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EXAMINING THE CONTINUING CRISIS IN RESIDENTIAL FORECLOSURES AND THE EMERGING

COMMERCIAL REAL ESTATE CRISIS: PERSPECTIVES FROM ATLANTA

HEARING

BEFORE THE

SUBCOMMITTEE ON DOMESTIC POLICY

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

NOVEMBER 2, 2009

Serial No. 111–156

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.oversight.house.gov

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

MARCY KAPTUR, Ohio

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

CHRIS VAN HOLLEN, Maryland

HENRY CUELLAR, Texas

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

JACKIE SPEIER, California

STEVE DRIEHAUS, Ohio

JUDY CHU, California

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

BLAINE LUETKEMEYER, Missouri

ANH ‘‘JOSEPH’’ CAO, Louisiana

RON STROMAN, Staff Director

MICHAEL MCCARTHY, Deputy Staff Director

CARLA HULTBERG, Chief Clerk

LARRY BRADY, Minority Staff Director

SUBCOMMITTEE ON DOMESTIC POLICY

DENNIS J. KUCINICH, Ohio, Chairman

ELIJAH E. CUMMINGS, Maryland

JOHN F. TIERNEY, Massachusetts

DIANE E. WATSON, California

JIM COOPER, Tennessee

PATRICK J. KENNEDY, Rhode Island

PETER WELCH, Vermont

BILL FOSTER, Illinois

MARCY KAPTUR, California

JIM JORDAN, Ohio

MARK E. SOUDER, Indiana

DAN BURTON, Indiana

MICHAEL R. TURNER, Ohio

JEFF FORTENBERRY, Nebraska

AARON SCHOCK, Illinois

JARON R. BOURKE, Staff Director

(III)

C O N T E N T S

Page

Hearing held on November 2, 2009 ........................................................................ 1

Statement of:

Fort, Hon. Vincent, a Senator in Congress from the State of Georgia;

Andrew Young, chairman, Goodworks International, LLC; Burt Manning, chief assessor, Fulton County Board of Tax Assessors; Brent

Brewer, 30310 Mortgage Fraud Task Force; William J. Brennan, director, Atlanta Legal Aid Society’s Home Defense Project; Tia McCoy,

homeownership center manager, Resources for Residents and Communities; Dan Immergluck, associate professor, City and Regional Planning Program, Georgia Institute of Technology; and Frank Alexander,

professor of property, real estate sales and finance, State and local

government law and theology, Federal housing policies and homelessness, Emory University School of Law ........................................................ 6

Alexander, Frank ...................................................................................... 103

Brennan, William J. .................................................................................. 49

Brewer, Brent ............................................................................................ 44

Fort, Hon. Vincent ..................................................................................... 6

Immergluck, Dan ....................................................................................... 74

Manning, Burt ........................................................................................... 15

McCoy, Tia ................................................................................................. 62

Young, Andrew .......................................................................................... 14

Redmond, Saqirah, homeowner; Andrew Schneggenburger, executive director, Atlanta Housing Association of Neighborhood Based Developers;

Joe Brannen, president and CEO, Georgia Bankers Association; Jeff

Betsill, president, Jeff Betsill Homes, Inc.; Michael Rossetti, president,

Ravin Homes, Inc.; and Jon D. Greenlee, associate director, Division

of Banking Supervision and Regulation, Board of Governors of the

Federal Reserve ............................................................................................. 120

Betsill, Jeff ................................................................................................. 144

Brannen, Joe .............................................................................................. 133

Greenlee, Jon D. ........................................................................................ 156

Redmond, Saqirah ..................................................................................... 120

Rossetti, Michael ....................................................................................... 151

Schneggenburger, Andrew ........................................................................ 126

Letters, statements, etc., submitted for the record by:

Alexander, Frank, professor of property, real estate sales and finance,

State and local government law and theology, Federal housing policies

and homelessness, Emory University School of Law, prepared statement of ........................................................................................................... 105

Betsill, Jeff, president, Jeff Betsill Homes, Inc., prepared statement of ..... 147

Brannen, Joe, president and CEO, Georgia Bankers Association, prepared

statement of ................................................................................................... 135

Brennan, William J., director, Atlanta Legal Aid Society’s Home Defense

Project, prepared statement of ..................................................................... 53

Brewer, Brent, 30310 Mortgage Fraud Task Force, prepared statement

of ..................................................................................................................... 46

Fort, Hon. Vincent, a Senator in Congress from the State of Georgia,

prepared statement of ................................................................................... 9

Greenlee, Jon D., associate director, Division of Banking Supervision

and Regulation, Board of Governors of the Federal Reserve, prepared

statement of ................................................................................................... 158

Immergluck, Dan, associate professor, City and Regional Planning Program, Georgia Institute of Technology, prepared statement of ................ 76

Page

IV

Letters, statements, etc., submitted for the record by—Continued

Manning, Burt, chief assessor, Fulton County Board of Tax Assessors,

prepared statement of ................................................................................... 34

McCoy, Tia, homeownership center manager, Resources for Residents

and Communities, prepared statement of ................................................... 65

Redmond, Saqirah, homeowner, prepared statement of ............................... 123

Rossetti, Michael, president, Ravin Homes, Inc., prepared statement of .... 153

Schneggenburger, Andrew, executive director, Atlanta Housing Association of Neighborhood Based Developers, prepared statement of .............. 128

Young, Andrew, chairman, Goodworks International, LLC, report by the

Carl Vinson Institute .................................................................................... 17

(1)

EXAMINING THE CONTINUING CRISIS IN RESIDENTIAL FORECLOSURES AND THE

EMERGING COMMERCIAL REAL ESTATE

CRISIS: PERSPECTIVES FROM ATLANTA

MONDAY, NOVEMBER 2, 2009

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON DOMESTIC POLICY,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Atlanta, GA.

The subcommittee met, pursuant to notice, at 11:40 a.m., in the

Committee Room 450, Georgia State Capitol, 206 Washington

Street, S.W., Atlanta, GA, Hon. Dennis J. Kucinich (chairman of

the subcommittee) presiding.

Present: Representatives Kucinich, Westmoreland, and Scott.

Staff present: Jaron R. Bourke, staff director; Yonatan Zamir,

counsel; and Christopher Hixon, minority counsel.

Mr. KUCINICH. The Domestic Policy Subcommittee of the House

Oversight and Government Reform Committee will now come to

order.

Today’s field hearing will examine the local characteristics of the

ongoing residential and commercial real estate crisis.

Without objection, the Chair and the ranking minority member

will have 2 minutes to make opening statements, followed by opening statements not to exceed 2 minutes by any other Member who

seeks recognition. And without objection, Members and witnesses

may have 5 legislative days to submit a written statement or extraneous materials for the record.

For the purposes of this subcommittee field hearing, Mr. Westmoreland of Georgia is deemed to be a member of the subcommittee and after I make my opening statement, I will yield to him as

well as Mr. Scott, who has asked to participate and is deemed to

be a member of the subcommittee for the purpose of this hearing.

I want to thank all those in the audience who are here for this

hearing and to extend my thanks to Georgia State Senator Vincent

Fort. Senator Fort, welcome. Senator Fort graciously assisted my

staff in obtaining this location here at the Georgia State Capitol

Building for our hearing today. I appreciate it very much, Senator.

I would also like to welcome my friend, Mr. Westmoreland, Congressman Westmoreland and Congressman Scott. Congressman

Westmoreland, of course, is on the Government Reform Committee,

on the full committee, and it was a conversation that he and I had

that led to this subcommittee meeting. And giving it full support

is Congressman Scott, who is a member of the Financial Services

2

Committee, and because of his work on Financial Services, we were

able to have a meeting of the minds about the importance of this

hearing today, and we appreciate his presence as well.

When Congressman Westmoreland approached me, he specifically talked about his concern about the impact of the real estate

financial crisis on America, and in particular on Georgia, a concern

that I know Mr. Scott shares.

As the financial crisis unfolded over the past 2 years, there are

few places in the United States that have not felt its effects, whether in the form of rampant home foreclosures, shuttering of businesses, vacant and abandoned homes, empty commercial buildings

and displaced communities of people. The far-reaching turmoil

caused by the collapse of the market has changed many communities indelibly and some may never fully recover.

Here in Atlanta, residents experienced a spectacular rise in home

values and have watched them fall nearly as dramatically. This

phenomenon has occurred in many cities and towns across the

country, but as we will hear today, in some neighborhoods in Atlanta, home prices rose even higher and even faster than in cities

like Phoenix or Las Vegas. Nationally, the foreclosure rate is four

times the historical average and experts predict that 10 to 12 million foreclosures will have occurred before this crisis subsides.

Joblessness nationwide is at a 25-year high. In the Atlanta metropolitan area with a population of over five million people, the unemployment rate is at 101⁄2 percent and 1 in 85 homes are currently in foreclosure. On the commercial side, in 2009 along, there

have been 20 bank failures in the State of Georgia. This out of a

total of 101 banks that have failed nationwide so far this year.

The severity of the plunge in residential real estate values and

the resulting catastrophic impact it has had on residential communities in Atlanta is being matched in some cases by the effects of

the commercial real estate collapse that is occurring.

The subcommittee has come to Atlanta today to hear how this

has happened in a great city known as the unofficial capital of the

South, and to bear witness to the effects on people and communities.

As we will hear today, it was more than just rampant speculation, lax underwriting requirements and weakened anti-predatory

lending laws that led to Atlanta’s communities being ravaged by

this crisis. Because of an unchecked bubble in housing and land

prices, residents in very modest, low-income neighborhoods in Atlanta became house rich while being cash poor. Ruthless and largely unregulated predatory lenders saw quick profit in those very

neighborhoods, without a shred of concern for the inevitable consequences when the bubble predictably burst. Tomorrow, on the

courthouse steps just a few minutes walk from this building, there

are over 9,500 foreclosures scheduled for the 13-county Atlanta

metropolitan area.

Today, we will hear from witnesses who will tell us how they

dealt with the crisis, how it has impacted their communities. Congress enacted a program earlier this year to try to stem the tide

of residential foreclosures and we will hear some specifics about

how and whether it is working. We will also hear from members

of Atlanta’s developer community who are struggling to run their

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small businesses when they can no longer access the capital they

need. The administration has tried to address this ongoing problem

with specific programs designed to promote small business lending.

We will hear from a banking regulator who will provide insight

into the guidelines used by regulators to promote the availability

of small business and other commercial capital.

Thank you very much. At this time, I recognize Congressman

Westmoreland. Again, I want to thank you for the role that you

played in bringing this to light.

I am learning this mic system here, so let us see. OK, I think

you are all set.

Mr. WESTMORELAND. Thank you, Mr. Chairman. I want to thank

you for listening to me over the past months to try to get you to

come down here, because this is very important to our State. So I

want to thank you for agreeing to hold this important hearing. You

and your staff have been great to work with and I appreciate that.

I would also like to thank my other colleague from Georgia, David,

for being here also.

As a nation, we are currently working our way out of a devastating economic downturn. The collapse of the financial markets sent

shock waves throughout our country, bringing every sector of our

economy to its knees. This tragedy has destroyed wealth at an unprecedented rate, placing too many Americans into situations that

they could never imagine. Nowhere else is this better understood

than here in my State of Georgia.

At one time, Georgia was known as the home of Coca-Cola and

peanuts. Today, it is known for foreclosures and failing businesses.

My home State has the unfortunate distinction of having more

bank failures—26—than any other State in the country. With over

a quarter of all bank failures nationwide, Georgians have experienced more than their fair share of suffering.

By now we all know how we got here—rapid expansion in the

banking industry mixed with cheap credit and the general lack of

personal responsibility led to Georgia seeing over 100 new banks

open their doors since the year 2000. During this time, only California and Florida surpassed Georgia in the opening of new banks.

As the market crashed, many people began to question why the

State was in need of so many banks. Was it a risk to the health

of the overall financial system for there to be such a concentration

of lending institutions in the area? We believe here in Georgia that

a community bank makes the best bank.

In the past year, I have spoken with homeowners, car dealers,

construction companies and many others. They explain that banks

are being put in a position where they are unable to rationally

evaluate their real estate loans. Banks are being forced by overzealous regulators to dramatically reduce their real estate exposure. This all too often ends in banks foreclosing on properties and

selling them for pennies on the dollar while that hurts all the other

values in the neighborhood. While this may reduce the lending institution’s real estate portfolio, it does nothing to help our current

crisis. In fact, it makes the situation unnecessarily worse by creating free-falling property values at a time when families are in desperate need of financial stability.

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As a former home builder, I realize the tremendous negative impact that home foreclosures could have on a community. Decreased

property values translate into a loss of tax revenues for communities. Managing the foreclosures also increases a municipality’s

costs. Numerous foreclosures in a particular community seriously

undermine its stability and economic potential. The downward spiral of home prices for homeowners as well as revenue for lenders

and local governments demonstrates the far-reaching impact of

home foreclosures. Finding a solution to this widespread problem

will help banks, homeowners and communities across the Nation

emerge successfully from the current economic crisis.

Mr. Chairman, if our nation is going to have a strong financial

future, we must learn from the mistakes of the past. It is my fear

that we will soon be forced to test our new knowledge, because the

threat of a collapse of the commercial real estate market looms

over us all. That is why it is imperative that we find a solution to

the residential market quickly. If we do not, it will almost be impossible to fight these two different fronts at one time.

Again, Mr. Chairman, I thank you for holding this important

hearing and I look forward to hearing from today’s witnesses.

Mr. KUCINICH. I thank the gentleman.

Now I want to recognize, for purpose of an opening statement,

Congressman Scott, and thank him for his participation. Congressman Scott.

Mr. SCOTT. Thank you very much. This is indeed an honor to be

here with my two distinguished colleagues, Chairman Kucinich and

Lynn Westmoreland, who do a tremendous job in Washington, DC.

Thank you so much for coming and holding this hearing. It is very

timely and very important.

Atlanta, Georgia is the epicenter if our financial crisis, let us

make no mistake about it. We are here hovering at an unemployment rate of 101⁄2 percent, we have a foreclosure rate of 18 percent,

we lead the Nation in bank closures with 30 percent—nearly 30

percent of all the banks that have closed in this nation are here

in Georgia. Now something is wrong about these numbers. And

there is something that we are not doing that we need to do.

I serve on the Financial Services Committee. I understood going

in that we needed to put TARP together to help Wall Street. We

heard their voices loud and clear because they needed to unfreeze

the credit markets. But the voices we refused to hear when we

were in this debate were those struggling homeowners whose

homes were being foreclosed on, which was the source of the problem. And as many of you know who followed that, I held up, along

with about 20 others and I think Westmoreland was a part of that

as well, even moving ahead on TARP. And I said let us put maybe

just 2 percent of this $700 billion, it would have been just $14 billion, into something where homeowners could come and get money

so they could stay in their homes. And I advocated then what I

think we may need to do, particularly here in Atlanta, and that is

to put a moratorium—put a freeze on the home foreclosures. And

put a freeze on the residential foreclosures——

[Applause.]

Mr. SCOTT [continuing]. Until we can get our hands around this

problem. That is exactly what we need to do. So we are here to

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hear from the people who have to make this work—the bankers,

the community activists, our political leaders, people who are grappling with this issue. Atlanta has made its name by being a city

too busy to hate. Let us make our name now by being a city that

is too busy to foreclose.

Thank you very much.

[Applause.]

Mr. KUCINICH. Thank you very much, Congressman Scott. There

are no additional opening statements from Members. The committee will receive testimony from the witnesses who are before us

today.

It is going to be my pleasure to introduce the witnesses. I will

introduce the witnesses and then we will begin the testimony.

The Honorable Vincent Fort has been representing the 39th District of Georgia, which is located in Fulton County, since 1996. Mr.

Fort is also a professor of history and political science, having

taught at Morehouse College and Clark-Atlanta University. Welcome.

The Honorable Andrew Young currently serves as chairman of

GoodWorks International, LLC, an international consulting firm.

Ambassador Young has previously served as mayor of Atlanta,

Congressman from Atlanta’s 5th District, and U.S. Ambassador to

the United Nations. Thank you very much for being here, Ambassador.

Mr. Burt Manning is the chief appraiser for the Fulton County

Board of Tax Assessors and was appointed to that position in July

2006. He oversees the preparation of the annual real and personal

property tax digest published annually. Thank you, Mr. Manning,

for being here.

Mr. Brent Brewer is a homeowner from Atlanta’s historic West

End neighborhood, is an active member of the zip code 30310 Mortgage Fraud Task Force since 2005. The mission of the task force

is to raise public awareness of the proliferation of mortgage fraud

and foreclosure in zip code 30310 neighborhoods. Thank you very

being here.

Mr. William J. Brennan. Mr. Brennan is the director of the Atlanta Legal Aid Society’s Home Defense Project, which provides referrals and legal representation to homeowners who have been victimized by foreclosure ‘‘assistance,’’ home equity and home purchase scams. Mr. Brennan has received numerous awards for his

work fighting predatory lending practices in Georgia, which he has

been doing for over 40 years. Thank you for being here, sir.

Ms. Tia McCoy, welcome, is the manager of the HomeOwnership

Center of Resources for Residents and Communities, a non-profit

HUD approved Neighbor Works America Community Development

Corp. that provides housing development non-profit management

and community building.

Mr. Dan Immergluck, thank you for being here. Mr. Immergluck

is associate professor of the City and Regional Planning Program

at the Georgia Institute of Technology. He has published numerous

scholarly works on the subject of real estate finance, community reinvestment, fair lending policy and demographics, among others.

Thank you.

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Mr. Frank S. Alexander is a professor at Emory University

School of Law and founding director for the Center for the Study

of Law and Religion. He is also director of the Project on Affordable

Housing and Community Development. His work focuses on affordable housing, urban redevelopment and State and local government

law. I want to thank you for being here as well, Mr. Alexander.

And again, appreciation to all of the witnesses. We are now at

the point in the hearing where we swear in witnesses. Now it is

the policy of the Committee on Oversight and Government Reform

to swear in all witnesses before they testify and I would ask that

you rise and raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. Let the record reflect that each of the witnesses

has answered in the affirmative. Thank you, you may be seated.

I am asking that each of the witnesses now give a brief summary

of your testimony and to keep this summary under 5 minutes in

duration. I want you to bear in mind that your complete written

statement will be included in the record of the hearing and that we

are going to go over your complete written statement as well as listen carefully to what you are saying now.

So with that, the system here has a green light that you can

begin on. You have 1 minute left when the light is red—oh, I have

just been corrected. When the light is yellow, you have 1 minute

left. So just like everywhere else, do not go through a red light.

[Laughter.]

So Jaron is going to keep time and I trust that with your Harvard education, you will be able to do that. [Laughter.]

OK, I am pleased to welcome the Honorable Mr. Fort, if you

would begin with your testimony and then we are going to proceed

to recognize each and every witness. And at the conclusion of that,

we are going to have a period of questioning.

STATEMENTS OF HON. VINCENT FORT, A SENATOR IN CONGRESS FROM THE STATE OF GEORGIA; ANDREW YOUNG,

CHAIRMAN, GOODWORKS INTERNATIONAL, LLC; BURT MANNING, CHIEF ASSESSOR, FULTON COUNTY BOARD OF TAX

ASSESSORS; BRENT BREWER, 30310 MORTGAGE FRAUD TASK

FORCE; WILLIAM J. BRENNAN, DIRECTOR, ATLANTA LEGAL

AID SOCIETY’S HOME DEFENSE PROJECT; TIA MCCOY,

HOMEOWNERSHIP CENTER MANAGER, RESOURCES FOR

RESIDENTS AND COMMUNITIES; DAN IMMERGLUCK, ASSOCIATE PROFESSOR, CITY AND REGIONAL PLANNING PROGRAM, GEORGIA INSTITUTE OF TECHNOLOGY; AND FRANK

ALEXANDER, PROFESSOR OF PROPERTY, REAL ESTATE

SALES AND FINANCE, STATE AND LOCAL GOVERNMENT LAW

AND THEOLOGY, FEDERAL HOUSING POLICIES AND HOMELESSNESS, EMORY UNIVERSITY SCHOOL OF LAW

STATEMENT OF HON. VINCENT FORT

Mr. FORT. Thank you, Mr. Chair, for bringing the subcommittee

to Atlanta. We appreciate you for that. It is good to see my good

friend, David Scott from Atlanta, we appreciate you and everything

you are doing.

Mr. Chair, in my comments, I am going to focus on work that an

ad hoc coalition has done over the last 6 months. That coalition is

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the Atlanta Fighting Foreclosure Coalition. It came together earlier

this year as a result of a tidal wave of bank foreclosures occurring

in Atlanta. At the same time, banks and other financial institutions that had in fact destroyed the economy and perpetrated predatory lending practices, received hundreds of millions of dollars of

Federal bailout. The coalition, the Atlanta Fighting Foreclosure Coalition, is made up of almost 40 civil rights, State, labor and social

justice organizations.

The coalition focused its activity on Wells Fargo/Wachovia. Wells Fargo/Wachovia received at least $25 billion in the bailout. Wells

Fargo/Wachovia also had an especially pernicious history of predatory lending. And additionally, Wachovia was one of the companies

most involved in weakening the Georgia Fair Lending Act in 2003.

You will hear more about that from other witnesses, I am sure.

The Money Store and Golden West are two institutions that

Wells Fargo/Wachovia bought that were notorious predatory lenders. In addition, we learned that Wachovia was making predatory

loans directly in their branches in African-American neighborhoods

here in Atlanta. Wells Fargo/Wachovia is being sued in several cities and States, including Baltimore, Cleveland and Illinois. They

are being charged with race-based lending practices.

This spring, the coalition began a series of protests at various

Wells Fargo/Wachovia locations. Richard Trumka, President of the

AFL–CIO, came to Atlanta to show his support. Five members of

the coalition, including myself, conducted civil disobedience at a

Wells Fargo home finance office and were arrested.

After that series of demonstrations, Wells Fargo/Wachovia put a

moratorium in place on 1,400 October foreclosures. Unfortunately,

they have refused to extend their moratorium for the next 6

months as demanded by the coalition. Also, it appears that the loan

modification protocol that Wells Fargo/Wachovia is using does not

differ substantially from that which has failed in the industry over

the last 2 years. The best research shows that loan modification

using the Wells Fargo/Wachovia criteria results in payments staying the same in 50 percent of the cases and actually the payments

going up in 25 percent of the cases.

The most important thing, in my estimation, that this committee

can do is the following:

One, work to create a best practices loan modification process

which banks receiving TARP money would be required to follow.

That best practices loan modification process should include at

least these four things: 1. Decreasing the principal loan balance to

make loans affordable. That is particularly important when home

values are going down. We have, I believe the number is one out

of every three loan mortgages in this country are upside down. The

homeowner owes more on the loan than the house is worth, therefore, if you do not decrease the principal loan balance, you really

are not helping the homeowner to the fullest extent. 2. Lower the

interest rate to make loans affordable. 3. Convert adjustable rates

to fixed rates and then finally, very important, because none of the

loan modification protocols that have been put together in the last

couple of years from Hope Now Alliance to Hope Now for Homeowners to the President’s plan have included using reverse mortgages with short payoffs for senior citizens—absolutely critical

8

when you have a senior in this situation where they are about to

be foreclosed on, in an emergency, the use of good reverse mortgages. This is not a silver bullet, but it goes a long way toward

helping seniors.

The second thing that needs to be done is we need to pass a Federal law to stop predatory lending. I am very disappointed that has

not progressed further over the last 3 years. The inclusion of assignee liabilities is essential in any such law.

And then three, I would hope that Congress would call for a civil

rights investigation on the discriminatory practices of the major

banks and other banks—Wells Fargo/Wachovia, Bank of America

and Citigroup.

Finally, Mr. Chair, I would just say that I am skeptical about

giving more banks more bailout money without commitment to stop

their bad lending practices and speculation. One of the concerns

that I had about during the time when the TARP legislation was

being discussed is that there was not a commitment received from

the banks to stop these bad lending practices. So they got a blank

check and the lending practices, they have not modified or changed

their lending practices and so I would be skeptical about giving

more money to more banks when they do not make commitments

to the homeowners we are all concerned about.

Thank you, Mr. Chair.

[Applause.]

Mr. KUCINICH. Thank you. I thank the gentleman.

I just want to comment parenthetically, that is one of the reasons

why some of us did vote against the bill.

Mr. FORT. Yes, sir.

Mr. KUCINICH. The Chair recognizes the distinguished Ambassador, Ambassador Young.

[The prepared statement of Hon. Vincent Fort follows:]

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STATEMENT OF ANDREW YOUNG

Mr. YOUNG. Mr. Chairman, I thank you for giving me this opportunity.

I come here as a former member of the Banking Committee when

I think this crime began. I was elected to Congress in 1973 and we

were on the end of really the most stable period of the global economy. From 1944 roughly to 1974, you had a global economy anchored to gold and doing very well for everybody, because we

thought it through and organized it.

In 1973, in the Banking Committee, we suddenly ended the gold

standard, broke up the Breton-Woods Agreements and allowed the

dollar to float. The thing about that was that nobody asked any

questions. And I was the last member of the committee and always

committed to ask dumb questions, and I said, ‘‘If the dollar is not

anchored by something, won’t people play politics with the dollar?’’

Arthur Burns took a puff on his pipe and said, ‘‘Young man, you

will soon learn the dollar doesn’t need you to protect it.’’ Well, that

shut me up. [Laughter.]

But it sparked my mind to figure out what was going on, because

I thought the Congress had made a decision that they did not understand. Now normally, we would go back and revisit that. But

Watergate broke a couple of weeks after that. Twenty-five years

later, Paul Volcker, who was there with Arthur Burns and George

Shultz, wrote a book saying that he and Arthur Burns and George

Shultz had not discussed this question before they came over to

testify before the House Banking Committee. That they got word

from the White House that they were to testify to this effect.

Now that bothers me because nobody understood what was going

on, not even the people who were testifying. And we never went

back to look at it. Now I think the effects of that were that we

shifted from an economics that had been thought through for years

in the Second World War by John Maynard Keynes. We suddenly

made a switch to the economics of Milton Friedman.

Now I am not an economist, I am a preacher. But I went back

and tried to figure this out and I cannot figure out why we were

doing all of this. But that Friedman economics launched us into a

period of systematic deregulation at a time when the economy was

being increasingly globalized. The price of oil at that time was $3

a barrel. In 6 months, it was $30.00 a barrel, in 10 months, it was

$50 a barrel. And we have been on an economic roller coaster ever

since, that I think the Congress put us in.

Now we then went through a period of change in the Congress

when we repealed Regulation Q, which separated the savings and

loans from the commercial banks. When savings and loans were

handling housing, they knew the people they were lending to.

When you broke that up, you suddenly had commercial banks putting together securitized mortgage packages that they did not know

what they were doing. Not only did the savings and loans go under,

but when the savings and loans went under, the Federal Deposit

Insurance Corp. drew this line in the sand so that they had no

flexibility in dealing with community banks.

I am saying, Mr. Chairman, that the Congress helped get us into

this situation. And I would hope that your committee on reform

would take a good look at this all the way back from the beginning

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of this crime scene and help us solve some of these broader economic problems.

In spite of all that you hear, Georgia is a very healthy economy.

These banks are relating to small businesses and farmers; yes,

they were extended by values, but many of them are not predatory

lenders, many of them are community banks serving their communities very well. And our communities are thriving. Look at our airport, we have almost 3,000 flights a day coming in here. Atlanta

has grown from about two million when I was mayor, in the metropolitan area; as of the other day we had 5,595,000 people coming

in here. We will be six million people before long. So this is not a

sick community.

And given a little time and a little flexibility, I think a lot of the

good people who are running our small banks would be able to

work these problems out without handicap. If you close these banks

because of an academic or theoretical reason, by and large, you are

throwing the country in more debt and you are throwing people in

more debt, and there are no winners if we keep on going the way

we are going now.

But thank you, Mr. Chairman, I think you can make us all winners and we can find a win-win solution to this.

Mr. KUCINICH. Thank you very much, Ambassador Young.

[Applause.]

Mr. KUCINICH. The Chair recognizes Mr. Manning. I think you

can use that mic to your left, Mr. Manning.

STATEMENT OF BURT MANNING

Mr. MANNING. Certainly, sir.

I am humbled to be here. Is it possible to put up a brief

PowerPoint presentation that would show some slides that I think

would make the few comments that I have meaningful?

[Brief pause.]

Mr. MANNING. As I stated earlier, I am humbled and honored to

be here and be part of the program. I must say if I had done a

more in-depth presentation, I would have probably wanted to copy

some of the things you three Congressmen said to start with, some

of the things that Senator Fort has said over the years and down

at the end of the table when we get to it, Professor Immergluck,

because one of the things that——

Mr. KUCINICH. How are we doing there?

Mr. MANNING. You have packages and I just wanted——

Mr. KUCINICH. Let us just wait a second and see if we can get

this up. If we cannot, you know——

Mr. MANNING. It would help, sir.

Mr. KUCINICH. We are going to hold the clock. Can we get this

working? And if not, maybe you could just give a summary of what

the slide show represents. We will give it a try.

[Brief pause.]

Mr. YOUNG. Mr. Chairman, while we are waiting, I have a letter

from our mayor pertaining to this and a report by the Carl Vinson

Institute on Dismantling Persistent Poverty in Georgia that I

would like to submit for the record.

Mr. KUCINICH. Gladly receive it. Without objection, it will be entered into the record. Thank you very much.

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[The information referred to follows:]

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Mr. KUCINICH. I do not think this is going to happen right now.

Mr. Manning, if you would like to begin with your presentation and

we will reset the clock to 5 minutes, and if you would like to begin

with your presentation and kind of summarize what the charts and

the slides show. And what we will do, you know, when we post this

on the Web, I will ask my staff to try to see if we can find a way

to integrate your presentation, your slide presentation along with

your oral testimony. OK?

Mr. MANNING. My pleasure, sir, thank you.

Mr. KUCINICH. You may proceed.

Mr. MANNING. I am pleased to represent the Fulton County

Board of Assessors and we do represent all of Fulton County,

slightly over a million of the five million people that Ambassador

Young was talking about.

Foreclosures have had a devastating effect on the values of individual properties and the overall tax digest in Fulton County. By

all indications, this will continue for the next several years.

As shown on the following charts, the number of valid, or arms

length, sales have fallen. At the same time, the number of distressed sales have increased.

Basically we went from having 40,000 arms length usable sales

of just residential properties in Fulton County back as recently as

2006, down to less than 30,000 last year and only 12,000 through

the first 9 months of 2009.

Similarly, we would have a little bit over 1,100 commercial sales

per year throughout Fulton County to help us set our values on.

That has fallen to 795, little less than 800 last year, and is only

340 so far this year.

Residential sales specifically, if you notice on the left-hand column, those of you who have the chart in front of you, 28,000 valid

sales down to 9400. Simultaneously in those same years, the other

than typical, and this is anything that would be considered not an

arms length sale such as a distressed sale, a foreclosure and other

transfers, have risen dramatically in these years.

There is a chart in there that talks about the sales ratio trends,

which are important. You may know that we are measured on our

percentage of value to the arms length and good length sales. The

Board prides itself with trying to stay in the 92 to 95 percent

range, which is a very safe, secure range for the citizens of Fulton

County.

By all indications, based on the sales for the first 9 months of

this year, the values have fallen another 9 percent on the average

across Fulton County. If we had to right now set our January 1,

2010 values, we would be lowering values another 9 to 10 percent.

Commercial sales have seen similar changes. Based on all projections, as we have already heard today, the fallout over the next

couple of years may be even greater for commercial properties.

Sales ratios show us that we used to have 750–775 a year and we

would have half that in non-typical sales. In 2008, we had 328 in

the most viable city and county in the Southeast. And at the same

time, we had more than 50 percent more than that of questionable

sales, of non-typical for the market sales. So far this year, we have

only had 240 good sales and that is just hard to deal with when

we are setting values.

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Sales ratios will show you that prior to us doing the commercial

reval, we were running in the 80 percent range. We are holding in

the 93–94 percent range. I actually believe that the statistics in

front of you for commercial where we have labeled for 2010 are understated. It is based—it is what it says based on the sales that

we have right now. But we are expecting the shoe to drop. We are

expecting commercial sales and commercial values to fall.

There was an article in the Atlanta Journal-Constitution just last

week which referred to the 12 years of office space that we have

available. If in fact, we are to fill the office space at the current

rate it has been going, frankly, it would take a better than current

rate to do it, it would take 12 years to get us back to that point.

The end result has been and will continue to be increased

millage rates, as Congressman Westmoreland said, resulting in

higher tax bills, even though appraised values have fallen, if the

cities, the school boards and the county governments that depend

on our tax digest are to provide the services they are supposed to.

There is a chart in there that shows the gross digest by class and

shows the residential part dipping. Again, it shows the commercial

staying flat or up slightly; however, I am sitting here with $3 billion of assessed value in appeal from my 2009 commercial property.

So by the time that gets resolved, I think you will see the downturn.

Then, last but not least, I think we are a tale of two cities—two

buildings, two cities. A couple of years ago, the Bank of America

building sold for a little over $300 a square foot. It is billed to be

the tallest building in the eastern United States outside the cities

of New York and Chicago, and it is right here in Atlanta. And the

people who bought it and invested in it thought that they had a

gem. They are already appealing their value, they are already seeing occupancy fall and do not know where it will end. Simultaneously, right outside this building, you can look downtown and see

a building called the Equitable Building. At the time when it foreclosed in June of this year, it was the third largest office building

in the United States that had foreclosed this year. It sold originally

in 2006 for $100 a square foot, it was foreclosed at less than $50

a square foot for a prime class A office building.

Respectfully, I am here if I can be any help to you. I appreciate

the opportunity to participate.

Mr. KUCINICH. I want to thank Mr. Manning for that testimony.

Thank you, sir.

The Chair recognizes Mr. Brewer. You may proceed, Mr. Brewer,

5 minutes.

[The prepared statement of Mr. Manning follows:]

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STATEMENT OF BRENT BREWER

Mr. BREWER. Good morning, Chairman and members of the subcommittee. Thank you for inviting me here today to testify on

issues concerning the residential real estate finance crisis. Over 3

years before the foreclosure crisis became a national issue, I came

to be interested in the mortgage fraud/foreclosure issue as an individual concerned about the many vacancies it created in my neighborhood of historic West End, a zip code 30310 community, and

why our tax assessments were rising based on implausible property

values.

For the bulk of the last decade, the zip code 30310 communities

have been the most mortgage fraud impacted communities in the

State of Georgia, as well as the nation. Mortgage fraud has turned

about 30 percent of the homes in my neighborhood into empty

shells.

As the chair of the Historic West End Mortgage Fraud Committee, in November 2006, I organized a mortgage fraud inventory of

my entire neighborhood that identified over 300 out of 950 residential houses suspected of mortgage fraud, based on inflated sales

history without evidence of renovation supporting the high sales

prices. This extreme vacancy rate depressed property values, created a variety of public safety issues and deprived the neighborhood of new residents who could make a positive contribution to

the development of the community.

Mortgage fraud also artificially boosted property taxes. It unfairly taxed any new homeowner who purchased in the neighborhood after 2000. Based on an inflated previous sale, the property

tax increase was a disincentive to potential owner-occupants. New

neighbors complained of paying an additional $300 a month in

property taxes. It also is a persistent problem for long-term residents who see their property taxes increase even as the blight of

vacant houses decreased their home equity. Even if the property

tax is corrected, there is no hope of recouping this money.

Thus, mortgage fraud has been the most pressing issue facing

historic West End, a neighborhood which sought to protect its historic houses from fraudsters through a State historic designation

and which wanted to market itself as the next intown single family

residential destination.

If you define a mortgage fraud property as a property bought and

sold with no intention of anyone living in it for long periods of time,

the prevailing mortgage fraud imagery has commonly been portraits of abandonment and blight, such as entire streets of vacant

houses or overly priced properties in various levels of disrepair.

In 2007, I produced a documentary with a neighbor, Pollock

Richards, called ‘‘When a House Is Not a Home,’’ to show historic

West End as a neighborhood of beautiful housing stock and neighbors with an elevated sense of community. Through addressing the

issue and dispelling some misrepresentations about our mortgage

fraud impacted neighborhood, we hoped to encourage new neighbors to move into the hundreds of houses left vacant by mortgage

fraud activity, effectively turning our vacant houses back into

homes.

Once the extent of the mortgage fraud problem was identified,

my neighbors redoubled marketing efforts to promote the historic

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West End to attract new residents to buy our vacant properties.

During the 2006 and 2007 calendar years, the historic West End

neighborhood was featured in Atlanta Journal-Constitution articles, established a community newsletter and Web site to highlight

the community’s unique assets, re-established a tour of homes

event, and promoted their neighborhood in the spring and fall 2007

Home Atlanta Show.

Just as important, the neighborhood demanded retractions for

any stories that unjustly painted the neighborhood in a negative

light. Consequently, the historic West End experienced 70 sales in

both 2007 and 2008.

Since the foreclosure crisis went national in the fall of 2008, the

historic West End neighbors have addressed the foreclosure issue

with the following actions: In November 2008, our neighbors were

outraged that the city of Atlanta’s Neighborhood Stabilization Program application failed to acknowledge that the HUD defined areas

of greatest need overlapped the heavily mortgage fraud impacted

neighborhoods of northwest and southwest Atlanta.

Collaborating with four other southwest neighborhoods, the historic West End Neighborhood Association grudgingly supported an

application for a not-for-profit organization to acquire, rehab and

sell 25 foreclosed single family homes in the five neighborhoods.

The not-for-profit organization, University Community Development Corp., was awarded an NSP grant. In support of the application, the neighborhood association submitted a list of approximately 34 closed single family fixer uppers in need of substantial

repairs thought to be too costly for the targeted owner-occupant

home buyer. These properties were concentrated in historic West

End’s northwest quadrant, the most mortgage fraud impacted portion of our neighborhood.

In October 2009, UCDC contacted the neighborhood requesting

additional properties because many of the properties on their original list were no longer available. In the northwest quadrant, considering the original list, there has been 27 house sales with an average sales price of approximately $50,000; 21 of the 27 properties

have been purchased by investors through cash sales, meaning

there have only been warranty deeds. Even though those properties

have sat empty for years, no building permits have been applied

for. To the neighborhood’s detriment, the speculation market appears to be out competing the neighborhood stabilization program

effort.

Thank you.

[The prepared statement of Mr. Brewer follows:]

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Mr. KUCINICH. Thank you very much, Mr. Brewer, for your testimony.

[Applause.]

Mr. KUCINICH. We are going to go now to Mr. Brennan.

I wanted to just state that usually we do not have the audience

engage in demonstrations for or against witnesses, but in your

case, Mr. Brewer, I feel like the historic West End is a neighborhood that I would applaud for too. So thank you.

Mr. WESTMORELAND. I would like to make a comment if I could.

I spent many a day at Gordon Theater there in West End, I do not

know if you even know where it is at now. My father was a fireman

for 20 of the 26 years he was on the Atlanta Fire Department at

Lee and Avon. And all my shopping was done at Sears & Roebuck.

So I am very familiar with that beautiful area.

Mr. KUCINICH. The Chair recognizes Mr. Brennan. You may proceed.

STATEMENT OF WILLIAM J. BRENNAN

Mr. BRENNAN. Mr. Chairman, other Members of Congress on this

committee, thank you for inviting me to testify about this very serious problem that we have been addressing for almost 20 years now,

subprime predatory mortgage lending and other types of abusive

mortgage lending.

And Mr. Chair, I would ask for the benefit of the three Congressmen here if this chart could be passed out.

Mr. KUCINICH. Without objection, I would like to take a look at

it myself. If staff would get that so we can follow it, please? Just

pass it around, we have a lot of people in this room.

Mr. BRENNAN. I also have a blown up chart. I do not know if

folks can see it, if it could be raised up somehow.

Mr. KUCINICH. Why do you not proceed then and we will take

care of that.

Mr. BRENNAN. Thank you.

Mr. KUCINICH. And maybe what you can do is hold that chart up

so that people in the audience can see it and understand Mr. Brennan’s testimony. Go ahead, please.

Mr. BRENNAN. The point of that chart, Mr. Chairman, which I

will get into in a little more detail, is that this subprime mortgage

securitization system where subprime mortgages have been bundled together and securities issued off of them that are sold to investors, has driven this business and has driven our homeowners

really into despair, confusion and foreclosures and it needs to be

understood, to some extent, how it works and who has been pushing it so hard. Mainly the national investment banks, that jumped

into this issue in a big way in the early part of this decade, have

bundled together these mortgages to the tune of hundreds of billions of dollars with loans put into the pools that were unaffordable

and are now not performing, and those are what we now call—I

hate it when they say toxic assets—what they are are securities

that are issued off of bundled together defective mortgages that

were marketed to people like my client, Ms. Diane McCoy, who is

sitting here, from Villa Rica, Georgia who is facing foreclosure.

They will not settle her case and that is why we need to be looking

at this chart.

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I am sorry to get a little emotional, but——

Mr. KUCINICH. Go ahead.

Mr. BRENNAN [continuing]. We see thousands and thousands of

cases where homeowners were driven into foreclosure by these terrible lending practices and nothing has really been done to stop it

over 20 years that we have looked at this.

And I would just briefly tell you that I started at Atlanta Legal

Aid in 1968, worked in the northwest office which covered all of

northwest and west Atlanta, which was primarily African-American and still is to a great extent. And I observed in my work there

that there was a vast amount of minority African-American homeownership in those communities. Those folks had good solid VA

and FHA loans and they were thriving. Occasionally a hard lender

would come in from the white community and make an abusive

second mortgage loan and we would handle some of those. But by

and large, things were doing very well.

In fact, another very positive thing that developed right after

that in the late 1980’s was an effort of the Georgia Housing Coalition which filed a CRA complaint against then Trust Company

Bank, saying that they were not making bank home buyer loans

to African-Americans and that is how I met Senator Fort. He was

on that committee at the time. And we had a hearing before the

Federal Reserve and our request to require Trust Company Bank

to make good, affordable loans to eligible, financially eligible African-American home buyers was turned down by the Atlanta Fed.

And what resulted was a series—we brought our data over to the

Atlanta Constitution and they published a series called ‘‘The Color

of Money’’ that showed that these loans were not being made to

black home buyers and it won a Pulitzer Prize and in my view

changed banking, not just in Atlanta but all over the country. So

that was very positive.

Unfortunately, right on the heels of ‘‘The Color of Money,’’ which

was published in 1988, came the subprime mortgage lending system. And in the early 1990’s, at the Home Defense Program, which

was created to deal with foreclosure rescue scams, we started seeing a stream of cases that would serve as a warning bell for events

to come. Fleet Finance, a subsidiary of the largest bank in New

England, Fleet Bank, had headquartered itself in Georgia and it

was making atrocious refinance mortgage loans to low-income,

largely minority homeowners. These loans carried outrageous interest rates ranging from 19 to 29 percent and high points and fees

often exceeding 10 percent. Many of the loans were flipped repeatedly, thereby taking the equity out of the home. This was one of

the first times where we saw this warning about the securitization,

because all of the Fleet loans were securitized. Chemical Bank was

the trustee and they were issuing securities to investors, even back

then in the early 1990’s.

So we partnered, my partner Karen Brown, and I partnered with

some very good private lawyers that were suing Fleet, including

former Governor Roy Barnes and his associate Howard Rocklin and

attorneys in Augusta, Georgia, one of whom was suing Fleet for

race discrimination under the Georgia Fair Housing law. We filed

a complaint with the Attorney General Michael Bowers and we

really went after Fleet. We sued them in individual cases and they

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finally collapsed after they were featured on ‘‘60 Minutes’’ and we

had settlements all the way around. And Fleet Finance went out

of business, not Fleet Bank. It was later acquired by Bank of America, but we thought gee, this was a great effort. And a lot of attention was focused on what was happening with Fleet in Georgia and

we thought no other national bank would ever dream of getting

into this business.

In fact, just the opposite happened. During—I will just briefly go

through two decades here—in the 1990’s, we began to see a high

volume of cases with The Associates. The Associates took over all

the Fleet cases, it was from Texas. It was a finance company owned

by the Ford Motor Co. and we were approached by ABC News to

do a story about them on Prime Time Live. We did and as soon as

that story aired, Ford disassociated itself from The Associates and

spun them off to its stockholders as a standalone company. Then

Citigroup bought the Associates. We were just amazed that

Citigroup, which was then about to become the largest bank in the

country, would be buying the worst predatory lender, but that is

exactly what happened.

And not just Citigroup, but we saw other companies such as

First Union, Chase, Wells Fargo, Washington Mutual and even

Bank of America, Nation’s Bank, opening up subprime units. I will

say one thing about Bank of America, a few years ago, they shut

down their subprime units because they did not like the reputation

or maybe the exposure they were getting. But the other banks

jumped into it in a big way. Not just national banks, but investment banks. Lehman Brothers began this process. Lehman Brothers began underwriting securities based on loans originated by

First Alliance Mortgage Co., one of the worst predatory lenders we

ever saw. Eventually Lehman began acting as a lender for First Alliance, capitalizing it so it could make more and more abusive,

predatory loans. This happened in spite of the fact that internal

Lehman investigations revealed that First Alliance had extremely

suspect lending and sales practices. But that did not stop Lehman

and it did not stop——

Mr. KUCINICH. I am going to ask the witness if you could try to

wrap up your testimony so we can try to keep the time equal.

Mr. BRENNAN. Well, I will just end by saying this, you know, in

the last decade, there were efforts to deal with predatory lending.

Congressman Scott introduced a bill in 1993, a floating interest cap

bill, a usury bill, that we thought would drive the lenders out. It

did not—it passed the Senate, but not the House. And the Congress

enacted the Homeownership Inequity Protection Act, which we

thought would stop predatory lending. The triggers were set too

high, it did not work. It had assignee liability. It gave the Fed—

it gave Chairman Greenspan complete regulatory authority to stop

predatory lending in any way he saw fit. He chose not to do so.

You know, the States tried to get into it. Georgia passed the

Homeownership Inequity Protection Act after North Carolina

passed a very good law, which was the strongest in the country.

The industry descended on Georgia when Governor Barnes was not

reelected in 2002 and they amended that very good law that would

have helped us tremendously, that had some assignee liability,

they amended it and gutted it so it is of very little use to us today.

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So where do we end up? We end up in the 2000’s with these companies running out of financially eligible borrowers and making

loans to them anyway, unaffordable loans. When you make

unaffordable loans, they put them into these pools, you are affecting the value of the securities for the investors, but you are causing

foreclosures. There were almost 12,000 foreclosures, as the chairman stated earlier for October. There is almost a like number for

November and we have homeowners like my client, Ms. McCoy

from Villa Rica, streaming into our offices with unaffordable loans.

The first question we ask is how much was your income when you

got the loan and how much is the loan. A typical senior income,

$1,400 a month; loan amount, $146,000.

Mr. KUCINICH. I want to thank the gentleman for his testimony.

The Chair recognizes Ms. McCoy. Let me make sure I have this

mic working there. You may proceed. We appreciate your presence

here.

[The prepared statement of Mr. Brennan follows:]

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STATEMENT OF TIA MCCOY

Ms. MCCOY. Thank you, Chairman Kucinich and members of the

committee. Again, my name is Tia McCoy and I work with Resources for Residents and Communities, which is a 20-year old

community development corporation here in Atlanta providing the

groundwork when it comes to foreclosure counseling. We do meet

with our families face to face and have an opportunity to hear hundreds of stories around how these things have happened.

I did hear Congressman Westmoreland state in his opening remarks how foreclosure is destroying wealth. For us, and from

where I sit, that is probably one of the least things we are dealing

with. What we are finding is that this is destroying lives, it is destroying marriages, it is destroying families, it is destroying health

as well. Where I sit, again, yes, we lost our equity and we lost our

wealth, but that is one of the least things that we are dealing with

when it comes to foreclosure counseling.

For the families that we are seeing as it relates to foreclosure

counseling, we are working with them not only 90 days, but 6

months, 9 months, 12 months and we are still waiting to get answers many times from these services around what is taking so

long in getting an answer to get a resolution for these clients.

When we talk about foreclosure counseling, one of the unfortunate things is there is a lack of public awareness of the free services that are available. There are many HUD-approved counseling

agencies here in Atlanta that provide free foreclosure counseling

where we can step in and be an advocate and help mitigate the

losses. However, with our limited resources, many clients find

themselves going to agencies where they charge fees, and they are

making promises. I am sure you have heard about the scams that

are going on. And when the client gets there, they spend their last

resources hoping to save their home. These agencies are not being

able to respond and they find themselves coming back to non-profits like RRC to get help, starting the process all over again.

There definitely needs to be more awareness made around the

services that are available from neighborhood organizations as well

as HUD-approved counseling agencies. And again, the services that

are provided are free.

Working with services, that is a challenge that we are finding inhouse. Many efforts are being made but not enough is being done

at this point from what we are seeing. We are still finding it taking

a long time to get a resolution. It should not take 6 months or 9

months to get an answer from a service as to whether they are

going to modify a loan. It should not require a housing counsel or

a client having to resubmit information three and four times over

and over again, when the services will respond at times saying

they received documents and at other times, they will respond saying they never received the documents. And we may even have documentation in file saying that they received it, but then again, they

will turn around and say no, we have not received it.

We are very concerned about the services and who they are hiring to respond to this crisis. Are these individuals qualified. Maybe

that is something you all can talk about or discuss with them as

they are beefing up to handle this demand that they are having to

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face. But are the staff members qualified and able to actually handle the work.

There have been times where I have even called services and had

individuals in my office and you have people on the line not even

be able to calculate income. So here I am a counselor experienced

at doing this, you cannot even imagine what a client would go

through who is not even used to doing this. And having to get the

run-around time and time again, especially when it comes to having to resubmit documents over and over.

So we talk about the concern and the number of foreclosures that

will occur tomorrow. But how many of those individuals actually

picked up the phone and called the services to get the run-around.

And here we are experienced counselors and we get that runaround as well oftentimes. So we do find a challenge out there

working with services to getting direct answers.

We would like to see that there would be a more systematic way

in which all the services would operate. We know there is the Making Home Affordable Program and there are still a limited number

of services that are a part of that plan. Everyone is not required

to participate, so what happens to all of the other services that are

out there and the clients that have to deal with those services who

do not have to modify loans, or at least that is what we are told.

They are not having to modify or make adjustments. So there are

still a lot of other families that are being affected who may not be

eligible for the Making Home Affordable product.

Again, as I stated, one of the biggest difficulties we are finding

and challenges is that in working with services, we are experienced

and we have the patience, but what about the clients who are calling in trying to do what they are told to do, contact your lender.

That is what they are told and instructed to do. So they are doing

that, but they are not getting a response either because the staff

is not aware of how to provide counseling or they are reading from

a script that they are told to read from, which is not giving them

an answer.

Most recently, we just participated in the Hope Now event this

past week and had a client that just left a meeting with their lender, SunTrust, and came and sat with us and we are like, well, why

are you meeting with us, you just met with your lender. They had

no idea what the lender told them. They were like all the lender

said was give me your pay stubs and your documents and we will

get with you later. So they came and sat with us so that we could

give them further instructions as a housing counselor. This happens time and time and time again. Money and energy is being put

into all these major national events, but what is the actual outcome. You know, is it just for someone to get their name out there

to say oh, we did something. But what is the actual outcome of

having all these events?

So as a counselor on the ground doing the work, you know, if we

could get more participation from all the services, if it was required, as stated earlier, that all the lenders participate and have

a systematic process in modifying loans, that would be great. And,

you know, be mindful of the fact that they need to answer questions and respond to clients, because it is not about the wealth, it

is about the lives that are being affected.

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Thank you.

[Applause.]

Mr. KUCINICH. Thank you very much, Ms. McCoy, for your important testimony.

The Chair recognizes Mr. Immergluck.

[The prepared statement of Ms. McCoy follows:]

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STATEMENT OF DAN IMMERGLUCK

Mr. IMMERGLUCK. Thank you, Chairman Kucinich, Congressman

Westmoreland and Scott, for inviting me here today.

I want to make—on top of the really excellent comments that

have been made already, I want to make four basic observations

and five kind of broad policy recommendations.

My first observation is that the foreclosure crisis in Atlanta

began long before the national foreclosure crisis. We saw foreclosures rising here before housing prices dropped. In fact, they

were a large cause of the housing price drop in Atlanta. They

began really picking up early part of the decade, but really in 2005

and then exploded in 2007, especially in Fulton and DeKalb Counties.

But over the last 12 to 18 months, foreclosures have been rising

the fastest in the suburban and outlying counties. This year, for example, the number of foreclosure starts for a single family property

in Henry and Gwinnett Counties is actually higher than DeKalb

and Fulton, the long time leaders in foreclosure rates.

My second point is that foreclosure properties, as Brent and others have said, have destabilized neighborhoods and I am afraid

even after they come out of bank ownership, they are continuing

to destabilize neighborhoods. Many foreclosed properties remain

vacant and bank owned for many months, sometimes more than a

year. At the same time, starting I think in the summer of 2008 locally, lenders began increasing their selling of foreclosed properties,

especially lower value distressed properties, often at very low

prices, a process some referred to as dumping. In the first quarter

of 2009 in Fulton County, I estimate that 45 percent of sales of

foreclosed properties in the country were priced at under $30,000,

many at under 20 or $10,000. I think the same trends have been

seen in Cleveland. Many of these properties are in need of substantial repair and improvement, they are truly distressed properties.

When foreclosed properties are returned to occupancy and productive use, selling properties by banks can be a good thing. But

it remains unclear how many of these properties are going into productive use. Many, as Mr. Brewer cited, are remaining vacant.

Some are rented, but even then it is unclear how many are providing safe and secure housing. If they are not rehabbed sufficiently

to do so, they are going to continue to cause distress in local communities.

My third point is that many neighborhoods in the Atlanta region

have experienced damaging booms and busts in property values,

the same kinds of booms and busts that we have seen in places like

Las Vegas, Phoenix, southern California, northern California and

Florida.

As an example, two neighborhoods on the south side of Atlanta,

the Pittsburgh neighborhood and the West End neighborhood, saw

steeper increases in prices and steeper falls than Phoenix, Las

Vegas or any place else in the country. Part of this was fed by

mortgage fraud and property flipping schemes which in turn were

enabled by reckless subprime lenders who were more than happy—

and mortgage brokers—who were more than happy to look the

other way.

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My fourth point is that access to mortgage credit is currently extremely dependent on Federal intervention and we may be seeing

a new rise in yet another dual mortgage market where modest income in minority community and homeowners are not well-served

by conventional lenders. Due in part to the tightening of prime

lenders, some would argue too much tightening, the share of home

loans made by Federal Housing Administration lenders has gone

from 5 percent to well over 25 percent in only about 12 to 18

months. In modest income neighborhoods, this share is more like

40 to 50 percent or more. FHA loans are more expensive and have

other disadvantages, so in the long term, I worry about the disadvantages replacing communities that have been hard hit by the

very foreclosures caused by the subprime lenders.

Implications for policies. First, the most important step, in my

opinion, to bring back the stability of neighborhoods is to create a

new framework for mortgage market regulation. Reckless behavior,

I do not care who it is by—lenders, borrowers or both—poses grave

harm to local communities. The most important thing Congress can

do to bring stability to neighborhoods is to make sure we have a

strong, serious, vigorous and comprehensive consumer financial

protection agency. It is critical that the scope and the strength of

this agency not be weakened any further. It has already been

weakened. If we have learned one thing from this mess, we have

learned that carving out parts of the industry to not be covered is

what got us here. We need comprehensive, uniform regulation for

anybody who wants to make a mortgage.

My second policy point real quickly is that local communities, because they bear the brunt of this thing, have to be able to regulate

at a higher level than the Federal Government. We cannot have

any more Federal preemption.

Third, the neighborhood stabilization programs have been important steps but, as Brent has argued and as my data shows, we are

not seeing the majority of vacant homes no longer owned by banks

in many neighborhoods. We need tools to deal with vacant and dilapidated properties that are not owned by banks.

Finally, we need, as Senator Fort said, we need increased attention to fair lending, both backward and forwards. We need really

to pay attention to access to credit in all communities around the

country.

Thank you.

Mr. KUCINICH. Thank you very much.

We are next going to hear from Mr. Alexander, after which point

each member of the committee will have 5 minutes to ask questions of any of the witnesses.

You may proceed, Mr. Alexander.

[The prepared statement of Mr. Immergluck follows:]

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STATEMENT OF FRANK ALEXANDER

Mr. ALEXANDER. Thank you very much, Mr. Chairman. I am delighted to be here today, Congressman Scott, Congressman Westmoreland, we appreciate very much your taking the time out of

your schedule to be a part of this hearing, to hold the hearings

here in Atlanta.

As Ambassador Young said, it is my conviction that part of what

got us here is that for the past 30 years, we have lived in a deregulated, an unregulated, market. We simply have forgotten the lessons that our parents taught us from years ago. When most of us

were growing up, we were always told do not bet the house, do not

mortgage the future. Well, we have done both.

It is my hope that the hearings of the committee will yield the

lessons to be learned as we move forward. And I offer to you this

morning a series of lessons for us to learn, many of which my

brothers and sisters on this panel have already touched on, so I

will touch on very quickly. I expand on them in my written testimony.

I divide the lessons into three different categories. The first are

the lessons to be learned in responding to the immediate crisis. The

second is the lessons to be learned in protecting our neighborhoods.

And the third, the lessons to be learned to prevent this from reoccurring in the future.

First, in responding to the immediate foreclosure crisis, the first

lesson to learn is that mortgage modification simply will not occur

when the debt exceeds the value of the property. We debated this,

you all debated this at the time of the TARP bill. It was debated

again by the current administration at the time of the stimulus

bill. The loan modifications will not occur when debt exceeds value.

What needs to be done, quite simply, is to change the bankruptcy

code to give a bankruptcy judge the power to reduce debt to value.

You can do this on commercial mortgages, you can do this on cars

and boats, but not homes. This preferential or differential treatment for homes is what caused part of the crisis, it is not a solution

to it.

My second lesson to be learned from the current mortgage crisis

is we do not know what is being foreclosed upon today. The data

is not there. Our banks and mortgage companies cannot tell us

much about the property they are foreclosing upon. We know the

kind of mortgages that were originated, but we do not know of the

10,000 condos in Miami or the 12,000 properties being foreclosed

on tomorrow, how many are occupied. We do not know how many

of them are occupied by owners or by tenants. We do not know how

many are unoccupied.

Third lesson, we often do not know who is foreclosing. With the

advent of the mortgage electronic registration system a decade ago,

we created what we thought was an efficient system, which has

rendered havoc. We no longer today know who holds the promissory note or the deed to secure debt that is foreclosing on us tomorrow.

Fourth and final point about the current crisis is simply the importance of notice to occupants. In the Protecting Tenants at Foreclosure Act that you all passed last May, you provided that tenants’

leases can continue post-foreclosure, but you did not provide that

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tenants are told that the property is coming up for foreclosure, and

most States do not. Very simple point, tell the tenants they are facing foreclosure.

With respect to the impact of the foreclosure crisis on our neighbors and our communities, I have some additional lessons.

The neighborhood stabilization program is hugely important, but

the economic climate in which you all passed it last June a year

ago and amended it in May—in last February—for $6 billion, is no

longer the economic crisis today. You need to give Secretary Donovan discretion to adjust that program to fit the needs, whether a

Fulton County, or a DeKalb County or a Cuyahoga County.

Next point about the foreclosure crisis on others is we need to

make sure that HUD’s inventory complies with local laws. Right

now, the Secretary has discretion, Secretary Donovan, to make sure

his properties comply with local laws. But Congress has not required it. It needs to be done by the Secretary or Congress. There

is no excuse for the HUD inventory to be substandard.

We need to know who owns the foreclosed properties is my third

lesson. The simple proposition here is to require the recording of

every single foreclosure deed within 30 days. In a declining market,

lenders have incentives not to record their deeds and we do not

know who owns the properties that are killing our neighborhoods

post-foreclosure.

In this connection, we need to learn that in time for local governments to consider enacting vacant property registration statutes.

Several jurisdictions are doing this. Not a Federal matter, but a

State matter. To require that property which remains vacant for

30, 60, 90 days, that the owners of that property notify the government officials of who has responsibility for the property.

My final point for the mitigating the impact on others is property

taxes, Mr. Manning’s area. We now know that property tax escrows

were dropped in recent years. It is time to make the monthly escrow of property taxes mandatory. It is time to make lenders who

foreclose notify the tax assessor, because those lenders are continuing to ride illegally homestead exemptions post-foreclosure.

Other points about lessons to be learned, including prohibiting

inherently dangerous products. As Mr. Brennan and Senator Fort

have indicated, many mortgages are simply inherently dangerous

and need to be prohibited. The Federal Government needs to set

a minimum floor, not a maximum, but a minimum floor and then

allow States to regulate above that.

We need to reinvigorate mortgage insurance. Whatever happened

to private mortgage insurance, and I suggest that should be the

credit rating agency.

And then finally, we need to standardize once again the conforming mortgage and explore at the State-level anti-deficiency legislation.

Thank you very much, Congressman.

[Applause.]

[The prepared statement of Mr. Alexander follows:]

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Mr. KUCINICH. Thank you, gentlemen.

We are going to go to questions of the witnesses. I am going to

begin with my 5 minutes.

I am going to ask Mr. Brennan, Professor Alexander, Professor

Immergluck and Senator Fort—we will start with Senator Fort. I

am going to pose this question and I would like each of you to just

give a try at giving me a brief answer.

I have heard variously from the witnesses that there is a fundamental breakdown in responsibility by lenders and investors;

one, investors who choose to allow loan modifications in the numbers and agree are needed; two banks made loans and sold them

so they did not take responsibility for the quality of the loans;

three and once in foreclosure, the investors and lenders do not take

responsibility for property once the borrowers are evicted.

Now all of the costs of this failure to take responsibility is being

borne by the taxpayers in the form of the TARP bailout, increased

cost on local communities in the form of vacant and abandoned

houses, crime and so on.

So I want to ask each of you, what is the solution to this problem

in your judgment? Mr. Fort.

Mr. FORT. As I said, this is an issue that strikes at the very core

of straightening this mess out. There is some legislation in place

here in the Georgia General Assembly on these issues and I have

advocated in that legislation that there be assignee liability maintained. Without that, you know, what we have is a situation where

people originate the loan, who make the loan, sell it off and they

say it is not my problem, I did not do it, I just sold it, it is someone

else’s problem. And ultimately it becomes a lot of people’s problem,

including taxpayers.

So I would urge, as I reiterate, that issue of assignee liability,

make it concrete.

Mr. KUCINICH. Thank you very much.

Mr. Brennan.

Mr. BRENNAN. Of course, I agree with Senator Fort completely.

These abusive lending practices need to be made illegal and regulated, especially the practice of lending without regard to the borrower’s ability to pay, which has just been devastating on all fronts

of that securitization structure. So we need laws and regulations

on the national level to prohibit these abuses and assign assignee

liability to the ultimate holder of the mortgage and even the investors.

But on another front, quickly, to answer your question, day in

and day out what we do for our clients is not what is being done

by the Federal programs that have come along to help them. Every

client we have has to have this result to stay in their home—lower

the interest, lower the principal balance on the loan, make the payments affordable and fixed for people who can afford to make mortgage payments. And that is not what they are getting from the programs that are in effect now.

Mr. KUCINICH. I thank the gentleman.

Let us try Professor Immergluck.

Mr. IMMERGLUCK. I think short term/long term. Short term,

there really has to be—to slow foreclosures, there has to be a much

more aggressive Federal response still, and servicers need to be

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told that they have to modify loans if they are going to—and if not,

penalties on TARP funds have to be applied somehow. I think there

just has to be a hammer put down.

Long term, we need much sounder, non-bubble inducing mortgage markets and the CFPA, Federal regulation that provides a

floor and then covers every single mortgage lender in the country

is the way to do that.

Mr. KUCINICH. Thank you very much.

Mr. Alexander.

Mr. ALEXANDER. If you want to achieve large-scale modifications,

you are going to need to have a bankruptcy cram down provision

authorized. There will be no large scale residential modifications in

the face of second mortgages and under the current PSA, pooling

and servicing agreement structure, in the absence of a backdrop of

a bankruptcy cram down.

With respect to the impact on—the devastating impact on neighborhoods, I think if you give Secretary Donovan the discretion to

adjust the NSP allocation formula and use, you will achieve a

much greater stabilization in the neighborhoods.

Mr. KUCINICH. Thank you very much.

I have a question of Ms. McCoy. From the example that you give

in your written testimony, it seems there is no incentive for a lender to address a borrower who may need some kind of loan workout,

but who is not yet delinquent on their loan. Is there any way for

a borrower who is experiencing difficulty, but is not yet delinquent,

to get help from their lender, in your estimation?

Ms. MCCOY. What we are finding is that it is more challenging.

Usually the lenders, it seems as if they are dealing with the cases

that are maybe headed to foreclosure, those are the ones they seem

to be dealing with. But if a client comes in and they are paying the

mortgage on time, however, they have exhausted their savings and,

you know, they lost their job 3 months ago, but they have been living on savings or whatever the resources that they had, they are

not getting adequate responses. And sometimes even being told

that there is nothing they can do, but yet from the perspective that

we understand, yes, there is something you can do. So again, we

are getting different information from that front end line of people

we are dealing with at the servicer versus what we know around

Making Home Affordable.

Mr. KUCINICH. Thank you very much. In the half minute I have,

I want to go back to Senator Fort. You raised the question in your

testimony of possible civil rights action. In our own community in

Cleveland, we saw where there is just no question that there was

predatory lending going on in the African-American community at

a rate that was extraordinary and there are vast areas that are

now empty as a result.

Do you know of any activity that is going on right now with respect to litigation?

Mr. FORT. Well, I know that—here in Atlanta?

Mr. KUCINICH. Right.

Mr. FORT. No, no. The City Council here in Atlanta passed a resolution for the City to consult with attorneys to possibly do a suit,

but no, it has not been done.

Mr. KUCINICH. Thank you very much, Mr. Fort.

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The Chair recognizes the gentleman from Georgia. Mr. Westmoreland, you may proceed.

Mr. WESTMORELAND. Thank you, Mr. Chairman. I am just going

to make some comments, do not really have any questions, but I

would like to comment on a couple of things that the witnesses testified to.

Senator Fort and Mr. Manning both talked about the values decreasing. This is—and I agree with Mr. Brennan, I hate the word

toxic asset because these were not really toxic assets, but they became toxic assets when this TARP money went out to some of the

larger banks. And it goes back to Ms. McCoy’s statement of getting

the run-around. They have no—had they not had these funds to

balance their books, I think they would have been more willing to

work with these people to try to work out their loans. Getting

something in return, some type of payment on this loan is better

than going to foreclosure, because that snowballs the effect of these

values going down. And it is just complete madness that we keep

doing this.

We were told when the TARP bill came out—and this is the reason myself and Dennis and others really questioned this, Congressman Kucinich really questioned this, because we thought well,

what kind of incentive does that give the banks to work with people. You give them $700 billion, what incentive does that give the

guy that has a $1,400 a month house payment that his value is

gone. We were promised by Secretary Paulson that there would be

a floor put on these assets. That was not done. Immediately the

next day, the direction of this money was changed. And from that

we have had people suffer greatly with the loss of value. And I

agree with you, it is not just wealth, it is a lot of different things

that you suffer when you go through that through no fault of your

own, but because your neighbor or somebody else made a fraudulent decision, like Mr. Brewer talked about, or a mortgage company

did something.

And let me add to it, what Mr. Brewer spoke about has killed

the appraisals in this area. There was a front page article in the

AJC this morning talking about the very fact of the appraisals killing his ability to be able to restructure his loan.

So all of these things are working together and I just want to

thank again my friend, Congressman Kucinich, for having this

hearing, because I think it is going to bring a lot of things to light

in a market where we I think have suffered maybe more than a

lot of other cities. And I want to thank the gentleman for that.

Mr. KUCINICH. I thank Mr. Westmoreland for the role that he

has played in making this hearing happen.

And now to our colleague, who has been an equal partner on

matters relating to the security of his community. You may proceed.

Mr. SCOTT. Thank you so much, Mr. Chairman.

Let me start with you, Mr. Alexander, because you I think have

really nailed the nail on the head in so many ways and points out

why we do need to pause and get some sort of moratorium on all

of this because of all of the questions, all of the issues that you

brought up.

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Let us start, for example, with the neighborhood stabilization

program. I was very instrumental in getting that piece done. Here

is the point. The point is the cat is already out of the bag on that.

We have already put out $153 million right here into Georgia.

Many people do not know that, but there is $153 million that is

available in Georgia right now. It has been split equally pretty

much, the State has $73–74 million, divided up into local and counties, I just announced and presented a check of $9.7 million into

Clayton County last week. And for those that night not know, the

neighborhood stabilization program is there to buy up this property

that is bringing down neighborhoods that are abandoned and

rehabbing those and reselling those. Very instrumental we thought

in getting money turning around in the communities to stay in

there. But you made a point that, you said you felt that was not

effective or a suggestion, a recommendation that Mr. Donovan do

something.

With it out of the bag, with the money already out, what do you

say now?

Mr. ALEXANDER. I think, Congressman, that the NSP program is

still an excellent program. It can be made more productive and effective if you give Secretary Donovan power or discretion to adjust

the allocation—not the allocation amount, but the utilization formula. Specific example is, as you are aware, the NSP money can

only be used to acquire foreclosed property, but not properties that

have simply been abandoned. The NSP program requires it to be

purchased on the average at about 95 percent of fair market value.

Fair market value is tremendously difficult in some of our neighborhoods, in Pittsburgh or in Summerhill.

Finally, we are discovering that we cannot use the NSP money

because we do not know the bank inventory. Because foreclosure

deeds are not being filed, we do not know who really owns that inventory. We are actually using the NSP money to buy property

from third-party speculators as quickly as we can.

Mr. SCOTT. What I would like for you to do is, if you do not mind,

if you would get that to me in writing so that I can pass those on

to the Secretary as we move forward, because that is already moving. And I think that would be an excellent, excellent contribution

there.

Mr. ALEXANDER. Yes, sir.

Mr. SCOTT. Now let me go on to you, Mr. Immergluck, and a few

others here on this issue.

As you know, we finally, finally were successful in getting some

of the TARP money to go toward helping folks in their foreclosures.

And it is called the Making Home Affordable Program. Anybody

here familiar with that, the Making Home Affordable Program?

That is good.

And I want to get your feedback on that. Essentially what we

tried to do is we have $50 billion set aside out of the TARP money

to go to help people get their loans modified and to get the principal and the monthly payments down to a level that would be less

than, not more than, 31 percent of their monthly income. That is

basically that program. Is that working? What do we need to do to

adjust it?

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Mr. IMMERGLUCK. Well, it is certainly better than previous attempts, but the first point I would say is Professor Alexander’s

comment about the lack of the bankruptcy cram down, which

should have been put through—well, when Senator Durbin introduced it in early 2008, actually an earlier version in 2007, if that

had been available all of the efforts would have worked better because it would have effectively dealt with the upside down mortgages.

Now what is happening, the banks are acquiring the property at

foreclosure and then selling them for $30,000 anywhere. There is

no rationality in that. They would have been better off with a

bankruptcy cram down, that is clear.

The second thing is the fact that the servicers were never designed, the system was never designed to deal with 10,000 foreclosure filings a month in the metropolitan area. And no matter

how many—you give them $1,000 here and $1,000 there, you know

$1,000 on a million foreclosure filings is a billion dollars. That is

chump change in the scheme of TARP. So the incentives that were

built into MHA were not nearly strong enough. There had to be a

stick and the stick—I am afraid I am going to put it a little bit

back on Congress because Congress did not want to do the stick.

Mr. SCOTT. Right.

Mr. IMMERGLUCK. Which was the bankruptcy cram down.

Mr. SCOTT. Absolutely.

[Applause.]

Mr. SCOTT. I am glad to hear that because we wanted to get that

in there.

Much of what we tried to do, we did not get it sufficiently, but

at least we have those.

May I just ask for indulgence? I wanted to ask Ambassador

Young a question. We do not have a banker up here just yet——

Mr. KUCINICH. We have a number on the next panel.

Mr. SCOTT. But I wanted to get Ambassador Young’s point because he has been working with some banks and has some ideas.

And I wanted to get your take on do you believe that the FDIC is

doing an efficient job in this area?

Mr. KUCINICH. The gentleman’s time has expired, but we will

certainly permit him to ask Ambassador to respond.

Mr. SCOTT. I appreciate your indulgence because he will be gone

after this.

Mr. YOUNG. I am not a banker and I am not a lobbyist for banks,

but I do have a lot of respect for FDIC if they were given an additional flexibility. I think when they were structured in the wake of

the savings and loan crisis, you had a line in the sand. I think that

the FDIC is the only institution I know about that could work with

banks, that do not have predatory lending. Rural banks are dealing

with farmers and small businesses and I think they know the

banks better than anybody else that I know about and with a little

more discretion and time, I think a lot of these things could be

worked out in Georgia.

I do not expect—I am an optimist. I do not expect this to be a

10-year crisis. I think we are working our way out of this gradually

and if we do not make it worse by closing down businesses, closing

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down banks, closing down more houses for people who are struggling to make ends meet.

Mr. KUCINICH. I want to thank you, Ambassador; thank you, Mr.

Scott.

Mr. SCOTT. Thank you for your indulgence.

Mr. KUCINICH. We have now concluded the work of the first

panel. It has been extraordinary, your testimony has been excellent. Let us hear it for the members of the first panel.

[Applause.]

Mr. KUCINICH. We are going to take 5 minutes recess, and let me

tell you it will be 5 minutes. And then we are going to start right

away and I would ask the second panel to come forward.

We will recess for 5 minutes and we are going to move this

along. Thank you.

[Recess.]

Mr. KUCINICH. Thank you very much for being here. We are

going to resume the hearing. I am going to introduce the witnesses

and then we will go to the witness statements. The witnesses are

as follows:

Ms. Saqirah Redmond is a homeowner, who will share with us

the challenges she faced in obtaining a loan modification from her

mortgage lender.

Mr. Andrew Schneggenburger is the executive director of the Atlanta Housing Association of Neighborhood Based Developers, it is

a coalition of Atlanta area community-based organizations advocating for, dedicated to improving the quality of life in under-served

neighborhoods through the support of community economic development and affordable housing activities.

Mr. Joe Brannen is president and CEO of the Georgia Bankers

Association which is the trade and professional association representing virtually all of Georgia’s commercial banks and thrift institutions.

Mr. Jeff Betsill is president of Jeff Betsill Homes, Inc. Mr.

Betsill’s company operates with 10 full time employees and has

built many of the homes and commercial buildings in the south

metro area of Atlanta.

Mr. Michael Rossetti is the president of Ravin Homes, Inc.,

which has built thousands of homes and has completed numerous

commercial development and commercial renovation projects

throughout Peachtree City, Fayette County and the south side of

Atlanta.

Finally, Mr. Jon D. Greenlee is the associate director of the Division of Banking Supervision and Regulation of the Board of Governors of the Federal Reserve. In this capacity, Mr. Greenlee is responsible for assessing current and emerging risks in the banking

system and oversees the Federal Reserve system’s supervision of

credit market liquidity operational and compliance risks.

It is the policy of the Committee on Oversight and Government

Reform to swear in all witnesses before they testify. I would ask

that the witnesses stand and raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. Let the record reflect that each of the witnesses

has answered in the affirmative.

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As with panel one, I am going to ask that each witness give an

oral summary of his or her testimony and keep the summary under

5 minutes in duration. Among other reasons, because Members of

Congress have to catch a plane to get back for votes. But other

than that——

Bear in mind your complete written statement will be included

in the record of this hearing.

I am going to start with Ms. Redmond. We appreciate that you

are here. Please proceed for 5 minutes. Go ahead, please.

STATEMENTS OF SAQIRAH REDMOND, HOMEOWNER; ANDREW

SCHNEGGENBURGER, EXECUTIVE DIRECTOR, ATLANTA

HOUSING ASSOCIATION OF NEIGHBORHOOD BASED DEVELOPERS; JOE BRANNEN, PRESIDENT AND CEO, GEORGIA

BANKERS ASSOCIATION; JEFF BETSILL, PRESIDENT, JEFF

BETSILL HOMES, INC.; MICHAEL ROSSETTI, PRESIDENT,

RAVIN HOMES, INC.; AND JON D. GREENLEE, ASSOCIATE DIRECTOR, DIVISION OF BANKING SUPERVISION AND REGULATION, BOARD OF GOVERNORS OF THE FEDERAL RESERVE

STATEMENT OF SAQIRAH REDMOND

Ms. REDMOND. Chairman Kucinich and members of the committee, thank you for allowing me the opportunity to testify today. My

name is Saqirah Redmond and I am here today to tell you about

my struggle with a deceptive and misleading mortgage situation

and an extremely difficult loan modification process.

Mr. KUCINICH. You could actually slow down a little bit. If it is

not all in there, we will get it in the record, if you cannot get it

in.

Ms. REDMOND. OK, I am sorry.

Mr. KUCINICH. No, no.

Ms. REDMOND. I have lived in Atlanta for about 18 years. I came

here to attend Clark-Atlanta University, where I obtained my B.A.

in accounting. I managed to go to college despite I was a ward of

the court, and earned my Master’s degree as well. After college, I

bought my first house at 22, with a 30-year fixed interest loan. I

owned it for 8 years, never missing a payment. I started a good career here, working for Turner Broadcasting and other jobs here in

Atlanta. I married and started a family and we determined that we

needed a larger home. That is when my saga began.

In 2002, my husband and I obtained a mortgage from Home

Banc. The loan was a 3.7 interest only LIBOR loan that reset every

6 months. After a couple of years, we also took a home equity mortgage out in order to pay off some bills. In 2005, I decided to refinance my mortgage to a 30-year fixed because I was not used to

the interest only loan going up every 6 months. In order to do that,

I had a friend that was in the business doing loans and she worked

with Diversified Mortgage. So I went to her and told her I needed

a 30-year fixed mortgage and to consolidate the two loans, so I

could make one payment. My husband and I both had great jobs

and we had great credit at the time. Diversified indicated that

there was no problem for me to get a 30-year fixed mortgage.

When it came to closing, it was postponed three to four times.

I would take off of work and make arrangements for closing that

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would be canceled. I was getting very stressed and frustrated.

When I finally got to the closing table, they told me my new lender

was Saxon and I was supposed to have a 6.7 interest rate and they

gave me a 7.3 interest rate. When I balked at the closing table,

they told me, contact Saxon and they will change your loan for you.

At the time, I went to Saxon and they told me there was nothing

they could do, do not worry about it, you will be great, for 2 years.

At the time 2 years later, I began to realize—I started to get phone calls from Saxon telling me my loan was going up to $2,400

to $3,000. I said what are you talking about when I should have

a 30-year fixed rate mortgage? She said no, you have a 2-year

fixed. I said what is that? She said it is called 2/28. To me that

number stuck out to me because that is my birthdate. I said I

never knew anything about a 2/28. She also told me I made $9,000

a month. I said we do not do that as well. Then she also indicated

I had a 7.3 LIBOR loan. I said LIBOR loan, I do not know anything

about a LIBOR loan because I had that before and it does not

make sense for me to go from 3.7 to 7.3 LIBOR loan. So I went on,

there was nothing I could do until I filed a complaint against Diversified Mortgage with Georgia Department of Banking and Finance. I filed a complaint with them, they told me there was nothing I could do then, that my paperwork was correct that they filled

out.

So with that said, I kept pushing. I had financial struggles, me

and my husband at the time were having marital problems, financial problems and the stress of the mortgage was getting to us, but

I kept pushing. Then finally Saxon told me that I can stop my foreclosure—my interest from going up if I decide to not make my payments on time. I was making my payments on time. They told me

to stop for 2 months and I would get in the program. I did that.

At that time, yes, it stopped, but however, that was not fixing the

problem, that was just freezing my interest rate which I never

thought I had an interest only.

For awhile after the interest rate froze, unfortunately I lost my

job as of February 2008. I called the mortgage company to see was

there anything that they can do and they told me yes, stop paying

your mortgage again and we will put you in the modifying program. So I did what they told me, I stayed on the phone—I have

records to show I was on the phone 2 to 3 hours at the mortgage

company trying to get this situation situated.

During this period, my credit was destroyed because I was late

on my mortgage and I lost my job and with that said, I lost paying

bills. I could not even get a job in the accounting field because of

all of information that was on my credit, telling me that I would

be a detriment to the company thinking I would steal money because I was behind on my mortgage payment. I was getting sick

from stress and my marriage was failing. I kept calling Saxon, they

kept saying they did not have the appropriate documents that I

faxed to them, there was nothing they could do. I even certified my

packet to them, the VP. Georgia Banking and Finance gave me the

information.

I contacted the non-profit counseling agency, Resources Center,

RCC. That was when my problems got better. I heard about the

non-profit organization, which it took me a long time to get to

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them, mind you. This information is not out there for people. When

I contacted them, they told me that I would work with a counselor

and he would advocate for me and send my paperwork to followup.

Mr. Dowdy helped and I was able to get a trial modification from

the Making Home Affordable program in August 2009. So I went

from 2005 to just now getting my situation straightened out. I have

made three payments through the trial modification and working

to negotiate a permanent modification.

I thought by now I would be in a better employment situation

in my field. Instead, I have been working in a day care field for

the past year at much decreased pay. I got a job in the day care

field due to the fact that I own a business providing summer camps

and college tours for teenagers. I am caring for two children, I am

divorced, and I have lost my car. But I am hopeful that eventually

the economy will pick back up so I can get back into my career

field.

Thank you for the opportunity to testify and I hope the comments will in some way help protect others from having to struggle

with similar difficulties.

Mr. KUCINICH. My Lord, I have to tell you something, this is very

powerful testimony and our subcommittee will be in touch with you

because we are going to go deep into those people who led you

down this path. We will leave no stone unturned in getting into

your documents and bringing justice. This is really very gripping

testimony. Thank you.

Ms. REDMOND. The State of Georgia was doing that.

Mr. KUCINICH. I am glad to hear that, we will give them some

help.

Mr. SCOTT. Mr. Chairman, what was the name, Saxton or——

Mr. KUCINICH. We are going to get the details and you can be

part of that, Mr. Scott.

The Chair recognizes Mr. Schneggenburger.

[The prepared statement of Ms. Redmond follows:]

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STATEMENT OF ANDREW SCHNEGGENBURGER

Mr. SCHNEGGENBURGER. Good afternoon, Chairman Kucinich,

Representative Westmoreland and Representative Scott, thank you

again for the opportunity to tell our story. Us being the Atlanta

Housing Association of Neighborhood-based Developers. We are the

association of non-profit community development corporations and

non-profit affordable housing developers working in and around Atlanta. Our organizations, like RRC, who is a member of ours, are

the organizations that are on the ground, on the front lines, working on all fronts to try and restabilize communities, restabilize

homes, restabilize people’s lives in the face of this current crisis.

Our members develop typically two types of housing, single-family housing mostly in the inner-city neighborhoods, which I say our

organizations work in the neighborhoods primarily around the

southside of Atlanta, the first ring neighborhoods just outside of

downtown. I would like to add actually from some of the testimony

in the first session, when you look at a map of the highest rates

of foreclosures overlaid over a map of the majority minority neighborhoods in Atlanta, they are virtually the same map, an indication

of some of the lending practices that were hinted at, talked about

in the first session.

Our organizations, again they develop two types of housing, the

single-family housing in those single family neighborhoods, and

then also multi-family housing for rent, both in Atlanta and outside

the city.

The financial crisis is having a severe impact on our member organizations’ ability to develop housing, to develop affordable housing. Primarily, for single-family projects, the lack of financing for

construction. Some of our members have been told flat out that

banks will not be lending for construction until the market turns

around, and there is no indication of what that means to anybody

at this point. So as a result, development, construction has basically ground to a halt. And this is a huge problem for a number

of our members because they rely on developers’ fees to support operations of their organizations, to support other programs, some of

the other social outreach programs, the homeowners’ counseling,

for example. So that lack of revenue is having a huge impact on

many of our organizations’ viability and the ability to keep doors

open and keep programs operating.

As far as the multi-family housing, most of that is developed

using the Low Income Housing Tax Credit Program, the Federal

tax credit program to develop affordable housing. This program is

basically run by private investment where investors buy tax credits

to offset their tax liabilities and those investments go directly toward the development costs for the housing. As a result, much

lower income target levels can be reached for occupants for these

rental homes. These projects are being impacted in two ways, also

by the fact that lending for these projects, construction lending, is

really very difficult to get with reasonable terms; and second because the tax credit program has been rendered basically useless

by current conditions. With so many companies and so many investors posting losses, there is a much reduced need to offset their tax

liability and so terms to purchase those tax credits are very, very

unfavorable for being able to put these deals together.

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So this very important program, which takes care of a significant

percentage of the amount of financing for affordable housing, rental

affordable housing across the country, is really not working at all

right now.

A third thing I would like to add real quick is there has also

been an impact on small business lending. One of our members is

a micro-lending organization, they do micro loans to startup businesses, specifically targeting disadvantaged entrepreneurs in disadvantaged neighborhoods who are trying to startup. They do loans

ranging between $500 to $15,000. They have seen in the last couple

of months, while it has been very good for them, they have seen

an uptick of about 40 percent in their weekly orientation sessions.

In addition, they have seen average credit scores for people coming

to those orientations rise from the low 500’s to the low 600’s, and

that is an indication that these people who would normally be eligible for a more standard business loan product are having trouble

getting them, so they are coming to the micro fund to try and see

if they can get some of those products.

Mr. KUCINICH. I thank the gentleman.

The Chair recognizes Mr. Brannen, and you may proceed for 5

minutes.

[The prepared statement of Mr. Schneggenburger follows:]

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STATEMENT OF JOE BRANNEN

Mr. BRANNEN. Thank you, Chairman Kucinich, for inviting us to

testify today. Let me also thank Congressman Westmoreland and

Congressman Scott, two of our good representatives that are representing the very difficult areas of our State, most hardest hit in

Georgia. Thank you for letting us explain the ongoing effects of this

difficult economy on our members, our customers and our communities.

Georgia Bankers Association has 322 members, the vast majority

of them are community banks, community-based lenders and I

want to spend most of my time today talking about how they and

their customers are affected.

We are grateful for the role this hearing can play to help you advocate for policies that will remove obstacles that are making it difficult for our members to even serve their communities. Twentyfive Georgia banks have closed since 2008, out of 352 active banks

at the beginning of that year. Those numbers are just the facts.

The real question is why have there been so many? The answer is

simple, the banks were closed because their customers could not

pay back their loans and private capital was not available to support the losses.

It is important to keep in mind that Georgia’s banks were lending to support the small businesses that were building supply and

selling homes for a rapidly growing State, the sixth fastest growing

State in the country. Metro Atlanta region’s growth averaged

120,000 new residents every year for a decade. All credible evidence showed that growth continuing for some time.

The real estate market collapsed last year when mortgages of all

types became more difficult for homeowners to get, secondary mortgage markets evaporated and our State unemployment numbers

skyrocketed. These broad economic factors, a concentration of residential construction lending, borrowers unable to meet their obligations and private capital sitting on the sidelines caused these

banks to close.

These closures have been community banks supporting high

growth suburban areas as well as urban neighborhoods. One of our

early closures was a bank that focused solely on refinancing the rehabilitation of homes in blighted inner-city neighborhoods.

While the business model of our banks, some of our banks, and

their customers can be questioned, we also believe that aggressive

interpretation of aggressive regulatory policies and accounting

rules have contributed to those closures. Unless the application of

these policies is modified, we see continued stress among borrowers

and the bankers that finance them.

The economy and regulatory policies have put banks between a

rock and a hard place when it comes to lending. Most of Georgia’s

banks are small businesses like the small businesses they serve.

Most employ fewer than 50 people. Banks are in the business of

making loans to credit-worthy borrowers, that is how they serve

their communities, that is how they make money. In fact, Georgia

banks have over $211 billion of loans outstanding today. Loan demand is down as more people are saving to pay off debt and companies have put off expansions or additions to inventory. But we also

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know that credit is not as easily available as it was in the recent

past.

Traditional banks, those that we represent, are expected to be

prudent lenders. You can certainly understand their caution when

they see their non-performing loans at historically high levels, no

significant sign that the rising loan delinquencies is subsiding and

personal and business bankruptcies being at abnormally high levels.

Also, our banks are struggling to maintain adequate regulatory

capital levels because of ongoing and rising numbers of troubled

loans. To keep capital at the required levels, banks often cannot deploy that capital to provide more credit as they have to account for

that credit with future and current losses.

Please understand, we are not suggesting that our regulators

stop doing their job. They are good people trying as best they can

but some of the regulatory orders, a third of our banks are under

a regulatory order, which is in itself restricting lending. We are not

asking them to quit doing their job, but the enforcement tools they

have to use are not appropriate for this environment.

If we could identify one issue that is perhaps the biggest obstacle

for recovery in the real estate market, it is the continued and artificial losses in real estate values. Banks and their customers are

being forced to use real capital to account for theoretical losses.

Commonly referred to as mark to market, but more accurately

called the fair value of real estate, the aggressive application of

this accounting rule is sapping capital that we could use to support

more lending.

Another issue relates to real estate appraisals. You heard about

that in the previous panel. In a non-functioning market like we

have today, getting a meaningful appraisal is practically impossible. We ask our regulators to work with us, to be more understanding and not require our borrowers to produce more capital

and pay down their loans just because the underlying real estate

values have fallen.

I mentioned that private capital was scarce with community

banks. We ask that you consider pushing Treasury to open the

Troubled Asset Relief Program for more community banks and we

ask your help with our regulators to quit forcing us to shed brokered deposits out of troubled banks and postpone the national rate

cap rule scheduled to go in effect in January. We need those deposits, we need to be able to lend in our communities and we need

your help.

Our highly regulated banking industry is the key for our State’s

growth and the success of our State. There is work to be done and

we look forward to working with you for those solutions.

Mr. KUCINICH. Thank you very much, Mr. Brannen.

The Chair recognizes Mr. Betsill. You may proceed for 5 minutes.

[The prepared statement of Mr. Brannen follows:]

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STATEMENT OF JEFF BETSILL

Mr. BETSILL. Thank you for allowing me to be here today, Mr.

Kucinich and Congressman Westmoreland, Mr. Scott. Thank you

for taking the initiative to delve further into the problems that

plague our industry and the general economy. I have spent many

hours throughout the past 3 years speaking in this regard with a

couple of my industry associates, Mr. Cumming and Mr. Patterson

who are in California and have been pushing for finance reform for

the last 3 years out there with Congressman Issa—I believe I said

his name right.

I find it real ironic that I am here, a guy from, you know, BYU,

Back Yard University, is sitting here amongst this panel discussing

these issues that are very serious in nature and very, very dear to

my heart, which is the homebuilding industry. For the last 35

years, that is what I have been involved with is home construction,

home industry. My father, Alex, was a carpenter and I grew up

working alongside him, learning the trade at a very early age.

From my father, I learned the value of hard work and commitment

to any task that I undertook, whether it was cutting grass or building a home, it was important to him that we have total commitment to what we did. I learned also to include the quality and do

the right thing no matter what it cost, even if it was monetarily.

Sometimes we do not always make money at everything we do,

sometimes it costs us something. My love for taking a vacant lot

and coordinating the materials and the labor to produce a great

home has always driven me to stay in the homebuilding industry.

I would appreciate you granting me a moment to focus on the

word ‘‘home.’’ As was mentioned earlier, talking about it is not just

foreclosures, but it is the effects of the foreclosures. A home, at the

most heartfelt definition, is the place where Americans raise their

families and share their joys and their hurts. As a young builder,

I would converse with home buyers that purchased a home of mine,

that it was the best investment they would ever likely make in

their lives. Owning a home is a start to sharing in each other’s

lives. And of course, at that time, I believed the value of a home

would always either maintain or increase in value. In the 32 years

preceding the experience we are all now a part of, I had never seen

the value of a home decrease. I obviously did not understand the

factors controlling my world.

I sit before you today to discuss my experiences throughout the

downturn with a particular construction lender in my business.

Unfortunately, I hate to admit this, but early in my years of owning my own company, I was not nearly as schooled in the lending

practices as I am today. I always believed that working hard, while

considering the quality of the home and experience I was producing

would pay a beneficial net result for all who was involved. I would

be misleading this committee if I led you to believe I was an individual that completely understood what lenders of both construction and home loans, could and could not do.

I will share with you my experience with a lender to my organization and the effect their action had not only on my company, but

also my employees and the general population. The particular situation I am referring to began in a subdivision in close proximity

to where we sit today. This subdivision was named one of the top

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30 subdivisions in the metro Atlanta market. We began construction using funds lent from this lender in late 2004. Three builders

made the builder group in this subdivision and each builder I

would say averaged approximately 25 home closings per year

throughout late 2007. The margins we were able to get in this location were strong and we were building primarily on a pre-sale

basis. It was truly our greatest source of income.

In mid-2008, we asked for a couple of speculative loans with a

couple of pre-sale constructions with the lender. To approve the

loan requests, the lender asked for routine information. In the prior

years, approval was pretty much a guarantee in less than 2 or 3

weeks, especially at this subdivision. Well, approximately 3 weeks

went by and we followed up for an update as to the loan requests.

They requested additional, less typical information. We provided

the requested information and another month or so went by without approval. Then we received a phone call from a loan officer we

had known for many years working for the bank. In the conversation with him, he advised my company that our company’s loan

portfolio was moved to special assets division. Of course, I was

completely shocked, given the rate of sales and margins being

achieved, and asked the question why. The loan officer went on to

state that the bank was looking at all collateral in place prior to

the beginning of the downturn as—here is that word again—toxic

assets. Of course, this was the reason behind the loan portfolio

being moved to the special assets division of the bank. With the

move of the loan portfolio to special assets, we were told nothing

would change, just additional scrutiny for each request.

Additional scrutiny occurred and we provided more and more information. A few weeks more went by and then we were requested

by the lender to travel to a location approximately an hour and a

half away from our office for a meeting. At that meeting, the bank’s

loan officers advised me, which was two gentlemen I had never met

before in my life—they advised me that they were proceeding with

foreclosure on all my lots we had with them. They did the same

with the other builder remaining in the subdivision. At the time,

we were current, we were making our interest payments. It was

approximately 6 months from the initial loan request to when the

meeting occurred. During the foreclosure process, we had continued

interest in building pre-sale homes in this particular subdivision

and begged our lenders to allow us to do a workout strategy, even

giving them options for our company working through all the lots

in an 18-month period. Many additional options were provided to

the lender in an effort to avoid foreclosure. At one point, we received a response that the lender was not considering any options

and that they were proceeding toward final foreclosure. Which for

me at that time, when that happened, it hit me in the stomach and

just took all the life out of me at that point, whereas they told me

they were going to foreclose on a perfectly good subdivision.

Of course, the impact on my company as a result of such a decision has been close to impossible to overcome. The subdivision was

our income producer during a difficult time. The actions by the

lender stigmatized my company and myself as a result of the foreclosure proceedings and have made it nearly impossible to obtain

financing on any scale for continued operations. I have tried to

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work through my lots in inventory with additional lenders in a

buildout program and have been fairly unsuccessful in that regard.

And as kind of a side note there, I have had some small community

lenders who have been creative in their approach to trying to work

out buildout programs within the lots that we have with those

small community builders. With the decision of our lenders to foreclose, we have lost two contracts to build pre-sales in that same location. We were forced also as a result of the loss of income, to lay

off many employees.

We have witnessed similar situations occur time after time involving many builders in our area and have read stories nationwide

which contain similar components to ours. These lenders have

taken away all opportunities for producing income from thousands

of builders and in turn, loaded the home market with thousands

upon thousands of bank owned homes. As we are now well aware,

the banks then unload the homes at a significantly depressed price,

driving down the existing home values.

In closing, I would like to thank the committee for allowing me

the opportunity to share my experiences today. I have done so in

hopes that the citizens of this great Nation can gain an understanding that they are not alone in their frustrations with banks

and lenders. I feel as many small businessmen and women and

homeowners do that decades of hard work and dedication were

erased by a few inconceivable decisions by single individuals.

Thank you very much.

Mr. KUCINICH. Thank you, Mr. Betsill.

The Chair recognizes Mr. Rossetti. You may proceed for 5 minutes.

[The prepared statement of Mr. Betsill follows:]

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STATEMENT OF MICHAEL ROSSETTI

Mr. ROSSETTI. Chairman Kucinich, Congressman Scott and my

good friend Lynn Westmoreland, thank you very much. I appreciate

the honor and the opportunity to testify before you on this very

critical and tenuous subject. It is my opinion that the relationship

between banks and all small business must be healthy for our company to begin to emerge from this economic hole we were in.

I have been involved in the building business in some form or

fashion since I was 12 years old. My father was a builder and it

was he that gave me the insight and the training in this business.

I am the president of Ravin Homes, Inc. and have been since its

inception in 1982. There are 12 direct employees and hundreds of

subcontractors that derive some or all of their livelihood from my

company. In my 27 years of business, I can proudly say that I have

never missed a payroll.

As I am sure you are aware, the building business is a very capital intensive business and the banks play a pivotal role in a builder’s production capabilities. Even the most well-heeled builders

must go to a bank and get construction loans to supplement their

cash-flow until the home is purchased. In the past, lenders of all

sizes would loan money to my company and assist with my production. Through the years, I have enjoyed great relationship with virtually all of my lenders, both large and small. They have included

Bank of America, Regions Bank and Wachovia on the large bank

end of the spectrum as well as the Bank of Georgia, the Bank of

North Georgia and Southern Community Bank on the small bank

side. Up until this downturn, it was relatively easy to do business

with all of them if your credit was satisfactory. Sadly, this is not

the case now.

In general, the small banks, those with less than a billion dollars

in assets, in my area have issues with capital requirements that

regulators have declared are inadequate. Mr. Brannen mentioned

that in his testimony. Due to this, they are unable to lend money

to me for construction. I have two pre-sold homes that I have under

construction in a Fayetteville subdivision that no one would lend

me the money to build. I had to build them out of pocket. I have

been to no less than eight banks in my quest to find financing and

have not been successful. Virtually all of the small banks wanted

to do the loans, however, due to regulatory risks, they could not.

I must say that my relationship with the small banks is very

positive concerning the existing loans that I have on their books.

They are generally very cooperative with revising loan repayments

to fit the current economic environment. Their attitude is that if

there is any chance of their customer surviving this downturn, it

is worthwhile to help them. Their attitude is closer to that of a

partner rather than an adversary. This is not so with the big

banks.

Of the three largest banks I referenced, Wachovia is by far the

best to deal with. And that is because I have a relationship with

the lender, and have had it there for over 15 years. He respects my

judgment and I his. On the other side of the spectrum, Regions

Bank and Bank of America have been extremely difficult to deal

with. Their attitude has been when the loans are due, they want

to be paid off, or they threaten to proceed with a collection action.

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The Bank of America has threatened to sweep proceeds of my sales

closings to satisfy payments over and above a predetermined payoff, even though the loan is performing. I am paying the interest,

it is up to date, they are billing me the interest. They want to

sweep all my proceeds and put my company out of business. If they

pursue this action, that is what it will do, put my company out of

business. In this case, as with most large banks, I am dealing with

someone I have never met working out of Tennessee who knows

nothing of my past relationship with Bank of America or my reputation in the industry.

This demonstrates an attitude that is all too prevalent in the

large bank environment. It seems that the TARP money that they

received has been used to shore up their capital position and made

it easier for them to foreclose and liquidate troubled loans rather

than working with the borrowers.

Again, I would like to thank you for your time and look forward

to answering any questions you may have.

Mr. KUCINICH. I thank the gentleman.

Mr. Greenlee, you are recognized.

[The prepared statement of Mr. Rossetti follows:]

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STATEMENT OF JON D. GREENLEE

Mr. GREENLEE. Chairman Kucinich, Congressman Westmoreland, Congressman Scott, I appreciate the opportunity to appear

before you today to examine several issues related to the banking

system.

Although conditions in the financial markets have improved in

recent months, significant stress persists and borrowing by businesses and households has remained weak.

The condition of the banking system is far from robust, as the

economic downturn, increases in unemployment and weaknesses in

real estate markets has resulted in significant loan quality problems and losses in many banking organizations, many of whom are

also challenged by subpar earnings and questions about capital

adequacy.

In Georgia, the performance of banking organizations has also

deteriorated. Like their counterparts nationally, banks in Georgia

have seen a steady rise in non-current loans and provisions for loan

losses which have weighed on bank earnings and capital, and 25

banks have failed in the State since the turmoil in the financial

markets emerged more than 2 years ago.

Substantial financial challenges remain for banking institutions

both in Georgia and across the United States. In particular, some

banks that have built up unprecedented concentrations in commercial real estate loans will be particularly affected by strained conditions in real estate markets.

From a supervisory perspective, the Federal Reserve has been focused on CRE exposures for some time. As economic conditions

have deteriorated, we have devoted more resources to assessing the

quality of CRE portfolios at institutions with large concentrations

and have also significantly enhanced our system-wide training efforts.

Last Friday, Federal and State banking regulatory agencies

issued additional inter-agency guidance on CRE loan restructurings

and workouts. The development of this guidance was led by the

Federal Reserve and is designed to address concerns that examiners may not always take a balanced approach to assessments of

CRE credit, particularly if banks were to restructure loans. This

new guidance supports balanced and prudent decisionmaking with

respect to loan restructuring and timely recognition of losses.

At the same time, our examiners have observed incidents where

banks have been close to acknowledging climbs in CRE project

cash-flows and collateral values in their subsequent or potential

loan reviews. As noted in the guidance, the expectation is that

banks should restructure CRE loans in a prudent manner and not

simply renew a loan in an effort to delay the loss recognition.

Finally, the Federal Reserve announced that starting in June

2009, newly issued high-quality commercial mortgage bank securities would be eligible collateral under the TALF program, followed

by a more recent announcement that high quality legacy CMBS

issued before January 1, 2009 would be eligible collateral under

TALF beginning in July. The provision of TALF financing for high

quality issued CMBS is consistent with other Federal Reserve programs designed to improve credit markets and support new lending

for credit worthy properties.

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In summary, it will take some time for the financial markets to

fully recover. The Federal Reserve is committed to working with

other banking agencies and the Congress to promote the concurrent

goals of fostering credit availability in local communities across the

country and promoting a safe and sound banking system.

Accordingly, we thank the subcommittee for holding this important hearing and I look forward to your questions.

[The prepared statement of Mr. Greenlee follows:]

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Mr. KUCINICH. I thank the gentleman. We are now going to go

to questions of the witnesses and I am going to extend a courtesy

to Mr. Westmoreland to lead off the questioning for 5 minutes.

Mr. WESTMORELAND. Thank you. Mr. Greenlee, do you see—since

this hearing has been announced and even before that, I got calls

from bankers, community bankers basically, that came to my office

and said look, we need some help. You know, we have the Federal

Reserve, the FDIC, telling us we need to get TARP money, we are

right in the middle of capital raising, we applied for TARP and

then got turned down, which killed our ability to raise capital. And

the regulators are the ones that told us to apply for the TARP

money.

I mean, we are creating a snowball and I do not care if you talk

to Mr. Rossetti, Mr. Betsill, Mr. Brannen, Mr. Schneggenburger,

Ms. Redmond or whatever, we are creating a snowball with the

TARP money. I mean, TARP was intended to free up credit. Credit

has not been freed up. It was there to set a floor to these assets,

there has been no floor set. It is being used by the big banks to

take advantage of the smaller banks and individuals.

Now the Federal Reserve needs to step in at some point and do

something with this. I am very sorry that no one is here from the

FDIC. Mr. Greenlee, do you see anything that the Federal Reserve

can do to help these banks? The regulators that are coming into

these community banks especially, they have no idea about community banking. I am saying none of them have ever been in community banking. And so we are in the process of snowballing the effect, the reverse effect, of what this TARP money was actually supposed to do. Is the Federal Reserve doing anything to free up credit?

Mr. GREENLEE. Thank you for your comments, Congressman

Westmoreland.

We have, over the past few years, have also heard concerns about

what examiners are doing in the field and concerns about considering locality in our examination process in that examiners may not

always be taking a fair and balanced approach to reviewing in particular commercial real estate loans. So we began an effort in early

2008 to strengthen and enhance our training for all our Federal

Reserve examiners to make sure they understood what our guidance was, what our expectations were. In November 2008, we

issued inter-agency guidance that encouraged banks to extend credit, make credit available for credit worthy borrowers and I think

our last action consistent with that is the guidance we issued last

Friday to try to address the concerns that we have heard that examiners may be going too far, not recognizing the borrower’s ability

to repay a particular loan. That is our longstanding policy and we

thought it was an appropriate time to issue that guidance.

Mr. WESTMORELAND. I hate to interrupt you, but you heard testimony from two people today that were current with their loan payments, they were not behind in their loan payments. But because

of regulations where these banks were told—and Mr. Brannen testified to this—they were told to reduce the real estate portfolios.

Then when the people that had the loans could not produce the additional equity, even though they were not behind in their loans,

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they became toxic assets and the snowball just rolled on down the

hill. Have you all not seen that?

Mr. GREENLEE. Well, it is difficult to, you know, go into each of

these situations because I do not have all the facts in front of me

on the particular situations. As I noticed——

Mr. WESTMORELAND. Well, if you can just tell me what you are

doing to free up credit. What is the Federal Reserve doing today

to free up credit? And I know you probably do not have time today

but if you could just send me a note and Mr. Kucinich a note, Mr.

Scott a note and let me know what you are doing to free up credit,

so we can tell some of these people that the Federal Reserve is actually doing something to try to free it up.

Mr. Brannen, I want to mention to you some regulations. I know

that capital that you used to have to have on hand used to be

what, 6 percent? And it went to 12 percent?

Mr. BRANNEN. It is according to what kind of capital you are

talking about.

Mr. WESTMORELAND. OK. I am talking about the money that you

have to have in reserve.

Mr. BRANNEN. Six and 10. It’s tier one and tier two. My friend

from the Fed can give you the exact numbers.

Mr. WESTMORELAND. As to how much capital you have to have?

They are making a lot of banks both increase the capital that they

have——

Mr. BRANNEN. That is correct.

Mr. WESTMORELAND [continuing]. And reduce their real estate

portfolios.

Mr. BRANNEN. That is correct.

Mr. WESTMORELAND. Is it not true that most banks do not make

a lot of money off free checking?

Mr. BRANNEN. No, sir.

Mr. WESTMORELAND. And so, I mean, listen, I understand, but

we have to have the credit market freed up. Would you not agree

that has been the cause of some of these bank failures, is the fact

that they were not—or they put so much pressure on some of their

borrowers that they ended up losing them?

Mr. BRANNEN. Absolutely. You are absolutely right. And both Mr.

Betsill and Mr. Rossetti pointed out exactly the problems that you

and I have talked about many, many times about how difficult it

is. The banks are being told—it is numbers driven. If your asset

concentration is more than what some number out of Washington

says it is in real estate, then you have to get below that number.

Mr. WESTMORELAND. Even if they are performing.

Mr. BRANNEN. Even if they are performing numbers. And in a

market like Georgia, fast-growing, positively growing State like our

State, and you see those numbers—we have been above—the average-numbers in Georgia have been above the guidance numbers for

years. So now we are being told to forget those numbers, get back

below what that guidance was. That guidance has now become

hard fact and they are forcing the banks to reduce their concentration level. And this is the result. This is exactly the result. It is

not what—I do not think the regulators mean for that to happen,

but that is the result of it.

Mr. WESTMORELAND. OK, thank you, Mr. Chairman.

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Mr. KUCINICH. I thank the gentleman.

The Chair recognizes Mr. Scott for 5 minutes.

Mr. SCOTT. Thank you very much.

Mr. Greenlee, let me—each time that your boss has come before

our Financial Services Committee, Chairman Bernanke, the question has been put to him by myself, why we cannot use TARP

money to help these banks, the community banks. And each time,

Mr. Geithner will come before our committee. Then before that,

when we were putting the $700 billion package together the first

time and I asked why can we not set 2 or 3 percent of this aside,

of this TARP money, to help prevent home foreclosures and get

money down so people can stay in their homes. Secretary Paulson

at that time said we can only use this to buy troubled assets, we

cannot use this for anything but buy toxic assets. And we left and

went home that Friday. By Monday, when we got back, all of a

sudden we could use that TARP money to bailout the automobile

companies, to do other things and almost everything but buy toxic

assets that the program was aimed at.

So I would like for you to make sure that—we need help in getting money and capital down to these struggling community banks,

especially here in Georgia. Georgia is the epicenter, the fact that

we have 25 banks in Georgia to close in the last 12 months is unacceptable and I want to enlist your help for this committee. You

have heard Mr. Brannen, you have heard the committee and our

sentiment. We need to get the TARP money. J.P. Morgan Chase,

others are paying their TARP money back. They not only are paying it back, but they are paying with interest. Even if we could just

say let us put the interest in a pool to get down to the community

bankers. So I just want to stress to you that you will convey the

sentiments of this hearing as well as the other things that Mr.

Westmoreland asked for you to do in communicating with us, and

see if we cannot get some benefit out of this hearing, that we can

put some energy behind both the Fed and the Treasury to get on

our side of getting some TARP down to the banks.

Now Joe, Mr. Brannen—I am so used to talking to you that

way—for some that may not know, this is my old Rules Committee

chair, chaired the Rules Committee in the Senate, was in his office

many times. You have heard some of the complaints here. Ms.

Redmond gave a very touching—and we have had so many examples. What is your reaction to her testimony? I mean as the head

of the banking association, I know you all do not get directly into

it, but I would just like, because we are getting a lot of this kind

of testimony and I just wanted to know your reaction to this. What

do you say about her testimony?

Mr. BRANNEN. If you would regulate companies like she talked

about, those companies that are flying high with essentially no regulation.

Mr. SCOTT. For the record, would you give the name of that company? I had never heard of it. What was the name of the company?

Ms. REDMOND. Diversified Mortgage.

Mr. SCOTT. What was Saxton?

Ms. REDMOND. Saxon Mortgage was the name.

Mr. SCOTT. But they are no longer in business?

Ms. REDMOND. No, Saxon is still in business.

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Mr. SCOTT. OK, they are still in business.

Ms. REDMOND. Yes, that is the one I am with right now.

Mr. SCOTT. Are you familiar with that, Mr. Brannen?

Mr. BRANNEN. I have never heard of it; no, sir, I have not. Our

view is if you would regulate those unregulated mortgage companies to the same extent you regulate the traditional commercial

banks, then most of that would be solved. To hear those stories are

just heart wrenching to know that here is someone who worked as

hard as she worked on her own, did what she was supposed to do

and be treated by an unregulated lender like she is, is just outrageous. We want her in our lobby and hopefully we can join the

chairman in working with her.

Mr. SCOTT. I want to get back also to your point, what is the

breakdown——

Mr. KUCINICH. The gentleman’s time has expired, but you can

ask your question and Mr. Brannen can answer.

Mr. SCOTT [continuing]. Of the three major barriers to getting

TARP money, from your perspective? I know that many banks, several have called our office, they have been denied. What are the

three barriers?

Mr. BRANNEN. It was not transparent. We have no idea what the

application process was and who would qualify. So some transparency from the Treasury Department on what it takes to qualify,

so we would know who should apply for it.

Second is the bar was set so high on what was in the bank’s portfolios already, especially in the metropolitan Atlanta area, on real

estate, they got disqualified immediately.

And third, they were not allowed to count the investment after

they got the TARP on whether or not they would be a viable institution. They said you are not viable now, so we are not going to

give it. With that TARP, they would have been viable and some of

those banks would be open today and some that are struggling will

be open if we can get that.

Mr. SCOTT. Thank you very much.

Mr. KUCINICH. I thank the gentleman for his questions.

I want to start my 5 minute period. Mr. Greenlee, there has been

a bit of attention paid today to credit that is too tight and bailouts

for big banks. The Federal Reserve is now paying interest on excess

required reserves and the Fed will pay interest on those reserves

for many years into the future. Is that practice not going to be an

ongoing subsidy to big banks? And how much is that subsidy going

to be worth over the next 10 years—$50 billion, $100 billion?

Mr. GREENLEE. I am not aware if there is a subsidy from that.

There was a regulation passed to allow banks to earn, you know,

interest paid by the Fed on excess reserves. That was, unfortunately, not something in my banking supervision role.

Mr. KUCINICH. I am going to read you something from a recent

analysis of the role of the Fed in the financial collapse. This is from

an article in the New York Review of Books, it is on the stands

right now.

‘‘In many cases, there were relevant regulations that might have

been used and were disregarded. The Federal Reserve, for example,

had the authority to investigate the risks posed by different kinds

of mortgages. One of the Governors, Edward M. Gramlich, publicly

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urged such an inquiry in the early 2000’s but Alan Greenspan,

then chairman, rejected his advice. Commercial banks also had offbalance sheet subsidiaries, known as structured investment vehicles, that enabled them to invest aggressively with low levels of

capital. The Fed could have investigated or more closely restricted

these entities, but it did not.’’

Your comment, please.

Mr. GREENLEE. Mr. Chairman, we have studied these issues

closely. We have enacted rules to address the unfair and deceptive

practices and in terms of the off balance sheet entities, we have

closely looked at those. Many of them have come back onto the

banks’ balance sheets. We have looked at how they have been

structured. We are trying to think of what appropriate capital rules

need to be going forward to adjust those kinds of things.

Mr. KUCINICH. One of the things that bothers me, with all due

respect, is that right now the Fed is looking at trying to gain more

oversight responsibility. There is legislation trying to make that

happen. And even in your brief answer, what I did not see, I did

not hear, was any accountability whatsoever. It is kind of mysterious how the Fed can simultaneously be an invisible hand and then

when the hand goes in the wrong direction, that hand did not exist.

So I just thought I would—this will be an ongoing discussion between me and the Fed, you can bet.

I just want to conclude by asking Ms. Redmond, you are a college-educated woman who was talked into signing a mortgage loan

document that you did not want and then affirmatively told by

your mortgage lender to stop making your monthly payments.

What advice would you give to others who are facing what you

faced?

Ms. REDMOND. Just do not give up, keep calling, talking to different people to make sure you understand what exactly is being

put in front of you. As I said before, I will never make this mistake

again but just read everything. Hopefully, the RRC counseling will

help individuals to kind of know what they are signing. I have done

this like five times or six times with my previous house. You know,

I have always trusted the mortgage company to do everything and

never had no problem like this. But like I said, my case is clearly—

I had a 3.7 LIBOR and it went to 7.3. If I saw the word LIBOR,

I would not sign it. I did not hear that from them.

Mr. KUCINICH. I thank you very much for your testimony, as I

thank all the witnesses here. We have concluded the testimony of

the witnesses, but I am going to use my discretion as Chair to ask

Mr. Westmoreland if he would like to make a brief closing statement. You may proceed right now.

Mr. WESTMORELAND. Thank you, Mr. Chairman. Ms. Redmond,

you are not by yourself, we hear cases like that every day and it

is a real shame when people get to the closing table and the deal

has been changed. And that is really against the law, we need to

be doing more with that.

Let me just say this, that, you know, a lot of people that are in

our regulatory institutions in Washington, they need to get out

more. They need to come walk around a town square and they need

to walk through some of these neighborhoods and they need to talk

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to people and get some real life experiences about what is going on

in the country.

The other thing is that with the 100 banks that we have had fail

in the United States, it has been projected that is going to cost us

over $100 billion over 4 years—$100 billion. If we had taken and

just given $20 million to each one of those failing banks, they

would probably be in business today. So if we can take these regulators that go out and say we need to reduce your real estate portfolio by 25 percent, we need to up your capital by $5 million—if we

could say, OK, you know what, we are going to give you that

money, we are going to loan you that money and we are going to

give you 18 months or 2 years to come out from this, they can

gradually do it, rather than get this 90 day cease and desist, sell

the stuff at a fire sale and cause everybody’s property values to get

hurt. I hope the Federal Reserve will look at something like that.

Mr. Chairman, I think it has come to our attention today listening to some of the testimony that some of these regulations have

been enforced when they want to be and how they want to be, with

no consistency in how these regulations have been administered to

these banks. It is picking and choosing, picking winners and losers

and we have to stop that.

And again, I want to thank all the witnesses, both panels, that

were here to testify today. I hope that this is just not a hearing

where we came to talk, but it is a hearing where we came to learn

the facts and we can try to do some appropriate legislation to fix

some of these problems that have been identified today.

Again, Mr. Chairman, I want to thank you for your willingness

to come to Atlanta and let us hold this hearing. So thank you.

Mr. KUCINICH. Thank you, Congressman Westmoreland.

The Chair recognizes Congressman Scott for concluding remarks.

Mr. SCOTT. Thank you so much, Mr. Chairman. I want to thank

you for hosting this hearing, it has been very informative, been

very productive and I certainly appreciate your leadership, the

leadership of my colleague from Georgia Mr. Westmoreland in this.

Let me just say that as one serving on the Financial Services

Committee, this has been extraordinarily enlightening for me. And

we have two programs out working now, as I think everybody

knows, we talked about, the Making Home Affordable Program

that we have out to address the foreclosure situation. I have had

some good feedback from that. We are going to get the recommendations that one of our earlier persons had. The Neighborhood Stabilization Program, which we already have money out that

is working. So there are things out there that are working that we

will get feedback on to see how we can improve. And I have asked

them to send me those recommendations that I can take them up

with Chairman Barney Frank as we submit those letters to him

and to other colleagues.

Mr. Brannen, I would like to ask the same thing of you, if you

could get those points to me, because as my fellow committee members know, the Financial Services Committee is the committee that

is handling so much of this and so it is very helpful to me, and that

is why I doubly appreciate you letting me join you all. But if you

could get that to me, I believe, and with your help, Mr. Greenlee,

because that is going to be very helpful. We are going to have

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Chairman Bernanke to come back before the committee and then

we can redress that, and I certainly hope that you will put a bug

in his ear on that. And we will get those points if you will get those

letters to me.

So, Mr. Chairman, thank you so much. It has been very helpful

and I appreciate it greatly.

Mr. KUCINICH. Thank you very much, Congressman Scott, and

thank you, Congressman Westmoreland and the witnesses.

We have heard from 14 witnesses today who represent every

level of the community in Atlanta and have been involved in the

commerce of the community, and who are trying to make sure that

a system is created that can enable people to buy homes, have

credit and enable businesses to stay alive without getting hammered by a financial system that suddenly turned against them

when they in fact helped build that system.

As chairman of this subcommittee, I am very concerned about

what I have seen in that the instrument of government is being

used to take the wealth of the nation, even the wealth of pretty

good-sized banks, collapse it and just accelerate it upwards. Very

dangerous for our democracy. Mr. Brannen, if you cannot keep your

banks going in Georgia, there is something wrong. So we are all

in it together and Ms. Redmond, if what happened to you happened

to many others, and Mr. Westmoreland told me he has heard about

50 stories like that, and I have heard plenty of stories in my own

area in Cleveland; it is just heartbreaking, it is chilling. But we

also know that there is an arc of economic justice here that must

be followed and if we are going to be worthy of the name of Members of the House of Representatives, we have to follow that arc in

your behalf and behalf of those who are situated like you.

I want to thank all those in the audience here today for their attention; the witnesses; and again, my colleagues and staff for helping to put this hearing together. Our subcommittee will continue

to investigate this matter as to how it happened, but also we will

be there with recommendations so we know that we can move toward a future which is fair and just and where we can get home

ownership and home building going again in America.

This committee stands adjourned.

[Whereupon, at 2:24 p.m., the subcommittee was adjourned.]

[Additional information submitted for the hearing record follows:]

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