[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
ROOTING OUT DISCRIMINATION IN
MORTGAGE LENDING: USING HMDA AS A
TOOL FOR FAIR LENDING ENFORCEMENT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
----------
JULY 25, 2007
----------
Printed for the use of the Committee on Financial Services
Serial No. 110-54
ROOTING OUT DISCRIMINATION IN MORTGAGE LENDING:
USING HMDA AS A TOOL FOR FAIR LENDING ENFORCEMENT
ROOTING OUT DISCRIMINATION IN
MORTGAGE LENDING: USING HMDA AS A
TOOL FOR FAIR LENDING ENFORCEMENT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
JULY 25, 2007
__________
Printed for the use of the Committee on Financial Services
Serial No. 110-54
U.S. GOVERNMENT PRINTING OFFICE
38-394 WASHINGTON : 2007
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
HOUSE COMMITTEE ON FINANCIAL SERVICES
BARNEY FRANK, Massachusetts, Chairman
PAUL E. KANJORSKI, Pennsylvania SPENCER BACHUS, Alabama
MAXINE WATERS, California RICHARD H. BAKER, Louisiana
CAROLYN B. MALONEY, New York DEBORAH PRYCE, Ohio
LUIS V. GUTIERREZ, Illinois MICHAEL N. CASTLE, Delaware
NYDIA M. VELAZQUEZ, New York PETER T. KING, New York
MELVIN L. WATT, North Carolina EDWARD R. ROYCE, California
GARY L. ACKERMAN, New York FRANK D. LUCAS, Oklahoma
JULIA CARSON, Indiana RON PAUL, Texas
BRAD SHERMAN, California PAUL E. GILLMOR, Ohio
GREGORY W. MEEKS, New York STEVEN C. LaTOURETTE, Ohio
DENNIS MOORE, Kansas DONALD A. MANZULLO, Illinois
MICHAEL E. CAPUANO, Massachusetts WALTER B. JONES, Jr., North
RUBEN HINOJOSA, Texas Carolina
WM. LACY CLAY, Missouri JUDY BIGGERT, Illinois
CAROLYN McCARTHY, New York CHRISTOPHER SHAYS, Connecticut
JOE BACA, California GARY G. MILLER, California
STEPHEN F. LYNCH, Massachusetts SHELLEY MOORE CAPITO, West
BRAD MILLER, North Carolina Virginia
DAVID SCOTT, Georgia TOM FEENEY, Florida
AL GREEN, Texas JEB HENSARLING, Texas
EMANUEL CLEAVER, Missouri SCOTT GARRETT, New Jersey
MELISSA L. BEAN, Illinois GINNY BROWN-WAITE, Florida
GWEN MOORE, Wisconsin, J. GRESHAM BARRETT, South Carolina
LINCOLN DAVIS, Tennessee JIM GERLACH, Pennsylvania
ALBIO SIRES, New Jersey STEVAN PEARCE, New Mexico
PAUL W. HODES, New Hampshire RANDY NEUGEBAUER, Texas
KEITH ELLISON, Minnesota TOM PRICE, Georgia
RON KLEIN, Florida GEOFF DAVIS, Kentucky
TIM MAHONEY, Florida PATRICK T. McHENRY, North Carolina
CHARLES A. WILSON, Ohio JOHN CAMPBELL, California
ED PERLMUTTER, Colorado ADAM PUTNAM, Florida
CHRISTOPHER S. MURPHY, Connecticut MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana PETER J. ROSKAM, Illinois
ROBERT WEXLER, Florida KENNY MARCHANT, Texas
JIM MARSHALL, Georgia THADDEUS G. McCOTTER, Michigan
DAN BOREN, Oklahoma
Jeanne M. Roslanowick, Staff Director and Chief Counsel
Subcommittee on Oversight and Investigations
MELVIN L. WATT, North Carolina, Chairman
LUIS V. GUTIERREZ, Illinois GARY G. MILLER, California
MAXINE WATERS, California PATRICK T. McHENRY, North Carolina
STEPHEN F. LYNCH, Massachusetts EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York RON PAUL, Texas
MICHAEL E. CAPUANO, Massachusetts STEVEN C. LaTOURETTE, Ohio
CAROLYN McCARTHY, New York J. GRESHAM BARRETT, South Carolina
RON KLEIN, Florida TOM PRICE, Georgia
TIM MAHONEY, Florida MICHELE BACHMANN, Minnesota
ROBERT WEXLER, Florida PETER J. ROSKAM, Illinois
C O N T E N T S
----------
Page
Hearing held on:
July 25, 2007................................................ 1
Appendix:
July 25, 2007................................................ 61
WITNESSES
Wednesday, July 25, 2007
Becker, Grace Chung, Deputy Assistant Attorney General, Civil
Rights Division, U.S. Department of Justice.................... 44
Braunstein, Sandra F., Director, Division of Consumer and
Community Affairs, Board of Governors of the Federal Reserve
Board.......................................................... 36
Hagins, Calvin R., Director for Compliance Policy, Office of the
Comptroller of the Currency.................................... 42
Hamilton, Ginny, Executive Director, Fair Housing Center of
Greater Boston................................................. 10
Himpler, Bill, Executive Vice President, American Financial
Services Association........................................... 17
Kendrick, Kim, Assistant Secretary, Office of Fair Housing and
Equal Opportunity, U.S. Department of Housing and Urban
Development.................................................... 46
LaCour-Little, Michael, Professor of Finance, California State
University at Fullerton........................................ 16
Marquis, David M., Director, Office of Examination and Insurance,
National Credit Union Administration........................... 40
Parnes, Lydia B., Director, Bureau of Consumer Protection,
Federal Trade Commission....................................... 47
Shelton, Hilary O., Director, Washington Bureau, NAACP........... 12
Solorzano, Saul, Executive Director, Central American Resource
Center (CARECEN)............................................... 14
Taylor, John, President and CEO, National Community Reinvestment
Coalition (NCRC)............................................... 7
Thompson, Sandra L., Director, Division of Supervision and
Consumer Protection, Federal Deposit Insurance Corporation..... 37
Yakimov, Montrice Godard, Managing Director, Compliance and
Consumer Protection, Office of Thrift Supervision.............. 39
APPENDIX
Prepared statements:
Baca, Hon. Joe............................................... 62
Miller, Hon. Gary............................................ 63
Becker, Grace Chung.......................................... 66
Braunstein, Sandra F......................................... 76
Hagins, Calvin R............................................. 87
Hamilton, Ginny.............................................. 114
Himpler, Bill................................................ 129
Kendrick, Kim................................................ 138
LaCour-Little, Michael....................................... 148
Marquis, David M............................................. 202
Parnes, Lydia B.............................................. 235
Shelton, Hilary O............................................ 252
Solorzano, Saul.............................................. 255
Taylor, John................................................. 261
Thompson, Sandra L........................................... 279
Yakimov, Montrice Godard..................................... 301
Additional Material Submitted for the Record
Baca, Hon. Joe:
Newspaper article entitled, ``Inland default notices see
sharp rise''............................................... 312
Watt, Hon. Melvin L.:
Responses to questions submitted to Sandra F. Braunstein..... 315
Responses to questions submitted to Lydia B. Parnes.......... 324
Responses to questions submitted to Kim Kendrick............. 334
Responses to questions submitted to Calvin R. Hagins......... 444
Bloomberg News article dated June 13, 2007, entitled,
``Regulators quiet as lenders targeted minorities''........ 452
ROOTING OUT DISCRIMINATION IN
MORTGAGE LENDING: USING HMDA AS A
TOOL FOR FAIR LENDING ENFORCEMENT
----------
Wednesday, July 25, 1007
U.S. House of Representatives,
Subcommittee on Oversight
and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 2:03 p.m., in
room 2128, Rayburn House Office Building, Hon. Melvin L. Watt
[chairman of the subcommittee] presiding.
Members present: Representatives Watt, Lynch, McCarthy;
Miller and McHenry.
Also present: Representatives Frank, Green, Jackson Lee,
and Baca.
Chairman Watt. This hearing of the Subcommittee on
Oversight and Investigations will come to order.
Without objection, all members' opening statements will be
made a part of the record in their entirety, and I don't seem
to see that as a major problem at this point, so I'll recognize
myself for an opening statement.
Today's hearing is entitled, ``Rooting Out Discrimination
in Mortgage Lending: Using HMDA as a Tool for Fair Lending
Enforcement.''
Home ownership is the key to the American dream and a
primary driver of our economic engine. Recent years have seen
an explosion in home ownership caused in part by the
proliferation of mortgage products that have allowed more
people to buy more homes.
It is good that home ownership rates are at historically
high levels. However, this expansion of home ownership has come
at a cost. Too many lenders saddle borrowers with high-priced,
unaffordable, and unfair home loans. I read somewhere that one
financial institution offered as many as 105 different mortgage
products.
When I bought my first home, the standard mortgage was a
30-year fixed rate mortgage. Some of these exotic mortgages,
80-10-10 loans, hybrid ARMs, and ARMs with exploding balloon
payments are not only confusing, but they can be grossly
unfair.
We now have a foreclosure crisis looming due to dangerous
high-cost lending by lenders. Subprime and predatory lending
have taken a toll on the market, leading some to question
whether, ultimately, such loans provide a net gain in home
ownership. We're here today, however, to examine an even more
troubling and persistent problem: Discrimination in mortgage
lending.
The Home Mortgage Disclosure Act, HMDA, requires lenders
with offices in metropolitan areas to disclose to the public
information about the mortgage loan's geographic location,
price, as well as the race, gender, and marital status of the
borrower, among other factors.
Ever since loan pricing data started to be collected in
2004, HMDA data has revealed a very troubling trend.
Minorities, especially blacks and Hispanics, receive a
disproportionate amount of high-priced loans.
While HMDA data alone does not prove discrimination, recent
studies seem to confirm that even when you control for income
and creditworthiness, minorities still pay significantly higher
prices for mortgage loans. The author of one of these studies,
Mr. John Taylor, from the National Community Reinvestment
Coalition, will present their findings today.
The pertinent question for this hearing concerns whether
the Federal Government has been asleep at the wheel regarding
Fair Lending Enforcement, even more consistently and
persistently than it has about lender standards and other
abuse.
In a June 13, 2007, article in ``Bloomberg News,'' HUD
Secretary Alfonso Jackson charged that blacks and Hispanics are
being targeted--those are his words--for high cost, unfair
loans.
I'd like to submit for the record the article appearing in
the June 13, 2007 issue of ``Bloomberg News,'' entitled,
``Regulators Quiet as Lenders Targeted Minorities.'' And
without objection, we will submit that for the record.
The article reveals that the U.S. agencies that supervise
more than 8,000 banks have not censured a single bank for
violating Fair Lending laws, some 3 years after Federal Reserve
researchers gathered data demonstrating that blacks and
Hispanics are more likely than whites to be saddled with high-
priced loans.
We are fortunate to have all of the Federal regulatory
agencies with us today, as well as HUD and the Department of
Justice, to explain what they are and are not doing to enforce
the Nation's Fair Lending laws.
In fact, I structured this hearing in reverse order of what
is customary, putting our consumer witnesses on the first panel
so that our representatives from government agencies can hear
firsthand what consumers and their representatives have to say.
Perhaps they'll take heed and consider taking some action to
stop it. The cost of a quarter point in interest over the life
of a mortgage is substantial, and we simply can't tolerate that
extra quarter point being based on race.
With that, I will recognize the gentleman from California,
Mr. Frank--Gary Miller, I'm sorry, for his opening statement.
Mr. Miller. Somebody told me Mr. Frank came in, and Barney
and I sound a lot alike.
Chairman Watt. Yes.
Mr. Miller. I know that we part our hair on the same side,
so I can understand why you'd be confused.
Chairman Watt. And there used to be a member actually named
Gary Frank.
Mr. Miller. But he looked more like the chairman than he
did like--well, Barney, it's good to have you with us today,
regardless.
Chairman Watt. In any event, I'm recognizing my ranking
member here, Mr. Miller, I think his name is.
Mr. Miller. Two minutes of my time is gone already, I know.
Chairman Watt. For 5 whole minutes or such time--such
reasonable time, as you may consume.
Mr. Miller. Well, I'll be reasonable.
Thanks for holding this hearing today to examine how the
Home Mortgage Disclosure Act, that's called HMDA, has been used
to help enforce our Nation's Fair Lending laws.
I am pleased that we have with us today a panel of banking
regulators, enforcement agencies, industry representatives, and
others to shed light on efforts to eliminate discrimination in
the mortgage industry.
Housing finance is vital to helping families achieve the
American dream of home ownership to help the overall health of
the economy.
To foster home ownership in this country we must eliminate
abusive lending practices while preserving and promoting access
to affordable mortgage credit. There's no question that some
non-prime borrowers are subject to abusive practices. This
should absolutely be prevented. However, there is no question
that vast numbers of borrowers who are not victims of such
practices can be harmed by overzealous efforts to restrict non-
prime credibility.
HMDA data has been an important tool in striking this
balance between protecting consumers while not inhibiting the
availability of credit that gives many families the ability to
become homeowners. HMDA data helps to determine whether
disparities exist so that our enforcement agencies can
investigate such disparities to determine whether they are
caused by illegal discrimination practices.
I believe the question before us today is how the data has
been utilized to enforce our Fair Lending laws and if more can
be done to root out discrimination.
Clearly the price of a mortgage should be based on the
economic risk of making a loan, not on racial, ethnic, or
gender considerations.
As we hear from the panel today, I want to remind my
colleagues that subprime lending is a legitimate segment of the
financial service industry that gives consumers who are unable
to obtain traditional financing the opportunity to achieve the
dream of home ownership.
Subprime mortgages have provided millions of Americans with
a way to achieve home ownership. The subprime market offers
customized mortgage products to meet customers' varying credit
needs and situations. And, as one would reasonably expect,
subprime borrowers will pay a somewhat higher rate to offset
their greater risk.
Literally millions of Americans are unable to qualify for
the lowest rate mortgages available in the so-called ``prime,''
also called ``conventional'' or ``conforming'' market, because
they have less than perfect credit, or--if they cannot meet
some of the other tougher underwriting requirements of the
subprime market. This is not to say that anybody should be
discriminated against, though.
As we battle unscrupulous actors and we work to protect
home buyers, we also have the duty and obligation of ensuring
that we do not act in a way that constricts the flow of capital
to credit-starved communities.
I look forward to hearing from the witnesses today so that
this subcommittee can assure that the detection and enforcement
tools that are in place to protect home buyers in this country
are working appropriately.
Thank you. I yield back.
Chairman Watt. I thank the gentleman for his opening
statement.
I will yield 5 minutes, or as much time as he may consume,
to the chairman of the full committee, Chairman Frank. I have
to remember his name.
Mr. Frank. I thank the chairman of the subcommittee.
And sometimes things that aren't planned work out better
than others. It was--it's the seniority system that decides who
gets to chair what around here. And, in this particular case,
the fact that the gentleman from North Carolina is the chairman
of the Oversight and Investigations Subcommittee of this full
committee at this time is a very fortuitous circumstance.
The HMDA data that just came out was one of the most
depressing things that I've seen in my capacity as a Member of
Congress in the domestic area. Obviously, massive loss of life
is the worst thing that we can see. We tend to see that, with
the exception of hurricanes, outside the country.
But looking at the public policies in the country, the fact
that in 2007, so many years after we supposedly officially
banned segregation as part of the constitutionally-accepted
practice, we have such evidence of racial discrimination in an
important aspect of our human life, ought to make everybody
sad.
And our first response should not be accusatory, but rather
how do we fix it? And I don't believe that it's all, or even
primarily, explicit racism on the part of lending institutions.
But no one who has lived in America and is familiar with this
country's history will expect anyone to believe that racism is
not part of it, and the statistics don't fully explain
everything, but there are clearly terribly disturbing
inferences that are inescapable.
And then I recently, of course, saw the study in my own
hometown, the metropolitan area of Boston, in which African-
Americans in the upper income bracket are more likely to be
pushed into subprime lending/borrowing than white people in
much worse economic categories. There simply are not
statistical explanations for that.
So we have this combination of the subprime problem and of
the racially discriminatory aspect of it. And it isn't clear at
this point what we can do.
I will say this: If working together, as it is important
that we do, we can come up with ways to improve the situation,
to diminish this terrible, terrible statistic of racial
discrimination, then this committee will do everything it can.
And that's why I say Mr. Watt from North Carolina, unlike many
Members of this House, actually practiced law for 20 years. He
is a skillful lawyer, who has now returned to put his skills to
work in the public policy area.
When you have, as chairman of this Oversight and
Investigations Subcommittee, the immediate past chair of the
Congressional Black Caucus, with his skills and experience as a
lawyer, and the full backing of this committee, I hope
everybody will take very seriously not just this hearing, but
our commitment to changing public policy to the extent that we
can.
There is no excuse, and no one should be at all willing to
settle for a situation in which the race of a borrower today
makes so much of a negative difference for some people.
So I thank the gentleman for holding this hearing and for
all his work on the issue. And we have a first-rate staff, and
I am glad to see my friend from California here, who has been a
very strong supporter of our efforts to deal with the housing
crisis. I really do believe, on a bipartisan basis, that we
will be going forward on this.
And shame on all of us, shame on this country, if the next
HMDA survey shows data that is as bad as it shows today.
Thank you, Mr. Chairman.
Chairman Watt. I thank the chairman for his comments, both
about the substance of the issue and about the chair of this
subcommittee.
Does the gentlelady from New York desire to make an opening
statement?
Ms. McCarthy. I thank the gentleman, but I have a policy of
not doing opening statements.
Chairman Watt. I recall that. She's not a big fan of
opening statements.
Mr. Frank. And she ends up giving dirty looks to people who
give them.
[Laughter]
Chairman Watt. Yes. I do recall that she was not--I hope
she won't be offended when I recognize the gentleman from
Massachusetts for an opening statement, if he desires to make
one.
Mr. Lynch. Thank you, Mr. Chairman.
I don't have any such prohibition.
Today's hearing on discrimination and mortgage lending is
an important step, I think, for the Oversight and
Investigations Subcommittee, and I am delighted that the
chairman has taken this on as an initiative. It was a long time
coming.
The pattern of discrimination revealed by the 2004 and 2005
HMDA data requires our utmost attention. The 2005 HMDA data,
like the 2004 data, revealed that black and Hispanic borrowers
are more likely to obtain loans with prices above pricing
thresholds than are non-Hispanic whites.
Today I believe we will learn more, not only about the HMDA
report and requirements, and the implications of these results,
but also the efficacy of the Fair Lending enforcement that we
conduct around the country.
I am particularly pleased that a constituent of mine is
here to testify this afternoon on the first panel. Ginny
Hamilton is the executive director of the Fair Housing Center
of Boston, a group that fights illegal housing discrimination
in Essex, Middlesex, Norfolk, Plymouth, and Suffolk Counties of
Massachusetts, including much of my district.
And, as part of their mission, the Fair Housing Center
researches and documents the nature and extent of housing
discrimination, as well as the Fair Housing impacts of public
policies.
Ms. Hamilton will testify today regarding a report released
by the group entitled, ``The Gap Persists,'' and I have a copy
of it here, a report on racial and ethnic discrimination in the
Greater Boston Home Mortgage Lending market.
I am disheartened to know that this report also found
differences in the treatment of disadvantaged minority home
buyers in 9 out of 20 matched paired test cases, which is about
45 percent of the time.
The interesting conclusion that they found was that, while
there were seven cases that were pursuable or actionable, in
legal terms, none of the tests revealed overt discrimination
that would necessarily be captured by current Fair Lending
Enforcement Programs that focus on overt discrimination,
leading us to question whether HMDA data should be expanded to
include borrower's credit history, debt-to-income ratio, and
loan to property value ratios.
It is important that we address these issues. As someone
who grew up in the housing projects of South Boston, where a
lot of families struggled to move from that environment into
their own homes, I know the challenges that are there, not only
for racial minorities, but also for single women, in most
cases, single parents, trying to move their families out of
public housing, or, in some cases, living with other members of
other families. It's a struggle.
I am delighted that Chairman Watt is holding this important
hearing, and I yield back the balance of my time.
Chairman Watt. I thank the gentleman for his opening
statement. And, without objection, all other members opening
statements will be made a part of the record.
I would invite the members of the first panel to come to
the table for brief introductions.
As they come, I will just restate something that I said in
my opening statement, that we structured this hearing in the
reverse order of what has become customary in our committee
process by putting our consumer witnesses on the first panel.
That's not done to put the regulators in any kind of negative
position, but I thought it would be helpful to help build the
context around this issue.
It may be helpful to hear some of the concerns that are
being expressed by the consumer witnesses, and to allow the
regulators to hear some of those concerns, before we hear what
the regulators are doing to try to address them.
So I welcome the witnesses. I am going to do a very, very
brief introduction of the witnesses because we have a lot of
witnesses, both on the first and second panel, and we want to
move expeditiously to their testimony.
Our first witness is Mr. John Taylor, president and CEO of
the National Community Reinvestment Coalition.
Our second witness, who has been introduced by the
gentleman from Massachusetts, is Ms. Ginny Hamilton, the
executive director of the Fair Housing Center of Greater
Boston.
Our third witness is Mr. Hilary O. Shelton, director of the
Washington bureau of the National Association for the
Advancement of Colored People, the NAACP.
Our fourth witness is Mr. Saul Solorzano--did I get close--
the executive director of the Central American Resource Center.
Our fifth witness is Mr. Michael LaCour-Little, professor
of finance at the California State University at Fullerton.
And our final witness on this panel is Mr. Bill Himpler,
the executive vice president of the American Financial Services
Association.
And the rules--many of you have testified before, and you
are aware that your full statements will be made a part of the
record, so we ask that you summarize your testimony in 5
minutes or less.
There's a lighting system right in front of you. At 4
minutes, the yellow light will come on. At 5 minutes, the red
light will come on, and it would be helpful if you would, as
quickly as possible, wrap up when the red light comes on. Every
once in a while people will wrap up before the red light comes
on.
So I will now recognize Mr. Taylor for a summary for 5
minutes.
STATEMENT OF JOHN TAYLOR, PRESIDENT AND CEO, NATIONAL COMMUNITY
REINVESTMENT COALITION (NCRC)
Mr. Taylor. Thank you, Chairman Watt, and Ranking Member
Miller. I'm also a constituent of Mr. Lynch, but apparently my
vote is not important to him anymore, so--
Mr. Lynch. Not at all. I did not see you in the crowd, Mr.
Taylor, and I want to welcome you to this committee. You have
been doing lots of work on fair lending and housing issues in
my district.
Mr. Chairman, I apologize. I did not see Mr. Taylor in the
crowd.
Chairman Watt. Thank you.
Mr. Taylor. Thank you for allowing me to fish for that
compliment.
Mr. Lynch. Not at all.
Chairman Watt. I could recognize some other reasons that he
might have ignored you, but--
Mr. Taylor. Yes. I understand.
Chairman Watt. --we won't go there.
Mr. Taylor. First, it's an honor to represent NCRC and our
600 members who have been working on this issue for many, many
years. Regulatory oversight must promote competitive markets
for all consumers, regardless of color, income, age, or gender.
Unfortunately, we have a dual marketplace in which white
and affluent communities enjoy a wide range of product choices
while minority and working class communities are stuck with
high-cost home mortgage lenders and payday outlets.
By shining a public spotlight on the institution's lending
activities, HMDA data has reduced the amount of discrimination
and abuse. Yet as powerful as HMDA data has been, and efforts
to stop discrimination, the full potential of HMDA has not been
realized because key elements remain missing from the data.
NCRC released a report this month entitled, ``Income is no
Shield Against Racial Differences in Lending,'' and I would
like to submit that for the record, Mr. Chairman.
Chairman Watt. Without objection.
Mr. Taylor. Using HMDA data from 2005, NCRC concluded that
if a consumer is a minority, the consumer is more at risk of
receiving a poorly-underwritten, high-cost loan.
Middle income or upper income levels do not shield
minorities from receiving dangerous, high-cost loans. Middle-
and upper-income African-Americans are twice or more as likely,
nationwide, than middle- and upper-income whites to receive
high-cost loans in the 167 metro areas that we examined.
In contrast, low- and moderate-income African-Americans are
twice as likely to receive high-cost loans in 70 metro areas.
So income is no barrier. As you become more successful, as
African-Americans with more income, it actually gets worse,
according to the data.
Mr. Chairman, as you know, North Carolina's metropolitan
areas had three of the worst five areas in terms of African-
American white disparities. Moreover, in Charlotte, which is in
your district, middle- and upper-income African-Americans were
almost 3 times more likely than middle-income whites to receive
high-cost loans.
Three of the worst metropolitan areas for Hispanics are in
my home State, and the chairman's home State, and my
Congressman's home State, for Hispanics in terms of disparity
between whites. I know Ginny will have a lot more to say about
that.
NCRC believes that additional data on the writing variables
needs to be added to the HMDA data. But until this data becomes
regularly available, the evidence suggests that the burden lies
upon skeptics to disprove the existence of discrimination.
Now, regarding fair lending consumer protection and
regulatory enforcement, current Federal fair lending
enforcement is inadequate to protect the interest of working
class and minority consumers.
In 2005 and 2006, the Federal Reserve Board used the HMDA
data and referred about 470 lenders to their primary regulatory
agencies for possible civil rights violations. Yet there have
been only two discrimination cases, that I'm aware of, brought
by Attorney General Gonzalez's Department of Justice to date,
and none since the new pricing data has been available.
Bank regulators are required by law to make referrals to
the Department of Justice when they uncover a patent practice
of the lender that suggests lending discrimination.
In this outrageous period of high-cost loans, record
foreclosures, and a plethora of disparate application of
subprime versus prime loans to people of color, even for
controlling for creditworthiness, two of the four bank
regulatory agencies--only two of the four--made referrals to
the Justice Department last year, as they're required to by
law. That was the FDIC, which, to their credit, made almost 115
referrals, and then the Federal Reserve, which made several
referrals.
But the OCC and the OTS made zero referrals to the Justice
Department on patterns of practice of lending discrimination in
2006.
What the Justice Department did with these cases is not
clear, but many of them, if not all of them, were referred back
to the agencies. So the days of Janet Reno and others who took
these cases seriously, and prosecuted people who were
practicing discrimination because the regulators uncovered it,
seem to be far away.
Another overlooked component of Fair Lending Enforcement is
CRA exams. In most cases, the Fair Lending section of the CRA
exam reports, in one to three sentences, that the regulatory
agency tested for evidence of discrimination lending that no
such lending discrimination was found.
The general public would have much more assurance that Fair
Lending reviews were rigorous if the agencies described what
type of Fair Lending reviews they conducted.
The bank merger application process has become lax in the
last few years, and this really matters. The last major
applications where there were merger hearings were the Fleet
Bank and Bank of America, and the Chase and Bank One mergers.
That was back in 2004.
Since then, there have been several large mergers from your
home State as well, Mr. Chairman, with Wachovia, World Savings,
and other financial institutions, where the public has not had
an opportunity or the benefit of having a public hearing.
These hearings are incredibly important for people in these
communities to be able to express to the regulators what the
impacts of the mergers have been, what the history of these
banks have done in their community. In fact, through these
merger hearings and through the commitments of these financial
institutions, low- and moderate-income communities have gotten
over $4 trillion in written CRA agreements. So this whole
process is undermined when we don't have public hearings.
NCRC appreciates the recent regulatory moves, such as the
guidance regarding subprime lending, but these moves remain
inadequate to create fair and competitive markets in working
class and minority communities.
Since Federal agencies have had difficulties indirectly
policing brokers, it is encouraging that the Federal and State
regulators announced the pilot program. But let's remember that
it really is a pilot program consisting of about 12
institutions.
And even if the Federal agencies rigorously implemented
their recently--
Chairman Watt. You'll have to wrap up as quickly as
possible.
Mr. Taylor. Okay. That's what I get for messing around at
the beginning, Mr. Chairman. I will try and wrap up as quickly
as possibly, and conclude in saying that while HMDA has been
the powerful tool for rooting out discrimination, the HMDA data
needs to include more key variables. Otherwise, the abuse of
lenders will be a step ahead of the public and the regulators,
inventing new methods for deceptive and usurious practices.
The agencies have inadequately used the existing tools in
the arsenal to combat discriminatory lending. They must do a
better job conducting Fair Lending reviews and processing
merger applications.
The ultimate answer to all this, of course, is a National
Anti-Predatory Lending bill, which you are very aware of, Mr.
Chairman.
And, further, the HMDA data needs to be enhanced very
quickly, including fee and price information, not just in high-
class loans, creditworthiness of borrowers, loan terms whether
their loans are fixed, whether they're ARMS; if they are ARMS,
for what period they're fixed; a data field indicating whether
the line was from a broker, a mortgage company, a depository
institution; the age of the borrower's critical loan-to-value
debt-to-income ratios.
And we support Senator Reid's bill that would create a
foreclosure and delinquency data base.
In the interest that--we have a big panel, so I'm going to
stop talking. Thank you very much, Mr. Chairman.
[The prepared statement of Mr. Taylor can be found on page
261 of the appendix.]
Chairman Watt. I thank the gentleman for his testimony.
And we now recognize Ms. Hamilton for 5 minutes.
STATEMENT OF GINNY HAMILTON, EXECUTIVE DIRECTOR, FAIR HOUSING
CENTER OF GREATER BOSTON
Ms. Hamilton. Thank you.
Mr. Chairman, and members of the subcommittee, thank you
for this opportunity to discuss discrimination in mortgage
lending and tools for Fair Lending Enforcement.
My name is Ginny Hamilton, and I am the executive director
of the Fair Housing Center of Greater Boston. We were founded
in 1998, and we work to eliminate housing discrimination and
promote open communities throughout the Greater Boston Region.
We're a full service Fair Housing Center, and receive
approximately half of our funding through the Department of
Housing and Urban Development's Fair Housing Initiatives, or
FHIP, and we're an active member of the National Fair Housing
Alliance.
Discriminatory lending practices are particularly
concentrated in our region, characterized by ongoing
segregation, exorbitant housing prices, and below-national-
average home ownership rates for African-American and Latino
families.
I'm here to speak with you today about the ways in which
our organization uses HMDA data and paired testing to document
and address housing discrimination in Greater Boston. I'll also
provide recommendations for Congress, the Federal agencies, and
regulators.
HMDA data have long shown significant racial and ethnic
disparities in mortgage lending. The staff and board members of
the Fair Housing Center of Greater Boston have conducted
numerous studies, analyzing HMDA data, and I wish to highlight
three of them here. I've also included all of these reports as
appendices to my written testimony.
Since the mid-1990's, the Massachusetts Community and
Banking Council, a coalition of banks and community groups,
including the Fair Housing Center, has published annual reports
documenting disparities in the lending market.
The first report, ``Changing Patterns,'' has shown
consistently lower rates of lending to borrowers of color, both
in the City of Boston and throughout Greater Boston.
Although there have been improvements in some areas over
the 16 years documented by ``Changing Patterns,'' lending to
borrowers of color continues to lag behind lendings to whites.
In recent years, there has been an increase in the ratio of
loans denied to borrowers of color compared to white borrowers.
The second MCBC study, ``Borrowing Trouble,'' looks
specifically at the rapidly growing subprime lending market.
Again, the studies document that a disproportionately large
percentage of these high APR loans go to African-Americans and
Latinos, even those with higher incomes. 2005 data show that
upper income African-Americans are 8 times more likely to have
a high-cost loan than whites in the same income bracket, and
that's talking about households that make more than $152,000
per year.
The Fair Housing Center's own study, ``More Than Money,''
used HMDA data to show that racial disparities in mortgage
lending cannot be explained by affordability alone. In 80
percent of the cities and towns in Greater Boston, the number
of African-American and Latino home buyers was less than half
of what would be predicted by housing prices.
Findings from HMDA data, however strong and however
suggestive, are not conclusive proof of racial and ethnic
discrimination. The evidence that is clear and convincing comes
from paired testing.
During the 4 months from October 2005 to January 2006, we
conducted testing to determine the extent and nature of
discrimination by mortgage lenders doing business in Greater
Boston.
We used trained volunteers to visit 10 banks and 10
mortgage offices and report on details of their experiences.
Testers of color were assigned a slightly higher credit score
and higher incomes and slightly lower debt compared to their
white counterparts, so, in a discrimination-free environment,
the tester of color would be slightly more qualified for the
home loan. Even so, as Congressman Lynch said earlier, we found
differences in treatment, disadvantaging the home buyer of
color in 9 of the 20 match-pair tests we conducted.
Two specific details from that. In 7 of the 20 tests, the
white loan seeker received substantially more information from
the lender about services or products. And in 5 of the 20
tests, the white tester was offered a discount on closing
costs, which was not offered the tester of color or was quoted
a substantially lower closing cost than the tester of color.
The differences ranged from $500 to $3,600.
Currently, most lending cases are brought by private fair
housing organizations, and these private efforts are important.
But the full engagement of responsible government agencies is
an essential component of any serious effort to combat lending
discrimination in all its changing forms.
Lack of Federal enforcement actually provides a form of
safe harbor for those in the industry engaging in
discriminatory practice.
We at the Fair Housing Center of Greater Boston and my
colleagues at the National Fair Housing Alliance believe that
it's shameful that the four bank regulators and the other
agencies charged with enforcing the Nation's fair housing laws
have made such minimal and half-hearted efforts to identify and
reduce racial and ethnic discrimination and mortgage lending.
We have recommendations for Congress to implement and
oversee. First, we ask that Congress appropriate at least $26
million to HUD's Fair Housing Initiatives Program, and pass the
Housing Fairness Act of 2007, H.R. 2926, to support fair
housing and Fair Lending work in our communities.
HMDA data should be enhanced to include much more
information, including the details John has already covered.
Congress should require Federal enforcement agencies,
including HUD, the Department of Justice, and the FTC to
undertake more aggressive, effective, and extensive fair
lending enforcement activities.
Congress should require that Federal regulatory agencies
use their authority to undertake stronger oversight and
enforcement activities.
And finally, Federal Government agencies and bank
regulators should make much more aggressive and extensive use
of paired testing in their own enforcement activities and
investigations by contracting and working directly with
qualified fair housing organizations around the country.
Thank you, again, for this opportunity to testify before
the committee. And I'm happy to answer questions and assist in
any way that we can to help Congress fulfill your duties to
enforce fair lending nationwide.
[The prepared statement of Ms. Hamilton can be found on
page 114 of the appendix.]
Chairman Watt. Thank you very much for your testimony.
We now recognize Mr. Shelton for 5 minutes.
STATEMENT OF HILARY O. SHELTON, DIRECTOR, NAACP WASHINGTON
BUREAU
Mr. Shelton. Thank you very much.
My name is Hilary Shelton, director of the NAACP's
Washington Bureau.
The Washington Bureau--
Chairman Watt. Pull that microphone just a little bit
closer to you.
Mr. Shelton. --Federal Legislative and National Public
Policy arm, our Nation's oldest and largest grassroots civil
rights organization.
I am very pleased to be here today to talk to you about the
Home Mortgage Disclosure Act, or HMDA, and its use in
uncovering trends of discrimination in home lending.
It is especially an honor to speak before Chairman Watt,
who is indisputably one of the congressional leaders in the
fight against predatory lending, and a champion of civil rights
for all Americans.
I would like to thank you, Chairman Watt, Chairman Frank,
Congressman Green, and our many other friends and distinguished
leaders who are here today to help us try to find a way to
eradicate this awful plague throughout our Nation.
Predatory lending is unequivocally a major civil rights
issue of our time. As study after study has conclusively shown,
predatory lenders target African-Americans, Latinos, Asians and
Pacific Islanders, Native Americans, the elderly, and women at
such a disproportionate rate that the effect is 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 home owners who are targeted by predatory
lenders, decimates whole communities.
High concentrations of subprime lending is a predominately
racial and ethnic minority neighborhoods, and racial
disparities, in subprime lending exists in all regions of our
Nation. And while not all subprime loans are predatory, indeed
NAACP recognizes the benefits of subprime markets to an
informed constituency, which includes many without a strong
traditional credit history.
It is estimated that the vast majority of predatory loans
are those with owner's fees and/or conditions exist in the
subprime market.
And while many of the facts that I have just shared with
you are common knowledge in our communities, they are also,
thanks to the Home Mortgage Disclosure Act, verifiable facts.
First enacted in 1975, HMDA was enacted to provide the
public with data on mortgage lending patterns. Since that time,
HMDA has become an individual tool to help the NAACP and other
civil rights and consumer rights organizations in the fight to
eliminate discrimination in mortgage lending.
As a result of HMDA, we have several seminal reports,
including: the Center for Responsible Lending's 2006 report,
``Unfair Lending: The Effect of Race and Ethnicity on the Price
of Subprime Mortgages,'' which uses the 2004 HMDA data;
``Stubborn and Persistent'' and ``Stubborn and Persistent II,''
an analysis of the 2004 and 2006 HMDA data by the National
Community Reinvestment Coalition; and ``Risk or Race,'' the
2003 report by Calvin Bradford for the Center for Community
Change, to name just a few.
As a result of these reports and their analysis of HMDA
data, we can say conclusively that African-American and Latino
borrowers receive a disproportionate share of higher-cost home
loans, even when controlling for the factors, such as
borrower's income and property location, and that this
disparity rises as income rises as well.
And while it offers little solace to know that the
anecdotal stories we have heard all along from our communities
about unfair lending are true, it does help us deal with the
problem.
Specifically, in addition to civil rights groups using HMDA
data to focus national attention on lending discrimination
issues, HMDA data is used by local municipalities when
developing fair housing programs, and should be used by Federal
banking regulatory agencies, the U.S. Department of Housing and
Urban Development, the Department of Justice, and the Federal
Trade Commission, to boost enforcement of fair lending laws.
HMDA data is also proving useful in litigation against
unfair lenders, and is a key component in the case recently
filed by the NAACP alleging systemic, institutionalized racism
in subprime home mortgage lending.
Like most good laws, however, HMDA could be improved upon.
Specifically, the NAACP feels that the data would be greatly
improved if the age of the borrowers were included, as well as
the type of credit.
The purpose of this second request is to determine if a
mortgage broker was used as ``steering'' minorities to
unaffordable loans, an especially prevalent problem in our
communities.
The NAACP, in collaboration with some of our allies who do
some of the most in-depth analysis of the HMDA data, would also
like to see more detailed pricing and underwriting information
for subprime lenders in their HMDA data. Not only would this
provide us with more detailed information, but it would also
help to discourage pricing discrimination.
Specifically, knowing the incidence of up-front fees, yield
spread premiums, and pre-payment penalties would be
significantly helpful in assessing the full breadth of subprime
loans and who is receiving them.
Finally, the NAACP would like to see more enforcement on
the part of the Federal Government as a result of HMDA data.
Despite the clear evidence of discrimination, which is illegal,
the Federal agencies that regulate insured depository
institutions have done little or nothing to eliminate
discrimination in the mortgage market.
Furthermore, the NAACP calls upon HUD and DoJ to enforce
our Nation's fair lending laws--enforcement activities which
have come to almost a standstill since 2000.
In closing, HMDA is an invaluable tool for many civil and
consumer rights organizations, as well as Federal, State, and
local regulators in identifying and fighting discriminatory
lending practices, and the NAACP is pleased to testify in
support of this crucial law.
I will take your questions upon your request.
[The prepared statement of Mr. Shelton can be found on page
252 of the appendix.]
Chairman Watt. I thank the gentleman for his testimony. I
never heard you talk so fast.
[Laughter]
Chairman Watt. But your content was outstanding.
Mr. Solorzano is recognized for 5 minutes.
STATEMENT OF SAUL SOLORZANO, EXECUTIVE DIRECTOR, CENTRAL
AMERICAN RESOURCE CENTER (CARECEN)
Mr. Solorzano. Thank you, Mr. Chairman, and members of the
subcommittee, for the opportunity to participate in this panel.
My name is Saul Solorzano, and I work as the executive
director of the Central American Resource Center, in
Washington, D.C. As you may know, a large percentage of Latinos
in the Washington, D.C., area have a Central American
background.
Relevant to fair housing loans is that many Central
Americans are in the United States under a temporary protective
status known as TPS, or under other immigration laws that allow
them to work legally in the United States, but do not give them
a pass to permanent residency because their rights and they are
potential victims of predatory lending in order of uses,
including those for lack of language access.
CARECEN is a community-based organization that was
established in 1982, and, since then, it has been providing
direct services to over 5,000 Latinos per year in the areas of
legal services, citizenship, housing, and other educational
programs.
CARECEN is an affiliate of the National Council of La Raza.
Our housing council will serve people who come to the offices
with a variety of housing problems and questions, including the
increasing rates of foreclosures, and their inability to
sustain mortgage loans that, after accepting them originally,
seemed to be a great deal, but quickly have turned into a
nightmare.
Also, we refer potential cases of fair housing
discrimination to the Equal Rights Center and the Washington
Lawyers Committee for Civil Rights and Human Rights, here in
Washington, D.C.
I have submitted written testimony to the committee, so in
this presentation, I will only mention some of the main points
in the statement.
First, I would like to explain how practices in lending
victimize many Latino families and immigrants in Washington,
D.C., Maryland, and Virginia.
It is not difficult to find real estate agents and others
who will offer low interest loans, and other types of loans,
without explaining the full implications of the options.
In many cases, these agents work with lenders, others, and
intermediaries to cash in commissions without any regard for
the victims.
As an example, people making $400 per month, preparing
vegetables and salads in downtown D.C., are enticed to take on
loans of over $300,000. Of course, after a few months, or
whenever someone moves out of the house, people are left with
large mortgage payments and lose their homes.
Another practice, or malpractice, is to overprice the homes
and offer a first and second mortgage, with the second mortgage
at a higher interest rate. Again, people with low salaries are
approved for loans of up to $460,000 or more.
In Montgomery County, in Maryland, a Latino man working as
a bartender and making no more than $45,000 a year, got an 80-
20 loan, and a monthly payment of over $3,000. The man put the
house up for sale, but after 3 months, we found a buyer. He
moved out of the property.
I could go on listing case after case, but I think that I
have shown you the impact of predatory lending on our
communities.
Instead, I would like to raise another issue: Local
ordinances, such as the one recently approved in Prince William
and Loudon Counties in Virginia.
One of the concerns that I am perceiving here today is how
fair housing and civil rights violations may escalate in some
areas, where local ordinances to prevent overcrowding in homes
will also have civil rights implications.
For example, standard families living in counties in
Virginia could be the victim of forced foreclosure and
displacement at the same time. Why? Because anti-immigrant
activists are using zoning and other local ordinances to get
rid of immigrants and non-immigrants Latino families.
As you can see, educational complaints from the community
are an urgent problem. I hope the members of this community and
the U.S. Congress will see how important it is to fund programs
and initiatives to protect minorities and to eliminate
predatory lending and other abuses in the mortgage lending
industry.
In writing the statement, there are some recommendations
that we think are important.
I thank you for the opportunity to speak about this
pressing issue. Thank you.
[The prepared statement of Mr. Solorzano can be found on
page 255 of the appendix.]
Chairman Watt. I thank Mr. Solorzano--see, that rolls off
the Southern tongue better once I heard it--for your statement.
And we'll now recognize Mr. LaCour-Little.
STATEMENT OF MICHAEL LACOUR-LITTLE, PROFESSOR OF FINANCE,
CALIFORNIA STATE UNIVERSITY AT FULLERTON
Mr. LaCour-Little. Good afternoon, Mr. Chairman, and
members of the subommittee. My name is Michael LaCour-Little,
and I am a professor of finance at California State University
at Fullerton.
It's an honor to testify here today on the topic of the
Home Mortgage Disclosure Act. My recent research paper, which
is included with my written testimony, addresses aggregate
patterns in the 2004 and 2005 HMDA data, and offers a forecast
of 2006 results, which will be released later this year. Much
of my testimony today will consist of highlights from that
paper.
In addition, I am currently editing a special issue of the
``Journal of Real Estate Research,'' on the topic of HMDA, and
believe many of the papers contained in that volume will
provide important additional information that policymakers
should consider.
Last year's release of the 2005 HMDA data raised a number
of questions given the increase in the number and percentage of
higher-cost loans, or what I will refer to as HMDA spread-
reportable loans, and the continued differentials across racial
and ethnic groups.
My work, specifically, assesses three possible reasons for
that increase, as well as proposing others. The three reasons
evaluated include: Changes in lender business practices;
changes in borrower credit profile; and changes in the interest
rate environment.
Since the incidence of HMDA spread-reportable loans
increased during 2005, it is tempting to infer that subprime
lending must have increased proportionately. Indeed, the media
and some commentators tend to equate HMDA spread-reportable
loans with subprime. My research indicates, however, that
relationship is not so simple.
It's important, also, to remember that the new HMDA data
does not contain information on many of the factors that affect
credit risk and the economics of the mortgage lending process.
As a result, the new HMDA data is sufficient neither to
explain the pricing of loans nor to draw conclusions about
pricing fairness.
At best, the bank regulatory agencies can use HMDA data as
a preliminary screening tool to identify markets or
institutions for further scrutiny.
Let me highlight several major conclusions of my research
for you.
First: I did not find an increase in average borrower risk
in 2005, though there does appear to be an increase in the use
of riskier products, such as loans that allow negative
amortization, and the average loan-to-value ratio did appear to
increase for home purchase loans during 2006.
Second: The yield curve accounted for a significant part of
the growth in HMDA spread-reportable loans in 2005.
Third: Wholesale originations played a major role in
explaining the overall growth in HMDA spread-reportable
lending.
Results reported in my paper suggests that after
controlling for the mix of loan types, credit risk factors, and
the yield curve, there was no statistically significant
increase in reportable lending directly by lenders during 2005,
although wholesale originations did increase.
My research identifies nine major factors that explain why
a loan is HMDA spread-reportable: Loan size; term; property
type; whether the line is an adjustable rate mortgage; credit
score; loan-to-value ratio; origination channel; and the yield
curve slope.
In addition, I find that the market price of risk increased
by approximately 15 basis points during both 2005 and 2006,
implying that rates were higher for all borrowers on a risk-
adjusted basis.
Finally, let me offer a forecast for the 2006 results when
they're released later this year. Given the change in interest
rates, the likely mix of ARMs versus fixed, the increase in
average LTV, and other factors, I predict that approximately 28
percent of loans will be HMDA spread-reportable.
I mentioned earlier the special issue on HMDA that will be
published later this year. Included in that volume will be an
article that examines the differential in annual percentage
rates paid by minority versus white borrowers, controlling for
the segment of the market in which the loan is obtained, credit
risk variables, and other economic factors.
The paper utilizes a unique proprietary data set that
includes over 1 million individual loan records from multiple
lenders and many of the pricing variables that are not included
in HMDA.
The authors find that raw disparities in the APR, which are
in the order of 50 to 100 basis points, decline to roughly 5 to
10 basis points when appropriate controls for market segment
and credit risk are included.
The authors remark, and I quote: ``Public policies aimed at
remediating APR differentials would achieve a far greater
return through the elimination of race and ethnicity
differentials in FICO scores, income, wealth that might be used
to lower loan-to-value ratios, and, arguably, financial
literacy, than they would through the elimination of any
possible disparate treatment.''
Mr. Chairman, I thank you for the opportunity to share
these thoughts, and I'll be happy to answer any questions.
[The prepared statement of Professor LaCour-Little can be
found on page 148 of the appendix.]
Chairman Watt. I thank the gentleman for his testimony.
I recognize Mr. Himpler for 5 minutes.
STATEMENT OF BILL HIMPLER, EXECUTIVE VICE PRESIDENT, AMERICAN
FINANCIAL SERVICES ASSOCIATION
Mr. Himpler. Good afternoon, Mr. Chairman, Ranking Member
Miller, and members of the subcommittee.
My name is Bill Himpler, and I am the executive vice
president for Federal affairs at the American Financial
Services Association. AFSA's 350 members include consumer and
commercial finance companies, auto finance companies, credit
card issuers, mortgage lenders, industrial banks, and other
firms that lend to consumers and small businesses.
Mr. Chairman, I commend you and your colleagues for holding
this hearing. We believe that HMDA is already working as
intended. While other laws, such as the Equal Credit
Opportunity Act, and the Truth in Lending Act provide a means
for enforcement against lending discrimination, HMDA serves as
an early warning system by identifying lending patterns that
warrant additional investigation.
At the outset, let me state that the entire industry stands
shoulder to shoulder with Congress and its commitment to combat
lending discrimination. To that end, we believe there's a good
story to tell.
Over the last 20 years, the industry has worked with
policymakers and consumer groups as we've developed new
technology that has allowed us to better serve consumers.
Prior to the 1990's, a consumer with blemishes on his or
her credit record was essentially shut out from the dream of
American home ownership. No one can argue that is the case
today. Since 2002, 2.8 million families have become first-time
home buyers.
At the same time, the mortgage industry is working with its
community partners to meet a new challenge--the rise in
defaults and foreclosures.
As part of my testimony, I've attached a summary of
initiatives undertaken by AFSA member companies that help
borrowers avoid losing their homes.
While all of us are concerned about foreclosures, we must
not lose sight of the fact that more than four out of five
subprime borrowers are making timely payments. As we discuss
the HMDA data and ways to make our credit system better, we
must be mindful of how any changes might affect liquidity. More
importantly, we should allow the industry to provide manageable
borrowing options for consumers facing reset or the possibility
of foreclosure.
With that, let me turn to our assessment of HMDA's new
reporting requirements. In 2005, lenders began reporting
pricing information for higher-cost mortgages. Yet the HMDA
data still did not contain credit scores or certain other
information used to determine the credit risk associated with
the loan.
This begs the question as to why Congress shouldn't expand
the HMDA data to include this information. There are four
reasons I'd like to speak to this afternoon.
First: An expansion would raise privacy concerns between
HMDA data and other publicly available data. Already, the
identity of borrowers can be determined. Many people would
prefer that their neighbors not know their credit score.
Second: A requirement to collect credit scores in the HMDA
data would raise the question of which credit scoring system to
include. Fair Isaac's FICO score is the best known, but it's
not the only one used. Many creditors make lending decisions
based on their own proprietary scoring systems in addition to a
FICO score.
Third: Lenders would have to divulge the weight that they
give to different risk factors in pricing their loans, thereby
eliminating any trade secrets that allow for vibrant
competition.
And, fourth: An expansion of HMDA wouldn't necessarily
increase its effectiveness as a screening tool.
If an expansion of HMDA data is not the way to go, what
does AFSA recommend?
As I stated at the beginning, we believe HMDA is working as
it should. Following its analysis of the 2004 and 2005 data,
the Federal Reserve saw patterns that it felt needed more
scrutiny. Referrals were made to fellow regulators.
Investigations are underway as we speak.
We should recognize that this is the way the process is
supposed to work. Regulators already have the authority to look
at individual loan files. We must remember this and support
their use of this when it is warranted.
In addition, we must be mindful of how any changes to HMDA
might affect the industry's ability to provide borrowing
options for homeowners facing reset or foreclosure. This is
absolutely critical, given the current housing market.
Mr. Chairman, we stand ready to work with you as needed.
I want to thank you for inviting me to participate in this
very important hearing. That concludes my statement, and I
would be happy to answer any questions.
[The prepared statement of Mr. Himpler can be found on page
129 of the appendix.]
Chairman Watt. We thank you, Mr. Himpler, for your
statement.
And let me thank all of the witnesses for their statements.
The members of the subcommittee will now be recognized for
questions, for 5 minutes each. And I will recognize myself
first for 5 minutes.
As I have been kind of making notes here and reading the
testimony, it seems that there are several recommendations that
are being made that at least some of the witnesses here think
would improve the information under HMDA.
Let me list those and see if I've missed any, because what
I want to do is, in the second panel, ask--and I'm alerting
them if they are here--the regulators their opinions about
these.
Ms. Hamilton, I think, mentioned paired testing. If you're
really going to get to a real evaluation of what's going on, on
the ground, that's the only way to do it.
Coverage of brokers, I think either in the testimony or in
the written testimony has been suggested, and extending the
data required to--extending the coverage of HMDA to other
lenders that are not currently covered by HMDA, and I guess,
although we're talking about brokers not being lenders, but
they need to be included in this equation. Extending the data
required to be reported under HMDA, I think was a point that
Mr. Taylor made.
And more aggressive enforcement by the regulators using the
HMDA data, or at least more aggressive referrals and possibly
more aggressive enforcement by the Department of Justice once
the referrals are made.
Are there any that I have missed? As I made notes, did I
miss any of the recommendations, generally, without getting
into the specific content of them?
Mr. Taylor?
Mr. Taylor. Yes, Mr. Chairman. You may not have missed it,
it may have been in your remarks. But, clearly, the fees and
price information on all loans, not just high-cost loans, would
be very valuable.
And then the creditworthiness of the borrowers. This can be
done in a way to protect privacy, but that obviously would
create, as my old friend, Phil Gramm, used to say, ``It would
create sunshine on the process of lending.'' So that would be
very helpful.
Chairman Watt. Any others that I may have missed in the
general summary, without specific details about getting into
the details about it?
Mr. Taylor. Public hearings was the other on merger
applications.
Chairman Watt. Public hearings on merger applications, and
they go beyond current public hearings or what's the status on
that?
Mr. Taylor. Unfortunately, public hearings are becoming a
thing of the past. The last ones were in 2004, as I mentioned,
and there have been some major merger activities, where this
data and other information becomes very relevant and available.
So that would be helpful.
Chairman Watt. All right. And I want to assure Mr. Himpler
a bit. I'm not generalizing that everybody on the panel thinks
that these are good ideas. I'm just summarizing the suggestions
that are being made so we can ask the relevant questions about
them.
Ms. Hamilton. Mr. Chairman, one other detail I think worth
considering is with regard to the complexity of brokered loans.
These loans often involve offers then counteroffers. And
technically, those would be rejections, but in many cases they
might have been a better offer for the consumer.
So I think there's room, especially in the issue of dealing
with brokers and community advocates should sit down and figure
out what are the ways that information can be captured, because
that market is changing. It makes a big difference in the
outcome for borrowers in the end.
Chairman Watt. All right. In this brief remaining time that
I have in my 5 minutes, can I get your thoughts about how
brokers might best be included in the reporting requirement?
Ms. Hamilton. I know in Massachusetts there has been some
move at the State level to look for licensing, to have all
brokers licensed, and, therefore, have to have an origination
number be part of that loan process.
I don't know how that would play into HMDA, but that's one
way of helping to track how a loan began and what that
information is.
Chairman Watt. Okay. I think my time has expired.
And I'll recognize the gentleman from California for 5
minutes.
Mr. Miller. Thank you very much.
I'm hearing from the four witnesses here that HMDA is
demonstrating discrimination, yet Mr. Himpler, in your
testimony, you have said that HMDA data is a useful tool, but
it paints an incomplete picture regarding potential
discrimination in the mortgage and lending process.
Can you explain the difference here?
Mr. Himpler. I think, essentially, going back to something
that my friend, Mr. Taylor, mentioned with respect to adding
additional credit information to the data set, it bears
repeating, that with already existing HMDA data and publicly
available recording records at local county seats, you can
already identify, by comparing these two, in many instances,
who the borrower is. So I don't know how, with adding any
additional information, Mr. Taylor is going to be able to
protect the privacy of those borrowers.
At the same time, we believe that going through the
regulators who are able to look at individual loan files and
identify patterns that deserve further scrutiny, is the proper
method. It protects the privacy of borrowers, it protects the
modelling systems of lenders, and it keeps competition very
vibrant.
Mr. Miller. Mr. Taylor, you said in your comments that HMDA
has demonstrated clearly that there is discrimination in the
marketplace. The only exception I had with your comments was
when you said, ``Skeptics must disprove discrimination.'' I
don't think that's the response, but I think it's to prove
discrimination.
But you have said HMDA clearly proves there is
discrimination in the marketplace.
Mr. Taylor. Right. I think any fair analysis, in looking at
the HMDA data, shows that there are really differences in
treatment.
Mr. Miller. But that's what we are trying to root out,
isn't it?
Mr. Taylor. The number one reason given for why they say,
``Well, it doesn't necessarily mean discrimination,'' is this
issue of credit scoring data. They say, ``Well, you don't know
what the credit scores are.''
Mr. Miller. But HMDA's--
Mr. Taylor. The problem--
Mr. Miller. --HMDA's--I only have 5 minutes.
Mr. Taylor. Yes, sir.
Mr. Miller. HMDA's supposed to demonstrate if there's a
problem in discrimination. And the regulators are supposed to
review that information and then go to the lender and say,
``These are the documents we have proving discrimination,'' and
then they really have to prove there was not. Is that not fair?
Mr. Taylor. Yes. In fact, the regulators sitting behind us
here, have actually more information than we have in HMDA data.
They have the loan files. They have--
Mr. Miller. Because a lot of it's privacy. I know that.
Mr. Taylor. No, no. They have the loan files that they can
look at. Even the financial institutions.
Mr. Miller. I know they do.
Mr. Taylor. They actually have a lot more data where they
can ferret out, follow the HMDA data trail, to these loan files
and see if there are discrepancies.
And the problem is, they actually have done that. The
Federal Reserve identified 470 banks, which, by the way, in
terms of assets, constitutes the majority of lenders in the
United States, as in the last 2 years, as having some reasons
that we need to look further as to why these discrepancies
exist.
Mr. Miller. Okay. Thank you. And I think that's where I'm
trying to get to.
Mr. Taylor. Yes.
Mr. Miller. Also, Mr. LaCour-Little. I'm not sure which one
you prefer to be used.
But you agree, essentially, with the Feds that the new HMDA
pricing data are helpful but cannot be used alone to draw
conclusions about the appropriation, but their pricing exists.
Can you explain how the pricing data is helpful?
Mr. LaCour-Little. Well, the pricing data can indicate raw
disparities, but unless one looks at the additional factors
that affect loan pricing or the incidence of higher cost loan
pricing, you can't determine whether those differences are
related to race.
Mr. Miller. So HMDA data might, if you just take it on the
data form, might make you think something exists that really
didn't until you get into the data the lender might have in
their file?
Mr. LaCour-Little. I think that's correct. It's widely
recognized by professional economists that HMDA data produces a
lot of what we call false positives, indications of something
that isn't really there when you look more deeply.
Mr. Miller. Well, Chairman Watt and I, along with Chairman
Frank and many others have been wanting to do something on
predatory lending, and I have co-authored many pieces to deal
with that.
But, Mr. Himpler, can you describe the mortgage market
before this pricing and subprime lending existed, and weren't
some families absolutely left out of the marketplace because
their credit profile was not stellar?
Mr. Himpler. Absolutely, Congressman. As recently as the
1990's, actually just prior to the 1990's, we were dealing with
a credit system that was essentially an on-or-off switch.
You either made it through the front door of home ownership
because you had pristine credit or you were shut out
altogether, for all intents and purposes.
We now have a much more vibrant system that can price for
risk that allows lenders to go deeper into the market to serve
more and more consumers to price effectively and move folks
into home ownership. And then, ultimately, up into less risk-
layered forms of lending.
Mr. Miller. Thank you. I see my time has expired.
Chairman Watt. The gentleman from Massachusetts, Mr. Lynch,
is recognized for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman.
I'd like to ask a couple questions here, and the panel can
feel free to answer as they see fit.
While we're talking about HMDA's, I'd say, static
measurements--let me put it this way.
HMDA; the goal is to create a level playing field where
racial discrimination is rooted out, and we create a level
playing field.
The Community Reinvestment Act, on the other hand, requires
something further. It requires lenders to affirmatively reach
out into areas or populations that are underserved and to root
out the discrimination that's out there.
Mr. Taylor, at the end of your report, it was long and you
didn't get to read it all, but at the very end you talked about
something that we've been working on here, which is, under the
CRA when it first started out, banks were making most of the
lending decisions. They were generating most of the loans.
Now the trend has been, private mortgage companies and
credit unions making--you know, the share that the banks were
doing is shrinking over time, so the money going into the CRA
initiative is dwindling.
And you mentioned that at least some of the large credit
unions and some of the large independent mortgage brokers
should be brought in under the same requirement. I know in
Massachusetts, and Ms. Hamilton knows and Mr. Taylor knows,
that we have a State law that requires that.
But I do notice that on the second panel, we have the
director of the National Credit Union Administration, David
Marquis, who is going to step up.
And I was wondering if you would have some recommendations
to him and to the regulators here about the whole issue of
resources coming to this problem. I mean, we can tighten up the
measurement, of course, to induce compliance so that we can
root out as much discrimination as we can, but if the resources
aren't there to get into these neighborhoods and these
populations that are not served, I'm afraid it's not going to
be enough.
And I'd just like to hear the panel's response and
recommendations.
Mr. Taylor. Thank you. I think you're absolutely right,
Representative Lynch, about a number of points that you've
made.
But in a lot of ways, the private, independent mortgage
makers, that segment that makes these mortgages outside of the
banking industry is shrinking rapidly because of some of the
unsavory practices that occurred. And even when they were doing
a lot of their business, a lot of that still involved banks
that were securitizing it or buying them as tranches of loans,
that they package and re-sell. So it's not like the banks were
divorced from this.
But, clearly, we want more consumers into the mainstream
financial institutions, frankly, because their basic banking
services are more competitive and better than payday lenders,
pawn shops, and check cashers as a way for basic banking
services, but also because of CRA.
As you have pointed out, the banks have an affirmative
obligation, and that's the language of the law, to serve the
credit needs of underserved people, including low- and
moderate-income communities. It is appalling to me that the
credit union industry does not embrace this concept.
You are going to hear--I mean, I've seen some testimony
where some of the associations for the credit union's going to
brag about how they're doing 2 percent more to people under
$40,000 income in terms of loans.
But the truth of the matter is, when you look at
minorities, and you look at women, they're underserved in the
credit union industry compared to banks.
Banks weren't created to serve people of small means.
That's the language from the Credit Union Act when it was
created. It was created to serve people with small means. And
the credit unions will get up and brag about how they're
slightly beating the banks in this area, but, in fact, they are
way behind the banks in other areas.
And the Credit Union Administration ought to be coming to
this hearing saying we embrace and we support what our
colleagues and the other agencies embrace and support, and that
is a strong CRA. And we hope that law does get expanded to them
and to others who are in the mortgage business, because it's
good business to have an affirmative obligation to make sure
that competitor products are going to working class Americans
as well.
Mr. Lynch. Ms. Hamilton?
Ms. Hamilton. I think one thing we need to watch for in
looking at the improvement that CRA has brought, and I see in
my neighborhood, banks that are now in a central city
neighborhood that weren't there 15 years ago.
What we need to look at, though, is how the corporation as
a whole is using their services and selling their products. Are
they marketing different products in predominately African-
American or Latino communities than they are in predominately
white neighborhoods? Are they only setting up a subprime
affiliate in an urban neighborhood and the prime affiliates in
the suburban neighborhoods?
And, right now, the way regulations happen, those
affiliates are examined on their own rather than the entire
corporation being looked at.
So each affiliate could be treating all their applicants
fairly, but the overall corporation's lending is highly unfair.
Those sorts of pictures can be found looking at HMDA data
and looking at practices if regulators are doing assertive
looking.
Mr. Lynch. Mr. Chairman, I don't want to abuse my
privilege.
Chairman Watt. I thank the gentleman, and the gentleman's
time has expired.
The gentleman from North Carolina, my North Carolina
colleague, is recognized for 5 minutes.
Mr. McHenry. I thank the chairman, my colleague and friend
and neighbor.
Mr. LaCour-Little, can you discuss why borrowers have
different rates? I think this is important in the context of
this discussion.
Mr. LaCour-Little. Of course, Congressman. The most
important determinant of mortgage rates is, of course, the
prevailing level of interest rates. But to that level, lenders
add credit risk spreads to reflect factors such as the
borrower's credit score, the loan-to-value ratio with the
particular product that's been selected, the purpose of the
loan, whether it's a refinance or a home purchase loan.
All of those factors have been shown to determine credit
risk and default rates over time, so lenders add risk spreads,
risk premiums, to the base rate to reflect those
characteristics.
And I should mention, too, Congressman, that if the loan is
originated through a mortgage broker, that mortgage broker will
also mark up the loan.
And in some other research that I've done I find that loans
originated through a mortgage broker cost consumers about 20
basis points more than loans originated directly by lenders.
Mr. McHenry. But also the key point of that is underwriting
standards. Is that correct, going to the cost of the mortgage?
Mr. LaCour-Little. Well, underwriting really reflects the
accept/reject decision, whether the lender is willing to make
the loan or not, and then the pricing of the loan is a separate
issue. HMDA data has traditionally been used, both to consider
disparities in approval rates by race and ethnicity. And now,
with the new pricing data, disparities in the incidence of
higher cost or HMDA spread-reportable lending.
Mr. McHenry. Now, are certain borrowers--within your
research, have you found that certain borrowers are more
willing to shop than others? Have you come to any conclusions
on that?
Mr. LaCour-Little. Well, that's outside of the scope of the
research that I did for this project. But I believe there has
been research that suggests that lower income and lower credit
scoring borrowers are less aware of the options available to
them, and they may shop less diligently, and they're just more
vulnerable, as I think the committee recognizes.
Mr. McHenry. And that goes to your mentioning of financial
literacy--
Mr. LaCour-Little. Yes.
Mr. McHenry. --in some respects.
Mr. Himpler, you said in your testimony, you discussed
about numerous weighting differences within underwriting,
within the mortgage industry, different companies have
different weighting standards to find how they can be
profitable with a certain type of mortgage and things like
that.
Can you explain to me this weighting system and how that
gives a competitive advantage? This is something that we have
not heard about too much before this committee.
Mr. Himpler. Essentially, weighting refers to the types of
considerations the different lenders give to different risk
factors, particularly to credit score. As I mentioned in my
testimony, there's a FICO score. We also have the three credit
bureaus that each have their own scoring system.
A number of lenders will use one score from the Bureaus or
FICO more weight than another, or a combination of the two, or
an average, or the mean.
In addition, a number of major lenders also have their own
proprietary scoring system. They might use that in isolation or
they might use that in combination with the Bureau's scores.
Their staff has essentially made the calculation that the
weight that they give puts them at the best advantage to price
the loan effectively, to serve the consumer best in terms of
making access to credit loans most affordable.
Mr. McHenry. And some level of assurance that they'll be
able to repay the loan.
Mr. Himpler. Correct.
Mr. McHenry. There has been a statistic that we've seen
before the committee that it costs roughly $50,000 for the
lender. A cost of $50,000 for every foreclosure. That's
nationwide.
You know, a lot of discrepancies here within the testimony
on your conclusions based on the data we have.
Well, there's an overall question within the mortgage
industry that we need to ask, and I'll do this in conclusion.
If you all could simply answer, ``yes'' or ``no'' and maybe a
sentence, but no more. And if we could start with Mr. Taylor.
Do you think the disclosure statements that Congress
mandates and the regulators mandate are effective at allowing
consumers to understand the products they're about to purchase?
Meaning, would it be helpful if Congress put forward, for
instance, a one-page disclosure statement, giving all the
essence of a mortgage and what is necessary for all to know?
Pre-payment penalties, percentage, interest rate, and things of
those sort.
You can just answer briefly.
Chairman Watt. The gentleman's time has expired, but I'll
allow each of the witnesses to answer very quickly.
Mr. Taylor. I'm terrible at single sentences.
[Laughter]
Mr. Taylor. But I will say that it is very difficult for
people to understand in the mortgage closing process all the
details and data and information and documents, and that what
needs to really occur is a system that creates responsibility
on the part of the professional to ensure that the borrower
understands what he or she is getting into and what all those
documents mean and how it impacts them.
I think that's a sentence.
Chairman Watt. Ms. Hamilton, I hope your sentence is
shorter.
Ms. Hamilton. I think a clear Disclosure Statement that
does not change at closing would also be something helpful to
avoid the bait-and-switch tactics that we hear happen all the
time.
Mr. Shelton. I agree with the same thing as both of the
previous speakers--the need for more information, more
disclosure.
Mr. Solorzano. Same here.
Mr. LaCour-Little. I think disclosures can certainly be
improved, but I'd point out that these are very complex
contracts, and improving them is not going to be a simple task.
Mr. Himpler. The industry stands fully shoulder-to-shoulder
with this Congress in wanting to make sure the borrowers
understand the mortgage process that they're about to
undertake, so disclosure would be a good thing.
Chairman Watt. I thank the gentleman. The gentleman's time
has expired.
The gentlelady from New York is recognized for 5 minutes.
Ms. McCarthy. Thank you, Mr. Chairman. I appreciate the
testimony of everybody.
As we've been hearing in the papers and on TV, we're seeing
more and more foreclosures coming forward. This morning on one
of the news shows that deal basically with just business
issues, we saw that the percentage of people making late
payments has dramatically increased, even among those on the
higher and middle incomes, and mainly because they brought or
bought creative mortgages.
What you have mentioned earlier, Ms. Hamilton, was talking
about the mortgage brokers and how Boston or Massachusetts was
looking on licensing.
We've had that discussion on one of our other committees,
mainly because if the State just does the licensing, that
person can leave that State, and then go to another State and
do the same harm in another part of the country that they might
have done in your own State. So that's something that we're
looking into, which I think is important for us to do.
But, with that being said, I have several minority
communities in my district, and in the majority of them, they
don't even have banks. That's one of the things that we have
been fighting for, to bring banks into the communities.
So, with that, I mean with the mortgage brokers that are
out there, or others, where are they steering my constituents
to get their loans because we all have our problem with
predatory rates.
So anyone out there that wants to try to answer; I know
there are three questions in there.
Mr. Taylor. I will say this. I think you've tapped into a
very, very critical thing and another part of the regulatory
failure here, is over the last 3 decades, without much problem
whatsoever, mainstream financial institutions have been able to
close their branches in a lot of these neighborhoods.
And, as Ginny Hamilton mentioned earlier, in Boston what we
did is we actually worked, in fact, in concert with the
Massachusetts Banker's Association and with the regulators and
others, and the banks, to try to get them to commit to open
branches, because it really, really matters.
Where you see some of the worst discriminatory practices,
in those areas where there isn't the kind of mainstream full
service access that is brought by a financial institution, part
of the exam, the CRA exam of banks, 25 percent of their grade
is what's called the service test.
Primarily, what is the history of opening and closing
branches in underserved neighborhoods. It's not a fact by the--
it's not something they really--and they're not going to like
this, but it's not something they really look at, because these
banks are able to close their branches willy-nilly, and is
having a real disparate impact on neighborhoods in terms of not
just whether they're subprime or predatory loans but basic
banking services to having them come from check cashers, pawn
shops, and payday lenders, instead of full service branches.
So this is a critical issue. I think it's important for all
of America that the mainstream financial institutions that will
treat people more decently, at least historically, than some of
these other actors, that they need to be back in these
communities.
And what we need to do is to influence the regulators and
create laws to make sure that they're profitable and
competitive in these communities.
Mr. Himpler. Ms. McCarthy, if I may, you mentioned at the
outset the articles you have been seeing or the TV reports for
default in payments. We recognize that's a very real issue. I'd
be remiss if I did not implore this committee, as we see these
reports come in, that the committee exercise restraint.
The regulators that you'll hear from on the next panel
issued non-traditional mortgage guidance last year that
tightened up credit. More recently, they have issued a
statement on subprime to their examiners that calls for
underwriting loans at a fully-indexed rate.
They are doing the right things. We ask that you give the
regulators time to see how that plays out.
The last thing that we need, as an economy, is to tighten
liquidity further when folks, like your constituents, are
facing defaults and an increased possibility of foreclosure.
Ms. McCarthy. I agree with you. But, I mean, we did have a
hearing on this, and, you know, we met with a number of the
bankers and everything and, certainly to their own, they want
to make sure their reputation is out there. They don't want to
go into the business of foreclosure. And, as far as the economy
goes, I mean, this is going to hurt us into the year 2009,
they're saying now.
We had the first wave. They're afraid about the second
wave, which is actually starting sooner, I think, than
everybody even thought.
So I think I go back to what Mr. Taylor had mentioned. It
would be in the best interest of the financial institutions,
the banks, to come into the communities to make sure that good
packages are being put into those particular communities. They
should have been regulating, or even bringing it up, about
these specialty mortgage brokers, and I'll even say that to the
regulators.
They knew this was going on. Why did they wait so long to
step forward to say, ``Hey, we're going to take care of this.''
It's a little bit too late for an awful lot of people.
Ms. McCarthy. I yield back the--Ms. Hamilton?
Ms. Hamilton. I just want to share a quick story from one
of the actual test incidents as we did, where we had an
African-American tester go into a prime bank, a mainstream
bank, and the bank representative told her that the bank
usually dealt with commercial lending and did not really
provide residential mortgages, and as part of other
information, including--even though her credit score was good,
that closing fees would be $8- to $9,000 for the loan she was
looking to make.
Two days later, the white tester, with a lower credit
score, was told by the same bank that they provided home
mortgage loans and was immediately given information about how
she could work with them.
So certainly, the locations and the CRA work are important,
but it doesn't stop the discrimination from happening unless
we're looking at the discriminatory behavior happening in
incidences.
And those are real people, real people who are discouraged
by that interaction, and, therefore, more likely to go to
another broker who's going to tell them, ``Sure, I'll give you
a great deal, your credit score's wonderful.''
Chairman Watt. The gentlelady's time has expired.
This is an extremely important issue that has substantial
implications in a number of communities around the country.
And, for that reason, I'm pleased to welcome to the
subcommittee's hearing three members who are not on the
subcommittee itself, two of whom are on the full Financial
Services Committee, but do not serve on the subcommittee.
And I'm pleased to ask unanimous consent that they be
allowed to ask questions. Without objection, I will then
recognize Mr. Green for 5 minutes.
Mr. Green. Thank you, Mr. Chairman, and I thank the
witnesses for appearing today.
Let me start by indicating that there's a term called
``voir dire'' or ``voir dire,'' depending on where you're from.
In Texas, we say ``voir dire.'' It is a French term, and it
means to speak the truth. And I have found that it is very
helpful to approach large numbers of persons with the process
that we use in ``voir dire'' or ``voir dire.''
So I'd like to ask questions to you as a panel, and that
way I can get more answers within a shorter period of time.
Let me start with something that I believe to be the case,
but because I have friends that I have debated with through the
years and did not ask early on what their position was, I found
that I was entirely wrong, and, as a result, I should have been
debating another point.
So let me start with the question, does everyone agree that
invidious discrimination exists in lending? If you agree, would
you kindly extend the hand into the air?
[Hands raise]
Mr. Green. Okay. You may lower your hands.
Now, let's go to the very end. Mr. Himpler, you do not
agree that invidious discrimination exists in lending?
Mr. Himpler. I think that it's--you can't argue that there
are no incidents of discrimination. I'm not sure that I would
characterize the entire lending system, as--
Mr. Green. Let me continue, and let's agree that we're not
talking about all lenders, but that it exists in lending
institutions to the extinct that it is abhorrent and ought to
be eliminated. Do you agree that invidious discrimination
exists?
Mr. Himpler. That there are incidents of invidious
discrimination?
Mr. Green. Yes, sir.
Mr. Himpler. I would agree with that.
Mr. Green. And let me go quickly to Mr. LaCour-Little.
Do you agree? I didn't see your hand go up.
Mr. LaCour-Little. Yes. Certainly--
Mr. Green. Could you bring that microphone closer, please?
Mr. LaCour-Little. Yes. Certainly individual instances of
disparate treatment are an important concern.
Mr. Green. For edification purposes, invidious
discrimination is actionable discrimination, that which one can
be sued for in the context that we are talking about today.
Do you agree that kind of discrimination exists in lending?
Mr. LaCour-Little. There certainly could be individual
cases that--
Mr. Green. You said, ``could be,'' so I assume that you're
not--you don't have the empirical data, but your suspicions are
that it may not exist if you say, ``could.''
Mr. LaCour-Little. That's not my focus, Congressman. As a
professional economist, I look at aggregate patterns and data,
and I don't see aggregate evidence.
Mr. Green. Do you agree that some exist?
Mr. LaCour-Little. I agree that there could be individual--
Mr. Green. Could be.
Mr. LaCour-Little. There may be.
Mr. Green. All right. Was there someone else who did not
extend their hand? If so, raise your hand now.
All right, sir. Do you agree that invidious discrimination
exists?
Mr. Solorzano. Yes, I do agree.
Mr. Green. Okay. Thank you.
Mr. Solorzano. I was too slow to raise my hand.
Mr. Green. Okay.
It's important to understand this because when you get a
better understanding of where people are, you get a better
understanding of where the debate really is.
And now, I'll have to use just a bit of my time to explain
something that I probably shouldn't have to explain. But I
heard this commercial recently that indicated that a certain
thing that took place took more than an act of Congress. It
took our Congress willing to act.
And many things take weight power, but they also require
willpower. And to have the willpower to do something
necessarily, one must conclude that something must be done. So
if you don't conclude that there is a need to do something,
then there's a good likelihood that you won't be about the
business of doing whatever it is that others may see as needing
to be done.
With this said, to the economist, I would ask, sir, do you
believe that we can construct an acid test, that we shall call
HMDA data, an acid test that will reveal whether or not
invidious discrimination exists?
Mr. LaCour-Little. Well, Congressman, I think it's not
related to HMDA data, but I think the sort of matched pair
testing that the witness from Boston--
Mr. Green. Let me just say this, if I may quickly.
Mr. LaCour-Little. Yes.
Mr. Green. There are many occasions when persons have
finished, and I don't know whether they have said ``yes'' or
``no.'' So let me just ask you this way: Yes or no, sir; can we
construct an acid test so as to indicate to us whether or not
invidious discrimination exists? Can such a test be
constructed?
Mr. LaCour-Little. Not using HMDA data.
Mr. Green. Well, let's not call it HMDA. A rose by any name
smells just as sweet as far as I'm concerned.
Whatever--by whatever name can an acid test be constructed
such that we can determine whether invidious discrimination
exists in lending?
Mr. LaCour-Little. Again, I believe that the matched pair
testing of the type described by Ms. Hamilton is--
Mr. Green. Would that--
Mr. LaCour-Little. --the best approach.
Mr. Green. --would that be testing? Is that right?
Mr. LaCour-Little. Yes.
Mr. Green. Okay. Now, let's talk about the--
Chairman Watt. Unfortunately, the gentleman's time has
expired.
Mr. Green. Can I get one additional question, Mr. Chairman?
Chairman Watt. I ask unanimous consent for one additional
minute for the gentleman.
Mr. Green. Okay. You are aware that to perform the testing
of which you speak, we would have to change the Federal law
because you cannot file applications for testing beyond the
pre-application phase, which means that we're now back to
something that ought to be done, that can't be done, because
Federal law prohibits it from being done.
And perhaps I won't ask a question. I'll just leave you
with that comment.
Thank you, Mr. Chairman. You were more than generous.
Chairman Watt. Thank you very much for participating in
this important hearing.
The gentleman from California, Mr. Baca, who chairs the
Congressional Hispanic Caucus, is recognized for 5 minutes.
Mr. Baca. Well, first of all, thank you very much, Mr.
Chairman, for having this important hearing and for your
leadership of one an equality and fairness in this area,
because we need to wipe out mortgage discrimination and
predatory lending once and for all, and we must do more to
protect our families. And thank you, you know, for being a
leader there.
I'd like to address a couple of things, not only as chair
of the Congressional Hispanic Caucus, and a member of this
committee, but, according to the 2005 HMDA data, 52 percent of
African-Americans and 40 percent of Latinos are in high-cost
subprime loans compared to 19 percent of whites.
For Hispanics, almost 20 percent who receive high interest,
subprime loans, are likely to go into foreclosures, and data
shows that 73,000 out of 375,000 subprime loans made to
Hispanics in the year 2000 are more likely to end in
foreclosure. In my district alone, the foreclosure rate is 3
times higher than it was just 1 year ago.
And, for the record, I'd like to enter this newspaper
article that came out by the Riverside press, ``Inland default
notices see sharp rises.'' It's alarming to us when we have the
largest growth, we have the biggest attractions, and we have
the housing development, and everybody is moving into the
Inland Empire, both San Bernardino and Riverside, yet there are
high numbers that we see in terms of foreclosures.
I'd like to ask my first question to Mr. Shelton. Can you
talk about some of the studies that have been based on HMDA
that show racial discrimination in predatory lending?
Mr. Shelton. Yes. Let me just say that the study that we
found to be most enlightening was the study by the Center for
Responsible Lending, entitled, ``Unfair Lending: The Effects of
Race and Ethnicity on the Price of Subprime Mortgages.''
This is a study that was done May 31, 2006, and, of course,
was based on 2004 HMDA data. It clearly pointed out that racial
discrimination is very much a part of the landscape.
There are a couple of other studies I think will be very
helpful for the community to consider.
The National Community Reinvestment Coalition has a study
entitled, ``Income is No Shield Against Racial Differences in
Lending,'' dated July 2007. And this uses 2005 HMDA data as
well, clearly establishing the same point, that, indeed, racial
discrimination occurs in the lending process.
The last two I would just throw out for your consideration.
A study by Calvin Bradford for the Center for Community Change,
called ``RISK'' or ``Race,'' which was done in 2003.
And a study by ACORN in 2004, called, ``Separate and
Unequal Predatory Lending in America, 2004,'' was also
published in 2004.
Each of these studies points to the same conclusions, that,
indeed, based on HMDA data, we're able to establish that,
indeed, discrimination occurs in the lending field, home
mortgages, across the board, particularly looking at African-
Americans and Latinos.
Mr. Baca. Thank you for your testimony.
The next question I have is for Ms. Hamilton.
In your lending testing described in ``The Gap Persists,''
what type of discrimination did you find against Latinos, and
what did your organization do to follow up on the
discrimination you found?
Ms. Hamilton. For the test, we conducted five pairs
matching a Latino tester and a non-Hispanic white tester. In
two of those, we found evidence of discrimination.
Differences included different quotes on the monthly
payments they would have, also giving more information to the
white tester about all of the costs involved in the process,
and different advice about how to work with better loan
products when you have a mid-range credit score.
The white loan seeker also got a lot of informational
literature about the products and follow up e-mail information,
whereas a Latino loan seeker didn't receive any of that
information.
In the second case, we saw--this was at a bank rather than
a mortgage company, and the white home seeker was told about
more loan products, was encouraged to submit an application as
soon as possible, and there was no application conversation
with the Latino home seeker.
Again, the white home seeker was given lots of pamphlets
about different mortgage products, a guidebook about mortgages,
a work sheet for calculating mortgage costs, and the
application, and the Latino home seeker was sent away with none
of this information.
Mr. Baca. One final question that I have: How do you think
that the Federal banking regulators and the Federal enforcement
agencies could make more of an impact in fighting
discrimination against Latinos and other protected classes?
Ms. Hamilton. I think the data that is here, the cases that
have been referred by the Feds, should be aggressively
investigated. They should be looking at that data, looking at
those files, and partnering with Department of Justice, HUD,
and HUD-funded agencies, such as my own, that do testing, to
use testing as part of the process to see whether or not the
behavior in the banks towards actual loan seekers spells out
what the data is showing.
Mr. Baca. And plus more accountability from us in Congress
to hold them accountable, of course, right?
Ms. Hamilton. Of course.
Mr. Baca. Okay. Thank you.
Chairman Watt. The gentleman's time has expired.
The chairman recognizes the gentlelady from Texas, Ms.
Jackson Lee.
Ms. Jackson Lee. Mr. Chairman, let me thank you. I am a
total guest. In as much as I am not a member of the full
committee, let me thank the chairman of the subcommittee, Mr.
Watt, and, of course, the ranking member for their generosity.
I was confronted this morning by the same news that
continues to ascend to, I think, the crisis level, which is,
don't think you can rest on your laurels. These foreclosures
will continue into 2009. That's a long period of time to watch
the mountain collapse, probably the number one asset of most
Americans, and that is their home.
Coming from Houston, Texas, we have been on this cycle
before, but it was economic. When the energy industry crashed
in the 1970's, we saw the massive walk-away of people who only
wanted to have the American dream and to have a job. But the
industry collapsed.
I saw the same kind of spiraling disappointment in the
massive surge of effort to reform the bankruptcy laws, to,
unfortunately, after 7 years of fighting, we lost the battle.
And I have heard from not only bankruptcy lawyers but
individuals who are in the Bankruptcy Court, but bankruptcy
judges, who said that that legislation had enormous negative
impact on people being able to retain their assets.
Let me give two themes that have been used.
Generally, all money is green, and the privileges of due
process. We all have a right to know our rights.
And I notice, Mr. Taylor, in your comments, the interesting
thing is the lending disparities for African-Americans were
large and increased significantly as income levels increased.
That looks like the most attractive person that you could
ever have. Here comes someone with a check, with money, with
debt. Hispanics also experience greater disparities in high-
cost lending compared to whites as income levels rose.
I'm not going to go to you first, but I am going to ask the
distinguished gentleman, Mr. Himpler, at the end, to ask the
question, as this committee moves forward, they will have the
legislative jurisdiction.
And we see the improvements that came after the Community
Reinvestment Act, but we've seen some diminishing of its power.
Would you welcome racial factors and racial criteria that
the lending entities would have to meet based upon this
preliminary data, and it is research by non-governmental
entities. But would you welcome the fact a cure for what seems
to be an obvious and conspicuous discrimination?
Not that someone would have to go and file a lawsuit, but
would you welcome the industry, this particular home-lending
industry, this component of the financial services industry, to
have to use and have to be tested and have to assess racial
criteria, how many loans they gave, what kind of loans they
gave based on race, age, and African-American, Hispanic, and if
there are other distinctive groups, Native American.
Mr. Himpler. Well, Congresswoman, with respect to the
example you cited with different borrowers with different
incomes, with minority borrowers with higher incomes ending up
with higher interest rates, it gets back to a very basic point
in my testimony earlier, that the HMDA data does not contain
credit information. Our lenders do not make credit decisions
based on income alone.
At the same time, that begs the question, I understand, of
why not to include credit risk information.
Ms. Jackson Lee. And since my time is short, my question
is, there are high income that get discriminated against,
therefore, it seems obvious on the face it's race. Would you
welcome that additional indicia that you have to report on,
rejecting a high income person of a different race?
Mr. Himpler. I think to a large extent the data set that we
report under HMDA, that ultimately goes to the regulators, was
put to that test through the examination process.
Ms. Jackson Lee. Mr. Taylor, can you more--thank you very
much--refine--give me a more refined answer.
Can we work with those parameters? We seem to have high
income persons. That's a good litmus test.
Mr. Taylor. Right.
Ms. Jackson Lee. When we send the low income folk in,
somebody has an excuse. High income, they are discriminated
against. How can we solve that? And I know there's a list of
criteria.
Mr. Taylor. We need more sunshine in this area. I mean,
what's odd about this conversation, to me, is they say, well,
HMDA doesn't quite show that there's discrimination. Then we
say, all right, well, let's get the data that shows whether it
exists or not. And then, through discovery, you can go through
the process of court cases that really reveal what's really
going on. But they don't want to do that, and they don't want
to do that because they--we all know why they don't want to do
that.
And I liked the distinction you brought about in Texas, and
especially in Houston. You've been through this before. But
what happened in those foreclosures is that people lost their
income.
Ms. Jackson Lee. They lost their income.
Chairman Watt. The gentlelady's time is expired.
Mr. Taylor. Does that mean my time is?
Chairman Watt. Finish your answer.
Mr. Taylor. Okay. See, they had the foreclosures, and this
is an important thing for us. The foreclosures are primarily
relating to a change in product, not a change in income. And
that ought to give people pause for concern.
We have a vibrant mortgage system, but it's not as vibrant
as it used to be. Wall Street is shaking from these mortgage
backed securities and CDOs that are absolutely causing havoc on
the market.
If we don't recognize that we need to do something for the
good of all of America to change the system, to make it more
accountable, to make it fairer, and to ensure that people are
able to stay in their homes, we're going to have this problem
again in the future.
Ms. Jackson Lee. I thank the chairman and I thank the
witnesses.
Chairman Watt. And I thank the members for their attention,
both members of the subcommittee and members who are not on the
subcommittee.
I thank the panel of witnesses for your testimony and for
being responsive to the questions. I think you have helped to
frame this discussion in a way that helps us going forward to
the second panel. So let me express the thanks of the
subcommittee and ask the second panel to come forward.
Mr. Taylor. Thank you, Mr. Chairman.
Chairman Watt. If we could encourage those in the audience
to conclude their conversations so that we could move to the
second panel, that would be most appreciated.
I would like to start by thanking the members of the second
panel for being here. I know it is somewhat out of the ordinary
to reverse the order of the panels, but we thought we would try
it to try to frame some of the issues that are being raised so
that you could more effectively talk about those issues and
perhaps get to a constructive set of responses.
So we thank you, especially those of you who came and heard
the first panel. We gave you the option of not having to do
that if you chose not to, so as not to take up your time, but I
think most of you were here, and I'm most appreciative of you
doing that, and even more appreciative of your being here to
testify.
I will now introduce the members of the second panel:
We have Ms. Sandra Braunstein, Director of the Division of
Consumer and Community Affairs of the Board of Governors of the
Federal Reserve Board; Ms. Sandra L. Thompson, Director of the
Division of Supervision and Consumer Protection, Federal
Deposit Insurance Corporation; Ms. Montrice Yakimov, Managing
Director, Compliance and Consumer Protection, Office of Thrift
Supervision; Mr. David M. Marquis, Director of the Office of
Examination and Insurance, National Credit Union
Administration; Mr. Calvin R. Hagins, Director for Compliance
Policy, Office of the Comptroller of the Currency; Ms. Grace
Chung Becker, Deputy Assistant Attorney General, Civil Rights
Division, U.S. Department of Justice; Ms. Kim Kendrick,
Assistant Secretary, Office of Fair Housing and Equal
Opportunity, U.S. Department of Housing and Urban Development;
and Ms. Lydia Parnes, Director of the Bureau of Consumer
Protection, Federal Trade Commission.
I thank you on behalf of the subcommittee.
And before I recognize Ms. Braunstein, let me ask unanimous
consent to submit for the record questions to these witnesses,
asking them about various enforcement practices and efforts
that they have made in this area, and I will ask unanimous
consent to submit your responses for the record so that you
won't necessarily have to go in detail over all of the things
that you've said.
And I'll remind you--and without objection, these will be
submitted for the record.
Also, without objection, your full written statements will
be submitted for the record. And we would, therefore, ask you
to summarize your testimony in 5 minutes or so, as we asked the
first panel to do.
Again, there will be a yellow light that comes on at 4
minutes, and a red light that comes on at 5 minutes, so we
would ask you to wrap up at that point, as expeditiously as you
can.
Ms. Braunstein is recognized for 5 minutes.
STATEMENT OF SANDRA F. BRAUNSTEIN, DIRECTOR, DIVISION OF
CONSUMER AND COMMUNITY AFFAIRS, BOARD OF GOVERNORS OF THE
FEDERAL RESERVE BOARD
Ms. Braunstein. Thank you.
Chairman Watt, Ranking Member Miller, and members of the
subcommittee, I am pleased to appear before you to discuss the
Board's efforts to promote fair lending.
It is widely known that there are racial and ethnic gaps in
the availability and price of mortgage credit. In mortgage
lending, these gaps have been highlighted by the Home Mortgage
Disclosure Act, or HMDA data, including pricing data required
by the Board's regulation.
Like racial and ethnic disparities in income, education,
employment, and health care, gaps and access to credit have
long presented our society with moral, legal, social, and
economic challenges.
The Federal Reserve shares concerns that credit gaps may
result in part from illegal discrimination, and we vigorously
enforce compliance with fair lending laws.
The Board has a long-standing commitment to ensuring that
every bank it supervises complies fully with the fair lending
laws.
We have made consumer compliance supervision, including
fair lending, a distinct function in the Reserve banks and at
the Board, including specialist examiners and a separate report
of examination.
When conducting fair lending examinations, our consumer
compliance examiners perform two distinct functions.
First: Examiners evaluate the bank's overall Fair Lending
Compliance Program to ensure that management is committed to
fair lending and has put in place the appropriate systems,
policies, and staff to prevent violations.
Second: Examiners determine if the bank has violated the
fair lending laws. If we have reason to believe that there is a
pattern or practice of discrimination under the Equal
Opportunity Act, the Board, like other Federal banking
agencies, has a statutory responsibility under the Act to refer
the matter to the Department of Justice, or DoJ, which reviews
the referral and decides if further investigation is warranted.
A DoJ investigation may result in a public civil
enforcement action or settlement. The DoJ may decide, instead,
to return the matter to the Federal Reserve for administrative
enforcement. When this occurs, we ensure that the institution
corrects the problems and makes amends to the victims.
We take our responsibility to refer matters to the DoJ
seriously. In the first 6 months of this year alone, we
referred five institutions after concluding that we had reason
to believe they engaged in a pattern or practice of
discrimination.
Two of those referrals involved ethnic and racial
discrimination in mortgage pricing by nationwide lenders. One
referral involved racial discrimination in the pricing of
automobile loans. One referral involved discrimination against
unmarried people. And one referral involved an institution with
two loan policies prohibiting lending on Native American lands,
and the other policy restricted lending on row houses, which
resulted in discrimination against African-Americans.
Last year we referred four institutions to the DoJ for
issues, including pricing discrimination in auto lending,
mortgage red-lining, and age discrimination. We referred an
additional five matters in 2004 and 2005.
The Federal Reserve conducted targeted reviews of
institutions for pricing discrimination when the HMDA pricing
data first became available in 2005.
As a result of these reviews, as I previously mentioned, we
referred nationwide lenders to the DoJ for mortgage pricing
discrimination.
Additionally, these reviews have reinforced several
important aspects of fair lending supervision and enforcement.
First: HMDA data are most helpful as a fair lending tool
when they are used in conjunction with other risk factors and
supervisory information to identify institutions that warrant
closer review. In particular, our referrals have confirmed that
pricing discretion and incentives to charge more remain
significant fair lending risks.
Second: To be accurate, our reviews need to be based on an
institution's specific pricing policies and product offerings.
Third: It is important to test separately for
discrimination in different geographic markets. A lender may
have relatively small, unexplained pricing disparities across
the Nation as a whole but still discriminate in some distinct
geographic markets, such as individual MSAs.
The Federal Reserve is committed to addressing racial and
ethnic gaps in availability and affordability of credit. With
our supervisory and enforcement authority, we ensure that the
banks we supervise comply fully with the fair lending laws and
take strong action in the rare cases when they do not.
We are pleased to have this opportunity to work with you to
ensure the consumer credit markets are free from illegal
discrimination.
[The prepared statement of Ms. Braunstein can be found on
page 76 of the appendix.]
Chairman Watt. Thank you, Ms. Braunstein, for your
testimony.
Ms. Thompson is recognized for 5 minutes.
STATEMENT OF SANDRA L. THOMPSON, DIRECTOR, DIVISION OF
SUPERVISION AND CONSUMER PROTECTION, FEDERAL DEPOSIT INSURANCE
CORPORATION
Ms. Thompson. Chairman Watt, Congressman Miller, and
members of the subcommittee, I'm the Director of Supervision
and Consumer Protection for the FDIC. In this role, I oversee
the Agency's bank supervision activities, which include both
safety and soundness and compliance with consumer protection
and fair lending laws.
I appreciate the opportunity to testify today on behalf of
the FDIC to discuss enforcement of fair lending laws and our
use of Home Mortgage Disclosure Act data to uncover illegal
discrimination.
The FDIC does not tolerate credit discrimination in the
banks we supervise. We examine institutions for their
compliance with fair lending laws regardless of whether they
report pricing data under HMDA, and fair lending exams are
conducted in conjunction with each scheduled compliance
examination.
HMDA data is an important component of fair lending
examinations and provides examiners with valuable information
about a bank's mortgage loan products and its lending
practices.
Even if a bank is not required to report HMDA data, all
banks must retain the information mandated under HMDA. This is
particularly significant for the FDIC because many of the banks
we supervise are small banks, and they are not subject to HMDA
reporting requirements, either because their assets are below
the thresholds for HMDA filing or the banks are located in a
rural area.
Slightly more than half of the banks supervised by the FDIC
are HMDA data reporters. However, while the other half of our
banks are not required to report HMDA data, they still undergo
a fair lending examination where FDIC examiners carefully
review HMDA data to look for evidence of discriminatory
lending.
In addition to providing important information for fair
lending exams, the HMDA pricing data is useful for targeting
disparities that require further review.
When the HMDA data indicates the possibility of
discriminatory pricing, the FDIC focuses special attention on
the institution. Examiners review individual loan files and
they conduct additional statistical analysis.
Examiners also consider the presence of employee or broker
discretion and pricing decisions and the relationship, if any,
between loan pricing and compensation of loan officers or
brokers.
When we discover fair lending violations, in all cases, the
FDIC requires the banks to take immediate corrective action.
The corrective action may vary in each case, but the goal is to
ensure that the practice is stopped and that any victims are
identified and receive appropriate remedies.
In addition, since 2004, the FDIC has taken 53 enforcement
actions. Let me emphasize that the FDIC can and does require
the bank to take corrective action even before a case is
referred to the Department of Justice.
The FDIC is currently reviewing all cases involving
possible discriminatory practices that have been referred to
the Department of Justice for appropriate enforcement action.
We intend to pursue these cases aggressively and to move
forward in a timely manner.
In conclusion, the FDIC takes very seriously our
responsibility to protect consumers and enforce the fair
lending laws.
We will continue to work to assess our supervisory
practices in order to identify fair lending violations and
maximize the value of the HMDA data.
Thank you for the opportunity to testify, and I look
forward to answering any questions.
[The prepared statement of Ms. Thompson can be found on
page 279 of the appendix.]
Chairman Watt. Thank you, Ms. Thompson, for your testimony.
I will now recognize Ms. Yakimov for 5 minutes.
Ms. Yakimov. Thank you.
STATEMENT OF MONTRICE GODARD YAKIMOV, MANAGING DIRECTOR,
COMPLIANCE AND CONSUMER PROTECTION, OFFICE OF THRIFT
SUPERVISION
Ms. Yakimov. Good afternoon, Chairman Watt, Ranking Member
Miller, and members of the subcommittee.
Thank you for the opportunity to discuss the Office of
Thrift Supervision's fair lending program.
Three pillars form the basis of our approach to fair
lending compliance and enforcement. A rigorous and regular exam
program, ongoing initiatives to ensure appropriate resources
and attention are devoted to fair lending compliance and
enforcement, and setting forth clear supervisory expectations
relating to compliance with fair lending laws and all consumer
protection statutes for the institutions we regulate.
OTS examiners conduct a fair lending assessment during each
comprehensive safety and soundness and compliance exam, which
occur every 12 to 18 months, depending on the institution's
asset size.
In addition, our examiners conduct targeted fair lending
reviews when an evaluation of an institution's HMDA data, or
other factors suggest potential fair lending concerns.
OTS utilizes interagency exam procedures, which require all
examiners to evaluate savings associations for various
indications of discrimination, including potential
discrimination in pricing, underwriting, steering, and red-
lining.
Because the HMDA data include valuable information, but not
all the factors needed to determine fair lending compliance,
OTS examiners consider additional information about a lender's
practices before reaching conclusions.
Institutions identified as requiring additional analysis
due to the HMDA data, or other issues, are asked to provide
supplemental information, such as credit scores, debt-to-income
ratios, loan-to-value ratios, the extent of discretionary
pricing, and related factors.
If unlawful discrimination is found, the institution is
referred to the Department of Justice or HUD in accordance with
Federal fair lending laws. Depending on the outcome of the
referral and the nature of the violation, OTS also takes action
to resolve the matter fully.
For example, as a result of routine and targeted fair
lending reviews at institutions whose 2004 and 2005 HMDA data
revealed potential fair lending concerns, OTS directed several
institutions to take steps to strengthen their fair lending
compliance program, including expanding fair lending training
to employees, enhancing monitoring systems for brokers and
correspondence, and implementing more detailed underwriting
standards to better ensure compliance with fair lending laws.
In addition to these steps, OTS has also undertaken 10
enforcement actions, including the Equal Credit Opportunity
Act, and 9 actions involving HMDA since January 1, 2004. These
cases have resulted in three cease and desist orders and civil
money penalties, totalling approximately $118,000.
Pillar two of our fair lending program involves an ongoing
evaluation of the resources we allocate to this critical area.
As of June 30th, OTS employed 556 examiners, specialists, and
managers. Our examiners and managers are cross-trained in both
safety and soundness and consumer compliance.
However, our cadre of examiners and managers includes a
team of 65 specialists with advanced knowledge and expertise in
fair lending laws and regulations.
In 2006, we hired 80 new examiners, and we're in the
process of hiring an additional 40 more.
We have also created five new complaint examination
specialist positions, one in each of our regional offices,
again, to buttress our resources in this critical area.
The third pillar I will discuss and close with involves the
commitment of OTS to ensure that the entities that we regulate
understand our supervisory expectations, relating to the laws
and regulations that broadly apply to them, and that we
consistently apply these standards to all segments of the
industry we regulate.
Consistent with this commitment to provide clarity, OTS is
developing an advance notice of proposed rulemaking that will
seek comment on various issues involving unfair or deceptive
acts and practices, including various approaches and models OTS
could use in connection with such a rulemaking.
Our goal is to solicit public comment on whether and how
the OTS should expand its current prohibitions involving unfair
acts or practices, and to provide greater clarity regarding how
we will make UDAP determinations going forward.
I will close by reiterating that OTS is committed to fair
lending examination and enforcement. It is the core of our
mission.
I appreciate the opportunity to join you today to describe
OTS initiatives in this critical area.
[The prepared statement of Ms. Yakimov can be found on page
301 of the appendix.]
Chairman Watt. Thank you so much for your testimony.
Mr. Marquis is recognized for 5 minutes.
STATEMENT OF DAVID M. MARQUIS, DIRECTOR, OFFICE OF EXAMINATION
AND INSURANCE, NATIONAL CREDIT UNION ADMINISTRATION
Mr. Marquis. Thank you for this opportunity to testify
today regarding NCUA oversight of consumer laws pertaining to
mortgage lending and housing. I am the director of examination
and insurance, and I'm responsible for the exam program at
NCUA.
This is a timely and important subject that merits
congressional oversight. I commend you for your interest in
rules available to help consumers with what is arguably the
most important purchase they'll ever make--their home.
NCUA places a priority on ensuring credit unions comply
with all non-discrimination laws and works to protect consumers
against discrimination of unfair home mortgage lending
practices.
NCUA enforces fair lending laws through a comprehensive
examination process and HMDA data. Approximately 2,300 credit
unions filed HMDA data in 2005. Combined with a careful review
of member complaints, NCUA is able to evaluate each credit
union's compliance with the law in gaining a more complete
picture of how a credit union makes mortgage loans.
As of 2006, just over 5,600 insured credit unions--
federally insured credit unions--made mortgage loans comprising
approximately 2 percent of the mortgage market.
With those credit unions subject to HMDA, NCUA works
closely with the credit unions to ensure timely filings. NCUA
issues regulate alerts periodically on this and other consumer
protection compliance issues.
With regard to timely HMDA filings, NCUA noted
disappointing trends and began assessing civil money penalties
against late filers; 17 penalties were assessed in 2005 and 22
in 2006.
NCUA adopted the fair lending exam procedures developed
jointly by the FFIEC in 2000. These rigorous new standards
enabled NCUA to more effectively allocate resources devoted to
oversight of fair lending practices.
NCUA also evaluates fair lending compliance as part of its
risk-focus examination. Compliance is one of 7 risk areas
considered by our 45 examiners during this overall assessment
of an institution's safety and soundness.
If a violation is noted, it is documented in the Agency's
compliance data base, and the examiner communicates corrective
action to be taken.
Separate from the normal examination, NCUA has 25 examiners
devoted to fair lending compliance.
NCUA selects credit unions for failing the examination
based on factors such as the HMDA data, member complaints, and
the complexity of lending programs offered by Freddie Mac.
Freddie Mac union members have several avenues through which to
facilitate the handling of consumer complaints about possible
discrimination and home mortgage lending.
NCUA maintains a 1-800 consumer helpline and an Internet
site, but, in addition to receiving complaints by mail, which
continues to provide the greatest amount of consumer input in
this area.
NCUA encourages the resolution of consumer complaints at
the credit union level first. NCUA initially directs the credit
union to investigate the complaint, inform NCUA of the results
of the investigation, and resolve the matter according to
applicable laws and regulations.
The Federal Credit Union Act requires each Federal credit
union to have a supervisory committee, which ensures
independent oversight of the credit union's board of directors
and advocates the best interest of its members. All supervisory
committee members are volunteers, and they are the first
responders in investigating member complaints.
It is important to know, however, that NCUA reviews
supervisory committee recommendations and actions, and follows
up with the complainant to ensure that the matter is properly
resolved.
Corrective actions can include letters of understanding and
agreement, which reflect a credit union's CAMO rating, to cease
and desist and civil money penalties.
Our experience is that the overwhelming majority of member
complaints stem from poor communication between the credit
union and the member or misunderstanding of the credit union's
lending policies.
As a result, virtually all complaints are resolved after
the NCUA directs the credit union to address the complaint with
the member.
NCUA continues to refine this method in overseeing industry
compliance with Federal lending laws. Examiner training has
become more sophisticated and has resulted in a better
understanding of lending activity in specific geographic areas,
as well as a heightened awareness about how to detect
discrimination.
In addition, NCUA constantly urges the credit union
industry to promote financial education to credit union members
and participate in industry compliance seminars and training in
order to be more proactive in helping credit unions institute
adequate compliance programs and oversight procedures.
Credit union members are entitled to fair treatment, not
just because the law says so, but because they are, in fact,
the owners of these institutions.
When their treatment is not fair and within the law, NCUA
is there to step in and make certain that no member is subject
to discrimination in any form or fashion.
Thank you for listening, and I'll be glad to answer
questions later.
[The prepared statement of Mr. Marquis can be found on page
202 of the appendix.]
Chairman Watt. Thank you for your testimony.
Mr. Hagins, of the Office of the Comptroller of the
Currency, is recognized for 5 minutes.
STATEMENT OF CALVIN R. HAGINS, DIRECTOR FOR COMPLIANCE POLICY,
OFFICE OF THE COMPTROLLER OF THE CURRENCY
Mr. Hagins. Thank you. Chairman Watt, Ranking Member
Miller, and members of the subcommittee, I'm Calvin Hagins, the
Director for Compliance Policy at the OCC.
I'm pleased to be here with you to discuss the OCC's
commitment to ensuring compliance with fair lending laws.
Let me begin by saying there is no room in the national
banking system for illegal discrimination. I've been a national
bank examiner for over 20 years, and I've participated in
dozens of exams of fair lending during that time.
I can assure you that the OCC is looking hard at fair
lending and has not hesitated to take action when we've found
evidence of illegal discrimination. The OCC has developed a
supervisory approach that drills down into those institutions,
markets, and loan products that appear at greatest risk for
discriminatory practices.
We rely heavily on the HMDA data to help us target our
supervisory activities, but we also make use of consumer
complaints, academic and community organization studies, and
census bureau data for risk-screening purposes.
We conduct targeted fair lending examinations to determine
whether different outcomes and lending decisions are the result
of unlawful discrimination. If we find that they are, we take
appropriate steps to address the problem.
Since 1993, we've made dozens of referrals of matters
involving discrimination to the Department of Justice or HUD.
These actions have resulted in several highly-publicized multi-
million dollar settlements for consumers.
Since then, the number of referrals by the OCC has dropped.
Referrals alone can be misleading, however. Our fair lending
supervision involves a four-pronged approach:
First, we have a fair lending and risk assessment and
screening process to identify banks that exhibit higher fair
lending risks;
Second, we conduct fair lending examinations of those
banks, including statistical analysis;
Third, we seek corrective action to address deficiencies;
and
Fourth, when necessary, we take enforcement actions to
address violations of law.
Formal enforcement actions involving referrals generally
should be necessary only if preventive measures have failed to
ensure compliance with the fair lending laws.
We believe that's why the fair lending exams have been
conducted--we believe that's why the fair lending exams we've
conducted to follow up on disparities shown in the HMDA data
have found that disparities were the result of legitimate, non-
discriminatory credit factors, such as an applicant's credit
score or debt-to-income ratio.
I also believe the national banks got the message that
compliance with fair lending laws would be carefully
scrutinized and many adopt the systems and controls to improve
their fair lending compliance, because they knew we would be
looking.
Regular and rigorous oversight by the OCC may also explain
why national banks are not major players in the market for
high-cost mortgages, just as it explains why they are
relatively small players in the market for subprime lending.
Nevertheless, we remain committed to fully investigating
price and disparities for unlawful discrimination, and we will
continue to refine our fair lending strategies and techniques.
The OCC is working with the other banking agencies, and on
our own, to improve our supervisory capabilities. We routinely
coordinate and share information so that we can learn from each
other.
We recently initiated a review through the FFIEC to
evaluate whether the interagency fair lending procedures needed
to be refined to better deal with pricing disparities.
And to address two risk areas that are an increasing
concern, the OCC will also conduct intensified reviews of bank
controls over brokers and reviews of practices that might
involve discriminatory steering.
We will continue to review and enhance our fair lending
supervisory processes, to ensure that the institutions we
supervise do not engage in unlawful discrimination.
I look forward to answering your questions.
[The prepared statement of Mr. Hagins can be found on page
87 of the appendix.]
Chairman Watt. Thank you for your testimony, Mr. Hagins.
Ms. Becker, of the U.S. Department of Justice, is
recognized for 5 minutes.
STATEMENT OF GRACE CHUNG BECKER, DEPUTY ASSISTANT ATTORNEY
GENERAL, CIVIL RIGHTS DIVISION, U.S. DEPARTMENT OF JUSTICE
Ms. Becker. Thank you. Good afternoon, Mr. Chairman,
Ranking Member Miller, and members of the subcommittee.
All Americans have the right to purchase homes and
automobiles, and to borrow money for their businesses or their
own personal consumer purchases, free of illegal
discrimination.
Lending discrimination is especially pernicious because
these financial transactions are so critical to the American
dream--the ability to purchase a home, to start a new business,
or to pay for your children's education.
While the Department of Justice recognizes that lenders may
legitimately consider a range of factors in determining whether
to make a loan to an applicant, illegal discrimination has no
place in this determination.
The Civil Rights Division's Fair Lending Enforcement
focuses primarily on two statutes: The Fair Housing Act and the
Equal Credit Opportunity Act.
During this Administration, over 70 percent of the
Division's fair lending cases have involved race and national
origin discrimination, primarily on behalf of African-American
and Hispanic-American communities. The consent decrees that we
have secured on behalf of minority victims have included
monetary relief of over $25 million.
We've also recently brought cases involving discrimination
on the basis of marital status and filed the first ever sexual
harassment case under the Equal Credit Opportunity Act.
Redlining--when lenders illegally refuse to do business in
minority communities--constitutes over half of our fair lending
enforcement in this Administration and relies heavily upon HMDA
data.
The Division's redlining cases complement the predatory
lending enforcement conducted by the other Federal agencies
represented here today.
When communities are abandoned by prime lenders through
redlining, those communities become targets for less scrupulous
lenders who may prey on minority communities using abusive
products or loans.
As one measured predatory practices, the Division includes
consumer education as a component of our consent decrees, which
helps to reduce the likelihood that individuals in these
communities will become victims of predatory lending.
For example, the Justice Department initiated a redlining
investigation that culminated in a settlement with Centier Bank
in Indiana. Under the settlement, Centier will open new offices
and expand existing operations in previously excluded areas.
The bank will also invest $3.5 million in a special
financing program and spend at least $875,000 for consumer
financial education, outreach to potential customers, and
promotion of its products and services in these previously-
excluded areas.
The Division has also utilized HMDA data extensively in
other fair lending enforcement efforts. The recent expansion of
HMDA reporting to include pricing data has been a welcome
additional source of information for identifying potential fair
lending violations.
We analyzed the HMDA pricing data as a starting point to
identify disparities in the pricing of loans, primarily
focusing on race or national origin.
According to the 2004 data, there were 200 lenders that
were identified as having statistically significant disparities
that could not be explained by the reported HMDA data.
The 2005 data identified 270 lenders. Now, there's some
overlap there. There was a reference on the first plan to 470
referrals. I just want to clarify the 400--I think the witness
was referring to the 470 lenders, adding those 2 lenders
together, not taking into account the overlap but just to make
clear that the Justice Department hasn't received 470
referrals.
The first pricing referrals that we've received came over
the last several months.
We've received three referrals from the FDIC and two
referrals from the Federal Reserve Board, stemming from the
HMDA pricing data. But the Justice Department did not wait for
referrals. When the Fed's report came out in the fall of 2005,
the Justice Department, on its own initiative, initiated a
number of investigations based upon this HMDA data.
And, although I cannot discuss the details of ongoing
investigations, I can report that we've completed and closed
two mortgage lending pricing investigations and that others are
ongoing and moving to a determination as to whether to file a
lawsuit.
We expect to initiate additional investigations in the
coming months as well.
These fair lending investigations require a substantial
investment of time and resources. We generally obtain and
analyze detailed additional information that is not available
through HMDA, such as the borrower's credit score, loan-to-
value ratio, and debt-to-income ratio.
Analyzing this detailed loan data, as well as information
about the lender's business policies and practices, enables us
to assess whether those factors or possible discrimination may
explain the pricing differences identified in HMDA data.
The Division also works hard to coordinate fair lending
enforcement with the other agencies here today. We have an
interagency fair lending task force that we participate in, and
we share the committee's goal of utilizing all available
information, including HMDA pricing data, to identify and stop
lending discrimination.
We're working hard to achieve that goal, and we welcome the
committee's support. Thank you very much.
[The prepared statement of Ms. Becker can be found on page
66 of the appendix.]
Chairman Watt. Thank you, Ms. Becker, for your testimony.
And we now recognize Ms. Kendrick, of the Office of Housing
and Equal Opportunity, U.S. Department of Housing and Urban
Development, for 5 minutes.
STATEMENT OF KIM KENDRICK, ASSISTANT SECRETARY, OFFICE OF FAIR
HOUSING AND EQUAL OPPORTUNITY, U.S. DEPARTMENT OF HOUSING AND
URBAN DEVELOPMENT
Ms. Kendrick. Thank you. Chairman Watt, Ranking Member
Miller, and members of the subcommittee, good afternoon.
I am Kim Kendrick, Assistant Secretary for the Office of
Fair Housing and Equal Opportunity, at the U.S. Department of
Housing and Urban Development. On behalf of Secretary Alfonso
Jackson, thank you for the opportunity to testify before you
today.
In 2004, the Federal Reserve Board, for the first time,
began collecting pricing information as a part of its
collection of Home Mortgage Disclosure Act data.
In September 2005, the Federal Reserve Board released its
first report analyzing this data. This report allowed us to see
the extent of the pricing disparities between whites and
African-Americans and Hispanics. In addition, the report data
showed that minority borrowers were much more likely to receive
a high-cost loan than white borrowers.
Along with the report, the Federal Reserve Board provided
HUD, the Federal Trade Commission, and the Department of
Justice with a list of independent lending institutions whose
HMDA data showed significant pricing and denial disparities
between African-Americans and Hispanics and whites.
At your request, I am here today to discuss the fair
lending enforcement activities HUD has undertaken since the
release of this data.
After receiving the Federal Reserve Board's list in
September 2005, HUD assembled a task force of investigators,
enconomists, and attorneys to review the list and to develop a
methodology for selecting targets for enforcement.
In addition to the data supplied by the Federal Reserve
Board, we reviewed fair lending complaints, consumer
complaints, and other HMDA data available in each of these
lenders.
Given the findings of the Federal Reserve Board, we chose
to focus our review on lenders with significant disparities in
the pricing of loans to minorities and white borrowers and
select the lender that we thought most likely to show evidence
of discrimination.
So on April 14th, 2006, I authorized HUD's first Secretary-
initiated investigation resulting from the HMDA data.
Since that time, the Department has reviewed and analyzed
the lender's policies, manuals, guidelines, defenses, and loan
level data for multiple fiscal years.
We have also hired an outside contractor with decades of
experience to assist us in this complex analysis.
In September 2006, the Federal Reserve Board released the
2005 HMDA data and, again, provided HUD with a list of
independent lenders based on that data.
HUD, again, carefully analyzed the HMDA data, along with
the fair housing complaints information, and targeted two
additional lenders for Secretary-initiated investigations,
based on pricing disparities.
HUD is still investigating all of these Secretary-initiated
actions.
Although I cannot reveal the targets of our open
investigations, I can say that we are looking at medium-sized
lenders whose loan applications range from sizes 2,500 to
150,000 per year.
Also, I can tell you that two of three targets are FHA-
lenders and that the data for each of these reveal significant
pricing disparities.
The Department is currently reviewing the 2006 data to
identify additional lenders with pricing disparities based on
race, national origin, or sex.
In addition to these HMDA Secretary-initiated
investigations, the Department and the State and local partners
in the Fair Housing Assistance Program complete an average of
425 additional lending investigations each year.
These are cases filed by individuals alleging that the
lender refused to provide them with loans or provided them with
different loan terms or conditions on prohibitive basis.
HUD and our State and local partners investigate each of
these cases as required by the Fair Housing Act.
Generally, we reach a determination on the merits of about
55 percent of these cases, that alleged lending discrimination,
and reach a conciliation in about 28 percent of such
investigations.
Home ownership is a cornerstone of the American dream. It
takes most Americans many years to save up for a down payment
and otherwise prepare ourselves for home ownership.
HUD wants to be sure that race or national origin is never
a barrier to obtaining a loan or becoming a homeowner. We will
continue to investigate cases, continue to obtain meaningful
relief for individuals, and to pursue systemic cases of
discrimination, until we are confident that all lenders are
providing all consumers with the loans that they deserve.
Thank you for your time and your attention.
[The prepared statement of Ms. Kendrick can be found on
page 138 of the appendix.]
Chairman Watt. Thank you for your testimony.
And I now recognize Ms. Parnes, from the Federal Trade
Commission, for 5 minutes.
STATEMENT OF LYDIA B. PARNES, DIRECTOR, BUREAU OF CONSUMER
PROTECTION, FEDERAL TRADE COMMISSION
Ms. Parnes. Thank you. Chairman Watt, Ranking Member
Miller, and members of the subcommittee, I am Lydia Parnes,
Director of the Bureau of Consumer Protection at the Federal
Trade Commission.
I appreciate the opportunity to appear before you today to
discuss the Commission's efforts to combat unfair, deceptive,
and other illegal practices in the mortgage lending industry,
including its fair lending enforcement program.
As part of its mandate to protect consumers, the Commission
has wide-ranging responsibilities regarding consumer financial
issues. The Commission enforces a number of laws, specifically
governing lending practices, including the Equal Credit
Opportunity Act.
The Commission also enforces Section 5 of the FTC Act,
which broadly prohibits unfair or deceptive acts or practices
in or affecting commerce.
The FTC enforces these laws with respect to non-bank
financial companies, including non-bank mortgage companies,
mortgage brokers, finance companies, and units of bank-holding
companies.
The Commission engages in law enforcement investigations as
opposed to regular examinations of the entities under its
jurisdiction.
I'm pleased to appear on this panel with representatives
from agencies with whom the Commission works closely in the
fair lending area. Through both formal and informal
collaboration, we share information on lending discrimination,
and predatory lending enforcement, and policy issues.
Most recently, the FTC joined with the Federal Reserve
Board, the Office of Thrift Supervision, and State regulators
in announcing a pilot project to focus on whether certain large
subprime lenders are complying with key consumer protection
laws, including ECOA.
The Commission's Fair Lending Enforcement Program is a
mainstay of the Agency's consumer protection mission. The
Commission has brought over two dozen ECOA cases against large
mortgage lenders, major non-mortgage creditors, and smaller
finance companies, alleging violations of both the substantive
and procedural requirements of the ECOA.
With the explosion of subprime lending in the last decade,
the Commission also has focused on deceptive representations by
subprime lenders regarding the cost and other key terms of a
mortgage loan.
Illegal practices in the subprime mortgage market,
particularly affect lower income and minority consumers.
Since the late 1990's, the agency has brought 21 actions
and returned over $320 million in redress to consumers,
alleging deceptive or unfair practices against company in the
lending industry with an emphasis on the subprime market.
I would like to mention two notable examples of Commission
cases against subprime lenders that targeted minority and low-
income borrowers.
In our lengthy litigation against Capital City Mortgage
Corporation, a company that targeted African-American borrowers
in the Washington, D.C. area, the Commission alleged that the
defendants made deceptive claims at each stage of the loan
process when making and servicing loans. This resulted in
trumped-up fees and inflated monthly balances and pay-off
amounts. Our complaint stated that these practices led to
default and foreclosure in many instances.
In Mortgages Para Hispanos, the alleged conduct also was
egregious. A bilingual mortgage lender misled Hispanic
consumers about key loan terms during the sales pitch,
conducting it almost entirely in Spanish, and then provided
closing documents containing less favorable terms in English.
Currently, the Commission is engaged in several ongoing
non-public fair lending investigations of mortgage lending
companies. The Commission uses HMDA data as a tool to target
companies for further investigation.
Because HMDA data alone are insufficient to establish law
violations, the Commission staff engages in resource intensive,
statistical analyses of additional information obtained through
extensive document review and other evidentiary sources.
The Commission has a strong commitment to enforcing the
fair lending laws and will pursue vigorously any violations
revealed by its investigations.
The Commission also has an extensive program to educate
consumers about financial literacy and subprime borrowing,
including most recently a publication on how to avoid
foreclosure.
The Commission will continue to take aggressive and
concerted action to hold illegal practices in the marketplace,
while mindful of the important benefits that increased access
to credit bring consumers.
Again, I appreciate the opportunity to appear before the
subcommittee and would be pleased to answer any questions you
may have.
[The prepared statement of Ms. Parnes can be found on page
235 of the appendix.]
Chairman Watt. Thank you, Ms. Parnes.
Ms. Parnes. Parnes.
Chairman Watt. I mispronounced your name, and I apologize
for that.
Ms. Parnes. That's quite all right.
Chairman Watt. I thank all of the witnesses for being here
and for your testimony.
In recognition of the fact that I'm going to be here until
the end of the hearing, and some of my colleagues may have
other scheduling conflicts, I'm going to defer my questions
until the last person. So I'll now yield 5 minutes to the
gentleman from Massachusetts for questions.
Mr. Lynch. Thank you for your courtesy, Mr. Chairman. And
thank you for inviting this distinguished group.
I want to thank all the panelists as well for helping this
committee with its work. I have a couple of questions. I'll ask
Ms. Braunstein first, and then Ms. Parnes second.
We heard in the earlier panel, a distinguished group of, I
would say, consumer advocates, describe trends that they see
that are somewhat troublesome. And I know that the Federal
Reserve is the primary analyst for HMDA data as set forth in
the Federal Reserve Bulletin.
What, in fact, do you see? Is the data, let me say, the
interpretation of the data that we heard from the consumer
advocates earlier today are consistent with what you see?
Ms. Braunstein. I really can't comment on the nature of
their studies because I--you know, we would have to do an
independent review.
Mr. Lynch. Okay. How about just a straight question. What
do you see?
Ms. Braunstein. What we see is pretty much explained in the
bulletin article. We find that the data is extremely useful as
a screening tool. It gives us great insight as to where there
needs to be more investigation into specific institutions.
But, also, the data--we believe that the data, in and of
itself, does not determine whether or not there is a fair
lending violation, that you need to have more factors involved,
and--
Mr. Lynch. Okay. That was my next question.
Ms. Braunstein. Yes.
Mr. Lynch. Do you think, as they suggested earlier today,
that the fact--that HMDA should be expanded to include other
factors? And what would those factors be if you would support
an expansion?
Ms. Braunstein. When we expand--we did expand HMDA data
when we added the pricing data a few years back, and when we
did that, we looked at other factors and found, for a variety
of reasons, that they should not be added at that time.
We're constantly looking at our regulations and reviewing
them, and I think, in order to expand the data, you have to
look at certain things. You have to look at the benefits of the
increased information, and you also have to look at the costs
involved on the reporting institution because they're not
insignificant, and the benefits need to justify the cost.
Also, I think it's important to note that no matter how
many data fields we were to add to HMDA, the HMDA data will
never be determinative of discrimination in and of itself.
There are things we look at in an institution in terms of
how they manage their programs, and the kinds of due diligence
they use. They could never be captured with data and are quite
necessary in order to make findings of discrimination. So
that's, you know, how we look at it at this point in time.
Mr. Lynch. Okay. Thank you.
Ms. Parnes, I noticed on page 13 of your testimony it says
that 65 to 70 percent of mortgages are going out through
mortgage brokers who don't necessarily provide HMDA data.
First of all, can you describe the Fair Lending Enforcement
Programs that you have at the FTC for these non-bank mortgage
companies? And do you believe that brokers should also be
required to report HMDA data?
Ms. Parnes. Certainly. The Commission's program, as I
mentioned, it's a broad program. Of course, we look at both--we
enforce both the Equal Credit Opportunity Act and, as I
mentioned, Section 5 of the Federal Trade Commission Act.
When we're enforcing the ECOA, we get the HMDA data. We
review the data that we receive from the Fed. We use that data
to select targets for further investigation.
We do have several non-public investigations that are
pending right now.
We use our full investigatory powers during those
investigations. We obtain detailed information from our targets
concerning their practices, their underwriting criteria, and we
engage in a very rigorous statistical analysis, looking at all
of their loan files to determine whether the disparities that
helped us target these institutions kind of hold true once you
consider all of these other factors.
Mr. Lynch. What's the share of resources you dedicate to
that versus the industry, you know, in terms of looking at
compliance?
Ms. Parnes. Well, we've actually--about a year-and-a-half
ago, 2 years ago, we considerably expanded the resources that
we're devoting generally to this area.
We had a reorganization in the Bureau of Consumer
Protection. We created a division that focuses exclusively on
consumer financial issues. Right now, we have a task force of
about 10 attorneys, economists, investigators, and so forth,
working exclusively on the HMDA data cases. And we have other
attorneys and economists working more generally in the lending
area.
Mr. Lynch. Okay. And just the last part of the question was
do you support--
Chairman Watt. The gentleman's time is expired, but go
ahead.
Mr. Lynch. It was already asked. I asked so many questions,
you probably forgot this last line, about whether or not the
broker should be required to report HMDA data as well?
Ms. Parnes. Well, it's one of the things that we are
looking at in this process, and we plan on making a series of
recommendations to our colleagues about whether reporting
should be expanding.
Mr. Lynch. Fair enough. I yield back, Mr. Chairman. Thank
you.
Chairman Watt. Thank you. And I recognize my distinguished
ranking member for 5 minutes.
Mr. Miller. Ms. Becker, you indicated in your testimony
that DoJ has completed two fair lending investigations. And I
know you can't get into the details, but how did the Department
utilize the HMDA information in these cases to your benefit?
Ms. Becker. The HMDA pricing information has been
particularly valuable to the Department of Justice because it
identifies specific lenders.
A lot of times we will read articles in the newspapers
about industry trends or about what's happening in a particular
region, but without identifying specific lenders, it's
difficult for us to be able to go in and investigate these
cases. So that has been extremely helpful to us.
What we have done is look at the HMDA pricing data as a
starting point, and then we will contact the lender to get
additional information. That information may include several
non-HMDA factors to see whether or not the disparities may have
been caused by legitimate reasons.
They've been mentioned here today, but I'll just mention
them again. Credit score. It could be loan-to-value ratio or
debt-to-income ratio.
We have in-house economists and statisticians who will run
a variety of different analyses. And sometimes the lenders will
provide additional data that will require us to re-analyze the
data that we currently have.
And then, after that, we will make a determination whether
statistically significant disparities are explainable for
legitimate business reasons, or if there are no legitimate
business reasons, then there is an inference that it may be
discrimination.
Based on the totality of all of that evidence, we will then
make a determination of whether or not there's sufficient
evidence to believe that there is a pattern or practice of
discrimination. Not an individual instance but a pattern of
practice of discrimination going on in the institution. And
where that's insufficient, then we close the case.
Mr. Miller. Okay. Ms. Parnes, I know HMDA is only one
component of the FTC's lending enforcement. Is that correct, as
you stated earlier?
Ms. Parnes. Yes. Yes, it is.
Mr. Miller. There's a broader range of activities that you
pursue to combat illegal lending practices. Can you define what
those might be?
Ms. Parnes. Well, as I mentioned, we look at lenders in the
subprime market, generally. And it's an area that we think is
an important one for the FTC to remain active.
Mr. Miller. When you talked about subprime market, I have a
question. Would there be a legitimate reason why a specific
lender might open a subprime branch in a certain area and not
in another?
Ms. Parnes. I don't know that lenders actually offer, you
know, only subprime loans in specific branches. That's not
necessarily the experience that we found. But, of course, we
don't regulate--you know, our regulation doesn't extend to
banks at all, the non-bank institutions.
Mr. Miller. Okay. Ms. Kendrick, you indicated that the
Department uses its subpoena powers to obtain additional loan
information, to determine whether the differences in pricing
are due to race, or can be explained by other factors. Is this
additional information crucial to your determination?
Ms. Kendrick. Yes. And I understand why you sat me between
these two fine women, because we basically do the same thing.
The data we take a look at, we take a look at it initially
from the HMDA data, but we have to take a look at the other
information, the loan--
Mr. Miller. A broader range of information, such as?
Ms. Kendrick. Broader range of information because that's
going to help us determine, because some of the factors,
pricing disparity is just not enough to determine
discrimination.
Mr. Miller. What would that broader range of information be
that you would look at?
Ms. Kendrick. In addition to--
Mr. Miller. HMDA.
Ms. Kendrick. --we take a look at the loan-to-value ratio,
the income. We take a look at the location of the property. We
take a look at other factors, such as the credit background and
credit scores of the individual, and so that all helps us
determine whether or not discrimination is going on.
And we take a look--we do a kind of pair testing--kind of
looking at people who are similarly situated to see if they are
treated similarly.
Mr. Miller. Do you think HMDA is a reasonable indicator
that you can use to determine whether you want to pursue
additional investigations or not?
Ms. Kendrick. Yes. It's been an excellent tool for us.
Mr. Miller. Okay. And, Ms. Parnes, how does the FTC protect
minority consumers from deception and other legal practices? Do
you have any tools that are used beyond that?
Ms. Parnes. Well, what we do--I mean, we do this, certainly
as I mentioned, in the subprime market, we have--in the
subprime lending market where we've brought a lot of cases and
returned over $320 million back to consumers.
But we have a program that focuses on Hispanic consumers as
well. We found a number of years ago that Hispanic consumers
were subjected to fraud at a greater rate than non-Hispanic
white consumers. And, because of the language barrier, we've
made efforts to translate all of our consumer education
material into Spanish, and to make special efforts in terms of
law enforcement and outreach to the Hispanic community.
Mr. Miller. Now, there are opportunities for individuals to
shop for better loans. Is there anything you can see that we
could do to help improve consumer shopping?
Ms. Parnes. Well, the Commission issued about a month ago,
2 months ago, a report on mortgage disclosure, and it was a
report of our economics, and it recommended consideration of
better disclosures in mortgage documents, and I certainly think
that would be an area well worth paying attention to.
I think mortgage disclosure documents are very confusing
for consumers, and clearing that up would be a great step.
Mr. Miller. Thank you very much.
Chairman Watt. I thank the ranking member.
And I recognize the gentlewoman from New York for 5
minutes.
Ms. McCarthy. Thank you.
Listening to everybody's testimony, and I'm sitting here
because I have eight regulators in front of me, and obviously
we have seen an increase in problems over the last couple years
that are actually hitting ahead kind of now, as far as
discrimination.
Were there any warning signs out there that this was all
coming to a head? Do you guys talk to each other? Do you share
information on what you even just read in the paper? I mean, we
read the papers, the Wall Street Journal, and you look to see
that--we could see that things were boiling up. That was
several months ago, and I know some have mentioned that a month
ago they put a new thing in place. But this has been going on
for a number of years now.
And I think it was last month we had another hearing here
with Ms. Blair of the FDIC. She offered a brief outline of
deceptive mortgage practices. She had a list.
And I guess the question to all of you is, should we have
one authority to really look into all of this, where we have
eight regulators in front of us, and each one of you I'm sure
do a good job. But in the collective area, it doesn't seem we
have gotten better. If anything, it's embarrassing, and I think
our government has kind of failed our consumers out there that
are being discriminated against because those numbers have gone
up.
So I'm a little frustrated here on the testimony that I'm
hearing today, and certainly the hearing--those that were here
to listen to the testimony earlier.
I don't know what else to say. Any answers from anybody?
Ms. Kendrick. Well, I'll take it. From the U.S. Department
of Housing and Urban Development, this is an area we were
looking at even last year, in the last session of Congress,
when Secretary Jackson came before Congress and asked that we
modernize the Federal Housing Administration program, because
we recognized that some of these issues were, when they come to
the forefront, and he thought that modernizing the Federal
Housing Administration program would help stem, kind of, some
of this tide, so that people could use a product that is safe
and secure.
Ms. McCarthy. Well, I understand that. And I'm not trying
to put the blame here on anyone.
I'm just wondering that, you know, this has been going on
for a number of years. Do we in government react too slowly in
trying to correct a problem that obviously has been going on
for a number of years?
I mean, these boutique mortgages probably started several
years ago. We certainly knew, even a few years ago, that those
mortgage brokers that are not licensed have been a big problem
in different States. And, yet, we didn't react fast enough, and
so we saw this problem bubbling up faster and faster until the
point of where all the foreclosures started happening. And the
first signs were about a year ago, because that's when we saw
the market on housing start to go down.
So I'm saying all the warnings were there. I mean, you
know, the newspapers were picking it up.
We're having a hearing in July, trying to figure out how
we're going to make sure this doesn't happen again. And I think
that's something that, you know, we all have to look at.
So, I mean, with--no one answered whether do you guys work
together? Do you share information together?
Ms. Thompson. We do work together. The Federal banking
agencies work together. We have the FFIEC, which is comprised
of all the Federal banking agencies.
A couple of years ago we started to look at the increase in
delinquencies in the mortgage market and we worked together to
come up with non-traditional mortgage guidance to cover the
interest-only products and some of the mortgage products with
negative amortization.
We recently worked together to issue the subprime statement
that covers some of the products that have payment shock.
We have also been working together to try to combat the
foreclosure issue. We issued a joint statement to all of the
institutions that we supervise so that they would be encouraged
to work with borrowers to restructure some of these bad loans.
We do talk to one another.
Ms. McCarthy. I guess that's the word. You ``encourage.''
When there's a prosecution and, basically, you fine that
particular institution for wrongdoing. I think you had said
$800,000 was a fine, if I heard that correctly.
Is that enough bite to discourage other financial
institutions from not doing wrong because they're making so
much money? So, all right, so they throw out--say they pay a
million dollars. How much have they actually made over doing
bad practices?
Ms. Thompson. When we find a violation, even if we don't
have a pattern or practice, and refer that violation to the
Justice Department, we require our institutions to take
corrective actions immediately. And if that violation is
substantive and involves harm to consumers, we require the
institution to find all consumers that have been harmed by that
particular violation, and then implement restitution.
Ms. McCarthy. To each and every one that has been violated?
Ms. Thompson. That's correct.
Ms. McCarthy. And do most of those that have been violated
respond?
Ms. Thompson. Absolutely. There is huge reputational risk
for the institution, so when we cite violations, they want to
take immediate action to correct the problem. And that is
notwithstanding whether or not we decide that there is a
pattern or practice of fair lending violations.
Ms. McCarthy. Are they large numbers?
Ms. Thompson. Well, at the FDIC, since 2004, we have
referred 115 findings of illegal discrimination under ECOA to
the Justice Department.
We have cited 170 institutions for substantive ECOA or FHA
violations since 2004. And for non-substantive violations, we
have cited over 2,000 violations for ECOA and the Fair Housing
Act. There were HMDA reporting violations as well, and we cited
over 1,300 of those.
Ms. Yakimov. Could I add that the project that was
mentioned earlier where the Federal Reserve, the OTS, looking
at holding company subsidiaries, mortgage brokers to the FTC,
and the State's authority, I think it's an important project,
and it speaks to how we're working and communicating so that
we're coming up with a common approach, areas where we're going
to focus, including HMDA, ECOA, Truth in Lending, and we're
going to share results.
Obviously, if we find issues, we'll deal with those under
our respective jurisdiction, but this sharing, this
collaboration, I think really connects the dots in a way that
is important to root out any potential discrimination or
broader violations of consumer protection statutes.
Ms. McCarthy. I know my time is up, but I guess food for
thought is, why are we still having discrimination in the year
2007?
I guess that's the question that we need to answer.
Chairman Watt. Thank you.
And the gentleman from Texas, Mr. Green, is recognized for
5 minutes.
Mr. Green. Thank you, Mr. Chairman. And thank you, members
of the panel, for appearing today.
The question that I'm grappling with now is, how do we
prove illegal covert discrimination based on what we've heard?
Obviously, confession would be a great way to do it. However,
the mendacious mentality of persons who perpetrate this kind of
behavior usually does not lend itself to a confession.
Statistical information would be great, except that we
always have someone who will conclude that statistical
information is inconclusive, and perhaps you cannot even
construct a means by which you can acquire the statistical
information via the process that HMDA uses. And litigation, of
course, is a means, but that can be quite costly.
So the question becomes, how do we acquire this empirical
data to prove that illegal, unlawful discrimination exists?
Ms. Braunstein, I believe it is, how would you conclude
that we can acquire the empirical information?
Ms. Braunstein. Well, we do use statistical analysis, and
we find it to be quite effective.
The HMDA data, alone, is not sufficient, but through our
examination authority, we have the ability to gather additional
information from financial institutions. And when we use this
additional information, we have found that we are able to
actually root out--
Mr. Green. Let me ask this, if I may.
You've heard talk of testing. I'm sure you're familiar with
the process? True?
Ms. Braunstein. Yes.
Mr. Green. Yes. Is testing a useful tool in acquiring
empirical data?
Ms. Braunstein. I think testing could be a useful tool.
Mr. Green. What about testing causes it to be less useful
than some of the other methodologies?
Ms. Braunstein. I think it depends on the financial
institution and the situation. For one thing, if you're using
testing in small institutions, oftentimes it's not as
effective, and many of our institutions are quite small.
Whereas, if you start sending in pairs of people, as they
do in testing, it's going to be quite obvious that something's
going on, because they don't get that kind of volume in
institutions.
Mr. Green. I understand.
Ms. Braunstein. Yes.
Mr. Green. Well, assuming for a moment that we can have
covert testers to reveal covert discrimination, that's what
we're going after, if we can get them in, and it's not known
that they're testers, is this an efficacious means by which we
can uncover unlawful discrimination?
Ms. Braunstein. We would have to take a closer look at it
and see how the program was structured.
Mr. Green. Assuming that it is structured such that you
have testers who are equally qualified and one receives
positive response and the other a negative, that would not be
helpful?
Ms. Braunstein. It could be. Yes.
Mr. Green. Would you think that testing would be another
means by which we could acquire the empirical data necessary to
prove that unlawful discrimination exists?
Ms. Braunstein. As I say, it could be.
Mr. Green. Could be. But you're not really sure?
Ms. Braunstein. At this point, no.
Mr. Green. I see. Is there anyone on the panel who thinks
that testing is a lawful and useful means of proving that
invidious and unlawful discrimination exists? If so, would you
kindly raise your hand?
Okay. One, two. If you don't raise your hand, I'll have a
few questions for you.
[Laughter]
Mr. Green. Okay. It looks like we have everybody but the
gentleman who didn't raise his hand. I can't see your name.
All right, sir. You have some concern about testing?
Mr. Marquis. Well, I don't have a concern about it. I think
maybe it could be useful, but I guess you'd have to be careful
in terms of filling out false applications, letting someone who
is actually really filling out false applications, and then
said, ``Oh, I was just a tester.'' I guess you'd have to
understand ahead of time who those testers would be.
Mr. Green. All right. Let's assume that--
Mr. Marquis. If they're not--in other words--
Mr. Green. Let's assume that we add that to the equation.
We do that. Now can testing become the useful tool?
Mr. Marquis. Maybe it could be. Yes.
Mr. Green. Would you think that it would be appropriate to
use testing in financial institutions to ascertain whether or
not--well, before I go there. Quickly.
Would testing act as a deterrent if we publish the fact
that testing is taking place? Do you think it would be a
deterrent? If you think so, would you kindly raise your hand?
Do you think it would be a deterrent?
Okay. If you did not raise your hand, then raise your hand
now.
Okay. Everybody thinks testing would be a deterrent.
So, Mr. Chairman, if I'm over time, I will yield back at
this point.
Chairman Watt. The gentleman observes the red light.
Mr. Green. Yes, sir.
Chairman Watt. Which is an indication that the gentleman's
time has expired. Although if he wishes an additional 30
seconds, he may have it.
Mr. Green. I would welcome 30 seconds, Mr. Chairman.
With reference to the testing, as you know, the Federal
laws currently are an obstacle to this type of testing. Would
you think that it would be appropriate for us to make an
exception so that we can eliminate this kind of unlawful
discrimination?
I think that in 2007 we ought to be at a point in the
history of our country where we want to end unlawful
discrimination. We ought to have the will to do it. Would that
help us if we, in Congress, worked on these laws so that we
could test and find out who the culprits are?
And I will yield back, and ask that, if you would, just
raise your hand if you think it'll help. Anybody think it'll
help us to do this? Congress?
Okay. If you didn't raise your hand, then raise your hand
now. Anybody?
Yes. You don't think it would help, ma'am?
Ms. Braunstein. No, I lost the question. I didn't hear the
entire question.
Mr. Green. Well, I understand. I will forego any additional
questions.
Thank you, Mr. Chairman. You have been very generous.
Chairman Watt. Thank you for your questions.
I'll recognize myself for 5 minutes, but will generally say
that I have so many questions, really, that the bulk of them
will have to be covered in written form, which we will do in
follow-up to the hearing.
I do hear what the gentleman is saying. There is a Federal
statute that makes if unlawful to knowingly and willfully
falsify a credit application or applications of this kind,
which is a deterrent to testing, and we may need to take a look
at that.
I am surprised to hear that HUD is engaged in paired
testing. Ms. Kendrick, that's the first time I've heard that.
Are you sure that HUD is engaged in paired testing somewhere?
Ms. Kendrick. It's paired analysis of the data, by taking a
look at equally qualified persons and pairing them together to
make an assessment about whether or not--
Chairman Watt. Okay. So that's different than paired
testing that was testified about earlier, when you send out
testers--
Ms. Kendrick. Oh, no. This is paired analysis testing.
Chairman Watt. Okay. I'm glad I clarified that because you
said paired testing, and I didn't think HUD was engaging in
that practice.
Ms. Braunstein, the Fed has defined these parameters for
reporting under HMDA. Would it require congressional action to
expand the information collected--
Ms. Braunstein. No. We--
Chairman Watt. --or does the Fed have the authority to
expand?
Ms. Braunstein. We have the authority, as we did with the
pricing data, to add additional fields.
Chairman Watt. Within what parameters?
Ms. Braunstein. I am not aware of parameters. I mean,
obviously, as I mentioned before, we do cost benefit analysis
of adding additional fields because there is, you know, cost
involved.
Chairman Watt. So if we wanted additional parameters added,
Congress, after jaw-boning you all, as we've done in some other
areas--
Ms. Braunstein. Well, certainly, I mean, Congress--HMDA was
created by Congress--
Chairman Watt. I understand. We could do it ourselves or we
could--
Ms. Braunstein. Right.
Chairman Watt. --more aggressively encourage you to do it.
The troubling thing is, I mean, the fields that you are--
the parameters over which you are testing get generally to
subprime lending, high-cost lending.
My concern is that these same patterns probably are out
there in non-high-cost loans. Is there any way that you have to
determine whether that is the case also?
Ms. Braunstein. Yes. During our fair lending reviews of the
institutions we supervise, we look at pricing across all loan
products not just the high-cost mortgages.
Chairman Watt. I understand that. I guess the question I'm
asking is, can we be assured that this same pattern that
exists, or appears to exist, of discriminatory pricing, in
high-cost loans, doesn't also exist if we were running the
numbers in all loans?
Ms. Braunstein. We can only speak to the institutions that
we supervise, not across the whole industry.
Chairman Watt. But could you even give me that assurance
for the institutions that you supervise?
Ms. Braunstein. Yes, I think I could, because we do very
rigorous--
Chairman Watt. You're saying I would see a--
Ms. Braunstein. --and if we had--
Chairman Watt. --different pattern in non-high-cost loans
than I would see in high-cost loans?
Ms. Braunstein. There is a difference between seeing a
pattern in the HMDA data and finding actual cases of
discrimination, of fair lending violations, as we know.
We have the HMDA data which flagged a certain number of
institutions for closer looks, but not every one of those
institutions was actually violating fair lending laws when we
looked further.
So I would expect that it would be the same kind of thing
with the non-high cost loans, as we may see institutions that
wanted further attention. And if we found evidence of
discrimination, we would take appropriate action.
Chairman Watt. Let me put you all on the spot just a little
bit, because over and over I've heard privately, off the
record, that ``a problem'' in this area is that you all
regulators make referrals to the Department of Justice. The
Department of Justice just simply kicks them back for you all
to do something. The Department of Justice is really not
aggressively--now I know your colleague from the Department of
Justice is here, but we need to get to the bottom of this.
We all know--I don't think there's anybody on this panel
who doesn't know that there's some discrimination going on,
whether you--we've accepted the fact that HMDA doesn't prove
discrimination. I'm not suggesting that. But there's not a
single person in the lending community, the borrowing
community, or the regulator community, that doesn't know that
there's still differentials based on race.
And it doesn't stop when you get to the higher-income
African-Americans. In fact, some suggestion is that it gets
worse as you go up the income ladder.
So I'm trying to figure out what we can do, effectively, to
stop this. I mean, it is just--it is inexcusable for people
with identical credit records, identical everything, except
their races, and one gets a loan that's a quarter point higher
or 10 basis points, or 15 basis points.
Mr. LaCour-Little eliminated everything down to 10 or 15
basis points but still, even that, is unacceptable.
So how do we get to the bottom of this? I guess that's
where I'm trying--that's the frustration that everybody is
feeling here.
Anybody have any suggestions? And I'll make that my last
question. I know the ranking member--but that's the bottom line
of where we are here. Everybody knows that it's going on.
Everybody says they're doing everything they can do to
eliminate it and, yet, time after time after time, we come back
here, and we know that it's still going on.
Ms. Parnes. Mr. Chairman, if I could. Do not render a
verdict yet on the Federal Government's response on this issue.
I would just say that the pricing data has been available
to all of us for about 2 years now. And while I certainly
understand your perspective that 2 years is a long time, the
investigations that we're conducting are truly incredibly
resource intensive, and they're very thorough.
And I think that when--you know, at the end of the day
whatever conclusions we reach, I think that we will all be
satisfied that either we have established that the underwriting
criteria explain the disparities that the HMDA data are showing
us, or we will be announcing cases based on ECOA violations.
Chairman Watt. Well, I appreciate your response. And it may
be true, and I will acknowledge that the frustration that you
are hearing coming out of this individual is not a frustration
of only 2 years or 4 years of collection of data, it is a
frustration of 61 years, 330 days. You know, I'm tipping up on
62 years here next month.
And we just have to get to a point where, you know, the
Supreme Court apparently has already decided that we are there,
that race is not a factor any more.
Well, we have to prove it if that's the case. If the
Supreme Court is going to say that we're never going to take
race into account any more in doing anything, then our Nation
has to live up to that expectation.
So this is not, you know--to some extent, it's an
expression of frustration that this is not happening based on
this information but is more a reflection of frustration that
comes with being on this earth and being an African-American
for over 61 years now. So I'll just end with that.
Let me do what I have to do procedurally here.
The Chair will note that some members, including the Chair,
may have additional questions for this panel, which they may
wish to submit in writing. Without objection, the hearing
record will remain open for 30 days for members to submit
written questions to these witnesses and to place their
responses in the record. And we would ask that you respond
expeditiously.
I want to thank you on behalf of the ranking member and
myself and the full subcommittee for appearing.
And unless there is something good for the order, or
whatever the expression is, this hearing is adjourned.
Thank you.
[Whereupon, at 5:15 p.m., the hearing was adjourned.]
A P P E N D I X
July 25, 2007
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