As has been discussed here I know in earlier Council hearings too, we were hired by the -- we, along with MFR -- were hired by the City 82 9/27/07 - COMMERCE - RES. 070601 Treasurer's Office to conduct this analysis of lending practices by depository banks. And, again, that's defined, as everyone here knows, as the banks that are on the list that the City can deposit its funds, its banking funds. And what we looked at was, essentially we were taking a look at what are their lending practices in various ways to analyze their lending practices, and the first and overall one is, is there any evidence of discrimination in those lending practices. We looked at prime and subprime home lending in Philadelphia. And the bulk of the study was for home lending and three types of home lending: purchase money, home lending to purchase a house; refinancing; and home improvement lending. And in 2005, those numbers in all of those cases were higher than 2004. We anticipate the 2006 numbers will be higher than the 2005, too. We also took a look at 83 9/27/07 - COMMERCE - RES. 070601 Philadelphia compared to other areas; that is, Philadelphia versus the suburban areas in the Philadelphia metropolitan area, as well as Philadelphia versus other major cities, to see if there's any comparability with any of the trends or any of the findings. And then we took a look at -- we also took a look at non-occupant investors versus owner-occupied housing lending. And we created a measure, a ranking of the depositories. Followed the practice that was instituted in the two previous studies, but we added some variables in there, because we wanted to make sure that we sort of had two components in the rankings. One component was what is the extent of sort of the breadth of their lending coverage across racial, ethnic, gender and income lines, number one, but also wanted to make sure that we took into account sort of the scale. If you're a bank and you made one loan to a low-income minority, 84 9/27/07 - COMMERCE - RES. 070601 you'd look very, very good on a percentage scale, but you wouldn't look very good on sort of like how are you trying to address the big problem. So we wanted to try to keep both, so the performance as well as the scale, to note. And this is very important, as the Treasurer mentioned. Only in the home lending -- both City Council and the City's sort of hands are tied a little bit that you have the ability to say, Here, we're doing some business with you with City funds, and the commercial banking world is sort of sliding out of the residential mortgage world, as we all know here. And I'm not talking about subprime. I'm just talking about other lenders here. So we set up a ranking of the depositories and made sort of various factors, where were they lending, what were loan denials, what were relative prime to subprime applications, denials 85 9/27/07 - COMMERCE - RES. 070601 and acceptances in those. One of the things that we found -- let me step back. What we did was measured all of the banks and found out what is the City average and the City median in this sort of lending, and then compared the banks. The composite score on the ranking was based on how many sort of standard deviations above the average are you or how many standard deviations below the average to try to normalize, again, partly because of that scale issue. One of the things -- and we did find a ranking, and that is provided in the report there. One of the things I will note, that all of the composite scores were positive. So all of the depository banks that we looked at were actually better than the City average, but there was a variation still amongst those. We also looked at small business lending in Philadelphia, and that, as you and I think a couple of the 86 9/27/07 - COMMERCE - RES.
070601 other Councilmembers pointed out, the data, the underlying data, is far less detailed and disaggregated at that level for small business lending, but found some 20-odd thousand small business loans, as characterized by both CRA and the Small Business Administration, loans for just under $900 million. Now, one of the questions is -- one question is, is that a drop in the bucket compared to all of the debt going on, whether it's just the local banks or all other forms of debt. And one of the things that we hope to do in the 2006 data is be able to sort of disaggregate a little bit and get a little bit more information on that. So we did find that information about the small business lending. We also did take a look at branch banking only in the sense of a descriptive sense, branch banking in neighborhoods, where are the branches and are branches in census tracts with low 87 9/27/07 - COMMERCE - RES. 070601 income, minority, low to moderate income, and took a look at where those branches are. I'll summarize with our findings here. The first one, as we mentioned before, this key question: Is there statistical evidence that supports a contention, sort of a null hypothesis, that lending is somehow influenced by factors besides the things that you would normally expect in a pure economic sense, credit, the loan to value, housing, income, all the rest of these things, and are there other factors, race, ethnicity, sort of where do you live and gender, that might tweak those. And obviously we sort of anticipate certain of those to be -- the hypothesis is they have no 20 influence. If there is something that's statistically significant that says that this factor leads to what we observe as a statistically significant drop in the, say, acceptance rate or significantly increase in the denial rate loans, then 88 9/27/07 - COMMERCE - RES. 070601 we'd say there is statistical evidence that supports that thesis. What we found was there does -- with the data that we have, there does look like there's statistically significant disparities across these groups and with these characteristics here, racial and ethnic characteristics of borrowers, and the data are consistent with discrimination but don't prove the discrimination because of what we call omitted variables. The problem is, we can't -- and the main thing is with the HMDA data -- that was the main type of data that we used -- we had variables that are missing that really are important to characterize, and there's a big question about whether or not you can ever get those, whether or not we can find some proxies to try to ease or coax some of that information out. But the main problems are, we don't have the individual credit score. 89 9/27/07 - COMMERCE - RES. 070601 So someone could say, Here, your credit score is real low versus real high. If that's not shown up there, some other factor might be -- a denial might be attributed to another factor there. Second areas that we don't have the information on, the individual borrower's wealth. We expect in one sense greater wealth -- any level of income, greater wealth, you'd have a higher probability of being able to get a loan. And then the flip side of that is how much debt do you have. If you are a borrower with a ton of debt already, your odds, all else equal, the odds are that you're going to get a reduced opportunity.
Mr. Mullin, not to interrupt you. I want you to get through your presentation, but just to question you on this point. You're speaking about the performance of depositories within the market and disparities that exist across the board? 90 9/27/07 - COMMERCE - RES. 070601
But clearly, the performance of certain depositories is very different from the performance of other depositories.
So, therefore, that shows some disparities that exist are related to the way certain financial institutions conduct their business or their lending criteria. Clearly, and I know over the course of the last three studies, by way of example, there is data on gender related to home purchase loans. I know in the first study that we conducted, I believe Citizens Bank did about 48 percent of their home purchase loans with female borrowers, and another institution, which I won't mention, did significantly less. And so it becomes clear that it was possible for Citizens Bank to do nearly half of their home purchase loans with female borrowers. And so it was not 91 9/27/07 - COMMERCE - RES. 070601 simply a matter of those specific borrowers' credit histories and other technical factors. But while we cannot prove gender discrimination by looking at the varying disparities among the City depositories, we can identify which depositories are not reaching out enough to certain demographic groups, one, and then, two, by also looking at the denial disparity ratios, we can also see that there are certain City depositories that are denying certain demographic groups more than others. And, once again, whether that proves discrimination or explains totally why those borrowers did not get those loans, it clearly shows that they are denying at a higher rate than other institutions and in some cases higher than the market.
I agree wholeheartedly. When I was just talking about this discrimination, that was in the marketplace, and part of the -- in one sense, a response is that even if 92 9/27/07 - COMMERCE - RES. 070601 everyone -- again, this is separate from the depository story. Even if everyone isn't providing services, if some people are, the competitive forces will -- they'll take advantage of that. So people do have opportunities. Less perhaps than others, but still have opportunities. Then going to the actual depositories -- when I was talking about the composite index that we were looking at, we identified several variables, not every single one of the possible permutations and combinations of characteristics, but several characteristics to try to take that into account, and we think that our index sort of gives a rough -- it doesn't say this group is worse in gender, this group is worse in poor census tracts, this group is worse in minority lending, but rather taking all of these, some factor in all of these, these banks -- I meant this group of banks here, this subset here -- 93 9/27/07 - COMMERCE - RES. 070601 these banks seem to, as we normalize or as we create this index, the higher number is associated with more sort of positive characteristics there and a lower number is associated with fewer positive characteristics. And that's -- we didn't go any deeper than that, is what I mean on that front. Does that make sense?
And, actually, when I was mentioning that, I could go through some of the findings. A couple of things just descriptive that we find kind of interesting, that the total loan applications for residential went from 90,000 in 2004 up to 100,000 applications in 2006, and the originations, the actual acceptances and issuance of loans, went from 36,000 to 42,000. So in one general case, 42 percent of people who applied for loans received the loans in 2006. Now, when we look at that, as I mentioned before, those 42,000 loans are 94 9/27/07 - COMMERCE - RES. 070601 made up of 17,000 for people purchasing houses, 21,000 for people refinancing existing loans and about 3,000 for home improvement loans originated. Now, the main thing -- obviously characteristics for home improvements and refinancing take in different factors there, but the main thing that we looked at were the home purchase loans, the 21,000 there and an additional 20,000 loan applications and 10,000 loans originated by non-owner-occupied investor purchases there, and those are the -- the findings that we noted and they're reported throughout, we did find, again, that factors such as ethnicity and race and neighborhood, both described by income of neighborhood or percent minority of neighborhood and those neighborhoods by census tracts, we did find that there's statistically significant differences in rates of denials across those variables. We found in many cases statistically 95 9/27/07 - COMMERCE - RES. 070601 different numbers associated with prime loans and subprime loans across different areas and characteristics of the borrowers, different Philadelphia versus Philadelphia suburban counties, but not necessarily Philadelphia versus other cities there. In fact, when we looked at Philadelphia, when we looked at Philadelphia versus Baltimore, Detroit and Pittsburgh, Philadelphia had the lowest percentage of subprime loans out of those four cities, but Philadelphia had the greatest disparity between denial rates between white applicants and African-American applicants and Hispanic applicants than those cities. So we had lower subprimes but higher disparities in the denial rates there. And so what does that tell us? There are disparities. There are things that, as we note, we can't sort of put our finger on, this is because of this factor only, because there are omitted variables. But the fact that there is 96 9/27/07 - COMMERCE - RES. 070601 this disparity we note and we sort of conclude that there is some evidence that's consistent with discrimination and practices that result in disparities and that that should, one, be a concern and, two, the City ought to take a look at how to possibly address that. And, again, in our recommendations, our recommendations were sort of broken into roughly two categories. One is data, saying where you can possibly get more data, try to figure out ways, again, to coax out more information out of the data, because we're not going to change, at least not right now, HMDA data. What those variables are will be determined by the United States government and their rules. But how can you find other types of data that might give you some more insights into what's going on. And, second, the public policy-type recommendations, several of which were discussed earlier in this hearing, just sort of what are 97 9/27/07 - COMMERCE - RES. 070601 some things that the City can do.
And if I might note one thing, when we talked about the -- when we said sanctions or rewards and recognizing we're only talking about depositories because sort of in one sense other lenders can say, Hey, we don't really care necessarily what you're doing because we're not looking for business with you and we don't have that hook, but we do think that there is a possibility of using sort of, in a sense, this marketing hook, because a potential reward, even if it isn't directly City dollars, a potential reward might be something like making a note that Bank A, B and C, these three banks, seem to be doing a lot of good along some of these categories here, and that might be something that they might take in their own private marketing efforts. And to the extent that individuals assign a plus to that, that might be something that would be of value to them and show, just 98 9/27/07 - COMMERCE - RES. 070601 like the opposite side could be and say these are ranked fairly low in these categories. And, again, in their own private marketing, no bank really wants to have somebody say, This group has said you don't do things good in whatever category or something on this front. So that might be something that the City could do even without the caret or the stick of deposits there. So I'll end with that, if that is a brief enough summary for you.
That's fine. And if other Committee members have questions, then you can dig deeper into the report. I just have a couple of questions. I think you can anticipate what they might be. Mr. Mullin, you're the former Commerce Director for the City of Philadelphia?
You're also 99 9/27/07 - COMMERCE - RES. 070601 the former Finance Director for the City of Philadelphia?
And the City Treasurer's Office was under your purview as Finance Director?
I assume that you agree with the recommendations within the Econsult report?
And I assume that you agree that the recommendations -- and I'll be specific, that the City should use the annual rankings to identify underperforming depositories for possible sanctions if performance does not improve. Conversely, banks with better performance should be rewarded, maybe a larger share of the City's financial transactions, and also that the creation of banking development districts should be 100 9/27/07 - COMMERCE - RES. 070601 considered to encourage branching in underserved areas. All of that is able to be achieved without changing the Philadelphia Home Rule Charter and The Philadelphia Code?
Well, I'm not an expert on that last and getting further and further away from remembering it as I get older, but I think that there are ways that the City could look at achieving those objectives. So I would say yes, subject to someone coming in and saying it says no on this part.
Let me ask a simpler question. As former Commerce Director and former Finance Director that oversaw the Treasurer's Office, the City can put its money wherever it chooses as long as it's an authorized City depository; is that correct?
And there 101 9/27/07 - COMMERCE - RES. 070601 are no restrictions that you know of in terms of instituting a reward and punishment system?
Yeah. I don't know of any, but that isn't because I've checked it through and through. But I don't know of any.
Thank you. Are there any questions from members of the Committee? (No response.)
Seeing none, we'll go to our next panel. Thank you very much. Mr. Nacchio, if you could stay around for that testimony, I would appreciate it.
I want you to stay in the Chambers, not necessarily there.
Oh, okay. Thank you, sir. 102 9/27/07 - COMMERCE - RES. 070601
Thank you. Our next panel is Community Legal Services and Philadelphia Legal Assistance. Good afternoon. Please state your name for the record and then proceed with your testimony.
Good afternoon. I'm Irwin Trauss. I'm an attorney at Philadelphia Legal Assistance. I'd like to thank the Chairman for inviting my remarks today. I just want to make sure that the Chairman has received a copy of the testimony and that Councilpersons have.
Before I begin, I would like to just explain who I am and why I'm here. As the Chairman knows, I work for Philadelphia Legal Assistance. We're an office that provides free legal services to low-income homeowners and low-income clients in the City of Philadelphia. 103 9/27/07 - COMMERCE - RES. 070601 As you may know, over the past years, Philadelphia Legal Assistance, 4 along with our colleagues at Community 5 Legal Services, have been representing 6 low-income homeowners in their attempts 7 to prevent losing their homes to 8 predatory loans. We've also been 9 actively involved in trying to eliminate 10 predatory lending and addressing the 11 problem in the City, which manifests itself by high rates of foreclosures, which are de-stabilizing neighborhoods. One of the things I would like to point out as a comment on one of the questions you asked the Treasury Secretary, it's been our experience that since 1993 at least there's really been little, if any, effort on the part of or concerted effort on the part of the City of Philadelphia Administration to encourage the banks that it does business with to address disparities in lending that have contributed significantly to the problem of predatory lending that we 104 9/27/07 - COMMERCE - RES. 070601 see in the City today. I'd also like to mention in response to a comment that was made by the fellow from Econsult about the ways of getting some greater insight into some of the information that they found. There are some reports which can provide insight into the effect of some of the practices by the depository institutions and by banks in general in the City, and I'll be talking about them in my testimony. Specifically, there's a recent report by the Reinvestment Fund, which I believe the Chairman is familiar with, documenting the incidence of predatory lending and attempting to define predatory lending and document its effects by looking at mortgages over a period of between 2000 and 2003. And there's also a more recent report that was released by the Center for Responsible Lending which looks at the issue of subprime lending citywide. 105 9/27/07 - COMMERCE - RES. 070601 Now, I speak about predatory lending. The Econsult report talks about subprime lending. And what we find is that in the neighborhoods that are most disserved by the banking community; namely, the minority neighborhoods, African-American neighborhoods and Latino neighborhoods, if you look at the reports provided by the Reinvestment Fund and you look at the information that's provided in the Econsult report, you get a pretty strong picture that most, if not all, of the lending, subprime lending, that's going on in African-American and Latino communities, specifically low-income communities, are predatory, which means that they in addition to containing onerous and expensive terms, they're also the result often of, if not fraudulent, then at least deceptive practices in selling the loan. One of the consequences of this is that the loans themselves are the result of the foreclosures that we're seeing in those 106 9/27/07 - COMMERCE - RES. 070601 areas. Historically, the reason for foreclosures has been some event involving the person taking out the loan. There's been an event such as medical illness, loss of a job, divorce, some other catastrophe that's resulted in a loss of income. And the predatory loans that we're seeing, it's the loan itself that is the cause of the default, because the loan when it was made was inappropriate. The way that this relates to the discussion that you've had with the City and with the Econsult report is that we believe that, one, there's a significant problem of predatory lending in the City and, two, that there are things that this Committee could do and City Council can do in addition to things that the Treasurer could be doing to encourage the banks that the City does business with or the depository institutions to adjust their practices in 107 9/27/07 - COMMERCE - RES.
070601 a way that will ameliorate the problem of predatory lending. And the two things that I want to focus on are, one, creating as a criteria for either approving an institution as a depository institution or once a depository institution is approved using as a criteria for actually depositing money in that institution two measures. One is bank branching, which has been talked about. We recommend and urge the Committee to consider very strongly focusing on bank branching and the banks siting branches in low- and moderate-income neighborhoods and particularly in minority neighborhoods and the trend of branching as a criteria in determining who should be a depository institution, both with respect to the initial authorization and with respect to the use of the branch. In addition, banks, particularly the depository institutions and particularly the City's largest 108 9/27/07 - COMMERCE - RES. 070601 banks, should be graded on the extent to which they participate in private -- publicly related investments, or PRIs, that support rescue funds financed by the Pennsylvania Housing Finance Agency, or PHFA, which are designed to help buy people out of predatory loans at reduced or compromised amounts. In reviewing the Econsult report, especially when considering the context of the reports by the Reinvestment Fund and the Center for Responsible Lending, it becomes clear that in Philadelphia basically we have a tale of two cities. One city is African-American and Hispanic; the other is white and Asian based on the data in the report. One city is low and moderate income; the other is upper and middle income or middle and upper income. In the white neighborhoods, there are a relatively large number of banks. The number of branch banks in white neighborhoods is three times as 109 9/27/07 - COMMERCE - RES. 070601 many as that are found in the African-American and Latino neighborhoods. According to the Econsult numbers, people seeking mortgage loans, whether for purchases, to refinance or home equity loans, are generally not turned down for loans. For the most part, when they get the loans, the loans are the best terms that the lender has to offer; in other words, they're prime loans. In contrast, in African-American and Latino communities there are far fewer branches, less than one-third relative to population than in the white community, and the residents of those neighborhoods are far more likely to be turned down for mortgage loans of all types. And when they get loans -- and this is the part that most affects our practice -- the loans are, as often as not, subprime. According to the Econsult report, more than one half of the mortgage loans of all types, there's some 110 9/27/07 - COMMERCE - RES. 070601 disparity. There's a little more in some types and a little more in others, but more than a half of all types of loans to African-American or Hispanics are subprime. This is twice the percentage of the loans obtained by whites in the City. We at PLA and at Community Legal Services have long argued that one of the major factors contributing to the prevalence of predatory loans in low- and moderate-income neighborhoods, particularly in African-American and Latino neighborhoods, has been the abandonment of those neighborhoods by mainstream banks and the failure of those banks to create and promote mortgage loan products that address the needs of those communities. Traditional banks have been replaced in those neighborhoods by predatory financial services and predatory financial providers. Instead of savings and checking accounts, people in these neighborhoods are forced to use 111 9/27/07 - COMMERCE - RES. 070601 check-cashing agencies and use money orders, which are extremely expensive and have significant disadvantages when compared to traditional bank accounts.
And instead of modest home improvement loans for modest home repairs, African-Americans and Hispanics largely are ending up with onerous and unaffordable loans with onerous terms that are often originated under misleading circumstances. When you look at the Econsult report in conjunction with the other studies that have been done of predatory lending, you see that most of the subprime loans in these neighborhoods are predatory and that a large percentage of the loans, at least 18 percent conservatively and perhaps as high as 50 percent in some neighborhoods, are going to result in foreclosures. The Econsult report notes that the depository institutions are, as a whole, a declining part of the lending 112 9/27/07 - COMMERCE - RES. 070601 picture and not surprisingly shows a correlation between the paucity of branches in minority neighborhoods and the prevalence of subprime loans. There's a similar relationship between middle- and upper-income neighborhoods and low- and moderate-income neighborhoods, though it's not as dramatic. The Econsult report suggests an inverse relationship between the number of bank branches in a neighborhood and the prevalence of subprime loans. The more bank branches there are, the fewer subprime loans there are. Whether or not this is cause and effect, I guess we don't know, as the Econsult report indicated, because there's missing information, but it certainly suggests a relationship which we would encourage the City Council to try to address. And it's been our experience that as the number of bank branches has dropped in neighborhoods, 113 9/27/07 - COMMERCE - RES. 070601 the amount of predatory lending has gone up almost in direct proportion. As the City's NTI program has recognized, massive numbers of foreclosures concentrated in already precarious neighborhoods have devastating de-stabilizing effects on the neighborhoods and on the City in general. One immediate measure that can stave off foreclosures is to make decent loans available with affordable fixed terms that will enable homeowners to buy themselves out of predatory loans at reduced amounts. We played a role -- and by "we," I mean CLS and Philadelphia Legal Assistance -- in the design of such a rescue loan program administered by the Pennsylvania Housing Finance Agency. One of the programs, called the Homeowner's Equity Recovery Opportunity, or HERO program, targets funds to the City of Philadelphia and is being jump started by a million dollar loss reserve provided by the City of Philadelphia's NTI program. 114 9/27/07 - COMMERCE - RES. 070601 In addition, there's a million dollars being provided by the Pennsylvania Housing Finance Agency as a loss reserve for loans available statewide. PHFA expects through the issuance of bonds backed by the loss reserves to leverage these amounts into $10 to $20 million of rescue loans, but much more is needed and we have been told by PHFA that there's already a waiting list for the funds. PLA and CLS have been involved with a citywide coalition of groups to get all the major banks, including the depository banks and especially Wachovia Bank, which is the City's biggest bank in terms of deposits, to contribute to the loss reserve which could leverage substantial additional funds to be made available for rescue loans. We have been told that at least one depository bank other than Wachovia is close to an agreement with PHFA which would involve a long-term PRI for this purpose and could serve as a model for other banks. 115 9/27/07 - COMMERCE - RES. 070601 The Federal Reserve and the Office of the Controller of Currency have been assisting us in attempting to get the cooperation of banks by hosting a number of meetings with the banks on this subject, and they've offered to host another one later in the fall.
We suggest that by including participation in the funding of these rescue loans as one of the criteria for choosing depository banks and as authorizing who can be a depository bank, the City could play a significant role in encouraging needed participation by the banks and, by doing so, the City could prevent the loss of hundreds of homes in the City. We have long participated in efforts, community efforts, including Community Reinvestment Act challenges, to encourage banks to keep branches in low- and moderate-income neighborhoods, particularly African-American neighborhoods. Our efforts over the years have met with little success, 116 9/27/07 - COMMERCE - RES. 070601 though we would like to note and applaud the initiative of City Council and of the Chairman in particular in passing an innovative and progressive ordinance 6 requiring advance notice to the City of anticipated branch closings. As a result of the ordinance, we know that as we speak Wachovia is planning to close another neighborhood branch, I believe, in the Lawndale section on Rising Sun Avenue. This, unfortunately, is consistent with the trend that the Econsult study has shown with the limited information it has. Simply in the one year between 2004 and 2005 the City experienced a decline of ten branches, neighborhood branches, despite the entry into the City of new competitors. Amongst the depository banks, Wachovia Bank alone has had a net loss of ten branches. We strongly agree with the conclusion of Econsult, which is found at 117 9/27/07 - COMMERCE - RES. 070601 of the report in its recommendations and its suggestions regarding obtaining additional data, of the importance of dispersing branches into the neighborhood. We view it as one of the most important steps that could be taken to counteract the spread of predatory lending. To encourage such disbursement, we believe it's necessary to obtain additional data in the annual reports that are being obtained that show not simply the number of banks that a branch has year to year but longer term trends that show branch openings and branch closings so that the City will be able to determine whether a bank is closing neighborhood branches in African-American neighborhoods and Hispanic neighborhoods in favor of branches in more wealthy white neighborhoods. We believe that banks that show a pattern of expansion of branches in minority neighborhoods and in low-income 118 9/27/07 - COMMERCE - RES. 070601 neighborhoods should be rewarded in their evaluations and should be given additional consideration for being authorized as a depository bank and for having money deposited in the bank. Institutions that show a reverse trend should be penalized, and the penalty I guess we view that's available presently is simply, as the Chairman has pointed out, where the City puts its money and whether the bank is authorized to receive money. The Econsult report also recommended the adaptation of bank development districts modeled after what's been authorized by New York state as a means of encouraging the creation of branches in underserved areas, and this is primarily a reward model which offers, in addition to tax breaks, certain deposits, the ability to take deposits and offers lower income returns to the City and a number of other advantages, which we would encourage exploring after 119 9/27/07 - COMMERCE - RES. 070601 the more modest proposals which we're now suggesting are put into effect. In closing, I'd like to thank the Committee for inviting my comments and for creating a process of measurement that can, if effectively used by the City, both by City Council and by the Administration, this Administration or the next Administration, as the Chairman I believe is attempting to do or to encourage, such measurement tools and acting on such measurement tools can result in the economic well-being of the citizens of Philadelphia and of the City as a whole.
I and my colleagues at PLA and CLS look forward to providing such assistance as Council may request in its efforts to keep more people in their homes and to expand the economic opportunities of all the City residents. Thank you.
Thank you for your testimony. 120 9/27/07 - COMMERCE - RES. 070601 Any questions from members of the Committee? (No response.)
Thank you again. My next panel is ACORN. Good afternoon. Please state your name for the record and then proceed with your testimony.
My name is Mary Ellis. I purchased my home in 1972, and in 1996 I refinanced for repairs: leaky roof, stove, oven, washing machine, new heater, stuff like that. I went to Fidelity Bank to get a loan and I missed getting a prime loan by a few points and I was subject to a subprime loan at 11.75 percent. I did not realize at the time that I had other options and I was of the mindset that if one bank turned me down, all banks would turn me down. Liberty Mortgage said they would take care of me, they would make me a nice loan. I further realized that 121 9/27/07 - COMMERCE - RES. 070601 what I had was a variable interest rate. I thought the rate was a fixed rate. I did not realize that what I really had was a predatory loan. I thought that Liberty Mortgage was going to help me through the loan process. However, what Liberty Mortgage became was a legal loan shark, as their rate went up to 18.5 percent. The entire loan process was done over the phone, except for the signing of the loan agreement, and Liberty Mortgage even rushed me through this part of the process. As a result, my mortgage kept going up and up. I certainly did not feel as though they had my best interest in mind. Was I treated this way because I am a minority and a person of low income and because the area in which I live in is a minority neighborhood? I should have been treated as the majority of people who obtain prime loans from a bank and who are not subjected to predatory lenders. 122 9/27/07 - COMMERCE - RES. 070601 No matter who you are, one can never know everything about every subject or every area. My expertise is not in loans and so I trusted the mortgage company. In retrospect, I should have gotten a second opinion. However, I felt as though I was treated like someone who borrows from a loan shark. If you can't pay, they're coming to chop your head off. In 2001, I lost my job and I had to use my entire pension and savings, and still I was not able to keep up with my mortgage. Are the banks giving loans to people who live in the suburbs or who are professionals and excluding people like others or me in my situation? I believe banks should service all the people of the City. People of low income and minorities should be considered for prime loans with fixed interest rates. Banks should not be allowed to target certain groups who only 123 9/27/07 - COMMERCE - RES. 070601 fit into the profile of what they have created. And why should our tax dollars be controlled by banks who are not servicing all the people? Mortgage companies should convert all variable interest rate loans to affordable fixed rate loans. There should be major funding for outreach to borrowers who are in situations like myself and to others who are facing the same problems. Fortunately, I spoke with an ACORN organizer at a friend's house, and after speaking to housing counseling, they stopped the action of the sale of my home on foreclosure -- I mean, they stopped the action of the sale of my property to sheriff's sale and they looked into getting me a modification on my loan with an interest rate of 7.5 percent.
My name is Ian Phillips. I'm the Legislative Director for Pennsylvania ACORN. Thanks for 124 9/27/07 - COMMERCE - RES. 070601 giving ACORN the opportunity to testify to the effects of predatory lending and the lending practices that today see Philadelphia as having the seventh highest disparity in high cost loans when comparing white and minority borrowers in communities. Earlier this month ACORN released a study based on a lot of the same data that we talked about today, and we did compare other cities, so we have the data that shows that Philadelphia has the seventh highest disparity. 4 times more likely to receive a high cost loan with exotic terms and excessive fees when refinancing. 5 times as likely when considering loans that are made to purchase a home. The disparity exists across income lines and affects Latino borrowers as well. Philadelphia's communities are under attack from predatory lenders. 125 9/27/07 - COMMERCE - RES. 070601 Part of this problem can be attributed to the lack of access to reputable banks that offer conventional fixed rate loans with reasonable interest rates. These banks, as the studies show, are serving low- to moderate-income tracts far less than they are Philadelphia's upper- and middle-income neighborhoods. When the banks and their prime loan products leave, predatory subprime lenders and brokers are ready to swoop in. When a borrower is presented with no 14 other options, predatory lenders flourish. Predatory lenders spread these seeds while the bankers cover their eyes, and what they have reaped is a bumper crop of foreclosures and blighted neighborhoods. Predatory lenders made little effort to make loans that would work for their borrowers. Eighty percent of the loans made by subprime borrowers included a lower interest rate and payment initially and then reset their 126 9/27/07 - COMMERCE - RES. 070601 rate to hundreds of dollars more a month after two years or three years down the line. In Mrs. Ellis' case, it was only six months. In Mrs. 5 percent. Mrs. Ellis' loan originator made the risky loan and then immediately sold it off in the secondary market, whose thirst for these loans were unquenchable. Banks and -- we talk about investments. They make investments in securities across the board and they buy up these loans in packages even though they may not originate them themselves. So they are complicit of a whole variety of ways in this process. Each day more of these toxic loans are resetting. Nearly each week another subprime lender goes bankrupt because of the risky loans that they made, and every month the sheriff auctions off another thousand homes once 127 9/27/07 - COMMERCE - RES. 070601 occupied by Philadelphia's families. Today we need the banks to help solve the crisis they helped create when they turned their backs on North and Southwest Philadelphia. We need them to invest equitably as they are legally and morally obligated to do in all of Philadelphia's neighborhoods. Today, ACORN asks that the City depository banks put money into PHFA programs, specifically HERO, which we heard about earlier, and REAL. These programs would help put people back into conventional loans with payments that are affordable long term and bring with them stability with the force to push back some of the blight that we've seen. We need subprime lenders and the banks that are behind them to put all homeowners with adjustable rates back into fixed rate loans with affordable terms. We need them to stop the foreclosures that are tearing apart communities and crushing Philadelphia's 128 9/27/07 - COMMERCE - RES. 070601 families. We need elected officials to pass laws that would wipe out these modern-day loan sharks and the toxic loans they push. We need outreach programs that would bring borrowers into HUD-certified housing counseling agencies before their payments jump and before the home is on the auction block.
ACORN thanks the members of the Council and thanks you, Chairman Goode, for taking this issue up and looks forward to seeing the actions that you take.
Thank you. Thank you for your testimony, both of you. Lastly, just same two questions about Econsult's recommendations. One, do you agree that there should be a reward and punishment system based on fair lending/community reinvestment performance?
And, secondly, do you support the idea of developing banking development districts within the City and actually giving incentives to banks to locate in areas that are underserved?
Yes, we do. We'd be interested in looking at the criteria that's used to create those development districts.
Is there anyone else to testify on this resolution? (No response.)
Seeing none, the purpose of this hearing was really, as I said, to review the latest report and to use it as a transitional document for the next Administration. We may continue hearings under this term, but 130 9/27/07 - COMMERCE - RES. 070601 clearly, there's work to be done that is not done yet. But the hearing on this particular resolution is now recessed to the call of the Chair. Thank you for coming. (Committee on Commerce and Economic Development adjourned at 3:05 p.m.) - - - 131 CERTIFICATE I HEREBY CERTIFY that the proceedings, evidence and objections are contained fully and accurately in the stenographic notes taken by me upon the foregoing matter on September 27, 2007, and that this is a true and correct transcript of same. ______________________________ MICHELE L. MURPHY RPR-Notary Public (The foregoing certification of this transcript does not apply to any reproduction of the same by any means, unless under the direct control and/or supervision of the certifying reporter.)