was talking about, this complaint that 

he talked about that I have heard over and over again, that when 

borrowers are underwater and seek the Government’s help, they 

sometimes fall through the bureaucratic cracks, to say the least. 

Often they talk to several different people and get several different 

answers. Servicers lose their documentation all the time, and that 

is why I introduced a bill—and this was actually during the Wall 

Street reform bill—to create an Office of the Homeowner Advocate, 

and this office is based on the IRS’ successful Office of the Taxpayer Advocate. It would help homeowners get the loan modifications or other help they need, and it would provide what you exactly talked about, the single point of contact, because I think that 

is the key, that you can call someone and that you talk to the same 

person every time so that person knows your history and has 

records of your history. And this is not brain science. I am sorry. 

So I was wondering if we could work together to make this office 

happen. I do not know if it happens under Treasury, I do not know 

if it happens under the Consumer Financial Protection Bureau. But 

somewhere we need a place where people can call and know that 

they are not going to get a runaround, and a runaround caused by 

absolute total incompetence. 

Mr. PEREZ. We have been having a lot of conversations about this 

issue. When I first entered the Justice Department in 1990—in 

1989, in the Bush I administration, one of the things I remember 

from one of my early supervisors, he wrote on the board, ‘‘This is 

one of the most important things you need to remember, three 

words: Return phone calls.’’ And I have sort of kept it in my mind, 

and unfortunately, I do not know that they went to the same training, a lot of the servicers here, because people cannot get phone 

calls returned. 

When automated underwriting came into play and there was a 

lot of money to be made, now suddenly you could get a loan approved in 48 to 72 hours. Well, we need some form of automated 

servicing so that we can move with similar alacrity because time 

is of the essence. The most important things that people in distress 

need are time, money, an advocate to work for them, and a Government that is working for them. And you need all of those—— 

Senator FRANKEN. Well, that is what I am talking about, and I 

know—— 

Mr. PEREZ. I appreciate that. 

Senator FRANKEN. Senator Whitehouse articulated it beautifully, 

and I know that Senator Grassley has had this experience. I think 

now that every member of the U.S. Senate has had this conversation in somebody’s living room or their office or in the Senator’s of-
21 

fice about the litany of frustrating calls. It is a universal experience, and please, would you help me with that? 

Mr. PEREZ. I look forward to trying to make—we need to improve 

this. We need to do better. There is no doubt about it. 

Senator FRANKEN. OK. Well, I need an advocate in the administration. 

Last month, I introduced a bill, the Helping Homeowners Refinance Act, to assist eligible borrowers in refinancing their loans. 

The same week I introduced my legislation, the President announced his plan to help borrowers refinance, which included my 

proposal, and I understand you cannot comment on any particular 

piece of legislation, but it is fair to say that the administration supports the policy of reducing barriers to refinancing. Is that the 

case? 

Mr. PEREZ. Sure. And I look forward to reviewing the text of your 

bill, and I know obviously the administration does indeed support 

removal of barriers. And so we look forward to reviewing what you 

have introduced. 

Senator FRANKEN. And I just want to say one last thing, then I 

will excuse you, on the Servicemembers Civil Relief Act. I was just 

meeting a couple days ago with members of the VFW from Minnesota who told me that they knew recently returned 

servicemembers who fell into that category. What should 

servicemembers and veterans who think they are victims of illegal 

foreclosure do to benefit from the settlement? What should they do? 

Mr. PEREZ. Actually, they do not need to do anything because it 

is incumbent on us, and we have a data base that enables us to 

identify victims. Having said that, we have identified and established an 800 number so that if they have questions or want to talk 

to a live body—and they will get a live body—they can do this. 

I did two calls yesterday with advocacy groups that deal with 

servicemembers to talk about this precise issue, and we have been 

getting a lot of calls, and the number—— 

Senator FRANKEN. And where would they find that—— 

Mr. PEREZ.—is 800–896–7743. 800–896–7743. And, again, under 

the terms of this agreement, it is not incumbent on servicemembers 

to opt in. It is incumbent on us to find them, and it is incumbent— 

and we are working very closely with—— 

Senator FRANKEN. Well, just in case you do not find someone—— 

Mr. PEREZ. Absolutely. No, we can use the help—we can use all 

the help we can get, which is why we have been having these outreach meetings. And I had two of them yesterday with advocacy 

groups that have a wide footprint across America. 

Senator FRANKEN. Thank you. Thank you for doing that. 

Mr. PEREZ. Thank you for your leadership. 

Senator FRANKEN. Thank you for your testimony. Thank you, Assistant Attorney General Perez. You are excused. And I would like 

to turn to the esteemed Ranking Member. 

Mr. PEREZ. It might take me a little while to excuse myself. 

Senator FRANKEN. Well, do not worry about it. He is going to 

talk. But I would not that that is not a Jerry Garcia tie. 

Senator GRASSLEY. I will be here until the bottom of the hour, 

but I have an 11:35 appointment I have to go to. I will be able to 

listen to most of the testimony, but most importantly, I want to 
22 

thank Professor Black for answering our calls for him to come here 

and testify. And I will be submitting questions to the panel for answer in writing. 

Thank you, Mr. Chairman. 

Senator FRANKEN. Thank you to the Ranking Member. 

Senator FRANKEN. Now I would like to call the third panel, and 

while they are taking their seats, I would just like to say, as we 

heard from Mr. Perez and I am sure it will be echoed in the testimony from our next distinguished panel, the lending practices of 

Countrywide Bank were unlawful and unconscionable. There is no 

doubt in my mind that these activities were also immoral and the 

targeting and exploitation of racial and ethnic minorities for financial gain will also have long-lasting effects. 

In Minnesota and across the country, foreclosures take a toll far 

beyond the immediate financial losses that the families experience. 

In addition to short-term financial insecurity and uncertainty, 

many families struggle to pay for higher education and retirement 

when they do not have the kind of equity provided by homeownership. Studies have shown that children are more likely to move frequently when their families lose housing stability, and student mobility is a major cause of low academic achievement. So these discriminatory lending practices will have long-reaching effects on the 

children and the families who experience this exploitation. 

The Federal Housing Administration was established in 1934 to 

regulate the mortgage terms and interest rates, and it had strict 

lending standards dictating which mortgages and properties it 

would support. Included in these criteria was the consideration of 

the racial and ethnic demographics of the neighborhood. The FHA 

used color-coded residential security maps to determine where 

mortgages could or could not be supported. Red lines on the maps 

showed where mortgages were less secure based in part on racial 

and ethnic makeup of the neighborhood. 

Putting the discriminatory practices of lenders such as Countrywide into this context, the kind of targeted predatory lending that 

we have seen in recent years is a tragedy. While I have no information to suggest these schemes were carried out with the intent of 

segregating neighborhoods, there can be no doubt that this has 

been their effect. 

In Minnesota, 56 percent of loans to black Minnesotans in 2006 

were subprime, and as Mr. Rodriguez noted in his written testimony, approximately one out of four Latino and black borrowers 

has lost a home to foreclosure or is at serious risk of foreclosure 

compared to about 12 percent of white borrowers. The effect of 

these trends is that racial and ethnic minorities are losing their 

homes and are forced into lower-income neighborhoods. These 

flawed lending practices will have long-term repercussions not only 

for those families who have lost their homes, but also for our society. 

This leaves me with one question: How can we work to repair the 

damage that has been done? Last month, as I told Mr. Perez, I introduced the Helping Homeowners Refinance Act. This legislation 

will keep Fannie Mae and Freddie Mac from making investments 

that create a financial disincentive to helping borrowers refinance 

their mortgages. It will also help remove artificial barriers that are 
23 

currently keeping banks from competing to refinance eligible borrowers’ mortgages. 

This proposal to reward competition in the marketplace, which 

President Obama included in his recent plan to revitalize the housing market, will be an important first step for healing the damage 

that we have seen in recent years. Expanded access to refinancing 

is the low-hanging fruit. We know that many if not most eligible 

borrowers have not refinanced their loans, but by doing so they 

could save thousands of dollars a year. I am proud that the organizations of two of our distinguished panelists, the National Council 

of La Raza and the NAACP, have both endorsed this legislation. I 

hope that my colleagues on both sides of the aisle will work with 

me to take this first step toward a healthier and more equitable 

housing market. 

With that, it is my honor to introduce our panelists. 

Eric Rodriguez is the vice president of the Office of Research, Advocacy, and Legislation at the National Council of La Raza. His expertise includes policy issues affecting Latino families, economic 

and labor issues, and homeownership issues. He has a bachelor’s 

degree in history from Siena College and a master’s degree in public administration from American University. 

William Black is an associate professor of economics and law at 

the University of Missouri-Kansas City. From 2005 to 2007, he was 

the executive director of the Institute of Fraud Prevention and previously taught at the LBJ School of Public Affairs at the University 

of Texas at Austin. He was also the litigation director of the Federal Home Loan Bank Board and has worked with the Federal 

Home Loan Bank of San Francisco and the National Commission 

on Financial Institution Reform, Recovery, and Enforcement. 

Thank you for being here. 

Hilary Shelton is the vice president for advocacy and the director 

of the NAACP’s Washington Bureau. In his current capacity, he 

has covered a wide range of policy issues, including homeownership 

and consumer protection. Additionally, Director Shelton serves on 

the boards of directors of the Leadership Conference on Civil 

Rights, the Center for Democratic Renewal, and the Congressional 

Black Caucus. He holds degrees in political science, communications, and legal studies from Howard University, the University of 

Missouri, and Northeastern University. 

I want to thank you all for being here today. You are good Mr. 

Ranking Member? 

Senator GRASSLEY. Yes. 

Senator FRANKEN. Why don’t we start with Mr. Rodriguez. 

STATEMENT OF ERIC RODRIGUEZ, VICE PRESIDENT, OFFICE 

OF RESEARCH, ADVOCACY, AND LEGISLATION, NATIONAL 

COUNCIL OF LA RAZA, WASHINGTON, D.C. 

Mr. RODRIGUEZ. Well, thank you. Thank you, Senator, and I certainly want to thank the Ranking Member and the Chairman for 

inviting me today to provide expert testimony and for the gracious 

welcome this morning. 

I have had an opportunity to work on civil rights and human 

rights issues for many, many years, and as many of you know, recent evidence of discrimination in housing is perhaps some of the 
24 

most damaging we have witnessed in recent years. So it is really 

important for all of us to put a spotlight on this issue in the hopes 

that we do not forget these lessons and understand fully the shared 

benefit of the remedy that we are discussing today. 

I just want to make a few brief points in my time. To begin with, 

this is the largest fair lending settlement in our history, and it 

should serve as a blueprint for enforcement of the Nation’s fair 

lending laws going forward. We know three main things at this 

point. 

Discrimination against Latino and black borrowers was prevalent 

in the mortgage market, and this is really critical because the 

mortgage lending system in the U.S. is an advanced and innovative 

system, and I think it is really striking to find in a system like 

this, where everyone really talked about automated underwriting 

and the great benefits of it and how it was really going to get rid 

of discriminatory and discretionary behavior that we are seeing evidence and proof of race/ethnic discrimination in that system. 

Second, I would say discrimination against Latino and black borrowers had widespread impact on all Americans, not just Latinos 

and African-Americans. 

And, lastly, there is more work that needs to be done, and I 

think the Assistant Secretary’s testimony really shows that, as well 

as some of the cases that were being raised and talked about in the 

questions. 

So, first, the DOJ investigation into Countrywide documents discriminatory tactics that we have long warned against. For civil 

rights groups, we are oriented toward seeing discrimination everywhere, right? I can open my refrigerator and I see disparate impact 

in my food choices. But the fact that we have documented evidence 

finally of a case—and many cases—is really striking for the rest of 

America to really see patterns of discrimination, and I think that 

is really what is most notable about what we are seeing in this settlement today. 

Investigations found 10,000 victims of steering—we had been 

talking about steering for over a decade—and a particularly egregious form of predatory lending where creditworthy borrowers were 

unfairly sold risky subprime products even though we know they 

are eligible for prime. One other study found that among borrowers 

with FICOs about 660, blacks and Latinos received higher interest 

rate loans more than 3 times as often as whites. 

Second, the ramifications of predatory lending are not limited to 

just the immediate victims, and I think that is really crucial. It is 

not just about how this is impacting African-Americans and 

Latinos, although that is really crucial for our community. The 

housing bubble that eventually drove the financial crisis of 2008 

was seeded by unfair lending that targeted vulnerable communities. As a result, communities of color, low-income families, and 

the elderly have experienced disproportionately high foreclosure 

rates. However, the pain has been widely felt as the housing market crashed, drove the Great Recession where millions have lost 

their jobs, 2.7 million families have lost their homes, 10 million are 

underwater right now. In a highly integrated system like the housing market, you cannot just see one or two areas of really bad behavior and not think that that is going to have a widespread im-
25 

pact on our economy. Approximately one out of four Latino and 

black borrowers have lost their homes or are at serious risk of foreclosure compared to nearly 12 percent of white borrowers. 

Third, DOJ must build on the investigation of Countrywide to 

root out other abusive lending. The Wall Street bailouts and the 

Great Recession have cost taxpayers untold sums. DOJ has the responsibility to hold companies that contributed to the circumstances accountable to the public. Moreover, the need for this 

work is only increasing. The Civil Rights Division you heard today 

is getting referrals. More than half of those in the last 3 years are 

race/ethnic based. 

There is a lot of work to be done out there. The lessons of the 

housing bubble must be that ignoring the abuses concentrated in 

certain communities puts the entire market at risk. 

It is equally important that DOJ deliver justice to as many individual victims as possible. We have offered some recommendations 

in our testimony and look forward to working with everyone on 

those. 

So, in summary, this is a landmark settlement of importance to 

all Americans, not just Latinos and African-Americans. We now see 

that housing discrimination in one or two areas can have widespread and devastating impacts on all of us. Therefore, it should 

be a call to action for all that we do everything that we can to ensure equal justice and fair treatment in our economic systems. 

Furthermore, solutions and remedies to injustice can have widespread positive impacts. This settlement will contribute greatly to 

our country’s economy as we stabilize our housing market and puts 

ourselves on a path to recovery. 

Thank you. 

[The prepared statement of Mr. Rodriguez appears as a submission for the record.] 

Senator FRANKEN. Thank you, Mr. Rodriguez. 

Professor Black. 

STATEMENT OF WILLIAM K. BLACK, ASSOCIATE PROFESSOR 

OF ECONOMICS AND LAW, UNIVERSITY OF MISSOURI-KANSAS CITY SCHOOL OF LAW, KANSAS CITY, MISSOURI 

Mr. BLACK. Thank you for the invitation. I will go directly to substance given the timing. 

I am going to build on Assistant Attorney General Perez’s metaphor that he now believes that we are up to singles and doubles 

and that home runs are not in our arsenal. 

In the different leagues, the big leagues, of criminal prosecutions, 

the industry is pitching a perfect game. We have no elite convictions. We have a massive fraud that has been described, massive 

illegality, not even really a criminal investigation, no indictments, 

as far as I know not a grand jury, certainly no prosecutions. And 

they are all K’s, if you want to extend the baseball metaphor, 

strikeouts, and they are all strikeouts called looking. We have not 

gotten the bat off our shoulder. 

He told you that we are up to 50 or 80 referrals now for noncrime criminal referrals. Our agency, the Office of Thrift Supervision, in 4–1/2 years in the savings and loan crisis made over 

30,000 criminal referrals. The Office of Thrift Supervision in this 
26 

crisis made zero criminal referrals. The Office of the Comptroller 

of the Currency, depending on who you believe at the OCC, made 

either zero or three. The Federal Reserve made three. The FDIC 

is smart enough not to answer the question. 

Without criminal referrals in elite white-collar crime, you cannot 

get any significant convictions. We have destroyed the absolute essential function. It does not even exist. People are not even there 

in charge of making criminal referrals anymore, where we had dozens of personnel whose job was to make the criminal referral. And 

this is the largest epidemic of elite fraud in the history of the 

world, and it has caused the most devastating consequences. 

You are looking at pieces and not seeing the integration. The 

mortgage origination fraud, the discrimination and predatory lending, the fraudulent sales of mortgages to the street, the fraudulent 

sales by the street, and the foreclosure fraud are all part of the 

same piece. And the mystery is that the Assistant Attorney General of the United States cannot understand why internal controls 

were weakened. They were weakened because they got in the way 

of fraud. So here is the recipe for an accounting control fraud, 

standard criminology and economics: 

One, grow like crazy. 

Two, by making really crappy loans, but at a premium yield or 

interest rate. 

Three, while employing extreme leverage that just means a lot 

of debt. 

And, four, while putting aside virtually no reserves for the inevitable losses. In jargon, that is the Allowance for Loan and Lease 

Losses, the ALLL. 

If you do those four things, then the Nobel Laureate in Economics George Akerlof warned in 1993, in the famous article ‘‘Looting: 

The Economic Underworld of Bankruptcy for Profit,’’ that you are 

mathematically guaranteed to report record profits. It was, in his 

phrase, ‘‘a sure thing.’’ And this produces record income, and that 

is the profit, of course. The bankruptcy is, as Assistant Attorney 

General Perez said, the firm fails because it is making the bad 

loans. So let us make it real. 

There is testimony in front of the Financial Crisis Inquiry Commission that the typical job for a mortgage broker, prior job, was 

flipping burgers. So this is a guy, sometimes a gal, making roughly 

$20,000. Your fee as a mortgage broker for a single California 

jumbo, a $600,000 to $800,000 mortgage, could be $20,000. And it 

was a question of hitting the sweet spot, and to create the sweet 

spot, you had to create a unicorn—something that cannot exist in 

finance but was made to exist millions of times every year, and 

that was the liar’s loan, an asset that was supposedly relatively 

low risk and high yield at the same time, which is impossible 

under efficient markets, which they purported to believe in. 

So how did you do that? The first thing you want is a real premium yield. You do that by picking on the people that you can get 

away with. Who are the great people to pick on? 

First, the elderly, particularly those with incipient Alzheimer’s. 

Second, Latinos, especially Latinos that do not speak or read 

English very well, because you handle all the negotiations in 

English. 
27 

Third, African-Americans, because they have less connection to 

the financial industry, fewer choices, and, yes, statistically less formal training in finance. 

That is why you go after these groups: because you can charge 

them more. And that is the first thing that maximizes your fee. 

The second thing has two subparts: 

You have got to make the loan look less risky. How do you do 

that? First, you gimmick two ratios: one is the loan-to-value ratio. 

The loan is the loan amount, the value is the appraisal. 

Senator FRANKEN. Professor, I hate to do this, but because of my 

time limitations, I am going to have to ask you to try to wrap this 

up in—— 

Mr. BLACK. Happy to. 

Senator FRANKEN. You know, to give justice to your argument as 

quickly as possible. 

Mr. BLACK. Absolutely. So what that meant empirically is that 

90 percent of liar’s loans were fraudulent, and that it was lenders 

overwhelmingly who put the lies in liar’s loans, and that after 

warnings from the Government and the industry, they massively 

increased the amount of liar’s loans they made. That produced the 

crisis; that destroyed the documentation. That is how you get the 

discrimination pattern; that is how you get the foreclosure fraud; 

that is how you get the largest loss of wealth to minorities in 

America in the history of our Nation. 

Thank you. 

[The prepared statement of Mr. Black appears as a submission 

for the record.] 

Senator FRANKEN. Thank you, Professor. 

Mr. Shelton. 

STATEMENT OF HILARY O. SHELTON, DIRECTOR, WASHINGTON BUREAU, AND SENIOR VICE PRESIDENT FOR ADVOCACY AND POLICY, NATIONAL ASSOCIATION FOR THE ADVANCEMENT OF COLORED PEOPLE (NAACP), WASHINGTON, 

D.C. 

Mr. SHELTON. Thank you very much, Senator Franken, Chairman Leahy, and esteemed members of this Committee. My name 

is Hilary Shelton. I am the director of the NAACP’s Washington 

Bureau, the Federal legislative and national public policy arm of 

the Nation’s oldest and largest grassroots-based civil rights organization. 

Let me be clear: Abusive, predatory lending and the lack of access to basic financial services and reasonable credit continues to 

be a major civil rights issue in America today. In my written testimony I provide an in-depth review of the literature and data which 

supports the NAACP’s contention that, for at least 20 years, African-Americans and other racial and ethnic minorities have been 

targeted by abusive predatory loans and that this targeting was exacerbated by the lack of access to reasonable and responsible credit 

in our communities. For brevity’s sake, I will simply refer you to 

my written testimony for more on this particular piece of information. 

While the NAACP recognizes the benefits of non-conventional 

credit for a constituency which includes many without a strong tra-
28 

ditional credit history, we are offended by the notion that somehow 

it makes it OK to offer abusive predatory loans through a group 

of people based solely on their race or ethnic background. Furthermore, we find it deplorable for a potential homebuyer to be given 

a higher-rate mortgage than a borrower with an equivalent credit 

history and score based only on the borrower’s race or ethnicity. 

The results of decades of disparate and discriminatory predatory 

lending in our communities are becoming more and more evident. 

Borrowers of color are more than twice as likely to lose their homes 

to foreclosure today than white homeowners. Furthermore, neighborhoods with high concentrations of racial and ethnic minority 

residents have been hit especially hard by the foreclosure crisis. 

Nearly 20 percent of loans in high-minority neighborhoods have 

been foreclosed upon or are seriously delinquent, with significant 

implications for long-term economic viability on these communities. 

The impact of these disproportionate foreclosures on our communities cannot be understated. Neighborhoods with high concentration of foreclosures lose tax revenue while at the same time incurring the financial costs of abandoned properties and neighborhood 

blight. In fact, it is estimated that local governments incur an average of over $19,000 in costs for every foreclosure. 

Furthermore, homeowners living in close proximity to the foreclosed home typically lose significant wealth as a result of depreciated home values. Neighbors adjacent to a foreclosure incur a loss 

of $3,000 in lost property values. These revenue losses have a direct impact on the ability of local governments to provide residents 

with crucial services, such as high-quality schools, adequate health 

care, basic public safety, and infrastructure maintenance, to name 

just a few. 

So how do we help these people, these families and these communities? By enforcing the existing laws as well as enacting new laws 

to help those currently struggling to keep a roof over their families’ 

heads. 

The NAACP recognizes and is deeply appreciative of the enforcement efforts by Assistant Attorney General Tom Perez, Attorney 

General Eric Holder, and the entire Justice Department. We are, 

in fact, encouraged by many of the actions coming out of DOJ and 

other agencies, and we are especially heartened by the fact that if 

and when the nascent Consumer Financial Protection Bureau becomes fully operational, there will be an even more robust enforcing of laws already on the books and fewer cases of discrimination 

that are allowed to fester and grow as big as Countrywide. We are 

also pleased that the Dodd-Frank Wall Street Reform and Consumer Protection Act prohibits many of the predatory lending practices which have decimated so many of our communities. 

Legislatively, we support several initiatives which we believe will 

alleviate much of the pain and suffering which has been caused by 

the foreclosure crisis and allow millions of hardworking American 

families to say in their homes and their communities. 

First off, we support a yearlong moratorium on foreclosures. This 

would potentially allow homeowners and mortgage servicers time 

to find and take remedial action. 

The NAACP also supports initiatives to help homeowners who 

are currently facing foreclosure and/or those who are underwater 
29 

on their mortgages, owing more than the value of their homes. We 

need to make it easier for homeowners to refinance their mortgages 

and get away from the abusive or high-cost loans and take advantage of today’s record-low interest rates. Proposals such as Senator 

Franken’s Helping Homeowners Refinance Act of 2012 will help 

make it easier for homeowners to refinance. We strongly support 

it. 

We also support and enact proposals such as Congresswoman 

Maxine Waters’ Project Rebuild, which would target Federal dollars and matching State and local funds into rehabilitating and redeveloping abandoned and foreclosed properties. By doing this, we 

are not only investing in communities which have, for too long, 

been ravaged by the foreclosure crisis, but we are also creating 

jobs. 

I would again like to thank the Committee for holding this hearing and for also inviting the NAACP to share our perspective and 

our opinion on these matters. As such, I look forward to your questions. 

[The prepared statement of Mr. Shelton appears as a submission 

for the record.] 

Senator FRANKEN. I want to thank all the witnesses. And, by the 

way, your complete written testimonies will be made part of the 

record. 

Mr. Rodriguez, as I mentioned, I introduced the Helping Homeowners Refinance Act last month to expand access for eligible 

homeowners to refinance their mortgages. Based on what I have 

heard today, it is clear that many racial and ethnic minorities were 

unfairly discriminated against and are now stuck in loans with 

high interest rates. The National Council of La Raza was one of the 

first endorsers of my legislation. I want to thank you for your support. 

Can you explain how helping homeowners to refinance their 

mortgages would help to heal the damage done or some of the damage done by discriminatory lending practices of banks like Countrywide? 

Mr. RODRIGUEZ. I would be happy to. Thank you. And thank you 

for your leadership. It is a good piece of legislation. We think it is 

crucial in this environment to provide all the opportunities we can 

to keep homeowners in their homes as much as possible. All of the 

families that we talk to and our housing counselors have an opportunity to talk to, they want to remain in their homes. It is just very 

unaffordable for them right now to be able to make their monthly 

payments. Any opportunities that can be provided and support that 

helps them do that I think is something we ought to encourage, 

and we hope for swift passage of that legislation. 

Senator FRANKEN. Thank you. And, Mr. Shelton, thank you also 

for the NAACP’s endorsement. 

Mr. SHELTON. It is a good bill. 

Senator FRANKEN. Thank you. How do you think that helping 

homeowners refinance their mortgages would help heal the housing 

market? 

Mr. SHELTON. As you know, so many are locked into mortgages 

they cannot continue to sustain. Being able to make that transition 
30 

into an affordable, sustainable loan will make all the difference to 

them in the world. 

When we look at the trap that so many were placed in, the 

subprime loan trap, one of the things many Americans were not 

told and disproportionate racial and ethnic minority Americans 

were not told is that as we move through the process of this once 

attractive loan, as we saw the escalating mortgage rates, that they 

would be able to transition into a mortgage they could actually support, they could actually sustain. 

Indeed, what this bill would do is allow them to do that, make 

that transition, get past those early payment penalties, which in 

some cases far superseded anything they could afford. So it would 

help them move along. The idea is to sustain people in the homes 

and communities they are in and make sure they can continue to 

stay there, putting that roof over their families’ heads. 

Senator FRANKEN. It would have been nice if we could have done 

this a little earlier. 

Mr. SHELTON. Absolutely. 

Senator FRANKEN. Mr. Shelton and Mr. Rodriguez, even before 

the foreclosure crisis, geographic segregation by income among racial and ethnic minorities in our country was increasing. This trend 

was exacerbated by the racial and ethnic discrimination faced by 

Americans by mortgage lenders like those at Countrywide. 

Can banks be doing more to repair the damage done by their discriminatory lending practices? And if so, what? 

Mr. SHELTON. I believe that certainly a stronger outreach to the 

communities that they have abused, reaching out to those individuals, helping them reassess the loans that they have, and moving 

them as expeditiously as possible to some refis, some ability to restructure those loans, is extremely important. But as was mentioned earlier by Assistant Attorney General Tom Perez, too often 

not only are the banks and lending institutions not reaching out, 

but they are not making themselves available. So what we find is 

we have millions of Americans that are sitting on the brink of foreclosure and trying to figure out exactly what to do. 

The banks could do so much more. They could also work very 

closely with community-based organizations. It stands to reason 

that many of the people that are struggling to maintain their loans 

are fearful when they get a call from their bank. If I had a call or 

a message left on my answering machine from the same bank 

that—I am trying to find a nice term for what they did to me and 

the mortgage they saddled me with. But I would very well find myself perhaps not even responding or knowing exactly why they are 

calling. 

Utilizing those trusted entities within communities, whether it is 

organizations like La Raza or the NAACP, churches, synagogues, 

other religious organizations in the communities, or other trust entities, could prove to be very helpful. 

Mr. RODRIGUEZ. Yes, I concur. I would just add and make three 

quick points. 

For banks, clearly compliance and cooperation in this environment I think would be pretty crucial. You mentioned the single 

point of contact earlier as being a crucial piece of the remedy, and 

I think being responsive to that and doing so more quickly than I 
31 

think we have seen is going to be crucial going forward. Getting 

out more accurate information and doing their very best to root out 

fraud in communities. All of our communities have received letters 

that say—they are sort of stamped ‘‘HUD’’ something, that, ‘‘I can 

help you,’’ and it is really scam artists that are targeting our community. And I think there is a lot more we can all do collectively, 

and certainly the banks can play a role in helping to root out bad 

actors that are out there. And I certainly agree that partnering 

with community-based organizations in the way that our organizations have been able to, with HUD-certified housing counselors 

that are out there doing really, really good work and need the support and cooperation of local banks to fix cases that we are seeing 

quite often I think is a crucial part—all crucial parts of the remedy. 

Senator FRANKEN. Well, thank you. I do think the single point 

of contact is so important because of the frustration that you see 

in people. 

I have to go preside in a couple minutes, but, Professor Black, 

you came here and you testified, and I want to be able to hear 

more from you because you are basically saying that we need to be 

prosecuting people. That came through loud and clear. 

Mr. BLACK. Mission accomplished then. 

Senator FRANKEN. Mission accomplished. And I could not agree 

more. It would be nice if some of these bad actors—do you know 

if, for example, in Countrywide there was—there was an attempt 

to do some kind of criminal prosecution, was there not? 

Mr. BLACK. ‘‘No’’ is the real answer. There was a supposed review. This is at a time when there were a total of 120 FBI agents 

nationwide working all mortgage fraud cases. To give you an idea 

of scope, in 2006 alone there were more than 2 million fraudulent 

mortgages originated, and they were assigned to tiny cases. So I 

am sure that somebody called it an investigation and assigned a 

couple of FBI agents maybe even for a month. 

To give you an idea of scope, in the savings and loan crisis where 

the losses were 1/70 as large, we had 1,000 FBI agents working it. 

And in just our Dallas task force, we had over 100 professionals. 

To do a sophisticated of Countrywide would take roughly a team 

of 100 FBI agents and 20 prosecutors. So, no, there was no serious 

criminal investigation. 

On that note, we now have several governmental entities put in 

pleadings that Countrywide committed intentional fraud. 

Senator FRANKEN. Well, thank you all for your testimony. I unfortunately have to go preside, because we could go on for a lot 

longer more productively, but I really appreciate your testimony. 

The record will be kept open, and it will be kept open for, I believe, another week. One week. That is kind of what I said. So the 

record will be help open for 1 week for submission of questions for 

witnesses and for other materials. 

Thank you again, gentlemen, and this hearing is adjourned. 

[Whereupon, at 11:50 a.m., the Committee was adjourned.] 

[Submissions for the record follow.] 
32 
33 
34 
35 
36 
37 
38 
39 
40 
41 
42 
43 
44 
45 
46 
47 
48 
49 
50 
51 
52 
53 
54 
55 
56 
57 
58 
59 
60 
61 
62 
63 
64 
65 
66 
67 
68 
69 
70 
71 
72 
73 
74 
75 
76 
77 
78 
79 
80 
81 
82 
83 
84 
85 
86 
87 
88 
89 
90 
91 
92 
93 
94 
95 
96 
97 
98 
99 
100 
101 
102 
103 
104 
105 
106 
107 
108 
109 
110 
111 
112 
113 
114 
115 
116 
117 
118 
119 
120 
121 
122 
123 
124 
125 
126 
127 
128 
129 
130 
131 
132 
133 
134 
135 
136 
137 

Æ