If it's not already decided in Texas and Ohio, this state will be the battle ground between the two leading democratic candidates and the stomping ground for the anointed republican candidate. The Mayor of Cleveland last week issued a call in Ohio that he's 154 2/21/08 - HOUSING - RES. 080095 waiting for the presidential candidates to tell him that they're going to commit to a $2 billion for Cleveland urban agenda and that he'll make his endorsement on that basis. The United States Conference of Mayors has a ten-point program that they've put before the presidential candidates. That council is led by the Mayor of Trenton. He's done a terrific job. You ever heard of it? You have, but it's certainly not on the tips and tongues. The night, in fact, that the last debate, democratic party debate, took place in this City, it was a very significant night. That was the night that Senator Clinton botched up the whole thing about the immigrants, illegal immigrants and driver's licenses in New York. That was a bad moment for her. That location out in Drexel was about six blocks from where two murders occurred that night. And there was not one single 155 2/21/08 - HOUSING - RES. 080095 question, comment, discussion of any issue in that debate that was related to the problems that we are struggling with here in Philadelphia, in part because we have lost the federal resources that we need. We now have Congressman Fattah cheering an urban caucus. We have Congressman Brady, who is the Mayor of Congress in terms of handling the committee that deals with how Congress people get office space. Congresswoman Allyson Schwartz is on the Appropriations Committee. Senator Specter on the other side has been a leader in their Appropriations Committee. And Senator Casey has also been active in these meetings. I'm here to say, we are going to try to do something here and I'm giving you kind of an alert request for help. This budget thing for housing is matched by cuts in law enforcement and whatever, and I got them all. At least 156 2/21/08 - HOUSING - RES. 080095 the foreclosure crisis has come before these candidates in these meetings, and Senator Clinton has called for a 60-day moratorium and then a freeze on interest rates. Senator Obama has called for a new way that the federal government could provide financial assistance. So, yes, to deal with this immediate crisis, we do in fact have to have our housing counseling agencies mobilized to provide the kind of support to people that might need it. We do need the Sheriff's Office to say no Sheriff sales, as you've talked about. We do need to meet with the banks and the lenders to be able to say that, Can you do some more than you're doing. We need to get the state involved, maybe PHFA, in a kind of refinancing arrangement. But, yeah, we need to raise all kinds of hell on the federal government's responsibility in this area, because this is not a local problem, a state problem. It's a national and international 157 2/21/08 - HOUSING - RES. 080095 problem, and the entire economy is now reeling as a result of this problem. And we are in an unusual moment to really make a difference here. So I thank you for the opportunity to share this information and my thoughts on it, and I'm, of course, available to help and I'd answer any questions you might have.
Thank you very much. Beverly Coleman, Neighborhood Now.
And let me say, they are doing a lot in this area, and her testimony reflects their insights into it.
Thank you. Next is SEIU, Natalia Salgado and Gloria Wearing. Following them will be ACORN. (Witnesses approached witness table.)
Thank you very much. Welcome. Please introduce yourself to the record and begin your testimony.
I want to thank the Councilmembers today for bringing up such an important issue. As we all know, I've sat before you maybe once or twice before. 159 2/21/08 - HOUSING - RES. 080095 SEIU is comprised of a membership that is mostly African-American and lives in some of the poorest sections of our City, people that are typically the type of victims that predatory lenders are going out to look for. Gloria Wearing, which is one of our superstar members, as I like to put it, is here to give her own personal account of what she's been through, how predatory lending has actually been such a downfall in her life in a personal respect as well. Economically, personally, it's really affected who she is. I know that our membership -- it was quite an issue bringing this up to our membership. A lot of people didn't want to speak out on this. There was a lot of embarrassment that came along with it. So there's emotional ramifications. I know we've talked about the financial burdens and all these things, but there's 160 2/21/08 - HOUSING - RES. 080095 emotional ramifications and personal consequences that this type of burden can cause for a family. We speak on behalf of working families, and we thank you for bringing this issue to light and possibly finding a solution for this in our City.
My name is Gloria Wearing. I've been a proud member of SEIU 32BJ for almost years. I would 16 like to start by thanking City Council 17 for allowing me to speak on this 18 important issue and hope that my story 19 will serve as a warning to others. 20 About 15 years ago I decided to 21 purchase a home in South Philadelphia 22 around 20th and Snyder Avenue. I had just been through a very difficult divorce and decided it was time for me to get a fresh start for myself and my 161 2/21/08 - HOUSING - RES. 080095 children. I began to look into mortgage companies that would lend me the money to make this possible. That is when I ran into DBS Mortgage. They initially told me my rates would be seven to eight percent, and since I didn't have the best credit at the time, I thought I was getting a pretty good deal. After being in my home for five years, my rate skyrocketed to percent. 12 I didn't understand what had happened and was having a hard time keeping my head above water. Around that time is when I got a knock on my door from a community organization called ACORN. They asked to review my mortgage papers, and after looking them over, they explained to me that I had been a victim of predatory lending. I learned that many of these lenders will lend you money and then they hike up the interest rate in the hopes that you'll be unable to make payments. They want to make it difficult to make 162 2/21/08 - HOUSING - RES. 080095 payments so they make a profit from your home once you are forced to file for foreclosure. I was angry when I learned that I had been taken advantage of. These lenders not only placed a substantial financial burden on me, but put my family at risk of losing our home. It was only with the help of my union, which fights to maintain fair wages and benefits for its workers, and community organizations like ACORN and HEMAP that I was able to survive this difficulty and this difficult period in my life. I ask the City Council to do whatever lies within their power to make sure that the public is educated on predatory lending and subprime mortgages, to ensure that no one else has to go through what I went through, to ensure that no family in this City is left without a home. This was a written statement. It came from my heart. And because of an 163 2/21/08 - HOUSING - RES. 080095 illness that I was going through, it's why my mortgage was not paid. It was not a lack of responsibility with my finances. Being a single mother with a mentally challenged son, it was important that I kept a roof over my children's head. My papers said one thing, and being ignorant of how the process should have went, it put me in a situation, but because of my job and me being a working mother, I was able to pull myself out of this water. But hopefully with all that's going on, this will help someone to understand that they're in the business of making money for whatever position they put us in as working people. We have a right to have fairness with even with our housing and with our mortgages, and I'm just asking City Council to look into this to make sure that this does not happen to another working person.
Thank 164 2/21/08 - HOUSING - RES. 080095 you very much. (Applause.)
I just wanted to add really quickly, becoming aware of this -- and I thank Gloria for just giving me such a personal account of what this can have -- the personal effect that this can have on someone's life. Part of our not only political piece but our community piece for SEIU for the coming year is to educate our membership on what can happen, what these predatory lenders are looking for in a victim. And so part of our program is to educate our community people on what's going on, go into the community, step out of the union, go into the community and talk directly to our membership about what we can do to make sure that it doesn't happen.
Thank you very much. 165 2/21/08 - HOUSING - RES. 080095 (Applause.)
I just want to applaud the members of your union and I want to applaud you for testifying today. Sometimes when bad things happen to us, it takes courage, courage to share with others, the City and the world, what happened to you so that it might be a lesson of warning, a guide for what should not happen to others. So I want to thank you for coming forward. Again, people were coming up to me in the hallway talking about their personal experience, but it takes a special type of person to publicly talk about what they did wrong, what happened to them and how to help others and preventing that happening to them. So I thank you personally.
Thank you very much. 166 2/21/08 - HOUSING - RES. 080095 (Applause.)
Next is ACORN, Ian Phillips, Raquel Ravalo, Mary Ellis. We welcome you to come forward. Are you here? If you're not here, we will move on to the next folks. Please come forward. We're holding folks up. Thank you very much. After ACORN, then there's Leslie Thomas and Anne Thomas. Please come forward, please. Next we have Khalil Walker, Director of Housing Counseling, Housing Association of Delaware Valley. We have Mr. Sharif Street. Thank you. (Witnesses approached witness table.
Please identify yourself for the record in any order. Let's go. Okay? Thank you. Is Mr. Henry Sommer here?
After Housing Association of Delaware Valley 167 2/21/08 - HOUSING - RES. 080095 will be you. Is Don Kelly here, GPUAC? (No response.)
And that is it for those on our calendar. Thank you very much. Please identify yourself and begin your testimony.
My name is Ian Phillips. I'm the Legislative Director for Pennsylvania ACORN. With me today we have three of the hardest working people I know and all of them are caretakers for their family. So one of the points that we want to drive home today is, these are risky loans, not risky people. We talked about the courage that it takes to come forward and bring these stories out, and it's people like the folks that we heard from today that have been fighting these 168 2/21/08 - HOUSING - RES. 080095 companies for years now and we're just finally getting some of the balls rolling so that we can really start talking about loan modifications and saving people's homes. So with that, I think we'll start with Ms. Mary Ellis and then we'll move to Ms. Tanya Harrigan and Ms. Christina Jones.
My name is Mary Ellis and I'd like to thank everyone for listening to us today, the Chairperson. In 1996, I went to Fidelity Bank to get a loan for -- to get money, $10,000, to do some work on my home. They told me I was denied. My credit score just missed the mark about ten points or so, not by much. Soon after that I started receiving a lot of papers in the mail from loan companies wanting to give me a loan. Finally, someone called me on the 169 2/21/08 - HOUSING - RES. 080095 phone with Liberty Mortgage and they told me they could get me a good loan for the amount that I was interested in. I didn't realize that Liberty Mortgage was a subprime lender. They were a mortgage company that was willing to give me a loan. For some reason, because I had a lot of things that needed to be repaired around my home, they talked me into getting a loan for 35,000 instead of the 10,000 that I initially started for. I needed a new roof, new heater in the basement, new windows and so forth. When the loan started, it was 11.75 percent and they told me it was supposed to be a fixed rate. In the end, the loan went up to 18.75 percent. Soon after closing I was told my loan was sold to AIMS, then a few years later it was sold to EMC, which holds it now. In 2006, my mother passed away, which was the beginning of a string of 170 2/21/08 - HOUSING - RES. 080095 financial difficulties. I fell behind in the following months and my payments continued to go up. I tried to catch up, making payments totalling over $4,600. 6 They would not accept my payments and 7 sent letters saying they would foreclose 8 on September the 11th, 2007. 9 At that point, I spoke with 10 ACORN, an ACORN organizer, and they set 11 me up with a housing counselor. They stopped the auction of my home and they set me up with a loan modification that would bring down my interest to 7.5 percent, which is a fixed interest rate, not a variable interest rate. The most important thing that I want to say about this, when I went for the loan with Fidelity, I only missed the prime rate by a few points and I'm sure that there should have been some way that I could have worked it out with Fidelity rather than go through all this process with the predatory lender and then finding out that the rate that they gave 171 2/21/08 - HOUSING - RES. 080095 me was not fixed but a variable rate. And when you're not an expert about mortgage laws or whatever, there should have been more help for me, especially from the banks and from the whole -- for the whole process. At any rate, there should be a moratorium on these foreclosures for people. They need more time, time to figure out a way to rewrite the loan and bring down the interest rate so that they will be able to pay. It's not that they don't want to pay. It's just that the mortgage company has them in such a bind that it's difficult to pay. Thank you very much. (Applause.)
Spell your last name, Ms. Harrigan. 172 2/21/08 - HOUSING - RES. 080095
I want to thank you for hearing our plea today. I purchased a home in 2000, year 2000, and I was with -- I refinanced with one mortgage company, Citicorp, and I know extensively you know the problems of Citicorp, because they've been nationally throughout the media and on the news. I was dumped with Wells Fargo. My mortgage is with Litton Loan and Wells Fargo is the trust. They did a refinance because I needed some work done at the property and I didn't have a Fannie Mae A-1 credit, to be familiar with Fannie 1. So I came up under -- they said to me my rate would be 6.5, which my rate in the final analysis, my rate -- when it was all done and over with, signing the papers and ready to close, my rate was 11.75, and they said 173 2/21/08 - HOUSING - RES. 080095 in two years you will be able to refinance and to recover those, you know, to come under a lower mortgage, which never happened. In two years my mortgage standing now is maybe 13.5 percent and which I fell into bankruptcy. I entered into bankruptcy to save my property. And I pay my bankruptcy. It was a 60-year payment. I paid it out -- I paid my bankruptcy down in two years. I came into settlement and I paid my bankruptcy of $12,000 out early. For some reason, December of '06 I went to pay my mortgage. It's due on the 16th. I went to pay it the 29th and called Litton Loan and they said to me, You are in foreclosure. I said, You're kidding? They said, No. You're in foreclosure. And I questioned why, how can this be when I paid you $12,000 in July to bring me -- to pay bankruptcy. 174 2/21/08 - HOUSING - RES. 080095 And they said to me, Well, you are in foreclosure, and in a matter of fact, in another week you will be receiving foreclosure papers. I have been fighting this battle with Litton Loan from '06, which they stuck on me an '02 writ. They came after me with an '02 writ. And I've been fighting this battle. I seek legal counsel. I didn't have the funds for legal counsel, but I went to a lawyer and he gave me free consultation, and out of that came that I am a candidate of predatory lending. I have called these people to no avail. They don't answer. They don't talk to you. You know, you talk to a machine from sun up to sun down. And within 30 days, a neighbor had mentioned to me the organization of ACORN. I went to ACORN, taking my problem to ACORN and trying to find out how can this be or what is going on, you know. I'm standing in the midst of ACORN 175 2/21/08 - HOUSING - RES. 080095 helping me to recover from this foreclosure that I'm in with Litton Loan. Thank you for hearing my plea. (Applause.)
Good afternoon. My name is Christina Anderson Jones. I'm here today to tell you my personal experience with ARM Mortgage. One thing that's lacking is the fact that we are not educated to know the difference in these different loans. (Applause.)
This is something that we as people need to do. We also need to be able to understand the fine print that no one tells you about until later on. I have a mortgage. I have two mortgages. I've owned my home for 50 years. I decided to take out a loan to do some renovating, fixing up and also to get my daughter a home. Well, I was 176 2/21/08 - HOUSING - RES. 080095 supposedly getting a fixed-rate mortgage with Wells Fargo, which turned out to be a two-year ARM. I was paying 325 a month. That's not counting the fact that you have to have insurance when you have these loans. You have to have your insurance, and all these things have to be current. I called them up -- I was dealing with a broker, and he told me, No, no, you have a fixed loan. I'm saying, Look, I'm getting letters from Wells Fargo stating that my loan is getting ready to be increased. Oh, sign your paperwork. I told you, I know what I did. No. You did what you wanted to do because of the fact that I didn't know any better and allowed that to happen to me. But the fact of it is is that now, starting the 1st of March, my mortgage went from 325 to 725. I want to be a senior citizen. I want to be able 177 2/21/08 - HOUSING - RES. 080095 to live. I want to leave something back here for my children. At the rate I'm going, I will not be able to leave anything. Matter of fact, my daughter's house that I bought for her, she'll be out of it because that loan is also an ARM and which is up next year. I mean, if you would take time and at least get with a lot of these companies that give you these loans, I mean, there has to be an end to being used and put in that position where because you don't understand that you're liable for the greed that comes with a lot of these companies. I mean, I feel for all of the people that's been here speaking, because I know what it's like, too. I mean, what am I going to do, go get another job? I'm 59 years old. What am I going to do to compensate for the increase that they have put on me? Now next year I have to go through the same thing with another company. This has to be stopped. It has 178 2/21/08 - HOUSING - RES. 080095 to be stopped now. Not later. Not next week. Now. (Applause.)
And I say this all heartedly because of the fact that everybody gives you a song and a dance. There's tunes that everybody can play, but let's play a real tune. Let's get busy and do these things to help us as one people so that we don't have to keep going through all these trials and tribulations. (Applause.)
It's hard enough to just walk out here and be able to survive with everything going up. Now you're going to take our homes. You can't pay the heat, can't pay your bills. Now take the home, too, put you on the street. I mean, are any of you going to pay -- will you help me pay my mortgage the first of the month? But you can get behind those that have made it impossible for me and make them do something. 179 2/21/08 - HOUSING - RES. 080095 That's all I ask. Thank you for listening. (Applause.)
Thank you, Ms. Jones. The reason that Councilman Jones, who speaks for himself, introduced this bill is because we're on your side. We thank you. Thank you, Mr. Phillips. Councilman Jones.
I just want to say to you guys -- and I know that wasn't directed at us, but I'm going to carry it with the same amount of intensity to the people who need to hear it, and I promise you that. And we're going to work real hard to figure this out. (Applause.)
I'll be really brief because I don't know how I can follow that up and do it justice. I want to thank Councilman 180 2/21/08 - HOUSING - RES. 080095 Jones for calling this hearing specifically to address the rationale for a foreclosure moratorium on subprime loans. Put very simply: Subprime servicers' business model was never designed to deal with this widespread number of foreclosures. Some are trying, but none are trying hard enough. At a recent discussion at the Federal Reserve, a representative from one major servicer said, We're making a big change from a collections mind set to one focused on loss mitigation. The change will take some time. Unfortunately, for thousands of Philadelphia homeowners, that change has already come too late. For thousands more, the piecemeal solutions that have been offered by the Bush/Paulson Plan and all these other PR things do not apply to them. We need a foreclosure moratorium on all subprime loans in the City of Philadelphia until all major 181 2/21/08 - HOUSING - RES. 080095 servicers agree to a streamlined loan modification process. Fifteen companies control 85 percent of this market. We need to get these people in a room and 6 force them to come up with the real 7 solutions. 8 ACORN recently -- 9 (Applause.) 10
ACORN recently 11 reached an agreement with Countrywide, 12 the nation's largest servicer of subprime 13 loans, to offer streamlined solutions to 14 all of its borrowers with unaffordable 15 loans. Borrowers with Countrywide will be able to access fast-track solutions, whether due to an exploding ARM, a balloon payment, a crippling pre-payment penalty, inflated income, inflated appraisal. Most companies -- and Countrywide just signed this agreement. It took effect January 1st. Most companies still rely on a multitude of seemingly subjective criteria that varies from borrower to borrower with a sole 182 2/21/08 - HOUSING - RES. 080095 staff person in Wells Fargo, or whose-ever office it is, making decisions seemingly arbitrarily. Philadelphia has a capable housing counseling community that could keep the vast majority of troubled homeowners in their homes. What they need is the play book and a bit of time to study each play. This crisis was caused by risky loans, not risky people. Yet, some of Philadelphia's hardest working are losing all they've worked for because their monthly payments keep escalating while their monthly income remains flat. The lenders and investors have lost billions of dollars, a fact that Warren Buffett last week called Poetic Justice, but these lenders and their CEOs have not lost their homes, the memories stored in those homes and the wealth contained in those homes. That wealth functions as the number one way that working families pass on that wealth to 183 2/21/08 - HOUSING - RES. 080095 their progeny. What we need today is a bit of restorative justice, a clear plan that will keep every homeowner with a willingness to pay in their homes, serving as anchors on their blocks and in their communities. But the cost is not only to the homeowner, but also to their neighbors in lower property values and to the City in lost property tax revenue and the costs associated with a glut of vacant, crumbling homes. Of the thousands of high-cost loans made in 2006, just in 2006, 3,206 are estimated to fall into foreclosure, and they'll be resetting in 2008 and 2009. So be on the lookout for these homes to start winding up on the Sheriff's sale. The total cost to the City of Philadelphia and its residents of just these 2006 loans, remember, is going to be $345 million. Many of these loans will face interest rate payments this 184 2/21/08 - HOUSING - RES. 080095 year, like I said, and next year. We urge you to use all of your authority to explore every possible method in order to force a foreclosure moratorium until subprime servicers and investors offer streamlined loan modifications to their borrowers. Thank you for your time. (Applause.)
Thank you very much. Thank you. Councilman Jones.
Thank you, Madam Chair. Real quick, because we have other people. We've been here a long time. I think this set of testimony kind of crystallizes where our intentions are and going, but I'd like to offer you the same opportunity I offered other groups to say, without incriminating them, who are the 15 stakeholders on the subprime side that need to be at this table? Name some of them for the record. 185 2/21/08 - HOUSING - RES. 080095
We've got Wells Fargo, as you heard today. We've got EMC. We've got Ocwen. We've got Litton Loan. We've got Carrington. We've got GMAC. We can go through the Prothonotary and we can go through the Sheriff's list and let's see. It's companies that 9 are on each one of these loans that is 10 foreclosing. If we can get these 15 11 people with real decision-makers, not PR 12 people in the room telling us, We're 13 doing everything, we're saving everyone's 14 lives, if we can get real decision-makers 15 in the room and really force them to come up with solutions for Philadelphia, and if they don't, then we need to stop the foreclosures from happening. (Applause.)
All right. If you can, since you're able to name some, would you submit that to the Chair, and we will make it available to members of the Committee?
Mr. Sharif Street and also Khalil Walker, if you're here. We apologize for holding you up. You were early. We held you up so long, and we appreciate this hat that you're wearing, Housing Association of Delaware Valley, and we appreciate you. (Witnesses approached witness table.)
Madam Chair, my Councilwoman I'm proud of. 187 2/21/08 - HOUSING - RES. 080095
Thank you. We're proud of you. This is a young man that we love. There's just no other way to say it. Thank you.
I do want to say for the benefit of those who may not know, I'm here today on behalf of the Housing Association of Delaware Valley and we'll soon assume the role of Deputy Managing Director for the Association. But before I begin my testimony, Khalil Walker, who is the Director of the Housing Counseling Program for the Association, will share some thoughts.
Thank you for taking the time to hear our testimony. My name is Khalil Walker, as Sharif said. I'm the Director of Counseling for the Housing Association of Delaware Valley. The Housing Association of Delaware Valley is the nation's oldest housing advocacy organization founded in 1909. Tony Lewis is the Managing 188 2/21/08 - HOUSING - RES. 080095 Director of the Association. The Association's housing counseling subsidiary is the Housing Association Information Program, or we affectionately call it HAIP. HAIP is the City's oldest continuous housing counseling entity established by the Housing Association in 1980 to assist families to obtain and maintain decent, affordable housing in Philadelphia. The program is certified by the United States Department of Housing and Urban Development, the Pennsylvania Housing Finance Agency's Comprehensive Housing Counseling Initiative and Homeowners' Emergency Mortgage Assistance Program, GMAC's MGIC Home By Now Network, and an organizing member of State Senator Vincent Hughes's Homeownership and Mortgage Education Program. We also provide technical assistance to the City's Office of Housing and Community Development. It's appropriate that this 189 2/21/08 - HOUSING - RES. 080095 Committee is obtaining testimony on the topic now during African-American History Month. S. history for African-American and Latino homeowners. Rapacious brokers and the conspicuous absence of prime lenders in communities of color have led to a staggering erosion of wealth. While communities of color are the most damaged by this phenomenon, working class and poor whites with incomes between $17,000 and $30,000 are also severely affected, according to a report recently released by Freddie Mac. Over 50 percent of working poor homeowners who were foreclosed on, black, white and Latino, never contacted the lender to attempt to resolve the problem. This is no reflection on the families. Lenders are deemed hostile. In many instances, the same loans that were originated were not the loans that these families received. Talk about a lack of 190 2/21/08 - HOUSING - RES. 080095 trust, complex phone trees and cavalier attitudes displayed by customer service representatives all contributed to the demise of working poor families' efforts to retain their homes. Over the past years, the 8 Housing Association has witnessed a 9 proliferation of loans with terms and 10 conditions that would increase the 11 likelihood of default by the homeowner. " In response to the 15 rash of predatory loans in 1999, the City 16 of Philadelphia's Office of Housing and Community Development asked me to chair its ad hoc committee on predatory lending. The committee drafted some of the strongest legislation in any municipality at that time. Unfortunately, that legislation was stricken at the state level because the argument was that the state controlled the banking and regulated the banking 191 2/21/08 - HOUSING - RES. 080095 industry. Subprime borrowers of color will lose between $164 and $213 billion for loans taken over the past eight years, according to a report conducted by United for a Fair Economy, a non-partisan, non-profit organization. The dream of economic stability for everyone living in the United States so eloquently described by Reverend Dr. Martin Luther King is integrated within homeownership. Homeownership is the most significant source of wealth for most people. The simple truth is, minority homeowners have been hit the hardest. While the foreclosure tsunami continues, its full impact has yet to be fully realized. Let's look at the impact of foreclosures on neighborhoods. Foreclosures decrease property values. There is a correlation between an increase in foreclosures and an increase in crime. There is an 192 2/21/08 - HOUSING - RES. 080095 inadequate provision of City services, police, fire, libraries, parks, schools, due to the absence of tax revenues.
There is also an increase in abandonment and vandalism associated with foreclosures. A resurgence of redlining is also evidenced by increased foreclosure activity. A recent Washington Post article by Kenneth Haney February 2, 2008 mentions an increase in redlining associated with foreclosures. Countrywide is reclassifying entire zip codes and municipalities within metropolitan areas as being risk aversive or declining. So what that means is, if your area receives such a designation, you may be subject to a five to 15 percent increase in downpayment and closing costs associated with a mortgage. Despite having an excellent credit rating or otherwise impeccable credentials, an area may cause you to have higher than normal 193 2/21/08 - HOUSING - RES. 080095 mortgage costs. Other lenders are waiting to see how this program is implemented in order to adopt a similar risk assessment strategy. The impact of foreclosures on families leads to a loss of stable housing and financial decimation. Locally, zip codes in the Philadelphia area with the highest number of Sheriff's sales and Sheriff's sale filings are 19143, 19142, 19151, 19138, 19124, 20, 34 and 31 respectively. The Center for Responsible Lending estimates over 3,000 loans originated in 2006 in Philadelphia will likely go to foreclosure in this spring of 2008. This results in approximately $350 million in losses to homeowners, lenders, investors and local government. While the problem is monumental, there are a number of ways to stem the tide of foreclosures in Philadelphia. First and foremost, education and information is essential. 194 2/21/08 - HOUSING - RES. 080095 If homeowners are to have this burden lifted, they need to receive quality education by the already existing housing counseling network. Increased funding for housing counseling agencies to provide high-quality services rendered to those at risk should be a top priority. A targeted approach to service delivery rendered in those zip codes with the highest number of Sheriff's sales in court filings is key. An aggressive outreach campaign to include churches, mosques, synagogues, senior centers and community centers is vital to mitigating the effects of foreclosure. A long-range affordability strategy with streamlined loan modifications at the nucleus is a very strong method to indemnify the families at risk. And, finally, aggressive use of federal authority under the Homeowners Equity Protection Act, HOEPA, to protect families from predatory lending is essential. Thank you for hearing my 195 2/21/08 - HOUSING - RES. 080095 testimony on this epidemic, and I will entertain any questions you might have.
Thank you. If the Council will indulge more testimony, I appreciate your patience. My testimony is based in a slightly different perspective. I knew that Khalil, having spent a good volume of time working with individuals who have been impacted, would testify from that perspective. In my current profession, I've spent a good bit of time working with some of the larger players in the market and have prepared an economic-based argument on why the government should act to address the subprime mortgage market failures, because I would submit that it's not only the individuals, the borrowers, that are negatively impacted, but that we have a market failure because the lenders are also better off if we don't have massive foreclosures. I'll begin some of the prepared 196 2/21/08 - HOUSING - RES. 080095 remarks. In economics, university professors often teach that it is the responsibility of government to correct market failures. Market failures can result from a number of factors, including, but not limited to, a deficit of information that prevents market participants from acting in their own economic best interest and from collective action problems. In the case of the subprime mortgage crisis we currently face, there is clearly a deficit of information on the part of many borrowers and some lenders. Additionally, I submit that both lenders and borrowers also have a collective action problem. The mortgage and the real estate markets will be better if the subprime mortgages in default were repaid or refinanced rather than foreclosed. Massive amounts of foreclosures at once almost ensure that lenders will receive 197 2/21/08 - HOUSING - RES. 080095 an artificially low return on the sale of seized property, and real estate assets in their portfolios will decline. Conversely, refinanced mortgages would result in a stabilization of the lending market and would help stabilize the value of mortgage assets which support that market. The rational action for the subprime mortgage industry to take would be, therefore, to stop the foreclosure cycle and develop a reasonable refinancing process. The problem is, no one lender would want to do this unilaterally, for fear that if other lenders did not follow suit, it would be burdened with even greater losses. This is a classic collective action problem, because the industry would benefit from a set of actions which, if taken by all, but may not happen because of the risk of each lender acting unilaterally. The government should act to help resolve this collective action problem. 198 2/21/08 - HOUSING - RES. 080095 Basically, because I've spoken a little legalese, for members who are listening, the lending market really doesn't benefit overall by destroying the real estate market. They hold a lot of value in real estate. Both the properties that are foreclosed and the ones that are not foreclosed on suffer, and that's why we have this overall national decline in the value of real estate. The lending market and the real estate market, including the tax revenue the City generates, will be better off if we stabilized our real estate market and don't allow this segment of the market to collapse our overall market. It is actually -- we've spoken about this from the perspective of the borrowers, but it's actually good for the lenders, too, even if folks didn't come to testify on their behalf. Borrowers in many instances lack the appropriate information to take the necessary steps to file the 199 2/21/08 - HOUSING - RES. 080095 foreclosure and to avail themselves of refinance opportunities. They would obviously benefit from an opportunity to have the foreclosure process halted so they could be educated about their options and, therefore, make better choices. The impact on borrowers resulting from the loss of homes also has the effects of destabilizing communities and families, as well as increasing crime and unemployment. All of this is bad for the economy and society.
The government should act to give the housing counseling community greater opportunity to address this market failure resulting from borrowers lacking information. I won't go on too much about this, because Khalil addressed it and many others have talked about the individual impacts that folks have because of having your home taken. Finally, the overall mortgage industry would benefit from a freeze on 200 2/21/08 - HOUSING - RES. 080095 foreclosures because it would give the Commonwealth, led by the Governor or perhaps even the federal government, a chance to act. And the Commonwealth or the federal government could increase the options for both lenders and borrowers to more appropriately address loan problems and facilitate greater loan refinance or loan workout opportunities. It should be noted that the Governor is currently working on, with the General Assembly, on an aggressive plan to address this crisis, and I'm alluding to some of the things that Senator Hughes and Secretary Hudson testified to, but I would also recommend that the Council look at the opportunities that the Acting Banking Secretary Kaplan has suggested. This final point is an especially compelling reason for a moratorium on Sheriff's sales resulting from residential subprime mortgages on owner-occupied residential properties, 201 2/21/08 - HOUSING - RES. 080095 because it means we can anticipate greater options for all in the near future. It is, therefore, incumbent on this government to act to correct the aforementioned market failures. I would say even the most conservative members of the government of academia who say that we should only -- the government should only act when the market fails, we should sort of let the market proceed, applying that logic, the government should act and there should be a moratorium. The individual lenders are better off if their asset pool doesn't decline. Homeowners and families aren't disrupted. People aren't displaced, communities, and the tax revenue stream for the City will stay much more stable to the extent that we have a real estate market that's grown. The real estate market had provided additional revenue for the City that we use to do everything from funding police officers to fixing streets to helping to fund the schools, 202 2/21/08 - HOUSING - RES. 080095 and to the extent that we're able to stabilize that market, I think it's incumbent upon the Council to act. And, Councilman Jones, I commend you for bringing this process up formally, and I would submit that the Council should act in working with the Sheriff to suspend foreclosures, at least until such time as greater opportunities can be presented for lenders and borrowers.
Thank you very much. Any questions? (No response.)
I just want to recognize a Councilperson who is no 19 stranger to this issue, Councilwoman Marian Tasco, who fought this process tooth and nail of predatory lending. (Applause.)
Thank 203 2/21/08 - HOUSING - RES. 080095 you again. Thank you very much.
If I could add just one final piece of equity stripping that's occurring is with the foreclosure lenders. A lot of times even after folks go into foreclosure, they may still have thousands of dollars of equity left. Well, there is a reassessment on behalf of the foreclosing lenders -- foreclosure attorneys that even seeks to destroy what little equity that may be left. We kind of look at if you can't retain your home, you should have a dignified exit, that being take what equity you have to start anew. In some instances, you may have 20, 30, 40 percent equity left in your home, which you can now go get an apartment or even put the percent down 20 to start anew, but when the attorneys reassess and they come up with all kind of fees that we really can't follow -- I mean, the lenders are bound by truth in lending and other disclosures, not so with the attorneys. They simply label it 204 2/21/08 - HOUSING - RES. 080095 as reassessment, and in those instances, we've seen where an additional $15,000 or $20,000 is assessed to that property.
I would just submit one final thought, if the Council will so indulge me. While the truth in lending statements may not apply, the canons of professional responsibility for attorneys with respect to billing due, you cannot adjust your rates in a way to extract additional value from the real estate. Your rates have to be rationally related to the service you provide and should be stated prior to that service commencing. Normally this is negotiated in writing between the person that's paying the fee and the lawyer, or in the case where fees are granted to opposing counsel, the Court oversees this. This is sort of a unique place where the person that's actually paying the fee, the person who is foreclosed upon, no one is really looking out for their interest in terms 205 2/21/08 - HOUSING - RES. 080095 of these fees, because those fees are not monitored by a court, nor do they have any real negotiating power, because the bank doesn't have any incentive to hold down the fees. But those fees are -- but that attorney is still bound to have those fees be related to the service that was rendered. And if the service has been completed, the fees shouldn't be able to be adjusted post completing the service without violating the canons of professional responsibility.
Thank you very much. Thank you again. We will break only for about three minutes for our