H.R. 1728, THE MORTGAGE REFORM AND 

ANTI–PREDATORY LENDING ACT OF 2009 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

APRIL 23, 2009 

Printed for the use of the Committee on Financial Services 

Serial No. 111–25 

( 

H.R. 1728, THE MORTGAGE REFORM AND ANTI–PREDATORY LENDING ACT OF 2009 

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51–584 PDF 2009

H.R. 1728, THE MORTGAGE REFORM AND 

ANTI–PREDATORY LENDING ACT OF 2009 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

APRIL 23, 2009 

Printed for the use of the Committee on Financial Services 

Serial No. 111–25 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

April 23, 2009 ................................................................................................... 1 

Appendix: 

April 23, 2009 ................................................................................................... 93 

WITNESSES 

THURSDAY, APRIL 23, 2009 

Amorin, Jim, President, Appraisal Institute ......................................................... 71 

Antonakes, Steven L., Commissioner of Banks for The Commonwealth of 

Massachusetts, on behalf of The Conference of State Bank Supervisors ........ 10 

Aponte, Graciela, Legislative Analyst, on behalf of Eric Rodriguez, Vice President of Public Policy, National Council of La Raza ........................................... 50 

Arbury, Jim, Senior Vice President, Government Affairs, on behalf of The 

National Multi Housing Council and The National Apartment Association ... 72 

Berner, G. Gary, Executive Vice President, Commercial Real Estate, First 

Niagara Bank, on behalf of The American Bankers Association ..................... 60 

Braunstein, Sandra F., Director, Division of Consumer and Community Affairs, Board of Governors of the Federal Reserve System ................................ 8 

Calhoun, Michael, President, Center for Responsible Lending ........................... 44 

Dalton, Hon. John H., President, Housing Policy Council, The Financial Services Roundtable .................................................................................................... 62 

Kittle, David G., Chairman, Mortgage Bankers Association ............................... 63 

Leonard, Denise, Chairman, Government Affairs, National Association of 

Mortgage Brokers ................................................................................................. 68 

McMillan, Charles, President, National Association of Realtors ......................... 69 

Menzies, R. Michael S., Sr., President and Chief Executive Officer, Easton 

Bank and Trust Company, on behalf of The Independent Community Bankers of America ....................................................................................................... 65 

Ryan, Honorable T. Timothy, Jr., President and Chief Executive Officer, 

Securities Industry and Financial Markets Association ................................... 66 

Saunders, Margot, Of Counsel, National Consumer Law Center ........................ 46 

Shelton, Hilary O., Vice President for Advocacy & Director, Washington Bureau, NAACP ........................................................................................................ 48 

Taylor, John, President and Chief Executive Officer, National Community 

Reinvestment Coalition ....................................................................................... 42 

APPENDIX 

Prepared statements: 

Bachus, Hon. Spencer ...................................................................................... 94 

Kanjorski, Hon. Paul E. ................................................................................... 98 

Meeks, Hon. Gregory W. .................................................................................. 99 

Amorin, Jim ...................................................................................................... 103 

Antonakes, Steven L. ....................................................................................... 112 

Aponte, Graciela ............................................................................................... 141 

Arbury, Jim ....................................................................................................... 149 

Berner, G. Gary ................................................................................................ 156 

Braunstein, Sandra F. ...................................................................................... 166 

Calhoun, Michael .............................................................................................. 179 

Dalton, Hon. John H. ....................................................................................... 200 

Kittle, David G. ................................................................................................. 216 

Leonard, Denise ................................................................................................ 224 

McMillan, Charles ............................................................................................ 239 

Page

IV 

Prepared statements—Continued 

Menzies, R. Michael S., Sr. .............................................................................. 245 

Ryan, Honorable T. Timothy, Jr. .................................................................... 253 

Saunders, Margot ............................................................................................. 264 

Shelton, Hilary O. ............................................................................................. 286 

Taylor, John ...................................................................................................... 290 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Posey, Hon. Bill: 

Letter from the U.S. Chamber of Commerce ................................................. 315 

Letter from the Consumer Mortgage Coalition .............................................. 318 

Watt, Hon. Melvin: 

Written statement of the American Homeowners Grassroots Alliance ....... 344 

Letter from the Credit Union National Association (CUNA) ........................ 349 

Letter from Hon. Chris Koster, Attorney General of Missouri ..................... 353 

(1) 

H.R. 1728, THE MORTGAGE REFORM AND 

ANTI–PREDATORY LENDING ACT OF 2009 

Thursday, April 23, 2009 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The committee met, pursuant to notice, at 10:04 a.m., in room 

2128, Rayburn House Office Building, Hon. Melvin L. Watt presiding. 

Members present: Representatives Frank, Kanjorski, Waters, 

Maloney, Gutierrez, Velazquez, Watt, Ackerman, Sherman, Meeks, 

Moore of Kansas, Capuano, Clay, McCarthy of New York, Baca, 

Lynch, Miller of North Carolina, Green, Cleaver, Bean, Moore of 

Wisconsin, Hodes, Ellison, Klein, Wilson, Perlmutter, Donnelly, 

Foster, Carson, Speier, Childers, Minnick, Adler, Kilroy, Driehaus, 

Kosmas, Grayson, Himes, Peters, Maffei; Bachus, Castle, Royce, 

Manzullo, Biggert, Miller of California, Capito, Hensarling, Garrett, Neugebauer, McHenry, Bachmann, Marchant, Posey, Lee, 

Paulsen, and Lance. 

Mr. WATT. [presiding] Good morning, everybody. This hearing of 

the full Committee on Financial Services will come to order. Let me 

first extend the apologies of the chairman, Barney Frank, who had 

to be on the Senate side this morning to testify at a confirmation 

hearing and asked me to preside over today’s activities until he returns. We have three panels, so it’s going to be a fairly long day, 

and I should advise members that, as Barney would do if he were 

here, I will try to be pretty strict on the time. So if you have a 

question that you want an answer to, please ask it far enough in 

advance of the expiration of the time to allow for the witnesses to 

answer. Otherwise, we’ll have to move on, because the committee 

is so big and we have three panels, and we want to cover all of the 

territory today, and a lot of people I think will be perhaps leaving 

to go back to their districts. 

As is the rule, the opening statements will be divided into 10 

minutes on each side, and without objection, all members’ opening 

statements will be made a part of the record. So anyone who wants 

to submit a statement for the record is entitled to do that. 

I will recognize myself for 2 minutes for an opening statement 

just to welcome the witnesses on this panel and subsequent panels 

to make it clear that today’s hearing is about H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act, which Representative Miller of North Carolina, Representative Watt of North Carolina, Representative Frank, and a number of other members are cosponsors of; we are aware that the bill that has been introduced 

2 

is out there and subject to comment, and we are aggressively listening to comments about various aspects of this bill and trying to 

take those comments into account to reach a product that protects 

consumers and the public, protects the economy from future meltdowns of the kind that we have experienced, and does not dry up 

credit in the process. 

Those are our three primary objectives here, and sometimes 

those things may be in conflict with each other, and drawing language that walks that delicate balance and accomplishes all three 

of those objectives is inordinately difficult. So the testimony and assistance of people who will be testifying today we consider immensely important and want to give reasonable assurance that 

every piece of input will be taken into account. 

My time has expired, and I will now recognize Mr. Hensarling 

for 21⁄2 minutes. 

Mr. HENSARLING. Thank you, Mr. Chairman. I appreciate this 

hearing being held. It is a very serious subject, but unfortunately, 

the bill is rather disappointing. Clearly, there were a number of 

causes of the economic turmoil that our Nation finds itself in today, 

but none loom larger than Federal regulation and Federal legislation surrounding Fannie Mae and Freddie Mac. Now the government gave them monopoly powers. The government enabled them 

to make monopoly profits. The government told them to finance 

loans to people who ultimately could not afford to pay them back. 

The dice were rolled and the American taxpayer lost. 

Note the title of this bill is the Mortgage Reform and Anti-Predatory Lending Act. There can be no clear mortgage reform without 

reform of Fannie and Freddie. And for those who say that this has 

already been accomplished, well, when Fannie and Freddie have 

been effectively nationalized, when their market share for new 

mortgages has gone from roughly 50 percent to 90 percent, when 

the taxpayer is on the hook for hundreds of billions of dollars, I 

think not. 

With respect to the second half of the title, Anti-Predatory Lending, well, the bill is almost completely silent as to predatory borrowing. We know that FINCEN has stated that mortgage fraud has 

increased over 1,400 percent in the last decade, and the majority 

of that fraud was tied to borrowers who lied about their income, 

their assets, their occupancy. Ninety-nine percent of this bill deals 

with the duties, responsibilities and liabilities of lenders. We do 

need to reform that. But it is almost silent as to the duties of the 

borrower. It essentially says if you’re caught defrauding the lender, 

well, you can’t sue him. That is the extent on dealing with predatory borrowing. 

Also, I question, in the middle of a national credit crisis, not unlike what we did yesterday when people are struggling to refinance 

their homes, why, why would we want to make credit more expensive and less accessible? What is the national policy here? 

And finally, I must admit after a lot of wailing and gnashing of 

teeth in yesterday’s mark-up regarding a requested study by the 

Federal Reserve of the impact of that legislation, lo and behold, we 

find a commission, a study commission by the GAO to report to us 

on the impact of this bill on availability and affordability of credit. 

Now which is it? 

3 

With that, Mr. Chairman, I yield back the balance of my time. 

Mr. WATT. The gentleman from Pennsylvania, Mr. Kanjorski, is 

recognized for 3 minutes. 

Mr. KANJORSKI. Thank you, Mr. Chairman. Mr. Chairman, as we 

begin today’s hearing, I want to discuss several issues concerning 

H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act, 

which I helped to write and to introduce. 

First, I have heard suggestions from some that the skin in the 

game requirements found in the bill constitute a war on 

securitization. Such thinking is entirely wrong. At a hearing in 

September 2007, I cited the fact that few players had any real skin 

in the game helped to contribute to the implosion of our financial 

markets. If they had contained some risk in the game, I believe 

that they would have made better decisions. Since then, others 

have joined my thinking. So the skin in the game provisions of 

H.R. 1728 are about prudent underwriting, not about ending 

securitization, as some have maintained. 

This issue, however, is a difficult one. Like Chairman Frank, I 

admit that the 5 percent retention requirement now in the bill 

needs some work. Rather than hearing more complaints about it, 

we need suggestions to perfect it. I hope that our witnesses will do 

just that. 

Second, I have focused my attention in recent weeks on the bill’s 

considerable mortgage servicing and appraisal provisions, which I 

wrote and added to the legislation during our debate on the Floor 

in November of 2007. Much has happened in these fields since 

then, including the adoption of new rules by the Federal Reserve 

on escrowing, credit payments and appraisal independence, as well 

as the appraisal reform agreements of New York Attorney General 

Andrew Cuomo with Fannie Mae and Freddie Mac. In moving forward, we should codify much of their good work, and we must also 

take bolder steps to provide greater protections for consumers and 

improve industry responsibility. 

As such, I am preparing a comprehensive amendment that will, 

among other things, provide all subprime borrowers with access to 

a written appraisal, improve independent standards so appraisers 

can operate as honest referees, free of interference, and enhance 

confidence in the results produced by automated valuation models. 

We must also further augment the powers of the appraisal subcommittee to monitor and assist State appraiser agencies. Moreover, we must establish oversight for appraisal management companies. They now touch 64 percent of written appraisals, but they 

are subject to little supervision. 

Going forward, we cannot allow anyone to play in the dark corners of our markets. We must ensure that everyone who operates 

in our financial system is subject to appropriate oversight, whether 

they are a hedge fund, a credit rating agency or an appraisal management company. 

Before closing, Mr. Chairman, I ask unanimous consent to submit into the record a letter from the Title Appraiser Vendor Management Association that makes some observations about the regulation of appraisal management companies. 

Mr. WATT. Without objection, that will be admitted. And as the 

chairman indicated yesterday, virtually anything that anybody 

4 

wants to put in the record will be admitted without objection. The 

gentleman yields back, and the gentlelady from West Virginia, Mrs. 

Capito, is recognized for 21⁄2 minutes. 

Mrs. CAPITO. Thank you, Mr. Chairman. I would like to thank 

you for calling this hearing today. Almost 2 years ago, I worked 

with Chairman Frank, Ranking Member Bachus, and many Members on both sides of the aisle on a bipartisan compromise to address the challenges posed in the housing market by subprime 

mortgages. At that time, many Americans were facing mortgage 

resets on adjustable rate mortgages, resulting in higher payments 

that would be beyond their abilities to pay. 

The housing market continues to struggle, however. I do have 

concerns that this legislation before us could potentially do harm, 

do greater harm to a housing market that is already unstable. Any 

action this body takes should be to encourage positive growth and 

strength in the mortgage markets. 

I do have some specific concerns. First, H.R. 1728 effectively relegates any home loan which is not a 30-year fixed-rate mortgage 

into the category of a subprime mortgage. Even loans backed by 

the FHA, Veterans Affairs, and the Rural Housing Service would 

be considered subprime and assumed to be predatory if they do not 

conform to the narrow definition of a qualified mortgage set forth 

in H.R. 1728. 

While I believe we must take steps to regulate the nontraditional 

products like interest only or no income verification lending practices, there are a number of traditional lending products in addition to 30-year fixed-rate mortgages that belong in the safe haven 

because of their good safety record. I fear that excluding these 

standard, more traditional products other than this 30-year mortgages from the safe harbor will serve to place more stress on the 

housing markets and the overall economy’s ability to recover. 

Second, while there is general agreement for the need for originators to have skin in the game, it is important that we address 

this issue in a thoughtful and deliberate manner. I am concerned 

that the risk retention provision in H.R. 1728 has not been fully 

vetted and could have some unintended consequences. 

Finally, as introduced, the bill permanently alters contract law 

by requiring participation in the Section 8 Program for all purchasers of foreclosed properties with Section 8 tenants. And the bill 

does not include important safeguards on the $140 million legal assistance grant fund. It is my hope the committee will proceed with 

caution with this legislation, as we do not want to inflict further 

harm on an already struggling market. Again, thank you for presenting this hearing, and I look forward to hearing the witnesses. 

Thank you. 

Mr. WATT. I thank the gentlelady. And in an effort to kind of 

keep the time balanced, we will now yield 1 minute to the gentleman from Delaware, Mr. Castle. 

Mr. CASTLE. Thank you very much, Mr. Chairman. I don’t think 

any of us would question the need to reform predatory lending 

practices in the mortgage industry, and many of our colleagues, as 

has already been indicated, supported the previous iteration of this, 

the Mortgage Reform and Anti-Predatory Lending Act when it 

passed the House the last Congress. But I do think we need to apVerDate Nov 24 2008 16:00 Nov 19, 2009 Jkt 051584 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\51584.TXT TERRIE
5 

proach this carefully. And I am aware—first I’m aware that this 

bill intends to increase accountability by requiring creditors to keep 

a 5 percent share of the credit risk on each loan they make, but 

how does that affect smaller lenders who typically do not hold onto 

a large amount of capital? Will this affect their ability to participate in mortgage lending and selling? And I don’t even understand 

the mechanics of how you would do that. So we need to look at that 

carefully. 

Additionally, I think it would be beneficial to consider that some 

other types of loans in the qualified safe harbor under Section 203 

of H.R. 1728 aren’t FHA and VA loans, which are guaranteed by 

the Federal Government, and aren’t adequately regulated safe 

enough to qualify. 

Those are just a couple of the questions which I have. We have 

a lot of witnesses today, and hopefully we’re going to learn a lot 

more about what we could and should be doing. It’s the right concept, but we need to get the details right. And I thank you, Mr. 

Chairman. I yield back the balance of my time. 

Mr. WATT. The gentleman’s time has expired. The gentleman 

from North Carolina, Mr. Miller, is recognized for 3 minutes. 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Chairman. The 

finance industry’s explanation of our financial crisis is that there 

was a weird, unpredictable combination of events, a perfect storm 

of macroeconomic forces. With benefit of hindsight perhaps they 

loaned not wisely but too well, but certainly none of their business 

practices were really blameworthy. I don’t claim to have seen the 

collapse of the whole world’s financial system coming, but I knew 

that the mortgages that have proven toxic for the finance industry 

were toxic for homeowners, and I thought that was reason enough 

to act. 

Mr. Watt and I introduced legislation 6 years ago that would 

have forbidden the mortgage practices that have brought our Nation’s economy to grief. We will hear the same arguments today— 

we already have—that we have heard for 6 years from an entirely 

unrepentant industry. 

All the mortgage terms that may appear abusive or predatory to 

the unsophisticated were really based on risk, they argue. And 

without those practices, lenders would not be able to make credit 

available to people who needed it. We know you mean well, the industry said, but your legislation will just hurt the very people 

you’re trying to help. And they said we needed to be careful we 

didn’t pass well meaning but poorly crafted legislation that would 

have unintended consequences. It’s hard to argue in favor of sloppy, careless legislation, but the Nation and the world would have 

been better off if Congress passed a bill that we drafted on a napkin. 

During the subprime heyday from 2004 to 2006 when the toxic 

mortgages were made, profits in the finance industry metastasized 

to more than 40 percent of all corporate profits. That’s after the 

vulgar compensation and all the perks that we’ve heard so much 

about in the last few months. Maybe the industry’s margins were 

not really so tight after all. Maybe some of the mortgage terms that 

appeared predatory on their face really were. 

6 

This committee will soon consider legislation to address systemic 

risk in the financial industry, to protect the industry from getting 

itself into such trouble again, but we need to do more than just 

keep the masters of the universe from running with scissors again 

in the future. We need to reform consumer lending practices that 

have trapped millions of working and middle-class families hopelessly in debt, practices that have pushed millions of Americans out 

of the middle class and into poverty. 

I yield back. 

Mr. WATT. The gentleman yields back the balance of his time. 

The gentlelady from Illinois, Mrs. Biggert, is recognized for 1 

minute. 

Mrs. BIGGERT. Thank you, Mr. Chairman, and I’d like to thank 

Chairman Frank and Congressman Miller for their work on this 

bill, which at its core aims to tackle some of the unsound practices 

that got us into this housing mess. In particular, I’d like to thank 

the chairman for including my bill, H.R. 47, the Expand and Preserve Homeownership through Counseling Act. I think it elevates 

housing counseling within HUD by establishing an Office of Housing Counseling, expands the availability of HUD-approved housing, 

counseling services, offers grants to States and local agencies, and 

launches a national outreach campaign as well. 

And I’d also like to commend the Fed for updating mortgage 

standards under HOEPA and TILA, which I think will enhance 

protections and transparency to benefit consumers and restore integrity to the mortgage process. The new appraisal rules are, I 

think, particularly important. On this note, I’d like to thank Congressman Kanjorski and Congresswoman Capito for working with 

me on Sections 5 and 6 of H.R. 1728. Some of these mirror the 

Fed’s work and all are aimed at improving mortgage services and 

appraisal practices to benefit consumers. 

I look forward to examining the viability of some of the new provisions in H.R. 1728 that weren’t in last year’s mortgage reform. 

With that, I yield back. 

Mr. WATT. The gentlelady’s time has expired. The gentleman 

from New Jersey, Mr. Garrett, is recognized for 1 minute. 

Mr. GARRETT. I thank you, and I thank the chairman, and I 

thank Chairman Kanjorski as well for holding this hearing, and 

the members of the panel. I want to take a moment just to focus 

my remarks specifically on a section of the bill and I look forward 

to your comments. That’s Section 213 of the bill, the Credit Risk 

Retention provision. As the chairman knows, based on my recent 

actions and attention on covered bonds, I am very supportive of 

lending institutions retaining some credit risk or skin in the game. 

And so I applaud the chairman and Congressman Miller for their 

attempt in the underlying bill to address this issue. However, I and 

many others have serious concerns of the way the provision is presently crafted. 

I do believe that there are significant questions as to how this 

provision is actually going to work, how capital provisions and positions of struggling lending institutions would be affected, and how 

small lending institutions would be able to comply with this, and 

the negative market affairs that would occur. And so knowing of 

our common interest in this matter that Chairman Frank has indiVerDate Nov 24 2008 16:00 Nov 19, 2009 Jkt 051584 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 K:\DOCS\51584.TXT TERRIE
7 

cated in the past, I would like to work with the chairman and 

Chairman Kanjorski as well to craft a more feasible alternative 

that can help facilitate sound mortgage underwriting while not reducing the much needed market liquidity. 

And with that, I yield back. 

Mr. WATT. The gentleman’s time has expired. The gentleman 

from Idaho, Mr. Minnick, is recognized for 2 minutes. 

Mr. MINNICK. Mr. Chairman, in order to prevent another 

subprime mortgage meltdown, loan originating companies should 

be required to keep a certain percentage of any loans they make 

and take the first loss on any contract that goes bad. 

I want to thank Chairman Frank and Congressmen Miller and 

Watt for including my bill, the Credit Risk and Retention Act, into 

their broader mortgage reform bill. Credit risk retention is a way 

to avoid some of the worst problems which undercapitalized risky 

loans that have crippled the financial system. 

The company making a loan has to keep some skin in the game 

and to take the first loss. It is important to put into the underwriting process an incentive that keeps institutions that write a 

loan or underwrite a mortgage-backed security from being able to 

shed all responsibility. This bill makes the originator retain at 

least 5 percent of any loan made. 

I am open to ideas on how to implement and prudently enforce 

this concept in a way that protects consumers but also makes sense 

for banks and other loan originators. This is not meant to be punishment for a lending institution. Rather, it is a preventive measure to improve underwriting and avoid another financial meltdown. 

I yield back the balance of my time. 

Mr. WATT. The gentleman yields back the balance of his time. 

The ranking member of the full committee, Mr. Bachus, is recognized for 1 minute. 

Mr. BACHUS. I thank the chairman. I have laryngitis, so I’m 

going to be brief. This bill, first let me point out, is different from 

the bill that we passed last year with broad Republican support. 

The goal ought to be to address problems in mortgage origination 

and in our subprime mortgage system, not create new problems. 

And I’m afraid this bill, unlike the bill last year, creates a lot of 

new standards. They’re vague and they’re narrow, and I think ultimately this bill would restrict access to credit and probably cause 

people to turn to payday lenders and other type of financing. 

Let me just close by saying all of us have recognized that the 

originate to distribute model has problems, and so I will say that 

just like Mr. Garrett and just like Chairman Frank, I agree we 

ought to look at the credit risk retention requirement, and originators should have skin in the game. I don’t think what we’re doing 

here is the way to solve that. 

Thank you. 

Mr. WATT. I thank the gentleman. Everyone who has made an 

opening statement has addressed an issue that is of importance, 

and that’s why we’re having this hearing today. I just want to encourage on behalf of the chairman of the full committee, for those 

who have raised the issues related to risk retention, safe harbor, 

preemption, the whole—all of those issues are still being looked at 

very carefully, and it would be helpful in advance of next Tuesday’s 

8 

mark-up if we have constructive, concrete ideas about how to address the concerns that have been raised as opposed to just, we 

don’t like what has been written. So— 

Mr. BACHUS. Mr. Chairman? 

Mr. WATT. The chairman wanted me to encourage that, because 

this is a work in progress, and not a finished product. Otherwise, 

we wouldn’t need to have the hearing. 

Mr. BACHUS. I very much appreciate that. In fact, my opening 

statement contains some of that, but I agree with you. If we’re 

going to successfully resolve this, we need dialogue. We need deliberation, and we need to work with the regulators. Actually, the 

Federal Reserve and others have—they’ve made their own proposals and we’ll hear some of that today on how to address these 

problems, but we will tell you that we would like to be partners 

in this effort. 

Mr. WATT. All time for opening statements has expired. I will 

now introduce this panel of witnesses. The first witness for today 

is Ms. Sandra Braunstein, Director of the Division of Consumer 

and Community Affairs of the Board of Governors of the Federal 

Reserve, and the second witness is Mr. Steven L. Antonakes, Commissioner of Banks for the Commonwealth of Massachusetts, on behalf of the Conference of State Bank Supervisors. Each witness will 

be recognized for 5 minutes. Without objection, your written statements will be made a part of the record in their entirety. 

And, Ms. Braunstein, you are recognized for your opening statement. 

STATEMENT OF SANDRA F. BRAUNSTEIN, DIRECTOR, DIVISION OF CONSUMER AND COMMUNITY AFFAIRS, BOARD OF 

GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Ms. BRAUNSTEIN. Thank you, Mr. Chairman, Ranking Member 

Bachus, and members of the committee. I appreciate this opportunity to discuss the important issue of mortgage reform, the Federal Reserve’s actions in this regard, and potential legislation to 

address remaining challenges. 

The Federal Reserve is committed to promoting sustainable 

homeownership through responsible mortgage lending. While the 

expansion of the subprime mortgage market over the past decade 

increased consumers’ access to credit, many homeowners and communities are suffering today because of lax underwriting standards 

and unfair or deceptive practices that resulted in unsustainable 

loans. 

Moving forward, it is important to achieve both clarity for the 

marketplace and strong consumer protection. We do not think 

those goals are mutually exclusive. In fact, those were our objectives last July when the Board issued final rules to establish new 

regulatory protections for consumers in the residential mortgage 

market. 

The Board’s rules contain four key protections for a newly defined category of higher priced mortgages. First, lenders are prohibited from making any higher priced mortgage loan without regard 

to the borrower’s ability to repay the obligation from income and 

assets other than the home. 

9 

Second, lenders are prohibited from making stated income loans 

and are required to verify the income and assets they rely upon to 

determine the borrower’s repayment ability. 

Third, the final rules ban prepayment penalties in cases where 

borrowers face payment shock. 

And fourth, creditors are required to establish escrow accounts 

for property taxes and homeowners insurance for all first lien mortgage loans. 

Recently, the Mortgage Reform and Anti-Predatory Lending Act 

was modified and reintroduced in this committee. There have been 

many changes in the market since the original version of this bill 

was passed by the House in 2007. We commend the committee’s 

work on the new iteration of the bill, which addresses some important issues for the mortgage markets. Although some of the details 

differ, both the pending bill and the Board’s rules set minimum underwriting standards for higher priced loans. 

A major addition to the new legislation is a provision to address 

the problem of misaligned incentives through credit risk retention. 

The lack of skin in the game has been widely recognized as one 

cause of the lax underwriting that was widespread in the subprime 

mortgage markets. However, this is a very complex issue, and risk 

retention could have unintended consequences of constraining credit. Therefore, we recommend that Congress consider additional discretion for rule writers in defining credit risk and other critical 

terms. 

Board staff have worked closely with the committee staff to furnish both technical and substantive comments on this bill. We are 

available to continue that work as the legislation moves forward. 

I would now like to offer a few additional comments. The Board’s 

HOEPA rules take effect on October 1, 2009. Given the time required for the legislative process, the rule writing and comment period that will follow, it would be difficult to have new legislative 

provisions implemented by that date. We respectfully request that 

the committee clarify that the legislation does not alter the effective date of the Board’s regulations. This would ensure that consumers will receive these important protections in the interim period from October 2009 until any new legislation takes effect. 

I would also like to comment on the bill’s delegation of rule writing. Many provisions of the bill would be implemented by regulations that are promulgated jointly by the Federal banking agencies. 

In our experience, interagency rulemakings may provide an opportunity for different perspectives, but the joint rulemaking process 

generally is a less efficient, more time consuming way to develop 

new regulations, and compromises often occur to bring rulemaking 

to closure. This can result in weaker consumer protections than 

would be achieved in a single agency. 

The mortgage markets have undergone considerable change in 

the past few years. Current conditions are certainly not normal, 

and we cannot be certain how the markets will ultimately reset. 

Therefore, we recommend that Congress provide sufficient rule 

writing flexibility in the new legislation so that regulations can be 

adjusted over time to address new marketing conditions and new 

mortgage products. 

10 

We look forward to working with Congress to enhance consumer 

protections while promoting sustainable homeownership and access 

to responsible credit. 

Thank you. 

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

166 of the appendix.] 

Mr. WATT. We thank you for your testimony. 

Mr. Antonakes is recognized for his opening statement. 

STATEMENT OF STEVEN L. ANTONAKES, COMMISSIONER OF 

BANKS FOR THE COMMONWEALTH OF MASSACHUSETTS, ON 

BEHALF OF THE CONFERENCE OF STATE BANK SUPERVISORS 

Mr. ANTONAKES. Good morning, Mr. Chairman, Ranking Member 

Bachus, and distinguished members of the committee. My name is 

Steven Antonakes and I serve as Commissioner of Banks for the 

Commonwealth of Massachusetts. It’s my pleasure to testify today 

on behalf of the Conference of State Bank Supervisors in support 

of the objectives of H.R. 1728. 

First, however, I would like to update the committee on what I 

believe is an important and complementary reform of the industry. 

The States have been working to develop a more coordinated system of oversight to enhance supervision of the residential mortgage 

market. The hallmarks of reform should be high minimum standards, robust regulation and strong enforcement. Moreover, the most 

effective system of supervision and consumer protection is not 

purely Federal. The better way is a coordinated system that draws 

on the responsiveness and innovation of State regulation and the 

ability of the Federal Government to set high minimum standards. 

These unique State and Federal strengths should be complementary. For the benefit of consumers, Congress must forge a more cooperative federalism. 

The model for this cooperative federalism is the CSBS AAMR 

Nationwide Mortgage Licensing System and the S.A.F.E. Act. The 

States began developing NMLS back in 2003. It was successfully 

launched in January 2008, and by this January, 43 States, the District of Columbia and Puerto Rico will be on the system. This effort 

was recognized by Ranking Member Bachus, and this committee, 

as you enacted the S.A.F.E. Act, requiring all mortgage loan originators to be licensed or registered through the NMLS. Within 

weeks of the Act’s passage, the States developed a model State law 

to implement its requirements. As of today, 20 States have passed 

legislation to become compliant with the S.A.F.E. Act, and an additional 29 States are in process. 

The S.A.F.E. Act and NMLS are vital to protecting consumers in 

battling abusive lending practices. Combined, these initiatives establish a broader regulatory reach, enhance accountability of loan 

providers and give regulators powerful tools to bring enforcement 

actions against bad actors. 

Relative to H.R. 1728, CSBS supports the establishment of a 

Federal predatory lending standard that allows the States to address abusive practices as they evolve. But the Federal standard 

should be a floor for all lenders and not stifle a State’s ability to 

protect its citizens through State legislation or enforcement actions. 

11 

It is difficult to legislate when State law applies only to a minority 

of the loans. 

State supervisors welcome coordination with our Federal counterparts to promote responsible lending. Because of congressional 

action, Federal regulators are working much more closely with the 

States through the FFIEC. The FFIEC can be an invaluable forum 

for State and Federal authorities to coordinate our efforts to provide seamless and comprehensive supervision of financial service 

providers. To harness the expertise of State regulators, CSBS recommends that H.R. 1728 require rulemaking to be coordinated 

through the FFIEC. While the largest banks may be federally chartered, the States supervise the majority of banks and also have responsibility for credit unions, mortgage banks and mortgage brokers. The Federal rulemaking process would benefit from the 

breadth of this perspective. And if we are to have broad application 

of Federal standards, there will need to be State enforcement. 

CSBS also recommends the committee and Congress end regulatory preemption of State consumer protection laws. The States 

have been and continue to be the front line guardians of consumer 

protection and at the forefront in the battle against predatory lending. Congress should reinstate the ability of States to develop the 

sort of standards that have been the models for Federal law. 

Finally, we believe that H.R. 1728 provides many important improvements in consumer protection. We do have some additional 

concerns and recommendations outlined in detail in my written testimony. 

CSBS recognizes the challenges of balancing consumer protection 

and product innovation in your efforts to strike this balance in the 

liability and safe harbor provisions. We do, however, oppose the 

preemption of State law in this area and believe that if a safe harbor is to be established, that it must be very narrow. 

Additionally, any Federal standard should be enforceable by 

State regulators and attorneys general. The mortgage industry has 

proven itself to be innovative and dynamic. A static solution will 

simply not be able to keep pace with the market without the involvement of State authorities. CSBS commends the work of this 

committee to protect consumers and the financial system. We urge 

you to develop legislation that builds upon and does not inhibit the 

efforts of State authorities. 

Thank you for the opportunity to testify today. I look forward to 

answering your questions. 

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

112 of the appendix.] 

Mr. WATT. I thank both witnesses for their testimony. We will 

now recognize members for questioning for 5 minutes each. Let me 

reemphasize the statement made at the outset of the hearing. We 

have three panels, and in accordance with the chairman’s practice 

and instructions to me, we’re going to be pretty tough on the 5 

minutes. So if you have a question that you want an answer to as 

opposed to a written response, please ask it sufficiently in advance 

of the end of your 5 minutes to give the witnesses an opportunity 

to answer it, because we have three panels and a lot of members 

to get to. So, I’m not trying to be hard on anybody, I am just trying 

to move the hearing along. 

12 

Mr. Kanjorski is recognized for 5 minutes. 

Mr. KANJORSKI. Thank you very much, Mr. Chairman. You may 

not want to be hard on us, but you put the fear of God in me. 

Mr. Antonakes, appraisal management companies are largely unregulated now except in two or three States that have passed laws 

in recent weeks. Yet these companies touch 60 percent-plus of the 

loans, and their importance will grow with the Cuomo agreement 

being implemented. 

We have previously provided for State regulation of appraisers. 

Can States undertake this responsibility if mandated, is 36 months 

a sufficient amount of time to do this? 

Mr. ANTONAKES. Congressman I believe 36 months of time would 

be a sufficient period of time to do this. I draw upon our experience 

implementing the S.A.F.E. Act, which has been a heavy lift for 

State regulators. We have met on a weekly basis simply on implementation issues relative to the S.A.F.E. Act, and as described in 

my oral testimony, we now have 49 out of 50 States well on the 

way to pass implementing legislation by the July 1st timeframe. So 

I believe it can be accomplished, and we would welcome the opportunity, my colleagues and I, to work with you in this regard. 

Mr. KANJORSKI. Very good. It seems like we are moving along, 

does it not? 

Mr. ANTONAKES. I believe we are, Congressman. 

Mr. KANJORSKI. That is very good. What other things would you 

suggest from the State level that are not included in this Act that 

would make it a better Act? You heard the invitation of the Chair. 

We are looking for perfecting the Act to be more responsive. Do you 

have any suggestions that you could give the committee? 

Mr. ANTONAKES. The key takeaway that we would provide, Congressman, is to ensure that a Federal standard, which we do support, is a floor and not a ceiling, and that States continue to be able 

to innovate and address issues as they occur within their jurisdictions to enact more protective laws as need be. The Truth-in-Lending Act was passed by the Federal Government in 1968. It was 

passed in Massachusetts in 1966. It became the model for the Federal law. States have to be able to innovate. 

Also, given the breadth of expertise that we do have, we’re the 

only regulators that oversee the banks, the credit unions, the mortgage lenders, the mortgage brokers. I think States have to be involved in a rulemaking process and maintain their ability to enforce a Federal standard as well as State law. 

Mr. KANJORSKI. Very good. May I pose a question to the Federal 

Reserve? Do you have any suggestions or perfections that could be 

made in your opinion to the legislation that would make it a better 

piece of legislation? 

Ms. BRAUNSTEIN. We applaud a lot of what is in the legislation, 

and in fact a lot of it mirrors what we did with our HOEPA rules. 

We feel that there should be some rule writing discretion. One of 

the things we would keep in mind is that the markets currently are 

not in a normal state, and we are not really sure where they’re 

going to reset and how they’ll normalize in the future. 

So it would be helpful to not be as prescriptive and to allow some 

discretion in the future to make modifications to deal with the new 

markets, and we know that the industry is very innovative and 

13 

that there will be new mortgage products that are going to evolve 

once the markets open up again, and there needs to be the flexibility to deal with consumer protections for those products. 

Mr. KANJORSKI. The question all of us were working, the skin in 

the game question, the 5 percent, you seemed to indicate that may 

have been a little harsh, and you would like some discretionary authority there. How would you structure that? 

Ms. BRAUNSTEIN. Well, I don’t have an exact answer for you on 

that. I mean, I think that’s something we would have to look at 

closely. We do acknowledge the fact that there were misaligned incentives in the previous markets and that was a cause of some of 

the problems. I think that issue needs to be looked at closely in a 

way to make sure that people do have skin in the game. I don’t 

have an exact answer for you as to how that would work, but I 

think that’s something that we have suggested. Again, there would 

need to be some discretion in terms of working that out now and 

working that out in the future. 

The current provision provides some issues for depositories in 

terms of capital retention against that 5 percent, and it’s also unclear how that would work in nondepositories in terms of them 

having something put aside to deal with that 5 percent risk. 

There’s a lack of clarity right now as to whether that is 5 percent 

in first position, you know, where does that fall in terms of risk? 

I think there’s a lot of unanswered questions at this point about 

it. 

Mr. KANJORSKI. Thank you very much. Mr. Chairman, I yield 

back my time. 

Mr. WATT. The gentleman’s time has expired. Mr. Castle from 

Delaware is recognized for 5 minutes. 

Mr. CASTLE. Thank you, Mr. Chairman. Ms. Braunstein, just 

along the same lines, and I raised this in my opening statement, 

I really don’t understand the 5 percent business at all, and I’ve 

tried to read it and that has not helped clarify it. But as you read 

the bill or at least your understanding of any discussions you’ve 

had about it, does the originator of the mortgage have to keep 5 

percent of its total mortgage portfolio or 5 percent of each mortgage 

it originates? Can you explain that provision to me? I just—I’m 

having trouble grasping it. 

Ms. BRAUNSTEIN. Well, I’m not sure I’m the expert to do that 

since we didn’t craft it. 

Mr. CASTLE. I realize you may not be. 

Ms. BRAUNSTEIN. But my reading of it is that it’s not the originator, it’s the creditor. So it’s whoever—which would differentiate 

the originators could be brokers, but that this applies to creditors. 

So this is who makes the initial loan, as opposed to being able to 

sell off the entire loan, there would have to be a 5 percent retention. And as I said before, it is not clear to us either as to whether 

that would be a first position, second position, how exactly that 

would work. I don’t think that kind of clarity is in there right now. 

Mr. CASTLE. Okay. The other thing that concerned me that I 

raised in the opening statement are the safe harbor provisions, 

which I think are quite narrow, perhaps too narrow. Should there 

be discretion to adjust the safe harbors to guarantee that credit reVerDate Nov 24 2008 16:00 Nov 19, 2009 Jkt 051584 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\51584.TXT TERRIE
14 

mains available to creditworthy perspective home buyers, and do 

you have the necessary tools to expand or constrict the safe harbor? 

Ms. BRAUNSTEIN. I think that’s right, that there needs to be 

some discretion on that. We have provided some comments to the 

committee staff on this issue. There are some loans that would 

probably be safe prime loans, for instance, right now the way the 

safe harbor is written, an example is that the term would have to 

be 30 years. And we know that there are some people in the market who are getting 15-year loans that may be very safe, sound 

loans. That would not fall into that safe harbor right now, nor 

would for affordability’s sake, some of the loan modifications that 

are being done, people are being taken to 40-year loans. Those 

would not be, even though they may be very affordable loans, safe 

loans. They would not fall into that safe harbor. 

So, again, I think there is a need to retain some discretion to 

look at these criteria. And of course we don’t know what new products are going to come on the market. So I agree that there probably needs to be some discretion. 

Mr. CASTLE. In asking this next question, I’m not trying to scuttle this legislation, and I’d like to improve it and see it pass if possible, but I was wondering if you think that this legislation is necessary or are the new HOEPA rules sufficient to limit unfair predatory mortgage practices? Should we have the legislation or can you 

do without it? 

Ms. BRAUNSTEIN. Well, one of the things that the legislation addresses are issues that we did not have the authority to address 

in HOEPA in regulations. For example, the legislation will increase 

remedies for consumers. It provides assignee liability, which is 

something that we are not able to do by regulation. So there definitely is a role for legislation. 

Mr. CASTLE. Okay. Mr. Antonakes, in your testimony, you mention that the Federal law prohibiting predatory lending should not 

interfere with the States’ efforts. What in your view is the best way 

to balance the State efforts, which are ongoing, as I understand, a 

number of States have done things, others are in the process of 

doing things. But what we’re trying to do on a Federal level so that 

we keep a good balance. 

Mr. ANTONAKES. Sure. Well, Congressman, I do believe it’s important to have a Federal standard and a Federal predatory lending law I think is very important. I think again the key here is to 

ensure that whatever standards enacted by the Federal Government are not ceiling, allow States the flexibility locally to move beyond that standard if they so see fit to protect their individual consumers. 

Also, if there is a Federal law, you have to provide the ability for 

State regulators to enforce that Federal standard as well. I think 

that would be again the key issues from the State regulator perspective. 

Mr. CASTLE. In reading this legislation, do you feel that provision 

is there to afford the States the flexibility that they need? 

Mr. ANTONAKES. I think we may need a little bit more in terms 

of ensuring that we have a role in enforcement and rulemaking as 

well. 

Mr. CASTLE. Good. Thank you. I yield back, Mr. Chairman. 

15 

Mr. WATT. The gentlelady from California is recognized for 5 

minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. I thank our 

witnesses for being here today. I’m concerned about the bill’s preemption provisions. The bill would potentially be read to preempt 

claims regarding an assignee’s own illegal actions as well as the 

more common claims in which liability is related to the assignee’s 

standing in the shoes of the originator or creditor. 

An example of such primary liability occurred in the First Alliance case, which I mentioned when this bill was marked-up in 

2007. This case was brought by the attorney general of my home 

State of California, which has very strong laws in this regard. In 

this case, Lehman Brothers was an assignee but also actively participated in the illegal activity. The current preemption clause insulates assignees from liability for their own conduct if it is not under 

the rubric of fraud. 

I’m concerned about how the bill will affect the ability of States 

with strong consumer protection laws to protect borrowers. In your 

opinion, how does the bill’s preemption provisions affect States like 

California, Ms. Braunstein? 

Ms. BRAUNSTEIN. Well, my understanding is that the current bill 

as drafted, and Mr. Antonakes could probably address this better 

than I can, does preempt State laws. I will add that when we wrote 

our HOEPA rules, purposely our HOEPA rules do not preempt the 

States from going further and protecting consumers. 

Ms. WATERS. Would you like to add anything? 

Mr. ANTONAKES. Congresswoman, I would agree with you that 

there are preemptive matters in this legislation that from the State 

perspective we would rather not see, because we do believe it would 

inhibit our ability to provide maximum protection for our consumers. 

Ms. WATERS. Okay. Let me ask you, since I have a little bit more 

time, it appears that we do not eliminate all prepayment penalties 

in the bill. Is that your understanding? 

Ms. BRAUNSTEIN. Yes. I think that’s true. I think they’re eliminated for mortgages that don’t fall into the qualified mortgage 

bucket. 

Ms. WATERS. I’m sorry. Would you say that again? 

Ms. BRAUNSTEIN. They’re eliminated for mortgages which do not 

fall into the safe harbor. 

Ms. WATERS. Okay. And could you comment on the mortgage brokers and the yield spread premiums? What is your understanding 

about what happens in this bill? It appears that it is kind of business as usual, that there is no attempt to eliminate the kickbacks. 

Ms. BRAUNSTEIN. My understanding of the bill is that there is an 

attempt to limit yield spread premiums in the sense that they cannot be given to originators for moving somebody to a higher priced 

loan in order to prevent the steering to higher priced mortgages. 

I would also add that yield spread premiums have been a very 

difficult issue for us. When we proposed HOEPA rules, we issued 

some proposed rule around that, and a lot of it dealt with disclosure and increasing transparency. We did consumer testing and 

found that consumers did not understand these concepts at all, 

that it was not going to be effective, so we dropped that idea. And 

16 

I think the bill does have some disclosure elements to it that concern us because of that. We are currently looking at them, because 

we’re rewriting closed-end rules and we are planning to address 

yield spread premiums in upcoming rules, and we are looking at 

things other than disclosure in order to address them. 

Ms. WATERS. Thank you. And I would like very much to see your 

original attempt at addressing the issue. Do you have that in writing? 

Ms. BRAUNSTEIN. Yes. We have a report from the testing company. It’s up on our Web site. We can forward it to you. 

Ms. WATERS. Would you make that available to my office? 

Ms. BRAUNSTEIN. Yes. 

Ms. WATERS. All right. Thank you, Mr. Chairman. I yield back 

the balance of my time. 

Mr. WATT. I thank the gentlelady. The gentlelady, Mrs. Biggert, 

is recognized for 5 minutes. 

Mrs. BIGGERT. Thank you, Mr. Chairman. Ms. Braunstein, in 

your testimony you mentioned your work under TILA and on mortgage disclosure forms and also HUD’s work on RESPA. Do you 

think that HUD’s new RESPA rule should be suspended until the 

Fed and HUD can work together to develop a single form that 

creditors could use to satisfy the requirements of both TILA and 

RESPA? As you stated in your testimony? 

Ms. BRAUNSTEIN. Back in the 1990’s, we made a recommendation 

that there should be a single form. We still do believe that. We 

have made some attempts to reach out to HUD to talk to them. We 

are still working on that and we hope that there is a way that we 

can work together. 

Mrs. BIGGERT. Do you think that’s possible if they go ahead with 

their form and then you haven’t completed— 

Ms. BRAUNSTEIN. I don’t think anything is impossible and I am 

still hopeful. 

Mrs. BIGGERT. Okay. Then, the bill that we’re considering today 

has a provision that was not part of the Congress’ mortgage reform 

bill in the past, in requiring the mortgage lenders to retain the percentage of credit risk for all non-qualified mortgages. And it also 

prevents institutes from hedging that retained risk. Does the Fed 

believe that the limitation on hedging is wise? 

Ms. BRAUNSTEIN. We think that the limitation on hedging, for 

one thing, as it’s currently written, is a bit unclear to us as to exactly how that would work. We know that hedging portfolios is 

something that is done to promote prudential, safe and sound lending within financial institutions. We think that provision would 

need to be looked at more closely. 

Mrs. BIGGERT. Do you believe that such a provision against hedging would be enforceable? 

Ms. BRAUNSTEIN. At this point, I am not sure how that would be 

done but, you know, we would have to explore that. 

Mrs. BIGGERT. Well, it seems like the authors of the bill believe 

that hedging eliminates incentives to prudently underwrite loans. 

Do you agree with that? 

Ms. BRAUNSTEIN. Well, it is caught up in the whole risk retention 

provisions and those are provisions that we need to look at very 

closely. I will say that in the past, there were financial institutions 

17 

that were retaining even 100 percent of some loans on portfolio, 

even though they turned out not to be very safe and sound loans. 

So, I think that needs to be looked at, too, in terms of how effective 

it might be. 

Mrs. BIGGERT. How would the accounting for this risk retention 

work? 

Ms. BRAUNSTEIN. Well, in depositories, if there is risk retention, 

there would have to be some capital held for that. I am not sure 

how that accounting would work in non-depository institutions. 

Mrs. BIGGERT. Okay. Well, then we don’t know what the consequences for bank capital requirements would be. 

Ms. BRAUNSTEIN. Not until there’s more specificity on how this 

provision will work. It is not clear whether the 5 percent is in a 

first position. 

Mrs. BIGGERT. Okay. And who would decide that? 

Ms. BRAUNSTEIN. Well, it depends how the statute ends up being 

written, whether that decision would be left to the rule writers or 

whether that will be further defined in the statute itself. 

Mrs. BIGGERT. Okay. Thank you, I yield back. 

Mr. WATT. The gentlelady from New York, Ms. Velazquez, is recognized for 5 minutes. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Ms. Braunstein and Mr. Antonakes, there is a sector of the residential mortgage market that has been overlooked and that is 

multi-family housing. Cases of multi-family mortgages defaulting 

are occurring all over the country. New York City, Phoenix, Washington, D.C., San Francisco, and Philadelphia are just some of the 

places where renters are feeling the effect of this crisis. If responsible lending practices driven by the ability of banks to shed the 

risk exposure through the sale of inflated loans to Wall Street triggered this debacle, what in the writing standards should be applied 

to these multi-family mortgages to ensure that future loans do no 

carry the same reckless risks? 

Ms. BRAUNSTEIN. Well, multi-family properties are obviously different, a little bit different in terms of underwriting. I would agree 

that these are issues, important issues, and I know that in our office, through our community affairs program, we have been having 

conversations with providers of multi-family housing to talk about 

these kinds of issues and try to get a better handle on what the 

risks are, what the issues are, and what can be done going forward. 

Ms. VELAZQUEZ. So, are there any contingency plans in place in 

cases where these loans are going to default or foreclosure? 

Ms. BRAUNSTEIN. I am not aware of any. 

Ms. VELAZQUEZ. So, are you all confident that there is no threat 

to those loans? 

Ms. BRAUNSTEIN. No, I’m not confident about that. 

Ms. VELAZQUEZ. In New York City alone, we have identified over 

80,000 units of affordable housing that have been purchased at inflated prices by speculative real estate investors. These units are 

occupied by working families who do not have the resources to find 

adequate housing if displaced. So, do you think that you’re going 

to start assessing this potential risk? This is a looming crisis. 

18 

Ms. BRAUNSTEIN. As I said, we are having conversations with a 

number of experts in that field to try to get a better handle on 

what’s going on in the multi-family housing markets. 

Ms. VELAZQUEZ. Okay. Do you have anything to add to that, Mr. 

Antonakes? 

Mr. ANTONAKES. No. I would agree with my colleague. It is a serious problem that we’re concerned with and we’re looking at and 

working on, at least in the Commonwealth, with our housing agencies as well as we try to determine solutions for what is going to 

become and is becoming a very difficult problem. 

Ms. VELAZQUEZ. So, let me ask you, often overlooked are the tenants who are the real victims here. H.R. 1728 contains tenants’ 

protections. Are there ways we can build on those to ensure that 

residents in multi-family buildings are also protected? 

Ms. BRAUNSTEIN. I think that is something for the committee to 

decide, but I do think that those provisions that are in H.R. 1728 

that deal with tenants are very important provisions and that we 

have been hearing for quite some time stories, even in single family 

homes, where tenants are unaware that their landlords are facing 

foreclosure. They’ve been paying their rent on time and they find 

themselves being evicted for basically no reason, no fault of their 

own and that is a very serious issue that needs to be addressed. 

Ms. VELAZQUEZ. Okay, let me ask you another question. Do you 

think that multi-family mortgages should be part of TILA? 

Ms. BRAUNSTEIN. I think that’s a question for Congress to decide. 

Ms. VELAZQUEZ. But you don’t have any opinion? 

Ms. BRAUNSTEIN. No. 

Ms. VELAZQUEZ. Thank you. Thank you, Mr. Chairman. 

Mr. WATT. Mr. Posey is recognized for 5 minutes. 

Mr. POSEY. Thank you, Mr. Chairman. Same question for both of 

you. Shrinking the safe harbor is certain to increase mortgage 

originators’ litigation risk and it would appear also to severely limit 

the origination of any loan other than a 30-year fixed-rate mortgage. Do you think that this bill, if enacted, would limit consumer 

choice? And do you think it would limit the origination of any loan 

other than a pure vanilla 30-year mortgage? 

Ms. BRAUNSTEIN. I think that’s one of the things we’ve been looking at and I do think that the bill, the way the structure is, it 

seems like it’s somewhat intended to drive the market into 30-year 

fixed loans, not necessarily fixed, it doesn’t specify fixed, but 30- 

year loans. That could have the consequence of very much limiting 

the kinds of products that become available when the markets 

reset. But some of that is very difficult to predict, because, as I said 

in my opening testimony, the markets are not in a normal state 

right now and we’re not sure how they will normalize in the future. 

Mr. ANTONAKES. Well, Congressman, we’re generally in support 

of the concept of a safe harbor, but I think it has to be very carefully defined. I think the way it’s written, we can see in some aspects, that it’s too strict. Certainly 15-year rate fixed mortgages, 

20-year fixed mortgages that the applicant demonstrates an ability 

to repay could receive consideration. There’s also a traditional ARM 

products in which, at the fully indexed rate, the applicant the can 

demonstrate the ability to repay that could be considered. 

19 

By the same token, we have concern that it could be too broad. 

And that given the interest rate caps that exist right now, some 

subprime loans conceivably could get the protection of the safe harbor. So, there could be an impact on the availability of credit. I 

think it’s hard, as my colleague indicated, it’s hard to predict. 

We’re generally supportive of the safe harbor, but I think it has to 

be very carefully crafted. 

Mr. POSEY. Follow up, Mr. Chairman. The bill contains some 

pretty rigid criteria for qualifying people for mortgages, the ability 

to pay, employment. Right now, just as an analogy, there are 10 

ways people can buy a home, when you reduce it down to 1 way, 

don’t you this will hurt the housing recovery more than it would 

help it? Just by limiting the resources people have to stay in their 

homes or refinance their homes, or to buy a home? 

Mr. ANTONAKES. Well, I think a lot of the bad underwriting at 

this, you know, that is intended to be cured here, doesn’t exist 

right now, so again, I don’t think we have a normal market and 

I think there is limited means of refinancing a home or purchasing 

a home at this point in time, right now. Again, I think, you know, 

there should be restrictions on some of the underwriting difficulties 

that we’ve experienced over the past several years. This is a means 

of doing it but it’s going to have to be carefully crafted. 

Mr. POSEY. Now, are you both confident that this is not overreaching? 

Ms. BRAUNSTEIN. I don’t know that we can answer that. As I 

said, it’s hard to judge in today’s market. There isn’t much available now— 

Mr. POSEY. Your gut reaction. You’re the experts and you’re the 

ones that we rely on for guidance so if you don’t have a clue, then 

we’re going to feel awfully bad doing something if you think it 

might be over-reaching, if you’re not sure whether it is or not. 

Ms. BRAUNSTEIN. Well, what I can say is that when we crafted 

the HOEPA rules, we did not feel that what was contained in those 

was over-reaching. We felt that we were addressing the most egregious practices that we saw that caused a lot of the problems in 

the marketplace. And that those kinds of practices should not be 

allowed to come back into being even when the markets normalize. 

So, we do think that it’s very consistent to have safe and sound 

lending. 

There needs to be clarity for the industry as to what the rules 

are so that the industry can function. That’s very important and 

that there needs to be a balance so that there’s still can be credit 

available and people will have some options. But again, they need 

very strong consumer protections. And that is a balance that is 

sometimes difficult to achieve, but I think we need to strive for 

that. 

And that’s one of the reasons that I’ve asked for additional flexibilities in the rules, in the legislation, so that when the market 

does re-emerge there may be new products that we’re not even 

thinking of today that will need to be addressed. 

Mr. POSEY. You say, when the market re-emerges. Do you have 

any idea what decade that might be? 

Ms. BRAUNSTEIN. I wish I could say that. 

Mr. POSEY. Thank you, Mr. Chairman. 

20 

Mr. WATT. The gentleman’s time has expired. The gentleman 

from Kansas, Mr. Moore, is recognized for 5 minutes. 

Mr. MOORE OF KANSAS. Thank you, Mr. Chairman. I have concern with the product known as Adjustable Rate Mortgages or 

ARMs, which usually start with a lower monthly payment, but 

which may reset to a much higher monthly payment that homeowners can’t afford. Instead of the typical 30-year fixed-rate mortgage that has the same monthly payment and is easier to understand, it seems that these different mortgage products were sold to 

individuals who, in many cases, did not understand what they were 

signing up for. 

I want to ask the witnesses, what role do you think ARMs have 

played in the current housing crisis? 

Ms. BRAUNSTEIN. Well, I think that ARMs, in particular the hybrid ARMs and the option ARMs, were very significant players in 

the current crisis and created a lot of problems. The ones that had 

the 2-year and the 3-year, the 2/28’s, the 3/27’s, as well as the option ARMs that ended up with negative amortization. Those were 

a real problem. 

Mr. WATT. Do the witnesses have any comments? 

Mr. ANTONAKES. I would agree with that, but I would also say 

that I think the traditional ARM products that have been around 

for a long time, the 5 and 1, 7 and 1, ARM products that had limitations on how much the interest rate could swing were not the primary problem here. It was the hybrid products, it was the newer, 

interest-only products that were the driver. 

Ms. BRAUNSTEIN. I would agree. 

Mr. WATT. All right. 

Mr. MOORE OF KANSAS. Do you believe H.R. 1728 adequately addresses these concerns regarding the role ARMs and other complicated mortgage products played in creating this financial crisis? 

Does this proposed bill, does this proposed law, is it going to address the problem and solve the problem in your estimation? 

Ms. BRAUNSTEIN. I know we submitted some technical comments 

along this line. I think there was some concern that the former 

iteration of this bill actually banned negative amortization as one 

of the provisions for the safe harbor. And that is no longer present 

in the safe harbor. I think that was a concern of ours and there 

were some other technical corrections that we did submit through 

staff. 

Mr. MOORE OF KANSAS. Thank you. Any comment sir? 

Mr. ANTONAKES. Well, I think the key provisions here are the 

safe harbor and the credit risk retention. And I think, again, we’re 

generally supportive of both concepts, the safe harbor and the credit risk retention. The issue that has been discussed today at length 

has been the concept of skin in the game and certainly we can see 

that there should be, you retain greater risk for making higher risk 

loans. I think the only concern would be, was there were many 

companies, mortgage companies and banks that had considerable 

skin in the game, consider risk but failed anyway. It didn’t prevent 

them, from in all cases, making bad underwriting decisions. So, I 

think that’s going to have to be reconciled as well, as you continue 

to work through this process. 

21 

Mr. MOORE OF KANSAS. Thank you. This week, Congress received 

a quarterly report from the Special Inspector General for TARP. In 

the report, the SIG TARP states that one of the most common features of traditional mortgage fraud is that applicants falsely inflate 

their income and support those lies with fraudulent documentation 

and employment verification. To address this potential fraud, SIG 

TARP recommends Treasury require that verifiable third party information be obtained to confirm an applicant’s income before any 

modification payments are made. Do you agree this is an important 

element of this? Should we pursue that? 

Ms. BRAUNSTEIN. Absolutely. In fact, our HOEPA rules ban stated income loans. For high-cost loans, we require verification of income and assets and I think that is a very important aspect going 

forward. 

Mr. MOORE OF KANSAS. Sir? 

Mr. ANTONAKES. I agree, absolutely. We have issued hundreds of 

enforcement actions and the majority of the cease and desist orders 

and the referrals to law enforcement have involved fraud, unstated 

income loans. It’s very easy to do and we routinely find it during 

our examination process. What is concerning to us is, it seemingly 

permeated every level of the origination through securitization 

process. 

Mr. MOORE OF KANSAS. Thank you. Mr. Chairman, I’ll just finish 

by stating that next Monday, Congressman Cleaver and I will be 

hosting an event in Kansas City with the State Attorneys General 

from Kansas, Missouri, and an FBI agent, encouraging our constituents to be vigilant and report any suspicious or illegal actions 

by fraudulent companies. I would encourage other Members of Congress to do the same and I yield back my time, sir. 

Mr. WATT. The gentleman from Minnesota, Mr. Paulsen, is recognized for 5 minutes. 

Mr. PAULSEN. Thank you, Mr. Chairman. I have some additional 

questions regarding the skin in the game provisions of the bill, in 

particular, Mr. Antonakes, if I could ask you, as a State regulator, 

are you at all concerned that the bill’s provision requiring lenders 

to retain that 5 percent of the credit risk for non-qualified mortgages will put smaller, non-depository financial institutions completely out of business? Does it hamper them additionally? I mean, 

do you see this provision, in essence, leading to decreased competition, greater consolidation over time of larger depository institutions? 

Mr. ANTONAKES. Congressman, that’s certainly possible. The alternative would be for these lenders, if they didn’t seek to have a 

5 percent holdback to make traditional mortgage loans that fit 

within the safe harbor. So, that opportunity for small businesses 

would still be available, to make those traditional loans if they 

didn’t want to maintain this increased risk or retention of the credit. You know, we have, in Massachusetts, a substantially increased 

net worth and bonding requirements for our non-bank lenders and 

brokers over the course of the last several years. So, there are 

other efforts as well, to ensure that, you know, adequate resources 

are on hand, as well as would be complimentary to that effort. 

Mr. PAULSEN. And then, Ms. Braunstein, if I could ask you, if the 

lenders that the Federal Reserve regulates were required to retain 

22 

also that 5 percent threshold of the risk of the non-qualified mortgages they originate, how much additional capital are they going 

to have to have on hand or keep in reserve? I mean, how is that 

going to affect the safety, the security and the soundness which is 

really, I think, primarily the focus we’re all interested in having in 

the banking system, given the trouble we’ve had. 

Ms. BRAUNSTEIN. That is one of the things that we’re looking at 

and is of some concern to us in terms of moving forward with the 

5 percent retention. I don’t have specific answers for you because 

there’s not enough clarity or detail yet around that 5 percent and 

what position it would be in. We do know that for depositories, if 

they’re retaining 5 percent, there’s going to have to be some capital 

held for that, but the details of that, we would need more information about how exactly that 5 percent would work, what position 

it would be in how that would work before we could be specific 

about capital. 

Mr. PAULSEN. And also, do you anticipate or can you foresee 

then, would they, and these banks have to increase, essentially, interest rates to account for the additional risk that they’re going to 

have to carry, potentially, having those capital requirements? 

Ms. BRAUNSTEIN. Well, it is speculation going forward, as I have 

said before, I think that this bill would have the outcome of moving 

a lot of people into that safe harbor to avoid this, and for those who 

choose to still work in the space where the loans were not in the 

safe harbor, they would price them accordingly, so most likely they 

would be very high-cost loans. 

Mr. ANTONAKES. Well, I’ll just ask, in a little different take, but 

you know, the bill, H.R. 1728, dramatically expands the reach of 

HOEPA, however, because of the nature of HOEPA restrictions, my 

understanding is that few such loans are actually ever made, you 

know, is a better approach, one that’s taken by the Federal Reserve, you know, in recent HOEPA rules in general. Is it better to 

offer great, in essence, protections to loans outside of HOEPA instead, rather than expanding HOEPA itself to cover more loans? 

Ms. BRAUNSTEIN. When you’re talking about the original HOEPA 

carve out, that is one of the reasons why we said that we think this 

will push people out of that space because, in fact, that is what 

happened in HOEPA. When we tightened those triggers up in 

2000, we found that there were very few loans being made in that 

space and we started counting them. I know there was 1 year 

where there were just millions of mortgage loans and there were 

approximately 30,000 HOEPA loans in the whole country. So, there 

is not much going on. And now of course, there’s not much going 

on anywhere but there was not much going on in that space. And 

that could happen again with loans that are outside this safe harbor. 

Mr. PAULSEN. Okay. Thank you, Mr. Chairman. I yield back. 

Mr. WATT. The gentleman from California, Mr. Baca. 

Mr. BACA. Thank you very much, Mr. Chairman. Mr. Antonakes, 

in your testimony, you urge Congress to eliminate the Federal preemption of State consumer protection laws from the State because, 

as you put it, the States have and continue to be the front line 

guardian of consumer protection. That isn’t always the case. But 

according to recent 2009 CRL reports, over 1.5 million homes have 

23 

already been lost through subprime foreclosures and another 2 million families with subprime loans are currently delinquent and are 

in serious dangers of losing their home. And in my area, in the LN 

Empire, we have the third largest foreclosure in the United States. 

I don’t think these 2 million families feel very protected. They don’t 

feel very protected right now. How can you justify the continuance 

of the system that has led us to where we are now? 

Mr. ANTONAKES. Well, Congressman, I would say, that the preemption of the OCC and the OTS blunted State efforts. We had 

predatory lending laws in certain States, North Carolina, dating 

back to 1999, that were gutted by Federal preemption. As a result 

of which, only certain lenders had to be compliant with those laws. 

And that the laws, even during the rule making process, assignee 

liability provisions that would have prevented many of the things 

we deal with today, were gutted, as well. We have done, I think, 

as well as we could with one hand tied behind our back over the 

last several years. I guess our point here today is, let’s work together. Let’s not eliminate State— 

Mr. BACA. What are you going to do to correct it? What are you 

going to do for those people who have lost those homes right now? 

What kind of protection do we have as safeguards so we have in 

the future that we don’t have the same things occurring right now, 

because we have these predators every day calling, we have these 

marketers calling individuals that are very gullible, very naive, and 

they’re preying right into the subprime bodies or people that says, 

hey, you know what, I guarantee you, you can buy a home and get 

into a home. 

Mr. ANTONAKES. I believe that, you know, that there is a legitimate role today for the Federal Government to pass a Federal law 

to enhance protections. States also have the opportunity to pass 

laws, as well. We have passed laws in Massachusetts dating back 

several years, most recently in 2007, which significantly increased 

protections for consumers facing foreclosure problems today, as 

well as with the areas in the future. States have an active role to 

play. Certainly some play it more actively than others. There’s no 

denying that, but there is a real role today to work together, the 

States and the government, the Federal Government, not to be opposing each other, but to be working collaboratively to provide protections, meaningful protections for those people facing trouble 

today, right now, as well as provide protections in the future. 

Mr. BACA. Yes, but how do you tell someone who is losing their 

home, I mean, you have to look someone in the face who says, you 

know what, I really don’t have that kind of protection, I’m losing 

my home, what kind of guarantee do I have, I really don’t trust the 

system anymore? And that’s basically what’s happening with a lot 

of the people who got into this kind of a situation. How do we tell 

them that they are about to become homeless? 

Mr. ANTONAKES. Again, in Massachusetts, we’ve held forums 

throughout the State, foreclosure prevention forums. We have 

taken, similar to what the bill is ‘‘proprieted’’ today. We have 

granted several million dollars to nonprofit entities to establish regional foreclosure prevention centers across the Commonwealth. 

There are meaningful ways to help people in trouble right now. I’m 

not saying that there’s going to be a solution for everyone. UnfortuVerDate Nov 24 2008 16:00 Nov 19, 2009 Jkt 051584 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\51584.TXT TERRIE
24 

nately, there can’t be. But, we cannot give up. We can provide assistance and hope for these folks, the people on the ground. The 

States are well-positioned to do that. And I think what we’re asking today is to allow us to continue to do that, enhance our ability 

to do that and don’t tie us up as we try to do that now and in the 

future. 

Mr. BACA. Well, we’ll only tie you up because we need accountability and oversight regulations. But let me ask either one of you, 

or both of you, since minority groups were unjustly targeted for 

subprime lending, they are now suffering disproportionately from 

foreclosures and mortgage delinquency rates. Do you think H.R. 

1728 will prevent this racial targeting of subprime lending? 

Ms. BRAUNSTEIN. I am not aware of any provisions that particularly address the issue that you raise other than the fact that it 

will help everybody in the mortgage market and that would include 

minorities because there are some provisions in there about steering and keeping people away from high-cost loans and from loans 

that could potentially be abusive and predatory. 

Mr. BACA. What can be done to improve this area or do you have 

any suggestions, especially as we look at individuals who are targeted within our communities. And people know which of the individuals to target, which ones are naive, which ones don’t have the 

knowledge and there’s certain individuals out there. Do you have 

any suggestions? 

Ms. BRAUNSTEIN. Well, one thing that we’re trying to do is, we’re 

working very hard to increase efforts on financial education for 

people. In addition to substantive protections and to make people 

aware, especially today, some of the people who are facing foreclosure, the people you talked about who are feeling somewhat 

hopeless at this point, have an even bigger problem facing them 

and that is the mortgage foreclosure scams that are operating. And 

we have been very visible in trying to get the word out to people 

as to how to avoid getting caught up in these foreclosure scams. 

Mr. BACA. What is one— 

Mr. WATT. The gentleman’s time has expired. And we’re operating a very tight 5 minutes here, as I announced earlier, before 

you arrived. The gentleman, the ranking member of the full committee. 

Mr. BACHUS. Thank you. 

When we were growing up, I think our fathers and mothers always told us if you can’t afford it, don’t buy it. And I think if we 

would all remember if you can’t afford a house, don’t buy it, we 

would all be better off. And part of this, and if you’re a bank, don’t 

loan to people who can’t pay it back. But what we’re getting into 

here, all of this, and I think there is a need for legislation, but 

you’re substituting the government’s for individual’s decisions on 

whether they can afford it or for the bank’s decision on whether 

and how to loan it. And I think when you do that, where do you 

stop? It’s a real problem. 

Mr. Antonakes, let me commend you and your organization, because there already have been some very important steps taken to 

prevent these subprime lending debacle that we’ve witnessed over 

the past few years and this national registration and licensing, 

which you all have proposed. The Congress passed that, and as you 

25 

said, 20 States have instituted it; and you said 49 States are well 

on the way of betting it. What is the one State that isn’t? 

Mr. ANTONAKES. We don’t have any information at this time, and 

where the State of Minnesota is with regard to implementing legislation, so we will continue to communicate with them. 

Mr. BACHUS. And that was really a bipartisan effort of this Congress to institute, and that’s not meant to substitute our opinion 

for home buyers or for banks. But it will go a long time. Had that 

been in place? A good percentage—you might want to comment on 

that—of these loans wouldn’t have been made. But what is your 

view of how that’s going to help? 

Mr. ANTONAKES. I think it’s going to help significantly, Congressman, and we greatly appreciate your leadership on this issue. The 

Safe Act and the Nationwide Mortgage Licensing System is a complete database that attracts everyone involved in the mortgage 

origination of the lending process. The key here is every individual 

from the originator to the brokers to the lender has a unique identifying number which follows them throughout their careers, even 

if they move from State to State or from company to company. It 

also provides a complete database of a disciplinary action as well. 

So if a company gets into trouble in one State, they can’t simply 

change their name and move to another jurisdiction as well. So 

that information follows them, also provides access to the States for 

very complete FBI criminal background check information as well. 

It is truly a very robust system, and in addition to being this uniform portal for licensing, in many ways it’s also the foundation for 

coordinated supervision among the States. 

And now with our Federal colleagues as well with the registration with loan originators that work for banks and for credit 

unions, you know, I’ve been in this business nearly 20 years and 

to me it is truly the most extraordinary and significant developed 

in the area of mortgage supervision during that point in time. 

Mr. BACHUS. All right, and I don’t think that in the press or the 

media that you have been given the credit in your organization for 

what you’ve done in this regard. 

Mr. ANTONAKES. Thank you, Congressman. 

Mr. BACHUS. I very much appreciate it. 

Let me ask you this, Ms. Braunstein. Does the Federal legislation or does the Fed—I’m sorry—believe that the limitation on 

hedging is wise? 

Ms. BRAUNSTEIN. Does it? I’m sorry? 

Mr. BACHUS. The bill in just reading it that requires mortgage 

lenders to retain a percentage of credit risk for all non-qualifying 

mortgages, it also prevents institutions from hedging that retained 

risk. And do you believe the limitation on hedges is wise? The authors of the bill have stated that they believed hedging eliminates 

incentives to prudently underwriting loans. I mean, do you agree? 

Ms. BRAUNSTEIN. Congressman, that entire section of risk retention is something that we have sent up some substantive comments 

and technical comments on. And we would like to get more detail. 

The current bill, the way it is worded, does not give a lot of clarity 

on that, so we are a bit concerned about the hedging part of it in 

terms of how exactly that would work. It’s not clear to us, and we 

know that hedging in general with portfolios is something that is 

26 

commonly accepted as a safe and sound way to deal with risk in 

an institution. So the prohibition, until we get more clarity on that, 

it’s hard to comment specifically. 

Mr. BACHUS. Or how you would enforce it? 

Mr. WATT. The gentleman’s time has expired. 

The gentleman from North Carolina, Mr. Miller, the co-sponsor 

of the bill, is recognized for 5 minutes. 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Chairman. 

Since this is a 5-hour hearing, I hadn’t really intended to ask 

questions of this panel, but I do have a question based on the earlier questions. Please try to hide your disappointment. The question earlier was whether this was the right time for this legislation, 

that credit is now constricted and that this legislation might constrict it further. So whatever the merits of the legislation, this is 

not the right time to do it. 

A couple years ago, I recall industry argued that homeownership 

is going up and whatever our drawbacks may be for some subprime 

lending while homeownership is going up, this is not the time to 

restrict credit and restrict homeownership. Do you recall a time 

that the industry said was the right time to adopt consumer protection legislation? Ms. Braunstein? 

Ms. BRAUNSTEIN. No. I don’t know that I can say. I do think that 

this is definitely the right time to add consumer protections to the 

mortgage market considering what we saw in the past. We do believe that. We believe that very strongly, which is why we issued 

the HOEPA rules that we did. 

Mr. MILLER OF NORTH CAROLINA. Mr. Antonakes, do you remember any time that they thought was the right time? Or do you 

think that the complaints about timing or not really their objections, they will oppose regulation until the end of days? 

Mr. ANTONAKES. I believe that’s generally true, Congressman. I 

believe the bill is overdue and recognize the reference and those of 

many others to pass it previously. The key I think is, you know, 

to recognize that the market can change and to the extent some 

flexibility can be provided in the rulemaking process will, I think, 

continue to ensure. It’s as robust and protective as it needs to be. 

Mr. MILLER OF NORTH CAROLINA. I yield back my time. 

Mr. WATT. The gentleman from California, Mr. Miller, is recognized for 5 minutes. 

Mr. MILLER OF CALIFORNIA. Thank you, Mr. Watt. 

I appreciate the question regarding right time. I think had we 

defined subprime versus predatory 6 or 7 years ago, we might not 

be in the severe housing downturn we are in today, but when you 

have a very viable marketplace as the subprime and you allow 

predators out there to make loans to individuals who don’t verify 

income. They don’t even verify if the individual has a job, and they 

make that individual a loan knowing that when the trigger kicks 

in, they can’t make the payment, that’s a predatory loan. But the 

subprime market places a very, very viable marketplace. And I 

think when you do it, we kind of strengthen it. But I’m glad we’re 

addressing the predatory concepts at least in this bill. But there’s 

a bill’s definition of qualified mortgage as is defined, limit the organization other than the fixed-rate 30-year loan; and, does the provision of the bill limit consumer choices? 

27 

Ms. BRAUNSTEIN. Well, I do think the way the safe harbor is designed that it will drive a lot of the market into that safe harbor. 

That is not necessarily always a bad thing, because a lot of the 

practices that we saw that were egregious and that caused a lot of 

the problems would not obviously fit into that. 

Mr. MILLER OF CALIFORNIA. But there are some practices that 

might not fall into qualified mortgage or safe harbor that might not 

necessarily be egregious. 

Ms. BRAUNSTEIN. Right, and that was the next thing I was going 

to say. But there are some things that it’s important not to define 

such that you are eliminating the ability to get loans that otherwise would be safe and sound, and good loans for consumers, which 

is why we have recommended that there be some flexibility given 

to the rule writers in terms of being able to make adjustments to 

that safe harbor. 

And in particular that is going to be important when the mortgage markets reemerge and redevelop themselves. We don’t know 

what kinds of products will be developed in the future and we may 

need to adjust it either way. It’s not just loosening it, but there 

may be things that aren’t contained now that would need to be 

added to it to protect consumers. 

Mr. MILLER OF CALIFORNIA. Are there any provisions in the bill 

that a loan that’s made that doesn’t qualify as a safe harbor, but 

yet was a good qualified loan, does any change in law occur within 

the bill that would put you in a situation different than you’re in 

today as far as putting a lender at risk where he might not currently be today? 

Ms. BRAUNSTEIN. I’m not sure that I totally understand your 

question. 

Mr. MILLER OF CALIFORNIA. Well, let’s say if you made a loan 

today that was very specific and defined that did not necessarily 

qualify for a safe harbor but was an up-front, viable loan based on 

mark of requirements at that point in time, is there anything in 

this bill that would put a lender in a more severe situation as far 

as litigation than he would currently face to day under current 

law? 

Ms. BRAUNSTEIN. Well, there would be provisions they would 

have to comply with such as the risk retention. An example, that 

would be somebody making a 15-year mortgage today which might 

be a very good loan. It would not fit into the safe harbor as it is 

currently defined in the bill. 

Mr. MILLER OF CALIFORNIA. But are they in a worse situation 

under the new laws than they would? 

Ms. BRAUNSTEIN. It would mean they would be subject to potential liabilities. They would probably have to up-price that loan in 

order to cover potential liabilities. 

Mr. MILLER OF CALIFORNIA. So they could face additional liability 

that they don’t currently face? 

Ms. BRAUNSTEIN. Correct. 

Mr. MILLER OF CALIFORNIA. That’s something I think we need to 

be very cautious of, because market conditions might require a 

lender to make a certain type of a loan that might be very popular 

amongst consumers that does not qualify for safe harbor, yet 

28 

they’re putting it in a situation where they could be sued very easily, whether they might not be. 

I hope we would address that before we mark the bill up to make 

sure we don’t have some unintended consequence that might apply 

against a good lender for making a loan that might be a good loan 

but not qualify for safe harbor. How do you reconcile your rule and 

the HBCC considering your real consumers regardless of who orders the appraisal and the HBCC does not? 

Ms. BRAUNSTEIN. That I do not. I am not familiar with what you 

are—I know that there are appraisal restrictions that we put out 

in our rule in terms of not coercing appraisals. And my understanding was that the rule was very similar, that the legislation 

that’s on the table is very similar to what our rule was. 

Mr. MILLER OF CALIFORNIA. But we’re not sure? 

Ms. BRAUNSTEIN. I thought it was the same. You are pointing out 

something that I am not aware that there’s a difference. 

Mr. MILLER OF CALIFORNIA. Can you check into that for me? 

Ms. BRAUNSTEIN. I will check into that, yes. 

Mr. MILLER OF CALIFORNIA. I’m concerned about that, if there is 

a problem there I think we need to address. Maybe you could get 

back to me on that. 

Ms. BRAUNSTEIN. Absolutely. 

Mr. MILLER OF CALIFORNIA. Okay. Mr. Watt, I am glad we are 

finally addressing the difference between subprime and predatory, 

but I hope we are not being overly aggressive and not considering 

future market conditions. I would hate to have a viable loan made 

in the future by a lender that might be very popular among consumers that puts a lender in a very bad situation. We might be 

sued for doing something right. 

Mr. WATT. The gentleman’s time has expired. We will reiterate 

what I said at the outset before the gentleman arrived that this is 

an issue we are aggressively trying to work on and would welcome 

and value input between now and Tuesday. 

Mr. MILLER OF CALIFORNIA. I just wanted to bring up my concern. Thank you. 

Mr. WATT. Mr. Green from Texas is recognized for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman, and I thank the witnesses. And, again, welcome to the committee. 

A series of questions if you will and I would like each of you to 

respond and I shall move as quickly as possible, because I have a 

number of questions. Was YSP, a/k/a yield spread premium, a real 

problem for us prior to—well, maybe it continues to be a problem 

at this time, because we haven’t completely dealt with it. Do you 

agree that it was and is a problem? 

Ms. BRAUNSTEIN. Yield spread premiums definitely were a problem, in particular because they were used to steer people into higher cost loans in order for the originator to make greater compensation. Now that there’s not much going on in the market right this 

minute, there may not be the same kind of problem, but they need 

to be dealt with for the market to reemerge. 

Mr. GREEN. Do you agree, sir? 

Mr. ANTONAKES. Yes, I do. 

Mr. GREEN. 3/27s, 2/28s; were they a problem? 

Ms. BRAUNSTEIN. Absolutely. 

29 

Mr. ANTONAKES. Yes. 

Mr. GREEN. Prepayment penalties that coincided with the teaser 

rates; were they a problem? 

Ms. BRAUNSTEIN. Yes. 

Mr. GREEN. Tenants with an excellent payment history who are 

being evicted because property was being foreclosed upon; was this 

a problem? 

Ms. BRAUNSTEIN. Yes, it is a problem. Did you use past-tense? 

Mr. GREEN. Is a problem? 

Ms. BRAUNSTEIN. Yes. 

Mr. GREEN. Does this bill seek to address what we clearly have 

as problems? Does it seek to address them? 

Ms. BRAUNSTEIN. Yes. 

Mr. GREEN. And more specifically with reference to the yield 

spread premium, do you agree that it is difficult to explain the 

yield spread premium to the average person who has not had an 

opportunity to study some of these issues as we have? 

Ms. BRAUNSTEIN. It is extremely difficult. As I’ve said, we’ve 

tried that with consumer testing. We tried it several times and we 

were not successful. Disclosure was not successful. 

Mr. GREEN. For edification purposes so that people can understand, the yield spread premium allows an originator to raise the 

interest rate that the person will receive in the loan qualifies for 

5 percent. Give the person a loan at say, 8 percent, and not tell 

the person that he or she has been placed into a higher interest 

rate than he or she qualified for. Is this correct? 

Ms. BRAUNSTEIN. It’s similar. It’s more something that’s supposed to be added to allow people to finance the cost of their loan 

through their interest rate, but it also is used—it’s compensation 

for the broker—and it is also used to put people with higher prices. 

Mr. GREEN. I understand. Hold it just a moment if you would, 

please, ma’am. We’ll get to the broker. That’s called a kickback. 

But let’s talk right now about how it functions. It functions by virtue of the interest rates moving a person into a higher interest rate 

than he or she qualified for. Is this true? 

Ms. BRAUNSTEIN. Correct, to cover cost of the loans. 

Mr. GREEN. Yes, okay. Well, for whatever reasons there were 

many people who were placed into loans that were higher than 

what they qualified for. Is this true? 

Ms. BRAUNSTEIN. Yes, that’s our understanding. 

Mr. GREEN. Yes. Empirical evidence supports it and they were 

placing these higher loans. And as a result many people found 

themselves having to pay mortgages that they could not afford that 

they may have been able to afford. For example, some people went 

into subprime who were really qualified for prime. Is this true? 

Ms. BRAUNSTEIN. Correct. 

Mr. GREEN. Okay. Now, we can get to the second phase of this. 

The person who did this, the person who pushed into this high interest rate, this person received a lawful kickback. We are not 

going to demean the kickback by saying it was a crime, but we will 

say it was what it was. It was a kickback, true? 

Ms. BRAUNSTEIN. It was compensation, yes. 

Mr. GREEN. Would you not call by definition this act a kickback? 

Ms. BRAUNSTEIN. Yes, I suppose you would. 

30 

Mr. GREEN. Okay, it was a kickback. You know, sometimes you 

have to call a thing what it is and this is one of those days. It was 

a kickback and it was a lawful kickback, but it was still invidious. 

It was harmful. It was hurtful. This bill attempts to deal with that 

type of invidious behavior. Do you agree? 

Ms. BRAUNSTEIN. Yes. 

Mr. GREEN. And finally my comment because my time is running 

out, my comment is this: Sometimes when all is said and done, 

more is said than done. We don’t want to allow that to happen at 

a time when there is great need. 

Thank you, Mr. Chairman. I yield back. 

Mr. WATT. Ms. Bachmann is recognized for 5 minutes. 

Mrs. BACHMANN. Thank you, Mr. Chairman, and thank you too 

to the panelists. 

I’ve enjoyed listening to the discussion and to your remarks 

today. And as we are looking at this bill it really does impose harsh 

penalties on the lenders, and, so, I am wondering if they are being 

censured for violating vaguely the fine effects, some people might 

say undefined lending standards. 

I was just wondering if you could explain criteria or how one 

would truly define the concept of net tangible benefit, what that 

means to the consumer, or what a reasonable ability to repay really 

means. Because I am thinking if I am a lender or if I am a consumer trying to make out that loan, it’s difficult for anyone to 

make that determination of what does net tangible benefit mean. 

What does reasonable ability to pay mean, because it looks like this 

will be left up to the banking regulators to make that ultimate decision to determine. But how can they possibly define those terms 

when every person’s financial situation is completely different? And 

in reality it seems like any definition will just open the door for a 

barrage of law suits, and it doesn’t seem that we have any shortage 

of those. 

So it seems like it would be an extraordinary waste of resources 

if that’s what we do, create just one more cause of action that 

would ultimately result, I think, in restricting access to credit for 

a lot of families. So I understand we want to retain this balance 

to be able to offer secure loans, but at the same time we want to 

make sure that we have the free flow of credit. 

Can you help me with both of those definitions? Who is going to 

be making that determination and how will we ensure what’s fair 

without just opening up the flood gate for a brand new tide of litigation? 

Ms. BRAUNSTEIN. Well, the way the statute is currently written, 

the rule writers would be further defining both of those terms and 

I think it would be very important to add as much clarity as possible, because the lenders will need to be able to do due diligence 

to know that they are not running sideways of the law, so that 

clarity will be important. 

Mrs. BACHMANN. In reclaiming my time, one thing that I have 

seen in various areas of the law, when we leave writing that definition up to people who are tasked with that assignment is oftentimes that doesn’t bring clarity either and that it remains a malleable definition. And usually the ones who make the definitions 

31 

then are attorneys who take these suits to courts and then judges 

end up writing what the parameters are. 

Oftentimes, when it’s left to the bureaucracy, the definition is obfuscated, and so we are being asked as Members of Congress to 

vote for something that is obfuscated with no promise that clarity 

will be brought to the situation. Perhaps the only promise is that 

it will create new causes of action and tying up the legal system. 

How has anyone benefitted by that? 

Ms. BRAUNSTEIN. Well, I think of the two terms, the one that will 

be most challenging is net tangible benefit. There are so many different kinds of loans with characteristics out there. There are so 

many different kinds of reasons why borrowers choose to take 

loans. It will be a challenge to narrow that down and put something very clear into regulations, but certainly we would attempt 

to do that because we do feel that it’s important that credit keeps 

flowing and that there be as much clarity as possible. 

Mrs. BACHMANN. And I would agree with you on that, but it 

seems that the bill does impose very stringent assignee or assignee 

liability on the assignees and the securitizers for any loans that 

would violate these big standards. So what I’m wondering is, does 

the pool of people who could face litigation maybe grow even larger 

because of that? It seems to me that it would and then it seems 

like that gift that this bill would be giving to trial lawyers would 

be even sweeter. 

Mr. ANTONAKES. Well, I believe the rules can be written and defined very tightly. A lot of States have experimented and have 

pushed the ability to repay standards as well as net tangible benefit standards. It has to be tightly defined so that people can understand the bright line exists to provide banks, lenders, the ability 

to comply with those rules. I think it can be accomplished. It has 

to be done in a robust, meaningful process, whereby the regulators 

can get meaningful comment from all of the stakeholders involved. 

Mrs. BACHMANN. But I am sure you understand this has happened before, many, many, many, many times. We have a lot of 

history to look to. 

Mr. WATT. The gentlelady’s time has expired. 

Mrs. BACHMANN. If I could just end my sentence, and I will. 

Mr. WATT. The gentlelady’s time has expired, but she can end 

her sentence. 

Mrs. BACHMANN. The example in previous times that the bright 

line test occurs in the courtroom and that’s my concern. 

Mr. WATT. The gentlelady’s time has now expired on her second 

sentence. 

The gentleman from Missouri, Mr. Cleaver, is recognized for 5 

minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

I won’t take 5 minutes. I have one question and it’s a philosophical one. Ms. Braunstein, you are always one of the more frank 

and candid witnesses we have and I appreciate it, but this is not 

technical at all. It’s philosophical for both of you. Do you think that 

the terms ‘‘survival of the fittest’’ and ‘‘capitalism’’ are synonymous? 

Ms. BRAUNSTEIN. That is not a question that I can just answer 

on the fly. 

32 

Mr. ANTONAKES. No. I don’t. 

Mr. CLEAVER. No, you don’t? 

Mr. ANTONAKES. I don’t believe they’re the same. 

Mr. CLEAVER. That is the argument with this legislation, that 

capitalism is survival of the fittest and if people are too dumb, too 

ignorant, too stupid to figure out what damage is being done to 

them in a mortgage then that’s exactly what should happen to 

them. You’ve answered the question. 

Thank you, Mr. Chairman. I yield back the balance of my time. 

Mr. WATT. The gentleman from California, Mr. Royce, is recognized for 5 minutes. 

Mr. ROYCE. Yes, I’ll ask Ms. Braunstein a question here. What 

do you believe the effect will be on the secondary mortgage market 

if Congress passes legislation without adequately clarifying the 

terms by which players in the secondary mortgage market would 

be legally liable for failures at the origination level? Could you give 

me your view on that? 

Ms. BRAUNSTEIN. Given the fact that the markets are not functioning well now, it’s hard to predict accurately what the impact 

would be. But, certainly, the more clarity that is there, the better 

they will function when they come back. So again I would argue 

for great clarity in what the rules are so that they are able to do 

the due diligence they need to do before purchasing loans. 

Mr. ROYCE. If capital fails to come back into the secondary mortgage market, what will that do to the availability of credit at the 

origination level in your view, if you could share that with us? 

Ms. BRAUNSTEIN. That would be a severe outcome for the ability 

to have credit available in the market. I do not think though that 

having strong consumer protections in place necessarily means that 

there would not be capital flow. I don’t think they’re mutually exclusive. 

Mr. ROYCE. Going to another question, should Congress fail to 

pass mortgage reform legislation, how willing do you believe investors will be to purchase mortgages from institutions with lax underwriting standards? 

Ms. BRAUNSTEIN. I would hope that investors would not be willing at all to purchase homes from institutions that lack good underwriting standards. One would hope that that lesson has been 

learned, but that does not preclude the need for rules to make sure 

that happens going forward. 

Mr. ROYCE. In your opinion, to what extent have private investors shied away from the secondary mortgage market in the United 

States since the housing downturn? Can you quantify that for us? 

Ms. BRAUNSTEIN. No. I am not prepared to do that. 

Mr. ROYCE. Pardon? 

Ms. BRAUNSTEIN. No. I cannot do that. I don’t have that kind of 

data with me. 

Mr. ROYCE. What do you suspect has happened there? Or without the data, can you give us a kind of broad overview of what you 

think has happened? 

Ms. BRAUNSTEIN. I really am not prepared to discuss that. It’s 

not my area of expertise. 

Mr. ROYCE. Well, I’ll ask the other witness for his views on that. 

33 

Mr. ANTONAKES. Well, I think certainly the private investors 

have shied away from that market without strong evidence to demonstrate it other than what we see, just based on the uncertainty 

that’s occurring at this point in time. But like my colleague before 

me, I also daresay that we heard these arguments before when assignee liability was discussed in the past, and I think the market 

would be in far better condition today if State provisions, relative 

assignee liability, had held up. 

Mr. ROYCE. Yes, I think the secondary mortgage market outside 

of the reach of the Federal Government is all but evaporated from 

what I’ve seen; and so I didn’t think it was too tough to come to 

that conclusion. And I think private investors in this market, many 

of whom originally endured significant losses when the housing 

bubble burst on us, I think what they’re suffering here is a crisis 

of confidence. 

And I think the actions that we are taking that we need to take 

are to re-instill that confidence. And to the extent that we make 

mistakes in terms of the policies that we push that create the 

blowback of even greater lack of confidence and the judgment either of Congress or the regulators that that compounds the problem going forward, would you agree with that assessment? 

Ms. BRAUNSTEIN. I think that it would be important to re-instill 

confidence in the markets, that there be some kind of rules in place 

that will help re-instill that. I think that having rules rather than 

no rules would instill more confidence. 

Mr. ROYCE. I agree with that, but I think we also though have 

to caution the members on this committee against moving legislation that would discourage the very essential private capital from 

coming off of the sidelines and back into the private market, because that’s what we need right now. 

Mr. WATT. The gentleman’s time has expired. 

Mr. ROYCE. Re-instill that confidence. Thank you. 

Mr. WATT. The gentleman from Colorado, Mr. Perlmutter, is recognized for 5 minutes. 

Mr. PERLMUTTER. Thank you, Mr. Chairman. Ms. Braunstein 

and Mr. Antonakes, thank you for your testimony today. 

You two are knowledgeable in some very complicated areas. The 

products you know, change every day, seem to be more elaborate, 

more complex every day and not quite sure where they’re going. 

Which sort of brings me to my point number one. My point number one is we’re trying to address a lot of products, a lot of issues, 

a lot of consumer—you know, can the customer really understand 

what it is that they’re getting when it comes to the loan that’s 

being made? 

And the desire is to make sure that the buyer is aware. Buyer 

beware. Let’s start with Caveat Emptor, Buyer Beware. 

But we need to make sure, because these things are getting so 

complex. And you know, I had last year’s version of this bill which 

pushed me pretty far. I come at it more from a creditor’s standpoint than some of my colleagues on this side of the aisle. 

But I do feel that customers have been bowled over by some of 

the terminology. So let’s just get to ‘‘a bright line.’’ And this is more 

of a theoretical question. But maybe we should just be saying: The 

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34 

terest rate. To get back to the old usuary laws that existed, whether it’s for first mortgages, junior mortgages, credit cards. 

Can I have your reaction to establishing just plain old bright-line 

usuary laws that everybody works within? 

I stunned you, because I’m coming at from such a different direction— 

Ms. BRAUNSTEIN. No. I think that while there may be some appeal to that, that would very much restrict choice in the markets, 

and restrict availability of credit to a number of people. 

I do think that it should not be just Caveat Emptor. I don’t believe in that. I think that these products have become very complex 

and that disclosure alone is not adequate to deal with many features on these products. And that’s why there is a need for substantive regulation around products and features, but that the regulation should still allow some innovation in products to make 

credit widely available and to give customers some choice in the 

products they choose; but the customers should be protected at the 

same time, and I think both can happen. 

Mr. PERLMUTTER. All right. Mr. Antonakes? 

Mr. ANTONAKES. Well, I think this bill tries to do that in some 

respects by limiting the types of bills and the interest rates, which 

would be covered by the safe harbor. 

So I think that is one of the goals of this legislation. 

Yes, we’ve done something similar with a different approach in 

Massachusetts, in terms of subprime loans. We’ve required now a 

mandatory opt-out of a customer. They have to affirmatively opt 

out of a subprime loan, if it’s not a fixed-rate product. And if they 

choose on their own volition to move into a subprime loan that’s 

an adjustable rate mortgage, then mandatory in-person counseling 

kicks in to provide that type of education, so they can then make 

hopefully an educated decision as to whether or not this is the best 

product for them. 

You know, a cap on interest rates would simplify matters, especially with the fixed-rate products, certainly. My guess is that 

that’s, you know, part of the goal of these legislation. The more 

simplified loans, with, you know, market interest rates get the safe 

harbor. The more complex loans, they can still be made, but there’s 

going to be greater restrictions and greater penalties for the companies, conceivably. 

Mr. PERLMUTTER. Well, and I guess where I’m coming from is 

we’ve talking about bright lines a lot, and I have to agree with my 

colleagues on this side about the complexity of these loans and 

sometimes the borrower doesn’t really know what they’re getting 

until it’s too late. 

But I agree with some of my colleagues on the other side of the 

aisle that we’re going to have some consequences from net tangible 

benefits and thing like that, that I’m not quite sure where we’re 

going. 

In Colorado—and it’s before both of your times—but back in the 

early 1980’s, we did have limits for first mortgage. We had limits 

for junior mortgages. We had limits for credit cards. And things 

seemed to work pretty well. 

35 

But then we had that huge spike in interest rates in the early 

1980’s, and Congress basically lifted the lid on all interest rates, 

as it applied to customers. 

And I don’t know whether we need to go back to those old days— 

and I’m just sort of speaking, you know, to two experts out loud, 

and I appreciate your responses. 

A couple other points— 

Ms. BRAUNSTEIN. Can I just say that— 

Mr. PERLMUTTER. My time is up. 

Ms. BRAUNSTEIN. Oh. 

Mr. WATT. The gentleman’s time has expired. 

The gentleman from New Jersey, Mr. Lance, is recognized for 5 

minutes. 

Mr. LANCE. Thank you very much, Mr. Chairman. Good morning 

to you both, and thank you for being here. And I certainly rely on 

your expertise. I want you to know that. 

Mr. Antonakes, many States have voluntarily passed SAFE implementation legislation, and some of those States’ standards are 

higher than the standards that are contained in this bill. 

And do you think that this bill should have been more restrictive, 

or was it written properly to give you at the State level enough 

participation in what you want to do across the United States? 

Mr. ANTONAKES. Well, Congressman, thank you. 

I believe that ideally, a Federal predatory lending law is a floor, 

not a ceiling, allows States to enact laws more protective to their 

customers, if they choose to do so. And also whereas the rules are 

going to be such an integral part of the implementation of this law, 

there as to be a mechanism for State involvement in the rule-making process and also a mechanism for State enforcement. 

Mr. LANCE. Thank you. And when you were here before—and I 

certainly was very interested in your testimony before—you stated 

that regarding ARMs, that you didn’t think necessarily that they 

were the problem, and that you’d hate to cut those products out of 

the marketplace. 

Some critics of the legislation believe that the safe harbor provisions aren’t so safe for prime ARMs. What is your view regarding 

that in this legislation? 

Mr. ANTONAKES. Well, I think that safe harbor is a good concept. 

I think it has to be drafted very carefully. We’ve discussed that I 

believe there are fixed-rate products out there, beyond a 30-year 

rate product, which is a safe and sound loan if it’s underwritten appropriately, and the customer understands it and they can afford 

it. 

Likewise, a traditional ARM product, not the interest only loans, 

not the loans with the teaser rates; your traditional 7(1), 10(1) 

ARM products are sound products, and they are limited on how 

much the interest rate can swing, as well as the underwriting and 

the ability to repay is taken into account. 

I believe, you know, we’re fortunate to be in a low-interest rate 

environment now, but those are products that are more important 

as rates increase, and would hope that if it is truly understood 

product, a vanilla product, a well underwritten product, that it 

could conceivably fit within the safe harbor as well. 

Mr. LANCE. Thank you. 

36 

And Ms. Braunstein, good morning to you. I also rely on your expertise and always enjoy your testimony. 

Obviously, we don’t want to throw the baby out with the bath 

water and this is a subtle matter. Generally speaking, do you believe that the legislation strikes the right balance? Not all the particulars, but just generally speaking. Obviously, we want as much 

available to the American public as possible, with the appropriate 

safeguards, so that the public is not being abused. 

Just generally, do you believe that an appropriate balance is 

being struck here? 

Ms. BRAUNSTEIN. Generally, I would say that is true. Our staff 

has worked closely with committee staff to submit a number of 

comments on it, and there are some pieces that I think still need 

further clarity for us to get a sense of. 

But generally, a lot of it mirrors what we did with the HOEPA 

rules, and we think that those struck the right balance. 

Mr. LANCE. Thank you very much. I yield back the balance of my 

time. 

Mr. WATT. Mr. Minnick is recognized for 5 minutes. 

Mr. MINNICK. My question is for Ms. Braunstein. Consistent with 

Chairman Watt’s opening remarks that this is still a work in 

progress, and we all share the similar objective of, ‘‘Let’s improve 

underwriting by having some risk retention as a principle.’’ 

And listening to Ranking Member Bachus and some of my Republican colleagues, concerns that the 5 percent retention when 

compounded, would simply chew up a lot of the capital and reduce 

the capacity to make loans, particularly for long-term loans over an 

extended period of time—concerns which frankly have been expressed by financial institutions in my State when I’ve discussed 

the concept with them. 

What would you think if we were to pass a bill that allowed 100 

percent alienation if you could sell the entire loan, but you retained 

a contingent liability for 5 percent of the exposure for the first loss, 

and then grant to your or other bank regulatory institutions the 

power to establish regulations that would decide how to value, that 

retained a contingent interest and set that up as the reserve 

against capital? 

And of course, you’d have independent auditors, who would make 

their judgment with respect to financial statements. But as a way 

of basically not incurring more capital than was actually needed to 

retain the risk that in fact is retained, based on the underwriting 

of these institutions. 

Ms. BRAUNSTEIN. I think as with all methods of doing this, the 

devil is always in the details for these things. But I would— 

Mr. MINNICK. This is why I want to give the authority to you. 

Ms. BRAUNSTEIN. Right. Well, and I think that that would be 

helpful, and I would want to have our capital experts back at the 

office take a look at what you’re suggesting. 

Mr. MINNICK. Thank you. 

Mr. Antonakes, do you have any reaction to that conceptually? 

Mr. ANTONAKES. No. I think it’s an interesting concept, and I 

think it merits review and study. And it may, you know, conceivably could alleviate some of the concerns. We would have to take 

a look at it, but we would be happy to do so. 

37 

Mr. MINNICK. Thank you, Mr. Chairman. I yield back the balance 

of my time. 

Mr. WATT. I yield myself 5 minutes. Oh, I’m sorry, Mr. Ellison 

has arrived. I thought I was going to be last. But Mr. Ellison is 

recognized for 5 minutes. 

Mr. ELLISON. Thank you, Mr. Chairman. 

I have had a busier morning than usual. This is a very, very important hearing for me. And I want to thank the panelists for being 

here. 

Ms. Braunstein, could you indicate what you think the benefits 

would be of requiring mortgage originators to adhere to their fiduciary duties, including the basic one that they act in the best interests of the buyer? 

Ms. BRAUNSTEIN. Well, I think that one of the problems that we 

have seen in the current crisis has been that customers often do 

not understand how mortgage brokers function, and that they’re 

not necessarily in all cases looking out for the benefit of the customer, that they are looking to their own compensation, and that 

that is not something that consumers often understand. 

So I think that having a duty of care might help to alleviate 

some of that. I think there may be some, again, the devil is in the 

details in terms of enforcement of that and how exactly that would 

work. But— 

Mr. ELLISON. Well, on a common-sense level, I’m a 45-year-old 

person who bought a home back in 1991 with my wife. I have purchased a home exactly once. But if you’re a mortgage originator, 

you can’t survive if you’re only doing one deal per morning. So 

you’re doing them all the time. 

There is clearly an asymmetry of information and experience, so 

that duty might be beneficial. 

Do you agree with that, Mr. Antonakes? Or what do you think? 

Mr. ANTONAKES. I agree conceivably that—yes. And I certainly 

agree that a lot of folks, regardless of whether they went to a 

broker or lender or even banks in some instances, were put in loan 

products that were not the best product for them. 

Mr. ELLISON. Yes. And in my view it doesn’t matter what your 

level of education is. If you don’t do mortgage origination, you don’t 

know it as well as somebody who does it every single day. 

Ms. Braunstein, you expressed concern about the ability of investors to comply with the prohibition against making loans without 

a ‘‘net tangible benefit.’’ Could you discuss your thoughts on this 

issue, and just kind of more clearly explain your views on this subject? 

Ms. BRAUNSTEIN. Yes. The concern with that is really the definition of net tangible benefit. And I know that there have been 

States that have worked on this. 

It is a very difficult term to define. 

It would need to be clearly defined, on the one hand because the 

lenders and assignees, moving forward, or securitizers, would need 

to be able to do the due diligence necessary to decide whether or 

not they’re buying a loan that was within the bounds of the law. 

On the other hand, trying to narrow net tangible benefit, there 

are so many products and features of those products, and there are 

so many reasons why people take out mortgage loans, and refiVerDate Nov 24 2008 16:00 Nov 19, 2009 Jkt 051584 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 K:\DOCS\51584.TXT TERRIE
38 

nance, that it would be difficult to narrow that down and not end 

up excluding circumstances where there is a loan that was in the 

best interest of that person, but didn’t make the list. 

So I just think it would be a challenge. I’m not saying it’s impossible. But it would be a challenge to do that. 

Mr. ELLISON. Thank you. 

Mr. Antonakes, could you talk about your views on this subject? 

During the mortgage crisis, we’ve seen that States often can move 

quicker than the Federal Government can. In fact, we have yet to 

pass an anti-predatory lending bill, so that’s evidence that can happen. 

With that in mind, do you think that it’s important that Federal 

legislation be a floor and not a ceiling for the benefit of customers, 

that we keep 50 pairs of attorneys’ general eyes on the problem? 

Can you talk about this idea? 

Mr. ANTONAKES. I’d be happy to, Congressman. I believe it’s vital 

that the law be a floor and not a ceiling, allow States the ability 

to continue to innovate, pass laws that are more consumer protective, if they so desire, keep the attorneys general and the banking 

departments that have examiners and investigators that can go 

into a place the day after an event has occurred, and keep them 

working. 

In Massachusetts, we have a predatory lending law dating back 

to 2004. We had regs in place in 2001. We have State CRA for nonbank mortgage lenders now. 

Mr. ELLISON. Can I just ask you all this question in my last remaining moments. I’ve heard some people in the industry say that 

well, ‘‘You know, the worst of the predatory loans is out, all the 

people making the bad predatory loans are out of the business now. 

So we don’t need to legislate.’’ 

Can you respond to such an opinion? I don’t hold that view. But 

what is your view? Do we still need anti-predatory lending— 

Ms. BRAUNSTEIN. Well, right now we’re not in normal markets 

and there’s not much going on, predatory or otherwise. 

But the markets will recover at some point, and I think it is important to put good protections in place for the future, which is 

why we wrote the HOEPA rules. And I do think that’s an important piece. 

Mr. WATT. Thank you. The gentleman’s time has expired. I will 

recognize myself for 5 minutes, and then recognize the chairman 

of the Full Committee finally afterwards, since this is a continuation of where Mr. Ellison was going anyway, on this State preemption issue. 

Our intention on writing the preemption provision was to preempt States only insofar as they had laws specifically relating to 

the ability to repay, or net tangible benefit. And we’re still working 

on the language. The question I want to ask is: If we found the 

right language to do exactly that, is there anything else in this bill 

that would preempt you from doing the kinds of things that you’ve 

described to Mr. Ellison that you think States ought to be not preempted from? 

Mr. ANTONAKES. Yes, Congressman. I believe some of the provisions relative to assignee liability are preempted. Also, I believe 

strongly that— 

39 

Mr. WATT. Preemptive but preemptive with respect to ability to 

repay and net tangible benefits, as I understand it. Do you understand it to be something beyond that? 

Mr. ANTONAKES. Well, I understand that some of the penalties 

that exist in State law for violations in those areas would also be 

preemptive as well. 

You know, I guess again what we’re asking today is we support, 

and we have supported for a long time, a concept of a Federal law. 

We really believe it needs to be a floor, not a ceiling; allow States 

to continue to collaborate with our Federal colleagues, and insure 

maximum consumer protection throughout. 

And I believe that also, if we’re going to have a Federal standard, 

that we have to be involved in some fashion, be it consultation of 

whatever the case may be, in the rule-making process as well. 

I believe we have— 

Mr. WATT. That actually leads me to my second question, and 

that goes to Ms. Braunstein. Mr. Antonakes has made that comment in his testimony and repeatedly in answers to various questions. Can you react to the notion that States might be allowed to 

be part of the rule-making process? 

Ms. BRAUNSTEIN. Well, as I’ve commented in my testimony and 

in my oral statement today, we think that when rule-making becomes inter-agency, it is not as efficient or timely as it is when 

done by a single agency. 

However, we do think it’s very important to get input and consultation from everybody who’s involved in the issue, and that 

would include the other agencies and definitely the State regulators. That doesn’t mean that they have to hold the pen. 

Mr. WATT. All right. That actually leads me to the third question 

I had, which was your comments in your original testimony about 

it would be more efficient to have one rule-maker as opposed to 

multiple rule-makers as we formalized in this bill, because sometimes you have to compromise down to satisfy all of those parties. 

How do you address the concern that we have that those parties 

might also make you compromise up? Whomever the ultimate rulemaker is. 

Ms. BRAUNSTEIN. Well, that’s certainly a possibility. I’m not precluding that. But I can tell you from our experience with interagency rule-makings, that is generally not the direction in which 

it goes. 

Mr. WATT. Mr. Antonakes, finally, you mentioned State enforcement, and I actually asked the staff as you were saying that, what 

the status of that was in the bill. And they acknowledged that 

might be a concern. 

So would you please, as quickly as possible, give us some language on what might be being proposed there, so we can look at 

it? 

Mr. ANTONAKES. I’d be very pleased to do so. 

Mr. WATT. Okay. 

With that, I yield back the balance of my time, and recognize the 

chairman of the Full Committee, Mr. Frank. 

The CHAIRMAN. Thank you, Mr. Chairman, and thanks to two of 

our very reliable witnesses. 

40 

I was at the Senate Banking Committee, being very noble. I was 

urging them to confirm as the new Assistant Secretary for Congressional Affairs my Chief of Staff, an idea which I hate, but could not 

think of a decent way to sabotage. And that’s where I was. 

But I did hear in the question from the gentleman, I know one 

of our most thoughtful members, a point which we may have—in 

the bill. As I understood it, the concern raised by some was—I’m 

talking now about the securitization and the risk retention that 5 

percent at every level would accumulate pretty much. 

And it was never my intention to go above the first level. That 

is, I think the importance here is with the originator. My own 

sense is that the problem is when the homes were originated—and 

I believe that—and maybe the language was ambiguous in what we 

drafted—I think it is important to do a 5 percent retention, or 

whatever we decide is appropriate, for the originator. 

I don’t think you need it after that. That is, it’s the originator 

who makes the loan or doesn’t make the loan, and my view is if 

there are too many bad loans, you have a problem. 

So as to the problem of accumulating, yes, I think that would be 

a problem. I think the major public purpose if served by putting 

this on the originator, because it really is the originator who decides whether it’s a good loan or not. 

I would yield to my friend from Idaho. 

Mr. MINNICK. Mr. Chairman, I had not intended it to accumulate 

either. But the accumulation issue was one mentioned by institutions— 

The CHAIRMAN. No, I appreciate that. I’m glad the gentleman 

brought it our attention, because let me ask him, if we were to 

make it explicit that it was not an accumulating thing, but just 

that the originating level? Would that alleviate some of the concerns— 

Mr. MINNICK. No, it would not, Mr. Chairman, because the concern was 5 percent on this loan accumulated with 5 percent on the 

next loan. After you make 20 loans, you’ve used up your lending 

capacity, or potentially if—or 100 loans. At some point, you would 

have all of your capital tied up in this cumulative— 

The CHAIRMAN. Well— 

Mr. MINNICK. Of loans that you have made over— 

The CHAIRMAN. All right. I would respond—then the question is: 

Do we want people who are so thinly capitalized to be originating 

all these loans? That’s the issue. I mean, you do get 95 percent of 

it right back. And you can, as people start to repay, get some 

money back. 

I understand that. I thought it was going up the chain. Then the 

question is, if people are so thinly capitalized—I would also note 

that it is the case that there wasn’t any securitization at all. That 

didn’t stop people from lending. 

But I appreciate that clarification. 

I would yield to the gentleman. 

Mr. MINNICK. Mr. Chairman, I might add that the concern was 

particularly expressed by mortgage brokers and others that do not 

have a deep pool of capital available for this purpose. And the 

thought was if they could retain on a contingent liability— 

41 

The CHAIRMAN. Well, I would look at that. But again, I want to 

say, the purpose of legislation is to create a system in which people 

can get mortgages. It’s not to provide employment for any particular business that offers mortgages. 

We often—in this committee, where we deal with the intermediation function, where the means becomes the ends in the minds of 

some people. And the purpose is to have a good, reliable system 

providing mortgages. 

People are saying, ‘‘Well, you know what? I don’t have that much 

money, so if you put in some of these rules, I may not be able to 

issue as many originations.’’ Well, maybe that’s not such a bad 

thing. 

But I understand that, and if a contingent liability works, okay. 

But I mean, if the argument is: ‘‘You know what? We want to get 

in the business of lending money, but we don’t have any, so would 

you please allow us to have a system in which we can make a lot 

of loans, given the fact that we don’t have any money?’’ 

I think that may be partly how we got into the problem. But I 

thank the gentleman for the clarification, and I would yield back. 

Mr. WATT. I thank the Chair for his intervention. And just for 

the Chair’s information, one other possibility that’s being floated is 

perhaps the possibility of maybe either reducing or eliminating the 

retention requirement for safe harbor loans. 

So I’ve asked the Chair to think about that as a concept. I’m not 

asking you for a— 

The CHAIRMAN. No, I appreciate it. And the details have to be 

there. 

But I did just wonder if the gentleman would give me back some 

time, is that the notion that if we do something that we think 

makes the system work better, some people won’t be able to make 

a living out of it, I mean, the purpose of the system is to get wellrun loans. And if there are other ways to deal with it, that would 

be reasonable. To the extent that that encouraged more of the kind 

of safe-harbor loans, that would be reasonable. 

Mr. WATT. I think I want to express the committee’s full thanks 

to these two witnesses. I think you’ve edified us, and gotten us off 

to a great start, and laid a foundation for further discussion. 

Ms. BRAUNSTEIN. Thank you. 

Mr. WATT. And you are excused. 

I would invite the second panel to come forward, as I invite the 

Chair to come forward to assume leadership. 

Can I encourage the transition to take place as rapidly and as 

quietly as possible? 

Let me thank the next panel of witnesses for being here, and introduce them promptly and briefly without elaborating on all of 

their credentials, so that we can expedite getting to their testimony. Mr. John Taylor, president and chief executive officer of the 

National Community Reinvestment Coalition, Mr. Mike Calhoun, 

president of the Center for Responsible Lending, Ms. Margot Saunders, Of Counsel at the National Consumer Law Center, Mr. Eric 

Rodriguez, vice president of public policy of the National Council 

of La Raza, and Mr. Hilary O. Shelton, vice president for advocacy 

and director of the Washington bureau of the NAACP. 

42 

Each witness will be recognized for 5 minutes to provide testimony. Your full written statements and any materials you wish to 

submit with it will be made a part of the record in their entirety. 

Mr. Taylor is recognized. 

STATEMENT OF JOHN TAYLOR, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL COMMUNITY REINVESTMENT 

COALITION 

Mr. TAYLOR. Good afternoon, Chairman Watt, Ranking Member 

Bachus, and other distinguished members of the committee. I am 

John Taylor, the president and CEO of the National Community 

Reinvestment Coalition. I am honored to testify today on behalf of 

NCRC on the topic of H.R. 1728. NCRC applauds the chairman’s 

leadership on this issue, and supports H.R. 1728 as a necessary 

measure to address mortgage reform and the need for comprehensive anti-predatory lending legislation. 

Predatory lending and other abusive practices have destabilized 

the markets, driven widespread unemployment, and brought the 

economy to its knees. This is not a new problem, and Congress 

must not let another session go by without passing anti-predatory 

lending legislation. 

NCRC has zeroed in on new waves of predatory lending practices. Most recently, unscrupulous lenders have migrated to the 

Federal Housing Administration program, FHA, which is now experiencing a rapid increase in defaults. 

In addition, the old predators are transforming themselves into 

new predators. NCRC’s investigation into foreclosure scams shows 

that formerly abusive brokers are now reemerging as foreclosure 

mitigation consultants. These consultants exploit distressed families by charging exorbitant fees, and not engaging in any legitimate 

foreclosure prevention. 

NCRC will be releasing a fair lending audit using mystery shopping of more than over 100 for-profit national foreclosure prevention service providers in May of 2009. If regulatory enforcement is 

not immediately tightened, the unsafe and reckless lending practices of the past will continue to recycle into new abuses against 

consumers, thereby prolonging the economic crisis and hampering 

the recovery. 

In order to effectively purge predatory lending practices, an antipredatory lending law must include comprehensive protections 

against abusive products. NCRC does believe that H.R. 1728 could 

be expanded to include consumer protection provisions. However, 

NCRC also acknowledges the fact that the current bill provides 

several protections banning and limiting a number of problematic 

practices. 

We support the bill’s ban on prepayment penalties for subprime 

loans and non-traditional loans, and its ban on mandatory arbitration for both closed end and open end loans. Like prepayment penalties, mandatory arbitration traps borrowers in abusive loans. 

NCRC also supports the tenant protection provisions included in 

H.R. 1728. Tenant protections safeguard the interests of all parties, 

including the neighborhood—the lender and the tenant, by ensuring that a foreclosed home is occupied until it is sold. 

43 

We support the protections against abusive servicing in H.R. 

1728, such as the prohibition against force placed insurance on borrowers by services. Likewise, we’re pleased to see that H.R. 1728 

will help deter appraisal fraud on high-cost loans. But while helpful, we believe that more comprehensive measures must be implemented to safeguard against the appraisal fraud. 

This committee has diligently sought advice on strengthening the 

bill’s provisions, and we are grateful to be part of that conversation. We operate a national foreclosure prevention program, directly interacting with individuals and communities that have been 

attacked by predatory lending. 

Therefore, we would like to offer the following recommendations 

to strengthen the consumer protections contained in H.R. 1728. 

The safe harbor provision assumes that certain loans are not abusive. A presumption of compliance means that any consumer alleging a legal violation may prove that the loan violated—must prove 

that the loan violated H.R. 1728’s provisions. 

When loans do not quality for the safe harbor, a lender must 

prove that they are not affordable, or lacked a net tangible benefit. 

A consumer will have much more difficulty defending against an 

abusive loan that slipped through the safe harbor than a loan that 

did not qualify for the safe harbor. 

NCRC therefore recommends the deletion of the safe harbor provision, and the use of strong consumer protections to all loans. If 

the committee retains the safe harbor, the legal standard for safe 

harbor loans should be altered to provide borrowers with adequate 

defenses against abusive loans. 

Also, there is no requirement that a residual income analysis be 

used when determining if a borrower qualifies for a loan. This 

analysis ensures that low-income borrowers have enough income 

left over after paying on debts, in order to afford the basic living 

expenses. 

Regarding tenant protections, NCRC recommends modification of 

H.R. 1728 to allow tenants without a lease the rights afforded to 

them under the State or Federal law, whichever is stronger in the 

better interest of the renter. 

Under H.R. 1728, lender securitizers and assignees would have 

limited liability. NCRC recommends that the committee reevaluate 

the limited liability mechanisms, and develop a system that would 

more effectively assure compensation to wronged borrowers, while 

responding to the industry concerns about unlimited liability. 

The bill’s provision that lenders assume 5 percent of the credit 

risk is a good start to placing responsibility on all parties. However, NCRC recommends that the committee consider apportioning 

predictable portions of liability on services, securitizers, and investor institutions. 

Mr. WATT. Mr. Taylor, I always hate to do this to witnesses, because I know we don’t give them enough time, but I do have to ask 

you to wrap up. 

Mr. TAYLOR. I’ll do that. We ask you to reconsider the preemption portion of the bill, consider that the fair housing laws and 

CRA laws that apply to the States, and they are able to do things 

on—States on additional level that expand on those laws. 

44 

I have to say a word about the regulatory agencies, because, you 

know, you folks, you passed HOEPA, you passed the fair lending 

laws, you passed truth in lending, you passed CRA. If you don’t 

have the sheriff, the regulatory agencies enforcing these laws, then 

you might as not waste everybody’s time. Because that agency that 

just sat up here, and testified— 

Mr. WATT. The gentleman’s time has expired. I agree with you, 

but it doesn’t relate to the bill, so I— 

Mr. TAYLOR. Understood. 

Mr. WATT. We are with you. 

[The prepared statement of Mr. Taylor can be found on page 290 

of the appendix.] 

Mr. WATT. Mr. Calhoun, you are recognized for 5 minutes. 

STATEMENT OF MICHAEL CALHOUN, PRESIDENT, CENTER 

FOR RESPONSIBLE LENDING 

Mr. CALHOUN. Thank you, Mr. Chairman, and Ranking Member 

Bachus. Like the Center for Responsible Lending and its lending 

affiliate, Self-Help, I personally come at this issue with feet in both 

the lending and the consumer protection world. I’ve been responsible for legal compliance for a multi-State lender. I’ve sold and 

securitized home loans on the secondary market. I’ve been a primary drafter of the North Carolina and other State predatory lending laws. I’ve been a private residential real estate developer, 

closed home loans as an attorney, and represented borrowers facing 

foreclosure. 

I would start with three critical numbers, 90, 60, and 50: 90 percent of subprime borrowers had a home before they got the 

subprime loan; 60 percent of them qualified based on credit scores 

for prime loans; and 50 percent of them will lose their homes, lose 

their homes, not go into default, but lose their homes in this crisis. 

And when you add in the fact that over about half of all AfricanAmerican and Hispanic borrowers were getting subprime loans, the 

impact has been devastating. 

I want to first praise this bill for several areas where it substantially improves over the previous bill, the coverage of all loans, not 

just subprime loans. About half of the foreclosures will be nonsubprime foreclosures. 

Second, the removal of the irrefutable presumption of compliance 

that was in the previous bill. The previous bill would have insulated from any legal claim all of the payment option ARMs that are 

bringing down so many financial institutions today, for example. 

And finally, for recognition of the effective lack of accountability. 

And with that, I’ll segue into the areas where the bill, I believe, 

can be improved. 

First, regarding the skin in the game provision which has been 

discussed. We support that, as we believe lack of accountability has 

been a problem. There are some inherent limitations, though, on 

how much the skin in the game can help. It essentially says, ‘‘If 

this loan goes bad, you share in the losses,’’ but you run into capital problems and things like that, about how much of the loss. 

I mean, 5 percent? Loans today are having 50 to 60 percent loss. 

You’re not keeping much of the loss there with the originator, and 

I don’t know if you can keep more. 

45 

We think the flip side of that is even more important, and that 

is, how do you make money off the loan, and that should be aligned 

with sustainability. Right now, and what we have seen over the 

last few years, most of the money was made by the origination of 

the loan, rather than the performance of the loan. 

Two simple steps would dramatically change that, and would go 

to—Congressman Perlmutter, would be more akin to what—you 

and I both grew up with lending standards in the 1970’s—and that 

is, to require that qualified mortgages have no prepayment penalty, 

and have fees of not more than 2 percent lender origination fees— 

is what that would do, would mean that for loans to be profitable, 

they have to perform. You’re not getting the money for origination. 

It also has the virtue of it’s a bright line that people can easily 

comply with at all levels, from origination to the secondary market. 

And it would dramatically change the market, and do perhaps 

more than any other provision that’s in this bill right now, so we 

strongly urge that as a protection. 

Let me move next to some of the other areas. There have been 

questions today about the anti-steering provision. It currently has 

weak language and weak remedies, and we have urged in our written testimony specifics about how to improve that. 

Second, regarding yield-spread premiums, in 2001, HUD gave 

yield-spread premiums the green light, and much of the damage 

that we have seen in recent years is a result of that. They need 

to be reigned in, and the bill needs to be strengthened to prohibit 

the double charging of broker fees that is still permitted under the 

bill, that is you can get front end and back end fees, and double 

charge the consumer. 

Fourth, Wall Street needs to be required to look at the loans that 

it funds. This bill actually removed and deleted the due diligence 

provisions that you had in the prior bill, and I know Mr. Watt, that 

you worked to improve. They were removed from this version. We 

urge that they be put back, and improved in the way that you suggested in 2007. 

Finally, you need to strengthen the remedies, while still protecting responsible lenders. If there were a crisis of speeding-related accidents, I don’t think we would respond with a general prohibition against excessive speeding, a limited number of officers to 

enforce the law, and remedies that said if you’re stopped, the penalty is that you’re required to slow down for that specific trip. 

The remedy provisions in this law, unfortunately, are much like 

that. If you violate the law, and I’ll conclude quickly, they are generally on the general standards. If you violate them, the result is 

you correct that specific loan, and we believe that may not be 

enough to move the market in the direction that I think we all are 

trying to do. 

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

179 of the appendix.] 

Mr. WATT. I thank the gentleman. 

Ms. Saunders is recognized for 5 minutes. 

46 

STATEMENT OF MARGOT SAUNDERS, OF COUNSEL, NATIONAL 

CONSUMER LAW CENTER 

Ms. SAUNDERS. Chairman Watt, Mr. Lance, Mrs. Capito, members of the committee, I am here today on behalf of a long list of 

national and State organizations that are listed on my testimony. 

We, and I speak on behalf of many of—all of these attorneys across 

the country representing low-income consumers fighting foreclosures. We respect your continued efforts to stop the abuses in 

the mortgage market. We are grateful for the proposed funding in 

the bill for legal services, which would supplement the work of 

many attorneys around the country, and avert thousands more 

foreclosures. 

We appreciate the improvements to Title I and Title II, relating 

to yield-spread premiums, limiting qualified mortgages, the tenant 

protections, and the change presumptions, as well as many of the 

other positive provisions in the other titles. 

But with regret, I am here today on behalf of these many low income—I mean, legal services and nonprofit attorneys, to say that 

in its current form, we oppose H.R. 1728. The bill is complex, convoluted, and will not accomplish its main goal, to fundamentally 

change the way mortgages are made in this country. 

Our chief concern is that the bill will preempt State law claims 

against holders, which are regularly used to save homes from foreclosure. Section 208 preempts State law claims which are premised 

on an ability to pay or net tangible benefit issues. 

These issues are integral to many of the common law and statutory claims that are brought to stop foreclosures or affirmatively. 

For example, proof of the failure to determine the ability to repay 

is a critical part of proof of an unconscionability claim, or a breach 

of good faith in fair dealing. 

There are a variety of specific State law common law claims that 

are omitted from the list that’s protected against holder preemption. The bill also—while preempting State law, the bill fails to provide meaningful remedies against holders for violating the prohibitions in the bill. Recisions against holders would be available only 

for loans in foreclosure, only after the holder has had 90 days to 

cure the violation, and failed to do so, and then only if the holder 

is not a securitization vehicle. This is complex and virtually impossible as a mechanism to solve the current problem. 

We would ask that you look at the passage of the FTC holder 

rule in 1975. That rule applied full liability to assignees for all 

claims and defenses that could be brought against sellers for loans 

used to purchase consumer goods such as cars. 

At the time, the retail and finance industries violently objected. 

They said the rule would cause credit to dry up, banks to stop purchasing consumer loans, the elimination of much of the consumer 

finance business altogether. The industry insisted that they should 

not bear the responsibility of policing sellers, that the rule would 

interfere with re-competition. 

In my testimony, I have a graph from Federal Reserve Board information that shows not one of these nightmare scenarios materialized. There was no reduction in available credit. There was no 

indication that sellers were hurt. There was no discernible increase 

in defaults. 

47 

This should be a lesson heeded today. Capped and measurable 

assignee liability imposes a market based discipline on the industry. The industry will not cease to exist. It simply will find a way 

to operate within the new guidelines, which will at the same time 

protect homeowners and create incentives within the industry to 

comply with the rules. Thank you. 

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

264 of the appendix.] 

Mr. WATT. You probably heard the bells and whistles that are 

going off. Unfortunately, we have been called to a series of votes, 

seven to be exact, so—and that’s the bad news. The good news is 

that these are the last votes of the day. So once we come back, we 

will be able to continue the hearing and proceed without being interrupted by Floor votes. So I’m—there is a motion to recommit. 

There are seven votes, so maybe we should just set a time by which 

everybody should be back, and that would give you an opportunity 

to go and maybe grab a bite to eat or something of the kind. 

Let’s see, 15, 20, 25, 30, plus 10 is 40, 15 more is 55, and final 

passage, 60, 65 minutes of votes, even without lag time. So let’s 

shoot to reconvene at 2:00, and that’s subject to our being able to 

get back. But plan—if the witnesses will plan to be back by 2:00, 

I think that would serve a very useful purpose, and that will allow 

us to hit the ground running as soon as we get back. I apologize, 

but doing it this way allows the final two witnesses on this panel 

to provide some continuity into the question and answer period. 

The hearing will stand in recess until at least 2:00. 

[recess] 

Mr. WATT. The hearing will come to order. I thank all of your 

for being patient. Members will filter in as we continue this afternoon. 

And unless somebody is able to represent to me that all of the 

differences have been worked out while the recess was in, and that 

everybody is in agreement, we’ll proceed with the hearing. If we all 

have an agreement, then we can all go home. 

Ms. SAUNDERS. Oh, but we—it’s great, we’ll be great. 

Mr. WATT. Well, we had some. 

[laughter] 

Mr. WATT. I didn’t get the unanimous consent. Let me ask unanimous consent that Mr. David Berenbaum replace John Taylor as 

the person who will answer questions in his place. Mr. Taylor had 

a plane to catch. 

Now—we’re missing somebody else. 

Mr. SHELTON. Yes. I believe Ms. Aponte is going to be representing Eric Rodriguez. Thank you. 

Mr. WATT. Is she invisible? 

Mr. SHELTON. She was here a little while ago. 

Mr. WATT. Okay. I ask unanimous consent that Ms. Aponte replace Mr. Rodriguez on the panel, because apparently Mr. Rodriguez had another commitment also. 

Without objection, it is so ordered, and we will proceed. 

Mr. Shelton is recognized for 5 minutes. 

48 

STATEMENT OF HILARY O. SHELTON, VICE PRESIDENT FOR 

ADVOCACY & DIRECTOR, WASHINGTON BUREAU, NAACP 

Mr. SHELTON. Well, thank you, Chairman Watt, Chairman 

Frank, Ranking Member Bachus, and and all the members of the 

committee for your work on this issue, for this hearing, and for inviting me here today. 

The NAACP is deeply appreciative of your interest in our views 

on predatory lending, as it is clearly a crucial civil rights issue for 

the 21st Century. 

For many Americans, the issue of predatory lending has just 

come into focus within the last few years as a disparate number 

of foreclosures are currently rocking our Nation’s economy due to 

subprime predatory loans. Sadly, predatory loans of all types are 

nothing new to the African-American community and other racial 

and ethnic minority Americans as well. 

For decades, predatory lenders targeted Americans, borrowers of 

color, with their nefarious products. Studies from as early as 1996 

clearly demonstrate that many people of color could qualify for 

more affordable loans then they are allowed to receive. 

African Americans are 3 times more likely to receive a highercost subprime loan than our Caucasian counterparts. Latinos are 

2.7 times more likely to receive a higher-rate loan than white borrowers. 

For most types of subprime home loans, African Americans and 

Latino borrowers are more than 30 percent more likely to have 

higher rate loans than Caucasian borrowers, even after accounting 

for differences in risk. 

Let me make it clear that the NAACP recognizes the legitimate 

role that the subprime market has played, and can continue to play 

for hundreds of thousands of qualified Americans with spotty credit, or in some cases a lack of traditional credit history to pursue 

the American dream of homeownership. 

Unfortunately subprime markets have been abused by too many 

unscrupulous lenders who are willing to ruin people’s lives, not to 

mention whole communities, for their own personal gain. 

Predatory lending ruins not only individuals’ lives and families. 

It’s disastrous impact can be felt by whole communities. Sadly, 

these people and their communities are often those who can least 

afford to lose what little wealth and stability they hoped to gain 

through homeownership. 

Given that homeownership is considered one of the most reliable 

ways for economically disadvantaged populations to close the 

wealth gap, one direct result of these unfair and immoral discriminatory predatory loans is that it is harder for African Americans 

and other racial and ethnic minorities to build wealth. 

Predatory lending is a direct attack on our financial security and 

economic future, an attack that is targeted on individuals and communities in part because of the color of our skin. 

Furthermore, given what we know about the impact that these 

predatory loans can have on families, communities, and our Nation, 

it should come as no surprise that once again, African Americans 

feel that we are the canary in the coal mine. 

49 

Financial institutions appear to be willing to see how much damage they can inflict on one sector of the population, and then we 

will know what the rest of the Nation can stand. 

And so the NAACP has a strong interest in seeing predatory 

loans outlawed and predatory lenders put out of business permanently. 

As such, there are several elements that the NAACP feels should 

be included in any effective comprehensive legislation, that will go 

a long way towards ending the scourge of predatory lending. 

These elements include: 

First, a band on compensation tied to the terms of the mortgage 

that often serves as an incentive for steering vulnerable borrowers 

into loans that are more expensive and riskier than those for which 

they may qualify; 

Second, the establishment of a Duty of Care that requires originators to present borrowers with loan options which are appropriate for their financial circumstances. 

Third, the establishment of a requirement that lenders and originators make loans that the borrower can afford to repay. 

Fourth, a prohibition on prepayment penalties in a subprime 

market. 

Fifth, an increase in protection available under the HOEPA for 

high-cost loans. 

Sixth, States and municipalities should be able to do more to end 

predatory lending than what is in the Federal bill, especially given 

the regional nature of some types of predatory loans and the fact 

that predatory lenders have a history of coming up with new 

schemes that bilk homeowners and would-be homeowners out of 

their hard-earned capital, whenever the existing scheme is outlawed. 

And finally, no legislation should in any way provide immunity 

for past acts of discrimination or violations of civil rights laws and 

regulation by lenders, mortgage brokers, or financial institutions. 

In closing, Mr. Chairman, I’d like to highlight that the NAACP 

supports H.R. 1782, the Fairness for Homeowners Act of 2009, introduced by Congressman Keith Ellison of Minnesota. While some 

of the provisions in Congressman Ellison’s bill are similarly addressed in H.R. 1728, H.R. 1782 has a very strong and detailed 

anti-steering provision. 

The NAACP feels strongly that H.R. 1782 is a good start, based 

on proven anti-predatory lending practices that have worked very 

well in Minnesota. 

And finally, a few words about H.R. 1728, the Mortgage Reform 

and Anti-Predatory Lending Act. As far as the NAACP is concerned, while this legislation has some definite strengths, there are 

also some areas where we look forward to working with the committee to make stronger. 

However, it should be clearly stated that in no way do we believe 

that this legislation as it is now will result in more discriminatory 

lending to racial and ethnic minorities. 

I’d like to again thank the chairman and the committee for your 

sustained longstanding and tireless efforts to address predatory 

lending. And as far as the NAACP is concerned, you were on the 

forefront, trying to end predatory lending abuses long before it was 

50 

a hot topic. And we appreciate all that you’ve done and all that you 

continue to do. 

I look forward to continue to work with you to ensure that predatory lenders are put out of business and that everyone is free to 

pursue the American dream of affordable, sustainable homeownership, regardless of his or her gender, age, race, or ethnic background. 

Thank you so much. 

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

286 of the appendix.] 

Mr. WATT. I’ll let the record show him to go beyond his 5 minutes, only because he was bragging about my history of being involved in the legislation. 

[laughter] 

Mr. WATT. Mr. Rodriguez’ appearance has improved tremendously since we went into recess. 

And so, we will recognize Ms. Aponte for 5 minutes. 

STATEMENT OF GRACIELA APONTE, LEGISLATIVE ANALYST, 

ON BEHALF OF ERIC RODRIGUEZ, VICE PRESIDENT OF PUBLIC POLICY, NATIONAL COUNCIL OF LA RAZA 

Ms. APONTE. Thank you. My name is Graciela Aponte. I handle 

NCLR’s legislative and advocacy work on issues such as affordable 

homeownership and foreclosure prevention. 

Prior to joining NCLR, I worked with constituents and community-based organizations on behalf of congressional representatives 

in Maryland and in New York City. And for 4 years, I worked as 

a bilingual housing counselor. 

NCLR has been committed to improving the life opportunities of 

the Nation’s 44 million Latinos for the last 4 decades. 

I would like to thank Chairman Frank and Ranking Member 

Bachus for inviting me to share our recommendations for the Mortgage Reform and Anti-Predatory Lending Act of 2009. 

This year, 400,000 Latino families will lose their homes to foreclosure. Rising unemployment has certainly had an impact; however, reckless and deceptive lending are the main culprits behind 

our foreclosure crisis. 

We commend members of this committee for their efforts to bring 

forth a stronger anti-predatory lending bill. However, there is more 

work to be done. 

Some have argued that predatory lending legislation is unnecessary at this point, that the banks have learned their lesson, and 

everyone will do a better job. 

However, we can see that abuses are still occurring, even in a 

market with tight credit standards. We must make sure that this 

never happens again. 

Here’s a glimpse of how this is still occurring: A retired vet recently visited El Centro in Kansas City, one of our affiliates. He 

had received a VA loan. After months of trying to make payments, 

he could no longer keep up. The counselor discovered that the payments represented 60 percent of his monthly income. 

His income had been marked up without his knowledge. He could 

have easily qualified for a mortgage based on his actual income. 

The brokers simply marked up his loan to earn higher fees. 

51 

As foreclosure rates rise, these stories continue to emerge. Oftentimes, the counselors find the borrowers could have qualified for a 

safe prime product. After helping more than 25,000 families purchase a home with a prime loan, we’ve seen that good products 

make all the difference. 

Housing counselors instruct their clients to wait until the right 

moment to purchase their home, then they connect them with the 

home loan that will set them up for success. 

The following provisions included in H.R. 1728 would have made 

a difference for so many families. We urge Congress to protect 

these provisions: Ability to repay standard; qualified mortgage; safe 

harbor; and tenant protections. 

First, the ability to repay provision would ensure that borrowers 

receive loans they can afford to pay. This reinstates a common 

sense lending standard. 

Through our housing counseling network and our lending partners, we’ve seen the power of good loans. It should be a primary 

goal of this legislation to create the space for sound lending products to compete for market share. 

Second, the qualified mortgage standard shifts the incentives in 

the market. Right now, borrowers are steered away from practical 

and affordable home loans. Instead, they are directed towards expensive and risky products that earn originators high fees. 

Together, these two provisions will help make room for positive 

innovations in the market. Over the past few years, we have seen 

good products, like the Bank of America Community Commitment 

loans, fall by the wayside in favor of risky products that pay a 

higher commission. 

Third, tenants need the time to find a place to live if the house 

they are renting is foreclosed on. This bill provides protections for 

tenants who are trapped in this bad situation. 

Having said that, three areas of the bill must be strengthened: 

First, the anti-steering provision does not clearly prohibit certain 

deceptive practices. Legislation should explicitly prohibit lenders 

from steering consumers to loans more costly than they deserve. 

Second, the Duty of Care provision does not go far enough to 

reign in mortgage brokers. Borrowers pay mortgage professionals 

to coach them through the largest financial transaction of their 

lives. Brokers should be obligated to give customers information 

they can trust. 

Third, the liability and enforcement standards are not strong 

enough to deter creditors from violating the new law. The mortgage 

system must work, regardless of whether families complain. 

We offer the following recommendations to further strengthen 

the legislation and to provide our full support: Any effective legislation must prohibit lenders from luring unsuspecting borrowers into 

unaffordable loans; must make mortgage brokers accountable for 

mortgages they give families; and must strengthen enforcement to 

make lenders obey the law. 

Representative Ellison’s bill, H.R. 1782, addresses some of these 

concerns. We are ready to work with the committee to strengthen 

H.R. 1728 and provide the protection our families need. I would be 

happy to answer any questions you have. 

52 

[The prepared statement of Ms. Aponte can be found on page 141 

of the appendix.] 

Mr. WATT. I thank each of these witnesses for their testimony, 

and I will now recognize Mr. Miller from North Carolina for 5 minutes. 

Mr. MILLER OF NORTH CAROLINA. Mr. Chairman, since Mr. 

Green has started to ask the kind of questions that I’ve asked in 

the past, I’ll pass on asking questions. 

Mr. WATT. Okay. 

Then, we will recognize Mr. Maffei while Mr. Green is getting organized. 

Mr. MAFFEI. I could certainly defer back to Mr. Green, if he’s 

ready. I don’t want— 

Mr. GREEN. Mr. Chairman, it seems that it is now my turn. 

Mr. WATT. In that case— 

Mr. GREEN. I will defer to seniority, but would like to be recognized— 

Mr. WATT. If we have to recognize Mr. Green, we’ll recognize 

him. 

Mr. GREEN. Thank you. Rarely do I find myself having been 

yielded to by two members. It’s a wonderful feeling. Thank you. 

Thank you very much, friends, for being here today and giving 

us your testimony. You’ve heard some of the previous testimony, 

and I’m concerned about your reaction to some of the testimony 

that you’ve heard, because obviously we want to get the best bill 

possible. 

So why don’t I start on this end. Is it Ms. Aponte? 

Ms. APONTE. Yes. 

Mr. GREEN. My vision is bad, but it’s not that bad. Okay? Yes, 

ma’am. With reference to previous testimony, is there something 

that you would like to respond to that will help us with this bill? 

Ms. APONTE. Our key recommendations are the anti-steering provision, to strengthen the anti-steering provision, which legislation 

is included in 1782, Representative Ellison’s bill, which gives explicit and clear direction to lenders to not steer consumers into 

high-cost loans. 

And then also the fiduciary duty for mortgage brokers. Our families pay extra money to go to a mortgage broker to help them find 

the best loan product for them. And this is not included in 1728, 

which would obligate them. 

Mr. GREEN. Is the bill clear enough with reference to whom it is 

the broker represents? I found that many of my constituents actually believe that the broker represents them. Is the bill clear 

enough on that point? 

Ms. APONTE. No. We would like it to have an actual fiduciary 

duty, where brokers are obligated to give the clients information, 

the best information that they can trust and not giving them higher commissions, so an actual fiduciary duty. 

Just like our families trust their doctors and their lawyers and 

folks like that, we want them to be able to trust their mortgage 

brokers. 

Mr. GREEN. All right. 

Mr. Shelton, if you would, please? Thank you, ma’am. 

Mr. SHELTON. Thank you. 

53 

I would have to agree with everything that Ms. Aponte has said 

very well, and she raised the issue of making sure that consumers 

understand who is representing them. 

As you know, that has been a tremendous problem. Our mortgage brokers go into our communities all the time, talk to less sophisticated customers about refinancing their homes, and before 

they know it, they find themselves taking out a $20,000 loan and 

owing $100,000 as a principal. 

Indeed that means that they assume that the mortgage broker 

represents their interest. There are some helpful provisions in the 

bill that we think help move us in that direction. But you cannot 

do too much to make sure that customers understand this. 

So certainly beyond the protections in the bill, it would be very 

important that we do a number of community education programs 

to provide that kind of assistance as well. 

Mr. GREEN. Thank you. 

Ms. Saunders? 

Ms. SAUNDERS. Thank you. 

Yes, I can clearly say there are a few things we’d like. 

First of all, there should be no preemption of State laws, State 

remedies in this bill. 

Second of all, there needs to be a simple, clear structure that applies to the entire market, with clear, meaningful remedies. 

We have tried to propose repeatedly that you draft a simple bill 

that creates market-based incentives for enforcement rather than 

litigation opportunities, shall I say, which this bill is full of. 

And for example, we think that if you required a 30-year, fixedrate, full amortizing, no-point-and-fee, no prepayment penalty— 

just the rate goes up and down based on credit risk—to be offered 

to everybody applying for a home loan—just require that it be offered, and the homeowner could opt out and get another, more exotic loan and have access to good disclosure— 

Mr. GREEN. I’m going to have to ask you to summarize quickly, 

because I’d like for Mr. Calhoun— 

Ms. SAUNDERS. Okay. I’m just about finished. But if you required 

that, it would make everything transparent and clear. 

Mr. GREEN. Okay. All right. 

Mr. Calhoun? 

Mr. CALHOUN. Something similar, but a little different that I 

touched on earlier. One of the key structures in this bill is the 

qualified mortgage safe harbor, because then you don’t have to 

have the credit risk retention, which will be a disincentive for loans 

outside the safe harbor. 

Loans inside the safe harbor should not be allowed to have prepayment penalties, and should not have fees above 2 percent, 

which accommodates almost all the lending that’s done today. 

If you put those protections in place, they will add market pressure to stop, for example, a lot of the steering, because the steering 

counts on being able to trap a borrower in loan and/or either take 

a lot of money out in fees. 

Mr. GREEN. I’m going to have to—yes, sir— 

Mr. BERENBAUM. Very quickly, I would build upon Congressman 

Kanjorski’s remarks about home evaluation and appraisal practices. There are current abuses in the area of broker price opinions, 

54 

and also with regard to the unregulated role that appraisal management copies are currently playing in the marketplace. 

Mr. WATT. The gentleman’s time has expired. 

Mr. Maffei is recognized for 5 minutes. 

Mr. MAFFEI. Thank you very much, Mr. Chairman. Thank you to 

the witnesses for being here. 

I just want to ask a brief question about some of the appraisal 

processes. I know that many of you have had some real concerns 

about how the appraisal process affects consumers. 

I share those concerns, and I wanted to ask specifically about ‘‘so 

called cost appraisals.’’ In fact, I do have a letter here that’s signed 

by both the National Consumers League and the National Community Reinvestment Coalition, which is represented here today by 

Mr. Berenbaum, among others, that speaks directly to the issue. 

It states that, ‘‘We need to return to a system in which home appraisals are determined using multiple methods.’’ And the letter 

suggests that the cost approach would help to stabilize the housing 

market. 

Mr. Chairman, I ask unanimous consent that the letter be included in the record. I just want to put the letter in the record by 

unanimous consent. 

Mr. WATT. Without objection, it is so ordered. 

Mr. MAFFEI. Okay. Thank you. 

I’ll start with you, Mr. Berenbaum, and then ask if anyone else 

has a thought. But what are your thoughts on mandating that a 

qualified appraiser use the multiple valuation methods? 

Mr. BERENBAUM. We actually fully support the use of a qualified 

valuation professional, an appraiser, in every loan situation. 

Now in the marketplace, that is not the reality today. One of our 

areas of concerns frankly has been the pressure that has been historically in this marketplace, brought originally to push up numbers. Now it’s the exact opposite in an environment of short sale 

and foreclosure, to in fact push down numbers. 

We are also very troubled by the inappropriate use of inaccurate 

automated valuation systems, or AVMs, by many securitizers, 

originators, and other players in the marketplace right now. 

They unfairly, and inaccurately in many cases, put valuations on 

property that injure communities, the tax base, and the consumer 

and homeowners alike. 

With regard to cost appraisals, we do believe that they are a tool, 

but just one tool. We do have some concerns about their use in lowto moderate-income communities. But again, we are looking to 

have in play as many different practices as possible to ensure accurate appraisals. 

Let me add one final point. We feel it would be very appropriate 

for the FFIEC Appraisal Subcommittee to play a role with this legislation, if we could augment the legislation as it has been presented to address problems with AVMs, to address problems with 

in fact the role of appraisal management companies. 

Mr. MAFFEI. Thank you. That’s a real constructive idea. 

I do have a minute or two left. Anybody else have a thought on 

this topic? I’ll open it up to the panel. 

Mr. CALHOUN. I would just add that I think the appraisal situation is an example where it shows that generalized duties have litVerDate Nov 24 2008 16:00 Nov 19, 2009 Jkt 051584 PO 00000 Frm 00060 Fmt 6633 Sfmt 6633 K:\DOCS\51584.TXT TERRIE
55 

tle market impact, whereas bright lines requirements and bright 

lines standards are much more effective. 

Virtually every State had a law that said it’s illegal to coerce appraisers, but that was the rule of the day. We need to structure 

market incentives so people make money off performing loans, not 

off originating loans regardless of whether they perform. 

Mr. BERENBAUM. And Congressman, if I could quickly build on 

that point. This proves the utility of having attorneys general have 

an active role in the marketplace. Andrew Cuomo and the New 

York State Attorney General’s Office is to be applauded for their 

role in developing a code of conduct in the IVCC and build on a 

suggestion—community organizations that was very similar. 

Mr. MAFFEI. As a New Yorker, I appreciate your compliment of 

my very able friend and Attorney General, Andrew Cuomo. 

Thank you very much to the panel, and thank you, Mr. Chairman. I yield back. 

Mr. WATT. The gentleman from— 

Mr. POSEY. Florida— 

Mr. WATT. —is recognized for 5 minutes. Sorry about that. 

Mr. POSEY. Thank you, Mr. Chairman. 

Mr. Calhoun, it has been said that the yield spread premium, or 

the YSP language from the last Congress’ bill, that there would be 

no possibility of anyone getting higher compensation in return for 

putting someone in a higher-cost loan. 

But your testimony here indicates that’s a little bit different. And 

I just wondered if you might expound upon that for me a little bit. 

Mr. CALHOUN. There are two sections in that provision. And the 

first has a general prohibition against bearing compensation. But 

then there’s a rule of construction that essentially said you can put 

any fee into the rate, so long as it has been disclosed. And so if I walk in for a loan, they can either charge me a $5,000 broker fee or a $10,000 broker fee, and put it all in the rate, and 

they’re just going to get paid more by raising the interest rate. 

So that rule of construction opens a loophole that allows I think 

one of the practices that there has been a lot of consensus should 

be prohibited. 

Mr. POSEY. And so as a followup, you see that as a fallacy in last 

year’s legislation. Do you see any correction in this year’s legislation? 

Mr. CALHOUN. That loophole was carried forward, is what we 

have suggested. And it follows on the testimony earlier this morning from Sandy Braunstein from the Fed, their studies have shown 

the customers lose almost every time when there’s a mix of an upfront fee and a back-end lender-paid fee to the broker. They tend 

to be double fees, not a substitute for each other. 

So we have said if you’re going to allow yields for premiums, say 

no up-front fee in addition to that fee that’s being paid by the lender. Studies show that customers at least have a chance under that 

system. 

Mr. POSEY. Now that makes perfect sense. Would you be kind 

enough to give me language that would make a change like that? 

Get it to my staff in the next few days? Would that be a reasonable 

request? 

Mr. CALHOUN. We can do that this week, yes. 

56 

Mr. POSEY. Okay. 

And also for, let’s see, Mr. Berenbaum, yes, there you are. The 

committee has been told—or at least I have understood—that Mr. 

Bernanke promulgated rules this year that will make it impossible 

to get those subprime loans. Why are the Fed’s high-cost loan protections and its new HOEPA regulations insufficient, in your estimation? 

Mr. BERENBAUM. Well, let me share a conversation I just had 

with a customer yesterday, who is facing an imminent foreclosure. 

They purchased their home from a major national home developer 

in a brand new development. The home was over-valued, after we 

did a forensic appraisal by the tune of $80,000. 

On top of that, they had an income which did not qualify them 

for the purchase of that home, which was a half-a-million-dollar 

home. And they were given an option ARM as a first, and a second 

loan that was due in a period of 5 years. 

They are now struggling to avoid a foreclosure, in fact, applying 

to the President’s new initiative to try to stay in their home. But 

that issue, in and of itself right there, addresses so many of the 

loopholes that we are concerned about that existed in the marketplace, and why, in fact, regulatory recommendations are inadequate to solve the problem. 

We need a transparent law that works from Main Street to Wall 

Street to prevent this from happening again. 

Mr. POSEY. And how do you think we might best accomplish 

that? I think everybody really wants that. But it has been elusive. 

What would be your recommended treatment of the problem— 

Mr. BERENBAUM. Well, I think some of the testimony in the first 

panel, particularly from the Commonwealth of Massachusetts, was 

very instructive. 

In my mind, a strong national law that actually allows States to 

work in concert, in partnership with Federal officials, would be 

ideal. And in fact, that law would allow States to bring actions that 

are new, fresh, that are not covered by existing Federal law. 

And so there are examples of that, in the Fair Housing Act, in 

the environmental movement, where in fact Federal and State regulators work hand-in-hand, and there is a clear bright line standard for all. 

The challenge for you on this committee is to find that common 

ground to establish that standard. 

Mr. POSEY. In reading the legislation, you know, throughout it’s 

pretty clear that nothing is intended to interfere or usurp any of 

the legislation that’s enacted by any States. Do you see that as 

being problematic? 

Mr. BERENBAUM. I do think that there are inherent limitations 

in the bill, as introduced, and our written testimony speaks to that, 

as did many of my colleagues at the table. 

Mr. POSEY. Well, thank you. I’m out of time. I’d like to have more 

time, but I understand the restraint, Mr. Chairman. 

Mr. WATT. The gentleman’s time has expired. 

Mr. Miller from North Carolina, if you wish to ask questions? Or 

I’ll go to Mr. Cleaver. 

I guess it is me then. 

57 

I think I have been in conversation with virtually everybody at 

this table in one way or another about various aspects of what they 

are concerned about, so maybe I should not ask questions, and that 

will expedite moving along. I mean, I think various concerns have 

been raised by various people, and we have been in discussions trying to address those concerns. I’m not sure we will ever be able to 

address Ms. Saunders’ concern that we not preempt anything, but 

at least I understand more thoroughly what her concern is today. 

Mr. BERENBAUM. Mr. Chairman? 

Mr. WATT. Mr. Berenbaum? 

Mr. BERENBAUM. If I could just make one final thought raised 

earlier by Mr. Taylor, my CEO, and that is we strongly would recommend that H.R. 1231, Chairman Frank’s and Congressperson 

Moore’s bill, the Foreclosure Rescue Fraud Act, be considered at 

the same time as this legislation. As you have heard from many 

witnesses, as you have seen reported in the newspapers, consumer 

rescue scam fraud is endemic right now. Thousands of dollars in 

equity is being lost with little service given, and we applaud that 

legislation and hope you can incorporate it into this legislation. 

Mr. WATT. I would just strongly encourage you to press that 

issue with the Chair. That is a decision that is probably above any 

of our pay grades as we sit here. But— 

Mr. CALHOUN. Mr. Chairman, as a native Floridian, if I could follow up to Congressman Posey’s question there on the preemption. 

There is, in addition to the preemption on remedies against assignees or just the holder who buys the loan, and most of these loans 

are sold—I think it is important to remember that this bill is still 

being enacted in the context of regulatory preemption by the Federal banking regulators who have said that the States cannot do 

anything, essentially, in terms of mortgage regulation against anybody—against creditors, against brokers, against assignees, 

securitizers, anyone. And just another one— 

I think there are two lessons from that. One, for most loans, this 

bill will be the only standard, and so it needs to be strong and comprehensive. In most loans, particularly with the consolidation in 

the financial industry that we are seeing recently, they are going 

to be originated through federally preempted lenders, and so the 

States aren’t going to be add on. So it is all the more reason to 

make sure this bill does the job and that that preemption by the 

regulatory agencies does not expand. 

Mr. WATT. Ms. Saunders wants to fuss at me, I’m sure. 

Ms. SAUNDERS. No, no. I would never fuss at you, Mr. Chairman. 

I just wanted to add that regardless of preemption, setting that 

issue aside, which is hard for me to do, but for the moment, setting 

it aside, it is very important that the remedies in this bill be clear 

and achievable, and the remedies are very confusing. First of all, 

it will be very difficult for any homeowner or their local legal aid 

attorney to find the securitizer, so a remedy against a securitizer 

is not all that helpful. 

Mr. WATT. I think we may be in the process of curing that problem. 

Ms. SAUNDERS. Well, that brings me to the second issue, which 

is the right to cure throughout this bill. If you have a right to cure 

that imposes simply the requirement that you do what you should 

58 

have done all along, it creates an incentive to the creditor to just 

violate the law because every once in a while when they are caught 

they just get to cure. There has to be a heavy penalty for violating 

the law, and the penalty needs to be applicable for the benefit of 

the homeowner as against anyone who owns the loan. 

And if you want to clean up, you want to allow the creditor to 

be the one holding the bag, then make the securitizer or the holder 

sell the loan back to the creditor when a complaint is made. But 

the homeowner has to be able to go against whoever owns the loan. 

Otherwise, the remedy for that problem cannot be a loan modification or stopping of foreclosure. 

Mr. WATT. My time has expired, even though I didn’t even ask 

a question, I think. But Ms. Bean, do you wish to be recognized for 

5 minutes to ask questions of this panel? 

Ms. BEAN. If I could. 

Mr. WATT. The gentlelady is recognized for 5 minutes. 

Ms. BEAN. Thank you, Mr. Chairman. 

I had a question for Mr. Calhoun. I recall when I closed on a 

home or even done a refinancing, the process is very confusing with 

all the documents. Right now, borrowers have a right to request 

and review a draft of the HUD-1 settlement statement, but many 

of them aren’t aware of the fact that they can get those documents 

prior to a closing so they would be better informed and prepared. 

Do you believe it would be more helpful for borrowers if we required that they were to receive those documents in advance of a 

closing? 

Mr. CALHOUN. I think that would be helpful because, in addition 

to the fact that most borrower’s aren’t aware of it, under current 

law there is no penalty, the borrower has no private right of action 

to take any recourse if they request it and the lender denies it. 

That provision of RESPA does not have any penalty. 

At the same time, I think it is important what Ms. Braunstein 

said, that the Federal Reserve has concluded that in a number of 

areas of mortgage lending, the disclosure is helpful and should be 

made as clear as possible, but it is not a substitute for strong, 

clear, substantive protections. When you go in to buy a car, we 

don’t say—they are going to tell you all of the engineering defects 

in the car and you figure out whether you want to buy it. We make 

them sell you a safe car, at least they are supposed to. And we 

need something similar in the mortgage context since that is most 

families’ most important financial transaction. 

Ms. BEAN. All right, I have another question to the group and 

whomever is interested in answering. The underlying bill has a 

title establishing an office of housing counseling in HUD, which I 

support. But in talking with mortgage servicers it is apparent that 

many borrowers have debt problems that extend well beyond their 

mortgage. Do you think it would be advantageous to create a certification process at HUD for total debt counseling? 

Mr. BERENBAUM. The National Community Reinvestment Coalition is a national HUD counseling intermediary, and I think that 

there are several issues related to the housing counseling programs. First, one, they are underfunded, which is a major issue. 

Second, many of the counseling agencies, because of the structure 

of some of the various modification or forbearance programs now 

59 

are not doing full file review, and that is a disservice to the consumers who they are trying to advocate for, as well as some of the 

servicers whom they are engaging with. 

I think you can’t possibly do informed housing counseling without looking at the entire budget situation of a consumer and recommending appropriate credit counseling or other assistance. It also 

means looking at if their legal rights have been violated and telling 

that consumer, don’t sign a waiver of liability or lease of claims 

that many of the servicers are in fact requiring today in modifications. But ASA also does money counseling. 

Ms. BEAN. Yes? 

Ms. APONTE. We are also a HUD intermediary. We have 50 housing counseling agencies nationwide. This is something that our 

counselors have asked for many times. They do homeownership 

counseling, but we have been asking for financial counseling for 

low- to moderate-income families for many years, so that is something that we would support. 

Ms. BEAN. Thank you. 

And the last thing I wanted to mention, as a co-sponsor of H.R. 

1728, I am supportive of the reforms that we are making in the 

lending process, but concerned that we might be overly restricting 

how we are defining legitimate, safe mortgages or qualified mortgages. And I would like your comments on whether you are supportive of including FHA, VA, rural housing loans, Fannie and 

Freddie confirming loans, and particularly fixed-rate loans that 

may be beyond a 30-year duration, either a 50- or 40-year. That is 

open to the panel, whomever would like to comment as well. 

Ms. SAUNDERS. May I comment? 

Ms. BEAN. Yes. 

Ms. SAUNDERS. It makes a lot of sense to want to include government-sponsored loans like FHA and VA loans, but we should keep 

in mind that FHA loans have been the vehicle for a lot of very bad 

lending. So just because they are FHA loans or VA loans by themselves should not, I think, permit them to be included in this safe 

harbor. 

Second of all, 40-year loans should be used very sparingly and 

carefully. The amount of interest that is added to a 40-year loan 

is dramatic, whereas the effect on the payment is fairly small. 

Ms. BEAN. You are not really establishing the equity. At the 

same time, in what we have done to rework existing loans for many 

homeowners who have run into trouble, what we have done particularly through the FDIC programs—and I hope, Mr. Chairman, 

I can just finish this answer—is allow them to extend the term, 

and I think in some way to preclude someone in a similar income 

situation but doesn’t have the past problem to get payments down 

to a level that is affordable and provide access to homeownership. 

I think it is at least worthy of consideration, recognizing it is not 

ideal. 

Mr. WATT. The gentlelady’s time has expired. 

Ms. BEAN. Thank you, I yield back. 

Mr. WATT. I want to express my thanks to this panel of witnesses for their input and encourage them to continue to stay engaged as we move toward mark-up next week. 

60 

And while this panel is changing to the next panel, I will recognize Mr. Posey for a unanimous consent request. 

You all are excused. Thank you. 

Mr. POSEY. Thank you very much, Mr. Chairman. I would like 

to ask unanimous consent to enter into the record two letters, one 

from the Consumer Mortgage Coalition and one from the United 

States Chamber of Commerce. 

Mr. WATT. Without objection, it is so ordered. 

And I had a unanimous consent request myself. I ask unanimous 

consent to submit for the record the statement of Chris Koster, attorney general of Missouri, a statement from the Credit Union National Association, a statement from the American Homeowners 

Grassroots Alliance, a March 17, 2009, letter from National Consumer League, NRCR, and the Teamsters. Without objection, these 

things will be submitted for the record. 

And if I could encourage this transition to take place from the 

last panel to the final panel of the day as expeditiously and quietly 

as possible, I will proceed as people are being seated in the interest 

of time with the brief introductions just to identify the witnesses, 

not to do justice to all of their credentials: 

Mr. G. Gary Berner, executive vice president, commercial real estate, First Niagara Bank, who is testifying on behalf of the American Bankers Association; the Honorable John H. Dalton, President, Housing Policy Council, on behalf of the Financial Services 

Roundtable; Mr. David G. Kittle, chairman, Mortgage Bankers Association; Mr. Michael S. Menzies, Sr., president and chief executive officer, Easton Bank and Trust Company. on behalf of the 

Independent Community Bankers of America; the Honorable Timothy Ryan Jr., President and Chief Executive Officer of the Securities Industry and Financial Markets Association; Ms. Denise M. 

Leonard, chairman, Government Affairs, National Association of 

Mortgage Brokers; Mr. Charles McMillan, president, National Association of Realtors; Mr. Jim Amorin, president of the Appraisal 

Institute; and finally, Mr. Jim Arbury, senior vice president, government affairs, on behalf of the National Multi Housing Council 

and the National Apartment Association. 

Each of you will be recognized for 5 minutes for a summary of 

your testimony. Without objection, your entire written testimony 

and any attachments thereto will be made a part of the record. 

Mr. Berner, you are recognized for 5 minutes. 

STATEMENT OF G. GARY BERNER, EXECUTIVE VICE PRESIDENT, COMMERCIAL REAL ESTATE, FIRST NIAGARA BANK, 

ON BEHALF OF THE AMERICAN BANKERS ASSOCIATION 

Mr. BERNER. Thank you. Chairman Watt and members of the 

committee, I am Gary Berner, executive vice president of First Niagara Bank, Lockport, New York, which is located just outside of 

Buffalo. 

I am pleased to be here today on behalf of the American Bankers 

Association to testify on H.R. 1728. First Niagara Bank is one of 

many banks that has never varied from traditional underwriting 

standards. Our $2 billion residential loan portfolio remains strong 

with first quarter, 30 day and over day and over delinquencies of 

61 

less than 1 percent and chargeoffs running at just 2 to 3 basis 

points, or almost zero. 

The turmoil in the mortgage markets has been very troubling to 

the banking industry, an industry filled with institutions that have 

existed for decades, and in the case of my bank, for over 125 years. 

It has been primarily the actions of loosely regulated non-bank 

lenders who have steered applicants to inappropriate mortgage 

products that have caused tremendous damage for both consumers 

and the banking industry. 

Banks are already a major part of the solution to our housing finance problems. At my bank, over the last 6-month time period, we 

have completed 27 repayment plans or modifications and have only 

had 3 re-defaults. I have just returned from chairing ABA’s industry meetings on housing finance, and almost all banks reporting 

having similar successes with their workouts and modifications. As 

such, we are all the more focused today on reaching out to overextended borrowers before they become past due. 

As the committee considers new legislation, it is critical to recognize the significant changes that are already underway in the 

mortgage industry that will provide much greater protections to 

the consumers. Last July, the Federal Reserve amended Reg Z to 

address many issues that lead to the housing price bubble and the 

overextension of credit. The new regulations address the use of exotic or non-traditional mortgages, require traditional underwriting 

standards, and reduce complexity in mortgage products. 

These new regulations are forcing many banks and non-banks to 

renew their mortgage lending operations, even those that have always followed sound underwriting principles. Among other things, 

the new regulations define a new category of loans based on its 

APR as a higher priced mortgage loan. While this change was targeted to subprime loans, the standards are so stringent that they 

will include some loans that were previously classified as prime. 

This will curtail banks’ ability to serve many creditworthy borrowers. 

Further changes, including some proposed in H.R. 1728, have the 

potential to impair economic recovery further and should be considered carefully. At a minimum, legislation must ensure that nonbanks comply with the same duties of care as federally regulated 

banks. In fact, all lenders should follow the same conservative underwriting practices. 

While H.R. 1728 does seek to close gaps that still exist in the 

mortgage lending market, ABA has a number of recommendations 

to improve the bill. First, ABA recommends a two tier safe harbor. 

Tier one would create an irrebuttable safe harbor which would 

apply only to fully amortizing fixed-rate loans of any duration 

made by ensured depository institutions. The loans would be required to be fully underwritten and documented and could not be 

higher priced loans under the Truth in Lending Act regs. 

Tier two would create a rebuttable safe harbor for fully documented and fully underwritten loans with well-established and traditional characteristics. Garden variety traditional ARMs with 

reset and lifetime caps would fall into this tier, as would fixed-rate 

mortgages originated by non-bank institutions. It would not, however, include loans deemed non-traditional under Federal banking 

62 

agency regulation or loans considered higher priced under the 

Truth in Lending Act. 

Second, ABA recommends further modifications to the risk retention provisions to provide greater certainty in the securitization 

process. Alternatively, we would suggest directing the regulators to 

set standards to achieve this purpose. 

Finally, we recommend that the language giving the States additional authority over unfair and deceptive acts and practices be deleted or synchronized with similar authority and other laws to ensure a consistency of approach and results. 

Thank you Mr. Chairman. We hope these suggestions are helpful 

to the committee. 

[The prepared statement of Mr. Berner can be found on page 156 

of the appendix.] 

Mr. WATT. Thank you for your testimony. 

Mr. Dalton, you are recognized for 5 minutes. 

STATEMENT OF THE HONORABLE JOHN H. DALTON, PRESIDENT, HOUSING POLICY COUNCIL, THE FINANCIAL SERVICES ROUNDTABLE 

Mr. DALTON. Chairman Watt, members of the committee, I am 

John Dalton, president of the Housing Policy Council. 

First, I want to acknowledge that many lenders and others in the 

mortgage business have made some serious misjudgments and mistakes in the last few years. On behalf of the Housing Policy Council, I apologize for those misjudgments and mistakes. We want to 

ensure that these mistakes are not repeated. We stand ready to 

work with this committee to ensure that appropriate legislative 

changes are enacted. 

The challenge is to craft a bill that prevents inappropriate practices, yet preserves a vibrant system of mortgage finance. There are 

key provisions that must be revised to meet this goal. We urge the 

committee to consider the corrective actions that Federal regulators 

in the industry have already taken to address the practices that 

contributed to the current financial crisis. 

Since 2007, the industry has tightened underwriting standards, 

recalibrated credit practices, and realigned incentives. Regulators 

have issued the 2008 HOEPA regulations which implement many 

of the underwriting reforms that were proposed by this committee 

in H.R. 3915 in 2007. 

The Housing Policy Council supports many elements of H.R. 

1728. For example, we believe new loans should be based on the 

borrower’s verified ability to repay and that yield spread premiums 

should be prohibited. 

Other provisions in H.R. 1728 have major flaws. I want to highlight three of these provisions: the definitions of qualified loans; the 

5 percent risk retention requirement; and the need for uniform national standards. 

The definition of qualified loans is too narrow. There are other 

mortgage products that are safe and should be included in the definition. These include VA, FHA, rural housing loans, and loans that 

meet the conforming loan standards for Fannie Mae and Freddie 

Mac. All of these loans must of course meet the new underwriting 

criteria in the bill and in the 2008 HOEPA regulations. 

63 

Good loans of a duration other than 30 years, and with adequate 

rates—adjustable rates, excuse me—should also qualify. A fully underwritten 15-year or 40-year fixed-rate loan or a traditional adjustable rate loan with caps can be as safe a loan as a 30-year loan. 

The presumption that qualified loans under this section are in the 

safe harbor should be irrebuttable. 

We agree that lenders should keep some skin in the game. However, the 5 percent risk retention requirement will significantly reduce the volume of new mortgage loans, increase the cost of new 

loans, or both. FHA, VA, rural housing loans, and the loans sold 

to Fannie and Freddie should be included as qualified loans and 

thus exempted from this requirement. This would focus the risk retention agreement on the type of loans that have the greatest risk. 

Regulators should be explicitly authorized to apply the 5 percent 

requirement on a pro rata basis. Under a pro rata approach, both 

the lender and the assignee would share proportionally in any loss. 

The risk retention requirement should be time limited. As drafted, 

a lender must retain an ever-increasing amount of capital against 

its mortgage loans. 

An 18-month time limit would avoid this excessive build up, yet 

install appropriate underwriting incentives. The committee also 

should authorize the banking regulators to permit lenders to implement alternatives to the 5 percent requirement that achieve the 

same goal. 

Finally, the standards created in this bill should be uniform national standards. H.R. 1728 is a strong bill with significant consumer safeguards. These safeguards should apply to all consumers 

regardless of where they live. 

The Housing Policy Council supports legislation that will improve mortgage lending practices. With some modifications, we believe that H.R. 1728 can achieve this goal. 

Thank you very much. 

[The prepared statement of Mr. Dalton can be found on page 200 

of the appendix.] 

Mr. WATT. Thank you so much for your testimony, Mr. Dalton. 

Mr. Kittle is recognized for 5 minutes. 

STATEMENT OF DAVID G. KITTLE, CHAIRMAN, MORTGAGE 

BANKERS ASSOCIATION 

Mr. KITTLE. Thank you, Mr. Chairman. 

MBA shares this committee’s commitment to improving mortgage 

regulation. Doing so is the best path to restoring investor and consumer confidence and assuring the availability and affordability of 

mortgage credit for years to come. At the same time, we caution 

that if regulatory solutions are not well-conceived, they risk worsening a credit crisis that trillions of public dollars have yet to resolve. 

Since the last hearing on this subject, MBA was proud to offer 

the Mortgage Improvement and Regulation Act, a comprehensive 

proposal that would ensure Federal regulation for the entire mortgage industry and that would establish a strong national consumer 

protection standard. MIRA, as we call it, builds on H.R. 3915 from 

2007 as well as the Federal Reserve’s HOEPA rules. It represents 

our industry’s commitment to fixing the problems in the market. 

64 

We know that the current crisis requires a bold response and we 

are proud that MIRA would achieve this while ensuring a vibrant 

credit market in the future. 

Our proposal shares the same goals as H.R. 1728, though we differ in some critical respects. My written statement comprehensively discusses our concerns with the bill, but I would like to highlight the most important issues. First and foremost, H.R. 1728 does 

not establish a single strong consumer protection standard. By allowing additional State and local laws, the bill would perpetuate 

and expand an already uneven and confusing regulatory patchwork 

where the costs are ultimately borne by the consumers. A better 

approach would be to preempt State laws but still provide a pivotal 

role for State regulators. This is the approach we took in our MIRA 

proposal and we think it will better serve all stakeholders. 

We are just as concerned about the bill’s mandate that lenders 

retain at least 5 percent of the credit risk presented by non-qualified mortgages. Lenders already have skin in the game through 

their responsibilities to investors. When a loan fails as a result of 

bad origination practices, lenders are forced to repurchase it. This 

is an important and extremely effective check on bad underwriting. 

The new additional requirement, however, would have far-reaching and damaging consequences, particularly to non-depository 

lenders and to banks that will have to further increase their capital 

at a time when taxpayers are the most likely source of that capital. 

Ultimately this idea will narrow choices and increase costs for 

many borrowers. 

MBA believes the definition of a qualified mortgage is far too 

limited. H.R. 1728 as currently drafted would raise costs on broad 

categories of safe mortgage products. They include loans with adjustable rates, many jumbo loans, fixed 15-, 20-, 25-, and 40-year 

loans, FHA, VA, and rural housing loans, as well as some Fannie 

and Freddie mortgages. We urge the committee to provide more 

flexible standards that will still protect borrowers. 

The regulators should have the authority to allow loans to be 

qualified unless they contain higher risk features such as negative 

amortization provisions or no documentation. This would ensure 

that sound credit options are available to the full range of borrowers. 

The bill does not contain bright line safe harbors that would 

allow prudent behavior without costly and unnecessarily litigation. 

This will deter lenders and investors from being part of the market 

even for qualified mortgages. 

We believe the prohibitions against steering are ambiguous. They 

could prohibit certain important and legitimate incentive based 

forms of compensation as well as payments to lenders from the secondary market. 

Finally, HUD should withdraw its RESPA rule and join the Fed 

to make the mortgage process more transparent and work better 

for consumers. RESPA and TILA disclosures should work together 

to give the borrowers the information they need to make the best 

choices and to make life harder for predators. Over half of the 

House of Representatives echoed similar concerns in a letter last 

year. 

65 

Congress is facing a once-in-a-lifetime opportunity to improve the 

mortgage lending system. H.R. 1728 is an important first step in 

what we hope will continue to be a collaborative and ultimately 

fruitful process. We at MBA look forward to working with this entire committee to improve this bill and enact strong mortgage reform as soon as possible. 

Thank you Mr. Chairman. 

[The prepared statement of Mr. Kittle can be found on page 216 

of the appendix.] 

Mr. WATT. Mr. Menzies is recognized for 5 minutes. 

STATEMENT OF R. MICHAEL S. MENZIES, Sr., PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, EASTON BANK AND TRUST 

COMPANY, ON BEHALF OF THE INDEPENDENT COMMUNITY 

BANKERS OF AMERICA 

Mr. MENZIES. Thank you, Chairman Watt, and members of the 

committee. My name is Mike Menzies, and I am president of Easton Bank and Trust in Easton, Maryland. I am also honored to be 

the chairman of the Independent Community Bankers of America 

and it is my pleasure to speak on behalf of our 5,000 community 

bank members. 

While we do have concerns with some of the approaches to reform taken in H.R. 1728, we commend you, Chairman Watt and 

Representative Miller and Chairman Frank, for initiating the process of achieving needed reforms for your work on comprehensive 

mortgage reform legislation. Congress and the regulators and the 

financial services industry working together must develop strong 

measures to avert any recurrence of this foreclosure crisis. Imprudent and abusive and unethical lending practices in the subprime 

mortgage market produced this situation. It is appropriate for Congress to consider legislation to improve the regulation of residential 

mortgages. 

Despite the challenges of the credit market, I am pleased to report to you that community bank mortgage originations remained 

steady throughout 2008. We estimate community banks originated 

approximately 800,000 mortgage loans for more than $125 billion 

last year, and Easton Bank and Trust has experienced record mortgage volumes in the first quarter of this year. 

Policymakers should avoid hindering the flexibility community 

banks use to meet customer needs at different stages in their lives. 

Let me tell you a story about just one of my customers. As chairman of our local hospice, I was approached 2 years ago by a woman 

who left her job to serve as the hospice nurse of her dying husband. 

She had depleted most of her savings, yet only had equity left in 

her home. I made a 1-year interest-only loan to her with the understanding that after her husband passed away, she would return to 

work. Her husband survived the pancreatic cancer for almost a 

year and then she returned to work, and re-established her income. 

We found it necessary to extend the loan for 6 months interest 

only. When her income was re-established, we placed her in the 

secondary market. 

This is the type of flexibility community banks need for their customers. We do have skin in the game. A flexible yet sensible mortgage finance system serves the best interest of consumers in the 

66 

long run. Most community banks are very conservative in their underwriting practices and a consumer’s documented ability to pay is 

a central part of our underwriting standards. Nevertheless, the 

new lending standards articulated in this bill, along with the cause 

of action provided to enforce new standards, raises concerns for 

community banks. 

H.R. 1728 creates more litigation risk than the bill adopted by 

the House in the last Congress by providing no truly clear presumption of compliance for any mortgage product. We suggest the 

legislation provide more certainty by adopting a clear presumption 

of compliance for mortgages meeting interest rate caps. Moreover, 

the presumption should apply to a broader range of safe mortgage 

products that are beneficial to consumers, not just 30-year fixedrate mortgages. Without a wider safe harbor, the legislation could 

cause a rigidity that prevents lenders from responding to varying 

financial environments in local markets. We strongly urge the committee to remove the 30-year fixed-rate requirement from the qualified mortgage definition and to make other changes that preserve 

the choices enjoyed by consumers today, particularly in rural and 

small towns. 

Community bankers believe that regulation of non-bank originators must be significantly strengthened. New anti-steering regulations must be focused on this part of the industry where regulation 

is most needed. 

We are further concerned about Section 103’s restriction on compensation. Our interpretation is that it would prevent a bank from 

offering a consumer the opportunity to lower their interest rate by 

paying points. The legislation should exempt this standard practice 

to offer consumers lower rates. 

Mr. Chairman, thanks for this opportunity to testify on behalf of 

the Independent Community Bankers of America. I look forward to 

your questions. 

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

245 of the appendix.] 

Mr. WATT. Thank you, Mr. Menzies. 

Mr. Ryan is recognized for 5 minutes. 

STATEMENT OF THE HONORABLE T. TIMOTHY RYAN, Jr., 

PRESIDENT AND CHIEF EXECUTIVE OFFICER, SECURITIES 

INDUSTRY AND FINANCIAL MARKETS ASSOCIATION 

Mr. RYAN. Thank you, Mr. Chairman. I am pleased to appear before the committee on behalf of the Securities Industry and Financial Markets Association and the American Securitization Forum. 

We appreciate the opportunity to highlight just a few concerns or 

considerations that we would like you to focus on in your deliberations. 

We believe the 2007 bill that this committee worked on, H.R. 

3915, struck a reasonable balance, and we are encouraged that the 

committee used that bill as a starting point for this year’s H.R. 

1728. We also understand that the mortgage market is vastly different than it was in the fall of 2007. The housing GSEs have been 

placed into government conservatorship, a number of major mortgage market participants have gone out of business, and the government has taken unprecedented steps to stabilize the financial 

67 

system, minimize foreclosures, and encourage mortgage lending. 

Given these developments and the dormant state of the existing 

securitization and subprime mortgage market, we believe that 

every effort should be made to take bold action now to facilitate a 

functioning and fair mortgage market for the future. 

We have three key suggestions for this year’s bill. One, protect 

the prime market. We recommend the committee revise the current 

legislation to ensure the continued functioning of the prime mortgage market. As currently drafted, the bill would impose potential 

legal liability on secondary purchasers of all mortgage loans and 

provides only a rebuttable presumption against liability for qualified mortgages, a narrow subset of certain 30-year fixed-rate loans. 

There are a host of other prime loans that provide meaningful benefits to qualified borrowers depending on their individual situation 

and the existing interest rate environment. We hope the committee 

will expand and strengthen this safe harbor to help ensure the continued availability of a host of different prime loans. In particular, 

expand the definition of qualified mortgages to include other prime 

loans. They have been mentioned by other members on the panel, 

so I will not repeat. 

Two, provide a meaningful safe harbor for secondary purchasers 

of these prime loans by limiting the rebuttable presumption to 

creditors. This language was included in the 2007 legislation so 

that secondary purchasers can continue to provide liquidity to the 

prime market and should be added back to H.R. 1728. 

Number two, better align incentives in the subprime mortgage 

market. Clearly, there were problems in the subprime market that 

should be addressed legislatively to assure they do not happen 

again. Most bad actors are gone. Regulations have been implemented to facilitate stronger underwriting standards. Far fewer 

bad loans are still being made and fewer still are securitized. But 

thoughtful legislation can help prevent backsliding when markets 

turn around. 

One addition included in H.R. 1728 is a minimum 5 percent risk 

retention requirement for creditors of non-qualified mortgages. We 

agree that requiring creditors to have some skin in the game may 

help better facilitate the traditional lender/borrower relationship. 

European regulators are far along in the process of developing legislation that would require originators to retain skin in the game. 

Their approach has been to include many complex specifics in a 

piece of pan-European legislation that would be relatively difficult 

to amend should they find change to be required once into law. We 

note that the European approach has been to focus on the retention 

of risk in securitization exposures, in other words, in securities as 

opposed to the approach in your bill which is focused on loan level 

risk retention. 

A more effective approach would be for Congress to lay out the 

broad principles for what retention should encompass and to designate the relevant regulator to implement those principles and to 

monitor compliance. In addition, we appreciate the committees 

willingness to facilitate an open regulatory process by putting such 

a requirement in place. Accordingly, we recommend providing regulatory flexibility to consider, one, the duration of risk retention, the 

size and calculation of the retention and circumstances when hedgVerDate Nov 24 2008 16:00 Nov 19, 2009 Jkt 051584 PO 00000 Frm 00073 Fmt 6633 Sfmt 6633 K:\DOCS\51584.TXT TERRIE
68 

ing may be used that protects safety and soundness and ongoing 

business flexibility. 

Last, we think there should be clear and national standards. 

That is key. So we would recommend establishing a clear, preemptive single national standard for secondary mortgage participants related to the ability to repay and net tangible benefit test 

established in H.R. 1728. 

Thank you very much. 

[The prepared statement of Mr. Ryan can be found on page 253 

of the appendix.] 

Mr. WATT. Thank you, Mr. Ryan. 

Ms. Leonard, you are recognized for 5 minutes. 

STATEMENT OF DENISE LEONARD, CHAIRMAN, GOVERNMENT 

AFFAIRS, NATIONAL ASSOCIATION OF MORTGAGE BROKERS 

Ms. LEONARD. Thank you. Good afternoon, Mr. Chairman, and 

members of the committee. I am Denise Leonard, chairman of government affairs at the National Association of Mortgage Brokers. 

Thank you very much for the opportunity to be here today. 

Like most of my fellow NAM members, I am a small business 

owner living in the same community in Massachusetts where I 

work. The mortgage industry is much different than it was when 

I first started in the business over 19 years ago. Today, we have 

a deconstructed market. Origination, funding, selling, servicing, 

and securitizing can occur separately or can all fall under one entity. That is why we are especially pleased by the all-originator approach taken in H.R. 1728 and its comprehensive inclusion of all 

aspects of the mortgage process. We commend this committee’s 

leadership on realizing that consumer protections should relate to 

function rather than entity structure. We applaud your response to 

the current problems in our mortgage market and share a resolute 

commitment to protecting consumers throughout that process. 

As you know, a great deal of change has been affected already 

through legislative and regulatory action. We commend the alloriginator approach as it is paramount to ensuring true consumer 

protection. 

There are many provisions contained in H.R. 3915 that NAM 

supported, most notably the section now called the Safe Act that 

became law as part of the Housing and Economic Recovery Act, requiring loan originator standards for licensing and registration. 

Like 3915, NAM is extremely supportive of the overall concepts 

and provisions embodied in Title 1 and Title 2 of H.R. 1728. However, we remain extremely concerned that specific provisions of 

Title 3 will further harm many consumers. 

More stringent standards for all originators is something that 

NAM has consistently advocated for since 2002, and we again support the all originator approach to a Federal duty of care and believe its value lies in the uniformity of treatment of all competitors 

in the mortgage industry. 

We support the intent of the language contained in Section 103, 

which prohibits originators from persuading consumers into products based solely on compensation. We believe that the anti-steering provision, coupled with the ability to repay provision, if interpreted correctly, should be an effective means of protecting conVerDate Nov 24 2008 16:00 Nov 19, 2009 Jkt 051584 PO 00000 Frm 00074 Fmt 6633 Sfmt 6633 K:\DOCS\51584.TXT TERRIE
69 

sumers from being placed into loans solely for reasons of higher 

compensation without completely prohibiting consumer choice. 

Fortunately, the global provisions of H.R. 1728 do not legislatively pick winners or losers or further disadvantage small business or harm consumers in the mortgage industry. However, it is 

important to note that issues remain that can and will negatively 

impact the benefits that the tenets of this bill stand to establish, 

the most notable of which are the Home Valuation Code of Conduct 

and RESPA. 

The Home Valuation Code of Conduct, or HVCC, is an agreement 

that was forced on the government—the GSEs—by the New York 

Attorney General. We are supportive of the concepts included in 

this bill and the Federal Reserve Board’s approach to appraisal 

standards as they are applied uniformly to all industry parties regardless of who orders the appraisal whereas the provisions in the 

HVCC do not. In addition, the HVCC create a de facto regulation 

that did not go through the public debate and open process as required by the Administrative Procedures Act and will cause serious 

harm to consumers, brokers and independent appraisers if it is allowed to stand. It is set to go into effect in one week, and we encourage you to urge the FHFA to withdraw it before its effective 

date. 

In addition, a significant component of the RESPA rule directly 

conflicts with H.R. 1728 by imposing an asymmetrical disclosure 

provision that unfairly exacerbates the unequal treatment of mortgage transactions. We believe HUD should withdraw the RESPA 

rule to work with conjunction with the Federal Reserve Board and 

coordinate its activities. 

NAM appreciates the opportunity to appear before you here 

today, and I am happy to answer any questions you may have. 

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

224 of the appendix.] 

Mr. WATT. Thank you, Ms. Leonard. 

Mr. McMillan is recognized for 5 minutes. 

STATEMENT OF CHARLES McMILLAN, PRESIDENT, NATIONAL 

ASSOCIATION OF REALTORS 

Mr. MCMILLAN. Thank you, Chairman Watt, and distinguished 

members of the committee. Thank you for inviting me here to testify on behalf of H.R. 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009. I am Charles McMillan, 2009 president 

of the National Association of Realtors, a Realtor for more than 25 

years, director of Realtor relations and broker of record for 

Caldwell Banker Residential Brokerage, Dallas/Fort Worth. 

I testify here today on behalf of more than 1.2 million Realtors 

who are involved in all aspects of the real estate industry. Specific 

to H.R. 1728, mortgage lending reform is paramount to our economic stability and a critical step in the housing market recovery. 

We appreciate your tackling this very important issue. 

Realtors believe H.R. 1728 is properly focused. However, there 

are some areas of the bill that could result in unintended consequences for real estate professionals and the consumers we serve. 

Let me highlight five areas of concern for your consideration: 

70 

First, we believe the definition of ‘‘mortgage originator,’’ as outlined in Section 101 of the bill, is way too broad. Everyday, Realtors provide guidance to our clients on what information they need 

to be apply for a mortgage. We also may discuss prevailing mortgage rates and products and may even recommend a number of 

loan officers. In providing these services, Realtors would be considered originators and therefore subject to the requirements currently set forth in H.R. 1728. Likewise, home sellers, who provide 

financing to a buyer, would also be subject to the same requirements as lending institutions and mortgage brokers. We respectfully request that you explicitly exclude real estate professionals 

and consumers who provide seller financing from this definition. 

Second, NAR supports requiring originators who refinance a 

mortgage to verify that the new loan provides a significant benefit 

to the borrower. However, we suggest adding specific language that 

requires the lender to weigh the borrower’s circumstances, all 

terms of the new loan, the fees and other costs of refinancing, prepayment penalties, and the new interest rate compared to those of 

the original loan. 

Third, Realtors believe that the safe harbor criteria in Section 

203 are too narrow, and we have concerns that conditions for rescinding the loan are too broad. We recommend you offer more protection to mortgage originators in the rebuttal presumption and 

that you expand the safe harbor provision to encompass more than 

just 30-year fixed-rate mortgages. If the safe harbor provision is 

not expanded, we fear that the credit risk retention requirement in 

Section 213 could prompt lenders to stop offering products that are 

not covered under the safe harbor. In other words, the impact of 

the credit risk retention requirements depends heavily on what is 

included in the safe harbor. 

Fourth, Realtors support efforts to include taxes, insurance, and 

other homeowner fees in escrow for subprime mortgage loans. However, we believe borrowers who make at least a 20 percent downpayment should have the option to budget for these payments independently. 

And, finally, Realtors believe H.R. 1728 helps strengthen the accountability and oversight of appraisers while also creating new 

consumer protections such as allowing borrowers to obtain a copy 

of all appraisers prior to closing. 

NRA applauds the committee’s effort to craft comprehensive legislation that ensures safe and affordable mortgage lending. This 

bill is a major step in the right direction. 

In conclusion, I would like to reiterate that you consider making 

the adjustments outlined today to ensure that the legislation does 

not cause unintended consequences and unduly restrict the marketplace. 

Thank you for this opportunity to present our thoughts. As always, the National Association of Realtors stands ready to work 

with Congress and our industry partners to help facilitate a full 

economic recovery. 

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

239 of the appendix.] 

Mr. WATT. Thank you, Mr. McMillan, for your testimony. 

Mr. Amorin is recognized for 5 minutes. 

71 

STATEMENT OF JIM AMORIN, PRESIDENT, APPRAISAL 

INSTITUTE 

Mr. AMORIN. Thank you. I am honored to represent the Appraisal 

Institute and our industry partners, the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the National Association of Independent Fee Appraisers. 

Mr. Chairman, H.R. 1728 is a good bill. It builds on H.R. 3915 

from the last Congress, refined in light of our tough learning experiences over the last several months. It is a back-to-basics approach 

to plugging many of the holes the current crisis revealed in our 

mortgage finance system. 

We applaud the bill’s recognition that greater due diligence is essential to extend protections for lenders and consumers. H.R. 1728 

requires physical property visits for high-cost mortgages. We submit that the vast majority of transactions merit similar protections, 

including subprime, high loan-to-value loans, and conventional 

loans. Too often, so-called ‘‘drive-by appraisals’’ have proven inadequate. Indeed, while some lenders are moving away from this 

practice, many appraisals in recent years have been developed 

without even seeing the property. Corruption thrives in the dark. 

This bill protects consumers by bringing the true costs and risks 

of mortgage transactions into the open. Definitions of and regulations around new entities, like appraisal management companies 

and BPOs, will bring policy up-to-date with current realities. 

America’s professional appraisers are particularly pleased by this 

bill’s realistic approach to combating the pressures we often experience from loan originators and others to skew our valuations for 

their convenience. Making it illegal for anyone to seek to improperly influence the outcome of our work goes far to close a disastrous loophole that figured in the current industry crisis. What 

good does it do to employ competent, trained, and credentialed appraisers, using the most sophisticated methodologies, if their conclusions must give way to a pre-determined number? To protect the 

appraiser is to protect the consumer. 

H.R. 1728 caulks another gap in our system by giving the Federal Appraisal Subcommittee effective tools like rule-making authority and authority for interim sanctions to oversee and conduct 

enforcement activities over State appraisal boards. Here, the Appraisal Subcommittee gains alternatives to the nuclear option of 

de-certifying a State and halting transactions there. This bill also 

provides much needed resources for State and Federal enforcement. 

We suggest that the Appraisal Subcommittee can be further improved by adding representatives from other relevant agencies, like 

the Department of Veterans Affairs, the Federal Housing Finance 

Agency, the SEC, and the Federal Trade Commission. As an advisory board of stakeholder consumers, professional appraisal and 

real estate finance organizations could also contribute to the ASC’s 

effectiveness. 

On a broader note, the single most effective action would be to 

close the glaring loopholes Federal agencies have progressively 

drilled to circumvent crucial appraisal requirements. Currently, 

there are 13 exemptions from the requirement for an appraisal, inVerDate Nov 24 2008 16:00 Nov 19, 2009 Jkt 051584 PO 00000 Frm 00077 Fmt 6633 Sfmt 6633 K:\DOCS\51584.TXT TERRIE
72 

cluding the $250,000 di minimis threshold. This threshold can exempt nearly all homes in many communities. 

This legislation can be strengthened by limiting broker price options and automated valuation models in mortgage origination or 

mortgage servicing, particularly where markets have materially 

changed, as all too many have lately. Delivered by those who lack 

experience or training in valuations, BPOs invite conflicts of interest. Yet, Federal banking agencies encourage the use of these cutrate substitutes for competently developed appraisals. 

Another step, a bare minimum, is the regulation of appraisal 

management companies. AMCs charge ‘‘appraisal management 

fees,’’ the details of which are not fully disclosed to the consumer. 

Consumers unwittingly believe that this includes a quality appraisal when in fact it is typically a cut-rate substitute. Because 

AMCs and lenders cram into these fees other undisclosed management charges, consumers are short-changed by quick valuations by 

AMC contractors paid a fraction of the normal compensation. Since 

appraisal fees are artificially capped by current Federal policy, this 

guarantees that corners will be cut. To remedy this irrational cap, 

Congress should direct HUD to revisit Mortgage E-Letter 97–46 

and require transparency and full disclosure of appraisal fees and 

any additional management related charges. 

Mr. Chairman, this bill plugs many holes in our mortgage finance system, but if we do not plug them all, our economy will continue to sink. This is a moment of opportunity to get back to the 

basics. 

Thank you. 

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

103 of the appendix.] 

Mr. WATT. Thank you, Mr. Amorin. 

Mr. Arbury, you are recognized for 5 minutes. 

STATEMENT OF JIM ARBURY, SENIOR VICE PRESIDENT, GOVERNMENT AFFAIRS, ON BEHALF OF THE NATIONAL MULTI 

HOUSING COUNCIL AND THE NATIONAL APARTMENT ASSOCIATION 

Mr. ARBURY. Thank you, Mr. Chairman, and members of the 

committee. I would like to thank you on behalf of the National 

Multi Housing Council and the National Apartment Association for 

the opportunity to provide the committee with important information about the multi family apartment rental sector as you begin 

debate on H.R. 1728. 

First, I would like to thank Lisa Blackwell, our VP of housing 

policy, who worked so tirelessly on these issues. 

As you take action to address the foreclosure crisis and the problems that accompany it, we urge you to carefully consider the 

meaningful differences between the single family condo, multi-unit 

sector on the one hand, such as duplexes and four-plexes, and the 

apartment sector, which we define as properties with five or more 

units. Without a proper understanding of those differences, any actions taken to address the single family meltdown may cause unintended consequences for the apartment sector. Understanding the 

needs of the apartment sector is more important now than ever beVerDate Nov 24 2008 16:00 Nov 19, 2009 Jkt 051584 PO 00000 Frm 00078 Fmt 6633 Sfmt 6633 K:\DOCS\51584.TXT TERRIE
73 

cause America is relying increasingly on rental apartments to 

house our citizens. 

The word ‘‘multi-unit’’ has been used to encompass not only duplex and four-plexes but also multi-family apartment rental communities with five or more units. So conveniently people who use 

the word ‘‘multi-unit’’ blur the distinction that is necessary between 

the big foreclosure problem that is out there, which is primarily 

single family, condos and maybe some duplexes and four-plexes, 

and apartment rental properties. 

Nobody likes to see people evicted from their homes as we saw 

last year before various lenders announced a moratorium on evictions. Before the moratorium, many people who had purchased a 

single family or condominium home during the housing bubble 

could not make their mortgage payments. And since single family 

houses and condos are intended to be ownership housing, the lenders were eager to move that housing as quickly as they could. This 

resulted in evictions, but then the lenders found out that there 

were few buyers. Ownership housing is fundamentally different 

from multi-family apartment rental housing. We are not in the 

business of selling. We are in the business of renting homes to millions of Americans. In fact, there are over 15 million apartment 

homes in this country. 

If a multi-family apartment rental community goes into foreclosure, residents are not evicted. Foreclosure does not mean eviction in the multi-family apartment rental sector. There is a much 

more orderly transition. The community continues to be managed 

as a rental community. We want to retain residents, not evict 

them. 

One only has to look at the history of what happened during the 

recession of the late 1980’s and early 1990’s when a number of 

apartment communities that had been overleveraged went into 

foreclosure. There were no stories about evictions from those communities because of the foreclosure. Multi-family apartment rental 

communities, those with five or more units, are fundamentally different from where the huge national problem with foreclosure/eviction lies. 

I also offer this perspective to help you understand why it is critical that any actions you take to address the foreclosure crisis not 

adversely affect the ability of the apartment sector to meet the 

great demand for affordable rental housing. We truly understand 

the committee’s desire to protect renters who face eviction because 

they are renting a foreclosed property, but the proposed tenant protections included in H.R. 1728 and the stand-alone bill, H.R. 1257, 

the Protecting Tenants and Foreclosure Act of 2009, could have 

many unintended consequences that could lead to less private investment in affordable multi-family rental apartment or housing. 

Therefore, we strongly oppose provisions in these bills that would 

essentially mandate participation in the voluntary Section 8 voucher program. Specifically, the legislation requires the immediate successor and interest of a foreclosed property to be subject to any preexisting lease Housing Assistance Payments, HAP contracts, for 

Section 8 recipients. 

Through changes in the language to the HAP contract, the legislation attempts to subject the new owner to the immediate sucVerDate Nov 24 2008 16:00 Nov 19, 2009 Jkt 051584 PO 00000 Frm 00079 Fmt 6633 Sfmt 6633 K:\DOCS\51584.TXT TERRIE
74 

cessor and interest to the existing HAP contract that was agreed 

to by the previous owner. There are many problems with this provision. First, it is not clear how it would be applied considering that 

the new purchaser is not party to the existing HAP contract. Further, the HAP contract is not a recorded covenant or lien that 

passes with transfer of title to the property. Finally, it is not clear 

whether this new requirement subjects to the immediate successor 

and interest to the contract violations of the previous owner. 

When Congress created the Section 8 Program, it explicitly made 

the program voluntary because it recognized that there are costs 

and burdens imposed on property owners who choose to participate. 

Now this legislation seeks to mandate that in the event of a foreclosure, the immediate successor and interest would subject to the 

HAP contract of the previous owner. In other words, Section 8 participation would be mandatory. 

We fully support Section 8. It is a critical program for meeting 

the housing needs of millions of Americans and some firms willingly participate in the program. But historically the program has 

been troubled with inefficiencies and bureaucratic requirements 

that make it more expensive to rent to a Section 8 voucher holder 

than to a market rate renter. Instead of making participation mandatory, we need to reform the program. 

And you should also understand that with a Section 8 voucher, 

when there is a foreclosure, the person does not lose their voucher. 

Just in closing, in any economic cycle, good or bad, multi family 

foreclosures will occur for a variety of reasons. The new owners 

come and there is an orderly transition to better management of 

the property. 

Thank you. 

[The prepared statement of Mr. Arbury can be found on page 149 

of the appendix.] 

Mr. WATT. Thank you so much for your testimony. I thank the 

entire panel for their testimony. Mr. Miller from North Carolina is 

recognized for 5 minutes for questions. 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Chairman. Mr. 

Kittle, Robert Couch testified before this committee on behalf of 

your organization on November 5, 2003. And he said that, 

‘‘Through innovations in the mortgage finance industry, through 

various financing and risk-enhancing tools created for the specific 

purpose of extending credit to our more needy communities, creditimpaired individuals now have ample opportunity to obtain loans 

through this non-prime or subprime market.’’ He said that, ‘‘A truly 

amazing mortgage structure, based upon an international secondary market, has given the American population the best, cheapest and most efficient mortgage capital system in the world.’’ Mr. 

Kittle, is there any part of that that you will not back? 

Mr. KITTLE. Well, Congressman Miller, I was not here when he 

made that testimony, and he spoke for the Association at that time 

in that environment, but I will say that the statistics are today 

that 7 out of 10 of those loans that were made are still paying on 

time, which means 7 out of 10 of every customers who got a 

subprime loan got into a home that they may not have been able 

to purchase before. That would be the only answer that I can give 

75 

you. I did not have the facts in front of me that he gave that day 

and, again, I was not here when he made the testimony. 

Mr. MILLER OF NORTH CAROLINA. Do you disagree with the statistics that I have heard frequently, that more 70 percent of 

subprime loans were actually made to people who already owned 

their homes, they were refinances? 

Mr. KITTLE. I do not know how to respond to that. I do not agree 

or disagree with that because I have not seen the numbers on it. 

Mr. MILLER OF NORTH CAROLINA. Okay. Mr. Dalton, I appreciate 

that you have acknowledged serious mistakes—serious 

misjudgments and mistakes and that you apologized for those 

misjudgments and mistakes. But looking more closely at the nature 

of what you appear to be apologizing for, you say, ‘‘In all candor, 

these actions were well-intentioned and were taken as part of an 

effort to expand housing opportunities for Americans.’’ The fact 

that there were intellectual misjudgments seems to be beyond argument. The fact that underwriting was seriously flawed, the fact 

that the economic assumptions were entirely off seems to be beyond any possible dispute. But do you acknowledge that there was 

any failure not just of intellectual analysis but of moral compass? 

Mr. DALTON. Mr. Miller, I think these mistakes were made in 

good faith, but they were mistakes. Our industry made mistakes, 

I represent I made mistakes, and those mistakes contributed to the 

economic crisis that we are currently experiencing. And for that, I 

offer a genuine apology, but let me say that by the same token, we 

want to move forward, and I think you have a proposal in this legislation that can be improved, and we think will improve the mortgage industry and we are in favor of doing that. And that is the 

reason I am here. 

Mr. MILLER OF NORTH CAROLINA. And I have heard that, ‘‘let’s 

look forward, not backwards’’ many times, in many circumstances 

but, again, ‘‘In all candor, these actions were well-intentioned and 

were taken as part of an effort to expand housing opportunities for 

Americans,’’ was the pursuit of profits not your principal motivation, your industry’s principal motivation in mortgage lending? 

Mr. DALTON. Our companies are in business to make a profit, 

and I do not apologize for that. 

Mr. MILLER OF NORTH CAROLINA. I am not asking you to apologize for that, but you attribute it to an effort to an expand housing 

opportunities. Well, you were not Fannie and Freddie, you did not 

have a dual mission, right? You just had a mission of making profits, isn’t that correct? 

Mr. DALTON. I would not agree with that, Mr. Miller. I think that 

the people who are in this business do think that there is importance to homeownership and do think that homeownership is an 

opportunity for the American people to create equity and live the 

American dream. But the fact is we do live in a capital system that 

I applaud, and I think it is good. 

Mr. MILLER OF NORTH CAROLINA. My time is expiring. I have a 

question both for you, Mr. Dalton, and for you, Mr. Ryan: 8 to 10 

million families will lose their homes to foreclosure in the next 4 

years, according to economists’ forecasts. During the period that 

those mortgages were made, this financial sector was making more 

than—the 2004 to 2006 period, was making more than 40 percent 

76 

of all corporate profits. You do not think that there was any overreach, that there was any moral failing in any of your conduct? 

Mr. WATT. The gentleman’s time has expired. If the witness 

cares to answer, he can answer very briefly. 

Mr. RYAN. I will answer it very quickly, because I will say what 

I have said here I think 4 times in the last 2 months. At least our 

members, and many of the groups here represent the same people, 

the large financial institutions in this country, ours are global. As 

I have said before, we, especially in some of the subprime products 

and the way they were structured and distributed, we pushed the 

financial engineering to a level of complexity that was 

unsustainable and that was a mistake. We all know that. You have 

heard that from the CEOs of these companies too, and we are trying to change it. So we applaud your effort to give some symmetry 

and some sensibility to a mortgage market going forward because 

we all need it. Thank you. 

Mr. WATT. The gentleman’s time has expired. Mr. Posey is recognized for 5 minutes. 

Mr. POSEY. Thank you, Mr. Chairman. And I thank each and 

every one of you for your testimony today. We have maybe the 

greatest group of well-credentialed problem-solvers since I have 

been in some of these meetings, and I wish we could lock you all 

up in a retreat for a weekend, and let you put your thoughts together. How about let’s strike, ‘‘lock up.’’ 

Mr. WATT. It may be better to lock them up with the last panel 

of witnesses. 

[laughter] 

Mr. POSEY. Yes, and I think you all could really help find a roadmap to a solution for the crisis that this country is now in. We 

have heard the Fed’s game plan and it is basically five Hail Mary’s. 

Operate on a crisis de jour, and I know in private business, for better or for worse, you all do not work like that, you had road maps 

and you have systematic plans. And so I wish I had time to ask 

each and every one of you questions, but I learned my first day on 

the job here, we only get 5 minutes, and most of the witnesses or 

panelists we had, if you asked them what time it is, they would 

spend 4 minutes and 59 seconds describing the clock, the color of 

the hands, and you would never get your answer, so what I have 

done before, and unless there is an objection, I will do today, is 

spend my remaining time asking some questions and requesting 

your response to the committee in writing. Typically, it is about 30 

days, I think, before these are officially requested and it is expected 

you could get a response in 30 days. 

From that, what I would like to do is request from each one of 

you that you provide a one-page summary of your personal observation of how you think we got in this financial crisis. And if you 

think there is some culpability on the part of Congress, I hope that 

you will be candid and say so. And rather than ask each and every 

one of you yes or no, could you just shake your head yes if you understand the question. Let the record show every head shook yes 

except Mr. Arbury. Mr. Arbury? Yes, and he shook yes. Thank you. 

As I mentioned earlier, I think that you all could have some 

great input with what you bring to the table on a potential road 

map to recovery, so I would also request, and the first request and 

77 

this request are a little bit different. I do not care if you discuss 

the second request among you, but I would like the first request 

to be done without collaboration if you would not mind, so it would 

be your honest opinion and nobody else’s. 

The second request if you could give us a 5-page summary, and 

you might go over that a little bit, but 5 pages ought to do it, of 

what you personally think should be the kind of road map we 

should look at for recovery, not money, more money, more and 

more money and more and more and more money, but what you 

think systematically, some of the suggestions Mr. Ryan pointed 

out, that would help give us some stability, some of the things that 

would not ruin the secondary market. They might give us some immediate satisfaction but would destroy the secondary market for 

the future. But just some of your varied thoughts from your professional backgrounds or your associations’ backgrounds that maybe 

we could look at and get some good ideas for a plan. I think that 

is what America wants. 

I do not think we are ever going to recover from this no matter 

how much money we throw at it until the people in this country 

believe in their hearts that there is a real plan for recovery, that 

is measurable, that they can see, that we can see and only then 

will the consumers have confidence to begin spending money again. 

Until we have a real plan instead of a crisis de jour operation, people are going to hang on to every dollar like it is their last dollar. 

I know I will and probably most of you are. But when we can come 

up with a plan that is measurable, where we are, where we want 

to go, that the public can see, and that we hopefully can keep on 

course without bankrupting the next 20 generations, if this country 

should last that long with what we are doing, I think it would give 

us the quickest jumpstart to a recovery that there is, just so people 

could know how to cope with it, the people you represent would 

know how to cope with it, the people you do not represent would 

know how to cope with it, the people you do not represent that others represent would know how to cope with it and the average guy 

in the street would have some level of comfort with an expectation 

of what lies ahead in the future. 

And I may have run over, Mr. Chairman, if so, I want to thank 

you very much for your indulgence. 

Mr. WATT. You have 21 seconds. 

Mr. POSEY. I will yield back. 

Mr. WATT. The gentleman yields back. What a wonderful American. 

[laughter] 

Mr. WATT. Mr. Green is recognized for 5 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. Mr. Chairman, I must 

say that I think this is one of the most diverse group of witnesses 

that we have had, although I must also say that, Ms. Leonard, I 

think you may be slightly outnumbered. But it may be that it takes 

eight men to offset what one woman is capable of doing, so I compliment you. 

Ms. LEONARD. Thank you. 

Mr. GREEN. All of you. Friends, I would like to, while, Greg, if 

you would pass out the information to each member, each witness, 

I will just make some comments while he is doing this. I think that 

78 

even with this group, I think there are some things that you can 

all agree on, and I am going to take a real stab at asking a question that I think everybody can agree on. Do you all agree that 

some reform is necessary after the crisis that we currently find ourselves in? And the only way that I can be sure and not use up all 

of the time to have your answers, just ask you to raise your hand 

if you agree that some reform is necessary? You do not have to, just 

in your mind think of the reform is, and probably some is not necessary. But if you agree that some form is necessary, would you 

kindly raise a hand? 

[The witnesses raise their hands.] 

Mr. GREEN. Okay, everybody agrees, let the record reflect that 

everybody agrees. But I ask this because there are those who absolutely believe that we should do nothing and let the system sort of 

work it out. And with a group as diverse as this, I think, to have 

this consensus is meaningful. 

Next question, which may be a little bit more difficult, has to do 

with the yield-spread premium. If you are familiar with the yieldspread premium, and I have to assume that you are, do you think 

that what we have in the bill is better than having nothing at all 

as it relates to the yield-spread premium or there may be some 

who are of the opinion that the way it worked previously is fine 

and that we should do nothing about it. Do you think that the bill 

is better than nothing at all as it relates to the yield-spread premium? And for those who may not know, the yield-spread premium 

is that fee that is accorded an originator for causing a person to 

go into a higher interest rate as opposed to one that the person 

qualified for. And as the law currently is constructed, there is no 

requirement that the borrower be informed that you are going into 

a higher premium. So if you think that what we have is better 

than—what we have in the bill is better than what we have now, 

which is why I have tried to articulate, let me see if you would 

agree that what we had in the bill is better. If so, raise your hands. 

I will for the record—you are not sure on the end? You are not impacted by it all? 

Mr. ARBURY. We are not, no. 

Mr. GREEN. Okay, all right, we will exclude you. Let’s see the 

hands now. 

Mr. RYAN. Congressman, what we seek is a clear understanding 

of the points only in that sometimes it makes a lot of sense for a 

borrower to reduce their payment by buying the mortgage down. 

Mr. GREEN. I understand, but what I am getting at, I am trying 

to not just weigh. What we are attempting to do, is it better than 

leaving things as they are? Is it better than leaving things as they 

are? Is what we are attempting to do better than leaving things as 

they are? Currently, you get the benefit of the yield-spread premium and the borrower never gets to know that you actually have 

put him or her into a higher interest rate, literally that is lawful. 

That is one phase of it, there are other aspects of it too. So I just 

want you to in your mind to evaluate, and all I am going to do is 

call your name is say that you have agreed or have not agreed. One 

more question, okay, yes, sir? 

Mr. DALTON. Mr. Green? 

Mr. GREEN. My time is about up so I better act fast. 

79 

Mr. DALTON. Well, I agree that the yield-spread premium, I 

agree with what is in the bill regarding the yield-spread premium, 

but there are some other things— 

Mr. GREEN. I have to come back, my time is almost up, I’m sorry. 

If you agree that what we are trying to do is better, raise your 

hand? Okay, I am just going to note hands up for a minute. Mr. 

Menzies’ hand, Mr. Dalton and Mr., is it Berner? Okay. 

Now, the final thing, I gave you some print that is darkened on 

this page and this deals with Realtors. I think that Realtors who 

happen to do just what they are supposed to do, they are Realtors 

or they are brokers, they are not engaged in lending, that they 

ought not come under the scrutiny of what depository institutions 

come under or originators. If you agree with this, would you raise 

your hand? Is there somebody who differs with this? You think a 

Realtor ought to be sanctioned? Okay, Mr. McMillan agrees. Anyone else? Anybody differ with the language? I am going to take it 

if you do not raise your hand that you differ. You do not agree with 

the language? 

Mr. BERNER. No, I agree. 

Mr. GREEN. You agree with it. Anybody differ with it? 

Mr. DALTON. I would like the opportunity to read it. 

Mr. GREEN. Okay, I am sorry, take the opportunity to read it. 

Mr. DALTON. Congressman, the language needs to be improved, 

we agree. 

Mr. GREEN. All right, if I can improve upon it, I will. But, Mr. 

Chairman, may I ask unanimous consent for just the answer to 

this question? 

Mr. WATT. Yes, sir. Do you want to go down the line? 

Mr. GREEN. Yes, sir, if I can. We already have Mr. Berner. Mr. 

Dalton, is that language acceptable to you? 

Mr. DALTON. It appears to be. 

Mr. GREEN. All right. Mr. Kittle? 

Mr. KITTLE. We would say that we think the language needs to 

be improved. 

Mr. GREEN. Okay. 

Mr. KITTLE. If that is answering your question, then— 

Mr. GREEN. All right, is it better than nothing? 

Mr. WATT. Does the committee have a copy of what the gentleman is asking for comment on? 

Mr. GREEN. Yes, sir, I can pass a copy to you, Mr. Chairman. 

Mr. KITTLE. The term ‘‘servicer’’ needs to be taken out of here. 

Mr. GREEN. Okay, you don’t want servicers included, all right. 

Mr. Menzies? 

Mr. MENZIES. Well, I almost could, but from what I have read 

in bullet, I am fine with that. 

Mr. GREEN. Okay. 

Mr. MENZIES. Bullet two,— 

Mr. GREEN. The darkened bullet, the one that is darkened. 

Mr. MENZIES. Four? 

Mr. GREEN. Yes, read that one while I go to Mr. Ryan. Mr. Ryan? 

Mr. RYAN. I do not have a view but we will get one to you. 

Mr. GREEN. Okay. Ms. Leonard? 

Ms. LEONARD. We would not want to exclude— 

Mr. GREEN. Just the darkened. 

80 

Ms. LEONARD. But I would like to be able to review it and get 

back to you on it. 

Mr. GREEN. Okay. 

Mr. WATT. Mr. Green, it might be more practical to get a quick 

written response from all of them. 

Mr. GREEN. All right. Mr. McMillan, is it all right with you? 

Mr. MCMILLAN. No, sir, the language is not okay. 

Mr. GREEN. Okay. 

Mr. MCMILLAN. It needs further clarification, if I may. 

Mr. GREEN. Okay, well, we will talk about it. Let me just get to 

the last person, yes, sir? 

Mr. AMORIN. Mr. Green, this issue does not really impact appraisers but to the extent that—we would love to take the time to 

study this issue, we could get back to you in writing. 

Mr. GREEN. All right, thank you very much. 

Mr. WATT. The gentleman’s time has long expired. 

The gentleman from North Carolina, Mr. McHenry, is recognized 

for 5 minutes. 

Mr. MCHENRY. I thank the chairman. I thank my colleague from 

North Carolina. 

Mr. Kittle, after watching the financial system collapse, thanks 

in part to some shoddy mortgage practices and lending standards, 

obviously, and poor risk management—these are all sort of self evident at this point—but there are a lot of Americans who wonder 

why we would not just regulate the heck out of mortgage lending 

to an inch of its life. 

Can you tell us what the consequences might be for homeownership if Congress did that? 

Mr. KITTLE. It would increase the cost of capital, number one. 

What we really need here, Congressman, is better transparency 

when a customer goes to loan application. 

In my opening oral statement, I asked for this committee to look 

and we request that HUD withdraw its RESPA proposal. 

We have a truth in lending that the Fed is looking at re-doing. 

We have a RESPA law that is going to go into effect at the end 

of this year that is onerous, that added requirements and papers 

to the loan application. 

We need better transparency. More regulation is not the key, although we have proposed the Mortgage Improvement and Regulation Act before a subcommittee of this committee just last month. 

I testified on this. 

We are asking for more regulation on us but we are asking for 

the right regulation that does not restrict capital. 

Mr. MCHENRY. Mr. Menzies, in terms of that, what has happened in the securitization market over the last year, and what 

would this legislation in terms of liability provisions do to 

securitization going forward? 

Mr. MENZIES. Congressman, there is no question that over the 

past year, the underwriting standards have become significantly 

more strict. We see that across-the-board. 

Most community banks are straightforward common sense lenders selling conforming product, Fannie, Freddie, Ginnie and the 

like. 

81 

Therefore, lots of this legislation simply increases our cost of 

doing business rather than helping us do a better job with our consumers. 

In that regard, the additional expense ultimately will be, I guess, 

passed onto the consumer. That is who ends up paying for regulatory burden. 

Those are my off-the-cuff thoughts. 

Mr. MCHENRY. Mr. Ryan, if you want to touch on that, I do have 

a question for you as well. 

Mr. RYAN. Ask your question and then I will give an answer. 

Mr. MCHENRY. Go right ahead. 

Mr. RYAN. Go ahead. 

Mr. MCHENRY. I have limited time. In terms of lowering the triggers for what classifies as a HOEPA loan, which this legislation 

does, would it make it more likely the wider swath of lending just 

simply would not be done? 

Mr. RYAN. That is entirely possible. Let me go back to the larger 

issue you raised to Mr. Menzies. 

Mr. MCHENRY. Can you touch on this? 

Mr. RYAN. Let me just put this in perspective. In 2007, we had 

about $2.8 trillion of securitization. We were tracking along in 

2008, the first quarter, around that same number, and everything 

dropped off the shelf. 

That business is basically outside of the conforming area dormant. I say ‘‘dormant’’ because I do not want to say ‘‘dead,’’ because 

hopefully it will come back. In fact, it has to come back because of 

credit availability. 

This is true for not only this committee, but also we have been 

saying this to the Europeans, if you go too far in your legislative 

drafting and you push things to a complexity that will not afford 

the opportunity to securitize and distribute. 

We need to find in this industry a massive amount of new capital 

to put into these financial institutions so that we can make loans 

to people so they can buy homes and buy cars. 

Mr. MCHENRY. Thank you. My time is running short. 

I want to see if Mr. Kittle and Ms. Leonard, if you all could touch 

on the HOEPA elements here. The fact is there are such restrictions within that classification of lending that it is simply done on 

a very, very limited basis nationally, and we are going to create a 

larger type of lending that is under those standards, and therefore, 

simply would not be done on any major scale basis. 

Ms. LEONARD. Correct, and it will have an impact on loans, especially loan amounts that are less let’s say than $100,000. 

Mr. MCHENRY. Thank you. 

Mr. KITTLE. My answer is that HOEPA should not be expanded. 

For the non-prime loans is what it was there for. It has already set 

up the ability in escrow accounts and things like that. To stretch 

it into the prime market, no, absolutely not. 

Mr. MCHENRY. Thank you. 

Mr. WATT. The gentleman’s time has expired. The gentleman 

from Pennsylvania, Mr. Kanjorski, is recognized for 5 minutes. 

Mr. KANJORSKI. Thank you very much, Mr. Chairman. 

Mr. Amorin, recently there have been many rule changes that affect professional appraisers. The appraiser independent rules 

82 

issued by the Federal Reserve, new requirements on the standardized appraisal forms, and the home valuation code of conduct developed by New York Attorney General Andrew Cuomo, to name a 

few. 

Are professional appraisers concerned about how all of these 

changes might affect appraisal quality, and if so, what should the 

Congress do? 

Mr. AMORIN. Congressman, we are absolutely concerned about it. 

Professional appraisers are used to rules and we are used to playing by the rules. The home valuation code of conduct did one great 

thing in identifying the need for appraisal independence. 

Unfortunately, it has opened up the door to unregulated activity 

by AMCs. These appraisal management companies usually focus on 

two things, who can do it the quickest and who can do it the cheapest. 

We believe corners will be cut as a result of that. At the end of 

the day, the consumers are going to be getting lesser quality appraisals than they should. 

Mr. KANJORSKI. What should Congress do about it? 

Mr. AMORIN. That is a great question. We think AMCs should be 

regulated. We believe there are some mechanisms in place today to 

do that, either through the State or the Federal level. 

To the extent that we can have appraisal management companies and the rules focus on quality of the appraisal, I think that 

would be great first steps. 

Mr. KANJORSKI. Very good. As you know, I am working on an 

amendment to the bill that would require the registration and supervision of appraisal management companies by the existing State 

appraisers certifying and licensing agencies with additional Federal 

oversight of the State system provided by the appraisal subcommittee. 

This regime would build on the existing appraisal regulatory system. Alternatively, we could have a Federal registration and supervision requirement. 

Which system do you prefer and why? 

Mr. AMORIN. It is clearly the Wild West right now, and some 

AMC regulation is required. Currently, there is a mechanism in 

place at the State level to regulate appraisers, and we think with 

additional resources to allow the States to do good oversight of 

that, that the mechanism at the State level may be the appropriate 

way to go. 

It is a continuing problem. We think it is going to be a continuing problem if Congress does not address it. To the extent that 

the Appraisal Institute has been active in this area, we have developed some model legislation for the States to use, and we are seeing some success in that area, but to the extent that you can help 

push that along, we would really appreciate it. 

Mr. KANJORSKI. Thank you. Finally, the Congress established 

Federal appraisal requirements in 1989 with the intent of protecting the safety and soundness of financial institutions. 

Have the regulations promulgated by the Federal agencies been 

effective in your opinion? 

83 

Mr. AMORIN. I do not believe that the regs have been effective, 

primarily due to the fact that there are 13 exemptions to the appraisal requirement that exists today. 

Any additional oversight that we can give to the appraisal subcommittee to help in that regard would be very helpful. To the extent that we can limit the use of alternative valuation products 

such as AVMs, automated valuation models, and broker price opinions for mortgage origination, we think those are great steps in the 

right direction. 

Mr. KANJORSKI. Do you have any thoughts on what we should do 

on consumer protection mandates or establishing quality controls 

for automated valuation models and limiting the use of broker 

price opinions? 

Mr. AMORIN. We do believe that broker price opinions are a very 

useful tool in the market to help set the listing price for a home 

or for a property, but to use a broker price opinion or some other 

alternative valuation model to determine the value of collateral we 

think is misplaced. 

Appraisers are licensed and certified in the States in which they 

operate. We have requirements to meet those license certification 

requirements. We have oversight by State appraisal boards. In 

most cases, automated valuation models operate outside of that, 

and in many States, it is against the law for a broker to provide 

a price opinion for any other purpose except to obtain a listing or 

set a listing price. 

Mr. KANJORSKI. Thank you very much. Mr. Chairman, I yield 

back the balance of my time. 

Mr. WATT. The gentleman yields back the balance of his time. 

Mr. Cleaver is recognized for 5 minutes. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

No matter how many times we have expert testimony which declares without ambiguity that CRA did not cause the crisis, there 

are those who will just continue to say it, and you can probably 

turn on the television on a talk show tonight and hear it. 

Do any of you think CRA caused this crisis? Just raise your 

hands if you do. 

You will hear about it if you just turn on a talk show. 

Mr. McMillan, what was wrong with plain vanilla 30-year fixedrate mortgages? Were we having problems? What was wrong? 

Mr. MCMILLAN. Congressman Cleaver, there is nothing wrong 

with plain vanilla 30-year mortgages. The issue is when you make 

that the limit, then that limits the choices of individuals. 

We have the ability today to get mortgages originated for a term 

that is customized specific to the borrower. You hear mostly of 15- 

and 30-year loans, but there are 20-, 22-, and 25-year loans as well. 

To put a range there would be more appropriate as opposed to 

just specifically addressing a choice and amortization. 

Mr. CLEAVER. What we are trying to do is to prevent all of these 

exotic products that physicists and major league baseball players 

are developing. I am not even sure where all of this stuff comes 

from. 

Do you not think we have to squeeze that out or do you believe 

we need to squeeze that out so that after the crisis has ebbed, we 

end up with folks coming back with a new group of exotic products? 

84 

Mr. MCMILLAN. Congressman Cleaver, with respect to exotic 

products, I do not think they should be legislated out. They are appropriate for someone in certain circumstances. They have always 

existed for a young person out of medical school or law school 

whose income is expected to go forward; athletes, highly paid athletes. 

The thing for the lender to be concerned with is to make sure 

that on the basis of objective criteria, they make the appropriate 

loan to the appropriate person. 

Outlawing them would be disenfranchising those who would benefit and that particular product would operate appropriately. 

Mr. CLEAVER. Mr. Berner? 

Mr. BERNER. I think our feelings as in our written testimony is 

that there certainly should be an expansion of the terms within 

your definition of a 30-year fixed-rate mortgage to fall within a 25- 

year, a 20-year, or a 15-year mortgage. Obviously, it is the American dream to own their house free and clear, and clearly, a 15-year 

fixed-rate mortgage for those with a dual income who can afford to 

make the payments and are properly qualified should be an alternative within the safe harbor. 

It is in our testimony we also believe traditional adjustable rate 

mortgages, such as 5-, 7-, or 10-year ARMs which have appropriate 

caps are extremely important a financial vehicle, especially in a 

normal interest rate yield curve. 

Our portfolio of adjustable rates, five, seven and ten, has one half 

of one percent or a 50 basis point lower rate than our fixed rate, 

and for a first time home buyer and/or low/moderate income person, that 50 basis points could be the difference of them being able 

to afford a home or not afford a home. 

Mr. CLEAVER. You do not think we will drift back into the same 

deal? 

Mr. BERNER. No. Again, we certainly agree non-traditional and/ 

or exotics are not the way to go, but garden type ARMs and fixed 

rates of shorter terms are beneficial. 

Mr. CLEAVER. Thank you. My final question is whether or not 

you believe that the Federal legislation ought to be the floor, and 

we would give States the authority to move up not down, that this 

would not be the ceiling but the floor. 

How many of you would support that kind of a move? 

Mr. McMillan? 

Mr. MCMILLAN. Yes. 

Mr. CLEAVER. Mr. Ryan? 

Mr. RYAN. We think there should be a single Federal standard, 

not a floor or cap, just one standard. 

Mr. CLEAVER. Why? 

Mr. RYAN. I think part of the reason we are here testifying is 

that the mortgage market unraveled a bit, and part of the reason 

it unraveled was the State regulation. 

I think a Federal standard is a better standard. 

Mr. CLEAVER. Mr. Kittle? 

Mr. KITTLE. I agree with what he just said. We have a patchwork 

of laws out there right now. I heard earlier testimony where one 

of the panelists gave an answer and said they want each attorney 

general to be able to look at their one State law. 

85 

If we have a ceiling with one national law for everybody, then 

that attorney general only has to look at one law. The more laws 

we have, it makes it easier for predatory lenders. It makes it easier 

for mortgage fraud. We need a ceiling. The States can participate. 

The attorneys general can still go in and do their audits. They 

should come to the table and help develop that law. Let them implement the policy. We need a ceiling and one law. 

Mr. CLEAVER. I think my time has run out. 

Mr. Dalton? 

Mr. DALTON. Mr. Cleaver, just briefly, I agree completely with 

the last two statements and think this is a good bill, can be a good 

bill with the changes, and it is a tough bill, and I think it ought 

to be an uniform national standard. Everybody living by the same 

standard. 

Mr. WATT. The gentleman’s time has expired. Mr. Ellison, about 

whose bill, 1782 as opposed to 1728, has gotten a lot more praise 

from some corners in today’s sharing. You missed all the praise 

from the last panel. 

Mr. ELLISON. As you know, Mr. Chairman, I need all I can get. 

Mr. WATT. The gentleman is recognized for 5 minutes. I am 

going to give him that much praise. 

Mr. ELLISON. Thank you, Mr. Chairman. I want to thank the entire panel and your being here to help inform us on how to formulate this legislation late on a Thursday night. It is highly commendable. I want you to know I appreciate it. 

Mr. Arbury, I wonder if I might inquire of you. The National Low 

Income Housing Council estimates that about 40 percent of the 

families who face eviction due to foreclosure are renters. 

Meanwhile, a study conducted by the University of Minnesota indicated that about 61 percent of all foreclosures over the past 2 

years in my hometown of Minneapolis have been renter-occupied 

residences, 61 percent renter-occupied. 

That is why I and a few other members of the committee introduced a bill to provide protections to renters in properties foreclosed upon. I am very pleased that these protections are also provided in H.R. 1782. 

Given that, I am very concerned about certain views that I think 

you have articulated. I certainly respect those views but I have 

some concerns because to not apply some of these basic protections 

to tenants receiving Section 8 assistance and particularly you suggested Section 8 voucher contracts cannot be applied to the purchaser of a foreclosed property. 

Could you explain exactly why not? 

Mr. ARBURY. Sure. Congressman Ellison, we have seen those 

studies. We have seen the studies by the National Low Income 

Housing Coalition and some of the other studies. 

It is true that there are a number of properties out there where 

there are renters and those properties are being foreclosed. Overwhelming, those properties are single family homes and condominiums, and in some cases, duplexes, triplexes and fourplexes, not 

multi-family. There are some multi-family properties. Those are 

apartment properties with five or more units that get foreclosed on, 

in any economy, good or bad. 

86 

We are in the business of renting. People who own single family 

and condo’s are in the business of ownership, so evictions occur 

there. Back in the late 1980’s and early 1990’s when there was a 

huge problem in multi-family because the number of multi-family 

properties went into foreclosure because they had been over leveraged, we didn’t see any stories about evictions. 

Foreclosures in multi-family do not mean evictions. Second of 

all— 

Mr. ELLISON. Let us do one point at a time. With respect to your 

views, sir, could you please offer me some statistical support for 

your position? We are trying to make evidence-based legislation. 

Mr. ARBURY. Sure. We, for example, went in to analyze what 

happened in Hannapen County, Minnesota, in 2008. There were 

over 7,300 foreclosures. 6,300 of those foreclosures were in single 

family either homestead—I am not sure how you define ‘‘homestead’’ there—and non-homestead single family homes. 

There were another 600 in duplexes. There were 87—this number just jumped off the page at me—87 foreclosures in what they 

labeled as apartments. Almost all of those were either triplexes or 

fourplexes, not multi-family. 

When we called the Multi-Housing Council of Minnesota to ask 

them about what was going on, they said they had not heard of any 

evictions. 

I would be glad to give you the analysis we did. 

Mr. ELLISON. Reclaiming my time, has this report you cite been 

published and peer reviewed? 

Mr. ARBURY. I do not know. It is from the Hannapen County 

Sheriff Foreclosure Sales by Lien Type, that is on the Internet. 

Mr. ELLISON. How many of those—you said there 7,300 foreclosures, 6,300 in single family. If my math is anywhere close to 

being right, that is about 1,000. Am I right about that? 

Mr. ARBURY. You are right. 

Mr. ELLISON. That is 1,000 beyond single family homes and your 

position is there is about 600 that are duplexes; is that right? 

Mr. ARBURY. Right. 

Mr. ELLISON. That would leave about another 400 which would 

be— 

Mr. ARBURY. When we got down to the detailed numbers of even 

the 87 so-called apartments that were listed, we are saying five or 

more units is what we classify as an apartment, and then we are 

down to maybe six communities but no evictions. 

Mr. ELLISON. How many residents live in these type of units? 

Mr. ARBURY. I do not know. There were no evictions so we did 

not know. 

Mr. ELLISON. You seem to be arguing that if my bill goes into 

place, that it is not going to hurt you because you do not have any 

evictions. It will be there as a protection for the 1 or 2 or 87 people 

who might be subject to it, but it will not hurt you because the people you represent do not pursue evictions. 

If it does not hurt you, why are you against it? 

Mr. ARBURY. What it will hurt is the Section 8 Program. It is 

hard to attract private investment into the Section 8 Program. The 

more you make it mandatory, the more restrictions you put on it, 

87 

the more mandates you put on it, it makes it harder and harder 

to attract investment in affordable multi-family housing. 

Mr. ELLISON. Could I ask for unanimous consent to just respond 

before my time is over? 

Mr. WATT. Your time is out, you can ask unanimous consent for 

one additional minute, without objection. 

Mr. ELLISON. I will simply say that I disagree with your position. 

The legislation, both H.R. 1728 and H.R. 1247 clearly and specifically allow for—this is not additional barriers and burdens. The 

legislation allows for specific assignment of lease and a Section 8 

voucher contract to the immediate successor. 

They do this through the force of law, and Congress has the authority to make the law. 

The bottom line is that it will give protections to people who need 

it. It will make sure that we do not have foreclosed buildings in our 

neighborhoods. It will stop these big buildings from being an attractive nuisance, and it will prevent things like arson and crime 

and community blight. 

I am willing to continue the dialogue with you, sir. I think I am 

open to your point of view. I am not persuaded. I just want to put 

that on the record. 

Thank you for listening and thank you for responding. 

Mr. WATT. The gentleman’s time has expired. I know Mr. Arbury 

wants to respond but I would ask him to respond in writing, especially since this is a hearing not about that bill. 

[laughter] 

Mr. WATT. Mr. Manzullo is recognized for 5 minutes. 

Mr. MANZULLO. Thank you, Mr. Chairman, and to the panel, I 

am sorry, I have been catching bits of your testimony on television 

and other bits of trying to take care of a full load, including an office full of constituents. 

I have an observation and a couple of questions. The subprime 

Regulation Z by the Fed takes effect on October 1st. That means 

there is already a Federal regulator who has the authority to govern instruments and underwriting standards. 

That person is already in existence. I know many of you have 

testified this is what you want for uniformity, etc. It will not take 

place until October 1st. 

The first question is, do we need new legislation prior to that? 

The observation is, and I am not picking on anybody in particular, 

but if you take a look at the testimony of the Independent Community Bankers, Mr. Menzies, and also the testimony from the Mortgage Bankers Association, each one starts with the statement, well, 

you know, we herald the idea of something to get rid of patchwork 

but, and then every group has their own ‘‘but’s.’’ 

Everybody wants to write exactly what is going to be in this bill 

and that is not going to happen. 

Those of you who want this type of legislation have to be prepared for whatever goes in there. I closed probably 2,000 real estate transactions as an attorney. Some of the stuff I see in here is 

frightening. 

Who is going to take a mortgage? Who is going to securitize the 

mortgage when you have contingent liability? Hello. 

88 

The secondary market is suffering as it is. This makes it even 

worse. The legislation that we will take up next week will have a 

cram down for residential. Who is going to give a mortgage if you 

know the bankruptcy judge is going to go in there and change the 

terms of the mortgage. 

If you guys do not want Federal control, just say this thing 

stinks, we do not need it. We have enough Federal regulation on 

top. We just need the regulators to do what is proper. 

Does anybody want to tackle the question on if subprime Reg Z 

takes effect on October 1st, do we actually need this legislation? 

Does anybody want to take a stab at that? 

Mr. Menzies, you are from the Eastern Shore, are you not? 

Mr. MENZIES. I was just going to share the observation that community banks did not create this train wreck. 

Mr. MANZULLO. That is correct. 

Mr. MENZIES. Community banks did not create shadow corporations on Wall Street to house the Alt-A payment option, no doc. 

Mr. MANZULLO. 2/28s, 3/27s. 

Mr. MENZIES. Community banks have stuck to their knitting for 

decades and decades and decades. We continue to stick to our knitting. We make loans to people we know. We make loans to relationships, not for transactions. The people we lend to we see at the 

YMCA, at Rotary, on our volunteer boards. We are in the relationship business. 

Does this legislation benefit community banking? Only to the extent that it prevents the next train wreck. We did not create this 

train wreck. 

Mr. MANZULLO. Mr. Ryan? 

Mr. RYAN. My answer is a little bit different. I do not know if 

you were here when I commented to one of your Republican colleagues, but certain parts of this bill are also pending in legislation 

in the European Commission. 

They will affect any securitized product that is distributed globally, and for that reason, we are supportive of legislation here. We 

have made specific recommendations on how this legislation could 

be modified, where we could be fully supportive. 

I would urge you—there are really only three specific areas, one 

of which is kind of expanding the terminology used for the safe 

harbor for giving a regulator some flexibility in dealing with the retention requirement. 

Mr. MANZULLO. Right, but that is three that you do not like. As 

you go down the line, you find this group— 

Mr. RYAN. I am only answering for our association, not for anybody else here. 

Mr. MANZULLO. Right. You made the point. There is something 

else that on April 2nd, the President signed the G–20, a document 

that essentially, if you read it carefully, turns over control of the 

financial institutions of this country to the Financial Stability 

Board, which is going to be controlled by the European Union, the 

FSB countries, the G–20, and Spain. 

I don’t know if you are aware of that document, if you go to G– 

20— 

Mr. RYAN. I have read the document. We do not necessarily 

agree with what you just said. 

89 

Mr. MANZULLO. If you read the document, it is frightening. We 

are signatories to it. It states the common principles. It states that 

prosperity is indivisible. It states the corporate social order, whatever the word is, be imposed upon the countries that are party of 

that. 

The reason I raise that is although you have read the document 

and I appreciate that, most people in this country are not even 

aware of what happened at the G–20. 

Mr. Menzies, we had talked a couple of weeks ago when you were 

in here, and you were one of the guys who got caught way at the 

end on the third panel also. I wish they would put the good guys 

up front and let the bureaucrats wait. 

We had talked earlier over the fact that it is true you did not 

cause the problem but you would be subjecting yourself to the jurisdiction of the Federal Government under these very broad and pervasive powers. 

I just wanted to raise that and thank you for your participation, 

and thank you, Mr. Chairman. 

Mr. WATT. The gentleman yields back. I think that leaves only 

me to ask questions and to thank the witnesses for being here. 

Let me just raise a few questions. Let me talk about the preemption issue first, just to make it clear that we are preempting only 

in two areas, and we are leaving State law to apply in all other 

areas. 

I take it Mr. Kittle, Mr. Menzies, and Mr. Ryan probably would 

prefer a totally preemptive framework so that it would be only a 

Federal framework, but if we were doing that, I can assure you 

that the standards would be so high that I think we could not do 

it only in the subject matter of this bill. 

I think we have found what appears to be a reasonable middle 

ground here, unless you all are saying something different. 

Mr. Kittle, Mr. Ryan in particular, do you have differences with 

that? 

Mr. KITTLE. If you go back to it, Mr. Chairman, it is the patchwork of State laws that created the environment for predatory 

lending and for bad regulation, and for mortgage fraud. 

Mr. WATT. I am not sure I accept that as a proposition. 

Mr. KITTLE. What we are saying is we would like the States to 

have a seat at the table, the States to go ahead and implement any 

regulation that comes out. The State attorneys general to look at 

that one law that the other panelists earlier said they only need 

to look at one, we will give them one, one national standard. 

Every time you have—my company, which it does, is approved to 

lend in all 50 States— 

Mr. WATT. I understand there are substantial efficiencies to the 

industry. 

Mr. KITTLE. I am worried about the cost to the consumer as you 

are. That cost gets passed onto the consumer and it continues to 

drive up the cost of mortgages. We are worried about the consumer 

also. 

Mr. WATT. I think the cost of credit to consumers in mortgages 

is probably lower than the cost of credit to consumers in any other 

area of our life at this moment. 

90 

I grant you at some point that will change, and it may well be, 

but it is hard to convince me that—anyway, we have had this discussion. 

I actually think that setting a floor as a minimum standard 

would ultimately drive all States to exactly where you are getting 

to. I have had this discussion with the industry for a long time. 

If the States get substantially out of line, lenders will just either 

raise interest rates in that State or they will leave that State. They 

did that in Georgia. They had to adjust back. 

There are substantial pressures for any lender in the mortgage 

area to gravitate to whatever the national standard is anyway. 

Mr. KITTLE. You are right in your assessment, but look at what 

it did to the consumers in Georgia. They had no access to credit 

for several months. 

Mr. WATT. I never have professed to be more brilliant than anybody in my State legislature. Those people make decisions. They 

make them in the interest of their States. You either believe in federalism or you do not believe in federalism. 

On some issues, I think we should federalize and we have done 

that in our Constitution, but I do not think every issue ought to 

be federalized, and we ought not preempt everything that goes on 

at the State level. Otherwise, we would not need any States. 

That is a long-term subject discussion. I have had this discussion 

with various people. 

Let me just go to Mr. McMillan for a little bit. I am a little concerned that excluding Realtors from the definition of ‘‘originators’’ 

even when they do things that originators do is probably not a good 

idea; right? At least, that is my assessment. 

Excluding all sellers who sell finance would ultimately attract a 

bunch of sellers, builders, others to become sellers because they 

then would not be held to the same standards that originators 

would. 

I understand the concept that you are working with and in general, I do not think Realtors are considered originators, but when 

they do what originators do, they kind of quack like a duck and 

walk like a duck, they probably ought to be treated as a duck. 

When sellers sell finance and they do what originators do, they 

probably ought to be treated like originators. 

Would you agree with that? 

Mr. MCMILLAN. No, sir. I would love with the privilege you afford me to address both of those issues, starting with the latter 

with respect to sellers. 

Mr. WATT. Actually, I am over my time. Let me invite you to address that to me in writing. I do not want this becoming an academic discussion. That is not even my part of the bill. I did not 

draft it. 

It seems to me that going too far in the direction that you advocated might create a set of problems, and I would like to hear your 

side. I have explained publicly what my concerns are. 

Give me that in writing and I will not hold up the rest of the 

committee. I do note that members may have additional questions 

for the panel which they may wish to submit in writing in addition 

to those who have been here. 

91 

Without objection, the hearing record will remain open for 30 

days for members to submit written questions to these witnesses 

and all of the prior panels, and to place their responses in the 

record. That includes the ones that have been propounded that Mr. 

Posey requested, if you can get those answers to us in the next 30 

days, that would be great. 

This has been a wonderful hearing all day. It has added immensely to the landscape in which we are operating both from the 

regulator’s perspective, from the industry’s perspective, and from 

the consumer’s perspective, all of which are valuable perspectives. 

As I indicated earlier this morning when we started, we are trying to accomplish three things here. We are trying to protect consumers. We are trying not to burden anybody, and we are not trying to chase any capital out. 

Those things kind of, at points, can come into conflict. We acknowledge that. That is why we have tried to walk down this road 

as carefully as we can, and we will continue to do that not only between now and Tuesday when we mark-up the bill, but even after 

that, we will try to make sure that we find the right balance until 

this process is completed. 

I thank you all for your participation and your wonderful testimony, and declare the hearing adjourned. 

[Whereupon, at 4:55 p.m., the hearing was adjourned.] 

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A P P E N D I X 

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