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50–395 2010

S. HRG. 110–975 

RESTORING THE AMERICAN DREAM: SOLUTIONS 

TO PREDATORY LENDING AND THE 

FORECLOSURE CRISIS 

FIELD HEARING 

BEFORE THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

ON 

SOLUTIONS TO PREDATORY LENDING AND THE FORECLOSURE CRISIS 

MONDAY, APRIL 7, 2008 

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 

ELIZABETH DOLE, North Carolina 

MEL MARTINEZ, Florida 

BOB CORKER, Tennessee 

SHAWN MAHER, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director and Counsel 

JONATHAN MILLER, Professional Staff 

NATHAN STEINWALD, Legislative Assistant 

BRYN MCDONOUGH, Legislative Assistant 

DAWN RATLIFF, Chief Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 


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C O N T E N T S 

MONDAY, APRIL 7, 2008 

Page 

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

Opening statements, comments, or prepared statements of: 

Senator Casey ................................................................................................... 4 

WITNESSES 

Michael Nutter, Mayor of Philadelphia, Pennsylvania ........................................ 7 

Prepared statement .......................................................................................... 25 

Brian A. Hudson, Sr., Executive Director of Pennsylvania Housing Agency ..... 9 

Prepared statement .......................................................................................... 27 

Ira Goldstein, Ph.D., Director, Policy and Information Services, The Reinvestment Fund ............................................................................................................ 13 

Prepared statement .......................................................................................... 41 

Yajaira Cruz Rivera, Philadelphia, Pennsylvania ................................................ 16 

Prepared statement .......................................................................................... 57 

Christina Anderson-Jones, Philadelphia, Pennsylvania 

Prepared statement .......................................................................................... 61 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Letter submitted to Senator Casey from the Greater Philadelphia Urban 

Affairs Coalition ................................................................................................... 63 


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RESTORING THE AMERICAN DREAM: SOLUTIONS TO PREDATORY LENDING AND THE 

FORECLOSURE CRISIS 

MONDAY, APRIL 7, 2008 

U.S. SENATE, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Philadelphia, PA. 

The Committee met at 10:17 a.m., in Ceremonial Courtroom, 601 

Market Street, Hon. Christopher Dodd (Chairman of the Committee) presiding. 

OPENING STATEMENT OF CHAIRMAN CHRISTOPHER J. DODD 

Chairman DODD. This hearing will come to order. Let me tell you 

what a pleasure it is to be in Philadelphia. 

I want to thank Senator Bob Casey. He’s the first member of the 

banking committee to encourage a hearing on this issue. As a new 

member of this Senate and as a new Member of this Committee, 

it’s a wonderful invitation to receive, and I am pleased that he 

asked me to do this. We need to do this more often, quite candidly. 

I don’t think we could miss this opportunity and listen to the people in our major areas around the country and listening to people 

go through their ideas that they bring to these debates and discussions. So I’m very grateful of my colleague and for his suggestion 

of being here this morning. 

This Committee is holding a hearing entitled ‘‘Restoring the 

American Dream: Solutions to Predatory Lending and the Foreclosure Crisis.’’ This is the latest in a number of hearings held by 

our committee starting in February of 2007 to address the issue of 

predatory lending and the foreclosure crisis that it has intended. 

The committee is holding this hearing at the request, as I said, of 

Senator Bob Casey. Senator Casey has been a focused and effective 

leader on the committee and dealing with the issue of predatory 

lending and the foreclosure prevention. He has been an active participant in every hearing we’ve held on the subject matter. He’s 

asked very good and tough questions of regulators in the industry 

and consumer groups that have come before us. As a result, he has 

developed a deep and thorough understanding of the issue that 

brings us together this morning. 

Senator Casey, along with a number of our colleagues, introduced 

the first antipredatory lending deal in his Congress. I commend 

him for it. 


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I incorporated much of the legislation that Bob Casey has suggested when I introduced our own bill that Senator Casey quickly 

corresponded to. I am grateful to him for that. 

As part of his commitment, he has asked me to convene a hearing this morning in the city of Philadelphia. It could not be more 

timely to have this kind of a gathering. We are deeply involved, as 

many of you know, on the floor of the U.S. Senate with a housing 

proposal. 

Last week, and again this week, the Senate is considering the 

Foreclosure Prevention Act of 2008. It’s a bipartisan package that 

was put together with the assistance of Senator Casey. He’s been 

a very strong component of additional funds for foreclosure prevention counseling, as I have been. 

This legislation falls short of a small key title. I’m glad we are able to get started on this. The bill includes $100 million in counseling funds. That is very important. The bill includes an expansion and modernization of the Federal Housing Administration Program which will create a real alternative to the abusive subprime 

lending that so many working families have turned to in the past 

over the years that have greatly contributed to the crisis that we’re 

in today. The legislation both includes $1.6 billion for increased mortgage 

revenue by the authority for our states. The bill does not do enough 

to help the millions of Americans who are facing foreclosure every 

single day. It families here in Philadelphia. That has increased 

over 17 percent in just 1 year. 

Very broadly speaking, we have three challenges in this area 

that we need to address. 

First, we need to address the kind of abusive lending that lead 

to this terrible problem in our country. In other words, we need to 

stop predatory lending. The Federal Reserve Board, after much 

prodding by this committee, has proposed a new regulation—not as 

strong as I would like, but they seem to be moving. Senator Casey 

and I have also introduced legislation not indicated. Although, this 

is not our most pressing problem today. In fact, very little 

subprime is available today. 

Second, and more immediately, we need to help communities and 

community leaders, like Mayor Nutter, deal with the outcome of 

the foreclosure crisis. Included in our legislation on the floor of the 

U.S. Senate is $4 billion in emergency community development 

block land funding which will go to state and local governments to 

acquire and resell foreclosed and abandoned homes. That is important because we don’t need more supply on the market. 

We have an over-supply, quite candidly. Every time you leave 

abandoned properties out there, you are increasing that supply, not 

to mention what it does to your police and fire and social services 

all are compromised every time a lender with a foreclosed property 

goes on the books. 

Not to mention the adjoining properties which also suffer. The 

people tell me, ‘‘It’s not my fault. Why are you helping out that individual with the foreclosed property?’’ If you’re a neighbor living 

on that block and you have a neighbor that has a foreclosed property, the value of your home has just gone down by at least 1 percent on the very day that foreclosure goes forward. Not to mention 


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crime rates going up and continuing problems in that neighborhood. 

There is a contamination that occurs when this happens. It goes 

beyond the most impacted family, and that is the one losing their 

home. Frankly, that’s not enough and that comes up short. 

Third and most importantly, we need to help people tolerate the 

interest of foreclosure to keep their homes. It’s all well and good 

to provide funds to help pick up the pieces after the catastrophe, 

but we need to do more in the area of prevention, so we have less 

of a need for clean up after the fact. 

To that end, I have been working intensively with my colleagues, 

including Senator Bob Casey on what we call Hope For Homeowners Act of 2008. I am very pleased to state that there is a new 

fund at the Federal Housing Administration to ensure new, affordable mortgages for distressed homeowners. These FHA mortgages 

would refinance the old troubled loans at significant discounts. The 

new loans would be no larger than the borrowers could afford to 

pay and no more than 90 percent of the current value of their 

homes. 

This form is similar to the one laid out by the Federal Reserve 

Chairman Bernanke in his speech several weeks ago. He noted 

that creating a new equity for underwater borrowers may be a 

more effective way to prevent foreclosures. Lenders and investors 

will have to take a serious so-called haircut to participate in this 

program. 

In return, they receive more than what they would recover in 

foreclosure. Borrowers get to keep their homes but they must share 

the newly paid equity from the FHA program to help offset possible 

losses. Only owner occupants would be eligible for this new program, and only those who clearly cannot afford their current mortgages. There will be no speculators in this program. 

In addition to helping homeowners and the communities in 

which they live, this program would help stabilize capital markets, 

put a floor under the housing prices, and get capital flowing once 

again in this critical area. Later will have another hearing the following week as well. Then we will work to bring legislation to a 

vote, both in the community and on the floor in the U.S. Senate. 

Representative Barney Frank of Massachusetts and Chair of the 

Financial Services Committee in the House of Representatives is 

having a similar legislation in the House of Representatives. I understand that some people oppose this kind of a program on the 

grounds that we should not reward people who acted irresponsibly. 

As we will hear today, as we’ve seen from numerous other hearings 

that we have held in Washington, many victims of predatory lending were trying to act responsibly. They were led badly astray by 

unscrupulous mortgage brokers and lenders. 

In fact, The Wall Street Journal did a study which concluded 

that 61 percent of the subprime borrowers it reviewed had high 

enough credit scores to qualify for prime loans at the time they 

were talking to subprime mortgages. We know that these brokers 

portrayed themselves as trusted advisors for the unsuspecting borrowers while steering these borrowers into higher cost loans in exchange for higher commissions. 


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Lenders and brokers gave these borrowers—many on fixed incomes—mortgages with exploding interest rate payments that they 

knew these borrowers could never ever afford at the fully indexed 

cost. These are the homeowners that we are seeking to help, and 

why we’re here today in Philadelphia. We seek to help them because it’s the right thing to do. It never should have happened in 

the first place. 

In the words of Franklin Roosevelt, ‘‘When your neighbor’s house 

is burning, you don’t charge him for the use of your garden hose.’’ 

You simply lend it to him so that he can take that hose and contain 

the fire spreading throughout the neighborhood. 

We are not acting for their sakes alone. Today, hundreds and 

thousands of our neighbors’ homes are figuratively burning in 

many ways. And like any fire, the damage threatens to spread. 

Every home that goes into foreclosure lowers the value of the other 

homes on the block by at least $2,000 immediately. It produces 

property tax collections, as I mentioned, which level and always 

leaves students in public schools struggling to meet their needs. 

Fire, police, and all these other services are also adversely affected. 

We owe it to ourselves and our community, as well as our homeowners. 

We must act to put this fire out, if we can, and get our country 

heading in the right direction in this critical area. That is what I 

hope to do in the coming weeks and while we are here in Philadelphia this morning to listen to some good, solid advice from people 

at the local level, and how Bob Casey and I can do a better job of 

bringing closure to this problem and moving it positively and aggressively to address the underlying issues that we face. 

With that, I again thank Senator Casey for the invitation to be 

here this morning. It is the very first hearing I’ve held as a chairman of this committee outside of Washington D.C. and in the city 

of Philadelphia. So I thank Bob Casey and all of you for being here 

this morning. 

STATEMENT OF SENATOR ROBERT P. CASEY 

Senator CASEY. Chairman Dodd, I want to thank you for your 

presence here and for bringing us together on such a critical issue 

for the country and for, of course, our economy, but especially for 

our families. I think the fact that we’re here in Philadelphia and 

outside of Washington is indicative to the kind of leadership that 

Senator Dodd has demonstrated as Chairman of the Banking, 

Housing, and Urban Affairs Committee. That is a title that should 

remind all of us that the title speaks to the broad agenda of that 

committee. It’s not just about banking. It’s about housing and 

urban affairs. Certainly here in Philadelphia, we understand and 

appreciate that. 

This is not the first time that Senator Dodd has shown great 

leadership on a critical issue. Whether it’s examining a complex on 

financial issues or whether it’s in our housing market and what our 

families are struggling through or whether it’s holding regulators 

accountable. 

Time and again, he has shown the kind of leadership on this 

committee and we greatly appreciate it. It’s not his first visit to the 

city of Philadelphia. He’s been here a number of times over the 


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years, but we’re especially grateful that he’s here today in this capacity as chairman of this committee, but also as someone who has 

been, whether he’s Chairman or not, would be deeply involved in 

and concerned about what has happened to the families in Pennsylvania and his home state of Connecticut and of course, other states 

across the country. 

What we are talking about here is something very basic. We are 

talking about the ultimate betrayal of families by people with 

power and money and influence. Instead of entering into a transaction that their family can afford, too often unscrupulous, unregulated players in the market have led families down a path of ruin 

financially. 

We are going to talk a good bit today about what has happened. 

We are also going to talk about a solution on how to help families 

and how to keep people in their homes and about extension, protecting and strengthening and nurturing the neighborhoods. If we 

do that, not only will the families and neighborhoods be better off, 

our economy will be that much stronger. 

My principal obligation here is to make sure that we introduce 

our witnesses and to hear from them and then we do some questioning. We will also admit a statement for the record of this hearing. I think it’s important to point out before I make introduction, 

that this isn’t just about individual families in one particular 

neighborhood or another. This is about the ripple effect that Senator Dodd mentioned and what this has caused for our entire economy and even the world economy. 

In the world economy, our credit markets are suffering in large 

measure because of what has happened in our housing market. So 

if there are people out there who think that this doesn’t affect me 

and my mortgage, this doesn’t affect my family, this doesn’t directly affect my neighborhood, you’re wrong. It does. One of the 

reasons why our economy is moving in the wrong direction is because of the ripple effect which has been caused by the housing 

market. 

Let me get to our witnesses. First of all, I want to do a quick 

summary of each of our witnesses before they testify and mention 

their background. No one in here needs a biographic sketch of 

Mayor Michael Nutter. It’s critical that we remind ourselves not 

just where he is now as mayor, but where he came from. He 

worked as a member of the City Council for so many years here 

in the city, standing up for the workers, standing up for the neighborhoods. 

Being an effective legislator and a community activist has allowed him to come into the office of mayor with a broad and deep 

understanding of the city. He has already demonstrated in the time 

that he has been mayor, how much he cares about this city and 

fights for the people of this city. He’s been on the phone with me 

a number of times and has visited us in Washington. I know he 

does the same for the legislators and Governor in Harrisburg in 

making sure that we are aware of the challenges the City faces. 

I can’t tell you how much I appreciate the way he has worked 

with us on housing, on issues that pertain to the challenges that 

people in Philadelphia face. 


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Mayor, we are grateful to have you here as a witness, but especially for the work you’ve done already in this city and we’re looking forward to hearing your testimony. 

I just want to briefly introduce our other witnesses before we 

hear from the mayor: Brian Hudson from the Pennsylvania Housing Finance Agency, both Executive Director and CEO. I hope I got 

those titles right. I have known Brian for a long time. When I was 

in the State Treasury, he was a member of that board. He pretty 

much ran every meeting. To say that he’s an expert in housing finance, not just across the state, but he’s recognized across the 

country. To say that would be an understatement. 

He’s been a tremendous advocate for the state of Pennsylvania. 

Especially for the people most affected by housing and how we finance housing. He has also learned over the years to work with 

lenders and other players in the market to make sure that the 

state and Federal Government work together with our lenders, realtors, families, all of the players in the market, so to speak, to provide safe, decent, affordable housing. So we’re grateful for Brian’s 

presence here today. 

Dr. Ira Goldstein, Director of Policy and Information Services for 

the Reinvestment Fund. 

Doctor, we appreciate your presence here and your scholarships 

over many years in this arena. We know that the Reinvestment 

Fund is a community development organization. It focuses on 

tiered housing and equal opportunity. I know that Dr. Goldstein 

will tell us today about the work done on the study called ‘‘Loss 

Values: A Study of Predatory Lending in Philadelphia.’’ We can 

learn a lot today, not just about what’s happened here in Philadelphia through that study, an explanation of some of the challenges 

here in the city, but what’s happening here is happening across the 

country. What we learn in Philly we can apply to other places 

across the country. We are grateful, Doctor, for your presence here 

today. 

Finally, we have someone who has taken the time to bear witness to the difficult challenges that families face, an actual homeowner. She is going to give us testimony about her own situation. 

Yajaira Cruz Rivera is here with us today. 

Yajaira, we appreciate your presence here today and your courage to come forward. It would be easier to keep these things to 

yourself and to think only about your difficulties that you encountered. You’re here as a witness, and by your presence and by your 

testimony, you are going help other homeowners. You certainly 

help us better understand the challenges that family homeowners 

face. 

When you look across the landscape, whether it’s homeowners or 

whether it’s particular mortgages from lenders, we want to make 

sure that those mortgages that were the subject of any kind of 

predatory, dishonest marketing tactics, we highlight that and we 

learn from that. So we’re grateful for the presence of our witnesses. 

I just want to commend a couple of organizations that helped 

bring this hearing together today. ACORN, of course. They are 

known all over the nation, all over the world. The signs in the back 

indicate that. We see a lot of red and white across the city and 

across the country. We are grateful for ACORN’s work, the PhilaVerDate Nov 24 2008 00:34 Mar 17, 2010 Jkt 050395 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 E:\HR\OC\A395.XXX A395

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delphia Unemployment Project who helped us through community 

legal services, the Philadelphia Foreclosure Crisis Committee, and 

finally, The Philadelphia Legal Assistance. That organization, as 

well as the others, we’re grateful for the work that has been done. 

I have to turn the microphone back to our chairman. I did notice 

in the second row here, Counsel Marian Casco, who I have known 

for many years. Marian Casco is a member of City Council and 

sounded the alarm on predatory lending a long time ago. It was 

back many years ago when I was in state government, when I 

started in state government a decade ago. We are grateful for her 

advocacy and her presence here today. 

Mr. Chairman, I turn the microphone back over to you. 

Chairman DODD. Thank you very much, Senator. 

Mayor, again, we are honored that you are here this morning. I 

was looking at some of the numbers in Philadelphia over the past 

several weeks with Senator Casey. Sometimes these numbers can 

just glaze over the eyes. Sometimes the numbers, the volume of 

them, are beyond understanding. We are talking about millions of 

people, two-and-a-half, three million people going into foreclosure. 

Think of it in these terms, every single day 7,000 to 8,000 people 

enter into foreclosure. That’s every single day. So today before the 

day ends another 7,000 or 8,000 of our fellow citizens will find 

themselves being drawn into the vortex of losing the most important asset outside their families that they have in the world. 

Every single day that we delay, until we do anything about trying to stop this from happening, more and more people are adversely affected and the ripple effect that Senator Casey pointed 

out is affected. In my little state of Connecticut, Bridgeport, Connecticut, there are 6,000 foreclosures in a city of 100,000 people. 

What that will mean in the city of Bridgeport with that many properties being vacant, not being sold, boarded up, destroyed in many 

ways and so severely affected that they will never get back on their 

feet again. If you think about it today and tomorrow as Bob Casey 

and I can finally convince our colleagues and others to do the next 

step and that is to stop this from happening, in addition to trying 

to help those who fall into that situation, before the day ends another 7,000 to 8,000 people in America will be suffering from a loss 

of that cause. And it will happen again tomorrow and the next day 

and the day after. You can fill a stadium in less than a week with 

the number of Americans who will be drawn into this, and they 

will never recover from it, given the adverse effects by it. These are 

real people every day whose lives may be permanently disrupted 

because we failed to act and step in and stop this from going on. 

STATEMENT OF MICHAEL NUTTER, MAYOR, PHILADELPHIA, 

PENNSYLVANIA 

Mayor NUTTER. Good morning, Chairman Dodd and Senator 

Casey. My name is Michael Nutter, the Mayor of the city of Philadelphia. Before going into my prepared remarks, I have to say, 

Senator Dodd, thank you so very much for bringing this committee 

to Philadelphia. I recognized, as you pointed out, the significance 

and the importance of bringing a committee out of Washington to 

hear from the public. And so it is a great honor to have you here 


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in our city and certainly a personal honor for myself. I have never 

testified to a U.S. Senate committee. 

More importantly, the citizens of Philadelphia, Pennsylvania, 

and I think the United States of America will benefit as a result 

of this kind of hearing, certainly on a personal level. Please always 

feel free to come back. The great work of this committee and your 

personal presence means a tremendous amount to thousands 

throughout Philadelphia, and I thank you very much. Your depth 

and understanding, your articulation in your opening remarks on 

the issue clearly displays a welcomed knowledge that I am sure 

will be quite convincing to many of your colleagues back in Washington. 

Senator Casey, I thank you again. We have had numerous opportunities, as you pointed out, to work on a variety of issues and your 

leadership in talking to the Chair and having this committee working with my staff, to make sure that we were in proper order was 

very, very helpful, and I do appreciate it. 

It is an honor to be on this panel with those who are really experts in the field. I get to as mayor talk about a great deal of 

things and work with those who know about these issues firsthand. 

We have a great panel here this morning. Let me read into the 

record my remarks, but I did want to share some personal feelings. 

I applaud this Senate committee on Banking, Housing and 

Urban Affairs and Chairman Dodd for holding this hearing to address the mortgage foreclosure issue. I thank both Senators Dodd 

and Casey for their leadership in this area, the current problem in 

Philadelphia. 

In 2007, there were 6,200 foreclosure filings in Philadelphia. This 

was an increase of 18 percent over 2006. The city’s foreclosure rate 

is currently in the 17-to-18 percent range. The amount of foreclosures varies significantly across neighborhoods. However, with 

some neighborhoods such as West Oak Lane, East Mt. Airy, Southwest Philadelphia experiencing significant higher rates. Approximately 400 Sheriff’s Sales are scheduled each month in our city. 

This crisis is already hurting the city of Philadelphia by disturbing 

our economy and by depressing real estate prices. It is also affecting city tax revenues. 

The city of Philadelphia is committed to dealing with this crisis. 

I will be proposing putting additional funds into our fiscal year ’09 

budget to provide relief to homeowners facing foreclosure. 

As Senator Casey has pointed out, I’ll be working with Counsel 

Marian Casco, and you are absolutely right, Councilwoman, while 

I was still on City Council, it was by far the leading advocate on 

this issue, sounded the alarm much earlier than virtually anyone 

has recognized. 

We plan to use the funds in the following ways: Outreach, 

through an expanded foreclosure hotline, additional counseling 

services to help homeowners negotiate payment plans and work out 

predatory loans, and expanded support for legal services to help 

homeowners negotiate better mortgage terms and respond to sheriff sale lawsuits. 

In addition, the City is committed to developing refinancing tools 

and products such as the state’s HERO, Homeowner’s Equity ReVerDate Nov 24 2008 00:34 Mar 17, 2010 Jkt 050395 PO 00000 Frm 00012 Fmt 6633 Sfmt 6602 E:\HR\OC\A395.XXX A395

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covery Opportunity loan programs, which targets families with bad 

credit who cannot refinance at an affordable interest rate. Philadelphia has committed $1 million to the program, which will leverage 

$10 million in PHFA resources and $5 million from PNC Bank. We 

are also considering expanding the moratorium on Sheriff Sales 

just instituted by the Sheriff. 

As you can see, the City is stepping up to the plate to address 

this crisis. The Commonwealth of Pennsylvania, under the leadership of Governor Rendell and PHFA Director Brian Hudson, has 

also done a great job of providing additional resources. However, 

we need the Federal Government to do its part. 

Additional funding is needed to enable cities to maintain the purchased abandoned properties, to support housing counseling and 

legal assistance, and to provide bankruptcy relief to our citizens by 

allowing judges to modify mortgages. 

I am pleased to work with you on this important issue. We stand 

ready to help address this critical crisis, and I thank the Members 

of this Committee for the incredible opportunity to publicly speak 

on one of the most damaging crises that this city, this state, and 

this nation has faced in decades. Thank you very much. 

Chairman DODD. Thank you very much, Mayor. Any other documentation, by the way, that you have and you would like to put 

in as part of this record, we would like to include that as well. 

I am going to go on to a couple of questions. How do you see this 

matter developing since what you suggested to me is not confined 

in one area. Maybe more so in some than others, but nevertheless, 

it’s sweeping across the city. 

Mayor NUTTER. Chairman, you’re absolutely correct. We will provide additional backup materials to the committee. 

Chairman DODD. Mr. Hudson, you had quite an introduction 

from the Senator here. We expect you to come up with all the answers now, of course. 

STATEMENT OF BRIAN A. HUDSON, SENIOR, EXECUTIVE 

DIRECTOR, PENNSYLVANIA HOUSING FINANCE AGENCY 

Mr. HUDSON. Thank you, Mr. Chairman, it’s a pleasure being 

here. 

Senator Casey, it’s good seeing you again. I do applaud your efforts for affordable housing. Thank you for holding this hearing 

here in Philadelphia. 

I’m Brian Hudson, Executive Director and Chief Executive Officer for the Pennsylvania Housing Finance Agency. I have as part 

of my written testimony more details in the program that I want 

to touch on briefly. 

I want to go back 25 years when the Commonwealth created a 

program known as Homeowners’ Emergency Mortgage Assistance 

Program, HEMAP. HEMAP is entirely funded by the state legislature. It saved over 40,000 homes from foreclosure. The average 

HEMAP loan is $10,000, the average income of the borrower, and 

the average loan is around $38,000. HEMAP is not designed to deal 

with this type of crisis. 

In 2007, in October or November, we launched two products. We 

thought that two were needed. REAL, Refinance to an Affordable 

Loan, and HERO, as the Mayor just mentioned, Homeowners’ EqVerDate Nov 24 2008 00:34 Mar 17, 2010 Jkt 050395 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 E:\HR\OC\A395.XXX A395

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uity Recovery Opportunity. The REAL refinance project deals with 

those homeowners who are just beginning to slip in their adjustable rate mortgage and are one and no more than 2 months behind. 

They can go up to a $120,000 income and 100 percent market value 

for that property. It has to be the primary resident. That’s for a 

fast track. We originate that in product with about 70 or 80 lenders 

throughout the Commonwealth. 

The more difficult product is HERO, the Homeowners’ Equity Recovery Opportunity. This is to help those homeowners who are 

truly upside down in their mortgage and they owe the lender more 

than the property is valued. We do this program in-house at the 

Pennsylvania Housing Finance Agency. We work on behalf of the 

homeowner, negotiating with lenders to take a write-down and to 

assign that property to them. 

As the Mayor mentioned, we did work with the city of Philadel- phia. PHFA has committed $10 million to both of these programs 

so far. We know that we have over 200,000 subprime mortgages in 

the state of Pennsylvania. Of those 200,000, there are about 16 percent delinquent. Another subsection of that 200,000 are 77,000 adjustable mortgages, or ARMS. 

They are approximately 22.5 percent delinquent. We have been 

trying to get at those individuals and help them. 

In 2003, we did a foreclosure study along with the Department 

of Banking. We developed a program to deal with foreclosure, 

which included an intensive counseling network. We have over 100 

counseling agencies in this network now. In an effort to define for 

the council, we think that a key component is to provide education 

to the homeowner to understand what they’re doing. 

We think that education for the homeowners is the key. We applaud your efforts to provide resources to Pennsylvanians, to continue to provide education for the homeowners that are involved. 

You’ve heard testimony from the homeowners where the credit 

scores are not the sole determining factor. We are in the situation 

prior to getting in the default situation. We want to make sure that 

we help the homeowner become part of that. We expect to help 

about 1,500 homeowners over the next 6 months through our 

REAL and our HERO programs. 

Again, we are servicing these loans here in Pennsylvania and not 

in another state. We have the ability to modify loans. Our stony 

block is dealing with the servicers who are worried about taking on 

the liability from the investors. You have to get them to the table 

and be willing to take that write-down. We are negotiating on behalf of the homeowner. That is the primary issue. The servicers are 

reluctant or unable to agree to take a write-down. An example I 

use is a woman we helped. She owed $126,000. The property is 

worth $60,000. We negotiated on her behalf and got her into a loan 

for about $45,000. Again, using that extensive counseling effort and 

education which is a mandatory requirement for the program, we 

are hoping to stand up for these efforts. Currently, we are financing our efforts through the sale of taxable bonds. I applaud the efforts of your committee, Mr. Chairman, and also Chairman Barney 

Franks’s committee to use tax exempt financing. It could reduce 

our mortgage rate by almost a full percentage by using the tax exempt findings. Again, I thank you for the opportunity, and I apVerDate Nov 24 2008 00:34 Mar 17, 2010 Jkt 050395 PO 00000 Frm 00014 Fmt 6633 Sfmt 6602 E:\HR\OC\A395.XXX A395

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plaud your efforts and I am here to support the efforts in helping 

this crisis. 

Chairman DODD. Thank you. You are very knowledgeable. Obviously, some of the things you are proving are successful here. We 

need to convince our colleagues on a national level. It’s worked well 

here in Pennsylvania, these efforts to keep people in their homes. 

There’s no reason why we can’t be clear enough to come up with 

our ideas on a national level. 

I just have to quickly point out, when you talked about the special liability of those who purchased these mortgages—in a sense, 

I feel it’s almost—feel it’s a greater potential liability if you don’t 

do something about it. 

If I’m sitting here purchasing one of these items, and it’s less 

than what you told me it’s going to be worth, I’d rather you get 

something for it than nothing for it. I’m more likely to sue you if 

I get zero. I’m not happy about the fact that I’m looking at less 

than you told me I was going to get, but I’d rather get something 

in return for your efforts. So I applaud the efforts you made. 

Mayor, I know you have to run on this. I know you have a busy 

schedule. 

Senator Casey, do you have any questions for the Mayor? 

Senator CASEY. Mayor, before you go, I want to thank you for the 

time spent on this. 

Mayor NUTTER. My pleasure. 

Senator CASEY. I wanted to get a sense from you of the dimensions of this in the city and how we can be most helpful. I know 

you touched on it, but before you go, can you touch on it? 

Mayor NUTTER. Thank you. And thank you for the opportunity. 

As you know, we’re not shy here in Philadelphia. I’ll go back to one 

of the items that Brian Hudson touched on and I did briefly in my 

testimony. The housing counseling services, we believe, have 

proved by far to be most helpful. Our ability to get out as early as 

possible to meet with these homeowners and get this situation 

under control, I believe, is one of the most critical elements that 

we can provide, having that counseling service spread out in a citywide fashion. 

There is a creeping phenomenon to this, as Chairman Dodd 

talked about, of the impact of the foreclosed homes on the one 

block. It’s obviously starting to depress our property values and 

starting to impact our tax revenues as well. We cannot over emphasize the need for housing counseling services. I believe we have 

the framework and some of the structure in place to make it happen. We also need more assistance, certainly from the legal community to the extent that we can encourage more of our law firms to 

lend us lawyers. 

There is a capacity issue here that we are increasingly concerned 

about. As the Senator said, we know the demand side. There are 

a lot of people who need services. We are increasingly concerned 

about our ability to respond both on the counseling side and the 

lawyers available. So help and support on just those two specific 

areas would just be tremendous in terms of responding to this 

problem in Philadelphia. 

As Brian said, last, Philadelphia may seem to some to be possibly 

not in as bad shape as other cities, but there is increasingly 


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through the course of this year when those readjustments come, 

Philly is going to get hit. We are trying to get ahead of that wave 

before it runs us over. The kindness of this hearing and your articulation on the issues, it is really critical for us. The natural resources that expand our counseling programs is most important at 

the moment. 

Chairman DODD. I have two points, Mayor. One is, that counseling is critical. Let me just say for those who are gathering, I normally don’t recognize the audience but ACORN is a fabulous organization. I have hearings in my own state. I just had an informal 

gathering a week or so ago. And because it was a nonprofit organization, we are going to step in and inform people. I want to recognize the people involved and applaud you. Last year the Federal Government had $42 million total in nationwide counseling. As a result, Senator Bond from Missouri and 

I offered a bill and got $180 million for counseling services nationwide. I would have preferred 200 million but I had to compromise 

down to 100 million in the present bill we have before us. I was 

told by the organization that would be enough to help the county. 

So Bob and I will be trying to get that. Obviously, I was listening 

to the creative things that you have done here in the state of Pennsylvania to make a difference. 

I was in Reading last night and I was very impressed with the 

group of people that I met in Reading. I might be missing the numbers a little bit, but it is something like 60 homes off the roles and 

remortgaging. I think they had four failures out of 362, or something like that, in the city of Reading in an effort to restore, rehabilitate and get these properties back on the role, contributing to 

the community and obviously improving the conditions. 

Mayor, my question is, can you do this alone or do you need the 

help of the Federal Government? Does the Federal Government 

need to step up here or are you able to handle this on your own 

in Philadelphia or with the resources in the state? 

Mayor NUTTER. No and yes. We cannot do this alone. Yes, we 

need the Federal Government to step up. These are the kinds of 

issues and challenges that clearly require Federal intervention. 

There is no question about it, Mr. Chairman. I think our responsibility is to carry that message here in Philadelphia, through you, 

and back to Washington. 

I think it goes back to something you said at the start of your 

opening statement. Sometimes some of us get blinded by numbers. 

I like numbers as much as the next person, but when you talk 

about 6,000 or 7,000 people or families a day going into foreclosure 

somewhere here in the United States of America, I think we lose 

sight sometimes. These are real people, real lives, and real challenges right on the ground. This is the opportunity for the Federal 

Government, quite frankly, to help people better understand how 

relevant the Federal Government can be in the lives of regular citizens. It’s not some far-away place in Washington D.C. that somehow just sends money around all over the place. 

These are real challenges. The next step, unfortunately, for some 

of these homeowners today could be the streets of Philadelphia, or 

Reading, or Allentown, or some other city anywhere else in the 

United States of America. They will be on the streets. That’s what 


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we’re talking about here. So, yes, we need the Federal support. We 

cannot, as a city, cover this issue all by ourselves. It is impossible. 

Chairman DODD. We had a hearing last week and Bob and I listened to the circumstances around those 96 hours through March 

13th and March 16th in the Federal Government, including the 

Federal reserve, that stepped in to the potential for bankruptcy of 

a major investment bank, Bear Stearns. And it’s a major part of 

the merge that occurred between Bear Stearns and JP Morgan 

Chase. 

Looking at it, they might have some other alternatives. I argue 

that they probably did. Although, it’s a point that Bob and I are 

concerned about. The point is, $30 billion of your money is thrown 

in to back up that proposal. So you could end up not having the 

kind of bankruptcy that could have had a ripple effect on the economy. There is $30 billion on the line. I hope the assets of Bear 

Stearns is going to be worth more than that and we will come out 

of this OK. We won’t know that for a number of years. 

My point is, if we can put out as much as $30 billion of your 

money on this kind of a deal, can’t we get the same kind of commitment when it comes to 8,000 people every day losing their homes? 

Mayor NUTTER. Mr. Chairman, I would only suggest that there 

are probably a few Mr. Bears and possibly a few Mrs. Stearns here 

in Philadelphia who need the same kind of help. 

Chairman DODD. Mayor, you’re great. Thank you. 

Doctor, I’m happy you could be here today. 

STATEMENT OF IRA GOLDSTEIN, PH.D., DIRECTOR, POLICY 

AND INFORMATION SERVICES, THE REINVESTMENT FUND 

Mr. GOLDSTEIN. Thank you. Good morning, Senators. My name 

is Ira Goldstein, and I’m the Director of Policy and Information 

Services for the Reinvestment Fund. I am honored to come before 

you today and talk about the results of the research that we have 

done on predatory lending in Philadelphia and the mortgage foreclosure issues. 

The organization of which I am part, TRF, is a national leader 

in the financing of neighborhood revitalization. We have been 

around since 1985 and invested $700 million in the creation and 

preservation of affordable housing, community facilities, commercial real estate, and renewable energy. There are various aspects 

of the housing market. 

Our work in the areas of mortgage lending, foreclosure and predatory lending has been supported by grants from foundations as 

well as governmental entities. The research we do has both a 

strong, objective data-based component, as well as a systematic 

qualitative component. 

Today, I was asked to provide some background on this study 

‘‘Lost Values’’ that we completed a while back. I will do that, and 

I will also try to bring you up to date on the numbers in Philadelphia. 

Just to draw your attention to that map over there, that is a map 

of the city of Philadelphia. It is the most recently available data 

that we have on mortgage foreclosures. They are displayed over the 

property values in the city of Philadelphia. You will see that those 


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foreclosures, each represented by over 6,000 dots on that map, represents the household that is at risk. 

Chairman DODD. I’m closer than most people here. Give me some 

indication of what you’re talking about on the map. I don’t see the 

dots and I have my glasses on. 

Mr. GOLDSTEIN. Sure. This is a map of the City. We are sitting 

right here to give the orientation. The more darkly shaded areas 

are the higher priced areas in Philadelphia. There are, when you 

get a chance to stand up and walk over, you will see there are well 

over 6,000 dots here representing the 6,000 foreclosures in Philadelphia. You will see that they are not singularly concentrated in 

the lowest priced areas. In fact, they are actually disproportionate 

in the more modest priced areas. 

Somebody mentioned the area of West Oak Lane, very highly 

concentrated areas like that. When you have a moment, I encourage you to take a look at it. 

The results that we are going to talk about today derive from a 

study of over 2,200 randomly selected properties in Philadelphia 

and 13,000 more in very specific neighborhoods in Philadelphia because of a set of characteristics that they had. We gathered information through very systematic interviews with people from all 

sectors of the mortgage lending process, from brokers to borrowers, 

to lenders, to servicers, to securities, to attorneys who represent 

borrowers, and lenders and Sheriffs, as well as law enforcement 

people at the Federal, state and/or levels. 

The quantitative data that we used, the hard numbers, allowed 

us to inspect and quantify the complete mortgage and sale transaction history for each selected property. That’s over 15,000 properties in Philadelphia. 

In the written testimony you will see a written sample. Based on 

a thorough review of the literature and our interviews, we systematically coded patterns of transactions that we thought were indicative of predatory lending. 

For example, we coded the presence of ‘‘rapid refinancing’’ which 

we defined as two or more subprime mortgages of increasing 

amounts within a 1-year period. 

We also coded for the presence of a mortgage that likely exceeded 

the value of the property. We also coded for the presence of a mortgage that represented a historic pattern. It really goes back to the 

early 1990s. That is, in Philadelphia and many other cities, particularly the more modest income people were using these small finance home equity kind of loans to meet their credit needs for 

home repair, medical bills, and so forth. They would get these 

$5,000, $6,000 loans. 

In 1993, that pattern changed dramatically to the point where 

instead of borrowing these $5,000 or $6,000 amounts, they were 

really driven more into these very expensive, much larger loans, 

subprime loans in main. So really, to get a full historic picture of 

how we ended up where we are right now, you don’t look at the 

last couple of years. You really have to go back to the early or mid1990s. 

Essentially, what we learn is that each of those measures is imperfect but several together would be more or less indicative of 

predatory lending. We found that if you were to take a randomly 


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selected property out of the city of Philadelphia, about 3 percent of 

those properties would have a pattern that was indicative of predatory lending. It doesn’t sound like much, although, I would say that 

if we had any kind of consumer products that went bad, 3 percent 

of the time we would be taking them off the market. 

If we looked at homes that had more than a couple mortgages 

placed against them, that 3 percent rises to 14. There are some 

neighborhoods, like the one I pointed out on the map, where more 

than 30 percent of the homes manifest patterns of predatory lending. Not every instance of predatory lending ends up in foreclosure 

and not every foreclosure is a result of predatory lending, as we 

know, but they do often go together. 

As the Mayor pointed out, our foreclosure numbers right now are 

about 6,200. They really dipped after that 2003 time period by the 

surge since 2005. The chart of that is included in my written testimony. We have increased over 18 percent over the last couple 

years. That was against another increase the year before. What we 

found is that the frequency to predatory lending was much greater 

again in the foreclosing properties than randomly selected. Roughly 

28 percent of the properties subject to foreclosure did manifest a 

pattern that suggested that predatory lending was in the background. 

With that, I would say that what we know about predatory lending, frankly, as you know, you’ve held more hearings than I even 

know about, there is no definition of what it is. Since we finished 

that, the landscape has changed quite a bit. What I would like to 

do is bring you up to date a little bit on some localized numbers 

since you’re out here in the field. 

In terms of subprime lending, the most recent available data only 

takes us up to 2006. That does show a dramatic rise in Philadelphia, from 2004 to 2006. In 2004, purchases were about 14.5 percent and in 2006 it was up to 32 percent. More importantly though, 

with that rise, there has been a real decrease in the FHA lending 

activity. I know the FHA isn’t really something that we don’t pay 

very much attention to. It’s very important. Here in the city of 

Philadelphia, in 2003, FHA loans comprised about 15 percent of the 

purchases. They are now down to just under 6 percent in 2006. I 

believed they continued to decline in 2007. What you see in many 

places, a drop in FHA was taken by the rise in subprime. 

We itemize the estimated aggregated value of real estate that 

has been mortgaged in any given year. In Philadelphia, that is 

about 13.5 percent. So if you say what is all the housing in Philadelphia worth, and how much was mortgaged in 2006, about 13.5 

percent. That, we believe, is a measure of risk. It’s an enhanced 

risk over that which we see in the Commonwealth of Pennsylvania 

which was about 9.5 percent. 

I would say that in terms of just the last year, what do we know 

about servicing? I would say that servicing suggests that one of the 

years that we didn’t pay a whole lot of attention to has been the 

run up of delinquencies in the subprime ARM area. It’s something 

that people are well aware of. It’s gathered a lot of attention, but 

the numbers that we suggest are much lower and are brought up 

in that delinquency rate, which is now quite significant. It’s three 

or four times more than what it was a few years ago. 


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What I would like to do is make a few final comments about 

some of the policy issues that have been asked over the last several 

months. 

First, we have housing counseling. It’s my first-hand observation 

that housing counselors try very hard to keep up with both the 

changes in the lending and servicing industries and the extraordinary growth in volume of demand for their services. 

One of the things that PHFA has done a very good job in, and 

I would really encourage the Federal Government to take a look at, 

is the ability to tie the increase of funding to some enhanced measures of outcomes of banks. It would be a darn shame to put that 

much money in counseling and not have it have any effect and 

have us learn better about what works and what doesn’t work. 

Last, it is important to remember when comparing Pennsylvania’s experience to other states, we do have HEMAP, which is a nationally recognized program. 

Each year, PHFA staff and counselors review thousands of applications from Pennsylvania at the brink of mortgage foreclosure. 

More than 1,500 people are assisted each year. Those homeowners 

who get assistance from PHFA never reach foreclosure. If they 

were, Pennsylvania’s numbers would be far worse. 

PHFA should be commended for some novel approaches to working with people who have adjustable rate mortgages that are becoming unafforded through its HERO and REAL programs. 

Finally, the Legislature is moving on several bills that will 

strengthen the regulatory environment and enhance consumer protection for homeowners in Pennsylvania. 

Thank you for inviting me to testify and I welcome your questions. 

Chairman DODD. Thank you. I am sure the Senator has many 

questions. Let’s first turn to our next witness, Mrs. Yajaira Cruz 

Rivera. First of all, as Senator Casey said, the gentlemen to your 

left obviously work at this every day. But now we get to actually 

hear from someone who is going through this. It takes a lot of courage, in my view, to stand up in a public setting and talk about personal circumstances. 

I want you to know that every person in this room and every person that’s watching this are deeply grateful to you because there 

are literally thousands of people who are living what you’re going 

through and whose names we will never know. They will be familiar with you. What you’re going through is what they are going 

through. 

You will give us an opportunity to understand this in a way it 

is hard to understand when we are just talking about numbers and 

blocks and neighborhoods and blocks and efforts and titles of programs. But there is someone named Yajaira Cruz Rivera who is 

going through a situation and is willing to share it. That means a 

great deal and I want you to know that. 

STATEMENT OF YAJAIRA CRUZ RIVERA, PHILADELPHIA, 

PENNSYLVANIA 

Ms. CRUZ RIVERA. Thank you for having me. Thank you to Chairman Dodd, Senator Casey and ACORN. Without the joint effort 


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from all of you plus myself and other Philadelphians that I represent, we wouldn’t be here today. 

My situation is the following: In 2005, my husband and I purchased our home. We budgeted carefully and we did our homework. 

We went to a reputable broker. Before we even set out, we knew 

what the amount was that we wanted to spend on a home. We 

didn’t want to go over our means. We have children and we are responsible people. We did a lot of budgeting for unforeseen things 

to occur, for example, a loss of a job, an illness, or a death. We 

mapped everything out even before we set out on this next endeavor in our lives together. 

After searching, we settled in a home. We sat down with the 

broker and we told him everything we did want and did not want. 

We did not want an ARM rate. We did not want a flexible rate. 

That was not in our best interest or our family’s interest. We wanted a conventional mortgage at a standard price for the length of 

the time of our mortgage. We went to the closing table and we 

signed on the dotted line. 

At these closings, there are 200 documents, per se. 

They highlight everything that comforts you at that time or that 

you want to hear at that time. We did not have disclosure on the 

mortgage pretense. I think that needs to be said. There are disclosures for every legal parameter. We need to do more on the end 

of the mortgage disclosures. 

Ten days later after closing, we got a new set of papers that we 

did not sign and that we haven’t seen before. They said that the 

projection of your mortgage monthly rate was an error. The calculations were wrong. The interest rate is not, in fact, 7 percent. 

The interest rate is now 10.95. Your monthly mortgage will not be 

$975 a month that you settled on and signed previously. Your new 

mortgage, in fact, is $1,235. 

Now, at this point we’re in the home. Our children are running 

around the home, picking out their rooms, picking out palettes for 

the colors on the walls. We have girls, needless to say. Our family 

has come over, brought gifts and so forth. OK. What do we do? 

We sat at the dinner table my husband and I, and we said, we 

can do this. We could do some budgeting and do this. There is 

something wrong when the initial draft and agreement has not 

been honored. My husband is a very reserved man and he doesn’t 

like to shake the tree down, per se. He said, ‘‘I know that in 2004, 

the interests were low. We are in 2005, this has to be a result of 

that.’’ 

We buckled down. We said, ‘‘We can do this.’’ We could afford 

$1,235 a month. The rate adjusted again. Our original draft said 

conventional 7 percent. The words conventional, adjustable rate are 

not interchangeable. How do they do that? It’s amazing. 

In 2007, we were faced with another uprising in our interest 

rate. Now, we’re paying $1,671 a month. Needless to say, my husband at that time and currently still, is working 16 hours a day, 

6 days a week. He’s not allowed to go to work on Sundays; if not, 

he would. He’s committed to our family and home. 

This event did not come about because we were irresponsible or 

did not pay. We consistently made payments. I’m not going to be 

held on breach of contract, not on my hands. Not when my family 


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would be facing displacement. It’s myself, my husband, four children and a dog. I will give you that picture. 

So $1,671 with a full house, how do we do that? We cut—my husband doesn’t eat lunch, per se. He can wait. We have to really rebudget our lifestyles and sacrifice a lot of things that people take 

for granted and we took for granted. How do you continually live 

like that? You cannot. It will take a toll on you. Sooner or later it 

will, and it did. We started making partial payments and late payments. Not ever sending no payment. We did. Again, this is in the 

interest of our family and the well being of our future. 

My principal at closing was $106,000. Our principal as I stand 

here today is $129,000 in less than 7 years. They charge us for attorney fees. That has been tacked to my principal. Usually, that is 

not the practice. In my case, it has been the practice. After months 

of negotiation, because we tried to negotiate, the mortgage service 

was not very sympathetic. They told us that we must have known 

what we were getting into when you got into the loan. We said everything that we didn’t want, and we signed on to the things that 

we did want. 

What happened to us is pure, plain fraud. There is no other way 

to say it. Like I said prior, our first draft was never honored. If 

that had been the case, my family wouldn’t be here today. That 

might be the percentage of the families facing foreclosure today. 

Not all—I cannot speak absolutely—but there are a good many people with responsibility that do the right thing. 

Then we sought out help. I saw ACORN on the news. I said, ‘‘I 

have to get on board with an organization and make these numbers 

really count. I have all this information, all this work for a year 

already and I wasn’t getting anywhere. Corporate America wasn’t 

doing anything for me. I had to take a bigger picture, a bigger 

chunk, and speak on behalf of the Philadelphians and not just myself. It’s difficult to be naked or nude financially in the eye of the 

public. Nobody wants to do it but it’s not only me on the line. It’s 

6,237 homes on the line. With a family of four you’re looking at 

32,000 people that will be displaced. 

As this gentleman said earlier, where are we going to go? We are 

going to go on the streets that are already pledged with the homeless as it is. These families are not at fault and these families 

should not be here. Who is at fault are Corporate America and 

subprime lenders. 

I did enter into modification. It was a consideration of modification, not even a modification. My lender has stipulated that I am 

on a grace period of 6 months to make payments of not the original 

draft. My payments are $1,284 a month. If I make those on time 

for the next 6 months, that will be my fixed rate. So what happened to the first draft which I signed on the line and bought? That 

has been forgotten at this point. We signed the paperwork and we 

sent in our payments, certified funds, which I’ve always done. 

Three weeks after that date I got a sheriff’s sale posted on my 

porch simply because the law’s litigation department did not convey information to the collection department. That just shows you 

the irresponsibility of these services. It’s not done. To them, we are 

numbers. We’re not real people. 


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Philadelphia is a comfortable place to live. My family settled here 

in 1981, and I visited other states but I always come back here. 

This is my home. Our communities are getting destroyed, and no 

one seems to care or even want to budge. The only ones that are 

profiting are the investors, the banks, and the redevelopment that 

is happening here and across the country. 

For each foreclosure on a block, property values go down, which 

we have already mentioned and spoke about. The loans, for example, in the city are going to cost us $345 million for lost production. 

What is going to happen to our schools? 

It will produce the ripple effect. The neighborhoods get destroyed. The schools get destroyed. Taxes are being displaced, or 

what I would like to say, recirculated to a different end because the 

neighborhoods are not benefiting from them, not at all. 

On March 25th, Ms. Jones, who was also supposed to be here 

today to testify but she had an unforeseen family event, and I 

hosted a meeting at the House of Prayer Episcopal Church to discuss this crisis. Over 100 neighbors came out. Councilman Jones 

and other members of Council came out as well. We all agreed that 

the City should do all it could to prove what has happened here. 

It would be a shame to experience something like Cleveland and 

Detroit has. 

I think that if everyone steps in at this point—we merit to be 

salvaged. This city has always been a great city and it shouldn’t 

be destroyed because of greedy predatory lenders. They are misguiding and flat out lying to the consumers. We think that maybe 

these lenders are waiting for the government to bail them out of 

the mess they created. Honestly, they shouldn’t. They shouldn’t because they have gained a large profit at the beginning by what 

they have done to the population. 

I think the issue at hand needs to be corrected, not just corrected 

with a Band-Aid. They want to refinance and modify less than 1 

percent of these subprime loans. That’s a slap in the face for the 

consumer and a Band-Aid over the issue. That is not going to help. 

We need real life solutions. Not for now, but for the future. With 

that said, we need a streamlined approach for fixing the Nation 

that’s in crisis and not only Philadelphia. The projection has been, 

as this gentleman said on my left, 2.2 million homes have been set 

for foreclosure and it’s rising everyday as we sit here. We need to 

be people of action. 

We cannot wait for a solitary loss, litigation staff person to pull 

out the abacus for each and every individual case. Our neighborhoods will never recover from this unless we handle this crisis. 

ACORN and the city of Philadelphia will not sit idly by and see our 

neighborhoods destroyed. As evidenced by the actions of City Council and the Sheriff, Philadelphia will fight back and hold lenders 

accountable for their actions. We will require them to fix these failing loans. We cannot wait for solutions to come from the state or 

Federal level either, or else we may suffer the same fate as many 

of the other cities have already been devastated by this crisis. 

We have acted now and we expect and hope that other cities will 

join us. We also hope that other states will join us and demand answers from those who caused the housing collapse that we all now 

face. 


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Chairman DODD. Thank you very, very much. Ms. Cruz Rivera, 

that was very good testimony. Let me quickly ask both of you, I 

may not have seen the details on this issue of the legislation. I 

wondered if you have any thoughts or comments on this idea of the 

FHA to ensure itself that it’s doing a similar kind of act. 

Mr. HUDSON. One of the things I mentioned in part of my testimony is that you do need a reserve fund. We have attempted to do 

some of that on a limited basis through our agency, but the numbers need to be a lot larger. Our concern is the 90 percent versus 

a higher LTV. For instance, we have been doing 95 percent of LTV 

for 25 years. Our average credit score is around 700. But we think 

there should be some flexibility there. Not just driven by a credit 

score of the homeowner. We do a little higher LTV there and buildup that as well. 

I know FHA hasn’t seen a lot of activity, and we think part of 

that is because there is not enough flexibility built into it. While 

our homeowner’s credit score is maybe below 600, the credit score 

in our program would be one of the last deciding factors. We are 

looking at the homeowner’s ability to pay. If we can improve this, 

this solution would be back on solid foot. We are following the bill. 

Chairman DODD. I would be very interested to look at and see 

any ideas. We have forgotten about this. I’d be very interested to 

take a look at this. We would like to move this. 

Mr. HUDSON. Absolutely, Mr. Chairman. A number of states, including ourselves, have started a refinance program. We’ve already 

attended to 100 or so homeowners and we are looking to help over 

1,500 over the next 6 months. That may not fit in with the criteria 

now, but we would like to work at that. 

Chairman DODD. In fact, the second wave is coming around this 

summer. There is a larger wave coming. 

Senator CASEY. First of all, I wanted to highlight some of Ms. 

Cruz’s testimony. I was looking at the prepared remarks. When I 

looked at your testimony as well as Ms. Jones’ testimony, she 

wasn’t able to be with us today, I was struck by a couple of statements of which I think bring us back to reality for us. Especially 

for people who work on this issue in Washington. You said, and I 

am quoting from your testimony, ‘‘I budgeted carefully. We did our 

homework.’’ Then just after 10 days they jacked your rate up. Later 

you talked about how you read the modifications over and over to 

find the hidden language. 

Ms. Jones talked about in her testimony, ‘‘It is my home I hope 

to live in the rest of my life. I grew up in South Philadelphia. I was 

a block captain. I couldn’t get the person on the phone who I was 

dealing with. ACORN showed me where in my loan adjustable rate 

language was tucked into my loan.’’ She said later, ‘‘I don’t want 

a handout, I just want what I was promised.’’ 

This shows who you are and how hard you’ve worked and how 

this transaction is about your hopes and your dreams and your 

family and your future. Just the condition of that with the tricks 

and the deception and the lies and the hidden language, the information in the text is outrageous. This is America. These people 

made money. This wasn’t just them being careless. These people 

made money off of this by tricking you. It’s outrageous. 


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You bring to us, not just a reality of how high your payments 

were and how they were jacked up unfairly and deceptively, but 

you also tell who you are and we appreciate that because there are 

a lot of people in Washington who have a lot of money to get their 

point across. They have lobbyists and insiders helping them everyday. 

You bring to us the reality of the situation and we are grateful 

for that. We are going to do everything we can. We may not get 

the votes to what we need, but we are going to continue to work 

on it. Senator Dodd has been working on this night and day, month 

after month after month not to mention years, but especially in the 

current crisis we went through. I want you to know how much we 

appreciate your testimony today as well as Dr. Goldstein and Mr. 

Hudson for bringing your expertise. 

I guess I have one global question for all three of you, but especially for those who are working with the mechanics of this. Senator Dodd has set forth a whole series of important proposals. The 

other side, I won’t mention who they are, but there’s another side 

to the Senate, who have been cooperative on some things and 

blocking other things. 

If there is one or two points that you could leave with us in 

terms of what you think we really have to get done if you had all 

the votes, what are one or two elements that you think we need 

to focus on? 

Counseling, of course, is one of them. Senator Dodd was giving 

us that summary that we go from 42 million and now we have 180 

done. We have another 280 million for 2008. Tell me about what 

you think, one or two basic things that you want to follow up on 

from today. 

Mr. HUDSON. Obviously, I feel that counseling is very important. 

The other point is, that the reserve fund is on target because we 

need that. It would be a loss if it was to be covered somehow. The 

other point that I think is very important is the AMP and the ability to refinance using taxes and bonds. That’s critical for many programs. So you have the counseling, you have the reserve funds, 

and you have the tax re-fi. I think we can make a difference. 

Chairman DODD. That’s a very good point. We included the 1.6 

billion in mortgage revenue files. It’s pending on the floor of the 

Senate. 

The 1.6 billion is not out of thin air. With some calculations, that 

number would be a pretty adequate number to help us out with 

this situation. Do you have disagreement with that number? 

Mr. HUDSON. Not necessarily, no. 

Mr. GOLDSTEIN. I think the counseling is obviously very important. I think that being able to make sure that the counseling is 

done properly and that it’s done with all the resources that somebody needs to have is a very important element. I also think that 

the issue of liability is very important and who ends up being liable 

for what pieces of the transactions. 

There are a lot of actors in all of this and it starts often with 

a very small conversation between a borrower and a broker. Obviously, the borrower is going to be helping out, and the borrower is 

the one who ends up losing their home. The brokers oftentimes 

though walk away completely unscathed. That is a problem when 


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you have 2⁄3 of the transactions done by these mortgage brokers. It 

really works all the way through—for the people who buy these 

mortgages as well. They are making an investment. 

I think that for the observation in our interviews and what we 

learn in part is that what happens throughout a transaction is that 

there is a review of that transaction, but there is a view of the form 

of it rather than the substance of it. People look at these mortgages 

and see that they all have appraisals. Nobody is really taking a 

look to see if the person down the road has done it to make sure 

that it is done properly. Eventually, if someone is going to have responsibility for something they need to be able to rely on it. Oftentimes, it’s the buyers that are setting the terms. The buyers will 

say, ‘‘I want to buy a bundle of mortgages that I want to look a 

particular way.’’ If you’re going to be responsible for setting the 

terms, if you’re going to set that out, there is going to be some responsibility that goes along with it. 

Second, I think the one thing that we did learn about the way 

this financial market works these days is that anything can be 

priced. If there is a liability that’s attached to something, it will be 

priced. So by the time they get to the fourth or the fifth or the 

sixth buyer down the road, it might be, if there is going to be some 

liability attached to it, it might be the price that reflects that a little bit. 

Again, I think it’s important to recognize that if you’re going to 

set the terms by virtue of what you say you’re going to purchase, 

then you need to accept the responsibility for what is under those 

terms. What I do think is interesting is the issues of the rating 

agencies. There really does need to be some responsibility there 

too. Frankly, our organization is a lending institution at our core. 

For example, if I had a travel voucher that’s unsigned, it gets 

kicked back. 

These rating agencies are looking at bundles of transactions. 

They are not really looking at them with the same kind of scrutiny 

that they would look at with personal things or anything like that. 

Again, it’s the presence of the document rather than the accuracy 

or the reasons for missing the document that they’re waiting for. 

Mr. HUDSON. I agree with you. As the prices started to hit, a 

number of opportunists started to buy these mortgages at deep discount prices. The market will determine its own level. With regard 

to the scrutiny and oversight, we at PHFA receive a number of 

calls about our portfolio from investors. 

Chairman DODD. And you don’t see any threat to that falling 

backwards? 

Mr. HUDSON. I think there needs to be an understanding about 

that. You will get some push back on that for sure. It used to be 

that way before. 

Chairman DODD. Subprime lending can be very valuable. Adjustable rate mortgages are very valuable instruments under certain 

circumstances. We are developing this certain notion. Without 

subprime lending, they certainly would never qualify. I don’t know 

if you want to comment on this but I always try to make that 

point. If it weren’t for subprime lending, people don’t qualify for 

prime lending. They never even think about getting a loan. 


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Mr. HUDSON. I agree. When we got our foreclosures statewide to 

close in 2003, we realized our state had a high concentration of 

subprime lenders. Our study was not to eliminate that because it 

does sort of value old-fashioned lending. There should be some consideration for that. I think what it evolved into are buying process, 

and shops, greed, and laziness when old-fashioned underwriting 

went out the window. How many loans can you process in a day, 

a month, a week to get those commission rates? That’s happened. 

We need to get back to basics. Subprime lending does sort of value 

those who are in that credit situation to buildup to a certain level. 

We need though to get back to basics and offer that product in 

some sort of fashion. 

Mr. GOLDSTEIN. I would agree. I think it forms again, I think the 

idea of being about to keep track of what to do. One of the folks 

that we interviewed was a former loan officer. He said the scrutiny 

that he was under, not so much for making loans that went into 

delinquency, but for not making enough loans that went into delinquency was great. What they said was, subprime lenders, if you’re 

not doing that, you’re not pushing the product hard enough. 

Chairman DODD. I will repeat the statistic. Sixty-one percent of 

people who have subprime loans would and should qualify for 

prime loans. 

Ms. CRUZ RIVERA. On that note, I believe that there is a need 

for every step of this business venture. There are people who qualify for them. That’s where the disclosure comes from. Those people 

should be stepping up and knowing what they’re getting into. Do 

not give a product to a consumer who did not want that product 

to begin with. You dealt that card to them. No. Explain things to 

them. Tell them, you don’t qualify for this. There are other products we have along these lines. Let them choose where to put their 

money or where their funds lay. 

Chairman DODD. That’s steering. That’s called steering. Like I 

said a minute ago, most of these deals are done in about eight or 

10 weeks. All the people on that front end got compensated and 

they moved on and got rid of the product, then they run to the next 

one. 

It’s very exciting, what you’ve done. Could you once again briefly 

tell me about the REAL? 

Mr. HUDSON. The REAL program is actually for those homeowners who—— 

Senator DODD. What does it stand for again? 

Mr. HUDSON. Refinance through affordable loan. It’s actually for 

those homeowners who are just beginning to slip in their mortgage. 

They are no more than 2 months delinquent. They are looking at 

another adjustable rate hike. We originate that product to a network of about eight lenders. 

Chairman DODD. Is there a web page or something? 

Mr. HUDSON. Yes. Our web page is www.phfa.org. 

Chairman DODD. And they can find out about that program? 

Mr. HUDSON. Absolutely. Also, 1–800–822–1174 is the phone 

number. REAL is designed to help those homeowners just beginning to slip. We know that there has been a number of hits that 

they have searched around to find. That’s why credit scores, they 


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are not the determining factor. Our determining factor is, can we 

improve the financial situation of that homeowner. 

HERO, which is the homeowners’ equity recovery, is designed for 

homeowners who are upside down in their mortgages. They owe 

the lender more than the property is valued. We will actually do 

an appraisal and negotiate with the lenders on behalf of the homeowner. This is where we need help in bringing those services and 

investors to the table. We call all over the Nation trying to find out 

where loans are serviced and get someone to address it. 

Many times, we simply say, ‘‘Look, foreclosure is going to cost 

you more. Take the write down, sign the loan to us, and we’ll service it in the house. We’ve dedicated five million to each program. 

We’re just beginning to do our intensive advertising that was the 

result of the foreclosure litigation on a nationwide basis. So we are 

going to really have to get started and target the consumer and say 

don’t be embarrassed. A lot of consumers are embarrassed by the 

document and are not going to come forward. 

We are training our counselors what to look for. Is this a REAL 

candidate or is this a HERO candidate? We’ve hired five staff people to handle HERO alone in-house. We’ve mailed out 3,000 applications on a statewide basis and we have 500 loans under review 

right now for the HERO program. 

Chairman DODD. It’s a national problem. For the first time in 

years, I want to say the Great Depression, it seems like that long 

ago, the percentage of homes in this country who have the debt 

that exceeds the equity. That’s happened at an incredibly fast rate. 

I know this has been the first time since the Great Depression that 

where the home values have declined. That’s not happened since 

the 1930s. 

Senator CASEY. Mr. Chairman, thank you very much. We appreciate the testimony by the witnesses. We’ve learned a lot. Thank 

you. 

Chairman DODD. We would like to thank you. You have been 

very helpful, and we’d like to stay in touch and follow up. I think 

we can go and take a step nationally and make a difference. 

Thank you very much and thank you, Senator Casey, once again. 

This would not have happened without Senator Bob Casey, Senator 

of Pennsylvania. Thank you to Banking, Housing and Urban Affairs for inviting me to this City of Brotherly Love. Thank you. 

[Whereupon, at 11:50 a.m., the hearing was concluded.] 

[Prepared statements and additional material supplied for the 

record follow:] 


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