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PRESERVING THE AMERICAN DREAM: PREDATORY 

LENDING PRACTICES AND HOME FORECLOSURES 

HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

ON 

THE IMPACT OF EXOTIC MORTGAGE PRODUCTS ON HOMEBUYERS AND 

HOMEOWNERS 

WEDNESDAY, FEBRUARY 7, 2007 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.access.gpo.gov/congress/senate/senate05sh.html 

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(II) 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

CHRISTOPHER J. DODD, Connecticut, Chairman 

TIM JOHNSON, South Dakota 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

ROBERT MENENDEZ, New Jersey 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

ROBERT P. CASEY, Pennsylvania 

JON TESTER, Montana 

RICHARD C. SHELBY, Alabama 

ROBERT F. BENNETT, Utah 

WAYNE ALLARD, Colorado 

MICHAEL B. ENZI, Wyoming 

CHUCK HAGEL, Nebraska 

JIM BUNNING, Kentucky 

MIKE CRAPO, Idaho 

JOHN E. SUNUNU, New Hampshire 

ELIZABETH DOLE, North Carolina 

MEL MARTINEZ, Florida 

SHAWN MAHER, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director and Counsel 

JOHNATHAN MILLER, Professional Staff 

MARK A. CALABRIA, Republican Senior Professional Staff Member 

JOSEPH R. KOLINSKI, Chief Clerk and Computer Systems Administrator 

GEORGE WHITTLE, Editor 

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C O N T E N T S 

WEDNESDAY, FEBRUARY 7, 2007 

Page 

Opening statement of Chairman Dodd .................................................................. 1 

Opening statements, comments, or prepared statements of: 

Senator Shelby .................................................................................................. 5 

Senator Reed ..................................................................................................... 6 

Senator Tester .................................................................................................. 6 

Senator Carper ................................................................................................. 7 

Senator Casey ................................................................................................... 8 

Senator Brown .................................................................................................. 9 

WITNESSES 

Reverend Jesse Jackson, President and Founder, Rainbow/Push Coalition ....... 10 

Prepared Statement ......................................................................................... 48 

Delores King, Consumer, Chicago, Illinois ............................................................ 14 

Prepared Statement ......................................................................................... 52 

Amy Womble, Consumer, Pittsboro, North Carolina ............................................ 15 

Prepared Statement ......................................................................................... 56 

Harry H. Dinham, President, National Association of Mortgage Brokers .......... 17 

Prepared Statement ......................................................................................... 60 

Jean Constantine-Davis, Senior Attorney, American Association of Retired 

Persons (AARP) .................................................................................................... 18 

Prepared Statement ......................................................................................... 90 

Hilary Shelton, Executive Director, National Association for the Advancement 

of Colored People .................................................................................................. 20 

Prepared Statement ......................................................................................... 100 

Douglas G. Duncan, Senior Vice President of Research and Business Development, and Chief Economist, Mortgage Bankers Association ............................ 23 

Prepared Statement ......................................................................................... 117 

Martin Eakes, Chief Executive Officer, Self-Help Credit Union and the Center 

for Responsible Lending ...................................................................................... 25 

Prepared Statement ......................................................................................... 181 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD * 

Statement from the National Association of REALTORS ................................. 219 

Statement from the Center for Responsible Lending ........................................... 227 

Statement from the Consumer Mortgage Coalition .............................................. 232 

Statement from the American Financial Services Association ............................ 255 

Statement from Lenders One/National Alliance of Independent Mortgage 

Bankers ................................................................................................................. 260 

* Mortgage Broker and Loan Originator Licensing material submitted by the National Association of Mortgage Brokers has been retained in Committee files. 

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(1) 

PRESERVING THE AMERICAN DREAM: PREDATORY LENDING PRACTICES AND HOME 

FORECLOSURES 

WEDNESDAY, FEBRUARY 7, 2007 

U.S. SENATE, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Committee met at 10:03 a.m., in room SH–216, Hart Senate 

Office Building, Senator Christopher J. Dodd (Chairman of the 

Committee) presiding. 

OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD 

Chairman DODD. The Committee will come to order. We welcome 

all of you this morning. 

Let me just announced for purposes of how we will proceed here, 

we will begin the hearing this morning, and at the point we arrive 

and have a quorum here, I will interrupt the hearing, hopefully for 

a very brief amount of time, for us to consider the markup of the 

Public Transportation Terrorism Prevention Act, which is a matter 

this Committee had dealt with in the past in the previous Congress 

under the leadership of Senator Shelby. Basically it is the same bill 

that we passed out of this Committee in the previous Congress, but 

there is an effort to have this bill become part of a larger bill dealing with homeland security issues, and so we need to get it done 

in a timely fashion. So as soon as we have a working quorum here, 

I will interrupt, go into executive session, and then we will deal 

with that matter. And I will apologize in advance to the witnesses 

that if you are in the middle of your testimony here, we will take 

a break and move to that item and then come right back to the 

subject matter of today’s hearing. 

I have some opening comments I want to make. I am going to 

turn then to my colleague and friend, Senator Shelby, for any opening comments he may have. I will ask other colleagues who are 

here if they have some short opening comments, and then we will 

turn to our witnesses. 

Let me welcome all of you here today for the hearing entitled 

‘‘Preserving the American Dream: Predatory Lending Practices and 

Home Foreclosures.’’ This hearing is particularly timely in light of 

the news that has been coming out in recent days about the wave 

of delinquencies and foreclosures facing American homeowners. 

Let me start by recognizing the work of Senators Allard, 

Bunning, Reed, Schumer, Senator Shelby as well, who held joint 

Subcommittee hearings last year to examine the impact of exotic 

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mortgages on homebuyers and homeowners. They deserve a great 

deal of credit, in my view, for raising the awareness of many of us 

to the risks of these products. I consider today’s hearing a continuation of the work that these members started in the previous Congress. 

Today, the Committee will focus its attention more specifically on 

predatory lending practices that are found primarily in the 

subprime market and how these practices may be eroding the foundations of homeownership for millions of American families. Let me 

make myself very clear at the outset on one important point. I do 

not believe that all subprime or exotic lending is a predatory or 

abusive practice. To the contrary, subprime credit can be and many 

times is a valuable tool in helping people become homeowners and 

in unlocking the equity in their homes. For many years, the battle 

so many of us have fought was to make credit available to neighborhoods that had been redlined, or to people, particularly minorities, who felt the sting of rejection, regardless of their creditworthiness. 

In response to this injustice and after years of hard work by people like Reverend Jackson, Hilary Shelton, and many others, we 

passed the Community Reinvestment Act and the Fair Housing Act 

so that credit to buy a home or build a business would be available 

to all Americans. As a result, we have seen homeownership grow. 

Every one of us has spoken about homeownership, how it provides 

stability and a chance to build wealth for the vast majority of 

Americans. It is the most valuable asset that most of us will ever 

own. Our homes provide us with a financial cushion on which we 

can draw to send our children to college, pay for unexpected health 

expenses, or finance a secure retirement. 

To the extent that the creation of the subprime market has 

added to this flow of credit in a positive and constructive way, in 

a way that helps build wealth, I welcome that development, and I 

encourage it. However, it is not enough to simply create homeownership. We must sustain, preserve, and protect it as well. Yet today 

we are seeing increasing evidence that this important source of 

wealth for so many of our fellow citizens is under grave threat from 

predatory, abusive, and irresponsible lending practices undertaken 

by too many subprime lenders. The borrowers who are too frequently targeted for these loans are minorities, immigrants, the elderly, and the totally unsophisticated. For these families, failure 

means the loss of a home, the loss of wealth, the loss of middleclass status, and the loss of the opportunity for financial security. 

The growth of the subprime market has been incredible. The 

amount of subprime lending more than tripled from the year 2000 

to the end of 2005, from $150 billion to nearly $650 billion. It is 

now over 20 percent of the entire market. But this incredible 

growth has come at what the FHA Commissioner Brian Montgomery has called, and I quote him, ‘‘a tremendous cost, a cost that 

often outweighs the benefits of homeownership.’’ 

Today, there are too many incentives in the subprime market to 

make loans that put borrowers at too great a risk of failure. For 

example, over half of subprime mortgages are stated income 

loans—loans which the industry often refers to as ‘‘liar’s loans.’’ 

The question is: Who is lying? According to a survey of over 2,000 

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mortgage brokers, 43 percent of the brokers who make these loans 

do so because they know that their borrowers do not have the income to qualify for the loan in the first place. Why do they make 

these loans? Because they are paid more to do so. Brokers up-sell 

borrowers; that is, they put borrowers in loans with higher interest 

rates than they would otherwise qualify for because the brokers 

make greater commissions, called ‘‘yield spread premiums.’’ By so 

doing, these yield spread premiums are a perfectly legitimate tool 

to provide borrowers with no-closing-cost loans. But HUD has told 

us that half of these loans paid, about $7.5 billion, do not go to closing costs but go simply to increase broker profits. 

Minority borrowers are being targeted for higher-cost, subprime 

mortgages, regardless of their financial health. The 2005 Home 

Mortgage Disclosure Act data show that over half of African American borrowers and 46 percent of Hispanic borrowers were given 

high-cost, subprime loans. By comparison, only 17 percent of whites 

took out such loans. Yet, according to the Federal Reserve, borrower-related characteristics such as income could explain only 

about 20 percent of this disturbing difference. That is from the 

Federal Reserve, by the way. About 70 percent of subprime loans 

have costly prepayment penalties that trap borrowers in high-cost 

mortgages, mortgages that strip wealth rather than build it, and 

these penalties keep borrowers from shopping for a better deal. 

Unfortunately, living in a minority neighborhood puts a homeowner at significantly higher risk of having a prepayment penalty. 

Approximately eight in ten subprime loans today are 2/28 adjustable rate mortgages—mortgages whose monthly payments will 

spike up by as much as 30 to 50 percent or more. Many of the borrowers who take these loans, unaware of the payment shocks that 

await them, have no prospects of being able to make the higher 

payments and are forced to refinance the loan if they have sufficient equity to do so. Each refinance generates new fees for the 

lenders and brokers and strips more equity from the homeowner. 

One lender in a discussion with my office called subprime 2/28 

loans ‘‘foreclosure loans.’’ Those were his words, not mine. 

Late in 2006, Federal financial regulators issued guidance to require the lenders to underwrite borrowers for certain non-traditional mortgages so that even after the payment shock hits, the 

lender can be reasonably certain that the borrowers will be able to 

continue to make the mortgage payments. 

Last year, I wrote, along with five of my colleagues on this Committee—Senators Allard, Bunning, Reed, Schumer, and former Senator Sarbanes—asking the regulators to extend these same protections to borrowers who were given these subprime 2/28 ARMs, borrowers that are disproportionately black and Hispanic. That was 

over 2 months ago we wrote the letter. We have not received an 

answer yet. My hope is today that as a result of this hearing and 

referencing to it here this morning, we will get a response from the 

various Federal agencies that we have written to asking them to 

respond to our concerns about these practices. I believe these borrowers deserve every bit as much protection as the homeowners 

who take out interest-only and option ARM loans. And I want to 

urge the regulators to more expeditiously provide the same protections to these particularly vulnerable borrowers. 

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The results of these aggressive and abusive practices are becoming clear. The Center for Responsible Lending, whose CEO, Martin 

Eakes, will testify this morning, released a study saying that nearly one in five subprime loans made in 2005 and 2006 will end in 

foreclosure, in large part because of the abusive loan terms with 

which many low-income borrowers are saddled. According to this 

study, up to 2.2 million families will lose their homes at a cost of 

$164 billion in lost home equity. Other reports confirm the trend. 

RealtyTrac announced that there were more than 1.2 million foreclosure filings in 2006, up 42 percent from 2005, blaming the increase on higher payments generated by the resets on option and 

subprime ARMs. 

Today’s edition of the American Banker has a story entitled 

‘‘Subprime Defaults at Recession Level.’’ The article focuses on a 

study conducted by Friedman, Billings, Ramsey, an investment 

banking firm specializing in mortgages, which says that over 10 

percent of securitized subprime loans are seriously delinquent, over 

90 days late, in foreclosure, or already turned into seized properties. This is nearly double the rate from May of 2005 and higher 

than at any time since the recession of 2001. 

I understand that many argue that the impact of the economy 

and other life events, as they are called, such as illness, job loss, 

divorce, and the like, are key variables in determining mortgage 

delinquencies and foreclosures. No doubt this is true. I do not question that. But these economic and personal factors do not fully explain, in my view, the precipitous rise in defaults and foreclosures. 

It is time for Congress, the administration, and the lending industry to face up to the fact that predatory and irresponsible lending 

practices are creating a crisis for millions of American homeowners 

at a time when general economic trends are good. Indeed, Mark 

Zandi, chief economist at moodysconomist.com, notes that, ‘‘The 

current high delinquency rates are unusual because the economy is 

relatively strong.’’ I am quoting him there. Zandi attributes the increasing delinquencies in part to the resetting of subprime and 

other ARMs at higher rates. This is particularly worrisome given 

the fact about $600 billion in ARMs were reset this year. The problem is most of these loans are perfectly legal, even as they do real 

harm to borrowers and neighborhoods. In short, the system is out 

of balance. There is a chain of responsibility that makes these abusive loans possible. I look forward to working with each link in that 

chain—the brokers, the bankers, Wall Street, the regulators, my 

colleagues on this Committee, and the Congress and the administration—to help restore this balance for the sake of the safety and 

soundness of the banking system, for the sake of homeowners who 

are being victimized, and to make sure that subprime credit can 

once again play a very constructive role in the marketplace and 

make homeownership the dream that it ought to be. 

At any rate, here now this morning let me, if I can, note that 

Reverend Jackson is here and will be our lead-off witnesses, but before I turn to him, I want to turn to Senator Shelby for some opening comments and then any other Members of the Committee for 

any opening comments they may have, and then we will turn to 

our witnesses. 

Senator Shelby. 

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STATEMENT OF SENATOR RICHARD C. SHELBY 

Senator SHELBY. Thank you, Chairman Dodd. 

The last 10 years have witnessed a dramatic increase in homeownership, particularly among low-income and minority families. 

One of the primary reasons for this increase has been the advent 

of risk-based pricing in the mortgage market. The resulting expansion of mortgage credit has opened the dream of homeownership to 

millions of Americans who previously would not have qualified. We 

in the Congress have a responsibility to ensure that this upward 

trend continues. 

The market now provides a wide array of mortgage products to 

meet the needs of a diverse consumer base. Unfortunately, more 

choices mean greater complexity, which can put some borrowers at 

a disadvantage. Therefore, it is incumbent upon consumers not 

only to educate themselves, but to shop around before they sign on 

the dotted line. Due diligence alone, however, Mr. Chairman, cannot protect the consumer from fraud and other unscrupulous practices. 

The financial regulators possess a number of tools to eliminate 

discriminatory, unfair, fraudulent, and deceptive practices. In fact, 

the bank regulators recently issued final guidance on non-traditional mortgage products. I believe this guidance will help further 

reduce abusive and irresponsible lending. 

We also have a responsibility, Chairman Dodd, to ensure that 

this downward trend also continues. This Committee has highlighted and will continue to highlight both the good and the bad 

in the mortgage marketplace in hopes of facilitating the former and 

eliminating the latter. 

I look forward to working with Chairman Dodd as we monitor 

the performance of the regulators and determine what, if anything, 

Congress can do to further reduce abuse and fraud while ensuring 

the continued expansion of homeownership. 

While we seek to protect the few who have fallen prey to either 

bad actors or their own choices, we must be careful not to inadvertently harm the many who have benefited or will benefit from expanding homeownership. 

As Reverend Jackson has observed in the Chicago area, it is possible to throw the baby out with the bath water when we seek to 

legislate in this area. We have got to strike a balance to get it 

right. 

Mr. Chairman, I want to commend you for your efforts and the 

efforts of our former Chairman, Senator Sarbanes, in making financial literacy a top priority of this Committee. An informed consumer is a powerful deterrent to those who seek to defraud or deceive potential borrowers. More importantly, an informed consumer 

is in a much better position to choose the most appropriate loan for 

their specific economic circumstances. 

Mr. Chairman, I also want to thank today’s witnesses for their 

willingness to appear before this Committee, and I look forward to 

hearing from them. Thank you. 

Chairman DODD. Thank you very much, Senator Shelby. 

Let me turn to my colleagues for any opening statements. Senator Reed, any opening comments? 

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STATEMENT OF SENATOR JACK REED 

Senator REED. Thank you very much, Mr. Chairman. I want to 

thank you and Senator Shelby for this hearing on the important 

topic of ipredatory lending. 

In the third quarter of 2006, in Rhode Island more than 5,600 

home loans were delinquent, and for a small State like Rhode Island, that is a significant number. More than 600 mortgages fell 

into foreclosure proceedings. That is up 41 percent since 2005. 

Those are startling numbers. But what is happening, obviously, is 

that increased housing prices and flat wages have put a lot of families in a very difficult predicament. And according to statistics, in 

2006 nearly 16 percent of the loans in Rhode Island were interestonly. Those are just the type of loans that could lead to the situation we talked about today. As interest rates accelerate, families 

find themselves caught between stagnant wages and family crises 

like health care and other problems, and that is where we have to, 

I think, do something much more. 

I am interested particularly today in what the Federal Government might be able to do to provide some type of relief for homeowners, provide them a lifeline. One of the greatest challenges facing policymakers, nonprofit housing support entities, and responsible lenders appears to be reaching borrowers in trouble. As a result, I have been working on legislation which I plan to introduce 

soon that would improve and expand upon existing Federal efforts 

to reach borrowers in trouble. Federal sponsorship of post-purchase 

assistance activities would help ensure that Federal dollars invested in homeownership programs, including purchase assistance 

programs and the FHA, are not wasted, while also providing benefits to buyers and lenders. I think we can do much more to help 

those people facing foreclosure, and we should do it. 

I look forward to the hearing to learn more about this particular 

issue, and I thank you, Mr. Chairman. 

Chairman DODD. Thank you very much. 

Senator Tester, any comments? 

STATEMENT OF SENATOR JON TESTER 

Senator TESTER. Thank you, Mr. Chairman and Ranking Member Shelby. Thanks for holding this hearing on an issue that has 

adversely affecting more and more Americans every day: predatory 

lending. 

Hard-working Americans think they are finally achieving part of 

the American dream—homeownership—and they find themselves 

in a financial tailspin because they were loaned more than they 

could afford, with hidden fees and interest rates that explode after 

a few years. 

Now, Mr. Chairman, you remember a couple weeks ago we had 

a hearing here on credit cards. This type of lending where we have 

exploding fees—I mean hidden fees and exploding interest rates is 

becoming far, far, far too common. You spoke of one in five 

subprime borrowers that could lose their homes. These are statistics that, quite frankly, are very troubling because behind these 

statistics are young families, minorities, people that are going to 

suffer greatly. Clearly, more needs to be done to protect consumers 

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from these predatory lending practices, and I look forward to hearing the testimony and the panel on this subject. 

Thank you, Mr. Chairman. 

Chairman DODD. Thank you, Senator. 

Senator Carper. 

STATEMENT OF SENATOR THOMAS R. CARPER 

Senator CARPER. Thanks, Mr. Chairman. To Reverend Jackson 

and other witnesses, welcome. We are delighted that you have 

joined us today. 

Long before I came to the Senate, homeownership was a top priority for me. As Governor of Delaware, we sought to make—we literally took our Housing Authority Director and put her on our Cabinet. Then we worked hard to raise our homeownership rate. Our 

homeownership rate in Delaware is about 75 percent, among the 

highest in the country. I think all kinds of good things flow out of 

homeownership in terms of a source of savings for us to send our 

kids to school, start small businesses, live on at the end of our lives 

with reverse mortgages. We know kids do better in school when 

they live in a home that their family owns. People take ownership 

of their community. Just all kinds of good things flow from homeownership. 

So I have been anxious to and still do a lot in my little State to 

promote homeownership. And while I am encouraged by increased 

homeownership rates, I want to ensure that financing options that 

get people into a home are not subsequently counterproductive. 

And I want to see more Americans own their own homes, but I also 

want to make sure that they can actually stay in their homes and 

realize the American dream, not just for a couple of months or a 

couple of years, but for the rest of their lives. 

However, the process of buying a home can be daunting, as we 

know. Obtaining a loan can be an intimidating and confusing process for the vast majority of people who participate in it. Today 

there are many financing options for potential homebuyers as we 

know. I would just ask a rhetorical question: What makes a loan 

predatory? And, unfortunately, we have no clear definition. We 

have lists of examples, but does one practice in isolation by default 

become predatory? Or do there have to be two or three practices 

in one transaction in order for it to be predatory? How we craft a 

definition of ‘‘predatory’’ and define restrictions will have important 

consequences for the future of homeownership in America. 

For some, the subprime market is appropriate. You have spoken 

to that, Mr. Chairman, just as long as it is fair and clear. Because 

of the subprime market, we actually have the opportunity for a lot 

of people to have access to credit who would not otherwise have it. 

But if restrictions on such practices go too far, there is a risk that 

subprime lending will be too high for lenders and they will not 

make loans to people who need it and who have earned it. On the 

other hand, if the restrictions are too loose, then many Americans 

may lose the equity they have built up in their homes, they may 

lose their life savings, they may lose their family’s home. 

An important component of increased American homeownership 

is financial literacy. We have had hearings on that, as you will recall, and we must do our best to impart consumers with the knowlwwoods2 on DSK1DXX6B1PROD with HEARING

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edge that they need to successfully purchase a home. The state of 

financial literacy in our country, despite our efforts, is abysmally 

low, and we need to educate our children and continue to educate 

our children, our young adults, and, frankly, our older adults on 

the basic skills such as personal budgeting, balancing a checkbook, 

checking their credit scores, and so forth. Increasing financial literacy will go a long way to protecting Americans from finding 

themselves in financial situations they cannot afford. 

In closing, Mr. Chairman and colleagues, obviously I greatly appreciate that we are holding this hearing today. I hope that our 

Committee will continue to examine this and other homeownership 

issues to find ways to address these issues, not only these issues 

but financial literacy as well, and my old favorite, a strong, independent regulator for those Government-sponsored enterprises. 

Thank you. 

Chairman DODD. Thank you very much, Senator Carper. 

Senator Casey. 

STATEMENT OF SENATOR ROBERT P. CASEY 

Senator CASEY. Mr. Chairman, thank you for bringing us together for this important hearing, and I want to thank all the witnesses who will appear, and especially Reverend Jackson for your 

testimony that we will hear today and your leadership. 

This is an issue much like the minimum wage. We debated that 

recently, and it was 10 years long overdue before we acted in the 

Senate to raise the minimum wage. At the time I said that that 

was an issue of economic justice, and I believe this issue as well 

is an issue of basic economic justice, because I believe when you 

go down—and I am glad that Chairman Dodd went through the 

practices, whether they are financing high points and fees or 

whether it is loan flipping or aggressive marketing and all of that, 

all of those pernicious and offensive practices constitute an effort 

to not only deceive and not only rob people of their financial resources and make it harder for them to make ends meet, it robs 

them of their dignity, and that is especially offensive when people 

are in many cases working, they are low-income workers, and they 

are struggling every day just to bring the ends of their family 

budget together and all of the pressures that others have mentioned today—health care and education, all the other financial 

pressures. 

But this is something that robs people of their basic dignity, and 

it is particularly offensive. And I think that one of the results of 

this hearing has to be—maybe not today, maybe not tomorrow, but 

soon—to develop a set of changes and practices, policy changes 

really, that will help to restore some of that dignity that has been 

lost and prevent others from being the victims of that kind of outrageous conduct. 

So, Mr. Chairman, I appreciate your work and your leadership 

on this, and Senator Shelby and Members of this Committee who 

have been working on these issues for many years, and we are 

grateful for this opportunity. 

Chairman DODD. Thanks very much. 

Senator Brown. 

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STATEMENT OF SENATOR SHERROD BROWN 

Senator BROWN. Thank you, Chairman Dodd, and thank you for 

conducting this hearing. 

Just last week, Secretary Paulson testified to this Committee and 

repeatedly told us that in the last quarter we saw 3.5 percent economic growth in this country as if that were the whole story. But 

my State and Pennsylvania and so many other States are faced 

with some of the highest foreclosure rates in the country. Cities 

like Cleveland are being particularly hit hard. There is no question 

that some of this problem stems from the loss of jobs or other reasons external to the home lending industry, but in far too many 

cases homeowners have been lured into loans they had no business 

taking out. 

Over the past decade, foreclosure filings have increased fourfold 

in Ohio. In one Ohio survey, two-thirds of county sheriffs’ departments cited predatory lending as a top contributor to foreclosures. 

The result is that in 2005 there was one foreclosure filing for every 

71 households in Ohio. It is not hard to see how this happens. A 

homeowner might take out only one or two mortgages in her whole 

life or in his whole life. Doing so is unfamiliar. It is daunting, as 

Senator Carper said. It is only natural to rely on somebody who 

deals with mortgage products every day and seems to have the borrowers’ interests at heart. 

But unscrupulous actors have their own interests at heart. We 

need to provide greater protections for consumers who may not be 

sophisticated about the proliferation of mortgage products and the 

many tricks that can be used to disguise the true cost of a mortgage. We need to act to ensure not just full disclosure but ethical 

behavior on the part of all the participants in the lending process. 

I would close, Mr. Chairman, by asking unanimous consent to 

enter into the record a statement from the National Association of 

Realtors, who have, obviously, interest in this, not a direct stake, 

perhaps, in the hearing today. 

Chairman DODD. Without objection, so ordered. 

With that, let’s turn to our first witness. Reverend Jackson, we 

thank you immensely for being here, if you would please join us at 

the table. 

As I think most of the audience is aware, Reverend Jackson is 

the founder and President of Rainbow/PUSH Coalition, one of 

America’s foremost civil rights, religious, and political figures. Over 

the past 40 years, Reverend Jackson has played a major role in 

every movement of empowerment, peace, civil rights, gender equity, and economic and social justice, also broke new ground in 

U.S. politics with his two runs for the Presidency back in the 

1980’s. 

Reverend Jackson has received numerous honors for his work in 

human and civil rights, nonviolent social change, and he has received the prestigious NAACP Spingarn Award in recognition of his 

honors from hundreds of grass-roots civic and community organizations from coast to coast. On August 9, 2000, President Bill Clinton 

awarded Reverend Jackson the Presidential Medal of Freedom, the 

Nation’s highest civilian honor. 

Reverend Jackson, it is a pleasure and honor to have you before 

this Committee. We thank you for being with us. 

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STATEMENT OF REVEREND JESSE JACKSON, PRESIDENT AND 

FOUNDER, RAINBOW/PUSH COALITION 

Reverend JACKSON. Thank you, Senator Dodd. Mr. Chairman, 

Senator Shelby, other distinguished Members who are here today, 

I want to thank you for your vision in calling today’s hearing as 

well as your insightful comments at the tenth anniversary of the 

Rainbow/PUSH-Wall Street Economic Project Summit, established 

to democratize capital in the financial services industry and remove 

the walls on Wall Street for people of color and women and seniors. 

We look forward to joining with you in a working group on the 

issue of predatory lending and other issues which will form the 

basis of a new national urban policy for America. 

On Thursday, January 25th, this same Committee held hearings 

on the practice of the credit card industry. What we will see here 

today is that several of the issues prevalent in the credit card industry apply to the issue of predatory lending as well. I would like 

to thank Senators Allard and Bunning, who held hearings last year 

on interest-only mortgages. After all, in a true democracy, money 

is not red or blue or white. It should be green for all citizens. 

As we gather for this hearing in the month of the year designated for the commemoration of Black History, we do so through 

two lenses of history: triumph and tragedy. NFL coaches who are 

black are recent triumphs in breaking down walls of exclusion in 

athletics, and that is a triumph, and the tragedy of the financial 

services industry’s targeting of people of color for high-rate mortgage continues. 

What is the American creed? The American creed promises equal 

opportunity, equal access, equal protection under the law, and a 

fair share for all. Forty years after the passage of the Civil Rights 

Act of 1964 and the Voting Rights Act of 1965, we must level the 

playing field for all citizens, identify incentives for our financial institutions to invest, not exploit and oppress, hard-working Americans. Far beyond our idea of freedom is the reality of equity and 

parity. We must break the syndrome where the poor pay more for 

automobiles and housing financing to insurance. 

Today’s terms of credit for African American and Latino borrowers and seniors are un-American. The cost of money for black 

and brown people is not based on equal opportunity, equal access, 

or equal protection under the law. In the home mortgage industry, 

like other industries, people of color are economically exploited, resulting in a home-owning rate of fewer than 50 percent. 

For example, in 2005, 52 percent of mortgage loans to blacks 

were high rate, 40 percent of mortgage loans to Latinos were high 

rate. By contrast, in the same year, only 19 percent of mortgage 

loans to whites were high rate. 

In Chicago alone, foreclosures for black and brown borrowers exceed $598 million annually. In Boston, 70 percent of middle-class— 

not the poor—home loans were high rate. Nevada has the second 

highest foreclosure rate in the Nation. When the Ford Motor Company dismisses 55,000 workers, and Honda and Toyota can build 

plants here and Ford cannot build a plant there, we also need not 

only literacy but a fair trade policy. Or if you have another hearing 

in the field, please have it just outside of a military base where unwwoods2 on DSK1DXX6B1PROD with HEARING

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derpaid soldiers are just victimized by vultures of whatever race all 

over our Nation. 

So when you lose 3 million manufacturing jobs, you don’t just 

need literacy. You need a job that can pay your mortgage. The 

ghetto barrio established as an enclave or institution built on race, 

exclusion and exploitation. It required open housing laws to relieve 

pressure on the overcrowding and create housing options. 

There remains a zone of high taxes and low services, second-class 

schools and first-class jails, zip codes that are unprotected by law. 

It is a fertile land for predators, financed by banks. Banks lock you 

out based on credit score and zip code, and market exploiters, payday lenders, swoop in like vultures. We need Federal protection. 

The help of CRA on the front side is a good thing. But then when 

banks finance predators on the back side, they offset CRA. 

Many players in the home mortgage industry are given a green 

light to engage in predatory schemes to redline against the poor 

and people of color. Predatory lending practices such as subprime 

loans are the largest threat to wealth accumulation. Practices include steering, placing borrowers into higher-priced loans than 

those for which they qualify; steering of prime, placing black and 

brown borrowers into high-cost subprime loans; prepayment penalties, fees incurred by borrowers for paying a loan off early; yield 

spread premium, broker kickbacks for steering borrowers into highpriced loans; no-fault repayment ability, failure to escrow for property taxes, low documentation loans. 

Today, I pray the Senate Banking Committee does not, A, blame 

the victims who work harder and make less, pay more for less, live 

under stress, and don’t live as long, or suggest a mere increase in 

disclosure forms. I respectfully suggest, one, the industry is not 

functioning properly nor fairly. Lenders and brokers have financial 

incentives to place borrowers in more expensive loans. It puts responsible lenders at a competitive disadvantage with the irresponsible lenders, allowing unscrupulous predatory lenders to control 

the market. Currently, brokers get paid more by putting borrowers 

in more expensive loans for which they qualify, and lenders have 

incentives to place borrowers in loans that are unsustainable for 

more than a year or two. This must change. 

The GSEs, the Government-sponsored enterprises, lenders 

worked with these organizations in Fannie Mae to develop predatory lending practice guidelines which have been adopted. What we 

find these basic banking services for whites, full-service bank 

branches. For Blacks and Latinos, pawnshops, check-cashers, and 

payday lenders. 

Current evidence reveals that Fannie Mae is purchasing securities that include the very loans that are stripping working-class 

people of their precious home equity. The Federal Government subsidizes Fannie Mae to increase homeownership, opportunities for 

working people. In purchasing such securities and profiting from 

predatory loans, Fannie Mae is violating its public mission and the 

ability-to-repay standard. I have also learned that Fannie Mae has 

received HUD Goals Credit for investing in high-rate loans that 

produce massive foreclosures. In short, Fannie Mae and other 

GSEs are doing through the back door what the law prohibits 

through the front door. This must change. 

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Last, borrower should not shoulder the blame. I am very discouraged by the industry response to necessary change when I heard 

from industry, ‘‘Educate the borrower and increase disclosure.’’ I 

would rather be an ignorant borrower with a job than an enlightened one without a job. The loss of jobs is a big factor in inability 

to pay. 

Rainbow/PUSH, through our Thousand Churches Program, 

teaches financial literacy through member churches across the Nation, and there are other organizations doing the same to provide 

borrowers with information to make good financial choices. To 

think that more forums and more 1–800 numbers is the remedy is 

to view the issue through a keyhole and not the entire. Duty-toRead standards for the public must be matched by a duty to behave for predatory lenders. 

In closing, Federal law requires banking regulators to protect 

citizens regardless of race. We need a domestic OPIC—long-term, 

low-interest, flexible loans. We need a development bank, as we 

build for allies, as we seek to be sensitive and helpful, expand markets abroad, the ghetto, the barrio is likened unto a Third World 

country except it is closer, more secure, and more lucrative. The 

ghetto is an underserved market, underutilized talent, untapped 

capital, and thus, growth potential. 

We must enforce laws against racial discrimination. We must 

greenline the redline zones and zip coded zones and use Government-private partnerships to break this pattern. We must see the 

underserved markets as an opportunity for growth and development rather than exploitation and unscrupulous profiteering. 

What we fight for is one set of rules, evenly applied to all Americans, whether Native Americans, African Americans, Latino Americans, Asian, or European. 

Last, we just saw the Super Bowl game this past Sunday. The 

reason why so many people could see it and accept the victory with 

grace and the loss with some degree of sorrow, but say next year, 

and no uproar—why have we done so well on the athletic field? 

Why do we accept black coaches and blacks and whites in combat, 

and at the end of the day leave with a sense of everybody won? Because whenever the playing field is even and the rules are public 

and the goals are clear, we can all play—win, lose—and have our 

dignity. In this industry, the playing field is not even, the rules are 

not public, the goals are not clear, and exploiters abound. 

Thank you very much. 

Chairman DODD. Thank you very much, Reverend Jackson. We 

appreciate your testimony. 

What I am going to ask if we can make a little room for other 

witnesses coming up with your aides there. Let me introduce our 

other witnesses, and then they will make some opening statements. 

I want to ask our witnesses to try and keep their remarks to about 

5 minutes so we can get to the Q&A period, if we can. 

Let me welcome Ms. Delores King of Chicago, Illinois, and Ms. 

Amy Womble, if I have pronounced that correctly, and you correct 

me if I am wrong in that pronunciation—Womble, I guess it is. Let 

me just say to both of our witnesses here, these are not witnesses 

that normally appear before congressional hearings, and we are 

very honored that both of you are here and are willing to share 

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your stories with us. You put a face on all of this. We talk in these 

details and numbers, about the impact of these decisions, and yet 

sometimes we lose sight of the fact that there are very real people 

who are affected by these decisions. So we are very grateful to you, 

Ms. King, for being here this morning to join us, and you, Ms. 

Womble—did I pronounce that correctly? How do you pronounce 

your—— 

Ms. WOMBLE. Womble. 

Chairman DODD. Womble. We thank you as well for coming here 

this morning. 

Our next witness will be Harry Dinham, who has worked in the 

mortgage industry for 38 years. Harry, we thank you for joining us 

here this morning. Join us at the table. Mr. Dinham is President 

and owner of the Dinham Companies, including the Dinham Mortgage Company in Plano, Texas. He is here in his capacity as President of the National Association of Mortgage Brokers. He has been 

a long-time and very active member of that association. He has 

served as the Treasurer, the Vice President, and President-Elect 

before taking the office of the President on June 25th. And, Mr. 

Dinham, we thank you for joining us here as well and for your testimony this morning. 

Jean Constantine-Davis is an attorney with AARP since 1985, 

currently working in the Foundation Litigation Group on issues involving fraudulent and predatory mortgage lending practices targeted at elderly homeowners. She was awarded the Jerrold Scoutt 

Prize for her work on behalf of low-income, vulnerable elderly here 

in the District of Columbia. We thank you for joining us, Ms. 

Davis. 

Mr. Hilary Shelton is the Director of the NAACP’s Washington 

Bureau, the Federal legislative and national public policy division 

of the over 500,000–member, 2,200–membership unit, national civil 

rights organization. He is responsible for advocating the Federal 

public policy issue agenda for the oldest, largest, and most widely 

recognized civil rights organization in the United States. Hilary, 

thank you for joining us here this morning as well. 

Following Hilary Shelton, we will hear from Dr. Douglas Duncan, 

who is the Chief Economist and Senior Vice President at the Mortgage Bankers Association. As leader of MBA’s Research and Business Development Group, Mr. Duncan is responsible for providing 

economic and policy analysis services in the areas of real estate, finance, legislative, and regulatory proposals, and industry trends 

for MBA and its members. Mr. Duncan, thank you very, very much 

for joining us this morning. 

And, last, we will hear from Martin—and I am going to mispronounce this. 

Mr. EAKES. Eakes. 

Chairman DODD. Eakes. Martin Eakes, who is the Chief Executive Officer of the Center for Responsible Lending and the Center 

for Community Self-Help, which is a community development leader that has provided over $4.5 billion in financing to more than 

50,000 homebuyers, small businesses, and nonprofits nationwide. 

Self-Help reaches persons who are underserved by conventional 

lenders, particularly minorities, women, rural residents, and lowwealth families. Mr. Eakes has been a leading voice nationwide in 

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the fight to end predatory lending. I have already quoted you this 

morning in my opening statement, and we thank you as well. 

We have got a very distinguished group of panelists here, very 

knowledgeable people. We are going to begin in the order that I 

have introduced you. Again, if you would try to limit your comments to about 5 or 6 minutes, I am not going to hold you to that 

rigidly, but it would help us get to the question-and-answer period. 

Ms. King, thank you. And if you want to pull that microphone 

up close so you can be heard, and again, I am very grateful to you 

for coming this morning. It means a lot to have you here. We thank 

you. 

STATEMENT OF DELORES KING, CONSUMER, 

CHICAGO, ILLINOIS 

Ms. KING. Thank you for the opportunity to testify here today 

about my mortgage. My name is Delores King, and I live on the 

South Side of Chicago in a home I have owned for 36 years. It will 

be 36 years in August. I am a retired office administrator after 28 

years on the job in the offices of the Illinois College of Optometry. 

Over the years, I have refinanced several mortgages on my property in order to make repairs and various improvements. In 2004, 

my mortgage balance was $140,000, and I was paying $798 per 

month on my mortgage. In 2004, unfortunately, I was a victim of 

identity theft, a phony check scam that cost me about $3,000. I decided to refinance my mortgage in order to borrow the money I 

owed as a result of the scam. What happened next is that I was 

defrauded into a horrible mortgage that is so bad, I could lose my 

home. 

Around February 2005, I received a telemarketing call from 

Chad, a mortgage broker with a company called Advantage Mortgage Consulting. Chad told me that he could get a loan for me approved fast. He said he would get me a good loan for my situation. 

So I applied for the loan with Chad. I told Chad that my monthly 

income was about $950 per month from Social Security. My only 

other income is a one-time-a-year retirement payment from the 

Teachers Pension from the Optometry School in the amount $2,657 

once a year. This pension will actually stop in a few more years. 

Currently, I have a part-time job as a foster grandparent at a 

grade school, where I make $2.65 an hour. Chad took my copies of 

my Social Security card and pension benefit statements, and a few 

weeks later he told me I was approved. He brought the loan papers 

to my house, and he asked me to sign many, many pages of documents. He rushed me through the signing and did not really explain anything. He certainly did not say this was an exotic loan or 

unusual in any way. He did not even give me a copy of the papers 

I signed. I had to call and get them from the title company much 

later. 

When I agreed to the loan, Chad said it was adjustable rate, but 

the starting interest rate was only 1.45 percent. He said the regular rate would be around 6 percent and the payments would be 

around $800 per month. I believed that the starting rate would last 

at least 6 months or a year before adjusting. I have heard about 

mortgages that adjust once a year. I knew that the payment could 

go up little by little, but I had no idea it would explode the way 

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it has in just 2 years. I also did not know that $800 per month was 

less than all of the interest due and that my balance would go up 

and up with unpaid interest. So now I have a mortgage that is 

thousands of dollars more than I started with, and my payments 

have nearly doubled in 2 years. I have refined before, but I have 

never seen anything like this. The payments started with $832 a 

month, including taxes and insurance. The monthly payment as of 

now is $1,488 per month. This is more than my entire monthly income. I have to scrape by with the help of my family members and 

friends to get my mortgage paid every month, but now I am at the 

point where it is just impossible to continue. Last month, I could 

only send $1,200. I will end up on the street if something doesn’t 

change soon. 

I had never heard of a no-doc loan or an option loan before all 

this happened. I never knew you could get a mortgage and pay interest only or even less than all the interest owed each month. I 

surely did not know that a bank would make a loan to someone 

without checking to see if the person could afford the loan. This 

loan is just not right for somebody like me. If the bank had looked 

at my information, my income, they knew I could never afford this 

loan. The bank knew, but I did not know that the monthly payments could go higher than my entire monthly income, my fixed income. 

It should be against the law for a bank to make a loan knowing 

that it will be impossible for people to pay it back and they will 

lose their home. 

Chairman DODD. Ms. King, thank you very, very much. There is 

someone sitting down a couple of seats away from you who lives 

around Chicago. Maybe you can talk to him before we leave here. 

Reverend JACKSON. To be sure. 

Chairman DODD. Ms. Womble, thank you for coming. Pull that 

microphone down so we can hear you, too. 

STATEMENT OF AMY WOMBLE, CONSUMER, 

PITTSBORO, NORTH CAROLINA 

Ms. WOMBLE. Thank you for inviting me today. 

Chairman DODD. You have got to pull it even closer. I am sorry. 

Get right up close to it. 

Ms. WOMBLE. Thank you for inviting me today. My name is Amy 

Womble, and I live in Pittsboro, North Carolina. I have two sons. 

Joshua is 18 and Jeremy is 16. My husband, Dale, died unexpectedly in October of 2000 at the age of 37. At that time I had excellent credit, as he did. We built a house on five acres. We had a 

mortgage we could afford. We ran a small construction company together. And after Dale died, I struggled with my boys alone without the business income. I was still personally liable for a lot of the 

company debt. Even though we were a S Corporation, the company 

debts that I could not pay were tacked on to my credit report. And 

then I found out last year a $10,000 judgment had been filed 

against me personally for an old business debt. And at the time I 

was worried about how I would repay it. And then one evening 

while I was on the computer, a pop-up ad came up on the screen 

that caught my attention: bad credit, no credit, you know, we will 

refinance you. 

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So it was for debt consolidation with low interest rates, so I contacted—I sent an e-mail, and then right away they contacted me 

back, and it was a mortgage broker from California. So he arranged to refinance my home with a mortgage company, Saxon 

Mortgage. He sent me a good-faith estimate showing the new 

monthly payment would be $927; my closing costs would be about 

$8,000; and at closing, I would receive about $26,000 in cash to 

consolidate the other bills. 

All this sounded great to me, so I said let’s go ahead and do it. 

Well, my closing, for one reason after another, kept getting delayed. The loan officer told me not to make my mortgage payment 

that month because we were going to close any day and I did not 

need to make that payment. So when the mortgage finally took 

place—I had spent the mortgage money on medical bills that I 

needed to pay because I did not have medical insurance. And at 

that time I felt pressure that I had to close the loan, there was no 

choice, because I had not made the payment. 

Then when I saw the new good-faith estimate at the closing table last June, the monthly payment had jumped from $927 with escrow 

for taxes and insurance to over $2,100 a month without escrow. 

The closing costs had jumped from $8,000 to over $12,000. I did not 

want to sign the papers, but at the time it was the end of the 

month, and I had no choice. But the broker told me that I would 

only have to make one payment at that higher level. He had a 

credit specialist who he was setting me up with who was going to 

help get all the negative things removed from my credit report and 

get my credit score cleaned up so that he could then turn around 

and refinance me and get me the $927 monthly payment. He promised that that would take place within just a couple of months. He 

was very nice, very concerned. I felt he was sincere. And then since 

I got closed, we got the loan closed, I started calling him. He never 

returned my calls. He would not answer the phone. I left messages 

for over 5 months. So I did not get the credit repaired that he had 

promised or help with the low monthly payment that he had promised. I was truthful in everything I told him, but he doubled my 

household income on the loan application from documented Social 

Security income of $2,751 a month to over $5,000. I did not know 

that he had misrepresented my income until well after the closing. 

Now I know the worst of it all involves the terms of the loan 

itself. My loan is an adjustable rate mortgage with a current interest rate of 10.4 percent with an APR of 12.5, and the interest rate 

can go as high as 16.4 percent. Then after 30 years, I still owe a 

final balloon payment of $176,000. I had no idea this loan even had 

a balloon payment until last week. I thought I was getting a fixed 

payment of $927 with taxes and insurance, and I got a starting 

payment of $2,147, and it only goes up from there and does not include my taxes and insurance. 

I thought I would pay this loan off in 30 years. Instead, I have 

a huge balloon. I gave up a fixed-rate note with a lower monthly 

payment for this adjustable rate balloon note with a higher payment—a payment that takes up 78 percent of my monthly income. 

And when you add taxes and insurance, I am paying 86 percent of 

my monthly income. This leaves $388 a month for my family to live 

on. 

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Since I took this loan out, I have had to access equity in my 

home to meet the monthly payment and to pay other bills. At times 

there is barely enough money to buy groceries. 

I cannot afford this loan, and I am very worried that I am going 

to lose this home, the home that my children have lived in almost 

half their lives, and the only constant that has been in their lives 

for the past 6 years since the death of their father. I thought I was 

making a smart decision, but this loan has turned into a nightmare. 

Chairman DODD. Thank you very much, Ms. Womble. 

Ms. WOMBLE. Thank you. 

Chairman DODD. Mr. Dinham. 

STATEMENT OF HARRY H. DINHAM, PRESIDENT, NATIONAL 

ASSOCIATION OF MORTGAGE BROKERS 

Mr. DINHAM. Good morning, Chairman Dodd, Ranking Member 

Shelby, and Members of the Committee. I am Harry Dinham, 

President of the National Association of Mortgage Brokers. NAMB 

is committed to preserving the American dream of homeownership. 

Chairman DODD. Mr. Dinham, can I tell you, and I want to—I 

have read your testimony. It is long testimony. We are going to include all of it in the record. I want you to know that. 

Mr. DINHAM. This is just 5 minutes. 

Chairman DODD. Oh, there is an abbreviated one? Thank you 

very much. I wanted you to know I had read it. It took me a lot 

longer than 5 minutes to read it. 

[Laughter.] 

Mr. DINHAM. I will not read the whole thing. 

Chairman DODD. I apologize. But I wanted you to know all of it 

will be in the record. 

Mr. DINHAM. I understand. NAMB is the only trade association 

devoted to representing the mortgage broker industry. We speak on 

behalf of more than 25,000 members in all 50 States and the District of Columbia. Mortgage brokers must comply with a number of 

State and Federal laws and regulations. We are subject to the oversight of not only State agencies but also HUD, the FTC, and to a 

certain extent the Federal Reserve Board. I have this chart with 

me today which outlines State regulations for all mortgage brokers. 

First let me say that it is a tragedy for any consumer to lose 

their home to foreclosure. No one disputes this. At the same time, 

today America enjoys an all-time record rate of homeownership, almost 70 percent. The challenge we face now is how do we help people avoid foreclosure while at the same time ensure they have continued access to credit. 

A number of recent reports have focused on the rise in home 

foreclosures. Some claim foreclosure rates are approaching 20 percent. Based on their definitions and sampling, NAMB questions the 

accuracy and narrow focus of these reports. The truth is we can 

only speculate on the causes responsible for any rise in home foreclosures. There are a number of possible factors: bankruptcy reform, minimal wage gains, credit card debt, decreased savings rate, 

decreasing home values, second homes, fraud, illness, and other life 

events, to name just a few. 

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Do not rush to judgment before we have all the facts. We urge 

this Committee to request a study of the reasons for foreclosure. It 

should take into account a number of possible and non-economic 

factors. The study should account for product, pricing, seasonal, 

and market changes. We should examine the conclusion before implementing any policy decisions that could unfairly curtail access 

to credit. 

In the mid–1980’s, Congress asked this industry why there was 

a credit crunch. Many underserved communities had no access to 

credit. Over the years, industry has increased access to credit with 

the help of Fannie Mae, Freddie Mac, and the secondary market. 

In 2002, our President challenged industry to increase minority 

homeownership by 5.5 million families by 2010. Mortgage originators, realtors, lenders, underwriters, and the mortgage securitizers 

and investors on Wall Street responded. We have helped families 

by expanding access to credit, lowering downpayment requirements, and reducing cash needed at closing. The market is robust—more products, more choices, and more consumer shopping 

than ever before. More people own their homes. With this said, all 

of us—industry, Government, and consumers—have a role to play 

in preventing foreclosures and predatory practices. 

Here is some of what NAMB is doing: We have pushed for education and criminal background checks for all mortgage originators 

since 2002. We have prepared and submitted to HUD a revised 

good-faith estimate to help improve comparison shopping. We have 

amended our Code of Ethics and best business practices to prohibit 

placing pressure on or being pressured by other professionals. We 

have educated and urged both HUD and the FTC to take action 

against abusive use of affiliated business arrangements that trap 

consumers into high-cost mortgage contracts. And we support FHA 

mortgage reform and authorizing VA to provide reverse mortgages 

to further expand access to credit. 

Today, NAMB is proposing the development of a loan-specific 

payment disclosure to be given to consumers at the shopping stage 

and again at funding. This will help consumers avoid payment 

shock. 

Thank you for the opportunity to appear here before you today. 

I am happy to answer any questions. 

Chairman DODD. Thank you very much, Mr. Dinham, and, again, 

thank you for your full testimony, and we look forward to your responses to questions. 

Ms. Davis, thank you for being here. 

STATEMENT OF JEAN CONSTANTINE-DAVIS, SENIOR ATTORNEY, AMERICAN ASSOCIATION OF RETIRED PERSONS (AARP) 

Ms. CONSTANTINE-DAVIS. Chairman Dodd, Ranking Member 

Shelby, Members of the Committee, thank you for the opportunity 

to share our experiences and concerns about the problem of mortgage foreclosure in this country. 

AARP attorneys have represented older homeowners in foreclosures on abusive mortgages for over 15 years. The accumulated 

home equity and limited incomes of older homeowners have made 

them a primary target for these abuses. We are very concerned 

now that the current combination of minimal underwriting standwwoods2 on DSK1DXX6B1PROD with HEARING

19 

ards and exotic mortgage products has created a perfect storm that 

is driving homeowners into foreclosure. Allow me to give you three 

examples. 

In 1992, we represented Paul Pitman, an 82-year-old retiree 

whose incompetence in later years made him easy prey. His home 

was debt free when he was manipulated into a $60,000 refinancing 

with 16 points at a 17-percent interest rate. His mortgage payment 

was $800 a month. So was his income. The mortgage was starkly 

unaffordable and was typical of the subprime mortgages at that 

time. 

After 1994, HOEPA had its intended effect and drove these products out of the market. But HOEPA did not end predatory lending. 

In 1999, we represented ten elderly and unsophisticated homeowners in a case against a single lender. While a few had HOEPA 

loans, most squeaked just under HOEPA thresholds. All had one 

thing in common: None could afford their mortgages. They had 

worked all their lives—in the kitchen at NIH, in the Library of 

Congress as a housekeeper. Each had struggled to buy a house. 

Most had raised children in them and were now retired on Social 

Security and small pensions. So you can imagine our surprise when 

we discovered tax returns in their files that identified them as selfemployed bookkeepers, accountants, seamstresses, and in the case 

of an 84-year-old stroke victim in a wheelchair, a computer programmer earning $30,000 a year. We discovered evidence that the 

broker and lender fabricated these tax returns. 

We wrestled with these practices, thinking that if the large 

banks that bought the mortgages had followed their underwriting 

guidelines, these loans would never have happened. Recent developments, unfortunately, have forced us to revisit that conclusion. 

Historically, mortgage applicants have been required to verify ability to repay. I have vivid memories myself of our first mortgage 

and worrying about whether we would qualify to meet the 28-percent mortgage debt-to-income ratio that was the industry standard 

at that time. I am dating myself. All of that has changed dramatically. 

The secondary market, which now controls mortgage products offered and underwriting standards applicable, has made stated income and low- or no-doc mortgages widely available. The most recent innovation is the no-income, no-asset loan, where the income 

and the asset sections of the loan application are simply left blank. 

NINAs may be useful to sophisticated investors, but are costly and 

inappropriate for most borrowers. Research conducted for the Mortgage Bankers Association described stated-income loans as open invitations to fraudsters. These loans simply cannot be used for a 

homeowner on Social Security or for salaried workers whose income is readily established. They are directly contributing to foreclosures, as my last example shows. 

We have a case in Brooklyn, New York, which alleges a property 

flipping conspiracy of real estate speculators, lenders, and appraisers and attorneys who sold our clients, all first-time homebuyers, 

damaged homes they had bought cheaply, cosmetically repaired, 

and rapidly resold at inflated prices. Our clients’ six homes were 

overappraised by a total of $825,000. 

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How could low- to moderate-income homebuyers qualify for 

homes costing $300,000 to $400,000? Two were qualified using the 

NINA guidelines and a third using stated income that was inflated 

by the lender. As salaried employees and Social Security retirees, 

all had verifiable income, but the income was too modest to afford 

these loans. The homes would not have been sold nor would the 

mortgage origination and other fees have been generated if the 

verifiable income had been considered. 

Piling on the risks, the lender put these folks into not one but 

two mortgages, which is commonly called ‘‘piggyback lending.’’ The 

first mortgage provided 80 percent of the purchase price, and the 

second, a very high-rate mortgage, made up the balance. Again, 

while piggyback lending may make sense for some up-and-coming 

young lawyer, for our clients these piggyback NINA mortgages 

were a recipe for disaster. 

Inability to repay is the hallmark of predatory lending. New and 

complex adjustable rate mortgages—the 2/28s, the 3/27s, the interest-only, option ARMs—all present their own affordability issues. 

Borrowers just do not understand them. They do not understand 

that they adjust up and never down, that if the borrower pays diligently each month, the mortgage balance will still go up because 

the payment is not even covering the accrued interest. Prepayment 

penalties of up to 5 years are the norm. Option ARMs are often 

promoted with 1-percent teaser rates that only apply to the first 

month of the loan. If lenders consider income at all, they typically 

underwrite at the initial teaser rate, not on the payments that will 

be charged once the loan fully amortizes, and certainly not on the 

maximum payment that might be charged. 

These loans are a trap from which many homeowners never escape. Prepayment penalties make it impossible to refinance to 

avoid the payment shocks that are built into these loans. The trap 

has been fortified lately by the downturn in the housing prices. 

Homeowners who escaped foreclosure up to this point by refinancing will have no further recourse. When the equity is gone, the 

foreclosures will be inevitable. 

While HOEPA drove out certain market abuses, others emerged. 

Our goal is to get ahead of this curve. Homeowners should not be 

caught in an endless game of Whack-A-Mole with the law constantly lagging behind the next wave of abuses. Our challenge is 

to address not only today’s abuses, but to think comprehensively 

about how to make home mortgages safe and homeownership sustainable for decades to come. 

AARP appreciates the Committee’s work on this issue and looks 

forward to working with you. 

Chairman DODD. Thank you very much, Ms. Davis. 

Mr. Shelton. 

STATEMENT OF HILARY SHELTON, EXECUTIVE DIRECTOR, NATIONAL ASSOCIATION FOR THE ADVANCEMENT OF COLORED PEOPLE 

Mr. SHELTON. Thank you very much and good morning. I should 

mention my name is Hilary Shelton. I am Director of the NAACP’s 

Washington Bureau. The Washington Bureau is the Federal legiswwoods2 on DSK1DXX6B1PROD with HEARING

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lative and national public policy arm of the Nation’s oldest and 

largest grass-roots-based civil rights organization. 

I would like to begin by first thanking my good friend, Chairman 

Dodd, and Ranking Member Shelby and the other Members of the 

Committee for holding this very crucial hearing. By holding the 

predatory lending subject as one of the first hearings held by this 

Committee in the 110th Congress, you are giving the attention to 

where it is well deserved. We look forward to working diligently 

with you until this issue is clearly addressed fully. 

I am here today because predatory lending is unequivocally a 

major civil rights issue. As study after study have conclusively 

shown, predatory lenders target African Americans, Latinos, Asian 

and Pacific Islanders, Native Americans, the elderly, and women at 

such a disproportionate rate that the effects are devastating to not 

only individuals and families but whole communities as well. 

Predatory lending stymies families’ attempts at wealth building, 

ruins people’s lives, and given the disproportionate number of minority homeowners who are targeted by predatory lenders, decimates whole communities. Traditional credit, high concentrations 

of subprime lending in predominantly racial and ethnic minority 

neighborhoods, and racial disparities in subprime lending exist in 

all regions of the Nation. And while not all subprime loans are 

predatory—indeed, the NAACP recognizes the benefits of the 

subprime market to a constituency which includes many without a 

strong traditional credit history—it is estimated that the vast majority of predatory loans are those with onerous fees and/or conditions exist in a subprime market. 

A study put out last year by the Center for Responsible Lending 

demonstrated that 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. Moreover, a study released 

just last month showed that high-income African American and 

Latino borrowers in the Boston area were 6 to 7 times more likely 

to have an expensive mortgage that Caucasians in the same income 

bracket in 2005. Given that Boston is most likely indicative of the 

rest of the Nation, this study clearly refutes arguments that 

subprime lending and predatory features are introduced solely 

across economic lines to mitigate risk. 

It is important to recognize that almost 7 years ago, a study by 

the U.S. Department of Housing and Urban Development clearly 

demonstrated that many people of color could qualify for more affordable loans than they were receiving, which in turn would enable them to maintain and build additional wealth. In 1996, a 

study by Fannie Mae and Freddie Mac reported that as many as 

a third of the families who received subprime loans actually qualify 

for prime loans. Unfortunately, prime lending institutions continue 

to underserve people of color and whole communities occupied predominantly by racial and ethnic minorities. 

Perhaps even more problematic is that, despite the fact that blatant racial bias and its debilitating effects have been clearly demonstrated and well documented, little has been done. The disparities continue. In fact, according to the most recent data available, 

in 2005 African Americans were 3.2 times more likely to receive a 

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higher-cost subprime loan than our Caucasian counterparts, and 

Latinos were 2.7 times more likely to receive a higher-rate loan 

than white borrowers. 

The bottom line is that predatory lending is making homeownership more costly for African Americans and other racial and ethnic 

minorities, as well as women and seniors, than whites and middleclass families. Given that homeownership is one of the most reliable ways for economically disadvantaged populations to close the 

wealth gap, one direct result of this unfair and immoral discriminatory practice is that it is harder for African Americans and other 

racial and ethnic minorities to build wealth or pass any material 

possessions on to their heirs. 

Predatory lending is a direct attack on our financial security and 

economic future—an attack that is targeted at individuals and communities because of the color of our skin. I would like to take a moment to discuss with the Committee one type of predatory loan 

that has become increasingly worrisome as of late. Specifically, 

over 80 percent of the home loans made in subprime markets today 

are adjustable rate mortgages, ARMs loans, and the so-called 2/28s 

or 3/27 mortgages are the dominant product. This is important 

since over half the loans made by African Americans in 2005 and 

four out of ten made by Latino homeowners were subprime loans. 

Geographic concentrations of 2/28s in certain neighborhoods and 

communities of color have led to a spike in foreclosure and attendant community disinvestment. 

Unlike most ARMs in the prime market, the short-term fixed 

rate on 2/28s and other similar loans is typically artificially low. 

When the loan adjusts after the initial 2-year period, subprime borrowers face enormous payment shock. Mortgage payment increases 

in typical 2/28 loans are up to over 50 percent monthly. Combined 

with other features of typical 2/28s such as prepayment penalties 

and the lack of escrows, 2/28S have the very real potential to place 

home borrowers in financial peril. Over the next 2 years, an estimated $600 billion in subprime mortgages will reset from the 2- 

year teaser rate. Too many borrowers, including an overrepresentation of African Americans and Latinos, will face a significant increase in their monthly payments. The impact this will have on 

whole neighborhoods and communities predominantly populated by 

African Americans, Latinos, and other racial and ethnic minority 

Americans will be nothing short of devastating. 

A report issued last year by the Center for Responsible Lending 

estimated that one out of every five mortgages that originated during the last 2 years will end in foreclosure. To date, the Federal 

Government has been largely unattentive to the problems surrounding predatory lending, and, in fact, some of the rules and proposals we have seen in the last few years appear to go backward 

and take away some of the few protections we have gotten at the 

State level. This flies in the face of the NAACP’s belief that the primary responsibility of Government, to protect its citizens, all of its 

citizens, not to exploit them or allow them to be exploited at the 

gains of just a few. 

As our elected representatives, the NAACP calls on Congress to 

enact an aggressive and effective Federal law and to soundly reject 

attempts at addressing predatory lending that will not resolve the 

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underlying problem and will, in fact, roll back the few protections 

that a few States have put in place. 

Because I have been asked to speak today on behalf of the national civil rights community, I would like permission to include in 

the record three documents which are attached to my written testimony. The first two are both prepared by the Fair Housing Subcommittee of the Leadership Conference on Civil Rights, of which 

the NAACP is a proud member and a founder. The first article outlines our position on Federal predatory lending legislation and outlines some elements that we consider to be essential in any effective proposal. The second paper expands on our concerns about 2/ 

28s and other exploding ARMs. The last attachment is a letter that 

was sent just this morning to Chairman Dodd and Ranking Member Shelby, as well as the Chairman and Ranking Member of the 

House Banking Committee. This letter was signed by approximately 200 national, State, civil rights, and consumer and housing 

rights groups, including the NAACP, and it lays out some of our 

primary goals in any anti-predatory lending legislation. 

I want to thank you again, Chairman Dodd and Members of the 

Committee, for holding this hearing and taking the time today to 

take a serious look at a very real problem associated with predatory lending. As I mentioned earlier, the NAACP stands ready to 

work with you on aggressive, comprehensive legislation to address 

this very real civil rights scourge in our Nation. 

Chairman DODD. Thank you very, very much, and those documents will be included in the record. 

Mr. Duncan, thank you for being here. Doctor, we appreciate 

your presence. 

STATEMENT OF DOUGLAS G. DUNCAN, SENIOR VICE PRESIDENT OF RESEARCH AND BUSINESS DEVELOPMENT, AND 

CHIEF ECONOMIST, MORTGAGE BANKERS ASSOCIATION 

Mr. DUNCAN. Chairman Dodd, Ranking Member Shelby, and 

Members of the Committee, my name is Doug Duncan. I am the 

Mortgage Bankers Association’s chief economist and Senior Vice 

President of Research and Business Development. Thank you for 

the opportunity to testify here today as you review and consider 

the issues of predatory lending and foreclosure. 

The real estate finance industry is proud of its record of providing homeownership opportunities. MBA’s members have been a 

driving force in establishing communities, creating financial stability and wealth for consumers, and fueling the overall economy. 

Our industry has played a major role in facilitating a near–70–percent homeownership rate, a benefit to all of us. However, we understand some are concerned about several of the newer mortgage 

products, and recent increases in delinquency and foreclosure rates. 

MBA believes that there are three things the Government can do 

to help protect consumers: 

First, make financial education a priority, empowering consumers with knowledge and giving them the tools they need to 

make good decisions and protect themselves. 

Second, simplify and make more transparent the mortgage process so consumers may better understand the details of what can be 

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a complicated transaction and facilitate shopping more efficiently 

from lender to lender. 

Third, enact a strong and balanced uniform national standard for 

mortgage lending within increased consumer protections. 

The mortgage industry has been extremely innovative in developing products and financing tools to create homeownership opportunities, expand affordability, and facilitate greater consumer 

choice. These have been especially important as housing costs have 

risen over the past several years. 

The industry’s record over the last decade is one of particular 

pride. We have helped bring enormous financial sums to bear to expand liquidity and invest in communities. Recently, however, there 

have been claims that these very products and financing tools are 

themselves bad for consumers and have driven foreclosure rates to 

a state of crisis. 

MBA does not accept the suggestion that foreclosure rates are at 

crisis levels or that lenders or loan products are driving foreclosures. To the contrary, MBA’s well-respected data on foreclosure 

rates show that they are well below the levels of their post-recession peaks. Further, we believe that these very products and financing tools have helped our neediest borrowers. If policies were 

adopted to limit or eliminate these financing tools, it could be detrimental to those underserved borrowers who now have access to affordable mortgage credit. 

Research from MBA and others consistently finds that foreclosures today occur for the same reasons that they have always occurred, namely, unexpected shocks to a family’s finances: job loss, 

divorce, and illness, which continue to be the main reasons for defaults and foreclosures. The data do not support assertions that 

products have created a foreclosure crisis. 

In order to address the problem that some families may not completely understand all the details of the mortgage products they receive, some seek new rigid underwriting standards and the imposition of suitability requirements. MBA strongly believes these approaches, which may look reasonable at first, will simply stifle innovation and rob consumers of affordable financing options, thereby severely limiting consumer choice. Proposals that would reinject 

subjectivity into an objective underwriting process we have worked 

so hard to develop risk turning back the clock on impressive homeownership and fair lending gains. Before we pursue any of these 

proposals, we must be sure that they do not undermine our mutual 

goal of putting Americans in homes and keeping them there. 

We do not agree with those who would stem innovation by removing products from the market because they do not think they 

are good for borrowers. The plain facts are that these products 

have brought homeownership to many borrowers who probably 

could not have achieved it otherwise. And as a corollary, we wholeheartedly reject the notion that some borrowers should not have 

these affordability options to become homeowners and build the 

wealth that homeownership brings. 

Instead of limiting choices, I repeat what I said earlier. MBA believes efforts should be directed toward new and increased efforts 

to provide national financial literacy training, make the process 

more transparent, and establish a uniform national standard to 

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protect consumers and provide certainty to financial institutions. It 

is too easy to blame lenders or loan products. The harder work is 

to solve these complex issue. MBA is committed to working together with you and other organizations in this important effort. 

Thank you, and we look forward to your questions. 

Chairman DODD. Thank you, Doctor. 

Mr. Eakes, thank you for being here. 

STATEMENT OF MARTIN EAKES, CHIEF EXECUTIVE OFFICER, 

SELF-HELP CREDIT UNION AND THE CENTER FOR RESPONSIBLE LENDING 

Mr. EAKES. Good morning. Chairman Dodd, Ranking Member 

Shelby, and Members of the Committee, thank you for holding this 

hearing. I really appreciate it. 

I head an organization called Self-Help that is a community development lender based in North Carolina. I also head the Center 

for Responsible Lending, a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership. Self-Help, with about $1 billion in assets, is one of the largest 

nonprofit homeownership lenders in the Nation, which makes us 

about the size of one Bank of America branch, to give you some 

perspective. We are a lender. We have been a subprime lender 

since 1984, over 20 years. In the beginning, we made thousands of 

loans to mostly African American, single mothers. In our first 10 

years, we had not one single foreclosure or loss. In the last 20 years, we have provided close to $4.5 billion to 

45,000 homeowners across the country in 48 States. We have had 

very few foreclosures and losses during that time. I can say as a 

matter of experience that if a lender has very high foreclosures and 

loss, they are doing something wrong. The lender is doing something wrong. It is not the borrower to blame. 

Home lending, however, has changed a lot in the last 20 years 

since I have been active. It used to be that a local bank or savings 

and loan would make a home loan to a borrower, and they would 

hold that loan on their books until it was paid off. If the lender 

made a bad loan, the loss would be suffered by both the lender and 

by the borrower. In essence, they were both in the same boat together. 

Today, 70 percent of subprime loans are made by mortgage brokers who never own the loan and who place the loan with a lender 

who holds it for 1 to 2 months before it is then transferred to a 

securitization vehicle, and then sold to investors worldwide. So long 

as the loans do not default immediately, within the first 3 months, 

the broker and the lender do not have any financial responsibility 

for the loan if it goes bad down the road. 

Brokers and subprime lenders are not bad people, but their financial incentives are different than what we saw just 20 years 

ago. Now their financial incentives are to close as many loans as 

possible, as fast as possible, regardless of risk. Whether the borrower can repay the loan, so long as it lasts for at least 3 months, 

is really not of their financial concern. 

We really do have a foreclosure crisis in the subprime mortgage 

marketplace today. I will not repeat the studies that were cited 

earlier by Friedman Billings, USB, Bloomberg, Moody’s, everyone 

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who says that the subprime loans made in 2006 will have a foreclosure rate higher than any other mortgage cohort of loans in history. 

In December of 2006, my organization, the Center for Responsible Lending, issued one of the most comprehensive foreclosure 

studies ever. We looked at 6 million subprime loans at the loan 

level where we had fees and data—foreclosure, FICO scores, all of 

the data around 6 million subprime loans made between 1998 and 

2004. The conclusion that one out of five loans made in the 

subprime marketplace in 2005 and 2006 will end in foreclosure or 

the loss of a home has generated a lot of controversy, but I will tell 

you I am 100 percent certain that that number is understated for 

the following reasons: 

No. 1, it does not include the loans that have what I call a distressed prepayment, loans that were already delinquent by 30 days 

or more that then paid off. They did not go to a prime mortgage 

if they were already delinquent. That is another 11 percent of this 

group, so it goes from 20 to 30. 

The second thing it does not do is we looked solely at a cohort 

of loans in a given year, and most of the borrowers in the subprime 

arena get refinanced. unnecessarily in many cases, every 18 

months. So that if you look at this from a borrower’s point of view, 

they had a one in five chance of being foreclosed in their original 

loan. They have a one in five chance of being foreclosed in the second loan that they got into 18 months later. And it ends up, if you 

carry that cycle of repeated refinancings, that the foreclosure rate 

of borrowers, not of the loans in a particular year, can be as much 

as 30 or 40 percent of the total. 

I will not repeat all the same numbers, but let me give you a new 

one. The subprime outstanding mortgage loans today represent 

about 13 percent of total outstanding mortgage loans in the United 

States. That 13 percent represent, as of the end of 2006, 60 percent 

of all foreclosures started in this Nation. So think about that: 13 

percent of the loans represent 60 percent, and the remaining 87 

percent of prime loans represent the remaining 40 percent. So this 

small segment—it is not that those families have more death, divorce, illness, and job loss. That is just not the factor. The factor 

is that the product itself is dangerous. 

I did not choose to get into this work. I am a lender. I would like 

to be helping people own homes. That is what I do best. But I grew 

up in an all-black community as a child. My friends were destroyed 

growing up. My best friend was killed on a playground behind my 

house. And I pretty much promised at that time that I would do 

in the future what my young friend did at that time. And I feel like 

right now the crisis that we face, particularly in African American 

communities, is unbelievable. 

You may not know this fact, but the 50 percent of families, African American families that do not own homes, do not have any net 

positive wealth at all. Their wealth in the household is either zero 

or negative. So the wealth that black families have is in the 49 percent that own their homes. Fifty-two percent of all African American mortgage loans in the last year—in the last 2 years were 

subprime mortgages that are, by structure, impossible to succeed 

in. So I look at it and I say the families—the African American 

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families that have the wealth in this country, half of them are in 

danger of losing their homes. Subprime foreclosures threaten to 

displace more African American families than did Katrina. But it 

will be a silent and invisible storm that hits this time—one family 

at a time, one neighborhood after another, all across America. We 

have the greatest threat to minority wealth, family wealth that we 

have ever had in the history of the Nation. 

The citation comes up of saying, well, if one in five foreclose, that 

means the other 80 percent succeeded, right? Aren’t we really helping through this product more families, particularly families distressed and of color, become homeowners? And, sadly, the answer 

is no to that. 

The first fact, which, again, is not always featured. Eleven percent of the subprime loans are to first-time homeowners. Eleven 

percent. This is in Mr. Duncan’s testimony. What that means is the 

remaining 89 percent already have a home that they are either refinancing or they are moving and by getting a subprime loan are 

putting that home in danger. 

So just do the numbers a little bit. If we say for 11 percent—let’s 

be generous and say 9 percent of those got home loans that they 

could not have gotten anywhere else and that they will succeed 

with them, what that means is then the foreclosures that happen 

on the remaining 87 percent, 20 percent of them will far outweigh 

the potential gain from the small number that get their first-time 

home there. 

So let me be clear. I am not seeking to abolish the subprime 

mortgage market. I am part of it, have been for 20 years. What I 

am requesting is that this Committee take five steps. 

First, impose an ability-to-repay standard for all subprime loans. 

The trap that people are caught in now where they have a loan— 

and 70 percent of subprime loans are 2/28s. You have a 2–year 

fixed-rate period. The remaining 28 years are adjustable rate every 

6 months. A typical loan will have a very high margin so that the 

adjustment will jump to as high as 11 or 12 percent during the 

third year of the loan. So here is the dilemma that a borrower 

faces. Either they pay off the loan before the 2 years—in which 

case they pay a prepayment penalty in virtually every case which 

is equal to 3 percent of the loan amount; 3 percent of a $200,000 

average subprime loan would be $6,000. That is more than the average African American wealth in the last census period. So either 

you pay off early and you lose your downpayment and the equity 

that you have built up, or you wait until the 25th month, and all 

of a sudden your payment has jumped by 30 to 50 percent, and you 

cannot make the payment, you are foreclosed, or you are refinanced 

into another loan with another set of fees. It is a devil’s choice, and 

it is one that is set up that will create foreclosure. 

The second thing is require mortgage brokers to have a fiduciary 

duty to the borrower they represent, just like doctors, lawyers, 

stockbrokers, and realtors have a fiduciary duty of loyalty and care 

to their customers. It is just early in the process. 

Third, require the regulators to clean up these abuses, and particularly I want to focus on the Federal Reserve for a moment. In 

my testimony, I cite on page 19 a section of HOEPA in 1994, which 

reads as follows—I am going to read it because it is that important. 

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It says, ‘‘The Board, by regulation or order, shall prohibit acts or 

practices in connection with mortgage loans that the Board finds 

to be unfair, deceptive, or designed to evade the provisions of this 

Section.’’ It does not say just high-cost loans. It says any practice 

in the mortgage marketplace that the Board finds to be unfair or 

deceptive, that the Federal Reserve Board shall prohibit acts or 

practices. Since 1994, the Federal Reserve Board has not used this 

authority a single time, even though we have had rampant abuses 

during this time period. 

As Chairman Leach said in a 2001 hearing, we wouldn’t have 

these problems if the Federal Reserve had simply done its job. But 

it has not done its duty under this statute. There are actions that 

can be taken. 

No. 4, as mentioned before, we should prohibit Fannie Mae and 

Freddie Mac from getting homeownership goals credit for buying 

securities that have loans that do not meet an ability-to-repay 

standard. They should not be getting credit for loans that come 

through the back door where they did not do any of the work to 

produce the loans. They take no risk in them because these are 

AAA securities. And it is furthering and financing the sector that 

is causing such distress in African American and Latino neighborhoods. 

Finally, No. 5, please pass a strong national anti-predatory lending law that establishes a minimum floor for what it means to have 

responsible lending. 

Thank you very much. 

Chairman DODD. Thank you, Mr. Eakes, very, very much. Very 

compelling testimony, and we thank you for your work. And I think 

all of us here agree with the underlying point. There is a danger 

in conversations like this that people will use the word ‘‘subprime’’ 

and ‘‘predatory’’ as synonyms, interchangeable words, and they are 

not at all. And I hope it is clear to everyone here. Certainly those 

who are knowledgeable about this understand this already, but for 

those who are hearing about these issues for the first time, there 

is a danger that those of us who are interested in the subject matter would confuse the word ‘‘predatory’’ with ‘‘subprime.’’ And you 

have made it very clear, Mr. Eakes, and certainly Reverend Jackson has and others. And I believe that very strongly as well. This 

has been a tremendously valuable vehicle, the subprime process for 

people who want to have homeownership, want to own their own 

home. 

I want to begin my questions by emphasizing that point and the 

value of homeownership and what it means for our economy. So we 

begin the discussion there. 

We have been joined by our colleague from Florida, Senator Martinez, and you were not here earlier, but, in fact, Hilary Shelton 

mentioned 7 years ago something that HUD did, and I know that 

the person who was responsible for taking a hard look at this issue 

was the Secretary of HUD at the time, our colleague from Florida, 

Mel Martinez, who deserves a great deal of credit as HUD Secretary for looking at these issues. And he brings real knowledge to 

these issues given his previous life at the Housing and Urban Development agency. So we are pleased to have you with us this 

morning, Mel. 

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Senator MARTINEZ. Mr. Chairman, thank you very much. Sorry 

I could not be here at the beginning of the hearing, but I appreciate 

the mention. I have developed a great interest in this topic when 

I was at HUD. Anyway, I will wait my turn, but I appreciate your 

mention. 

Chairman DODD. Let me begin with you, Reverend Jackson, and 

thank you immensely again for joining us here today. You have 

traveled throughout the country. You have seen the results of 

where discrimination can occur. You have listened to the testimony 

here this morning. Give us a sense of what it means in a community when you have long-time homeowners who are forced into foreclosure. I tried to say it, but I am not sure I did it very eloquently, 

the idea of this ripple effect. Just as homeownership in a neighborhood and community has the positive effect of creating stability, increasing home values, all of the proper things we like to see associated with homeownership, when that begins to collapse, what are 

the effects as well? I wonder if you might speak to that. 

Reverend JACKSON. Well, first, this is targeted economic exploitation. This is not accidental nor incidental. This is targeted. And 

it is not only racial targeting, though that is very well documented. 

In the end, the vultures go after whoever is the most vulnerable, 

and it may be a black person or a brown person or a senior or a 

soldier. Ultimately, they do not stop unless protected by law. 

One place I find to be a painful sight to see, the lenders, the 

cashiers, lining up outside the military bases. The soldiers that 

have to go to war and leave their families in a financial trap, and 

some of the most exploited people in the whole process are the 

spouses of soldiers in Iraq and Afghanistan. Or take a trip down 

to Appalachia, if you will. And so while there is this racial disparity dimension, the greedy ultimately go blind in their pursuit of 

exploiting whoever is vulnerable. 

Second is that the bank is the first line of defense, and if the 

bank drops their line of defense, the quarterback then cannot function. And when the banks finance the predators, you go to the front 

door of the bank, and they say you are not eligible because your 

record has not been expunged, you are not eligible because you 

have a low credit score, and so you cannot get 7 percent, they go 

to the predator, who we finance at 25 percent. 

So the bank is making money off of both ends, and whatever they 

do on the good side, on the CRA, they more than offset it with their 

back-door bank, which is, in fact, the predator. And to me, nothing 

short of the Senate passing strong laws to protect the vulnerable. 

And I have people say you learn how to read—you cannot learn 

how to read these slick people. I do not care how literate you are. 

You cannot think through this. My grandmother used to borrow 

$11 and pay back $33. She could not read. She was not expert in 

them. She could not read. She could not write. She was not very 

smart. She was trying to take care of her children. She was taken 

advantage of by pawnshops and by these lenders. And so without 

the protection of law, the people cannot protect themselves. And 

right now I am not convinced that that law is there. 

And I would like to make the last point that at some point the 

Department of Justice has a role in this. People’s basic civil 

rights—I was in Louisiana and watched them sell a blind woman 

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a bigger TV screen. I mean, they are ruthless in the exploitation, 

and since this document, the question after we testify today then 

for Mrs. King, what can happen to her in Chicago when they can 

profit $600 million off of home foreclosures. 

I guess the point that strikes me the most, Mr. Martinez, is that 

I was in Detroit about 2 months ago, and Ford announced they 

were laying off or dismissing 55,000 workers. And for Detroit and 

Dearborn, what does that mean? It is going to be a payout, they 

called it, or a put-out. 

When Honda and Toyota can build in our country and Ford cannot build in Japan and South Korea, what does the unfair trade 

deal mean: Fifty-five thousand people whose homes are going to go 

up for grabs, who cannot pay their house note, whose children will 

come out of college, who cannot pay the drycleaners, who cannot 

pay the local hotels built around the Ford plant. The spinning impact of—I mean, you talk about a tsunami, a bomb dropping on 

Dearborn, Detroit, and Youngstown, you lose 55,000 jobs in the industry and the spinoffs, and it seemed to me to be, Senator Shelby, 

no safety net for those workers who, through no fault of their own, 

lost their jobs to trade policies far beyond them. 

There must be some—and for our allies abroad, we have safety 

nets. That is what OPIC—Overseas Private Investment Corporation, Government-private partnerships. Or we have for them a 

Marshall Plan with long-term, low-interest loans on behalf of the 

soldier after World War II, some call it GI Bill. They get some differential and, you know, $51 billion will be spent. The biggest boost 

to homeownership was the GI Bill, which, by the way, was an affirmative action program for soldiers. 

But it seems I am asking you to think of something outside of 

the present box, the OPIC, the GI Bill differential. Something outside of the present box must be devised because the conventional 

lender will not loan, the predator will cost too much, and there 

must be something in the middle, some kind of development bank 

that takes into account these new realities. We are going to have 

the reality of exporting jobs and importing product. We were exporting product and importing job. That dynamic shift has left a 

whole lot of American people of whatever race trapped in the cross 

fire. 

Chairman DODD. Well, thank you very much, Reverend, for that. 

Let me ask one more question, if I may, and I would like to raise 

this with Mr. Dinham, if I can, and Mr. Duncan. 

Mr. Dinham, I was struck that in your testimony, Appendix A, 

you talk about an issue that was raised by Mr. Eakes, and that is 

the relationship between the mortgage broker and the borrower 

and that this is an independent contractor with really no fiduciary 

responsibility to the borrower. In fact, you speak about it here, the 

language in your testimony here. You make exactly that point, that 

they are independent contractors not responsible to the borrower. 

Yet in advertising materials and reports that we get from consumers, news reports, brokers often seem to market themselves to 

borrowers on the basis that they will shop for the borrower in 

many ways, and that is, the broker leads the client to believe that 

he or she acts on behalf of the borrower. You heard that, I think, 

in the testimony both of Ms. King and Ms. Womble, that that perwwoods2 on DSK1DXX6B1PROD with HEARING

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son on the other end of the phone you were dealing with here was 

really your advisor in a sense, and certainly creating that sense 

that I am in this with you, I am here to help you to work through 

your difficulties. 

And, again, I am not suggesting that anyone there is not going 

to necessarily be so objective that they would not try to appeal to 

someone they are trying to do business with, but that clear impression, particularly for people—and I listened to two people here who 

are rather sophisticated—homeowners, in business. We are not 

talking about people here who were not knowledgeable about finance and so forth being victimized by this. So we have a tendency 

to talk about the unsophisticated. These were fairly sophisticated 

people, I might add, who have been pretty careful about their lives, 

have been productive citizens, contributed significantly to their 

communities, and yet were dealing on the phone with someone who 

made them feel clearly that they were acting in an advisory capacity. In fact, observers credit the success of the mortgage brokers industry to the ability to convince people. I was looking—let me 

quote from a newsletter called Inside B&C Lending, and hardly a 

liberal mouthpiece here. But in an article from June 9th of last 

year called ‘‘Brokers’’—and I am quoting, ‘‘Brokers still the main 

engine for origination of subprime loans.’’ The author writes, and 

I quote him, ‘‘Brokers have proven adept at marketing their services to borrowers, often playing the role of trusted advisor.’’ 

So even if not the intent, the clear marketing, at least in that 

publication, suggests that, in fact, that is how the broker ought to 

hold themselves out, as the trusted advisor. 

So my question is: Do you believe that brokers either are or market themselves as trusted advisors of the borrower in your experience? 

Mr. DINHAM. In my experience, no, we actually don’t as a trusted 

advisor. What we do is we have a—the thing we offer is the consumer choice along with several different types of products, and the 

normal procedure would be that we would come up with like three 

products and saying this product is good for this, this product is 

good for that, this policy is good for that. 

So what we are is a funnel which we are able to offer the consumer a lot of choices as to which way he wants to go at that point. 

And we are real big on trying to help him pick the loan that he 

thinks is best for him. 

Chairman DODD. But not as the trusted advisor? 

Mr. DINHAM. No, sir, not in a fiduciary capacity because we do 

not have every product that is in the marketplace. So we could not 

absolutely offer him the best deal that was in the market at that 

point. We can offer him the products that we have, but not the best 

deal in the market. 

Chairman DODD. Let me ask you, because I appreciate your answer to that, but we went and looked on the website of the National Association of Mortgage Brokers under the ‘‘Frequently 

Asked Questions’’ section of the website. The very first question is: 

‘‘Why choose a mortgage broker?’’ 

The answer given on the website is as follows, and let me quote 

it to you: ‘‘The consumer receives an expert mentor through the 

complex mortgage lending process.’’ Now, if you look up the word 

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‘‘mentor,’’ and anyplace I looked it up before, a mentor is oftentimes described as a ‘‘wise and trusted counselor or teacher.’’ 

So even on the website of the National Association in the most 

frequently asked questions, the advice to the mortgage broker is 

hold yourself out as a mentor in a sense. So you are holding yourself out—how can you be a mentor, an advisor, and at the same 

time be that independent contractor? It seems to me you have got 

a conflict here in promoting this. 

Mr. DINHAM. Well, I think that maybe we do have a conflict 

there ta this point, but I think what we are trying to say there is 

that we offer a lot of—we offer the consumer a lot of choice at that 

point, and that is what we are doing. We can put a deal together 

for him that he cannot get normally somewhere else at some other 

point. 

Chairman DODD. How do you answer the question here? What 

happened in the case of these two women? What would your response be if they were to ask you, how did it end up that someone 

could give loans under these circumstances to these two women? 

You have heard their testimony, what circumstances they are in, 

the incomes that were coming in. How could that possibly happen 

that someone would extend the kind of loans to these two individuals given their fixed income in the case of Ms. King and the circumstance that Ms. Womble was under? How does that happen? 

Mr. DINHAM. Well, in listening to Mrs. King’s story, I got the impression that she wasn’t fully disclosed on the front end of the loan, 

what the loan would do in the beginning at that point. 

Chairman DODD. She should have been, shouldn’t she? 

Mr. DINHAM. She should have been. And, you know, we are trying to get to that point. You know, one of the biggest problems we 

have today is the truth in lending process and the good-faith estimate process, because there is no correlation or no required correlation between the good-faith estimate that you give at application and what you get at closing. It has been a big problem for a 

long time. It needs to be fixed. 

We would also like to see that on these types of loans—and on 

every type of loan—that we get to a disclosure on the truth in lending. The truth in lending is woefully inadequate also because it 

only goes to the first 3 years of an adjustable rate mortgage. 

So from my perspective, we need to fix the truth in lending process so that the consumer has a full understanding in the beginning 

of the loan they are getting. 

Chairman DODD. Senator Shelby. 

Senator SHELBY. Thank you. 

Ms. King, Ms. Womble, Ms. Davis, you have given us examples 

of some tough, disastrous situations, and I believe you are only 

touching the tip of the iceberg here. In our marketplace, there 

should not be any place for fraud and exploitation. It sounds to me 

like some of your situations with the facts you have told are probably fraud, civil and perhaps criminal. 

Risk-based pricing has, as we all know, brought a lot of good 

things to the marketplace. It has brought credit, but it has also 

brought problems. We need to eradicate that the best we can. 

Mr. Chairman, I hope that under your leadership we can get the 

regulators up here following this hearing today. 

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Chairman DODD. We will. 

Senator SHELBY. And see what the Federal Reserve and others 

are doing in this area, because I think it is very, very important, 

whether it is in Illinois, North Carolina, my State of Alabama, Oregon, or wherever. These kinds of situations will destroy our riskbased credit system, and we do not want to do that. 

Reverend Jackson and Ms. Davis, I want to get into a question. 

Fannie Mae and Freddie Mac remain the largest purchasers of 

subprime, private-label, mortgage-backed securities. A lot of these 

securities are AAA grade, yet the foreclosures are there, the risk 

is there. And we know that. We have dealt with the GSEs up here 

before, and I am sure, Mr. Chairman, we will deal with them 

again. 

What extent do you believe, Reverend Jackson, that the secondary market, Freddie Mac and Fannie Mae, are providing funding for some like the subprime and predatory mortgage lending, 

what is their role here? It seems to me like that is not always a 

good role. 

Reverend JACKSON. Well, for the most part it is, except—— 

Senator SHELBY. I know it is, but not always. 

Reverend JACKSON. Of course, not always. I think they must be 

challenged to honor the ability-to-repay standard. Maybe second 

only to banks is that they are under a kind of oversight, unlike the 

other predators—other predators, should I say, maybe the 

subprimes are under less oversight. 

What protects the people ultimately is enforced law, adequate 

and enforced law. And much of what is happening to Ms. Womble 

and Ms. King is unenforced law. And, again, the point I made was 

that for many whites, for example, they have banks and they have 

access to neighborhood banks or branch banks. We are almost sent 

off immediately to the wolves, the unprotected. The big finance, you 

know, they get CRA, so that can be some better lending. But we 

are quick to be turned down at the front door, from expunging of 

records to credit score, and then sent to the economic wolves. 

Our appeal to you is I think Ms. Womble and Ms. King give you 

examples, and Ms. Davis, of what is happening in the marketplace. 

What can we get from you to protect us from this kind of exploitation? 

Senator SHELBY. Ms. Davis, the ability to pay seems just to make 

a lot of sense on any loan anybody makes. And like Ms. King was 

talking about, and Ms. Womble, it was taking just about every cent 

they had to make a payment. 

Now, one loan characteristic that has been talked about that is 

described as predatory is the practice of making a loan without regard, it seems, to the borrower’s ability to repay the loan. That has 

not always been the case. 

Ms. CONSTANTINE-DAVIS. No. That is right. 

Senator SHELBY. Now, do you want to comment on that? Is that 

troubling to you? 

Ms. CONSTANTINE-DAVIS. Frankly, in the course of preparing to 

be here today and in conversations with other consumer advocates, 

I could not help but, you know, think to myself how far we have 

come if we are talking about passing a law that says that lenders 

cannot make loans to people that they cannot afford. This used to 

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be second nature. It was something we all took for granted, that 

this was the only responsible way for both parties to proceed. And 

at this point that is just not the case. 

Reverend JACKSON. Mr. Shelby, what I was also trying to say is 

that when you go to the bank, the bank is held to a higher standard to do what Ms. Davis is saying. When the bank immediately 

kicks us out the back door to the wolves, it is the unprotected area 

that runs amok. 

Senator SHELBY. Sure. 

Reverend JACKSON. And where the banks cannot get off is that 

they finance the wolves. They are partners in the process. The 

banker still maintains his blue-striped suit up front, but he is financing the wolves that live back here and has dirty clothes. But 

the dirty-clothes guy is funded by, you know, the striped-suit guy. 

And, therefore, the oversight protection cannot stop just at the 

bank and CRA and the securitizer. 

Senator SHELBY. Well, if the wolves originate, for example, some 

of these predatory loans, some of the loans that are fraught with 

fraud or close to it, if not that, exploitation, and they dress them 

up and they put a little coat on them, and then they—— 

Reverend JACKSON. A wolf in sheep’s clothing. 

Senator SHELBY [continuing]. Sell it in the secondary market and 

so forth, and they say, by gosh, this is a triple-A grade security. 

Is that right, Mr. Eakes? 

Mr. EAKES. Right. 

Senator SHELBY. Is that what happens? 

Mr. EAKES. Yes. I mean, Fannie Mae and Freddie Mac in 2001 

were enormously helpful to all of us on some of the—on first wave 

of predatory lending standards, like prepayment penalties, limiting, 

getting rid of single-premium credit insurance. And now really 

what I feel like is a failure of moral leadership, that they need to 

be stepping out in this area that is causing so much danger. The 

truth is that if they stop investing, the 25 percent of subprime securities that Fannie and Freddie buy, perhaps $150 billion a year, 

that is a big number. But the marketplace would step in for them. 

The problem from my viewpoint is that if they would step out and 

help—you know, just implement the ability-to-repay standards, the 

limits on prepayment penalties, the limits that they have in the 

normal course of business— 

Senator SHELBY. They could do a lot more than they are doing, 

couldn’t they? 

Mr. EAKES. They could. They should. 

Senator SHELBY. And at the end of the day we all know they are 

a Government-sponsored enterprise, GSE, with the implicit guarantee of the taxpayer when they sell those securities. Is that correct? 

Mr. EAKES. Yes. 

Reverend JACKSON. Senator, our interest is not in trying to destroy Freddie Mac and Fannie Mae or the banks. 

Senator SHELBY. Me either. 

Reverend JACKSON. But maybe all the forces involved should be 

around a common table. Let Freddie Mac and Fannie Mae make 

their best case and the bank make their best case and the mortgage lenders. It seems that when they resolve this in sessions 

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where each group is arguing ‘‘it ain’t me, it’s them,’’ arguing for advantage, because on the best day the banks and Freddie Mac and 

Fannie Mae work. But in the last several years, it is beginning to 

unravel, and there needs to be some mediation or some reconciliation. I don’t think—some of this is intentional, but I think some 

of this broker business is just absolutely exploiting the gap. 

Senator SHELBY. I agree with you. We have a good financial 

availability of credit system in the U.S., but it is kind of like a 

hamper of beautiful apples that comes in, and there is a rotten one 

there, and it will contaminate the whole bucket or bushel of apples 

if we do not do something about it. Don’t you agree? 

Reverend JACKSON. Yes, I agree, except it is more than one 

apple. 

[Laughter.] 

Senator SHELBY. Well, it is already spreading. More than one rotten apple, but the idea of at least one, maybe more rotten apples 

in the bushel is there. But a lot of good stuff is there, you point 

out, too. 

Reverend JACKSON. In our neighborhood, when the banks come 

with the branch banking and do their job, people are protected. 

And Freddie Mac and Fannie Mae do theirs. But now what we see 

coming, as the jobs leave, taxes go up, services go down, and in 

come payday lenders and cashiers. It is like they sense that, they 

smell blood. And as the taxes go up and the jobs leave and the foreclosure comes in, they seize the market. And we need you to help 

take away the incentive for the banks to leave and for the predators to come. 

Chairman DODD. It is a lack of balance, is what you are talking 

about here. 

Reverend JACKSON. No balance. 

Senator SHELBY. We do not need the wolves running in our 

neighborhood, do we? 

Reverend JACKSON. Right. 

Chairman DODD. We could probably pick out another fruit at 

some point, too. 

[Laughter.] 

Senator SHELBY. No, I think the apple—— 

Chairman DODD. The apple industry is—— 

Senator SHELBY. I said one apple, and he says more than one, 

and we do not have a big disagreement there. 

Chairman DODD. Senator Crapo. 

Senator CRAPO. Thank you very much, Mr. Chairman. 

Mr. DINHAM, I WANT TO DIRECT MY FIRST QUESTION TO YOU. I do 

not think anybody can disagree with the fact that, as we listen to 

the stories that people like Ms. King and Ms. Womble bring to us, 

we ask ourselves: How could that happen? How could we have a 

system of credit in this country in which this kind of abuse occurs 

legally? 

The question I have for you is: What kind of market discipline 

is there in the subprime lending market today? We are talking 

here, I assume, in this hearing and in further deliberations about 

what we may need to do to add some market discipline. What do 

we have today? And how do these kinds of things happen? 

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Mr. DINHAM. All I can do, I can relate back to in the middle 

1980’s in Houston, Texas, when they had the oil bust down there. 

During that period of time, there had been a lot of 95–percent 

loans made in certain subdivisions down there. These were not 

subprime loans, but this was—the market had just gone sour. 

What happened was that they came back—the MI companies 

that were insuring their proportion of those loans came back and 

told them that they were not going to make any more 95–percent 

loans and they probably would not make any more 90’s in those 

areas until the market straightened out. 

So, you know, I have always been a market philosopher type at 

that point, and I really believe that if these loans continue to create too many foreclosures or defaults, they will go away. Since 

1980, we have had all sorts of products come through, adjustable 

rates. We had no adjustable rates before 1980. But ever since then, 

they have come through, and they have come and gone, depending 

on whether they were not liked, whether they cost too much for the 

lender, because every time that we—not we, but the lenders foreclosed on a loan, it is going to cost them some money at that point. 

So they do not want them either at that point. They do not want 

the loans back. 

So to me, the market will correct in the end. 

Senator CRAPO. You have raised a very interesting point here. 

Let’s take the case of a circumstance like Ms. King described to us. 

If her loan goes into default, has the mortgage broker profited regardless? Or has the lender profited regardless of what happens to 

her? 

Mr. DINHAM. Not in all cases, because it depends on how your 

contract reads with whoever the lender is in that particular case. 

If there was a profit involved in that particular thing, they would 

probably charge you back that profit if it was in a certain period 

of time. It just depends. Different lenders have different requirements on what they will do at this point. 

Mr. EAKES. But 99 percent of the loans, the broker or the originator who did not hold the loan have gotten their profit and do not 

get put back. So only if it defaults within the first 3 to 6 months 

is there, by the investors, a liability put back on the lender. And 

after that time, it is very, very rare for any kind of liability to be 

put back on—— 

Senator CRAPO. So if I understand you correctly, there is a profit 

incentive to make a bad loan like this if the loan can survive for 

a period of months. 

Mr. EAKES. Three months. 

Senator CRAPO. Mr. Duncan, do you want to comment on that? 

Mr. DUNCAN. Yes, I would. I would like to differentiate a little 

bit between terms and then describe recent events which give evidence of the disciplines that are in the marketplace. 

First of all, the lender is the company that comes to the table 

with funding. Typically, large lenders will have several different 

channels of production, one of those being through brokers who 

bring them loan applications, which they can either agree or not 

agree to fund. 

To the extent that those loans are securitized, they are packaged, 

held for a period, and then sold into the secondary market. And the 

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investors to whom they sell them establish a contractual agreement 

with them about the period of time in which early payment defaults, which, if they occur outside of the investor’s tolerance, will 

be put back for purchase. That is typically longer than 3 months. 

It is more in the 6- to 12–month timeframe, so that you can see 

that the borrower has established the repayment capability that 

was anticipated in the application. 

Recently, you have seen three or four subprime lenders who put 

loans to Wall Street which did not meet those criteria have to buy 

back sufficient loans that they were put out of business. So the 

market does have a mechanism for disciplining lenders who make 

loans that are not sustainable by borrowers. In fact, it puts them 

out of business. Ownit, Mortgage Lenders Network, Sebring Capital—these are all firms that have failed in the last 6 months because of required buybacks. 

In addition, you recently saw Frema Mortgage terminate relationships with over 8,000 brokers who they believed to be delivering to them loans which did not meet the criteria that they would 

have to continue to support to provide collateral for asset-backed 

securities. 

Typically, what lenders do is they will run a scorecard on each 

broker, and that scorecard contains a series of measures about the 

quality of loans that are brought in for ultimate delivery to investors. If they do not meet the scorecard minimums, they are terminated from the system 

One of the problems is when you identify bad actors, there is not 

a national registry that allows for cataloguing of bad actors, no 

matter who they are, that you can prevent them from going from 

one market to another, and that—— 

Senator CRAPO. When you say one market to another, you mean 

one lender to another? 

Mr. DUNCAN. Certainly, they can do that, too. They can move it— 

they may be headquartered in Phoenix and move to Arkansas, and 

you would not know that because there is not a registry that would 

identify them. 

Reverend JACKSON. We chase down sex predators. Sex predators, 

we chase them State to State. 

Can I just add one thing? When Ms. Womble and Ms. King go 

home today, they are facing foreclosure. Is the problem that there 

is something wrong with them or did somebody violate a law? Did 

somebody break the law on them? 

Mr. DUNCAN. We would be happy to—particularly in Ms. 

Womble’s case, it sounds to use, from what we have heard here this 

morning, that fraud has been committed both against her and 

against the lender, and laws exist to prosecute that fraud. And we 

would fully support funding to enable the appropriate regulators to 

prosecute that. 

Mr. EAKES. The problem with waiting for the market to correct— 

and it is correcting right now. There is no question that the investors are now on guard, having the same interest that borrowers 

now have, saying we do not want to take losses in this environment 

where property prices are not appreciating. 

The problem with that is that the market correction has a lag 

of several years, and so when Ownit, the company just mentioned, 

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went out of business, it was in no way able to reimburse the tens 

of thousands of borrowers who go into loans that were foreclosed. 

It just went out of existence. And so, yes, the business is gone, but 

the 2 million families that are in loans that will be foreclosed upon 

get no relief from that market correction. And that is the severe 

danger of thinking that the market by itself will be sufficient. 

Senator CRAPO. Mr. Chairman, if I could just follow this up with 

one more question. 

Chairman DODD. Sure. 

Senator CRAPO. It seems to me from what we are hearing in this 

line of questioning is that there is a market discipline in place, it 

is working, but there is a question raised as to whether it works 

fast enough to not leave too much damage in its wake. 

Chairman DODD. People like these two women here. 

Senator CRAPO. As the market operates, and we have examples 

here of Ms. King and Ms. Womble. 

I guess I would just like to ask you, Mr. Duncan, if you could 

comment on that point that was made by Mr. Eakes, that the market corrections—or the market discipline that we already have in 

place is not working fast enough. 

Chairman DODD. Can I add on to the question as well? These 

numbers we have been talking about, I mentioned them in the 

opening statement, 1.2 million, 2.2 million foreclosures in the next 

year or so here. I would like to give you a chance to comment on 

those numbers as well. 

Mr. DUNCAN. Certainly. 

Chairman DODD. That is the number that is estimated. 

Mr. DUNCAN. Certainly. We have a broadly available public data 

set on delinquencies, which we have—delinquencies and foreclosures, which we have published since 1972 on a quarterly basis. 

It contains about 43 million loans out of the estimated 50 million 

loans that are outstanding in the U.S., of which within those 42 or 

43 million loans are about 6 million subprime loans. 

At present, the foreclosure percentage—that is, the percent of all 

those loans that are somewhere in the process of foreclosure—is 

1.05 percent. So that means if you extrapolate to 50 million loans, 

that would be about 500,000 borrowers who are in the process of 

foreclosure today. 

Now, of those, three and four will not go to sale at the sheriff’s 

steps or the courthouse steps. They may be solved by a restructuring of the loan; they may be solved in a deed-in-lieu transfer; 

there are about five or six loss mitigation processes that are undertaken. So there is a significant difference between the projections 

of foreclosures and the actual magnitude of foreclosures in process 

today. I can talk about that as a separate issue. 

To address your question on the timing, it is certainly not several 

years ago that the loans that brought down the recent subprime 

companies were made. That was—and I would agree with Mr. 

Eakes that the 2006 book of subprime loans, which is the smallest 

of the recent cohorts of subprime loans, has performed at a worse 

delinquency and foreclosure pace than previous loans early in their 

life. And that was, by and large, the loans that were the difficulty 

for those firms that closed. 

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Mr. EAKES. Ten percent of the loans made in 2006 were already 

in foreclosure in the first—already in foreclosure, 10 percent. 

Mr. DUNCAN. To the point of Ms. Womble where there was fraud 

committed, one of the big things that has been going on in the 

mortgage industry is the representation of loans in that foreclosure 

category which were fraudulent loans to begin with. 

Mr. EAKES. One of the problems—— 

Chairman DODD. You don’t disagree with Mr. Eakes on his number there, do you? 

Mr. DUNCAN. I am sorry? 

Chairman DODD. You do not disagree with Mr. Eakes on that 

number, do you? 

Mr. DUNCAN. On which number? 

Chairman DODD. On the 10 percent. 

Mr. DUNCAN. I am sorry. Could you restate the—— 

Mr. EAKES. Ten percent of the 2006 book of business, according 

to Friedman, Billings, and Ramsey, is already in default. 

Mr. DUNCAN. Is delinquent, yes. I believe those are publicly—— 

Mr. EAKES. Ninety days or more. 

Mr. DUNCAN. On the securitized portion of those loans. Mind you 

that much of this data is only representing the securitized market—— 

Senator SHELBY. And are those securities still rated triple-A 

grade, or whatever? 

Mr. EAKES. Moody’s and others are starting to evaluate whether 

to downgrade. 

Senator SHELBY. That is right. 

Mr. EAKES. But here is the problem. What I think is very confusing, when you say, for instance, in the fourth quarter of 2006 

that 1.8 percent of subprime loans went into foreclosure, what it 

is saying is they are looking at a snapshot in time. If you look at 

what are the loans that are currently right at this moment in time 

in foreclosure, and you say it is 1 percent or 1.8 percent, the problem is that every quarter you get new loans. There are new loans 

that go into foreclosure, that get sold off, the people have lost their 

homes. And if you just took that 1.8 percent and multiplied it times 

12 quarters, which is the number—average life of 3 years for 

subprime loans, you would get back to this 20-percent foreclosure 

rate. 

So there is a lot of gnashing of teeth about can it really be 20 

percent, but if you track the borrowers, it will be substantially 

higher than 20 percent in this 2005–2006. And we are talking 

about millions of families who will not ever get compensated. They 

may not ever get a chance to own a home again. 

Chairman DODD. Senator Crapo, one more question, and then 

Senator Martinez. 

Senator CRAPO. Mr. Chairman, thank you. Just one more question. Just to help me understand the entire picture here, Mr. Duncan or Mr. Eakes, could you give us a comparison between the serious delinquency rates on subprime loans that we are talking about 

in comparison with, say, FHA loans or other prime loan markets? 

Do we a very significant differential there? 

Mr. DUNCAN. In our data base, the delinquency rate for subprime 

loans is roughly 12 percent—that is almost the same as FHA—and 

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prime loans are about 4.7 percent. In terms of foreclosure, the 

prime loans are at about one-half of 1 percent, and the subprime 

loans are at about 4.5 percent. The exact numbers I believe are in 

our testimony. 

Mr. EAKES. But even that number tells you that the subprime 

ARMs are 9 times more likely to foreclose than an ARM loan in 

the prime sector, so that you get this huge impact—the amount of 

foreclosures in subprime as a whole compared to FHA is double. So 

it is similar customers, but with a product that does not have 

layering of all of these risk factors—the prepayment penalties, the 

failure to escrow for taxes and insurance, which is an amazing 

thing. By not having escrows, when the good lenders, the responsible lenders try to compete against a 2/28 mortgage, they start out 

with a loan payment per month that is 20 percent higher than 

what their competitor has. Guess how many loans they will get in 

a marketplace that is dominated by borrowers who are cashstrapped trying to look solely at the monthly payment? They will 

not get any loans. 

So the general rule, of which that is an example, is that if you 

do not require escrow for high-risk loans, the good lenders, the 

good money loses out to the bad money. 

Ms. CONSTANTINE-DAVIS. Could I just jump in here real briefly? 

Chairman DODD. Ms. Davis, you wanted to comment on this. 

Ms. CONSTANTINE-DAVIS. The word ‘‘fraud’’ has been used several 

times, and I guess being the lawyer geek on the panel here, I just 

want—we use ‘‘fraud,’’ you know, in a colloquial way that says it 

is deception, it is a very broad range of things. But when you get 

down to trying to do a case and having to prove fraud, you have 

elements in the law that are very difficult. You have to have a 

higher standard of proof. You have to prove a material misrepresentation to the borrower. If you think about the inflated income 

cases, it is not a misrepresentation to the borrower. And you have 

to prove reliance, that the borrower relied on this. The borrower is 

not relying on it. They had no idea it happened. So in many ways, 

while in common parlance these are fraudulent transactions, they 

are not ones that you can necessarily prove as fraud cases in court. 

Chairman DODD. Very good point. Very good point. 

Senator Martinez, welcome. 

Senator MARTINEZ. Mr. Chairman, thank you very much, and 

what an important hearing you have brought before us. I appreciate the panel and all the members being here. 

I would not know how to begin because there are so many of 

these issues that I have dealt with and feel quite strongly about 

many of them. I believe that credit counseling is so very important, 

so important that consumers be better informed, and we need to 

continue to do what we can to encourage credit counseling, to encourage people to be informed and become better consumers themselves. But at the same time, there are market forces that absolutely, without a doubt, in my view, prey upon the innocent and 

unsuspecting. 

One of the issues that I attempted to tackle was RESPA reform, 

and I know it did not always make me popular with some of the 

people in the room. But I must say I thought it was a good thing. 

And one of the issues that I was trying to tackle in that is what 

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I saw in Mrs. Womble’s testimony where she said, ‘‘The closing 

costs had jumped from $8,000 to over $12,000. I did not want to 

sign the papers, but I felt I had to.’’ 

At that point it is too late to help the consumer. They have really 

got to have a good-faith estimate that is going to be in good faith 

within a very small digression from that, the same good-faith estimate that they are going to see at the closing statement. There 

ought to be room for there to be change, but it cannot be dramatic 

change. And there ought to be change in some areas but not in others. 

I believe that the fiduciary duty of brokers is also very important. Yield spread premium—and I guess I am not just on a diatribe here. I need to ask a question or two. But yield spread premium, I mean, how do you have a broker who is, in fact, arguably 

in a fiduciary relationship, although I know they would say not, 

but who is, in fact, attempting to get the borrower into a higher 

interest rate so they get a larger commission? In other words, they 

are working at counter purposes to the borrower. And obviously the 

issue of loan flipping also creates a lot of problems. But I think 

yield spread premium, I think that the good-faith estimate, I think 

these are things that we can do through regulatory reform and 

whatever statutory changes are necessary to protect the vulnerable 

borrowers that are so unsuspecting in the marketplace. 

And I would say while there are small percentages of people who 

get hurt, for Ms. King or Ms. Womble it is 100 percent. And so we 

have got to really look out for the most vulnerable. 

I am not sure I have too many questions. I know the subject, and 

I appreciate the testimony of so many of you here today. I just believe that it is time that we try to do something to tackle some of 

these practices. And, you know, I believe there needs to be 

subprime lending. There needs to be a mortgage market available 

to those who do not have perfect credit so they can, too, get into 

homeownership. I believe homeownership is a way to open the future to so many financially by building equity, but with a fair loan. 

There are some of these lending practices that do not give people 

a chance, and then the most tragic of all is to already see someone 

that is in a home and then end up losing the home. 

I am concerned about reverse mortgages for the elderly as well. 

That is another area where I think there could be an awful lot of 

abuse. 

So, anyway, thank you all for coming, and I do not have a question. I am just with you. 

Chairman DODD. Thank you very much, Senator Martinez. 

Reverend JACKSON. Senator Dodd, could I add one more point? 

Chairman DODD. Certainly. 

Reverend JACKSON. You know, when we were fighting for voting 

rights, we were told that our problem was lack of literacy. You 

know, how many bubbles in a bar of soap and all kind of stuff, literacy, literacy. The problem was we did not have a law to protect 

us. So even the illiterate can be protected from bad law. 

And so when I hear literacy, we should teach that through 

churches and our homes and the YMCA and all that. But these 

persons needed protection from bad law. We need law protection 

from you. We can work on financial literacy, and we do, in schools, 

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in churches, and all of that. But somehow somebody violated these 

two women, and they are not going to face the weight of law. They 

need legal protection. 

Chairman DODD. I do not disagree with that, and, in fact, Senator Martinez, could be a tremendous help to us here as someone 

who in his private life was in this business and in his public life. 

He was in the housing business in Florida, I know, from my conversations with him over the years, and, of course, at HUD, and 

did some great work back 7 years ago, as Hilary Shelton pointed 

out. So I think the point that Reverend Jackson makes is a very 

strong one. 

Senator Reed. 

Senator REED. Well, thank you very much, Mr. Chairman. I want 

to thank all the panelists, and I particularly want to thank Reverend Jackson for being here and being active in many quarters 

over many years that have made the country a better place. 

I know you responded to the Chairman, Reverend Jackson, with 

respect to community impacts of these types of practices, but I 

wonder if you might have additional thoughts, having listened to 

the other panelists, about the impact on communities, not just individuals. 

Reverend JACKSON. A study came out of Harvard not long ago. 

Usually when one house goes down, the houses next door are affected, and then the riot sets in. So in some sense, using the rotten 

apple situation, it is that when one house goes down, the very 

neighborhood starts dropping, unless there is something to offset 

that drop. And, again, we often think of just the poor or the black. 

I am very concerned about its impact upon black and brown people, 

the racial exploitation. But Appalachia—the same law must protect—a safety net must protect all of us from violation, the black, 

the brown. Yes, we are targeted. No question about that. The military bases, they know those are basically young people who got 

sent to war, who are over their head in debt. They had a job and 

now the military pays less than the job. So they go to the military. 

They are sitting outside the gates. Every time I go to a military 

base to speak to soldiers’ spouses, you have got to go through a 

long line of predators to get into the gate. 

And so it seems to me that we need to have a broader safety net, 

whether it is the military base people or whether it is when Ford 

takes away 55,000 jobs, what it does to Detroit and Dearborn and 

Youngstown or Akron, Ohio, what it does. The issue, it seems to 

me, there must be a safety net to protect people and a law to protect us from unscrupulous crooks. Both the law and the safety net. 

Senator REED. Thank you. 

Mr. EAKES. Senator Reed, there was a study in Chicago in 2004 

that said that for every foreclosure within a one-eighth mile radius, 

it would reduce the value of every home by $2,800 to $3,000, for 

every foreclosure. So if you are in a neighborhood that is getting 

ten foreclosures, you could literally have the value of all the surrounding housing—because who wants to move into a neighborhood 

that has boarded-up houses. You could get to a point where the 

families that are there no longer have enough value in their home 

to even met the level of their debt and they are trapped. So there 

is very significant spillover effects from foreclosure. 

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Senator REED. Thank you very much. 

Mr. DUNCAN. The mortgage lenders would agree with that, Senator. If you look for the alignment of interests between the borrower, the investor, and the mortgage lender, that clustering of 

foreclosures goes right to the heart of one of the products that the 

mortgage industry believes will be a valuable product for households where the bulk of their wealth is tied up in their house, and 

that will provide for them some assistance in retirement. 

What I am speaking of is reverse mortgages. To the extent that 

you see the decline in the value of collateral, that is going to affect 

the economics of that household being able to access that. 

Senator REED. Let me ask a question, D. Duncan. Is it your view 

that a lender should approve a person on a fixed income with a 

very modest savings for a mortgage policy like a subprime, 2/28 

ARM, with the potential of very serious spikes in monthly payments? If that potential is real, it would seem that the person 

starts out already behind the eight ball? 

Mr. DUNCAN. Well, it is our belief that the consumer should be 

informed about the performance of that mortgage should they 

choose that mortgage product or investigate that as one of their options. They should have full and clear information about the terms 

of the mortgage, how it functions in from economic environments, 

as opposed to other mortgage options. And if the consumer chooses 

that option, it should be with that full information. That is one of 

the reasons one of our principles is clear financial education and 

another one is clear information. 

Senator REED. You know, I had the privilege of going off to a 

good law school and doing a lot of other things, and I was closing 

on my—— 

Chairman DODD. Harvard, I want to say. A good law school he 

is talking about here. 

Senator REED. Couldn’t get into UConn. 

[Laughter.] 

Chairman DODD. He was too short. He couldn’t play basketball. 

Senator REED. No athletic scholarship. And, you know, I was at 

the closing, and I was signing papers, like I think Ms. King and 

Ms. Womble, signing papers and signing papers. I am sure there 

was a disclosure. I could not really—that is our problem. We have 

to work on something that is vivid, and, you know, I am thinking 

maybe you would have to have a chart that shows the interest rate 

spiking in a year from now, and someone looks at it and says, ‘‘Oh, 

my God, next year I will be paying twice as much as I am paying 

now.’’ 

These calculations of, well, if this happens, it is now plus 25 

basis points—frankly, you know, I did not know what a basis point 

was until I was about 30 years old and I was practicing law. Oh, 

that is a tenth of a percent. I think. 

Mr. DUNCAN. We absolutely agree. 

[Laughter.] 

Mr. DUNCAN. First, I am sorry for your law school situation. I 

have the liability of being an economist. 

We absolutely agree with you that consumers need some 

straightforward, clear tool to help them judge the relative risks of 

different loan products, and we have put together a task force of 

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members under a title called ‘‘Project Clarity’’ to see if there is a 

way that the industry can offer up with consultation from the regulators and community groups something that paints the relative 

risk of different loan products, accounting for the potential 

changes. 

Before I forget, if I may, we wanted to introduce into the record, 

given that there was some discussion about the differences in number, a critique that we have done of some of the CRL studies, if 

we can introduce that, without objection. 

Senator REED. You have been a very good panel. It has been a 

long morning. I am concerned, Ms. King and Ms. Womble, who is 

helping you now? I mean, you are in a difficult situation. Is there 

anyone—— 

Chairman DODD. Reverend Jackson is going to help the one—— 

Senator REED. Well, good. Is there anyone—I mean, you are in 

a difficult position with your mortgage. How are you going to find 

your way out of it? Not just you in particular, but other people like 

yourselves, what should be done to help you? Better coordination 

with the lenders? Better community support in terms of helping, 

counseling? What do you think? You are the experts. Unfortunately, you have had a tough education, but you are the experts. 

Ms. Womble? 

Ms. WOMBLE. At this point I am just sort of in limbo. I do not 

know what my next steps are. I know that one thing I would like 

to see is that consumers—that lenders do not just look at a number 

when it comes to the decision whether or not they want to make 

you a loan. Do not look at that number and judge you by that and 

say, well, you are subprime lending, you are not prime lending. 

Look at the whole situation, what happened. 

You know, when I went from a 780 credit score 6 years ago to 

a 549 now, it is not that I just chose not to pay my bills. 

Senator REED. Right. 

Ms. WOMBLE. You know, it was circumstances. After 21 years of 

mortgage payments, I had never been late, never missed a mortgage payment. So it was just the circumstances that surrounded 

that. You know, I am a good credit risk. If you give me a mortgage 

payment I can afford, you are not going to lose money on me. Don’t 

punish me for what happened in my credit situation when, you 

know, I am a good risk. You know, you give me that $900–a-month 

payment and I will not be here having to sit through these things 

and worry where my kids are going to get their next meal from, 

you know, if they have to go to the doctor. I have got, you know, 

coming up to go to college. How am I going to do that? 

So that is what I would like to see, that they do not just look 

at that one number and say, well, you are below a 680 so we are 

going to send you down there. 

Senator REED. Thank you. 

Ms. King, any comments? 

Ms. KING. Right now I am in a quandary—— 

Chairman DODD. A little closer, Ms. King, to that microphone. I 

am sorry. 

Ms. KING. I am in a quandary because I am retired, and I never 

anticipated me being in a situation like this. What I would like to 

see is more clarity. If we are going to have brokers, be honest and 

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aboveboard about it. If you can handle it, tell me now. I don’t want 

like later I am sitting here testifying, not just for myself, for others 

that it concerns. And I really would like to see the law—because 

it seems like they are just getting away with murder. I really do 

feel that way. 

Senator REED. Well, thank you both for your testimony, but also 

I think it underscores a point that several have made, and Reverend Jackson and others, that this is an issue that affects a wide 

range of Americans, people who have worked for years, have run 

their small businesses successfully, and then have a life-changing 

event. It does not affect their character or their diligence, their 

ability to work hard, but it makes it difficult for them to keep up, 

at least temporarily. And we have to be responsive to that in a decent way. And I hope we can work—I know the Chairman is very 

committed to this work to make things a little better. 

Thank you. 

Reverend JACKSON. Mr. Chairman, John Taylor from NCRSC 

wants to help Ms. Womble and Ms. King through some kind of consumer rescuethon. So when I said safety net, people who are seniors must know that safety net is not a predator, where they are 

being led to the slaughter. We just formed a village in Illinois 

called 40–50, where they decided to fight predators and took 10 zip 

codes, majority black and brown, a lot of predatory practices going 

on. You pay $300 for a counselor who helps talk you through your 

situation. Ms. King cannot be talked through. She needs some 

money. She needs to be offset from having—she has been violated. 

And so our legislature voted for 40–50, but the counselors are 

working for the bank. The counselors are working for the subprimers and working for the bank. It is like a whole conspiracy, because we knew that in those zones where you have the most industrial jobs leaving and the highest taxes, and you just have block 

after block of foreclosures. And there needs to be some kind of 

money—I am back to if we can spend $9 billion a month on that 

situation in Iraq, we need some money. When people lose their jobs 

at Ford, when people lose—and seniors are trapped on fixed incomes, they need some bail-out, not just some counseling and some 

literacy. 

Chairman DODD. Thank you very much, Reverend. 

It has been a long morning for all of you, but tremendously valuable, and I just was looking over the numbers here again on this. 

You have Mrs. King who went from an $832-a-month mortgage to 

$1,500 a month, as I see it, roughly $1,500. That is an 80-percent 

increase. A woman on a fixed income. I think you said to me in 

your testimony you had an income of around $950 a month, you got 

another couple grand you got once a year, but that was going to 

terminate pretty quick as a pension. It came out of being a teacher 

over the years. And in the case of Ms. Womble, you went from $927 to $2,000. 

That is over a 100-percent increase, and you had your insurance 

and other issues, taxes, that were now outside of that, no longer 

in escrow. 

I think people need to remember this well. Ms. King was acting 

responsibly. She had a $3,000 debt she thought she owed, and she 

wanted to take care of her debts. You had a $10,000 judgment that 

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you felt you had to meet an obligation. These are two citizens acting very responsibly -in fact, arguably, maybe too responsibly, to go 

through and refinance your home for $3,000 and $10,000. Someone 

should have given you some advice along the way that you did not 

need to do this, there was a way of dealing with those debts short 

of the avenue you chose. 

But here are two very responsible citizens doing exactly what responsibility requires. Where is the responsibility, Mr. Dinham, I 

would say. Mr. Duncan, on the other side of the equation here, in 

the industry you are representing that would take advantage of 

two people who spent all their lives doing everything they should 

have been doing, hard-working, raising families, building private 

companies, a small business in this case, and then find themselves 

being victimized by a system here. That has just got to stop. 

Now, you know, we can talk about the regulators, and we are 

going to bring them in here, because, frankly, I am annoyed that 

2 months have gone by and no answer from these Federal agencies 

that can respond to this. So if you are listening to me, plan on 

being at this table in the next few weeks to respond to some questions. 

Second, the industry had got to respond. Look, I am not crazy 

about writing laws here. I want to be careful that we do not do 

damage to the very industry that is critical for wealth creation. 

And I realize that by writing laws, you can unintentionally do some 

of this. So the industry has got to step up. That website, yes, 

change that, or step up to the plate and admit that you do have 

a fiduciary responsibility to these people. But you cannot have it 

both ways. You cannot advertise as being a mentor and advisor, 

and then turn around and watch these people get into the kind of 

holes they have gotten into. That is just outrageous, to put it mildly. 

Also to my colleagues here, we need to look at the laws themselves, the statutory underpinnings of all of this. 

So I am very grateful to all of you, and I am grateful to the industry, too. I appreciate, Mr. Duncan, you are very knowledgeable 

about this. I am very impressed how much you know. And, Mr. 

Dinham, your honest answer, I appreciate that. We do not always 

get honest answers, and I confronted you with the website. You 

said, ‘‘Yes, that is wrong.’’ And I want you to know I appreciate 

that kind of answer. We do not always get those kinds of answers 

from people here. So I am grateful to you. 

And, Hilary and Ms. Davis, your work, and Reverend Jackson, 

for your work here. But we are going to follow up on this. This is 

not just a one-time event here today to gather some information, 

but now to step up and see if we cannot stop this. Homeownership 

is really important. Subprime lending is a critical component for 

making people have an advantage of getting into the business of 

owning their own home. And I want to make sure it is going to 

work right and they can stay in that home for as long as they possibly can. 

So we will be back at this, and I am very grateful to all of you 

for your testimony today. 

The Committee stands adjourned. Thank you all. 

[Whereupon, at 12:31 p.m., the hearing was adjourned.] 

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Insert offset folio 194 here 50309A.070
118 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 195 here 50309A.071
119 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 196 here 50309A.072
120 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 197 here 50309A.073
121 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 198 here 50309A.074
122 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 199 here 50309A.075
123 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 200 here 50309A.076
124 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 201 here 50309A.077
125 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 202 here 50309A.078
126 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 203 here 50309A.079
127 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 204 here 50309A.080
128 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 205 here 50309A.081
129 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 206 here 50309A.082
130 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 207 here 50309A.083
131 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 208 here 50309A.084
132 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 209 here 50309A.085
133 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 210 here 50309A.086
134 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 211 here 50309A.087
135 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 212 here 50309A.088
136 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 213 here 50309A.089
137 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 214 here 50309A.090
138 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 215 here 50309A.091
139 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 216 here 50309A.092
140 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 217 here 50309A.093
141 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 218 here 50309A.094
142 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 219 here 50309A.095
143 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 220 here 50309A.096
144 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 221 here 50309A.097
145 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 222 here 50309A.098
146 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 223 here 50309A.099
147 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 224 here 50309A.100
148 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 225 here 50309A.101
149 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 226 here 50309A.102
150 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 227 here 50309A.103
151 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 228 here 50309A.104
152 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 229 here 50309A.105
153 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 230 here 50309A.106
154 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 231 here 50309A.107
155 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 232 here 50309A.108
156 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 233 here 50309A.109
157 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 234 here 50309A.110
158 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 235 here 50309A.111
159 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 236 here 50309A.112
160 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 237 here 50309A.113
161 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 238 here 50309A.114
162 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 239 here 50309A.115
163 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 240 here 50309A.116
164 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 241 here 50309A.117
165 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 242 here 50309A.118
166 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 243 here 50309A.119
167 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 244 here 50309A.120
168 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 245 here 50309A.121
169 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 246 here 50309A.122
170 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 247 here 50309A.123
171 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 248 here 50309A.124
172 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 249 here 50309A.125
173 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 250 here 50309A.126
174 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 251 here 50309A.127
175 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 252 here 50309A.128
176 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 253 here 50309A.129
177 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 254 here 50309A.130
178 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 255 here 50309A.131
179 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 256 here 50309A.132
180 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 257 here 50309A.133
181 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 258 here 50309A.134
182 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 259 here 50309A.135
183 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 260 here 50309A.136
184 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 261 here 50309A.137
185 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 262 here 50309A.138
186 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 263 here 50309A.139
187 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 264 here 50309A.140
188 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 265 here 50309A.141
189 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 266 here 50309A.142
190 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 267 here 50309A.143
191 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 268 here 50309A.144
192 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 269 here 50309A.145
193 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 270 here 50309A.146
194 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 271 here 50309A.147
195 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 272 here 50309A.148
196 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 273 here 50309A.149
197 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 274 here 50309A.150
198 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 275 here 50309A.151
199 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 276 here 50309A.152
200 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 277 here 50309A.153
201 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 278 here 50309A.154
202 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 279 here 50309A.155
203 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 280 here 50309A.156
204 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 281 here 50309A.157
205 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 282 here 50309A.158
206 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 283 here 50309A.159
207 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 284 here 50309A.160
208 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 285 here 50309A.161
209 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 286 here 50309A.162
210 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 287 here 50309A.163
211 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 288 here 50309A.164
212 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 289 here 50309A.165
213 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 290 here 50309A.166
214 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 291 here 50309A.167
215 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 292 here 50309A.168
216 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 293 here 50309A.169
217 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 294 here 50309A.170
218 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 295 here 50309A.171
219 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 296 here 50309A.219
220 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 297 here 50309A.173
221 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 298 here 50309A.174
222 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 299 here 50309A.175
223 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 300 here 50309A.176
224 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 301 here 50309A.177
225 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 302 here 50309A.178
226 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 303 here 50309A.179
227 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 304 here 50309A.180
228 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 305 here 50309A.181
229 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 306 here 50309A.182
230 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 307 here 50309A.183
231 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 308 here 50309A.184
232 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 309 here 50309A.185
233 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 310 here 50309A.186
234 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 311 here 50309A.187
235 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 312 here 50309A.188
236 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 313 here 50309A.189
237 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 314 here 50309A.190
238 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 315 here 50309A.191
239 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 316 here 50309A.192
240 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 317 here 50309A.193
241 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 318 here 50309A.194
242 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 319 here 50309A.195
243 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 320 here 50309A.196
244 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 321 here 50309A.197
245 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 322 here 50309A.198
246 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 323 here 50309A.199
247 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 324 here 50309A.200
248 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 325 here 50309A.201
249 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 326 here 50309A.202
250 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 327 here 50309A.203
251 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 328 here 50309A.204
252 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 329 here 50309A.205
253 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 330 here 50309A.206
254 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 331 here 50309A.207
255 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 332 here 50309A.208
256 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 333 here 50309A.209
257 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 334 here 50309A.210
258 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 335 here 50309A.211
259 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 336 here 50309A.212
260 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 337 here 50309A.213
261 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 338 here 50309A.214
262 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 339 here 50309A.215
263 

wwoods2 on DSK1DXX6B1PROD with HEARING


Insert offset folio 340 here 50309A.216